Exopharm Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Exopharm Limited 78 163 765 991 For the year ended 30 June 2021 For the year ended 30 June 2020 2. Results for announcement to the market $ Revenues from ordinary activities down 88.4% to 7,049 Loss from ordinary activities after tax attributable to the owners of Exopharm Limited Loss for the year attributable to the owners of Exopharm Limited up up 60.4% to (8,468,046) 60.4% to (8,468,046) Dividends There were no dividends paid, recommended or declared during the current financial period. Comments The loss for the Group after providing for income tax amounted to $8,468,046 (30 June 2020: $5,278,803). 3. Net tangible assets Reporting period Cents Previous period Cents 10.94 3.90 Net tangible assets per ordinary security 4. Control gained over entities Name of entities (or group of entities) ExoSuisse GmbH Date control gained 04 March 2021 5. Loss of control over entities Not applicable. 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. Dividend reinvestment plans Not applicable. Exopharm Limited Appendix 4E Preliminary final report 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit qualification or review Details of audit/review dispute or qualification (if any): The financial statements have been audited and an unqualified opinion has been issued. 11. Attachments Details of attachments (if any): The Annual Report of Exopharm Limited for the year ended 30 June 2021 is attached. 12. Signed Signed ___________________________ Date: 30 August 2021 Ian Dixon CEO and Managing Director Melbourne Annual Report 2021 ABN 78 163 765 991 Directors Mr Jason M Watson Dr Ian E Dixon Mr David R Parker (Resigned on 5 January 2021) Ms Elizabeth M McGregor (Appointed on 5 January 2021) Company secretaries Ms Sinead Teague (Resigned on 5 January 2021) Ms Elizabeth M McGregor (Appointed on 5 January 2021) Registered office C/o Bio101 Financial Advisory Pty Ltd Auditor William Buck Suite 201 697 Burke Road Camberwell VIC 3124 Level 20, 181 William Street Melbourne VIC 3000 Principal place of business Level 17, 31 Queen Street Melbourne VIC 3000 Telephone: (03) 9111 0026 Email: info@exopharm.com Share register Automic Registry Services Pty Ltd Level 5, 126 Philip Street Sydney NSW 2010 Telephone: 1300 288 664 Email: hello@automic.com.au Solicitors Quinert Rodda & Associates Level 6, 400 Collins Street Melbourne VIC 3000 Stock exchange listing Exopharm Limited shares are listed on the Australian Securities Exchange (ASX code: EX1) Exopharm 2021 Annual Report Contents Corporate Directory 04 Exopharm Snapshot 08 Exopharm for Investors 11 Letter from Board Chair and CEO 12 Directors’ Report 41 Auditor’s Independence Declaration 42 Consolidated Statement of Profit or Loss and Other Comprehensive Income 43 Consolidated Statement of Financial Position 44 Consolidated Statement of Changes in Equity 45 Consolidated Statement of Cash Flows 47 Notes to the Consolidated Financial Statements 73 Directors’ Declaration 74 Independent Auditor’s Report to the Members of Exopharm Limited 78 Shareholder Information 1 EXOPHARM ANNUAL REPORT 2021 Highlights for FY2021 Clinical trial demonstrated the safety of Exopharm’s manufacturing process and exosomes purified using LEAP technology Successfully demonstrated LOAD and EVPS technologies in house, and launched a preclinical pipeline of customised exosome medicines IP portfolio advanced through filing of two new patents, and granting of patents for core LEAP (Russia) and EVPS (United States) technologies A$22 million raised from sophisticated and institutional investors 2 EXOPHARM ANNUAL REPORT 2021 Exosome Medicines Can Have Broad Application to Solve Many Medical Problems Orphan indications/ genetic conditions (eg. cystic fibrosis) Infectious disease (viral, bacterial, parasite) CNS/neurological Disability (hearing, taste, mobility) Cancers/oncology Cardiovascular Psychiatric & pain Immune conditions (eg. GvHD, TID, transplant rejection, IBD) 3 EXOPHARM ANNUAL REPORT 2021 Exopharm Snapshot Exopharm is a clinical-stage company at the forefront of developing transformative exosome medicines. Exopharm is a pioneer in the exosome field and will continue to stay in front of its competitors. We are well-placed for growth as part of the US$175 billion p.a. global market for drug delivery systems. 1 1 2 3 4 Exosomes are seen by biopharma companies as a new and differentiated means of drug delivery ideally suited to delivering nucleic acid medicines like RNA and gene therapies – an emerging class of medicines growing at CAGR of 33.3% (global market value US$7.23 billion in 2024).2 5 6 7 The Company’s LEAP technology sets Exopharm apart in the industry for purifying clinical-grade exosomes economically and at scale. Exopharm’s exclusive proprietary LOAD and EVPS technologies enable the modification of exosomes to carry medical cargo to specific cell types, making Exopharm one of just a handful of companies with these capabilities. Exopharm is building a pipeline of revenue from partnering its exosome technologies, and from designing and developing its own novel exosome medicines. 1 https://formulations.pharmaceuticalconferences.com 2 https://www.globenewswire.com/news-release/2020/10/20/2110809/0/en/Global-7-23-Bn-Nucleic-Acid-Therapeutics-Oligonucleotide-Markets-2020-2024-Insights-Forecast-with-Potential-Impact-of-COVID-19.html 4 EXOPHARM ANNUAL REPORT 2021 This technology and these scientists have the potential to change the lives of people around the world. Dr Chris Baldwin Deputy CEO/Chief Commercial Officer 5 EXOPHARM ANNUAL REPORT 2021 6 EXOPHARM ANNUAL REPORT 2021 Exopharm Ltd Overview Delivering Transformative Medicines Australian clinical-stage company at the forefront of developing transformative medicines based upon exosomes (extracellular vesicles, EVs) Over 40 staff based in Melbourne, Australia; 1 based in Europe Publicly traded on the ASX (ASX:EX1) (listed Dec 2018) A platform technology company with application to many exosome medicines - using our exclusive LEAP, LOAD and EVPS technologies 7 EXOPHARM ANNUAL REPORT 2021 Exopharm for Investors Exosomes are becoming important for drug delivery Exosomes are increasingly recognised as a superior drug delivery system, with the potential to overcome the delivery challenge that impedes clinical translation for many therapeutics, including emerging nucleic acid and protein medicines. Significant deals are being done Interest in the exosome field is accelerating globally and substantial deals have been executed in the past 36 months for preclinical exosome medicine candidates with upfront cash payments of upwards of A$80 million. Exopharm has the technologies and capabilities partners are looking for Exopharm is one of a handful of companies in the world with the technology and know-how to customise exosomes for improved targeted drug delivery. It is one of only two publicly listed pure-play exosome companies. 8 Review of OperationsEXOPHARM ANNUAL REPORT 2021 Exopharm has full exclusivity over its core exosome technologies (LEAP, LOAD, EVPS). Exopharm’s scientists have demonstrated the Company’s clinical manufacturing capabilities and are producing the data needed to build value in its exosome medicine assets. Exopharm is commercial and seeking deals Exopharm has a team of five dedicated to doing Business Development to pursue and execute strategic partnerships. The Company has a management team with the deep expertise and commercial experience requisite for success. The Company has a path to early revenue through partnering and licensing of its technologies to enable pharma companies to build new exosome medicines for diseases with high unmet need. 9 Significant Events During the YearEXOPHARM ANNUAL REPORT 2021 10 EXOPHARM ANNUAL REPORT 2021 Letter from the Board Chair and CEO Dear Shareholders, Exopharm is poised on the edge of a revolutionary approach in medicine – delivering drugs and vaccines to where they are needed in the body, directly into cells, in sufficient quantities, and through a highly bio-efficient means. This delivery mechanism is the exosome, a nano-sized vesicle, or bubble, that is secreted naturally from almost all cells, and is involved in the inter-cellular “signalling” that is at the heart of cell-to-cell communication. It’s been known for some time that exosomes have huge potential for delivering targeted medicines with precision, but the problem has always been isolating and purifying exosomes in large scale – so they can be introduced into the human body as medicines. To date, Exopharm’s LEAP technology is the only demonstrated way to produce exosomes in large-scale as a medicine. The biggest commercial area of interest in exosomes is clear: it is using exosomes as ‘delivery vehicles’ inside the body for medicines – what we call exosome medicines. Exosomes have advantages over other delivery technologies, and Exopharm’s manufacturing capabilities have the potential to unlock the use of exosomes for many new exosome medicines. The COVID-19 (SARS-Cov-2) pandemic has helped the medical industry understand this potential better. With the rapid development of SARS-Cov-2 mRNA vaccines using synthetic lipid nanoparticles (LNPs), people better understand the potential to deliver nucleic acid treatments directly into cells. Exopharm’s naturally occurring exosome products have significant benefits over technologies like LNPs - including less toxicity and more efficient delivery, as they cause no concern to the body’s immune system. The global market for drug delivery systems is presently valued at around US$170 billion (A$230 billion) and is growing at a compound annual rate of 5%. Exopharm is very well placed to enter this market and capture a meaningful share of it. To address a global market, you must be an international company. Our team is made up of people from all corners of the world. The organisations with which we are engaged in commercial partnership or licensing discussions are largely outside of Australia. We now have a registered Swiss subsidiary (ExoSuisse GmbH) and have a senior staff member living and working in Europe. The technical and commercial people within the Exopharm team are working to support the company’s strategic focus. Our team has grown to over 40 people – located at our research and manufacturing facility in the world-class Alfred medical research precinct in Melbourne. Despite the ongoing challenges of the SARS-CoV-2 pandemic, the Board supported a growth strategy during this time. With that encouragement, the Exopharm team has grown and adapted, adjusting to where we see the biggest opportunities and the most commercial interest. Over the past 12 months, Exopharm has enjoyed support from a growing list of shareholders – people who share our belief that exosomes could be a valuable and important part of transformative medicines. Exopharm has been joined by Codiak Biosciences Inc. as a publicly traded company, with Codiak listing on NASDAQ (CDAK) in October 2020 and raising around US$83 million from investors. Exopharm listed on the ASX in December 2018. The Exopharm story is in some ways complicated and multi-faceted, and has been evolving since the IPO in response to commercial interest. Exopharm’s Board has tightened the strategic focus and investment. We expect revenue to come from preclinical technology licensing and product partnerships – all based on our suite of exosome-related technologies and know-how. Additional future value may come from exosome medicines we take into clinical trials. Biotechnology is built upon intellectual property (IP) and know-how. Exopharm is building a portfolio of unique and valuable IP and know-how across various technologies important to exosome medicines. These newer technologies include an exosome tagging product (Exoria) and a formulation for exosome medicines that extends storage times and makes transport less demanding. Discussions continue around in-licensing of other relevant technologies, and other in-house developments are supporting our leadership position in the field. Finally, we wish to express our special thanks to each and every one of our valued team members – you are helping us build an important Australian-based business with transformative medicines and improved healthcare as its core reason for being. Dr Ian E Dixon Managing Director & CEO Exopharm Limited Mr Jason Watson Chairman Exopharm Limited 11 EXOPHARM ANNUAL REPORT 2021 Directors’ Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’) consisting of Exopharm Limited (referred to hereafter as the ‘Company’) and the entities it controlled at the end of, or during, the year ended 30 June 2021. Directors The names of the directors and officers who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Directors Position Mr Jason Watson Non-Executive Chairman Dr Ian Dixon Managing Director & CEO Ms Elizabeth M McGregor Non-Executive Director Mr David Parker and Company Secretary (Appointed on 5 January 2021) Non-Executive Director (Resigned on 5 January 2021) 12 EXOPHARM ANNUAL REPORT 2021 Names, qualifications, experience and special responsibilities of Directors currently in office Mr Jason Watson Non-Executive Chairman Llb, B. Comm Dr Ian Dixon Ms Elizabeth M McGregor Founder and Managing Director PhD, MBA, MAICD Non-Executive Director and Company Secretary BA (Hons), MBA, FGIA Mr Watson has board and advisory experience acting with small and medium-sized enterprises, research institutes and listed companies in the life sciences and other sectors. In particular, Mr Watson has assisted companies in developing, commercialising and transacting technologies through significant biotechnology licensing deals. Mr Watson is principal of Elementary Law, a legal practice based in Melbourne, Australia. His practice focuses on assisting clients achieve the best outcomes for their patents and innovations, including through corporate fundraising, protection strategies, licensing and commercialisation. In this capacity, Mr Watson has been recognised in the Intellectual Asset Magazine Patent 1000 independent list of The World’s 1000 Leading Patent Professionals. Dr Dixon has a PhD in biomedical Ms Elizabeth M McGregor is a engineering from Monash University, corporate governance professional an MBA from Swinburne University and is Company Secretary for a number of ASX listed entities. She has experience in various industries including investment management, e-commerce and biotechnology. Elizabeth is a Fellow of the Governance Institute of Australia, a Member of the Australian Institute of Company Directors and a NSW Justice of the Peace. and professional engineering qualifications. Dr Dixon founded Exopharm in 2013 and is a co-inventor of the LEAP Technology owned by Exopharm. He brings to the Board skills and experience across all areas of the business including technological, entrepreneurial and financial. As Managing Director, Dr Dixon manages processes within Exopharm including strategy, intellectual property, drug development, recruitment and technology commercialisation and development. Dr Dixon is also a Non-Executive Director and founder of Nyrada Inc. (ASX:NYR), and a co-inventor of the Nyrada cardiovascular drug NYX-330. Mr Watson has expertise in relation to complex transactions, including In 2011, Dr Dixon Co-Founded Cynata Inc, a company that is progressing the establishing multi-party engagements, commercialisation of what has become research and consultancy contracts the Cymerus technology of ASX-listed and negotiating and implementing Cynata Therapeutics Ltd (ASX:CYP). clinical trial, licensing, assignment, manufacturing, shareholding and other commercial arrangements. During the last three years, Dr Dixon has served as a director of the following listed companies: Mr Watson has a Bachelor of Laws with Medigard Ltd (ASX:MGZ) and Honours and a Bachelor of Commerce. Noxopharm Ltd (ASX:NOX). 