Nanollose Limited
Annual Report 2019

Plain-text annual report

Nanollose Limited ABN 13 601 676 377 Annual Report 30 June 2019 1 Contents Corporate Directory Directors’ Report Auditor’s Independence Declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members of Nanollose Limited 3 4 20 21 22 23 24 25 40 41 2 Directors Corporate Directory Wayne Best Winton Willesee Terence Walsh Heidi Beatty (appointed 8 July 2019) Gary Cass (resigned 8 July 2019) Managing Director Raffaele (Alfie) Germano Company Secretary Erlyn Dale Stock exchange listing Nanollose Limited shares are listed on the Australian Securities Exchange (ASX) (ASX code: NC6 and NC6O). Registered office Principal place of business Share register Auditor Solicitors Suite 5 CPC 145 Stirling Highway Nedlands WA 6009 Suite 5 CPC 145 Stirling Highway Nedlands WA 6009 Automic Registry Services Level 2 267 St Georges Terrace Perth WA 6000 Phone: 08 9324 2099 RSM Australia Partners Level 32 Exchange Tower, 2 The Esplanade Perth WA 6000 Fairweather Corporate Lawyers 595 Stirling Highway Peppermint Grove WA 6011 Website www.nanollose.com 3 Nanollose Limited Directors’ Report 30 June 2019 The directors present their report, together with the financial statements of Nanollose Limited (referred to hereafter as the 'Company') for the year ended 30 June 2019. Directors The following persons were directors of the Company during the whole of the financial year and up to the date of this report, unless otherwise stated: Wayne Best Winton Willesee Terence Walsh Heidi Beatty (appointed 8 July 2019) Gary Cass (resigned 8 July 2019) Raffaele (Alfie) Germano (Managing Director) Principal activities During the financial year, the principal continuing activities of the Company consisted of research and development, and promotion of the Company’s microbial cellulose technology. The primary focus has been directed towards the development of the Company’s Plant-Free viscose-rayon fibre (Nullarbor®). The Company also continued its activities towards developing a commercial supply chain of microbial cellulose from a variety of waste streams. Dividends There were no dividends declared or paid during the financial year. Operating Results During the year, the principal continuing activities of the Company consisted of research and development, and promotion of the Company’s nanocellulose technology. The loss for the Company after providing for income tax amounted to $2,003,995 (30 June 2018: $1,730,214). Review of Operations Nanollose is an innovative Australian company with a number of proprietary technologies to convert wastes from the agricultural, food and beverage industries into unique eco-friendly rayon fibres for textiles, nonwoven fabrics and other industrial applications. Our world first Tree-Free rayon fibre, nullarbor™, is primed to become an alternative to conventional tree-based rayon and cotton fibres. The Company is targeting the US$500 billion textile industry with an initial focus on the US$16 billion rayon market. Nanollose’s business falls into three distinct areas - supply of raw material, it’s transformation into fibre, and sales & marketing. The Company has continued to make good progress in all three areas over the past 12 months. Supply: Develop the Microbial Cellulose Supply Chain Nanollose has continued to strengthen its supply chain for the production of microbial cellulose by both deepening the relationship with its existing partner PT Supra Natami Utama (PT SNU) and by adding another leading producer of microbial cellulose, Hainan Yeguo Foods. 4 Nanollose Limited Directors' report 30 June 2019 In November 2018 Nanollose signed a Research Agreement with PT SNU to accelerate research into the best growing conditions and processing methods of microbial cellulose. This was soon followed in January 2019 with an agreement to establish a Development Facility within PT SNU’s Indonesian nata de coco production site. The facility allows Nanollose to implement its latest microbial cellulose fermentation and processing technologies, test various additional waste streams, and generate critical data essential for designing an industrial scale factory in the future. While the primary purpose of the Agreement is process development, the site is expected to produce several tons of microbial cellulose per month once fully operational. PT SNU is one of Indonesia’s largest and most established producers of coconut food, beverages and cosmetic products and has multiple facilities across Indonesia with access to significant quantities of coconut by-products and waste streams. In May 2019 Nanollose further increased and diversified its supply chain when it signed a Supply and Purchase Agreement with Hainan Yeguo Foods, one of the world’s largest manufacturers of nata de coco products. Through this agreement, Nanollose has the ability to purchase 1-3 tonnes of microbial cellulose per month. Hainan Yeguo Foods is a coconut processing pioneer and innovator with numerous patents in both the fermentation of nata de coco and engineering for raw material processing at scale. Manufacture of Fibre: Refine and Scale Nanollose’s Fibre Technology In October last year the Company completed the “proof-of-concept” for its fibre technologies by producing a test garment from its nullarbor fibre. This was further elaborated in December when Nanollose made a full-sized wearable knitted sweater. The production of this sweater marked a significant milestone, not only in Nanollose’s short history, but also a milestone for the textile and apparel industries and demonstrated to the world the potential and feasibility of turning waste into pristine eco- friendly fibres and textiles. In April this year, Nanollose completed its second pilot scale production of rayon fibre and in doing so further expanded its Tree-Free fibre product range by producing a fibre specifically engineered for nonwoven applications. Very recently, and subsequent to this reporting period, these fibres were successfully converted to a nonwoven fabric, thereby opening yet another significant market for our eco-friendly fibres. These fibres and fabric products were also produced using common industrial equipment which means that no major retrofitting of machinery or processing is required for future partners using Nanollose’s technologies, a huge advantage for commercial uptake. Having now demonstrated the viability of its technologies, Nanollose is engaging more deeply with fibre manufacturers and is working towards securing a partner to produce its Tree-Free rayon fibres on a commercial scale. Sales & Marketing Nanollose has engaged with a many of the world’s leading apparel brands and its eco-friendly Tree-Free rayon fibre nullarbor has been very well received. Brands, retailers and manufacturers are urgently seeking sustainable alternatives to conventional tree-based rayon and cotton fibres, both of which cause significant environmental issues. Nanollose believes it is well placed to secure a number of marquee brands to uptake its nullarbor fibre once commercial supplies are available. The Company is also looking to markets other than apparel for its Tree-Free rayon fibres. Very recently in August this year, subsequent to this reporting period, Nanollose signed a Cooperation Agreement with Codi Group, a global leader in the development, manufacturing and marketing of high-quality personal care wipes. Codi produces more than 7 billion wipes in around 150 million consumer packages per year. Their clients include multinational brands, European retailers, distributors and institutional parties. The group distributes their products to more than 40 countries and owns high value proprietary technical information relating to the production, marketing and distribution of consumer wipes. Nanollose and Codi Group will exclusively work together in developing commercially viable consumer wipe products using Nanollose’s Tree-Free rayon fibre. Summary and Outlook for FY2020 Nanollose has made considerable progress in the past year towards its aim to be at the forefront of offering fashion and textile groups a commercially viable eco-friendly fibre alternative, and decreasing the industry’s reliance on environmentally 5 Nanollose Limited Directors' report 30 June 2019 burdensome, raw materials. With the advancements of our Tree-Free rayon, we are now uniquely