Hexcel
Annual Report 2017

Plain-text annual report

HEXIMA LIMITED ABN 64 079 319 314 Annual Financial Report FOR THE YEAR ENDED 30 JUNE 2017 HEXIMA LIMITED ABN 64 079 319 314 TABLE OF CONTENTS Directors’ Report (including Corporate Governance Statement and Remuneration Report) Statement of Profit or Loss and other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Lead Auditor’s Independence Declaration 3 20 21 22 23 24 49 50 53 -2- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 The Directors present their report together with the financial report of Hexima Limited (“the Company” or “Hexima”) and of the Group, being the Company and its subsidiaries for the financial year ended 30 June 2017 and the auditor’s report thereon. DIRECTORS The Directors of Hexima at any time during or since the end of the financial year are: Professor Jonathan West BA (University of Sydney), PhD (Harvard University) Non-Executive Chairman Professor Jonathan West was the founding Director of the Australian Innovation Research Centre. Prior to assuming that appointment, he taught for 18 years at the Harvard University Graduate School of Business Administration, where he was Associate Professor, founding Director of the Harvard University Life Sciences Initiative, and from 1998-1999 the Novartis Faculty Research Fellow. He has been Visiting Professor at Hitotsubashi University and the Nomura School of Advanced Management in Tokyo, Japan and Visiting Professor at the University de Paris IX-Dauphine, Sorbonne. Professor West was Chairman of the Asia Advisory Council of Bunge Ltd, one of the world’s largest agribusiness processing and trading companies, and has served as an advisor to other major corporations and several Governments around the world, including in the life sciences field, DuPont, Roche, Novartis, Syngenta and the J.R. Simplot Company, along with the Governments of Singapore, Japan, Hong Kong and France. He was a member of the Scientific Advisory Board of the Novartis Agricultural Discovery Institute in La Jolla, California. In Australia, he has served on the Prime Minister’s Science, Engineering, Innovation Council’s Working Group on Science and Technology in China and India and in 2006 was ‘Eminent Thinker in Residence’ with the Premier of NSW. Professor West is Non-Executive Chairman of Gowing Bros Limited and Non-Executive Director of Boundary Bend Limited and the Hydration Pharmaceuticals Trust. Professor West has been a Director of the Company since 7 November 2005 and was appointed Non- Executive Chairman on 18 November 2014. He is a member of the Remuneration Committee and the Audit and Risk Management Committee. Dr. Nicole van der Weerden BSc, PhD (La Trobe University) Executive Director, Chief Executive Officer Dr. Nicole van der Weerden completed her PhD in Biochemistry at La Trobe University in 2007. Her PhD research on the antifungal properties and mechanism of action of plant defensins led to the award of a prestigious Victoria Fellowship in 2006. Since completing her PhD, Dr. van der Weerden has worked for Hexima Limited and has led the gene discovery program for the Pioneer partnership on control of fungal diseases in corn. Dr. van der Weerden is an inventor on nine patent applications. Dr. van der Weerden completed an MBA in 2013 at Melbourne Business School and is a graduate of the Australian Institute of Company Directors. She was appointed Hexima’s Chief Operating Officer in 2014 and Chief Executive Officer in December 2015. Dr. van der Weerden has been a Director of the Company since 16 December 2014. Professor Marilyn Anderson AO BSc (Hons) (The University of Melbourne), PhD (LaTrobe University) Executive Director, Chief Science Officer Professor Marilyn Anderson AO is a founding scientist of Hexima. She has over 40 years experience in scientific research in the area of plant biochemistry and genetics. After completing a BSc Honours at The University of Melbourne and a PhD in Biochemistry at La Trobe University, Professor Anderson spent seven years in the United States working on diabetes at the University of Miami, Florida and cancer at Cold Spring Harbor Laboratory in New York. She is a Professor of Biochemistry at La Trobe University, a Member of the La Trobe University Council and an Associate Professorial Fellow in the Botany School at The University of Melbourne. She was appointed Hexima’s Chief Science Officer in July 2009. Professor Anderson was a director at South East Water Limited for over 10 years and of City West Water from 2008 until 2013. She is a Fellow of the Australian Academy of Science, of the Australian Academy of Technological Sciences and Engineering and of the Australian Institute of Company Directors. Professor -3- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 Anderson was appointed an Officer of the Order of Australia in January 2016. She was appointed a Director of the Company on 23 November 2010 and was a Director between 2001 and 2007. Dr John Bedbrook BSc, PhD (Auckland University) Non-Executive Director Dr. John Bedbrook received his PhD in Molecular biology at Auckland University in 1974, was a Fulbright Fellow to Harvard Medical School, a Cabot Fellow to Harvard University and an EMBO fellow to The Plant Breeding Institute Cambridge England. Between 1979 and 2000, Dr. Bedbrook founded and or ran several agricultural biotechnology companies including Advanced Genetic Sciences, DNA Plant Technologies, Verdia Inc and was President of Maxygen Agriculture. He was CEO of Plant Science Ventures a venture firm investing in Biotechnology startups. After the acquisition of Verdia Inc. by DuPont in 2004 Dr. Bedbrook became Vice President of Research and Development for DuPont Agriculture and Nutrition, and subsequently Vice President of DuPont Agricultural Biotechnology. He retired from full time employment in 2013 and retained a part time role as Director Strategic Growth. Dr Bedbrook recently secured a highly valuable partnership for Dice Molecules Inc., where he is Executive Chairman, with global pharma company Sanofi targeting potential new small molecule therapeutics across a range of diseases. Dr. Bedbrook has authored over 100 scientific papers and multiple patents. Dr. Bedbrook is Director of Plant Biosciences LTD., Executive Chairman of Dice Molecules Inc. and a Member of the Advisory Board of the College of Natural Resources at University of California Berkeley. Dr. Bedbrook has been a Director of the Company since 3 June 2014. He is Chairman of the Remuneration Committee and a member of the Audit and Risk Management Committee. G. F. Dan O’Brien BSC, BVMS (Murdoch University), MBA (Harvard University) Non-Executive Director Mr O'Brien is the founder and Chairman of The Hydration Pharmaceuticals Trust (HPT) which established the Hydralyte range of OTC pharmaceutical products. HPT sold the Hydralyte business in Australia and New Zealand to NYSE listed Prestige Brands Inc during 2014. HPT retains ownership of Hydralyte outside Australia and New Zealand. Mr O'Brien has extensive experience including executive and non-executive roles with King Island Dairy Limited, Tasman Agriculture Limited, Colly Farms Cotton Limited, SPC Ardmona Limited, Coates Hire Limited, Mattel Asia Pacific and BIL Limited. Dan O'Brien was a Director of Hexima between 17 May 2002 and 2 October 2009 and was reappointed to the Board on 18 November 2015. He is Chairman of the Audit and Risk Committee and a member of the Remuneration Committee. Gordon S. Black BSc (University of New South Wales), MBA (Wharton) Non-Executive Director Gordon Black is CEO and Founder of East West Capital Limited, an investment management company investing in early stage companies operating across the global life sciences industry. He has extensive work experience in the U.S. and the Asia Pacific region for corporations including: Merrill Lynch Capital Markets, New York; E.I. Du Pont de Nemours & Co. Inc (global head office Wilmington Delaware and Asia Pacific) and Ipoh Limited, Sydney, Australia. He currently serves on the Board at NexSteppe Inc. a US proprietary hybrid seed company developing sorghum energy crops for the global bio-energy industry. Prior to this he served on the Board of the ASX listed drug developer Arana Therapeutics Limited before this company was acquired by Cephalon Inc from the US in June 2009 for $334 million. -4- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 He has an MBA from The Wharton School of Business, University of Pennsylvania, and a Biochemistry/ Chemistry degree from the University of New South Wales, Sydney. Mr Black has been a Director of the Company since 18 November 2015. He is a member of the Audit and Risk Committee and of the Remuneration Committee. COMPANY SECRETARY Ms Elisha Larkin BComm(Hons) / BAgriSci(Hons), MCommercial Law (The University of Melbourne) was appointed as Company Secretary on 4 May 2012. Ms Larkin has been with Hexima since May 2006. DIRECTORS’ MEETINGS The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of the Directors of the Company during the financial year are: BOARD MEETINGS AUDIT AND RISK MANAGEMENT COMMITTEE REMUNERATION COMMITTEE HELD ATTENDED HELD ATTENDED HELD ATTENDED Jonathan West Marilyn Anderson John Bedbrook Nicole van der Weerden Dan O’Brien Gordon Black 9 9 9 9 9 9 8 8 8 9 7 8 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 CORPORATE GOVERNANCE STATEMENT This statement outlines the main corporate governance practices in place throughout the financial year. The Board of Directors The Board is responsible for the direction and supervision of Hexima’s business on behalf of the Shareholders, by whom they are elected and to whom they are accountable. The Board’s responsibilities include: • protecting and enhancing the value of Hexima’s assets; • setting strategies and directions, then monitoring and reviewing progress against these strategic objectives; • reviewing and ratifying internal controls, codes of conduct and legal compliance; • ensuring the significant risks facing Hexima have been identified and adequate control, monitoring and reporting mechanisms are in place; • approving transactions relating to acquisitions, divestments and capital expenditure above delegated authority limits; and • approving and monitoring financial and other reporting. The Board has adopted a Board Charter, which sets out values and business behaviours necessary to maintain confidence in Hexima’s integrity. It details the respective roles and responsibilities of the Board and management. The Board has delegated responsibility for operation and administration of the Company to the Executive Directors and executive management. Responsibilities are delineated by formal authority delegations. -5- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT Directors and Executive Education Incoming Directors and Executives participate in informal meetings to increase their understanding of the Company, its key assets and the competitive market in which it operates. Through these meetings, Directors and Executives review the Company’s policies and procedures for good corporate governance, including delegations and reservations of authority and the roles of key personnel and Board committees. They have access to continuing education to update and enhance their skills and knowledge. A review of the performance of the Board will be undertaken annually by the Chairman, in consultation with the Board. Composition of the Board The Constitution of the Company provides that the number of Directors shall not be less than three. There are currently six Directors in office at the date of this report and their names and qualifications are set out on pages 3 to 5 of this Directors’ Report. The ASX best practice recommendations require a majority of the Board to be independent Directors and the chairperson to be an independent director. Currently, the Board has three directors who satisfy the ASX guidelines for independence (being Chairman Professor Jonathan West, Dr. John Bedbrook and Mr Gordon Black). Mr Dan O’Brien is a Non-Executive Director but does not qualify as independent because of his shareholdings in Hexima. Professor Marilyn Anderson and Dr van der Weerden do not qualify as independent as they are Executive Directors. The Board considers their significant commitment as share and option holders (which aligns their interests with those of other shareholders) and broad experience as directors of other companies provide advantages to the Board which outweigh any disadvantage in them not satisfying the ASX guidelines for independence. The Board will review this position at least annually. Board Committees To assist in the execution of its responsibilities, the Board has established a number of board committees including a Nomination Committee, a Remuneration Committee and an Audit and Risk Management Committee. These Committees have written mandates and operating procedures, which are reviewed on a regular basis. The full Board has monthly meetings scheduled for the coming year. Extraordinary meetings will be convened at such other times as may be necessary to address any specific significant matters that may arise. The agenda for meetings is prepared in conjunction with the Chairman. Submissions are circulated in advance. Executives are regularly involved in Board discussions. Nomination Committee The Board has in place a Nomination Committee to assist it in ensuring the Board has an effective composition, size and commitment. The Nomination Committee develops criteria for Board membership, identifies specific individuals for nomination as Directors and establishes processes for the review of the performance of individual Directors and the Board as a whole. In addition, it is the policy of the Nomination Committee to meet as early as practicable prior to the expiration of the term of office of a Director to consider suitably skilled and experienced individuals for nomination as Directors. Further details of the Nomination Committee’s charter form part of the Board Charter, which is available on the Company’s website. Each of the non-executive Directors are currently on the Nomination Committee. The Board reviewed the structure of the Board and senior Executive teams throughout the current financial year within existing scheduled Board meetings. Remuneration Committee The Board reviews and rewards the performance of the senior management team. In doing so, they consider recommendations from the Remuneration Committee. The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to Key Executives and Directors. The Remuneration Committee Charter forms part of the Board Charter, which is available on the Company’s website. The Remuneration Committee will consist of at least three Directors, a majority of whom are Non-Executive Directors and at least one of whom is an independent director. This differs from the ASX best practice -6- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 recommendations which require a majority of independent Directors and an independent Chairman. Hexima currently satisfies the ASX recommendations with an independent Chairman and three independent members. The current members are Dr. John Bedbrook (Chairman), Professor Jonathan West, Dan O’Brien and Gordon Black. The Remuneration Committee meets as necessary, generally once a year in order to review and make recommendations to the Board. During the financial year ended 30 June 2017, the Remuneration Committee met separately on one occasion and also addressed remuneration issues at meetings of the full Board. The Remuneration Committee may invite any executive management team members or other individuals to attend meetings of the Remuneration Committee as it considers appropriate. The Remuneration Report is set out on pages 12 to 16 and forms part of the Directors’ Report for the financial year ended 30 June 2017. Audit and Risk Management Committee The Board has in place an Audit and Risk Management Committee to assist it in verifying and safeguarding the integrity of Hexima’s financial reporting. The Audit and Risk Management Committee Charter forms part of the Board Charter, which is available on the Company’s website. The Audit and Risk Management Committee reviews the financial information which is provided to shareholders and others, the systems of internal controls which management and the Board have established and the audit process. The Audit and Risk Management Committee also reviews the performance of the external auditors on an annual basis and normally meets with them during the year to: • discuss the external audit, identifying any significant changes in structure, operations, internal controls or accounting policies likely to impact the financial statements and to review the fees proposed for the audit work to be performed; • review the half-year and preliminary final report prior to lodgment with ASIC, and any significant adjustments required as a result of the auditor’s findings, and to recommend board approval of these documents, prior to announcement of results; • review the draft annual and half-year financial report, and recommend board approval of the financial report; and • review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any recommendations made. Audit and Risk Management Committee meetings are to be held periodically throughout the year. It is the policy of the Board that the members of the Audit and Risk Management Committee should be Non- Executive Directors, at least one of whom should also be independent. This differs from the ASX best practice recommendations which require a majority of independent Directors and an independent Chairman. Hexima satisfies the ASX recommendations as to a majority of independent members, however the Committee is Chaired by Non-Executive Director Mr Dan O’Brien, who does not meet the independence definition due to his shareholding in Hexima. The current Audit and Risk Management Committee comprises Mr Dan O’Brien (Chairman), Professor Jonathan West, Dr. John Bedbrook and Mr Gordon Black. -7- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 Audit and Risk Management Committee (continued) The Chief Executive Officer, Company Secretary, Finance Manager and external auditors will generally attend all Audit and Risk Management Committee meetings. The Audit and Risk Management Committee met twice during the year and the committee members’ attendance record is disclosed in the table of Directors’ meetings on page 5. The Chief Executive Officer and the Company Secretary / CFO have declared in writing that the records for the year have been properly maintained, the Company’s financial reports for the year ended 30 June 2017 comply with accounting standards and present a true and fair view of the Company’s financial condition and operating results. This statement is required annually. Communication with Shareholders Hexima’s policy is to provide timely, open and accurate information to all stakeholders, including shareholders, regulators and the wider investment community. The Board Charter includes a continuous disclosure protocol to ensure compliance with the Corporations Act 2001. In summary, the Company’s continuous disclosure protocol operates as follows: • the full Annual Financial Report and Half-Yearly results commentary are available on the Company’s website and are sent to all shareholders who request them; and • the Annual Financial Report and the Half-Yearly Accounts are sent to shareholders on request. Hexima’s communications strategy is set out in the Board Charter and is designed to promote effective communication with shareholders and encourage effective participation at general meetings. Risk Management The Board is responsible for the assessment of risk. Intellectual Property Intellectual Property is Hexima’s most important asset and protection of its IP portfolio is critical to the Company’s ability to implement its business strategy. Hexima has consistently invested significant amounts in the development and maintenance of this IP portfolio. Hexima’s IP Committee, chaired by Dr Nicole van der Weerden, meets regularly to identify and monitor the creation of IP and to monitor and review claims filed by other companies in the same technical field. The Committee works closely with Hexima’s US and Australian patent attorneys. The Committee also develops and maintains appropriate protocols for recording research results and maintaining the confidentiality of know-how and information associated with Hexima’s trials and technology. Regulatory Framework (including Environmental Regulation) The group is subject to environmental regulations and other licenses in respect of its research and development facilities. There are adequate systems in place to ensure compliance with relevant Federal, State and Local environmental regulations and the Board is not aware of any breach of applicable environmental regulations by the group. There were no significant changes in laws or regulations during the 2017 financial year or since the end of the year affecting the business activities of the group, and the Board is not aware of any such changes in the near future. -8- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT Financial Reporting The Chief Executive Officer and the Finance Manager have declared in writing to the Board that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. Actual monthly results are reported against budgets approved by Directors and revised forecasts for the year are