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2023 ReportIMAGION BIOSYSTEMS LIMITED ANNUAL REPORT – FOR THE YEAR ENDED 31 DECEMBER 2018 For personal use only TABLE OF CONTENTS Corporate Directory Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit & Loss and other comprehensive income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report 3 4 19 20 21 22 23 24 46 47 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 CORPORATE DIRECTORY DIRECTORS Mr. Robert Romeo Proulx Mr. Peter Di Chiara Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Ms. Bronwyn Le Grice Dr John Hazle COMPANY SECRETARY Ms. Jovanka Naumoska Executive Chairman/President Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Resigned 26 April 2018 Appointed 26 April 2018 Appointed 30 July 2018 REGISTERED OFFICE c/o- Holding Redlich Level 8, 555 Bourke Street MELBOURNE VIC 3000 AUSTRALIA PRINCIPAL PLACE OF BUSINESS 10355 Science Center Drive Suite 210 SAN DIEGO CA 92121 USA SHARE REGISTER Boardroom Pty Limited Level 12, 225 George Street SYDNEY NSW 2000 AUSTRALIA AUDITOR RSM Australia Partners Level 21, 55 Collins Street MELBOURNE VIC 3000 AUSTRALIA AUSTRALIAN LEGAL ADVISOR Holding Redlich Level 8, 555 Bourke Street MELBOURNE VIC 3000 AUSTRALIA UNITED STATES LEGAL ADVISOR The Grafe Law Office, PC PO BOX 2689 Corrales, NM 87048 UNITED STATES OF AMERICA STOCK EXCHANGE Imagion Biosystems Limited shares are list on the Australian Securities Exchange (ASX Code: IBX). The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of Imagion Biosystems Limited (referred to hereafter as the 'Company' or 'parent entity' or ‘Imagion’) and the entities it controlled at the end of, or during, the year ended 31 December 2018. 3 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Directors The following persons were directors of Imagion Biosystems Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Mr. Robert Romeo Proulx Mr. Peter Di Chiara Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Ms. Bronwyn Le Grice Dr John Hazle Executive Chairman President Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Resigned 26 April 2018 Appointed 26 April 2018 Appointed 30 July 2018 Principal activities During the financial year the principal continuing activities of the consolidated entity consisted of: Nanotechnology; Biotechnology; Cancer Diagnostics; and Superparamagnetic Relaxometry. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations Revenue and Other Income comprised interest income, and sales of nanoparticles. The Company markets nanoparticles to customers through its website and expects to continue to do so, though revenue from this activity is not material and not expected to be material in the future. Operating loss of $8,340,013 was materially in line with projections. In 2018, the Company successfully raised $4,285,904 in stock to prepare the Company’s technology for human trials. Significant changes in the state of affairs Mr Peter Di Chiara resigned as a director on 26 April 2018 and Ms Bronwyn Le Grice was appointed a director at the same date. Dr John Hazle was appointed a director on 30 July 2018. Dr Hazle has been an adviser to the board and the Company for several years. His appointment as a Director was subject to clearance from the MD Anderson Cancer Center Conflict of Interest Committee. Dr Hazle is the Professor and Chair of a department at the MD Anderson Center. On 6 June 2018, the Company issued an additional 10,529,053 shares (approximately 5% of ordinary shares) to the University of Texas MD Anderson Cancer Center (MDACC), as payment for the ongoing research being conducted by MDACC. On 6 June 2018, the Company granted performance rights to the following directors: Director Bronwyn Le Grice Jovanka Naumoska Mark Van Asten David Ludvigson Michael Harsh No of performance shares 150,000 50,000 50,000 50,000 50,000 Start date 6 June 2019 6 June 2019 6 June 2019 6 June 2019 6 June 2019 Vesting date 26 April 2020 6 June 2020 6 June 2020 6 June 2020 6 June 2020 4 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Significant changes in the state of affairs (continued) The terms of these performance shares are set out in the accompanying financial statements. On 6 June 2018, the Company issued 3,000,000 options to a 3rd party which has provided general advisory and equity raising services. The options vested upon issue and expire on 30 June 2021, with a strike price of 20c. The Company completed a rights issue that ultimately raised $4,285,904 (before costs) in two tranches: • $411,524 raised on 24 October 2018, through a non-renounceable rights issue to existing shareholders; and • $3,874,380 raised on 28 November 2018, through a placement to sophisticated and professional investors. As part of the costs of the capital raising, the Company issued 34,420,000 options to the lead manager on 28 November 2018. These options vested immediately at a strike price of $0.06 and expire 24 months from the date of issue. On 17 December 2018 the Company announced the signing of a master service agreement with US and Australian based company, Planet Innovation, to assist in the commercialisation of Imagion’s Magsense™ technology. There were no other significant changes in the state of affairs of the consolidated entity during the financial year. Matters subsequent to the end of the financial year No other matters or circumstances have arisen since 31 December 2018 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. Likely developments and expected results of operations Management expects spending to remain constant in future periods except for contracts and collaborations agreements to advance our progress toward human trials. These agreements would include, manufacturing for our formulated nanoparticle, design and prototype production of our instrument, clinical consultants among other things. Environmental Regulation The Consolidated Entity is not subject to any significant environment regulation under Australian Commonwealth or State Law. Information on Directors Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: device through products development Mr. Robert Romeo Proulx Executive Chairman/President - Master of Arts and Bachelor of Arts, The State University of New York at Albany; - Executive Master of Business Administration, Penn State Smeal College of Business. Robert has over 25 years’ experience bringing life science and medical and commercialisation and joined the predecessor company, Senior Scientific as President and Chief Operating Officer. Quantapore, Inc. PGXL Diagnostics Laboratories, Inc. (2009 – 2017) None 352,500 Shares Nil 8,700,000 performance rights 8,700,000 performance rights which are subject to ASX escrow restrictions from official quotation. The Performance rights are issued under the company’s loan term incentive plan and will vest into an ordinary share subject to achievement of prescribed performance conditions. for 24 months 5 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Information on Directors (continued) Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: Mr. Michael John Harsh Non-Executive Director - Bachelor’s degree in Electrical Engineering, Marquette University With almost 36 years’ service to GE, mostly with GE Healthcare on his résumé, Michael Harsh is extraordinarily fluent in the complex processes of transforming high-potential platform technologies into successful medical diagnostic products. ENDRA Life Sciences (2016 – present); FloDesign Sonics (2015 – present); EmOpti, Inc. (2015 – present); Nil Audit and Risk Nil Nil 200,000 performance rights 150,000 performance rights which are subject to ASX escrow from official quotation. The restrictions Performance rights are issued under the company’s long-term incentive plan and will each vest into an ordinary share 24 months after official quotation for 24 months 50,000 Performance Rights each will automatically vest into one Share on the vesting date of 6 June 2020. Mr. David Gerald Ludvigson Non-Executive Director - Bachelor of Science in Accounting, University of Illinois - Masters in Accounting Science, University of Illinois. David is President and CEO of Nanomix, Inc, a mobile diagnostics company. Previously, David held executive leadership positions with Nanogen, Matrix Pharmaceutical, IDEC Pharmaceuticals, MIPS Computer Systems, and other high-tech companies. He began his career at Price Waterhouse. China Stem Cells Ltd (2010-present); Nanōmix Inc. (2014-present). Nil Audit and Risk Committee Nil Nil 200,000 performance rights 150,000 performance rights which are subject to ASX escrow restrictions from official quotation. The Performance rights are issued under the company’s long-term incentive plan and will each vest into an ordinary share 24 months after official quotation for 24 months 50,000 Performance Rights each will automatically vest into one Share on the vesting date of 6 June 2020. 6 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Information on Directors (continued) Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: in Applied Corporate Governance, Ms. Jovanka Naumoska Non-Executive Director - Bachelor of Science degree, University of Wollongong; - Bachelor of Law degree and the Graduate Diploma in Legal Practice, University of Wollongong; -Graduate Diploma Governance Institute of Australia. Jovanka Naumoska is an Australian-qualified corporate lawyer with board-level experience in legal issues pertaining to medical imaging technology. Jovanka has served as Senior Corporate Lawyer and Policy Advisor for Australian Nuclear Science and Technology Organisation (ANSTO), and currently holds the position of Manager, Business Excellence. Security Matters Limited Nil Remuneration and Nomination Committee Nil Nil 200,000 performance rights 150,000 performance rights which are subject to ASX escrow restrictions from official quotation. The Performance rights are issued under the company’s long-term incentive plan and will each vest into an ordinary share 24 months after official quotation. for 24 months 50,000 Performance Rights each will automatically vest into one Share on the vesting date of 6 June 2020. Mark Gerald Van Asten Non-Executive Director Bachelor of Science, University of New South Wales As the Managing Director and founder of Diagnostic Technology Pty Ltd, Mark has been responsible for the development, introduction, and mainstream healthcare adoption of technologies throughout Australia and Asia. Mark has also held several director- level business development positions with US and Australian diagnostics corporations. Nil Nil Audit and Risk, Remuneration and Nomination Nil Nil 200,000 performance rights 150,000 performance rights which are subject to ASX escrow restrictions from official quotation. The Performance rights are issued under the company’s long-term incentive plan and will each vest into an ordinary share 24 months after official quotation for 24 months 50,000 Performance Rights each will automatically vest into one Share on the vesting date of 6 June 2020. 7 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Information on Directors (continued) Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: preparation, Ms. Bronwyn le Grice Non-Executive Director - Master’s Degree, Commercial Law University of Melbourne; - Bachelor’s Degree, Communications, Marketing, General Management, Business Law and Human Resources The University of Western Australia. Bronwyn has over 15 years senior executive experience in health technology spanning venture capital, transaction management, capital raising, corporate development, investor relations and industry advocacy. She is currently Founder & CEO of ANDHealth, providing Australia’s only accelerator programs focused specifically on de-risking and commercialising technologies in digital health. Previously Bronwyn held the role of Investment Director BioScience Managers and has advised both public and private companies in Australia and New Zealand on deal investor engagement. Bronwyn is a Member of Women on Boards and the Australian Institute of Company Directors. In addition, she holds a number of advisory roles, including the RMIT University Health and BioMedical Sector Expert Research Advisory Group, Swinburne University Innovation Precinct Advisory Board, La Trobe University Digital Health Advisory Committee, PCH Alliance Global Innovation Task Force and Australia New Zealand Leadership Forum Health Technologies Sector Advisory Group. ANDHealth Limited None None Nil Nil 150,000 performance rights 150,000 Performance Rights each will automatically vest into one Share on the vesting date of 26 April 2020. structuring, execution and 8 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Information on Directors (continued) Name: Title: Qualifications: Experience & Expertise: Other Current Directorships: Former Directorships (last 3 years): Membership of Committees Interest in Shares: Interest in Options: Interest in Rights: Contractual rights to Shares: Dr John Hazle Non-Executive Director - Bachelors, Physics University of Kentucky; - Master’s Degree, Medical Physics University of Kentucky; - Ph.D. Biophysics The University of Texas. Dr. Hazle is a medical physicist with over 25 years of experience. He is board-certified and licensed in Texas for both therapeutic and diagnostic medical physics. His primary research interests are image-guided therapy, pre-clinical imaging and novel early detection technologies. Dr. Hazle has been the Director of the NCI funded Small Animal Cancer Imaging Research Facility and was the Director of the NCI funded Experimental Cancer Imaging Research Program. None None None Nil Nil 150,000 performance rights 150,000 performance rights which are subject to ASX escrow restrictions from official quotation. The Performance rights are issued under the company’s long-term incentive plan and will each vest into an ordinary share 24 months after official quotation. for 24 months Other current directorships quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Ms. Jovanka Naumoska has held the role of Company Secretary since 6 December 2016. She holds a Graduate Diploma in Applied Corporate Governance from the Governance Institute of Australia as well as Bachelor of Science degree from the University of Wollongong, Bachelor of Law degree and the Graduate Diploma in Legal Practice, also from the University of Wollongong. 