Plains All American Pipeline
Annual Report 2019

Plain-text annual report

ABN 35 094 006 023 Annual Report 2019 For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities CONTENTS Corporate Directory Directors' Report Auditor’s Independence Declaration Independent Auditor’s Report Directors’ Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Shareholder Information - 2 - 3 4 17 18 22 23 24 25 26 27 56 For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities CORPORATE DIRECTORY PRINCIPAL PLACE OF BUSINESS PharmAust Limited Suite 39, 1 Freshwater Parade Claremont, Western Australia 6010 Tel +61 (8) 9202 6814 Fax +61 (8) 9467 6111 www.pharmaust.com ASX CODE: PAA Epichem Pty Ltd Suite 5, 3 Brodie-Hall Drive Bentley WA 6102 REGISTERED OFFICE Suite 39, 1 Freshwater Parade Claremont, Western Australia 6010 Tel +61 (8) 9202 6814 Fax +61 (8) 9467 6111 DIRECTORS Dr Roger Aston Mr Robert Bishop Mr Sam Wright Mr Neville Bassett COMPANY SECRETARY Mr Sam Wright SHARE REGISTRY Computershare Investor Services Pty Limited Level 2, 45 St George’s Terrace Perth, Western Australia 6000 AUDITORS RSM Australia Partners 2 The Esplanade Perth, Western Australia 6000 SOLICITORS Fairweather Corporate Lawyers 595 Stirling Highway Cottesloe, Western Australia 6011 STOCK EXCHANGE Australian Securities Exchange Central Park 152-158 St Georges Terrace Perth, Western Australia 6000 - 3 - For personal use onlyDIRECTORS’ REPORT Your Directors present their report on the Company and the entities it controlled for the financial year ended 30 June 2019. Directors The following persons held office as directors of PharmAust Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Dr Roger Aston Mr Robert Bishop Mr Sam Wright Mr Neville Bassett Dr Wayne Best Executive Chairman Executive Director Non-Executive Director Non-Executive Director (Appointed 2nd of October 2018) Non-Executive Director (Resigned 2nd of October 2018) Principal Activities The principal continuing activities constituted by PharmAust Limited and the entities it controlled during the year were to develop its own drug discovery intellectual property for the treatment of different types of cancers in humans and animals, as well as providing highly specialised medicinal and synthetic chemistry services on a contract basis to clients. Operating Results The results of the consolidated entity for the year ended 30 June 2019 was a loss, after income tax expense of $1,551,222 (2018: loss of $2,521,679). Financial Position The net assets of the consolidated entity were $7,455,880 as at 30 June 2019 (2018: $7,138,218 ). Dividends Since the end of the financial year, no dividend has been paid, declared or recommended. Review of Operations PITNEY PHARMACEUTICALS PTY LIMITED – 100% OWNED SUBSIDIARY PharmAust Limited is primarily focused on cancer therapy in humans and canines. Pitney Pharmaceuticals Pty Ltd owns a number of patent families offering protection for the use of Monepantel (MPL) in cancer therapy and potentially for other diseases governed by the mTOR pathway (mechanistic Target Of Rapamycin). The discovery of this possible mechanism of action for the lead product MPL diversifies the potential applications of this molecule for diseases of the central nervous system. MPL is an approved anthelminthic drug distributed by global major Elanco Animal Health Inc, for the treatment of parasitic diseases in sheep. PharmAust is repurposing MPL for the treatment of cancer in both veterinary clinical markets and in the treatment of human cancer.. The fact that MPL is already approved for use in animals in a number of major jurisdictions (EU/UK, Australia) means that the development process for PharmAust is simpler and cheaper than it would be if MPL were a new API (Active Pharmaceutical Ingredient). PharmAust has signed an agreement with UNSW-NSI, the commercial arm of the University of NSW to acquire all the rights to MPL in exchange for all of the rights to the “mucin” project. PharmAust believes that divesting the mucin IP to consolidate the MPL IP, places PharmAust in a strong position for licensing and co-development of MPL with partners. In order to further the development of its products and add value for shareholders, PharmAust has executed an Option to License Agreement with Elanco during 2018. The new Agreement between PharmAust and Elanco supersedes the Research and Option Agreement signed with Novartis Animal Health, which prevailed since 2012. In the period 2018-2019 financial year, PharmAust has worked closely with Elanco to prepare the ground for the undertaking of a key Phase II trial in canines with cancer. Successful completion of this trial is a key aspect of the Option Agreement with Elanco. Achievements during the financial year include: The receipt of 25 kg of GMP grade monepantel from Elanco Animal Health Inc in accordance with the Option Agreement, announced on the 18th of April 2018 to support the clinical trial program and to support a series of Phase I studies on pharmacokinetics, safety and palatability of MPL, The execution by PharmAust of a Data and Regulatory Rights Agreement with Elanco US Inc to facilitate the development of monepantel as an anticancer therapeutic in dogs. Under this agreement, Elanco has permitted PharmAust to reference certain Elanco controlled safety and blood chemistry data that were generated for the regulatory approval of monepantel in Australia, New Zealand and 27 countries within the European Union, as an anti-parasitic drug in livestock animals. Given that livestock animals are destined for human consumption, data and documentation generated for this purpose are required to be extremely comprehensive, adhering to a very high level of precision and detail. 1. 2. - 4 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities 3. The completion of preclinical studies to reformulate monepantel (MPL) into a tablet. This work was conducted in collaboration with BRI Biopharmaceutical Research Inc., Vancouver, Canada. The new tablet will be taken into trials in canines with cancer and PharmAust expects this new tablet to also be taken into trials in humans with cancer as well as in neurological diseases, 4. The completion of several optimisation steps resulting in the successful scale up manufacture of PharmAust’s new monepantel tablets to Good Laboratory Practice (GLP) and to Good Manufacturing Practice (GMP) standards. a. b. c. d. In collaboration with BRI Pharmaceutical Research, PharmAust showed that micronisation of monepantel successfully meets the company’s minimal requirements for dosing and oral bioavailability, In collaboration with BRI Pharmaceutical Research and Catalent Pharma Solutions in San Diego, USA, PharmAust also successfully completed its monepantel taste masking program in healthy beagle dogs, eradicating the poor taste associated with the previous liquid formula, In collaboration with BRI Pharmaceutical Research and Catalent Pharma Solutions in San Diego, USA., PharmAust demonstrated specific dietary requirements for optimal uptake of monepantel into the blood, In collaboration with Catalent San Diego Inc, USA, both GLP and GMP-grade monepantel tablets suitable for use in the upcoming trials in pet owner’s dogs with cancer were successfully manufactured to scale in sufficient numbers for both its Phase I and Phase II trials in dogs. Catalent is a #1 pharma/biotech contract provider in the US for scaled GMP tablet formulation in preparation for clinical trials. 5. 6. 7. The signing of an Agreement with a major US CRO to conduct Phase I Trials in healthy beagle dogs using the tablets manufactured by Catalent. These trials enabled determination of tablet dosing requirements to reach anticipated anticancer levels of monepantel in the blood, as well as confirming the very high safety profile of monepantel at these levels. The completion of development of an independent prototype GMP method applicable for the scale up manufacture of the drug monepantel, as well as PharmAust’s library of monepantel analogues for use in clinical trials as next generation products. This work was conducted in collaboration with Syngene International Ltd The demonstration of anticancer activity of monepantel’s major metabolite monepantel sulfone against cancer types treated in PharmAust’s earlier Phase I/II clinical trial in humans. This work was conducted in collaboration with the Olivia Newton-John Cancer Research Institute where work on the mechanism of action of monepantel at the molecular level has continued. 8. The successful accreditation of PharmAust as an Animal Research Authority for conducting clinical trials in dogs with cancer. 9. Commencement of the Phase II anti-cancer trial in dogs. The trial will formally determine activity in pet owners’ dogs with treatment naïve B cell lymphoma employing the new palatable and high dose tablet form of MPL. Research and Development Targets 2019-2020: 1. To execute an agreement with Elanco Inc. which provides PharmAust with the freedom to evaluate and develop an anticancer product based on MPL for the treatment of human cancers. PharmAust has commenced discussions with Elanco as regards permission to commercially develop a human cancer product based on MPL. It should be noted that Novartis/Elanco patents on MPL begin to expire in 2023, following such expiration, the PharmAust patents are expected have Freedom to Operate. 