Emyria
Annual Report 2020

Plain-text annual report

Annual Report 2020 myriad data. individual care. We use novel interventions, build new technologies and develop decision support tools to elevate care and deliver valuable insights for unmet medical needs. Contents Emyria Ltd Annual Report Letter from the Chairman Meet the team Company snapshot Review of operations Emerald Clinics Openly  Directors’ Report Financial Report Audit Opinion Corporate Governance Statement Additional ASX Information Corporate Directory 4 6 – 7 8 – 9 10 – 11 12 – 13 14 – 15 16 - 35 36 - 75 76 - 81 82 - 93 94 - 97 98 From the Chairman We started the year as Emerald Clinics Limited, successfully listed on the ASX and have ticked off a number of milestones in just six months – with some of our most significant projects launched in response to a drastically changing world and healthcare system, in the age of COVID-19. Our innovative business model is allowing us to respond to these emerging challenges as opportunities, and to set the pace for this work, I am proud to say we are starting the new fiscal year with a new name and fresh identity. Welcome to Emyria Limited (Emyria). Our ticker code (ASX:EMD) remains unchanged, but our new brand will focus on positioning and growing our company on the world stage – beyond our network of physical clinics and the vital treatments we offer – to a leadership role in digitally-connected and patient-centric healthcare. Care that also generates high quality clinical evidence where it matters most, in the real world. Emyria is emerging as a leader in the generation of real-world evidence (RWE) – which works squarely at the intersection of understanding and improving the whole patient experience and clinical outcomes (for patients), whilst meeting the need for quality clinical evidence to progress the development of superior and novel treatments (for researchers, clinicians, and regulators). Emyria’s world-class technology systems are a powerful vehicle through which we can capture, measure and translate RWE into meaningful and credible clinical insights. So, what does this look like in practice? In our clinics, still Emerald Clinics, we remain committed to providing access to medicinal cannabis and other unregistered treatments for patients who have failed standard of care. Our team has done an exceptional job adapting to COVID-19 – more appointments are being conducted online, patients’ health status tracked remotely, and we are collecting meaningful data at multiple touchpoints with our service. I’m pleased to say that demand for our clinical services, and collaboration with strategic partners, has never been greater and we are developing valuable insights from the data that will inform future therapies. Our Openly screening service, in development, is a considered investment in our long-term vision to bring a new model of healthcare to people in their homes and in the community. This technology has the potential to help people get back to work, study and leisure activities, safely. It is designed to measure vital signs, heart rate and blood oxygen levels, in less than a minute, using just a smartphone. Our clinical team will be on standby to monitor and learn from this information, ready to guide our clients on how to manage the health and well-being of their people. These are examples of what can be accomplished by combining an innovative clinical team with great technology in response to changing health needs. In the 2020/21 fiscal year, Emyria will be working to find our first corporate customers for Openly as we move forward with refining and testing the technology. We will be investigating options for expanding Emerald Clinics generally, including establishing a clinical service in the UK as part of our contract with Spectrum Biomedical UK, in addition to our four clinics in Australia. We also intend to partner with more groups and organisations interested in our increasingly valuable real-world data as we work to develop multiple, growing revenue streams and invest in developing our own intellectual property from our data assets. COVID-19 has changed a number of industries, especially healthcare. Digital health tools, remote patient monitoring and RWE are firmly the future of medicine – a future Emyria is uniquely positioned to lead. Thanks to our shareholders, partners, fellow Board members, management team and clinical teams for your support during the financial year. You are valued partners in our innovation and our success. Dr Stewart Washer EMYRIA CHAIRMAN 4 Thank you. Our shareholders, business associates and supporters are valued partners in Emyria’s continued innovation and success. Dr Stewart Washer EMYRIA EXECUTIVE CHAIRMAN A world-class team Our Board Medical Key Opinion Leaders Dr Stewart Washer EXECUTIVE CHAIRMAN Dr Jennifer Morgan MEDICAL ADVISOR Dr Michael Winlo MANAGING DIRECTOR Dr Philip Finch MEDICAL ADVISOR Prof Alistair Vickery MEDICAL DIRECTOR Dr Nik Zeps MEDICAL ADVISOR Mr Matthew Callahan NON-EXECUTIVE DIRECTOR Prof David Putrino MEDICAL ADVISOR Prof Sir John Tooke NON-EXECUTIVE DIRECTOR + MEDICAL ADVISOR Visit our website emyria.com to view the full credentials of our Board, Medical Advisory Board and Management Team. 6 We’re on a great mission. We’ve deliberately put ourselves at the front line of care delivery, as well as evidence generation for patients with high unmet needs, which means our unique insights can improve the care we provide and the speed of development for the novel treatments we work with. Dr Michael Winlo EMYRIA MANAGING DIRECTOR Welcome to Emyria Caring. Curious. Courageous. Emyria’s primary goal is to improve the efficacy of novel treatments and therapies – and to provide more effective and personalised healthcare. We do this by developing technology-powered health services and data products, which are designed to help us learn from every patient in order to deliver deeper clinical insights. People are at the centre of everything we do. We listen with great care to each and every person we set out to help, and leverage the power of technology to accurately capture their clinical outcomes and experiences. We use novel interventions and new technologies to elevate and personalise their standard of care. Our business model, underpinned by sophisticated data systems, allows us to simultaneously capture valuable clinical insights – quality evidence that helps to empower clinicians, regulators and our partners to service unmet healthcare needs in a variety of clinical and real-world settings. Emyria’s intuitive model of healthcare performs, well beyond the clinic. Our team has invested energy in a number of important programs this year and has formed three primary clinical services for Emyria. Maritime Health Clinic Health screening, powered by a smartphone and backed by a clinical team. Improving treatments for chronic pain with multidimensional RWE. Under devopment, our clinician- led remote health screening and monitoring app, Openly, is designed to measure heart rate and blood oxygen levels in less than a minute, using just the camera on a smartphone. Openly has potential to be used to support proactive health screening in response to COVID-19, so people can safely gather together for work, study and play – and is a fine example of Emyria’s long-term commitment to delivering care, well beyond the clinic. GP clinic Maritime Health has been using Emryia’s research platform to manage, monitor and improve the safety and efficacy of novel treatments for chronic pain. The practice is also using our platform to generate dynamic patient data to improve treatments for a range of other debilitating and costly health issues, including mental health, sleep, addiction and musculoskeletal conditions and problems. We currently have two clinics in NSW. Testing and validating unregistered medicines including cannabinoids using live, real-world patient data. There is an immense volume of anecdotal support for cannabinoid-based medicines (CBMs), but a dearth of high-quality, product-specific clinical evidence. Our purpose- built clinics, Emerald Clinics, and leading clinicians provide access to novel CBMs, with the support of technology designed to capture real-world clinical evidence in partnership with every single patient. We are developing opportunities with partners wanting to test other unregistered therapeutics, leveraging the unique capabilities of our clinics and data team. 8 We deliver great care and insights High quality care and data Health services s i s a h p m e e r a c t n e i t a P C l i n i c a l t r i a l s Data quality emphasis Maritime Health Clinic Real World Evidence, at a glance 47% of FDA approvals currently leverage RWE RWE market worth USD $1.64 billion by 20241 From the US Food and Drug Administration (FDA)2 Real-world data (RWD) are the data relating to patient health status and/ or the delivery of health care routinely collected from a variety of sources. RWD can come from a number of sources, for example: electronic health records (EHRs); claims and billing activities; product and disease registries; patient-generated data including in home-use settings; and data gathered from other sources that can inform on health status, such as mobile devices. Real-world evidence (RWE) is the clinical evidence regarding the usage and potential benefits or risks of a medical product derived from analysis of RWD. RWE can be generated by different study designs or analyses, including but not limited to, randomised trials, including large simple trials, pragmatic trials, and observational studies (prospective and/or retrospective).2 1 Source: Meticulous Market Research (meticulousresearch.com) 2 Source: FDA.gov 9 Review of operations Emerald Clinics, now Emyria Limited, listed on the Australian Securities Exchange (ASX) on 12 February 2020 after raising AU$6 million in an initial public offering, as a company consisting of patient-focused medical clinics across Australia gathering real-world evidence (RWE) on the efficacy of cannabinoid medicines. Just weeks later, the COVID-19 crisis escalated across the globe and changed dynamics in the healthcare sector significantly. Emyria accelerated the development and expansion of its telehealth services rather than in-person visits. In addition to engaging with patients over the phone or via video conference, the Emyria platform allowed clinicians to integrate patient monitoring tools and medical records. The Company’s telehealth service also allowed it to gather valuable RWE on the efficacy of cannabinoid-based medicine on patients remotely. As the pandemic worsened, Emyria was appointed as Program Manager to develop a national clinical data and analytics platform of COVID-19 patient cases in a partnership between NSW Health, Queensland Health, QUT, the University of Sydney, Monash University and the Federal Government. The Company also worked to enrol patients in a Phase 1 dose escalation trial for Zelira Therapeutics, serving as a second site for tests of its medicinal cannabinoid oil formulation in patients with non-cancer pain. In June, Emyria developed the Openly service to provide remote vital signs monitoring using just the camera on a smart phone. While the technology is still in development, if successful, it will allow Emyria’s platform to capture and measure vital signs such as heart rate and blood oxygen levels using just a smartphone camera. Debut on the ASX – and beyond FEBRUARY 2020 MAY 2020 JUNE 2020 AUGUST 2020 Emerald Clinics listed on the Australian Securities Exchange (ASX), ticker code EMD, raising AU$6m. Signed research agreement to accelerate Zelira Therapeutics’ opioid sparing clinical trial. Emerald Clinics appointed program manager of National Clinical Data and Analytics Platform (CDAP) targeted at COVID-19 response. Professor Sir John Tooke was appointed to the Board at listing. Professor Sir Tooke is a highly respected thought leader in learning health systems and clinical research. Professor Sir Tooke was knighted for his services to medicine in 2007. Emerald Clinics announced a collaboration to bring their AI-powered, contactless vital sign technology into its RWE platform. This deep integration, once validated, will allow Emerald to capture vital signs, alongside important symptom data, using just a patient’s smartphone. This project is now branded as Openly. 10 Debut on the ASX – and beyond In early FY2021, Emyria signed a RWE contract with Spectrum Biomedical UK to develop a RWE asset in the United Kingdom. Spectrum is the UK subsidiary of the world’s largest cannabis company, Canopy Growth, and under the contract the Company will receive an upfront fee of £150,000, with the capability to earn as much as £400,000 (~A$723,000). The Company finished the financial year with revenues of $1.5 million, a 987% increase from the previous year, and $3.7 million in cash and cash equivalents. A $2.2 million institutional placement in August 2020 further strengthened Emyria’s capital position. Under the contract, the company will maintain independence in how it delivers the clinical care to patients, allowing the ability to establish a UK-based clinic or partner with existing services. Since the end of the financial year Emyria announced it had achieved record appointments for its clinical services in Australia, despite the majority of health services trending downwards due to COVID-19. As a result, the Company is actively hiring clinicians to meet growing demand for its clinical services, expanding its remote monitoring capabilities and increasing its data insight platforms. The Company is also well positioned to benefit from an interim decision delivered by the Therapeutic Goods Administration (TGA) on 9 September 2020, which is recommending that low dose cannabinoid products (CBD) be made available in Australian pharmacies without a prescription as a Schedule 3 medicine. Registration of “low dose CBD” products would require a full submission to the TGA and the type of high-quality evidence to support safety and effectiveness that it is Emyria’s business to provide. JUNE 2020 AUGUST 2020 SEPTEMBER 2020 Emerald Clinics signs contract with the UK-based biopharmaceutical arm of the largest cannabis company, Canopy Growth UK, to develop RWE system in the UK. Emerald Clinics successfully raise AU$2.2m in placement. The Openly app is registered with the Therapeutic Goods Administration (TGA) as a Class 1 medical device. Emerald signs professional services agreement with Mt Sinai Hospital’s Precision Recovery Team. Emerald Clinics finalises name change to Emyria Ltd (ASX:EMD) and breaks out Emerald Clinics as patient-services arm of the business. 11 Emerald Clinics Novel treatments, quality data Emerald Clinics is focused on the development of high-quality real-world evidence (RWE) around the safe and effective use of unregistered medicines such as pharmaceutical-grade cannabinoid-based medicines (CBMs). While the medicinal cannabis sector has gained significant momentum globally, an almost complete lack of high-quality, product specific clinical data has constrained the uptake of CBMs by clinicians, restrained approval by regulators and prevented reimbursement by insurance companies. Emyria has opened patient-focused medical clinics in NSW, VIC and WA to provide safe access to novel treatments for suitably qualified patients, in collaboration with referring doctors. These clinics will remain trading as Emerald Clinics in market and continue to serve a diverse patient population, highly motivated to access novel treatments and evidence-based care. “Since opening our first clinic in December 2018, Emerald Clinics has grown its patient base to over 1000 within the first 12 months. Our data model is now providing new insights into how best to prescribe and use CBMs and is already demonstrating patient benefits by enabling reduced use of opioids and improved health outcomes,” said Emyria MD, Dr Michael Winlo. 12 Clinical leadership, in real world settings The Emerald Clinics’ data-centric business model has gained attention in the age of COVID-19. In March 2020, following leadership in the conversation and technological shift to telehealth internationally, Emerald Clinics was appointed program manager for the development of a national Clinical Data and Analytics Platform (CDAP) of COVID-19 patient cases. CDAP aims to capture clinical and real-world data to provide real-time clinical decision support for COVID-19 patients. This is supported by Emerald’s real-world evidence platform, clinician-monitored alert systems and telehealth service. The platform was established by the Digital Health Cooperative Research Centre, a partnership between NSW Health, Queensland Health, QUT, the University of Sydney, and Monash University. “We are very pleased to have been chosen to help coordinate the development of this platform as it is a recognition of Emerald’s unique expertise in real-world evidence and building learning health systems,” said Emryia MD, Dr Michael Winlo. The reach and impact of Emerald’s data platform will continue to grow, with multiple clinical trial and collaboration opportunities now secured in addition to this CDAP opportunity. Addressing challenges in RWE Regulators are increasingly accepting of real-world evidence (RWE), realising it can fill crucial knowledge gaps for clinicians, regulators and drug developers eager to learn whether treatments are safe and effective in diverse patient populations. We founded Emyria to address major RWE challenges – as shown in the figure below. Our Company is committed to the highest standards of RWE, at every stage of the process, as we collect, curate and contextualise valuable clinical insights, in partnership with our patients. Challenges in RWE Access to quality data 35% Applying data correctly to evidence strategy 30% Selecting the right data sets 25% Data integration and management Proper analysis of data Validating RWE generated 10% 20% 20% SHYFT Analytics recently commissioned in-depth interviews with RWE decision-makers across biopharma companies. This graph represents the percentage of respondents who identified challenges in different areas of RWE. 13 Openly featured on The Today Show The Openly app is being developed at a time when industries of all shapes and sizes are deeply committed to monitoring the health of communities. Channel 9’s Today Show broadcast a three-minute feature story on the technology in late August, showing an example of how it could work in practice and a demonstration onsite at the Emyria headquarters in Perth, WA. “The team of GPs is what sets this system apart,” said Today Show reporter, Michael Genovese in his story to preview the potential capabilities of this technology. Openly Connect your people Healthcare models have been pushed to new, often devastating, limits during the COVID-19 crisis. What the pandemic has shown, at speed, is the importance of real-world evidence (RWE) and Emyria’s commitment to providing patient-centric healthcare at home and in the community. Emyria is in the process of developing a new app called Openly, which aims to make meeting and working on the frontline, safer. The technology harnesses video and artificial intelligence (AI) to support the capture of vital signs in a completely contactless manner by measuring subtle changes in colour (micro-blushes) of the skin, pixel by pixel, in less than a minute. Combining this technology with data monitoring and telehealth consultations, will create the potential for people to be actively screened prior to meeting up in groups. “Vital signs, such as heart rate and blood oxygen levels, provide clinically relevant data, but are often difficult to obtain from patients remotely. Openly collects this information using a smart phone camera and it is then processed and analysed, remotely, with the help of our RWE platform and clinical team,” said Emyria MD, Dr Michael Winlo. “Openly was registered by the TGA in September 2020. Its fast tracked success is a prime example of what can happen when you bring together an agile clinical service, which understands patient needs and risks, with world-class technology partners. We are immensely proud of this innovation.” Openly is being designed to help people get back to work and communities to reconnect. 