Biotron Limited
Annual Report 2019

Plain-text annual report

Annual Report B i o t r o n L t d A n n u a l R e p o r t 2 0 1 9 ANNUAL REPORT 2019 BIOTRON LIMITED ABN 60 086 399 144 Contents Operating and Financial Review ...................................................................................................... 1 Corporate Governance Statement .................................................................................................. 5 Directors’ Report .............................................................................................................................. 6 Lead Auditor’s Independence Declaration ....................................................................................16 Statement of Profit or Loss and Other Comprehensive Income .................................................17 Statement of Financial Position ....................................................................................................18 Statement of Changes in Equity ....................................................................................................19 Statement of Cash Flows ...............................................................................................................20 Notes to the Financial Statements ................................................................................................21 Directors’ Declaration ....................................................................................................................39 Independent Auditor’s Report .......................................................................................................40 Additional Stock Exchange Information .......................................................................................44 Corporate Directory ........................................................................................................................47 Operating and Financial Review REVIEW OF OPERATIONS Biotron Limited (‘Biotron’ or ‘the Company’) has completed several significant milestones during the 2018-2019 financial year. These include: Reporting of positive results from the Company’s pivotal Phase 2 BIT225 HIV-1 clinical trial. Presentation of data from the BIT225 HIV-1 trial at the HIV DART and Emerging Viruses 2018 conference in Miami, Florida USA, which received the Conference’s 2018 Poster Award. Appointment of Professor Stephen Locarnini as a Non-Executive Director. Raising $6.0 million in capital from the exercise of Company options. HIV-1 Program The major highlight during the year was the release of positive human clinical data from the BIT225-009 Phase 2 trial of its lead drug BIT225 in HIV-infected patients in combination with current antiretroviral drugs. The data from this Phase 2 clinical trial indicates that BIT225 has induced key immune responses not seen in patients dosed with approved anti-HIV drugs. During HIV-1 infection, the virus hides in long-lived cells known as macrophages. This cellular source of virus persists even in people taking antiretroviral drugs, although there is no detectable virus in their blood. The continued presence of virus causes serious problems including accelerated aging of the immune system and HIV-associated neurocognitive disorder (also known as AIDS-related dementia). Eradication of virus from hidden reservoirs is key to further improving health outcomes in this population and also key to any strategy to cure patients infected with HIV-1. In previously reported laboratory-based studies, Biotron has shown that BIT225 attacks HIV-1 growing in macrophages. An earlier Phase 1b/2a human clinical trial (BIT225-004) demonstrated that BIT225 targets replication of HIV-1 in macrophage lineage cells in infected individuals. The data from the BIT225-009 clinical trial indicate that treatment with BIT225 triggers a range of positive changes to the immune cells which help to fight HIV-1 in these patients. In addition to statistically significant changes in immune cells, there was a statistically significant reduction in the level of the macrophage activation marker sCD163 in the blood of the BIT225-treated cohort by the end of the treatment period compared to the placebo group in the trial. Higher levels of sCD163 are linked with worse clinical outcomes in patients and so this reduction of sCD163 by BIT225 provides additional evidence of potential clinical benefit in these patients. ANNUAL REPORT 2019 1 Phase 2 clinical trial indicates that BIT225 has induced key immune responses not seen in patients dosed with approved anti-HIV drugs. Operating and Financial Review Since releasing data from the BIT225-009 trial, the Company’s main efforts have been directed towards further understanding of these unique responses to BIT225. This has involved testing samples of blood collected during the trial for various markers, the levels of which allow the determination of precisely how BIT225 treatment has impacted on specific immune pathways. These analyses are supplementary in nature and will not change the reported key positive findings from the clinical trial. These analyses are proceeding well and are important as they are providing key information on characterising the mechanism of action of BIT225 on HIV-1 behind the positive results observed in the BIT225-009 clinical trial. Analysis of safety data was another key aspect of the BIT225-009 Phase 2 trial. In the trial, a once daily 200 mg dose of BIT225 over a 12 week period was used for the first time and was shown to be well tolerated, with no serious adverse events or patient withdrawals. The safety data from this extended dosage period adds to the existing data from previous trials which indicates that BIT225 is a well-tolerated drug. In November 2018, Biotron presented a poster entitled BIT225-009: Significant Immunological Outcomes after 12 weeks of BIT225 and Antiretroviral Therapy in an HIV-1 Phase 2 Clinical Trial at the HIV DART and Emerging Viruses 2018 conference in Miami, Florida. In a notable acknowledgement of the importance of these results from the BIT225-009 trial, the conference awarded Biotron’s Head of Research and Development, Dr Carolyn Luscombe, the 2018 HIV DART Poster Award. The importance of the BIT225-009 trial results cannot be overestimated. They open up a new and unique approach to dealing with significant health issues associated with the presence of long-term low level replication of HIV-1 that continues despite treatment with current antiretroviral drugs. The trial data, together with additional information from the ongoing, post-trial analyses, are showing us and, importantly, potential partners how BIT225 may play a role in the eradication of HIV-1. The positive outcomes from the BIT225-009 trial also mean that Biotron has continued to meet with key potential partners with compelling Phase 2 data in hand. The additional data currently being generated by the Company on characterising the mechanism of action of BIT225 seen in the results of the BIT225-009 trial are valuable to furthering these discussions. Hepatitis B Virus Program Control and cure of Hepatitis B virus (HBV) has recently emerged as an important focus of endeavour for antiviral drug development by the pharmaceutical industry. Over 2 billion people worldwide have been infected with HBV. The World Health Organisation estimates that over 250 million are chronically infected. Like HIV-1, HBV can be treated with drugs that stop the virus replicating, but these do not eradicate the virus. Chronic infection with HBV can lead to complications such as cirrhosis and liver cancer, which cause close to one million deaths worldwide each year. There is a concerted international effort to develop treatment strategies to cure HBV. Because the virus life cycle is complex, it is expected that several different approaches in combination will be required to eradicate the virus. Biotron has designed a portfolio of small molecule drugs that effectively work against HBV in cell cultures. While early, the data are encouraging, and the Company is working with a USA-based research group to further characterise the anti-HBV activity of Biotron’s compounds. The reason for optimism is the fact that these compounds reduce the levels of several key markers of HBV infection in the cell assays, one of which is called cccDNA. It is generally accepted that a cure for HBV will require drugs that target cccDNA and, to date, the identification of such compounds has proved elusive. The USA Food and Drug Administration (FDA) recognises the need to develop effective new treatments for HBV. In consultation with European regulatory authorities and professional societies representing the European and American liver groups (EASL and AASLD) the FDA has published a clear guidance document for preclinical and clinical development of new compounds. The HBV therapeutic space is currently very active within the pharmaceutical and biotech industries, with significant investor interest in the search for and development of effective HBV treatments. While Biotron’s work on its HBV compounds is preclinical, the data from these recent studies further validate Biotron’s approach to antiviral drug development and may provide the Company with an early stage development opportunity with an appropriate partner. 