Anatara Lifesciences Limited Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 2 ANATARA LIFESCIENCES Annual Report 20203 Appendix 4E Name of entity: ABN: Year ended: Previous period: Anatara Lifesciences Ltd 41 145 239 872 30 June 2020 30 June 2019 Results for announcement to the market Revenue from ordinary activities Loss from ordinary activities after tax attributable to members Net loss for the period attributable to members Distributions Up Down Down -% 17.3% 17.3% $ - (3,364,644) (3,364,644) to to to No dividends have been paid or declared by the company for the current financial year. No dividends were paid for the previous financial year. Explanation of results Please refer to the review of operations and activities on page 7 for explanation of the results. Additional information supporting the Appendix 4E disclosure requirements can be found in the review of operations and activities, directors’ report and the financial statements for the year ended 30 June 2020. Net tangible assets per security Net tangible asset backing (per security) Changes in controlled entities 2020 Cents 5.73 2019 Cents 11.96 There have been no changes in controlled entities during the year ended 30 June 2020. Other information required by Listing Rule 4.3A a) Details of individual and total dividends or distributions and dividend or distribution payments: b) Details of any dividend or distribution reinvestment plans: c) Details of associates and joint venture entities: d) Other information Audit N/A N/A N/A N/A The financial statements have been audited by the Group’s independent auditor without any modified opinion, disclaimer or emphasis of matter. 4 Contents Corporate directory Chair’s letter Review of operations and activities Directors’ report Directors and company secretary Principal activities Dividends – Anatara Lifesciences Ltd Review of operations Significant changes in the state of affairs Events since the end of the financial year Likely developments and expected results of operations Environmental regulation Information on directors Company secretary Meetings of directors Remuneration report (audited) Shares under option Insurance of officers and indemnities Proceedings on behalf of the company Non-audit services Taxation services Auditor’s independence declaration Rounding of amounts Corporate governance statement Financial statements Independent auditor’s report to the members Shareholder Information 5 6 7 8 8 8 8 8 8 9 9 9 10 12 13 13 23 23 24 24 25 25 25 27 28 63 66 ANATARA LIFESCIENCES Annual Report 2020Corporate directory 5 Directors Ms Sue MacLeman Non-Executive Chair Dr Tracie Ramsdale Non-Executive Director Dr Jane Ryan Non-Executive Director Dr David Brookes Non-Executive Director Secretary Mr Stephen Denaro Registered office and principal place of business Level 3, 62 Lygon Street Carlton South VIC 3053 Australia Telephone: (03) 9824 5454 Share register Computershare Investor Services Pty Limited Level 1, 200 Mary Street Brisbane QLD 4000 Telephone: (07) 3237 2100 Auditor Grant Thornton Audit Pty Ltd Collins Square Tower 5, 727 Collins Street Melbourne VIC 3008 Telephone: (03) 8320 2222 Solicitors Thomson Geer Level 16, Waterfront Place 1 Eagle Street Brisbane QLD 4000 Bankers Commonwealth Bank of Australia Melbourne VIC 3000 Stock exchange listings Anatara Lifesciences Ltd shares are listed on the Australian Securities Exchange (ASX code: ANR) Website www.anataralifesciences.com 6 Chair’s letter Dear Shareholders, On behalf of the Anatara Board, I am pleased to present our 2020 Annual Report. Focusing on Human Gut Health Anatara is developing an OTC medicine to address factors associated with gastrointestinal (GI) disorders such as irritable bowel syndrome (IBS) and inflammatory bowel disease (IBD): microbiome dysbiosis, inflammation and mucosal damage. With preclinical development successfully completed, a clinical trial is anticipated in late 2020. IBS is the most commonly diagnosed GI condition affecting 11% of people globally. Patients experience high failure rates of current prescription therapies. Patients have a poor quality of life and 50% of IBS patients seek additional symptomatic relief through the use of adjunct therapies and complementary medicines. Anatara’s OTC medicine is positioned as an adjunct to existing therapies to empower patients to better manage their symptoms. Finding and selecting the best marketing partner is critical to the success of a product such as GaRP and consequently this has and will continue to be a major focus for Anatara. Animal health Detach® is approved by the Australian Pesticides and Veterinary Medicines Authority (APVMA) for use in piglets in Australia. There is a need for a safe, effective, non-antibiotic solution to control scour in piglets and other livestock species, such as poultry. Feedback from potential licensees suggests additional dosage forms for piglets are required as well as proof of concept data in encouraging indications for other livestock species such as poultry. Anatara has progressed development of additional dosage forms and is progressing proof of concept studies to expand utility of Anatara’s animal health assets. Outlook The Board is pleased that notwithstanding Covid-19, the Anatara team have been able to advance GaRP to being clinical trial ready and to develop new bromelain-based formulations for challenge trials in piglets and in poultry. The Board is committed to continue to execute its human health development plans, and in parallel, the Company is addressing the barriers to out- licensing Detach® through progression of challenge trials for newly developed formulations for piglets (in-feed) and for poultry. Anatara anticipates renewed interest in partnering Detach® upon successful completion of challenge trials. Anatara anticipates commencement of an IBS clinical trial in the 4th quarter of calendar 2020, with a view to partnering by the end of calendar 2020. We look forward to announcing these important Company milestones over the coming year. Finally, on behalf of my fellow directors, I thank Anatara’s shareholders for their patience and support throughout the year. Thanks also goes to the Anatara Board and our small but dedicated team for their continued hard work and ongoing commitment to the Company. We look forward to seeing those shareholders who can join us at the Anatara AGM. Yours sincerely, Ms Sue MacLeman Chair ANATARA LIFESCIENCES Annual Report 20207 Review of operations and activities During the year to 30 June 2020, the Company made significant steps towards taking its first human gastrointestinal health product, GaRP (Gastrointestinal ReProgramming dietary supplement), to market. Expenditure in furthering this effort resulted in a loss after tax of $3,364,644 for the period (2019: $2,868,272). Human Health In January 2020, the Company summarised completion of preclinical studies for Anatara’s Gastrointestinal ReProgramming (GaRP) OTC medicine. GaRP is a single product with multiple benefits, aimed at effectively managing many of the major symptoms experienced by irritable bowel syndrome (IBS) and inflammatory bowel disease (IBD) patients. Anatara anticipates commencement of an IBS clinical trial in the 4th quarter of calendar 2020. Animal Health Detach® is approved by the Australian Pesticides and Veterinary Medicines Authority (APVMA) for use in piglets in Australia. There is a need for a safe, effective, non-antibiotic solution to control scour in piglets and other livestock species, such as poultry. Opportunities exist for the product globally but with varying requirements for regulatory approval, including additional formulations and in-country field trials. Feedback from potential licensees suggests additional dosage forms for piglets are required as well as proof of concept data in encouraging indications for other livestock species such as poultry. New bromelain-based formulations have been developed: an in-feed formulation for piglets and a formulation for poultry. Anatara will progress challenge trials with these formulations. The poultry challenge trial will be in collaboration with Poultry Hub Australia (University of New England). Poultry challenge trial results are anticipated by January 2021. Partnering Anatara is engaged in licensing discussions for GaRP for human health with international consumer health companies and for companion animals with international animal health companies. Anatara anticipates commencement of an IBS clinical trial in the 4th quarter of calendar 2020, with a view to partnering by the end of calendar 2020. Anatara anticipates renewed interest in partnering Detach® upon successful completion of challenge trials. We look forward to announcing these important Company milestones over the coming year. Investor outreach Anatara continued an active market awareness program during the first half of the year, delivering presentations directly to shareholders and investors in Melbourne (August 2019, October 2019) and Sydney (November 2019). Investor relations activity was reduced in the second half of the year as part of cost containment activities. Anatara presented at the ASX Small and Mid-cap Conference in September 2020. Commercial focus Looking ahead, Anatara will continue to execute its human health development plans, and in parallel, the Company has prioritised out-licensing both its animal health and human health assets. 8 Directors’ report Your directors present their report on the consolidated entity consisting of Anatara Lifesciences Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2020. Throughout the report, the consolidated entity is referred to as the Group. Directors and company secretary The following persons held office as directors of Anatara Lifesciences Ltd during the whole of the financial year and up to the date of this report, except where otherwise stated: Ms Sue MacLeman, Non-Executive Chair Dr Tracie Ramsdale, Non-Executive Director Dr Jane Ryan, Non-Executive Director Dr David Brookes, Non-Executive Director The following persons held office as company secretary of Anatara Lifesciences Ltd during the whole of the financial year and up to the date of this report, except where otherwise stated: Mr Stephen Denaro Principal activities The Group is developing non-antibiotic oral solutions for gastrointestinal diseases in animals and humans and continues to develop and commercialise Detach®, a non-antibiotic therapy that prevents and treats diarrhea (also known as scour) in piglets. Dividends – Anatara Lifesciences Ltd No dividends were declared or paid to members for the year ended 30 June 2020. The directors do not recommend that a dividend be paid in respect of the financial year. Review of operations Information on the operations and financial position of the Group and its business strategies and prospects is set out in the review of operations and activities on page 7 of this annual report. Significant changes in the state of affairs Significant changes in the state of affairs of the Group during the financial year were as follows. On 14 October 2019, the company reported statistically significant animal studies. Successful completion of the preclinical program has provided strong scientific proof that the GaRP dietary supplement has the potential to be game changing. When compared to a placebo control, GaRP reduced the combined disease characteristics of colon inflammation and disrupted bowel habits by 2.5-fold (p=0.012). GaRP promoted mucosal healing by increasing mucin genes by a factor of 5 to 7-fold (MUC2 and MUC6, p<0.001). ANATARA LIFESCIENCES Annual Report 20209 On 19 December 2019, the company reported achievement of an important preclinical milestone, namely a potential adjuvant effect in reducing inflammation with the co-administration of GaRP with disease-modifying medications. This offers the potential to reduce the dose of disease-modifying medications known to have devastating side-effects. It was also shown that GaRP does not affect the uptake or potential activity of probiotics. On 20 December 2019, the company reported finalisation of a