13 EXOPHARM ANNUAL REPORT 2021 Meetings of Directors The number of meetings of the Company’s Board of Directors (‘the Board’) held during the year ended 30 June 2021, and the number of meetings attended by each director were: Directors Attended Held Full Board Mr Jason Watson Dr Ian Dixon Mr David Parker Ms Elizabeth M McGregor 12 12 7 5 12 12 7 5 Held: represents the number of meetings held during the time the director held office. Interests in the shares and options of the Company and related bodies corporate The following relevant interests in shares and options of the Company or a related body corporate were held by the directors as at the date of this report: Directors Fully Paid Ordinary Shares Number Share Options Number Performance Rights Number Mr Jason Watson 350,000 Dr Ian Dixon 28,175,294 Ms Elizabeth M McGregor 0 0 0 0 60,000 166,667 0 As at the date of this report, the Company had 157,098,200 fully paid ordinary shares, 4,500,000 share options and 226,667 performance rights on issue. 14 EXOPHARM ANNUAL REPORT 2021 15 EXOPHARM ANNUAL REPORT 2021 Review of Operations Exosomes – A Growth Opportunity Exosomes Deliver RNA Exosomes are nano-sized particles produced by most animal cells to exchange materials and genetic instructions with other cells, thereby co-ordinating activities such as growth and repair within the body. They have been designed by nature to deliver combination payloads, including RNA, to specific cell types in a manner that changes the behaviour of the receiving cells. Shaped through evolution, exosomes overcome the major challenge that the pharmaceutical industry now 3. Exosomes do not trigger immune responses like other delivery tools (e.g. adeno-associated viruses faces – delivering biomolecules to [AAVs] and lipid nanoparticles desired tissues and cells effectively [LNPs]), making them ideal for and safely. Specific delivery capability treatments requiring multiple is exactly what is needed to unlock a doses. As they are produced wide variety of new medicines that naturally by our cells, they also will transform the outcomes for benefit from reduced clearance patients with a range of diseases. rates from the body by the Today, the drug delivery market is immune system. estimated to be US$175 billion per The unique structure of exosomes year. As transformational medicines means that they can be modified are designed and reach patients, the to carry specific drug cargoes and drug delivery market will likely grow at target certain cell types, which has a pace far faster than pharmaceuticals set industry searching for ways to in general. Exosomes are seen as a harness them as a means for treating major growth area in the drug delivery human disease. Though no medicine industry for three key reasons: based on exosome delivery has yet been approved for sale globally, exosome medicines have entered clinical trials. Exopharm led this advancement as the first company to trial an exosome medicine in humans. Today, Exopharm has established itself as a leader and innovator in this emerging field. 1. Exosomes can deliver their cargoes across the body to parts of the anatomy that other delivery particles cannot reach. Highly efficient drug delivery systems are needed to ensure that the drug is targeted to the correct tissues in the body in adequate quantities. Exosomes cross biological barriers, including the blood-brain barrier(BBB), and travel to tissues traditionally difficult to target for conventional medicines. Exosomes can also be guided to specific cell types by changing the protein structures attached to their surfaces. 2. Exosomes can carry RNA and proteins, essential components in a variety of nucleic acid medicines and gene therapies. 16 EXOPHARM ANNUAL REPORT 2021 Exosomes – Nature’s Solution to Delivery in the Body Exosomes (also referred to as extracellular vesicles 1. Package Outer membrane that forms the exosome (same membrane or EVs) are natural, as human cells) multifunctional and stable nanoparticles that transfer cargo, like RNA and proteins, between cells. Natural exosomes can be produced as a product from cells in a bioprocessing facility. 2. Address External proteins that improve targeting of exosomes to certain cell types 3. Cargo The materials delivered by exosomes including instructions (RNA) and building materials (lipids, enzymes, proteins) 1. Package Lipid Bilayer 2. Address Proteins 3. Cargo RNA, Proteins & LIPIDS 17 EXOPHARM ANNUAL REPORT 2021 Exosomes are creating incredible opportunities in drug development, and we are at the cutting edge of this emerging field. Dr Ranja Salvamoser Head of Experimental Biology 18 EXOPHARM ANNUAL REPORT 2021 Review of Operations RNA Medicines – the Hot Topic Driving New Demand for Drug Delivery Biologic medicines are produced Accurate genetic profiling using live cells or tissues. These allows researchers to identify faulty biologics include antibodies, genes in patients with rare genetic recombinant proteins, cell conditions or cancer, or to identify therapies, nucleic acid therapies infectious genes in the case of viral and vaccines – they comprise a diseases. It has also allowed faster large and rapidly growing segment manufacturing of nucleic acid of marketed therapeutics. therapies. The rapidly emerging field of The major challenge in translating nucleic acid medicines (RNA or these findings into medicines is DNA) requires specialised delivery the delivery of nucleic acid-based systems to guard them from medicines in the body. Nucleic degradation within the body and acids are highly susceptible to prevent off-target effects. This degradation by enzymes called exciting new class of drugs changes nucleases and are at risk of being the gene expression in cells and cleared out of the body before focuses on changing the root cause reaching the desired tissues. of diseases, rather than treating Moreover, to be effective, nucleic the symptoms; they offer a better acids need to be delivered to the opportunity for long-lasting health cytoplasm of the cell (for siRNA and improvements in patients. Their mRNA) or to its nucleus (for ASOs, biggest opportunities lie in the DNA and CRISPR), and thus require treatment of previously untreatable cell internalisation and escape from diseases, sometimes called the cell’s endosomes (their internal ‘undruggable’. Nucleic acid-based medicines include: i) replacing a disease-causing mutated gene with a healthy trafficking and sorting systems). This creates a need for a drug delivery system that improves stability of nucleic acids in circulation, facilitates internalisation, and increases target affinity by localising nucleic acids to gene (using CRISPR and other the target cells. gene editing technologies) ii) inactivating a mutated gene that is functioning improperly (using short interfering RNA [siRNA], micro RNA [miRNA], or antisense oligonucleotides [ASOs]) iii) introducing correct copies of defective genes to restore the function of cells and prevent diseases (using messenger RNA [mRNA] or CRISPR) 19 EXOPHARM ANNUAL REPORT 2021 Review of Operations Exopharm – Unlocking the Power of Nucleic Acid Medicines with Proprietary Exosome Technologies Exopharm’s key proprietary Despite the great interest in technologies – LEAP, LOAD and exosomes as an enhanced drug EVPS – allow the company to design delivery system, a further key and build enhanced, customised challenge for industry is to engineer exosome medicines. With these exosomes to carry a desired drug three technologies, Exopharm is cargo and to present specific one of only a handful of companies targeting molecules on their in the world with the capability to surface. Here also, Exopharm holds harness exosomes as a targeted a central position in the industry. delivery technology for nucleic acid With its proprietary LOAD and EVPS medicines, an exciting and growing technologies, the Company can class of therapeutic. load exosomes with a therapeutic nucleic acid cargo, and target these exosomes to a specific tissue, respectively. Since its foundation, Exopharm has been built upon the understanding that industry faces specific challenges in developing exosome medicines for the clinic. Although exosomes are readily produced by cultured cells, a key technological challenge has been the efficient and scalable purification of exosomes from source cells. Exopharm’s foundational technology, LEAP, was developed specifically to overcome this bottleneck. Today, Exopharm’s LEAP technology is clinically proven for commercial- scale, Good Manufacturing Practice (GMP)-compatible exosome purification. Unlike alternative approaches, LEAP uses industry- standard equipment and processes, and scales economically beyond thousands of doses. LEAP is key to unlocking the potential of exosomes as a new generation of therapeutic product. 20 EXOPHARM ANNUAL REPORT 2021 Review of Operations Three Unique & Powerful Technologies Underpin our Partnering and Exosome Medicines Exosome Targeting molecule Nucleic acid medicine Purified exosomes Extracellular Vesicle Positioning System The EVPS technology allows specific molecules to be attached to the surface of exosomes to guide them to target tissues or cell types. Targeted delivery can improve efficacy and reduce off-target effects of the exosome’s drug cargo. Leveraging Oligonucleotide packing for Amplified Dosing Using LOAD, Exopharm can add nucleic acid drugs, including RNA, into exosomes. The exosomes protect the RNA or DNA medicine from degradation as it is delivered to the intended tissues. Ligand-based Exosome Affinity Purification LEAP isolates and purifies exosomes from biofluids like blood and cell culture media. It is clinically proven as a scalable and economical technology for clinical-grade manufacture of exosome medicines. LEAP Exopharm has made important LEAP patent applications have human clinical trial. The successfully progress in the past year in continued to progress in eleven completed study showed that the demonstrating and in advancing other jurisdictions, including in the LEAP-isolated exosome product intellectual property protections of United States where a Fast Track was safe, and further credentialled its wholly owned exosome isolation application has been approved by the Company’s exosome medicine and purification technology, LEAP the US Patent and Trademark Office. manufacturing capability. (Ligand-based Exosome Affinity Purification). Exopharm’s scientists continue LEAP continues to be an industry- to develop the LEAP purification leading technology, with no apparent In June 2021, Exopharm was granted process. In a landmark achievement, comparable technology for delivering its first LEAP patent by the Russian LEAP manufacturing was used to clinical-grade exosomes at scale. Patent Office, with an expiry date produce all the clinical-grade doses of 22 December 2037. Related of an exosome product for a phase 1 21 EXOPHARM ANNUAL REPORT 2021 Review of Operations LOAD and EVPS LOAD (Leveraging Oligonucleotide custom proteins to the surface of the Company has successfully packing for Amplified Dosing) exosomes to give the exosomes demonstrated LOAD and EVPS enables specific RNA molecules tropism for (i.e., target them to) technologies in house and launched to be preferentially loaded into selected cell types. Exosome preclinical pipeline programs. exosomes as a therapeutic cargo. targeting improves efficacy and With LOAD, Exopharm is creating reduces off-target effects of the novel and powerful exosome encapsulated therapeutic, which medicines for a range of diseases. is particularly critical with nucleic The Company holds an exclusive acid medicines. Exopharm holds licence for LOAD, with the patent an exclusive licence for the EVPS progressing through national technology, with the patent phases in six jurisdictions. granted in the United States. Alongside LEAP, these technologies not only enable the design and evaluation of new exosome medicines that the Company owns and invests in, but position Exopharm as a viable and credible partner for pharma companies seeking to deliver their own drug EVPS (Extracellular Vesicle Over the past year, since Exopharm candidates using exosomes. Positioning System) enables announced its exclusive in-licensing Exopharm scientists to attach of LOAD and EVPS in June 2020, 22 EXOPHARM ANNUAL REPORT 2021 Review of Operations Building High-value Partnerships Exopharm is investing in producing data to support partnering. Securing partnering deals, from In Exopharm’s laboratories, many which Exopharm will derive income exciting and important activities are by allowing pharma companies underway as Exopharm’s scientists to use its tools and intellectual gather the test results and data property, is a key focus for the required to support the Company’s Company. Partnering is a process partnering discussions. built upon establishing relationships and confidence, and upon having the data to demonstrate the value of the technology to potential partners. Exopharm is investing to support transactions based on exosome medicine partnering and exosome technology licensing. 