2 BIOTRON LIMITED Commercialisation Development of new drugs is a slow, measured process. The strict international regulatory and safety requirements mean that there are no shortcuts to the development of new drugs. Similarly, beneficial partnerships in the biopharmaceutical industry take time. They are dependent on good science, addressing clear unmet medical needs, and rigorous data. Biotron’s core antiviral programs have all these key elements. Biotron is focused on achieving a commercial outcome for its antiviral programs. The Company has been sharing information on its antiviral programs with potential partners in the pharmaceutical industry since early preclinical development. This has included regular updates on progress and discussions of the next stage of development. The Company has good relationships with the pharmaceutical companies active in this space and ongoing dialogue on these programs is in progress and ongoing. Discussions with pharmaceutical companies are iterative in nature. Every successful series of experiments or clinical trial generates another series of questions that will guide the decision-making process on the side of commercial partners. Good, well founded science is core to success. Biotech companies, such as Biotron, also need to demonstrate how their drug(s) will fit within a changing treatment landscape, especially with new mode of action drugs such as BIT225. The Company is consulting with internationally recognised HIV-1 experts with extensive expertise in clinical development of HIV-1 treatments, as well as experience in advising the pharmaceutical industry. The aim is to map out the next stage of clinical development based on the latest data. The positive outcomes from the body of Biotron’s work to date mean that the Company is able to continue discussions with key potential partners with compelling Phase 2 data in hand. Phase 2 is generally considered the best time to license technology to a major pharmaceutical company as they have the expertise and resources necessary for late stage clinical development and regulatory approvals in major markets such as the USA. This is not a rapid process, nor is there a guarantee of a successful commercial outcome. We appreciate the ongoing support and patience of shareholders while we work to achieve the long- awaited commercial outcomes. Operating and Financial Review The positive outcomes from the body of Biotron’s work to date mean that the Company is able to continue discussions with key potential partners with compelling Phase 2 data in hand. ANNUAL REPORT 2019 3 Operating and Financial Review Patents Biotron continues to progress patents related to its antiviral programs through the international patenting process. The Company recognises that the key to establishment of partnerships is the expansion and continued strengthening of Biotron’s intellectual property portfolio. Strong, defensible, international patents are essential to attract partners and to ensure a competitive advantage for the Company’s products in the marketplace. TITLE WO0021538 Method of modulating ion channel functional activity Priority – 12 October 1998 WO04112687 Antiviral compounds and methods Priority – 26 June 2003 WO06135978 Antiviral compounds and methods Priority – 24 June 2005 STATUS Granted in Australia Granted in Australia, Brazil, Canada, China, India, Japan, Korea, New Zealand, Singapore and South Africa Under examination elsewhere (Europe, Hong Kong, and USA) Granted in Austria, Australia, Belgium, Canada, Switzerland, China, Germany, Denmark, Spain, Finland, France, United Kingdom, Hong Kong, Ireland, Italy, Japan, Korea, Luxembourg, Monaco, The Netherlands, New Zealand, Poland, Portugal, Sweden, Singapore, Turkey, South Africa and USA Under examination elsewhere (Brazil, India) WO2009/018609 Hepatitis C antiviral compounds and methods Priority – 3 August 2007 Granted in Austria, Australia, Belgium, Switzerland, Canada, China, Germany, Denmark, Spain, Finland, France, United Kingdom, Hong Kong, Ireland, Italy, Japan, Korea, Luxembourg, Monaco, The Netherlands, New Zealand, Poland, Portugal, Sweden, Singapore, Turkey and South Africa Under examination in elsewhere (Brazil, India, and USA) WO/2018/145148 Published 16 August 2018 Methods of treating Influenza Priority – 8 February 2017 4 BIOTRON LIMITED Operating and Financial Review Corporate In October 2018, Biotron was pleased to announce the appointment of Professor Stephen Locarnini as a Non-Executive Director of the Company. Professor Locarnini, BSc(Hons), PhD, MBBS, FRC(Path), was a past Director of the World Health Organisation (WHO) Regional Reference Laboratory for Hepatitis B and D. Curative treatments for Hepatitis B infections with antiviral agents represent a major focus for Professor Locarnini who is currently the Divisional Head, Research & Molecular Development of Victorian Infectious Diseases Reference Laboratory (VIDRL). He is a member of the Scientific Advisory Board of a number of emerging as well as established pharmaceutical and biotechnology companies and is considered one of the world’s leading HBV experts. His skills and networks will be of real benefit to Biotron at its current stage of development. During the year in review the Company raised a total of $6,038,728 from the exercise of options, including options exercised by the Company’s Managing Director, Dr Michelle Miller, which had been granted as part of her remuneration package. This significant injection of funds combined with the receipt of the Australian Government’s R&D Tax rebate places the Company in a sound financial position as it focuses on achieving commercial outcomes for its programs. During the next financial year, the Company will be focused on: • Continuing detailed supplementary analyses of samples from the Phase 2 HIV-1 trial seeking to further characterise the clinical efficacy of BIT225. • Ongoing sharing of data from the HIV-1 Phase 2 clinical trial and discussions with potential pharmaceutical company partners regarding commercialisation opportunities for the Company’s antiviral intellectual property. • Undertaking additional in vitro cell-based preclinical testing of compounds for the HBV program, including screening of newly designed and synthesised compounds for potential anti-HBV activity. • Continued testing of Biotron compounds for activity against other key commercially relevant virus targets. Subsequent Events No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. We look forward to the next year with confidence. Michael J. Hoy Chairman Michelle Miller Managing Director Corporate Governance Statement The Board is committed to maintaining the highest standards of Corporate Governance. Corporate Governance is about having a set of core values and behaviours that underpin the Company’s activities and ensure transparency, fair dealing and protection of the interests of stakeholders. The Company has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2019 Corporate Governance Statement, dated as at and approved by the Board on 02 August 2019, reflects the corporate governance practices throughout the 2019 financial year. A description of the Company’s current corporate governance practices is set out in the Company’s corporate governance statement which can be viewed at http://www.biotron.com.au/corporate-governance. ANNUAL REPORT 2019 5 Directors’ Report DIRECTORS The names and particulars of the directors of the Company at any time during or since the end of the financial year are: Mr Michael J. Hoy Independent and Non-Executive Chairman Mr Hoy has more than 30 years’ corporate experience in Australia, the United Kingdom, USA and Asia. He is Chairman of Lipotek Pty Limited and a former director of John Fairfax Holdings Limited and FXF Trust. Mr Hoy has been a director since 7 February 2000 and Chairman since 16 March 2000. Dr Michelle Miller, BSc, MSc, PhD, GCertAppFin (Finsia) Managing Director Dr Miller has worked for over 25 years in the bioscience industry, with extensive experience in commercial drug development. She completed her PhD in the Faculty of Medicine at Sydney University investigating molecular models of cancer development. Her experience includes several years at Johnson & Johnson developing anti-HIV gene therapeutics through preclinical research to clinical trials. She has finance industry experience from time spent as an Investment Manager with a specialist bioscience venture capital fund. Dr Miller was appointed as Managing Director on 21 June 2002. Dr Susan M. Pond AM, MD DSc, FTSE FAHMS Independent and Non-Executive Director Dr Pond has a strong scientific and commercial background having held executive positions in the biotechnology and pharmaceutical industry for 12 years, most recently as chairman and managing director of Johnson & Johnson Research Pty Limited (2003 - 2009). Previous non-executive positions include chair of AusBiotech Limited and director of Australian Nuclear Science and Technology Organisation, Wound Management Innovation CRC and Australian Academy of Technological Sciences and Engineering (ATSE). Dr Pond also served as a board member of Commercialisation Australia and Innovation Australia. Dr Pond is currently chair of the New South Wales Smart Sensing Network and director of the Trusted Autonomous Systems Defence Cooperative Research Centre, Vectus Biosystems Ltd and Australian Phenomics Network. She is a Fellow of the Australian Institute of Company Directors, the Academy of Technological Sciences & Engineering, the Academy of Health and Medical Sciences and the Royal Society of NSW. Dr Pond holds a first-class honours degree in Bachelor of Medicine and Surgery from the University of Sydney and a Doctor of Medicine degree from the University of New South Wales. She obtained specialist clinical credentials in internal medicine, clinical pharmacology and clinical toxicology and held academic appointments at the University of California, San Francisco and the University of Queensland before joining industry. Dr Pond was appointed as a director on 7 March 2012. 6 BIOTRON LIMITED Mr Robert B. Thomas BEc, MSDIA, SF Fin, FICD Independent and Non-Executive Director Mr Thomas has over 35 years’ experience in the securities industry, with Potter Partners (now UBS), County NatWest and Citigroup. He is the chairman of Starpharma Holdings Limited. He is a director of Aus Bio Limited and REVA Medical Limited and a former director of Virgin Australia Limited. He chairs Grahger Retail Securities Pty Ltd and is a director of O’Connell Street Associates Pty Limited. Mr Thomas has a Bachelor of Economics degree from Monash University (1963 - 1966). He has been a member of the Securities Institute of Australia since 1976 and was appointed as a Fellow to the Institute in 1997. He is a Master Stockbroker and is a Fellow of the Institute of Company Directors. Mr Thomas was appointed as a director on 7 March 2012. Prof Stephen Locarnini, BSc(Hons), PhD, MBBS, FRC(Path) Independent and Non-Executive Director Professor Locarnini is a past director of the World Health Organisation (WHO) Regional Reference Laboratory for Hepatitis B and D for the Western Pacific Region (WPRO). His current major research interests include viral hepatitis, hepatitis vaccines and antiviral chemotherapy with an emphasis on the basic virology of the various agents of hepatitis, the molecular pathogenesis of hepatitis, as well as prevention and public health control measures. Curative treatments for hepatitis B infections with antiviral agents represent the current focus for Professor Locarnini who is also interested in intellectual property issues when applied to clinical and diagnostic virology. He is a named inventor on over 20 internationally granted patents. He worked at the Victorian Infectious Diseases Reference Laboratory (VIDRL, originally Fairfield Hospital Virus Laboratory) from 1989, as Director of Laboratory Services from 1990 to 1998 and, in 1993, he oversaw