14 Openly workflow App 1. Risks & Symptoms Participants prompted by SMS, email or notification to complete a “One Minute Daily Review” of risk factors and symptoms 2. Vital Signs Vital sign information collected to improve objective clinical assessment Control Centre 3. Alerts Evidence-based risk scoring applied based on patient inputs Wellness Triage HIGH MEDIUM LOW Status Optional: Based on results, a ‘status’ and other educational information can be delivered to participants Control Centre 4. 5. Clinical Screening Management Clinical team monitors alerts and responds with direct tele-health consultation or coordinates referral to appropriate service DATA LOW = Continue daily review < 24 hours HIGH Immediate MEDIUM Telehealth Testing? COVID-19+ve Referral into supportive monitoring program COVID-19-ve Continue with 15 The directors present their report for Emerald Clinics Limited (“Emerald” or “the Company”) and its subsidiaries (“the Group”) for the financial year ended 30 June 2020. Directors The names of the directors in office at any time during or since the end of the year ended are: Dr Stewart Washer Executive Chairman Dr Michael Winlo Managing Director (appointed on 26 November 2019 and was previously Chief Executive Officer) Professor Alistair Vickery Executive Medical Director Dr Patrizia Derna Washer Research Director (resigned on 28 October 2019) Mr Matthew Callahan Non-Executive Director Professor Sir John Tooke Non-Executive Director (appointed on 10 February 2020) Review of operations During the financial year ended 30 June 2020, the Company became listed on the Australian Securities Exchange on 12 February 2020 and its initial public offering raised $6 million (before costs). The Group continued to provide a high level of care for its patients through Emerald’s specialist clinics whilst gathering Real-World-Evidence (“RWE”) insights for unregistered treatments such as cannabinoid-based medicines. To enhance the Group’s digital health platform, Emerald has invested in monitoring technology to enable remote data capture from its patients. Significant changes in state of affairs On 10 July 2019, the Company issued 3,500,000 options to Dr Michael Winlo for an exercise price of $0.45 per share and expiring on 13 June 2023. The vesting conditions are: • One third immediately on issue; • One third one year from date of issue subject to continued employment or service and; • One third two years from date of issue subject to continued employment or service. On 18 July 2019, the Company entered into a strategic collaborative agreement with Zelira Therapeutics Limited where licence fees were payable in exchange for the provision of dose dependent efficacy insights. On 7 August 2019, the Company incorporated four wholly owned subsidiaries namely: • • • • Emerald Clinical Network Pty Ltd Emerald Clinical Research Pty Ltd Emerald Data Management Pty Ltd Emerald IP Holdings Pty Ltd 16 Directors’ Report On 26 September 2019, the Company entered into a heads of agreement with Australian Medical Research and as part of the agreement was issued 600,000 options for an exercise price of $0.45 per share and expiring on 13 June 2023. The vesting conditions are: • • • 200,000 options vested immediately on date of issue; 200,000 options vest after 12 months after date of issue and; 200,000 options vest after 18 months after date of issue. On 30 September 2019, the Company entered into a strategic collaborative agreement with Canopy Growth Australia Pty Ltd where licence fees are payable in exchange for the provision of product specific insights. On 30 September 2019, the Company appointed Su-Mei Sain as Chief Financial Officer of the Company. On 24 October 2019, the Company issued 1,000,000 options to Dr Phil Finch for an exercise price of $0.45 per share and expiring on 13 June 2023. The vesting conditions are: • One third immediately on issue; • One third one year from date of issue subject to continued employment or service and; • One third two years from date of issue subject to continued employment or service. On 11 November 2019, the Company issued 1,000,000 options to Mrs Su-Mei Sain for an exercise price of $0.45 per share and expiring on 13 June 2023. The vesting conditions are: • One third immediately on issue; • One third one year from date of issue subject to continued employment or service and; • One third two years from date of issue subject to continued employment or service. On 5 December 2019, the Company issued 2,777,778 fully paid ordinary shares at $0.18 per share raising $500,000 of funds. On 12 February 2020, the Company became listed on the Australian Securities Exchange (“ASX”) issuing 30 million ordinary shares at $0.20 per share giving the Company market capitalisation of $36.8 million. On the date of the Company’s listing, the Convertible Note Subscription Deed expired and all notes outstanding were converted to ordinary shares and have been issued. The Convertible Note value of $3,300,000 was converted to 20,625,000 ordinary shares at $0.16 per share. On 12 February 2020, Professor Sir John Tooke was appointed as Non-Executive Director of the Company. On 27 February 2020, the Company commenced a sponsored Opioid Sparing Clinical Trial with Zelira Therapeutics Limited. On 1 April 2020, the Company entered into an agreement with University of Sydney to provide project advisory services for the Clinical Data Analytics Platform targeted at COVID-19 patients. On 30 April 2020, the Company entered into a Radium Capital loan agreement of $240,000 as a partial advance against its accrued R&D tax rebate for the financial year ended 30 June 2020. On 14 May 2020, the Company incorporated Openly Care Inc. in the United States of America 17 Directors’ ReportEvents after reporting date The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has been financially neutral for the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. On 10 August 2020, the Group announced on the ASX that it would be entering into a Real-World Evidence contract with Spectrum Biomedical UK (“SBUK”) which is a subsidiary of Canopy Growth Corp (a Toronto Exchange Security listed company TSX:TSE). Emerald will be responsible for collection of specific data points including de-identified patient information, use of concomitant medicines, prescribed usage and diagnoses, and a rate of patient reported outcome measures. This data will then be provided to SBUK as a per patient pricing model. The contract value is up to GBP 400,000 (~AUD 723,000 and the Group is expected to receive GBP 150,000 (~AUD 270,000) up front plus GBP 300 (~AUD 542) per patient. The contract term is 24 months. On 14 August 2020, The Group announced on the ASX that it would be proposing a name change from “Emerald Clinics Limited” to “Emyria Limited”. The name change is subject to approval by shareholder on 18 September 2020 and a notice of meeting was issued on 14 August 2020 on the ASX. Apart from the above, there are no other matters or circumstances that have arisen since the end of the financial year which have 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 periods. Future development, prospects and business strategy The Group will focus on developing its business which combines the treatment of patients and the capture of high-quality clinical data to transform the way novel therapies are understood and researched. The Group will then combine this data with health records and published information to generate powerful data sets that provide actionable insights for physicians, drug developers, research groups and government departments. The data asset developed, and associated technologies, will form the primary source of income for the Group, generating license usage fees and royalties from third parties via a data-insights-as-a-service offerings while also developing more effective clinical models internally. Dividend paid and recommended No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2020 (30 June 2019: nil). 18 Directors’ ReportInformation On Directors And Company Secretary Dr Stewart Washer – Executive Chairman (Appointed on 1 July 2018) Stewart has 25 years of CEO and Board experience in medical and agrifood biotech companies. He is currently the Executive Chairman of Emerald Clinics Ltd, Chairman of Orthocell Ltd (ASX:OCC), a regenerative medicine company and Director of Cynata Therapeutics Ltd (ASX:CYP) stem cell therapies. Stewart has held a number of Board positions in the past, including Chairman of Hatchtech Pty Ltd that was sold in 2015 for A$279m and was a Director of iCeutica that was sold to a US Pharma. He was also a Senator with Murdoch University and was a Director of AusBiotech Ltd. Stewart was previously Chairman of Minomic International Ltd cancer diagnosis and treatment and previously Director of Zelira Therapeutics Ltd (ASX:ZLD) medical cannabis clinical studies and research. Other current directorships of a public listed company Cynata Therapeutics Limited – appointed as Director on 1 August 2013 Orthocell Limited – appointed as Chairman on 7 April 2014 Botanix Pharmaceuticals Limited – appointed as Director on 21 February 2019 Former directorships in last three years of a public listed company Zelira Therapeutics Limited – from 17 November 2016 to 2 December 2019 Interest in shares and options Shareholding – 48,550,499 (28,950,499 shares are in the control of Dr Stewart Washer and Dr Patrizia Washer) Option holding – 1,500,000 (options held are in the control of Dr Stewart Washer and Dr Patrizia Washer) Dr Michael Winlo – Managing Director (Appointed on 17 June 2019) Michael has a Bachelor of Medicine and Bachelor of Surgery with Honours from the University of Western Australia as well as a Master of Business Administration from Stanford University. Prior to Emerald, Michael was CEO at Linear Clinical Research Ltd (Linear) until October 2019 –a company providing clinical trial services for US- and Asia-based biotech companies. Linear was the first site in Australia and one of only a few in the world to successfully adopt electronic data capture technology. Under Michael’s leadership, Linear’s revenues grew over 300% in just over three years (to over $23 million per year). Michael retains a Directorship at Linear. Prior to Linear, Michael was Health Lead at Palantir Technologies – a Big Data company based in Silicon Valley, California. Other current directorships of a public listed company None Former directorships in last three years of a public listed company None Interest in shares and options Shareholding - nil Option holding – 3,500,000 19 Directors’ Report Professor Alistair Vickery – Executive Medical Director (Appointed on 18 March 2019) Alistair is the medical director of Emerald Clinics and has a wealth of expertise in clinical practice, health service management, clinical and educational research and board director skills. He is adjunct Clinical Professor of Primary Health Care at the University of Western Australia and Notre Dame University and an active specialist general practitioner. He is the clinical lead of the research group CHASM (The Collaborative for Health Care Analysis and Statistical Modelling) - providing high-level analysis and statistical modelling to inform clinical service planning and service evaluation. Alistair is Board Chair of Black Swan Health, one of the largest NFP primary health care service providers in Western Australia, and a Fellow of the Australasian College of Health Service Management and an AICD graduate. Other current directorships of a public listed Group None Former directorships in last three years of a public listed Group None Interest in shares and options Shareholding - nil Option holding – 2,000,000 Dr Patrizia Derna Washer – Research Director (Appointed on 1 July 2018 and resigned as a Director on 28 October 2019) Dr Washer holds a doctorate in microbiology from The University of Western Australia with postdoctoral experience in cancer research. She has over ten years’ experience in business development managing the commercialisation of technologies from early stage research and development through to clinical development within the university and medical technology sector. Patrizia has previously worked as a clinical trial consultant for a medical device Group, a medical cannabis research and development Group and has been a board member of two medical start-up companies. Other current directorships of a public listed Group None Former directorships in last three years of a public listed Group None Interest in shares and options Shareholding – 28,950,499 Option holding – 1,500,000 The shares and options held by Dr Patrizia Washer are also in the control of Dr Stewart Washer. 20 Directors’ ReportMr Matthew Callahan – Non -Executive Director (Appointed on 1 July 2018) Matthew is an experienced life sciences executive based in Philadelphia. He is a founding director of Emerald and has been the founding CEO or Executive Director of a number of pharmaceutical and health tech companies including Botanix Pharmaceuticals Ltd (ASX:BOT), iCeutica Inc, Churchill Pharma Inc. Dimerix Biosciences (ASX:DXB) and Orthocell (ASX:OCC). He has led the development of four pharmaceutical products that have received FDA approval and he has more than 25 years legal, IP and investment management experience. Mr Callahan has worked as an investment director for two venture capital firms investing in lifesciences, technology and other sectors, and was general manager of Australian listed technology and licensing company ipernica (now Nearmap ASX:NEA), where he was responsible for the licensing programs that generated more than $120M in revenue. Other current directorships of a public listed Group Botanix Pharmaceuticals Limited – re-appointed as Director on 10 February 2020 Orthocell Limited – re-appointed as Director on 10 February 2020 Former directorships in last three years of a public listed Group Botanix Pharmaceuticals Limited – from 1 July 2016 to 23 August 2019 Orthocell Limited – from 30 May 2006 to 23 August 2019 Interest in shares and options Shareholding – 19,600,000 Option holding - nil 21 Directors’ ReportProfessor Sir John Tooke – Non-Executive Director (Appointed on 10 February 2020) Sir John is Executive Chairman of Academic Health Solutions, a start-up Group offering expert advice to clients internationally on medical research and innovation strategy and health service transformation. He is Senior Independent Director at BUPA Chile and was until 2019 non-executive director of the BUPA main Board and the Chair of the Medical Advisory Council. He has recently been appointed as non-executive director of the Northern Health Science Alliance in the UK. He is the Chair of Collaboration for the Advancement of Sustainable Medical Innovation (CASMI) UCL and Chaired the Oversight Group for the Academy of Medical Sciences project ‘How we best use scientific evidence to judge the benefits and harms of medicines’. He also served as an Independent Review Board Member for Google DeepMind Health (UK). Sir John was Head of the School of Life and Medical Sciences at University College London (UCL) as Vice Provost (Health) and Academic Director of UCL Partners from 2010 - 2015. He is the Immediate Past President of the Academy of Medical Sciences in the UK. Sir John is a clinician scientist with 30 years’ experience as a consultant physician specialising in diabetes, endocrinology, vascular medicine and internal medicine with broad research experience (basic biomedical, experimental medicine, and applied health research including improvement science) recognised through Fellowship of the Academy of Medical Sciences. He held a Board position at the Francis Crick Institute (2011 -2015) and was a Member of the Council for Science & Technology (2011-2015) reporting to the Prime Minister (UK). Other current directorships of a public listed company None Former directorships in last three years of a public listed company None Interest in shares and options Shareholding – nil Option holding – 500,000 Mr Simon Robertson – Company Secretary Simon gained a Bachelor of Business from Curtin University in Western Australia and a Master of Applied Finance from Macquarie University in New South Wales. He is a member of the Institute of Chartered Accountants and Chartered Secretaries Australia. Simon currently holds the position of company secretary for a number of publicly listed companies and has experience in corporate finance, accounting and administration, capital raising and ASX compliance and regulatory requirements. Principal activities During the financial year ended 30 June 2020, the Group continued to provide a high level of care for its patients through Emerald’s specialist clinics whilst gathering Real-World-Evidence (“RWE”) insights in relation to novel therapies such as medicinal cannabinoids. 22 Directors’ ReportMeeting of Directors During the financial year ended 30 June 2020, the following table outlines the number of meetings held: Full meetings of directors Full meetings of directors A 8 7 7 7 5 3 B 8 8 7 8 5 3 A * 2 2* 2 2 * B * 2 2* 2 2 * Stewart Washer Chairman Matthew Callahan Non-Executive Director Michael Winlo Managing Director Alistair Vickery Executive Director Sir John Tooke Non-Executive Director Patty Washer Executive Director A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year * = Not a member of the relevant committee At the date of this report the Group has the following options on issue: Exercise Price Grant Date Number 11,250,000 1,000,000 3,500,000 600,000 1,000,000 1,000,000 18,350,000 $0.45 $0.45 $0.45 $0.45 $0.45 $0.45 13 June 2019 19 June 2019 10 July 2019 Expiry Date 13 June 2023 13 June 2023 13 June 2023 26 September 2019 26 September 2023 24 October 2019 13 June 2023 11 November 2019 13 June 2023 No shares were issued during or since the end of the year as a result of the exercise of an option over unissued shares of interest. For details of options issued to directors and other key management personnel, please refer to the remuneration report. 23 Directors’ ReportRemuneration Report (audited) This Remuneration Report, which has been audited, outlines the Key Management Personnel (as defined in AASB 124 Related Party Disclosures) (“KMP”) remuneration arrangements for the Group, in accordance with the requirements of the section 308 (3c) of the Corporations Act 2001 and its Regulations. The KMP covered in this remuneration report are: • Stewart Washer – Executive Chairman • Michael Winlo – Managing Director (appointed on 26 November 2019 and was previously Chief Executive Officer) • Alistair Vickery – Executive Medical Director • Mr Matthew Callahan – Non-Executive Director • • Sir John Tooke – Non-Executive Director (appointed on 10 February 2020) Patrizia Washer – Research Director (Dr Washer was a non-executive director of the Company until 28 October 2019) • Adam James – Chief Operating Officer • Su-Mei Sain – Chief Financial Officer The principles adopted have been approved by the Board and have been set out in this Remuneration Report. This audited Remuneration Report is set out under the following main headings: 1. Principles used to determine the nature and amount of remuneration 2. Details of remuneration 3. Service agreements 4. Share-based compensation The information provided under headings 1 to 4 above includes remuneration disclosures that are required under Accounting Standard AASB 124, Related Party Disclosures. 1. Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework which has been set out in detail under the remuneration structure in this Remuneration Report aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms to markets best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: (i) competitiveness and reasonableness; (ii) aligns shareholders and executive interests; (iii) performance based and aligned to the successful achievement of strategic and tactical business objectives; and (iv) transparency. 24 Directors’ Report Executive Directors Remuneration to Executive Directors reflects the demands which are made on, and the responsibilities of, the Executive Directors. Executive Directors’ remuneration is reviewed annually to ensure it is appropriate and in line with the market. There are no retirement allowances or other benefits paid to Executive Directors other than superannuation guarantee amounts as required. The executive remuneration and reward framework has three components: (i) base pay; (ii) share-based payments; and (iii) other remuneration such as superannuation and long service leave. The combination of these comprises the Executive Director’s total remuneration. Fixed remuneration, consisting of base salary and superannuation will be reviewed annually by the board, based on individual contribution to corporate performance and the overall relative position of the Group to its market peers. Non - Executive Directors Remuneration to Non-Executive Directors reflects the demands which are made on, and the responsibilities of, the Non-Executive Directors. Non-Executive Directors’ remuneration is reviewed annually. The maximum aggregate for remuneration of Non-Executive Directors is $500,000 and was approved by the board on 18 April 2018. For the year ended 30 June 2020, exclusive of superannuation guarantee the annual cash remuneration for the Non-Executive Director was $50,000 per annum. Company Performance As an early stage health technology company, the Board does not consider the operating loss after tax as one of the performance indicators when implementing an incentive-based remuneration policy. The board considers that identification and securing of new business growth opportunities, the securing of funding arrangements and responsible management of cash resources and the Company’s other assets as more appropriate performance indicators to assess the performance of management. Short-term incentives During the financial year ended 30 June 2020 and in accordance with executive agreements between the Company, the Managing Director and Medical Director were paid bonuses of $50,000 and $100,000 respectively for the successful listing of the Company on the Australian Securities Exchange on 12 February 2020. No other short-term incentives were provided to the Directors or key management personnel of the Company. The Company’s approach in regard to the use of short term cash incentives will be assessed by the board on an ongoing basis as the company evolves. Long-term incentives To align the board and management with shareholder’s interests and with market practices of peer companies and to provide a competitive total remuneration package, the Board introduced a long-term incentive (“LTI”) plan to motivate and reward Executives and Non-Executive Directors. The LTI is provided as options over ordinary shares of the Group under the rules of the Employee Securities Incentive Plan as approved on 12 February 2020. During the year ended 30 June 2020, there were 3,500,000 options issued to the Managing Director and 1,000,000 options issued to the Chief Financial Officer of the Group. 25 Directors’ ReportGroup performance, shareholder wealth and directors’ and executives’ remuneration No relationship exists between shareholder wealth, director and executive remuneration and Group performance as it is an early stage health care technology Group. The table below shows the losses and earnings per share of the Company for the current and last two financial years. Net loss (5,238,040) (2,682,928) Share price at year end (cents) Loss per share (cents) 4.80 (3.04) 2.34 (2.06) 2020 2019 2018 (64,340) 2.34 (0.05) 2. Details of Remuneration The amount of remuneration paid and entitlements owed to KMP is set out below. YEAR ENDED 30 JUNE 2020 CASH REMUNERATION Salary and other fees Bonus Post–employment benefits (superannuation) Annual leave entitlement movement Total cash payments and entitlements $ $ $ $ $ Directors S Washer M Winlo* 259,944 - 361,693 50,000 A Vickery* 354,786 100,000 M Callahan 50,000 Sir J Tooke*** 124,248 Other Key Management Personnel A James S Sain** P Washer**** 197,256 118,904 267,217 - - - - - 1,734,048 150,000 - 25,000 16,625 - - 18,842 11,357 25,000 96,824 - 26,624 24,231 - - 12,307 8,723 - 259,944 463,317 495,642 50,000 124,248 228,405 138,984 292,217 71,885 2,052,757 * During the financial year ended 30 June 2020 and in accordance with their executive agreements, Dr Winlo and Professor Vickery received a cash bonus in relation to the successful listing of the Company on 12 February 2020. ** Mrs Sain was appointed Chief Financial Officer on 30 September 2019. *** In addition to Professor Tooke’s director’s fee, he also received a consultancy fee of $105,082 during the year. **** Dr P Washer was Research Director until 28 October 2019. 26 REMUNERATION REPORT (AUDITED) Directors’ Report YEAR ENDED 30 JUNE 2019 CASH REMUNERATION Salary and other fees Bonus Post–employment benefits (superannuation) Annual leave entitlement movement Total cash payments and entitlements $ $ $ $ $ Directors S Washer A Vickery 300,000 125,254 M Callahan - P Washer 201,827 Other Key Management Personnel A James 160,000 787,081 - - - - - - - 9,564 - 19,174 - 7,744 - - 300,000 142,562 - 221,001 15,200 43,938 13,844 21,588 189,044 852,607 2020 TOTAL REMUNERATION Options expensed Total Total cash remuneration and entitlements $ $ $ LTI % of remuneration 259,944 463,317 495,642 50,000 124,248 228,405 138,984 292,217 2,052,757 - 42,624 528 - - 396 27,073 396 71,017 259,944 505,941 496,170 50,000 124,248 228,801 166,057 292,613 2,123,774 0% 8.4% 0.1% 0% 0% 0.2% 16.3% 0.1% Directors S Washer M Winlo* A Vickery M Callahan Sir J Tooke Other Key Management Personnel A James S Sain** P Washer * During the financial year ended 30 June 2020, Dr Winlo was issued 3,500,000 options. ** During the financial year ended 30 June 2020, Mrs Sain was issued 1,000,000 options. 27 Directors’ Report 2019 TOTAL REMUNERATION Options expensed Total Total cash remuneration and entitlements $ $ $ LTI % of remuneration 300,000 142,562 - 221,001 189,044 852,607 - 551 - 413 300,000 143,113 - 221,414 413 1,377 189,457 853,984 0% 0.4% 0% 0.2% 0.2% Directors S Washer A Vickery M Callahan P Washer Other Key Management Personnel A James There were no non-monetary benefits paid to the Directors or KMP for the year ended 30 June 2020. Other than those disclosed above, there were no transactions with related parties to the KMP for the year ended 30 June 2020. 3. Service Agreements For the year ended 30 June 2020, the following service agreements were in place with the Directors and KMP of Emerald Clinics: On 27 July 2018, a Consultancy Agreement was entered into between the Company and Biologica Ventures Pty Ltd nominating Dr Stewart Washer as Executive Chairman. Under the terms of the Agreement: • Dr Washer was paid an annual consultancy fee of $300,000 per annum. On 2 December 2019, Dr Washer’s Agreement was amended to reflect that his annual consultancy fee to be $200,000 per annum commencing 12 February 2020. • Dr Washer’s fees were paid to Biologica Ventures Pty Ltd. • Under the general termination of consultancy provision, the Company may terminate the Agreement by giving Dr Washer six months’ notice or payment in lieu of notice. • Under the general termination of consultancy provision, Dr Washer may terminate the Agreement by giving the Company three months’ notice or payment in lieu of notice. • The Company may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Executive is not entitled to any payment. 28 REMUNERATION REPORT (AUDITED) Directors’ ReportOn 3 May 2019, a Chief Executive Employment Agreement was entered into between the Company and Managing Director Dr Michael Winlo. Under the terms of the Agreement: • Dr Winlo was paid a base salary of $350,000 per annum plus statutory superannuation. On 26 November 2019, Dr Winlo amended his employment agreement to consent and change his position from Chief Executive Officer to Managing Director. • Dr Winlo received a $50,000 bonus payable on the Company’s successful listing on the ASX which was satisfied on 12 February 2020. • Under the general termination of employment provision, the Company may terminate the Agreement by giving Dr Winlo three months’ notice or payment in lieu of notice. • Under the general termination of employment provision, Dr Winlo may terminate the Agreement by giving the Company six months’ notice or payment in lieu of notice. • The Company may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Executive is not entitled to any payment. On 18 March 2019, a Senior Executive Employment Agreement was entered into between the Company and Medical Director Professor Alistair Vickery. Under the terms of the Agreement: • • Professor Vickery was paid a base salary of $350,000 per annum plus statutory superannuation. Professor Vickery received a $100,000 bonus payable on the Company’s successful listing on the ASX which was satisfied on 12 February 2020. • Under the general termination of employment provision, the Company may terminate the Agreement by giving Professor Vickery twenty-four months’ notice or payment in lieu of notice. • Under the general termination of employment provision, Professor Vickery may terminate the Agreement by giving the Company twelve months’ notice or payment in lieu of notice. • The Company may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Executive is not entitled to any payment. On 1 July 2018, a Consultancy Agreement was entered into between the Company and Research Director Dr Patrizia Washer. Under the terms of the Agreement: • Dr Washer was paid a consultancy fee of a minimum of $3,000 per week for 2 days a week inclusive of statutory superannuation. • Under the general termination of consultancy provision, the Company may terminate the Agreement by giving Dr Washer one month’s notice or payment in lieu of notice. • Under the general termination of consultancy provision, Dr Washer may terminate the Agreement by giving the Company one months’ notice or payment in lieu of notice. • The Group may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Consultant will be paid up to the date of termination. • Dr Washer resigned as a director of the Group on 28 October 2019 but remained as a consultant. 29 Directors’ ReportOn 14 November 2019, an Agreement was entered into between the Group and Mr Matthew Callahan for his on-going appointment as Non-Executive Director. Under the terms of the Agreement: • Mr Callahan was paid a remuneration package of $50,000 per annum base salary plus statutory superannuation. • Termination of this Agreement will be upon the date provided by either party. There is no notice period applicable to this Agreement. • Mr Callahan has a consultancy agreement with the Group that commenced on 4 November 2019 for a period of three years. Under the terms of the consultancy agreement: • The consultancy services include an hourly rate of USD $300 per hour and it will be subject to review on an annual basis. • Under the general termination of consultancy provision, the Group may terminate the Agreement by giving Mr Callahan six month’s notice or payment in lieu of notice. • Under the general termination of consultancy provision, Mr Callahan may terminate the Agreement by giving the Group six months’ notice or payment in lieu of notice. • The Group may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Consultant will be paid up to the date of termination. On 4 November 2019, an Agreement was entered into between the Group and Professor Sir John Tooke as Non-Executive Director. Under the terms of the Agreement: • Appointed as Non-Executive Director effective from 12 February 2020. • • • Professor Tooke was paid a remuneration package of $50,000 per annum base salary. Termination of this Agreement will be upon the date provided by either party. There is no notice period applicable to this Agreement. Professor Tooke has a consultancy agreement with the Group that commenced on 1 April 2020 for a period of three years. Under the terms of the Agreement: • The consultancy services include a rate of GBP $2,500 per day. • Under the general termination of consultancy provision, the Group may terminate the Agreement by giving Professor Tooke one month’s notice or payment in lieu of notice. • Under the general termination of consultancy provision, Professor Tooke may terminate the Agreement by giving the Group one months’ notice or payment in lieu of notice. • The Group may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, the Consultant will be paid up to the date of termination. 30 REMUNERATION REPORT (AUDITED) Directors’ ReportOn 1 July 2018, the Group entered into an Executive Services Agreement with Mr Adam James and subsequently made an amendment to his Agreement on 22 November 2019. Under the terms of the Agreement: • Mr James was appointed in the capacity of Chief Operating Officer and paid a remuneration package of $200,000 per annum base salary plus statutory superannuation. • • • The Group or Mr James may terminate the contract at any time by giving the other party six months’ notice or payment in lieu of notice. The Group may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, Mr James is not entitled to any payment. If there are monies owed by Mr James to the Group, the Group is entitled to offset this against Mr James’ termination payment. On 30 September 2019, the Group entered into an employment contract with Mrs Su-Mei Sain and subsequently made an amendment to her Agreement on 3 February 2020. Under the terms of the Agreement: • Mrs Sain was appointed in the capacity of Chief Financial Officer and paid a remuneration package of $190,000 per annum base salary plus statutory superannuation. • • The Group or Mrs Sain may terminate the contract at any time by giving the other party three months’ notice or payment in lieu of notice. The Group may terminate the Agreement at any time without notice if serious misconduct has occurred. On termination with cause, Mrs Sain is not entitled to any payment. 31 Directors’ Report4. Share-Based Compensation Option holdings The numbers of options in the Group held during the year ended by each KMP of Emerald Clinics, including their related parties, are set out below: 2020 Directors S Washer M Winlo A Vickery M Callahan Sir J Tooke Other Key Management Personnel A James S Sain P Washer TOTAL Balance at the start of the year Granted during the year Expired during the year Other changes Balance at the year ended - - - 3,500,000 2,000,000 - 500,000 - - - 2,500,000 3,500,000 1,500,000 - - 1,000,000 1,500,000 - 5,500,000 4,500,000 - - - - - - - - - - - - - - - - - - - - - 3,500,000 2,000,000 - 500,000 6,000,000 1,500,000 1,000,000 1,500,000 10,000,000 As at 30 June 2020, the number of options that have vested and exercisable were 5,333,333 and the number of options yet to vest and un-exercisable were 4,666,667. The option terms and conditions of each grant of options over ordinary shares affecting remuneration of Directors and other KMP in the year ended or future reporting years are as follows: Options issued Grant Date Expiry date 10 Jul 2019 13 Jun 2023 11 Nov 2019 13 Jun 2023 0.45 0.0497 Exercise price Fair value per option $ 0.45 $ 0.0185 Vested %* 33% 33% Employee Securities Incentive Plan Employee Securities Incentive Plan * The vesting conditions are: • One third immediately on issue; • One third one year from date of issue subject to continued employment or service and; • One third two years from date of issue subject to continued employment or service. 32 REMUNERATION REPORT (AUDITED) Directors’ ReportThe options issued to the during the financial year ended 30 June 2020 were valued using a Black-Scholes model and were priced as follows: Series 4 Series 7 0.10 0.45 70% 4 years 0.00% 0.97% 0.18 0.45 70% 4 years 0.00% 0.84% Grant date share price Exercise price Expected volatility Option life Dividend yield Interest rate Shareholdings The numbers of shares in the Group held during the year ended by each KMP of Emerald Clinics, including their related parties, are set out below: 2020 Directors S Washer* M Winlo A Vickery M Callahan Sir J Tooke Other Key Management Personnel A James S Sain P Washer* Balance at the start of the year Other changes during the year Balance for the year ended 48,000,000 550,499 48,550,499 - - 19,600,000 - 1,960,000 - - 69,560,000 - - - - - 20,000 - 570,499 - - 19,600,000 - 1,960,000 20,000 - 70,130,499 * Dr Stewart Washer and Dr Patrizia Washer both control 28,950,499 Emerald shares. There were no shares granted to KMP’s during the reporting year as remuneration. 33 Directors’ ReportUse of remuneration consultants No remuneration consultants were engaged or used for the Group during the year ended 30 June 2020. Voting and comments made at the Company’s Annual General Meeting At the AGM held in 2019, the Company was a public unlisted entity therefore was not required to approve a Remuneration report for its financial year ended 30 June 2019. Share trading policy The trading of shares issued to participants under any of the Group’s employee equity plans is subject to, and conditional upon, compliance with the Group’s employee security trading policy as per the Group’s Corporate Governance Policy. Directors and executives are prohibited from entering into any hedging arrangements over unvested options under the Group’s employee option plan. The Group would consider a breach of this policy as gross misconduct which may lead to disciplinary action and potentially dismissal. This concludes the Remuneration Report, which has been audited. 34 REMUNERATION REPORT (AUDITED) Directors’ ReportIndemnifying officers During the financial year, the Company has paid a premium of $37,186 excluding GST (2019: $25,000) to insure the Directors and secretary of the Company. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Proceedings on behalf of the Group No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. Auditor Stantons International was appointed as auditors for the Group in office in accordance with section 327 of the Corporations Act 2001. Audit Services During the year ended 30 June 2020, $36,679 was paid or is payable for audit services provided by the auditors. There were no non-audit services performed during the financial year. Auditor’s independence declaration The auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 76 of the financial report. Corporate Governance The Directors support and adhere to the principles of corporate governance, recognising the need for the highest standard of corporate behaviour and accountability. Signed in accordance with a resolution of the Board of Directors: __________________ Dr Michael Winlo Managing Director 35 Directors’ ReportFinancial Report EMERALD CLINICS LIMITED ABN 96 625 085 734 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 FOR THE YEAR ENDED 30 JUNE 2020 RReevveennuuee Sales revenue Operating costs GGrroossss lloossss OOtthheerr rreevveennuuee Interest and other income Research and Development grant received TToottaall OOtthheerr rreevveennuuee EExxppeennsseess Research and Development expenses Employee wages and director fees Travel and conference expenses Corporate compliance costs Administration costs IT consultancy fees Consultancy fees Finance costs Share based payments Depreciation and amortisation expense Intangible assets written off TToottaall eexxppeennsseess NNoottee 1.2(xiv) GGrroouupp 22002200 CCoommppaannyy 22001199 ((AAss RReessttaatteedd)) $$ $$ 2 2 13 6,7,8 8 1,013,452 (1,938,477) ((992255,,002255)) 109,909 (646,301) ((553366,,339922)) 25,046 468,177 449933,,222233 28,747 - 2288,,774477 (1,505,164) (1,478,501) (294,541) (624,200) (63,727) (107,528) (169,646) (59,544) (79,328) (383,481) (221,487) (685,177) (224,574) (462,815) (219,310) (165,297) (92,997) (4,045) (4,735) (94,846) (40,578) ((44,,880066,,223388)) - ((22,,117755,,228833)) LLoossss bbeeffoorree iinnccoommee ttaaxx eexxppeennssee ((55,,223388,,004400)) ((22,,668822,,992288)) Income tax expense 3 - - LLoossss aafftteerr iinnccoommee ttaaxx ffoorr tthhee yyeeaarr//ppeerriioodd ((55,,223388,,004400)) ((22,,668822,,992288)) Other Comprehensive Income for the year/period: Items that may be reclassified subsequently to profit or loss Other Comprehensive income for the year/period, net of tax - - - - TToottaall CCoommpprreehheennssiivvee LLoossss ffoorr tthhee yyeeaarr//ppeerriioodd ((55,,223388,,004400)) ((22,,668822,,992288)) BBaassiicc aanndd ddiilluutteedd lloossss ppeerr sshhaarree ((cceennttss)) 16 ((33..0044)) (2.06) The accompanying notes form part of these financial statements The accompanying notes form part of these financial statements 36 Page 19 Financial Report EMERALD CLINICS LIMITED ABN 96 625 085 734 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 AASSSSEETTSS CCuurrrreenntt aasssseettss Cash and cash equivalents Trade and other receivables Prepayments TToottaall ccuurrrreenntt aasssseettss NNoonn--ccuurrrreenntt aasssseettss Restricted cash Right-of-use assets Plant and equipment Intangible assets TToottaall NNoonn--ccuurrrreenntt aasssseettss TToottaall AAsssseettss LLIIAABBIILLIITTIIEESS CCuurrrreenntt LLiiaabbiilliittiieess Trade and other payables Borrowings Provisions Lease liabilities TToottaall CCuurrrreenntt LLiiaabbiilliittiieess NNoonn--CCuurrrreenntt LLiiaabbiilliittiieess Convertible notes Provisions Lease liabilities TToottaall NNoonn--CCuurrrreenntt LLiiaabbiilliittiieess TToottaall LLiiaabbiilliittiieess NNeett AAsssseettss EEQQUUIITTYY Contributed equity Reserves Accumulated losses TToottaall EEqquuiittyy NNoottee GGrroouupp CCoommppaannyy 22002200 $$ 22001199 $$ 4 5 6 7 8 9 9 11 9 10 11 9 12 14 3,686,333 2,608,814 121,615 31,433 59,883 - 33,,883399,,338811 22,,666688,,669977 156,558 323,390 598,305 147,310 11,,222255,,556633 106,258 - 706,485 43,468 885566,,221111 55,,006644,,994444 33,,552244,,990088 461,124 247,154 142,088 152,689 231,089 - 41,659 - 11,,000033,,005555 227722,,774488 - 68,000 210,972 2,752,621 - - 227788,,997722 22,,775522,,662211 11,,228822,,002277 33,,002255,,336699 33,,778822,,991177 449999,,553399 11,751,953 2,872,738 84,063 374,069 (8,053,099) (2,747,268) 33,,778822,,991177 449999,,553399 The accompanying notes form part of these financial statements Page 20 37 Financial Report EMERALD CLINICS LIMITED ABN 96 625 085 734 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 FOR THE YEAR ENDED 30 JUNE 2020 GGRROOUUPP CCoonnttrriibbuutteedd EEqquuiittyy RReesseerrvveess AAccccuummuullaatteedd LLoosssseess TToottaall EEqquuiittyy $$ $$ $$ $$ Balance at 1 July 2019 Loss after income tax for the year 2,872,738 374,069 (2,747,268) 499,539 - - (5,238,040) (5,238,040) Other comprehensive income for the year, net of tax TToottaall CCoommpprreehheennssiivvee lloossss Adjustment on initial application of AASB 16 Proceeds from issued capital Transaction costs from issued capital Conversion of Convertible Notes to shares Transaction cost from conversion of Convertible Note Issue of options - - - 6,500,000 (742,740) 3,300,000 (178,045) - - - - - - (369,334) - 79,328 - (5,238,040) (67,791) - - - - - - (5,238,040) (67,791) 6,500,000 (742,740) 2,930,666 (178,045) 79,328 BBaallaannccee aatt 3300 JJuunnee 22002200 1111,,775511,,995533 8844,,006633 ((88,,005533,,009999)) 33,,778822,,991177 CCOOMMPPAANNYY CCoonnttrriibbuutteedd EEqquuiittyy $$ Balance at 1 July 2018 Loss after income tax for the year Other comprehensive income for the year, net of tax TToottaall CCoommpprreehheennssiivvee lloossss Issue of options Convertible Note – equity component 2,872,738 - - - - - RReesseerrvveess $$ - - - 4,735 369,334 AAccccuummuullaatteedd LLoosssseess $$ (64,340) (2,682,928) - (2,682,928) - - TToottaall EEqquuiittyy $$ 2,808,398 (2,682,928) - (2,682,928) 4,735 369,334 BBaallaannccee aatt 3300 JJuunnee 22001199 22,,887722,,773388 337744,,006699 ((22,,774477,,226688)) 449999,,553399 The accompanying notes form part of these financial statements The accompanying notes form part of these financial statements 38 Page 22 Financial Report EMERALD CLINICS LIMITED ABN 96 625 085 734 STATEMENT OF CASH FLOWS STATEMENT OF CASH FLOWS FOR THE YEAR 30 JUNE 2020 FOR THE YEAR 30 JUNE 2020 CCaasshh ffllooww ffrroomm ooppeerraattiinngg aaccttiivviittiieess Receipts from customers Interest received Payments to suppliers and employees Interest and other finance costs paid R&D refund received NNeett ccaasshh ((uusseedd iinn)) ooppeerraattiinngg aaccttiivviittiieess CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess Payments for plant and equipment Payments for security deposits NNeett ccaasshh ((uusseedd iinn)) iinnvveessttiinngg aaccttiivviittiieess CCaasshh ffllooww ffrroomm ffiinnaanncciinngg aaccttiivviittiieess Proceeds from issue of shares Transaction costs paid from the issue of shares Net proceeds from convertible note Proceeds from Borrowings Repayment of lease liabilities Net payments cash backed guarantees NNeett ccaasshh ggeenneerraatteedd ffrroomm ffiinnaanncciinngg aaccttiivviittiieess NNoottee GGrroouupp 22002200 CCoommppaannyy 22001199 $$ $$ 1,021,047 21,436 109,909 28,747 (5,937,031) (2,731,878) (26,100) - 468,177 ((44,,445522,,447711)) - ((22,,559933,,222222)) (201,806) - ((220011,,880066)) (844,800) (56,258) ((990011,,005588)) 6,500,000 (742,740) - - - 3,113,602 240,221 (215,385) (50,300) 55,,773311,,779966 - - (50,000) 33,,006633,,660022 15 9 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year 1,077,519 (430,678) 2,608,814 3,039,492 CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr 4 33,,668866,,333333 22,,660088,,881144 The accompanying notes form part of these financial statements The accompanying notes form part of these financial statements Page 23 39 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2020 Emerald Clinics Limited (“Emerald” or “the Company”) is a Company incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (“ASX”). The consolidated financial statements of the Group as at and for the year ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the “Group” or “consolidated entity” and individually as a “Group entity”). The separate financial statements of the parent entity, Emerald Clinics Limited, have not been presented with this financial report. Summary parent information has been included in note 18. NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 1.1 Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. The financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standard Board (IASB). Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. The consolidated financial statements have been prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The financial statements are presented in Australian Dollars (“AUD”). (i) Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. (ii) Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 1.1(vi). 40 Financial Report (iii) Operating segments Operating segments are presented using the ‘management approach’, where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. (iv) Going Concern The spread of novel coronavirus (COVID-19) was declared a public health emergency by the World Health Organisation on 31 January 2020 and upgraded to a global pandemic on 11 March 2020. The rapid rise of the virus has seen an unprecedented global response by Governments, regulators and industry sectors. The Australian Federal Government enacted its emergency plan on 29 February 2020 which has seen the closure of Australian borders from 20 March 2020, an increasing level of restrictions on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdowns and uncertainties. For the year ended 30 June 2020, COVID-19 has impacted the Group, specifically as follows: • Implications on the current period financial performance and cash flows (particularly operating cash flows). • Details of financing facilities sought and now available at balance date, potentially to cover any working capital deficiency, including expiry periods and any significant requirements under the facility agreements i.e. debt covenants. • Details of financial support received from the Australian government. As of 30 June 2020, the Group had net working capital surplus of $2,836,326 and cash balance of $3,686,333. The Group did not have any capital commitments of as of 30 June 2020. The Directors have prepared projected cash flow information for the twelve months from the date of approval of these financial statements taking into consideration the estimation of the continued business impacts of COVID-19. In response to the uncertainty arising from this, the Directors have considered severe but plausible downside forecast scenarios. These forecasts indicate that, taking account of reasonably possible downsides, the Group is expected to continue to operate, with headroom and within available cash levels. Key to the forecasts are relevant assumptions regarding the business, business model, any legal or regulatory restrictions and shareholder support, in particular: • Description of the different scenarios modelled including length of government-imposed lockdowns and recovery periods, risks, conditions or dependencies for these to occur. • Key assumptions related to the impact of government-imposed lockdowns on patient revenues. • Details of the results of the key scenario modelling on the entity’s ability to meet its obligations over the forecast period. • Mitigating actions undertaken or planned by directors and group to manage and respond to cash flow uncertainties or potential risks of shortfall in financing and the implementation status and uncertainties that arise from them. 41 The Directors are satisfied they will be able to raise additional funds as required and thus it is appropriate to prepare the financial statements on a going concern basis. Despite COVID-19 affecting socio-economic factors in Australia and worldwide, the Group’s clinic operations and collection of insights had not been drastically impacted. The Directors are confident that the operations of the Group will continue to grow with the assistance of raising additional funds. If necessary, the Group can delay research and development expenditures and Directors can also institute cost saving measures to further reduce corporate and administrative costs or explore other opportunities to sell data and/or its clinics. In the event that the Group is unable to obtain sufficient funding for ongoing operating and capital requirements, there is a material uncertainty that may cast significant doubt as to whether the Group will continue as a going concern and therefore proceed with realising its assets and discharging its liabilities in the normal course of business at the amounts stated in the financial report. The financial statements do not include any adjustment relating to the recoverability or classification of recorded asset amounts or to the amounts or classification of liabilities that may be necessary should the Group not be able to continue as a going concern. (v) New and amended standards adopted by the entity The Group has adopted AASB 16: Leases using modified retrospective approach with the cumulative effect of initially applying AASB 16 recognised as at 1 July 2019. In accordance with AASB 16, the comparatives for the 2019 reporting period have not been restated. The impact of the adoption of this standard and the respective account policies is disclosed below. Changes in accounting policy The Group has recognised a lease liability and right-of-use asset for all leases (with exception of short-term and low value leases) recognised as operating leases under AASB 117: Leases where the Group is a lessee. Lease liabilities are measured at the present value of the remaining lease payments. The Group’s incremental borrowing rate as at 1 July 2019 was used to discount the lease payments. The right-of-use assets were measured at their carrying values as if AASB 16 Leases had been applied since the commencement date but discounted using the Group’s incremental borrowing rate per lease term as at 1 July 2019. The right-of-use assets have been recognised in the statement of financial position as at 1 July 2019. The following practical expedients have been used by the Group in applying AASB 16 for the first time: • • • • For a portfolio of leases that have been reasonably similar characteristics, a single discount rate has been applied. Leases that have remaining lease term of less than 12 months as at 1 July 2019 have been accounted for in the same way as short-term lease. The use of hindsight to determine lease terms or contracts that have options to extend or terminate. The Group’s weighted average incremental borrowing rate on 1 July 2019 applied to the lease liabilities was 6%. 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report(vi) Use of estimates and judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Refer to note 13. Provision for impairment of receivables Included in trade and other receivables at the end of the reporting period is an amount of $40,455 that is outstanding for more than 30 days. While there is inherent uncertainty, the directors understand that the full amount of debt is likely to be received and therefore no provision for impairment has been made. Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a Discount Cash Flow (“DCF”) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. Determining the lease term of contract with renewal and termination options – Group as lessee The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has a lease contract that includes an extension option. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customisation to the leased asset). 43 Financial ReportCoronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain and staffing . Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. (vii) Principles of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Emerald at the end of the reporting year. A controlled entity is any entity over which Emerald has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in note 23 to the financial statements. In preparing the consolidated financial statements, all intragroup balances and transactions between entities in the consolidated Group have been eliminated in full on consolidation. (viii) New Accounting Standards and Interpretations not yet mandatory or early adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 1.2 Significant Accounting Policies (i) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in the Australian dollar ($), which is the Group’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within other income or other expenses. 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report Non-monetary items that are measured at fair value in a foreign currency are translated using the exchanges rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation difference on non- monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as financial assets are recognised in other comprehensive income. Group companies The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position, income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (ii) Revenue from Contracts with Customers AASB 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue to be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The five-step process outlined in AASB 15 are as follows: • • • • • identify the contract(s) with a customer; identify the performance obligations in the contract(s); determine the transaction price; allocate the transaction price to the performance obligations in the contract(s); and recognise revenue when (or as) the performance obligations are satisfied. Revenue is recognised when or as a performance obligation in the contract with customer is satisfied, i.e. when the control of the goods or services underlying the particular performance obligation is transferred to the customer. A performance obligation is a promise to transfer a distinct goods or service (or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer) to the customer that is explicitly stated in the contract and implied in the Group’s customary business practices. 45 Financial ReportRevenue is measured at the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customers, excluding amounts collected on behalf of third parties such as sales taxes or services taxes. If the amount of consideration varies due to discounts, rebates, refunds, credits, incentives, penalties or other similar items, the Group estimates the amount of consideration to which it will be entitled based on the expected value or the most likely outcome. If the contract with customer contains more than one performance obligation, the amount of consideration is allocated to each performance obligation based on the relative stand-alone selling prices of the goods or services promised in the contract. Revenue is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The control of the promised goods or services may be transferred over time or at a point in time. The control over the goods or services is transferred over time and revenue is recognised over time if: • • • the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or the Group’s performance does not create an asset with an alternative use and the Group has an enforceable right to payment for performance completed to date. Revenue for performance obligation that is not satisfied over time is recognised at the point in time at which the customer obtains control of the promised goods or services. (a) Sales of service Revenue from rendering of service is recognised upon the delivery of service to the customers. (b) Research and development tax incentive Refund amounts receivable under the Federal Government’s Research and Development Tax Incentives are recognised as other income in the period it is received. (c) Interest Income 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 through the expected life of the financial asset to that assets’ net carrying amount on initial recognition. (d) Government grants Government grants are assistance by the government in the form of transfers of resources to the Group in return for past or future compliance with certain conditions relating to the operating activities of the entity. Government grants include government assistance where there are no conditions specifically relating to the operating activities of the Group other than the requirement to operate in certain regions or industry sections. Government grants relating to income are recognised as income over the periods necessary to match them with the related costs and grants relating to assets are regarded as a reduction in asset. 