Cynata Therapeutics Limited
Annual Report 2017

Plain-text annual report

Cynata Therapeutics Limited ACN 104 037 372 and its controlled entities Annual report for the financial year ended 30 June 2017 Corporate directory Cynata Therapeutics Limited Board of Directors Dr Paul Wotton Dr Ross Macdonald Dr Stewart Washer Dr John Chiplin Mr Peter Webse Company Secretary Mr Peter Webse Non-Executive Chairman Managing Director/Chief Executive Officer Non-Executive Director Non-Executive Director Non-Executive Director Registered and Principal Office Level 3, 62 Lygon Street Carlton, Victoria 3053 Tel: Fax: Email: admin@cynata.com +61 3 9824 5254 +61 3 9822 7735 Postal Address PO Box 7165 Hawthorn North, Victoria 3122 Website Website: www.cynata.com Auditors Stantons International Level 2, 1 Walker Avenue West Perth, Western Australia 6005 Share Registry Automic Registry Services Level 2, 267 St Georges Terrace Perth, Western Australia 6000 Tel: Fax: +61 8 9324 2099 +61 8 9321 2337 Stock Exchange Australian Securities Exchange Level 40, Central Park 152-158 St Georges Terrace Perth, Western Australia 6000 ASX Code CYP Cynata Therapeutics Limited Annual report for the financial year ended 30 June 2017 Contents Directors’ report……………………………………………………………………………………………………… 1 Operating and financial review……………………………………………………………………………….. 6 Remuneration report………………………………………………………………………………………………. 10 Auditor’s independence declaration……………………………………………………………………….. 17 Independent auditor’s report…………………………………………………………………………………. 18 Directors’ declaration…………………………………………………………………………………………….. 22 Consolidated statement of profit or loss and other comprehensive income………..… 23 Consolidated statement of financial position………………………………………………….……… 24 Consolidated statement of changes in equity………………………………………………………… 25 Consolidated statement of cash flows…………………………………………………………….……… 26 Notes to the consolidated financial statements.…………………………………………….….…… 27 Corporate governance statement………………………………………………………………………….. 52 Additional securities exchange information……………………………………………………………. 59 Cynata Therapeutics Limited Directors’ report The directors of Cynata Therapeutics Limited (“Cynata” or “the Company”) and its controlled entities (“the Group”) submit herewith the annual report of the Group for the financial year ended 30 June 2017. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Information about the directors The names and particulars of the directors of the Group during or since the end of the financial year are: Name Dr Paul Wotton MBA, PhD Dr Ross Macdonald PhD (Biochemistry), Grad Dip in Bus Admin Dr John Chiplin BPharm, PhD, MRPharmS Particulars Chairman, joined the Board in June 2016 as Non-Executive Director and appointed as Chairman on 28 February 2017. Dr Wotton is currently the President and CEO of Sigilon Inc. and was previously President and CEO of Ocata Therapeutics Inc. (NASDAQ: OCAT) taking the company through a take-over by Atellas Pharma Inc., in a US$379 million all cash transaction. Prior to Ocata, Dr Wotton had served as President and CEO of Antares Pharma Inc. (NASDAQ: ATRS), since October 2008. Prior to joining Antares, Dr Wotton was the CEO of Topigen Pharmaceuticals and prior to Topigen, he was the Global Head of Business Development of SkyePharma PLC. Dr Wotton has held senior level positions at Eurand International BV, Penwest Pharmaceuticals, Abbott Laboratories and Merck, Sharp and Dohme. Dr Wotton is a member of the board of Vericel Corporation, a US company developing autologous cellular therapies, a member of the board at Veloxis Pharmaceuticals A/S where he is Chairman of the Compensation Committee and also past Chairman of the Emerging Companies Advisory Board of BIOTEC Canada. Dr Wotton received his PhD in pharmaceutical sciences from the University of Nottingham and an MBA from Kingston Business School. In 2014, he was named New Jersey EY Entrepreneur of the Year in Life Sciences. Chief Executive Officer, joined the Board in August 2013. Dr Macdonald has over 30 years’ experience and a track record of success in pharmaceutical and biotechnology businesses. His career history includes positions as Vice President of Business Development for Sinclair Pharmaceuticals Ltd (now Sinclair IS Pharma), a UK-based specialty pharmaceuticals company and Vice President, Corporate Development for Stiefel Laboratories Inc, the largest independent dermatology company in the world and acquired by GlaxoSmithKline in 2009 for £2.25b. Dr Macdonald has also served as CEO of Living Cell Technologies Ltd, Vice President of Business Development of Connetics Corporation and Vice President of Research and Development of F H Faulding & Co Ltd. Dr Macdonald currently serves as a member of the Investment Committee of UniSeed Management Pty Ltd. Non-Executive Director, joined the Board in November 2014. Dr. Chiplin is Managing Director, Newstar Ventures Ltd and has significant international experience in the life science and technology industries. Recent transactions that Dr. Chiplin has been instrumental in include US stemcell company Medistem (acquired by Intrexon), Arana Therapeutics (acquired by Cephalon) and Domantis (acquired by GSK). - 1 - Dr Stewart Washer BSc (Hons), PhD Cynata Therapeutics Limited Dr Chiplin is also a director of Adalta Limited (ASX: 1AD), Benitec Biopharma Ltd (ASX: BLT, NASDAQ: BNTC), Batu Biologics Inc., The Coma Research Institute, Prophecy Inc (Chairman), ScienceMedia Inc and Scancell Holdings plc (SCLP.L, Executive Chairman) and Sienna Cancer Diagnostics (ASX: SDX). Dr Chiplin’s Pharmacy and Doctoral degrees are from the University of Nottingham, UK. Non-Executive Director, joined the Board in August 2013 and was Executive Chairman until 28 February 2017. Dr Washer has over 21 years of CEO and Board experience in medical technology, biotech and agrifood companies. He is currently the Chairman of Orthocell Ltd (ASX: OCC) and Minomic International Ltd and Executive Director with Zelda Therapeutics Limited (ASX: ZLD). Dr Washer was previously the CEO of Calzada Ltd (ASX: PNV), the founding CEO of Phylogica Ltd (ASX: PYC) and before this, he was CEO of Celentis and managed the commercialisation of intellectual property from AgResearch in New Zealand with 650 scientists and $130m revenues. He was also a founder of a NZ$120m New Zealand based life science fund and Venture Partner with the Swiss based Inventages Nestlé Fund. He was an Investment Director with Bioscience Managers in Australia. Dr Washer was also a Senator with Murdoch University. Mr Peter Webse B.Bus, FCPA, MAICD FGIA, FCIS, Non-Executive Director, joined the Board in May 2012. Mr Webse has over 25 years’ company secretarial experience and is the managing director of Platinum Corporate Secretariat Pty Ltd, a company specialising in providing company secretarial, corporate governance and corporate advisory services. The above named directors held office during the whole of the financial year and since the end of the financial year. Directorships of other listed companies Directorships of other listed companies held by directors in the 3 years immediately before the end of the financial year are as follows: Name Paul Wotton Ross Macdonald Stewart Washer John Chiplin Peter Webse Company Ocata Therapeutics Inc. Antares Pharma Inc. iSonea Limited iSonea Limited Orthocell Limited Zelda Therapeutics Limited Benitec Biopharma Limited Adalta Limited Sienna Cancer Diagnostics Limited Dimerix Limited 4DS Memory Limited Blina Minerals NL Period of directorship 2014-2016 2008-2014 2012-2014 2012-2014 Since 2014 Since 2016 Since 2010 Since May 2014 Since January 2016 2012-2015 May to Dec 2015 2012-2014 - 2 - Directors’ shareholdings The following table sets out each director’s relevant interest in shares, rights or options in shares or debentures of the Company or a related body corporate as at the date of this report: Cynata Therapeutics Limited Directors Paul Wotton Ross Macdonald Stewart Washer John Chiplin Peter Webse Fully paid ordinary shares Number 55,000 28,500 224,856 50,000 220,000 Share options Number 200,000 2,700,000 2,500,000 200,000 200,000 Remuneration of key management personnel Information about the remuneration of key management personnel is set out in the remuneration report section of this directors’ report. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Share options granted to directors and senior management During and since the end of the financial year, an aggregate 800,000 share options were granted to the following key management personnel: Key management personnel R. Macdonald P. Wotton J. Chiplin P. Webse Number of options granted 200,000 200,000 200,000 200,000 Issuing entity Cynata Therapeutics Ltd Cynata Therapeutics Ltd Cynata Therapeutics Ltd Cynata Therapeutics Ltd Number of ordinary shares held under option 200,000 200,000 200,000 200,000 Company Secretary Peter Webse B.Bus, FGIA, FCIS, FCPA, MAICD Mr Webse held the position of company secretary of Cynata Therapeutics Limited at the end of the financial year. He joined Cynata in April 2012. Mr Webse is the Managing Director of Platinum Corporate Secretariat Pty Ltd, a company specialising in providing company secretarial, corporate governance and corporate advisory services. Peter acts as Company Secretary for a number of ASX listed biotech and technology companies. Dividends No dividends have been paid or declared since the start of the financial year and the directors have not recommended the payment of a dividend in respect of the financial year. - 3 - Cynata Therapeutics Limited Shares under option or issued on exercise of options Details of unissued shares or interests under option as at the date of this report are: Issuing entity Grant date Number of shares under option Class of shares Exercise price of option Expiry date of options Cynata Therapeutics Limited1 Cynata Therapeutics Limited2 Cynata Therapeutics Limited3 Cynata Therapeutics Limited4 Cynata Therapeutics Limited5 Cynata Therapeutics Limited6 Cynata Therapeutics Limited7 27 Sept 2013 5,000,000 Ordinary $0.40 27 Sept 2018 17 July 2015 3,333,336 Ordinary 17 July 2015 333,333 Ordinary 16 Dec 2015 750,000 Ordinary 22 Feb 2016 600,000 Ordinary $1.00 $1.00 $0.49 $0.53 17 Jul 2020 17 Jul 2020 16 Dec 2018 22 Feb 2019 16 Nov 2016 800,000 Ordinary $1.022 17 Nov 2019 7 Aug 2017 300,000 Ordinary $0.88 4 Aug 2020 1 100,000,000 unlisted options (on a pre-consolidation basis) issued to Dr Macdonald and Dr Washer following shareholders’ approval on 27 September 2013 and were subsequently consolidated on a 1 for 20 basis. 2 Unlisted options issued to institutional investors pursuant to a private placement on 17 July 2015. 3 Unlisted options issued to placement agent pursuant to the mandate for the private placement on 17 July 2015. 4 Unlisted employee incentive options issued to Dr Kelly on 16 December 2015 pursuant to an existing employment agreement. 5 Unlisted options issued to external advisers on 22 February 2016 pursuant to an advisory services agreement. 6 Unlisted options issued to Dr Macdonald, Dr Wotton, Dr Chiplin and Mr Webse (200,000 each) pursuant to an Employee Option Acquisition Plan approved at the Company’s Annual General Meeting on 16 November 2016. 7 Unlisted options issued to a third party on 7 August 2017 for the provision of corporate advisory services. The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company or of any other body corporate or registered scheme. There have been no options granted over unissued shares or interests of any controlled entity within the Group during or since the end of the reporting period. - 4 - Shares issued on the exercise of options No shares were issued as a result of the exercise of options during or since the end of the financial year (2016: nil). Cynata Therapeutics Limited Indemnification of officers and auditors During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company (as named above), the company secretary, and all executive officers of the Company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. Directors’ meetings The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, 11 board meetings were held. Directors Stewart Washer Ross Macdonald John Chiplin Peter Webse Paul Wotton Board of Directors Held 11 11 11 11 11 Attended 11 11 11 11 11 Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. Non-audit services The auditor did not perform any non-audit services during the financial year. Auditor’s independence declaration The auditor’s independence declaration is included on page 17 of this annual report. - 5 - Cynata Therapeutics Limited Operating and financial review Principal activities The Group’s principal activities in the course of the financial year were the development and commercialisation of a proprietary mesenchymal stem cell (MSC) technology for potential human therapeutic use, which the Company has branded Cymerus™. Cynata’s Cymerus™ technology represents an important breakthrough in stem cell product research that facilitates large-scale manufacture of MSCs from a single donor and a single donation, comparing favourably to most other MSC technologies that require multiple donors and multiple donations. This has the potential to revolutionise commercial manufacture of MSC based therapeutic products. Operating results The consolidated loss of the Group for the financial year, after accounting for an R&D refund of $1,748,874 and providing for income tax, amounted to $4,553,536 (2016: $4,939,471). Further discussion on the Group’s operations is provided below: Review of operations Cynata Therapeutics is dedicated