draft protocol for an IBS clinical trial. However, on 7 April 2020, the company advised that due to Covid-19, plans to initiate an IBS clinical trial had been delayed to the second half of 2020. The company received financial support from Federal Government incentives through Cashflow Boost and through payroll tax refunds and deferrals by state governments. Anatara recorded other income of $101,765 for these items. Anatara did not participate in JobKeeper and has not terminated any employees during this period. Anatara employees have been able to continue laboratory-based activities and as a result have advanced GaRP to being clinical trial ready. In addition, new bromelain-based formulations were developed for challenge trials in piglets (in-feed) and in poultry. On 23 June 2020, the company provided an update on partnering GaRP and Detach® stating that Anatara did not anticipate reaching a partnering agreement by the end of FY 2020 for an animal health product. Anatara remains in discussions with third parties to progress development of the company’s animal health assets to address barriers to partnering. Anatara did not anticipate reaching a partnering agreement by the end of FY 2020 for an animal health product. Anatara continues to progress the human health portfolio and now plans the commencement of a clinical trial of GaRP in irritable bowel syndrome (IBS) in the 4th quarter of calendar 2020. Anatara is evaluating partnering opportunities for GaRP with multinational consumer health companies. Events since the end of the financial year No matter or circumstance has arisen since 30 June 2020 that has 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 Other than the information disclosed in the review of operations and activities on page 7, there are no likely developments or details on the expected results of operations that the Group has not disclosed. Environmental regulation The Group is not affected by any significant environmental regulation in respect of its operations. 10 Information on directors The following information is current as at the date of this report. Ms Sue MacLeman Non-Executive Chair Experience and expertise Sue has more than 30 years’ experience as a pharmaceutical, biotechnology and medical technology executive with senior roles in corporate, medical, commercial and business development. Sue has served as CEO and Board member of several ASX and NASDAQ listed companies in the sector. She is currently Chair – Anatara Lifesciences (ASX:ANR), Chair – MTPConnect (Medical Technology and Pharmaceuticals Industry Innovation Growth Centre), Chair of Tali Digital Ltd (ASX:TD1), Non-Executive Director of Palla Pharma Ltd (ASX:PAL), Non- Executive Director - Oventus Medical Ltd (ASX:OVN), and Non-Executive Director of veski. Sue is also appointed to a number of academic and government advisory committees including the Prime Ministers Digital Expert Advisory Board, Australian Advisory Board of Technology and Healthcare Competitiveness, CSIRO Health and Biosecurity Advisory Committee, the Genomics Health Futures Expert Advisory Committee (MRFF), various Covid-19 taskforces, the DMTC Strategic Advisory Medical Countermeasures Committee and the Asialink Business Taskforce. Sue is also Chair of ATSE Health Technology Forum and ATSE Policy Committee. Her broad commercial experience is underpinned by graduate qualifications in pharmacy and post graduate qualifications in corporate governance, commercial law, business administration and marketing. Other current public directorships Tali Digital Ltd (ASX: TD1), since 6 September 2018 Oventus Medical Ltd (ASX: OVN), since 27 November 2015 Palla Pharma Limited (ASX: PAL), since 27 November 2018 Former public directorships in last 3 years Special responsibilities RHS Limited (ASX: RHS), until June 2018 Chair of Board Member of the audit and risk management committee Member of the remuneration and nominations committee ANATARA LIFESCIENCES Annual Report 202011 Dr Tracie Ramsdale Non-Executive Director Experience and expertise Tracie has over 30 years experience in the development and commercialisation of life sciences technologies and has engaged with all aspects of the innovation and commercialisation pipeline. Following a successful career as a Principal Investigator and Commercial Manager of the Centre for Drug Design and Development at the University of Queensland, Tracie co-founded a drug discovery and development company (Alchemia Limited) and served as its CEO for almost 10 years. During this time, she was responsible for multiple financing transactions and licensing the company’s technology to major international pharmaceutical and manufacturing partners. Tracie has extensive experience as a CEO, board member and advisor of several ASX- listed and unlisted companies. Tracie has chaired the audit and risk, and research and development committees of ASX-listed companies. She has served on a number of industry and government advisory committees and provides independent consulting advice to the biotechnology industry, academia and government. Tracie is a Fellow of the Australian Academy of Technological Sciences and Engineering, and a member of the Australian Institute of Company Directors. Other current public directorships Former public directorships in last 3 years None None Special responsibilities Member of the audit and risk management committee Member of the remuneration and nominations committee Dr Jane Ryan Non-Executive Director Experience and expertise Other current public directorships Former public directorships in last 3 years Special responsibilities Jane has over 30 years of international experience in the pharmaceutical and biotechnology industries where she has held executive roles in management of research and development programs as well as business development and alliance management. Jane has worked in Australia, the United States and United Kingdom with companies including Peptech, Roche, Cambridge Antibody Technology and Biota Holdings. Throughout her career, she has led many successful fundraising campaigns and licensing initiatives including the awarding of a $230 million US Government contract. Jane currently chairs the Advisory Board at the ithree Institute at the University of Technology Sydney (UTS) which studies how microbes grow, live, adapt and survive. Jane was previously a Board Member of the Victorian endowment for Science Knowledge and Innovation (veski), Diabetes Victoria, TechInSA, and the Diabetes Vaccine Development Centre. None None Member of the audit and risk management committee Chair of the remuneration and nominations committee 12 Dr David Brookes Non-Executive Director Experience and expertise Dr. Brookes has extensive experience in the health and biotechnology industries, first be- coming involved in the biotechnology sector in the late 1990’s as an analyst. Dr. Brookes has since held Board positions in numerous ASX listed biotechnology companies, in- cluding Chairman of genomics solutions company, RHS Ltd, which was acquired by PerkinElmer Inc (NYSE:PKI $9B biotech company) in June 2018. He has also Chaired and been a member of a number of risk and audit committees in ASX listed companies. He is currently a Non-Executive Director of Factor Therapeutics (ASX: FTT) as well as Non-Executive Chairman of the Better Medical group (unlisted). Dr. Brookes maintains roles as a clinician and as a biotechnology industry consultant. Dr Brookes, MBBS (Adelaide), is a Fellow of the Australian College of Rural and Remote Medicine and a Fellow of the Australian Institute of Company Directors. Other current public directorships Factor Therapeutics Limited (ASX: FTT), since 10 April 2019 Tali Digital Ltd (ASX: TD1), since 29 June 2020 Former public directorships in last 3 years AtCor Medical Holdings Limited (ASX: ACG), until 3 April 2018 RHS Limited (ASX: RHS), until 15 June 2018 Special responsibilities Chair of the audit and risk management committee Member of the remuneration and nominations committee Company secretary The company secretary is Mr Stephen Denaro, appointed to the position on 24 February 2014. Stephen has extensive experience in mergers and acquisitions, business valuations, accountancy services, and income tax compliance gained from positions as Company Secretary and Chief Financial Officer of various public companies and with major chartered accountancy firms in Australia and the United Kingdom. He provides company secretarial services for a number of start-up technology and ASX listed and unlisted public companies. Stephen has a Bachelor of Business in accountancy, Graduate Diploma in Applied Corporate Governance and is a member of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. ANATARA LIFESCIENCES Annual Report 202013 Meetings of directors The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2020, and the numbers of meetings attended by each director were: Ms Sue MacLeman Dr Tracie Ramsdale Dr Jane Ryan Dr David Brookes Full meetings of directors Meetings of committees A 10 10 10 9 Audit Remuneration A 2 2 2 2 B 2 2 2 2 A 4 4 4 4 B 4 4 4 4 B 10 10 10 9 A= Number of meetings attended B= Number of meetings held during the time the director held office or was a member of the committee during the year Remuneration report (audited) The directors present the Anatara Lifesciences Ltd 2020 remuneration report, outlining key aspects of our remuneration policy and framework, and remuneration awarded this year. The report is structured as follows: A. Key management personnel (KMP) covered in this report B. Remuneration policy and link to performance C. Elements of remuneration D. Link between remuneration and performance E. Remuneration expenses F. Contractual arrangements with executive KMPs G. Non-executive director arrangements H. Additional statutory information A. Key management personnel covered in this report Ms Sue MacLeman, Non-Executive Chair Dr Tracie Ramsdale, Non-Executive Director Dr Jane Ryan, Non-Executive Director Dr David Brookes, Non-Executive Director Other key management personnel Mr Steven Lydeamore, Chief Executive Officer Dr Michael West, Chief Operating Officer Dr Tracey Brown, Chief Development Officer (resigned on 31 January 2020) 14 B. Remuneration policy and link to performance Our remuneration and nominations committee is made up of independent non-executive directors. The committee reviews and determines our remuneration policy and structure annually to ensure it remains aligned to business needs, and meets our remuneration principles. In particular, the board aims to ensure that remuneration practices are: • competitive and reasonable, enabling the company to attract and retain key talent • aligned to the company’s strategic and business objectives and the creation of shareholder value • transparent and easily understood, and • acceptable to shareholders. Element Purpose Performance metrics Potential value Fixed remuneration (FR) Provide competitive market remuneration Nil Positioned at the market rate STI LTI Reward for in-year performance and retention Alignment to long-term shareholder value KPI achievement, determined by remuneration and nominations committee CEO: 40% of FR COO: 30% of FR CDO: 30% of FR KPI achievement, determined by remuneration and nominations committee CEO: 600,000 unlisted 5-year options at $0.736 exercise price COO: 210,000 unlisted 5-year options at $1.70 exercise price CDO: 210,000 unlisted 5-year options at $1.70 exercise price Assessing performance The remuneration and nominations committee is responsible for assessing performance against KPIs and determining the STI and LTI to be paid. To assist in this assessment, the committee receives data from independently run surveys. Performance is monitored on an informal basis throughout the year and a formal evaluation is performed annually. Securities trading policy Anatara Lifesciences Ltd’s securities trading policy applies to all directors and executives, see https://anataralifesciences.com/investors/corporate-governance/. It only permits the purchase or sale of company securities during certain