Respiri Limited Annual Report 2020

Plain-text annual report

A N N U A L R E P O R T 2 0 2 0 RESPIRI LIMITED Respiri Limited ABN 98 009 234 173 ANNUAL REPORT 2020 1 VisionA world without the challenges of asthma.2 RESPIRI LIMITED Mission To improve asthma management by extending care beyond the clinic. Values We act with Integrity We are Respectful We are Accountable We are One Team We are Innovative ANNUAL REPORT 2020 3 Chairman & CEO Update Dear Fellow Shareholders, On behalf of the Board of Directors of Respiri Limited, we are proud to present the company’s Annual Report for the year ending 30 June 2020. Respiri has achieved significant commercial and technical progress over the past year as we near launch of our wheezo device. It has been a re-set year and a very important one at that. The Company has made significant inroads during the year re- setting strategy and operations on a firm and clear footing. Manufacturing processes have been streamlined, significant commercial partnerships have been established and the team has been bolstered with additional skilled resources. A number of cost saving exercises have also been implemented. The outcome of all these initiatives is that the company is now not only a much leaner organisation but also a significantly more focused one. The focus has been shifted from a number of disparate research and marketing activities to a much narrower focus on patient trials, technical development and commercialisation. We can confirm that the Company remains very much on track to launch wheezo™ in October 2020. Costs have been kept within reduced budget while product development and further commercial partnerships were executed. Operational achievements Further detail on some of the key achievements during the latter part of the year are outlined below. Manufacturing – The balance of initial batch of 500 units was delivered by Respiri’s manufacturing partner, SRX. These devices have been deployed in the Patient Experiential Program PEP. Following the completion of this initial batch the Company has been able to identify a number of opportunities to improve the overall manufacturing process including device design modifications and reduced labour component – both of which will lead to significant savings in manufacturing costs. Management remain focused on delivering strong gross margins on the devise and further reductions in Cost of Goods Sold (COGS) are anticipated. The second batch of 3,000 units is due to be delivered in October. With 2,000 already sold to our sales and distribution partner, Cipla. The Patient Experiential Program (PEP) – With the support of Australian Patients Association supported by HealthEngine the Company is delighted by the strong support from patients to enrol in this important real-world study. This PEP will validate and support the Company’s product development with critical user feedback on asthma management from beyond the clinic with the data captured to provide important insights into how asthma suffers can benefit from the introduction of wheezo™ into their management plans. Development of the PEP was finalised during the year and, as at the date of this update, a total of 260 patients have already registered for this program. The Company expects to announce the commencement of this program this month. 4 RESPIRI LIMITED Clinical study results – The outcomes of the stethoscope study were also announced in August 2020. The results were particularly promising, demonstrating that wheezo™ detected wheeze in patients with respiratory conditions. The detection of wheeze at such high levels of sensitivity and specificity as shown by our latest algorithm when benchmarked against a physical assessment undertaken by a trained clinician using a stethoscope, highlights the potential of our device to provide accurate, real-time measurements of wheeze in patients outside of the clinical setting where monitoring of the disease is paramount. Given this significant advance in algorithm accuracy, we are currently in the process of filing a Patent Cooperation Treaty (PCT) to protect our company asset.” The study also demonstrated the subjective nature of physician rating wheeze severity. Study investigators have developed a novel approach to minimising this subjectivity by visually and audibly objectively scoring the breathing recordings. Although more work is required with this approach, (a similar approach is used in the standardised assessment of sleep apnea diagnostics tests) this could provide a standardisation of wheeze severity measurement which is lacking today. A clinical development road map is already in development to accelerate the refinement of wheeze scoring. “We remain committed to delivering on the promise of the Company. We are very confident that with the improved team and the sharper management focus that the Company will continue to reach its milestones.” App development – Respiri’s new IT partner has completed a seamless handover from the previous provider and the wheezo™ app version 2.0. Software development costs are ahead of schedule and well within budget. The company has also started the important process of insourcing this critical function. Data protection – Towards the end of the year the Company migrated all data management and data storage in house. This addressed key risk identified by the board around data protection and staff are and already reaping the benefits of having this key resource at hand. Commercial Partnerships – The Company continued to explore further commercial partnerships in the key pharmacy channel for wheezo® in Australia and overseas. In April, the Company announced a Joint Development Agreement (JDA) with Phenix Health Pty Ltd (Phenix), an Australian based health workflow designer for virtual healthcare settings (telemedicine). In June, Respiri executed an agreement to partner with the University of Edinburgh in a new data research centre to help improve the lives of people living with respiratory conditions. Known as BREATHe – Health Data Research Hub for Respiratory Health is led by the University of Edinburgh’s Professor Aziz Sheikh. The centre will use data, such as that collected by the wheezo® ecosystem, for the development of innovations in the delivery of care for people with asthma, chronic obstructive pulmonary disease and respiratory infections. Also in June, a definitive service agreement with The Pharmacy Guild of Australia, the national body representing over 5,700 community pharmacies across the country was executed. The two year agreement with Guild Learning and Development (GuildEd), the learning destination for all pharmacists, pharmacy assistants and interns Australia wide will see the joint development of a Guild accredited Continuing Professional Development (CPD) online training course for pharmacists on optimising asthma patient management, in particular children, including the role of devices in detecting wheeze. Pharmacists are an important intermediary between an asthmatic patient and their doctor and who already sell a range of asthmatic devices within the pharmacy setting and are therefore critical in building sales momentum within this channel over time. In July the Company announced the execution of an Exclusive International Sales Agreement with Cipla. This was a watershed moment for the Company, an achievement of which the directors were particularly proud and one that is pivotal in the global commercialisation plan. Further details of this agreement are outlined below. In August, the Company announced the execution of a definitive Product Referral Agreement (PRA) with the Australian Patients Association (APA). APA is an independent body dedicated to supporting patients and championing and protecting the rights and interest of all Australian patients and are connected with 1,100,000 Australian patients and 15,000 Health Care Practitioners. This Agreement followed the earlier announcement of a partnership between Respiri and the APA to support patients living with asthma through Respiri’s wheezo™ Experiential Program, a real-world asthma management study designed to support patients living with asthma. Under the terms of the PRA, the APA has been appointed by Respiri on a non-exclusive basis to provide patient referrals to Respiri, harnessing the APA customer network, database and referral codes once wheezo™ is launched in October. In exchange for referrals directly attributable to APA, Respiri will pay APA a small commission on device sales ANNUAL REPORT 2020 5 Shareholders