9 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Meetings of directors The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during the year ended 31 December 2018, and the number of meetings attended by each director were: Full Board Audit & Risk Management Committee Remuneration & Nomination Committee Attended Number of meetings eligible to attend Attended Number of meetings eligible to attend Attended 5 3 5 5 5 5 1 1 1 2 2 2 1 1 2 2 1 1 1 1 1 1 Number of meetings eligible to attend 5 3 5 5 5 5 2 2 Mr. Robert Romeo Proulx Mr. Peter Di Chiara* Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Dr. John Hazle*** Ms. Bronwyn Le Grice ** *resigned on 26 April 2018 **appointed on 26 April 2018 ***appointed on 30 July 2018 Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● ● ● ● ● ● principles used to determine the nature and amount of remuneration details of remuneration service agreements share-based compensation additional information additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the consolidated entity's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● ● ● ● competitiveness and reasonableness acceptability to shareholders performance linkage / alignment of executive compensation transparency The Board has determined the remuneration arrangements for the directors and executives with the appointment of the Nomination and Remuneration Committee they will be responsible for determining and reviewing remuneration arrangements for its directors and executives. 10 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Principles used to determine the nature and amount of remuneration (continued) The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high-quality personnel. The reward framework is designed to align executive reward to shareholders' interests. The Board have considered that it should seek to enhance shareholders' interests by: ● ● having economic profit as a core component of plan design focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and del constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value attracting and retaining high calibre executives ● Additionally, the reward framework should seek to enhance executives' interests by: ● ● ● rewarding capability and experience reflecting competitive reward for contribution to growth in shareholder wealth providing a clear structure for earning rewards In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive director’s remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Board. The Board may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors' fees and payments are appropriate and in line with the market. Shareholders approve the maximum aggregate remuneration for non-executive directors at the Annual General Meeting on 31 May 2018. The Board recommends the actual payments to directors and shareholders are responsible for ratifying any recommendations, if appropriate. ASX listing rules require the aggregate non-executive director’s remuneration be determined periodically by a general meeting. The aggregate approved remuneration for non- executive directors is $250,000. Executive remuneration The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: ● ● ● ● base pay and non-monetary benefits short-term performance incentives share-based payments health care benefits The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary and non-monetary benefits, are reviewed annually by the Nomination and Remuneration Committee based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The short-term incentives ('STI') program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. 11 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Principles used to determine the nature and amount of remuneration (continued) The long-term incentives ('LTI') include share-based payments. Shares are awarded to executives over a period of three years based on long-term incentive measures. These include increase in shareholders’ value relative to the entire market and the increase compared to the consolidated entity's direct competitors. Consolidated entity performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the consolidated entity. A portion of cash bonus and incentive payments are dependent on defined earnings per share targets being met. The remaining portion of the cash bonus and incentive payments are at the discretion of the Nomination and Remuneration Committee. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of Imagion Biosystems Limited: Executive Directors: Robert Romeo Proulx – Executive Chairman/President Other Key Management: Giulio Paciotti – Vice President – Research & Development, resigned 1 July 2018 Brian Conn – Chief Financial Officer Details of Remuneration 2018 Non-Executive Directors Mr. Peter Di Chiara* Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Ms. Bronwyn Le Grice** Dr John Hazle *** Executive Directors Robert Romeo Proulx Other Key Management Giulio Paciotti**** Brian Conn Total Cash Salary & Fees $ 2,576 12,500 12,500 12,500 12,500 8,333 12,500 347,942 272,000 200,480 893,831 Short Term Benefits Share-Based Payments Cash Bonus Non- Monetary $ $ Equity- settled shares $ Equity- settled options $ Total $ 20,895 23,815 23,815 23,815 23,815 10,864 23,019 18,319 11,315 11,315 11,315 11,315 2,531 10,519 610,096 958,038 (64,386) 119,214 207,614 319,694 741,553 1,635,384 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - * ** *** **** Represents remuneration from 1 January 2018 to 26 April 2018. Represents remuneration from 26 April 2018 to 31 December 2018. Represents remuneration from 30 July 2018 to 31 December 2018. Represents remuneration from 1 January 2018 to 1 July 2018. 12 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Details of Remuneration (continued) Short Term Benefits Share-Based Payments 2017 Non-Executive Directors Mr. Peter Di Chiara* Mr. Michael John Harsh** Mr. David Gerald Ludvigson*** Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Executive Directors Robert Romeo Proulx Other Key Management Giulio Paciotti Brian Conn Total Cash Salary & Fees $ 5,178 5,178 5,178 5,178 5,178 309,675 238,035 176,458 750,058 Cash Bonus Non- Monetary $ - - - - - - - - - $ - - - - - - - - - Equity- settled shares $ Equity- settled options $ Total $ 10,859 10,859 10,859 10,859 10,859 5,681 5,681 5,681 5,681 5,681 329,504 639,179 64,386 64,386 302,421 240,844 486,681 1,236,739 - - - - - - - - - * ** *** Represents remuneration from 28 April 2017 to 31 December 2017. Represents remuneration from 28 February 2017 to 31 December 2017. Represents remuneration from 8 March 2017 to 31 December 2017. Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Agreement Commenced Term of Agreement Details Name: Title: Agreement Commenced Term of Agreement Details Mr. Robert Romeo Proulx Executive Chairman/President 1 May 2017 3 years, unless extended by mutual agreement - Base salary of $US200,000 per annum, to be the Nomination and reviewed annually by Remuneration Committee; - Entitled to up to 8,700,000 Shares under the Long- Term Incentive Plan (subject to certain milestones being met) as an initial grant upon Listing; 12 months termination notice by either party, - Giulio Paciotti (resigned on 15 June 2018) Vice President Research & Development 1 May 2017 3 years, unless extended by mutual agreement - Base salary of $US165,000 per annum, to be the Nomination and reviewed annually by Remuneration Committee. - Entitled to up to 1,700,000 Shares under the Long- Term Incentive Plan (subject to certain milestones being met) as an initial grant upon Listing. 6 months termination notice by either party. - 13 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Service agreements (continued) Name: Title: Agreement Commenced Term of Agreement Details Brian Conn Chief Financial Officer 1 May 2017 3 years, unless extended by mutual agreement - Base salary of $US120,000 per annum, to be the Nomination and reviewed annually by Remuneration Committee. - Entitled to up to 1,700,000 Shares under the Long- Term Incentive Plan (subject to certain milestones being met) as an initial grant upon Listing. 