the amalgamation of all the Fairfield Laboratories into the one service of the VIDRL. He subsequently assumed the position of Head, Research & Molecular Development of VIDRL when the laboratory relocated to Melbourne Health in 1998. Directors’ Report Professor Locarnini is the recipient of numerous awards including the European Association for the Study of Liver Disease (EASL) International Recognition Award in 2010, the Malaysian Liver Foundation’s Medal for work on Viral Hepatitis in 2003 and the Gastroenterological Society of Australia (GESA) Distinguished Research Prize in 2013. In 2019 he received the William H. Prusoff HEP DART Lifetime Achievement Award. He is author of 289 peer-reviewed articles, 24 invited editorials and 100 book chapters and reviews and every year delivers numerous invited, plenary, and named lectures at major international meetings and conferences. Professor Locarnini currently has an academic appointment at the University of Melbourne. He is a member of the Scientific Advisory Board of a number of emerging as well as established pharmaceutical and biotechnology companies. In 2017, he co-founded the biotech start-up company CLEAR-B with the Morningside-Newton Investment group in Boston, USA focusing on curative strategies for chronic hepatitis B. He is also the Hepatitis Virus Editor for Antiviral Therapy. Professor Locarnini was appointed as a Director on 23 October 2018. Mr Peter J. Nightingale Company Secretary Mr Nightingale graduated with a Bachelor of Economics degree from the University of Sydney and is a member of the Chartered Accountants Australia and New Zealand. He has worked as a chartered accountant in both Australia and the USA. As a director or company secretary Mr Nightingale has, for more than 25 years, been responsible for the financial control, administration, secretarial and in-house legal functions of a number of private and public listed companies in Australia, the USA and Europe including Argent Minerals Limited, Bolnisi Gold N.L., Cockatoo Coal Limited, Callabonna Uranium Limited, Mogul Mining N.L., Pangea Resources Limited, Perseverance Corporation Limited, Sky Metals Limited (previously Planet Gas Limited) Sumatra Copper & Gold plc, Timberline Minerals, Inc. and Valdora Minerals N.L. Mr Nightingale is currently a director of Alpha HPA Limited, Nickel Mines Limited and unlisted public company Prospech Limited. Mr Nightingale has been Company Secretary since 23 February 1999. ANNUAL REPORT 2019 7 Directors’ Report DIRECTORS’ MEETINGS The number of directors’ meetings held and number of meetings attended by each of the directors of the Company, while they were a director, during the year are: Director Michael J. Hoy Michelle Miller Susan M. Pond Robert B. Thomas Stephen Locarnini Directors’ Meetings No. of Eligible Meetings to Attend No. of Meetings Attended 6 6 6 6 4 6 6 6 6 4 REMUNERATION COMMITTEE MEETINGS The number of remuneration committee meetings held and number of meetings attended by each of the directors of the Company, while they were a member of the committee, during the year are: Director Michael J. Hoy Michelle Miller Susan M. Pond Robert B. Thomas Stephen Locarnini Remuneration Committee Meetings No. of Eligible Meetings to Attend No. of Meetings Attended 1 0 0 1 0 1 0 0 1 0 DIRECTORS’ INTERESTS At the date of this report, the beneficial interests of each director of the Company in the issued share capital of the Company and options, each exercisable to acquire one fully paid ordinary share of the Company are: Directors Michael J. Hoy Michelle Miller Susan M. Pond Robert B. Thomas Stephen Locarnini Fully Paid Ordinary Shares Options Option Terms (Exercise Price and Term) 7,789,828 2,965,625 545,246 2,663,195 - 1,557,965 $0.05 at any time up to 12 December 2019 190,625 109,049 - - $0.05 at any time up to 12 December 2019 $0.05 at any time up to 12 December 2019 - - There were no options over unissued ordinary shares granted as compensation to directors or executives of the Company during 2019 and 2018 financial years. 8 BIOTRON LIMITED Directors’ Report UNISSUED SHARES UNDER OPTION At the date of this report, unissued ordinary shares of the Company under option are: Number of Options 106,226,853 Exercise Price $0.05 Expiry Date 12 December 2019 The persons entitled to exercise the options do not have, by virtue of the options, the right to participate in a share issue of the Company or any other body corporate. SHARES ISSUED ON EXERCISE OF OPTIONS During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there are no amounts unpaid on the shares issued): Number of Shares 78,429,130 9,859,614 PRINCIPAL ACTIVITIES Amount paid on each share $0.06 $0.05 The principal activities of the Company during the financial year were the funding and management of intermediate and applied biotechnology research and development projects. FINANCIAL RESULT AND REVIEW OF OPERATIONS The operating loss of the Company for the financial year after income tax was $1,611,799 (2018 - $1,593,645 loss). A review of the Company’s operations for the year is set out in the Operating and Financial Review. IMPACT OF LEGISLATION AND OTHER EXTERNAL REQUIREMENTS There were no changes in environmental or other legislative requirements during the year that have significantly impacted the results or operations of the Company. DIVIDENDS The directors recommend that no dividend be paid by the Company. No dividend has been paid or declared since the end of the previous financial year. STATE OF AFFAIRS In the opinion of the directors, there were no significant changes in the state of affairs of the Company that occurred during the year ended 30 June 2019. ENVIRONMENTAL REGULATIONS The Company’s operations are not subject to significant environmental regulations under Commonwealth or State legislation in relation to its research projects. ANNUAL REPORT 2019 9 Directors’ Report EVENTS SUBSEQUENT TO BALANCE DATE There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. LIKELY DEVELOPMENTS During the year ended 30 June 2019, the Company continued to fund and manage its research and development projects. The success of these research projects, which cannot be assessed on the same fundamentals as trading and manufacturing enterprises, will determine future likely developments. INDEMNIFICATION OF OFFICERS AND AUDITORS During or since the end of the financial year, the Company has not indemnified or made a relevant agreement to indemnify an officer or auditor of the Company against a liability incurred by such an officer or auditor. In addition, the Company has not paid or agreed to pay, a premium in respect of a contract insuring against a liability incurred by an officer or auditor. REMUNERATION REPORT - AUDITED Principles of compensation - Audited Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company. Key management personnel comprise the directors of the Company and the Company Secretary. No other employees have been deemed to be key management personnel. The policy of remuneration of directors and senior executives is to ensure the remuneration package properly reflects the person’s duties and responsibilities, and that remuneration is competitive in attracting, retaining and motivating people of the highest quality. The Board is responsible for reviewing its own performance. The non-executive directors are responsible for evaluating the performance of the executive directors who, in turn, evaluate the performance of all other senior executives. The evaluation process is intended to assess the Company’s business performance, whether long term strategic objectives are being achieved and the achievement of individual performance objectives. Remuneration generally comprises salary and superannuation. Longer term incentives are able to be provided through the Company’s Incentive Option Plan which acts to align the directors and senior executives’ actions with the interests of the shareholders. The vesting conditions of options issued under the plan are based on a minimum service periods being achieved. In the event that the employment or office of the option holder is terminated, any options which have not reached their exercise period will lapse and any options which have reached their exercise period may be exercised within three months of the date of termination of employment. Any options not exercised within this three month period will lapse. The remuneration disclosed below represents the cost to the Company for the services provided under these arrangements. No directors or senior executives receive performance related remuneration. 5 million employee options were exercised during the year. The number of options that had vested as at 30 June 2019 is nil. No options were granted as remuneration during the year. There were no remuneration consultants used by the Company during the year ended 30 June 2019 or in the prior year. 10 BIOTRON LIMITED Directors’ Report Consequences of performance on shareholder wealth - Audited In considering the Company’s performance and benefits for shareholders wealth, the Board have regard to the following indices in respect of the current financial year and the previous four financial years. 