We would like to thank all shareholders for their continued support of the company. The board was pleased with the response to our two most recently capital raisings being the Private Placement of $2.0m (that was completed in March 2020) and the $3.1m Share Purchase Plan (that was completed in May 2020, after being heavily oversubscribed). The Company has also completed a long overdue clean-up of unmarketable holdings. Not only does this allow the Company to achieve significant savings in registry costs in the future but the UMP Facility also gave many Minority Holders the opportunity to sell their less than marketable holdings without incurring any brokerage fees. We remain committed to delivering on the promise of the Company. We are very confident that with the improved team and the sharper management focus that the Company will continue to reach its milestones. The launch of wheezo™ in October this year will be another watershed moment. Thank you for the trust that you have placed in us and the commitment that you continue to show the Company. Nicholas Smedley Executive Chairman Marjan Mikel CEO and Managing Director Cipla Agreement – In July Respiri signed an exclusive five- year International Pharmacy Sales/Marketing, Distribution & Logistics Agreement with Cipla Australia for wheezo™. Initial markets being Australia and New Zealand with a first right of refusal for Cipla Australia to distribute into other key markets . Initial orders are being placed for delivery in October 2020. Cipla is a globally recognised, leading pharmaceutical company with a specialty focus in respiratory medicine. Cipla Australia possesses significant sales and marketing infrastructure covering over 80% of the pharmacy market in Australia. Established in 1935, Cipla Limited is a global pharmaceutical company focused on responsible and sustainable growth through deep and wide portfolio and strong patient relationships across their home markets of India, South Africa, US, Europe, Australia and other key regulated and emerging markets. Cipla Limited has the one of the world’s largest range of inhaled medication and devices for respiratory disease and manufactures more than 100 million inhalers annually. Cipla’s respiratory products are exported to more than 100 countries – every minute someone somewhere is using a form of Cipla medication or a delivery system. Cipla Australia, based in Melbourne, has grown to become a leading integrated generics and ethical pharmaceuticals supplier, marketer and distributor in Australia. Cipla Australia has more than 200 products listed with the TGA. Staff – The Respiri team has been enhanced by the appointment 4 critical hires. Philippe Ludekens joined Respiri in January 2020 as General Manager, Commercial. Philippe has a 25+ year career in life sciences, specifically in the pharmaceutical industry, having worked with multiple organisations of varying sizes, cultures & therapeutic interests. Philippe has a strong commercial background in sales, key account management, marketing and most recently as commercial operations Senior Director at Gilead Sciences based in Australia. Peter Hildebrandt joined Respiri in January 2020 as Operations Manager. An MBA-educated internationally experienced business leader with an understanding of large corporations, SME and start-ups. Track record of building and growing innovative B2B technology businesses across a range of industrial applications and the key driver behind wheezo™ manufacturing improvements. Khurshida (Kush) Ajam joins Respiri as Senior Manager, Commercial & will be based in Sydney. Kush (BA. M. Com) is an executive with commercial experience spanning over 20 years in many well-known Pharmaceuticals, Healthcare and Biotechnology companies. More recently, Kush has been in consulting roles with MSD, Amgen & Novartis Oncology. Elizabeth Davis, a nursing professional who will oversee the patient experiential program (PEP). Elizabeth has worked extensively in program development both in the UK & Australia & her clinical experience includes both paediatrics & primary care. We thank both Kush and Elizabeth for their work to date. They have made significant contributions already and are working well with the rest of the team even with the restrictions that the current lockdown in Victoria imposes on meetings and collaboration. 6 Financial Statements Respiri Limited ABN 98 009 234 173 Contents For the Year Ended 30 June 2020 Financial Statements Directors' Report Auditor's Independence Declaration under Section 307C of the Corporations Act 2001 Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Audit Report Page 7 27 28 29 30 32 33 68 69 RESPIRI LIMITED7 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 The Directors of Respiri Limited ("RSH", "Respiri", or "the Group") submit herewith the annual financial report of the Group for the financial year ended 30 June 2020. In order to comply with the Corporations Act 2001, the Directors' Report are as follows: Directors The names of each person who has been a director during the year and to the date of this report are: Mr Nicholas Smedley Appointed to the Board Last elected by Shareholders N/A Experience Executive Chairman 30 October 2019 Nicholas is an experienced Investment Banker and M&A Advisor, with 14 years’ experience at UBS and KPMG. He has worked on M&A transactions in the UK, Hong Kong, China, and Australia with transactions ranging from the A$9bn defence of WMC Resources through to the investment of $65m into Catch.com.au. Nicholas currently oversees investments in the Property, Aged care, Technology and Medical Technology space. Key areas of expertise include M&A, Debt structuring, Corporate governance and innovation. Qualifications Interest in shares and options 15,226,609 Ordinary Shares and 47,500,000 Unlisted Options Directorships held in other listed entities AD1 Holdings Limited B.Com Mr Marjan Mikel Appointed to the Board Last elected by Shareholders Experience CEO and Executive Director 25 November 2019 N/A Marjan is a highly experienced managing director and board member with a career spanning Australia, Europe and Japan, Marjan’s focus has been in the healthcare industry; from pharmaceuticals and information services and technology to medical devices and sleep disorder solutions. He founded and subsequently sold Healthy Sleep Solutions after developing it into Australia’s largest provider of home based sleep diagnostic and treatment services, with Resmed Ltd as a joint venture/shareholder partner. Marjan has held a number of Board and advisory roles in public and private companies in the areas of healthcare, SaaS and medical devices. Qualifications Interest in shares and options 2,643,119 Ordinary Shares and 60,000,000 Unlisted Options Directorships held in other listed entities Memphasys Ltd (resigned February 2020) BSc(Hons), Grad Dip Ed, MCom; MAICD ANNUAL REPORT 20208 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Directors (continued) Dr Thomas Duthy Appointed to the Board Last elected by Shareholders N/A Experience Non-Executive Director 11 February 2020 Dr Duthy has over 15 years of direct financial markets experience having worked in sell-side equity research, and senior executive roles across investor relations and corporate development. Dr Duthy is the Founder and CEO of Nemean Group Pty Ltd, a boutique corporate advisory and investor relations firm specialising in delivering value-added services across the life sciences, medical devices, healthcare, technology and emerging companies sectors. Prior to establishing Nemean in October 2018, Tom was the Global Head of Investor Relations & Corporate Development at Sirtex Medical Limited (ASX:SRX), which was sold to CDH Investments in September 2018 for A$1.9 billion, which remains the largest medical device transaction in Australian corporate history. Prior to Sirtex, Tom spent ten years as a leading sell-side Healthcare & Biotechnology analyst at Taylor Collison Limited, focused mainly on small cap companies. During this time, approximately $200 million in equity capital was raised for selected portfolio companies. He is a Member of the Australian Institute of Company Directors (MAICD) and the Australasian Investor Relations Association (AIRA). B.Sc. (Hons.), Ph.D, MBA Qualifications Interest in shares and options 745,454 Ordinary Shares and 25,000,000 Unlisted Options Directorships held in other listed entities N/A Mr Mario Gattino Appointed to the Board Resigned from the Board Qualifications CEO and Executive Director 