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 net of expenses. 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report(iii) Cash and cash equivalents Cash and cash equivalents include cash on hand and deposits with banks and highly liquid investments with original maturities of three months or less. (iv) Trade and other payables Trade and other payables represent the liability outstanding at reporting date for goods and services received by the Group during the reporting year, which remain unpaid. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. (v) Income Tax The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of the assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax assets and unused tax losses can be utilised except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the when the asset is realised or the liability is settled, based on tax rates of (and tax laws) that have been enacted or substantially enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. (vi) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Basic earnings/(loss) per share Basic earnings/(loss) per share is calculated by dividing: • • The profit/(loss) attributable to owners of the Group, excluding any costs of servicing equity other than ordinary shares By the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. 47 Financial Report(vii) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible assets to determine whether there is an indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. (viii) Financial Instruments Classification and measurement Under AASB 9, the Group initially measures a financial asset as its fair value plus, in the case of financial asset not at fair value through profit or loss, transaction costs. Financial assets are then subsequently measured at fair value through profit or loss (“FVTPL”), amortised cost, or fair value through other comprehensive income (“FVOCI”). Initial recognition and measurement Financial assets are classified at initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under AASB 15. Subsequent measurement The Group’s financial assets at amortised cost includes trade and other receivables. Impairment of financial assets For trade receivables, the Group applies a simplified approach in calculating expected credit losses (“ECLs”). Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. Financial Liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, borrowings and lease liabilities. 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report(viii) Financial Instruments Subsequent measurement Loans and borrowings After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of profit or loss. This category generally applies to interest-bearing loans and borrowings. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Compound instruments The component parts of compound instruments (convertible bonds) issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Conversion options that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s own equity instruments is an equity instrument. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recognised as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity will be transferred to share capital. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained earnings. No gain or loss is recognised in profit or loss and other comprehensive income upon conversion or expiration of the conversion option. Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognised directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortised over the lives of the convertible notes using the effective interest method. 49 Financial Report(ix) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within other income in profit or loss. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. (ii) Subsequent costs The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. (iii) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Right-of-use assets are generally depreciated over the shorter of the assets useful life and the lease term on a straight-line basis. The depreciation rates used for each class of asset are: • • • fixtures and fittings 22.5% - 40% leasehold improvements 20% computer equipment and software 22.5% - 40% • Right-of-use assets 20% Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report (x) Intangible Assets (a) Software Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets where the following criteria are met: • it is technically feasible to complete the software so that it will be available for use, • management intends to complete the software and use or sell it, • • • there is an ability to use or sell the software, it can be demonstrated how the software will generate probable future economic benefits, adequate technical, financial and other resources to complete the development and to use or sell the software are available, and • the expenditure attributable to the software during its development can be reliably measured. Directly attributable costs that are capitalised as part of the software include employee costs and an appropriate portion of relevant overheads. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use. The Group amortises software with a limited useful life using the straight-line method between 2-5 years. (xi) Provisions General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Profit or Loss and Other Comprehensive Income net of any reimbursement. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. (xii) Employee Benefits (a) Equity Settled Compensation The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled 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. 51 Financial Report(b) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (c) Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (d) Share-based payments Share-based compensation benefits are provided to directors, employees and consultants via the option terms and conditions set out by the Group. The fair value of options granted under the option terms and conditions set out by the Group is recognised as a share based payments expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the options granted, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the impact of any service and non- market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. When the options are exercised, the Group transfers the appropriate amount of shares to the director, employee or consultant. The proceeds received net of any directly attributable transaction costs are credited directly to equity. (e) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or to providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value. 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report(xiii) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statements of financial position are stated inclusive of the amount of GST receivable or payable. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statements of financial position. (xiv) Comparative Figures Where necessary, comparatives have been re-classified and re-positioned for consistency with current year disclosures. The following items have been re-classified within the Consolidated Statement of Profit or Loss and Other Comprehensive Income: COMPANY 2019 As previously stated Reclassification As restated Employee wages and director fees Corporate compliance costs Administration costs Consultancy Fees Occupancy costs for head office* Travel and conference expenses 985,177 207,383 182,330 38,982 46,484 224,517 (300,000) 255,432 36,980 54,015 (46,484) 57 685,177 462,815 219,310 92,997 - 224,574 *This relates to rent expenses accounted for under the new accounting standard AASB 16 from 1 July 2019. 53 Financial Report EMERALD CLINICS LIMITED EMERALD CLINICS LIMITED ABN 96 625 085 734 ABN 96 625 085 734 NOTE 2: REVENUE AND OTHER REVENUE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2020 RReevveennuuee RReevveennuuee Revenue from customers Revenue from customers OOtthheerr rreevveennuuee OOtthheerr rreevveennuuee Interest and other income Interest and other income Research and Development grant received Research and Development grant received TToottaall OOtthheerr rreevveennuuee TToottaall OOtthheerr rreevveennuuee ((aa)) IInnccoommee ttaaxx ((aa)) IInnccoommee ttaaxx Current tax Current tax Current income tax expense Current income tax expense Deferred tax Deferred tax Relating to the origination and reversal of previously unrecognised temporary deferred tax differences Relating to the origination and reversal of previously unrecognised temporary deferred tax differences Net deferred tax assets not brought to account Net deferred tax assets not brought to account ((bb)) RReeccoonncciilliiaattiioonn ooff ttaaxx eexxppeennssee ttoo nneett pprrooffiitt bbeeffoorree ttaaxx ((bb)) RReeccoonncciilliiaattiioonn ooff ttaaxx eexxppeennssee ttoo nneett pprrooffiitt bbeeffoorree ttaaxx Loss before income tax expense Loss before income tax expense Tax at the statutory rate of 27.5% (2019: 27.5%) Tax at the statutory rate of 27.5% (2019: 27.5%) Tax effect of: Tax effect of: Non-deductible expenses/timing differences Effect of tax losses and tax offsets not recognised as deferred tax assets Income tax expense Non-deductible expenses/timing differences Effect of tax losses and tax offsets not recognised as deferred tax assets Income tax expense [Intentional blank space] ((cc)) AAmmoouunnttss rreeccooggnniisseedd iinn eeqquuiittyy ((cc)) AAmmoouunnttss rreeccooggnniisseedd iinn eeqquuiittyy Aggregate current and deferred tax arising in the reporting period and not recognised in statement of profit or loss and other comprehensive income but directly debited or credited to equity Aggregate current and deferred tax arising in the reporting period and not recognised in statement of profit or loss and other comprehensive income but directly debited or credited to equity Current tax Current tax Net deferred tax Net deferred tax Unrecognised deferred tax asset Unrecognised deferred tax asset Prior year tax losses not recognised Prior year tax losses not recognised Current year tax losses Current year tax losses Capital raising costs and transaction costs in equity Capital raising costs and transaction costs in equity Plant and equipment Plant and equipment Right-of-use asset lease liability Right-of-use asset lease liability Other temporary differences Other temporary differences Off-set deferred tax liabilities Off-set deferred tax liabilities Net deferred tax assets unrecognised Net deferred tax assets unrecognised 54 Page 40 Page 40 GGrroouupp CCoommppaannyy GGrroouupp CCoommppaannyy 22002200 22001199 22002200 $$ $$ 22001199 $$ $$ 11,,001133,,445522 11,,001133,,445522 109,909 109,909 25,046 25,046 468,177 468,177 449933,,222233 449933,,222233 28,747 28,747 - - 28,747 28,747 GGrroouupp 22002200 GGrroouupp 22002200 CCoommppaannyy 22001199 CCoommppaannyy 22001199 $$ -- $$ -- $$ - $$ - ((880055,,114444)) ((880055,,114444)) (846,518) (846,518) 880055,,114444 880055,,114444 846,518 846,518 -- -- - - ((55,,223388,,004400)) ((55,,223388,,004400)) (1,440,461) (2,682,928) (2,682,928) (737,805) (1,440,461) (737,805) 24,323 1,416,138 -- 24,323 1,416,138 -- 19,839 717,966 - 19,839 717,966 - -- -- 253,216 253,216 225533,,221166 225533,,221166 846,518 846,518 849,336 849,336 172,087 172,087 65,940 65,940 100,007 100,007 47,660 47,660 (176,670) (176,670) 11,,990044,,887788 11,,990044,,887788 - - - - - - 15,829 15,829 725,988 725,988 67,510 67,510 20,510 20,510 - 16,681 16,681 - - - 846,518 846,518 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report EMERALD CLINICS LIMITED ABN 96 625 085 734 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2020 RReevveennuuee Revenue from customers OOtthheerr rreevveennuuee Interest and other income Research and Development grant received TToottaall OOtthheerr rreevveennuuee NOTE 3: INCOME TAX ((aa)) IInnccoommee ttaaxx Current tax Current income tax expense Deferred tax Relating to the origination and reversal of previously unrecognised temporary deferred tax differences Net deferred tax assets not brought to account ((bb)) RReeccoonncciilliiaattiioonn ooff ttaaxx eexxppeennssee ttoo nneett pprrooffiitt bbeeffoorree ttaaxx Loss before income tax expense Tax at the statutory rate of 27.5% (2019: 27.5%) Tax effect of: GGrroouupp CCoommppaannyy 22002200 $$ 22001199 $$ 11,,001133,,445522 109,909 25,046 468,177 28,747 - 449933,,222233 28,747 GGrroouupp 22002200 CCoommppaannyy 22001199 $$ -- $$ - ((880055,,114444)) (846,518) 880055,,114444 846,518 -- - ((55,,223388,,004400)) (1,440,461) (2,682,928) (737,805) Non-deductible expenses/timing differences Effect of tax losses and tax offsets not recognised as deferred tax assets Income tax expense 24,323 1,416,138 -- 19,839 717,966 - ((cc)) AAmmoouunnttss rreeccooggnniisseedd iinn eeqquuiittyy Aggregate current and deferred tax arising in the reporting period and not recognised in statement of profit or loss and other comprehensive income but directly debited or credited to equity Current tax Net deferred tax Unrecognised deferred tax asset Prior year tax losses not recognised Current year tax losses Capital raising costs and transaction costs in equity Plant and equipment Right-of-use asset lease liability Other temporary differences Off-set deferred tax liabilities -- 253,216 225533,,221166 846,518 849,336 172,087 65,940 100,007 47,660 (176,670) - - - 15,829 725,988 67,510 20,510 - 16,681 - Net deferred tax assets unrecognised 11,,990044,,887788 846,518 Deferred tax assets have not been brought to account at 30 June 2020 because the directors do not believe it is appropriate to regard realisation of the future tax benefit as probable. These benefits will only be obtained if: Page 40 (i) the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deduction for the loss to be realised; (ii) the Group complies with the conditions for the deductibility imposed by law including the continuity of ownership and/or business tests; and (iii) no changes in tax legislation adversely affect the Group in realising the benefit from the deduction for the loss. 55 Financial Report NOTE 4: CASH AND CASH EQUIVALENTS Group 2020 $ Cash at bank 3,686,333 Notes to the statement of cash flows: Company 2019 $ 2,608,814 For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and at bank and term deposits that has original maturity of less than 3 months. NOTE 5: TRADE AND OTHER RECEIVABLES Current: Trade Debtors (1) GST paid Other Group 2020 $ 93,750 24,256 3,609 121,615 Company 2019 $ - 59,091 792 59,883 The Group measures its trade and other receivables at amortised cost. (1) The ageing of the Group’s Trade Debtors as at 30 June 2020 are as follows: Debtor type <30 days past due $ 30-60 days past due $ 90+ days past due $ Patient fees Project advisory fees Data collaboration revenue Gross carrying amount Less allowing provision Net carrying amount 9,861 11,041 32,393 53,295 - 53,295 2,428 18,333 17,090 37,851 - 37,851 2,604 - - 2,604 - 2,604 Total $ 14,893 29,374 49,483 93,750 - 93,750 The Group applies the simplified approach in providing for expected credit losses prescribed by AASB 9. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past defaults experience and analysis of the debtors’ current financial position. There has been no change in the estimation process used during the current reporting period. 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report NOTE 6. RIGHT-OF-USE ASSETS The Group’s lease portfolio includes office and clinic leases. The average term of these leases are 1-4 years. (a) Carrying value Balance at inception of lease Accumulated depreciation Carrying value as at 30 June 2020 Reconciliation Net carrying amount as at 1 July 2019 Depreciation expense during the financial year Net carrying amount as at 30 June 2020 Premises $ 735,372 (411,982) 323,390 Premises $ 541,304 (217,914) 323,390 (b) AASB 16 related amounts recognised in Consolidated Statement of Profit and Loss and Other Comprehensive Income Reversal of operating lease expenditure previously recognised under AASB 117 Interest expense for the financial year ended 30 June 2020 (c) Total financial year end cash outflows for leases Repayment of lease liabilities (d) Options to extend or terminate $ (204,933) 27,498 (177,435) $ 215,385 The Group uses hindsight in determining the lease term where the contract contains options to extend or terminate the lease. 57 Financial Report NOTE 7: PLANT AND EQUIPMENT Leasehold Improvements At cost Accumulated Depreciation Computer, office furniture and equipment At cost Accumulated depreciation Total At cost Accumulated depreciation Group 2020 $ 653,196 (203,421) 449,775 198,666 (50,136) 148,530 851,862 (253,557) 598,305 Company 2019 $ 734,907 (83,215) 651,692 61,007 (6,214) 54,793 795,914 (89,429) 706,485 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial ReportReconciliation Leasehold Improvements Carrying amount at beginning of the year Additions Reclassification Depreciation Carrying amount at the end of the year Computer, office furniture and equipment Carrying amount at beginning of the year Additions Reclassification Depreciation Carrying amount at the end of the year Total Carrying amount at beginning of the year Additions Reclassification from software Depreciation Carrying amount at the end of the year Group 2020 $ 651,692 - (74,365) (127,552) 449,775 54,793 52,367 77,256 (35,886) 148,530 706,485 52,367 2,891 (163,438) 598,305 Company 2019 $ - 734,907 - (83,215) 651,692 - 61,007 - (6,214) 54,793 - 795,914 - (89,429) 706,485 59 Financial Report Group 2020 $ 149,439 (2,129) 147,310 43,468 149,439 (40,577) (2,891) (2,129) 147,310 Group 2020 $ 149,049 312,075 461,124 247,154 152,689 860,967 210,972 210,972 Company 2019 $ 48,885 (5,417) 43,468 - 48,885 - - (5,417) 43,468 Company 2019 $ 148,378 82,711 231,089 - - 231,089 - - NOTE 8: INTANGIBLE ASSETS Software At cost Accumulated Depreciation Reconciliation Software Carrying amount at beginning of the year Additions Write offs Reclassification to plant and equipment Depreciation Carrying amount at the end of the year NOTE 9: FINANCIAL LIABILITIES CARRIED AT AMORTISED COSTS Current: Trade payables Accrued expenses and other Total Trade and Other payables (1) Borrowing at amortised cost (2) Lease liabilities (3) Non-Current: Lease liabilities (3) 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report(1) Trade and other payables are measured at amortised cost. None of the outstanding balance are past due at reporting date. (2) During the year ended 30 June 2020, the Group secured a credit facility from Radium Capital. The Group drew down on this facility in accordance with Radium Capital processes. The facility is secured against the R&D refund to be received. The interest rate is 15% per annum and repayable on 30 November 2020. The breakdown of the borrowing as at 30 June 2020 is as follows: Principal amount of the facility Less: application fees Net cash received Add: accrued interest (3) The carrying value and reconciliation of the Group’s lease liabilities are as follows: Carrying value Current liabilities Non-current liabilities Carrying value as at 30 June 2020 Reconciliation Recognised on 1 July 2019 on adoption of AASB 16 Less: principal repayments Add: Unwinding of interest expense on lease liability Closing Balance as at 30 June 2020 $ 241,000 (779) 240,221 6,933 247,154 Premises $ 152,689 210,972 363,661 Premises $ 541,096 (204,933) 27,498 363,661 At initial recognition, the lease liabilities were measured at the present value of minimum lease payment using the Group’s incremental borrowing rate of 6%. The incremental borrowing rate was based on the unsecured interest rate that will apply if finance was sought for an amount and time period equivalent to the lease requirements of the Group. 