Next Science Limited
Annual Report 2022

Plain-text annual report

Next Science Limited ACN: 622 382 549 Appendix 4E 31 December 2022 Company details Name of entity: ABN: Reporting period: Previous period: _________________________________________________________________________________ Next Science Limited 47 622 382 549 For the year ended 31 December 2022 For the year ended 31 December 2021 Results for announcement to the market Revenues from ordinary activities Loss from ordinary activities after tax attributable to the owners of Next Science Limited Loss for the year attributable to the owners of Next Science Limited up up up 31% 36% 36% to to to USD $ 11,712,722 (12,683,312) (12,683,312) Dividends No dividend was paid or proposed during the year ended 31 December 2022 (2021: USD $nil). Refer to the Operating and Financial Review within the Directors’ Report for further commentary on the year’s results, financial position and likely developments in future years. Net tangible assets Reporting period USD Cents Previous period USD Cents Net tangible assets/(liabilities) per ordinary security 2.62 4.16 The net tangible asset/(liability) per ordinary security is calculated based on 214,790,134 ordinary shares on issue at 31 December 2022 and 197,973,909 shares that were in existence at 31 December 2021. Control gained over entities Not applicable. Loss of control over entities Not applicable. Next Science Limited ACN: 622 382 549 Appendix 4E 31 December 2021 Other information requiring disclosure to comply with ASX Listing rule 4.3A is contained in, and should be read in conjunction with the Financial Statements, the notes to the Financial Statements and the Directors’ Report for the year ended 31 December 2022 attached to this report. This report is based on the Consolidated Financial Statements and Notes of Next Science Limited which have been audited by KPMG. Signed Mark Compton, AM Chair 28 February 2023 Sydney Next Science Limited ACN 622 382 549 Annual Report - 31 December 2022 Next Science Limited Contents 31 December 2022 Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of Next Science Limited Corporate Directory 2 23 24 25 26 28 29 63 64 68 1 Next Science Limited Directors' report 31 December 2022 The Directors present their report together with the consolidated financial statements of the Group comprising of Next Science Limited (Next Science/Company), and the entities it controlled at the end of, or during, the year ended 31 December 2022 (Group). All amounts are presented in US dollars (USD) unless otherwise stated. Directors The Directors of the Company at any time during or since the end of the financial year are: Mark Compton (Chair) Judith Mitchell Bruce Hancox Daniel Spira Aileen Stockburger Dividends No dividends were paid or declared since the commencement of the year and the Directors do not recommend the declaration of a dividend. Operating and financial review Principal activities The principal activities of the Group during the course of the year were the research, development and commercialisation of technologies which solve issues in human health caused by biofilms. The Company is headquartered in Sydney, Australia and has a research and development centre and sales and marketing functions located in Florida, USA. Significant changes in the state of affairs and COVID-19 impact Revenues grew by 31% in 2022 with sales contributions across all of Next Science’s products in market, including sales from products sold through the newly established Durable Medical Equipment (‘DME’) business from mid October 2022 onwards. Good progress was made in building market awareness for our XBIOTM brand as an answer to the biofilms and bacteria that directly lead to the need for revision (repeat) joint replacement surgeries. In January 2022, Next Science and Zimmer, Inc (Zimmer) revised the term of their existing distribution agreement for Bactisure™. The term will now end on 31 December 2026 with Zimmer having the option to extend the distribution agreement for an additional five-year period by providing 6 months’ prior written notice. Next Science and Zimmer reached agreement in January 2022, in respect of the 2021 complaint filed in the United States District Court, Northern District of Indiana, alleging that Zimmer had global commercial exclusivity rights over XPERIENCE™ and signed a new US distribution agreement in relation to the supply of a white labelled version of XPERIENCE™ under Zimmer’s own labelling. The distribution agreement with Zimmer for XPERIENCE™ has a 5 year term plus a 5 year renewal option and confirms Next Science’s intellectual property ownership and rights in respect of XPERIENCE™. In conjunction with the signing of the new distribution agreement, Zimmer withdrew its District Court proceedings. The complaint was dismissed “with prejudice” (meaning that Zimmer cannot reassert the claims) with each party paying its own costs. The first shipment to Zimmer of a white labelled version of XPERIENCE™ took place in June 2022 to support a controlled rollout commencing in July 2022 across Zimmer’s national sales network. First US shipments of TridentX™ Wound Wash to Convatec, also took place in June 2022. During the year, Next Science also entered into multiple distribution partnerships in Australia and New Zealand for Next Science’s XPERIENCE™, Surg X™ and Blast X™ products. Sales of XPERIENCETM to New Zealand commenced in Q2 2022 with sales of XPERIENCE™ and Blast X™ in Australia commencing in Q3 2022. Sales of Surg X™ to New Zealand commenced in Q3 2022. In Q4 2022 Next Science announced its accreditation as a licensed DME supplier giving the Company the ability to seek reimbursement directly from US Centers for Medicare and Medicaid (CMS) for Surgical Dressings (including Collagen products) supplied to patients, initially in 40 US States. Sales commenced during Q4 2022 through the new DME business entity of a range of topical Collagen products to patients who have been prescribed Collagen treatment as a wound dressing. 2 Next Science Limited Directors' report 31 December 2022 Operating and financial review (continued) Significant changes in the state of affairs and COVID-19 impact (continued) Next Science’s commercial team, in the United States, is continuing its own XPERIENCE™, Surg X™ and Blast X™ commercialisation efforts with increased customer usage across all products during the year. During 1H of 2022 Next Science completed a two-tranche placement to institutional and sophisticated investors raising A$6.0million (US$4.4million) in March 2022 and a further A$4.0million (US$2.9million) in May 2022 before capital raising costs. A Share Purchase Plan was also launched during March 2022 raising A$4.8million (US$3.6million) before costs. The financial position of the Group was affected by the amendment of the US Jacksonville Greystone Park Commercial Lease on 17 June 2022. The amendment included: a) Modification of the lease to expand the Premises; and b) Extension of the term of the lease by 5 years The amendment resulted in the recognition of an additional lease liability of $1,178,751, a right-of-use asset of $1,025,617 and leasehold improvements of $160,910 in the Statement of Financial Position. In August 2021, Irrimax Corporation, a competitor of Next Science in the wound irrigation sector, filed a complaint and subsequently served on its complaint in the United States District Court for the Northern District of Georgia alleging common law unfair competition and false advertising regarding XPERIENCE™. The complaint settled in July 2022 and was dismissed “with prejudice” (meaning that Irrimax cannot reassert the claims). In the opinion of the Directors, other than the events previously stated, there were no further significant changes in the state of affairs of the Group that occurred during the financial year. Shareholder returns Revenue Loss attributable to owners of the company Basic earnings per share (EPS) (cents) Share price as at 31 Dec (A$) Return on capital employed 2022 $11,712,722 2021 $8,947,591 ($12,683,312) ($6.03) ($9,349,639) ($4.75) AUD$0.685 (128.0%) AUD$1.245 (77.8%) Review of operations The loss for the Group for the financial year to 31 December 2022 after providing for income tax amounted to $12,683,312 (2021: $9,349,639). Revenue increased by 31% for the period increasing from $8,947,591 in the prior corresponding period to $11,712,722, reflecting some of the recovery from the impacts of the COVID-19 pandemic during the 2022 financial year across surgical procedures and in wound care clinics as well as revenue from new distribution agreements entered into for XPERIENCE™, Blast X™ and Surg X™ both in the USA and in Australia and New Zealand, in addition to revenue earned from reimbursement of Collagen products through the newly operational DME business from mid October 2022 onwards. Gross profit for FY22 was $9,149,698 compared to $6,940,122 in the prior corresponding period. Gross margin as a percent of sales remained steady at 78% (2021: 78%). 3 Next Science Limited Directors' report 31 December 2022 Operating and financial review (continued) Review of operations (continued) Selling and distribution expenses were $10,310,205, an increase of $2,915,334 compared with $7,394,871 in the prior corresponding period. The $2,915,334 in spend in 2022 mainly related to an increase in sales headcount ahead of the launch of the DME business in October 2023 , other employee related expenditure including recruitment costs and an increase in travel costs, associated with higher levels of direct sales activity in the US across all Next Science’s products as COVID-19 travel related restriction eased in 2022 compared to 2021. Administration expenses were $5,385,006, an increase of $1,279,088 compared with $4,105,918 in the prior corresponding period. The majority of the expenses in the current period relate to one off costs of defending and settling the 2021 legal suits brought by Irrimax Corporation and Zimmer. The balance of the increase mainly relates to upfront recruitment retainer fees for the US based CEO search, increased executive travel costs with the easing of COVID-19 travel related restrictions, as well as additional strategic and territorial commercialisation consulting advice undertaken in the period. Research and development expenses were $6,149,806 an increase of $1,102,931 compared with $5,046,875 in the prior corresponding period with expenditure in the current period related to ongoing R&D projects and clinical studies as well as regulatory compliance in existing and new jurisdictions (Canada) and increased medical advisory consulting expenses as well as a modest increase in headcount. Cash and cash equivalents at 31 December 2022 amounted to $5,073,625 compared to $7,000,869 at 31 December 2021. Term deposits at 31 December 2022 amounted to $37,789 compared to $367,129 at 31 December 2021. Inherent risks of Investments in Health Care Companies There are many inherent risks associated with the development of medical devices to a marketable stage. The distribution of some of Next Science's products is subject to obtaining and maintaining FDA and other clearances issued by appropriate governmental authorities and regulatory bodies. Following regulatory approval of some products such as XPERIENCE™, further clinical studies are being undertaken to demonstrate effectiveness and to expand the list of claims per product. Although Next Science believes such clinical studies will be a success. there are no guarantees that the studies will effectively meet their end points. Other risks include patent protection and proprietary rights, whether patent applications and issued patents will offer adequate protection to enable product development, the obtaining of necessary regulatory authority approvals and difficulties caused by rapid advancements in technology. As an accredited DME business, the Company will continue to expand its wound care footprint to patients. Being accredited as a DME business, Next Science must comply with the U.S Health Insurance Portability and Accountability Act (HIPPA) which requires companies that deal with protected health information to have physical, network, and process security measures in in place and follow them. Next Science will need to ensure that it maintains its HIPPA compliance in order to continue to be accredited as a DME entity. Companies such as Next Science are dependent on the success and commercialisation of both their research projects and existing products and their continued ability to attract funding to support those activities, as the Group scales. Access to capital and funding for the Group and its projects going forward cannot be guaranteed. Whilst Next Science believes that reimbursement through the DME will provide welcome cash inflows to assist with ongoing capital needs, the new DME business is in its early stages and the timing and extent of reimbursements are still being assessed. To assist with bridging the gap until the Group becomes cash flow positive, Next Science has issued a A$10,000,000 Secured Convertible Note to major shareholder, Walker Group Holdings Pty Ltd, post shareholder approval on 2 February 2023. See Matters subsequent to the end of the financial year for more details. Likely developments and expected results of operations Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 4 Next Science Limited Directors' report 31 December 2022 Matters subsequent to the end of the financial year On 2 February 2023 shareholders approved the issue of A$10,000,000 Secured Convertible Notes with major shareholder, Walker Group Holdings Pty Ltd, with a maturity date 21 months after the issue date at a conversion price of A$0.72 per security. Each Note accrues interest at a rate of 10% per annum if the Notes are redeemed (and payable in one instalment only on redemption) or at a rate of 5% per annum if the Notes are converted (and capitalised into additional shares on conversion). Interest shall accrue on any overdue sum at a rate of 12% per annum from the due date. If converted, the shares rank pari passu with existing ordinary shares. Next Science Limited's obligations under the Secured Convertible Note Deed are to be secured over the Company and all of the Company's property under a General Security Agreement. In accordance with the Secured Convertible Note Deed, Walker Group Holdings Pty Ltd may at any time after the issue date until 31 October 2023, give notice to Next Science Limited that it wishes to convert all of the Notes to conversion shares. If the Notes are not converted by 31 October 2023, Next Science Limited must redeem the Notes on the maturity date, unless Next Science Limited gives notice of early redemption to Walker Group Holdings Pty Ltd. The Notes are non-transferrable. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event, other than those matters detailed above, of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Environmental regulation The Group’s operations are not subject to significant environment regulations under either Commonwealth or State legislation. The Board believes that the Group has adequate systems in place for the management of environmental requirements. Government regulation The Group is subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation. In the U.S., the drug, device, diagnostics and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labelling and safety reporting. The exercise of broad regulatory powers available to the U.S. Food and Drug Administration (the “FDA”) can result in increases in the amounts of testing and documentation required for FDA clearance of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the U.S. In October 2022, the Jacksonville based subsidiary, Next Science LLC, established itself, and has been licensed and accredited by US Medicare, as a Durable Medical Equipment (DME) provider based in the State of Florida, USA. Such licensing and accreditation, brings with it additional regulatory and compliance obligations. The Group relies on global supply chains, and production and distribution processes that are complex and are subject to lengthy regulatory approval processes and ongoing regulatory requirements which can affect sourcing, supply and pricing of materials used in the Group’s products. 5 Next Science Limited Directors' report 31 December 2022 Information on Directors Name: Title: Mark Compton AM Chair and Independent Non-Executive Director Special responsibilities: Member, Audit and Risk Committee Member, People, Culture and Remuneration Committee Qualifications: Bachelor of Science (Pharmacology, Physiology and Biochemistry) and an MBA, University of New South Wales. Fellow of the Australian Institute of Company Directors, the Australasian College of Health Services Management, Institute of Management and the Royal Society (New South Wales). the Australian Experience and expertise Mark is Lord Prior of the International Order of St John and Chair of the Board of Trustees of St John International. Mark is Chair of Sonic Healthcare Limited, a global medical diagnostics and healthcare organisation which is a Top 50 ASX listed entity. He is also Chair of St Luke’s Care Limited, a not-for-profit health and aged care organisation. Mark has held various CEO and managing director roles, including at St Luke’s Care Limited, Immune System Therapeutics Limited, Royal Flying Doctor Service of Australia, SciGen Limited and Alpha Healthcare Limited. He is an Adjunct Professor at Macquarie University in healthcare leadership and management (since 2012). Other current directorships: Chair and Non-Executive Director of Sonic Healthcare Limited (ASX: SHL). Chair of the Board of Trustees of St John International, Chair of St Luke’s Care Limited. Former listed directorships (last 3 years): None Name: Title: Judith Mitchell Managing Director and Chief Executive Officer Special responsibilities: None Qualifications: MBA, University of Hull Experience and expertise: Graduate of the Australian Institute of Company Directors Judith has been the Managing Director of Next Science since 2017. Prior to joining Next Science, Judith served as President of DePuy Synthes Asia Pacific, the Orthopaedics Division of Johnson & Johnson, before which Judith was President of Asia Pacific for Synthes GmbH, the world leaders in orthopaedic trauma care. Judith commenced her medical technology career at GE Medical Systems, where over 14 years, she held positions in sales, marketing and management. She also held a variety of positions at Cochlear Limited in Product Development, Global Marketing and Education. Other current directorships: None Former listed directorships (last 3 years): None 6 Next Science Limited Directors' report 31 December 2022 Information on Directors (continued) Name: Title: Bruce Hancox Non-Executive Director Special responsibilities: Chair, Audit and Risk Committee Qualifications: Bachelor of Commerce, Canterbury University New Zealand Experience and expertise: Bruce has many years of corporate experience across a broad spectrum of commerce, including 16 years with Brierley Investments Limited in New Zealand. He held a number of senior roles at Brierley Investments as general manager and Chairman and served on the board of a number of their subsidiaries in New Zealand, Australia and the US. Bruce has been a financial advisor to interests of Mr Langley Walker since 2008. He serves as a director of investments and wealth management at Walker Corporation and works with the Walker group of companies to pursue investment opportunities outside the property market. Other current directorships: Director of Walker Group Holdings Pty Limited. Former listed directorships (last 3 years): None Name: Title: Daniel Spira Independent Non-Executive Director Special Responsibilities: Chair, People, Culture and Remuneration Committee Qualifications: Bachelor of Commerce, University of New South Wales Experience and expertise: Daniel is the CEO of iNova Pharmaceuticals (since 2017), a leading multinational consumer healthcare and pharmaceutical company with operations across Asia Pacific and Africa. Previously he was at Bausch Health (2011-2015) as Vice President and GM-North America (with responsibility for a portfolio of businesses spanning Vision Care, Dermatology and Aesthetic Devices) and was also Managing Director, Pacific region. Prior to that, Daniel spent over 15 years at Johnson & Johnson Inc in various roles including Vice President, Country Manager, Chief Marketing Officer and other sales and marketing roles across the Asia Pacific, Europe/Middle East and North American regions. Other current directorships: None Former listed directorships (last 3 years): None 7 Next Science Limited Directors' report 31 December 2022 Information on Directors (continued) Name: Title: Aileen Stockburger Independent Non-Executive Director Special responsibilities: Member, Audit and Risk Committee Member, People, Culture and Remuneration Committee Qualifications: Experience and expertise: Bachelor of Science and MBA, The Wharton School, University of Pennsylvania, Graduate of the Australian Institute of Company Directors, Certified Public Accountant (CPA – USA). Prior to joining Next Science, Aileen was the Worldwide Vice President of Business Development for the DePuy Synthes Group of Johnson & Johnson, where she oversaw the group’s merger and acquisition activities, including deal structuring, negotiations, contract design and review, and deal terms. Aileen led Johnson & Johnson’s efforts to acquire Synthes for approximately $21 billion, Johnson & Johnson’s largest medical device acquisition. She also led the efforts to drive the DePuy Trauma business and acquire Micrus Endovascular. Aileen was also involved in numerous other M&A transactions including Pfizer Consumer Healthcare (US$16.5 billion), Aveeno, BabyCenter, OraPharma, DePuy, DePuy Miket, Kodak Clinical Diagnostics and Neutrogena. Other current directorships: Non-Executive Director, Microbot Medical Inc. (NASDAQ: MBOT). Non-Executive Director, Materna Medical Inc. Non-Executive Director, Orchid Orthopedic Solutions Non-Executive Director, ChemImage Corporation Former listed directorships (last 3 years): None 8 Next Science Limited Directors' report 31 December 2022 Company Secretary Gillian Nairn, BA/LLB, LLM, FGIA, was appointed Company Secretary on 21 June 2018. Gillian is an experienced corporate governance professional with more than 20 years legal and governance experience gained in private practice and in various in-house and consulting company secretarial roles, predominantly with listed entities. Meetings of directors The number of meetings held and attended by each of the Directors of the Company during the year ended 31 December 2022 were as follows: Name of director Board meetings Mark Compton Judith Mitchell Bruce Hancox Daniel Spira Aileen Stockburger A 20 19 20 20 20 B 18 19 20 19 19 People, Culture & Remuneration Committee B A 3 3 - - - - 3 3 3 3 Audit and Risk Committee A 8 - 8 - 8 B 8 - 8 - 8 A – Number of meetings held when Director was eligible to attend B – Number of meetings attended during the time the Director held office Directors’ interests The relevant interest of each Director in shares, options and rights over such instruments issued by the Group, as notified by the Directors to the ASX in accordance with section 205G(1) of the Corporations Act 2001 at the date of this report is as follows: Director Mark Compton Judith Mitchell Bruce Hancox Daniel Spira Aileen Stockburger Total Fully paid ordinary shares Number 171,920 6,420,000 564,482 752,172 44,837 7,953,411 Share options Number 520,000 - 520,000 260,000 520,000 1,820,000 Shares under option At the date of this report, there are 2,812,000 options over ordinary shares on issue (2021: 2,890,000 options), representing 1.31% (2021: 1.46%) of the Company’s undiluted total share capital, granted to employees and directors under an equity incentive plan. Indemnity and insurance of officers The Group has indemnified the Directors and executives of the Group 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 Group has paid a premium in respect of a contract to insure the Directors and executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company and the Group have 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. 9 Next Science Limited Directors' report 31 December 2022 Proceedings on behalf of the company No person has applied to a court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 34 to the financial statements. The Directors are satisfied that the provision of non-audit services by the auditor during the financial year 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 34 to the financial statements do not compromise the external auditor’s independence requirements under 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 The external auditor has declared to the Directors that to the best of the individual auditor's knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act and no contraventions of any applicable code of professional conduct in relation to the half-year review. The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Independence Standards), as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Officers of the Company who are former partners of KPMG No officer of the Company was an audit partner of KPMG, being the auditors during the financial year, at a time when the audit firm undertook an audit of the Company. Auditor’s independence declaration The auditor’s independence declaration is set out on page 23 and forms part of the Directors’ Report for the financial year ended 31 December 2022. Auditor KPMG continues in office in accordance with section 327 of the Corporations Act 2001. Remuneration Report (audited) This Remuneration Report forms part of the Directors’ Report for the year ended 31 December 2022. This Report outlines the details of the remuneration arrangements for the key management personnel of the Group, including remuneration strategy, framework and practices, in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this Report, key management personnel (KMP) are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director of the Company (non-executive or executive). The information in this Remuneration Report is set out under the following headings: • Key management personnel (KMP) • Remuneration governance • Service agreements and remuneration policy • Non-Executive Directors’ remuneration • Employee incentive arrangements and link between performance and reward • Share option plans and performance rights over equity instruments • KMP Remuneration • KMP Equity Holdings 10 Next Science Limited Directors' report 31 December 2022 Key management personnel (KMP) The KMP of the Group during the financial year and the positions held are summarised below: Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger Managing Director Judith Mitchell Other KMP Jacqueline Butler Matthew Myntti Jon Swanson Dustin Haines (Chief Financial Officer) (Chief Technology Officer) (Chief Operating Officer) (Chief Commercial Officer) (Resigned and ceased to be a KMP on 20 April 2022) Remuneration governance The People, Culture and Remuneration Committee currently comprises of: • Daniel Spira (Chair) • Mark Compton • Aileen Stockburger The role and responsibilities, composition, structure and membership requirements of the People, Culture and Remuneration Committee are documented the People, Culture and Remuneration Committee Charter available at www.nextscience.com/corp-governance. in The People, Culture and Remuneration Charter provides that the Committee should comprise at least three members, all of whom are Non-Executive Directors and a majority of whom are independent Directors. The Chair of the Committee should be an independent Director who is not Chair of the Board. The Charter requires the Committee to meet at least twice each year. All of the current members of the People, Culture and Remuneration Committee have been assessed by the Board as being independent Non-Executive Directors and the Chair of the Committee is not Chair of the Board. 11 Next Science Limited Directors' report 31 December 2022 Service agreements and remuneration policy Executives are employed under executive employment agreements with the Group. In determining remuneration, the Group considers: industry based remuneration benchmaking (Australia and USA); • • market developments affecting remuneration practices; • • • • the remuneration expectations of an executive whom the Company wants to employ; future outlook for the Group and market generally; the Company’s performance over a performance period; and the link between remuneration and the successful implementation of the Company’s strategy and achievement of strategic objectives. Executive incentives comprise fixed and variable elements linked to Company and individual performance as detailed in this Report. Employment agreements Name: Judith Mitchell Title: Managing Director Details: Ongoing service agreement inclusive of superannuation and to be reviewed annually by the Company. The Company or employee may terminate the service agreement by giving 3-months’ notice or pay in lieu of all or part of the notice period. The Company may terminate without notice, in the event of serious misconduct or for any other reason that enables summary dismissal at law. Judith is entitled to participate in the Company’s short term and long-term incentive plans. Name: Title: Details: Jacqueline Butler Chief Financial Officer (CFO) Ongoing service agreement inclusive of superannuation and to be reviewed annually by the Company. The Company or employee may terminate the service agreement by giving 3-months’ notice or pay in lieu of all or part of the notice period. The Company may terminate without notice, in the event of serious misconduct or for any other reason that enables summary dismissal at law. Jacqueline is entitled to participate in the Company’s short term and long-term incentive plans. 