periods. ANATARA LIFESCIENCES Annual Report 202015 C. Elements of remuneration (i) Fixed annual remuneration (FR) Key management personnel may receive their fixed remuneration as cash, or cash with non-monetary benefits such as health insurance and car allowances. FR is reviewed annually, or on promotion. It is benchmarked against market data for comparable roles in companies in a similar industry and with similar market capitalisation. The committee aims to position executives at or near the median, with flexibility to take into account capability, experience, value to the organisation and performance of the individual. (ii) Short-term incentives All executives are entitled to participate in a short-term incentive scheme which provides for executive employees to receive a combination of short-term incentive (STI) as part of their total remuneration if they achieve certain performance indicators as set by the board. The STI can be paid either by cash, or a combination of cash and the issue of equity in the company, at the determination of the remuneration and nominations committee and board. The company’s CEO, COO and CDO are entitled to short-term incentives in the form of a bonus up to 40%, 30% and 30% of FR, respectively, against agreed various key performance indicators (KPIs), including target EBITDA, appreciation in share price value, retention of key talent, and achievement of major project milestones. On an annual basis, KPIs are reviewed and agreed in advance of each financial year and include financial and non- financial company and individual performance goals that relate to: • Operational management • Investor relations and shareholder value creation • R&D activities • Product development and commercialisation (iii) Long-term incentives Executives may also be provided with longer-term incentives through the company’s ‘executive option plan’ (EOP), that was approved by shareholders at the annual general meeting held on 13 November 2017. The aim of the EOP is to allow executives to participate in, and benefit from, the growth of the company as a result of their efforts and to assist in motivating and retaining those key employees over the long-term. Continued service is the condition attached to the vesting of the options. The board at its discretion determines the total number of options granted to each executive. 16 D. Link between remuneration and performance Statutory performance indicators We aim to align our executive remuneration to our strategic and business objectives and the creation of shareholder wealth. The table below shows measures of the Group’s financial performance over the last five years as required by the Corporations Act 2001. However, these are not necessarily consistent with the measures used in determining the variable amounts of remuneration to be awarded to KMPs. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. 2020 2019 2018 2017 2016 Loss for the year attributable to owners ($) 3,364,644 2,868,272 3,569,016 1,705,002 723,934 Basic loss per share (cents) Share price at year end ($) 6.77 0.13 5.80 0.25 7.22 0.64 3.45 1.00 1.40 1.26 The company’s earnings have remained negative since inception due to the nature of the business. Shareholder wealth reflects this speculative and volatile market sector. No dividends have ever been declared by Anatara Lifesciences Ltd. The company continues to focus on revenue growth with the objective of achieving key commercial milestones in order to add further shareholder value. ANATARA LIFESCIENCES Annual Report 2020E. Remuneration expenses The following tables show details of the remuneration expense recognised for the Group’s key management personnel for the current and previous financial year measured in accordance with the requirements of the accounting standards. 17 2020 Short-term benefits Post- employment benefits Cash bonus Super- annuation Cash salary and fees $ Non-executive directors Ms Sue MacLeman 135,585 Dr Tracie Ramsdale Dr Jane Ryan Dr David Brookes Other KMP 67,792 72,635 72,635 $ - - - - Mr Steven Lydeamore 379,807 33,927 Dr Michael West 250,000 18,750 Dr Tracey Brown 172,223 23,625 Long term benefits Long service leave Share-based payments Options Total Perfor- mance rights $ - - - - $ 517 258 277 277 $ - $ 148,983 21,896 96,386 - - 79,812 79,812 2,035 4,328 - 73,115 95,547 620,513 3,118 3,118 64,125 364,071 23,625 236,750 $ 12,881 6,440 6,900 6,900 36,082 23,750 14,159 1,150,677 76,302 107,112 6,363 80,680 205,193 1,626,327 Total KMP compensation Notes • Cash bonus includes estimation of the bonus for the current year and any adjustments to the bonus for prior years. • Due to COVID-19, Anatara Board resolved to reduce their directors’ fees from 1 May 2020 temporarily. On 22 June 2020, Anatara Board resolved to issue 761,912 options to KMP and non-executive directors (subject to approval by shareholders at November 2020 AGM). • Dr Tracey Brown resigned on 31 January 2020 and 210,000 unlisted options (total value $121,716) were cancelled during the year. Cash bonus Super- annuation Long term benefits Long service leave Share-based payments Options Total Termi- nation benefits 18 2019 Short-term benefits Post- employment benefits Cash salary and fees $ Non-executive directors Ms Sue MacLeman 115,769 $ - Dr Tracie Ramsdale 232,407 46,073 Dr Jane Ryan Dr David Brookes Dr Jay Hetzel Mr Iain Ross Mr Paul Grujic Other KMP 62,019 32,347 37,692 21,900 12,114 - - - - - $ 10,998 23,885 5,892 3,073 3,581 - 1,151 $ - - - - - - - $ - - - - - - - - - $ - - - - - - - $ 126,767 302,365 67,911 35,420 41,273 21,900 13,265 75,216 422,167 18,201 298,105 Mr Steven Lydeamore 257,190 67,853 21,649 259 Dr Michael West Dr Tracey Mynott 250,000 38,463 - - 27,312 2,592 12,284 - 125,000 - 175,747 Dr Tracey Brown 250,000 28,500 29,094 2,504 - 18,201 328,299 1,309,901 142,426 138,919 5,355 125,000 111,618 1,833,219 Total KMP compensation Notes • Cash bonus includes estimation of the bonus for the current year and any adjustments to the bonus for prior years. • Dr Tracie Ramsdale resigned as Interim CEO changing her role from Executive Director to Non-Executive Director effective from 7 January 2019. • Mr Steven Lydeamore was appointed to CEO on 2 December 2018. • Ms Sue MacLeman was appointed Non-Executive Chair on 1 September 2018. • Dr Jay Hetzel resigned on 12 November 2018. • Mr Paul Grujic resigned on 31 August 2018. • Mr Iain Ross resigned on 30 September 2018. ANATARA LIFESCIENCES Annual Report 202019 F. Contractual arrangements with executive KMPs Name: Position: Contract duration: Notice period: Fixed remuneration: Name: Position: Contract duration: Notice period: Fixed remuneration: Name: Position: Contract duration: Notice period: Fixed remuneration: Mr Steven Lydeamore Chief Executive Officer Unspecified 6 months by either party $395,000 per annum, plus 9.5% superannuation Dr Michael West Chief Operating Officer Unspecified 3 months by either party $250,000 per annum, plus 9.5% superannuation Dr Tracey Brown Chief Development Officer Unspecified 3 months by either party $250,000 per annum, plus 9.5% superannuation G. Non-executive director arrangements Non-executive directors receive a board fee and fees for chairing but not participating on board committees, see table below. They do not receive performance-based pay. The fees are exclusive of superannuation. The chair receives double the base fee of other non-executive directors, reflective of the additional demands and responsibilities of this role. Fees are reviewed annually by the board taking into account comparable roles and market data provided by the board’s independent remuneration adviser. The maximum annual aggregate directors’ fee pool limit is $500,000, adopted on initial public offering of Anatara Lifesciences Ltd on 14 October 2014. Base fees Chair Other non-executive directors Additional fees Audit and risk management committee-chair Audit and risk management committee-member Remuneration and nominations committee-chair Remuneration and nominations committee-member $140,000 $70,000 $5,000 - $5,000 - 20 H. Additional statutory information (i) Relative proportions of fixed vs variable remuneration expense The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed, based on the amounts disclosed as statutory remuneration expense on page 17 above: Name Fixed remuneration At risk – STI At risk – LTI Non-executive director Ms Sue MacLeman Dr Tracie Ramsdale Dr Jane Ryan Dr David Brookes Other KMP Mr Steven Lydeamore Dr Michael West Dr Tracey Brown 2020 2019 2020 2019 2020 2019 % % % % % % 100 77 100 100 67 76 79 100 86 100 100 67 94 86 - - - - 5 5 10 - 14 - - 16 - 8 - 23 - - 27 18 11 - - - - 17 6 5 (ii) Terms and conditions of the share-based payment arrangements Options The terms and conditions of each grant of options affecting remuneration in the current or a future reporting period are as follows: Grant date Vesting and exercise date Expiry date Exercise price ($) Value per option at grant date ($) Vested (%) 2016-09-23 2019-09-23 2021-09-23 2019-04-10 2019-04-10 2019-04-10 2019-02-18 2024-02-17 2020-02-18 2024-02-17 2021-02-18 2024-02-17 2020-06-22 2020-09-01 2022-08-31 2020-06-20 2020-11-26 2022-11-25 For detailed disclosures please refer to note 18 on page 48. 1.700 0.736 0.736 0.736 0.231 0.231 0.5796 0.2731 0.2731 0.2731 0.0737 0.0737 100% 100% 100% 0.0% 0.0% 0.0% ANATARA LIFESCIENCES Annual Report 2020(iii) Reconciliation of options and ordinary shares held by KMP 21 Option holdings 2020 Options Ms Sue MacLeman Dr Tracie Ramsdale Dr Jane Ryan Dr David Brookes Mr Steven Lydeamore 600,000 Dr Michael West Dr Tracey Brown Notes 210,000 210,000 1,020,000 Balance at start of the period1 Granted as remuneration Exercised Other changes2 Vested and exercisable Balance at end of the period3 - - - - - - - - - - - - - - - - - - - - 137,515 137,515 68,765 68,765 73,677 73,677 73,677 73,677 - - - - 383,527 983,527 400,000 - 210,000 210,000 (210,000) - - 527,161 1,547,161 610,000 1. Balance may include shares held prior to individuals becoming a KMP. For individuals who became a KMP during the period, the balance is as at the date they became a KMP. 2. Other changes incorporates changes resulting from the expiration/forfeiture of options. 3. For a former KMP, the balance is as at the date they cease being a KMP. 22 Share holdings 2020 Ordinary shares Ms Sue MacLeman Dr Tracie Ramsdale Dr Jane Ryan Dr David Brookes Mr Steven Lydeamore Dr Michael West Dr Tracey Brown Notes Balance at the start of the period1 Granted as performance Received on exercise of rights Received on exercise of options Other changes2 Balance at the end of the period3 12,477 45,614 - 50,000 50,000 - - 158,091 - - - - - - - - - 106,810 - - 149,457 82,599 104,075 442,941 - - - - - - - - - - 49,745 50,000 - - - 12,477 152,424 49,745 100,000 199,457 82,599 104,075 99,745 700,777 1. Balance may include shares held prior to individuals becoming a KMP. For individuals who became KMP during the period, the balance is as at the date they became a KMP. 2. Other changes incorporates changes resulting from the acquisition of shares. 