prepared regularly. Funds Management The Company’s policy is to invest funds in term deposits or bank bills. Ethical Standards All Directors, Executives and employees are expected to act with the utmost integrity at all times to enhance the reputation and performance of the Company. Every employee has a supervisor to whom they may refer any issues arising from their employment. Conflicts of Interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. The Board has procedures to assist Directors to disclose potential conflicts of interest. Independent Advice Each Director has the right of access to all relevant Company information and to the Company’s Executives and, subject to prior consultation with the Chairman, may seek independent professional advice at the Company’s expense. A copy of the advice received by the Director will be made available to all members of the Board. -9- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT PRINCIPAL ACTIVITIES The principal activity of the Group during the financial year was the research, development and commercialisation of plant-derived proteins and peptides for applications as human therapeutics and for the genetic modification of crops. OPERATING AND FINANCIAL REVIEW OF THE GROUP Revenue Results from operating activities Net financing (expense)/income Income tax expense 2017 $ 2016 $ 4,137,262 4,970,660 (1,749,350) (2,059,222) (106,852) 120,214 - - Net loss after tax attributable to members (1,856,202) (1,939,008) Dividends NIL NIL Summary and Outlook Human Applications Hexima’s antifungal technology has been the major focus for the company for 2016-2017 as it presents the most likely source of increased shareholder value in the short to medium term. In the short term, Hexima is focusing its resources on the development of its lead antifungal molecule, HXP124, as a treatment for onychomycosis (fungal nail infections). Preclinical data indicates that HXP124 has multiple advantages over current onychomycosis therapies, in particular the ability to rapidly penetrate the nail when applied topically and the ability to kill cells faster and at lower concentrations than current drugs. HXP124 is also very effective in an Infected Nail Model (industry standard assay conducted by MedPharm, UK) which demonstrates that HXP124 is able to penetrate the nail plate and kill fungus growing on the underside of the nail (this assay is conducted using nail fragments that are artificially infected). The onychomycosis market is a large and growing market with an estimated US$3.1b of global sales in 2015. Despite poor cure rates and onerous and expensive treatment regimes, recently released topical treatments in the US were rapidly adopted by the market suggesting that a more effective product such as HXP124 would be very well received. During the period, Hexima conducted a pivotal toxicology study in minipigs. This study, a 42-day repeat-dose dermal irritation study involved daily dosing on large patches of the skin and surveillance to monitor skin irritation and any absorption of the molecule into the bloodstream. Minipig skin is more like human skin than any other animal and thus this model provides the best prediction of the likely effect of HXP124 on human skin. This test was required before we can progress to clinical trials in humans. We are pleased to report that even when a large amount of HXP124 (>1,000-fold higher than the intended clinical dose) was applied to the skin of the minipigs, there were no adverse effects. Only a very small amount of HXP124 had entered the bloodstream and this did not cause any systemic toxicity. Slight irritation was observed at the dose site but this was also present in the placebo group and therefore not attributable to HXP124. The results of this study provide confidence that HXP124 is safe for testing in humans. Hexima is now proceeding with its planned phase I/IIa clinical trial which it expects to begin in the Q4, 2017. During the year Hexima announced the commencement of a project to assess the application of Hexima’s antifungal technology for control of medically important Candidaemias and Candida-based biofilms. Systemic Candida infections are a major problem in immunocompromised patients where they are associated with high morbidity and mortality. These infections often arise from biofilms that form on cannulas, catheters and surgical implants and which are difficult to treat with standard antifungal therapies. Early work on this project has identified several plant defensins that kill Candida biofilms. Hexima will continue to assess the activity and safety profile of these defensins with the aim of progressing promising candidates into pre-clinical -10- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 proof-of-concept animal models. The Candida project is partially funded by a Science and Industry Endowment Fund STEM+ Business Fellowship awarded to Dr James McKenna Q4, 2016. This fellowship will allow Dr McKenna, an early career researcher based at the La Trobe Institute for Molecular Science (LIMS), to work with Hexima to investigate novel applications of the plant defensin technology. Hexima also expects to receive proof-of-concept results from animal studies for the application of plant defensins for treatment of vaginal thrush in Q3, 2017. Agricultural Applications The collaborative research project between Hexima and DuPont-Pioneer for the discovery of novel insect control genes that are active against certain crop-destroying insects continues to progress well. Hexima and Pioneer formed a research collaboration in 2014 to discover new, insecticidal genes for control of insect pests on major crops. Leads have been obtained and are progressing through DuPont-Pioneer’s pipeline for potential commercial development. However, the timeline for a prospective return to shareholders from this project remains long (>10 years). As the development phase of the insect project is to be conducted by DuPont Pioneer, Hexima is leasing out its transformation and glasshouse facility to generate additional revenue. Operating and Financial Review The Group had net cash outflows from operating activities of $1.14million for the year ended 30 June 2017, compared with $1.49million for the prior year. The Group recorded a loss after tax of $1.86million for the year ended 30 June 2017. A loss after tax of $1.94million was recorded for the previous financial year. Net finance expense for the Group for the financial year ended 30 June 2017 was $0.11million (2016: income of $0.12million). This loss was a result of movement of the exchange rate effecting the USD denominated bank account. In March 2017, Hexima completed a rights issue to raise $3.9 million to fund pre-clinical and clinical work for the development of HXP124 as a treatment for fungal infections of nails (onychomycosis). As a result of this capital raising, Hexima is in a sound financial position with cash and receivables of $6.5 million at 30 June 2017. This provides funding for phase I/IIa clinical trials for HXP124 and also funds ongoing activities until approximately June 2020. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the Group that occurred during the financial year. DIVIDENDS The Company has not paid or declared any dividends during or since the end of the financial year ended 30 June 2017. LIKELY DEVELOPMENTS Further disclosure of information regarding likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because, in the opinion of the Directors, disclosure of the information may prejudice the interests of the Group. ENVIRONMENTAL REGULATION The Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. However, the Board believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group. -11- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT REMUNERATION REPORT The remuneration report set out on pages 12 to 16 are not required under the Corporations Act 2001 as the Group is an unlisted disclosing entity. The Group has voluntarily complied with these disclosures. Principles of Remuneration Key management personnel (including Directors of the Company and other Executives) have authority and responsibility for planning and controlling the activities of the Group. For the financial year ended 30 June 2017, key management personnel comprised all Directors, Executives and the Company Secretary. This included Professor Jonathan West, Dr. Nicole van der Weerden Dr. John Bedbrook, Professor Marilyn Anderson, Mr Dan O’Brien, Mr Gordon Black and Ms Elisha Larkin. Remuneration levels for key management personnel are set to attract and retain appropriately qualified and experienced Directors and Executives. The Remuneration Committee obtains independent advice on remuneration packages and reviews remuneration at least on an annual basis. Remuneration structures take into account the capability and experience of key management personnel. Remuneration includes a mix of fixed and variable remuneration as well as short and long term incentives. Fixed Remuneration Fixed remuneration consists of base remuneration, which is calculated on a total cost basis and includes any FBT charges related to employee benefits, as well as employer contributions to superannuation funds. Performance Linked Remuneration Performance linked remuneration may include short and long term incentives. Short term incentive bonuses are based on the satisfaction of specified performance criteria, which may include financial or non-financial objectives. The Remuneration Committee approves the offer and payment of short term incentive bonuses to key management personnel and to other employees. Long term incentives may be provided as options over the Company’s ordinary shares and other securities. Details are provided on page 16 of the Directors’ Report. Consequences of Performance on Shareholder Wealth Hexima is a development stage company and the remuneration of key management personnel is not determined by the level of revenue, profit or dividends. Instead, consideration is given to the progress of scientific programs, the commercialisation of those programs, the development of the Company’s intellectual property and asset base and long-term share price performance. Service Contracts The Group has entered into service contracts with key management personnel, which outline the components of compensation paid to key management personnel, but do not prescribe how compensation levels are modified from year to year. Compensation levels are reviewed each year to take into account cost-of-living changes, any change in scope of the role performed by the senior Executive, and any changes required to meet the principles of the compensation policy. All employment contracts may be terminated immediately for cause or for