14 December 2017 25 November 2019 MBA, Bachelor of Applied Science (Medical Administration), Graduate Diploma in Management. GAICD Mr Ross Blair-Holt Appointed to the Board Resigned from the Board Qualifications Non-Executive Chairman 27 November 2018 15 November 2019 Bachelor of Commerce, a Fellow of Certified Practising Accountants (FCPA) Professor Bruce Thompson Appointed to the Board Resigned from the Board Qualifications Non-Executive Director 27 November 2018 11 February 2020 B.app.Sci, CRFS, FANZSRS, FThorSoc, FAPSR, PhD Company secretary Mr Alastair Beard was appointed as Company Secretary on 13 March 2019. Mr Beard is a skillful and adaptable Certified Practicing Accountant with diverse private and public company experience including roles as director or Chief Financial Officer in the property, utilities, aquaculture and research-to-commercialisation industries. RESPIRI LIMITED9 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Principal Activities The Company’s principal activities in the course of the financial year have been the research, development and commercialisation of medical devices, and the development of mobile health applications. There were no significant changes in the nature of the Group's principal activities during the financial year. Operating and Financial review The loss of the Company after income tax for the financial year was $7,260,935 (2019: $8,474,586). This result has been achieved after fully expensing all research and development costs. The Company remains on track to launch wheezoTM by the end of this calendar year and continued to make good progress in all other areas. Costs have been kept below budget while product development and further commercial partnerships were executed. Manufacturing - The balance of initial batch of 500 units was delivered by Respiri's manufacturing partner. Following the completion of the first batch of 500 units the Company has been able to identify a number of opportunities to improve the overall manufacturing process including device design modifications and reduced labour component - both of which will lead to significant savings in manufacturing costs. Management remain focused on the gross margins and further reductions in Cost of Goods Sold (COGS) are anticipated. The Patient Experiential Program (PEP) - Several partners, including Phenix and Instant Consult telehealth providers have been working with the Company to assist with the recruitment of patients into this important real-world study. This PEP will validate and support the Company's product development, with critical user feedback on asthma management from beyond the clinic. Development of the PEP has been finalised and the Company expects to announce its commencement later in the September 2020 quarter. The initial batch of 500 wheezos will be deployed in the PEP. The objective is to recruit 100 Health Care Professionals and 300 patients. App development - Respiri's new IT partner has accepted a seamless handover from the previous provider in this area and good progress is being made on the wheezo app version 2.0. Software development costs are ahead of schedule and well within budget. Data protection - During the quarter the Company migrated all data management and data storage in house. This addressed key risk identified by the board around data protection and staff are and already reaping the benefits of having this key resource at hand. Commercial Partnerships - The Company continued to explore further commercial partnerships in the key pharmacy channel for wheezo in Australia and overseas. Work done in the June quarter culminated in the execution of an Exclusive International Sales Agreement with Cipla which was announced on 17 July 2020. This was a watershed moment for the Company, an achievement of which the directors were particularly proud and one that is pivotal in the global commercialisation plan. In June, Respiri executed an agreement to partner with the University of Edinburgh in a new data research centre to help improve the lives of people living with respiratory conditions. Known as BREATHe - Health Data Research Hub for Respiratory Health is led by the University of Edinburgh's Professor Aziz Sheikh. The centre will use data, such as that collected by the wheezo ecosystem, for the development of innovations in the delivery of care for people with asthma, chronic obstructive pulmonary disease and respiratory infections. Also in June, a definitive service agreement with The Pharmacy Guild of Australia, the national body representing over 5,700 community pharmacies across the country was executed. The two year agreement with Guild Learning and Development (GuildEd), the learning destination for all pharmacists, pharmacy assistants and interns Australia wide will see the joint development of a Guild accredited Continuing Professional Development (CPD) online training course for pharmacists on optimising asthma patient management, in particular children, including the role of devices in detecting wheeze. Pharmacists are an important intermediary between an asthmatic patient and their doctor and who already sell a range of asthmatic devices within the pharmacy setting and are therefore critical in building sales momentum within this channel over time. ANNUAL REPORT 202010 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Operating and Financial review (continued) In April, the Company announced a Joint Development Agreement (JDA) with Phenix Health Pty Ltd (Phenix), an Australian based health workflow designer for virtual healthcare settings (telemedicine). Under the Agreement, the wheezoeHealth Saas monitoring platform is integrated into the Phenix proprietary telehealth platform, patient dashboards and asthma management plans. Phenix will be responsible for providing patients already diagnosed with asthma the option of using wheezo to help monitor their condition and so providing healthcare beyond the clinic setting. The Agreement recognises the growing importance of telemedicine in patient care under COVID-19 conditions, and more importantly the structural tailwinds for such consultations post pandemic, particularly for respiratory patients like asthmatics. Staff - The Respiri team has been enhanced by the appointment 2 critical hires. Khurshida Ajam joins Respiri as Senior Manager, Commercial & will be based in Sydney. Kush (BA. M. Com) is an executive with commercial experience spanning over 20 years in many well-known Pharmaceuticals, Healthcare and Biotechnology companies. More recently, Kush has been in consulting roles with MSD, Amgen & Novartis Oncology. Elizabeth Davis, a nursing professional who will oversee the patient experiential program (PEP). Elizabeth has worked extensively in program development both in the UK & Australia & her clinical experience includes both paediatrics & primary care. The balance of legacy staff commitments has also been resolved with the execution of the Deed of Release with former CEO and the resolution of outstanding options matters to former directors at the EGM held 26 May 2020. Corporate & Financial Highlights The business continues to preserve cash and remains well capitalised following a successful Placement in March of $2.0m and a significantly oversubscribed Share Purchase Plan (SPP) in April 2020 which raised approximately $3.1m. The $5.lm in total capital raised funds the business through a commercial launch in Australia, which is expected by the end of the current calendar year, and into 2021. Funds raised will be used to progress the key strategic initiatives necessary to achieve this commercial launch, namely product and clinical development; streamlining the manufacturing process & reducing COGS; sales & marketing and additional working capital. Following the very encouraging response from many shareholders to the SPP the Company has implemented an Unmarketable Parcel (UMP) share sale facility. This will lead to further savings in registry costs and ensure that all stakeholders are equally supportive of, and committed to, the future of the Company. The UMP process was completed on 24 July 2020 with 2,208 minority members electing to not opt out of this program. Dividends The Company did not pay any dividends during the financial year. The Directors do not recommend the payment of a dividend in respect of the 2020 financial year. Significant Changes in State of Affairs In the opinion of the Directors, there were no significant changes in the state of affairs of entities in the Group during the financial year under review not otherwise disclosed in the Annual Report. RESPIRI LIMITED11 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Matters Subsequent to Reporting Period The Victorian Government announced a State of Disaster on the 2 August 2020 and “Stage 4” restrictions were applied to Metro Melbourne. This event does not affect amounts recognised in the 2019/20 financial statements. At this stage, it is not possible to estimate what, if any, affect this will have on the company's financial performance during 2020/21. At the 2020 annual EGM held on 26 May 2020, shareholders approved the issue of 20 million unlisted options to senior management personnel of the Company as an incentive in lieu of cash. These options have a number of performance related vesting conditions attached to them and a value of $117,113 as at 30 June 2020. 