23 EXOPHARM ANNUAL REPORT 2021 With LEAP, we have an industry- leading technology for scalable exosome manufacturing. Dr Owen Tatford Head of Downstream Processing 24 EXOPHARM ANNUAL REPORT 2021 Review of Operations Exopharm is Building Financial Value Via Exosome Medicines – Concurrent Business Opportunities Exosome Medicines – Our own Pipeline Exopharm is building a pipeline of its own products as well. This pipeline of transformative therapeutic products will harness the full potential of exosomes to bring entirely new classes of drugs, such as gene editing treatments, to patients suffering from a variety of currently untreatable diseases. The creation and advancement of a pipeline of exosome medicines wholly-owned by Exopharm is an important part of the strategy. Exosome Medicines – Development through Partnering Large pharma companies are investing in exosome medicines. Within the past 18 months, several significant partnerships have been executed for preclinical exosome medicine candidates. Each partnership has involved upfront cash payments upward of A$80 million. As one of only a handful of companies with the technology and know-how to develop hundreds of bespoke exosome medicines, Exopharm is well-placed to make similar alliances and is attracting interest from pharma companies with assets for specific diseases that need exosomes to reach their target, bringing exosome medicines into the product pipelines of major companies with aspiration to use exosomes. Exosome Medicines Strategy • Generate revenue from partnership deals (incl. upfront & milestone payments) that allow traditional Pharma companies leverage the power of exosomes for their own product pipelines • Fund creation of a pipeline of Exosome Medicines owned by Exopharm that bring transformational new therapies to the lives of suffering patients across a range of diseases 25 EXOPHARM ANNUAL REPORT 2021 Review of Operations Exopharm is Building Financial Value Via Exosome Technologies Licensing Through its rapidly developing The execution of a non-binding patent portfolio and deep know- Heads of Agreement (HOA) with Exosome Technologies Strategy how, Exopharm seeks to license its the Finnish Red Cross Blood Service technologies, such as LEAP and (FRCBS) in April 2021 was an early Exoria to companies that can: result of this focus. The agreement • Integrate LEAP into their GMP processes, including blood plasma fractionators, blood services and other exosome companies for FRCBS to license Exopharm’s LEAP technology on commercial terms and to produce and sell EVs isolated from blood components continues to progress and is a clear • Integrate Exoria into research and sign that Exopharm’s technologies analytical tools and processes to are world-class and transferrable track exosomes into the processes of others. • Empower contract manufacturing organisations to serve companies scaling up exosome production • Demonstrate the ability for bioprocessing companies to bring Exopharm’s LEAP and Exoria into their GMP processes • Reach non-exclusive licensing agreements that can underpin the entire exosome medicines industry for peers, including plasma companies, blood services and other exosome-focused companies • Establish long-term royalty streams that generate considerable profit over the lifetimes of Exopharm’s patents 26 EXOPHARM ANNUAL REPORT 2021 Review of Operations Products & Technologies – New Intellectual Properties for a Growing Field Exopharm continues to build its ‘tool box’ of exosome-related technologies knowing that pharma companies are bringing exosomes into their development programs. These technologies include: One of Exopharm’s preclinical The Fortrexo design serves as a programs, Fortrexo CoV, is being proof-of-concept for Exopharm’s developed to treat SARS-CoV-2 exosome modification technologies infection. Good progress has been and provides data for partnering made in early preclinical work with discussions. The Company filed a the product, and it is progressing provisional patent for the Fortrexo towards animal studies later invention in May 2021. in CY2021. Exoria is a novel dye developed by biological repository, with the results Exopharm that stains otherwise validating Exoria as a suitable dye for ‘invisible’ extracellular vesicles (EVs) to labelling populations of EVs. enable improved EV tracking in both lab experiments and animal studies. Exopharm lodged a provisional patent application for Exoria in The dye has been undergoing December of 2020 and the product testing at several internationally could provide Exopharm with an recognised EV research laboratories early source of revenue. and in June 2021, a research group in Germany led by Dr Bernd Giebel, had its EV research work published as a pre-print in bioRxiv open access Formulation H Exopharm’s scientists have developed an advanced formulation to maintain the stability and activity of exosome medicines during storage. The Company has filed a provisional patent for Formulation H. This formulation technology can be used to generate revenue and support the Company’s own exosome medicine products. 27 EXOPHARM ANNUAL REPORT 2021 Review of Operations The Year Ahead Exopharm’s mission is to be a Key developments anticipated • Additional patent approvals global leader in the exosome over the next financial year are: for technologies in Exopharm’s medicines industry. It is one of very few companies creating exosome medicines through partnership deals, clinical trials and eventually commercialisation. Exopharm is advancing development of its exosome technologies and medicines. • Building commercial patent portfolio. relationships with potential • Completion of in vitro preclinical partners and licensees. studies for central nervous system • Extending our manufacturing capability and scale. • Completion of in vivo animal studies with Fortrexo CoV, providing proof-of-concept for Exopharm’s exosome medicine platform. (CNS) asset and subsequent initiation of in vivo animal studies to demonstrate effective delivery of therapeutic cargo across the BBB. Exopharm will also continue to direct effort and investment towards partnering and licensing to derive revenue in the near term. Priorities • Making exosome medicines available to established biopharmaceutical companies to enable successful delivery of existing drug candidates • Generating revenue in the near-term through multiple deals • Building a valuable leadership position in the emerging exosome medicines field through our exosome technologies and exosome medicines 28 Review of OperationsEXOPHARM ANNUAL REPORT 2021 Finance and Accounting The loss for the Group after providing for income tax amounted to $8,468,046 (30 June 2020: $5,278,803). Dividends No dividends have been paid or declared since the start of the financial year and the Board does not recommend the payment of a dividend in respect of the current financial year. Unissued shares under option/performance rights Details of unissued shares, interests under option and performance rights as at the reporting date of this report are: Issuing Entity Number of shares under option Performance rights Exopharm Limited 1,500,000 Exopharm Limited 1,500,000 Exopharm Limited 1,500,000 0 0 0 Class of shares Ordinary Ordinary Ordinary Exopharm Limited Exopharm Limited 0 0 113,333 Performance right 113,334 Performance right Options/performance rights lapsed or forfeited Exercise price of option Expiry date of options $0.40 $0.60 $0.90 N/A N/A 09 November 2025 09 November 2025 09 November 2025 01 July 2021 01 January 2022 Exopharm Limited 0 113,333 Performance rights N/A 01/01/2021 The holders of these options and performance rights do not have the right to participate in any share issue or interest issue of the Company or of any other body corporate or registered scheme. 113,333 performance rights lapsed on the 01 January 2021. 1,017,866 performance rights were issued and vested to ordinary shares during the financial year. No options were cancelled during or since the end of the financial year. 29 EXOPHARM ANNUAL REPORT 2021 Review of Operations Review of financial conditions The Group has cash in bank of $12,723,581 as at 30 June 2021 (2020: $1,742,920). The Directors are of the opinion that the Group is a going concern. Significant events during the year On 27 August 2020 the Company announced a Placement of 41,666,667 shares to raise a total of $10 million (before costs). The Placement was completed in two Tranches: • Tranche 1: On 8 September 2020 the Company issued 23,868,000 fully paid ordinary shares at $0.24 cents per share to raise $5,728,320 (before costs) • Tranche 2: On 9 November 2020 the Company issued 17,798,667 fully paid ordinary shares at $0.24 cents per share to raise $4,271,680 (before costs). As part of the Placement mandate the Company issued the following to Canary Capital: • On 9 November 2020 the Company issued 1,500,000 unlisted options with an exercise price of $0.40 and an expiry date of 5 years from date of issue. • On 9 November 2020 the Company issued 2,000,000 fully paid ordinary shares (in lieu of a 6% placement fee cash payment) 30 On 15 September 2020 the Company announced the appointment of Canary Capital as a corporate advisor. As part of the mandate the Company issued the following options: • On 9 November 2020 the Company issued 1,500,000 unlisted options with an exercise price of $0.60 and an expiry date of 5 years from date of issue • On 9 November 2020 the Company issued 1,500,000 unlisted options with an exercise price of $0.90 and an expiry date of 5 years from date of issue On 9 November 2020 the Company issued 340,000 performance rights to Key Management Personnel. On 9 November 2020 the Company issued 75,000 fully paid ordinary shares to Key Management Personnel following achievement of Key Performance Indicators. On 2 December 2020 the Company issued 200,000 fully paid ordinary shares to Key Management Personnel following achievement of Key Performance Indicators. On 8 April 2021 the Company issued 1,017,866 performance rights. 926,666 were issued to Key Management Personnel with the remaining given to other employees. On 30 April 2021 the Company announced a placement of 16,666,667 shares at $0.72 cents per share to raise a total of $12,000,000 (before costs). On 6 May 2021 the Company authorised conversion of 1,017,866 performance rights. 926,666 issued to Key Management Personnel vested into an equal number of ordinary shares for nil consideration under the terms of the Company’s Performance Rights Plan with the remaining given to other employees. Review of OperationsEXOPHARM ANNUAL REPORT 2021 Review of Operations Significant events after balance sheet date On 2 August 2021 the Company issued 350,000 performance rights to Key Management Personnel. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those affairs in future financial years. Likely developments and expected results Disclosure of information regarding likely developments in the operations of the Group in future financial years and the expected results of those operations is likely to result in The Group has not otherwise, during or since the end of the financial Non-audit Services year, except to the extent permitted Details of the amounts paid or payable by law, indemnified or agreed to to the auditor for non-audit services indemnify an officer or auditor of provided during the financial year by the Group or of any related body the auditor are outlined in note 21 to corporate against a liability incurred the financial statements. as such an officer or auditor. Company secretary Ms Elizabeth M McGregor of the Company Secretary and has been in office since 5 January 2021. Ms Sinead Teague, also of the Automic The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Group, was the registered Company Corporations Act 2001. Secretary from 15 June 2020 to 5 January 2021. Proceedings on behalf of the group operations, or the Group’s state of Automic Group is the registered unreasonable prejudice to the Group. There are no proceedings on behalf Therefore, this information has not of the Group. been presented in this report. Auditor independence Section 307C of the Corporations Act 2001 requires our auditors, William Buck Audit (Vic) Pty Ltd, to provide the directors of the Company with an Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out following the Directors report for the year ended 30 June 2021. Environmental legislation The Group is not subject to any environmental legislation requirements other than statutory legislation. Indemnification and insurance of directors and officers During the financial year, the Group paid a premium in respect of a contract insuring the directors of the Group (as named above), the Group secretary and all executive officers of the Group and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. 