6 months termination notice by either party - Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of Shares There were no shares issued to Directors and other key management personnel as part of compensation during the year ended 31 December 2018. Options There were no options issued to Directors and other key management personnel as part of compensation during the year ended 31 December 2018. Performance Rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of Directors and other key management personnel in this financial year or future reporting are as follows: Name Mr. Robert Romeo Proulx Mr. Peter Di Chiara* Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Ms. Browyn Le Grice Dr John Hazle** Mr. Mark Gerald Van Asten Giulio Paciotti Brian Conn Number of rights granted 8,700,000 150,000 150,000 50,000 150,000 50,000 150,000 50,000 150,000 150,000 150,000 50,000 1,700,000 1,700,000 Grant date Expiry date Exercise price $ Fair value per right at grant date 22-Jun-17 22-Jun-17 22-Jun-17 6-Jun-18 22-Jun-17 6-Jun-18 22-Jun-17 6-Jun-18 6-Jun-18 22-Jun-17 22-Jun-17 6-Jun-18 22-Jun-17 22-Jun-17 22-Jun-19 22-Jun-19 22-Jun-19 6-Jun-20 22-Jun-19 6-Jun-20 22-Jun-19 6-Jun-20 26-Apr-20 22-Jun-19 22-Jun-19 6-Jun-20 22-Jun-19 22-Jun-19 - - - - - - - - - - - - - - $ 0.16 0.16 0.16 0.06 0.16 0.06 0.16 0.06 0.06 0.16 0.16 0.06 0.16 0.16 * ** Resigned 26 April 2018. The performance rights were forfeited upon resignation. Appointed 30 July 2018. The performance rights were granted to Dr Hazle when he was an advisor to the Company. 14 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Share-based compensation (continued) Performance rights granted carry no dividend or voting rights. Additional information The earnings of the Consolidated Entity for the year ended 31 December 2017 is summarised below: Revenue Net loss before tax Net loss after tax 2018 2017 371,489 8,340,013 8,340,013 339,057 7,794,602 7,794,602 The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: Share Price at start of financial year ($) Share price at financial year end ($) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Additional disclosures relating to key management personnel 2018 0.110 0.030 (0.0378) (0.0378) 2017 0.200 0.110 (0.0507) (0.0507) Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Name Balance start of year Received Remuneration Additions Mr. Robert Romeo Proulx Mr. Peter Di Chiara Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Ms. Browyn Le Grice Dr John Hazle Giulio Paciotti Brian Conn Total 235,000 - - - - - - - - - 235,000 - - - - - - - - - - - 117,500 - - - - - - - - 250,000 367,500 Disposals Balance at the end of the year 352,500 - - - - - - - - 250,000 602,500 - - - - - - - - - - - 15 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Additional disclosures relating to key management personnel (continued) Performance Rights Holding The number of performance shares in the company held during the financial year by each Director and other members of key management personnel of the Consolidated Entity, including their personally related parties, is set out below: Name Mr. Robert Romeo Proulx Mr. Peter Di Chiara* Mr. Michael John Harsh Mr. David Gerald Ludvigson Ms. Jovanka Naumoska Mr. Mark Gerald Van Asten Ms. Browyn Le Grice Dr John Hazle** Giulio Paciotti*** Brian Conn Total Balance start of year 8,700,000 150,000 150,000 150,000 150,000 150,000 - 150,000 1,700,000 1,700,000 13,000,000 Granted - - 50,000 50,000 50,000 50,000 150,000 - - - 350,000 Vested Expired/forfeit ed/other - (150,000) - - - - - - Balance at end of year 8,700,000 - 200,000 200,000 - - - - - - - - - - (1,700,000) - (1,850,000) 200,000 200,000 150,000 150,000 - 1,700,000 11,500,000 * ** *** Resigned 26 April 2018. The performance shares were forfeited upon resignation. Appointed 30 July 2018. The performance rights were granted to Dr Hazle when he was an adviser to the Company Resigned 1 July 2018. The performance shares were forfeited on resignation. This concludes the remuneration report, which has been audited. Shares under option Unissued ordinary shares of Imagion Biosystems Limited under option at the date of this report are as follows: Grant date Expiry date Exercise Number price under option 6 June 2018 28 November 2018 30 June 2021 27 November 2020 $0.20 $0.06 3,000,000 34,700,000 No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the company or of any other body corporate. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. 16 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Proceedings on behalf of the company No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 14 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Proceedings on behalf of the company (continued) The directors are of the opinion that the services as disclosed in note 15 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Officers of the company who are former partners of RSM Australia Partners There are no officers of the company who are former partners of RSM Australia Partners. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. 17 For personal use only Imagion Biosystems Limited Directors’ report 31 December 2018 Auditor RSM Australia Partners continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Robert Proulx Director 29 March 2019 18 For personal use only RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Imagion Bio Systems Limited for the year ended 31 December 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS R B MIANO Partner Dated: 29 March 2019 Melbourne, Victoria THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING 19 RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation For personal use only Imagion Biosystems Limited Consolidated Statement of Profit and Loss and Other Comprehensive Income For the year ended 31 December 2018 Revenue and other income 4 371,489 339,057 Note 2018 $ 2017 $ Expenses Research & development costs Employee salaries and expenses Professional fees General expenses Share based payments expense Depreciation Foreign exchange gain/(loss) Interest Finance costs Loss before income tax expense Income tax expense Loss after income tax expense Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation reserve Income tax relating to these items Other comprehensive income/(loss) for the year, net of tax (3,295,676) (3,128,280) (525,302) (1,148,459) (837,133) (213,791) 444,892 - (7,753) (8,340,013) (2,155,714) (2,100,536) (1,084,342) (1,026,512) (623,927) (206,834) (529) (858,583) (76,682) (7,794,602) - (8,340,013) - (7,794,602) (411,997) 61,575 - - (411,997) 61,575 Total comprehensive income/(loss) for the year (8,752,010) (7,733,027) Loss attributable to: Owners of Imagion Biosystems Limited Loss per share attributable to the owners of Imagion Biosystem Limited Basic loss per share Diluted loss per share (8,752,010) (7,733,027) Cents Cents 20 20 (0.0378) (0.0378) (0.0507) (0.0507) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 20 For personal use only Imagion Biosystems Limited Consolidated Statement of Financial Position As at 31 December 2018 Assets Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liability Employee benefits Total current liabilities Non-current liabilities Lease liability Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Note 2018 $ 2017 $ 5 6 7 8 4,367,097 140,481 408,021 4,915,599 6,872,829 8,704 387,690 7,269,223 271,860 271,860 372,103 372,103 5,187,459 7,641,326 1,187,992 36,082 75,723 1,299,797 564,663 30,684 44,094 639,441 18,434 18,434 49,329 49,329 1,318,231 688,770 3,869,228 6,952,556 10 11 12 33,182,325 1,899,938 (31,213,035) 