material underperformance. Professor Marilyn A Anderson AO Executive Director Professor Anderson was appointed Chief Science Officer from 1 July 2009. She was formerly Senior Vice President Research and Discovery. Professor Anderson is an employee of La Trobe University and Hexima contracts her services through a Research Agreement with the University. In addition to her employment by the University, Professor Anderson also has an employment contract with the Group. Dr. Nicole van der Weerden Executive Director Dr. van der Weerden has been a member of the Executive since 2012 and was appointed Chief Executive Officer in December 2015. Dr. van der Weerden is an employee of La Trobe University and Hexima contracts her services through a Research Agreement with the University. In addition to her employment by the University, Dr. van der Weerden also has an employment contract with the Group. -12- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT REMUNERATION REPORT – (Continued) Elisha Larkin Ms Larkin holds honours degrees in Commerce and Agricultural Science from the University of Melbourne and a Masters of Commercial Law also from the University of Melbourne. Ms Larkin was appointed Company Secretary on 4 May 2012 and held the position of Chief Operating Officer between May 2012 and July 2014. Ms Larkin is an employee of the Group. Non-Executive Directors The Constitution provides that Non-Executive Directors may be paid or provided fees or other remuneration for their services as a Director of Hexima (including as a member of any Directors’ committee). The total amount or value of this remuneration must not exceed $500,000 (including mandatory superannuation) per annum or such other maximum amount determined by the Company in a general meeting. A Non-Executive Director may be paid remuneration for services outside the scope of ordinary duties of the Director. Non-Executive Directors may also be paid expenses properly incurred in attending meetings or otherwise in connection with the Company’s business. Additional “per diem” fees may be paid where services rendered are above normal requirements. Effective 1 January 2015 the Non-Executive Directors agreed to suspend payment of Non- Executive Directors’ fees. Previously fees payable to Non-Executive Directors were set at $55,000 per annum. There has been no increase to fees paid to non-executive Directors since 2007. Details of the nature and amount of each major element of the remuneration of each Director of the Company and each of the named officers of the Company, which is consistent with that of the consolidated entity, (including key management personnel) receiving the highest remuneration are included in the table following. -13- DIRECTORS’ REPORT REMUNERATION REPORT – (Continued) Directors’ and Executive Officers’ Remuneration HEXIMA LIMITED ABN 64 079 319 314 Details of the nature and amount of each major element of remuneration of each Director of the Company and each key management personnel are: Short term employee benefits Fixed Remuneration (Salary & Fees) Short Term Incentive (cash) Total Short-term employee benefits Final Payment Share Options Issued Share based payments Converting Notes Issued (1) Non-executive Directors Jonathan West John Bedbrook GF Dan O’Brien Gordon Black Steven M Skala (retired 31 December 2015) Executive Directors Marilyn Anderson (2) Nicole van der Weerden (4) Executive Elisha Larkin (3) 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 - 189 - - - - 47 - 47 39,253 95,480 63,226 75,967 98,155 96,330 Total Total 2017 200,634 2016 268,060 - - - - - - - - - - - - - - - - - - - 189 - - - - 47 - 47 39,253 95,480 63,226 75,967 98,155 96,330 200,634 268,060 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10,038 20,619 9,185 11,286 3,716 5,151 3,716 5,151 - 5,158 3,110 2,567 6,257 10,318 365 - 36,387 60,250 -14- Post Employment Benefits - Superannuation Total Remuneration Value of Options as proportion of Remuneration - - - - - - - - - - 3,729 9,071 6,007 7,208 7,799 9,151 17,535 25,430 10,038 20,808 9,185 11,286 3,716 5,151 3,716 5,198 - 5,205 46,092 107,118 75,490 93,443 106,319 105,481 254,556 353,690 100% 99% 100% 100% 100% 100% 100% 99% 0% 99% 4% 2% 5% 11% 0.3% 0% 15% 17% HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT REMUNERATION REPORT – (Continued) Directors’ and Executive Officers’ Remuneration (Continued) Notes in relation to the table of Directors’ and Executive officers’ remuneration 1) The fair value of options is calculated at grant date using the Binomial Approximation Option Pricing model and allocated to each period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options recognized in this reporting period. 2) Professor Anderson is employed by La Trobe University. The Company engages her services through a Research Agreement with the University and through a separate direct employment agreement. Professor Anderson’s total remuneration from the Company and La Trobe University (in relation to services performed for Hexima) was $236,158, comprising $42,982 paid and payable directly by the Company and $193,176 paid by La Trobe University (majority of which was for the services performed for Hexima). The amount shown in the table above represents payments made directly to Professor Anderson by the Group only. Professor Anderson is the Chief Science Officer for Hexima Limited as well as an Executive Director of the Company. 3) Ms Elisha Larkin was appointed Company Secretary on 4 May 2012 and is employed on a part-time basis. In addition to the amounts in the table above, Ms Elisha Larkin has $25,073 (2016: $24,184) of long service leave entitlements. 4) Dr. Nicole van der Weerden was appointed Chief Executive Officer in December 2015 and has been an Executive Director since 16th December 2014. She is employed by La Trobe University. The Company engages Dr. van der Weerden’s services through a Research Agreement with the University and through a separate direct employment agreement. Dr van der Weerden’s total remuneration from the Company and La Trobe University (in relation to services performed for Hexima) was $193,246, comprising $69,233 paid and payable directly by the Company, and $124,013 paid by La Trobe University (for the services performed for Hexima). The amount shown in the table above represents payments made directly to Dr. van der Weerden by the Group only. -15- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT REMUNERATION REPORT – (Continued) Equity instruments All options refer to options over ordinary shares of Hexima Limited, which are exercisable on a one-for-one basis under the employee share option plan. Options over equity instruments granted as compensation Details on options over ordinary shares in the Company granted to key management personnel and Executives during the reporting period. No. of Options Granted Exercise Price Grant Date Fair value per option at grant date Expiry Date No. of options vested during 2017 Jonathan West John Bedbrook Nicole van der Weerden GF Dan O’Brien Gordon Black Marilyn Anderson Elisha Larkin Dr Michael Rabson 500,000 1,000,000 250,000 $0.20 $0.08 $0.20 12/02/2017 $0.022 $0.048 12/02/2017 $0.022 12/02/2017 12/02/2022 12/02/2022 12/02/2022 1,000,000 $0.08 12/02/2017 $0.048 12/02/2022 250,000 250,000 500,000 100,000 $0.20 $0.20 $0.08 $0.08 12/02/2017 $0.022 12/02/2022 12/02/2017 $0.022 12/02/2022 12/02/2017 $0.048 12/02/2022 12/02/2017 $0.048 12/02/2022 100,000 $0.10 12/02/2017 $0.036 12/02/2017 - - - - - - - - - DIRECTORS’ INTERESTS Set out below are details of the interests of the Directors at the date of this report in the shares of the Company, rights or options over such instruments. Interests include those held directly and indirectly. Director Total shares Options over shares Jonathan West Marilyn Anderson John Bedbrook Nicole van der Weerden 3,200,000 3,811,096 500,000 214,400 GF Dan O’Brien 15,023,394 1,500,000 1,000,000 1,950,000 2,000,000 500,000 500,000 Gordon Black Total - 22,748,890 7,450,000 -16- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT SHARE OPTIONS Unissued shares under option At the date of this report, unissued ordinary shares of the Company under option are: Expiry Date Exercise Price Number of Shares 1 July 2019 26 August 2019 18 November 2019 11 December 2020 11 December 2021 12 February 2022 12 February 2022 12 February 2022 $0.50 $0.50 $0.50 $0.50 $0.50 $0.08 $0.10 $0.20 508,000 640,000 700,000 2,000,000 750,000 2,600,000 100,000 1,250,000 8,548,000 Shares issued on exercise of options There were 3,750,000 options issued to Directors during the financial year ended 30 June 2017. The Group’s policies prohibit those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. The Group requires all Executives and Directors to sign annual declarations of compliance with this policy throughout the period. -17- HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS’ REPORT AUDITORS Non-Audit Services During the year, KPMG, the Company’s auditor, have performed certain non-statutory audit services in addition to their statutory duties. The Board has considered the non-statutory audit services provided by the auditor and is satisfied that the provision of those services by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • • all non-statutory audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-statutory audit services provided by the auditor do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amount paid or payable to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during the year are set out below. Audit Services Audit of the annual financial report Review of half year financial report Services other than statutory audit Capital raising 2017 $ 27,820 12,865 2016 $ 27,250 12,700 34,000 6,000 74,685 45,950 INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS No indemnities were given or insurance premiums paid during the financial year for any person who was an auditor of the Company. The Company has not indemnified any Directors. During the financial year ended 30 June 2017, the Company paid insurance premiums of $21,617 (inclusive of stamp duty) in respect of Directors’ and Officers’ liability and legal expenses insurance contracts. This covered both current and former Directors and Officers of the Company. The insurance premiums relate to: • costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome; and • other liabilities that may arise from their position, with the exception of conduct involving a willful breach of duty or improper use of information or position to gain personal advantage. EVENT SUBSEQUENT TO REPORTING DATE There have been no events subsequent to balance date which would have a material effect on the Group’s financial statements as at 30 June 2017. -18- DIRECTORS’ REPORT HEXIMA LIMITED ABN 64 079 319 314 LEAD AUDITORS’ INDEPENDENCE DECLARATION UNDER SECTION 370C OF THE CORPORATIONS ACT 2001 The Lead Auditor’s Independence Declaration is set out on page 53 and forms part of the Directors’ Report for the ended 30 June 2017. This report is made pursuant to a resolution of the Directors. Professor Jonathan West Non-Executive Chairman Dr Nicole van der Weerden Executive Director Dated this 18 th day of August 2017 -19- STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017 Consolidated Revenue Notes 6 Contracted research expenditure Other research & development expenditure 7 Patent and legal expenses Field trial expenses Marketing & business development expenses Employee benefits expense Depreciation expense Other expenses Results from operating activities Financial income Finance expense Net financing income/(expenses) Loss before income tax 8 9 9 Income tax expense 10(a) 2017 $ 4,137,262 (2,903,814) (1,514,941) (537,025) - (40,352) (503,348) (194,005) (193,127) (5,886,612) (1,749,350) 17,552 (124,404) (106,852) 2016 $ 4,970,660 (3,316,897) (1,949,584) (344,045) (223,282) (63,398) (733,819) (205,258) (193,599) (7,029,882) (2,059,222) 120,214 - 120,214 (1,856,202) (1,939,008) - - Loss for the period (1,856,202) (1,939,008) Other comprehensive income for the period, net of income tax Total comprehensive income/(loss) for the period Loss attributable to: Owners of the Company Loss for the period Total comprehensive loss attributable to: Owners of the Company Total comprehensive loss for the period - - (1,856,202) (1,939,008) (1,856,202) (1,939,008) (1,856,202) (1,939,008) (1,856,202) (1,856,202) (1,939,008) (1,939,008) The accompanying notes form part of these financial statements -20- HEXIMA LIMITED ABN 64 079 319 314 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 Notes Consolidated 2017 $ CURRENT ASSETS Cash and cash equivalents Receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Employee benefits TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Share capital Reserves Accumulated losses TOTAL EQUITY 11 12 13 14 15 16 16 2016 $ 2,053,804 2,849,599 4,903,403 2,006,405 2,006,405 6,909,808 1,847,085 165,823 2,012,908 2,012,908 4,896,900 4,160,840 2,363,236 6,524,076 1,784,631 1,784,631 8,308,707 1,699,219 169,879 1,869,098 1,869,098 6,439,609 61,556,496 677,769 (55,794,656) 57,659,831 1,175,523 (53,938,454) 6,439,609 4,896,900 The accompanying notes form part of these financial statements - 21 - HEXIMA LIMITED ABN 64 079 319 314 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 Consolidated 2017 Opening balance at 1 July 2016 Total comprehensive income for the period Net (loss) for the period Other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners recorded directly in equity Contributions by and distributions to owners Capital raising Capital raising costs Share based payment expenses Total contributions by and distributions to owners Closing balance at 30 June 2017 2016 Opening balance at 1 July 2015 Total comprehensive income for the period Net (loss) for the period Other comprehensive income Total comprehensive income/(loss) for the period Transactions with owners recorded directly in equity Contributions by and distributions to owners Capital raising Capital raising costs Share based payment expenses Total contributions by and distributions to owners Closing balance at 30 June 2016 Note Ordinary Shares $ Equity Option reserve $ Equity compen- sation reserve $ Capital Raising Reserve $ Accumulated Losses $ Total equity $ 57,659,831 200,000 1,018,724 (43,201) (53,938,454) 4,896,900 - - - (1,856,202) - (1,856,202) - (1,856,202) (1,856,202) - - - 3,896,665 16 - 3,896,665 - - - - - - - - - - - (536,167) 38,413 - 38,413 (536,167) - - - 3,896,665 (536,167) 38,413 3,398,911 61,556,496 200,000 1,057,137 (579,368) (55,794,656) 6,439,609 Note Ordinary Shares $ Equity Option reserve $ Equity compen- sation reserve $ Capital Raising Reserve $ Accumulated Losses $ Total equity $ 57,659,831 200,000 958,474 (51,999,446) 6,818,859 - - - - - - - - - - - - - - - - - - - - (43,201) 60,250 - (1,939,008) (1,939,008) - - (1,939,008) (1,939,008) - - - - (43,201) 60,250 60,250 (43,201) (53,938,454) 4,896,900 57,659,831 200,000 1,018,724 (43,201) (53,938,454) 4,896,900 16 The accompanying notes form part of these financial statements - 22 - HEXIMA LIMITED ABN 64 079 319 314 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017 Consolidated 2017 $ 2016 $ Notes CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from government grants & collaboration agreements Cash paid to suppliers and employees Foreign currency remeasurement gain Net cash (used in) operating activities 18(b) CASH FLOWS FROM INVESTING ACTIVITIES Interest received Payments for plant and equipment Net cash (used in) / from investing activities CASH FLOWS (USED IN) / FROM FINANCING ACTIVITIES Capital raising costs Cash from issue of new shares Net cash (used in) financing activities Net (decrease)/ increase in cash and cash equivalents Effect on movements in exchange rates on foreign currency denominated cash at bank Cash and cash equivalents at 1 July 4,585,198 (5,727,505) - (1,142,307) 4,616,139 (6,169,451) 60,218 (1,493,094) 17,552 (4,304) 13,248 (536,167) 3,896,666 3,360,499 47,740 (48,851) (1,111) (43,201) - (43,201) 2,231,440 (1,537,406) (124,404) 2,053,804 17,110 3,574,100 Cash and cash equivalents at 30 June 18(a) 4,160,840 2,053,804 The accompanying notes form part of these financial statements - 23 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 1. REPORTING ENTITY Hexima Limited (the “Company”) is a Company domiciled in Australia and is a for-profit entity. The address of the Company’s registered office is Level 4, LIMS 2, La Trobe University, Victoria, 3086. The consolidated financial statements of the Company as at and for the year ended 30 June 2017 comprises the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The Group is actively engaged in the research and development of technology for the protection and enhancement of commercial crops, primarily to enhance their resistance to insects and fungal pathogens, and the treatment of disease in humans. 2. BASIS OF PREPARATION (a) Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of the Group complies with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The financial statements were approved by the Board of Directors on 18th August 2017. (b) Basis of measurement The financial report has been prepared on the basis of historical cost. (c) Functional and presentation currency The financial statements are presented in Australian dollars, which is the Group’s functional currency. (d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Measurement of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value for both financial and non-financial assets and liabilities. The Group engages a third party to perform fair value calculations for share options issues which is reviewed by the finance team. Significant valuation issues are reported to the Group Audit Committee. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. - 24 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 2. BASIS OF PREPARATION (CONTINUED) (d) Use of estimates and judgements (continued) Measurement of fair values (continued) When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. The Group measure the following assets/liabilities at fair value: Share-based payment transactions. Share-based payment transactions The fair value of employee share options at grant date is measured using the Binomial Approximation Option Pricing method. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Further information about the assumptions made in measuring fair values is included in the following notes: • Note 17 – measurement of share-based payments. (e) Changes in accounting policies The Group has consistently applied the accounting policies set out in Note 3 to all periods presented in these consolidated financial statements. (f) Going concern basis of accounting The financial report is prepared on a going concern basis, which contemplates continuity of normal operations and the realisation of assets and settlement of liabilities in the ordinary course of operations. In making this assessment, the directors have considered future events and conditions for a period of at least 12 months following the approval of these financial statements. The Group has a history of losses and incurred a loss after tax of $1,856,202 (2016: loss after tax of $1,939,008). Given the history of losses, the going concern assumption of the Group is dependent on the continued income from collaboration fees and the receipt of the R&D tax incentive from the government. - 25 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 2. BASIS OF PREPARATION (CONTINUED) (f) Going concern basis of accounting (continued) Notwithstanding the history of operating losses, the Directors consider that it is appropriate to prepare the financial statements on a going concern basis based on the following mitigating factors: • • • The Group has sufficient cash and receivables at 30 June 2017 to meet its obligations at that date and for a period of at least 12 months following the approval of these financial statements. The Group has not entered into any long term contractual commitments and its major expenditure (R&D) can be curtailed in line with the cash resources available. The Group has indicated it has the ability to negotiate creditor settlement terms and related funding to assist in meeting short term liquidity shortfalls. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods by Group entities. Certain comparative amounts have been reclassified to conform with the current year’s presentation. (a) Basis of Consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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 over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (b) Financial Instruments (i) Non-derivative financial instruments The Group initially recognises receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables. Non-derivative financial instruments are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured at - 26 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial instruments (continued) (i) Non-derivative financial instruments (continued) amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents comprise cash balances and call term deposits. Term deposits are classified as cash as the Group can convert the deposits as available cash in reasonable time with minimal break costs to the Group. (ii) Non-derivative financial liabilities Financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial liabilities: trade and other payables. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest rate method. (iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit. Dividends Dividends are recognised as a liability in the period in which they are declared. (c) Plant and equipment (i) Recognition and measurement Items of plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Where parts of an item of plant and equipment have different useful lives, they are accounted for as separate items of plant and equipment. Cost includes expenditures that are directly attributable to the acquisition of the asset. (ii) Subsequent costs The Company recognises in the carrying amount of an item of plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. - 27 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Plant and equipment (continued) (iii) Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset. Depreciation is recognised in profit or loss on a straight-line or diminishing value basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows: 2017 2016 Plant and equipment 15% - 37.5% 15% - 37.5% Office equipment 33% - 66.7% 33% - 66.7% Plant and equipment - Building 5% 5% Depreciation methods, useful lives and residual values are reassessed at the reporting date. (d) Foreign Currency Transactions in foreign currencies are translated to the functional currency of Group entities at exchange rates at the dates of the transactions. (e) Impairment (i) Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on a individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in profit or loss. (ii) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. - 28 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Impairment (continued) (i) Non-derivative financial assets (continued) In respect of assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. The recoverable amount of an asset or cost generating unit is the greater of its fair value and its fair value less costs to sell. 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 the purpose of impairment testing assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash generating unit”). (f) Revenue Grant revenue Government grant income that compensates the Group for expenses incurred is recognised as revenue in the income statement on a systematic basis in the same periods in which the expenses are incurred. Research grants and collaboration fees Research grants and collaboration fees represents revenue received from entities who fund and/or participate in the collaborative research initiatives of the Group. When services in respect of collaborative research activities are performed by an indeterminate number of acts over a specified period of time, revenue is recognised on a straight line basis over the period of the collaborative research agreement. Unrecognised revenue, representing payments received during the year for services to be provided in the future, is recognised as deferred income. (g) Research and development expenditure Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in the income statement as an expense as incurred. Patent costs relating to research activities are expensed as incurred. Plant and equipment acquired to perform research activities are capitalised where the plant and equipment are not specific in nature to the Group’s research activities and can be sold or leased to third parties. Plant and equipment specific to the research activities of the Group are expensed on acquisition. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. No costs were capitalised during the period. Other development expenditure is recognized in the profit and loss as incurred. (h) Finance income and expenses Finance income comprises interest income on term deposits. Interest income is recognised as it accrues in profit or loss, using the effective interest method. - 29 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised directly in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences where the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (j) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statements of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (k) Segment Reporting The Group determines and presents operating segments based on the information that internally is provided to the Group’s chief operating decision maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group primarily operates in one sector, being the biotechnology industry, developing and/or commercialising biotechnology research. The majority of operations are in Australia. All assets are located in Australia. (l) Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit under which the entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as a personnel expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Short term benefits Short-term employee benefit obligations are expensed as the related service is provided. - 30 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Employee benefits (continued) Short term benefits (continued) A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Long term employee benefits The Company’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods plus related on costs; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The maturity discount rate is the yield at the reporting date on AA credit-rated or government bonds that have dates approximating the terms of the Group’s obligations. (m) Share based payment transactions The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (n) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. (o) New standards and interpretations not yet adopted A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2016 and earlier application is permitted; however, the Group has not early adopted the following new or amended standards in preparing these consolidated financial statements. (i) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group is yet to complete an assessment of the potential impact of the adoption of IFRS 15 on its consolidated financial statements. (ii) IFRS 9 Financial Instruments In July 2014, the International Accounting Standards Board issued the final version of IFRS 9 Financial Instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. - 31 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 The actual impact of adopting IFRS 9 on the Group’s consolidated financial statements in 2018 is yet to be assessed. (iii) IFRS 16 Leases IFRS 16 introduces a single, on-balance sheet lease sheet accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with customers at or before the date of initial application of IFRS 16. - 32 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 4. FINANCIAL RISK MANAGEMENT Overview The Group has exposure to the following risks from their use of financial instruments: • credit risk • liquidity risk • market risk • operational 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. Further quantitative disclosures are included throughout this financial report. The Board of Directors has overall responsibility for the oversight of risks. The Group maintains a control environment in which all employees understand their roles and obligations. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from the Government in respect of research grants and accrued interest receivable from banks. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group prepares and monitors budgets to manage its liquidity for the short and long term. 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 Board of Directors oversee market risk exposures to optimise returns. Currency risk The Group’s currency risk is limited to trade and other receivables, payables and cash and cash equivalents that are denominated in a currency other than the functional currency of the Group entities, primarily US dollar (USD) and Euro. Given the minimal value of foreign currency transactions the Group does not enter into contracts to hedge currency risk. At 30 June 2017, there were receivables of $NIL and payables of $NIL denominated in foreign currencies (2016 receivable: $NIL, payable: $NIL). At 30 June 2017 the Group had US$1,691,768 in a US dollar denominated bank account. Interest rate risk The Group does not have any interest expenses. Interest income is earned on term deposits and cash at bank, which are based on prevailing market rates. Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations. - 33 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 4. FINANCIAL RISK MANAGEMENT (continued) Operational risk (continued) The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management of the Group. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: • • • • • • • • • • requirements for appropriate segregation of duties, including the independent authorisation of transactions requirements for the reconciliation and monitoring of transactions compliance with regulatory and other legal requirements documentation of controls and procedures requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified requirements for the reporting of operational losses and proposed remedial action development of contingency plans training and professional development ethical and business standards risk mitigation, including insurance where this is effective. Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. As the Group is a development stage business, the Board of Directors monitors the Group’s performance with particular regard to the progress of scientific programs, the commercialisation of those programs, the development of the Group’s intellectual property and asset base and long-term share price performance. There were no changes in the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. - 34 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 5. SEGMENT REPORTING The Group primarily operates in one sector being the biotechnology industry developing and/or commercialising biotechnology research and therefore the Group’s financial information is the same as the operating segment information. The majority of operations are in Australia. 