2. To identify Clinical Centers prepared to evaluate the new MPL tablet in humans in Phase I/II trials, as a follow on from the Phase I clinical trial undertaken at the Royal Adelaide Hospital in 2015. Furthermore, to determine the pharmacokinetic parameters, dietary enhancements and safety of the newly formulated tablet in humans in Phase I/II trials, 3. To undertake a “First Line Therapy” clinical trial, mutually agreed upon with Elanco, in canines with a naturally occurring cancer to determine the safety and value of MPL as a cancer therapy. The outcome of this trial will be an important milestone in developing the future collaboration and Licence with Elanco. EPICHEM PTY LTD - 100% OWNED SUBSIDIARY Epichem, PharmAust’s wholly owned subsidiary, has continued to make strong progress towards key operational milestones as well as build the contract sales and income activities. Epichem has been delivering synthetic and medicinal chemistry services to the drug discovery and pharmaceutical industries worldwide since 2003. Epichem offers a range of rare and hard to find pharmaceutical impurities, degradants and metabolites of active ingredients and excipients, particularly for OTC and generic drugs. Epichem has been at the forefront of synthesizing new and difficult to obtain standards and many of these are exclusive to Epichem and not available elsewhere. This range is continually expanding in response to customer requests and developments in the industry. Epichem is globally competitive with clients in 39 countries and is rapidly expanding its reach. Epichem also excels in custom synthesis and contract drug discovery, boasting a highly skilled team of scientists, most with a PhD and industry experience. This valuable investment in people allows Epichem to lead drug discovery programs, perform custom synthesis, conduct optimisation and method development for scale-up and engage in high-level problem solving. - 5 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Epichem has a long history of helping pharmaceutical companies identify trace impurities and has produced a range of pharmaceutical reference standards to aid the industry in detecting and measuring these impurities, ultimately assisting in the quality assurance and control of its clients’ medicines. Epichem's expert team of medicinal chemists is also supporting PharmAust's oncology programmes and has made a number of novel analogues of MPL. While still at the early pre-clinical research stage, if successful, this research could ultimately lead to a new drug with improved properties which is wholly owned by PharmAust. During the year, Epichem gained accreditation from NATA (The National Association of Testing Authorities, Australia) to ISO17034:2016. Epichem is one of the first companies in Australia to achieve this internationally regarded standard of quality assurance for reference material production to support pharmaceutical drug manufacturing. Accreditation by NATA is highly regarded both locally and internationally and elevates Epichem’s status, global market access and competitiveness in a growing world market. Epichem’s laboratory expansion works are completed and deliver an additional six fumehoods. In conjunction with the expanded facilities and the additional accreditation, we expect to see accelerating Epichem revenues in FY20. On 8 November 2018, Epichem hosted the official opening of its laboratory expansion, following the earlier move to its new facility in September 2015. It is was an honour to have the Hon. Ben Wyatt MLA, the Treasurer of Western Australia, and Professors Robert Stick and Dieter Wege, whose names the laboratories carry, at the event. During the year, Epichem was awarded an extension to its contract with a leading Californian biotechnology Company, Unity Biotechnology, Inc. Epichem was also awarded another one year extension to its current contract with Drugs for Neglected Diseases initiative (DNDi), extending that relationship to 11 years. The contract, which will see Epichem continue to provide synthetic & medicinal chemistry support to DNDi's drug discovery projects and will generate $1.24M in revenues in the 2019 calendar year. During the year, PharmAust announced that Epichem had paid off its debt liability on time for a major state-of-the-art laboratory purpose built in 2015 and expanded in 2018. Epichem’s revenues have made a significant upturn over the period 2015 to 2019, increasing 74% to $3.8 million in FY19. Budgeted revenues for FY20 are $4.2 million (subject to continuation of existing contracts). With the loan facility repaid the money saved on interest and principal will go straight to improving the bottom line. PHARMAUST LTD – PARENT ENTITY Annual General Meeting The Annual General Meeting of the Shareholders of PharmAust Limited was held on 9 November 2018 at at RSM on Level 32, 2 The Esplanade, Perth, Western Australia. All resolutions that were put were unanimously passed on a show of hands. Pro-Rata Non-Renounceable Rights Offer As announced on 18 February 2019, PharmAust sought to raise up to approximately $2 million by a pro-rata non-renounceable rights offer of up to approximately 80 million shares on the basis of 2 new shares for every 5 shares held at an issue price of 2.5 cents per New Share. The Company lodged an offer document for the Offer with the ASX on 26 February 2019. The Company received subscriptions for approximately 52 million shares raising $1.3 million. All Directors took up their Rights Issue entitlements in full, investing $192,584.83 into the Company. Shortfall Placement Oversubscribed On 11 April 2019, the Company advised that the shortfall from the entitlement offer had been successfully placed through the lead manager to the issue, Alto Capital Pty Ltd, raising additional gross proceeds of approximately $700,000. The shortfall placement was heavily oversubscribed. The shortfall placement comprised approximately 28 million shares at 2.5 cents per share. The proceeds from the placement and entitlement offer totalled $2 million, before costs. PharmAust receives $672k Research and Development Tax Incentive Refund During the year, PharmAust was pleased to confirm the receipt of a Research and Development (R&D) Tax Incentive refund of $672,250 for the 2017/2018 financial year. The refund relates to the eligible expenditure on the Company’s lead molecule, monepantel, which has been undergoing further evaluation in clinical trial in dogs and which is currently being reformulated for expanded clinical development in humans and companion animals. The R&D Tax Incentive scheme is a programme jointly administered by the Australian Taxation Office and AusIndustry, under which companies can receive up to a 43.5% refundable tax offset of eligible expenses on research and development activities. Significant Changes in State of Affairs A review of events during the reporting period can be found in the review of operations. - 6 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Subsequent Events On 26 July 2019, the Company issued 1,000,000 unlisted options to corporate advisors. These options have an exercise price of $0.065 and expire on 30 June 2022. On 28 August 2019, the Company issued 500,000 unlisted options to corporate advisors. These options have an exercise price of $0.150 and expire on 30 June 2022. On 17 September 2019, the Company issued 750,000 fully paid ordinary shares on the exercise of unlisted options. These options had an exercise price of $0.065 per option which raised $48,750 for the Company. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. Future Developments In the opinion of the Directors disclosure of information regarding likely developments in the Company’s operations and the expected results of those operations in subsequent financial years could prejudice the Company’s interests. Accordingly, this information has not been included in this report. Environmental Regulation The Company is subject to a range of environmental regulation. During the year, the Company met all reporting requirements under any relevant legislation. There were no incidents which required reporting. Information on Directors Dr Roger Aston – Executive Chairman Qualifications BSc (Hons), Ph.D Experience Dr Aston currently serves as Chief Executive Officer of Pitney. Dr Aston served as Chief Executive Officer of Mayne Pharma Group until 15 February 2012. During his career, he has been closely involved in start-up companies and major pharmaceutical companies. Aspects of his experience include FDA and EU product registration, clinical trials, global licensing agreements, fundraising through private placements, and a network of contacts within the pharmaceutical, banking and stock broking sectors. Dr Aston is both a scientist and seasoned biotechnology entrepreneur, with a successful track record in both fields. Dr Aston holds a B.Sc. (Hons) and Ph.D. degrees from the University of Manchester from 1975 to 1981. Interests in Shares & Options Dr Aston holds 15,044,815 Fully Paid Ordinary Shares and 1,791,050 Options. Other Current Directorships (ASX Listed Companies) Immuron Limited (ASX:IMC), Oncosil Limited (ASX: OSL), Regeneus Limited (ASX:RGS) and ResApp Health Limited (ASX:RAP) Previous Directorships (last 3 years) ASX Listed Companies IDT Limited (ASX:IDT); and Polynovo Limited (ASX:PNV) (previously Calzada Limited (ASX:CZD)) Mr Robert C Bishop – Executive Director Qualifications Ll.B (Hons), Solicitor (New South Wales and England & Wales), MAICD Experience Mr Bishop has 30 years’ experience in corporate finance and equity capital markets. Having worked extensively in London and Sydney, first as a lawyer at Linklaters & Paines and Allen, Allen & Hemsley; and then as a stockbroker and investment banker at Ord Minnett, Robert Fleming and, since 1998, at his Sydney based corporate finance business, First Capital Markets. He has extensive experience in the areas of stock market flotation's, licensing and compliance work. Interests in Shares & Options Mr Bishop, via his Company, holds 9,211,060 Fully Paid Ordinary Shares & 913,222 Options. Other Current Directorships (ASX Listed Companies) Previous Directorships (last 3 years) ASX Listed Companies Nil Nil - 7 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities Mr Neville Bassett AM – Non-Executive Director DIRECTORS' REPORT (Cont.) Qualifications Experience AM, FCA, B.Bus Mr Bassett has spent more than 35 years working in accounting, finance and stockbroking. During that time, he has had considerable involvement in Australian financial markets including numerous public Company