3. For a former KMP, the balance is as at the date they cease being a KMP. In the current year, Steven Lydeamore, Michael West and Tracey Brown exercised Performance Rights which were issued in accordance with the options approved under the Anatara Executive Option Plan. Tracie Ramsdale exercised Performance Rights as approved at the Annual General Meeting on 11 November 2019. (iv) Other transactions with key management personnel Aggregate amounts of other transactions with key management personnel of Anatara Lifesciences Ltd: Amounts recognised as expense 2020 $ - 2019 $ - (v) Voting of shareholders at last year’s annual general meeting Anatara Lifesciences Ltd received more than 75 percent of favourable votes on its remuneration report for the 2019 financial year. The company did not receive any specific feedback at the 2019 annual general meeting or throughout the year on its remuneration practices. [This concludes the remuneration report, which has been audited] ANATARA LIFESCIENCES Annual Report 202023 Shares under option A. Unissued ordinary shares Unissued ordinary shares of Anatara Lifesciences Ltd under option at the date of this report are as follows: Date options granted 2015-12-14 2016-09-23 2017-11-28 2018-09-10 2019-04-10 2020-06-22 2020-06-22 Total Expiry date 2020-12-14 2021-09-23 2022-11-17 2020-12-14 2024-02-17 2022-08-31 2022-11-25 Issue price of shares ($) Number under option 1.450 1.700 2.270 1.450 0.736 0.231 0.231 562,500 210,000 36,000 750,000 600,000 383,527 378,385 2,920,412 No option holder has any right under the options to participate in any other share issue of the company or any other entity. B. Shares issued on the exercise of options No ordinary shares of Anatara Lifesciences Ltd were issued during the year ended 30 June 2020 on the exercise of options granted. Insurance of officers and indemnities A. Insurance of officers The Company has agreed to indemnify all the directors of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. During the financial year the Company paid a premium in respect of a contract insuring the directors and officers of the Company and its controlled entities against any liability incurred in the course of their duties to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. 24 B. Indemnity of auditors Anatara Lifesciences Ltd has agreed to indemnify their auditors, Grant Thornton Audit Pty Ltd, to the extent permitted by law, against any claim by a third party arising from Anatara Lifesciences Ltd’s breach of their agreement. The indemnity stipulates that Anatara Lifesciences Ltd will meet the full amount of any such liabilities including a reasonable amount of legal costs. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. 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. 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. Details of the amounts paid or payable to the auditor (Grant Thornton Audit Pty Ltd) for audit and non-audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with advice received from the audit committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. ANATARA LIFESCIENCES Annual Report 202025 During the year the following fees were paid or payable for non-audit services provided by the auditor of the parent entity, its related practices and non-related audit firms: Taxation services Grant Thornton Audit Pty Ltd and its related entities and other Grant Thornton network firms: Taxation services Grant Thornton Audit Pty Ltd and its related entities and other Grant Thornton network firms: Tax compliance services Total remuneration for taxation services Total remuneration for non-audit services 2020 $ 2019 $ 34,350 24,000 34,350 24,000 34,350 24,000 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 26. Rounding of amounts The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the directors’ report. Amounts in the directors’ report have been rounded off in accordance with the instrument to the nearest dollar. This report is made in accordance with a resolution of directors. Ms Sue MacLeman Non-Executive Chair Melbourne 24 August 2020 26 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Anatara Lifesciences Ltd In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Anatara Lifesciences Ltd for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants T S Jackman Partner – Audit & Assurance Melbourne, 24 August 2020 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. ANATARA LIFESCIENCES Annual Report 2020 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au 27 Corporate governance statement Anatara Lifesciences Ltd and the board are committed to achieving and demonstrating the highest standards of corporate governance. Anatara Lifesciences Ltd has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (4th edition) published by the ASX Corporate Governance Council. The 2020 corporate governance statement is dated as at 30 June 2020 and reflects the corporate governance practices in place throughout the 2020 financial year. The 2020 corporate governance statement was approved by the board on 24 August 2020. A description of the Group’s current corporate governance practices is set out in the Group’s corporate governance statement which can be viewed at https://anataralifesciences.com/investors/corporate-governance/. Auditor’s Independence Declaration To the Directors of Anatara Lifesciences Ltd In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Anatara Lifesciences Ltd for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants T S Jackman Partner – Audit & Assurance Melbourne, 24 August 2020 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 28 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 (direct method) Notes to the financial statements Directors’ declaration 29 30 31 32 33 62 These financial statements are consolidated financial statements for the Group consisting of Anatara Lifesciences Ltd and its subsidiaries. A list of major subsidiaries is included in note 12. The financial statements are presented in Australian currency. Anatara Lifesciences Ltd is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 3, 62 Lygon Street Carlton South VIC 3053 The financial statements were authorised for issue by the directors on 24 August 2020. The directors have the power to amend and reissue the financial statements. ANATARA LIFESCIENCES Annual Report 202029 Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Revenue from contracts with customers Gross profit Other income General and administrative expenses Research and development expenses Operating loss Finance income Loss before income tax Income tax expense Loss for the period Other comprehensive income Items that may be reclassified to profit or loss: Other comprehensive income for the period, net of tax Total comprehensive loss for the period Total comprehensive income for the period is attributable to: Owners of Anatara Lifesciences Ltd Notes 2 3(a) 3(b) 3(b) 4 2020 $ - - 789,211 2019 $ 663,405 663,405 877,573 (2,916,978) (3,775,495) (1,288,941) (776,256) (3,416,708) (3,010,773) 52,064 142,501 (3,364,644) (2,868,272) - - (3,364,644) (2,868,272) - - (3,364,644) (2,868,272) (3,364,644) (2,868,272) Cents Cents Loss per share for loss attributable to the ordinary equity holders of the company: Basic and diluted loss per share 20 (6.77) (5.80) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 30 Consolidated statement of financial position As at 30 June 2020 ASSETS Current assets Cash and cash equivalents Trade and other receivables Term Deposits Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Employee benefit obligations Total current liabilities Non-current liabilities Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Share capital Other reserves Accumulated losses Total equity Notes 5(a) 5(b) 5(c) 5(d) 6(a) 6(a) 7(a) 7(b) 2020 $ 2019 $ 2,682,368 630,333 - 23,740 3,336,441 7,187 - 7,187 1,360,077 895,986 4,050,000 49,021 6,355,084 20,196 7,046 27,242 3,343,628 6,382,326 412,355 51,679 464,034 22,929 22,929 486,963 2,856,665 17,039,590 553,342 (14,736,267) 2,856,665 364,551 88,269 452,820 13,939 13,939 466,759 5,915,567 16,941,392 499,070 (11,524,895) 5,915,567 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. ANATARA LIFESCIENCES Annual Report 202031 Consolidated statement of changes in equity For the year ended 30 June 2020 Attributable to owners of Anatara Lifesciences Ltd Notes Share capital $ Other reserves $ Accumulated losses $ Total equity $ 16,941,392 583,749 (8,937,691) 8,587,450 - - - - - - (2,868,272) (2,868,272) (2,868,272) (2,868,272) 196,389 (281,068) - 196,389 281,068 - 16,941,392 499,070 (11,524,895) 5,915,567 7(b) 7(b) Attributable to owners of Anatara Lifesciences Ltd Notes Share capital $ Other reserves $ Accumulated losses $ Total equity $ 16,941,392 499,070 (11,524,895) 5,915,567 - - 98,198 - - - 7(b) 7(b) - - 207,544 (153,272) (3,364,644) (3,364,644) (3,364,644) (3,364,644) - - 153,272 98,198 207,544 - 17,039,590 553,342 (14,736,267) 2,856,665 Balance at 1 July 2018 Loss for the period Total comprehensive loss for the period Transactions with owners in their capacity as owners: Options issued/expensed Options forfeited/lapsed Balance at 30 June 2019 Balance at 1 July 2019 Loss for the period Total comprehensive loss for the period Share based payment expense – performance rights Transactions with owners in their capacity as owners: Options issued/expensed Options forfeited/lapsed Balance at 30 June 2020 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 32 Consolidated statement of cash flows For the year ended 30 June 2020 Notes 2020 $ 2019 $ Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Government grants and tax incentives - (3,745,235) 95,376 924,960 Net cash (outflow) from operating activities 8(a) (2,724,899) Cash flows from investing activities 669,872 (4,397,727) 188,662 1,301,538 (2,237,655) Payments for investment in term deposits (1,500,000) (7,050,000) Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from withdrawal from term deposits Net cash inflow from investing activities Net cash inflow (outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of year 5(a) (4,076) 1,266 5,550,000 4,047,190 - 1,322,291 1,360,077 2,682,368 - - 9,200,000 2,150,000 - (87,655) 1,447,732 1,360,077 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. ANATARA LIFESCIENCES Annual Report 2020Contents of the notes to the financial statements 1. Segment information 2. Revenue from contract with customers 3. Other income and expense items 4. 5. Income tax expense Financial assets and financial liabilities 6. Non-financial assets and liabilities 7. Equity 8. Cash flow information 9. Critical estimates, judgements and errors 10. Financial risk management 11. Capital management 12. Interests in other entities 13. Contingent liabilities 14. Commitments 15. COVID-19 impact on business 16. Events occurring after the reporting period 17. Related party transactions 18. Share-based payments 19. Remuneration of auditors 20. Loss per share 21. Parent entity financial information 22. Summary of significant accounting policies 33 34 34 35 37 38 39 40 42 42 43 45 46 46 46 47 47 47 48 50 51 51 53 34 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 Anatara Lifesciences Ltd. The Group has identified one reportable segment; that is, the research, development of oral solutions for gastrointestinal diseases and the commercialisation of the Detach® diarrhea treatment for piglets. The segment details are therefore fully reflected in the body of the financial statements. 