31 EXOPHARM ANNUAL REPORT 2021 Review of Operations The directors are of the opinion that Professional Accountants (including the services as disclosed in note 21 Independence Standards) issued to the financial statements do not by the Accounting Professional and compromise the external auditor’s Ethical Standards Board, including independence requirements of reviewing or auditing the auditor’s the Corporations Act 2001 for the own work, acting in a management or decision-making capacity for the Group, acting as advocate for the Group or jointly sharing economic risks and rewards. following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for 32 Review of OperationsEXOPHARM ANNUAL REPORT 2021 Remuneration Report (Audited) This remuneration report, which forms part of the Directors’ report, sets out information about the remuneration of Exopharm Limited’s key management personnel (‘KMP’) for the financial year ended 30 June 2021. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act of 2001. The remuneration report details the remuneration arrangements for KMP who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group. 33 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) Key Management Personnel (KMP) The directors and other key management personnel of the Group during the financial year were: Directors Dr Ian Dixon Position Period of Employment (to present) Managing Director & CEO 1 May 2018 Mr Jason Watson Non-Executive Chairman 10 August 2018 Ms Elizabeth M McGregor Non-Executive Director & Company Secretary 5 January 2021 Mr David Parker Non-Executive Director 26 June 2018 - 5 January 2021 Executives Position Period of Employment (to present) Dr Gregory Lichtfuss 1 Chief Operating Officer 1 May 2018 Dr Christopher Baldwin Deputy CEO & Chief Commercial Officer 25 November 2019 1 Dr Gregory Lichtfuss changed position to become the Business Services Manager and was no longer considered KMP from 7 May 2021. Comments on Remuneration Report at Exopharm’s most recent AGM There were no comments or questions on the Remuneration Report for Exopharm arising from the 2020 Annual General Meeting. Remuneration Policy The Board of Directors is committed to transparent disclosure of its remuneration strategy and this report details the Group’s remuneration objectives, practices and outcomes for KMP, which includes Directors and senior executives, for the year ended 30 June 2021. Any reference to “Executives” in this report refers to KMPs who are not Non-Executive Directors. Remuneration Policy Framework The Group’s remuneration policy is to assist the Group to attract and retain key people to assist the development of its products and entering into partnership transactions. It has been designed to reward key management and employees fairly and responsibly in accordance with the market in which the Group operates, and to ensure that the Group: • Provides competitive remuneration that attracts, retains and motivates executives and employees; • Benchmarks remuneration against appropriate peer groups; • Provides a level of remuneration structure to reflect each executive’s respective duties and responsibilities; • Aligns executive incentive rewards with the creation of value for shareholders; and • Complies with legal requirements and appropriate standards of governance. Remuneration Committee The Board has not implemented a separate Remuneration Committee during the year. Due to the size of the Group and the fact there are only three directors on the board, this has been the responsibility of the whole Board. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct. 34 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) Policy for Executive Remuneration The Group maintains its existing performance management procedures for key management personnel by having each key manager undertake an annual performance appraisal with the Managing Director based on individual and business performance expectations and other circumstances. The Chief Executive Officer’s performance is in turn reviewed by the Board of Directors. The Group’s remuneration policy is to provide a fixed remuneration component and a short-term and long-term performance-based component. The Board believes that this remuneration policy is appropriate in aligning executives’ objectives with shareholder and business objectives. Executive Remuneration consisted of only Fixed and Variable Remuneration during the year. Remuneration Components Fixed Remuneration Fixed remuneration consists of based salaries, as well as employer contributions to superannuation funds and other non-cash benefits. Fixed remuneration was reviewed by Board of Directors having regard to remuneration paid to executives of relevant comparable peer group of companies taking into account Group and individual performance. The Group sought to position its fixed remuneration in line with comparably sized ASX listed companies within the same sector. Size is determined by market capitalisation at the time of comparison. Executives receive an employer superannuation contribution made into a complying superannuation fund at the required Superannuation Guarantee rate of base salary. Executives may receive other benefits including vehicle benefits and provision of a mobile telephone. During the year no vehicle benefits were provided. Variable Remuneration There was variable remuneration for the Executives during the year. Variable remuneration includes cash and share bonuses which are linked to Key Performance Indicators. As at 30 June 2021, only the CEO and deputy CEO had cash bonus and share structures incorporated into their employment contracts. The short-term incentives (‘STI’) program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators (‘KPI’s’) being achieved. KPI’s include share price, research results, market results, shareholder composition and business development. Policy for and Components of Non-Executive Remuneration During the Reporting Period Remuneration Policy Non-Executive Director Fees The overall level of annual Non-Executive Director fees was approved by shareholders in accordance with the requirements of the Group’s Constitution and the Corporations Act. The maximum aggregate pool of Directors’ fees payable to all of the Group’s Non-Executive Directors is $350,000 per annum. This aggregate amount was approved by shareholders at a General Meeting of Shareholders 26 June 2018. 35 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) Remuneration Structure Non-Executive Directors receive a fixed remuneration of base fees plus statutory superannuation. The Chairman receives $96,000 per annum and the only non-executive Director receives $30,000 per annum, which includes statutory superannuation. These fees cover main board activities only. Non-Executive Directors may receive additional remuneration for other services provided to the Group. In addition to these fees, Non-Executive Directors are entitled to reimbursement of reasonable travel, accommodation and other expenses incurred in attending meetings of the Board, committee or shareholder meetings whilst engaged by Exopharm. Non-Executive Directors do not earn retirement benefits other than superannuation and are not entitled to any compensation on termination of their directorships. The annual Board and committee fees were reviewed during the reporting period to 30 June 2021 and have remained unchanged since this review. A further review will be conducted in the next financial period in accordance with the annual review of salaries performed by the Board of Directors. The current Board fee structure for Non-Executive Directors is as per the table below: Chair $96,000 Member $30,000 Fees for Non-Executive Directors are not linked to the performance of the Group, however, to align directors’ interests with shareholder interests, the directors may hold shares in the Group as governed by the Group’s Securities Trading Policy. 36 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) Remuneration governance including use of remuneration consultants The Board is responsible for ensuring Exopharm’s remuneration strategy is aligned with Group’s performance and shareholder interests and is equitable for participants. The Board is responsible for reviewing and making decisions on remunerations matters. Employment contracts As of the date of this report, remuneration and other terms of employment of Directors and Other Key Management Personnel are formalised in employment contracts and service agreements. The major provisions of the agreements related to remuneration are set out below (amounts below include statutory superannuation): Executive Director Base Salary/Fee Terms of Agreement Notice Period Dr Ian Dixon Base Remuneration: $350,400 per annum (including Super) Commencement date 3 Sep 2020 6 months in writing by either party Bonus: 1. At-risk annual Cash bonus of $70,000 based Employment Type: Full time on achievement of key performance indicators (KPIs) monitored by the Board; and 2. Eligibility to participate in the Group’s performance rights plan Role: Managing Director and Chief Executive Officer Prior Agreement Base remuneration: $280,000 per annum (including Super) Bonus: 1. At-risk annual Cash bonus of $70,000 based on achievement of key performance indicators (KPIs) monitored by the Board; 2. At-risk annual Share bonus of up to 200,000 shares; and 3. Eligibility to participate in the Group’s performance rights plan Commencement Date: 1 December 2019 Employment Type: 0.8 full time equivalent Role: Managing Director and Chief Executive Officer 6 months in writing by either party Non-Executive Directors Base Salary/Fee Terms of Agreement Notice Period Mr David Parker $30,000 per annum (including Super) ( Resigned effective 5 January 2021) Mr Jason Watson $96,000 per annum (including Super) Ms Elizabeth M McGregor $36,000 per annum (including Super) Commencement date: 26 June 2018 Commencement date: 10 August 2018 Commencement date: 5 January 2021 Upon written advice of intention or in accordance with the Constitution of the Company or the Corporations Act 2001 Other KMP Base Salary/Fee Terms of Agreement Notice Period Dr Gregor Lichtfuss Dr Christopher Baldwin $159,432 per annum (including Super) from 1 July 2019 plus a Cash bonus of $10,000 on meeting certain performance criteria. $219,788.40 per annum (including Super) from 1 December 2019. Base Remuneration: $330,000 per annum (including Super) from 25 November 2019 Bonus Remuneration: 1: At-risk annual Cash bonus of up to $33,000 (inclusive of Superannuation) based on KPIs to be set; and 2: At-risk annual Share bonus for first 12 months for the smaller of 75,000 shares (FPO) or $75,000 (inclusive of Superannuation) based on KPIs to be set. Commencement date: 1 May 2018 3 months in writing by either party Commencement date: 25 November 2019 3 Months in writing by either party 37 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) Remuneration of KMP Details of the nature and amount of each element of the emoluments received by or payable to each of the KMP of Exopharm Limited for the financial years specified are as follows: SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS LONG-TERM BENEFITS SHARE-BASED PAYMENTS Salary & fees $ Bonus Payments $ Non- Monetary $ Superannuation $ Long Service Leave $ Equity-settled options $ 2021 Directors Mr Jason Watson 1 87,671 – Dr Ian Dixon 3 314,482 80,000 Mr David Parker 2 13,916 Ms Elizabeth M McGregor 2 18,000 – – – 5,172 – – 434,069 80,000 5,172 Other KMP Dr Gregor Lichtfuss 2 200,720 – 3,237 Dr Christopher Baldwin 4 308,306 33,000 13,132 509,026 33,000 943,095 113,000 16,369 21,541 8,329 21,694 1,301 – 31,324 19,068 21,694 40,762 72,086 - 9,036 1,465 – 10,501 5,518 1,425 6,943 17,444 Total $ 106,635 531,926 16,682 18,000 673,243 10,635 101,542 – – 112,177 9,941 238,484 203,176 580,733 213,117 819,217 325,294 1,492,460 1 No Bonus component to remuneration, i.e. Nil Bonus forfeited (0%) and Nil bonus paid (0%). Share based payments for Mr Jason Watson includes performance rights. 3 $80,000 bonus was paid during the year (15%) and $0 bonus forfeited (0%). Share based payments for Dr Ian Dixon includes performance rights and bonus shares. 2 No Bonus component to remuneration, i.e. Nil Bonus forfeited (0%) and Nil bonus paid (0%). 4 $33,000 bonus was paid during the year (8%) and $0 bonus forfeited (0%). Share based payments for Dr Christopher Baldwin includes bonus shares and performance rights. 2020 Directors Mr Jason Watson 1 Dr Ian Dixon 2 Mr David Parker 1 Other KMP Dr Gregor Lichtfuss 3 Dr Christopher Baldwin 2 SHORT-TERM BENEFITS POST-EMPLOYMENT BENEFITS SHARE-BASED PAYMENTS Salary & fees $ 87,671 232,877 27,397 347,945 177,795 182,137 359,932 707,877 Bonus Payments $ Superannuation $ Equity-settled options $ – – – – 32,583 – 32,583 32,583 8,329 22,123 2,603 33,055 19,986 17,303 37,289 70,344 – – – – – – – – Total $ 96,000 255,000 30,000 381,000 230,364 199,440 429,804 810,804 1 No Bonus component to remuneration, i.e. Nil Bonus forfeited (0%) and Nil bonus paid (0%). (0%). Bonus component for both employees are due to be reviewed annually, i.e. before November 2020. 2 Bonus component for both employees is part of their remuneration, however nil bonus was paid during the year (0%) and Nil bonus forfeited 3 Bonus paid during the year was 100% of potential Bonus with Nil bonus was forfeited (0%). Other disclosure: The Group is a pre-revenue biotechnology Group and expects to generate negative earnings until such time as the Group can either out-license its technologies/products or take the products to registration (either on it’s own or with a partner) and to the point of sales. Negative earnings for pre-revenue biotechnology companies is common and we don’t expect this to affect shareholder wealth. 