2019 2018 2017 2016 2015 Net loss attributable to equity holders of the Company $1,611,799 $1,593,645 $3,093,405 $3,004,303 $2,723,221 Dividends paid - - - - - Change in share price 0.05 cents (0.1) cents (4.0) cents (7.0) cents 3.0 cents The overall level of key management personnel’s compensation is assessed on the basis of market conditions, status of the Company’s projects, and financial performance of the Company. Details of remuneration for the year ended 30 June 2019 - Audited Details of director and senior executive remuneration and the nature and amount of each major element of the remuneration of each director of the Company, and other key management personnel of the Company are set out below: Primary Fees $ Year Superannuation $ Share Based Payments - Options $ Other $ Total $ Value of Options as a % of Remuneration Directors Non-executive Michael J. Hoy (Chairman) Susan M. Pond Robert B. Thomas Stephen Locarnini** Denis N. Wade* Executive 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 70,356 68,807 37,523 36,697 37,523 36,697 26,221 - - 15,290 6,684 6,537 3,565 3,486 3,565 3,486 2,491 - - 1,453 - - - - - - - - - - - - - - - - - - - - 77,040 75,344 41,088 40,183 41,088 40,183 28,712 - - 16,743 Michelle Miller (Managing Director) 2019 2018 307,191 300,000 29,183 28,500 - 10,134 14,886 5,525 351,260 344,159 Executives Peter J. Nightingale (Company Secretary) 2019 2018 78,000 75,000 - - - - - - 78,000 75,000 - - - - - - - - - - - 3% - - ** appointed as a director on 23 October 2018 resigned as a director on 20 November 2017 * No bonuses were paid during the financial year and no performance based components of remuneration exist. The Company employed no other key management personnel. ANNUAL REPORT 2019 11 Directors’ Report Options granted as compensation – Audited Details of options granted as compensation to each key management person: Director Grant Date Number of Options Granted Fair Value at Grant Date Option Terms (Exercise Price and Term) Michelle Miller 25 November 2015 1,000,000 $17,900 Michelle Miller 25 November 2015 1,000,000 $17,900 Michelle Miller 25 November 2015 3,000,000 $48,900 $0.15 at any time to 30 November 2018 $0.15 at any time from 30 November 2016 up to 30 November 2018 $0.18 at any time from 30 November 2017 up to 30 November 2018 The fair value of the options at grant date was determined based on Black- Scholes formula. The model inputs of the options issued, were the Company’s share price of $0.046 at the grant date, a volatility factor of 100% based on historic share price performance, a risk free rate of 2.11% based on the 10 year government bond rate and no dividends paid. No options were granted during the 2019 and 2018 financial years. The number of options that vested as at 30 June 2019 is nil (2018 - 5,000,000). During the year, Michelle Miller exercised the 5,000,000 options. No options lapsed during 2019 and 2018 financial years. Modification of terms of equity-settled share-based payment transactions - Audited No terms of equity-settled share-based payment transactions (including options granted as compensation to a key management person) have been altered or modified by the Company during the 2019 financial year. Exercise of options granted as compensation - Audited 5 million shares issued on the exercise of options previously granted as compensation during the 2019 financial year (2018- nil). Analysis of options and rights over equity instruments granted as compensation - Audited All options refer to options over ordinary shares of Biotron Limited, which are exercisable on a one-for-one basis. Options granted Director Number % vested at year end exercised/forfeited during the year balance at year end Financial year in which grant vests Date Michelle Miller 1,000,000 25 November 2015 1,000,000 25 November 2015 3,000,000 25 November 2015 100% 100% 100% 1,000,000 1,000,000 3,000,000 - - - 1 July 2015 1 July 2016 1 July 2017 The number of options that had vested as at 30 June 2019 is nil (2018 - 5,000,000). No options were granted subsequent to year end. Analysis of movements in options - Audited Director Michelle Miller Granted in the year Valuation of options exercised in the year - $387,750 Lapsed in the year - 12 BIOTRON LIMITED Directors’ Report Options and rights over equity instruments - Audited The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their personally related entities, is as follows: Option holdings 2019 - Audited Held at 1 July 2018 Granted/ Purchased Exercised/Sold Expired Held at 30 June 2019 Vested and exercisable at 30 June 2019 Directors Michael J. Hoy Michelle Miller Susan M. Pond 2,804,337 5,703,125 196,288 Robert B. Thomas 2,104,793 Stephen Locarnini Executives Peter J. Nightingale - - - - - - - - 1,246,372 5,512,500 87,239 2,104,793 - - - - - - - - 1,557,965 1,557,965 190,625 109,049 190,625 109,049 - - - - - - Loans to key management personal and their related parties - Audited There were no loans made to key management personnel or their related parties during the 2019 and 2018 financial years and no amounts were outstanding at 30 June 2019 (2018 - $nil). Other transactions with key management personnel - Audited The following key management person holds a position in another entity that results in them having control or joint control over the financial or operating policies of that entity, and this entity transacted with the Company during the year as follows: ∫ During the year ended 30 June 2019, Peter J. Nightingale had a controlling interest in an entity, MIS Corporate Pty Limited, which provided full administrative services, including rental accommodation, administrative staff, services and supplies, to the Company. Fees paid to MIS Corporate Pty Limited during the year amounted to $144,000 (2018 - $144,000). There were no outstanding amounts at 30 June 2019 (2018 - $nil). ANNUAL REPORT 2019 13 Directors’ Report Movements in shares - Audited The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or beneficially, by each key management person, including their personally-related entities, is as follows: Fully paid ordinary shareholdings and transactions 2019 - Audited Held at 1 July 2018 Purchased Received on exercise of options Sales Held at 30 June 2019 Directors Michael J. Hoy Michelle Miller Susan M. Pond 7,789,828 953,125 545,246 Robert B. Thomas 8,000,000 Stephen Locarnini - Executives Peter J. Nightingale 5,760,416 Service contracts - Audited - - - - - - 1,246,372 1,246,372 5,512,500 3,500,000 87,239 87,239 2,004,793 7,341,598 - 7,789,828 2,965,625 545,246 2,663,195 - 2,165,513 3,594,903 - - In accordance with best practice corporate governance, the Company provided each key management personnel with a letter detailing the terms of appointment, including their remuneration. Michelle Miller’s is employed by the Company as Managing Director and is required to provide the Company with three months notice in order to terminate employment. The contractual salary is $328,500 (including superannuation). During the year ended 30 June 2019, the Remuneration Committee resolved to increase compensation to Michelle Miller to $360,000 (including superannuation). Non-executive directors - Audited Total compensation for all non-executive directors is determined by the Board based on market conditions. Non-audit Services During the year KPMG, the Company’s auditor, performed no other services in addition to their statutory duties. A copy of the auditors’ independence declaration as required under Section 307C of the Corporations Act 2001 is included in the Directors’ Report. Details of the amounts paid and accrued to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out below. Statutory audit Audit and review of financial reports - KPMG 52,500 49,950 2019 $ 2018 $ 14 BIOTRON LIMITED Directors’ Report LEAD AUDITOR’S INDEPENDENCE DECLARATION The Lead Auditor’s Independence Declaration is set out on page 16 and forms part of the Directors’ Report for the year ended 30 June 2019. This report has been signed in accordance with a resolution of the directors and is dated 29 August 2019: Michael J. Hoy Chairman Michelle Miller Managing Director ANNUAL REPORT 2019 15 Lead Auditor’s Independence Declaration To the Directors of Biotron Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Biotron Limited for the financial year ended 30 June 2019 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Stephen Board Partner Brisbane 29 August 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability Professional Standards Legislation. limited by a scheme approved under 16 BIOTRON LIMITED Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2019 Continuing operations Other income Administration and consultants’ expenses Depreciation Employee and director expenses Direct research and development expenses Rent and outgoings expenses Travel expenses Other expenses from ordinary activities Operating loss before financing income Interest income Net financing income Loss before tax Income tax expense Loss for the year Other comprehensive income Notes 2019 $ 2018 $ 5 1,072,832 1,622,584 11 6 (299,580) (12,467) (806,272) (275,674) (11,642) (817,458) (1,115,879) (1,692,656) (61,236) (73,849) (404,488) (77,604) (106,549) (251,230) (1,700,939) (1,610,229) 89,140 89,140 16,584 16,584 (1,611,799) (1,593,645) 9 - - (1,611,799) (1,593,645) - - Total comprehensive loss for the year (1,611,799) (1,593,645) Basic and diluted loss per share (cents) 7 (0.29) cents (0.40) cents The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. ANNUAL REPORT 2019 17 Statement of Financial Position As at 30 June 2019 Current assets Cash and cash equivalents Other assets Total current assets Non-current assets Plant and equipment Other financial assets – bond deposit Total non-current assets Total assets Current liabilities Trade and other payables Employee entitlements Total current liabilities Non-current liabilities Employee entitlements Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Notes 2019 $ 2018 $ 8 10 11 12 13 13 14 14 5,739,788 37,004 5,776,792 46,321 33,855 80,176 5,856,968 202,466 209,623 412,089 5,909 5,909 417,998 5,438,970 1,543,002 58,354 1,601,356 17,854 - 17,854 1,619,210 160,778 176,924 337,702 - - 337,702 1,281,508 47,523,320 41,439,162 284,758 599,655 (42,369,108) (40,757,309) 5,438,970 1,281,508 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 18 BIOTRON LIMITED Statement of Changes in Equity For the Year Ended 30 June 2019 Attributable to equity holders of the Company Notes Issued Capital $ Option Reserves $ Accumulated Losses $ Total $ Balance at 1 July 2017 40,325,345 278,419 (39,163,664) 1,440,100 Total comprehensive income for the year Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners, recorded directly in equity Contribution by and distribution to owners - - - - - - (1,593,645) (1,593,645) - - (1,593,645) (1,593,645) Ordinary shares/options issued 1,365,967 311,182 Cost of shares issued Share based payment Exercise of options (252,230) - 80 - 10,134 (80) - - - - 1,677,149 (252,230) 10,134 - Balance at 30 June 2018 14 41,439,162 599,655 (40,757,309) 1,281,508 Balance at 1 July 2018 41,439,162 599,655 (40,757,309) 1,281,508 Total comprehensive income for the year Loss for the year Other comprehensive income Total comprehensive loss for the year Transactions with owners, recorded directly in equity Contribution by and distribution to owners Ordinary shares/options issued Cost of shares issued Exercise of options Balance at 30 June 2019 - - - 6,038,728 (269,467) - - - - - 314,897 (314,897) (1,611,799) (1,611,799) - - (1,611,799) (1,611,799) - - - 6,038,728 (269,467) - 14 47,523,320 284,758 (42,369,108) 5,438,970 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. ANNUAL REPORT 2019 19 Statement of Cash Flows For the Year Ended 30 June 2019 Cash flows from operating activities Cash receipts in the course of operations Payments for research and development Cash payments in the course of operations Interest received Notes 2019 $ 2018 $ 1,073,232 (1,079,958) (1,580,305) 89,140 1,622,584 (1,863,780) (1,617,399) 16,584 Net cash used in operating activities 15 (1,497,891) (1,842,011) Cash flows from investing activities Rental bond Payments for plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares and options Cost of issue of shares and options Consideration received – option exercise, share not yet granted Net cash from financing activities Net increase/(decrease) in cash held Cash and cash equivalents at 1 July Effect of exchange rate adjustments on cash held (11,949) (40,933) (52,882) - - - 6,038,728 (291,678) 500 1,653,149 (255,528) - 5,747,550 1,397,621 4,196,777 1,543,002 9 (444,389) 1,987,384 7 Cash and cash equivalents at 30 June 8 5,739,788 1,543,002 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 20 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 1. REPORTING ENTITY Biotron Limited (the ‘Company’) is a company domiciled in Australia. The address of the Company’s registered office is at Level 2, 66 Hunter Street, Sydney, NSW 2000. The Company is a for-profit entity and is primarily engaged in the funding and management of intermediate and applied biotechnology research and development projects. 