to the advancement of stem cell therapies in regenerative medicine. Its first mesenchymal stem cell (MSC) product, CYP-001, advanced to a Phase 1 clinical trial this year for the treatment of Graft versus Host Disease (GvHD), with the first patient dosed in the UK. The trial was approved by the Medicines and Healthcare products Regulatory Authority (MHRA) and the National Health Service (NHS) Health Research Authority (HRA) in the UK, and a Human Research Ethics Committee (HREC) in Australia. Patient recruitment for the trial is now underway across six centres in the UK and Australia, and the Company intends to add further sites to accelerate completion of recruitment. This was a major milestone not only for Cynata, but also for the regenerative medicine field globally as it is the first clinical trial in the world involving an allogeneic, induced pluripotent stem cell (iPSC)-derived therapeutic product. Cynata made significant progress towards realising its commercialisation objectives. It secured a strategic partnership and licence option agreement with FUJIFILM, worth over $60 million in potential milestone payments, together with double-digit royalties on eventual product sales. Cynata will receive an upfront US$3 million payment when the option is exercised, which can occur at anytime during or up until 90 days after the completion of the current Phase 1 clinical trial. The agreement also provides for FUJIFILM to fund all future product development and commercialisation activities after Phase 1. The strategic partnership saw FUJIFILM take a $3.972 million equity position in Cynata, making them the largest shareholder in the Company with a 8.98% holding. In a further connection with FUJIFILM, the starting material for Cynata’s Cymerus™ process, clinical- grade induced pluripotent stem cells or iPSCs, are sourced from Cellular Dynamics International, a FUJIFILM subsidiary company. Following an extensive evaluation, advice was received from the Company’s partner apceth GmbH & Co (“apceth”) that Cynata’s Cymerus™ cells demonstrated characteristics appropriate for apceth’s genetically modified MSC technology, an outcome both parties considered successful. apceth has concluded that it wishes to continue the business relationship with Cynata, albeit in a therapeutic field other than oncology, the original focus of the collaboration. The two companies are continuing to explore the most appropriate path forward under the original license option agreement which remains on foot. The Company made excellent progress in the United States though a Pre-Investigational New Drug (IND) meeting with the US Food and Drug Administration (FDA) Office of Cell, Tissue and Gene Therapy products, to discuss the regulatory approval path for Cynata’s proprietary Cymerus™ MSC products in that country. - 6 - Cynata Therapeutics Limited Subsequent to the year end and following that meeting, the Company received written advice from the FDA Office of Cell, Tissue and Gene Therapy products, that detailed the regulatory approval path for Cynata’s CYP-001 product in the US. The FDA also confirmed that the scope and substance of Cynata’s “Chemistry, Manufacturing and Controls” (CMC) dossier is commensurate with its expectations, which indicates that Cymerus™ MSC products are expected to be of suitable quality for clinical trial use in the US. The FDA also clarified that Cynata may submit a request for “Regenerative Medicine Advanced Therapy” (RMAT) designation, which could lead to accelerated product approval under USA “21st Century Cures Act”. Progress of other indications in the product pipeline Cynata has made significant advancements with its pre-clinical studies, with positive results in the treatment of heart attack and asthma. The Company also expanded its product pipeline with additional new indications, including the investigation of Cymerus’™ mesenchymal stem cells (MSC) as a treatment for acute respiratory distress syndrome (ARDS). Cardiovascular disease Heart Attack Positive preliminary data from the heart attack study conducted at the Westmead Institute for Medical Research found that Cynata’s Cymerus™ therapeutic MSCs have the potential to restore cardiac function and reduce scar size after a heart attack. The study continues and is expected to conclude this calendar year. Respiratory and pulmonary diseases Asthma Cynata’s preclinical asthma study with Monash University confirmed Cymerus™ MSCs have a significant and beneficial impact on all three components of asthma: hyper-responsiveness, inflammation and airway remodelling. The study examined Cymerus’™ MSCs in a mouse model of chronic allergic airways disease and found that the MSCs may provide an efficacious and safe treatment for asthma. The paper was published in the FASEB Journal; one of the world’s most cited peer reviewed biology journals. The findings from the study led to a further preclinical study in the treatment of asthma with a comparison to corticosteroids and the data from this study is paving the way for a future clinical trial in asthma patients. Acute Respiratory Distress Syndrome (ARDS) Cynata expanded its product development pipeline, with the addition of a preclinical investigation into the use of its Cymerus MSCs as a treatment for acute respiratory distress syndrome (ARDS) with the Critical Care Research Group in association with the Prince Charles Hospital in Brisbane. The study will evaluate the effectiveness of Cymerus™ MSCs in sheep with ARDS who are currently being supported by a treatment called extracorporeal membrane oxygenation (ECMO), which acts as an artificial lung to oxygenate the blood. If the study is successful, it is anticipated that the data would support progression to a clinical trial of Cymerus™ MSCs in humans with ARDS undergoing ECMO support. Oncology Cynata’s work with the Brigham and Women’s Hospital, part of Harvard Medical School, continues to investigate the use of its Cymerus™ MSCs in the targeting of killing cancerous cells and is making good progress. The study is expected to conclude in the first quarter of 2018. - 7 - Cynata Therapeutics Limited Strengthened Intellectual Property Cynata added new opportunities for its proprietary technologies in the cancer immunotherapy field with the filing of two patent applications covering certain novel and innovative uses of its Cymerus™ MSCs in the field of cancer. The new patent applications will provide additional protection for the Company’s unique MSC technology, particularly in fields related to cancer treatment and specifically immunotherapy. The filing of the patents follows the successful evaluation and integration of the Cymerus™ MSC technology with apceth GmbH & Co’s (apceth) in-house cell culture and genetic modification system aimed at developing new therapeutics using MSCs for the treatment of cancer and other diseases. This successful evaluation, together with the new patent filings, provided strong validation that the Cymerus™ technology can integrate with other technologies and has opened up further potential in this area. The Company also received Notice of Allowance from the US Patent and Trademark Office for its Cymerus™ platform that will cover the ‘method of making primate cells expressing apelin receptors that have mesangioblast potential,’ further strengthening its intellectual property portfolio. New Chairman Appointed The board and management team was strengthened with the appointment of Dr Paul Wotton as Chairman of the Board of Directors. Dr Wotton brings a wealth of biotechnology expertise and the skills to drive the Company to its next phase of growth. The appointment saw Dr Stewart Washer step down as Chairman to take the position of Non-Executive Director on the Board. Funding Position Strengthened FUJIFILM took a $3.972 million equity stake in Cynata, as part of its strategic partnership with Cynata. The investment resulted in FUJIFILM being the largest shareholder of the Company with a 8.98% holding. Cynata also secured $6 million in an equity placement from institutional and sophisticated investors, bringing the total capital raised during the year to $10 million. Additionally, the Company received an R&D Tax Incentive refund of $1.748 million. The funding is being deployed to continue to develop its Cymerus™ therapeutic MSC products in its key target areas of GvHD, cardiovascular disease, respiratory and pulmonary diseases and oncology. Financial position The net assets of the Group have increased by $5,281,458 to $13,864,596 in 2017 (2016: $8,583,138). This increase is mainly due to an increase in cash and cash equivalents resulting from a capital raising of $6,000,001 (before costs) and $3,972,457 investment of FUJIFILM in Cynata via the acquisition of 8,088,403 ordinary shares in Cynata. Subsequent events On 5 July 2017, the Company announced that it had received written advice from the United States Food and Drug Administration (FDA) regarding the regulatory approval path for Cymata’s proprietary Cymerus™ mesenchymal stem cell products in USA. On 7 August 2017, the Company issued 300,000 unlisted options exercisable at $0.88 each on or before 4 August 2020 to a third party for the provision of corporate advisory services. Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or state of affairs of the Group in future financial years. - 8 - Cynata Therapeutics Limited Future developments, prospects and business strategies Cynata is well positioned in the regenerative medicine space, with its proprietary therapeutic stem cell platform technology Cymerus™ and is well diversified across a number of key target disease areas. Strong progress has been delivered for the Company’s lead therapeutic product candidate, CYP-001, which has advanced to a Phase 1 clinical trial for GvHD. An update will be announced at the half way point in the study, which will be once the eighth patient has completed treatment. A total of 16 patients are expected to participate in the Phase 1 trial and participating patients will receive two infusions of CYP-001, with a week between doses. Cynata continues to work closely with its strategic partner FUJIFILM and other leading investigative institutions for the ongoing development and research of its Cymerus™ technology. The quality of its partners has provided strong support and validation of its ability and potential in the regenerative medicine sector and the Company is well positioned as it advances its preclinical trials across other indications. The Company intends to continue its business development activities and has active engagement with entities that have a commercial interest in accessing Cynata’s technologies. Environmental regulations The Group’s operations are not subject to significant environmental regulation under the Australian Commonwealth or State law. - 9 - Cynata Therapeutics Limited Remuneration report (audited) This remuneration report, which forms part of the directors’ report, sets out information about the remuneration of Cynata Therapeutics Limited’s key management personnel for the financial year ended 30 June 2017. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. The prescribed details for each person covered by this report are detailed below under the following headings: • key management personnel • • • • key terms of employment contracts. remuneration policy relationship between the remuneration policy and Company performance remuneration of key management personnel Key management personnel The directors and other key management personnel of the Group during or since the end of the financial year were: Non-executive directors Dr Paul Wotton1 Dr Stewart Washer2 Mr Peter Webse Dr John Chiplin Position Non-executive Chairman Non-executive director Non-executive director Non-executive director 1 Appointed as non-executive chairman on 28 February 2017. Dr Wotton was appointed as a non-executive director on 9 June 2016. 