positioned to offer the industry an eco-friendly fibre that can be easily retrofitted into their current textile and clothing production methods. The next year is set to be an exciting time for Nanollose as the Company secures more partners and transitions from a development phase into the commercialisation of its first Plant-Free cellulose-based product, nullarbor fibre. Corporate On 17 August 2018 the Company raised $42,442 by placing the 4,244,266 Shortfall Options from its Entitlements Options Issue under the prospectus dated 16 April 2018. The Shortfall Options were issued on the same terms as the Entitlement Option Issue; being A$0.01 per each Listed NC6O Option ($0.30, 31 Dec 2020). On 16 May 2019 the Company received a R&D Tax Incentive Rebate of $235,846 from the ATO for R&D undertaken in the 2017-2018 financial year. Significant changes in the state of affairs Other than detailed in the review of operations, there were no other significant changes in the state of affairs of the Company during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Company's operations, the results of those operations, or the Company's state of affairs in future financial years. Likely developments and expected results of operations The Company is conducting ongoing research and development activities with the objective of commercialising the Company’s Intellectual Property (IP). In particular, the Company aims to develop and commercialise IP around the production and subsequent processing of microbial cellulose. The primary focus for commercialising this IP is in the fibre and textile sectors where the Company has already received strong interest and positive feedback. Environmental regulation The Company is not subject to any significant environmental regulation under Australian Commonwealth or State law. 6 Nanollose Limited Directors' report 30 June 2019 Information on directors Name: Title: Qualifications: Experience and expertise: Wayne Best Executive Chairman BSc (Honours), PhD, DIC, FRACI, GAICD Wayne has 35 years’ experience in organic chemistry both in academia, government and industry. Wayne obtained his BSc (Hons) and PhD in Organic Chemistry from The University of Western Australia. He then spent two years at Imperial College in the UK where he obtained a DIC, followed by a year at the Australian National University in Canberra. He then took up a position with ICI Australia’s Research Group in Melbourne for four and a half years which included a secondment to ICI Agrochemicals’ in the UK. Following ICI, Wayne returned to Western Australia and spent ten years at the Chemistry Centre (WA) where he was responsible for the formation and running of the Medicinal & Biological Chemistry Section which undertook collaborative R&D into drug discovery and contract synthesis for the drug discovery and pharmaceutical industries. He then founded Epichem Pty Ltd, a contract research and drug discovery Company, which he managed for 14 years before moving to Nanollose. He is currently Epichem’s non-executive chairman. Wayne is a Fellow of the Royal Australian Chemical Institute and has held appointments as an Adjunct Associate Professor at both Murdoch University and The University of Western Australia. He is also a Graduate Member of the Australian Institute of Company Directors and has served as a Director for several listed and unlisted biotechnology companies. Other current directorships: Former directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: None Pharmaust Limited 5,917,858 ordinary shares 1,290,476 Class A options 1,404,465 NC6O listed options None Name: Title: Qualifications: Experience and expertise: Alfie Germano Managing Director Diploma - FDTS Mr Germano is a creative achiever who strives for the balance of art and science in product and process. He is a 30-year veteran in the global textile industry sector. Alfie obtained his Fashion Design and Textile Science Diploma from the Bentley College of Technical and Further Education in Perth, Western Australia. After working for his family garment manufacturing company, he moved to Hong Kong where he spent 24 years in the garment industry as a leader of large scale global product development, sourcing and retail operations. He held Vice President and Director positions at GAP Inc, VF Corporation, Liz Claiborne Inc, Fila Inc and Carter’s Inc. Alfie has travelled the world extensively with postings in the USA, Japan and China. Alfie relocated his family to Perth in 2016 and is enjoying the “green-change” in Australia. He is passionate about sustainability, strategy, performance, metrics, process and product. Other current directorships: Former directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: None None 500,000 ordinary shares 250,000 Class A Performance Rights 250,000 Class B Performance Rights 1,100,000 Class B options 1,100,000 Class C options 1,100,000 Class D options 125,000 NC6O listed options None 7 Nanollose Limited Directors' Report 30 June 2019 Name: Title: Qualifications: Experience and expertise: Winton Willesee Non-Executive Director BBus, DipEd, PGDipBus, MCom, FFin, CPA, GAICD, FGIS/FCIS Winton is an experienced company director. He brings a broad range of skills and experience in strategy, company development, corporate governance, company public listings, merger and acquisition transactions and corporate finance. Mr Willesee has considerable experience with ASX listed and other companies over a broad range of industries having been involved with many successful ventures from early stage through to large capital development projects. Winton has fulfilled the role of chairman and/or director of a number of listed companies. Mr Willesee holds formal qualifications in economics, finance, accounting, education and governance. He is a Fellow of the Financial Services Institute of Australasia, a Fellow of the Governance Institute of Australia and the Institute of Chartered Secretaries and Administrators, a Graduate member of the Australian Institute of Company Directors, and a Member of CPA Australia. Other current directorships: Former listed company directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: New Zealand Coastal Seafoods Limited , MMJ Holdings Limited, Neurotech International Limited Ding Sheng Xin Finance Co Limited, Kopore Metals Limited, Maili Lithium Limited, DroneShield Limited 5,592,857 ordinary shares 1,290,476 Class A options 1,398,215 NC6O listed options None Name: Title: Qualifications: Experience and expertise: Terence Walsh Non-Executive Director LLB Terry is a senior commercial lawyer and manager with more than 20 years of experience in project development, mining and general commercial law. He initially worked with leading law firms in Perth and Sydney before moving in house, where he has worked as the General Counsel of Hancock Prospecting Pty Ltd and prior to that as a Corporate Counsel with Rio Tinto Ltd. In these roles he has been involved with the legal and commercial aspects associated with the development and operation of technology and mining projects. Other current directorships: Former directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: Structural Monitoring Systems PLC Hazer Group Limited 500,000 ordinary shares 1,500,000 Class A options 125,000 NC6O listed options None 8 Nanollose Limited Directors' Report 30 June 2019 Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last three years): Interests in shares: Interests in options: Contractual rights to shares: Heidi Beatty Non-Executive Director (appointed 8 July 2019) BSc Heidi Beatty, founder of Crown Abbey Ltd is a scientist and innovator who has 20 years’ experience developing consumer and health care products. After gaining a BSc in Chemistry from the University of York UK, Heidi worked with Johnson & Johnson for 10 years in Europe and the US. In 2015 Heidi founded Crown Abbey Ltd, a consultancy launches, combining Project company Management and Product Development across Consumer and Healthcare categories. None None that supports clients their project in Nil Nil None Gary Cass Executive Director (resigned 8 July 2019) BSc Mr Cass has a BSc in Agricultural Sciences specialising in microbiology and over 20 years’ experience working with microbial cellulose. In addition to his expertise in microbiology he has a broad theoretical and practical knowledge