12 Next Science Limited Directors' report 31 December 2022 Service agreements and remuneration policy (continued) Employment agreements (continued) Name: Title: Detail: Dr Matthew Myntti Chief Technology Officer (CTO) Ongoing employment agreement to be reviewed annually by the Company. The Company or employee may terminate the service agreement by giving 90 days written notice. The Company may terminate immediately for Cause as defined in the agreement. Matthew is entitled to participate in the Company’s short term and long-term incentive plans. Name: Title: Jon Swanson Chief Operating Officer (COO) Details: Ongoing employment agreement to be reviewed annually by the Company. The Company or employee may terminate the service agreement by giving 90 days written notice. The Company may terminate immediately for Cause as defined in the agreement. Jon is entitled to participate in the Company’s short term and long-term incentive plans. Name: Dustin Haines Title: Chief Commercial Officer (CCO) Details: Ongoing employment agreement to be reviewed annually by the Company. The Company or employee may terminate the service agreement by giving 90 days written notice. The Company may terminate immediately for Cause as defined in the agreement. Dustin is entitled to participate in the Company’s short term and long-term incentive plans. Dustin’s employment agreement with Next Science ceased on 20 April 2022. 13 Next Science Limited Directors' report 31 December 2022 Non-Executive Directors’ Remuneration Each of the Non-Executive Directors have entered into appointment letters with Next Science confirming the terms of their appointment and their roles and responsibilities. Under the Constitution, the Board decides the amount paid to each Non-Executive Director as remuneration for their services as a Director. However, the Constitution and the ASX Listing Rules stipulate that the total amount of fees paid to Non-Executive Directors (excluding any special exertion fees) must not exceed the amount approved by the Company’s shareholders. This amount has been fixed initially in the Company’s Constitution at A$750,000 per annum and may only be varied by ordinary resolution in general meeting. The annual fee for Non-Executive Directors is AUD$90,000 per annum (inclusive of superannuation) and for the Chair is AUD$250,000 per annum (inclusive of superannuation). The Chair’s fees reflect the additional responsibilities of the role. An additional fee of AUD$10,000 per annum is paid for performing the role of Chair of the Audit and Risk Committee or People, Culture and Remuneration Committee. The Company paid special exertion fees to Aileen Stockburger during 2021 and 2022. These exertions were to assist the Board in ensuring the Company’s activities in the US received appropriate oversight and support. Employee incentive arrangements and link between performance and reward Short Term Incentive (STI) Plan for Executives The Managing Director, CFO, CTO and COO were invited to participate in the Company’s short-term incentive plan (STI Plan), effective from the Company’s admission to the ASX in April 2019. The CCO was invited to participate in the STI plan following his appointment in June 2020. Participants in the STI Plan, must be employed with the Company, or wholly owned subsidiary of the Company, for at least six months during the Plan year and still be employed until after the announcement of the Group’s results to the ASX following the relevant Plan year. Participation is by invitation from the Board and is not automatic. Participants who resign or are terminated before the end of a Plan year are not eligible for any payments under the Plan unless the Board determines otherwise, in its sole discretion. The STI Plan objectives are to: reward executives for their contribution in ensuring that the Group achieves its annual financial performance targets; • • enhance the Group’s opportunity to attract, motivate and retain high calibre and high performing executives; and • link part of executive remuneration directly to the achievement of Group and individual KPIs. The making of any payment under the STI Plan is subject to the achievement of three gateway hurdles; at least 90% of a base consolidated revenue target; 100% of a base consolidated EBITDA target; and an individual performance rating of at least 3 out of 5. The maximum STI opportunity is 100% of Total Fixed Remuneration (TFR) for the Managing Director and 80% of TFR for the CFO, CTO and COO. To receive the maximum STI opportunity, executives must achieve performance targets for consolidated revenue, consolidated EBITDA and individual performance. As a number of the members of the executive team already have significant security holdings in Next Science, any payments under the STI Plan will be paid in cash to ensure that the STI opportunities operate as true incentives. No STI payments were made in respect of the financial year ended 31 December 2022 (2021: Nil) as revenue and EBITDA targets were not achieved. Long-Term Incentive (LTI) Plan for Executives At the time of the Company’s IPO in April 2019, the Board of the Company established a long-term incentive plan under which incentives are issued in the form of Performance Rights to eligible participants (LTI Plan). The terms of the LTI Plan with respect to future participation are currently under review. The details of the LTI Plan in this Remuneration Report relate to the terms of the LTI Plan as they currently apply. 14 Next Science Limited Directors' report 31 December 2022 Employee incentive arrangements and link between performance and reward (continued) The Managing Director, CFO, COO and CCO, are entitled to participate in the LTI Plan. If Group performance hurdles are achieved in the financial year ending 31 December 2022, and thereafter, the Managing Director has the opportunity to be granted performance rights worth 200% of her Total Fixed Remuneration (TFR) and the other participants in the LTI Plan have the opportunity to be granted performance rights worth 150% of their TFR. The number of Performance Rights granted will be based on the volume weighted average price (VWAP) of shares in the Company for the period 1 January until the day before the release on ASX of the Company’s relevant preliminary full year results. The vesting of Performance Rights issued under the LTI Plan is dependent on satisfaction of the following vesting conditions: • • 50% of Performance Rights will vest if the compound annual total shareholder return (TSR) is at least 15% per annum; and 100% of Performance Rights will vest if the compound annual TSR is at least 30% per annum. If compound TSR is less than 15% per annum, no Performance Right will vest. Subject to vesting conditions being satisfied, Performance Rights automatically convert to shares, on a one-for one basis, three years after the date on which they are granted. If vesting conditions have not been satisfied, the Performance Rights will automatically lapse. Participants must be employed by the Company or a wholly owned subsidiary at the date of vesting. No Performance Rights have been issued in relation to the financial year ending 31 December 2022 (2021: Nil) as vesting conditions were not met. The Company’s LTI Plan will operate in future years with grants based on the relevant revenue and/or other Group performance measures. It is not intended to change the size of the grant to participants or the vesting conditions. In recognition of the CCO’s extensive work in 2020 to prepare the Company for the launch of XPERIENCETM in 2021, and to provide longer term upside opportunity to the CCO similar to that available to the other executive KMPs from the options awarded to them prior to the Company’s admission to ASX, in February 2021, the Company granted the CCO USD$315,000 worth of performance rights. The vesting of the CCO’s performance rights was subject to continued tenure and was to be over three years with 1/3 vesting in 1 year, 1/3 in 2 years and 1/3 in 3 years from the grant date. However, due to employment ceasing on 20 April 2022 the performance rights in year 2 and 3 did not vest during the year. Options and rights over equity instruments Prior to the Company being admitted to the ASX, the Group established an Equity Incentive Plan (ECP) for US employees and an Employee Share Option Plan (ESOP) for Australian employees and directors (see note 31). With the exception of the Managing Director, Judith Mitchell, as described below, the only vesting condition applicable to the options granted under these earlier plans was that the individual be employed by the Company, or any wholly owned subsidiary of the Company at the vesting date. There were no options over ordinary shares issued as compensation to KMP during the year ended 31 December 2022 (2021: Nil). Details of the options over ordinary shares issued under the ECP or ESOP which were held by KMP as at 31 December 2022 are set out below: KMP Grant date Expiry date Vesting date Fair value at grant date Exercise price (USD) Pre-share split (USD) Post-share split (USD) Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger Other KMP Jon Swanson 17 Dec 2018 17 Dec 2018 17 Dec 2018 17 Dec 2018 17 Dec 2023 17 Dec 2023 17 Dec 2023 17 Dec 2023 17 Dec 2021 17 Dec 2021 17 Dec 2021 17 Dec 2021 2,138 2,138 2,138 2,138 0.33 0.33 0.33 0.33 0.56 0.56 0.56 0.56 17 Dec 2018 17 Dec 2023 17 Dec 2020 2,138 0.33 0.56 15 Next Science Limited Directors' report 31 December 2022 Options and rights over equity instruments (continued) There were no rights over ordinary shares issued as compensation to KMP during the year ended 31 December 2022 (2021: 340,602). The movement for the year ended 31 December 2022, in the number of rights and options over ordinary shares in Next Science Limited held, directly, indirectly or beneficially, by each KMP, including their related parties was as follows: KMP Balance as at 1 Jan 2022 No. Granted No. Exercised No. Lapsed No. Balance as at 31 Dec 2022 No. Vested during the year Vested and exercisable No. Un-vested No. Options Executive Director Judith Mitchell - Non-Executive Directors Bruce Hancox Daniel Spira Mark Compton Aileen Stockburger 520,000 260,000 520,000 520,000 Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines - 650,000 - - Rights Dustin Haines* 340,602 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 520,000 260,000 520,000 520,000 - 650,000 - - (113,534) (227,068) - - - - - - - - - - - - 520,000 260,000 520,000 520,000 - 650,000 - - - - - - - - - - - N/A N/A *Dustin Haines employment agreement with Next Science ceased on 20 April 2022 16 Next Science Limited Directors' report 31 December 2022 Options and rights over equity instruments (continued) The movement for the year ended 31 December 2021, in the number of rights and options over ordinary shares in Next Science Limited held, directly, indirectly or beneficially, by each KMP, including their related parties was as follows: KMP Balance as at 1 Jan 2021 No. Granted No. Exercised No. Lapsed No. Balance as at 31 Dec 2021 No. Vested during the year Vested and exercisable No. Un-vested No. Options Executive Director Judith Mitchell 2,340,000 Non-Executive Directors George Savvides Bruce Hancox Daniel Spira Mark Compton Aileen Stockburger 650,000 520,000 1,300,000 520,000 520,000 - - - - - - - - - - (1,560,000) (780,000) - - - - - (1,040,000) - - (650,000) - - - - - 520,000 260,000 520,000 520,000 - 520,000 260,000 520,000 520,000 - - - - - - - - - - - 520,000 260,000 520,000 520,000 - 650,000 - - Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines Rights Dustin Haines - 650,000 650,000 - - - (650,000) - - - - - - - 650,000 - - 340,602 - - - - - - 340,602 - N/A 340,602 Exercise of options granted as compensation During the reporting period, there were no shares issued upon the exercise of options previously granted as compensation, to KMP. 17 Next Science Limited Directors' report 31 December 2022 Analysis of movements in rights The value of rights over ordinary shares in the Company granted and exercised by each KMP during the reporting period is detailed below. KMP Granted in year $ Value of rights exercised in year $ Dustin Haines - 105,000 Details of equity incentives affecting current and future remuneration KMP Instrument Number Grant date Expiry date % vested Financial years in which grant vests Non-Executive Directors Mark Compton Bruce Hancox Aileen Stockburger Daniel Spira Other KMP Jon Swanson Options Options Options Options 520,000 520,000 520,000 260,000 17 Dec 2018 17 Dec 2018 17 Dec 2018 17 Dec 2018 17 Dec 2023 17 Dec 2023 17 Dec 2023 17 Dec 2023 100% 100% 100% 100% 2021 2021 2021 2021 Options 650,000 17 Dec 2018 17 Dec 2023 100% 2020 18 Next Science Limited Directors' report 31 December 2022 KMP Remuneration The table below details the remuneration of the KMP based on the remuneration policies discussed in this report for the year ended 31 December 2022. Year ended 31 December 2022 KMP (USD) Cash salary and fees Other cash service (i) Long service Leave Super- annuati on $ $ $ $ Share- based payments rights (ii) $ Total Performance Related (iii) $ % Executive Director Judith Mitchell Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines (iv) 264,444 173,466 62,941 67,768 79,868 - - - - - 6,717 16,922 - - - - - 6,446 1,619 - - - - - - 288,083 173,466 69,387 69,387 79,868 359,962 264,571 207,427 103,474 1,583,921 6,650 609 38,925 46 46,230 - - 4,630 - 11,347 - - 16,926 - 41,913 - - - 8,750 8,750 366,612 265,180 267,908 112,270 1,692,161 - - - - - - - - - - (i) Included in Jacqueline Butler’s Other cash services is an amount of $38,925 for cashed out annual leave. Other cash services for Matthew Myntti, Jon Swanson and Dustin Haines includes motor vehicle allowance and/or other minor benefits. For the year ended 31 December 2022 threshold Group performance targets were not met and hence no amounts were awarded to KMP under the STI Plan. (ii) The fair value of the right is calculated at the date of grant using the 60 day volume weighted average price of Next Science shares in the period immediately prior to the offer date. The rights disclosed is the portion of the fair value of the rights recognised as an expense in the reporting period. (iii) Disclosed above are the relative proportions of each individual’s remuneration that are related to performance; the remaining proportion being fixed remuneration. (iv) Dustin Haines employment agreement with Next Science ceased on 20 April 2022. 