14 million of the 20 million options were not formally issued until 21st August 2020 and were held in Trust until this date. Except for the above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. Likely Developments and Expected Results Please refer to the ‘Operating and Financial Review’ section at the start of the Directors’ Report for information in relation to Company’s future Developments and Events. Environmental Regulations The Group's operations are not regulated by any significant environmental regulations under either Commonwealth or State legislation. Risk Management The Board is responsible for overseeing the establishment and implementation of the risk management system, and for the reviewing and assessing the effectiveness of the Company's implementation of that system on a regular basis. The Board and senior management continue to identify the general areas of risk and their impact on the activities of the Company. The potential risk areas for the Company include:       Reliance on key personnel efficacy, safety and regulatory risk of medical devices financial position of the Company and the financial outlook; domestic and global economic outlook and share market activity; changing government policy (Australian and overseas); competitors' products and research and development programs;  market demand and market prices for medical device technologies;    environmental regulations; ethical issues relating to medical device research and development; the status of partnership and contractor relationships; ANNUAL REPORT 202012 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Risk Management (continued)   other government regulations including those specifically relating to the biomedical and health industries; and occupational health and safety and equal opportunity law. The above list of risk areas ought not to be taken as an exhaustive one of the risks faced by the Company or by investors in the Company. The above areas, and others not specifically referred to above, may in the future materially affect the financial performance of the Company. The Board and Management will continue to perform a regular review of the following:     the major risks that occur within the business; the degree of risk involved; the current approach to managing the risk; and where appropriate, determine:   any inadequacies of the current approach; and possible new approaches that more efficiently and effectively address the risk. Healthcare Technology Companies – Inherent Risks Some of the risks inherent in the development of medical device products to a marketable stage include the uncertainty of patent protection and proprietary rights, whether patent applications and issued patents will offer adequate protection to enable product development or may infringe intellectual property rights of other parties, the obtaining of the necessary regulatory authority approvals and difficulties caused by the rapid advancements in technology. Also a particular medical device may fail the clinical development process through lack of efficacy or safety. Companies such as Respiri Limited are dependent on the success of their medical devices and on the ability to attract funding to support these activities. Investment in healthcare technology including medical devices cannot be assessed on the same fundamentals as trading and manufacturing enterprises and thus investment in these areas must be regarded as speculative taking into account these considerations. This Report may contain forward-looking statements regarding the potential of the Company’s projects and interests, and the development of the Company’s projects and interests, and the development potential of the Company’s research and development projects. Any statement describing a goal, expectation, intention or belief of the Company is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercialising medical devices that are safe and effective for use as human devices and the financing of such activities. There is no guarantee that the Company’s healthcare technology including medical devices will be successful, or receive regulatory approvals, or prove to be commercially successful in the future. Actual results could differ from those projected, or detailed in this report. RESPIRI LIMITED13 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Healthcare Technology Companies – Inherent Risks (continued) As a result, you are cautioned not to rely on forward-looking statements. Consideration should be given to these, and other risks concerning the Company’s research and development program referred to in this Directors’ Report as contained in this Financial Report for the year ended 30 June 2020. Meetings of Directors A number of formal meetings and circular resolutions were held during the year as tabled below: Directors' Meetings Audit, Risk and Compliance Committee Remuneration & Nomination Committee Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Mr Mario Gattino Mr Ross Blair-Holt Professor Bruce Thompson Mr Nicholas Smedley Mr Marjan Mikel Dr Thomas Duthy 11 11 14 10 9 6 9 11 11 10 9 6 - - - - - - - - - - - - 1 1 1 - - - 1 1 1 - - - For the date of appointment and resignation of each Director and Executive, please refer to the Remuneration Report section of the Directors’ Report. Indemnification of Officers and Auditors During the financial year, the Company maintained an insurance policy to indemnify Directors and Officers against certain liabilities incurred as such a Director or Officer, including costs and expenses associated in successfully defending legal proceedings. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify the Auditor of the Company or any related body corporate against a liability incurred as such an Officer or Auditor. Proceedings on Behalf of the Company No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non-audit Services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Company and/or the Group are important. During the year ended 30 June 2020 the Company did not engage the external auditor to provide non-audit services. Auditor's Independence Declaration The auditor's independence declaration in accordance with section 307C of the Corporations Act 2001 for the year ended 30 June 2020 has been received and can be found on page 21 of the financial report. ANNUAL REPORT 202014 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Share Options on Issue as at the Date of this Report The unissued ordinary shares of Respiri Limited under option as at the date of this report were: Unlisted options Class ASX Code Date of Expiry RSHAF RSHAG 31 December 2023 31 December 2024 Exercise Price $ 0.03 0.03 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 RSHAW 21 December 2020 0.12 28 May 2023 12 June 2024 1 July 2022 1 July 2024 RSHAA RSHAB RSHACi RSHACii RSHACiii RSHACiv RSHAD RSHAE RSHAH tba tba 0.10 0.10 0.20 0.30 0.40 0.60 0.10 0.10 0.10 0.20 0.30 No. under Option 6,000,000 6,000,000 5,000,000 5,000,000 65,000,000 (b) 30,000,000 (b) 12,500,000 (b) 12,500,000 (b) 12,500,000 (b) 7,000,000 10,000,000 6,000,000 (a) 8,000,000 (a) 6,000,000 (a) a) Options granted at EGM held in May 2020. Issued in 3 tranches with different vesting conditions. Of the 3 tranches, 2 have not yet been allotted to members. See Note 24. b) Issued in 5 tranches with different vesting conditions. See Note 24. There were no listed options outstanding at the reporting date. Corporate Governance In recognising the need for the highest standards of corporate behaviours and accountability, the Directors of Respiri support and adhere to good corporate governance practices. The Company’s Corporate Governance Statement is available on the