6. REVENUE Government Grant – Other Government – R&D Tax Incentive Rental Income Research grants and collaboration fees 7. OTHER RESEARCH AND DEVELOPMENT EXPENDITURE Other research and development expenditure 8. OTHER EXPENSES Administration and compliance costs Other expenses 9. FINANCE INCOME AND EXPENSE Consolidated 2017 $ 2016 $ 94,182 36,315 2,045,640 2,680,108 190,917 53,972 1,806,523 2,200,265 4,137,262 4,970,660 1,514,941 1,949,584 1,514,941 1,949,584 79,125 114,002 96,551 97,048 193,127 193,599 Interest income on term deposit and cash at bank Foreign exchange gain/(loss) Finance income 17,552 (124,404) 42,887 77,327 (106,852) 120,214 - 35 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 10. INCOME TAX (a) Income tax expense Loss before tax Income tax using the domestic corporation tax rate of 30% (2016: 30%) Increase/(decrease) in income tax expense due to: R & D adjustment Non-assessable R&D tax incentive Non-deductible share based payment Other Temporary differences not brought to account Tax losses utilised not previously brought to account Consolidated 2017 $ 2016 $ (1,856,202) (1,939,008) (556,861) (581,702) 1,421,637 (613,692) 11,523 2,386 92,176 (357,170) 1,775,407 (798,933) 18,075 2,061 18,670 (433,578) Income tax expense/(benefit) on pre-tax net profit - - (b) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Temporary differences Tax losses Total 727,790 9,823,656 10,551,446 635,614 10,180,826 10,816,440 The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group could utilise the benefits. Comparative amounts have been restated to reflect assessed balances. 11. CASH AND CASH EQUIVALENTS Cash on hand Cash at bank Consolidated 2017 $ 750 2016 $ 1,291 4,160,090 4,160,840 2,052,513 2,053,804 - 36 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 12. RECEIVABLES Current Trade receivables R&D Tax Incentive Receivable – ATO Prepayments and other receivables Consolidated 2017 $ 2016 $ 215,316 50,084 2,011,636 2,663,111 136,284 136,404 2,363,236 2,849,599 The Group’s exposure to credit and currency risks and impairment losses related to trade receivables is disclosed in note 20. 13. PLANT AND EQUIPMENT Consolidated Cost Balance at 1 July 2016 Additions Disposals Balance at 30 June 2017 Balance at 1 July 2015 Additions Disposals Balance at 30 June 2016 Accumulated depreciation Balance at 1 July 2016 Depreciation for the year Disposals Balance at 30 June 2017 Balance at 1 July 2015 Depreciation for the year Disposals Balance at 30 June 2016 Carrying amounts At 1 July 2016 At 30 June 2017 Plant and Equipment $ 3,536,227 - (114,474) 3,421,753 Office Equipment $ 37,539 4,304 (25,913) 15,930 3,489,031 47,196 - 3,536,227 1,534,993 191,486 (83,685) 1,642,794 1,332,887 202,106 - 1,534,993 35,884 1,655 - 37,539 32,368 2,519 (24,629) 10,258 29,216 3,152 - 32,368 Total $ 3,573,766 4,304 (140,387) 3,437,683 3,524,915 48,851 - 3,573,766 1,567,361 194,005 (108,314) 1,653,052 1,362,103 205,258 - 1,567,361 2,001,234 1,778,959 5,171 5,672 2,006,405 1,784,631 The glasshouse facility forming part of plant and equipment which has a cost of $2,365,728 and accumulated depreciation of $887,171 has been wholly leased to a third party. Refer to note 23. - 37 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 14. TRADE AND OTHER PAYABLES Current Trade payables Other payables & accrued expenses Deferred revenue Consolidated 2017 $ 97,296 849,423 752,500 2016 $ 292,165 844,513 710,407 1,699,219 1,847,085 Exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 20. 15. EMPLOYEE BENEFITS Current Superannuation Liability for annual leave Liability for long service leave 16. CAPITAL AND RESERVES Consolidated 2017 $ 9,128 63,760 96,991 2016 $ 15,856 70,931 79,036 169,879 165,823 Reconciliation of movement in capital and reserves Consolidated and the Parent Entity Ordinary Shares 2017 2016 2017 $ 2016 $ Number of shares Amount On issue at 1 July Issued at $0.00 per share on exercise of options Issued via rights issue for cash 81,180,469 81,180,469 57,659,831 57,659,831 - 48,708,320 - - - 3,896,665 - - On issue at 30 June – fully paid 129,888,789 81,180,469 61,556,496 57,659,831 The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. In March 2017, a fully underwritten rights issue of 6 new shares for every 10 shares was offered. This was completed on 12 April 2017 where $3,896,665 was raised in cash. - 38 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 16. CAPITAL AND RESERVES (continued) Equity option reserve On issue at 1 July Issued Lapse of share options On issue at 30 June – fully paid Number of options 2017 2016 Amount 2017 $ 2016 $ - - - - 125,000 - 125,000 200,000 - - 200,000 - - - 200,000 200,000 Number of options Amount Equity compensation reserve 2017 2016 On issue at 1 July Issued as compensation Exercise of share options Lapse of share options On issue at 30 June – fully paid 4,598,000 3,950,000 - - 8,548,000 1,848,000 2,750,000 - - 4,598,000 2017 $ 2016 $ 1,018,724 38,413 - - 1,057,137 958,474 60,250 - - 1,018,724 Total reserve at 30 June 8,548,000 4,598,000 1,257,137 1,218,724 Equity Option Reserve The equity option reserve comprises the accumulated amount of share options issued to other parties. Equity Compensation Reserve The equity compensation reserve represents the accumulated amount of share options granted to key management personnel and other personnel under compensation schemes. Capital Raising Reserve The capital raising reserve represents costs incurred to 30 June 2017 in respect of the capital raising. This will be transferred and recorded against capital raised on completion of the capital raising. - 39 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 17. SHARE-BASED PAYMENTS The terms and conditions of the grants for options outstanding at 30 June 2017 are as follows. All options are to be settled by physical delivery of shares. Grant date / parties entitled Options granted to key management on 26th August 2014 Options granted to key management on 18th November 2014 Options granted to key management on 18th November 2014 Options granted to other personnel on 26th August 2014 Options granted to other personnel on 1st July 2014 Options granted to key management on 11th December 2015 Options granted to key management on 11th December 2015 Options granted to other personnel on 12th February 2017 Options granted to key management on 12th February 2017 Options granted to key management on 12th February 2017 Number of instruments Vesting conditions 540,000 Immediate vesting 500,000 Immediate vesting Contractual life of options 5 years 5 years 200,000 Vesting on earlier of 31st December 2016 5 years or sale of the company 100,000 Immediate vesting 508,000 Immediate vesting 1,500,000 Immediate vesting 1,250,000 Vesting 11th December 2016 100,000 Vesting 31st December 2017 1,250,000 Vesting 31st December 2017 5 years 5 years 5 years 5 years 5 years 5 years 2,600,000 Vesting on completion of deal meeting 5 years specified criteria Total share options 8,548,000 The number and weighted average exercise prices of share options are as follows: Outstanding at 1 July Exercised during the period Lapsed during period Granted during the period Outstanding at 30 June Weighted average exercise price 2017 $0.50 - - $0.12 $0.32 Number of options 2017 4,598,000 - - 3,950,000 8,548,000 Weighted average exercise price 2016 $0.53 - $1.00 $0.50 $0.50 Number of options 2016 1,973,000 - 125,000 2,750,000 4,598,000 The options outstanding at 30 June 2017 have various exercise prices ($0.50, $0.08, $0.10 and $0.20) and a weighted average remaining contractual life of 3.7 years. The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial approximation option pricing model, incorporating the probability of the relative total shareholder return vesting condition being met. - 40 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 17. SHARE-BASED PAYMENTS (continued) The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans issued to directors and management in FY17 were; Non executive Directors only: Risk-free rate 1.90%, fair value at grant date $0.0224, standard deviation (annualised) 71.67% and an annualised dividend rate of 0%. Executive directors and key management personnel: Risk-free rate 2.19%, fair value at grant date $0.048, standard deviation (annualised) 71.67% and an annualised dividend rate of 0%. Consultants: Risk-free rate 1.99%, fair value at grant date $0.0363, standard deviation (annualised) 71.67% and an annualised dividend rate of 0%. The inputs used in the prior year for share options issued to directors, key management staff and other employees were; risk-free rate 2.33%, fair value at grant date $0.0257, estimated share price at grant date $0.084, exercise price $0.50, standard deviation (annualised) 80% and an annualised dividend rate of 0%. Employee expenses Current Share options granted Total expense recognised as employee costs 18. NOTES TO THE STATEMENT OF CASHFLOW 18a. RECONCILIATION OF CASH Reconciliation of cash at the end of the period (as shown in the statement of cash flows) to the related items in the accounts is as follows: Consolidated 2017 $ 38,413 38,413 2016 $ 60,250 60,250 Consolidated 2017 $ 2016 $ Cash on hand and at bank Note 11 4,160,840 2,053,804 18b. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities Loss for the period Adjustments for: Interest received and foreign exchange differences – classified as investing activity and movement in cash Depreciation Write-off of Plant and Equipment Equity settled share based payment expense Operating loss before changes to working capital (Increase)/decrease in trade and other receivables and prepayments Increase/(decrease) in payables and employee benefits Net cash from/(used in) operating activities - 41 - Consolidated 2017 $ 2016 $ (1,856,202) (1,939,008) 106,852 194,005 32,073 38,413 (64,849) 205,258 - 60,250 (1,484,859) (1,738,349) 486,363 (143,811) 51,360 193,895 (1,142,307) (1,493,094) Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 19. AUDITORS’ REMUNERATION Audit Services Auditors of the Company KPMG Australia 2017 2016 - Audit of the annual financial report - Review of half year financial statements 27,820 12,865 27,250 12,700 Other Services Auditors of the Company KPMG Australia - Capital Raising 20. FINANCIAL INSTRUMENTS Credit Risk 34,000 74,685 6,000 45,950 The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum exposure to credit risk at 30 June was: Trade and other receivables R&D Tax Incentive – ATO GST receivable – ATO Cash on hand and at bank Note 12 12 11 Consolidated 2017 $ 215,316 2,011,637 107,614 4,160,840 6,495,406 2016 $ 50,084 2,663,111 113,121 2,053,804 4,880,120 Cash on hand and at bank include deposits with the National Australia Bank. The accrued interest comes from term deposits. Impairment Losses The Group has receivables past due of $NIL (2016: $NIL) and no impairment losses have been recognised (2016: $NIL). The Group is in the development phase of its research and development program. The Group’s income is currently limited to interest on cash and term deposits, Australian government grants and collaborative research agreements where income is received in advance. Accordingly, risk of impairment losses is minimal. Liquidity Risk The Group has no financial liabilities notes except for trade and other payables and employee provisions with a carrying value of $1,869,098 (notes 14 and 15), which are payable in cash and have a maturity of less than 6 months. Long Service leave current