across the biological sciences including environmental conversation and molecular biotechnology. Mr Cass has published in scientific journals and run international bio-science workshops in Australia and overseas. He has been a key collaborator with numerous international arts and sciences projects, including Fermented Fashion, the first dresses in the world made from wine and beer that have been exhibited around the world including the Venice Biennale (fringe), Trinity College Science Gallery, Ireland and the Signature Art Prize in Singapore. None None 5,142,857 ordinary shares 1,190,476 Class A options 1,285,715 NC6O listed options None '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 three years)' quoted above are directorships held in the last three years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Miss Dale is an experienced corporate professional with a broad range of corporate governance and capital markets experience, having been involved with several public company listings, merger and acquisition transactions and capital raisings for ASX-listed companies across a diverse range of industries. Miss Dale holds a Bachelor of Commerce (Accounting and Finance) and a Graduate Diploma in Applied Corporate Governance. She is a member of the Governance Institute of Australia/Chartered Secretary. 9 Nanollose Limited Directors' Report 30 June 2019 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 30 June 2019, and the number of meetings attended by each director were: Wayne Best Winton Willesee Terence Walsh Alfie Germano Gary Cass Heidi Beatty Attended Held 6 5 6 6 6 - 6 6 6 6 6 - Held: represents the number of meetings held during the time the director held office. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Company, 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 Company, 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 disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Company’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 fulfilling the role of the Nomination and Remuneration Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Company 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 Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Company. 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 value creation and capital growth in advance of economic profit as a core component of plan design; focusing on sustained growth in shareholder wealth, consisting of growth in share price and eventually dividends, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and attracting and retaining high calibre executives. 10 Nanollose Limited Directors' Report 30 June 2019 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; and 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 directors’ remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed from time to time by the Board fulfilling its role as the Nomination and Remuneration Committee. 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. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not entitled to vote on the determination of his own remuneration. Given the nature of the Company and the more hands- on role the non-executive directors’ play in the operations of the Company non-executive directors may receive share options or other incentives. ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a general meeting. The most recent determination was via a resolution of all shareholders on 5 June 2016, where the shareholders approved a maximum annual aggregate remuneration of $500,000. Executive directors’ remuneration The Company 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 other remuneration such as superannuation and long service leave The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed regularly by the Board fulfilling the role of Nomination and Remuneration Committee based on the overall performance of the Company and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other benefits where it does not create any additional costs to the Company and provides additional value to the executive. The short-term incentives ('STI') program has yet to be finalised. Once adopted it will be designed to align the targets of Company with the performance hurdles of executives. STI payments will be granted to executives based on specific annual targets and key performance indicators ('KPI's') being achieved. 11 Nanollose Limited Directors' Report 30 June 2019 The long-term incentives ('LTI') include equity-based payments. Equity securities are awarded to executives with vesting conditions and expiry dates aligned to the Company’s business plans and targets. The details of the current vesting conditions and targets are as follows and further detailed in the section on service agreements found below. The Options vest on the achievement of the following milestones: Series B - The Company enters into a commercial agreement; 1. 2. to exploit one of the Company’s two existing patents (AU2016904456 and AU2017901318); and receives $1 million of gross revenue under that agreement. Series C - The Company enters into a commercial agreement; 1. 2. to exploit a second technology or patent held by the Company (other than the patent the subject of Milestone 1); and receives $5 million of gross revenue under that agreement. Series D - The Company enters into a commercial agreement; 1. 2. to exploit a third technology or patent held by the Company; and receives $10 million of gross revenue under that agreement. All Series B, C and D Options vest in the event of a ‘takeover event’. A "Takeover Event" means a takeover bid for the Company pursuant to Chapter 6 of the Corporations Act where at least 50% of the holders of ordinary shares accept the bid and such bid is free of conditions or a court grants an order approving a compromise or scheme where the ordinary shares are either cancelled or transferred to a third party (not being a scheme of arrangement simply for the purposes of a corporate restructure). Company performance and link to remuneration Remuneration for certain individuals is directly linked to the performance of the Company. Each key management personnel holds equity securities designed to incentivise them to drive the Company’s performance in line with its business plans. A portion of any cash bonus that may be paid to executives will be directly linked to the achievement of goals designed to align with the Company’s performance. Use of remuneration consultants During the financial year ended 30 June 2019, the Company did engage an external remuneration consultant however dod not proceed with the project.. Details of remuneration Details of the remuneration of key management personnel of the Company during the year ended 30 June 2019 are set out in the following tables. The key management personnel of the Company consisted of the following directors of Nanollose Limited: - Wayne Best (Executive Chairman) - Winton Willesee (Non-Executive Director) - Gary Cass (Executive Director) - Terence Walsh (Non-Executive Director) - Alfie Germano (Managing Director) Changes since the end of the reporting period: - Gary Cass resigned as Executive Director on 8 July 2019. 