Company’s website at www.Respiri.co. Remuneration Report (Audited) This Remuneration Report outlines the Director and Executive remuneration arrangements of the Company as required by the Corporations Act 2001 and its Regulations. This report details the nature and amount of remuneration of each Director of Respiri Limited and all other Key Management Personnel. For the purposes of this report, Key Management Personnel (KMP) are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. For the purposes of this report, the term 'executive' encompasses the Executive Chairman. RESPIRI LIMITED15 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) Names Directors Mr Marjan Mikel Mr Nicholas Smedley Dr Thomas Duthy Professor Bruce Thompson Mr Ross Blair-Holt Mr Mario Gattino Other KMP Mr Philippe Ludekens Dr Samaneh Sarraf Shirazi Ms Koswani Wall Remuneration Policy Position Appointment/Resignation CEO Executive Director Non-Execitive Director Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Chairman CEO and Executive Director General Manager - Commercial Operations Chief Research Officer Chief Customer Experience & Communications Officer (CXO) Appointed on 2 December 2019 Appointed on 25 November 2019 Appointed on 30 October 2019 Appointed on 15 November 2019 Appointed on 11 February 2020 Resigned on 10 February 2020 Resigned on 15 November 2019 Resigned on 25 October 2019 Appointed on 28 January 2020 Appointed on 4 February 2019 Resigned on 13 December 2019 Remuneration of all Non-Executive Directors and Officers of the Company is determined by the Board following recommendation by the Remuneration and Nomination Committee. The Company is committed to remunerating Executive Directors in a manner that is market-competitive and consistent with "Best Practice" including the interests of shareholders. Remuneration packages are based on fixed and variable components, determined by the Executives' position, experience and performance, and may be satisfied via cash or equity. Non-Executive Directors are remunerated out of the aggregate amount limit approved by shareholders and at a level that is consistent with industry standards. Non-Executive Directors do not receive performance based bonuses and prior Shareholder approval is required to participate in any issue of equity. No retirement benefits are payable other than statutory superannuation, if applicable. Voting and comments made at the Company’s Annual General Meeting The Company did not receive any specific feedback at the EGM or throughout 2019 on its remuneration practices. The Remuneration Report was adopted at the 2019 EGM by more than 85% of eligible votes received. Remuneration Policy Versus Company Financial Performance Directors have been compensated for work undertaken and the responsibilities assumed in being Directors of this publicly listed company based on industry practice. Consistently with good corporate governance practices, compensation of Non-Executive Directors is not linked to specific performance hurdles or objectives. The Company envisages its performance in terms of earnings will remain negative whilst the Company continues in the development and commercialisation phase. Shareholder value reflects the speculative and volatile biotechnology market sector. ANNUAL REPORT 202016 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) This pattern is indicative of the Company's performance over the past five years. Accordingly, no dividends have been paid during the year, or in respect of the 2019 financial year. Financial Year 2020 2019 2018 2017 2016 Performance Based Remuneration Net (Loss)/ Profit Share Price at Balance sheet Date Loss per Share (cents) $ $ $ (7,260,935) (8,474,586) (3,207,220) (2,522,052) (4,010,944) 0.09 0.09 0.10 0.04 0.04 (1.27) (1.69) (0.73) (0.58) (1.34) The purpose of a performance bonus is to reward individual performance in line with Company objectives. Consequently, performance based remuneration is paid to an individual where the individual's performance clearly contributes to a successful outcome for the Company. This is regularly measured in respect of performance against key performance indicators (KPI's). The Company uses a variety of short-term and long-term KPI's to determine achievement, depending on the role of the executive or director being assessed and the particular KPI being targeted. These include:    successful contract negotiations; company share price consistently reaching a targeted rate on the ASX or applicable market over a period of time; and completion of set milestones. The Non-Executive Directors do not receive performance-based remuneration. RESPIRI LIMITED17 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) Details of Remuneration for the Year Ended 30 June 2020 The remuneration for each Director and each of the other Key Management Personnel of the consolidated entity during the year was as follows: Short-term Employee Benefits Post-employment Benefits Share-based payments Cash salary and fees Cash bonus Consulting fees Superannuation contribution Shares/ Options 2020 $ $ $ $ $ $ Directors Mr Marjan Mikel Dr Thomas Duthy Mr Nicholas Smedley Professor Bruce Thompson Mr Mario Gattino Mr Ross Blair-Holt Other KMP Mr Philippe Ludekens Dr Samaneh Sarraf Shirazi Ms Koswani Wall 186,998 25,000 88,978 80,603 262,550 26,250 94,032 164,459 188,528 75,000 - - - - - - - - 1,117,398 75,000 - - - - - - - - - - 24,639 - - 7,657 16,939 2,494 1,293,708 230,207 1,274,671 - 362,116 - 1,580,345 255,207 1,363,649 88,260 641,605 28,744 8,933 15,986 (a) 118,951 15,623 14,907 15,986 (a) (6,908) 196,068 196,527 91,192 3,185,766 4,469,356 Note: For the date of appointment and resignation of each Director and Executive please refer to the Directors' Report. a) 20,000,000 unlisted options were granted to senior management personnel at the May 2020 EGM. As at 30 June 2020, of the total granted, 14,000,000 options with a fair value of $69,154 have not yet been formally allotted. ANNUAL REPORT 202018 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) Details of Remuneration for the Year (continued) ended 30 June 2020 2019 Directors Mr Mario Gattino Mr Brendan Mason Mr Mark Ziiersen Mr Ross Blair-Holt Prof Bruce Thompson Dr Thomas Duthy Other Key Management Personnel Dr Samaneh Sarraf Shirazi Ms Koswani Wall Short-term Employee Benefits Post-employme nt Benefits Share-based payments Cash salary and fees Cash bonus Consulting fees Superannuation contribution Shares/ Options $ $ $ $ $ $ 330,000 34,444 37,500 40,118 67,361 4,167 127,140 230,000 870,730 - - - - - - - - - - - - - - - - - - 20,531 - 3,563 3,811 6,399 - 347,353 - - - - - 697,884 34,444 41,063 43,929 73,760 4,167 12,078 20,531 - 6,908 139,218 257,439 66,913 354,261 1,291,904 At Risk Income as a Proportion of Total Remuneration All Executive Directors and other key management personnel are eligible to receive incentives whether through employment contracts or by the recommendation of the Board. Their performance payments are based on a set monetary value, set number of shares or options or as a portion of base salary. Therefore, there is no fixed proportion between incentive and non-incentive remuneration. Entitlement to these payments does not depend on the future performance of the Company. Non-Executive Directors are not entitled to receive bonuses and/or incentives. RESPIRI LIMITED19 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) At Risk Income as a Proportion of Total Remuneration (continued) The relative proportions of remuneration income that are at risk, and those that are fixed, are as follows: Fixed Remuneration At Risk - STI At Risk - LTI 2020 % 2019 % 2020 % 2019 % 2020 % 2019 % Directors Mr Nicholas Smedley (appointed on 30 October 2019) Mr Marjan Mikel (appointed on 25 November 2019) Dr Thomas Duthy (appointed on 11 February 2020) Mr Mario Gattino (appointed on 14 December 2017, resigned 25November 2019) Mr Ross Blair-Holt (appointed on 27 November 2018, resigned 15 November 2019) Prof Bruce Thompson (appointed on 27 November 2018, resigned 11 February 2020) Other Key Management Personnel Mr Philippe Ludekens (appointed on 28 January 2020) Dr Samaneh Sarraf Shirazi (appointed 4 February 2019) Ms Koswani Wall (appointed on 1 June 2018, resigned 13 December 2019) 7 18 10 40 100 100 87 92 100 - - - 50 100 100 - 100 97 - - - - - - - - - - - - - - - - - - 93 82 90 60 - - 13 8 - - - - 50 - - - - 3 At risk long-term incentive (LTI) relates to remuneration in the form of share based payments, which are subject to vesting conditions based on