listings and capital raisings, as well as mergers and acquisitions. In 1991, he became a Director/Councillor of the Royal Flying Doctor Service (RFDS) in WA and he was Chairman of RFDS Western Operations for eight years until his retirement in 2017. He also served six years as Western Operations representative on the Board of the Australian Council of the Royal Flying Doctor Service of Australia. In 2015, Mr Bassett’s decades of unwavering dedication to community service were recognised when he was awarded a Member of the Order of Australia (AM) in the Australia Day Honours. Interests in Shares & Options Mr Bassett holds 7,000 ordinary shares in PharmAust Limited. Other Current Directorships (ASX Listed Companies) Previous Directorships (last 3 years) ASX Listed Companies Auris Minerals Limited, Metalsearch Limited and Pointerra Limited Longford Resources Ltd, Meteoric Resources NL and Vector Resources Ltd Mr Sam Wright – Non-Executive Director & Company Secretary Qualifications Experience Interests in Shares & Options Other Current Directorships (ASX Listed Companies) Previous Directorships (last 3 years) ASX Listed Companies Meetings of Directors AFin DipAcc ACIS MAICD Sam Wright has over fifteen years experience in the administration of ASX listed companies, corporate governance and corporate finance. He is a member of the Australian Institute of Company Directors, the Financial Services Institute of Australasia, and the Chartered Secretaries of Australia. Mr Wright joined PharmAust as the Financial Controller in September 2006, was appointed as the Company Secretary in August 2007, and has been a Director of the Company since October 2008. Mr Wright is also Company Secretary for ASX listed companies, Buxton Resources Limited, Structural Monitoring Systems plc and Wide Open Agriculture Limited. Mr Wright has also filled the role of Director and Company Secretary with a number of unlisted companies. Mr Wright is the Managing Director of Perth-based corporate advisory firm Straight Lines Consultancy, specialising in the provision of corporate services to public companies Mr Wright has extensive experience in relation to public Company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, and shareholder relations with both retail and institutional investors. Mr Wright, via his Company, holds 3,000,000 ordinary shares and 166,668 options in PharmAust Limited. Nil Nil The number of meetings of the Company’s directors held during the year ended 30 June 2019, and the number of meetings attended by each director was: Meetings of Directors Eligible to Participate 3 2 3 1 3 Number Attended 3 2 3 1 3 Directors Dr Roger Aston Mr Neville Bassett Mr Robert Bishop Dr Wayne Best Mr Sam Wright - 8 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) The remuneration report, which has been audited, outlines the key management personnel (KMP) remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. This report details the nature and amount of remuneration for each director and executive of PharmAust Limited. Remuneration policy The remuneration of directors and executives of PharmAust Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Company’s financial results. The Board of PharmAust Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Company, as well as create goal congruence between directors, executives and shareholders. All executives receive a base salary (which is based on factors such as length of service and experience) and superannuation whilst some executives receive fringe benefits. The Board reviews executive packages periodically by reference to the Company’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The performance of executives is measured against criteria agreed regularly with each executive and is based on factors including the forecast growth of profits and shareholders’ value. The remuneration is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. The goal of the remuneration structures it to align the remuneration packages of the executives with the Company’s performance and specifically the Company’s earnings and the consequences of the Company’s performance on shareholder wealth including dividends, returns of capital and capital appreciation. The executive directors and executives receive a superannuation guarantee contribution required by the government and do not receive any other retirement benefits. Individuals, however, have the option to sacrifice part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is valued at the cost to the Company and expensed. Any shares given to directors and executives will be valued as the difference between the market price of those shares and the amount paid by the director or executive. Any options granted will be valued by an independent expert using the Black-Scholes, Binomial or any other methodologies that the independent expert deems appropriate. The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board (excluding the relevant director) determines payments to the directors and reviews their remuneration regularly, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. Voting and comments made at the Company's 2018 Annual General Meeting ('AGM') At the 2018 AGM, 99% of the votes received supported the adoption of the remuneration report for the year ended 30 June 2018. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Details of the nature and amount of each element of remuneration of each key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors and other key management personnel: Directors Roger Aston Robert Bishop Sam Wright Neville Bassett Chief Executive Officer Executive Director Non-Executive Director and Company Secretary Non-Executive Director Other Key Management Personnel Wayne Best John Horton Rebecca McCrackan Richard Mollard Martine Keenan Chairman – Epichem Pty Ltd Director – Epichem Pty Ltd Director – Epichem Pty Ltd Chief Scientific Officer – PharmAust Ltd Chief Executive Officer – Epichem Pty Ltd - 9 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) 2019 Short-term Benefits Post-employment Benefits Share-based Payments Directors Roger Aston Sam Wright Robert Bishop Neville Bassett Wayne Best Other Key Management Personnel Richard Mollard Martine Keenan John Horton Rebecca McCrackan Salary & Fees $ Superannuation $ Options & Performance Rights $ Total $ 260,000 114,000 104,000 20,000 16,500 196,987 140,000 12,000 5,400 868,887 24,700 - 9,880 - 713 18,714 13,300 - 513 67,820 - - - - - - - - 284,700 114,000 113,880 20,000 17,213 215,701 153,300 12,000 5,913 936,707 2018 Short-term Benefits Post-employment Benefits Share-based Payments Salary & Fees $ Superannuation $ Options & Performance Rights $ Total $ 260,000 114,000 104,000 162,160 182,650 167,429 120,773 12,000 4,500 1,127,512 24,700 - 9,880 15,405 17,352 15,906 11,473 - 428 95,144 - - - 34,698 403,214 401,363 - 8,789 8,789 856,853 284,700 114,000 113,880 212,263 603,216 584,698 132,246 20,789 13,717 2,079,509 Directors Roger Aston Sam Wright Robert Bishop Wayne Best Other Key Management Personnel Richard Mollard Richard Hopkins* Martine Keenan** John Horton Rebecca McCrackan * Resigned 25 May 2018 ** Appointed 10 April 2018 - 10 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Remuneration of Roger Aston (Executive Chairman - PharmAust Limited) Term of the agreement – permanent and no specific term. Base salary of $260,000 per year plus superannuation of 9.5% of base salary. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months base salary and superannuation. Remuneration of Robert Bishop (Executive Director - PharmAust Limited) Term of the agreement – permanent and no specific term. Base salary of $104,000 per year plus superannuation of 9.5% of base salary. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to three (3) months base salary and superannuation. Remuneration of Wayne Best (Non-Executive Director – PharmAust Limited – Resigned October 2018) (Managing Director – Epichem Pty Ltd) Term of the agreement – permanent and no specific term. In his capacity as a non-executive director of Phamaust his base salary is $30,000 per year plus superannuation of 9.5% of base salary. In his capacity as a non-executive chairman of Epichem his base salary is $9,000 per year plus superannuation of 9.5% of base salary. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months base salary and superannuation. Remuneration of Sam Wright (Non-Executive Director and Company Secretary – PharmAust Limited) Term of the agreement – permanent and no specific term. Consultancy fees of $7,500 plus GST per month, payable in arrears. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months consultancy fee. Remuneration of John Horton (Director – Epichem Pty Ltd) Term of the agreement – permanent and no specific term. Consultancy fees of $12,000 per annum. Remuneration of Rebecca McCrackan (Director – Epichem Pty Ltd) Term of the agreement – permanent and no specific term. Director fees of $5,400 per annum plus superannuation of 9.5% of base salary. Remuneration of Neville Bassett (Non-Executive Director – PharmAust Limited) (Appointed 2 October 2018) Term of the agreement – permanent and no specific term. Directors fees of $30,000 per year. Remuneration of Richard Mollard (Chief Scientific Officer – PharmAust Limited) Term of the agreement – permanent and no specific term. Base salary of $196,987 per year plus superannuation of 9.5% of base salary Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months base salary and superannuation. Remuneration of Martine Keenan (Chief Executive Officer – Epichem Pty Ltd) Term of the agreement – permanent and no specific term. Base salary of $140,000 per annum plus superannuation of 9.5% of base salary. Bonus of up to a maximum of $30,000 in the event of the satisfaction of Bonus milestones for any one financial year that Epichem Pty Ltd makes an after tax profit of: - - - - $100,000 – $200,000 - bonus of $5,000; or $200,001 - $350,000 - bonus of $10,000; or $350,001 - $500,000 - bonus of $20,000; or $500,001 or more - bonus of $30,000. Payment of termination benefit on termination by the employer, other than for gross misconduct, is equal to six (6) months base salary and superannuation. - 11 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) Share-based compensation Issue of shares There were no shares issued to directors and other KMP as part of compensation during the year ended 30 June 2019. Options There were no options issued to directors and other KMP as part of compensation during the year ended 30 June 2019. Performance rights There were no performance rights issued to directors and other KMP as part of compensation during the year ended 30 June 2019. Options and performance rights granted as part of remuneration All options and performance rights were have been granted and issued. The amount allocated to remuneration is allocated over the vesting period. Other transactions with key management personnel and their related parties There were no other transactions with key management personnel and their related parties during the year. - 12 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) Additional information The earnings of the consolidated entity for the five years to 30 June 2019 are summarised below: 2019 $ 2018 $ 2017 $ 2016 $ 2015 $ Revenue EBITDA EBIT 4,364,554 3,295,904 3,333,505 2,754,737 2,420,020 (1,330,970) (2,374,722) (1,161,152) (4,076,414) (1,844,390) (1,503,400) (2,493,327) (1,343,614) (3,927,256) (1,925,091) Loss after income tax (1,551,222) (2,521,679) (1,343,614) (3,927,256) (1,925,091) The factors that are considered to affect total shareholders return ('TSR') are summarised below: 2019 2018 2017 2016 2015 Share price at financial year end ($) Total dividends declared (cents per share) Basic earnings per share (cents per share) 0.04 - (0.71) 0.04 - (1.72) 0.06 - (1.08) 0.08 - (0.60) 0.14 - (0.13) Additional disclosures relating to key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance 1 July 2018 No. Share Consolidation No. Received as Compensation No. At date of Appointment and/or Resignation No. Net Change Other* No. Balance 30 June 2019 No. 787,432 2,000,000 10,746,296 6,579,328 - 1,250 - - - 20,114,306 - - - - - - - - - - - - - - - - - - - - - - - - 5,000 - - - - 5,000 285,106 800,000 4,298,519 2,631,732 2,000 - - 625,000 - 8,642,357 1,072,538 2,800,000 15,044,815 9,211,060 7,000 1,250 - 625,000 - 28,761,663 2019 Directors Wayne Best** Sam Wright Roger Aston Robert Bishop Neville Bassett* Other Key Mangement Personnel John Horton Rebecca McCrackan Richard Mollard Martine Keenan *Appointed 2 October 2018 ** Resigned 2 October 2018 - 13 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Remuneration Report (Audited) Option holding The number options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: 2019 Directors Sam Wright Roger Aston Robert Bishop Neville Bassett** Wayne Best*** Other Key Management Personnel John Horton Richard Mollard Rebecca McCrackan Martine Keenan Balance 1 July 2018 Granted as Compensation Options Exercised No. No. No. At date of Appointment and/or Resignation 166,668 1,791,050 913,222 - 1,564,573 250,000 10,125,000 250,000 900,000 15,960,513 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Net Change Other* No. - - - - (253,556) Balance 30 June 2019 Total Vested No. No. 166,668 1,791,050 913,222 - 1,311,017 166,668 1,791,050 913,222 - 1,311,017 - - - (150,000) (403,556) 250,000 10,125,000 250,000 750,000 15,556,957 250,000 10,125,000 250,000 750,000 15,556,957 *The net change other column above includes those options that have been disposed or acquired by holders during the year. ** Appointed 2 October 2018. *** Resigned 2 October 2018. [END OF REMUNERATION REPORT] - 14 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS' REPORT (Cont.) Share Options & Performance Rights The details of unissued ordinary shares under option at the date of this report are as follows: Number Exercise Price Expiry Date Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted Unlisted 21,645,412 3,750,000 7,500,000 9,000,000 5,000,000 10,000,000 250,000 500,000 12 cents 7.5 cents 15 cents 23 cents 8 cents 12 cents 6.5 cents 15 cents 30 November 2019 31 March 2020 31 March 2020 31 March 2020 31 December 2022 31 January 2022 30 June 2022 30 June 2022 During the year, no options were exercised. Please refer to note 27 ‘Events After the Reporting Period’ for details of all options exercised since the end of the financial year to the date of this report. The Company has no unissued ordinary shares through Performance Rights. Shares Issued on Exercise of Compensation Options No options were exercised last financial year, this financial year or up to the date of this report. Indemnification and Insurance of Directors and Officers During the year, the Company held Directors and Officers Indemnity insurance. The Company’s Constitution provides that except as may be prohibited by Sections 199A and 199B of the Corporations Act every Officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Officer, auditor or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings whether civil or criminal. Indemnification and Insurance of Auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or 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 any part of these proceedings. Annual Report Disclosure on Corporate Governance PharmAust Limited is a drug discovery and development Company. The Company has established and continues to refine and improve procedures to ensure a culture of good corporate governance exists and is respected across the consolidated entity. The Company has a written policy designed to ensure compliance with ASX Listing Rules and all other regulatory requirements for disclosures. Additionally, the Company has adopted a policy designed to ensure procedures to implement the policy are suitable and effective. The Board wishes to acknowledge that nothing has come to its attention that would lead it to conclude that its current practices and procedures are not appropriate for an organisation of the size and maturity of the Company. The Corporate Governance Policy and the Company’s corporate governance practices is set out on the Company’s web site at www.pharmaust.com - 15 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities Non-Audit Services DIRECTORS' REPORT (Cont.) 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 28 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 28 to the financial statements do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: ● all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and ● none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former partners of RSM Australia Partners There are no officers of the Company who are former partners of RSM Australia Partners. Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included within these financial statements. Auditor RSM Australia Partners continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Dr ROGER ASTON Executive Chairman 19 September 2019 Perth, Western Australia - 16 - For personal use onlyAUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of PharmAust Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 19 September 2019 TUTU PHONG Partner For personal use only INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHARMAUST LIMITED Opinion We have audited the financial report of PharmAust Limited (Company) and its subsidiaries (Group), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial performance for the year then ended; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. For personal use only Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. How our audit addressed this matter Our audit procedures included: • Assessing whether there are any indicators of impairment of the MPL asset, including enquiring with management on the current and planned commercialisation activities; • Assessing the reasonableness of management’s assumptions included in the value-in-use model and whether there are any indicators that would require the re-estimation of the asset’s recoverable amount; and • Assessing the adequacy of the disclosures in the financial statements. Key audit matter Intangible Assets Refer to Note 8 in the financial statements Intangible assets of the Group are $3,107,476 as at 30 June 2019. This relates to the intellectual property rights for the monepantel oncology platform (MPL). The MPL asset is not yet available for use and remains subject to annual impairment review by management the asset’s to assess whether recoverable amount is greater than its carrying amount. Management’s assessment involved: • Reviewing the key assumptions for the MPL value-in-use calculation model, which was prepared in the previous financial year, to determine whether there were any significant changes during the current financial year; and • Evaluating whether any events have occurred to indicate the MPL asset’s recoverable amount may be less than its carrying amount. Management’s assessment is subject to estimation uncertainty and requires significant management judgement. We determined this to be a key audit matter due the risk that the outcome of the impairment assessment could vary significantly if different assumptions are applied. For personal use only Other information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2019, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. For personal use only Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2019. In our opinion, the Remuneration Report of PharmAust Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Perth, WA Dated: 19 September 2019 TUTU PHONG Partner For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of PharmAust Limited, I state that: 1. In the opinion of the directors: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the financial position of the consolidated entity as at 30 June 2019 and of its performance, for the year ended on that date; and complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (c) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; 2. This declaration has been made after receiving the declarations required to be made in accordance with sections of 295A of the Corporations Act 2001 for the financial year ending 30 June 2019. On behalf of the Board Dr ROGER ASTON Executive Chairman 19 September 2019 Perth, Western Australia - 22 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2019 Revenue Other income Raw materials and consumables used Employee benefits expense Depreciation expense Finance costs Research and development expenses Administration expenses NOTE 2 2 CONSOLIDATED 2019 $ 2018 $ 3,670,457 694,097 4,364,554 (333,632) (2,913,555) (172,430) (47,822) (1,039,136) (1,409,201) 2,871,345 424,559 3,295,904 (289,318) (3,561,963) (118,605) (28,352) (463,875) (1,355,470) (Loss) before income tax expense (1,551,222) (2,521,679) Income tax expense (Loss) after income tax expense Other comprehensive income Total comprehensive (loss) for the year 3a - - (1,551,222) (2,521,679) - - (1,551,222) (2,521,679) Basic and diluted loss per share (cents per share) 16 (0.71) (1.72) The accompanying notes form part of these financial statements. - 23 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities STATEMENT OF FINANCIAL POSITION As at 30 June 2019 CONSOLIDATED NOTE 2019 $ 2018 $ 4 5a 6 7 8 9 10 11 12 11 12 2,090,625 258,842 58,509 611,816 3,019,792 3,107,476 2,468,449 5,575,925 1,875,431 248,353 58,568 574,015 2,756,367 3,107,476 2,494,154 5,601,630 8,595,717 8,357,997 673,020 143,384 105,602 922,006 181,230 36,601 217,831 616,825 424,634 151,708 1,193,167 1,007 25,605 26,612 1,139,837 1,219,779 7,455,880 7,138,218 13 14 26 51,388,306 1,907,392 (45,839,818) 49,371,354 2,055,460 (44,288,596) 7,455,880 7,138,218 The accompanying notes form part of these financial statements. CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets Inventory TOTAL CURRENT ASSETS NON-CURRENT ASSETS Intangible assets Plant and equipment TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Borrowings Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY - 24 - For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2019 Issued Capital Accumulated Losses $ $ Share-Based Payments Reserve $ Total Equity $ As at 1 July 2017 47,604,668 (41,766,917) 1,077,296 6,915,047 Loss for the year Total comprehensive (Ioss) for the year - - (2,521,679) (2,521,679) - - (2,521,679) (2,521,679) Shares issued (net) Share based payment 1,766,686 - - - - 978,164 1,766,686 978,164 As at 30 June 2018 49,371,354 (44,288,596) 2,055,460 7,138,218 As at 1 July 2018 49,371,354 (44,288,596) 2,055,460 7,138,218 Loss for the year Total comprehensive (Ioss) for the year - - (1,551,222) (1,551,222) Shares issued (net of costs) Conversion and lapse of performance rights 1,917,577 99,375 - - - - - (1,551,222) (1,551,222) 1,917,577 (148,068) (48,693) As at 30 June 2019 51,388,306 (45,839,818) 1,907,392 7,455,880 The accompanying notes form part of these financial statements. - 25 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities STATEMENT OF CASH FLOWS For the year ended 30 June 2019 Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Other income Interest received Interest and other costs of finance Net cash used in operating activities Cash Flows from Investing Activities Payments for plant and equipment Net cash used in investing activities Cash Flows from Financing Activities Proceeds from share issues (net) Proceeds/(Repayment) of borrowing (net) Net cash provided by financing activities Net increase/(decrease) in cash held Cash at the beginning of the financial year NOTE 19b CONSOLIDATED 2019 $ 2018 $ 3,659,968 (5,860,249) 676,299 17,798 (47,822) (1,554,006) 2,845,179 (4,792,183) 387,656 36,903 (28,352) (1,550,797) (146,725) (146,725) (868,929) (868,929) 2,016,952 (101,027) 1,915,925 1,766,686 (61,859) 1,704,827 215,194 (714,899) 1,875,431 2,590,330 Cash at the end of the financial year 19a 2,090,625 1,875,431 The accompanying notes form an integral part of these financial statements. - 26 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 These consolidated financial statements and notes represent those of PharmAust Limited and its Controlled Entities (the “consolidated entity” or “Group”). The separate financial statements of the parent entity, PharmAust Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. Supplementary information about the parent entity is disclosed within this financial statements in Note 25. 1 SIGNIFICANT ACCOUNTING POLICIES The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Australian Accounting Standards set out accounting policies that the Australian Accounting Standards Board has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 25. The financial report was authorised for issue on 19 September 2019 by the Directors of the Company. (a) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of PharmAust Limited as at 30 June 2019 and the results of all subsidiaries for the year then ended. PharmAust Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the parent has control. The consolidated entity controls an entity when the parent entity is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. - 27 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (b) Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. The parent and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. (c) Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. - 28 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (c) Plant and Equipment (Cont.) Depreciation The depreciable amount of all plant and is depreciated on a straight-line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of fixed asset Plant and equipment Depreciation rate 3-20 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of 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. (d) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. (e) Financial instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. - 29 - For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (e) Financial instruments (Cont.) Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. (ii) Financial assets at fair value through profit or loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a Group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. (iii) Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has been impaired. A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). In the case of financial assets carried at amortised cost, loss events may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. Derecognition Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. (f) Foreign currency transactions and balances The financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. - 30 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (g) Impairment of assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. (h) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. (i) Provisions Provisions are recognised when the consolidated entity has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. (j) 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. - 31 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (k) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. (l) Revenue recognition The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Sale of goods Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on either a fixed price or an hourly rate. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. All revenue is stated net of the amount of goods and services tax. (m) 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. - 32 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (n) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. Stock in transit is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (o) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (p) Earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of PharmAust Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. (q) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. (r) Intangibles assets Intellectual property rights- three oncology technology platforms Intellectual property rights are recognised at cost of acquisition less accumulated amortisation and any impairment losses. For intellectual property rights not yet available for use, they are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less accumulated impairment losses. Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Intangible assets have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project following commercialisation of the assets. (s) Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. - 33 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (t) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (u) Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. (v) 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 normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in 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. (w) Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. (x) Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a non-current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding interest on convertible notes is expensed to profit or loss. - 34 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (y) New or amended accounting standards and interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards and Interpretations that are not yet mandatory have not been early adopted. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 9 Financial Instruments The consolidated entity has adopted AASB 9 from 1 July 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available. AASB 15 Revenue from Contracts with Customers The consolidated entity has adopted AASB 15 from 1 July 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period. Impact of adoption AASB 9 and AASB 15 were adopted using the modified retrospective approach and as such comparatives have not been restated. There was no impact of adoption. (z) Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. - 35 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 1 SIGNIFICANT ACCOUNTING POLICIES (Cont.) (z) Business combinations (Cont.) The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. (aa) Critical accounting estimates and judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Other finite life intangible assets not yet in use The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether other finite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 1(r). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital, royalty rates and growth rates of the estimated future cash flows. - 36 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 2 REVENUE Sales OTHER INCOME Interest received Other revenue 3 INCOME TAX EXPENSE 3a No income tax is payable as a tax loss has been incurred for income tax purposes. Loss before income tax Prima facie tax benefit at 27.5% (2018: 30%) Tax effect of: - Other non-allowable items - Deferred tax asset not brought to account 3b Deferred tax asset CONSOLIDATED 2019 $ 2018 $ 3,670,457 2,871,345 17,798 676,299 694,097 36,903 387,656 424,559 (1,551,222) (2,521,679) (426,586) (693,462) 277,538 149,048 - 376,137 317,325 - The potential deferred tax assets have not been recognised in the statement of financial position because their recovery is not considered probable. - Tax losses at 27.5% tax rate (not recognised) (2018: 27.5%) 6,595,011 6,603,997 PharmAust Limited and its wholly-owned Australian subsidiary have formed an income tax consolidated group under the Tax Consolidation Regime. PharmAust Limited is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. The tax consolidated group has entered a tax sharing agreement whereby each Company in the consolidated entity contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. 4 CASH AND CASH EQUIVALENTS Cash at bank 2,090,625 1,875,431 - 37 - For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 5 TRADE AND OTHER RECEIVABLES 5a CURRENT Trade receivables Less: provision for doubtful debts CONSOLIDATED 2019 $ 2018 $ 258,842 - 258,842 248,353 - 248,353 Trade receivables: Payment terms are 30 days from the date of recognition and carried at fair value. 5b Provision for impairment of receivables Current trade and term receivables are non-interest bearing and generally on 30-day terms. Non-current trade and term receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. 5c Past due but not impaired As of 30 June 2019, trade receivables of $9,585 (2018: $31,202) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: 31 to 60 days 61 days and above 249,257 9,585 258,842 7,216 31,202 38,418 Based on the credit history of these other classes, it is expected that these amounts will be received when due. The Group does not hold any collateral in relation to these receivables. 5d Fair value and credit risk The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for and mentioned within Note 5. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. 29,771 4,291 24,447 58,509 37,174 6,269 15,125 58,568 611,816 611,816 574,015 574,015 6 OTHER CURRENT ASSETS GST receivable Bond Prepayments 7 Inventories Finished Goods - 38 - For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 8. Intangible Assets Intellectual property rights – at cost Amortisation Accumulated impairment losses Movements in Carrying Amounts: Balance at the beginning of the year Addition Impairment Balance at the end of the year CONSOLIDATED 2019 $ 2018 $ 5,179,128 - (2,071,652) 3,107,476 5,179,128 - (2,071,652) 3,107,476 3,107,476 - - 3,107,476 3,107,476 - - 3,107,476 No amortisation has been recognised as these intellectual property rights are not yet at the commercialisation stage. The Group has assessed the recoverability of the carrying amount of the Intangible Asset based on a 16-year value in use calculation using a discounted cash flow model for the intellectual property rights to the monepantel (MPL) oncology platform. The calculation is based on budgets approved by management, assuming commercialisation through a royalty revenue stream for both human and animal patents. The key assumptions used in the discounted cash flow model include: - - Royalty rate of 10% (2018: 10%); Post-tax discount rate of 30% (2018: 30%); The discount rate of 30% post-tax reflects management’s estimate of the time value of money and the Group’s weighted average cost of capital. Based on the results of the value in use calculation using a discounted cash flow model, there is no impairment required to be recognised. 9. PLANT AND EQUIPMENT Cost Accumulated depreciation Movements in Carrying Amounts: Carrying amount at beginning of the year Additions – Plant and Equipment Additions – Construction in Progress Disposals Depreciation expense Carrying amount at end of the year 10 TRADE AND OTHER PAYABLES Trade creditors and accruals Payment terms are 30 days from receipt of goods and/or services rendered. 11 BORROWINGS CURRENT EFIC Loan Facility 1** EFIC Loan Facility 2*** NON CURRENT EFIC Loan Facility 1** EFIC Loan Facility 2*** Terms and conditions: ** The EFIC Loan Facility 1 was repaid during the year. - 39 - CONSOLIDATED 2019 $ 2018 $ 3,444,975 (976,526) 2,468,449 3,326,377 (832,223) 2,494,154 2,495,154 145,725 - - (172,430) 2,468,449 1,743,829 191,556 677,374 - (118,605) 2,494,154 673,020 616,825 - 143,384 143,384 - 181,230 181,230 281,250 143,384 424,634 - 1,007 1,007 For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 11 BORROWINGS (Cont.) *** The EFIC Loan Facility 2 has a variable interest rate charged at the AFMA Bank Bill Average Bid Rate fix + 6.05% margin. At 30 June 2019 this rate was 7.5%. Financing arrangements Loan Facility 1: This facility was repaid during the year and is no longer available to the Group. Loan Facility 2: The consolidated entity entered into a loan agreement to gain access to an original loan facility of $466,000. Interest: 3 month AFMA Bank Bill Average Bid Rate fix plus 6.05% margin. Security: First charge over the new laboratory equipment. Loan facility 1: Total facility limit Amount utilised Total unused facility at 30 June Loan facility 2: Total facility limit Amount utilised Total unused facility at 30 June 12 PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements - - - 281,250 (281,250) - 466,000 (324,614) 144,391 (144,391) 141,386 - 105,602 151,708 36,601 25,605 Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional right to defer settlement. However, based on past experience, the consolidated entity does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. 13 ISSUED CAPITAL Issued and paid up ordinary shares 51,388,306 49,371,354 13a Movement in fully paid ordinary shares Ordinary Shares 1 July 2018 opening balance Shares issued (net of costs) Conversion and lapse of performance rights 30 June 2019 closing balance 2019 2018 Number of shares 2019 $ 2018 $ 199,050,664 157,339,553 49,371,354 47,604,668 79,920,528 41,711,111 1,917,577 1,766,686 1,250,000 - 99,375 - 280,221,192 199,050,664 51,388,306 49,371,354 - 40 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 13 ISSUED CAPITAL (Cont.) 13b Terms and Conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up the Company, ordinary shares rank after all other shareholders and creditors and are fully entitled to any proceeds from liquidation. Ordinary shares issued as a result of the exercise of options, will rank equally and on the same terms and conditions as all other shareholders. 13c Capital Management Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern. The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the Group’s capital by assessing its financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. The gearing ratios for the year ended 30 June 2019 and 30 June 2018 are as follows: Total borrowings Less: cash and cash equivalents Net debt Total equity Total capital 14 RESERVES NOTE CONSOLIDATED 2019 $ 2018 $ 10,11 997,634 (2,090,625) (1,092,991) 7,387,483 6,294,492 1,042,466 (1,875,431) (832,965) 7,123,598 6,290,633 Share-based payments reserve 1,907,392 2,055,460 The movement in the share-based payments reserve was as follows: 2018 At 1 July Options granted – Employees Options granted – KMP Options granted – Corporate Advisors Expense attributable to previously granted options and performance rights At 30 June 2019 At 1 July Performance rights converted Performance rights lapsed Options expired At 30 June No. of Performance Rights No. of Options Weighted Average Exercise Price $ 6,750,000 - - - - 6,750,000 42,570,412 3,750,000 1,250,000 10,000,000 - 57,570,412 0.14 0.08 0.07 0.12 - 0.13 No. of Performance Rights No. of Options Weighted Average Exercise Price $ 6,750,000 (1,250,000) (5,500,000) - - 57,570,412 - - (675,000) 56,895,412 0.13 - - 0.16 0.13 Balance $ 1,077,296 114,260 52,276 7,050 804,578 2,055,460 Balance $ 2,055,460 (99,375) (48,693) - 1,907,392 56,895,412 options are exercisable as at 30 June 2019 (2018: 57,570,412). No options were exercised during the year. The weighted average remaining contractual life of options outstanding at year-end was 1.04 years (2018: 1.84 years). The weighted average exercise price of outstanding options at the end of the reporting period was $0.13 (2018: $0.13). - 41 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 15 RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and conditions which are no more favourable than those available to other parties. The following transactions occurred with related parties: Transactions with related parties: Other related parties: Sales – Nanollose Limited [1] Corporate Services Expense – Straight Lines Consultancy [2] CONSOLIDATED 2019 $ 2018 $ 203,944 18,000 49,322 18,000 [1] Non-Executive Director Wayne Best was appointed Executive Chairman of Nanollose Limited on 10 April 2018. [2] Non-Executive Director Sam Wright is Managing Director of Straight Lines Consultancy. 