12 Nanollose Limited Directors' Report 30 June 2019 2019 Executives: Wayne Best Post- employment benefits Equity- settled Equity- settled Short term benefits Cash salary and fees Superannuation Shares $ $ $ Performance rights $ Total Fixed remuneration $ % Short- term incentive % 242,677 21,375 - - 264,052 100% Gary Cass 170,626 15,200 - - 185,826 100% Alfie Germano 239,336 21,375 - 39,178 299,889 87% Non-executives: Winton Willesee 35,000 - Terence Walsh 35,007 - - - - - 35,000 100% 35,007 100% Total 722,646 57,950 - 39,178 819,774 Post- employment benefits Equity- settled Equity-settled Short term benefits Cash salary and fees Superannuation Shares $ $ $ Performance rights $ Total Fixed remuneration $ % Short- term incentive % Long- term incentive % Long-term incentive % - - 13% - - - - - - - - - - - - - - 45% - - 2018 Executives: Wayne Best 77,755 4,851 - - 82,606 100% Gary Cass 29,181 877 - - 30,058 100% Alfie Germano 169,179 15,072 100,000 53,425 337,676 55% Non-executives: Winton Willesee 21,048 - Terence Walsh 28,169 - - - - - 21,048 100% 28,169 100% 325,332 20,800 100,000 53,425 499,557 13 Nanollose Limited Directors' Report 30 June 2019 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: Name: Title: Agreement commenced: Term of agreement: Details: Alfie Germano Managing Director 20 March 2017 No fixed term Base Salary of $225,000 per annum plus superannuation. Mr Germano has been issued with 500,000 Shares in lieu of any entitlement to payment of his accrued salary for the period from March 2017 (upon commencement of employment with the Company) until ASX listing. Mr Germano has been issued with 500,000 Performance Rights (Class A and B), which will convert into Shares if Mr Germano remains employed by the Company as the Managing Director 12 months after listing (Class A) and 24 months after listing (Class B). The Agreement may be terminated by either party on 3 months’ notice, and there is a 12 month non-solicitation period upon any termination of the Agreement. Wayne Best Executive Chairman 9 April 2018 No fixed term Base salary of $225,000 per annum plus superannuation with no separate Director’s fee payable from commencement of the Agreement. The Agreement may be terminated by either party on 3 months’ notice, and there is a 12 month non-solicitation period upon any termination of the Agreement. Gary Cass Executive Director (resigned 8 July 2019) 11 June 2018 No fixed term Base salary of $160,000 per annum plus superannuation with no separate Director’s fee payable from the commencement of the Agreement. The Agreement may be terminated by either party on 3 months’ notice, and there is a 12 month non-solicitation period upon any termination of the Agreement. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation There were no options issued to directors and other key management personnel as part of compensation during the year ended 30 June 2019. In accordance with his employment contract, 500,000 ordinary shares were issued to Mr Alfie Germano in lieu of his accrued salary at the time of the ASX listing. Mr Alfie Germano was also issued 500,000 performance rights in accordance with his employment contract, of which 250,000 will convert into shares after he has remained employed by the Company for 12 months following the IPO and 250,000 will convert into shares after he has remained employed by the Company for 24 months following the IPO. Additional information The loss of the Company for the five years to 30 June 2019 are summarised below: 2019 $ 2018 $ 2017 $ 2016 $ 2015 $ Sales revenue EBITDA EBIT Loss after income tax - (2,022,299) (2,054,457) (2,003,995) - - (817,432) (817,916) (820,346) (1,776,703) (1,783,135) (1,730,214) 11,630 (9,790) (9,907) (9,907) - (1,641) (1,728) (1,728) 14 Nanollose Limited Directors' Report 30 June 2019 The factors that are considered to affect total shareholders return ('TSR') are summarised below. Given the Company listed during the financial year, no comparative information is available. The Company’s official listing date was 18 October 2017. Share price at financial year end ($) Total dividends declared (cents per share) Basic loss per share (cents per share) 2019 0.05 - 2.67 2018 0.13 - 2.57 2017 - - 1.82 Additional disclosures relating to key management personnel Shareholdings The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: Balance at Received as part of the start of the year remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares Wayne Best Winton Willesee Gary Cass Terence Walsh Alfie Germano Total 5,717,858 - 5,592,857 - 5,142,857 - 500,000 - 500,000 - 17,453,572 - 200,000 - - - - 200,000 - - - - - - 5,917,858 5,592,857 5,142,857 500,000 500,000 17,653,572 Option holdings The number of options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: Options over ordinary shares Wayne Best Winton Willesee Gary Cass Terence Walsh Alfie Germano Total Balance at the start of the year Issued Exercised Expired/ forfeited/ other Balance at the end of the year 2,694,941 - 2,688,691 - 2,476,191 - 1,625,000 - 3,425,000 - 12,909,823 - - - - - - - - - - - - - 2,694,941 2,688,691 2,476,191 1,625,000 3,425,000 12,909,823 Performance Rights holdings The number of performance rights in the Company held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: Rights to Ordinary shares Wayne Best Winton Willesee Gary Cass Terence Walsh Alfie Germano Total Balance at the start of the year Issued Converted Expired/ forfeited/ other Balance at the end of the year - - - - - - - - 500,000 - 500,000 - - - - - - - - - - - - - - - - - 500,000 500,000 15 Nanollose Limited Directors' Report 30 June 2019 Other transactions with key management personnel and their related parties during the financial year (i) Receivable from and payable to key management personnel and their related parties are as follows: The following balances are outstanding at the reporting date in relation to transactions with key management personnel and their related parties: Payable to Epichem Pty Ltd (director related entity of Wayne Best) Payable to Valle Corporate Pty Ltd (director related entity of Winton Willesee) Payable to Azalea Consulting Pty Ltd (director related entity of Winton Willesee) (ii) Transactions with key management personnel and their related parties 2019 $ 16,375 2,200 5,995 2018 $ - 2,200 - Payments to Epichem Pty Ltd (director related entity of Wayne Best) of $186,457 (2018: $192,258) for research consultancy fees. Payments to Valle Corporate Pty Ltd (director related entity of Winton Willesee) of $22,000 (2018: $19,743) for bookkeeping and financial reporting services fees. Payments to Azalea Consulting Pty Ltd (director related entity of Winton Willesee) of $65,077 (2018: $87,942) for corporate services fees including company secretarial services, and front and registered office services. Payments to The Scientific Creativity Initiative (director related entity of Gary Cass) of $nil (2018: $58,550) for research and development consultancy fees. All transactions were made on normal commercial terms and conditions and at market rates. Voting and comments made at the Company's 2018 Annual General Meeting ('AGM') At the AGM held on 29 October 2018, the Company received votes representing 22,088,953 shares against the adoption of the remuneration report put to shareholders for the financial year ended 30 June 2018. This represented 60.4% of the votes cast at the AGM and 29.5% of the total shares on issue. This concludes the remuneration report, which has been audited. 16 Nanollose Limited Directors' report 30 June 2019 Shares As at the date of this report, there are 74,999,993 fully paid ordinary shares on issue. Shares under option Unissued ordinary shares of Nanollose Limited under option at the date of this report are as follows: Date of issue Class of option No. of Options Exercise price Expiry date 4 August 2016 5 April 2017 5 April 2017 5 April 2017 5 April 2017 21 April 2017 21 June 2017 21 June 2017 21 June 2017 25 May 2018 17 August 2018 Total Class A Class A Class B Class C Class D Class A Class B Class C Class D NC6O NC6O 21,000,000 1,450,000 900,000 900,000 900,000 1,333,333 200,000 200,000 200,000 14,505,733 4,244,266 45,833,332 $0.30 $0.30 $0.25 $0.30 $0.40 $0.30 $0.25 $0.30 $0.40 $0.30 $0.30 31 December 2020 31 December 2020 30 September 2019 30 September 2020 30 September 2021 31 December 2020 30 September 2019 30 September 2020 30 September 2021 31 December 2020 31 December 2020 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. Performance Rights Performance rights of Nanollose Limited at the date of this report are as follows: Date of issue Class of performance rights No. of performance rights 10 August 2017 Class A 250,000 10 August 2017 Class B 250,000 Service condition Vesting date Each Class A performance right will, at the election of the holder, vest and convert into one share upon satisfaction of the service condition as being engaged as the Managing Director for the period of 12 months after the Company lists on ASX. Each Class B performance right will, at the election of the holder, vest and convert into one share upon satisfaction of the service condition as being engaged as the Managing Director for the period of 24 months after the Company lists on ASX. 18 October 2018 18 October 2019 Total 500,000 The Class A performance rights vested on 18 October 2018, but at the request of Mr Alfie Germano (Managing Director) these had not been converted to Ordinary Shares as at 30 June 2019. 