length of service. At risk short-term incentive (STI) relates to discretionary bonuses approved by the board in respect of performance during the relevant year ANNUAL REPORT 202020 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) Share-based Compensation At the General Meeting held on 31 October 2013, Shareholders approved the establishment of the 2013 Employees', Directors' and Consultants' Share and Option Plan (ESOP). The ESOP is intended to reward Directors, employees and/or consultants for their contributions to the Group. The Plan is to be used as a method of retaining key personnel for the growth and development of the Group. Due to the Group's presence in Israel and USA, the Plan has been established to benefit personnel in Australia, Israel and USA. As at 30 June 2020 equity had been issued to 3 directors & 3 employees in Australia, 8 employees in USA and 2 employees in Israel under ESOP. The terms and conditions of each grant of options affecting Director and other Key Management Personnel remuneration in the current or future reporting periods are as follows: Grant Date Date Vested & Exercisable Expiry Date Exercise Price Share Price Hurdle Fully Vested 14 Dec 2017 14 Dec 2017 26 May 2020 26 May 2020 26 May 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 1 Jul 2020 1 Jul 2020 30 Sep 2020 30 Sep2020 30 Sep 2020 12 Jun 2020 30 Sep 2020 31 Mar 2021 30 Sep 2021 30 Sep 2021 31 Mat 2022 31 Dec 2023 31 Dec 2024 30 Sep 2024 30 Sep 2024 30 Sep 2024 12 Jun 2024 30 Sep 2024 31 Mar 2025 30 Sep 2025 30 Sep 2025 31 Mar 2026 $ 0.03 0.03 0.10 0.20 0.30 0.10 0.20 0.30 0.40 0.40 0.60 0.10 0.15 N/A N/A N/A N/A N/A N/A N/A N/A N/A No No No No No Yes No No No No No Value per Option at Grant Date $ 0.048 0.092 0.036 0.026 0.020 0.041 0.031 0.027 0.030 0.026 0.023 Options granted under the plan carry no dividend or voting rights until exercised into ordinary fully paid shares. When exercisable, each option is convertible into one ordinary share as soon as practical after the receipt by the Company of the completed exercise form and full payment of the exercise price. The exercise price of options granted under this plan shall be determined by the Committee in its sole discretion. The plan rules contain a restriction on removing the 'at risk' aspect of the instruments granted to executives. Plan participants may not enter into any transaction designed to remove the 'at risk' aspect of an instrument before it vests. RESPIRI LIMITED21 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) Share-based Compensation (continued) Details of options over ordinary shares in the Company provided as remuneration to each Director of the company and each of the other Key Management Personnel are set out below: Directors Mr Nicholas Smedley Mr Marjan Mikel Dr Thomas Duthy Mr Mario Gattino Mr Ross Blair-Holt Other Key Management Personnel Mr Philippe Ludekens Dr Samaneh Sarraf Shirazi Ms Koswani Wall (resigned on 13 December 2019) Number of Options Granted During the Year Number of Options Forfeited/ Lapsed/ Exercised During the Year Number of Options Vested During the Year 2020 2019 2020 2019 2020 2019 47,500,000 60,000,000 25,000,000 - - 2,000,000 2,000,000 - - - - - - - - - - 8,000,000 - - - - 10,000,000 10,000,000 - 30,000,000 - 30,000,000 - 5,000,000 - - - - - - 6,000,000 - - - - - - - - - - - 136,500,000 10,000,000 18,000,000 - 65,000,000 6,000,000 Refer to Page 18 for closing balance of options held by each Director and other Key Management Personnel of Respiri Limited, including their personally related parties, as at 30 June 2020. ANNUAL REPORT 202022 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) (a) Shareholdings The number of fully paid ordinary shares in the Company held during the financial year by each Director and other Key Management Personnel of Respiri Limited, including shares held indirectly by them personally, are set out below Balance at Start of the Year Granted as Compensation Shares from Options Exercised Net Change Other Balance at End of the Year 30 June 2020 Directors Mr Nicholas Smedley Mr Marjan Mikel Dr Thomas Duthy Prof Bruce Thompson (resigned on 11 February 2020) - Mr Mario Gattino (resigned on 25 November 2019) 420,000 Mr Ross Blair-Holt (resigned on 15 November 2019) 1,120,423 - - - Other Key Management Personnel Mr Philippe Ludekens Dr Samaneh Sarraf Shirazi Ms Koswani Wall (resigned on 13 December 2019) - - 359,206 1,899,629 - - - - - - - - - - - 14,059,668 (a) 14,059,668 - 2,643,119 (b) 745,454 (c) - 2,643,119 745,454 - - - (1,120,423) (d) - - - 420,000 - - - - - - - - - 359,206 - 16,327,818 18,227,447 a) 5,151,818 shares purchased as part of placement in April 2020, approved by Shareholders at General Meeting in 30 June 2020. At year end nil shares are held directly and 14,059,668 held indirectly. b) 1,818,181 shares purchased as part of placement in April 2020, approved by Shareholders at General Meeting in 30 June 2020. At year end 824,938 shares are held directly and 1,818,181 held indirectly. c) 545,454 shares purchased as part of placement in April 2020, approved by Shareholders at General Meeting in 30 June 2020. At year end nil shares are held directly and 745,454 held indirectly. d) Includes purchase of 500,000 shares approved by Shareholders at General Meeting held in November 2019. RESPIRI LIMITED23 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) (a) Shareholdings (continued) 30 June 2019 Directors Mr Mario Gattino Mr Brendan Mason Mr Mark Ziirsen Mr Ross Blair-Holt Prof Bruce Thompson Dr Thomas Duthy Other Key Management Personnel Dr Samaneh Sarraf Shirazi Ms Koswani Wall Balance at Start of the Year Granted as Compensation Shares from Options Exercised Net Change Other Balance at End of the Year 420,000 - - 2,513,448 - - - 221,206 3,154,654 - - - - - - - - - 420,000 - - - - - - - - - (1,393,025) 1,120,423 - - - - - - - - - 138,000 - 359,206 - (1,255,025) 1,899,629 ANNUAL REPORT 202024 r i e h t i g n d u c n l i , d e t i m L i i r i p s e R f o l e n n o s r e P t n e m e g a n a M y e K r e h o t d n a r o t c e r i D h c a e y b r a e y l i a c n a n i f e h t l g n i r u d d e h y n a p m o C e h t n i s e r a h s y r a n d r o i r e v o s n o i t p o f o r e b m u n e h T ) d e u n i t n o c ( ) d e t i d u A ( t r o p e R n o i t a r e n u m e R i s t h g R d n a s n o i t p O ) b ( t r o p e R ' s r o t c e r i D 0 2 0 2 e n u J 0 3 d e t i m L i i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A d e t s e v n U d n a d e t s e V e l b a s i c r e x E t a e c n a l a B e h t f o d n E r a e Y e g n a h C t e N s n o i t p O s a d e t n a r G t a e c n a l a B e h t f o t r a t S r e h t O d e s i c r e x E n o i t a s n e p m o C r a e Y : w o e b l t u o t e s e r a , s e i t r a p d e t a e r l y l l a n o s r e p 0 2 0 2 e n u J 0 3 s r o t c e r i D - - - - - - - - - - - - - 0 0 0 , 0 0 5 , 7 4 0 0 0 , 0 0 0 , 0 6 0 0 0 , 0 0 0 , 5 2 - - - 0 0 0 , 0 0 0 , 2 1 0 0 0 , 0 0 0 , 6 ) a ( ) 0 0 0 , 0 0 0 , 8 ( - - - - - - - - 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 ) b ( ) b ( - - - - ) c ( ) 0 0 0 , 0 0 0 , 0 1 ( 0 0 0 , 0 0 0 , 2 1 0 0 0 , 0 0 5 , 2 4 1 ) 0 0 0 , 0 0 0 , 8 1 ( - - - - - - - - - - 0 0 0 , 0 0 5 , 7 4 0 0 0 , 0 0 0 , 0 6 0 0 0 , 0 0 0 , 5 2 - - - - - - - , 0 0 0 0 0 0 , 2 , 0 0 0 0 0 0 , 2 - - - - 0 0 0 , 0 0 0 , 4 1 l e n n o s r e P t n e m e g a n a M y e K r e h t O i z a r i h S f a r r a S h e n a m a S r D s n e k e d u L e p p i l i h P r M n o s p m o h T e c u r B f o r P l y e d e m S s a o h c N l i l i e k M n a j r a M r M r M y h t u D s a m o h T r D o n i t t a G o i r a M r M t l o H l - r i a B s s o R r M n e e b t o n e v a h 4 5 1 , 9 6 $ f o e u a v l r i a f a h t i w s n o i t p o 0 0 0 , 0 0 0 , 4 1 , d e t n a r g l a t o t e h t f O . M G E 0 2 0 2 y a M e h t t a l e n n o s r e p t n e m e g a n a m i r o n e s o t d e t n a r g e r e w s n o i t p o d e t s i l n u 0 0 0 , 0 0 0 , 0 2 d e t s e v n U $ d n a d e t s e V e l b a s i c r e x E $ t a e c n a l a B e h t f o d n E r a e Y $ e g n a h C t e N r e h t O $ s n o i t p O s a d e t n a r G d e s i c r e x E n o i t a s n e p m o C r a e Y t a e c n a l a B e h t f o t r a t S - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 0 1 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 1 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 0 1 0 0 0 , 0 0 0 , 4 2 0 0 0 , 0 0 0 , 8 0 0 0 , 0 0 0 , 2 3 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 0 1 0 0 0 , 0 0 0 , 0 2 0 0 0 , 0 0 0 , 4 1 0 0 0 , 0 0 0 , 6 0 0 0 , 0 0 0 , 0 2 0 0 0 , 0 0 0 , 0 2 . 