38 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) KEY MANAGEMENT PERSONNEL EQUITY HOLDINGS FULLY PAID ORDINARY SHARES OF EXOPHARM LIMITED (NUMBER) Balance at Beginning of Year Granted as Compensation Received on Exercise of Options Net Change – Other Held on Resignation Balance at End of Year Balance Held Beneficially 30 June 2021 Directors Dr Ian Dixon 27,975,294 200,000 Mr David Parker 1,092,200 Mr Jason Watson 290,000 Ms Elizabeth M McGregor – – – – 29,357,494 200,000 Other KMP Dr Gregor Lichtfuss 628,235 – Dr Christopher Baldwin – 75,000 628,235 75,000 29,985,729 275,000 – – – – – – – – – – – 28,175,294 28,175,294 (197,000) (895,000) – – 60,000 – – – 350,000 350,000 – – (137,000) (895,000) 28,525,294 28,525,294 50,000 839,665 889,665 – – – 678,235 678,235 914,665 914,665 1,592,900 1,592,900 752,665 (895,000) 30,118,194 30,118,194 KEY MANAGEMENT PERSONNEL EQUITY HOLDINGS FULLY PAID ORDINARY SHARES OF EXOPHARM LIMITED (NUMBER) Balance at Beginning of Year Granted as Compensation Received on Exercise of Options Net Change – Other Balance at End of Year Balance Held Nominally 30 June 2020 Directors Dr Ian Dixon 27,935,294 Mr David Parker 1,072,200 Mr Jason Watson 150,000 29,157,494 Other KMP Dr Gregor Lichtfuss 588,235 Dr Christopher Baldwin – 588,235 29,745,729 – – – – – – – – – – – – – – – – 40,000 27,975,294 27,975,294 20,000 1,092,200 1,092,200 140,000 290,000 290,000 200,000 29,357,494 29,357,494 40,000 628,235 628,235 – – – 40,000 628,235 628,235 240,000 29,985,729 29,985,729 39 EXOPHARM ANNUAL REPORT 2021 Remuneration Report (continued) 2021 Directors Dr Ian Dixon Mr David Parker Mr Jason Watson Ms Elizabeth M McGregor Other KMP Dr Gregor Lichtfuss Dr Christopher Baldwin 2020 Directors Dr Ian Dixon Mr David Parker Mr Jason Watson Ms Elizabeth M McGregor Other KMP Dr Gregor Lichtfuss Dr Christopher Baldwin PERFORMANCE RIGHTS OF EXOPHARM LIMITED Balance at Beginning of Year No. Granted as Compensation No. Vested / Cancelled No. Net Other Change No. Balance at End of Year No. – – – – – – – – – 250,000 (83,333) – – 90,000 (30,000) – – 340,000 (113,333) 50,000 876,666 926,666 (50,000) (876,666) (926,666) 1,266,666 (1,039,999) – – – – – – – – – 166,667 – 60,000 – 226,667 – – – 226,667 PERFORMANCE RIGHTS OF EXOPHARM LIMITED Balance at Beginning of Year No. Granted as Compensation No. Vested / Cancelled No. Net Other Change No. Balance at End of Year No. – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Dr Ian E Dixon Managing Director & CEO 30 August 2021 40 EXOPHARM ANNUAL REPORT 2021 Independent Auditor’s Declaration AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF EXOPHARM LIMITED I declare that, to the best of my knowledge and belief during the year ended 30 June 2021 there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. William Buck Audit (Vic) Pty Ltd ABN 59 116 151 136 C.L. Siddles Director Dated 30th August 2021 41 EXOPHARM ANNUAL REPORT 2021 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2021 Note 2021 $ 2020 $ Revenue Interest income Other revenue Government grants and tax incentives Expenses Research and development Employee costs Corporate & Administration expenses Loss before income tax expense Income tax expense Loss after income tax expense for the year attributable to the owners of Exopharm Limited Other Comprehensive income for the year, net of tax Total Loss for the year attributable to the owners of Exopharm Limited Basic and diluted earnings per share The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 7,049 309 60,580 – 4,191,445 2,665,473 (4,130,650) (2,980,449) (5,868,939) (3,134,273) (2,667,260) (1,890,134) (8,468,046) (5,278,803) – – (8,468,046) (5,278,803) – – (8,468,046) (8,468,046) Cents (6.48) Cents (5.62) 3 4 5 6 7 42 EXOPHARM ANNUAL REPORT 2021 Consolidated Statement of Financial Position As At 30 June 2021 Assets Current Assets Cash and cash equivalents Other current assets Total Current Assets Non-current Assets Property, plant and equipment Right-of-use assets Intangibles Security deposit Other non-current assets Total Non-current Assets Total Assets Liabilities Current Liabilities Accounts payable and other current liabilities Lease liabilities Employee benefits Total Current Liabilities Non-current Liabilities Lease liabilities Employee benefits Total Non-current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. Note 2021 $ 2020 $ 8 10 11 12 13 14 15 16 15 16 17 18 12,723,581 4,475,868 1,742,920 2,315,776 17,199,449 4,058,696 2,123,465 1,355,483 325,000 453,005 – 911,689 929,267 325,000 277,791 40,000 4,256,953 2,483,747 21,456,402 6,542,443 909,094 408,888 571,184 288,341 1,768,619 784,882 36,345 821,227 2,589,846 18,866,556 309,132 203,364 921,384 603,741 – 603,741 1,525,125 5,017,318 34,295,791 12,755,619 777,112 – (16,206,347) (7,738,301) 18,866,556 5,017,318 43 EXOPHARM ANNUAL REPORT 2021 Consolidated Statement of Changes in Equity For The Year Ended 30 June 2021 Balance at 1 July 2019 Adjustment for change in accounting policy Balance at 1 July 2019 - restated Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners Shares issued during the period Share issue costs Balance at 30 June 2020 Balance at 1 July 2020 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive loss for the year Transactions with owners in their capacity as owners ISSUED CAPITAL $ 7,578,815 – 7,578,815 – – – 5,539,640 (362,836) 12,755,619 ISSUED CAPITAL $ 12,755,619 – – – Shares issued during the period 22,870,875 RESERVES $ RETAINED PROFITS $ TOTAL EQUITY $ – – – – – – – – – – (2,459,232) 5,119,583 (266) (2,459,498) (266) 5,119,317 (5,278,803) (5,278,803) – – (5,278,803) (5,278,803) – – 5,539,640 (362,836) (7,738,301) 5,017,318 RESERVES $ RETAINED PROFITS $ TOTAL EQUITY $ – – – – – (7,738,301) 5,017,318 (8,468,046) (8,468,046) – – (8,468,046) (8,468,046) – – – – 22,870,875 1,357,347 – (1,910,938) Recognition of share-based payments – 1,357,347 Vesting of options or rights that have been converted to ordinary shares 580,235 (580,235) Share issue costs (1,910,938) – Balance at 30 June 2021 34,295,791 777,112 (16,206,347) 18,866,556 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 44 EXOPHARM ANNUAL REPORT 2021 Consolidated Statement of Cash Flows For The Year Ended 30 June 2021 Cash flows from operating activities Payments to suppliers and employees (inclusive of GST) (10,217,880) (7,311,818) Note 2021 $ 2020 $ Research and development refund received Interest received Government grants and other income Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for security deposits Advances to employees Proceeds from advances to employees Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue transaction costs Interest and other finance costs paid Repayment of lease liabilities Net cash from financing activities 9 11 2,271,589 6,148 111,512 504,582 60,580 50,000 (7,828,631) (6,696,656) (1,625,350) (188,570) – 15,000 (631,802) (277,791) (40,000) – (1,798,920) (949,593) 17 22,000,001 5,539,640 (840,000) (57,860) (494,942) (362,836) (21,744) (184,846) 20,607,199 4,970,214 Net increase/(decrease) in cash and cash equivalents 10,979,648 (2,676,035) Cash and cash equivalents at the beginning of the financial year 1,742,920 4,418,955 Effects of exchange rate changes on cash and cash equivalents 1,013 – Cash and cash equivalents at the end of the financial year 8 12,723,581 1,742,920 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 45 EXOPHARM ANNUAL REPORT 2021 Index to the Notes to the Financial Statements 47 Note 1. Significant Accounting Policies 55 Note 2. Segment Reporting 55 Note 3. Government Grants and Tax Incentives 55 Note 4. Research and Development 56 Note 5. Corporate & Administration Expenses 56 Note 6. Income Tax Expense 57 Note 7. Loss Per Share 57 Note 8. Cash And Cash Equivalents 58 Note 9. Reconciliation of Loss After Income Tax to Net Cash Used in Operating Activities 58 Note 10. Other Current Assets 59 Note 11. Property, Plant and Equipment 60 Note 12. Right-of-use Assets 60 Note 13. Intangibles 62 Note 14. Accounts Payable and Other Current Liabilities 62 Note 15. Lease Liabilities 63 Note 16. Employee Benefits 63 Note 17. Issued Capital 64 Note 18. Reserves 65 Note 19. Financial Instruments 67 Note 20. Related Party Transactions 67 Note 21. Remuneration of Auditors 67 Note 22. Dividends 68 Note 23. Commitments and Contingencies 69 Note 24. Share-based Payments 71 Note 25. Parent Entity Information 72 Note 26. Interests in Subsidiaries 72 Note 27. Events After the Reporting Period 73 Directors’ Declaration 77 Additional Securities Information 46 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements For The Year Ended 30 June 2021 Note 1. Statement Of Significant Accounting Policies (a) Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). The financial statements comprise the financial statements of the Group. For the purposes of preparing the financial statements, the Group is a for-profit entity. The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial statements are for Exopharm Limited (‘Exopharm’ or the ‘Company’) and its wholly-owned Switzerland-based subsidiary, ExoSuisse GmbH (together referred to as the ‘Consolidated Entity’ or the ‘Group’). The financial report has also been prepared on a historical cost basis. Historical cost is based on the fair values of the consideration given in exchange for goods and services. The financial report is presented in Australian dollars. The Company is a listed public company, incorporated in and operating in Australia. The principal activity of the Group during the year was investment in biopharmaceutical drug development. (b) Adoption of new and revised standards The company has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current and prior reporting periods. New or amended Accounting Standards or Interpretations that are material to the Company but not yet mandatory have not been early adopted and are discussed below. Conceptual Framework for Financial Reporting (Conceptual Framework) The company has adopted the revised Conceptual Framework from 1 July 2021. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards, but it will not have a material impact on the company’s financial statements. (c) Statement of compliance The financial report was authorised for issue on 26 August 2021. The financial report complies with Australian Accounting Standards, (AAS). Compliance with AAS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) Critical accounting judgements and key sources of estimation uncertainty The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Income tax The consolidated entity is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax audit issues based on the consolidated entity’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. 47 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Share based payments The consolidated entity measures the cost of equity-settled transactions with employees 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. Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Impairment of plant and equipment of intangible assets The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Revenue recognition for R&D income Revenue for R&D income has been recognised in the year that the income relates to, however actual receipt of the R&D Grant funds do not occur until after the Balance Date. While the R&D income is based on lodged submissions and expected revenue, there is however some uncertainty relating to the final receipt and R&D income, as final income is subject to ATO finalisation and payment between three to nine months following the balance date and as at the date of this report the FY2021 R&D income has not yet been receipted. (e) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Exopharm. (f) Foreign currency translation Both the functional and presentation currency of Exopharm is Australian dollars. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance date. All exchange differences in the financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange 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. 48 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (g) Other Income Interest income Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Research and Development Tax Incentive Income from a research and development refund as a financial asset is recognised when it is probable that the grant will be received, which is determined in reference to when a refund has been verified by a suitably qualified third party and lodged with the Australian Taxation Office. No estimates of any potential research and development refunds or grants are recognised until such time as they are probable. ATO Cash Flow Boost Income Income received from the Australian Taxation Office as a cash boost has been recognised as revenue in the relevant year. (h) Income tax The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary difference and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred tax assets and deferred tax liabilities are provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences except: • when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred 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 credits and unused tax losses can be utilised, except: • when the deferred 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; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at each balance 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 tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. 