2. Revenue from contract with customers A. Disaggregation of revenue from contracts with customers The Group derives revenue from the licensing of its intellectual property over time: Licensing fees B. Accounting policies (i) Licensing revenue 2020 $ - - 2019 $ 663,405 663,405 The Group signed a license, development and commercialisation agreement with Zoetis Services LLC (Zoetis) on 10 May 2018 for the Group’s Detach® product. The first milestone payment of US$2,500,000 was payable upfront at the effective date of the agreement signed 10 May 2018 (funds were received in July 2018). This comprised consideration for the rights granted, subject to the terms and conditions of the agreement. Of this amount, US$2,000,000 offset the previously paid option and evaluation agreement entered into in 2016. The balance of US$500,000 (equivalent to A$669,872) was to be recognised as revenue over time to 26 October 2032 to reflect the license access rights transferred to Zoetis over the term of the license agreement. The unearned revenue was recognised as deferred revenue. On 14 June 2019, the Group announced Zoetis had given notice of termination of the Detach® licensing agreement. Under the terms of the original agreement, the first milestone payment is non-refundable. Accordingly, the $663,405 deferred revenue amount recognised at 30 June 2018 was recognised as revenue in the year ended 30 June 2019. ANATARA LIFESCIENCES Annual Report 202035 3. Other income and expense items A. Other income Research and development tax incentive EMDG COVID-19 government assistance (i) Fair value of R&D tax incentive 2020 $ 659,812 27,634 101,765 789,211 2019 $ 840,932 36,641 - 877,573 The Group’s research and development (R&D) activities are eligible under an Australian government tax incentive for eligible expenditure. Management has assessed these activities and expenditure to determine which are likely to be eligible under the incentive scheme. Amounts are recognised when it has been established that the conditions of the tax incentive have been met and that the expected amount can be reliably measured. For the year ended 30 June 2020, the Group has included an item in other income of $659,812 (2019: $840,932) to recognise income over the period necessary to match the grant on a systematic basis with the costs that they are intended to compensate. (ii) Fair value of EMDG and COVID-19 government assistance The Group’s other grant income is recognised when compliance with the conditions attached to the grant have been determined and the Group has ascertained the grant will be received. For the year ended 30 June 2020, the Group has included an item in other income of $129,399 (2019: $36,641) to recognise income over the period necessary to match the grant on a systematic basis with the costs that they are intended to compensate. The Group recognised $27,634 Export Market Development Grant (EMDG) (2019: $36,641) in other income. This is a key Australian Government financial assistance program for aspiring current exporters. COVID-19 government assistance $101,765 is included in other income. This includes $62,500 “Cashflow boost for employers” measure announced as part of the Australian Government’s economic stimulus package of March 2020, as well as $39,265 payroll tax waived credit and deferrals. This is the coronavirus payroll tax relief provided by various State Revenue Office for the 2019-20 financial year. 36 B. Breakdown of expenses by nature General and administrative expenses Accounting and audit Consulting Depreciation Employee benefits Insurance Investor relations Legal Listing and share registry Occupancy Share-based payments Superannuation Travel and entertainment Other Research and development expenses Project research and development Corporate and finance Notes 18(b) 2020 $ 148,094 335,713 16,098 1,452,317 57,312 120,188 33,821 68,686 93,767 305,744 138,897 32,508 113,833 2019 $ 247,998 233,469 22,728 2,044,647 59,046 280,739 92,205 69,607 25,215 196,389 170,281 210,178 122,993 2,916,978 3,775,495 1,240,834 48,107 1,288,941 754,414 21,842 776,256 ANATARA LIFESCIENCES Annual Report 202037 4. Income tax expense A. Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense Tax at the Australian tax rate of 27.5% (2019: 27.5%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: R&D tax incentive Accounting expenditure subject to R&D tax incentive Blackhole expenditure (Section 40-880, ITAA 1997) Deferred revenue Share-based payments Other items Subtotal Tax losses and other timing differences for which no deferred tax asset is recognised Income tax expense B. Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit @ 27.5% 2020 $ (3,364,644) (925,277) 2019 $ (2,868,272) (788,775) (181,448) 417,122 (32,222) - 84,080 3,759 (633,986) 633,986 - 2020 $ 8,549,841 2,351,206 (231,256) 531,624 (73,819) (182,436) 54,007 (18,354) (709,009) 709,009 - 2019 $ 6,168,136 1,696,237 The numerical reconciliation of income tax expense to prima facie tax payable and unused tax losses for the year ended 30 June 2019 have been represented to reflect the income tax return lodged for the same period. 38 5. Financial assets and financial liabilities A. Cash and cash equivalents Current assets Cash at bank and in hand (i) Reconciliation to cash flow statement 2020 $ 2019 $ 2,682,368 1,360,077 The above figures reconcile to the amount of cash shown in the consolidated statement of cash flows at the end of the financial year as follows: Balances as above Balances per statement of cash flows (ii) Classification as cash equivalents 2020 $ 2,682,368 2,682,368 2019 $ 1,360,077 1,360,077 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 22(j) for the Group’s other accounting policies on cash and cash equivalents. (iii) Risk exposure The Group’s exposure to interest rate risk is discussed in note 10. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above. B. Trade and other receivables 2020 2019 Current $ Non-current $ Total $ Current $ Non-current $ Accrued receivables (i) 630,333 Other receivables - 630,333 (i) Accrued receivables - - - 630,333 848,659 - 47,327 630,333 895,986 - - - Total $ 848,659 47,327 895,986 Accrued receivables include $612,967 from the Australian Taxation Office in relation to the R&D tax incentive (2019: $800,481), $12,500 cash boost in relation to the COVID-19 relief, and $4,866 interest income from deposits at call with terms greater than three months (2019: $48,178). (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. ANATARA LIFESCIENCES Annual Report 202039 C. Other financial assets at amortised cost (i) Classification of financial assets at amortised cost The Group classifies its financial assets as at amortised cost only if both of the following criteria are met: • • the asset is held within a business model whose objective is to collect the contractual cash flows, and the contractual terms give rise to cash flows that are solely payments of principal and interest. Financial assets at amortised cost comprise the following debt investments: 2020 2019 Current $ Non-current $ Total $ Current $ Non-current $ Total $ Deposits at call - - - - - - 4,050,000 4,050,000 - - 4,050,000 4,050,000 (ii) Impairment and risk exposure All of the financial assets at amortised cost are denominated in Australian dollars. As a result, there is no exposure to foreign currency risk. D. Trade and other payables Trade payables Accrued expenses Other payables 2020 2019 Current $ Non-current $ Total $ Current $ Non-current $ 33,861 351,875 26,619 412,355 - - - - 33,861 116,764 351,875 214,617 26,619 33,170 412,355 364,551 - - - - Total $ 116,764 214,617 33,170 364,551 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. 6. Non-financial assets and liabilities A. Employee benefit obligations 2020 2019 Current $ Non-current $ Total $ Current $ Non-current $ Total $ Leave obligations (i) 51,679 22,929 74,608 88,269 13,939 102,208 40 (i) Leave obligations The leave obligations cover the Group’s liabilities for long service leave and annual leave which are classified as either other long-term benefits or short-term benefits, as explained in note 22(p). The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service leave where employees have completed the required period of service and also for those employees that are entitled to pro-rata payments in certain circumstances. The entire amount of the provision of $51,679 (2019: $88,269) is presented as current, since the Group does not have an unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 7. Equity A. Share capital Ordinary shares Fully paid 2020 Shares 2019 Shares 2020 2019 $ $ 49,856,177 49,413,236 17,039,590 16,941,392 49,856,177 49,413,236 17,039,590 16,941,392 (i) Movements in ordinary shares: Below is the movement in ordinary shares in the year ended 30 June 2020 (2019: nil): Details Balance at 1 July 2018 Balance at 30 June 2019 Exercise of performance rights at $0.227 (2019-10-31) Exercise of performance rights at $0.205 (2019-11-22) Exercise of performance rights at $0.227 (2019-12-10) Exercise of performance rights at $0.227 (2020-01-15) Number of shares $ Total 49,413,236 49,413,236 149,457 106,810 82,599 104,075 16,941,392 16,941,392 33,927 21,896 18,750 23,625 Balance 30 June 2020 49,856,177 17,039,590 ANATARA LIFESCIENCES Annual Report 202041 (ii) Ordinary shares Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the company in proportion to the number of and amounts paid on the shares held. 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. Ordinary shares have no par value and the company does not have a limited amount of authorised capital. (iii) Options Information relating to options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the reporting period is set out in note 7(b). B. Other reserves The consolidated statement of financial position line item ‘other reserves’ comprises the ‘share-based payments reserve’. (i) Nature and purpose of other reserves Share-based payments The share-based payment reserve records items recognised as expenses on valuation of share options issued to key management personnel, other employees and eligible contractors. (ii) Movement in options Details Opening balance 1 July 2018 Options issued during the period Share-based payment expenses of previously issued options Forfeited/lapsed during the year Balance 30 June 2019 Issue of unlisted option at $0.2305 (2020-06-22) Share-based payment expenses of previously issued options Share-based payments expenses of performance bonus Options cancelled during the year Balance 30 June 2020 Number of shares 2,436,000 1,725,000 - (1,590,000) 2,571,000 761,912 - - (412,500) 2,920,412 Total $ 583,749 143,476 58,171 (286,326) 499,070 4,608 81,646 124,408 (156,390) 553,342 42 8. Cash flow information A. Reconciliation of profit/(loss) after income tax to net cash inflow from operating activities Loss for the period Adjustments for Depreciation and amortisation Net (gain) loss on sale of non-current assets Share-based payments Change in operating assets and liabilities: Movement in trade and other receivables Movement in other operating assets Movement in trade and other payables Movement in other operating liabilities Notes 3(b) 18(b) 2020 $ 2019 $ (3,364,644) (2,868,272) 16,098 (280) 305,744 265,653 32,327 47,803 (27,600) 22,728 - 196,389 1,144,258 25,438 (54,962) (703,234) Net cash inflow (outflow) from operating activities (2,724,899) (2,237,655) The Company has reclassified certain cash flow items in prior year comparatives in order to be consistent with the current year classification and presentation. B. Non-cash investing and financing activities Non-cash investing and financing activities disclosed in other notes are: • options issued for no cash consideration – note 18. 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. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Detailed information about each of these estimates and judgements is included in other notes together with information about the basis of calculation for each affected line item in the financial statements. In addition, this note also explains where there have been actual adjustments this year as a result of an error and of changes to previous estimates. ANATARA LIFESCIENCES Annual Report 202043 A. Significant estimates and judgements The areas involving significant estimates or judgements are: • Estimation of R&D tax incentive income accrual – note 3(a)(i) • Estimation of other grants income accrual – note 3(a)(ii) • Estimation of employee benefit obligations – note 6(a)(i) • Estimation of share-based payments – note 18 Estimates and judgements are continually evaluated. They 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. 