2 Reverted to non-executive director on 28 February 2017. Executive directors Dr Ross Macdonald Position Managing Director, Chief Executive Officer Other key management personnel Dr Kilian Kelly Position Vice President, Product Development Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year. Remuneration policy Cynata’s remuneration policy, which is set out below, is designed to promote superior performance and long term commitment to the Company. As at the date of this report, the Company has one executive – the Chief Executive Officer, four non- executive directors and one Vice President, Product Development. As set out below, total remuneration costs for the 2017 financial year were $1,534,156 up from $1,069,386 for the previous financial year. Non-executive director remuneration Non-executive directors are remunerated by way of fees, in the form of cash, non-cash benefits, superannuation contributions or salary sacrifice into equity and do not normally participate in schemes designed for the remuneration of executives. Shareholder approval must be obtained in relation to the overall limit set for the non-executive directors’ fees. The maximum aggregate remuneration approved by shareholders for non-executive directors is $300,000 per annum. The directors set the individual non-executive director fees within the limit approved by shareholders. - 10 - Cynata Therapeutics Limited Executive director remuneration Executive directors receive a base remuneration which is market related, and may be entitled to performance based remuneration, which is determined on an annual basis. Overall remuneration policies are subject to the discretion of the board and can be changed to reflect competitive and business conditions where it is in the interests of the Company and shareholders to do so. Executive remuneration and other terms of employment are reviewed annually by the board having regard to the performance, relevant comparative information and expert advice. The board’s remuneration policy reflects its obligation to align executive remuneration with shareholder interests and to retain appropriately qualified executive talent for the benefit of the Company. The main principles are: (a) remuneration reflects the competitive market in which the Company operates; (b) individual remuneration should be linked to performance criteria if appropriate; and (c) executives should be rewarded for both financial and non-financial performance. The total remuneration of executives consists of the following: (a) salary – executives receive a fixed sum payable monthly in cash; (b) cash at risk component – executives may participate in share and option schemes generally made in accordance with thresholds set in plans approved by shareholders if deemed appropriate. However, the board considers it appropriate to issue shares and options to executives outside of approved schemes in exceptional circumstances; and (c) other benefits – executives may, if deemed appropriate by the board, be provided with a fully expensed mobile phone and other forms of remuneration. The board formally engaged the services of a remuneration consultant, Haigh & Company to provide recommendations when setting the bonus accruals/remuneration to be received by key management personnel during the financial year and the next financial year. An amount of US$11,952 was paid to the remuneration consultant for the recommendation. Haigh & Company is an independent company based in Massachusetts, USA and the board is satisfied that the remuneration recommendation was made free from undue influence by the member or members of the key management personnel to whom the recommendation relates. Equity-settled compensation The fair value of the equity which executives and employees are granted is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Relationship between the remuneration policy and company performance The board considers that at this time, evaluation of the Group’s financial performance using generally accepted measures such as profitability, total shareholder return or per company comparison are not relevant as the Group is at an early stage in the implementation of a corporate strategy that includes the development of a novel life sciences (i.e. therapeutic stem cell) manufacturing technology and the identification and execution of business opportunities as outlined in the directors’ report. - 11 - The table below sets out summary information about the Group’s earnings and movements in shareholder wealth for the five years to 30 June 2017: Cynata Therapeutics Limited Revenue Net loss before tax Net loss after tax Share price at start of year Share price at end of year Basic/diluted loss per share (cents) 30 June 2017 $ 1,843,105 4,553,536 4,553,536 0.31 0.61 5.69 30 June 2016 $ 1,247,397 4,939,471 4,939,471 0.93 0.31 6.82 374,889 30 June 2015 $ 30 June 2014 $ 107,755 3,712,077 3,039,663 3,712,077 3,039,663 0.20 0.40 6.76 0.40 0.93 6.12 30 June 2013 $ 71,021 915,701 915,701 0.20 0.20 3.80 Remuneration of key management personnel Short-term employee benefits Salary & fees $ Cash bonus $ Other $ Post- employment benefits Superannua- tion $ Share- based payment Options Total $ $ Value of options as proportion of remunerat- ion 124,810 319,635 50,000 50,000 66,667 30,000 167,100 - - - 71,594 (18,958) - 49,500 - 18,658 25,304 - - - - 48,010 48,010 48,009 48,009 245,062 541,091 98,010 147,509 114,676 245,434 856,546 56,906 254,006 5,443 107,579 23,316 67,278 56,709 248,747 387,808 1,534,156 - 8.87% 48.98% 32.55% 41.86% 14.62% 16.21% 2017 Directors S. Washer1 R. Macdonald2 J. Chiplin P. Webse3 P. Wotton4 Other KMP K. Kelly2 Total 1 The amount of $71,594 in ‘Other’ comprises of $41,096 as termination pay and $30,498 as annual leave payout. Dr Washer reverted to a non-executive director as from 28 February 2017. 2 Amounts in ‘Other’ represent accrued annual leave in accordance with AASB 119 Employee Benefits. Amounts in ‘Cash Bonus’ represent $60,000 for the financial year 2016 determined and paid in financial year 2017 and $107,100 determined and accrued for the financial year 2017 ($20,000 was paid in the financial year 2017) for Dr Macdonald. It also represents $18,750 for the financial year 2016 for Dr Kelly determined and paid in financial year 2017 and $38,156 determined and accrued for the financial year 2017. 3 The amount of $49,500 in ‘Other’ represents company secretarial fees of $4,000 per month and an amount of $1,500 for additional company secretary work outside the scope of the consultancy agreement with Platinum Corporate Secretariat Pty Ltd (Platinum). Mr Webse is the sole director of Platinum. 4 Appointed non-executive Chairman on 28 February 2017. During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the company secretary and all executive officers of the Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. - 12 - Remuneration of key management personnel (cont’d) Cynata Therapeutics Limited Short-term employee benefits Salary & fees $ Other $ Post- employment benefits Superannua- tion $ Share- based payment Options $ 164,384 319,635 50,000 50,000 3,056 15,000 5,832 - 51,750 - 15,616 35,000 - - - - - - - - Value of options as proportion of remunerat- ion - - - - - Total $ 195,000 360,467 50,000 101,750 3,056 228,311 815,386 (696) 71,886 23,973 74,589 107,525 107,525 359,113 1,069,386 29.94% 10.05% 2016 Directors S. Washer3 R. Macdonald3 J. Chiplin P. Webse1 P. Wotton2 Other KMP K. Kelly3 Total 1 The amount of $51,750 in ‘Other’ represents company secretarial fees of $4,000 per month and an amount of $3,750 for additional company secretary work outside the scope of the consultancy agreement with Platinum Corporate Secretariat Pty Ltd (Platinum). Mr Webse is the sole director of Platinum. 2 Appointed 9 June 2016. 3 Amounts in ‘Other’ represent annual leave accrued in accordance with AASB 119 Employee Benefits. During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company, the company secretary and all executive officers of the Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Bonuses and share-based payments granted as compensation for the current financial year Bonuses Cash bonuses of $80,000 to Dr Macdonald, $30,000 to Dr Washer and $18,750 to Dr Kelly were paid during the financial year. A performance bonus entitlement of $87,100 for Dr Macdonald and $38,156 for Dr Kelly was accrued in the 2017 accounts. These amounts were paid subsequent to 30 June 2017. No other cash bonuses were granted during 2017. Incentive share-based payments arrangements During the financial year, the following share-based payment arrangements were in existence: Option series 1 2* 3** Number 500,000 5,000,000 750,000 Expiry date Grant date 27 Nov 2012 9 Sept 2016 27 Sept 2013 27 Sept 2018 16 Dec 2018 16 Dec 2015 Exercise price $0.040 $0.400 $0.490 Grant date fair value $0.2560 $0.2900 $0.2370 4*** 800,000 16 Nov 2016 17 Nov 2019 $1.022 $0.3859 Vesting date Vested Vested 66.66% vested 16 Nov 2017 * Unlisted options issued to Drs Stewart Washer and Ross Macdonald. In accordance with the terms of the share- based arrangement, 100% of the options have vested following achievements of vesting conditions. ** Unlisted options issued to Dr Kilian Kelly. In accordance with the share-based arrangement, 500,000 options have vested and 250,000 vest in 12 months (subject to continuing employment). *** Unlisted options issued to Dr Macdonald, Dr Chiplin, Dr Wotton and Mr Webse (200,000 each) pursuant to an Employee Option Acquisition Plan approved at the Company’s Annual General Meeting held on 16 Nov 2016. - 13 - Cynata Therapeutics Limited There are no further services or performance criteria that need to be met in relation to options granted under series (1) and (2) above, and as a consequence the beneficial interest has vested to the recipients. There has been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date. Details of share-based payments granted to key management personnel during the current financial year: Name R. Macdonald J. Chiplin P. Wotton P. Webse Option series Series 4 Series 4 Series 4 Series 4 No. granted 200,000 200,000 200,000 200,000 During the financial year % of grant vested No. vested % of grant forfeited - - - - - - - - n/a n/a n/a n/a No share options were exercised by key management personnel during the year (2016: nil). Each option converts into one ordinary share of Cynata Therapeutics Limited. Key terms of employment contracts The key terms and conditions of the varied letter of appointment of Dr Paul Wotton are as follows: • A fee of $100,000 p.a inclusive of statutory superannuation. • The appointment letter and the varied appointment letter may be terminated immediately by the Company if Dr Wotton becomes disqualified or is prohibited by law from being or acting as a director or from being involved in the management of a company. • The grant of 2 million options exercisable at $1.50 each expiring two (2) years from that date of grant, subject to shareholder approval at the upcoming Annual General Meeting of the Company. The key terms and conditions of the renewed executive service agreement of Dr Ross Macdonald are as follows: • Term of renewed agreement – indefinitely until terminated by agreement with both parties (by giving 6 months written notice) or terminated by the Company with reasons. • Effective 1 July 2017, a salary of $375,000 p.a inclusive of statutory superannuation. During the financial year 2017, Dr Macdonald was paid a salary of $350,000 p.a inclusive of statutory superannuation. • The Company may (but is not bound) pay additional performance based remuneration. Dr Stewart Washer reverted to a non-executive director role from 28 February 2017. The key terms and conditions of the appointment of Dr Stewart Washer as non-executive director are formalised in an appointment letter and are as follows: • A fee of $50,000 p.a inclusive of statutory superannuation. • The appointment may be terminated if Dr Washer gives notice of resignation and the appointment may be terminated immediately if Dr Washer becomes disqualified or prohibited by law from being or acting as a director or from being involved in the management of a company. The key terms of appointment of Dr John Chiplin are formalised in an appointment letter, the key terms and conditions of which are: • A fee of $50,000 p.a (not subject to GST). • The appointment letter may be terminated immediately by the Company if Dr Chiplin becomes disqualified or is prohibited by law from being or acting as a director or from being involved in the management of a company. - 14 - Cynata Therapeutics Limited The key terms of appointment of Dr Kilian Kelly are formalised in an employment agreement and are as follows: • Effective 1 July 2017, a salary of $283,250 p.a inclusive of statutory superannuation. During the financial year 2017, Dr Kelly was paid a salary of $275,000 p.a inclusive of statutory superannuation. • The right to participate in the Company’s equity-based incentive scheme and an incentive payment of up to 10% of the annual salary and based on attainment of agreed performance indicators. • The Company may (but is not bound) pay additional performance based remuneration. • The contract may be terminated by either party providing 3 months’ notice. Mr Peter Webse’s services as non-executive director and Company Secretary are provided through Platinum Corporate Secretariat Pty Ltd (“Platinum”). Platinum is paid a fee of $50,000 (exc. GST) p.a for the provision of Mr Webse’s services as a Non-Executive Director. A consultancy agreement was entered into with Platinum, commencing 3 April 2012, for the provision of company secretarial services at a fee of $4,000 (exc. GST) per month plus additional services charged at a rate of $250 per hour as agreed from time to time. The agreement is subject to 2 months’ notice of termination. Key management personnel equity holdings Fully paid ordinary shares of Cynata Therapeutics Limited 2017 Balance at 1 July 2016 No. Granted as compensation No. Received on exercise of options No. Net other change1 No. Balance at 30 June 2017 No. P Wotton R Macdonald S Washer J Chiplin P Webse K Kelly - 8,500 174,856 10,000 210,000 16,640 1 Amounts in ‘Net other change’ represent on market acquisitions. - - - - - - - - - - - - 55,000 20,000 50,000 40,000 10,000 - 55,000 28,500 224,856 50,000 220,000 16,640 2016 S Washer R Macdonald J Chiplin P Webse P Wotton1 K Kelly Balance at 1 July 2015 No. Granted as compensation No. Received on exercise of options No. Net other change Balance at No. 30 June 2016 No. 174,856 8,500 10,000 210,000 - 16,640 - - - - - - - - - - - - - - - - - - 174,856 8,500 10,000 210,000 - 16,640 1 Appointed 9 June 2016 - 15 - Key management personnel equity holdings (cont’d) Share options of Cynata Therapeutics Limited Cynata Therapeutics Limited 2017 Balance at 1 July 2016 Granted as compens- ation Exerci- sed Net other change (1) Balance at 30 June 2017 P Wotton R Macdonald S Washer J Chiplin P Webse K Kelly No. - 2,500,000 2,500,000 - - 750,000 No. No. - - - - - - No. 200,000 200,000 - 200,000 200,000 - No. 200,000 2,700,000 2,500,000 200,000 200,000 750,000 - - - - - - Balance vested at 30 June 2017 No. - 2,500,000 2,500,000 - - 500,000 Vested and exercisable No. - 2,500,000 2,500,000 - - 500,000 Options