16 EARNINGS PER SHARE Net (loss) attributable to members of the Company 1,551,222 (2,521,679) Weighted average number of ordinary shares outstanding during the year used in calculating basic earnings per share. Basic Earnings per Share 16a No. No. 219,329,568 146,580,486 Basic earnings per share is determined by dividing the loss after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial period, adjusted for any bonus elements in ordinary shares issued during the year. 16b Diluted Earnings per Share Diluted earnings per share is the same as basic earnings per share as there were no options on issue which would be potential ordinary shares. 17 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s financial instruments consist mainly of deposits with banks, local money market instruments, short-term investments, accounts receivable and payable, loans to and from subsidiaries, borrowings and leases. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: Financial assets Cash and cash equivalents Loans and receivables (excluding GST) Total financial assets Financial liabilities Trade and other payables Borrowings Total financial liabilities Note Consolidated 2019 $ 2018 $ 4 5a 10 11 2,090,625 1,875,431 258,842 248,353 2,349,467 2,123,784 673,202 324,614 616,825 425,641 997,634 1,042,466 Specific Financial Risk Exposures and Management The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk and foreign exchange risk. Other minor risks are either summarised below or disclosed at Note 5 in the case of credit risk and Note 13 in the case of capital risk management. The Board reviews and agrees policies for managing each of these risks. - 42 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 17 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.) Cash Flow Interest Rate Risk The Group’s exposure to the risks of changes in market interest rates relates primarily to the Group’s short-term deposits with a floating interest rate. These financial assets with variable rates expose the Group to cash flow interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Group does not engage in any hedging or derivative transactions to manage interest rate risk. The following tables set out the carrying amount by maturity of the Group’s exposure to interest rate risk and the effective weighted average interest rate for each class of these financial instruments. The Group has not entered into any hedging activities to cover interest rate risk. In regard to its interest rate risk, the Group does not have a formal policy in place to mitigate such risks. 2019 Weighte d Average Interest Rate Floating Interest Rate $ Fixed Interest Rate Within 1 Year $ Fixed Interest Rate Within 1-5 Years $ Non-Interest Bearing $ Total $ Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Borrowings Total financial liabilities Net Financial Assets/(Liabilities) 1.33% 2,025,071 - 65,554 - 2,025,071 65,554 7.5% - (324,614) (324,614) - - - 1,700,457 65,554 - - - - - - - - 258,842 2,090,625 258,842 258,842 2,349,467 (673,020) - (673,020) (673,020) (324,614) (997,634) (414,178) 1,351,833 2018 Weighte d Average Interest Rate 1.05% 7.22% Floating Interest Rate $ Fixed Interest Rate Within 1 Year $ Fixed Interest Rate Within 1-5 Years $ Non-Interest Bearing $ Total $ 1,875,431 - 1,875,431 - (425,641) (425,641) 1,449,790 - - - - - - - - - - - - - - - 248,353 1,875,431 248,353 248,353 2,123,784 (616,825) - (616,825) (616,825) (425,641) (1,042,466) (368,472) 1,081,318 Financial Assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Borrowings Total financial liabilities Net Financial Assets/(Liabilities) - 43 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 17 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.) Interest rate sensitivity analysis At 30 June 2019 if interest rates had changed by 100 basis points during the entire year with all other variables held constant, profit for the year and equity would have been $17,004 (2018: $ $38,411) lower/higher, mainly as a result of lower/higher interest income from cash and cash equivalents. Based on the sensitivity analysis only interest revenue from variable rate deposits and cash balances are impacted resulting in a decrease or increase in overall income. Liquidity risk The Group manages liquidity risk by maintaining sufficient cash reserves and marketable securities and through the continuous monitoring of budgeted and actual cash flows. Contracted maturities Payables - within 1 year Borrowings - within 1 year Price risk The Group is not exposed to price risk. Foreign exchange risk CONSOLIDATED 2019 $ 2018 $ 673,020 616,825 143,384 424,634 The Group is exposed to foreign exchange rate arising from various currency exposures. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Group’s functional currency. The Group’s exposure to foreign currency risk at the reporting date was as follows: Trade receivables Trade payables USD $ 132,492 21,998 2019 EUR $ NZD $ USD $ 2018 EUR $ GBP $ - - - - 110,335 23,491 - - - - - 44 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 17 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Cont.) Foreign currency risk sensitivity analysis At 30 June, the effect on profit and equity as a result of changes in the value of the Australian Dollar to the foreign currencies, with all other variables remaining constant is as follows: 2019 Change in profit and equity with a +/- 10% in AUD to EUR $ NZD $ USD $ 2018 Change in profit and equity with a +/- 10% in AUD to USD $ EUR $ GBP $ - - Trade receivables Trade payables 12,646 2,099 - - - - 10,532 2,242 - - Net fair values For assets and other liabilities the net fair value approximates their carrying value. The Group has no financial assets where the carrying amount exceeds net fair values at reporting date. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of comprehensive income and in the notes to the financial statements. 18 INVESTMENT IN CONTROLLED ENTITIES Parent Entity: PharmAust Limited Name of Controlled Entity: Epichem Pty Ltd Pitney Pharmaceuticals Pty Ltd COUNTRY OF CORPORATION CLASS OF SHARES EQUITY HOLDING 2019 % EQUITY HOLDING 2018 % Australia - Australia Australia Ordinary Ordinary - 100 100 - 100 100 - 45 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 19 NOTES TO THE STATEMENT OF CASH FLOWS 19a Reconciliation of Cash Cash at bank 19b Reconciliation of net cash used in operating activities to loss after income tax CONSOLIDATED 2019 $ 2018 $ 2,090,625 1,875,431 Loss after income tax (1,551,222) (2,521,679) Loss on disposal of fixed assets Depreciation Depreciation capitalised into inventories Share Based Payment Movement in assets and liabilities: Inventory Receivables Other assets Payables Provisions 6,326 172,430 - (148,068) (37,801) (10,489) (6,266) 56,194 (35,110) - 118,605 4,348 978,164 (87,243) (24,190) (20,222) 254,950 (253,530) Net cash used in operating activities (1,554,006) (1,550,797) 19c Non-cash Financing and Investing Activities There were no non-cash financing and investing activities during the year (2018: $nil). - 46 - For personal use only 2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 20 SHARE-BASED PAYMENTS The Company has recognised the following amounts as expenses relating to share-based payments for the year. Share-based payments to KMP – options Share-based payments to non-KMP – options Share-based payments to KMP – performance rights Total Share-based payments to KMP – options 2019 $ - - - - 2018 $ 729,963 121,310 126,890 978,164 During 2019, there was no share-based payments expense recognised as there were no options granted to KMP during the year and the valuation for all those previously granted had been fully recognised through expense as at 30 June 2018. During 2018, share-based payments expense was recognised for options granted to KMP as follows: Name Richard Hopkins Grant Date 31-May-17 Expiry Date 31-Mar-20 Exercise Price $0.08 Richard Hopkins 31-May-17 31-Mar-20 Richard Hopkins 31-May-17 31-Mar-20 Richard Mollard Richard Mollard Richard Mollard 06-Jun-17 06-Jun-17 06-Jun-17 31-Mar-20 31-Mar-20 31-Mar-20 John Horton 31-Aug-17 30-Aug-20 Rebecca McCrackan 31-Aug-17 30-Aug-20 Wayne Best 26-Feb-18 31-Dec-20 $0.15 $0.23 $0.08 $0.15 $0.23 $0.08 $0.08 $0.07 Number Expense 1,875,000 3,750,000 4,500,000 1,875,000 3,750,000 4,500,000 250,000 250,000 83,520 128,953 126,072 83,938 129,195 126,009 8,789 8,789 1,250,000 34,698 729,963 Share-based payments to non-KMP – options During 2019, there was no share-based payments expense recognised as there were no options granted to non-KMP during the year and the valuation for all those previously granted had been fully recognised through expense as at 30 June 2018. During 2018, share-based payments expense was recognised for options granted to non-KMP as follows: Name Employees Consultants Grant Date 31-Aug-17 Expiry Date 30-Aug-20 Exercise Price $0.08 16-Mar-18 16-Mar-22 $0.12 Number Expense 3,250,000 10,000,000 114,260 7,050 121,310 - 47 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 20 SHARE-BASED PAYMENTS (Cont'd) The fair values of the options granted in 2018 were calculated using the Black-Scholes option pricing model applying the following inputs: Name John Horton Rebecca McCrackan Wayne Best Employees Options 250,000 250,000 1,250,000 3,250,000 Share Price at Grant Date $0.06 $0.06 $0.06 $0.06 Exercise Price $0.08 $0.08 $0.07 $0.08 Expected Volatility 99% 99% 100% 99% Dividend Yield Risk-free Interest Rate 0% 0% 0% 0% 1.90% 1.90% 1.90% 1.90% Vesting Date 31-Aug-17 31-Aug-17 26-Feb-18 31-Aug-17 Fair Value at Grant Date $0.03 $0.03 $0.03 $0.03 The 10,000,000 Options granted to consultants in 2018 were valued at the fair value of services provided which was determined to be $7,050. The valuation of these options was recognised as share-based payment expense over the related vesting period based on management’s estimate of the number expected to vest resulting from satisfaction of the related other than market performance conditions. Share-based payments to KMP – Performance Rights During 2019, the Class A performance rights