17 Nanollose Limited Directors' Report 30 June 2019 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. 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. 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. 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 15 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. 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. Corporate Governance The Company’s 2019 Corporate Governance Statement is contained in the ‘Corporate Governance’ section of the Company’s website at https://nanollose.com/about/corporate-governance/. 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. Auditor RSM Australia Partners continues in office in accordance with Section 327 of the Corporations Act 2001. 18 Nanollose Limited Directors' Report 30 June 2019 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 ___________________________ Winton Willesee Director 28 August 2019 Perth 19 RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Nanollose Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 28 August 2019 TUTU PHONG Partner THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING 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 Nanollose Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2019 Revenue Interest income R&D incentives Expenses Note 2019 $ 2018 $ 50,462 235,846 54,040 117,167 Research expenses Promotion and communication expenses Consultancy and legal expenses Employee benefits expense Depreciation expense Share-based payments Other expenses Interest expense Loss before income tax expense Income tax expense (725,411) (112,052) (343,119) (835,128) (32,158) (39,178) (197,578) (5,679) (610,613) (153,048) (392,110) (520,846) (6,432) (53,425) (163,828) (1,119) (2,003,995) (1,730,214) 4 - - Loss after income tax expense for the year (2,003,995) (1,730,214) Other comprehensive income for the year, net of tax - - Total comprehensive loss for the year (2,003,995) (1,730,214) Basic loss per share Diluted loss per share Cents Cents 23 23 2.67 2.67 2.57 2.57 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 21 Nanollose Limited Statement of financial position As at 30 June 2019 Assets Current assets Cash and cash equivalents Trade and other receivables Other Total current assets Non-current assets Plant and equipment Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 5 6 7 8 9 10 11 12 13 2019 $ 2018 $ 1,122,710 30,878 40,875 1,194,463 2,980,375 43,198 100,803 3,124,376 83,320 83,320 78,269 78,269 1,277,783 3,202,645 115,580 42,638 158,218 146,221 14,154 160,375 158,218 160,375 1,119,565 3,042,270 5,120,207 565,548 (4,566,190) 5,120,537 483,928 (2,562,195) 1,119,565 3,042,270 The above statement of financial position should be read in conjunction with the accompanying notes 22 Nanollose Limited Statement of changes in equity For the year ended 30 June 2019 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Balance at 1 July 2018 5,120,537 483,928 (2,562,195) 3,042,270 Total comprehensive loss for the year - - (2,003,995) (2,003,995) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Share based payments (note 12b) Issue of options (note 12a) (330) - - - 39,178 42,442 - - - (330) 39,178 42,442 Balance at 30 June 2019 5,120,207 565,548 (4,566,190) 1,119,565 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Balance at 1 July 2017 509,237 285,446 (831,981) (37,298) Total comprehensive loss for the year - - (1,730,214) (1,730,214) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Share based payments (note 12b) Issue of options (note 12a) 4,611,300 - - - 53,425 145,057 - - - 4,611,300 53,425 145,057 Balance at 30 June 2018 5,120,537 483,928 (2,562,195) 3,042,270 The above statement of changes in equity should be read in conjunction with the accompanying notes 23 Nanollose Limited Statement of cash flows For the year ended 30 June 2019 Cash flows from operating activities Payments to suppliers and employees Interest received R&D incentive received Note 2019 $ 2018 $ (2,154,663) (1,738,010) 56,249 235,846 45,507 117,167 Net cash used in operating activities 21 (1,862,568) (1,575,336) Cash flows from investing activities Payments for plant and equipment Repayment of director’s loans Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue costs Proceeds from issue of options Repayments Net cash from financing activities (37,209) (80,196) (55,000) - (37,209) (135,196) 5,000,000 - (330) (488,700) 145,057 42,442 (5,661) - 42,112 4,650,696 Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (1,857,665) 2,980,375 2,940,164 40,211 Cash and cash equivalents at the end of the financial year 5 1,122,710 2,980,375 The above statement of cash flows should be read in conjunction with the accompanying notes 24 Nanollose Limited Notes to the financial statements 30 June 2019 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 Company has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. The impact on the financial performance and position of the Company from the adoption of the new or amended Accounting Standards and Interpretations was not material. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 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, certain financial assets and liabilities. 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 Company'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. 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 Company incurred a loss of $2,003,995 and had net cash outflows from operating activities of $1,862,568 for the year ended 30 June 2019 The Directors believe that it is reasonably foreseeable that the Company will continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report after consideration of the following factors: 1. The Company’s business model includes strategies to secure cash flows from commercial sales of the Company’s nullarborTM and other products; 2. The Company has the ability to issue additional equity securities under the Corporations Act 2001 to raise further working capital; and 3. The Company has the ability to curtail administrative, discretionary research expenses and overhead cash outflows as and when required. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation The financial statements are presented in Australian dollars, which is Nanollose Limited's functional and presentation currency. 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. 25 Nanollose Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) Revenue recognition Interest Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. 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. 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. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Nanollose 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. 26 Nanollose Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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 Company'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 Company'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 provision for impairment. Trade receivables are generally due for settlement within 30 days. The Company has applied the simplified approach of 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. 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 Leasehold improvements 3-5 years 4 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Company. 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. 27 Nanollose Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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. 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 Company 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. Trade and other payables These amounts represent liabilities for goods and services provided to the Company 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, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on 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. 28 Nanollose Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) The cost of equity-settled transactions is 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 Company 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 is 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 Company or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Company 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. 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. 