vested during year No. - - - - - 250,000 1 Amounts in ‘Net other change’ represents unlisted options issued on 16 November 2016 pursuant to an Employee Option Acquisition Plan. 2016 Balance at 1 July 2015 Granted as compens- ation Exerci- sed Net other change Balance at 30 June 2016 No. No. No. S Washer R Macdonald J Chiplin P Webse P Wotton1 K Kelly2 No. 2,500,000 2,500,000 - - - 200,000 1 Appointed 9 June 2016 2 Amount in ‘Net other change’ represents options which expired on 30 November 2015 3 Options which expired during the year were granted during the financial year ended 30 June 2014 No. 2,500,000 2,500,000 - - - 750,000 - - - - - (200,000)3 - - - - - 750,000 - - - - - - Balance vested at 30 June 2016 No. 2,500,000 2,500,000 - - - 250,000 Vested and exercisable No. 2,500,000 2,500,000 - - - 250,000 Options vested during year No. - - - - - 250,000 All share options issued to key management personnel were made in accordance with the provisions of the employee share option plan. No share options were exercised by key management personnel during the financial year (2016: nil). Further details of the employee share option plan and of share options are contained in note 17 to the financial statements. This directors’ report is signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the directors Dr Ross Macdonald Managing Director Melbourne, 24 August 2017 - 16 - Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants 24 August 2017 Board of Directors Cynata Therapeutics Limited Level 3, 62 Lygon Street CARLTON, VICTORIA 3053 Dear Directors PO Box 1908 West Perth WA 6872 Australia Level 2, 1 Walker Avenue West Perth WA 6005 Australia Tel: +61 8 9481 3188 Fax: +61 8 9321 1204 ABN: 84 144 581 519 www.stantons.com.au RE: CYNATA THERAPEUTICS LIMITED In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Cynata Therapeutics Limited. As the Audit Director for the audit of the financial statements of Cynata Therapeutics Limited for the year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD (Trading as Stantons International) (Authorised Audit Company) Martin Michalik Director Liability limited by a scheme approved under Professional Standards Legislation Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CYNATA THERAPEUTICS LIMITED PO Box 1908 West Perth WA 6872 Australia Level 2, 1 Walker Avenue West Perth WA 6005 Australia Tel: +61 8 9481 3188 Fax: +61 8 9321 1204 ABN: 84 144 581 519 www.stantons.com.au Report on the Audit of the Financial Report Our Opinion We have audited the financial report of Cynata Therapeutics Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion: (a) the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2017 and of its financial performance for the period then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 3.1 Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. 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. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Liability limited by a scheme approved under Professional Standards Legislation Key Audit Matters How the matter was addressed in the audit Carrying value of intangible assets, amortisation and impairment reviews Our response At 30 June 2017, the Group has intangibles with a carrying value of $3,813,157. The intangible assets are considered a Key Audit Matter as they represent over 26% of the Net Assets of the Group. Cynata Therapeutics acquired intangible assets (patents) through the acquisition of a subsidiary. Under Australian Accounting Standards, the Group is required to assess whether there are any indicators of impairment and if so, perform an impairment review of the intangible assets at least annually. The impairment tests were significant to our audit due to the complexity of the assessment process and judgments and assumptions involved, which are affected by expected future market and economic developments. Our audit procedures included, inter alia, the following: i. A review of the ASX announcements to obtain an understanding of the significant activities undertaken by the Group during the year. ii. An audit of the Group’s patent register to obtain reasonable assurance any patents that have expired are written off. iii. Obtained and appraised management’s assessment of the carrying value of the patents and assessed the appropriateness and relevance of information provided to justify the carrying value of the patents. iv. Checked the amortisation charge to ensure that the patents are being amortised over the 20-year patents’ life. v. We assessed disclosures statements. the adequacy of to the financial the (Note 11) Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2017, but does not include the financial report and our auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We conclude on the appropriateness of the Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in Internal control that we identify during our audit. The Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Report on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 16 of the directors’ report for the year ended 30 June 2017. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion on the Remuneration Report In our opinion, the Remuneration Report of Cynata Therapeutics Limited for the year ended 30 June 2017 complies with section 300A of the Corporations Act 2001. STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD (Trading as Stantons International) (An Authorised Audit Company) Martin Michalik Director West Perth, Western Australia 24 August 2017 Cynata Therapeutics Limited Directors’ declaration The directors declare that: (a) in the directors’ opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable; (b) in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3 to the financial statements; (c) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; and (d) the directors have been given the declarations required by s.295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the directors Dr Ross Macdonald Managing Director Melbourne, 24 August 2017 - 22 - Cynata Therapeutics Limited Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2017 Continuing operations Other income Product development costs Employee benefits expenses Amortisation expenses Share based payment expenses Other expenses Loss before income tax Income tax expense Loss for the year Consolidated Year ended 30 June 2017 $ 30 June 2016 $ Note 6 7 11 7 7 8 1,843,105 (3,472,806) (1,032,993) (279,965) (248,747) (1,362,130) (4,553,536) 1,247,397 (4,155,013) (783,681) (280,732) (238,122) (729,320) (4,939,471) - (4,553,536) - (4,939,471) Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Other comprehensive income for the year, net of income tax Total comprehensive loss for the year Loss for the year attributable to: Owners of Cynata Therapeutics Limited Total comprehensive loss for the year attributable: Owners of Cynata Therapeutics Limited - - 248 248 (4,553,288) - - (4,939,471) (4,553,536) (4,939,471) (4,553,288) (4,939,471) Loss per share: Basic and diluted (cents per share) 9 (5.69) (6.82) Notes to the consolidated financial statements are included on pages 27 to 51. - 23 - Consolidated statement of financial position as at 30 June 2017 Cynata Therapeutics Limited Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Intangibles Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Option reserves Foreign currency translation reserve Accumulated losses Total equity Consolidated Note 30 June 2017 $ 30 June 2016 $ 20 10 11 12 13 14 15 15 10,349,764 91,272 10,441,036 4,879,173 58,220 4,937,393 3,813,157 3,813,157 14,254,193 4,093,122 4,093,122 9,030,515 385,744 3,853 389,597 389,597 393,762 53,615 447,377 447,377 13,864,596 8,583,138 38,377,761 3,966,187 4,724 (28,484,076) 13,864,596 28,791,762 3,717,440 4,476 (23,930,540) 8,583,138 Notes to the consolidated financial statements are included on pages 27 to 51. - 24 - Consolidated statement of changes in equity for the year ended 30 June 2017 Cynata Therapeutics Limited Balance at 1 July 2015 Loss for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Issue of ordinary shares (refer to note 14) Share issue costs Share based payments Balance at 30 June 2016 Balance at 1 July 2016 Loss for the year Other comprehensive income for the year, net of tax Total comprehensive income/(loss) for the year Issue of ordinary shares (refer to note 14) Share issue costs Share based payments Balance at 30 June 2017 Issued Capital $ 24,460,404 - - - 5,000,004 (668,646) - 28,791,762 28,791,762 - - - 9,972,458 (386,459) - 38,377,761 Option Reserve $ 3,276,148 - - - - 203,170 238,122 3,717,440 3,717,440 - - - - - 248,747 3,966,187 Foreign currency translation reserve $ 4,476 - - - - - - 4,476 4,476 - 248 248 - - - 4,724 Accumulated losses $ (18,991,069) (4,939,471) - (4,939,471) - - - (23,930,540) (23,930,540) (4,553,536) - (4,553,536) - - - (28,484,076) Total $ 8,749,959 (4,939,471) - (4,939,471) 5,000,004 (465,476) 238,122 8,583,138 8,583,138 (4,553,536) 248 (4,553,288) 9,972,458 (386,459) 248,747 13,864,596 Notes to the consolidated financial statements are included on pages 27 to 51. - 25 - Consolidated statement of cash flows for the year ended 30 June 2017 Cynata Therapeutics Limited Cash flows from operating activities Grants and other income received Payments to suppliers and employees Interest received Research and development tax refund received Development costs paid Net cash (used in) operating activities Cash flows from investing activities Net cash used in investing activities Cash flows from financing activities Proceeds from issue of equity instruments of the Company Payment for share issue costs Net cash provided by financing activities Consolidated Year ended Note 30 June 2017 $ 30 June 2016 $ - (2,507,972) 67,765 1,748,874 (3,356,857) (4,048,190) 167,132 (1,611,915) 137,394 932,581 (3,979,128) (4,353,936) 20.1 - - 9,972,458 (386,459) 9,585,999 5,000,004 (465,476) 4,534,528 Net increase in cash and cash equivalents 5,537,809 180,592 Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at the end of the year 4,879,173 4,670,998 (67,218) 10,349,764 27,583 4,879,173 20 Notes to the consolidated financial statements are included on pages 27 to 51. - 26 - Cynata Therapeutics Limited Notes to the consolidated financial statements for the year ended 30 June 2017 General information 1. Cynata Therapeutics Limited (“the Company”) is a listed public company incorporated in Australia. The addresses of its registered office and principal place of business are disclosed in the corporate directory to the annual report. The principal activities of the Company and its controlled subsidiaries (“the Group”) are described in the directors’ report. 2. 2.1 Application of new and revised Accounting Standards Amendments to Accounting Standards and the new Interpretation that are mandatorily effective for the current year The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for an accounting period that begins on or after 1 July 2016. AASB 2015-4 ‘Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’ This amendment completes the withdrawal of references to AASB 1031 in all Australian Accounting Standards and Interpretations, allowing that Standard to effectively be withdrawn. The application of this amendment does not have any material impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. 2.2 Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations that were issued but not yet effective are listed below. Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2019 1 January 2018 30 June 2019 Standard/Interpretation AASB 9 ‘Financial relevant amending standards Instruments’, and the ‘Revenue from Contracts with AASB 15 Customers’, AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’, AASB 2015-8 ‘Amendments to Australian Accounting Standards – Effective date of AASB 15’, AASB 2016-3 ‘Amendments – to Australian Accounting Clarifications to AASB 15’ Standards ‘Amendments to Australian AASB 2016-1 Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses (AASB 12)’ 1 January 2017 30 June 2018 AASB 2016-5 to Australian ‘Amendments Accounting Standards – Classification and Measurement Payment Transactions’ Share-based of 1 January 2018 30 June 2019 - 27 - 2.2 Standards and Interpretations in issue not yet adopted (cont’d) Cynata Therapeutics Limited Standard/Interpretation Interpretation 22 Transactions and Advance Consideration’ ‘Foreign Currency Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2019 3. 3.1 Significant accounting policies Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 24 August 2017. 3.2 Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 ‘Inventories’ or value in use in AASB 136 ‘Impairment of Assets’. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. - 28 - 3.3 Basis of consolidation Cynata Therapeutics Limited The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company: • • • has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns The Company reassesses whether or not it control an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • • • the size of the Company’s holdings of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. - 29 - 3.4 Business combinations Cynata Therapeutics Limited Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date; and • assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’ as appropriate, with the corresponding gain or loss being recognised in profit or loss. - 30 - Cynata Therapeutics Limited Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. 