9 1 0 2 r e b m e c e D n i n o i t a n g s e r i i g n w o l l o f d e l l e c n a c O X C r e m r o f o t d e u s s i s n o i t p o 0 0 0 , 0 0 0 , 0 1 ) c . 0 2 0 2 e n u J 0 3 t a s a d e t o l l a y l l a m r o f ) d e u n i t n o c ( ) d e t i d u A ( t r o p e R n o i t a r e n u m e R ) d e u n i t n o c ( s t h g i R d n a s n o i t p O ) b ( t r o p e R ' s r o t c e r i D 0 2 0 2 e n u J 0 3 d e t i m i L i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A l e n n o s r e P t n e m e g a n a M y e K r e h t O i z a r i h S f a r r a S h e n a m a S r D l l a W i n a w s o K s M n o s a M n a d n e r B r M t l o H - r i a l B s s o R r M n e s r e i i Z k r a M r M o n i t t a G o i r a M r M s r o t c e r i D 9 1 0 2 e n u J 0 3 n o s p m o h T e c u r B f o r P y h t u D s a m o h T r D 0 0 0 , 0 0 5 , 6 3 1 0 0 0 , 0 0 0 , 4 2 . 9 1 0 2 r e b o t c O n i n o i t i a n g s e r g n w o i l l o f d e l l e c n a c O E C r e m r o f o t d e u s s i s n o i t p o 0 0 0 , 0 0 0 , 8 0 0 0 , 0 0 0 , 0 1 ) 9 1 0 2 r e b m e c e D 3 1 n o d e n g s e r ( i l l a W i n a w s o K s M ) a ) b RESPIRI LIMITED 25 d e t s e v n U $ d n a d e t s e V e l b a s i c r e x E $ t a e c n a l a B e h t f o d n E r a e Y $ e g n a h C t e N r e h t O $ d e s i c r e x E n o i t a s n e p m o C r a e Y s n o i t p O s a d e t n a r G t a e c n a l a B e h t f o t r a t S - - - - - - - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 4 1 0 0 0 , 0 0 0 , 6 0 0 0 , 0 0 0 , 0 2 - - - - - - - - 0 0 0 , 0 0 0 , 0 1 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 2 1 0 0 0 , 0 0 0 , 2 0 0 0 , 0 0 0 , 4 2 0 0 0 , 0 0 0 , 8 0 0 0 , 0 0 0 , 2 3 0 0 0 , 0 0 0 , 2 - - - - - - - - - - - - - - - - - - 0 0 0 , 0 0 0 , 0 1 - - - - - - - - 0 0 0 , 0 0 0 , 0 2 0 0 0 , 0 0 0 , 0 1 0 0 0 , 0 0 0 , 0 2 ) d e u n i t n o c ( ) d e t i d u A ( t r o p e R n o i t a r e n u m e R ) d e u n i t n o c ( s t h g R d n a i s n o i t p O ) b ( t r o p e R ' s r o t c e r i D 0 2 0 2 e n u J 0 3 d e t i m L i i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A l e n n o s r e P t n e m e g a n a M y e K r e h t O i z a r i h S f a r r a S h e n a m a S r D l l a W i n a w s o K s M n o s a M n a d n e r B r M t l o H l - r i a B s s o R r M n e s r e i i Z k r a M r M o n i t t a G o i r a M r M s r o t c e r i D 9 1 0 2 e n u J 0 3 n o s p m o h T e c u r B f o r P y h t u D s a m o h T r D ANNUAL REPORT 2020 26 Respiri Limited ABN 98 009 234 173 Directors' Report 30 June 2020 Remuneration Report (Audited) (continued) The Directors and other Key Management Personnel are subject to service agreements with normal commercial terms and conditions. The key terms of these agreements are set out below: Duration Periods of Notice Required to Terminate On-going term In the case of: - Marjan Mikel, one months' notice of termination by the employee and the Company; - Philippe Ludekens, one months' notice of termination by the employee and the Company; and - Samaneh Shirazi, one months; notice of termination by the employee and one month's notice of termination by the Company. This is the end of the Audited Remuneration Report. This director's report, incorporating the remuneration report, is signed in accordance with a resolution of the Board of Directors. Mr Nicholas Smedley Executive-Chairman Dated this the 25th day of August 2020 Melbourne, Australia RESPIRI LIMITED27 RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Respiri Limited for the year ended 30 June 2020, 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 B Y CHAN Partner Dated: 25 August 2020 Melbourne, Victoria THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 202028 Respiri Limited ABN 98 009 234 173 Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2020 Revenue Non-operating revenue Other income Total revenue Expenses Consulting, employee and director Equity-based payment Corporate administration Depreciation Marketing and promotion Research and development Travel Loss before income tax expense from continuing operations Income tax expense Loss after income tax for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations Total comprehensive loss for the year Loss attributable to: Members of the parent entity Total comprehensive loss attributable to: Members of the parent entity Basic loss per share (cents) Diluted loss per share (cents) Note 2020 $ 2019 $ 3 3 4 23 51,660 2,155,307 5,136 1,026,252 2,206,967 1,031,388 (1,738,111) (3,270,907) (1,526,472) (10,380) (783,872) (2,035,426) (102,734) (1,298,490) (1,288,699) (1,604,300) (4,628) (854,177) (4,242,802) (212,878) (7,260,935) - (8,474,586) - 5 (7,260,935) (8,474,586) (7,573) (9,620) (7,268,508) (8,484,206) (7,260,935) (8,474,586) (7,268,508) (8,484,206) (1.27) (1.27) (1.69) (1.69) The accompanying notes form part of these financial statements. RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 Statement of Financial Position As At 30 June 2020 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Other assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Borrowings Other financial liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other financial liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS/(LIABILITIES) EQUITY Issued capital Reserves Retained earnings TOTAL EQUITY 29 Note 2020 $ 2019 $ 9 10 14 13 12 13 15 16 17 17 3,552,334 8,199 309,219 561,363 306,655 161,566 - 534,709 4,431,115 1,002,930 187,725 64 187,789 9,502 1,173 10,675 4,618,904 1,013,605 1,131,283 717,144 147,655 1,756,955 806,442 45,986 1,996,082 2,609,383 128,046 128,046 - - 2,124,128 2,609,383 2,494,776 (1,595,778) 18 19 113,694,614 4,106,097 106,043,361 1,590,476 (115,305,935) (109,196,541) 2,494,776 (1,562,704) The accompanying notes form part of these financial statements. ANNUAL REPORT 202030 l a t o T $ d e t a l u m u c c A s e s s o L n g i e r o F n o i t a l s n a r T y c n e r r u C e v r e s e R $ $ n o i t p O e v r e s e R $ d e u s s I l a t i p a C $ ) 4 0 7 , 2 6 5 , 1 ( ) 1 4 5 , 6 9 1 , 9 0 1 ( ) 4 2 5 , 5 1 3 ( 0 0 0 , 6 0 9 , 1 1 6 3 , 3 4 0 , 6 0 1 ) 0 0 0 , 0 5 2 ( - - 5 6 1 , 6 1 6 , 8 ) 2 1 9 , 4 1 7 ( 0 6 9 , 2 3 7 , 3 ) 5 2 2 , 8 5 ( - - - - 1 4 5 , 1 5 1 , 1 - - - - - - ) 5 3 9 , 0 6 2 , 7 ( ) 5 3 9 , 0 6 2 , 7 ( - ) 3 7 5 , 7 ( - ) 3 7 5 , 7 ( ) 8 0 5 , 8 6 2 , 7 ( ) 5 3 9 , 0 6 2 , 7 ( ) 3 7 5 , 7 ( - - - - 3 9 8 , 4 5 2 - - - 5 6 1 , 6 1 6 , 8 ) 5 0 8 , 9 6 9 ( ) 5 2 2 , 8 5 ( ) 1 4 5 , 1 5 1 , 1 ( - - 7 6 0 , 8 7 4 , 3 3 9 8 , 4 5 2 - ) 0 0 0 , 0 5 2 ( 6 7 7 , 4 9 4 , 2 ) 5 3 9 , 5 0 3 , 5 1 1 ( ) 7 9 0 , 3 2 3 ( 4 9 1 , 9 2 4 , 4 4 1 6 , 4 9 6 , 3 1 1 l s r e d o h y t i u q E s a y t i c a p a c r i e h t n i l s r e d o h y t i u q E h t i w s n o i t c a s n a r T d e u s s i s e r a h S x a t f o t e n , r a e y e h t r o f e m o c n i i e v s n e h e r p m o c r e h t O r a e y e h t r o f e s n e p x e x a t e m o c n i r e t f a s s o L 9 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T y t i u q E n i s e g n a h C f o t n e m e t a t S 0 2 0 2 e n u J 0 3 d e d n E r a e Y e h t r o F 0 2 0 2 d e t i m L i i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A d e s p a l / d e t i e f r o f s n o i t p O d e u s s i s n o i t p O s e r a h s d e l l e c n a C s n o i t p o d e r i p x E 0 2 0 2 e n u J 0 3 t a e c n a l a B s t s o c i g n s a r i l a t i p a C . s t n e m e a t t s l i a c n a n i f e s e h t f o t r a p m r o f s e t i o n g n y n a p m o c c a e h T - - - - ) 6 8 5 , 4 7 4 , 8 ( ) 6 8 5 , 4 7 4 , 8 ( - ) 0 2 6 , 9 ( ) 0 2 6 , 9 ( ) 6 0 2 , 4 8 4 , 8 ( ) 6 8 5 , 4 7 4 , 8 ( ) 0 2 6 , 9 ( n g i e r o F n o i t a l s n a r T y c n e r r u C e v r e s e R l a t o T $ d e t a l u m u c c A s e s s o L $ $ n o i t p O e v r e s e R $ d e u s s I l a t i p a C $ 3 1 8 , 0 5 6 , 1 ) 5 5 9 , 1 2 7 , 0 0 1 ( ) 4 0 9 , 5 0 3 ( 4 1 4 , 6 4 3 8 5 2 , 2 3 3 , 2 0 1 0 9 9 , 9 9 1 , 4 ) 7 8 8 , 8 8 4 ( 6 8 5 , 9 5 5 , 1 - - - 6 8 5 , 9 5 5 , 1 0 9 9 , 9 9 1 , 4 ) 7 8 8 , 8 8 4 ( ) 4 0 7 , 2 6 5 , 1 ( ) 1 4 5 , 6 9 1 , 9 0 1 ( ) 4 2 5 , 5 1 3 ( 0 0 0 , 6 0 9 , 1 1 6 3 , 3 4 0 , 6 0 1 - - - - - - - - - s r e d l o h y t i u q E s a y t i c a p a c r i e h t n i s r e d l o h y t i u q E h t i w s n o i t c a s n a r T x a t f o t e n , r a e y e h t r o f e m o c n i e v i s n e h e r p m o c r e h t O r a e y e h t r o f e s n e p x e x a t e m o c n i r e t f a s s o L 8 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 9 1 0 2 e n u J 0 3 t a e c n a l a B s t s o c g n i s i a r l a t i p a C d e u s s i s n o i t p O d e u s s i s