vested and were converted resulting from satisfaction of the related vesting conditions. The cumulative expense recognised in the share-based payment reserve for the grant of these performance rights was reversed to issued capital. The Class B and Class C performance rights lapsed resulting from the lack of satisfaction of the related other than market performance conditions. The cumulative expense recognised in the share-based payment reserve for the grant of these performances rights was reversed and recognised within profit and loss as an offset to administration expenses. During 2018, share-based payments expense was recognised for performance rights granted to KMP as follows: Name Richard Hopkins Richard Hopkins Richard Hopkins Name Richard Mollard Richard Mollard Richard Mollard Total Class Class A Class B Class C Class Class A Class B Class C No of rights 625,000 1,250,000 1,500,000 Grant Date 31/05/2017 31/05/2017 31/05/2017 No of rights 625,000 1,250,000 1,500,000 Grant Date 06/06/2017 06/06/2017 06/06/2017 Share Price 0.08 0.08 0.08 Share Price 0.079 0.079 0.079 Expense 46,187 15,109 1,522 62,818 Expense 46,201 15,880 1,991 64,072 126,890 The valuation of these performance rights was recognised as share-based payment expense over the related vesting period based on management’s estimate of the number expected to vest resulting from satisfaction of the related other than market performance conditions. - 48 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 21 KEY MANAGEMENT PERSONNEL 21a Remuneration of Key Management Personnel Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the consolidated entity’s key management personnel for the year ended 30 June 2019 and 30 June 2018. The totals of remuneration paid to key management personnel of the consolidated entity during the year are as follows: Short term employee benefits Post-employment benefits Share based payment CONSOLIDATED 2019 $ 2018 $ 868,888 54,319 - 923,207 1,127,512 95,144 856,853 2,079,509 CONSOLIDATED 2019 $ 2018 $ 22 COMMITMENTS Office lease commitments Non-cancellable operating leases contracted for but not recognised in the financial statements: Payable – minimum lease payments - Not later than 12 months - Between 12 months and 5 years - Later than 5 years Minimum lease payments 162,685 650,741 163,589 977,015 162,685 650,741 328,534 1,141,960 - 49 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 23 SEGMENT REPORTING Segment Information Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. Descriptions of segments i. ii. Corporate The corporate segment covers all the corporate overhead expenses. Pharmaceutical The pharmaceutical segment provides products and services in synthetic and medicinal chemistry to the drug discovery and pharmaceutical industries. Basis of accounting for purposes of reporting by operating segments a. Accounting policies adopted All amounts reported to the Directors, being the chief decision makers with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in these financial statements. b. Intersegment transactions There are intersegment sales and purchase within the consolidated entity. Intersegment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. c. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives majority economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. d. Segment liabilities Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. - 50 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 23 SEGMENT REPORTING(Cont'd) The consolidated entity operates in three business segments as disclosed below: i) Segment Performance Consolidated 2019 Revenue External sales Other external revenue Inter-segment revenue Total segment revenue Inter-segment elimination Total revenue per statement of comprehensive income Results Segment result from continuing operations before tax Consolidated 2018 Revenue External sales Other external revenue Inter-segment revenue Total segment revenue Inter-segment elimination Total revenue per statement of comprehensive income Results Segment result from continuing operations before tax Corporate Pharmaceutical $ $ Total $ - 652,079 - 652,079 3,670,457 42,018 - 3,712,475 3,670,457 694,097 - 4,364,554 - 4,364,554 (1,936,221) 384,999 (1,551,222) Corporate Pharmaceutical $ $ Total $ - 388,720 - 388,720 2,890,057 17,127 93,199 3,000,383 2,890,057 405,847 93,199 3,389,103 (93,199) 3,295,904 (2,535,506) 13,827 (2,521,679) - 51 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 23 SEGMENT REPORTING (Cont.) ii) Segment assets and liabilities Consolidated 2019 Segment assets Segment assets Total assets of the consolidated entity: Segment liabilities Segment operating liabilities Total liabilities of the consolidated entity: Consolidated 2018 Segment assets Segment assets Total assets of the consolidated entity: Segment liabilities Segment operating liabilities Total liabilities of the consolidated entity: ii) Revenue by geographical region Corporate $ Pharmaceutical $ Total $ 1,974,139 1,974,139 6,621,578 6,621,578 8,595,717 8,595,717 (327,419) (327,419) (812,418) (1,139,837) (812,418) (1,139,837) Corporate $ Pharmaceutical $ Total $ 1,849,919 1,849,919 6,508,078 6,508,078 8,357,997 8,357,997 (137,732) (137,732) (1,082,047) (1,219,779) (1,082,047) (1,219,779) Revenue by geographical region Revenue attributable to external customers is disclosed below, based on the location of the external customer: Switzerland Australia USA Others Total revenue Assets by geographical region The location of segment assets by geographical location of the assets is disclosed below: Australia Total assets Major customers CONSOLIDATED 2019 $ 2018 $ 1,274,180 1,431,837 1,452,066 206,471 4,364,554 1,336,080 462,760 - 1,497,064 3,295,904 8,595,717 8,595,717 8,357,997 8,357,997 The consolidated entity has a number or customers to which it provides both products and services. The consolidated entity supplies a single external customer within the pharmaceutical segment who accounts for 35% of external revenue (2018: 46%). The next most significant customer accounts for 34% (2018: 27%). - 52 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 24 CONTINGENT LIABILITIES The consolidated entity has no contingent liabilities as at 30 June 2019. 25 PARENT INFORMATION Statement of Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non -current liabilities Total liabilities Equity Issued capital Reserves Accumulated losses Total equity Statement of comprehensive income (Loss) for the year Other comprehensive income Total comprehensive loss for the year Guarantees 2019 $ 2018 $ 3,395,759 3,439,990 6,835,749 5,287,267 1,424,861 6,712,128 561,482 - 561,482 137,731 234,063 371,794 51,388,306 1,907,392 (47,023,431) 6,272,267 49,371,354 2,055,460 (45,086,480) 6,340,334 (1,935,951) - (1,935,951) (2,535,506) - (2,535,506) PharmAust Limited is a guarantor of a debt facility for its fully owned subsidiary Epichem during the year as disclosed in Note 11. Other Commitments and Contingencies PharmAust Limited has no commitments to acquire property, plant and equipment and has no contingent liabilities other than those disclosed in Note 24. CONSOLIDATED 2019 $ 2018 $ 26 ACCUMULATED LOSSES Accumulated losses at beginning of the financial year (Loss)after income tax for the year Accumulated losses at the end of the financial year (44,288,596) (1,551,022) (45,839,618) (41,766,917) (2,521,679) (44,288,596) 27 EVENTS AFTER THE REPORTING PERIOD On 26 July 2019, the Company issued 1,000,000 unlisted options to corporate advisors. These options have an exercise price of $0.065 and expire on 30 June 2022. On 28 August 2019, the Company issued 500,000 unlisted options to corporate advisors. These options have an exercise price of $0.150 and expire on 30 June 2022. On 17 September 2019, the Company issued 750,000 fully paid ordinary shares on the exercise of unlisted options. These options had an exercise price of $0.065 per option which raised $48,750 for the Company. No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years. 28 AUDITOR’S REMUNERATION Remuneration of RSM Australia Partners as auditor for: - auditing or reviewing the financial report - taxation services - 53 - 67,000 15,500 82,500 67,000 15,500 82,500 For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2019 29 NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY ADOPTED Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2017. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group has not yet finalised its assessment of the impact of the adoption of this standard as at the date this report. - 54 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities Additional information required by the Australian Stock Exchange Limited Listing Rules, and not disclosed elsewhere in this report. SHAREHOLDINGS SHAREHOLDER INFORMATION At the date of this report two shareholders had lodged substantial shareholder notices with the Company. a) Mr Graham Darcy is a substantial shareholder holding a relevant interest in 21,155,000 shares representing 7.53% of voting power. b) Dr Roger Aston is a substantial shareholder holding a relevant interest in 15,044,815 shares representing 5.35% of voting power. CLASS OF SHARES AND VOTING RIGHTS The voting rights attached to the Fully Paid Ordinary shares of the Company are: (a) at a meeting of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney; and (b) on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share held. There are no voting rights attached to any Options on issue. ORDINARY FULLY PAID SHARES as at 18 September 2019 There is no current on-market buy back taking place. During the reporting period the Company used its cash and assets in a manner consistent with its business objectives. - 55 - For personal use only2019 ANNUAL REPORT AND STATUTORY FINANCIAL STATEMENTS PharmAust Limited and its Controlled Entities TWENTY LARGEST SHAREHOLDERS (as at 18 September 2019) - 56 - For personal use only

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