19 Next Science Limited Directors' report 31 December 2022 KMP Remuneration (continued) The table below details the remuneration of KMP for the year ended 31 December 2021. Year ended 31 December 2021 KMP (USD) Cash salary and fees (i) Other cash service (ii) Long service Leave Super- annuati on Share-based payments Total Performance Related (v) $ $ $ $ Options (iii) $ Rights (iv) $ $ % Executive Director Judith Mitchell Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger George Savvides Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines 283,239 144,570 68,388 73,385 83,860 66,493 - - - - - - 3,696 17,051 (101,211) - - - - - - 6,663 1,667 - - 71,729 71,729 35,865 71,729 (132,471) - - - - - - 202,775 216,299 146,780 110,917 155,589 (65,978) 350,000 254,155 198,231 320,235 1,842,556 6,516 651 - 106 7,273 - - 3,126 - 6,822 - - 16,990 - 42,371 - - - - 17,370 - - - 96,250 96,250 356,516 254,806 218,347 416,591 2,012,642 - - - - - - - - - - (i) On 5 May 2021, George Savvides, AM retired as Chair and Mark Compton assumed the role of Chair. (ii) Other cash service includes motor vehicle allowance and/or other minor benefits. For the year ended 31 December 2021 threshold Group performance targets were not met and hence no amounts were awarded to KMP under the STI Plan. (iii) The value of the share options granted to KMP is calculated at the grant date using the Black-Scholes formula. This value is allocated to each reporting period evenly over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options recognised as an expense in each reporting period. Certain tranches of previous options awarded did not vest and lapsed during the year as vesting conditions were not met. In accordance with Australian Accounting Standards previous expenses related to the lapsed portion of options were reversed in the current year. (iv) The fair value of the right is calculated at the date of grant using the 60 day volume weighted average price of Next Science shares in the period immediately prior to the offer date. The rights disclosed is the portion of the fair value of the rights recognised as an expense in the reporting period. (v) Disclosed above are the relative proportions of each individual’s remuneration that are related to performance; the remaining proportion being fixed remuneration. 20 Next Science Limited Directors' report 31 December 2022 KMP equity holdings The movement during the reporting period in the number of shares in Next Science Limited held directly, indirectly or beneficially, by each KMP, including their related parties, is as follows: Year ended 31 December 2022 KMP Balance as at 1 Jan 2022 No. Received on exercise of options/rights No. Other changes during the year No.* Balance on termination Balance as at 31 Dec 2022 No. Executive Director Judith Mitchell Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines 6,560,000 137,438 530,000 723,437 44,837 13,354,989 50,000 410,196 - - - - - - (140,000) 34,482 34,482 28,735 - - - - - - - - - 113,534** (1,411,020) - - (40,000) - - - 73,534 6,420,000 171,920 564,482 752,172 44,837 11,943,969 50,000 410,196 N/A * Other changes represent shares that were purchased, sold or transferred to another party during the year. ** Dustin Haines employment agreement with Next Science ceased on 20 April 2022. 21 Next Science Limited Directors' report 31 December 2022 KMP equity holdings (continued) Year ended 31 December 2021 KMP Balance as at 1 Jan 2021 No. Received on exercise of options No. Other changes during the year No.* Balance as at 31 Dec 2021 No. Executive Director Judith Mitchell Non-Executive Directors Mark Compton Bruce Hancox Daniel Spira Aileen Stockburger George Savvides Other KMP Matthew Myntti Jon Swanson Jacqueline Butler Dustin Haines 5,000,000 1,560,000 - 6,560,000 137,438 530,000 49,266 44,837 649,876 20,657,000 70,000 - - - - 1,040,000** - - - - (365,829) - (180,000) - - 650,000** - (7,302,011)*** (20,000) (239,804) - 137,438 530,000 723,437 44,837 469,876 13,354,989 50,000 410,196 - * Other changes represent shares that were purchased, sold or transferred to another party during the year. ** In respect of these options, in order to facilitate the exercise of these options the Company provided a short term loan to the option holder which was repaid within 15 days. *** As announced to ASX on 6 September 2021 This concludes the remuneration report (audited). 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: Mark Compton, AM Chair Dated at Sydney 28 February 2023 22 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Next Science Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Next Science Limited for the financial year ended 31 December 2022 there have been: i. ii. No contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and No contraventions of any applicable code of professional conduct in relation to the audit. KPMG Kevin Leighton Partner Sydney 28 February 2023 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 23 Next Science Limited Consolidated statement of profit or loss and other comprehensive income For the year ended 31 December 2022 Revenue Cost of sales Gross profit Other income Selling and distribution expenses Research and development expenses Administration expenses Other expenses Operating loss Finance income Finance costs Net finance income Consolidated Note 2022 $ 2021 $ 5 11,712,722 (2,563,024) 8,947,591 (2,007,469) 6 8 9,149,698 6,940,122 37,870 147,112 (10,310,205) (6,149,806) (5,385,006) (45,558) (7,394,871) (5,046,875) (4,105,918) (15,633) (12,703,007) (9,476,063) 10 11 48,298 (28,603) 19,695 142,900 (16,476) 126,424 Loss before income tax expense (12,683,312) (9,349,639) Income tax expense 12 - - Loss after income tax expense for the year (12,683,312) (9,349,639) Other comprehensive loss Items that may be reclassified subsequently to profit or loss Foreign currency translation differences Other comprehensive loss for the year, net of tax Total comprehensive loss for the year (556,734) (547,407) (556,734) (547,407) (13,240,046) (9,897,046) Cents Cents Basic earnings per share Diluted earnings per share 35 35 (6.03) (6.03) (4.75) (4.75) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 24 Next Science Limited Consolidated statement of financial position As at 31 December 2022 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets - term deposits Other current assets - other Total current assets Non-current assets Trade and other receivables Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Contract liabilities Lease liabilities Employee benefits Total current liabilities Non-current liabilities Contract liabilities Lease liabilities Employee benefits Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity Consolidated Note 2022 $ 2021 $ 13 14 15 16 17 14 18 20 19 21 22 23 24 22 23 24 5,073,625 1,738,923 871,266 37,789 541,506 7,000,869 887,211 1,500,522 367,129 476,049 8,263,109 10,231,780 36,656 696,848 1,053,113 2,409,930 4,196,547 36,656 683,562 232,456 2,532,491 3,485,165 12,459,656 13,716,945 1,979,346 274,902 257,912 94,811 2,606,971 1,172,996 91,177 166,235 109,611 1,540,019 824,706 962,060 30,194 1,816,960 1,283,334 109,802 17,295 1,410,431 4,423,931 2,950,450 8,035,725 10,766,495 25 26 113,526,533 102,921,007 (41,709,310) (50,445,202) (42,362,294) (63,128,514) 8,035,725 10,766,495 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 25 Next Science Limited Consolidated statement of changes in equity 31 December 2022 Balance at 1 January 2022 Loss for the year Other comprehensive income Foreign currency translation differences Total other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners Share-based payments Performance rights converted to shares on vesting Issue of ordinary shares Capital raising costs Total transactions with owners Balance at 31 December 2022 Common control reserve $ Foreign currency translation reserve $ Share capital $ Share option reserve $ Performance rights reserve $ Accumulated losses $ Total equity $ 102,921,007 (42,596,715) - - (1,349,143) - 2,140,298 - 96,250 (50,445,202) 10,766,495 (12,683,312) (12,683,312) - - - - - 105,000 10,886,160 (385,634) 10,605,526 - - - - - - - - (556,734) (556,734) (556,734) - - - - - - - - - - - - - - - - - - (556,734) (556,734) (12,683,312) (13,240,046) 8,750 (105,000) - - (96,250) - - - - - 8,750 - 10,886,160 (385,634) 10,509,276 113,526,533 (42,596,715) (1,905,877) 2,140,298 - (63,128,514) 8,035,725 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 26 Next Science Limited Consolidated statement of changes in equity 31 December 2022 Balance at 1 January 2021 Loss for the year Other comprehensive income Foreign currency translation differences Total other comprehensive loss Total comprehensive loss for the year Transactions with owners in their capacity as owners Share-based payments Foreign exchange impact Issue of ordinary shares Capital raising costs Total transactions with owners Balance at 31 December 2021 Common control reserve $ Foreign currency translation reserve $ Share capital $ Share option reserve $ Performance rights reserve $ Accumulated losses $ Total equity $ 101,281,467 (42,596,715) - - (801,736) - 2,125,541 - - (41,095,563) 18,912,994 (9,349,639) - (9,349,639) - - - - - 1,645,770 (6,230) 1,639,540 - - - - - - - - (547,407) (547,407) (547,407) - - - - - - - (547,407) (547,407) - (9,349,639) (9,897,046) - - - - - 17,370 (2,613) - - 96,250 - - - 14,757 96,250 - - - - - 113,620 (2,613) 1,645,770 (6,230) 1,750,547 102,921,007 (42,596,715) (1,349,143) 2,140,298 96,250 (50,445,202) 10,766,495 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 27 Next Science Limited Consolidated statement of cash flows For the year ended 31 December 2022 Operating activities Receipts from customers Payments to suppliers and employees Payments for research and development Interest received COVID-19 government assistance and other income Consolidated Note 2022 $ 2021 $ 10,657,495 (20,464,045) (2,033,830) 12,720 37,890 9,512,635 (16,268,131) (1,672,278) 16,515 146,905 10 Net cash used in operating activities 13 (11,789,770) (8,264,354) Investing activities Payments for property, plant and equipment Payments for intangible assets 18 19 (88,972) (386,744) (140,492) (576,266) Net cash used in investing activities (475,716) (716,758) Financing activities Proceeds from issue of ordinary shares Proceeds from conversion of options to ordinary shares Capital raising costs Payment of lease liabilities Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year (including bank term deposits) Effects of exchange rate changes on cash and cash equivalents 25 25 25 10,853,400 32,760 (385,634) (253,229) - 1,645,770 (6,230) (212,759) 10,247,297 1,426,781 (2,018,189) (7,554,331) 7,367,998 (238,395) 15,339,402 (417,073) Cash and cash equivalents at the end of the financial year (including bank term deposits) 5,111,414 7,367,998 Less bank term deposits classified as other current assets Cash and cash equivalents at end of the year 16 13 (37,789) 5,073,625 (367,129) 7,000,869 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 28 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 1. Corporate information Next Science Limited (the "Company") is a company domiciled in Australia. The Group is a for‑profit entity and primarily involved in the research, development and commercialisation of technologies which solve bacterial related issues. These consolidated financial statements comprise the Company and its subsidiaries (collectively the "Group" and individually "Group companies") for the year ended 31 December 2022 and comparative information for the year ended 31 December 2021. Note 2. Basis of preparation Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with accounting standards adopted by the Australian Accounting Standards Board ("AASB") and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards ("IFRS") adopted by the International Accounting Standards Board ("IASB"). The financial statements were approved by the Board of Directors and authorised for issue on ____________ 2023. Basis of measurement The financial statements have been prepared on a historical cost basis unless otherwise stated. Functional and presentation currency The financial statements are presented in United States Dollars, which is the Group’s presentation currency. Entities within the Group hold functional currencies of AUD or USD as appropriate to the individual entity. Use of judgements and estimates In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosure of contingent liabilities. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. The key judgements, estimates and assumptions are discussed below: Impairment of non‑financial assets The Group assesses impairment of non‑financial assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. This involves value‑in‑use calculations, which incorporate a number of key estimates and assumptions. Recoverable amount being the net amount of discounted future cash flows materially exceeds the carrying value of non‑current assets. The recoverable amount of these cash generating units, at balance date, was estimated based on its value in use. Value in use for the cash‑generating units ('CGU') was determined by discounting the future cashflows to be generated from the CGUs and is based on the following key assumptions: ● ● ● ● Cashflows were projected based on forecast operating results over a 5 year period plus a terminal value. Average annual revenue growth rates and approved budgets were used for revenue projections. The pre-tax discount rates of 12% - 15% based on the weighted average cost of capital. Changes in key assumptions would impact recoverable amount calculations. 29 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 2. Basis of preparation (continued) Estimation of useful lives of assets The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non‑strategic assets that have been abandoned or sold will be written off or written down and the incremental borrowing rate is estimated. Recovery of deferred tax assets Deferred tax assets for tax losses are only recognised if the Group considers it is probable that future taxable amounts will be available to utilise those tax losses against. Going concern The financial report has been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business for a period of at least twelve months from the date this financial report is approved. For the financial year ended 31 December 2022, the Group incurred a loss of $12,683,312 and had net cash outflows from operations of $11,789,770. As at 31 December 2022, the Group had net current asset and net asset positions of $5,656,138 and $8,035,725 respectively. The Group continues to reflect on the potential continued impacts of COVID‑19 which primarily are expected to affect revenue due to the difficulty in accessing end customers and/or the ability for elective surgeries to be performed in selected markets. The Group has also considered the impacts the launch of the DME business will have on cash inflows via reimbursements from Medicare/Medicaid and other insurance providers and has modelled a range of scenarios for going concern purposes. The Group considers that its cash and term deposits totalling $5,111,414 at 31 December 2022, together with the cash received from the issue of A$10,000,000 Secured Convertible Notes to major shareholder, Walker Group Holdings Pty Ltd, following approval at the shareholder meeting on 2 February 2023 as well as potential cost management initiatives are sufficient to enable the Group to continue as a going concern for the foreseeable future, being at least twelve months from the date of signing this financial report. Note 3. Significant accounting policies The Group has consistently applied the following accounting policies to all periods in these financial statements. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 28. Basis of consolidation (i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group, unless it is a combination involving entities or businesses under common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. Common control transactions record assets and liabilities acquired at their book value at the date of acquisition, rather than their fair value. The difference between the fair value of the consideration given and the carrying value of the assets and liabilities acquired is recognised as a common control reserve. The consideration transferred does not include amounts related to the settlement of pre‑existing relationships. Such amounts are generally recognised in profit or loss. 30 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iii) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non‑controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. (iv) Transactions eliminated on consolidation Intra‑group balances and transactions, and any unrealised income and expenses arising from intra‑group transactions, are eliminated. Unrealised gains arising from transactions with equity‑accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non‑monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non‑monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within finance costs. (ii) Foreign currency operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the presentation currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into the functional currency at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transaction are used. Foreign currency differences are recognised in equity and accumulated in the translation reserve. Revenue from contracts with customers Revenue from contracts with customers is recognised when a customer obtains control of the goods or services and when performance obligations have been satisfied assessing the following criteria: (i) Identification of distinct elements and separate performance obligations In the case where the customer contract includes a sublicense and transfer of goods, the assessment must be made as to whether a separate performance obligation exists for each element. For current contracts held, whilst a license to specific IP has been given related to the Group’s product, this only includes rights to distribute, not to use the IP to manufacture the product. Therefore, the licence transferred is not deemed to be a distinct element of the contract and only one performance obligation exists to transfer product to the distributor. (ii) Transfer of goods Title and control pass to some of Next Science's customers at the point when the Group fulfils its obligation to deliver, and goods are available at the customer’s premises. For these customers, the performance obligation (including the license) transfers at the point in time when each good is delivered. Therefore, revenue is recognised at the point in time when the product is delivered. For other customers (including DME patients), title and control pass when the product is delivered to the courier, with revenue being recognised at this point in time. 31 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) (iii) Measurement of transaction price Consideration of the contract can comprise a fixed element (upfront payment plus minimum annual purchase amounts) and variable elements (milestone payments). Under AASB 15 the variable consideration is only included in the transaction price if it is ‘highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur’. In the case where milestone payments are received upon signing the contract and are not subject to regulatory approval, these amounts will be initially recognised as contract liabilities to be recognised over the life of the contract once product sales have commenced. However, where the milestone payments are subject to regulatory approval, for the variable consideration to be deemed ‘most likely’, this will only be included once regulatory approval has been received and recognised over the remaining life of the contract. For the new DME business which commenced mid October 2022, revenue is recognised when the cash reimbursement amount is received and an estimate is made of amounts to be recognised in relation to debtor balances owing from Medicare. (iv) Change in estimate On 23rd November 2020, Next Science announced to the ASX that the distribution agreement with 3M for Blast‑X, would not be renewed at the end of 2021 and that Blast X would be transitioned back to Next Science in the first half of 2021. As a result of the non‑renewal of the 3M contract, a change has been made to the time frame for recognition of the performance obligation in relation to the milestone payments received from 3M. The milestone payments would previously have been recognised as revenue over the period until the end of the 3M contract on 31 December 2021. The milestone payments have now been recognised as revenue over a shorter time period ending 1H 2021, as the transition of Blast‑X back to Next Science was completed during 1H 2021. In January 2022, Next Science and Zimmer, Inc revised the term of their existing distribution agreement for Bactisure™. The term will now end on 31 December 2026 with Zimmer, Inc having the option to extend the distribution agreement for an additional five‑year period by providing 6 months’ prior written notice. As a result of this amendment, there has been a change in the time frame for recognition of the performance obligation in relation to milestone payments previously received from Zimmer, Inc. The milestone payments which previously would have been recognised as revenue over the period until the end of the contract period of 28 February 2037, will now be recognised as revenue over a shorter time period ending 31 December 2026. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. Finance income and finance costs Finance income comprises interest income, dividend income and foreign currency gains. Interest income is recognised in profit or loss as it accrues using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instruments to the gross carrying amount of the financial asset or the amortised cost of the financial asset. In calculating income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit‑impaired) or to the amortised cost of the liability. However, for financial assets that have become credit‑impaired subsequent to initial recognition interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit impaired, then the calculation of interest income reverts to the gross basis. 32 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) Finance costs comprise interest expense on borrowings, lease liabilities and converting notes, foreign currency losses and impairment losses recognised on financial assets. Foreign exchange gains and losses on intercompany assets and liabilities that are not eliminated upon consolidation are recognised in OCI. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Interest expenses includes interest in relation to lease liabilities and is calculated based on the bank borrowing rate as appropriate for the lease contract, with a range of 3.5% to 4.6% on current leases held. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in OCI. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received. (i) Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, or on taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that could follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. 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 Group'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. 33 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short‑term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first in, first out principle. Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. (iii) Depreciation Depreciation is calculated based on the cost of property, plant and equipment less their estimated residual values using the straight‑line basis over their estimated useful lives, and is generally recognised in profit or loss. Right‑of‑use assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. 34 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) The estimated useful lives of property, plant and equipment are as follows: Fixed asset class Leasehold improvements Plant and equipment Furniture and fittings Useful life 5-15 years 5 years 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right‑of‑use asset and corresponding lease liability for short‑term leases with terms of 12 months or less and leases of low‑value assets. Lease payments on these assets are expensed to profit or loss as incurred. Intangible assets (i) Recognition and measurement Research and development expenditure Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Patents Expenditure is capitalised in relation to patent application costs and amortised over the remaining life of the base patent as relevant. Costs will be no longer capitalised in the event that a patent application is no longer being pursued with any existing capitalised costs being impaired as an expense in the profit or loss. Computer software Computer software comprises computer application system software and licenses. Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to computer software. Costs capitalised include external direct costs of materials and services, direct payroll and payroll‑related costs. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. (iii) Amortisation Amortisation is calculated based on the cost of intangible assets less their estimated residual values using the straight‑line method over their estimated useful lives and is generally recognised in profit or loss. 35 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) The estimated useful lives of intangible assets are as follows: ● ● ● Development expenditure: 5 years Computer software: 2-3 years Patents: 8-15 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Intangible assets, other than trademarks and goodwill, have finite useful lives. Trade and other payables These amounts represent liabilities for goods and services provided to the Group 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. Contract liabilities Contract liabilities represent the Group's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer. Leases (i) Definition of a new lease The determination of whether a contract contains a lease is on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. The Group has applied this definition to all lease contracts currently held. (ii) Lessee accounting For all contracts determined to constitute a lease, right-of-use assets and lease liabilities are recognised in the consolidated statement of financial position, initially measured at the present value of future lease payments. When measuring these lease liabilities, the Group discounted lease payments using the interest rate implicit in the lease contract. Right-of-use assets are tested for impairment in accordance with AASB 136 Impairment of assets. Lease incentives, if relevant, are recognised as part of the measurement of the right-of-use assets and lease liabilities. Depreciation is expensed on right-of-use assets and interest on lease liabilities, both recognised in the consolidated statement of profit or loss. For presentation purposes, the total amount of cash paid in relation to leases is separated into a principal portion (presented within financial activities) and interest on lease liabilities, both recognised in the consolidated statement of profit or loss. For short‑term leases (lease term of 12 months or less) and leases of low‑value assets, the Group has opted to recognise a lease expense on a straight‑line basis. This expense is presented within other expenses in the consolidated statement of profit or loss. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and if it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre‑tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. Employee benefits (i) Short-term employee benefits Short‑term employee benefits are benefits (other than termination benefits) that are expected to be settled within 12 months of the end of the financial year in which employees render the related service. Short‑term employee benefits include salaries and wages plus related on‑costs such as payroll tax, superannuation and workers compensation insurance and are measured at the undiscounted amounts expected to be paid when the obligation is settled. 36 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) (ii) Long-term employee benefits Long-term employee benefits include employees' long service leave and annual leave entitlements not expected to be settled within 12 months of the end of the financial year in which employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, duration of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on corporate bonds that have maturity dates that approximate the terms of the obligations. Any remeasurements for changes in assumptions of obligations for long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. (iii) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to employees' defined contribution plans are recognised as an expense as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (iv) Share-based payment arrangements The fair value of performance rights and options granted is recognised as an employee expense with a corresponding increase in equity, on a straight-line monthly basis over the vesting period in which the performance and/or service conditions are fulfilled after which the employee becomes unconditionally entitled to them. The cumulative expense recognised for share-based payments at each reporting date until the vesting date reflects the extent to which the vesting period has ended and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of the period. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting are conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Financial instruments (i) Recognition and initial measurement The Group initially recognises trade receivables issued on the date that they are originated. All other financial assets and financial liabilities are recognised initially on the trade date. (ii)Classification and subsequent measurement Financial assets On initial recognition, a financial asset is classified as measured at amortised cost or fair value through profit or loss (“FVTPL”). Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. Financial liabilities Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held‑for‑trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. 37 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) (iii) Derecognition Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. (iv) Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Impairment The Group recognises loss allowances for expected credit losses (“ECL”) on financial assets and contract assets. Loss allowances where relevant are measured at an amount equal to a 12 month ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL’s, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward‑looking information. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 90 days past due. The Group considers a financial asset to be in default when the borrower is unlikely to pay its obligations to the Group in full or the financial asset is more than 130 days past due. ECLs are a probability‑weighted estimate of credit losses and are measured as the present value of all cash shortfalls discounted at the effective interest rate. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be recognised. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Share capital Ordinary shares Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. 38 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 3. Significant accounting policies (continued) Fair value measurement ‘Fair value’ is 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 in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non‑performance risk. A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non‑financial assets and liabilities. When one is available, the Group measures the fair value using the quoted price in an active market. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would consider in pricing a transaction. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”). The CODM is responsible for allocating resources and assessing performance of the operating segments. Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit or loss attributable to the owners of the Company 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. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax ('GST') and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. 39 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 4. Standards issued but not yet effective A number of new standards are effective for annual periods beginning after 1 January 2023 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements. The Group plans to apply the amendments when they become effective and they are not expected to have a significant impact on the Group’s consolidated financial statements: (1) AASB 17 Insurance Contracts (2) Classification of Liabilities as Current or Non- current (AASB 2020-1 Amendments to Australian Accounting Standards) (3) Annual Improvements 2018-2020 and Other Amendments (AASB 2020-3 Amendments to Australian Accounting Standards) (4) Classification of Liabilities as Current or Non-current – Deferral of Effective Date (AASB 2020-6 Amendments to Australian Accounting Standards) (5) Disclosure of Accounting Policies and Definition of Accounting Estimates (AASB 2021-2 Amendments to Australian Accounting Standards) (6) Deferred Tax related to Assets and Liabilities arising from a Single Transaction (AASB 2021-5 Amendments to Australian Accounting Standards) (7) Disclosure of Accounting Policies: Tier 2 and Other Australian Accounting Standards (AASB 2021-6 Amendments to Australian Accounting Standards) (8) Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections (AASB 2021-7a, b and c Amendments to Australian Accounting Standards) (9) Initial Application of AASB 17 and AASB 9 – Comparative Information (AASB 2021-1 Amendments to Australian Accounting Standards) 40 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 5. Revenue Consolidated 2022 $ 2021 $ Revenue from contracts with customers 11,712,722 8,947,591 Identification of reporting operating segments The Group operates in one operational segment, based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (CODM)) in assessing performance and in determining the allocation of resources. The one operational segment operates over two geographical segments, North America and Australia and New Zealand. Year ended 31 December 2022 Revenue from contracts with customers Segment assets Segment liabilities Segment loss Year ended 31 December 2021 Revenue from contracts with customers Segment assets Segment liabilities Segment loss Major customers North America $ Australia and New Zealand $ Total $ 11,009,151 8,237,427 2,949,117 (6,765,412) 703,571 11,712,722 4,354,973 12,592,400 4,556,677 1,607,560 (12,683,313) (5,917,901) North America $ Australia and New Zealand $ Total $ 8,854,153 8,155,415 1,901,704 (5,831,533) 93,438 8,947,591 5,621,935 13,777,350 3,032,228 1,130,524 (9,349,638) (3,518,105) Revenues from two major customers of the Group represented 43% (2021: 78%) of the Group’s total revenue. Note 6. Other income Government assistance – Covid-19 Other income Other income Consolidated 2022 $ 2021 $ - 37,870 130,656 16,456 37,870 147,112 Income received in relation to grants will only be recognised when there is reasonable assurance when all conditions attaching to the grant have been complied with. 41 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 7. Depreciation and amortisation The loss from ordinary activities before income tax includes the following expenses: Included in selling and distribution expenses Depreciation and amortisation Included in research and development expenses Depreciation and amortisation Included in administrative expenses Depreciation and amortisation Note 8. Other expenses Loss on sale of fixed asset Impairment loss on intangibles Note 9. Employee expenses Salaries and wages Contributions to defined contribution funds Share-based payments Consolidated 2022 $ 2021 $ 30,609 23,811 653,349 567,984 213,143 198,477 Consolidated 2022 $ 2021 $ 1,475 44,083 8,057 7,576 45,558 15,633 Consolidated 2022 $ 2021 $ 10,075,827 43,499 8,750 7,338,288 43,564 113,620 10,128,076 7,495,472 As part of employee compensation, the Group offers medical insurance to certain employees in certain geographies (2022:$1,040,228, 2021:$759,048). These insurance amounts are not included in the above figures. Note 10. Finance income Interest income Net foreign exchange gain Note 11. Finance costs Interest expense on lease liabilities 42 Consolidated 2022 $ 2021 $ 12,720 35,578 16,515 126,385 48,298 142,900 Consolidated 2022 $ 2021 $ 28,603 16,476 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 12. Income tax expense Income tax expense comprises current and deferred tax expense and is recognised in profit or loss, except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. The components of tax expense comprise: Income tax expense Current tax Deferred tax Aggregate income tax expense Numerical reconciliation of income tax expense and tax at the statutory rate Reconciliation of income tax to accounting profit: Loss before income tax expense Tax at the statutory tax rate of 25% (2021: 26%) Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Permanent differences Effect of tax rate in foreign jurisdictions Tax losses not brought to account Prior period over/(under) provision Income tax expense The unused tax losses as at 31 December were as follows: Australia gross unused tax losses (in AUD) USD gross unused tax losses (in USD) Consolidated 2022 $ 2021 $ - - - - - - (12,683,312) (9,349,639) (3,170,828) (2,430,906) 24,231 (264,232) 3,410,829 - (23,777) (319,306) 2,968,169 (194,180) - - Consolidated 2022 $ 2021 $ 52,469,578 43,126,968 34,495,776 27,889,973 Tax losses are recognised only to the extent that it is probable that the future taxable profit will be available against which the benefits can be utilised. Management has considered all the facts and circumstances and believe there is no material uncertainty over the availability of the tax losses. 43 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 12. Income tax expense (continued) Australian entities Movement in deferred tax assets and liabilities using the Company’s domestic Australian tax rate of 26% Opening balance $ Recognised in profit or loss $ Closing balance $ (555,043) 30,295 45,011 357,373 7,161,233 (47,486) (6,991,383) - 40,596 (5,102) (12,367) (82,471) 1,347,152 (4,786) (1,283,022) - (514,447) 25,193 32,644 274,902 8,508,385 (52,272) (8,274,405) - (520,105) 23,803 9,255 903,118 6,149,970 (39,484) (6,526,557) - (34,938) 6,492 35,756 (545,745) 1,011,263 (8,002) (464,826) - (555,043) 30,295 45,011 357,373 7,161,233 (47,486) (6,991,383) - Opening balance $ Recognised in profit or loss $ Closing balance $ (83,520) 2,181 83,282 5,856,894 (39,415) (5,819,422) - 9,570 2,908 73,025 1,387,219 10,997 (1,483,719) - (73,950) 5,089 156,307 7,244,113 (28,418) (7,303,141) - (117,566) 1,075 104,118 5,698,521 (40,289) (5,645,859) - 34,046 1,106 (20,836) 158,373 874 (173,563) - (83,520) 2,181 83,282 5,856,894 (39,415) (5,819,422) - 2022 cost Intangibles Employee benefits Accrued expenses Deferred revenue Unused tax losses carried forward Other items Deferred tax assets not recognised Deferred tax assets/(liabilities) 2021 cost Intangibles Employee benefits Accrued expenses Deferred revenue Unused tax losses carried forward Other items Deferred tax assets not recognised Deferred tax assets/(liabilities) US entities Movement in deferred tax assets and liabilities using the US tax rate of 21% 2022 cost Intangibles Employee benefits Accrued expenses Unused tax losses carried forward Other items Deferred tax asset not recognised Deferred tax assets/(liabilities) 2021 cost Intangibles Employee benefits Accrued expenses Unused tax losses carried forward Other items Deferred tax asset not recognised Deferred tax assets/(liabilities) 44 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 13. Cash and cash equivalents Current assets Cash at bank Reconciliation of cash flows from operating activities Loss for the year Adjustments for: Depreciation and amortisation Share based payments (note 9) Unrealised foreign currency translation gain/(loss) Interest expense on right-of-use assets (note 20) Loss on sale of fixed asset (note 8) Impairment of intangible assets (note 19) Operating loss before changes in working capital and provisions Change in operating assets and liabilities Change in trade and other receivables Change in inventories Change in other current assets Change in trade and other payables Change in provisions Change in contract liabilities Consolidated 2022 $ 2021 $ 5,073,625 7,000,869 Consolidated 2022 $ 2021 $ (12,683,312) (9,349,639) 897,101 8,750 25,806 20,827 1,475 44,083 (11,685,270) 790,272 113,620 (101,651) 16,476 8,057 7,576 (8,515,289) (807,827) 556,918 (455,474) 806,350 70,436 (274,903) (104,500) 2,498,905 (389,361) (56,049) 109,884 (2,891) (1,909,553) 250,935 Net cash from operating activities (11,789,770) (8,264,354) Note 14. Trade and other receivables Current assets Trade receivables Other receivables Non-current assets Security deposit Consolidated 2022 $ 2021 $ 1,596,417 142,506 865,831 21,380 1,738,923 887,211 36,656 36,656 The carrying value of receivables is considered a reasonable approximation of fair value due to the short‑term nature of the balances. The Group has assessed any potential credit risk associated with these counterparties and deemed expected credit loss to be insignificant. Information about the Group’s exposure to credit and market risks, and impairment losses for trade receivables is included in Note note 36 (c). 45 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 15. Inventories Current assets Finished goods - at cost Raw materials – at cost Less: Provision for obsolete stock Note 16. Other current assets - term deposits Current assets Term deposits Note 17. Other current assets - other Current assets Prepayments and other assets Note 18. Property, plant and equipment Non-current assets Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation and impairment Furniture, fixtures and fittings - at cost Less: Accumulated depreciation and impairment 46 Consolidated 2022 $ 2021 $ 617,540 386,470 (132,744) 987,457 573,472 (60,407) 871,266 1,500,522 Consolidated 2022 $ 2021 $ 37,789 367,129 Consolidated 2022 $ 2021 $ 541,506 476,049 Consolidated 2022 $ 2021 $ 361,222 (85,011) 276,211 199,754 (74,611) 125,143 1,188,504 (848,804) 339,700 1,158,763 (680,804) 477,959 286,892 (205,955) 80,937 250,905 (170,445) 80,460 696,848 683,562 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 18. Property, plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 January 2021 Additions Disposals Depreciation expense Foreign exchange movements Balance at 1 January 2022 Additions Disposals Depreciation expense Leasehold improvements $ Plant and equipment $ Furniture and fittings $ Total $ 138,551 - - (13,411) 3 125,143 162,885 - (11,817) 547,856 123,112 (7,847) (185,164) 2 477,959 51,010 (1,475) (187,794) 101,726 17,380 (210) (38,436) - 80,460 35,987 - (35,510) 788,133 140,492 (8,057) (237,011) 5 683,562 249,882 (1,475) (235,121) Balance at 31 December 2022 276,211 339,700 80,937 696,848 Note 19. Intangible assets Non-current assets Capitalised development - at cost Less: Accumulated amortisation and impairment Patents and trademarks - at cost Less: Accumulated amortisation and impairment Computer software - at cost Less: Accumulated amortisation Consolidated 2022 $ 2021 $ 2,139,440 (770,862) 1,368,578 1,972,054 (486,796) 1,485,258 1,675,632 (634,280) 1,041,352 1,507,814 (461,218) 1,046,596 117,613 (117,613) - 121,701 (121,064) 637 2,409,930 2,532,491 47 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 19. Intangible assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 January 2021 Additions Impairment of assets Amortisation expense Balance at 1 January 2022 Additions Impairment of assets Amortisation expense Capitalised development $ Patents and trade marks $ Computer software $ 1,371,189 356,949 (7,576) (235,304) 1,485,258 218,927 (44,083) (291,524) 962,110 219,317 - (134,831) 1,046,596 167,817 - (173,061) 1,637 - - (1,000) 637 - - (637) Total $ 2,334,936 576,266 (7,576) (371,135) 2,532,491 386,744 (44,083) (465,222) Balance at 31 December 2022 1,368,578 1,041,352 - 2,409,930 Note 20. Right-of-use assets The Group holds leases for properties with lease terms ranging from 3 to 5 years. Non-current assets Property - right-of-use Less: Accumulated depreciation Consolidated 2022 $ 2021 $ 1,682,210 (629,097) 668,314 (435,858) 1,053,113 232,456 There was a significant change in the current period with an amendment to the US Jacksonville Greystone Park Commercial Lease on 17 June 2022. The amendment resulted in the recognition of an additional right‑of‑use asset of $1,025,617. Amounts recognised in profit or loss Depreciation expense Interest expense Expense relating to variable lease payments not included in the measurement of the lease liability The total cash outflow in relation to lease payments amounted to $253,229 (2021: $212,759). Consolidated 2022 $ 2021 $ 196,757 28,603 182,127 16,476 89,511 89,146 314,871 287,749 48 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 20. Right-of-use assets (continued) Movement Balance at 1 January 2021 Additions Depreciation expense Foreign exchange movements Closing value at 31 December 2021 Balance at 1 January 2022 Additions Depreciation expense Foreign exchange movements Closing value at 31 December 2022 Note 21. Trade and other payables Current liabilities Trade payables Other payables and accrued expenses Property $ 227,265 186,161 (182,127) 1,157 232,456 232,456 1,025,617 (196,757) (8,203) 1,053,113 Consolidated 2022 $ 2021 $ 973,665 1,005,681 515,579 657,417 1,979,346 1,172,996 All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. Note 22. Contract liabilities Current liabilities Contract liabilities Non-current liabilities Contract liabilities Consolidated 2022 $ 2021 $ 274,902 91,177 824,706 1,283,334 Contract liabilities relate to consideration received in advance from customers for which revenue will be recognised as and when products are delivered or other performance obligations met. Note 23. Lease liabilities Current liabilities Lease liability Non-current liabilities Lease liability Consolidated 2022 $ 2021 $ 257,912 166,235 962,060 109,802 49 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 23. Lease liabilities (continued) The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be paid after the reporting date: Maturity analysis Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Note 24. Employee benefits Current liabilities Liability for annual leave Non-current liabilities Liability for long service leave Note 25. Share capital In number of shares Balance as at 1 January 2021 Shares issued in March 2021 on conversion of employee share options (i) Shares issued in April 2021 on conversion of employee share options (ii) Shares issued in May 2021 on conversion of employee share options (iii) Balance as at 31 December 2021 Balance as at 1 January 2022 Shares issued in February 2022 on conversion of employee performance shares (iv) Shares issued in February 2022 on conversion of employee share options (v) Placement in March 2022 (vi) Shares purchase plan in March 2022 (vii) Placement in May 2022 (viii) Balance as at 31 December 2022 Consolidated 2022 $ 2021 $ 306,736 1,043,232 - 173,402 113,736 - 1,349,968 287,138 Consolidated 2022 $ 2021 $ 94,811 109,611 30,194 17,295 Fully paid 194,201,409 84,500 3,250,000 438,000 197,973,909 197,973,909 113,534 78,000 6,666,667 5,513,579 4,444,445 214,790,134 50 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 25. Share capital (continued) Balance at 1 January 2021 Shares issued in March 2021 (on conversion of employee share options) (i) Shares issued in April 2021 (on conversion of employee share options) (ii) Shares issued in May 2021 (on conversion of employee share options) (iii) Capital raising costs Balance at 31 December 2021 Balance at 1 January 2022 Shares issued in February 2022 on conversion of employee performance shares (iv) Shares issued in February 2022 on conversion of employee share options (v) Placement in March 2022 (vi) Shares purchase plan in March 2022 (vii) Placement in May 2022 (viii) Capital raising costs Balance at 31 December 2022 Fully paid $ 101,281,467 35,490 1,365,000 245,280 (6,230) 102,921,007 102,921,007 105,000 32,760 4,382,730 3,597,370 2,873,300 (385,634) 113,526,533 (i) On 18 March 2021, 84,500 round 3 Equity Incentive Plan (ECP) employee share options converted to 84,500 ordinary shares at a price of AUD$0.54. (ii) Between 13 April 2021 and 15 April 2021, 3,250,000 round 3 Equity Incentive Plan (ECP) employee share options converted to 3,250,000 ordinary shares at a price of AUD$0.55. (iii) On 3 May 2021, 438,000 round 4 Equity Incentive Plan (ECP) employee share options converted to 438,000 ordinary shares at a price of AUD$0.72. (iv) In February 2022, 113,534 performance rights converted into 113,534 ordinary shares at a fair value of USD$0.92 per share. (v) In February 2022, 78,000 round 3 Equity Incentive Plan (ECP) employees share options converted to 78,000 ordinary shares at a price of A$0.58. (vi) In March 2022, Next Science raised A$6,000,000 via a Placement at A$0.90 per share. (vii) In March 2022, Next Science raised A$4,796,814 via a Share Purchase Plan at A$0.87 per share. (viii) In May 2022, Next Science raised A$4,000,000 via a Placement at A$0.90, approved by shareholders at the annual general meeting held on 27 May 2022. Ordinary shares Fully paid ordinary shares Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At shareholders' meetings, each ordinary share is entitled to one vote when a poll is called. Capital management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. 51 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 26. Reserves Share option reserve Foreign currency translation reserve Common control reserve Performance rights reserve Consolidated 2022 $ 2021 $ 2,140,298 (1,905,877) (42,596,715) - 2,140,298 (1,349,143) (42,596,715) 96,250 (42,362,294) (41,709,310) Foreign currency translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the Group's presentation currency. Common control reserve The acquisition of the share capital of Microbial Defense Systems Holdings Inc ("MDS") by the Company on 22 December 2017 was accounted for as a common control transaction. As a consequence, the difference between the fair value of the consideration paid ($43,862,500) and the existing book values of assets and liabilities of MDS ($1,265,785) was debited to a common control reserve, directly within equity. Share option reserve The share option reserve comprises the value of the share‑based payment arrangements recognised in equity. Note 27. Dividends Dividends No dividends were paid or declared by the Company during the financial year. Dividend franking account The Company has franking credits available to shareholders of Nil. Note 28. Parent entity information As at, and throughout, the financial year to 31 December 2022 the parent entity of the Group was Next Science Limited. Statement of profit or loss and other comprehensive income Loss after income tax Other comprehensive income Total comprehensive loss Parent 2022 $ Parent 2021 $ (13,713,271) (685,101) (10,733,399) (478,466) (14,398,372) (11,211,865) 52 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 28. Parent entity information (continued) Statement of financial position Assets Total current assets Total non-current assets Total assets Liabilities Total current liabilities Total non-current liabilities Total liabilities Total net assets Equity Share capital Reserves Accumulated losses Total equity Parent 2022 $ Parent 2021 $ 3,877,713 4,033,709 9,938,727 13,308,038 13,816,440 17,341,747 (815,428) - (815,428) (451,638) - (451,638) 13,001,012 16,890,109 113,526,531 102,921,005 (26,018,205) (60,012,691) (26,799,557) (73,725,962) 13,001,012 16,890,109 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees as at 31 December 2022 and 31 December 2021. Contingent liabilities The parent entity had no contingent liabilities as at 31 December 2022 and 31 December 2021. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 31 December 2022 and 31 December 2021. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 3, except for the following: ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. 53 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 29. Group entities Set out below is the Group structure listing all subsidiaries as at 31 December 2022. Note 30. Related party transactions (a) Key management personnel compensation Key management personnel ("KMP") are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly and indirectly, and include the Directors, executive and non‑executive, as well as certain other senior executives. The totals of remuneration of the KMP of the Company included within employee expenses are as follows: Short term employee benefits Other long term employee benefits Post employment benefits Share based payment benefits Total Consolidated 2022 $ 2021 $ 1,630,151 11,347 41,913 8,750 1,849,829 6,822 42,371 113,620 1,692,161 2,012,642 Short term employee benefits Short term employee benefits includes salary, fringe benefits and cash bonuses paid to the executive directors and other KMP as well as fees and benefits awarded to the non‑executive directors. Post‑employment benefits Post‑employment benefits are the cost of superannuation contributions made during the year. 54 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 30. Related party transactions (continued) (b) Key management personnel transactions KMPs of the Company hold 9.48% (2021: 11.02%) of the issued capital of the Company as at 31 December 2022. Note 31. Share based employee incentive arrangements Equity Incentive Plan (equity‑settled) Prior to listing on the ASX, the Group established an Equity Incentive Plan (ECP) and an Employee Share Option Plan (ESOP). The purpose of the Plans is to attract and retain the types of employees, consultants and directors who will contribute to the Company's long-term success; provide incentives that align the interests of Employees, Consultants and Directors with those of the shareholders of the Company; and promote the success of the Company's business. As at 31 December 2022, there are 2,812,000 options over ordinary shares on issue (2021: 2,890,000 options), representing 1.31% (2021: 1.46%) of the Company's total share capital, granted to the employees and Directors of the Company. The grant dates, vesting dates and exercise prices of options issued vary and are as follows: No of options as at 31 Dec 2021 78,000 1,820,000 992,000 2,890,000 Granted Exercised (ii) Lapsed No of options as at 31 Dec 2022 Vested as at 31 Dec 2022 - - - - (78,000) - - - - - - 1,820,000 1,820,000 992,000 - 992,000 (78,000) - 2,812,000 2,812,000 Grant date and vesting conditions (i) 16-Apr-18 (1) 17-Dec-18 (2) 17-Dec-18 (1) Totals Expiry date 16-Apr-22 17-Dec-23 17-Dec-23 (i) Vesting conditions are as follows: ● ● (1) 2 years' service from grant date (2) 3 years' service from grant date (ii) The weighted average share price for the options exercised during the year was USD $0.42 (2021: USD $0.44). As at 31 December 2022, 2,812,000 options have vested (2021: 2,890,000) The fair value has been measured using the Black‑Scholes formula. Service and non‑market performance conditions attached to the arrangements were not taken into account in measuring fair value. The inputs used in the measurement of the fair values at grant date and measurement date were as follows: FV at grant date (USD) Share price at grant date (USD) Exercise price (USD) Expected volatility Expected life Expected dividends Risk free interest rate 16-Apr-18 0.20-0.22 0.42 0.42 Grant date 17-Dec-18 0.33 0.56 0.56 91% 3-4 years 0% 2.25%-5.0% Expected volatility is measured based on peer companies and expected life is the number of days until expiry. The fair value of the performance rights granted to Dustin Haines is deemed to represent the value of Dustin Haines's services received over the vesting period. These values were calculated applying the following inputs to performance rights issued: 55 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 31. Share based employee incentive arrangements (continued) Grant date Weighted average fair value per performance right Number of performance rights issued Remaining life of the performance rights Performance rights 22 February 2021 USD $0.9248 340,602 3 years The fair value of performance rights was measured as the 60 day volume weighted average share price of Next Science Limited shares prior to the performance rights being issued. Note 32. Contingent liabilities and capital commitments The Group has no contingent liabilities as at 31 December 2022. The Group has no capital commitments as at 31 December 2022 (2021: nil). Note 33. Events occurring after the reporting date On 2 February 2023 shareholders approved the issue of A$10,000,000 Secured Convertible Notes with major shareholder, Walker Group Holdings Pty Ltd, with a maturity date 21 months after the issue date at a conversion price of A$0.72 per security. Each Note accrues interest at a rate of 10% per annum if the Notes are redeemed (and payable in one instalment only on redemption) or at a rate of 5% per annum if the Notes are converted (and capitalised into additional shares on conversion). If converted, the shares rank pari passu with existing ordinary shares. Next Science Limited's obligations under the Secured Convertible Note Deed are to be secured over the Company and all of the Company's property under a General Security Agreement. In accordance with the Secured Convertible Note Deed, Walker Group Holdings Pty Ltd may at any time after the issue date until 31 October 2023, give notice to Next Science Limited that it wishes to convert all of the Notes to conversion shares. If the Notes are not converted by 31 October 2023, Next Science Limited must redeem the Notes on the maturity date, unless Next Science Limited gives notice of early redemption to Walker Group Holdings Pty Ltd. The Notes are non-transferrable. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event, other than those matters detailed above, of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 56 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 34. Remuneration of auditors Audit and assurance related services KPMG Australia Audit of financial statements Other services KPMG Australia Taxation services Other services Total other services Total auditor's remuneration Note 35. Earnings per share Loss after income tax Weighted average number of shares Basic earnings per share Diluted earnings per share Note 36. Financial risk management (a) Overview Consolidated 2022 $ 2021 $ 97,485 82,466 10,171 7,142 17,313 11,602 10,494 22,096 114,798 104,562 Consolidated 2022 $ 2021 $ (12,683,312) (9,349,639) Number Number 210,468,045 196,882,812 Cents Cents (6.03) (6.03) (4.75) (4.75) The Group’s activities expose it to various financial risks including: credit risk, liquidity risk and market risk. This note presents information about the Group’s exposure to each of these risks, its objectives, policies and processes for measuring and managing risk. (b) Risk management framework The Company's Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework with assistance from the Audit and Risk Committee (as detailed below). The Group’s risk management framework has been established to identify and analyse the material risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to the risk appetite set by the Board. The Group’s risk management framework is reviewed at least annually by the Audit and Risk Committee and the consideration of changes in the Group’s risk profile and mitigating actions and controls is a standing item at Audit and Risk Committee meetings. Audit and Risk Committee The Audit and Risk Committee responsibilities in relation to risk management are to: 57 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 36. Financial risk management (continued) (a) oversee the establishment, and maintenance by management, of processes to ensure that there is an adequate and effective system to identify and manage material business risks; (b) monitor the Group’s Risk Register to confirm that key risks have been identified and adequate controls are in place to mitigate risks so far as reasonably practicable; (c) receive reports from management on new and emerging sources of risk and the proposed risk controls to mitigate those risks; (d) receive reports from management and the external auditor on any material incident involving fraud or a breakdown of the Group’s risk controls and the lessons learned; (e) review, at least annually, the Group’s risk management framework to confirm that it continues to be sound and that the Group is operating with due regard to the risk appetite set by the Board; (f) monitor the need for, and if considered necessary, require, an internal or external audit of critical areas of risk; (g) oversee the establishment of procedures for the receipt, handling and investigation of whistleblower disclosures; (h) oversee the establishment of, and monitor, assurance mechanisms for monitoring: • the Group’s culture and compliance with the Group’s Values; and • compliance with the Group’s corporate governance policies and procedures, contractual obligations and the laws applicable to the Group and its operations; (i) (j) oversee the Group’s annual insurance program, having regard to the Group’s business and the insurable risks within its business; assess the adequacy of controls, including disaster recovery and business continuity plans, for preserving and re- establishing financial and operational information in the event of a disaster; and (k) review and make recommendations to the Board in relation to public disclosures made by the Group regarding material business risks. The Board considers the Group’s risk management framework to be appropriate for the size and level of operations of the Group. (c) Credit risk Cash and cash equivalents The Group held cash and cash equivalents of USD $5,073,625 and USD $37,789 in term deposits at 31 December 2022 (2021: USD $7,000,869 in cash and USD $367,129 in term deposits). The cash and cash equivalents are held with credit worthy bank and financial counterparties. The expected credit loss of each of these banks and counterparties are considered to be extremely low; accordingly any expected credit losses are deemed to be insignificant. Trade receivables and contract assets Credit risk on trade receivables is the risk of financial loss if a customer fails to meet its contractual obligations. The carrying amounts of financial assets represents the maximum credit exposure. Maximum exposure to credit risk for trade receivables by type of counterparty was as follows: 58 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 36. Financial risk management (continued) Distribution & Licensing Partners Hospitals & Surgery Centres Prescribing Physicians Consolidated 2022 $ 2021 $ 867,065 526,897 202,455 593,644 272,187 - 1,596,417 865,831 As at 31 December 2022, Zimmer Surgical Inc (worldwide) accounted for over 47% of the trade receivables (2021: Zimmer Surgical Inc accounted for over 67% of the trade receivables). (i) Risk management The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and country in which customers operate. Details of concentration of revenue are included in note 5. The Audit and Risk Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review of new customers includes customer due diligence and credit agency information (Dun & Bradstreet Corporation), if available. Sale limits are established for each customer and reviewed periodically. Any sales exceeding those limits require approval according to an approval matrix. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual hospital or surgery centre or whether they are a distribution partner with which Next Science has a licensing or distribution agreement. Further consideration is given to their geographic location and trading history with the Group and existence of any previous financial difficulties. 59 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 36. Financial risk management (continued) (ii) Impaired trade receivables Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indications of this include significant financial difficulties of the debtor, the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for an extensive period of time. Impairment losses are recognised in the profit or loss statement within selling and distribution expenses. Subsequent recoveries of amounts previously written off are credited against selling and general expenses. As at 31 December 2022, trade receivables with a nominal value of $Nil (2021: Nil) were considered impaired and fully provided for. (iii) Past due not impaired As at 31 December 2022, trade receivables of $56,315 (2021: $67,247) were past due but not impaired. These relate to customers for whom there is no recent history of default. The aging analysis of trade receivables is as follows: 0 - 30 days 31 - 60 days 61 - 90 days 91 - 120 days More than 120 days Total (d) Liquidity risk Consolidated 2022 $ 2021 $ 1,269,546 281,858 35,791 9,222 - 781,855 62,302 21,006 668 - 1,596,417 865,831 Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group manages liquidity risk by monitoring net cash balances, actual and forecast operating cash flows. 60 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 36. Financial risk management (continued) Exposure to liquidity risk The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include estimated interest payments and exclude the impact of netting agreements. As 31 December 2022 Trade and other payables Lease liabilities Total As 31 December 2021 Trade and other payables Lease liabilities Total Less than 6 months $ 6-12 months $ Between 1 and 5 years $ Total contracted amounts $ 1,979,346 151,550 2,130,896 - 155,185 155,185 - 1,043,232 1,043,232 1,979,346 1,349,967 3,329,313 1,172,996 115,361 1,288,357 - 58,042 58,042 - 113,736 113,736 1,172,996 287,139 1,460,135 The cash flows in the maturity analysis are not expected to occur significantly earlier or be for a significantly different amount than contractually disclosed above. (e) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. 61 Next Science Limited Notes to the consolidated financial statements 31 December 2022 Note 36. Financial risk management (continued) Interest rate risk The Group is not exposed to any significant interest rate risk. There is minimal exposure to the impact of adverse changes in benchmark interest rates. The Group is exposed to variable interest rate risks at the reporting date on cash and short‑term deposits. A reasonably possible change of 100 basis points in interest rates at the reporting date would have increased or decreased profit after tax by $13,032 (2021: $42,906). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The source and nature of this risk arise from operations and translation risks. The Group’s reporting currency is United States Dollars (“USD”). However, the international operations give rise to an exposure to changes in foreign exchange rates as amounts of expenditure are from Australia and denominated in currencies other than USD. The carrying amounts of the Group's foreign currency denominated financial assets (trade and other receivables including accrued income) and financial liabilities (trade and other payables) at the reporting date were as follows: AUD financial assets converted to USD AUD financial liabilities converted to USD Net exposure in statement of financial position Consolidated 2022 $ 2021 $ 1,402,132 (346,097) 4,006,776 (300,868) 1,056,035 3,705,908 A reasonably possible strengthening (weakening) of the Unites States Dollar against all other currencies at 31 December 2022 would have affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss and equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. 2022 Australian Dollars 2021 Australian Dollars % Change $ Profit before tax strengthen $ Profit before tax weaken $ Equity strengthen $ Equity weaken $ 10% 105,604 (105,604) 105,604 (105,604) 10% 370,591 (370,591) 370,591 (370,591) The percentage change is the expected overall volatility of the significant currencies, which is based on management’s assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months and the spot rate at each reporting date. 62 Next Science Limited Directors' declaration 31 December 2022 1. In the opinion of the Directors of Next Science Limited (the “Company”): a. The consolidated financial statements and notes that are set out on pages 24 to 62 and the Remuneration Report on pages 10 to 22 in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Group as at 31 December 2022 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and b. there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 2. 3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 31 December 2022. The Directors draw attention to Note 2 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of Directors: ________________________ Mark Compton, AM Chair 28 February 2023 63 Independent Auditor’s Report To the shareholders of Next Science Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Next Science Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • Giving a true and fair view of the Group’s financial position as at 31 December 2022 and of its financial performance for the year ended on that date; and • Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report comprises: • Consolidated statement of financial position as at 31 December 2022; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting policies; and • Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. 64 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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. This matter was 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 this matter. Revenue recognition – USD 11,712,722 Refer to Note 5 to the Financial Report The key audit matter How the matter was addressed in our audit We focused on revenue recognition as a key audit matter due to the significant audit effort required by us to test the Group’s revenue given the: • • • Significance of revenue to the financial statements; Varying terms and conditions within each customer contract such as product sales, advance deposits, true up payments and milestone payments. This increases the effort required by the audit team to evaluate the timing and measurement of revenue recognised by the Group, and associated contract liabilities; The Group has manual processes and controls which may increase the risk of error in recognition of revenue at the end of the reporting period due to differing terms of trade and extended delivery periods of customer contracts. Our procedures included: • • Reviewed new and modified contracts and considered management’s assessment of revenue recognition in accordance with AASB 15 – Revenue from contracts with customers Evaluated the appropriateness of the Group’s revenue recognition policies against the requirements of AASB 15 Revenue from Contracts with Customers. • Obtained an understanding of and assessed management’s recognition and estimation of revenue from the new collagen products (DME) through examination of the underlying arrangements and substantive sampling For a sample of transactions, across customer contracts including product sales, advance deposits, true up payments and milestone payments, we: o checked the terms and conditions of the customer contract for consistency to the Group’s policy for timing and measurement of revenue recognition; o checked the amount, nature and date of revenue recognition through evaluation of the terms and conditions in the underlying customer contract, date of completion of freight forwarding services from underlying freight documents, underlying sales invoices and bank statement cash receipts. For the calculation of deferred revenue, we reviewed the calculation based on the remaining life of the contract with reference to • • 65 the underlying customer contract including the contract modification during the year relating to the Bactisure contract with Zimmer. • • Selected a sample of revenue transactions across differing terms of trade and extended delivery periods for the last two weeks of the reporting period and the first two weeks of the next reporting period. For each sample selected, we checked the amount and timing of revenue recorded by the Group to the underlying customer contracts, sales invoice and to freight documents. Assessed the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in Next Science Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, Remuneration Report and Corporate Directory. The Our Purpose Page, Chairman’s Letter, Managing Director’s Report, Investor Information are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • Preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • Implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and 66 • Assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • To obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • To issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Next Science Limited for the year ended 31 December 2022, complies with Section 300A of the Corporations Act 2001. 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 responsibilities We have audited the Remuneration Report included in pages 10 to 22 of the Directors’ report for the year ended 31 December 2022. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Kevin Leighton Partner Sydney 28 February 2023 67 Next Science Limited Corporate Directory 31 December 2022 Directors Independent Non-Executive Chairman: Managing Director: Non-Executive Directors: Mark Compton Judith Mitchell Bruce Hancox Daniel Spira Aileen Stockburger Company Secretary Gillian Nairn Registered office Share register Auditor Solicitors Suite 1902 Level 19 Tower A The Zenith Building 821 Pacific Highway Chatswood NSW 2067 Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 KPMG Australia 300 Barangaroo Avenue Sydney NSW 2000 HWL Ebsworth Lawyers Level 14 Australia Square 264-278 George Street Sydney NSW 2000 Stock exchange listing Next Science Limited shares are listed on the Australian Securities Exchange (ASX code: NXS) Website www.nextscience.com Corporate governance statement https://www.nextscience.com/corp-governance/ 68 

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