28,686,708 1,138,870 (22,873,022) 3,869,228 6,952,556 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 21 For personal use only Imagion Biosystems Limited Consolidated Statement of Changes in Equity As at 31 December 2018 Consolidated Balance at 1 January 2017 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Contributions of equity Cost of contributions of equity Share-based payments Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ 2 - - - 453,368 (15,078,420) (14,625,050) - 61,575 (7,794,602) - (7,794,602) 61,575 61,575 (7,794,602) (7,733,027) 32,610,259 (3,923,553) - - - 623,927 - - - 32,610,259 (3,923,553) 623,927 Balance at 31 December 2017 28,686,708 1,138,870 (22,873,022) 6,952,556 Consolidated Balance at 1 January 2018 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Loss after income tax expense for the year Other comprehensive income for the year, net of tax 28,686,708 - - 1,138,870 - (411,997) (22,873,022) (8,340,013) - 6,952,556 (8,340,013) (411,997) Total comprehensive income for the year - (411,997) (8,340,013) (8,752,010) Transactions with owners in their capacity as owners: Contributions of equity Cost of contributions of equity Share-based payments 5,146,705 (651,088) - - - 1,173,065 - - - 5,146,705 (651,088) 1,173,065 Balance at 31 December 2018 33,182,325 1,899,938 (31,213,035) 3,869,228 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 22 For personal use only Imagion Biosystems Limited Consolidated Statement of Cash Flows For the year ended 31 December 2018 Consolidated Note 2018 $ 2017 $ Cash flows from operating activities Receipts from customers (inclusive of sales and other taxes) Payments to suppliers and employees (inclusive of sales and other taxes) Interest received Interest and other finance costs paid 154,457 (6,786,076) 67,078 (2,669) 125,158 (7,017,667) 51,213 (136,089) Net cash from operating activities 19 (6,567,210) (6,977,385) Cash flows from investing activities Payment for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Lease repayments Proceeds from financing arrangements Proceeds from the issue of shares Share issue costs Proceeds from note issue Repayment of notes Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents (83,565) (369,606) (83,565) (369,606) (128,493) - (99,294) 213,375 4,285,884 18,208,278 (1,109,420) (54,189) 81,169 - - (3,108,683) 4,103,202 14,185,425 (2,547,573) 6,872,829 41,841 6,838,434 27,641 6,754 Cash and cash equivalents at the end of the financial year 4,367,097 6,872,829 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 23 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The consolidated entity has adopted AASB 9 from 1 January 2018. The standard introduced new classification and measurement models for financial assets and financial liabilities. AASB 15 Revenue from Contracts with Customers The consolidated entity has adopted AASB 15 from 1 January 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. There is currently no impact on the consolidated entity when adopting both AASB 9 and AASB 15 and therefore no subsequent adjustments were necessary. Going Concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business. As disclosed in the financial statements, the consolidated entity incurred a loss of $8,340,013, and had net cash outflows from operating activities of $6,567,210 for the year ended 31 December 2018. The consolidated entity is dependent on the need for additional funding to cover ongoing product development and has forecast losses for the next financial year. These factors indicate a material uncertainty which may cast significant doubt as to whether the consolidated entity will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The Directors believe that there are reasonable grounds to believe that the consolidated entity will be able to continue as a going concern after considering the following factors: - The Directors are confident that additional funds can be raised through further capital raisings to support ongoing research and development activities; - The Company successfully raised $4,285,904 (before costs) during October and November 2018. Accordingly, the Directors believe that the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the consolidated entity does not continue as a going concern. 24 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 16. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Imagion Biosystems Limited ('company' or 'parent entity') as at 31 December 2018 and the results of all subsidiaries for the year then ended. Imagion Biosystems Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Foreign currency translation The financial statements are presented in Australian dollars, which is Imagion Biosystems Limited's functional and presentation currency. 25 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition The consolidated entity recognises revenue as follows: Sale of goods Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered, or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. 26 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off. 27 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives as follows: Plant and equipment 3-10 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. 28 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight- line basis over the term of the lease. Research and development Research costs for the development of intellectual property are expenses in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the consolidated entity is able to use or sell the asset; the consolidated entity has sufficient resources; and intent to complete the development and its costs can be measured reliably. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure is capitalised and is amortised on a straight-line basis over the period of expected benefits from the related project. Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Employee Benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. 29 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: ● ● during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore, any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. 30 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the company. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Imagion Biosystems Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. 31 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 1. Significant accounting policies (continued) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Consolidated Entity for the annual reporting period ended 31 December 2018. The Consolidated Entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Consolidated Entity, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs. The Consolidated Entity will adopt this standard from 1 January 2019, and it is not expected to have a material impact on the Consolidated Entity’s financial performance due to the short-term nature of its leases. Note 2. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. The carrying amounts of cash and cash equivalents, trade receivables and trade payables are assumed to approximate their fair values due to their short-term nature. 