61 Financial Report NOTE 10: CONVERTIBLE NOTES In prior year, the Group entered into a Convertible Note Subscription Deed (“the Deed”) for $3,300,000 with various noteholders (before costs). These Convertible Notes (“Notes”) had a face value of $1 per note and a 24 month redemption period with the following terms: • Each Note is payable after the redemption period if the Notes: - are not redeemed during the redemption period; - converted as a result of an Initial Public Offering or; - converted as a result of a trade sale with a third party. • Interest is payable for each Note from and including the first business day after the redemption period of that Note. Interest is incurred from the first business day after the redemption period to the date of actual payment. • There is no option for early repayment of Notes. During the financial year ended 30 June 2020, the Notes were converted into shares as the Group entered into an Initial Public Offering on 5 December 2019 and subsequently listed on the ASX on 12 February 2020. The Notes did not meet the criteria of the redemption period, so interest was not payable upon conversion which occurred on listing date. Opening Balance Proceeds of issue Less transaction costs incurred Conversion of Convertible Notes on 12 February 2020 Transfer of transaction costs incurred to capital raising costs Closing Balance Liability component Equity component Group 2020 $ 3,121,955 - - (3,300,000) 178,045 - - - Company 2019 $ - 3,300,000 (178,045) 3,121,955 2,752,621 369,334 The equity component of $369,334 was recognised in reserves (see note 1). The liability component was measured at amortised cost. 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report NOTE 11: PROVISIONS Current: Employee benefits Non-Current: Make good provision (1) Group 2020 $ 142,088 142,088 68,000 68,000 Company 2019 $ 41,659 41,659 - - (1) This relates to the estimated cost of making good the premises in relation to the leases entered into by the Group in prior years. NOTE 12: ISSUED CAPITAL (a) Issued and Paid Up Capital 2020 Number 2020 $ 2019 Number 2019 $ Fully paid ordinary shares 183,902,778 11,751,953 130,500,000 2,872,738 (b) Movements in fully paid shares on issue Opening Balance 130,500,000 2,872,738 Shares issued at $0.18 per share 2,777,778 500,000 Shares issued at $0.20 per share 30,000,000 6,000,000 Convertible Notes issued at $0.16 per share 20,625,000 3,300,000 - - - - - - - - - - Capital raising costs Closing Balance* - (920,785) 183,902,778 11,751,953 130,500,000 2,872,738 * Of the total shares on issue as at 30 June 2020, 100,097,478 shares were in escrow from 24 months from the date of quotation being 12 February 2020. Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Group in proportion to the number of and amounts paid on the shares held. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. 63 Financial Report NOTE 13: SHARE BASED PAYMENTS The following share-based payments arrangements were in existence during the current reporting year: OPTIONS Options Series Number Grant Date Expiry Date Exercise Price $ Fair value at Grant Date $ (1) Issued at 7 June 2019 1,500,000 13/06/2019 13/06/2023 (2) Issued at 7 June 2019 9,750,000 13/06/2019 13/06/2023 (3) Issued at 19 June 2019 1,000,000 19/06/2019 13/06/2023 (4) Issued at 10 July 2019 3,500,000 10/07/2019 13/06/2023 (5) Issued at 26 September 2019 600,000 26/09/2019 26/09/2023 (6) Issued at 7 June 2019 1,000,000 24/10/2019 13/06/2023 (7) Issued at 11 November 2019 1,000,000 11/11/2019 13/06/2023 0.45 0.45 0.45 0.45 0.45 0.45 0.45 0.0008 0.0008 0.0008 0.0185 0.0188 0.0008 0.0496 (1) The 1,500,000 options in series 1 which vests immediately were issued to consultants under the option terms and conditions issued by the Company. (2) The 9,750,000 options in series 2 which one third vests immediately on date of issue, one third vests after one year of employment and one third vests after two years of employment, were issued under the option terms and conditions issued by the Company. (3) The 1,000,000 options in series 3 which vests immediately were issued to consultants under the option terms and conditions issued by the Company. (4) The 3,500,000 options in series 4 where one third vests immediately on date of issue, one third vests after one year of service and one third vests after two years of service from date of issue, were issued to a Director under the option terms and conditions issued by the Company. (5) The 600,000 options in series 5 where one third vests immediately on date of issue, one third vests after 12 months from date of issue and one third vests after 18 months from date of issue, were issued to a third party under the terms outlined in a licence agreement with the Company. (6) The 1,000,000 options in series 6 where one third vests immediately on date of issue, one third vests after one year of service and one third vests after two years of service from date of issue, were issued to a consultant under the option terms and conditions issued by the Company. (7) The 1,000,000 options in series 7 where one third vests immediately on date of issue, one third vests after one year of service and one third vests after two years of service from date of issue, were issued to an employee under the option terms and conditions issued by the Company. The weighted average contractual life for options outstanding at the end of the year was 3 years. The share based payments expense was $79,328 for the year ended 30 June 2020 (30 June 2019: $4,735). 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report Options were priced using a Black-Scholes option pricing model using the inputs below: Series 1 Series 2 Series 3 Series 4 Series 5 Series 6 Series 7 Grant date share price $0.023 $0.023 $0.023 Exercise price $0.45 $0.45 $0.45 Expected volatility 70.00% 70.00% 70.00% $0.10 $0.45 70% $0.10 $0.023 $0.45 $0.45 70% 70% $0.18 $0.45 70% Option life 4 years 4 years 4 years 4 years 4 years 4 years 4 years Dividend yield 0.00% 0.00% 0.00% 0% 0% 0% 0% Interest rate 1.08% 1.08% 1.08% 0.97% 0.70% 1.08% 0.70% The following reconciles the outstanding share options granted in the year ended 30 June 2020: 2020 No. of Options 2019 No. of Options 2020 Weighted average exercise price $ 2019 Weighted average exercise price $ Balance at the beginning of the year 12,250,000 Granted during the year 6,100,000 Exercised during the year Expired during the year - - 0.45 0.45 - - - 12,250,000 - - - 0.45 - - Balance at the end of the year 18,350,000 0.45 12,250,000 0.45 Un-exercisable at the end of the year 9,816,667 Exercisable at end of the year 8,533,333 0.45 0.45 6,500,000 5,750,000 0.45 0.45 No amounts are unpaid on any of the shares. No person entitled to exercise an option had or has any rights by virtue of the option to participate in any share issue of any other body corporate. 65 Financial ReportNOTE 14: RESERVES Convertible notes reserve (1) Share-based payments reserve (2) Group 2020 $ - 84,063 84,063 Company 2019 $ 369,334 4,735 374,069 (1) The Convertible notes reserve represents the equity component (conversion rights) of the Convertible Notes issued in the prior year set out in note 10. (2) The share-based payments reserve relates to share options granted by the Company to its employees, consultants and Directors under the option terms and conditions issued by the Company. Further information about share based payments are set out in note 13. NOTE 15: RECONCILIATION OF THE LOSS FROM ORDINARY ACTIVITIES AFTER INCOME TAX TO THE NET CASH FLOWS USED IN OPERATING ACTIVITIES: Loss for the year Share based payments expense Depreciation and amortisation Intangible asset write off Changes in assets and liabilities: (Increase) in trade and other receivables Increase/(decrease) in trade and other payables Increase in provisions Group 2020 $ Company 2019 $ (5,238,040) (2,682,928) 79,328 383,481 40,578 (61,732) 243,485 100,429 4,735 94,846 - (32,194) (19,340) 41,659 Net cash flows (used in) operating activities (4,452,471) (2,593,222) Non-cash financing and investing activities The Group did not engage in any non-cash financing and investing activities during the year (2019: nil). Changes in liabilities arising from financing activities The Group secured a credit facility from Radium Capital. The Group drew down on this facility in accordance with Radium Capital processes. The facility is secured against the R&D refund to be received. The interest rate is 15% per annum. (2019: nil) and repayable on 30 November 2020. 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report NOTE 16: LOSS PER SHARE (a) Reconciliation of loss used in calculating Loss Per Share Loss attributable to the ordinary equity holders used in calculating basic loss per share (b) Weighted average number of shares used as the Denominator Ordinary shares used as the denominator in calculating basic loss per share (c) Loss per share Basic loss per share (cents per share) Diluted loss per share (cents per share) Group 2020 $ Company 2019 $ (5,238,040) (2,682,928) 2020 Number 2019 Number 172,504,781 130,500,000 2020 Cents (3.04) (3.04) 2019 Cents (2.06) (2.06) There is no dilution of shares due to options as the potential ordinary shares are not dilutive, therefore not included in the calculation of diluted loss per share. NOTE 17: RELATED PARTY TRANSACTION Key Management Personnel Compensation The aggregated compensation paid to Directors and Key Management Personnel of the Group is as follows: Short term employee benefits Post-employment benefits Non-monetary benefits Share based payment Group 2020 $ 1,884,048 96,824 71,885 71,017 Company 2019 $ 787,081 43,938 21,588 1,377 2,123,774 853,984 During the financial year ended 30 June 2020, Biologica Ventures Pty Ltd of which Dr Stewart Washer is a related party, was paid consulting fees of $243,277. Also, during the year ended, Academic Health Solutions UK of which Professor Sir John Tooke is a related party was paid consulting fees of $105,082. 67 Financial Report 2020 $ 2019 $ 3,269,139 1,463,187 4,732,326 783,818 13,000 796,818 3,935,508 11,751,953 84,063 (7,900,508) 3,935,508 2,668,697 856,211 3,524,908 272,748 2,752,621 3,025,369 499,539 2,872,738 374,069 (2,747,268) 499,539 2020 $ 2019 $ (5,085,449) (2,682,928) - - (5,085,449) (2,682,928) NOTE 18: PARENT ENTITY DISCLOSURES Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Financial performance Loss for the year Other comprehensive income Total comprehensive income 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial ReportNOTE 19: COMMITMENTS AND CONTINGENCIES At reporting date, there are no commitments or contingent liabilities outstanding for the Group or the Company. NOTE 20: SEGMENT INFORMATION AASB 8 ‘Operating Segments’ requires a “management approach” under which segment information is presented on the same basis as that useful for internal reporting purposes by the chief operating decision maker (“CODM”). For management purposes, the Group is organised into one main operating segment, being the research and development where the Group is a health care technology and clinical research company focused on generating high quality real-world evidence (RWE) data. The chief operating decision makers of the Group are the Executive Directors and Officers. All the Group’s activities are interconnected, and all significant operating decisions are based on analysis of the Group as one segment. The financial results of the segment are the equivalent of the financial statements as a whole. At 30 June 2020, all revenues and material assets are considered to be derived and held in one geographical area being Australia. NOTE 21: FINANCIAL RISK MANAGEMENT The Group’s financial instruments consist mainly of deposits with banks and accounts receivable and payable. The Group’s activities expose it to a variety of financial risks: market risk (ie. interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. The Group’s Risk Committee (“the Committee) performs the duties of risk management in identifying and evaluating sources of financial and other risks. The Committee provides written principles for overall risk management which balance the potential adverse effects of financial risks on Group’s financial performance and position with the “upside” potential made possible by exposure to these risks and by considering the costs and expected benefits of the various methods available to manage them. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s Australian Dollar current and non-current debt obligations with floating interest rates. The Group is also exposed to interest rate risk on its cash and short-term deposits. 69 Financial ReportFloating interest rate $ Fixed interest rate maturing in 1 year or less $ Fixed interest rate maturing greater than 1 year $ Total Non- interest bearing Weighted average effective interest rate $ $ % 1,686,069 2,000,000 - - - 150,558 1,686,069 2,150,558 - - - - - - 264 3,686,333 0.57 121,615 121,615 - 6,000 156,558 1.00 127,879 3,964,506 461,124 461,124 - - - - 247,154 363,661 - 15.00 6.00 - - 247,154 152,689 210,972 - - - - - - - 399,843 210,972 461,124 1,071,939 2,608,814 - - - - 100,258 2,608,814 100,258 - - - - - - - - - - - - - - 2,608,814 0.70 59,883 59,883 - 6,000 106,258 1.65 65,883 2,774,955 231,089 231,089 2,752,621 2,752,621 2,983,710 2,983,710 - - - 2020 Financial assets Cash and cash equivalents Trade and other receivables Restricted cash Financial liabilities Trade and other payables Borrowings Lease liabilities Convertible Notes 2019 Financial assets Cash and cash equivalents Trade and other receivables Restricted cash Financial liabilities Trade and other payables Convertible Notes 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report Sensitivity Analysis – Interest Rate Risk The Group has performed a sensitivity analysis relating to its exposure to interest rate risk at the reporting date. This sensitivity analysis demonstrates the effect on the current period results and equity which could result from a change in interest rates. 30 June 2020 $ 34,792 (34,792) 30 June 2019 $ 27,151 (27,151) Change in loss: Increase by 1% Decrease by 1% Credit risk The Group has no significant concentrations of credit risks. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised above of this note. As at 30 June 2020, all cash and cash equivalents were held with National Australia Bank with an A (Standard and Poor’s) credit rating. In relation to trade receivables, management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The credit risk on other receivables is limited as it is comprised of GST recoverable from the Australian Taxation Office. The credit risk on liquid funds is limited because the counter party is a bank with high credit rating. Liquidity risk Prudent liquidity risk management involves the maintenance of sufficient cash, committed credit facilities and access to capital markets. It is the policy of the Board to ensure that the Group is able to meet its financial obligations and maintain the flexibility to pursue attractive investment opportunities through keeping committed credit lines available where possible, ensuring the Group has sufficient working capital. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows. Contractual maturities of financial liabilities As at the reporting date the Group had total financial liabilities of $1,071,939 (2019: $2,983,710) which comprised of trade and other payables and borrowings with a maturity of less than 6 months and lease liabilities maturing within the next four years. Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the potential return to shareholders. The capital structure of the Company consists of equity attributable to equity holders, comprising issued capital and reserves as disclosed in notes 12 and 14. 71 Financial ReportFair value of financial assets and liabilities The fair value of financial assets and liabilities approximate carrying values due to their short-term nature. NOTE 22: FAIR VALUE MEASUREMENT Fair value hierarchy The following table details the Group’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: • • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. • Level 3: Unobservable inputs for the asset or liability. The following table details the Group’s assets and liabilities measured or disclosed at fair value. 2020 Liabilities Convertible Notes Total Liabilities 2019 Liabilities Convertible Notes Total Liabilities Level 1 $ Level 2 $ Level 3 $ Total $ - - - - - - - - - - - - 2,752,621 2,752,621 2,752,621 2,752,621 Estimates of fair value take into account factors and market conditions evident at balance date. Uncertainty and changes in global market conditions in the future may impact fair values in the future. Transfers between level 1, 2 and 3 There were no movements between different fair value measurement levels during the financial year (2019: none). 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial Report NOTE 23: SUBSIDIARIES Name of entity Country of incorporation Class of Shares 2020 2019 Emerald Clinical Network Pty Ltd* Emerald Clinical Research Pty Ltd*(1) Australia Australia Emerald Data Management Pty Ltd*(1) Australia Emerald IP Holdings Pty Ltd*(1) Australia Ordinary Ordinary Ordinary Ordinary Openly Care Inc.** United States Ordinary 100% 100% 100% 100% 100% - - - - - * These entities were incorporated on 7 August 2019. ** This entity was incorporated on 14 May 2020. (1) These entities have been dormant during the financial year. NOTE 24: EVENTS AFTER REPORTING DATE The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has been financially neutral for the Group up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. On 10 August 2020, the Group announced on the ASX that it would be entering into a Real-World Evidence contract with Spectrum Biomedical UK (“SBUK”) which is a subsidiary of Canopy Growth Corp (a Toronto Exchange Security listed company TSX:TSE). Emerald will be responsible for collection of specific data points including de-identified patient information, use of concomitant medicines, prescribed usage and diagnoses, and a rate of patient reported outcome measures. This data will then be provided to SBUK as a per patient pricing model. The contract value is up to GBP 400,000 (~AUD 723,000 and the Group is expected to receive GBP 150,000 (~AUD 270,000) up front plus GBP 300 (~AUD 542) per patient. The contract term is 24 months. On 14 August 2020, The Group announced on the ASX that it would be proposing a name change from “Emerald Clinics Limited” to “Emyria Limited”. The name change is subject to approval by shareholder on 18 September 2020 and a notice of meeting was issued on 14 August 2020 on the ASX. Apart from the above, there are no other matters or circumstances that have arisen since the end of the financial year which have 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 periods. 