liability which is also included in Note 15, totals $96,991. There are currently NIL term deposits. - 42 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 20. FINANCIAL INSTRUMENTS (continued) Currency risk At 30 June 2017, there were receivables of $NIL and payables of $NIL denominated in foreign currencies. Of the cash on hand at 30 June 2017, the Group held USD$1,691,768 (AUD$2,178,600) in a US dollar denominated account. Interest Risk Exposure to interest rate risks arises in the normal course of the Group’s business in respect of interest income on cash at bank (note 11). The weighted average interest rate in respect of interest income in 2017 was 2.17% (2016: 2.4%). Fixed rate instruments In respect of term deposits a 100 basis points increase in interest rates would have decreased the loss by $3,917 (2016: $NIL). A 100 basis points decrease in interest rates would have increased the loss by $3,917 (2016: $NIL). Variable rate instruments In respect of cash at bank a 100 basis points increase in interest rates would have decreased the loss by $7,974 (2016: $8,087). A 100 basis points decrease in interest rates would have increased the loss by $7,974 (2016: $8,087). Estimation of fair values The fair value of a financial asset or a financial liability is the amount at which the asset could be exchanged, or liability settled in a current transaction between willing parties after allowing for transaction costs. The carrying value of financial assets and liabilities approximates their fair value at 30 June 2017. Fair value hierarchy No financial instruments are carried at fair value at 30 June 2017, however, as noted above the carrying amounts approximate fair value in respect of financial assets and liabilities. 21. CONTINGENCIES The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measure. Guarantee and Indemnification The Company has an Institutional Biosafety Committee (IBC) to advise on certain aspects of the Group’s field trial applications. The Group has agreed to indemnify, release and forever discharge the members of the IBC from and against any claim or liability, incurred by the members, arising in connection with the conduct of field trials and related applications being undertaken by the Group. The financial exposure from this arrangement is expected to be nil. - 43 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 22. RELATED PARTIES Directors The following were key management personnel of the Group and the Company at any time during the reporting period and unless otherwise indicated were Directors for the entire period: Non-Executive Chairman Professor Jonathan West Executive Directors Professor Marilyn Anderson, Chief Science Officer Dr. Nicole van der Weerden, Chief Executive Officer Non-Executive Directors Dr. John Bedbrook Mr GF Dan O’Brien Mr Gordon S Black Executives Ms Elisha Larkin, Company Secretary The key management personnel compensation included in ‘employee benefits expense’ is as follows: Consolidated Short term employee benefits Post employment benefits Share based payments 2017 $ 200,634 17,535 37,691 255,860 2016 $ 268,060 25,430 60,250 353,740 Individual Directors and Executive compensation disclosures Apart from the details disclosed in this note, no Director has entered into a material contract with the Group and the Company since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year end. - 44 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 22. RELATED PARTIES (Continued) Options and rights over equity instruments The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneficially, by each key management person including their related parties, is as follows: Key Management Personnel 2017 J West M Anderson N van der Weerden E Larkin J Bedbrook G Black Held at 1 July 2016 1,000,000 500,000 1,000,000 40,000 700,000 250,000 GF O’Brien 250,000 Key Management Personnel 2016 J West M Anderson N van der Weerden E Larkin J Bedbrook S Skala (1) G Black GF O’Brien 3,740,000 Held at 1 July 2015 - 500,000 500,000 40,000 200,000 - - - 1,240,000 Exercised Lapsed at 1 July 2017 Granted as Compensation Held at 30 June 2017 Vested and exercisable at reporting date 1,000,000 500,000 1,000,000 40,000 700,000 250,000 250,000 500,000 500,000 1,500,000 1,000,000 1,000,000 100,000 1,250,000 250,000 2,000,000 140,000 1,950,000 500,000 250,000 500,000 - - - - - - - - 3,850,000 7,590,000 3,740,000 Lapsed at 1 July 2016 Granted as Compensation Held at 30 June 2016 Vested and exercisable at reporting date - - - - - - - - - 1,000,000 - 1,000,000 500,000 500,000 500,000 500,000 1,000,000 1,000,000 - 40,000 500,000 700,000 250,000 250,000 250,000 250,000 250,000 250,000 40,000 250,000 250,000 - - 2,750,000 3,990,000 2,540,000 - - - - - - - - - - - - - - - - - Exercised (1) Mr Steven Skala retired as a Director in December 2015 and was granted options prior to retirement - 45 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 22. RELATED PARTIES (Continued) Movement in shares The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly, or beneficially by each key management personnel, including their related parties, is as follows: Held at 1 July 2016 Shares issued under offer Purchases Received on exercise of options Sales Held at 30 June 2017 2017 Key Management Personnel Jonathan West Nicole van der Weerden Elisha Larkin 2,000,000 1,200,000 9,000 205,400 65,142 50,000 - - - - Marilyn Anderson 2,381,935 1,429,161 GF Dan O’Brien 4,871,333 7,697,061 2,455,000 John Bedbrook Gordon Black - - 500,000 - - - 9,262,268 11,031,622 2,455,000 - - - - - - - - - - - - - - - - 3,200,000 214,400 115,142 3,811,096 15,023,394 500,000 - 22,748,890 Held at 1 July 2015 Shares issued under offer Purchases Received on exercise of options Sales Held at 30 June 2016 2016 Key Management Personnel Jonathan West Nicole van der Weerden Elisha Larkin 2,000,000 9,000 65,142 Marilyn Anderson 2,381,935 GF Dan O’Brien 4,871,333 John Bedbrook Steven M Skala (1) Gordon Black - 4,167,467 - 13,429,735 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,000,000 9,000 65,142 2,381,935 4,871,333 - 4,167,467 - 13,429,735 (1) Mr Steven Skala retired as a Director on the 31st December 2015. - 46 - HEXIMA LIMITED ABN 64 079 319 314 Notes to the financial statements for the year ended 30 June 2017 22. RELATED PARTIES (Continued) Key management personnel and directors’ transactions Professor Anderson and Dr. van der Weerden are employees of La Trobe University. During the course of the financial year ended 30 June 2017, amounts (including GST) totaling $3,953,327 (2016: $4,393,914) were paid or payable by Hexima to La Trobe University for research work carried out on behalf of the Group. These transactions were conducted on normal commercial terms. Trade accounts and/or accruals payable to La Trobe University at 30 June 2017 were $732,674 (exclusive of GST) (2016: $740,115). Related Party Transactions The Company has provided an interest free loan of $2,365,709 to its subsidiary Hexima Holdings Pty Ltd. This loan is outstanding at 30 June 2016 in the Company’s statement of financial position. 23. OPERATING LEASES Leases as lessor Lease rentals are receivable as follows: Less than one year Between one and five years 2017 $ 400,000 700,000 1,100,000 2016 $ - - - 24. GROUP ENTITIES Parent Entity Hexima Limited Significant subsidiaries Hexima Holdings Limited Pharmagra Pty Ltd Country of incorporation Australia Australia Australia Ownership Interest 2016 2015 100% 100% 100% 100% Pharmagra Pty Ltd is incorporated in Australia and is a 100% owned subsidiary of the Company. Pharmagra Pty Ltd has total assets and net assets of $2.00 at 30 June 2016. Hexima Holdings Pty Ltd is incorporated in Australia and is a 100% owned subsidiary of the Company. Hexima Holdings Pty Ltd has total assets of $1,600,424 at 30 June 2016, which comprises the Hexima glasshouse located at La Trobe University. - 47 - Notes to the financial statements for the year ended 30 June 2017 HEXIMA LIMITED ABN 64 079 319 314 25. PARENT ENTITY DISCLOSURES Result of the Parent Entity Loss for the period Other Comprehensive income Total Comprehensive income for the period Financial Position of the Parent entity at year end Current assets Total assets Current liabilities Total liabilities Total equity of the Parent entity comprising of: Share capital Reserves (Accumulated losses) Total Equity Company 2017 $ 2016 $ (1,856,202) - (1,856,202) (1,939,008) - (1,939,008) 6,524,076 8,308,707 4,903,403 6,909,807 1,869,098 1,869,098 2,012,908 2,012,908 61,556,496 677,769 (55,794,656) 6,439,609 57,659,831 1,175,523 (53,938,454) 4,896,900 - 48 - HEXIMA LIMITED ABN 64 079 319 314 DIRECTORS' DECLARATION 1. In the opinion of the Directors of Hexima Limited (“the Company”): (a) The consolidated financial statements and notes that are set out on pages 20 to 48, are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able pay its debts as and when they become due and payable. 2. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and the Company Secretary/CFO for the financial year ended 30 June 2017. 3. The Directors draw attention to Note 2(a) to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Dated at Melbourne 18th day of August 2017. Professor Jonathan West Non-Executive Chairman Dr Nicole van der Weerden Executive Director - 49 - Independent Auditor’s Report To the shareholders of Hexima Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Hexima Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated Statement of financial position as at 30 June 2017 • Consolidated Statement of profit or loss and other comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 Company and Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 50 Other Information Other Information is financial and non-financial information in Hexima Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report and the Remuneration Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Company and Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Company and Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. 51 Auditor’s responsibilities for the audit of the Financial Report (continued) A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar7.pdf. This description forms part of our Auditor’s Report. KPMG Gordon Sangster Partner Melbourne 18 August 2017 52 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Hexima Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Hexima Limited for the financial ended 30 June 2017 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Gordon Sangster Partner Melbourne 18 August 2017 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 53 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 

Continue reading text version or see original annual report in PDF format above