49 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (i) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (j) Impairment of tangible and intangible assets other than goodwill The Group assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (k) Cash and cash equivalents Cash comprises cash at bank and on hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 50 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (l) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provisions for impairment, doubtful debts and rebates. Trade receivables are generally due for settlement within 30 – 90 days. In relation to the financial assets carried at amortised cost, AASB 9 requires an expected credit loss model to be applied. The expected credit loss model requires the Company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. AASB 9 requires the Company to measure the loss allowance at an amount equal to lifetime expected credit loss (‘ECL’) if the credit risk on the instrument has increased significantly since initial recognition. If the credit risk on the financial instrument has not increased significantly since initial recognition the Company is required to measure the loss allowance for that financial instrument at an amount equal to the ECL within the next 12 months. The amount of the impairment loss is recognised in the Statement of Profit or Loss and Other Comprehensive Income within other expenses. When a trade receivable, for which an impairment allowance had been recognised, becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the Statement of Profit or Loss and Other Comprehensive Income. (m) Plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. Depreciation Depreciation is calculated on diminishing value basis using the following useful lives: Plant equipment 1 to 10 years Office equipment 3 years Computer equipment 3 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Impairment The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- generating unit to which the asset belongs, unless the asset’s value in use can be estimated to approximate fair value. An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. For plant and equipment, impairment losses are recognised in the statement of comprehensive income in the cost of sales line item. Derecognition and disposal An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. 51 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (n) Intangible assets Intangible assets acquired separately Intangible assets acquired separately are recorded at cost and less accumulated amortisation once the IP asset is ready for use and/or impairment as required. Amortisation is charged on a straight-line basis over their estimated useful lives, amortisation starts following the grant of a patent and assets are held at cost until such time as the patent has been granted or impaired. At this point in time no IP assets or patents have been granted. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. Internally generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits; • The availability of adequate technical, financial and other resources to complete development and to use or sell the intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. The following useful lives are used in the calculation of amortisation: IP asset 8 years following grant of patent (o) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. (p) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that 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, for example under an insurance contract, the reimbursement is recognised as a separate assets but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. (q) 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. 52 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (r) Loss per share Basic loss per share is calculated as net loss attributable to members of the Group, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted loss per share is calculated as net loss attributable to members of the Group, adjusted for: • costs of servicing equity (other than dividends) and preference share dividends; • the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (s) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of the one subsidiary of Exopharm Limited (‘Company’ or ‘Parent Entity’) as at 30 June 2021 and the results of the one subsidiary for the year then ended. Exopharm Limited and its subsidiary together are referred to in these financial statements as the ‘Group’ or the ‘Consolidated Entity’. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. (t) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date 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 reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (u) Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. 53 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (v) Leases The Group as lessee At inception of a contract the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of-use asset and a corresponding liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (i.e. leases with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expense on a straight-line basis over the term of the lease. Initially, the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses incremental borrowing rate. Lease payments included in the measurement of the lease liability are as follows; • Fixed lease payments less any lease incentives; • Variable lease payments that depend on index or rate, initially measured using the index or rate at the commencement date; • The amount expected to be payable by the lessee under residual value guarantees; • The exercise price of purchase options if the lessee is reasonably certain to exercise the options; • Lease payments under extension options, if the lessee is reasonably certain to exercise the options; and • Payments of penalties for terminating the lease, if the lease term reflects the exercise of options to terminate the lease. The right-of-use asses comprise the initial measurement of the corresponding lease liability less any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right- of-use assets is at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shorter. Where a lease transfers ownership of the underlying asset or the costs of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset. (w) Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. 54 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 2. Segment Reporting The Group only operated in one segment, being investment in research and development of biopharmaceutical drugs. Note 3. Government Grants and Tax Incentives R&D tax incentive * ATO cash flow boost incentive Export Market Development Grant 2021 $ 4,080,248 50,000 61,197 2020 $ 2,615,473 50,000 – 4,191,445 2,665,473 * $160,698 relates to an additional amount received as a result of a successful Overseas Finding Application submitted to AusIndustry for eligible expenditure relating to the 2019/2020 financial year. Note 4. Research and development Research and development expenses Depreciation of plant and equipment Depreciation of right-of-use assets Intellectual property expenses 2021 $ 2020 $ 2,878,294 2,349,601 513,422 450,955 287,979 193,043 168,187 269,618 4,130,650 2,980,449 55 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 5. Corporate & Administration Expenses Corporate expenses Professional and consulting fees Insurance Business development and marketing Subscriptions Depreciation of plant and equipment Other administrative expenses Note 6. Income Tax Expense (a) Income tax benefit Aggregate income tax expense (b) Numerical reconciliation of income tax benefit and tax at the statutory rate Loss before income tax expense Tax at the statutory tax rate of 26% (2020: 30%) Tax effect amounts which are not deductible/(taxable) in calculating taxable income 2021 $ 1,265,380 264,648 168,579 330,956 225,878 41,999 369,820 2020 $ 919,204 211,135 137,153 137,905 104,943 21,192 358,602 2,667,260 1,890,134 2021 $ – – 2020 $ – – (8,468,046) (5,278,803) (2,201,692) (1,583,641) Current period (loss) for which no deferred tax asset was recognised 2,201,692 1,583,641 Income tax expense Tax losses not recognised – 2021 $ – 2020 $ Losses available for offset against future taxable income 4,080,248 3,693,748 Potential tax benefit @ 26% 1,060,864 960,374 The benefit of deferred tax assets not brought to account will only be brought to account if: • future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; • the conditions for deductibility imposed by tax legislation continue to be complied with; and • no changes in tax legislation adversely affect the Group in realising the benefit. 56 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 7. Loss Per Share Losses used in the calculation of basic and diluted loss per share is as follows: Loss after income tax attributable to the owners of Exopharm Limited (8,468,046) (5,278,803) Weighted average number of ordinary shares The weighted average number of ordinary shares used in the calculation of basic and diluted loss per share is as follows: Number Number Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 130,599,126 94,005,060 2021 $ 2020 $ Basic and diluted earnings per share Cents (6.48) Cents (5.62) Note 8. Cash and Cash Equivalents Current assets Cash at bank Cash on deposit 2021 $ 2020 $ 8,023,581 4,700,000 12,723,581 1,242,920 500,000 1,742,920 Term deposits are taken for periods between one and three months, depending on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates. 57 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 9. Reconciliation of Loss After Income Tax to Net Cash Used in Operating Activities Reconciliation to the Statement of Cash Flows: For the purposes of the statement of cash flows, cash and cash equivalents comprise cash at bank. Cash and cash equivalents as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Loss after income tax expense for the year (8,468,046) (5,278,803) 2021 $ 2020 $ Adjustments for: Depreciation and amortisation Research and development refund claim Finance costs paid classified in financing activities Share based payments Effects of exchange rate changes on cash and cash equivalents Changes in assets and liabilities: Decrease/(increase) in other current assets Increase in accounts payable and other current liabilities 1,006,376 382,421 (3,919,550) (2,110,891) – 721,286 1,014 1,759,458 1,070,831 21,744 – – (42,377) 331,250 Net cash used in operating activities (7,828,631) (6,696,656) Note 10. Other Current Assets Current assets R&D tax incentive receivable GST receivable Advances to suppliers Prepayments Security deposits Advances to employees Accrued interest receivable 2021 $ 3,919,550 217,060 – 297,918 15,439 25,000 901 2020 $ 2,110,891 57,324 20,032 113,332 14,197 – – 4,475,868 2,315,776 58 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 11. Property, plant and equipment 2021 $ 2020 $ Non-current assets Plant and equipment - at cost Less: Accumulated depreciation Computer equipment - at cost Less: Accumulated depreciation Office equipment - at cost Less: Accumulated depreciation 2,766,549 (759,071) 2,007,478 157,594 (58,580) 99,014 29,503 (12,530) 16,973 2,123,465 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 1 July 2019 Additions Depreciation expense Balance at 30 June 2020 Additions Depreciation expense Balance at 30 June 2021 Plant Equipment $ 438,467 631,802 (193,044) 877,225 1,643,674 (513,422) 2,007,477 Computer Equipment $ Office Equipment $ 43,873 – (16,654) 27,219 107,632 (35,836) 99,015 11,782 – (4,537) 7,245 15,891 (6,163) 16,973 1,122,875 (245,649) 877,226 49,961 (22,744) 27,217 13,613 (6,367) 7,246 911,689 Total $ 494,122 631,802 (214,235) 911,689 1,767,197 (555,421) 2,123,465 59 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 12. Right-of-use Assets Non-current assets Land and buildings - right-of-use Less: Accumulated depreciation Reconciliation Carrying value at beginning of year Recognised on 1 July 2019 on adoption of AASB 16 Termination of the lease Lease inception Depreciation Carrying value at end of year 2021 $ 2020 $ 1,626,580 (271,097) 1,355,483 929,267 - (749,409) 1,626,580 (450,955) 1,355,483 1,097,454 (168,187) 929,267 - 18,305 - 1,079,149 (168,187) 929,267 Right-of-use assets relates to laboratory and corporate offices facilities leased by the Company. A security deposit amounting to $453,005 is held by Macquarie Bank as security for the facilities. This security deposit relates to the Companies major lease commitments at The Baker, Melbourne. This lease is disclosed in the accounts as a Lease Liability. The Company entered a new lease agreement on 01 January 2021 that runs for an initial 3 year period and has a rent of circa $1,357,815. In 2021 the Company had a Lease that ran for an initial three year period and has annual rent of circa $452,605 and associated outgoings of $162,022 per annum. The facility is used by the Company’s research and development team and has extensive laboratory facilities that are used to run experiments, maintain cultures and execute the development program. Note 13. Intangibles Non-current assets Intellectual property - at cost Reconciliation 2021 $ 2020 $ 325,000 325,000 Carrying value at beginning of year 325,000 325,000 60 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 13. Intangibles (continued) On 5 October 2018, the Company and Altnia (Licensor) signed an Intellectual Property Assignment and License Termination Deed (the ‘Deed’). Altnia has agreed to assign and the Company agreed to accept the assignment of, all of Altnia’s rights, titles, estate and interest in the Assignment Rights. Assignment rights includes patents, documentation, confidential material, know-how, inventions and for avoidance of doubt, all Intellectual Property Rights in the LEAP Technology, including: a. LEAP Ligand know-how and rights of use; b. All current and future applications of the LEAP Ligand; and c. Other technologies and discoveries made that are associated with the LEAP process. In addition, Altnia and the Company agreed to terminate the License Agreement above subject to and in accordance with the terms and conditions of the Deed. As consideration for the assignment of the Assignment Rights, Exopharm must: a. grant royalties to Altnia; and b. provide the Reimbursement Payments to Altnia in accordance with Clause 7 of the Deed. Clause 7 of the Deed, mandates that Exopharm must pay to Altnia the Reimbursement Payments, as partial reimbursement of the costs incurred by Altnia in developing and protecting the Assignment Rights, as follows: a. $75,000 on or before 1 September 2018 (Initial Reimbursement Payment); and b. $250,000 within 7 business days on which each of the following have been satisfied: c. ASX notifies Exopharm that it has decided to admit Exopharm to the official list of ASX and to quote its securities, subject to the satisfaction of certain conditions precedent (Decision Letter); and d. The Exopharm Board resolves to do all things necessary to satisfy the conditions precedent in the Decision Letter, including issuing securities under its initial public offering. The parties also acknowledged and agree that, prior to the commencement date of the Deed, Exopharm has made full payment of the Initial Reimbursement Payment amounting to $75,000. The Company has fully paid the $325,000 cost of the IP asset as at 30 June 2021. This IP asset has not been amortised as per the notes, given that the IP asset it not considered ready for use, given there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Other IP: Other intellectual property, new in-licensing costs and patent costs have been expensed. 