73 Financial ReportNOTE 25: REMUNERATION OF AUDITORS Auditor fees incurred during the financial year are as follows: Group 2020 $ 36,679 36,679 Company 2019 $ 15,000 15,000 Audit services – Stantons International [Intentional blank space] 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - for the year ended 30 June 2020Financial ReportIn the Directors’ opinion: a) the financial statements and notes set out on pages 36 to 74, and are 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 2020 and of its performance, as represented by the results of its operations, changes in equity and its cash flows, for the year ended on that date; and ii. complying with Australian Accounting Standards, Corporations Regulations 2001 and other mandatory professional reporting requirements; b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. c) the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. This declaration is made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2020. This declaration is made in accordance with a resolution of the Directors. __________________ Dr Michael Winlo Managing Director Dated 31 August 2020 75 Financial Report Audit Declaration Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants 31 August 2020 Board of Directors Emerald Clinics Limited Level 1, 50 Angove Street North Perth. WA 6006 Dear Directors RE: EMERALD CLINICS 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 In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Emerald Clinics Limited. As Audit Director for the audit of the financial statements of Emerald Clinics Limited for the year ended 30 June 2020, 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 faithfully STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD (Trading as Stantons International) (An Authorised Audit Company) Samir Tirodkar Director Liability limited by a scheme approved under Professional Standards Legislation 76 Audit Opinion Stantons International Audit and Consulting Pty Ltd trading as Chartered Accountants and Consultants 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 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF EMERALD CLINICS LIMITED Report on the Audit of the Financial Report Our Opinion We have audited the financial report of Emerald Clinics Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion: the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1.1(iv) to the financial report, which describes the financial report being prepared on a going concern basis. The Group incurred loss of $5,238,040 and net cash outflows from operating activities of $4,452,471 for the financial year ended 30 June 2020. We also draw attention to the recent market uncertainty arising from the spread of the COVID-19 virus and its effects on the business environment in Australia. Management is reviewing what impact, if any, this will have on their business. Liability limited by a scheme approved under Professional Standards Legislation 77 Audit Opinion The ability of the Group to continue as a going concern is subject to the future profitability of the Group and/or successful in raising further capital. In the event that the Group is not successful in commencing profitable operations and/or in raising further capital, the Group may not be able to meet their liabilities as and when they fall due and the realisable value of the Group’s assets may be significantly less than its book values. Our opinion is not modified in respect of this matter. 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. Key Audit Matters How the matter was addressed in the audit Inter alia, our audit procedures included the following: i. Obtained an understanding and evaluated the Group’s implementation process, including the review of the updated accounting policy and policy elections in accordance with AASB 16; ii. Evaluated management assumptions, specifically to determine the discount rates, lease terms and measurement principles; the assumptions used iii. Tested the factual inputs and calculation of the ROU asset and lease liability calculated by the management for each material lease contract; and iv. Assessed the retrospective application and adequacy of the Group’s disclosures of the impact of the consolidated financial statements. the new standard in Adoption of AASB 16: Leases effective from 1 July 2019 The Group adopted AASB 16 Leases effective 1 July 2019 using the modified retrospective approach. AASB 16 introduces a new lease accounting model, where lessees are required to recognise a right-of-use (ROU) asset and a lease liability arising from a lease on its balance sheet. The cumulative effect of adopting AASB 16 recognised as an adjustment to the opening balance of accumulated losses at 1 July 2019 amounted to $67,791. As at 30 June 2020, the carrying amount of the Group’s ROU asset amounted to $323,390 (refer to Note 6 to the financial statements) and the current and non- current lease liabilities amounted to $152,689 and $210,972, respectively (refer to Note 9 to the financial statements). We consider the first-time application of the standard as a key audit matter due to the significance of in the Group’s determining the assumptions used such as discount rate and the lease terms, including termination and renewal options. judgments 78 Audit Opinion Key Audit Matters Revenue recognition The Group’s revenue comprises revenue from the sale of services to its customers. Revenue is recognised when the service is rendered to the customer. There is an inherent risk around the accuracy of revenue recorded given the nature of the Group’s activities. The risk of revenue being recognised in an incorrect period presents a key audit matter due to the financial significance and nature of revenue in the consolidated financial statements. Share-based payments – share options The Group awarded share-based payments in the form of share options. The awards vest subject to the achievement of certain vesting conditions. The Group used the Black-Scholes model in valuing the share-based awards, based on the vesting conditions attached to each tranche. The share-based payment expenses recognised in the consolidated statement of profit or loss and other comprehensive the year income during amounted to $79,328 and is recognised. Due to the complex nature of transaction and estimates used in determining the valuation of the share-based payment arrangement and vesting expense, we consider the Group’s calculation of the share-based payment expense to be a key audit matter. In determining the fair value of the awards and related expense, the Group used assumptions in respect of future market and economic conditions. Refer to Note 13 to the financial report for the share- based payment expenses recognised for the year ended 30 June 2020 and related disclosures. Other Information How the matter was addressed in the audit Inter alia, our audit procedures included the following: i. Reviewed and analysed significant sales contracts to verify correct accounting treatment; ii. Performed substantive analytical procedures and cut-off tests to verify that sales transactions are correctly recognised during the year; and tests, iii. Tested accounts receivable by requesting confirmations from the Group’s customers and by reconciling cash payments received after receivable year-end against balance at year-end. the accounts Inter alia, our procedures included the following: i. Assessed the assumptions used in the Group’s valuation of share options being the share price of the underlying equity, interest rate, volatility, dividend yield, time to maturity (expected life) and grant date; ii. Assessed the fair value of the calculation the Black re-performance using through Scholes model; and iii. Assessed the accuracy of the share- based payments expense and the adequacy of disclosures made by the Group in the financial report. The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2020 but does not include the financial report and our auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. 79 Audit Opinion 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. 80 Audit Opinion 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. From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the consolidated financial report of the current period and are therefore 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. Report on the Remuneration Report We have audited the Remuneration Report included in pages 11 to 19 of the directors’ report for the year ended 30 June 2020. 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 Emerald Clinics Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. STANTONS INTERNATIONAL AUDIT AND CONSULTING PTY LTD (Trading as Stantons International) (An Authorised Audit Company) Samir Tirodkar Director West Perth, Western Australia 31 August 2020 81 Corporate Governance Statement The Board of Directors of Emyria Limited (“Company”) is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. This statement sets out the main corporate governance practices in place throughout the financial year in accordance with 4th edition of the ASX Principles of Good Corporate Governance and Best Practice Recommendations. This Statement was approved by the Board of Directors and is current as at 8 October 2020. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT ASX Recommendation 1.1: A listed entity should have and disclose a board charter setting out: a) the respective roles and responsibilities of its board and management; and b) those matters expressly reserved to the board and those delegated to management The Board has adopted a formal charter that details the respective Board and management functions and responsibilities. A copy of this Board charter is available in the corporate governance section of the Company’s website at www.emyria.com. ASX Recommendation 1.2: A listed entity should: a) undertake appropriate checks before appointing a director or senior executive or putting someone forward for election as a director; and b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. The Company admitted to the Official List of ASX on 10 February 2020 and commenced trading on 12 February 2020. Appropriate checks were carried out for Directors and senior executives prior to admission. Information in relation to Directors seeking reappointment is set out in the Directors’ report and is included in the Notice of Annual General Meeting. ASX Recommendation 1.3: A listed entity should have a written agreement with each Director and Senior Executive setting out the terms of their appointment. The Company has in place written agreements with each Director and Senior Executive. ASX Recommendation 1.4: The Company Secretary of a listed company should be accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. The Board Charter provides for the Company Secretary to be accountable directly to the Board through the Chair. 83 Corporate Governance Statement ASX Recommendation 1.5: A listed entity should: a) have and disclose a diversity policy; b) through its board or a committee of the board set measurable objectives for achieving gender diversity in the composition of its board, senior executives and workforce generally; and c) disclose in relation to each reporting period: (i) the measurable objectives set for that period to achieve gender diversity; (ii) the entity’s progress towards achieving those objectives; and (iii) either: • • the respective proportions of men and women on the board, in senior executive positions and across the whole workforce (including how the entity has defined “senior executive” for these purposes); or if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act.3. The Company has adopted a Diversity Policy which is available in the corporate governance section of the Company’s website at www.emyria.com. 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 practical. The Board will consider setting measurable objectives as the Company increases in size and complexity. As at 30 June 2020, the Company does not have any female Board members and has one female senior manager (2019:1). Of the balance of the Company’s employees 63% are female (2019: 58%). 49% (2019: 44%) of the Company’s employees in total, including Directors, are female. ASX Recommendation 1.6: A listed entity should: a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period. The Board has adopted a self-evaluation process to measure its own performance and the performance during each financial year. The Chairperson is also responsible for conducting an annual review of overall board performance during a regular meeting of the board. A performance review was undertaken during the reporting period. ASX Recommendation 1.7: A listed entity should: a) have and disclose a process for evaluating the performance of its senior executives at least once every reporting period; and b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period. The Managing Director’s performance is considered as part of the Board review process. 84 Corporate Governance Statement The performance of other executives was reviewed and monitored by the Managing Director on an ongoing basis throughout the year. The Board reviews the business performance of the Company and its subsidiaries, whether strategic objectives are being achieved and the development of management and personnel at each formal board meeting. A performance review was undertaken during the reporting period. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE ASX Recommendation 2.1: The Board of a listed entity should: a) have a nomination committee which: (i) has at least three members, a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (i) the charter of the committee; (ii) the members of the committee; and (iii) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Due to the size and nature of the existing Board and the magnitude of the Company’s operations, the Company does not currently have a Nomination Committee. The full Board considers Board composition and identifies and assesses candidates to fill any casual vacancy which may arise from time to time. The Board considers that at this stage no efficiencies or other benefits would be gained by establishing a separate Nomination Committee. ASX Recommendation 2.2: A listed entity should have and disclose a Board skills matrix setting out the mix of skills and diversity that the Board currently has or is looking to achieve in its membership. On a collective basis the Board’s skills matrix indicates the mix of skills, experience and expertise that are considered necessary at Board level for optimal performance of the Board. The matrix reflects the Board’s objective to have an appropriate mix of specific industry and professional experience including skills such as medical expertise, drug development, RWE capture, leadership, governance, strategy, finance, risk management, Government and international business operations. A profile of each Director setting out their skills, experience and period of office is set out in the Directors’ Report. 85 Corporate Governance Statement ASX Recommendation 2.3: A listed entity should disclose: a) the names of the directors considered by the board to be independent directors; b) if a director has an interest, position or relationship of the type described in Box 2.3 (Factors relevant to assessing the independence of a director) but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position or relationship in question and an explanation of why the board is of that opinion; and c) the length of service of each director. The Board currently consists of Executive Directors Dr Stewart Washer, Dr Michael Winlo and Professor Alistair Vickery and Non-Executive Directors Mr Matthew Callahan and Professor Sir John Tooke. Mr Callahan is not considered an independent Director due to an associated entity being a substantial shareholder in the Company. Professor Sir John Tooke is considered an independent Director. As the Company’s activities develop in size, nature and scope, the composition of the Board and the implementation of additional corporate governance policies and structures, including further independent Directors will be reviewed. Dr Stewart Washer and Mr Mathew Callahan were appointed directors on 19 March 2018. Professor Alistair Vickery was appointed on 18 March 2019. Dr Michael Winlo was appointed on 7 November 2019 and Professor Sir John Tooke was appointed on 10 February 2020. ASX Recommendation 2.4: The majority of the Board of a listed entity should be independent Directors. Due to the size and scale of the Company’s current activities, the Board does not consist of a majority of independent directors. The Board considers the composition of the Board, is appropriate given the size and current operations of the Company. To further facilitate independent decision-making, the Board has agreed procedures for Directors to have access in appropriate circumstances to independent professional advice. As the Company grows, the Board will consider the appointment of additional independent Directors. ASX Recommendation 2.5: The Chair of a listed entity should be an independent Director and, in particular, should not be the same person as the CEO of the entity. The Board has formed the view that, given the size and nature of the business of the Company, and the knowledge and experience Dr Stewart Washer brings to the Company, that Dr Washer is the most appropriate person to hold the position of Chairman of the Company even though he is not independent by reason of being an Executive Director. The Chairman is not the same person as the CEO of the entity, with Dr Michael Winlo performing this role. As the Company grows, the Board will consider the appointment of additional independent Directors. ASX recommendation 2.6: A listed entity should have a program for inducting new directors and for periodically reviewing whether there is a need for existing directors to undertake professional development to maintain the skills and knowledge needed to perform their role as directors effectively. Upon appointment to the Board new Directors will be provided with Company policies and will be provided an opportunity to discuss the Company’s operations with senior management and the Board. The Company encourages its Directors to participate in professional development opportunities presented to the Company and provides appropriate industry information to its Board members on a regular basis. 