3.5 Goodwill Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business (see 3.4 above) less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each of the Groups’ cash- generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 3.6 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. 3.6.1 Interest income Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts though the expected life of the financial asset to that asset’s net carrying amount on initial recognition. - 31 - 3.7 Foreign currencies Cynata Therapeutics Limited The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Australian dollars (‘$’), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. For the purpose of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars using the exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the in other transactions are used. Exchange differences arising, comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate). if any, are recognised Goodwill and fair value adjustments to identifiable assets acquired and liabilities assumed through acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income. 3.8 Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. - 32 - Cynata Therapeutics Limited 3.9 Employee benefits Short-term and long-term employee benefits A liability is recognised for benefits accrued to employees in respect of wages and salaries and annual leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. 3.10 Share-based payments arrangements Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 17. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. For cash-settled share-based payments, liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year. 3.11 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. 3.11.1 Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using the tax rates that have been enacted or substantively enacted by the end of the reporting period. R&D rebates are accounted for on a cash basis and included under other income. - 33 - 3.11.2 Deferred tax Cynata Therapeutics Limited Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same authority and the Group intends to settle its current tax assets and liabilities on a net basis. 3.11.3 Current and deferred tax for the year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. - 34 - Cynata Therapeutics Limited 3.12 Intangible assets 3.12.1 Intangible assets acquired in a business combination Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Intangibles have been identified as all granted patents and patent applications. They have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the assets, as follows: • Patents 20 years 3.12.2 Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset is derecognised. 3.13 Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash- generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. - 35 - Cynata Therapeutics Limited 3.14 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 3.15 Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 3.15.1 Financial assets Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. 3.15.1.1 Financial assets at FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: it has been acquired principally for the purpose of selling it in the near term; or • • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. • - 36 - Cynata Therapeutics Limited A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if: • • • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and AASB 139 ‘Financial Instruments: Recognition and Measurement’ permits the entire combined contract to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item. 3.15.1.2 Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial. 3.15.1.3 Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For financial assets that are carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial asset that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. - 37 - In respect of AFS securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised income and accumulated under the heading of investments revaluation reserve. in other comprehensive 3.15.1.4 Derecognition of financial assets Cynata Therapeutics Limited The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. 3.15.2 Financial liabilities and equity instruments 3.15.2.1 Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. 3.15.2.2 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group of entity are recognised at the proceeds received, net of direct issue costs. 3.15.2.3 Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. 3.15.2.4 Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. - 38 - Cynata Therapeutics Limited A financial liability is classified as held for trading if: • it has been incurred principally for the purpose of repurchasing it in the near term; or • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. • A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: • • • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and AASB 139 ‘Financial Instruments: Recognition and Measurement’ permits the entire combined contract to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item. 3.15.2.5 Other financial liabilities Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. 3.15.2.6 Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. 3.16 Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or for receivables and payables which are recognised inclusive of GST. ii. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. - 39 - Cynata Therapeutics Limited 3.17 Comparative amounts When current period balances have been classified differently within current period disclosures when compared to prior periods, comparative disclosures have been restated to ensure consistency of presentation between periods. 4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described in note 3, the directors of the Company are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period on which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 4.1 Key sources of estimation uncertainty 4.1.1 Recoverability of intangible assets acquired in a business combination During the year, the directors reconsidered the recoverability of the Group’s intangible assets arising from the acquisition of Cynata Incorporated, which is included in the consolidated statement of financial position at 30 June 2017 with a carrying value of $3,813,157 (2016: $4,093,122) after accounting for amortisation. The directors have allocated the carrying value of the patents (before amortisation) to the different categories of the research based on their estimates. The resulting allocation has given rise to an amortisation expense of $279,965 for the year ended 30 June 2017 (2016: $280,732). The directors performed an impairment testing and concluded that no further impairment of the intangible assets is required for the year (2016: nil). 5. Segment information The Group operates in one business segment and one geographical segment, namely the development and commercialisation of therapeutic products. AASB 8 ‘Operating Segments’ states that similar operating segments can be aggregated to form one reportable segment. However, none of the operating segments currently meet any of the prescribed quantitative thresholds, and as such do not have to be reported separately. The Group has therefore decided to aggregate all its reporting segments into one reportable operating segment. The revenue and results of this segment are those of the Group as a whole and are set out in the consolidated statement of profit or loss and other comprehensive income. The segment assets and liabilities are those of the Group and set out in the consolidated statement of financial position. 6. Other income Continuing operations Interest revenue Other income and grants Option fee from apceth GmbH & Co. KG Research and development rebate 2017 $ 94,231 - - 1,748,874 1,843,105 2016 $ 147,684 42,132 125,000 932,581 1,247,397 - 40 - 7. Loss for the year Loss for the year has been arrived at after charging the following items of expenses: Employee benefits expenses Wages and salaries Superannuation expenses Leave entitlements Total employee benefits expenses Share-based payment expenses Other expenses Share register fees Director fees Legal costs Other administrative expenses Effect of foreign exchange Total other expenses 8. 8.1 Income taxes relating to continuing operations Income tax recognised in profit or loss Current tax Deferred tax Cynata Therapeutics Limited 2017 $ 984,980 67,279 (19,266) 1,032,993 248,747 11,221 166,667 103,676 1,016,484 64,082 1,362,130 2016 $ 692,945 66,130 24,606 783,681 238,122 9,156 107,222 121,465 486,085 5,392 729,320 2017 $ 2016 $ - - - - - - The income tax expense for the year can be reconciled to the accounting loss as follows: Loss before tax from continuing operations Income tax expense calculated at 27.5% (2016: 28.5%) Effect of expenses that are not deductible in determining taxable income Effect of unused tax losses not recognised as deferred tax assets 2017 $ (4,553,536) 2016 $ (4,939,471) (1,252,222) (1,407,749) (410,444) 1,662,666 - 120,630 1,287,119 - The tax rate used for the 2017 reconciliations above is the corporate tax rate of 27.5% (2016: 28.5%) payable by Australian corporate entities on taxable profits under Australian tax law. 8.2 Income tax recognised directly in equity Current tax Share issue costs Deferred tax Arising on transactions with owners: Share issue costs deductible over 5 years 2017 $ 2016 $ - - - - - - - 41 - 8. 8.3 Income taxes relating to continuing operations (cont’d) Unrecognised deferred tax assets in relation to: Unused tax losses (revenue) for which no deferred tax assets have been recognised Other 8.4 Unrecognised deferred tax (liabilities) in relation to: Intangibles Other All unused tax losses were incurred by Australian entities. Cynata Therapeutics Limited 2017 $ 2016 $ 5,177,758 81,048 5,258,806 4,738,317 89,510 4,827,827 2017 $ (1,143,947) (10,108) (1,154,055) 2016 $ (1,166,540) (15,207) (1,181,747) This benefit for tax losses will only be obtained if the specific entity carrying forward the tax losses derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, and the Company complies with the conditions for deductibility imposed by tax legislation. 9. Loss per share Basic and diluted loss per share (cents per share) 9.1 Basic and diluted loss per share 2017 cents per share 2016 cents per share (5.69) (6.82) The loss and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Loss for the year attributable to owners of the Company 2017 $ (4,553,536) 2016 $ (4,939,471) 2017 No. 2016 No. Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 80,061,243 72,446,636 10. Trade and other receivables Deposits made Other receivables At the reporting date, none of the receivables were past due/impaired. 2017 $ 3,568 87,704 91,272 2016 $ 3,568 54,652 58,220 - 42 - 11. Intangibles Fair value of research and development (i) Amortisation (ii) Net book value of research and development Cynata Therapeutics Limited 2017 $ 4,093,122 (279,965) 3,813,157 2016 $ 4,373,854 (280,732) 4,093,122 (i) The fair value attributable to interests in research and development of stem cells is due to, and in recognition of, the successful development activities and data generated by Cynata Incorporated as at the acquisition date (1 December 2013), representing progress toward the eventual commercialisation of the relevant technology. (ii) An amortisation expense of $279,965 has been recognised in profit or loss (2016: $280,732). Refer to note 3.13 for more information on the Group’s accounting policy on intangibles and amortisation. Cost Balance at 1 July Additions Disposals Balance at 30 June Accumulated amortisation Balance at 1 July Amortisation expense Balance at 30 June 12. Trade and other payables Trade payables Accrued expenses 13. Provisions Provisions for employee entitlements 2017 $ 4,821,799 - - 4,821,799 2017 $ 728,677 279,965 1,008,642 2017 $ 94,877 290,867 385,744 2016 $ 4,821,799 - - 4,821,799 2016 $ 447,945 280,732 728,677 2016 $ 133,526 260,236 393,762 2017 $ 3,853 2016 $ 53,615 - 43 - 14. Issued capital 90,057,248 fully paid ordinary shares (30 June 2016: 72,738,075) Cynata Therapeutics Limited 2017 $ 38,377,761 2016 $ 28,791,762 Fully paid ordinary shares Balance at beginning of year Issue of shares (i) Share Placement (ii) Share Placement (iii) Share issue costs 30 June 2017 30 June 2016 No. 72,738,075 8,088,403 9,230,770 - - 90,057,248 $ 28,791,762 3,972,457 6,000,001 - (386,459) 38,377,761 No. 66,071,403 - - 6,666,672 - 72,738,075 $ 24,460,404 - - 5,000,004 (668,646) 28,791,762 (i) Issue of fully paid ordinary shares at $0.49113 each on 25 January 2017 to FUJIFILM Corporation of Japan. (ii) Issue of fully paid ordinary shares at $0.65 each on 30 January 2017 pursuant to a placement. (iii) Issue of fully paid ordinary shares at $0.75 each on 17 July 2015 to institutional investors in USA. 15. Reserves 15.1 Share-based payments Balance at beginning of year Recognition of share-based payments (i) Balance at end of year 2017 $ 3,717,440 248,747 3,966,187 2016 $ 3,276,148 441,292 3,717,440 (i) Total expenses arising from share-based payment transactions recognised during the year ended 30 June 2017 was $248,747 (2016: $441,292). In 2016, the share-based payment expense included $203,170 charged to capital raising costs. Further information about share-based payments is set out in note 17. 