2. BASIS OF PREPARATION (a) Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The financial statements of the Company also comply with International Financial Reporting Standards (‘IFRSs’) adopted by the International Accounting Standards Board (‘IASB’). The Company adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers effective from 1 July 2018. There was no material impact on the financial statements upon adoption. The financial report was authorised for issue by the directors on 29 August 2019. (b) Basis of measurement The financial statements have been prepared on the historical cost basis, unless otherwise stated. (c) Functional and presentation currency These financial statements are presented in Australian dollars, which is the Company’s functional currency. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: ∫ Note 9 – Unrecognised deferred tax asset 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by the Company. (a) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. (b) Trade and other receivables Trade and other receivables are stated at their amortised cost less impairment losses. ANNUAL REPORT 2019 21 Notes to the Financial Statements For the Year Ended 30 June 2019 (c) Property, plant and equipment Property plant and equipment are stated at their historical cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised in profit or loss using the reducing balance method from the date of acquisition at rates between 13% and 40% per annum. (d) Government grants Where a grant is received relating to research and development costs that have been expensed, the grant is recognised as other income when the grant becomes receivable and the Company complies with all attached conditions. Costs Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit and loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in profit or loss when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. (e) Trade and other payables Trade and other payables are stated at their amortised cost, are non-interest bearing and are normally settled within 60 days. (f) Employee entitlements Short-term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short term cash bonus or profit sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Long term employee benefits The Company’s net obligation in respect of long term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Re-measurements are recognised in profit or loss in the period in which they arise. Share-based payment transactions The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. 22 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 (g) Financial instruments Non-derivative financial assets Recognition and initial measurement The Company initially recognises trade receivables on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Classification and subsequent measurement – Policy applicable from 1 July 2018 On initial recognition, a financial asset is classified as measured at: ∫ Amortised cost; ∫ Fair value through other comprehensive income – equity investment; or ∫ Fair value through profit or loss. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortised cost if it meets both the following conditions and is not designated as fair value through profit or loss: ∫ It is held within a business model whose objective is to hold assets to collect contractual cash flows; and ∫ Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortised cost or fair value through other comprehensive income as described above are measured at fair value through profit or loss. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Prior to 1 July 2018, The Company classified its financial assets into one of the following. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise, they are classified as non-current. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend income, are recognised in profit or loss. Amortised cost Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. They are included in current assets, except for those with maturities greater than 12 months after the reporting period, which are classified as non-current assets. Loans and receivables comprise cash and cash equivalents and trade and other receivables. ANNUAL REPORT 2019 23 Notes to the Financial Statements For the Year Ended 30 June 2019 Non-derivative financial liabilities Financial liabilities are measured at amortised cost. The Company initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Other financial liabilities comprise loans and borrowings and trade and other payables. (h) Share Capital Ordinary Shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (i) Tax Income tax comprises of current tax and deferred tax and is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and liabilities are offset only if certain criteria are met. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (‘GST’), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. 24 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 (j) Finance income Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. (k) Earnings per share The Company presents basic and diluted earnings per share (‘EPS’) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options. (l) Impairment Financial instruments Policy applicable from 1 July 2018 The Company recognises expected credit losses (‘ECLs’), where material, on: ∫ Financial assets measured at amortised cost; The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs: ∫ Other debt securities and bank balances for which credit risk (i.e the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at fair value through other comprehensive income are credit-impaired. The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. Policy applicable before 1 July 2018 Non-derivative financial assets A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. Financial assets measured at amortised cost Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognised within profit or loss. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (m) Provisions A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. ANNUAL REPORT 2019 25 Notes to the Financial Statements For the Year Ended 30 June 2019 (n) Segment reporting Determination and presentation of operating segments The Company determines and presents operating segments based on the information that is provided internally to the Managing Director, who is the Company’s chief operating decision maker. An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’ operating results are regularly reviewed by the Company’s Managing Director to make decisions about resources to be allocated to the segment and assess its performance. Segment results that are reported to the Managing Director include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Company’s headquarters), head office expenses, and income tax assets and liabilities. (o) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019, and have not been applied in preparing these financial statements. The Company is in the process of assessing the impact of new standards. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these standards early and is assessing the impact. AASB 16 Leases AASB 16 removes the lease classification test for lessees and requires all the leases (including operating leases) to be brought onto the balance sheet. The definition of a lease is also amended and is now the new on/off balance sheet test for lessees. AASB is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts with Customers is adopted at the same time. 4. DETERMINATION OF FAIR VALUES A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the measurement date. Fair value is determined at initial recognition and, for disclosure purposes, at each annual reporting date. Share-based payment transactions The fair value of employee share options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. Non-derivative financial liabilities Non-derivative financial liabilities are measured at fair value, at initial recognition, and for disclosure purposes, at each annual reporting date. Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the measurement date. 26 BIOTRON LIMITED 5. OTHER INCOME Research and development rebate Other Notes to the Financial Statements For the Year Ended 30 June 2019 Note 2019 $ 2018 $ 1,072,832 1,621,653 - 931 1,072,832 1,622,584 6. LOSS FROM OPERATING ACTIVITIES Loss from ordinary activities has been arrived at after charging the following items: Auditors’ remuneration paid to KPMG - Auditor’s and review of financial reports Depreciation - Office equipment - Plant and equipment Direct research and development expenditure expensed as incurred Provision for employee entitlements Superannuation expense 7. LOSS PER SHARE 52,500 49,950 11 11 11,505 962 10,453 1,189 1,115,879 1,692,656 38,608 63,313 (74,915) 62,837 The calculation of basic and diluted loss per share at 30 June 2019 was based on the loss attributable to ordinary shareholders of $1,611,799 (2018 - $1,593,645 loss) and a weighted average number of ordinary shares outstanding during the financial year ended 30 June 2019 of 559,287,341 (2018 – 397,150,054), calculated as follows: Net loss for the year 1,611,799 1,593,645 Weighted average number of ordinary shares (basic and diluted) Issued ordinary shares at 1 July Weighted average number of ordinary shares at 30 June 2019 Number 2018 Number 502,417,116 392,229,816 559,287,341 397,150,054 As the Company is loss making, none of the potentially dilutive securities are currently dilutive. ANNUAL REPORT 2019 27 Notes to the Financial Statements For the Year Ended 30 June 2019 8. CASH AND CASH EQUIVALENTS Cash at bank Cash and cash equivalents in the statement of cash flows 5,739,788 1,543,002 5,739,788 1,543,002 2019 $ 2018 $ 9. INCOME TAX EXPENSE Current tax expense Current year Tax losses not recognised Deferred tax expense Current year De-recognition of temporary differences (802,107) (970,021) 802,107 970,021 - - 65,030 89,176 (65,030) (89,176) - - Numerical reconciliation between tax expense and pre-tax net profit Loss before tax - continuing operations (1,611,799) (1,593,645) Prima facie income tax benefit at the Australian tax rate of 27.5% (443,245) (438,252) Increase in income tax expense due to: - Adjustments not resulting in temporary differences - Effect of tax losses not recognised - Unrecognised temporary differences Income tax expense current and deferred Deferred tax assets have not been recognised in respect of the following items Deductible temporary differences (net) Tax losses Net 385,425 122,850 (65,030) 595,928 (68,500) (89,176) - - 214,244 204,140 9,469,650 9,346,799 9,683,894 9,550,939 The deductible temporary differences and tax losses do not expire under the current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilise the benefits of the deferred tax asset. 