61 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 14. Accounts Payable and Other Current Liabilities Current liabilities Trade payables Accruals Accrued payroll costs PAYG payable Other payables Note 15. Lease Liabilities Current liabilities Lease liability Non-current liabilities Lease liability Reconciliation Balance at the beginning of the year Recognised on 1 July 2019 on adoption of AASB 16 Lease inception Termination of the lease Principal repayments Balance at the end of the year Interest paid Depreciation - right of use asset 2021 $ 306,434 150,297 44,191 316,849 91,323 2020 $ 137,615 32,474 702 238,097 – 909,094 408,888 2021 $ 2020 $ 571,184 309,132 784,882 1,356,066 912,873 – 1,626,580 (688,445) (494,942) 1,356,066 2021 $ 58,685 450,955 603,741 912,873 – 18,571 1,079,148 – (184,846) 912,873 2020 $ 21,744 168,187 The Company has provided a Security Deposit equivalent to one years rent, to be provided as security for the lease, for the main lease at The Baker. Other leases have no security provided. During the year, the Group signed a new lease agreement with the same lessor. The new lease was for a different underlying asset and therefore the lease was accounted for as a separate lease in accordance with AASB16. The accounting for the original lease remains unchanged. Upon cessation of the original lease an amount of $2,279 was recognised in the Statement of Profit and Loss and Other Comprehensive income. 62 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 16. Employee Benefits Current liabilities Accrued payroll costs Non-current liabilities Long service leave Note 17. Issued Capital 2021 $ 2020 $ 288,341 203,364 36,345 324,686 – 203,364 Ordinary shares - fully paid 157,098,200 95,472,000 34,295,791 12,755,619 2021 Shares 2020 Shares 2021 $ 2020 $ Movement in ordinary shares 2021 No. 2020 No. 2021 $ Balance at beginning of year 95,472,000 80,500,000 12,755,619 Shares issued (Tranche 1) 41,666,667 14,972,000 10,000,000 Shares issued (Tranche 2) Performance shares issued Share based payments Less share issue costs 16,666,667 1,017,866 2,275,000 – – – – – 12,000,000 580,236 870,875 (1,910,939) 157,098,200 95,472,000 34,295,791 2020 $ 7,578,815 5,539,640 – – – (362,836) 12,755,619 Ordinary shareholders entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. 63 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 18. Reserves Share-based payments reserve Share-based payments reserve 2021 $ 777,112 2020 $ – The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Reconciliation Balance at beginning of year Recognition of share-based payments Vesting of options or rights that have been converted to ordinary shares Balance at end of year Further information about share-based payments is set out in note 24. 2021 $ – 1,357,347 (580,235) 777,112 2020 $ – – – – 64 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 19. Financial Instruments Financial assets Cash in bank Trade and other receivables Other non-current assets Financial liabilities Accounts payable and other current liabilities Lease liabilities 2021 $ 2020 $ 12,723,581 1,742,920 40,439 453,005 71,521 40,000 13,217,025 1,854,441 909,094 1,356,066 2,265,160 408,888 912,873 1,321,761 The Group’s principal financial instruments comprise of cash and cash equivalents, other receivables, security deposits, payables and other current/non-current liabilities. The main purpose of the financial instruments is to provide working capital for the operations of the business. The Group also has other financial instruments such as trade creditors which arise directly from its operations. For the year ended 30 June 2021, it has been the Group’s policy not to trade in financial instruments. The Group has exposure to the following risks from their use of financial instruments: • Credit risk • Liquidity risk • Interest rate risk • Market risk • Foreign exchange risk • Capital risk This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board reviews and agrees policies for managing each of these risks and they are summarised below. (a) Credit risk management Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Group uses publicly available financial information and its own trading record to rate its major customers and suppliers. The Group’s exposure and the credit ratings of its counter-parties are continuously monitored. Credit exposure is controlled by counterparty limits that are reviewed and approved by the Board annually. The Group does not have any significant credit risk exposure. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. 65 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 (b) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group did not have any undrawn facilities at its disposal as at balance date. The following tables detail the Company’s remaining contractual maturities for its non-derivative financial liabilities. These are based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The table includes both interest and principal cash flows. Weighted Average Effective Interest Rate % Less Than 1 Month $ 1 – 3 Months $ 3 Months – 1 Year $ 1 – 5 Years $ 5+ Years $ 2021 Non-interest bearing Variable interest rate instruments Fixed interest rate instruments 2020 Non-interest bearing Fixed interest rate instruments – – – – – – – 9,287 1,143,596 – – – – – – 45,749 55,036 – – – 138,402 387,032 784,882 1,281,998 387,032 784,882 612,252 – – 78,764 230,368 603,799 691,016 230,368 603,799 – – – – – – – (c) Interest rate risk management The Company is not exposed to significant interest rate risk. (d) Market risk Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The Group is not exposed to market risk as at reporting date. (e) Foreign exchange risk The Group has an exposure to foreign exchange rates fluctuations given that the Group purchases plant equipment, consumables and services from overseas suppliers as part of the research and development activities of the Group. At 30 June 2021, the Group has cash denominated in CHF dollars (CHF $25,000 (2020: CHF$0)). The A$ equivalent at 30 June 2021 is $36,076 (2020: $0). A 5% movement in foreign exchange rates would increase the Group’s loss before tax by approximately $727 (2020: ($0)). (f) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders. The primary source of Group funding is equity raisings. Accordingly, the objective of the Company’s capital risk management is to balance the current working capital position against the requirements to meet exploration programmes and corporate overheads. This is achieved by maintaining appropriate liquidity to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. 66 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 20. Related Party Transactions The Company’s related parties include Key Management and others as described below: The aggregate compensation made to Directors and other Key Management Personnel of the Company is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Transactions with other related parties The aggregate value of transactions with other related parties is set out below: Automic Cobblestones Advisory Alto Capital Total 2021 $ 2020 $ 1,077,636 810,804 72,086 17,444 325,294 – – – 1,077,636 810,804 2021 $ 174,098 18,150 192,000 384,248 2020 $ 232,883 – – 232,883 Note 21. Remuneration of Auditors The auditor of Exopharm Limited is William Buck Audit (Vic) Pty Ltd. Audit services Audit and review of the financial statements 43,000 41,196 2021 $ 2020 $ Other services Due diligence 3,596 46,596 – 41,196 Note 22. Dividends The directors of the Company have not declared any dividend for the year ended 30 June 2021. 67 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 23. Committments and Contingencies As at 30 June 2021, the Company has no other material commitments except as disclosed below: Altnia Royalty Deed Commitments On 5 October 2018, the Company and Altnia Operations Pty Ltd (Altnia or Licensor) signed an Intellectual Property Assignment and License Termination Deed (the ‘Deed’). As consideration for the assignment of the Assignment Rights, Exopharm must: a. grant royalties to Altnia; and b. provide the Reimbursement Payments to Altnia in accordance with Clause 7 of the Deed. The Reimbursement Payments were fully paid during the 2019 year. As at 30 June 2021, the Company is a party to a Royalty Deed with Altnia Operations Pty Ltd (a company owned by a KMP). As at 30 June 2021, the Company has the following financial commitments pursuant to the Royalty Deed: 1. Royalties on net sales – 3% of net sales; 2. License Royalty – 10% of license revenue. Lease Commitments As at 30 June 2021, the Company has one major lease commitment at The Baker, Melbourne. This lease is disclosed in the accounts as a Lease Liability. The Lease runs for an initial three-year period and has annual rent of circa $452,605 and associated outgoings of less than $162,022 per annum. The Company is committed to making lease payments over future periods as follows. During the period 1 July 2021 – 30 June 2022 During the period 1 July 2022 – 30 June 2023 During the period 1 July 2023 – 30 June 2024 30 June 2021 623,846 570,941 240,084 1,434,871 As at 30 June 2021 the Company has a number of short-term leases and has applied the optional exemption to not capitalise these leases and instead accounted for the lease expense on a straight-line basis over the lease term. Total expense for these short term leases amounted to $177,985 as at 30 June 2021 (2020:$136,634). There were no commitments to these short-term leases as at 30 June 2021 and 30 June 2020. Employee Commitments The Company currently has 41 employees and a current annualised total annual remuneration of $5,034,562 including statutory superannuation. The Company pays statutory superannuation on a monthly basis. Expenditure Commitments Research and development Costs – Total committed costs for the next 12 months are approximately AU$380,370. Corporate Costs – Total committed corporate costs for the next 12 months are approximately AU$43,000. 68 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 24. Share-based Payments Share-based payments Arising on issuance of shares for no consideration Arising on issuance of performance rights 2021 $ 100,875 620,411 721,286 2020 $ – – – Options Options may be issued to external consultants or non-related parties without shareholders’ approval, where the annual 15% capacity pursuant to ASX Listing Rule 7.1 has not been exceeded. Options cannot be offered to a director or an associate except where approval is given by shareholders at a general meeting. Each option issued converts into one ordinary share of Exopharm Limited on exercise. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The following share-based payment arrangements were in existence at the end of the current reporting period: No. of Options Grant date 1,500,000 1 29/10/2020 1,500,000 1 29/10/2020 1,500,000 1 29/10/2020 Expiry date 9/11/2025 9/11/2025 9/11/2025 Vesting date 9/11/2020 9/11/2020 9/11/2020 Grant date fair value Exercise price $0.20 $0.16 $0.13 $0.40 $0.60 $0.90 1 A total of 4,500,000 options were issued to Canary Capital Securities Pty Ltd during the financial year as compensation for brokerage fee of capital raise. 1,500,000 options were issued with an exercise price of $0.40 and an expiry date of 5 years from date of issue as part of the Placement mandate. 