29 Nanollose Limited Notes to the financial statements 30 June 2019 Note 1. Significant accounting policies (continued) 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. 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. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended have not been adopted (where mandatory) by the Company for the annual reporting period ended 30 June 2019. The Company's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Company, 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 as 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). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Company will adopt this standard from 1 July 2019. The impact of the adoption of this standard is expected to be immaterial. 30 Nanollose Limited Notes to the financial statements 30 June 2017 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. Share-based payment transactions The Company 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. Management has applied a probability estimate to the vesting conditions being met, since the Company was unable to reliably measure the fair value of the services received. 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. Note 3. Operating segments Primary Reporting Format – Business Segments The Company has one geographical location which is Australia. The Company’s sole operations are research and development, and promotion of the Company’s nanocellulose technology from that location. Identification of reportable operating segments The operating segment identified is based on the internal reports that are reviewed and used by the Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. The information reported to the CODM is on at least a quarterly basis. 31 Nanollose Limited Notes to the financial statements 30 June 2019 Note 4. Income tax expense Reconciliation of income tax expense and tax at the statutory rate Loss before income tax expense from continuing operations (2,003,995) (1,730,214) Tax benefit at the statutory tax rate of 27.5% 551,098 475,809 2019 $ 2018 $ Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Other non-deductible expenses Future tax benefit not recognised Income tax expense Unrecognised deferred tax balances (11,021) 540,077 (15,910) 459,899 (540,077) (459,899) - - The Company does not currently recognise any deferred tax asset arising from its accumulated losses. The Directors estimate that the potential deferred tax assets at 27.5% not brought to account attributable to tax losses carried forward at reporting date is approximately $902,622 (2018: $362,545). The losses have not been brought to account because the Directors do not believe it is appropriate to regard realisation of those deferred tax assets as being probable. The benefit of these deferred tax assets will only be obtained if: (1) (2) (3) the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the temporary differences to be realised; the Company continues to comply with the conditions for deductibility imposed by tax legislation; and no changes in tax legislation adversely affect the Company in realising the benefit from the deductions for the temporary differences. Note 5. Current assets - cash and cash equivalents Cash at bank Term deposit [1] [1] – Term deposit amount includes $20,000 used as security for credit cards. Note 6. Current assets - trade and other receivables GST receivables Accrued interest Note 7. Current assets - other Prepayments 32 252,710 260,375 870,000 2,720,000 1,122,710 2,980,375 27,682 3,196 34,215 8,983 30,878 43,198 40,875 100,803 40,875 100,803 Nanollose Limited Notes to the financial statements 30 June 2019 Note 8. Plant and Equipment Plant and equipment – at cost Accumulated depreciation Leasehold improvements – at cost Accumulated depreciation 2019 $ 2018 $ 64,037 (24,337) 39,700 31,207 (6,713) 24,494 58,251 (14,631) 43,620 53,978 (203) 53,775 83,320 78,269 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance at 30 June 2017 Additions Disposals Depreciation expense Balance at 30 June 2018 Additions Disposals Depreciation expense Plant and equipment $ Leasehold improvements $ Total $ 4,505 26,218 - (6,229) - 4,505 53,978 80,196 - (203) - (6,432) 24,494 32,936 - (17,730) 53,775 78,269 4,273 37,209 - (14,428) (32,158) - Balance at 30 June 2019 39,700 43,620 83,320 Note 9. Current liabilities - trade and other payables Trade payables Other payables Refer to Note 22 for further information on financial instruments. 2019 $ 2018 $ 85,285 30,295 114,110 32,111 115,580 146,221 33 Nanollose Limited Notes to the financial statements 30 June 2019 Note 10. Current liabilities - provisions 2019 $ 2018 $ Provision for annual leave 42,638 14,154 Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Company does not have an unconditional right to defer settlement. Note 11. Equity - issued capital Ordinary shares - fully paid 74,999,993 74,999,993 5,120,207 5,120,537 2019 Shares 2018 Shares 2019 $ 2018 $ Movements in ordinary share capital Balance 30 June 2017 Issue on 500,000 shares Issue on 25,000,000 shares on ASX Listing Transaction costs relating to share issues 9 August 2017 16 October 2017 509,237 49,499,993 500,000 100,000 25,000,000 $0.20 5,000,000 (488,700) - Balance 30 June 2018 74,999,993 5,120,537 Transaction costs relating to share issues - (330) Balance 30 June 2019 74,999,993 5,120,207 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. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Note 12. Equity - reserves Options reserve (a) Performance rights reserve (b) 2018 $ 472,945 92,603 2017 $ 430,503 53,425 565,548 483,928 34 Nanollose Limited Notes to the financial statements 30 June 2019 Note 12. Equity – reserves (continued) (a) Movements in options reserve Movements in the current financial year are set out below: No. of Options $ Balance at 30 June 2017 27,083,333 285,446 31 May 2018 Issue of 14,505,733 NC6O Listed [a] 14,505,733 145,057 Balance at 30 June 2018 41,589,066 430,503 17 August 2018 Issue of 4,244,266 NC6O Listed [b] 4,244,266 42,442 Balance as at 30 June 2019 45,833,332 472,945 [a] Issue of 14,505,733 NC6O listed options on 31 May 2018 to raise $145,057. [b] Issue of 4,244,266 NC6O listed options on 17 August 2018 to raise $42,442. The options on issue as at 30 June 2019 are as follows: Date of issue Class of option No. of Options Exercise price Expiry date 4 August 2016 5 April 2017 5 April 2017 5 April 2017 5 April 2017 21 April 2017 21 June 2017 21 June 2017 21 June 2017 25 May 2018 17 August 2018 Total Class A Class A Class B Class C Class D Class A Class B Class C Class D NC6O NC6O 21,000,000 1,450,000 900,000 900,000 900,000 1,333,333 200,000 200,000 200,000 14,505,733 4,244,266 45,833,332 $0.30 $0.30 $0.25 $0.30 $0.40 $0.30 $0.25 $0.30 $0.40 $0.30 $0.30 31 December 2020 31 December 2020 30 September 2019 30 September 2020 30 September 2021 31 December 2020 30 September 2019 30 September 2020 30 September 2021 31 December 2020 31 December 2020 (b) Movements in performance rights reserve Balance at 30 June 2017 30 June 2018 Issue of performance rights No. of Performance Rights - 500,000 $ - 53,425 Balance at 30 June 2018 500,000 53,425 Expense recognised for the year end 30 June 2019 - 39,178 Balance as at 30 June 2019 500,000 92,603 30 June 2019 - Share based payments During the year ended 30 June 2018, Mr Alfie Germano was issued 500,000 performance rights in accordance with his employment contract. The fair value of the performance rights recognised as an expense (based on the Company share price at the grant date and amortised over the vesting period) was measured at $39,178 (2018: $53,425). 35 Nanollose Limited Notes to the financial statements 30 June 2019 Note 13. Equity – Accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax expense for the year 2019 $ 2018 $ (2,562,195) (831,981) (2,003,995) (1,730,214) Accumulated losses at the end of the financial year (4,566,190) (2,562,195) Note 14. Key management personnel compensation Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. Short-term employee benefits Post-employment benefits Share-based payments Note 15. Remuneration of auditors 2019 $ 2018 $ 722,646 57,950 325,332 20,800 39,178 153,014 819,774 499,146 During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the Company: Audit services – RSM Australia Partners Auditor review of the financial statements Other services – RSM Australia Partners IPO Prospectus services Preparation of income tax return Other services 2019 $ 2018 $ 28,500 27,500 - 4,500 2,000 14,800 5,700 - 6,500 20,500 35,000 48,000 36 Nanollose Limited Notes to the financial statements 30 June 2019 Note 16. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Note 17. Contingent assets The Company has no contingent assets as at 30 June 2019 (2018: $nil). Note 18. Contingent liabilities The Company has no contingent liabilities as at 30 June 2019 (2018: $nil). Note 19. Events after the reporting period 2019 $ 2018 $ 42,000 17,145 - 42,000 17,030 - 59,145 59,030 No matter or circumstance has arisen since 30 June 2019 that has significantly affected, or may significantly affect the Company's operations, the results of those operations, or the Company's state of affairs in future financial years. Note 20. Related Party Transactions Key management personnel Disclosures relating to key management personnel are set out in Note 14 and the Remuneration Report included in the Directors’ Report. Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. There were no further transactions with Directors or other Key Management Personnel, including their personally related parties, not disclosed in Note 14 or the Remuneration Report. 37 Nanollose Limited Notes to the financial statements 30 June 2019 Note 21. Reconciliation of loss after income tax to net cash used in operating activities Loss after income tax expense for the year Adjustments for: Depreciation Share-based payments Performance rights Change in operating assets and liabilities: Trade and other receivables Other current assets Provisions Trade and other payables Net cash used in operating activities Note 22. Financial Instruments 2019 $ 2018 $ (2,003,995) (1,730,214) 32,158 6,432 - 100,000 39,178 53,425 12,320 (28,792) 59,927 (8,573) 28,484 14,154 (30,640) 18,232 (1,862,568) (1,575,336) The Company’s activities are being funded by equity and are not exposed to significant financial risks. There are no speculative or financial derivative instruments. The Company holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables 2019 $ 1,122,710 30,878 1,153,588 2018 $ 2,980,375 43,198 3,023,573 115,580 115,580 146,221 146,221 The Company’s principal financial instruments comprise of cash. The main purpose of these financial instruments is to fund the Company’s operations. It is, and has been throughout the period under review, the Company’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Company’s financial operations are credit risk, capital risk and liquidity risk. The Directors’ review and agree policies for managing each of these risks and they are summarised below: (a) Credit risk Management does not actively manage credit risk as the Company has no significant exposure to credit risk from external parties at year end as there are no trade receivables. (b) Capital risk The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. 38 Nanollose Limited Notes to the financial statements 30 June 2019 (c) Liquidity risk Maturity profile of financial instruments Prudent liquidity risk management implies maintaining sufficient cash balances and access to equity funding. The Company’s exposure to the risk of changes in market interest rates relates primarily to cash assets and floating interest rates. The Company does not have significant interest-bearing assets and is not materially exposed to changes in market interest rates. The Company does not have financial instruments with maturity exceeding 12 months from the reporting date as at 30 June 2019 and 30 June 2018. Sensitivity analysis – interest rates The sensitivity effect of possible interest rate movements has not been disclosed as they are insignificant. (d) Net fair value of financial assets and liabilities Unless otherwise stated, the carrying amount of financial instruments reflect their fair value. Note 23. Loss per share Basic loss per share (cents) Diluted loss per share (cents) 2019 cents 2.67 2.67 2018 cents 2.57 2.57 2019 $ 2018 $ a) Net loss used in the calculation of basic and diluted loss per share (2,003,995) (1,730,214) b) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic loss per share 74,999,993 67,319,171 c) Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted loss per share 74,999,993 67,319,171 As the Company is in a loss position, the diluted loss per share calculation excludes the dilutive effect of the performance rights and options issued and not yet converted to ordinary shares. 39 Nanollose Limited Directors' declaration 30 June 2019 In the directors' opinion: (i) 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; (ii) the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board; (iii) the attached financial statements and notes give a true and fair view of the Company's financial position as at 30 June 2019 and of its performance for the financial year ended on that date; and (iv) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 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 ___________________________ Winton Willesee Director 28 August 2019 Perth 40 RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NANOLLOSE LIMITED Opinion We have audited the financial report of Nanollose Limited (the Company), which comprises the statement of financial position as at 30 June 2019, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the 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 Company is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Company's financial position as at 30 June 2019 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 Company 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. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING 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 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. Key Audit Matter Going Concern Refer to Note 1 in the financial report For the year ended 30 June 2019, the Company has incurred a loss of $2,003,995 and had net cash outflows from operating activities of $1,862,568. The directors’ have prepared the financial report on the going concern basis. The directors’ assessment of the Company’s ability to continue as a going concern is based on the factors disclosed in Note 1 in the financial statements. We determined the assessment of going concern to be a key audit matter due to the significant judgements involved in the going concern factors. How our audit addressed this matter Our audit procedures included:  Assessing the going the appropriateness of concern factors and the mathematical accuracy of the cash flow budget prepared by the Company;  Challenging of assumptions used in its cash flow forecast; reasonableness the key  Critically assessing the directors’ reasons of why they believe it is appropriate to prepare the financial report on a going concern basis; and  Assessing the adequacy of the going concern disclosures in the financial report. Expenses Statement of profit or loss and other comprehensive income Research expenses, promotion and communication expenses, consultancy and legal expenses, employee benefits expense and other expenses recognised in the statement of profit or loss and other comprehensive income amounted to $2,213,288 for the year ended 30 June 2019. We considered this to be a key audit matter because these expenses were the Company’s most significant transaction categories during the financial year and there is the risk of inaccurate classification and presentation in the financial statements. Our audit procedures included:  Assessing the design the implementation of key internal controls around the purchases, payables and payments transaction cycle; testing and  Agreeing a sample of expenses to supporting documentation the accuracy and test occurrence of the recognised expenditures; and to  Assessing the classification and presentation of the expenses in the statement of profit or loss and other comprehensive income. Other Information The directors are responsible for the other information. The other information comprises the information included in the Company's annual report for the year ended 30 June 2019 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. In preparing the financial report, the directors are responsible for assessing the ability of the Company 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 Company 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 30 June 2019. In our opinion, the Remuneration Report of Nanollose Limited, for the year ended 30 June 2019, 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 Perth, WA Dated: 28 August 2019 TUTU PHONG Partner Nanallose Limited Shareholder Information as at 20 August 2019 The shareholder information set out below was applicable as at 20 August 2019. 