28 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 2019 $ 2018 $ 37,004 - 37,004 36,448 21,906 58,354 239,116 (202,718) 36,398 514,442 (504,519) 9,923 46,321 205,851 (195,398) 9,453 511,958 (503,557) 8,401 17,854 10. OTHER ASSETS Current prepayments Security deposits 11. PLANT AND EQUIPMENT Office equipment - at cost Accumulated depreciation Plant and equipment - at cost Accumulated depreciation Total plant and equipment - net book value Reconciliations Reconciliations of the carrying amounts for each class of plant and equipment are set out below: Office equipment Balance at 1 July Additions Depreciation Carrying amount at the end of the financial year Plant and equipment Balance at 1 July Additions Depreciation Carrying amount at the end of the financial year Total carrying amount at the end of the financial year 9,453 38,450 (11,505) 36,398 8,401 2,484 (962) 9,923 46,321 19,906 - (10,453) 9,453 9,590 - (1,189) 8,401 17,854 ANNUAL REPORT 2019 29 Notes to the Financial Statements For the Year Ended 30 June 2019 12. TRADE AND OTHER PAYABLES Current Creditors Accruals 13. EMPLOYEE ENTITLEMENTS Current Employee annual leave provision Long service leave provision Non-current Long service leave provision 14. CAPITAL AND RESERVES Issued and paid up capital 2019 $ 2018 $ 158,270 44,196 202,466 135,778 25,000 160,778 69,024 140,599 209,623 50,282 126,642 176,924 5,909 - 595,705,860 (2018 – 502,417,116) fully paid ordinary shares 47,523,320 41,439,162 Fully paid ordinary shares Balance at the beginning of the financial year Issue of shares Exercise of options Costs of issue Balance at the end of financial year 41,439,162 40,325,345 6,038,728 1,365,967 314,897 (269,467) 80 (252,230) 47,523,320 41,439,162 30 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. ∫ During the year ended 30 June 2019, 2,000,000 ordinary shares (2018 – nil) were issued through the exercise of 30 November 2018 $0.15 employee options for cash totalling $300,000 (2018 - $nil). The fair value of the options when granted was $35,806 (2018 - $nil). Total Issue cost of $2,654 was recognised as a reduction in proceeds of issue of these shares. ∫ During the year ended 30 June 2019, 3,000,000 ordinary shares (2018 – nil) were issued through the exercise of 30 November 2018 $0.18 employee options for cash totalling $540,000 (2018 - $nil). The fair value of the options when granted was $48,751 (2018 - $nil). Total Issue cost of $5,904 was recognised as a reduction in proceeds of issue of these shares. ∫ During the year ended 30 June 2019, 78,429,130 ordinary shares (2018 – 30,833) were issued through the exercise of 30 November 2018 $0.06 listed options for cash totalling $4,705,747 (2018 - $1,850). The fair value of the options when granted was $203,916 (2018 - $80). During the year, the Company entered into an agreement with CPS Capital Group Pty Ltd to underwrite any shortfall arising from the exercise of 30 November 2018 $0.06 options. 1,336,137 options were underwritten by CPS capital Pty Ltd. Total Issue cost of $260,909 was recognised as a reduction in proceeds of issue of these shares. ∫ During the year ended 30 June 2019, 9,859,614 ordinary shares (2018 – nil) were issued through the exercise of 12 December 2019 $0.05 listed options for cash totalling $492,981 (2018 - $nil). The fair value of the options when granted was $26,424 (2018 - $nil). ∫ In June 2018, the Company offered eligible shareholders to purchase one new share and one new listed option under a pro- rata renounceable rights issue. Under this offer, the Company issued 98,078,690 ordinary shares and 98,078,690 listed options for cash totalling $1,471,180. The listed options are each exercisable at 5 cents to acquire one fully paid ordinary share exercisable at any time up to 12 December 2019. Total issue cost of $244,929 was recognised as a reduction in proceeds of issue of these shares. At 30 June 2018, $22,211 was outstanding for payment. ∫ In June 2018, the Company issued 6,000,000 options as part consideration to the lead manager and underwriter under the same terms as offered under the Renounceable Rights Issue. The options were valued at $24,000. ∫ In June 2018, the Company issued 12,007,777 ordinary shares and 12,007,777 listed options for cash totalling $180,119 under a Share Placement Offer. Total issue cost of $7,301 was recognised as a reduction in proceeds of issue of these shares. The listed options are each exercisable at 5 cents to acquire one fully paid ordinary share exercisable at any time up to 12 December 2019. There were no unlisted options on issue as at 30 June 2019. The following unlisted options were on issue at 30 June 2018: ∫ 1,000,000 options with a fair value at grant date of 1.8 cents, each exercisable at 15 cents to acquire one fully paid ordinary share at any time up to 30 November 2018. ∫ 1,000,000 options with a fair value at grant date of 1.8 cents, each exercisable at 15 cents to acquire one fully paid ordinary share at any time after 30 November 2016 up to 30 November 2018. ∫ 3,000,000 options with a fair value at grant date of 1.6 cents, each exercisable at 18 cents to acquire one fully paid ordinary share at any time after 30 November 2017 up to 30 November 2018. The fair value of the options at each grant date was determined based on the Black-Scholes formula. The model inputs for those options issued during the year ended 30 June 2016 were the Company’s share price of $.046 at the grant date, a volatility factor of 100% based on historic share price performance, risk free interest rate of 2.11% based on the 10 year government bond rate and no dividends paid. ANNUAL REPORT 2019 31 Notes to the Financial Statements For the Year Ended 30 June 2019 The following listed options were on issue at 30 June 2019: Opening Balance 1 July 2018 Number 78,429,130 116,086,467 Exercise Price $ 0.06 0.05 Granted during the year Number - - Exercised/Expired during the year Number 78,429,130 9,859,614 Closing Balance 30 June 2019 Number - 106,226,853 Terms and conditions - Shares Holders of ordinary shares are entitled to receive dividends as declared and, are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any proceeds of liquidation. Option Reserves Equity based compensation reserve Option premium reserve Movements during the period Equity based compensation reserve Balance at the beginning of period Share based payment expense Options exercised during the period Balance at end of period Option premium reserve Balance at the beginning of period Issue of options Exercise of options Balance at end of period Nature and purpose of reserves Equity based compensation reserve: 2019 $ 2018 $ - 284,758 284,758 84,557 515,098 599,655 84,557 - (84,557) - 515,098 - (230,340) 284,758 74,423 10,134 - 84,557 203,996 311,182 (180) 515,098 The equity based compensation reserve is used to recognise the grant date fair value of options issued but not exercised Option premium reserve: The option premium reserve is used to accumulate proceeds received from the issuing of options. 32 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 2019 $ 2018 $ 15. STATEMENT OF CASH FLOWS Reconciliation of cash flows from operating activities Loss for the period (1,611,799) (1,593,645) Adjustments for: Depreciation of plant and equipment Provisions for employee entitlements Share based payments Interest Effect of exchange rate adjustments Changes in assets and liabilities Decrease/(Increase) in prepayments (Decrease)/Increase in payables Net cash used in operating activities 16. RELATED PARTIES 12,467 38,608 - - (9) 11,642 (74,915) 10,134 (495) (7) (556) 63,398 (15,129) (179,596) (1,497,891) (1,842,011) Key management personnel and director transactions The following key management person holds a position in another entity that results in them having control or joint control over the financial or operating policies of that entity, and this entity transacted with the Company during the year as follows: During the year ended 30 June 2019, Peter J. Nightingale had a controlling interest in an entity, MIS Corporate Pty Limited, which provided full administrative services, including rental accommodation, administrative staff, services and supplies, to the entity. Fees paid to MIS Corporate Pty Limited during the year, amounted to $144,000 (2018 - $144,000). There were no outstanding amounts at 30 June 2019 (2018 - $nil). Key management personnel compensation During the year ended 30 June 2019, compensation of key management personnel totalled $617,188 (2018 - $591,612), which comprised primary salary and fees of $556,814 (2018 - $532,491), superannuation of $45,488 (2018 - $43,462), share based payments of $nil (2018 - $10,134) and long service leave of $14,886 (2018 - $5,525). During the 2019 and 2018 financial years, no long term benefits or termination payments were paid. ANNUAL REPORT 2019 33 Notes to the Financial Statements For the Year Ended 30 June 2019 17. SHARE BASED PAYMENTS The Company has an Incentive Option Plan to provide eligible persons, being employees or directors, or individuals whom the Plan Committee determine to be employees for the purposes of the Plan, with the opportunity to acquire options over unissued ordinary shares in the Company. The number of options granted or offered under the Plan will not exceed 10% of the Company’s issued share capital and the exercise price of options will