32 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 3. Operating Segments Identification of reporting operating segments The consolidated entity is organised into one operating segment being Research & Development. This operating segment is based on internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (CODM) in assessing performance and in determine the allocation of resources. Note 4. Revenue Sales revenue Sale of goods Other revenue Interest Other income Fair value of financial derivative movement Consolidated 2018 $ 191,477 191,477 36,955 143,057 - 180,012 2017 $ 20,102 20,102 81,620 109,459 127,876 318,955 Revenue 371,489 339,057 Note 5. Current assets - cash and cash equivalents Cash on hand Cash at bank Cash on deposit Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Balance as per statement of cash flows Note 6. Current assets - other Prepayments Other assets Accrued interest income 33 Consolidated 2018 $ 2017 $ 16 4,367,081 - 2 837,320 6,035,507 4,367,097 6,872,829 4,367,097 6,872,829 4,367,097 6,872,829 Consolidated 2018 $ 2017 $ 52,885 355,136 - 340,555 16,974 30,161 408,021 387,690 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 7. Non-current assets - property, plant and equipment Plant and equipment - at cost Less: accumulated depreciation Consolidated 2018 $ 2017 $ 1,328,260 (1,056,400) 1,123,017 (750,914) 271,860 372,103 Reconciliation Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated – Plant & Equipment Opening Balance Additions Disposals Foreign currency revaluation movements Depreciation expense Closing Balance Note 8. Current liabilities - trade and other payables Trade payables Other payables Note 9. Contingent liabilities Consolidated 2018 $ 2017 $ 372,103 87,181 - 26,367 (213,791) 218,477 369,606 - (9,460) (206,520) 271,860 372,103 Consolidated 2018 $ 2017 $ 983,680 204,312 401,658 163,005 1,187,992 564,663 As of 31 December 2018, the Company was not party to any material litigation, claims or suit whose outcome could have a material effect on the financial statements (31 December 2017: Nil). 34 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 10. Equity - issued capital Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. Ordinary shares - fully paid 203,766,163 322,7432,824 28,686,708 33,248,127 2017 Shares Consolidated 2018 Shares 2017 $ 2018 $ Movements in ordinary share capital Details Balance at 1 January 2017 Issue of shares Issue of shares Issue of shares Issue of shares Issue of shares Date 1 January 2017 7 February 2017 7 February 2017 7 February 2017 22 June 2017 22 June 2017 Shares 20 29,629,637 32,553,959 64,099,456 3,333,091 74,150,000 Issue Price 0.10 0.09 0.11 0.15 0.52 0.20 Sub total 31 December 2017 203,766,163 Costs of capital raising Closing balance Movements in ordinary share capital Details Issue of shares (share-based payment) Issue of shares (rights issue) Issue of shares (rights issue) Issue of shares (performance shares) Date 6 June 2018 24 October 2018 28 November 2018 28 November 2018 Shares 10,529,053 10,288,098 96,859,510 1,300,000 Issue Price 0.062 0.04 0.04 0.16 Sub total 31 December 2018 322,742,824 Costs of capital raising Closing balance $ 2 2,666,667 3,580,935 9,797,733 1,734,924 14,830,000 32,610,261 (3,923,553) 28,686,708 $ 652,801 411,524 3,874,380 208,000 33,833,413 (651,088) 33,182,325 On 6 June 2018, the consolidated entity issued an additional 10,529,053 shares to the University of Texas MD Anderson Cancer Center, as payment for the consolidated entity’s contribution to ongoing research being conducted by the Cancer Center. The shares have been valued at the fair value on the date of issue. The consolidated entity completed a rights issue that ultimately raised $4,285,904 (before costs) in two tranches: • $411,524 raised on 24 October 2018, through a non-renounceable rights issue of 10,288,098 shares at $0.04 to existing shareholders. • $3,874,380 raised on 28 November 2018, through a placement of 96,859,510 shares at $0.04 to sophisticated and professional investors. On 28 November 2018, 1,300,000 vested performance shares were converted into ordinary shares. The performance shares were issued to current and previous employees. 35 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 10. Equity - issued capital (continued) Capital risk management The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current consolidated entity's share price at the time of the investment. The consolidated entity is not actively pursuing additional investments in the short-term as it continues to integrate and grow its existing businesses in order to maximise synergies. Note 11. Equity - reserves Share based payment reserve – options Foreign currency translation reserve Total Foreign currency translation reserve Consolidated 2018 $ 2017 $ 1,796,992 102,946 623,927 514,943 1,899,938 1,138,870 The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 January 2017 Movements in revaluation of foreign currency through translation reserve Share based payments for key management, non-executive directors and employees Balance at 31 December 2017 Movements in revaluation of foreign currency through translation reserve Share based payments for key management, non-executive directors and employees Share based payment reserve $ - - 623,927 Foreign currency reserve $ Total $ 453,368 453,368 61,575 61,575 623,927 - 623,927 514,943 1,138,870 - (411,997) (411,997) 1,173,065 - 1,173,065 Balance at 31 December 2018 1,796,992 102,946 1,899,938 36 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 12. Accumulated Losses Accumulated Losses at the beginning of the financial year Losses after income tax expense for the year Dividends paid Consolidated 2018 $ 2017 $ (22,873,022) (15,078,420) (7,794,602) (8,340,013) - - Accumulated Losses at the end of the financial year (31,213,035) (22,873,022) Note 13. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the consolidated entity is set out below: Short-term employee benefits Share-based payments Note 14. Remuneration of auditors Consolidated 2018 $ 2017 $ 893,831 741,553 750,058 486,681 1,635,384 1,236,739 During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the company, its network firms and unrelated firms: Audit services – RSM Australia Partners Audit or review of the financial statements Other services – RSM Australia Pty Ltd Investigating accountants report Consolidated 2018 $ 2017 $ 60,000 60,000 - 61,720 60,000 121,720 37 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 15. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year** One to five years Lease commitments - finance Committed at the reporting date and recognised as liabilities, payable: Within one year One to five years Total commitment Less: Future finance charges Net commitment recognised as liabilities Representing: Lease liability - current Lease liability - non-current Consolidated 2018 $ 2017 $ 17,132 - 1,250,126 158,439 17,312 1,408,565 38,507 18,971 57,478 (2,963) 34,844 52,009 86,853 (6,840) 54,515 80,013 36,082 18,433 30,684 49,329 54,515 80,013 Finance lease commitments includes contracted amounts for various plant and equipment with a written down value of $59,766 (2017: $77,257) secured under finance leases expiring within one to five years. Under the terms of the leases, the consolidated entity has the option to acquire the leased assets for predetermined residual values on the expiry of the leases. The consolidated entity has no capital expenditure commitments as at 31 December 2018 (2017: Nil). Note 16. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income (Loss) after income tax Total comprehensive income Statement of financial position Total current assets Total assets 38 Parent 2018 $ 2017 $ (28,436,906) (2,333,573) (28,436,906) (2,333,573) Parent 2018 $ 2017 $ 4,705,440 6,263,838 4,705,453 26,652,192 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 16. Parent entity information (continued) Total current liabilities Total liabilities Equity Issued capital Reserves Retained earnings Total equity Contingent liabilities 2018 $ 2017 $ 687,789 167,165 687,789 167,165 33,182,325 28,686,708 610,182 (2,811,863) 2,084,119 (31,248,780) 4,017,664 26,485,027 The parent entity had no contingent liabilities as at 31 December 2018 and 31 December 2017. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2018 and 31 December 2017. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Note 17. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 1: Name Principal place of business / Country of incorporation Ownership interest 2018 % 2017 % Imagion Biosystems Inc United States of America 100 100 Note 18. Events after the reporting period No other matters or circumstances have arisen since the end of the financial period that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. 39 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 19. Reconciliation of loss after income tax to net cash flows from operating activities Loss after income tax expense for the year (8,340,013) (7,794,602) Consolidated 2018 $ 2017 $ Adjustments for: Depreciation expense Refundable Deposit Fair value adjustment Foreign exchange loss Share based payments expense Direct Equity Raising Costs Collaboration Expenses Interest Changes in operating assets and liabilities: Trade and other receivables Prepayments Trade and other payables Monies in trust 213,791 (123,112) (140,036) (444,892) 837,133 (57,894) 869,811 - (7,185,212) 206,834 - (127,877) 529 623,927 - - 858,582 (6,232,607) (44,583) 287,670 371,450 3,465 (66,046) (331,332) (364,374) 16,974 Net cash used in operating activities (6,567,210) (6,977,385) Note 20. Earnings per share Loss after income tax Consolidated 2018 $ 2017 $ (8,340,013) (7,794,602) Loss after income tax attributable to the owners of Imagion Biosystems Limited (8,340,013) (7,794,602) Weighted average number of ordinary shares used in calculating basic earnings per share 220,883,627 153,835,959 Weighted average number of ordinary shares used in calculating diluted earnings per share 220,883,627 153,835,959 Number Basic earnings per share Diluted earnings per share Cents Cents (0.0378) (0.0378) (0.0507) (0.0507) 40 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 21. Share based payments Performance Shares Upon listing on the Australian Stock Exchange, the consolidated entity established various incentive arrangements to assist in the attraction, retention and motivation of its employees and management group. Employees A total of 2,550,000 rights over shares were issued to employees of the consolidated entity under the LTI plan, which vest quarterly over the two years following the listing on 22 June 2017 to 22 June 2019 and are not subject to performance milestones. Each right is convertible into one ordinary share upon vesting. Performance rights are unquoted. During the current financial year and the previous financial year, rights vested on a quarterly basis in accordance with the rules of the LTI Plan and, upon cessation of employment, unvested rights either lapsed or fully vested. On 28 November 2018, 1,300,000 rights were converted into ordinary shares. Key Management and Directors A total of 13,350,000 rights over shares have been issued to Key management personnel and directors. These shares vest two years after the date of issue, and are not subject to performance milestones, apart from continuation of employment. Each right is convertible into one ordinary share upon vesting . Performance rights are unquoted. During the current financial year 350,000 performance rights were issued to directors, (2017: 13,000,000) and 1,850,000 rights (2017: Nil) lapsed due to cessation of employment During the current financial year, no rights were issued to employees (2017: 2,550,000), and 656,250 (2017: 468,750) lapsed. Other rights to employees vested in 2018 were 818,750 (2017: 543,750). The number of performance shares at the end of the financial year and movements are shown below: Employees Directors & Key Management 2017 1 January 2017 Issued Vested based on employment Vested – due to resignation Lapsed – due to resignation Unvested Vested Unvested Vested - - - - 13,000,000 - - - - 2,550,000 (543,750) - (468,750) 543,750 - - - - - Balance 31 December 2017 1,537,500 543,750 13,000,000 2018 Issued Vested based on employment Vested – due to resignation Lapsed – due to resignation Converted to shares - (412,500) (406,250) (656,250) - - 412,500 406,250 350,000 - - - (1,850,000) - (1,300,000) Balance 31 December 2018 62,500 62,500 11,500,000 41 - - - - - - - Total Total Unvested - 15,550,000 (543,750) - (468,750) Vested/not exercised - - 543,750 - - 14,537,500 543,750 350,000 (412,500) (406,250) (2,506,250) - - 412,500 406,250 - (1,300,000) 11,562,500 62,500 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 22. Financial Instruments The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Derivatives are not currently used by the consolidated entity for hedging purposes. The consolidated entity does not speculate in the trading of derivative instruments. Market Risk Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations, in particular United States dollars. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The consolidated entity had net liabilities denominated in foreign currencies of $148,423 (assets of $482,019 less liabilities of $630,442) as at 31 December 2018 (2017: Net Assets $855,909 (assets of $137,514 less liabilities of $521,605)). Based on this exposure, had the Australian dollar weakened by 5%/strengthened by 5% (2017: weakened by 5%/strengthened by 5%) against these foreign currencies with all other variables held constant, the consolidated entity's loss before tax for the year would have been $7,421 lower/$7,421 higher (2017: $42,795 lower/$42,795 higher) . The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date were as follows (holdings are shown in AUD equivalent): Consolidated US dollars Assets 2018 2017 Liabilities 2018 2017 482,019 1,377,514 630,442 521,605 482,019 1,377,514 630,442 521,605 Price risk The Consolidated Entity is not exposed to any significant price risk. Credit risk Credit risk refers to the risk that the counter party will default on its contractual obligations resulting in financial loss to the consolidated entity. Credit risk is the risk of financial loss to the consolidated entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the consolidated entity’s receivables from customers and investment securities. The consolidated entity has only minimal sales revenue and consequently does not have credit exposure to outstanding receivables. Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from fluctuations in interest bearing financial assets and liabilities that the consolidated entity uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets and investment decisions are governed by the monetary policy. 