15.2 Foreign currency translation reserve Balance at beginning of year Exchange differences arising on translating the foreign operations Balance at end of year 2017 $ 4,476 248 4,724 2016 $ 4,476 - 4,476 Exchange differences relating to the translation of results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. - 44 - Cynata Therapeutics Limited 16. Financial instruments 16.1 Capital management The Group’s objective when managing capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid, return capital to shareholders, issue new shares or sell assets to reduce debt. Given the nature of the business, the Group monitors capital on the basis of current business operations and cash flow requirements. There were no changes in the Group’s approach to capital management during the year. 16.2 Categories of financial instruments Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net financial assets 2017 $ 10,349,764 91,272 10,441,036 2016 $ 4,879,173 58,220 4,937,393 385,744 385,744 393,762 393,762 10,055,292 4,543,631 The fair value of the above financial instruments approximates their carrying values. 16.3 Financial risk management objectives In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of those risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Group’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the Group where such impacts may be material. The board receives monthly financial reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. 16.4 Market risk Market risk for the Group arises from the use of interest bearing financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rate (see 16.5 below). - 45 - Cynata Therapeutics Limited 16. Financial instruments (cont’d) 16.5 Interest rate risk management Interest rate risk arises on cash and cash equivalents and receivables from related parties. The Group does not enter into any derivative instruments to mitigate this risk. As this is not considered a significant risk for the Group, no policies are in place to formally mitigate this risk. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end on the reporting period. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended 30 June 2017 would decrease/increase by $103,498 (2016: $48,792) 16.6 Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. At 30 June 2017, the Company has cash denominated in US dollars (US$1,600,459 (2016: US$674,412)). The AUD equivalent at 30 June 2017 is $2,088,279 (2016: $908,299). A 5% movement in foreign exchange rates would increase or decrease the Group’s loss before tax by approximately $104,414 (2016: $45,415). 16.7 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. 16.8 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity by maintaining adequate banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Contractual cash flows Carrying Amount Less than 1 month 1-3 months 3-12 months 1 year to 5 years Total contractual cash flows 2017 Trade and other payables 2016 Trade and other payables $ $ 385,744 385,744 393,762 393,762 $ - - $ - - $ - - $ 385,744 393,762 - 46 - Cynata Therapeutics Limited 17. Share-based payments 17.1 Employee share option plan Options may be issued to external consultants or non-related parties without shareholders’ approval, where the annual 15% capacity pursuant to ASX Listing Rule 7.1 has not been exceeded. Options cannot be offered to a director or an associate except where approval is given by shareholders at a general meeting. Each option converts into one ordinary share of Cynata Therapeutics Limited on exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The following options arrangements were in existence at the reporting date: Option series Number Grant date Grant date fair value $ Exercise price $ Expiry date Vesting date 1 2 3 4 5 5,000,000i 27 Sept 2013 750,000 16 Dec 2015 333,333 17 July 2015 22 Feb 2016 600,000 800,000ii 0.290 0.237 0.610 0.222 0.400 27 Sept 2018 0.490 1.000 0.530 1.022 16 Dec 2018 17 July 2020 22 Feb 2019 17 Nov 2019 Vested 66.66% vested* Vested Vested 16 Nov 2017 16 Nov 2016 0.3859 i This represents 100,000,000 unlisted options after a 1:20 consolidation issued to Drs Washer and Macdonald. ii This represents unlisted options issued to Dr Macdonald, Dr Wotton, Dr Chiplin and Mr Webse (200,000 each) pursuant to an Employee Option Acquisition Plan. * Issued to Dr Kelly. 500,000 options have vested. There has been no alteration to the terms and conditions of the above options arrangements. 17.2 Fair value of share options granted in the year Options were priced using the Black-Scholes pricing model. Expected volatility is based on the historical share price volatility over the past 12 months. The weighted average exercise price of options granted during the year is $1.02 (2016: $0.61). Where relevant, the fair value of the options has been adjusted based on management’s best estimate for the effects of non-transferability of the options. Inputs into the model Input Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate Series 5 $0.710 $1.022 98% 3 years n/a 1.82% - 47 - 17. Share-based payments (cont’d) 17.3 Movements in share options during the year The following reconciles the share options outstanding at the beginning and end of the year: Cynata Therapeutics Limited 2017 2016 Number of options No. 7,183,333 800,000 - - (500,000) 7,483,333 6,433,333 Weighted average exercise price $ 0.448 1.022 - - 0.400 0.513 0.450 Number of options No. 6,700,000 1,683,333 - - (1,200,000) 7,183,333 6,683,333 Weighted average exercise price $ 0.400 0.605 - - 0.400 0.448 0.445 Balance at beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year Balance at end of year Exercisable at end of year 17.4 Share options exercised during the year No share options were exercised during the year (2016: nil). 17.5 Share options outstanding at the end of the year The share options outstanding at the end of the year had a weighted average exercise price of $0.513 (2016: $0.445) and a weighted average remaining contractual life of 548 days (2016: 818 days). 18. Key management personnel The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Share-based payments Short-term employee benefits 2017 $ 1,218,131 67,278 248,747 1,534,156 2016 $ 887,272 74,589 107,525 1,069,386 These amounts include fees paid to non-executive directors as well as salary, bonuses and paid leave benefits awarded to executive directors, fees paid to entities controlled by the directors. Post-employment benefits These amounts are superannuation contributions made during the year and also include termination payments and annual leave payout to Dr Washer. Share-based payments These amounts represent the expense related to the participation of key management personnel in equity-settled benefit schemes as measured by the fair value of the options granted on grant date. Further information in relation to key management personnel remuneration can be found in the Remuneration Report contained in the directors’ report. - 48 - Cynata Therapeutics Limited 19. Related party transactions 19.1 Entities under the control of the Group The Group consists of the parent entity, Cynata Therapeutics Limited and its wholly-owned US-based subsidiary Cynata Incorporated, which in turn owns 100% of Cynata Australia Pty Ltd, the non-operating entity of Cynata Incorporated. Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. 19.2 Key management personnel Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. For details of disclosures relating to key management personnel, refer to the Remuneration Report contained in the directors’ report and note 18. 19.3 Other related party transactions Mr Webse’s services are provided by Platinum Corporate Secretariat Pty Ltd (Platinum). Mr Webse is the sole director of Platinum. Company secretarial fee paid to Platinum is disclosed in the Remuneration Report. Transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 20. Cash and cash equivalents For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash and bank balances 2017 $ 10,349,764 2016 $ 4,879,173 20.1 Reconciliation of loss for the year to net cash flows from operating activities Cash flow from operating activities Loss for the year Adjustments for: Share-based payments Amortisation expenses Effects of exchange rate changes on the balance of cash held in foreign currencies Movements in working capital (Increase) in trade and other receivables (Decrease)/increase in trade and other payables (Decrease)/increase in provisions – annual leave Net cash outflows from operating activities 2017 $ 2016 $ (4,553,536) (4,939,471) 248,747 279,965 67,218 238,122 280,732 27,583 (32,804) (8,018) (49,762) (4,048,190) (10,411) 80,071 24,604 (4,353,936) - 49 - Cynata Therapeutics Limited 21. Contingent liabilities and contingent assets The directors are not aware of any significant contingencies at balance date other than a requirement for the payment of royalties pursuant to certain licence agreements should future revenues exceed predetermined thresholds. 22. Commitments for expenditure The Group has entered into a number of agreements related to research and development activities. As at 30 June 2017, under these agreements, the Company is committed to making payments over future periods, as follows: - During the period 1 July 2017 – 30 June 2018 - During the period 1 July 2018 – 30 June 2019 - During the period 1 July 2019 – 30 June 2021 A$ 1,966,314 727,759 408,598 Where commitments are denominated in foreign currencies, the amounts have been converted to Australian dollars based on exchange rates prevailing as at 30 June 2017. 23. Remuneration of auditors Auditor of the Group Audit and review of the financial statements 2017 $ 36,880 2016 $ 31,074 The auditor of the Group is Stantons International Audit and Consulting Pty Ltd. 24. Events after the reporting period On 5 July 2017, the Company announced that it had received written advice from the United States Food and Drug Administration (FDA) regarding the regulatory approval path for Cynata’s proprietary Cymerus™ mesenchymal stem cell products in US. On 7 August 2017, the Company issued 300,000 unlisted options exercisable at $0.88 each on or before 4 August 2020 to a third party for the provision of corporate advisory services. Other than the above, there has not been any matter or circumstance that has arisen since the end of the year that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. - 50 - 25. Parent entity information The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 3 for a summary of significant accounting policies relating to the Group. Cynata Therapeutics Limited Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Provisions Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Financial performance Loss for the year Commitments and contingencies 2017 $ 2016 $ 10,441,026 4,894,221 15,335,247 389,302 3,853 393,155 14,942,092 4,937,394 4,890,653 9,828,047 393,762 53,615 447,377 9,380,670 38,377,761 3,966,186 (27,401,855) 14,942,092 28,791,762 3,717,440 (23,128,532) 9,380,670 (4,273,323) (4,658,738) There were no material commitments or contingencies at the reporting date for the parent company except for those mentioned in note 21 and note 22 above. 26. Subsidiaries Details of the Company’s subsidiaries at the end of the reporting period are as follows: Name of subsidiary Principal activity Cynata Incorporated Cynata Australia Pty Ltd (i) Holds licences with WARF for core IPs Non-operating subsidiary from date of reconstruction Place of incorporation USA Proportion of ownership interest and voting power held by the Group 2017 100% 2016 100% Australia 100% 100% (i) Cynata Australia Pty Ltd is a wholly owned subsidiary of Cynata Incorporated. 27. Approval of financial statements The financial statements were approved by the board of directors and authorised for issue on 24 August 2017. - 51 - Cynata Therapeutics Limited Corporate Governance Statement This Corporate Governance Statement (“Statement”) outlines the key aspects of Cynata Therapeutics Limited (‘Cynata’ or ‘the Company’) governance framework and main governance practices. The Company’s charters, policies, and procedures are regularly reviewed and updated to comply with law and best practice. These charters and policies can be viewed on Cynata's website located at www.cynata.com. This Statement is structured with reference to the Australian Securities Exchange Corporate Governance Council’s (“the Council’s”) “Corporate Governance Principles and Recommendations 3rd Edition” (“the Recommendations”). The Board of Directors has adopted the Recommendations to the extent that is deemed appropriate considering current the size and operations of the Company. Therefore, considering the size and financial position of the Company, where the Board considers that the cost of implementing a recommendation outweighs any potential benefits, those recommendations have not been adopted. This Statement was approved by the Board of Directors and is current as at 23 August 2017. Principle 1: Lay solid foundations for management and oversight Roles of the Board & Management The Board is responsible for evaluating and setting the strategic direction for the Company, establishing goals for management and monitoring the achievement of these goals. The Managing Director is responsible to the Board for the day-to-day management of the Company. • • The principal functions and responsibilities of the Board include, but are not limited to, the following: • Appointment, evaluation and, if necessary, removal of the Managing Director, any other executive directors, the Company Secretary and the Chief Financial Officer (if applicable) and approval of their remuneration; Determining, in conjunction with management, corporate strategy, objectives, operations, plans and approving and appropriately monitoring plans, new investments, major capital and operating expenditures, capital