be the greater of the market value of the Company’s shares as at the date of grant of the option or such amount as the Plan Committee determines. Options have no voting or dividend rights. The vesting conditions of options issued under the plan are based on a minimum service periods being achieved. There are no other vesting conditions attached to options issued under the plan. In the event that the employment or office of the option holder is terminated, any options which have not reached their exercise period will lapse and any options which have reached their exercise period may be exercised within three months of the date of termination of employment. Any options not exercised within this three month period will lapse. No options were issued during the year ended 30 June 2019 and 30 June 2018. During the year ended 30 June 2019, no options were on issue (2018 - 5,000,000) as detailed in note 14. The terms and conditions of the options held by key management personnel during the year ended 30 June 2019 are as follows: Grant date Expiry date Vesting date 25 November 2015 30 November 2018 25 November 2015 25 November 2015 30 November 2018 30 November 2016 25 November 2015 30 November 2018 30 November 2017 Options outstanding at 30 June 2018 Fair value of options granted $ Exercise price Total granted Number Total Exercised Number Balance at end of the period Number $0.15 17,903 1,000,000 1,000,000 $0.15 17,903 1,000,000 1,000,000 $0.18 48,751 3,000,000 3,000,000 84,557 5,000,000 5,000,000 - - - - Grant date Number of options Exercise price Fair value at grant date Vesting date* Expiry date 25 November 2015 1,000,000 25 November 2015 1,000,000 25 November 2015 3,000,000 $0.15 $0.15 $0.18 $0.018 25 November 2015 30 November 2018 $0.018 30 November 2016 30 November 2018 $0.016 30 November 2017 30 November 2018 * Vesting conditions are based on minimum service periods being achieved. 34 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 Movement of options in the equity based compensation reserve during the year Outstanding at 1 July Number of options 2019 - Weighted average exercise price 2019 - Number of options 2018 5,000,000 Weighted average exercise price 2018 $0.17 The equity based compensation reserve is used to record the options issued to directors and executives of the Company as compensation. Options are valued using the Black-Scholes option pricing model. The weighted average remaining contractual life of share options outstanding at the end of the year in the equity based compensation reserve was nil years (2018 – 0.42 years). During the year, 5 million ordinary shares were issued as a result of the exercise of options granted pursuant to the Incentive Option Plan (2018 – nil). Fair value of options The fair value of options granted is measured at grant date and recognised as an expense over the period during which the employee becomes unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation methodology, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of options that vest. When options on issue are modified and the modification is beneficial to the other party the incremental fair value at the date of the modification is recognised over the remaining modified vesting period and the original grant- date fair value is recognised over the remaining original vesting period. When the modification is to options on issue that have fully vested the incremental fair value is recognised as an expense in the period the modification occurs. The incremental fair value is the difference between the fair value of the share based payment at the date of modification between the old and new terms. Expenses arising from share-based payment transactions Total expenses arising from share based payment transactions recognised during the year ended 30 June 2019 was $nil (2018 - $10,134). 18. FINANCIAL INSTRUMENTS Financial risk management objectives and policies The Company’s financial instruments comprise deposits with banks, receivables, trade and other payables and from time to time short term loans from related parties. The Company does not trade in derivatives or in foreign currency. The Company manages its risk exposure of its financial instruments in accordance with the guidance of the Board of Directors. The main risks arising from the Company’s financial instruments are market risk, credit risk and liquidity risks. This note presents information about the Company’s exposure to each of these risks, its objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Risk management framework The Board has overall responsibility for the establishment and oversight of the risk management framework. Informal risk management policies are established to identify and analyse the risks faced by the Company. The primary responsibility to monitor the financial risks lies with the Managing Director and the Company Secretary under the authority of the Board. ANNUAL REPORT 2019 35 Notes to the Financial Statements For the Year Ended 30 June 2019 Credit risk Credit risk arises mainly from the risk of counterparties defaulting on the terms of their agreements. The carrying amounts of the following assets represent the Company’s maximum exposure to credit risk in relation to financial assets: Cash and cash equivalents Security deposits Cash and cash equivalents Note 8 Carrying amount 2019 $ 2018 $ 5,739,788 1,543,002 33,855 21,906 5,773,643 1,564,908 The Company mitigates credit risk on cash and cash equivalents by dealing with regulated banks in Australia. Trade and other receivables Credit risk of trade and other receivables is very low as it usually consists predominantly of amounts recoverable from a regulated bank in Australia. All financial assets are current and are not past due or impaired and the Company does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Company. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. Ultimate responsibility for liquidity management rests with the Board. The Company monitors rolling forecasts of liquidity on the basis of expected fund raisings, trade payables and other obligations for the ongoing operation of the Company. At balance date, the Company has available funds of $5,739,788 for its immediate use. The following are the contractual maturities of financial liabilities, including estimated interest payments: Carrying amount $ Contractual cash flows $ Less than one year $ Between one and five years $ Interest $ 30 June 2019 Trade and other payables 202,466 (202,466) (202,466) 30 June 2018 Trade and other payables 160,778 (160,778) (160,778) - - - - It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at signifi- cantly different amounts. 36 BIOTRON LIMITED Notes to the Financial Statements For the Year Ended 30 June 2019 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk The Company’s income statement is affected by changes in interest rates due to the impact of such changes on interest income from cash and cash equivalents and interest bearing security deposits. The average interest rate on funds held during the year was 2% (2018 – 0.98%). At balance date, the Company had the following mix of financial assets exposed to variable interest rate risk that are not designated as cash flow hedges: Financial assets Cash and cash equivalents Security deposits Net exposure Note 2019 $ 2018 $ 8 5,739,788 1,543,002 33,855 21,906 5,773,643 1,564,908 The Company did not have any interest bearing financial liabilities in the current or prior year. The Company does not have interest rate swap contracts. The Company always analyses its interest rate exposure when considering renewals of existing positions including alternative financing. Sensitivity analysis The following sensitivity analysis is based on the interest rate risk exposures at balance date. An increase of 100 basis points in interest rates throughout the reporting period would have decreased the loss for the period by the amounts shown below, whilst a decrease would have increased the loss by the same amount. The Company’s equity consists of fully paid ordinary shares. There is no effect on fully paid ordinary shares by an increase or decrease in interest rates during the period. 2019 $ 46,348 2018 $ 11,819 Currency risk The Company is exposed to currency risk on cash and cash equivalents that are denominated in United States currency. The company’s gross financial exposure to foreign currency risk at balance date was US$97 (2018 - US$150). The Company is not exposed to price risks. ANNUAL REPORT 2019 37 Notes to the Financial Statements For the Year Ended 30 June 2019 Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board ensures costs are not incurred in excess of available funds and will seek to raise additional funding through issues of shares for the continuation of the Company’s operations. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to externally imposed capital requirements. Estimation of fair values The carrying amounts of financial assets and liabilities approximate their net fair values, given the short time frames to maturity and or variable interest rates. 19. FINANCIAL REPORTING BY SEGMENTS The Company operates in one reportable operating and geographical segment, being the biotechnology industry in Australia. 20. OPERATING LEASES The Company leases an office in North Ryde, Sydney. The lease is for a period of 3 years starting from September 2018 with an option to renew the lease for a further term by giving a notice of such intention to the landlord or the agent at least 3 months before the expiration of the existing lease. During the year ended 30 June 2019, $61,236 was recognised as an expense in profit or loss in respect of the operating lease (2018 - $77,604). The future minimum leases payments under non-cancellable operating leases are payable as follows: Less than one year Between one and five years 2019 $ 45,250 52,792 2018 $ 6,539 - 21. COMMITMENTS AND CONTINGENCIES The Company may be party to commercial disputes and litigation in the normal course of business. No material liabilities are expected to arise in respect of the commercial disputes and litigation existing at balance date. There are no capital commitments at the date of these financial statements. 22. SUBSEQUENT EVENTS There have been no matters arise in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 38 BIOTRON LIMITED Directors’ Declaration 1. In the opinion of the directors of Biotron Limited: a] the financial statements and notes set out on pages 17 to 38, and the Remuneration Report in the Directors’ Report, set out on pages 10 to 14, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; 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. 