86 Corporate Governance Statement PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY ASX Recommendation 3.1: A listed entity should articulate and disclose its values. The Board has approved a statement of values and charges the Directors with the responsibility of inculcating those values across the Company. A copy of the Company’s statement of values is available on the Company’s website, www.emyria.com. ASX Recommendation 3.2: A listed entity should: a) have and disclose a code of conduct for its directors, senior executives and employees; and b) ensure that the board or a committee of the board is informed of any material breaches of that code. The Company has established a Code of Conduct that sets out the principles covering appropriate conduct in a variety of contexts and outlines the minimum standards of behavior expected from its Directors and employees. The Code of Conduct sets out policies in relation to various corporate and personal behavior including safety, discrimination, respecting the law, anti-corruption, interpersonal conduct and conflict of interest. The Code contains a procedure tor reporting material breaches of the code. A copy of the Company’s code of conduct is available in the corporate governance section of the Company’s website at www.emyria.com. ASX Recommendation 3.3: A listed entity should: a) have and disclose a Whistleblower policy; and b) ensure that the board or a committee of the board is informed of any material incidents reported under that policy. The Board has adopted a Whistleblower Protection Policy to ensure concerns regarding unacceptable conduct including breaches of the Company’s code of conduct can be raised on a confidential basis, without fear of reprisal, dismissal or discriminatory treatment. The purpose of this policy is to promote responsible whistle blowing about issues where the interests of others, including the public, or of the organisation itself are at risk. The policy contains a procedure tor reporting material breaches of the policy. A copy of the Company’s Whistleblower Protection Policy is available on the Company’s website, www.emyria.com. ASX Recommendation 3.4: A listed entity should: a) have and disclose an anti-bribery and corruption policy; and b) ensure that the board or a committee of the board is informed of any material breaches of that policy. The Board has adopted an Anti-Bribery and Anti-Corruption Policy for the purpose of setting out the responsibilities in observing and upholding the Company’s position on bribery and corruption provide information and guidance to those working for the Company on how to recognise and deal with bribery and corruption issues. The policy contains a procedure tor reporting material breaches of the policy. A copy of the Company’s Anti-Bribery and Anti-Corruption Policy is available on the Company’s website, www.emyria.com. 87 Corporate Governance Statement PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING ASX Recommendation 4.1: The Board of a listed entity should: a) have an audit committee which: (i) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (ii) is chaired by an independent director, who is not the chair of the board, and disclose: (i) the charter of the committee; (ii) the relevant qualifications and experience of the members of the committee; and (iii) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity requiring the formation of a separate Audit Committee. The full Board carries out the duties that would ordinarily be assigned to the Audit Committee. ASX Recommendation 4.2: The Board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO (or equivalent) a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Board has received the assurance required by ASX Recommendation 4.2 in respect of the financial statements for the half year ended 31 December 2019 and the full year ended 30 June 2020. The Board has formed the view that, given the size and nature of the business of the Company, such a process is not required in relation to the Company’s quarterly cash flow reports. ASX Recommendation 4.3: A listed entity should disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor. When preparing periodic corporate reports for release to the market including the quarterly activity and cash flow reports, these reports are prepared and reviewed by the Managing Director before being presented to the Board for review. Such reports are not be released to market without the review process by the managing Director and the Board. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE ASX Recommendation 5.1: A listed entity should have and disclose a written policy for complying with its continuous disclosure obligations under ASX Listing Rule 3.1. The Company has established a Continuous Disclosure Policy which is designed to guide compliance with ASX Listing Rule disclosure requirements, and to ensure that all Directors, senior executives and employees of the Company understand their responsibilities under the policy. 88 Corporate Governance Statement In accordance with the Company’s continuous disclosure policy, all information provided to ASX for release to the market is posted to its website at www.emyria.com after ASX confirms an announcement has been made. Information in relation to the Company’s continuous disclosure requirements is set out in the Company’s corporate governance policy available at www.emyria.com. ASX Recommendation 5.2: A listed entity should ensure that its board receives copies of all material market announcements promptly after they have been made. The Board has appointed the Company Secretary as the person responsible for communicating with ASX and overseeing and coordinating the timely disclosure of information to ASX. When the confirmation of a release is received from the ASX the Company Secretary promptly forwards a copy to the Board. ASX Recommendation 5.3: A listed entity that gives a new and substantive investor or analyst presentation should release a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation. The Board has appointed the Company Secretary as the person responsible for communicating with ASX and overseeing and coordinating the timely disclosure of information to ASX. The Company Secretary releases any new and substantive presentation to the ASX Market Announcements Platform ahead of the presentation, a copy of which is available on the Company’s website, www.emyria.com when released. PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS ASX Recommendation 6.1: A listed entity should provide information about itself and its governance to investors via its website. The Company’s website at www.emyria.com contains information about the Company’s projects, Directors and management and the Company’s corporate governance practices, policies and charters. All ASX announcements made to the market, including annual, half year and quarterly reports are posted on the website as soon as they have been released by the ASX. The full text of all notices of meetings and explanatory material, the Company’s Annual Report and copies of all investor presentations are posted on the Company’s website. ASX Recommendation 6.2: A listed entity should have an investor relations program that facilitates effective two-way communication with investors. The Company has adopted a Shareholder Communication Policy, which encourages shareholder participation and engagement with the Company. This policy has nominated the Chair, Managing Director and Company Secretary for having the primary responsibility for communicating with shareholders. The Company actively promotes communication with shareholders through a variety of measures, including the use of the Company’s website and email. The Company’s reports and ASX announcements may be viewed and downloaded from its website, www.emyria.com, or the ASX website, www.asx.com.au under the ASX code “[EMD]”. Contact with the Company can be made via an email address provided on the website and investors can subscribe to the Company’s electronic mailing list. 89 Corporate Governance Statement ASX Recommendation 6.3: A listed entity should disclose how it facilitates and encourages participation at meetings of security holders. The Shareholder Communication Policy encourages shareholder participation at shareholders’ meetings. Shareholders are provided with all notices of meeting prior to meetings. The Company’s auditor is also made available for questions at the annual general meeting. Shareholders are also always given the opportunity to ask questions of the Directors and management, either during or after shareholders’ meetings. The full text of all notices of meetings and explanatory material are posted on the Company’s website at www.emyria.com. ASX Recommendation 6.4: A listed entity should ensure that all substantive resolutions at a meeting of security holders are decided by a poll rather than by a show of hands. The Company will conduct a poll at meetings of security holders to decide each resolution. ASX Recommendation 6.5: A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security register electronically. Contact with the Company can be made via an email address provided on the website and investors can subscribe to the Company’s electronic mailing list. The Company’s share register provides a facility whereby investors can provide email addresses to receive correspondence from the Company electronically and investors can contact the share register via telephone, facsimile or email. PRINCIPLE 7: RECOGNISE AND MANAGE RISK ASX Recommendation 7.1: The Board of a listed entity should: a) have a committee or committees to oversee risk, each of which: (i) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (ii) is chaired by an independent director, who is not the chair of the board, and disclose: (i) the charter of the committee; (ii) the relevant qualifications and experience of the members of the committee; and (iii) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. The Board’s collective experience will assist in the identification of the principal risks that may affect the Company’s business. Key operational risks and their management will be recurring items for deliberation at Board meetings. A Risk Committee has been established by the Board. Members of the Risk Committee are Professor Sir John Tooke (Chair), Mr Matthew Callahan and Professor Alistair Vickery. 90 Corporate Governance Statement The qualifications and experience of the members of the Risk Committee, and the number of times the committee met during the financial year are disclosed in the Directors’ Report. As a consequence of the size and composition of the Company’s Board the Risk Committee does not have a majority of independent Directors, however the Bord considers the composition of the Risk Committee to be appropriate for the current size and activities of the Company. ASX Recommendation 7.2: The Board or a committee of the Board, of a listed entity should: a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound and review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound and that the entity is operating with due regard to the risk appetite set by the board; and b) disclose, in relation to each reporting period, whether such a review has taken place. The Board conducted such a review during the reporting period. The Company is committed to the identification; monitoring and management of risks associated with its business activities and has established policies in relation to the implementation of practical and effective control systems. The Company has established a Risk Management Framework and Policy. A review of the Company’s Risk Management Framework and Policy was carried out by the Board during the reporting period to satisfy itself that it continues to be sound and applicable to the Company’s activities. ASX Recommendation 7.3: A listed entity should disclose: a) if it has an internal audit function, how the function is structured and what role it performs; or b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its governance, risk management and internal control processes. The Company does not have an independent internal audit function. Due to the nature and size of the Company’s operations, and the Company’s ability to derive substantially all of the benefits of an independent internal audit function in the manner disclosed below, the expense of an independent internal auditor is not considered to be appropriate. The Board, in conjunction with the Risk Committee, oversees the Company’s risk management systems, practices and procedures to ensure effective risk identification and management and compliance with internal guidelines and external requirements and monitors the quality of the accounting function. ASX Recommendation 7.4: A listed entity should disclose whether it has any material exposure to environmental and social risks and if it does, how it manages or intends to manage those risks. The Company identifies and manages material exposure to environmental and social risks in a manner consistent with its Risk Management Framework and Policy. Environmental: The Company is subject to, and responsible for, ensuring compliance with various regulations, licenses, approvals and standards so that its activities do not cause unauthorised environmental harm. Through its ongoing management of environmental activities, the Company has been able to operate in an environmentally sustainable and responsible manner. Social: The Company recognises that a failure to manage stakeholder expectations may lead to disruption to the Company’s operations. The Company’s Corporate Code of Conduct outlines the Company’s commitment to integrity and fair dealing in its business affairs and to a duty of care to all employees, clients and stakeholders. 91 Corporate Governance Statement PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBILY ASX Recommendation 8.1: The Board of a listed entity should: a) have a remuneration committee which: (i) has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and (ii) is chaired by an independent director, and disclose: (i) the charter of the committee; (ii) the members of the committee; and (iii) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. The Board as a whole performs the function of a remuneration committee which includes setting the Company’s remuneration structure, determining eligibilities to incentive schemes, assessing performance and remuneration of senior management and determining the remuneration and incentives of the Board. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity requiring the formation of a separate remuneration committee. The Board may obtain external advice from independent consultants in determining the Company’s remuneration practices, including remuneration levels, where considered appropriate. ASX Recommendation 8.2: A listed entity should separately disclose its policies and practices regarding the remuneration of Non-Executive Directors and the remuneration of Executive Directors and other senior executives. The remuneration of any Executive Director will be decided by the Board, without the affected Executive Director participating in that decision-making process. A Non-Executive Director may be paid fees or other amounts in accordance with any consultancy agreement in which they have an interest or as the Directors determine from time to time where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director or any consultancy agreement in place. In addition, subject to any necessary Shareholder approval Directors may receive non-cash performance incentives such as options or performance rights. Directors are also entitled to be paid reasonable travel and other expenses incurred by them in the course of the performance of their duties as Directors. The Board reviews and approves the Company’s remuneration policy in order to ensure that the Company is able to attract and retain executives and Directors who will create value for Shareholders, having regard to the amount considered to be commensurate for an entity of the Company’s size and level of activity as well as the relevant Directors’ time, commitment and responsibility. The Board is also responsible for reviewing any employee incentive and equity-based plans including the appropriateness of performance hurdles and total payments proposed. 92 Corporate Governance Statement ASX Recommendation 8.3: A listed entity which has an equity-based remuneration scheme should: a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and b) disclose that policy or a summary of it. The Company’s Trading Policy prohibits the use of Derivatives in relation to unvested equity instruments, including performance share rights, and vested Company Securities that are subject to disposal restrictions (such as a “Holding Lock”). Derivatives may be used in relation to vested positions which are not subject to disposal restrictions subject to compliance with the law and the other provisions of the Trading Policy. 93 ASX Additional Information Twenty largest shareholders as at 6 October 2020 "STEWART JAMES WASHER & PATRIZIA DERNA WASHER " "MR CRAIG LAWRENCE DARBY " "MAL WASHER NOMINEES PTY LTD " "MERCATOR SHIPWRIGHTS PTY LTD " "LAKEWEST PTY LTD " MR STEPHEN PETER SOMERVILLE MR PAK LIM KONG NATIONAL NOMINEES LIMITED "MR ANDREW WARREN SIMMONS & MRS PETA SARAH LLOYD-HARRIS " MR CRAIG LAWRENCE DARBY ALEXANDER HOLDINGS (WA) PTY LTD PAC PARTNERS SECURITIES PTY LTD D SCHECTER MEDICINE PROFESSIONAL CORPORATION "ADAM JAMES " HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CANN GROUP LIMITED CANOPY GROWTH CORPORATION "BAZA HIGH CONVICTION PTY LTD " MR PAK LIM KONG "LIDDLE INVESTMENTS GROUP PTY LTD " Units % of Units 28,400,000 13.43% 19,600,000 9.27% 19,600,000 9.27% 19,600,000 9.27% 5,160,532 2.44% 4,900,000 2.32% 3,416,667 1.62% 2,600,000 1.23% 2,513,431 1.19% 2,000,000 0.95% 2,000,000 0.95% 1,990,000 0.94% 1,960,000 0.93% 1,960,000 0.93% 1,828,167 0.86% 1,562,500 0.74% 1,562,500 0.74% 1,398,431 0.66% 1,250,027 0.59% 1,250,000 0.59% Totals: Top 20 holders 124,552,255 58.92% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 94 ASX Additional Information Distribution of shareholders as at 6 October 2020 Holding Ranges Holders Total Units Above 0 up to and including 1,000 Above 1,000 up to and including 5,000 Above 5,000 up to and including 10,000 Above 10,000 up to and including 100,000 Above 100,000 Totals 7 23 187 374 221 812 1,071 89,705 1,628,628 16,682,025 193,001,349 211,402,778 100.00% % Issued Share Capital 0.00% 0.04% 0.77% 7.89% 91.30% The number of shareholders holding less than a marketable parcel is 24. Substantial shareholders as at 6 October 2020 Shareholder STEWART JAMES WASHER & PATRIZIA DERNA WASHER MERCATOR SHIPWRIGHTS PTY LTD MR CRAIG LAWRENCE DARBY MAL WASHER NOMINEES PTY LTD Number 48,550,499 19,600,000 22,709,790 19,600,000 Class of shares and voting rights At meetings of members or classes of members each member entitled to vote may vote in person or by proxy or attorney; and on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share held. On-market buy-back There is no current on-market buy-back. Unlisted Options as at 6 October 2020 Unlisted options on issue Exercisable at $0.45 Exercisable at $0.45 expiring 13 June 2023 expiring 26 September 2023 Total on issue Number of holders (>100,000) 17,750,000 14 600,000 1 20% or more held by: Australian Medical Research Pty Ltd - 600,000 95 ASX Additional Information Restricted securities as at 6 October 2020 Shareholder Ordinary Shares Unlisted Options Ordinary Shares – 24 Months from requotation 100,097,478 Unlisted Options exercisable at $0.45 on or before 13 June 2023 – 24 Months from requotation Unlisted Options exercisable at $0.45 on or before 13 June 2023 – 13 June 2020 Unlisted Options exercisable at $0.45 on or before 13 June 2023 – 26 September 2020 Unlisted Options exercisable at $0.45 on or before 13 June 2023 – 24 October 2020 Unlisted Options exercisable at $0.45 on or before 13 June 2023 – 11 November 2020 10,500,000 5,250,000 600,000 1,000,000 1,000,000 100,097,478 18,350,000 Listing Rule 4.10.19 confirmation The Company has used the cash and assets readily convertible to cash that it had at the time of admission to ASX in a way consistent with the business objectives set out in the prospectus. 96 Corporate Directory Directors Dr Stewart Washer, Executive Chairman Share Registry Automic Pty Ltd Dr Michael Winlo, Managing Director Level 2, 267 St Georges Terrace Prof Alistair Vickery, Executive Medical Director Perth WA 6000 Mr Matthew Callahan, Non-Executive Director Prof Sir John Tooke, Non-Executive Director Auditors Company Secretary Simon Robertson Stantons International Level 2, 1 Walker Avenue West Perth WA 6005 Principal and Registered Office Bankers Suite 3, 43 Oxford Close West Leederville WA 6007 PO Box 1442 West Leederville WA 6901 Australia Telephone: +61 8 6559 2800 Website: www.emyria.com Email: info@emyria.com National Australia Bank Level 14, 100 St Georges Terrace Perth WA 6000 Securities Exchange Australian Securities Exchange (ASX) Code: EMD 98 To provide fantastic care we need to learn from the person in front of us and personalise treatment. This means taking the time to understand what’s important, what’s working and the full range of options available. Prof Alistair Vickery EMYRIA MEDICAL DIRECTOR Join our journey of clinical discovery and transformative care. emyria.com 

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