management, acquisitions, divestitures and major funding activities; Establishing appropriate levels of delegation to the Managing Director to allow the business to be managed efficiently; Approval of remuneration methodologies and systems; • • Monitoring actual performance against planned performance expectations and reviewing operating information at a requisite level to understand at all times the financial and operating conditions of the Company; • Monitoring the performance of senior management, including the implementation of strategy and ensuring • • • • • • • appropriate resources are available; Identifying areas of significant business risk and ensure that the Company is appropriately positioned to manage those risks; Overseeing the management of safety, occupational health and environmental issues; Satisfying itself that the financial statements of the Company fairly and accurately set out the financial position and financial performance of the Company for the period under review; Satisfying itself that there are appropriate reporting systems and controls in place to assure the Board that proper operational, financial, compliance, risk management and internal control processes are in place and functioning appropriately; Ensuring that appropriate internal and external audit arrangements are in place and operating effectively; Authorising the issue of any shares, options, equity instruments or other securities within the constraints of the Corporations Act and the ASX Listing Rules; and Ensuring that the Company acts legally and responsibly on all matters and assuring itself that the Company has adopted, and that its practice is consistent with, a number of guidelines including: − Code of Conduct; − Continuous Disclosure Policy; − Diversity Policy; − Performance Evaluation Policy; − Procedures for Selection and Appointment of Directors; − Remuneration Policy; − Risk Management and Internal Compliance and Control Policy; − Securities Trading Policy; and − Shareholder Communications Policy. - 52 - Cynata Therapeutics Limited Subject to the specific authorities reserved to the Board under the Board Charter, the Board has delegated to the Managing Director responsibility for the management and operation of Cynata. The Managing Director is responsible for the day-to-day operations, financial performance and administration of Cynata within the powers authorised to him from time-to-time by the Board. The Managing Director may make further delegation within the delegations specified by the Board and is accountable to the Board for the exercise of those delegated powers. Further details of Board responsibilities, objectives and structure are set out in the Board Charter on the Cynata Website. Board Committees The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of separate committees at this time including audit, risk, remuneration or nomination committees, preferring at this stage to manage the Company through the full Board of Directors. The Board assumes the responsibilities normally delegated to the audit, risk, remuneration and nomination Committees. If the Company’s activities increase, in size, scope and nature, the appointment of separate committees will be reviewed by the Board and implemented if appropriate. Board Appointments The Company undertakes comprehensive reference checks prior to appointing a director, or putting that person forward as a candidate to ensure that person is competent, experienced, and would not be impaired in any way from undertaking the duties of director. The Company provides relevant information to shareholders for their consideration about the attributes of candidates together with whether the Board supports the appointment or re- election. The terms of the appointment of a non-executive director, executive directors and senior executives are agreed upon and set out in writing at the time of appointment. The Company Secretary The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board, including agendas, Board papers and minutes, advising the Board and its Committees (as applicable) on governance matters, monitoring that the Board and Committee policies and procedures are followed, communication with regulatory bodies and the ASX and statutory and other filings. Diversity The Board has adopted a Diversity Policy which provides a framework for the Company to establish and achieve measurable diversity objectives, including in respect to gender, age, ethnicity and cultural diversity. The Diversity Policy allows the Board to set measurable gender diversity objectives (if considered appropriate) and to assess annually both the objectives (if any have been set) and the Company’s progress towards achieving them. The Board considers that, due to the size, nature and stage of development of the Company, setting measurable objectives for the Diversity Policy at this time is not appropriate. The Board will consider setting measurable objectives as the Company increases in size and complexity. The participation of women in the Company at the date of this report is as follows: • • • Women employees in the Company Women in senior management positions Women on the Board 0% 0% 0% The Company’s Diversity Policy is available on its website. Board & Management Performance Review On an annual basis, the Board conducts a review of its structure, composition and performance. The annual review includes consideration of the following measures: - 53 - Cynata Therapeutics Limited • comparing the performance of the Board against the requirements of its Charter; • assessing the performance of the Board over the previous 12 months having regard to the corporate strategies, operating plans and the annual budget; • reviewing the Board’s interaction with management; • reviewing the type and timing of information provided to the Board by management; • reviewing management’s performance in assisting the Board to meet its objectives; and • identifying any necessary or desirable improvements to the Board Charter. The method and scope of the performance evaluation will be set by the Board and may include a Board self- assessment checklist to be completed by each Director. The Board may also use an independent adviser to assist in the review. The Executive Chairman has primary responsibility for conducting performance appraisals of Non-Executive Directors, in conjunction with them, having particular regard to: • contribution to Board discussion and function; • degree of independence including relevance of any conflicts of interest; • availability for and attendance at Board meetings and other relevant events; • contribution to Company strategy; • membership of and contribution to any Board committees; and • suitability to Board structure and composition. The Board conducts an annual performance assessment of the Managing Director against agreed key performance indicators. Board and management performance reviews were conducted during the financial year in accordance with the above processes. Independent Advice Directors have a right of access to all Company information and executives. Directors are entitled, in fulfilling their duties and responsibilities, to obtain independent professional advice on any matter connected with the discharge of their responsibilities, with prior notice to the Chairman, at Cynata’s expense. Principle 2: Structure the board to add value Board Composition During the financial year and to the date of this report the Board was comprised of the following members: Dr Paul Wotton Dr Ross Macdonald Dr Stewart Washer Dr Peter Webse Dr John Chiplin Independent Non-Executive Chairman (Non-Executive Director from 8 June 2016 to 28 February 2017. Non-Executive Chairman from 28 February 2017); Managing Director (appointed 1 August 2013); Non-Executive Director (Executive Chairman from 1 August 2013 to 28 February 2017. Non-Executive Director from 28 February 2017); Non-Executive Director (appointed 18 May 2012); Independent Non-Executive Director (appointed 18 November 2014). The Board currently consists of one Executive Director, being the Managing Director, and four Non-Executive Directors, one of whom is also the Company Secretary. Cynata has adopted a definition of 'independence' for Directors that is consistent with the Recommendations. The Company’s current Chairman, Dr Paul Wotton, who was appointed to that role on 28 February 2017, is considered to be an independent director. The Company’s former Chairman, Dr Stewart Washer was not considered to be an independent director by virtue of the fact that he was an executive of the Company. The Board does not consist of a majority of independent directors. Dr John Chiplin and Dr Paul Wotton are the only current directors considered to be independent. Given the size of the Board and the nature and scale of the Company’s current operations the Board believes the presence of two independent directors on the Board is sufficient. - 54 - Cynata Therapeutics Limited Board Selection Process The Board considers that a diverse range of skills, backgrounds, knowledge and experience is required in order to effectively govern Cynata. The Board believes that orderly succession and renewal contributes to strong corporate governance and is achieved by careful planning and continual review. The Board is responsible for the nomination and selection of directors. The Board reviews the size and composition of the Board regularly and at least once a year as part of the Board evaluation process. The Board has a skills matrix covering the competencies and experience of each member. When the need for a new director is identified, the required experience and competencies of the new director are defined in the context of this matrix and any gaps that may exist. Generally a list of potential candidates is identified based on these skills required and other issues such as geographic location and diversity criteria. Candidates are assessed against the required skills and on their qualifications, backgrounds and personal qualities. In addition, candidates are sought who have a proven track record in creating security holder value and the required time to commit to the position. Induction of New Directors and Ongoing Development New Directors are issued with a formal Letter of Appointment that sets out the key terms and conditions of their appointment, including Director's duties, rights and responsibilities, the time commitment envisaged, and the Board's expectations regarding involvement with any Committee work. An induction program is in place and new Directors are encouraged to engage in professional development activities to develop and maintain the skills and knowledge needed to perform their role as Directors effectively. Principle 3: Act ethically and responsibly The Company has implemented a Code of Conduct, which provides guidelines aimed at maintaining high ethical standards, corporate behaviour and accountability within the Company. All employees and Directors are expected to: • respect the law and act in accordance with it; • maintain high levels of professional conduct; • • • • respect confidentiality and not misuse Company information, assets or facilities; avoid real or perceived conflicts of interest; act in the best interests of shareholders; by their actions contribute to the Company’s reputation as a good corporate citizen which seeks the respect of the community and environment in which it operates; perform their duties in ways that minimise environmental impacts and maximise workplace safety; exercise fairness, courtesy, respect, consideration and sensitivity in all dealings within their workplace and with customers, suppliers and the public generally; and act with honesty, integrity, decency and responsibility at all times. • • • An employee that breaches the Code of Conduct may face disciplinary action including, in the cases of serious breaches, dismissal. If an employee suspects that a breach of the Code of Conduct has occurred or will occur, he or she must report that breach to the Company Secretary. No employee will be disadvantaged or prejudiced if he or she reports in good faith a suspected breach. All reports will be acted upon and kept confidential. Principle 4: Safeguard integrity in corporate reporting The Board as a whole fulfills the functions normally delegated to the Audit Committee as detailed in the Audit Committee Charter. The Board is responsible for the initial appointment of the external auditor and the appointment of a new external auditor when any vacancy arises. Candidates for the position of external auditor must demonstrate complete independence from the Company through the engagement period. The Board may otherwise select an external auditor based on criteria relevant to the Company’s business and circumstances. The performance of the external auditor is reviewed on an annual basis by the Board. The Board receives regular reports from management and from external auditors. It also meets with the external auditors as and when required. - 55 - Cynata Therapeutics Limited The external auditors attend Cynata's AGM and are available to answer questions from security holders relevant to the audit. Prior approval of the Board must be gained for non-audit work to be performed by the external auditor. There are qualitative limits on this non-audit work to ensure that the independence of the auditor is maintained. There is also a requirement that the audit partner responsible for the audit not perform in that role for more than five years. CEO and CFO (Equivalent) Certifications The Board has received certifications from the CEO