1. Quotation Listed securities in Nanollose Limited are quoted on the Australian Securities Exchange under ASX code NC6 (Fully Paid Ordinary Shares) and NC6O (Listed Options). 2. Voting Rights The voting rights attached to the Fully Paid Ordinary shares of the Company are: (a) (b) at a meeting of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney; and on a show of hands, every person present who is a member has one vote, and on a poll, every person present in person or by proxy or attorney has one vote for each ordinary share held. There are no voting rights attached to any Options or Performance Rights on issue. 3. Distribution of Shareholders i) Fully Paid Ordinary Shares Shares Range Holders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total 10 66 108 268 94 546 Units 1,115 238,835 941,342 11,043,481 62,775,220 74,999,993 % 0.00 0.32 1.26 14.72 83.70 100.00% On 20 August 2019, there were 78 holders of unmarketable parcels of less than 250,445 ordinary shares (based on the closing share price of $0.0930). ii) Listed Options exercisable at $0.30 on or before 31 December 2020 Shares Range Holders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total 8 78 28 93 30 237 43 Units 5,618 225,620 202,520 2,708,448 15,607,793 18,749,999 % 0.03 1.20 1.08 14.45 83.24 100.00% Nanallose Limited Shareholder Information as at 20 August 2019 iii) Class A Performance Rights escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 1 1 - - - - 250,0001 250,000 1Holders who hold more than 20% of securities are: Germano McInally Pty Ltd – 250,000 performance rights iv) Class B Performance Rights escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 1 1 - - - - 250,0001 250,000 1Holders who hold more than 20% of securities are: Germano McInally Pty Ltd – 250,000 performance rights v) Class A Options exercisable at $0.30 on or before 31 December 2020 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 2 2 - - - - 530,95311 530,953 % - - - - 100.00 100.00% % - - - - 100.00 100.00% % - - - - 100.00 100.00% 1Holders who hold more than 20% of securities are: Cheena Corporate Pty Ltd - 340,476 Options and Vageli Panagiotidis - 190,477 options vi) Class A Options exercisable at $0.30 on or before 31 December 2020, escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - 1 17 18 - - - 100,000 23,152,3801 23,252,380 1There are no holders who hold more than 20% of securities. 44 % - - - 0.43 99.57 100.00% Nanallose Limited Shareholder Information as at 20 August 2019 vii) Class B Options exercisable at $0.25 on or before 30 September 2019, escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 1 1 - - - - % - - - - 1,100,0001 1,100,000 100.00 100.00% 1Holders who hold more than 20% of securities are Germano McInally Pty Ltd – 1,100,000 options viii) Class C Options exercisable at $0.30 on or before 30 September 2020, escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 1 1 - - - - 1,100,0001 1,100,000 % - - - - 100.00 100.00% 1Holders who hold more than 20% of securities are: Germano McInally Pty Ltd – 1,100,000 options ix) Class D Options exercisable at $0.40 on or before 30 September 2021, escrowed to 18 October 2019 Shares Range Holders Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and above Total - - - - 1 1 - - - - 1,100,0001 1,100,000 1Holders who hold more than 20% of securities are: Germano McInally Pty Ltd – 1,100,000 options % - - - - 100.00 100.00% 45 Nanallose Limited Shareholder Information as at 20 August 2019 4. Substantial Shareholders The names of the substantial shareholders listed on the Company’s register as at 20 August 2019: Name: Suzanne Margaret Cass ATF The Cass Family Trust Holder of: 5,142,857 fully paid ordinary shares, representing 6.86% as at 18 October 2017 Notice Received: 18 October 2017 Name: Wayne Best ATF The Wayne and Debra Family Trust Holder of: 5,517,857 fully paid ordinary shares, representing 7.36% as at 18 October 2017 Notice Received: 18 October 2017 Name: Jason McLaurin Holder of: 5,517,857 fully paid ordinary shares, representing 7.36% as at 18 October 2017 Notice Received: 18 October 2017 Name: Azalea Family Holdings Pty Ltd ATF The Britt and Winton Willesee Family Trust Holder of: 5,517,857 fully paid ordinary shares, representing 7.36% as at 18 October 2017 Notice Received: 18 October 2017 Name: John Moursounidis ATF The Moursounidis Family Trust Holder of: 5,517,857 fully paid ordinary shares, representing 7.36% as at 18 October 2017 Notice Received: 18 October 2017 5. Restricted Securities The following restricted securities are listed on the Company’s register as at 20 August 2019: Escrowed to 18 October 2019 40,000,000 Fully Paid Ordinary Shares 23,252,380 Class A Options ($0.30, 31 December 2020) 1,100,000 Class B Options ($0.25, 30 September 2019) 1,100,000 Class C Options ($0.30, 30 September 2020) 1,100,000 Class D Options ($0.40, 30 September 2021) 250,000 Class A Performance Rights 250,000 Class B Performance Rights 6. On market buy-back There is currently no on market buy-back in place. 7. Application of funds The Company has applied its cash and assets readily convertible to cash in a way that is consistent with its business objectives detailed in its IPO prospectus. 46 Nanallose Limited Shareholder Information as at 20 August 2019 8. Twenty Largest Shareholders The twenty largest shareholders of the Company’s quoted securities as at 20 August 2019 are as follows: Name No. of Shares 5,517,858 5,517,857 5,517,857 5,517,857 5,142,857 2,700,000 2,700,000 2,648,810 1,450,000 1,219,061 1,000,000 1,000,000 1,000,000 963,989 800,000 755,179 747,179 612,513 600,000 500,000 500,000 455,430 446,725 402,858 400,000 400,000 400,000 399,670 % 7.36 7.36 7.36 7.36 6.86 3.60 3.60 3.53 1.93 1.63 1.33 1.33 1.33 1.29 1.07 1.01 1.00 0.82 0.80 0.67 0.67 0.61 0.60 0.54 0.53 0.53 0.53 0.53 49,315,700 65.75% 1 2 2 2 3 4 4 5 6 7 8 8 8 9 10 11 12 13 14 15 15 16 17 18 19 19 19 20 WAYNE MORRIS BEST JOHN MOURSOUNIDIS STONEHORSE NOMINEES PTY LTD AZALEA FAMILY HOLDINGS PTY LTD SUZANNE MARGARET CASS TEJIMAN HOLDINGS PTY LTD JAEK HOLDINGS PTY LTD MR BRYANT JAMES MCLARTY TRIPIT PTY LTD MR JOHN OAKLEY CLINTON & MRS LILIAN ACHIENG CLINTON MR ADAM LAURENCE BODE MR JASON PAUL SKINNER VAGELI PANAGIOTIDIS MAC EQUITY PARTNERS INTERNATIONAL FANO PTY LTD XEEN PTY LTD SPRINGBOK CAPITAL PTY LTD GFA SERVICES PTY LTD MRS LORRAINE ALYSSA GOLDSMITH GERMANO MCINALLY PTY LTD TERENCE WILLIAM JOSEPH WALSH DR RICHARD GALLUZZO & MS TANYA MCCARTHY OOFY PROSSER PTY LTD MR PETER BENJAMIN CHEN MR WAYNE MORRIS BEST ASMAC INVESTMENTS PTY LTD COVENANT HOLDINGS (WA) PTY LTD MR GEOFFREY HAROLD SHILKIN Total 47 Nanallose Limited Shareholder Information as at 20 August 2019 9. Twenty Largest Listed Option Holders – NC6O ($0.30, 31/12/2020) The twenty largest listed option holders of the Company’s quoted securities as at 20 August 2019 are as follows: Name STONEHORSE NOMINEES PTY LTD JOHN MOURSOUNIDIS AZALEA FAMILY HOLDINGS PTY LTD WAYNE MORRIS BEST SUZANNE MARGARET CASS MR CHRISTOPHER DAVID HOFFMANN D SUPER PTY LTD JAEK HOLDINGS PTY LTD JDDD SUPER PTY LTD MR BRYANT JAMES MCLARTY GFA SERVICES PTY LTD MR RAJAN BOORA ANNA CARINA PTY LTD MR JOHN OAKLEY CLINTON SURF COAST CAPITAL PTY LTD MS KIM BARBARA DOWLING MR DAVID JAMES RELPH WOOLNER MR DAVID FERGUSON DICKIE & MS JANET KATHLEEN DOWLING <2 A/C> FANO PTY LTD XEEN PTY LTD THE GAS SUPER FUND PTY LTD MR CAMERON PEARCE BHIL PTY LTD MRS LORRAINE ALYSSA GOLDSMITH 1 1 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 19 20 No. of Shares 1,379,465 1,379,465 1,379,465 1,379,465 1,285,715 1,071,850 928,500 675,000 662,288 662,203 578,129 486,841 473,036 381,054 380,000 260,000 215,625 205,734 200,000 190,796 190,000 190,000 183,750 150,000 % 7.36 7.36 7.36 7.36 6.86 5.72 4.95 3.60 3.53 3.53 3.08 2.60 2.52 2.03 2.03 1.39 1.15 1.10 1.07 1.02 1.01 1.01 0.98 0.80 Total NB: Excludes Class A Options. 14,888,381 79.40% 48 

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