10. Financial risk management This note explains the Group’s exposure to financial risks and how these risks could affect the Group’s future financial performance. The Group’s risk management is predominantly controlled by the board. The board monitors the Group’s financial risk management policies and exposures and approves substantial financial transactions. It also reviews the effectiveness of internal controls relating to market risk, credit risk and liquidity risk. A. Market risk (i) Foreign exchange risk The majority of the company’s operations are denominated in Australian dollars, with the few exceptions on services acquired from overseas suppliers but at a marginally insignificant amount and frequency. Therefore, management has concluded that market risk from foreign exchange fluctuation is not material. (ii) Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from cash and cash equivalents and other financial assets at amortised cost (deposits at call) held, which expose the Group to cash flow interest rate risk. During 2020 and 2019, the Group’s cash and cash equivalents and deposits at call at variable rates were denominated in Australian dollars. The Group’s exposure to interest rate risk at the end of the reporting period, expressed in Australian dollars, was as follows: Financial instruments with cash flow risk Cash and cash equivalents Financial assets at amortised cost 2020 $ 2,682,368 - 2,682,368 2019 $ 1,360,077 4,050,000 5,410,077 44 Sensitivity Profit or loss is sensitive to higher/lower interest income from cash and cash equivalents as a result of changes in interest rates. Impact on loss for the period 2020 $ 2019 $ 6,706 10,820 Impact on other components of equity 2020 $ - 2019 $ - Interest rates – change by 25 basis points (2019: 20 basis points)* * Holding all other variables constant The use of 0.25 percent (2019: 0.20 percent) was determined based on analysis of the Reserve Bank of Australia cash rate change, on an absolute value basis, at 30 June 2020 and the previous four balance dates. The average cash rate at these balance dates was 1.25 percent (2019: 1.60 percent). The average change to the cash rate between balance dates was 24.69 percent (2019: 12.69 percent). By multiplying these two values, the interest rate risk was derived. Profit is less sensitive to movements in interest rates in 2020 than 2019 due to decreased cash and cash equivalents and deposits at call as well as low interest rate. The Group’s exposure to other classes of financial instruments with cash flow risk is not material. B. Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counter parties of contract obligations that could lead to a financial loss to the Group. (i) Risk management The company manages credit risk and the losses which could arise from default by ensuring that financial assets such as cash at bank and deposits at call are held with reputable organisations. (ii) Impairment of financial assets While cash and cash equivalents and term deposits are subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. C. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms: • preparing forward looking cash flow analyses in relation to its operating, investing and financing activities; • obtaining funding from a variety of sources; • maintaining a reputable credit profile; • managing credit risk related to financial assets; • investing cash and cash equivalents and deposits at call with major financial institutions; and • comparing the maturity profile of financial liabilities with the realisation profile of financial assets. ANATARA LIFESCIENCES Annual Report 2020 45 (i) Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows. Contractual maturities of financial liabilities Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years At 30 June 2020 $ Trade and other payables Total At 30 June 2019 Trade and other payables Total 412,355 412,355 364,551 364,551 $ - - - - $ - - - - $ - - - - $ - - - - Total contractual cash flows Carrying amount (assets)/ liabilities $ $ 412,355 412,355 412,355 412,355 364,551 364,551 364,551 364,551 11. Capital management A. Risk management The Group’s objectives when managing capital are to • safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and • maintain an optimal capital structure to reduce the cost of capital In order to maintain or adjust the 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, reserves and accumulated losses. 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. As at 30 June 2020, the Group held cash and equivalents of $2.68 million. The Group has put in place measures to reduce all non-critical expenditure. The Group anticipates a delay, to the second half of 2020, for the commencement of its clinical trial in irritable bowel syndrome (IBS) for its Gastrointestinal ReProgramming (GaRP) over-the-counter medicine. The anticipated delay clinical trial extends the Group’s cash runway, and the Group will review funding needs in the second half of the year. B. Dividends No dividends were declared or paid to members for the year ended 30 June 2020 (2019: nil). The Group’s franking account balance was nil at 30 June 2020 (2019: nil). 46 12. Interests in other entities A. Subsidiaries The Group’s principal subsidiaries at 30 June 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of entity Place of business/ country of incorporation Ownership interest held by the Group Sarantis Pty Ltd Australia 13. Contingent liabilities The Group had no contingent liabilities at 30 June 2020 (2019: nil). 14. Commitments 2020 % 2019 % 100 100 A. Non-cancellable short-term and immaterial leases The company leases a laboratory under non-cancellable leases expiring on 30 November 2020. On renewal, the terms of the lease is renegotiated. Commitments for minimum lease payments in relation to non-cancellable leases are payable as follows: Within one year Later than one year but not later than five years 2020 $ 2019 $ 32,402 - 32,402 80,761 32,402 113,163 ANATARA LIFESCIENCES Annual Report 202047 15. COVID-19 impact on business Anatara Lifesciences remains committed to its corporate strategy and focused on delivering on its anticipated milestones during the year ahead. However, the Company is actively planning for disruptions that may lead to delays in meeting some of these objectives. The company received financial support from Federal Government incentives through Cashflow Boost and, through payroll tax refunds and deferrals by state governments. Anatara recorded other income of $101,765 for these items. Anatara did not participate in JobKeeper and has not terminated any employees during this period. Anatara employees have been able to continue laboratory-based activities and as a result have advanced GaRP to being clinical trial ready. In addition, new bromelain-based formulations were developed for challenge trials in piglets (in-feed) and in poultry. 16. Events occurring after the reporting period No matter or circumstance has occurred subsequent to period 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. 17. Related party transactions A. Subsidiaries Interests in subsidiaries are set out in note 12(a). B. Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments 2020 $ 1,226,979 107,112 6,363 - 285,873 1,626,327 2019 $ 1,452,327 138,919 5,355 125,000 111,618 1,833,219 Detailed remuneration disclosures are provided in the remuneration report on pages 13 to 22. 48 C. Transactions with other related parties The following transactions occurred with related parties: Sales and purchases of goods and services Purchases of various goods and services from entities controlled by key management personnel (i) $ $ 2020 2019 - 20,000 (i) Purchases from entities controlled by key management personnel In 2019 Mr Iain Ross (resigned 30 September 2018) received $20,000 consultancy fees from the Group. 18. Share-based payments A. Executive option plan The establishment of the ‘executive option plan’ (EOP) was approved by shareholders at the 2017 annual general meeting. The plan is designed to provide long-term incentives for executives (including directors) to deliver long-term shareholder returns. Participation in the plan is at the board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. Set out below are summaries of options granted under the plan: 2020 2019 Average exercise price per share option Number of options Average exercise price per share option Number of options $1.41 $0.23 - $1.58 $1.33 $1.34 2,571,000 761,912 $1.35 $1.00 2,436,000 1,725,000 - $0.98 (1,590,000) (412,500) 2,920,412 1,946,500 - $1.41 $1.37 - 2,571,000 1,727,000 As at 1 July Granted during the year Forfeited/lapsed during the year Cancelled during the year As at 30 June Vested and exercisable at 30 June The forfeited/lapsed options were fully vested before they forfeited/lapsed. ANATARA LIFESCIENCES Annual Report 2020Share options outstanding at the end of the year have the following expiry date and exercise prices: 49 Vesting date Expiry date Number Exercise price ($) Grant date 2015-12-14 2015-12-14 2015-12-14 2016-12-14 2017-12-14 2018-12-14 2020-12-14 2020-12-14 2020-12-14 2016-09-23 2019-09-23 2021-09-23 2017-11-28 2017-11-28 2017-11-28 2018-09-10 2019-04-10 2019-04-10 2019-04-10 2018-11-17 2019-11-17 2020-11-17 2018-09-10 2019-02-18 2020-02-18 2021-02-18 2022-11-17 2022-11-17 2022-11-17 2020-12-14 2024-02-17 2024-02-17 2024-02-17 2020-06-22 2020-09-01 2022-08-31 2020-06-22 2020-11-26 2022-11-25 Total Weighted average remaining contractual life of options outstanding at end of period 180,000 180,000 202,500 210,000 12,000 12,000 12,000 750,000 200,000 200,000 200,000 383,527 378,385 2,920,412 2020 1.67 1.450 1.450 1.450 1.700 2.270 2.270 2.270 1.450 0.736 0.740 0.740 0.231 0.231 2019 2.36 50 B. Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period were as follows: Performance rights issued under EOP1 Options issued under EOP2 Performance pay3 $ $ 2020 2019 98,198 83,138 124,408 305,744 - 196,389 - 196,389 1. During the year it was agreed that 50% of performance pay for key management personnel relating to the year ended 30 June 2019 would be paid out in performance rights rather than cash. 336,131 performance rights were valued at $0.227 each and 106,810 performance rights were valued at $0.205, total performance rights value was $98,198. $0.227 was the VWAP at the date the terms were agreed being 23 September 2019, and $0.205 was the VWAP at the date the terms were agreed being 11 November 2019. 2. In June 2020 the board resolved to issue options to key management personnel for salary and directors fee reduction in the year ended 30 June 2020. These options were valued at $0.0737 each with a total value of $56,182. $0.0737 was the VWAP at the date the terms were proposed being 22 June 2020. Formal approval for $26,076 options to be issued to directors is expected at the AGM post year-end. 3. In June 2020 it was agreed that performance pay for selected employees for the year ended 30 June 2020 would be paid in performance rights rather than cash. These performance rights were valued at $0.137 each with a total value of $124,408. $0.137 was the VWAP at the date the terms were agreed being 20 July 2020. Performance rights issued to employees are long-term incentives under the Executive Option Plan. 19. 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: A. Grant Thornton Audit Pty Ltd (i) Audit and other assurance services Audit and review of financial statements Total remuneration for audit and other assurance services 2020 $ 38,500 38,500 2019 $ 56,031 56,031 ANATARA LIFESCIENCES Annual Report 2020(ii) Taxation services Tax compliance services Total remuneration for taxation services Total auditor’s remuneration 2020 $ 34,350 34,350 72,850 51 2019 $ 24,000 24,000 80,031 It is the Group’s policy to employ Grant Thornton Audit Pty Ltd on assignments additional to their statutory audit duties where Grant Thornton Audit Pty Ltd’s expertise and experience with the Group are important. These assignments are principally tax advice. 20. Loss per share A. Reconciliation of loss used in calculating loss per share Basic and diluted loss per share Loss attributable to the ordinary equity holders of the company used in calculating loss per share: From continuing operations 3,364,644 2,868,272 2020 $ 2019 $ B. 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 49,670,261 49,413,236 On the basis of the Group’s losses, the outstanding options as at 30 June 2020 are considered to be anti-dilutive and therefore were excluded from the diluted weighted average number of ordinary shares calculation. 2020 Number 2019 Number 21. Parent entity financial information A. Summary financial information The individual financial statements for the parent resemble the consolidated financial statements as the company’s subsidiary, Sarantis Pty Ltd is a dormant entity. 52 B. Guarantees entered into by the parent entity The parent entity has not entered into any guarantees in relation to debts of its subsidiaries in the year ended 30 June 2020 (2019: nil). C. Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2020 or 30 June 2019. D. Contractual commitments for the acquisition of property, plant or equipment The parent entity has not entered into any contractual commitments for the acquisition of property, plant or equipment in the year ended 30 June 2020 (2019: nil). E. Determining the parent entity financial information The financial information for the parent entity has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries Investments in subsidiaries are accounted for at cost in the financial statements of Anatara Lifesciences Ltd. (ii) Tax consolidation legislation Anatara Lifesciences Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Anatara Lifesciences Ltd, and the controlled entities in the tax consolidated Group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated Group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Anatara Lifesciences Ltd also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated Group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Anatara Lifesciences Ltd for any current tax payable assumed and are compensated by Anatara Lifesciences Ltd for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Anatara Lifesciences Ltd under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. ANATARA LIFESCIENCES Annual Report 2020Contents of the summary of significant accounting policies A. Basis of preparation B. Principles of consolidation C. Segment reporting D. Foreign currency translation E. Revenue recognition F. Government grants G. Income tax H. Leases I. Impairment of non-financial assets J. Cash and cash equivalents K. Trade receivables L. Investments and other financial assets M. Property, plant and equipment N. Intangible assets O. Trade and other payables P. Employee benefits Q. Contributed equity R. Dividends S. Loss per share T. Rounding of amounts U. Goods and services tax (GST) 53 54 56 56 56 56 56 57 57 57 58 58 58 59 60 60 60 61 61 61 62 62 54 22. Summary of significant accounting policies This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Group consisting of Anatara Lifesciences Ltd and its subsidiaries. A. Basis of preparation These general purpose 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. Anatara Lifesciences Ltd is a for-profit entity for the purpose of preparing the financial statements. (i) Compliance with IFRS The consolidated financial statements of the Anatara Lifesciences Ltd Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention The financial statements have been prepared on a historical cost basis. (iii) Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. As disclosed in the financial statements, the Group incurred a loss of $3,364,644 and had operating cash outflows of $2,724,899 for the year ended 30 June 2020. As at 30 June 2020, the Group’s held cash and cash equivalents of $2,682,368. In the process of approving the Group’s internal forecast and business plan for upcoming financial years, the board has considered the cash position of the Group within the next 12 months from the date of this report. The Group’s internal forecast and business plan for the upcoming financial year does not include capital raising. The Group’s internal forecast and business plan for upcoming financial year does include approximately $400,000 from the R&D Tax Incentive relating to anticipated approval of an Overseas Finding that has been submitted. The directors are confident, if necessary, the company could raise additional capital to meet the Group’s contractual commitments and working capital requirements. Notwithstanding the uncertainty over either of these events occurring, based on the above considerations, the board has assessed the resources and opportunities available to the Group, and consequently believe that the Group will be able to repay its debts as and when they fall due and are of the opinion that the financial statements have been appropriately prepared on a going concern basis. ANATARA LIFESCIENCES Annual Report 202055 COVID-19 The World Health Organisation declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. In 2020 the Group received financial support from Federal Government incentives through Cashflow Boost and, through payroll tax refunds and deferrals by state governments. Anatara recorded other income of $101,765 for these items. Anatara did not participate in JobKeeper and has not terminated any employees during this period. Anatara employees have been able to continue laboratory-based activities and as a result have advanced GaRP to being clinical trial ready. In addition, new bromelain-based formulations were developed for challenge trials in piglets (in-feed) and in poultry. Anatara anticipates renewed interest in partnering Detach® upon successful completion of challenge trials. Anatara will continue to execute its human health development plans, and in parallel, the Company has prioritised out-licensing both its animal health and human health assets. The spread of Covid-19 has resulted in significant uncertainty around the breadth and duration of business disruptions. Anatara is unable to determine whether it will have a material impact to its operations. However, at this stage the directors do not believe this will impact the going concern of the company. (iv) New and amended standards adopted by the Group AASB 16 Leases The Group has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 ‘Leases’ and for lessees eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets and an interest expense on the recognised lease liabilities. In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) results improve as the operating expense is now replaced by interest expense and depreciation in profit or loss. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. In applying AASB 16 for the first time, the Group has used the practical expedients permitted by the standard whereby short-term and low value leases are exempt and all other leases have been deemed immaterial. Therefore there has been no impact from the adoption of AASB16 in this reporting period. Interpretation 23 Uncertainty over Income Tax Treatments Interpretation 23 requires the assessment of whether the effect of uncertainty over income tax treatments should be included in the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The Interpretation outlines the requirements to determine whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and how an entity considers changes in facts and circumstances. The Group has adopted Interpretation 23 from 1 July 2019, based on an assessment of whether it is ‘probable’ that a taxation authority will accept an uncertain tax treatment. This assessment takes into account that for certain jurisdictions in which the Group operates, a local tax authority may seek to open a Group’s books as far back as inception of the Group. Where it is probable, the Group has determined tax balances consistently with the tax treatment used or planned to be used in its income tax filings. Where the Group has determined that it is not probable that the taxation authority will accept an uncertain tax treatment, the most likely amount or the expected value has been used in determining taxable balances (depending on which method is expected to better predict the resolution of the uncertainty). There has been no impact from the adoption of Interpretation 23 in this reporting period. 56 B. Principles of consolidation (i) Subsidiaries 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. The acquisition method of accounting is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. C. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. This has been identified as the chief executive officer. D. Foreign currency translation (i) Functional and presentation currency Items included in the 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 dollar ($), which is Anatara Lifesciences Ltd’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the consolidated income statement, within finance costs. All other foreign exchange gains and losses are presented in the consolidated income statement on a net basis within other gains/(losses). E. Revenue recognition The accounting policies for the Group’s revenue from contracts with customers are explained in note 2. F. Government grants Transactions involving government grants received are accounted for by applying AASB 120 Government Grants. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Note 3 provides further information on how the Group accounts for government grants. ANATARA LIFESCIENCES Annual Report 202057 G. Income tax The income tax expense or credit for the period is the tax payable on the current period’s taxable income 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 company and its subsidiaries and associates 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. 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. H. Leases Policies from 1 July 2019 The Group has adopted AASB 16 from 1 July 2019. With the exception of short-term, low value and immaterial leases, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position. Straight- line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities (included in finance costs). Payments associated with short-term leases, low value and immaterial leases are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Polices prior to 1 July 2019 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 14). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. I. Impairment of non-financial assets Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 58 J. Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated statement of financial position. K. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less loss allowance. See note 5(b) for further information about the Group’s accounting for trade receivables and note 10(b) for a description of the Group’s impairment policies. L. Financial assets (i) Classification 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). (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. ANATARA LIFESCIENCES Annual Report 202059 Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments: • Amortised cost: 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 income statement. • FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the consolidated income statement. • FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/ (losses) in the period in which it arises. (iv) Impairment 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. (v) Income recognition Interest income Interest income is recognised using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. M. Property, plant and equipment Property, plant and equipment is 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 period in which they are incurred. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 22(i)). 60 N. Intangible assets (i) Research and development Expenditure on research activities, undertaken with the prospect of obtaining new scientific or technical knowledge and understanding, is recognised in the consolidated statement of profit or loss and other comprehensive income as an expense when it is incurred. Expenditure on development activities, being the application of research findings or other knowledge to a plan or design for the production of new or substantially improved products or services before the start of commercial production or use, and other development expenditure, is recognised in the consolidated statement of profit or loss and other comprehensive income as an expense as incurred. 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 after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. P. Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. (ii) Other long-term employee benefit obligations The Group also has liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. These obligations are 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 high-quality corporate 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 period, regardless of when the actual settlement is expected to occur. ANATARA LIFESCIENCES Annual Report 202061 (iii) Share-based payments Share-based compensation benefits are provided to employees via the ‘employee option plan’ (EOP). Information relating to these schemes is set out in note 18. Employee options The fair value of options granted under the EOP is recognised as a share-based payment expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted: • including any market performance conditions (e.g. the company’s share price) • excluding the impact of any service and non-market performance vesting conditions (e.g. profitability, sales growth targets and remaining an employee of the company over a specified time period), and • including the impact of any non-vesting conditions (e.g. the requirement for employees to save or holdings shares for a specific period of time). The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. Q. Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. R. Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. S. Loss per share (i) Basic loss per share Basic loss per share is calculated by dividing: • the loss attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares • by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted loss per share Diluted loss per share adjusts the figures used in the determination of basic loss per share to take into account: • • the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au 62 T. Rounding of amounts The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest dollar. 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. Independent Auditor’s Report To the Members of Anatara Lifesciences Ltd 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. Report on the audit of the financial report Opinion 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. Directors’ declaration In the directors’ opinion: a) the financial statements and notes set out on pages 28 to 62 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 2020 and of its performance for the financial year ended on that date, and Basis for opinion b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Note 22(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of directors. Ms Sue MacLeman Non-Executive Chair Melbourne 24 August 2020 We have audited the financial report of Anatara Lifesciences Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of 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 2020 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 22(a)(iii) in the financial statements, which indicates that the Group incurred a net loss of $3,364,644 and had operating cash outflows of $2,724,899 during the year ended 30 June 2020. As at 30 June 2020 the Group held cash and cash equivalents of $2,682,368. As stated in Note 22(a)(iii), these events or conditions, and other matters as set forth in Note 22(a)(iii), indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. ANATARA LIFESCIENCES Annual Report 202063 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of Anatara Lifesciences Ltd Report on the audit of the financial report Opinion We have audited the financial report of Anatara Lifesciences Ltd (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of 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 2020 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. 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 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 22(a)(iii) in the financial statements, which indicates that the Group incurred a net loss of $3,364,644 and had operating cash outflows of $2,724,899 during the year ended 30 June 2020. As at 30 June 2020 the Group held cash and cash equivalents of $2,682,368. As stated in Note 22(a)(iii), these events or conditions, and other matters as set forth in Note 22(a)(iii), indicate that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. 64 Key audit matters Responsibilities of the Directors for the financial report Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These 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. 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 In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Recognition of research and development tax incentive – Notes 3(a)(i), 5(b)(i), and 9(a) The Group receives a refundable tax offset of eligible expenditure under the research and development (R&D) tax incentive scheme. An R&D plan is filed with AusIndustry in the following financial year and, based on this filing, the Group receives the incentive in cash. Management perform a detailed review of the Group’s total research and development expenditure to determine the potential claim under the R&D tax incentive legislation. The Group recognises R&D tax incentive rebate income on an accruals basis, meaning that a receivable is recorded at the balance date based on the estimated amount that is yet to be received from the Australian Taxation Office for the period 1 July 2019 to 30 June 2020. This area is a key audit matter due to the degree of judgement and interpretation of the R&D tax legislation required by management to assess the eligibility of the R&D expenditure under the scheme. Our procedures included, amongst others:     Obtaining the R&D incentive calculations prepared by management and engaging an internal R&D Tax Expert to assist the engagement team in assessing the reasonableness of the estimate; Comparing the nature of the R&D expenditure included in the current year estimate to the prior year approved claim; Comparing the estimates made in previous years to the amount of cash actually received after lodgement of the R&D tax claim; Considering the nature of the expenses against the eligibility criteria of the R&D tax incentive scheme to form a view about whether the expenses included in the estimate are likely to meet the eligibility criteria; Assessing the eligible expenditure used to calculate the estimate to ensure it is in accordance with expenditure recorded in the general ledger; Agreeing a sample of individual expenditure items included in the estimate to underlying supporting documentation to ensure that they have been appropriately recognised in the accounting records and that they are eligible expenditures; Inspecting copies of relevant correspondence with AusIndustry and the ATO related to the claims; and Reviewing the appropriateness of the relevant disclosures in the financial statements.     Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, 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 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, 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. Grant Thornton Audit Pty Ltd Chartered Accountants T S Jackman Partner – Audit & Assurance Melbourne, 24 August 2020 misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the 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 this 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report 2020. Responsibilities We have audited the Remuneration Report included in pages 13 to 22 of the Directors’ report for the year ended 30 June In our opinion, the Remuneration Report of Anatara Lifesciences Ltd, for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. 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. ANATARA LIFESCIENCES Annual Report 202065 Key audit matters Responsibilities of the Directors for the financial report Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These 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. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key audit matter How our audit addressed the key audit matter The Group recognises R&D tax incentive rebate income on an Comparing the estimates made in previous years to Recognition of research and development tax incentive – Notes 3(a)(i), 5(b)(i), and 9(a) The Group receives a refundable tax offset of eligible expenditure under the research and development (R&D) tax incentive scheme. An R&D plan is filed with AusIndustry in the following financial year and, based on this filing, the Group receives the incentive in cash. Management perform a detailed review of the Group’s total research and development expenditure to determine the potential claim under the R&D tax incentive legislation. accruals basis, meaning that a receivable is recorded at the balance date based on the estimated amount that is yet to be received from the Australian Taxation Office for the period 1 July 2019 to 30 June 2020. This area is a key audit matter due to the degree of judgement and interpretation of the R&D tax legislation required by management to assess the eligibility of the R&D expenditure under the scheme. Our procedures included, amongst others:  Obtaining the R&D incentive calculations prepared by management and engaging an internal R&D Tax Expert to assist the engagement team in assessing the reasonableness of the estimate; Comparing the nature of the R&D expenditure included in the current year estimate to the prior year approved claim; the amount of cash actually received after lodgement of the R&D tax claim; Considering the nature of the expenses against the eligibility criteria of the R&D tax incentive scheme to form a view about whether the expenses included in the estimate are likely to meet the eligibility criteria; Assessing the eligible expenditure used to calculate the estimate to ensure it is in accordance with expenditure recorded in the general ledger; Agreeing a sample of individual expenditure items included in the estimate to underlying supporting documentation to ensure that they have been appropriately recognised in the accounting records and that they are eligible expenditures; Inspecting copies of relevant correspondence with AusIndustry and the ATO related to the claims; and Reviewing the appropriateness of the relevant disclosures in the financial statements.        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 Group’s ability 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 this 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 13 to 22 of the Directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Anatara Lifesciences Ltd, for the year ended 30 June 2020 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. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report Grant Thornton Audit Pty Ltd Chartered Accountants thereon. conclusion thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance 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, 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. T S Jackman Partner – Audit & Assurance Melbourne, 24 August 2020 66 Shareholder Information The shareholder information set out below was applicable as at 18/8/2020. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Holding 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001 Over Ordinary shareholders Ordinary shares % Units 120 292 177 358 73 1,020 63,936 912,034 1,385,021 11,757,289 35,737,897 49,856,177 - 2 3 24 71 100 There were 241 holders of less than a marketable parcel of ordinary shares. Equity Security Holders The names of the twenty largest holders of quoted equity securities are listed below: Name RTL GROUP INVESTMENTS PTY LTD PARMA CORPORATION PTY LTD MYENG PTY LTD UBS NOMINEES PTY LTD MR IAIN ROSS KALOKERY PTY LTD DAVID CHARLES VENABLES NAVIGATOR AUSTRALIA LTD BEEBEE HOLDINGS PTY LTD HSBC CUSTODY NOMINEES BNP PARIBAS NOMINEES PTY LTD GENETIC HORIZONS PTY LTD JACOBY MANAGEMENT SERVICES PTY LIMITED MATTHEW TURNER TULIP SUPER PTY LTD MR BRENDAN PHYLAND MRS BARBARA GREY JONTRA HOLDINGS PTY LTD WOTS IN THERE PTY LTD DR MARK DANIEL REEVES No of Shares % Issued Shares 5,400,000 5,386,274 4,310,011 2,583,113 1,600,000 748,833 719,750 631,327 614,218 598,250 488,682 486,109 485,731 464,102 450,000 447,217 369,755 355,614 330,000 320,614 10.83 10.80 8.64 5.18 3.21 1.50 1.44 1.27 1.23 1.20 0.98 0.98 0.97 0.93 0.90 0.90 0.74 0.71 0.66 0.64 26,789,600 53.71 ANATARA LIFESCIENCES Annual Report 202067 ANNUAL REPORT 2020 Anatara Lifesciences Ltd ABN 41 145 239 872 Level 3, 62 Lygon St, Carlton South, Victoria, Australia, 3053 (03) 9824 5454

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