42 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 22. Financial Instruments (continued) During the year, the consolidated entity had no variable rate interest bearing liability. It is the consolidated entity's policy to settle trade payables within the credit terms allowed and therefore not incur interest on overdue balances. Liquidity risk Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated entity’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 consolidated entity’s reputation. The Consolidated Entity’s objective is to maintain a balance between continuity of funding and flexibility. The consolidated entity’s exposure to financial obligations relating to corporate administration and projects expenditure, are subject to budgeting and reporting controls, to ensure that such obligations do not exceed cash held and known cash inflows for a period of at least 1 year. Remaining contractual maturities The following tables detail the consolidated entity’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Weighted average interest rate % 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Total Consolidated - 2018 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - fixed rate Lease liability Total non-derivatives Derivatives Promissory and Convertible Notes Total derivatives Consolidated - 2017 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing - fixed rate Lease liability - - - 6.317% 983,680 204,312 - 38,507 1,226,499 - - - 18,971 18,971 - - - - - Weighted average interest rate % - - - - - - - - - - - - - - 983,680 204,312 - 57,478 1,245,470 - - 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Total - - 401,658 163,005 - - - - 6.279% 34,844 34,844 17,165 Total non-derivatives 599,507 34,844 17,165 Derivatives Promissory and Convertible Notes - Total derivatives - - 43 - - - - - - - - - - 401,658 163,005 86,853 651,516 - - For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 22. Financial Instruments (continued) The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 23. Fair value measurement Fair value hierarchy The following tables detail the consolidated entity’s assets and liabilities, measured or disclosed at fair value, using a three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Valuation techniques for fair value measurements categorised within level 2. Unquoted investments have been valued using a discounted cash flow model. Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Note 24. Income tax benefit Tax losses not recognised Consolidated 2018 $ 2017 $ Unused tax losses for which no deferred tax asset has been recognised (Australia) 6,332,140 1,053,419 Potential tax benefit @ 27.5% for 2018 and 27.5% for 2017 1,741,338 289,690 Potential unused tax losses for which no deferred tax asset has been recognised (United States of America) 8,854,777 5,972,199 The above potential tax benefit for tax losses has not been recognised in the statement of financial position. These tax losses can only be utilised in the future if the company satisfies the relevant tax loss rules in the relevant jurisdictions and the Company earns sufficient taxable profit to absorb the losses. 44 For personal use only Imagion Biosystems Limited Notes to the financial statements 31 December 2018 Note 25. Related party transactions Parent Entity Imagion Biosystems Limited is the parent entity. Subsidiaries Interest in subsidiaries are set out in note 17. Key management personnel Disclosures relating to key management personnel are set out in note 13 and the remuneration report included in the directors' report. Transactions with related parties The following transactions occurred with related parties: Payment for goods and services: Payment for contracting services – Bronwyn Le Grice Consolidated 2018 $ 18,012 2017 $ - Receivable from and payable to related parties The following balances are outstanding at the reporting date in relation to transactions with related parties: Trade payables to Giulio Paciotti Trade payables to Brian Conn Loans to/from related parties The following loan movements occurred with related parties: Loan from Related Parties – Interim Notes – Brian Conn and Robert Proulx Repayment of Loan from Related Parties - Interim Notes - Brian Conn and Robert Proulx Interest paid (8%) on Interim Notes for Brian Conn and Robert Proulx Consolidated 2018 $ - - 2017 $ 14,496 9,421 Consolidated 2018 $ - 2017 $ - - - 352,564 15,513 45 For personal use only Imagion Biosystems Limited Director’s Declaration 31 December 2018 Directors Declaration In the directors' opinion: • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes give a true and fair view of the consolidated entity's financial position as at 31 December 2018 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Robert Proulx Director 29 March 2019 46 For personal use only RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Imagion Biosystem Limited Opinion We have audited the financial report of Imagion Biosystems Limited (the Company) and its subsidiaries (the Consolidated Entity), which comprises the consolidated statement of financial position as at 31 December 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion the accompanying financial report of the Consolidated Entity is in accordance with the Corporations Act 2001, including: (I) giving a true and fair view of the Consolidated Entity’s financial position as at 31 December 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Consolidated Entity in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial report, which indicates that the Consolidated Entity incurred a net loss of $8,340,013 during the period ended 31 December 2018 and reported negative operating cash flows of $6,567,210 during the year ended 31 December 2018. As stated in Note 1, these events or conditions, along with other matters as set forth in Note1, indicate that a material uncertainty exists that may cast significant doubt on the Consolidated Entity’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING 47 RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation For personal use only Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Fair Value of the share-based payments Refer to Note 21 in the financial statements have accounted During the year, performance rights were issued to key management personnel and options were issued to consultants of the Consolidated Entity. Management these arrangements in accordance with AASB 2 Share- based payments and used a Black Scholes option pricing model to value the options issued in the year. We considered the valuation of these instruments to be a key audit matter, as it involves management estimates and judgments in determining the relevant inputs to the valuation model. for Our audit procedures included, among others: - Reviewing the minutes of directors' meetings and ASX announcements for the approvals in relation to the granting of the instruments; - Reviewing the key terms and conditions of the share-based payment arrangements; - Challenging the reasonableness of key assumptions used by management relative to the valuation at the grant date; - Verifying the mathematical accuracy of the computation; and - Reviewing the adequacy and accuracy of the financial disclosures the in relevant statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Consolidated Entity’s annual report for the year ended 31 December 2018 but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 48 For personal use only Responsibilities of the Directors for the Financial Report (Continued.) In preparing the financial report, the directors are responsible for assessing the ability of the Consolidated Entity to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Consolidated Entity or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 31 December 2018. In our opinion, the Remuneration Report of Imagion Biosystems Limited., for the year ended 31 December 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS R B MIANO Partner Dated: 29 March 2019 Melbourne, Victoria 49 For personal use only
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