and CFO (Equivalent) in connection with the financial statements for Cynata for the Reporting Period. The certifications state that the declaration provided in accordance with Section 295A of the Corporations Act as to the integrity of the financial statements is founded on a sound system of risk management and internal control which is operating effectively. Principle 5: Make timely and balanced disclosure The Company has a Continuous Disclosure Policy which outlines the disclosure obligations of the Company as required under the ASX Listing Rules and Corporations Act. The policy is designed to ensure that procedures are in place so that the market is properly informed of matters which may have a material impact on the price at which Company securities are traded. The Board considers whether there are any matters requiring disclosure in respect of each and every item of business that it considers in its meetings. Individual Directors are required to make such a consideration when they become aware of any information in the course of their duties as a Director of the Company. The Company is committed to ensuring all investors have equal and timely access to material information concerning the Company. The Board has designated the Company Secretary as the person responsible for communicating with the ASX. The Executive Chairman, Managing Director and the Company Secretary are responsible for ensuring that: a) Company announcements are made in a timely manner, that announcements are factual and do not omit any material information required to be disclosed under the ASX Listing Rules and Corporations Act; and b) Company announcements are expressed in a clear and objective manner that allows investors to assess the impact of the information when making investment decisions. Principle 6: Respect the rights of security holders The Company recognises the value of providing current and relevant information to its shareholders. The Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to: • communicating effectively with shareholders through releases to the market via ASX, the company website, information mailed to shareholders and the general meetings of the Company; giving shareholders ready access to clear and understandable information about the Company; and • • making it easy for shareholders to participate in general meetings of the Company. The Company also makes available a telephone number and email address for shareholders to make enquiries of the Company. These contact details are available on the “contact us” page of the Company’s website. Shareholders may elect to, and are encouraged to, receive communications from Cynata and Cynata's securities registry electronically. The Company maintains information in relation to its Constitution, governance documents, Directors and senior executives, Board and committee charters, annual reports and ASX announcements on the Company’s website. Principle 7: Recognise and manage risk The Board is committed to the identification, assessment and management of risk throughout Cynata's business activities. - 56 - Cynata Therapeutics Limited The Board is responsible for the oversight of the Company’s risk management and internal compliance and control framework. The Company does not have an internal audit function. Responsibility for control and risk management is delegated to the appropriate level of management within the Company with the Managing Director having ultimate responsibility to the Board for the risk management and internal compliance and control framework. Cynata has established policies for the oversight and management of material business risks. Cynata's Risk Management and Internal Compliance and Control Policy recognises that risk management is an essential element of good corporate governance and fundamental in achieving its strategic and operational objectives. Risk management improves decision making, defines opportunities and mitigates material events that may impact security holder value. Cynata believes that explicit and effective risk management is a source of insight and competitive advantage. To this end, Cynata is committed to the ongoing development of a strategic and consistent enterprise wide risk management program, underpinned by a risk conscious culture. Cynata accepts that risk is a part of doing business. Therefore, the Company’s Risk Management and Internal Compliance and Control Policy is not designed to promote risk avoidance. Rather Cynata's approach is to create a risk conscious culture that encourages the systematic identification, management and control of risks whilst ensuring we do not enter into unnecessary risks or enter into risks unknowingly. Cynata assesses its risks on a residual basis; that is it evaluates the level of risk remaining and considering all the mitigation practices and controls. Depending on the materiality of the risks, Cynata applies varying levels of management plans. The Board has required management to design and implement a risk management and internal compliance and control system to manage Cynata's material business risks. It receives regular reports on specific business areas where there may exist significant business risk or exposure. The Company faces risks inherent to its business, including economic risks, which may materially impact the Company’s ability to create or preserve value for security holders over the short, medium or long term. The Company has in place policies and procedures, including a risk management framework (as described in the Company’s Risk Management and Internal Compliance and Control Policy), which is developed and updated to help manage these risks. The Board does not consider that the Company currently has any material exposure to environmental or social sustainability risks. The Company’s process of risk management and internal compliance and control includes: • identifying and measuring risks that might impact upon the achievement of the Company’s goals and objectives, and monitoring the environment for emerging factors and trends that affect those risks; formulating risk management strategies to manage identified risks, and designing and implementing appropriate risk management policies and internal controls; and • • monitoring the performance of, and improving the effectiveness of, risk management systems and internal compliance and controls, including regular assessment of the effectiveness of risk management and internal compliance and control. The Board reviews the Company’s risk management framework at least annually to ensure that it continues to effectively manage risk. Management reports to the Board as to the effectiveness of Cynata's management of its material business risks on at each Board meeting. Principle 8: Remunerate fairly and responsibly The Board as a whole fulfills the functions normally delegated to the Remuneration Committee as detailed in the Remuneration Committee Charter. Cynata has implemented a Remuneration Policy which was designed to recognise the competitive environment within which Cynata operates and also emphasise the requirement to attract and retain high caliber talent in order to achieve sustained improvement in Cynata’s performance. The overriding objective of the Remuneration Policy is to ensure that an individual’s remuneration package accurately reflects their experience, level of responsibility, individual performance and the performance of Cynata. - 57 - Cynata Therapeutics Limited The key principles are to: • • link executive reward with strategic goals and sustainable performance of Cynata; apply challenging corporate and individual key performance indicators that focus on both short-term and long-term outcomes; • motivate and recognise superior performers with fair, consistent and competitive rewards; • • • remunerate fairly and competitively in order to attract and retain top talent; recognise capabilities and promote opportunities for career and professional development; and through employee ownership of Cynata shares, foster a partnership between employees and other security holders. The Board determines the Company’s remuneration policies and practices and assesses the necessary and desirable competencies of Board members. The Board is responsible for evaluating Board performance, reviewing Board and management succession plans and determines remuneration packages for the CEO, Non-Executive Directors and senior management based on an annual review. Cynata’s executive remuneration policies and structures and details of remuneration paid to directors and senior managers are set out in the Remuneration Report. Non-Executive Directors receive fees (including statutory superannuation where applicable) for their services, the reimbursement of reasonable expenses and, in certain circumstances options. They do not receive any termination or retirement benefits, other than statutory superannuation. The maximum aggregate remuneration approved by shareholders for Non-Executive Directors is $300,000 per annum. The Directors set the individual Non-Executive Directors fees within the limit approved by shareholders. The total fees paid to Non-Executive Directors during the reporting period were $181,887. Executive directors and other senior executives are remunerated using combinations of fixed and performance based remuneration. Fees and salaries are set at levels reflecting market rates and performance based remuneration is linked directly to specific performance targets that are aligned to both short and long term objectives. In accordance with the Company’s Securities Trading Policy, participants in an equity based incentive scheme are prohibited from entering into any transaction that would have the effect of hedging or otherwise transferring the risk of any fluctuation in the value of any unvested entitlement in the Company’s securities to any other person. Further details in relation to the company’s remuneration policies are contained in the Remuneration Report, within the Directors’ report. - 58 - ASX Additional Information as at 2 October 2017 Substantial Shareholders The names of the substantial shareholders disclosed to the Company as substantial shareholders as at 2 October 2017 are: Cynata Therapeutics Limited Name Fujifilm Corporation Distribution of Ordinary Shares Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Voting Rights Number of Shares Held % of Issued Capital 8,088,403 8.98% Number of Holders Ordinary Shares % of Issued Capital 367 687 363 751 136 2,304 191,057 2,009,278 2,990,222 26,075,935 58,790,756 90,057,248 0.21 2.23 3.32 28.95 65.29 100.00 (a) (b) (c) at meetings of members each member entitled to vote may vote in person or by proxy or attorney; on a show of hands each person present who is a member has one vote, and on a poll each person present in person or by proxy or by attorney has one vote for each ordinary share held; and no voting rights attach to unlisted options. Number of Holders of Unlisted Options 5,000,000 unlisted $0.40 Options expiring 27/09/2018 held by 2 holders (1); 750,000 unlisted $0.49 Options expiring 16/12/2018 held by 1 holder (2); 600,000 unlisted $0.53 Options expiring 22/02/2019 held by 2 holders (3); 800,000 unlisted $1.022 Options expiring 17/11/2019 held by 4 holders (4); 3,666,669 unlisted $1.00 Options expiring 17/07/2020 held by 7 holders (5); and 300,000 unlisted $0.88 Options expiring 4/8/2020 held by 1 holder (6). Unlisted Option Holders holding 20% or more: (1) 2,500,000 Options held in the name of Mrs Sharon Anne Macdonald (50%) and 2,500,000 Options held by Mal Washer Nominees Pty Ltd (50%). (2) 750,000 Options held in the name of Dr Kilian Kelly (100%). (3) 300,000 Options held in the name of Pegari Pty Limited (50%) and 300,000 Options held in the name of Shaw and Partners Limited (50%). (4) 200,000 Options held in the name of John Chiplin (25%), 200,000 Options held in the name of Mrs Sharon Anne Macdonald (25%), 200,000 Options held in the name of Mrs Kay Joan Webse (25%) and 200,000 Options held in the name of Paul K Wotton (25%). (5) 2,222,224 Options held in the name of Merrill Lynch (Australia) Nominees Pty Limited (60.60%) and 1,111,112 Options held in the name of Citicorp Nominees Pty Limited (30.30%). (6) 300,000 Options held in the name of Pegari Pty Ltd (100%). - 59 - Restricted Securities There are no ASX restricted securities on issue. There are 8,088,403 securities voluntarily escrowed until 25 January 2018. Cynata Therapeutics Limited On-Market Buy-Back There is no current on-market buy back. Unmarketable Parcels The number of shareholders holding less than a marketable parcel is 275. 20 Largest Shareholders Name Fujifilm Corporation Pershing Australia Nominees Pty Ltd Professor Igor Slukvin John W King Nominees Pty Ltd Celtic Capital Pte Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Helium Management Pty Ltd BNP Paribas Nominees Pty Ltd Dr Maksym Vodyanyk Tenbagga Resources Fund Pty Ltd Mr Jon Nicolai Herringstad Bjarnason Tisia Nominees Pty Ltd Jamber Investments Pty Ltd Beamond Holdings Pty Ltd J P Morgan Nominees Australia Limited Strategic Vision Equities Pty Ltd C M Cook Superannuation Pty Ltd Mr Ian Edward Dixon BNP Paribas Noms Pty Ltd Number of Shares Held 8,088,403 3,050,000 2,383,317 2,378,433 2,150,000 1,602,284 1,578,093 1,386,766 1,247,517 1,191,658 1,005,447 975,000 947,430 805,750 777,191 761,229 739,000 700,000 681,494 667,859 33,116,871 % of Issued Capital 8.98 3.39 2.65 2.64 2.39 1.78 1.75 1.54 1.39 1.32 1.12 1.08 1.05 0.89 0.86 0.85 0.82 0.78 0.76 0.74 36.77 - 60 - 

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