2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2019. 3. The directors draw attention to note 2(a) of the financial statements, which includes a statement of compliance with International Financial Reporting Standards. This report has been signed in accordance with a resolution of the directors and is dated 29 August 2019: Michael J. Hoy Chairman Michelle Miller Managing Director ANNUAL REPORT 2019 39 Independent Auditor’s Report To the shareholders of Biotron Limited Report on the audit of the Financial Report To the shareholders of Biotron Limited Opinion Report on the audit of the Financial Report We have audited the Financial Report of Biotron Limited (the Company). Opinion In our opinion, the accompanying Financial Report of the Company is in We have audited the Financial Report of accordance with the Corporations Act Biotron Limited (the Company). 2001, including: In our opinion, the accompanying • giving a true and fair view of the Financial Report of the Company is in Company's financial position as at 30 accordance with the Corporations Act June 2019 and of its financial 2001, including: performance for the year ended on that date; and • giving a true and fair view of the Company's financial position as at 30 • complying with Australian Accounting June 2019 and of its financial Standards and the Corporations performance for the year ended on that Regulations 2001. date; and The Financial Report comprises: • Statement of financial position as at 30 June 2019; • Statement of profit or loss and other comprehensive income, Statement of changes in equity, and Statement of The Financial Report comprises: cash flows for the year then ended; • Statement of financial position as at 30 June 2019; • Notes including a summary of significant accounting • Statement of profit or loss and other comprehensive policies; and income, Statement of changes in equity, and Statement of • Directors' Declaration. cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors' Declaration. • complying with Australian Accounting Standards and the Corporations Basis for opinion Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Basis for opinion 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 conducted our audit in accordance with Australian Auditing Standards. We believe that the audit We are independent of the Company in accordance with the Corporations Act 2001 and the ethical evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We of the Financial Report section of our report. have fulfilled our other ethical responsibilities in accordance with the Code. We are independent of the Company in accordance with 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 fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability Professional Standards Legislation. limited by a scheme approved under 40 BIOTRON LIMITED KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability Professional Standards Legislation. limited by a scheme approved under Independent Auditor’s Report Key Audit Matters The Key Audit Matter we identified is: • Research and development expenditure. Key Audit Matters are those matters that, in our professional judgment, 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. Research and development expenditure - $1,115,879 Refer note 6 The key audit matter How the matter was addressed in our audit Research and development expenditure is a key audit matter due to the significance of the amount (being 40% of total expenses) and the audit effort associated with assessing the completeness and accuracy of the amounts recorded by the Company. Our procedures included: • Assessing the Company’s policy for research and development expenditure against the requirements of the accounting standards; • Selecting a statistical sample of items recorded as research and development expenditure and checking the expenditure amount recorded for consistency to invoices from third parties or other underlying documentation; • • For the sample identified above, checking the nature of the expenditure for consistency with its classification as research and development expenditure, in accordance with the Company’s accounting policy and the criteria in the accounting standards; and Testing the completeness of research and development expenditure recorded in the year by checking payments recorded since year end and unprocessed invoices for evidence of the timing of the transactions. For this, we selected our sample from the Company’s payments since balance date, and unprocessed invoices post balance date, and the underlying documentation of the transaction. ANNUAL REPORT 2019 41 Independent Auditor’s Report Other Information Other Information is financial and non-financial information in Biotron Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and • assessing the Company's ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report. 42 BIOTRON LIMITED Independent Auditor’s Report Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Biotron Limited for the year ended 30 June 2019, 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 responsibilities We have audited the Remuneration Report included in pages 10 to 14 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Stephen Board Partner Brisbane 29 August 2019 ANNUAL REPORT 2019 43 Additional Stock Exchange Information Home Exchange The Company is listed on the ASX Limited. The home exchange is Sydney. Use of Cash and Assets Since the Company’s listing on the ASX, the Company has used its cash and assets in a way consistent with its stated business objectives. Class of Shares and Voting Rights There is only one class of shares in the Company, fully paid ordinary shares. The rights attaching to shares in the Company are set out in the Company’s Constitution. The following is a summary of the principal rights of the holders of shares in the Company. Every holder of shares present in person or by proxy, attorney or representative at a meeting of shareholders has one vote on a vote taken by a show of hands, and, on a poll every holder of shares who is present in person or by proxy, attorney or representative has one vote for every fully paid share registered in the shareholder’s name on the Company’s share register. A poll may be demanded by the chairperson of the meeting, by at least 5 shareholders entitled to vote on the resolution or shareholders with at least 5% of the votes that may be cast on the resolution on a poll. Distribution of Equity Securityholders As at 31 July 2019, the distribution of each class of quoted equity securityholders was as follows: Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Fully Paid Ordinary Share Holders 169 1,185 1,037 2,866 917 6,174 Total Number of Shares 46,941 4,051,516 8,340,336 109,134,438 474,132,629 595,705,860 12 December 2019 $0.05 Listed Option Holders Total Number of Listed Options 29 94 90 345 171 729 12,970 304,356 694,761 14,126,501 91,088,265 106,226,853 At 31 July 2019, 1,410 shareholders held less than a marketable parcel of shares. At 31 July 2019, nil 12 December 2019 5 cent listed option holders held less than a marketable parcel of options. 44 BIOTRON LIMITED Additional Stock Exchange Information TWENTY LARGEST QUOTED SHAREHOLDERS At 31 July 2019 the twenty largest fully paid ordinary shareholders held 18.32% of fully paid ordinary as follows: Name Armco Barriers Pty Ltd Jey Investment Pty Ltd Dr Angela Fay Dulhunty Umbiram Pty Ltd Citicorp Nominees Pty Limited Fordholm Investments Pty Ltd DNS Accounting and Law Consultancy Pty Ltd Spiceme Capital Pty Ltd Scott’s A V Pty Ltd 1 2 3 4 5 6 7 8 9 10 Rookharp Investments Pty Limited 11 Pathold No 222 Pty Ltd 12 Mr Nick Karopoulos 13 Road & Construction Supplies of Australia Pty Ltd 14 ABN Amro Clearing Sydney Nominees Pty Ltd 15 Mr. Peter James Nightingale 16 Mr Andrew John Meek + MS Saskia Elle Meek < Andrew Meek SuperFund A/C> 17 Rigi Investments Pty Limited 18 Mr Russel Wayne Halder 19 Mr John Yan 20 Attollo Copia Pty Ltd There are no current on-market buy-backs. Fully Paid Ordinary Shares 11,800,000 10,640,806 10,000,000 7,789,828 6,961,690 5,800,000 5,265,588 5,000,000 4,808,000 4,666,667 4,200,000 4,179,000 3,800,000 3,662,427 3,594,903 3,564,849 3,541,485 3.390.000 3,266,858 3,200,565 % 1.98 1.79 1.68 1.31 1.17 0.97 0.88 0.84 0.81 0.78 0.71 0.70 0.64 0.61 0.60 0.60 0.59 0.57 0.55 0.54 ANNUAL REPORT 2019 45 Additional Stock Exchange Information TWENTY LARGEST 12 DECEMBER 2019 5 CENT QUOTED OPTION HOLDERS At 31 July 2019 the twenty largest 12 December 2019 5 cent option holders held 43.13% of listed options as follows: Name 1 Rookharp Capital Pty Limited 2 Mr Edward O’brien + Mrs Naomi O’brien 3 4 5 Rookharp Investments Pty Limited Road & Construction Supplies of Australia Pty Ltd DNS Accounting and Law Consultancy Pty Ltd 6 Mrs Michael Carabott 7 Mrs Narelle Fay 8 Mr Andrew Fay 9 Goffacan Pty Ltd 10 Umbiram Pty Ltd 11 IQ Global Asset Partners Pty Ltd 12 Mr Dale Maurice Raynes 13 Fordholm Investments Pty Ltd < Fordholm Super Fund A/C> 14 Mr Dhaval Jitendrakumar Patel 15 Mrs ZI Juan QI 16 Mr Peter John Leigh 17 Bond Street Custodians Limited < WLPHLO- D09537 A/C> 18 Mr Andrew James Schutz + Ms Sandy Schutz 19 Mr Russel Wayne Halder 20 Mrs Sharon Lewis Quoted Options 5,751,000 5,730,000 4,666,667 3,700,000 3,685,868 2,694,344 2,500,050 2,500,000 1,779,242 1,557,965 1,911,544 1,500,000 1,200,000 1,200,000 1,200,000 1,147,828 1,000,000 1,000,000 1,000,000 1,000,000 % 5.41 5.39 4.39 3.48 3.47 2.54 2.35 2.35 1.67 1.47 1.65 1.41 1.13 1.13 1.13 1.08 0.94 0.94 0.94 0.94 46 BIOTRON LIMITED Corporate Directory PRINCIPAL ADMINISTRATION OFFICE: Suite 3.3, 56 Delhi Road NORTH RYDE NSW 2113 Phone: 61-2 9805 0488 61-2 9805 0688 Fax: DIRECTORS: Mr Michael J. Hoy (Chairman) Dr Michelle Miller (Managing Director) Dr Susan M. Pond Mr Robert B. Thomas Prof Stephen Locarnini COMPANY SECRETARY: Mr Peter J. Nightingale REGISTERED OFFICE: Level 2, 66 Hunter Street SYDNEY NSW 2000 Phone: 61-2 9300 3344 Fax: 61-2 9221 6333 E-mail: enquiries@biotron.com.au Homepage: www.biotron.com.au SHARE REGISTRAR: Computershare Investor Services Pty Limited Level 4, 60 Carrington Street SYDNEY NSW 2000 Phone: 1300 787 272 Fax: +61 3 9473 2500 AUDITORS: KPMG Level 16, Riparian Plaza 71 Eagle Street BRISBANE QLD 4000 HOME EXCHANGE: ASX Limited 20 Bridge Street SYDNEY NSW 2000 SOLICITORS: Minter Ellison 88 Phillip Street SYDNEY NSW 2000 Biotron Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. ANNUAL REPORT 2019 47 B i o t r o n L t d A n n u a l R e p o r t 2 0 1 9 www.biotron.com.au 

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