3,000,000 options were issued as part of the Corporate Advisory mandate on the below terms: – 1,500,000 unlisted options with an exercise price of $0.60 and an expiry date of 5 years from date of issue – 1,500,000 unlisted options with an exercise price of $0.90 and an expiry date of 5 years from date of issue For the options granted during the current financial year, the fair value of the options at grant date is determined using a Black Scholes pricing valuation model. The inputs used to determine the fair value at the grant date are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate 29/10/2020 9/11/2025 $0.385 Various 64% 0% 0.25% 69 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Performance rights Performance Rights were issued to Directors and Senior Management. The Performance Rights under this programme will vest if certain conditions, as defined below, are met. Vesting conditions are based on the performance of Exopharm Limited’s shares on the Australian Stock Exchange within a specified period. In addition, the holders of these rights have to be employed until the end of the agreed vesting period. The Performance Rights will automatically convert to ordinary shares if the condition has been met at the vesting date. The holders of these performance rights do not have the right to participate in any share issue or interest issue of the Company or of any other body corporate or registered scheme. The Group used a Monte Carlo simulation to incorporate a probability-based value impact of the market conditions to determine the fair value of the Performance Rights. The key inputs of the Monte Carlo simulation are referred to below. The following share-based payment arrangements were in existence at the end of the current reporting period: No. of Performance Rights Grant date Vesting date Grant date share price Vesting condition VWAP hurdle* Volatility Risk-free rate Grant date fair value 113,333 113,334 9/9/2020 1/7/2021 9/9/2020 1/1/2022 $0.31 $0.31 $0.60 $0.75 100% 100% 0.248% 0.248% $0.156 $0.163 * The Performance Rights will vest on the vesting date if the Volume Weighted Average Price (VWAP) for a period of 20 consecutive trading days (on which the shares are traded) is at least equivalent to the hurdle price at any time in the immediate six months prior to the vesting date. 113,333 performance rights lapsed on the 01 January 2021. 1,017,866 performance rights were issued and vested to ordinary shares during the financial year. No. of Performance Rights Grant date Vesting date Grant date share price Vesting condition VWAP hurdle* Volatility Risk-free rate Grant date fair value 508,933 6/4/2021 6/5/2021 508,933 6/4/2021 6/5/2021 $0.655 $0.655 $0.60 $0.75 100% 100% 0.6% 0.6% $0.6179 $0.5222 70 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 25. Parent Entity Information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Loss after income tax Total Loss Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Net assets Equity Issued capital Share-based payments reserve Accumulated losses Total equity Parent 2021 $ 2020 $ (8,308,114) (5,278,803) (8,308,114) (5,278,803) Parent 2021 $ 2020 $ 17,166,697 4,058,696 21,521,404 6,542,443 1,673,689 2,494,917 921,384 1,525,125 19,026,487 5,017,318 34,295,791 12,755,619 777,112 – (16,046,416) (7,738,301) 19,026,487 5,017,318 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2021. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2021. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 1, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. • Investments in associates are accounted for at cost, less any impairment, in the parent entity. • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. 71 EXOPHARM ANNUAL REPORT 2021 Notes to the Consolidated Financial Statements (continued) For The Year Ended 30 June 2021 Note 26. Interests in Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in accordance with the accounting policy described in note 1: Name Principal place of business / Country of incorporation ExoSuisse GmbH Switzerland Ownership interest 2021 % 100.00% 2020 % – Note 27. Events After The Reporting Period On 2 August 2021 the Company issued 350,000 performance rights to Key Management Personnel. No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 72 EXOPHARM ANNUAL REPORT 2021 Directors’ Declaration For The Year Ended 30 June 2021 In the opinion of the Board of Exopharm Limited (‘the Company’): 1. The financial statements and notes thereto, as set out on pages 17 to 56 are in accordance with the Corporations Act 2001 including: • giving a true and fair view of the Company’s financial position as at 30 June 2021 and its performance for the year then ended; and • complying with Australian Accounting Standards, the Corporations Regulations 2001, and International Standards (IFRS) as disclosed in Note 1 of the Financial Statements; and 2. There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is signed in accordance with a resolution of the Board of Directors made pursuant to S.295(5) of the Corporations Act 2001. On behalf of the Directors: Dr Ian E Dixon Managing Director & CEO 30 August 2021 73 EXOPHARM ANNUAL REPORT 2021 Independent Auditor’s Report For The Year Ended 30 June 2021 Exopharm Limited Independent auditor’s report to members Report on the Audit of the Financial Report Opinion We have audited the financial report of Exopharm Limited (the Company) and its controlled entities (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, 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 2021 and of its financial performance for the year ended on that date; 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 (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 74 EXOPHARM ANNUAL REPORT 2021 Independent Auditor’s Report (continued) For The Year Ended 30 June 2021 RELATED PARTY TRANSACTIONS Area of focus Refer also to Remuneration report on pages 8 to 14 and Note 20 The Group conducted material related party transactions with entities where key management personnel have interests and/or are directors. As such, there is a risk that not all related party transactions are disclosed in the financial report or that related party transactions have been made on non-arm’s length basis. This could result in insufficient information being provided in order to enable the reader to understand the nature and effect of the various related party relationships and transactions. CARRYING VALUE OF INTANGIBLES Area of focus Note 13 Valuation, capitalisation and impairment testing of the original licenced asset and the intellectual property asset acquired during the year required critical estimations and judgements of those charged with governance to accurately account for the intangible assets of the Group. How our audit addressed it Our audit procedures included: ⎯ Assessment of the Group’s controls to identify and disclose related party transactions and transactions in accordance with the relevant accounting standards and the Corporations Act 2001; ⎯ Comparing the list of related parties provided by the directors with internal sources; ⎯ Conducting an ASIC search for external directorships held by the Board members to evaluate whether all related party relationships and transactions had been appropriately identified and disclosed; and ⎯ Assessed whether related party transactions were conducted at arms-length by comparing the basis of the transactions to external sources. For each class of related party transaction, we compared the financial statement disclosures against the underlying transactions and the accounting and Corporations Act 2001 requirements How our audit addressed it Our audit procedures included: ⎯ Assessed whether intangible assets were eligible for capitalisation by reviewing the term and condition of the IP contract as well as the nature of the asset. ⎯ Assessed impairment indicators of intangible assets not yet ready for use and the recoverability of the asset continue to meet the requirements of AASB 138 Intangible Assets. 75 EXOPHARM ANNUAL REPORT 2021 Independent Auditor’s Report (continued) For The Year Ended 30 June 2021 SHARE-BASED PAYMENT TRANSACTIONS Area of focus Note 24 During the year, the Group issued a number of equity settled share-based payments in the form of options and performance rights to key management personnel other suppliers. Some of these share-based payment arrangements have vesting terms connected with market performance conditions. Valuation of these instruments is inherently complex and subject to significant management estimates and judgement and as such, the Group engaged an independent valuation expert to assist with the process. As a result of meeting the vesting conditions attached to the performance rights, a total of 1,017,866 ordinary shares with a fair value of $580,236 were issued based on the contractual terms of the agreements. A total of $721,286 has been recognised as a share-based payment expense during the year as detailed in Note 24. We also assessed the adequacy of the Group’s financial statement disclosures. How our audit addressed it Our audit procedures included: (cid:31) Verifying the key terms of the equity settled share-based payments to letters of offer to the instrument holders and approved board minutes; (cid:31) Assessing the appropriateness of the determination of the grant date; (cid:31) Examining the credentials of the independent expert; (cid:31) Assessing the fair value of the share- based payments based on the Company’s external valuation by agreeing the inputs to underlying support, reviewing the assumptions used for reasonableness and evaluating the accuracy of calculations; and (cid:31) Reviewing the attributes of the vesting conditions and ensuring that the expense is recorded over the appropriate vesting period. We also assessed the appropriateness of disclosures relating to these items in the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 76 EXOPHARM ANNUAL REPORT 2021 Independent Auditor’s Report (continued) For The Year Ended 30 June 2021 a material misstatement of this other 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. A further description of our responsibilities for the audit of these financial statements is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar2_2020.pdf This description forms part of our independent auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Exopharm Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. William Buck Audit (Vic) Pty Ltd ABN: 59 116 151 136 C. L. Siddles Director Dated the 30th day of August 2021 77 EXOPHARM ANNUAL REPORT 2021 Shareholder Information 30 June 2021 The shareholder information set out below was applicable as at 6 August 2021. There is one class of quoted securities, fully paid ordinary shares. (a) Distribution of Security Number Category (Size of holding) Shareholders Shares % of issued capital 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total 219 669 398 974 229 2,489 136,599 1,808,679 3,260,547 34,076,530 117,815,845 157,098,200 0.09% 1.15% 2.08% 21.69% 75.00% 100% There are 2,489 holders of ordinary shares. Each shareholder is entitled to one vote per share held. (b) Marketable Parcel There are 238 shareholders with less than a marketable parcel (basis price $0.45). (c) Voting Rights On a show of hands every person present who is a member or proxy, attorney or representative of a member has one vote and upon a poll every person present who is a member or proxy, attorney or representative of a member shall have one vote for each share held. (d) Substantial Shareholders As at 6 August 2021, the following shareholders have disclosed a substantial shareholder notice to ASX: Name Number of shares % of issued capital Date of notice Altnia Holdings Pty Ltd (Dixon Family A/C) (a related party of Dr Ian Dixon) Carl Charalambous 28,175,294 8,653,912 8.052% 6.21% 30/04/2021 09/02/2021 (e) On-Market Buy-Back There is no on-market buy-back scheme in operation for the Company’s quoted shares. 78 EXOPHARM ANNUAL REPORT 2021 Shareholder Information (continued) For The Year Ended 30 June 2021 (f) Top 20 Security Holders The names of the twenty largest holders of quoted equity security, being fully paid ordinary shares, the number of equity security each holds and the percentage of capital each holds is as follows: Ordinary shares Number held % of total shares issued ALTNIA HOLDINGS PTY LTD (DIXON FAMILY A/C) KYRIACO BARBER PTY LTD KOHEN ENTERPRISES PTY LTD MR PAUL JOSEPH COZZI CITICORP NOMINEES PTY LIMITED 28,175,294 10,611,100 2,002,000 2,000,000 1,648,230 MR MICHAEL FRANCIS MCMAHON & MRS SUSAN LESLEY MCMAHON1,635,849 OLDVIEW ENTERPRISES PTY LTD DEVELOPMENT MANAGEMENT & CONSTRUCTIONS MR RUSSELL NEIL CREAGH MR PETER DALLAS CHECKLEY & MS NIOMIE ESTHER VARADY MR NORMAN CIPRIANO ZESSHAM PTY LTD DIXSON TRUST PTY LIMITED MR ANTHONY JOHN LOCANTRO MRS ANNA FELICIA BELTON SENTINEL INVESTMENT MANAGEMENT LIMITED MR ANDREW FAY MR JOHN GARDNER CHRISTOPHER BALDWIN ACNS CAPITAL MARKETS PTY LTD CANARY CAPITAL PTY LTD DR RAOUL POPE 1,610,000 1,545,350 1,457,000 1,410,275 1,312,500 1,300,000 1,231,000 1,120,000 1,000,000 1,000,000 1,000,000 925,000 876,666 865,000 800,000 757,506 17.93% 6.75% 1.27% 1.27% 1.05% 1.04% 1.02% 0.98% 0.93% 0.90% 0.84% 0.83% 0.78% 0.71% 0.64% 0.64% 0.64% 0.59% 0.56% 0.55% 0.51% 0.48% Total 64,282,770 40.92% Total issued capital 157,098,200 100.00% 79 EXOPHARM ANNUAL REPORT 2021 Shareholder Information (continued) For The Year Ended 30 June 2021 Other ASX Information 1. Corporate Governance The Company’s Corporate Governance Statement as at 30 June 2021 as approved by the Board can be viewed at https://exopharm.com/financial-reporting/ 2. Stock Exchange on which the Company’s Securities are Quoted The Company’s listed equity securities are quoted on the Australian Securities Exchange 3. Review of Operations A review of operations is contained in the Directors’ Report. 4. Consistency with Business Objectives – ASX Listing Rule 4.10.19 In accordance with Listing Rule 4.10.19, the Company states that it has used the cash and assets in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives. The business of objective is primarily research and development of biopharmaceutical drugs. The Company believes it has used its cash in a consistent manner to which was disclosed under the prospectus dated 6 November 2018. 5. Restricted Securities As at 6 August 2021, the Company had no restricted securities: 6. Unquoted equity securities The Company has the following unquoted equity securities on issue: Options – 1,5000,000 unlisted options exercisable at $0.40 expiring 09 November 2025 – 1,5000,000 unlisted options exercisable at $0.60 expiring 09 November 2025 – 1,5000,000 unlisted options exercisable at $0.90 expiring 09 November 2025 Performance Rights 576,667 unlisted performance rights issued under the Company’s employee incentive scheme Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares 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. 80 EXOPHARM ANNUAL REPORT 2021 exopharm.com