e r a h S y t i u q E n i s e g n a h C f o t n e m e t a t S 0 2 0 2 e n u J 0 3 d e d n E r a e Y e h t r o F d e t i m i L i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A 9 1 0 2 . s t n e m e t a t s l a i c n a n i f e s e h t f o t r a p m r o f s e t o n g n i y n a p m o c c a e h T RESPIRI LIMITED 31 . s t n e m e a t t s l i a c n a n i f e s e h t f o t r a p m r o f s e t i o n g n y n a p m o c c a e h T l a t o T $ d e t a l u m u c c A s e s s o L n g i e r o F n o i t a l s n a r T y c n e r r u C e v r e s e R $ $ n o i t p O e v r e s e R $ d e u s s I l a t i p a C $ 3 1 8 , 0 5 6 , 1 ) 5 5 9 , 1 2 7 , 0 0 1 ( ) 4 0 9 , 5 0 3 ( 4 1 4 , 6 4 3 8 5 2 , 2 3 3 , 2 0 1 0 9 9 , 9 9 1 , 4 ) 7 8 8 , 8 8 4 ( 6 8 5 , 9 5 5 , 1 - - - - - - ) 6 8 5 , 4 7 4 , 8 ( ) 6 8 5 , 4 7 4 , 8 ( - ) 0 2 6 , 9 ( - ) 0 2 6 , 9 ( ) 6 0 2 , 4 8 4 , 8 ( ) 6 8 5 , 4 7 4 , 8 ( ) 0 2 6 , 9 ( 6 8 5 , 9 5 5 , 1 - - - - - - - - - 0 9 9 , 9 9 1 , 4 ) 7 8 8 , 8 8 4 ( ) 4 0 7 , 2 6 5 , 1 ( ) 1 4 5 , 6 9 1 , 9 0 1 ( ) 4 2 5 , 5 1 3 ( 0 0 0 , 6 0 9 , 1 1 6 3 , 3 4 0 , 6 0 1 l s r e d o h y t i u q E s a y t i c a p a c r i e h t n i l s r e d o h y t i u q E h t i w s n o i t c a s n a r T d e u s s i s e r a h S x a t f o t e n , r a e y e h t r o f e m o c n i i e v s n e h e r p m o c r e h t O r a e y e h t r o f e s n e p x e x a t e m o c n i r e t f a s s o L 8 1 0 2 y l u J 1 t a e c n a l a B r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T y t i u q E n i s e g n a h C f o t n e m e t a t S 0 2 0 2 e n u J 0 3 d e d n E r a e Y e h t r o F 9 1 0 2 d e t i m L i i r i p s e R 3 7 1 4 3 2 9 0 0 8 9 N B A 9 1 0 2 e n u J 0 3 t a e c n a l a B d e u s s i s n o i t p O s t s o c i g n s a r i l a t i p a C ANNUAL REPORT 2020 32 Respiri Limited ABN 98 009 234 173 Statement of Cash Flows For the Year Ended 30 June 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Payments to suppliers and employees (inclusive of GST) Interest received R&D tax refund ATO cashflow boost Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of plant and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issues of securities Capital raising costs (Repayment of)/Proceeds from borrowings Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of financial year Note 2020 $ 2019 $ (6,894,923) 1,660 2,155,307 50,000 (7,442,712) 5,136 1,026,252 - 22 (4,687,956) (6,411,324) (12,863) (12,863) (3,179) (3,179) 8,531,528 (425,382) (146,808) 3,749,990 (218,000) 800,000 7,959,338 4,331,990 3,258,519 306,655 (12,840) (2,082,513) 2,418,427 (29,259) 9 3,552,334 306,655 The accompanying notes form part of these financial statements. RESPIRI LIMITED33 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies Corporate Information Respiri Limited is a listed public company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange. The addresses of its registered office and principal place of business are disclosed in company details (see Note 28). The principal activities of the Company are the research, development and commercialisation of medical devices, and the production of mobile health applications. The company is a for-profit company. The financial report of Respiri Limited (the Company) for the year ended 30 June 2020 was authorised for issue in accordance with a resolution of the Directors on 25th February 2020. Statement of Compliance The financial report is a general purpose financial report that has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Australian Accounting Interpretations, and complies with other authoritative pronouncements from the Australian Accounting Standards Board, as appropriate for for-profit orientated entities. The financial report covers Respiri Limited as a consolidated entity consisting of Respiri Limited and the entities it controlled during the year. The financial report complies with Australian Accounting Standards, as issued by the Australian Accounting Standards and with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board (IASB). Basis of Preparation The financial report has been prepared on an accruals basis and is based on historical costs. Cost is based on fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted and amounts rounded to the nearest dollar. 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 2. Going Concern Basis The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. As disclosed in the financial statements, the Group recorded losses of $7,260,935 (2019: $8,474,586 loss) and experienced net operating cash outflows of $4,687,956 (2019: $6,411,324 operating cash outflows) for the year ended 30 June 2020. These factors indicate a material uncertainty which may cast significant doubt as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. ANNUAL REPORT 202034 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) Going Concern Basis (continued) The Directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, after consideration of the following factors: The Group has continued to receive Research and Development (R&D) Tax Incentive income in relation to these activities, including $2,155,307 cash received in the 2020 financial year for the R&D activities conducted in the 2019 financial year. The Group expects to receive further R&D Tax Incentive income in relation to its 2020 financial year R&D activities in October 2020 and this is estimated to be $1,000,000. The cash will be utilised to repay outstanding loans as disclosed in Note 16 –Borrowings, with any residual cash used to fund the business. The Group was successful in raising capital of $3,300,000 in August 2019 and a further $3,140,000 was raised in May 2020 to fund the commercial launch of its wheezo product. The Group expects to commence generating revenue through wheezo product sales in the final quarter of calendar year 2020. The business will require access to additional capital to fund working capital requirements, including the manufacturing of wheezo product in advance of the forecast sales. The directors believe there are reasonable grounds to expect that the Group has the capacity to raise capital. The Group has a strong track record of accessing capital when it is required to advance its portfolio. Accordingly, the Directors believe that the Group will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the Group does not continue as a going concern. Should the Group be unable to achieve the matters set out above, a material uncertainty would exist as to whether the Group would be able to continue as a going concern and therefore whether it would realise its assets and discharge its liabilities in the normal course of business. Amendments to Accounting Standards that are mandatorily effective for the current reporting period The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for an accounting period that begins on or after 1 July 2019. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: - AASB 16, Leases RESPIRI LIMITED35 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) Amendments to Accounting Standards that are mandatorily effective for the current reporting period (continued) Leases - Adoption of AASB 16 The Company has adopted AASB 16 Leases using the modified retrospective (cumulative catchup) method from 1 July 2019 and therefore the comparative information for the year ended 30 June 2019 has not been restated and has been prepared in accordance with AASB 117 Leases and associated Accounting Interpretations. Adoption of the new standard did not impact at 1 July 2019 as the only lease accounted for under AASB 2020 started in 30 June 2020. Impact of Adoption of AASB 16 Company as a lessee Under AASB 117, the Company assessed whether leases were operating or finance leases based on its assessment of whether the significant risks and rewards of ownership had been transferred to the Company or remained with the lessor. Under AASB 16, there is no differentiation between finance and operating leases for the lessee and therefore all leases which meet the definition of a lease are recognised on the statement of financial position (except for short-term leases and leases of low value assets). The Company has elected to use the exception to lease accounting for short-term leases and leases of low value assets, and the lease expense relating to these leases are recognised in the statement of profit or loss on a straight-line basis. Accounting Policies (a) Basis for consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) (referred to as 'the Group' in these financial statements). Control is achieved where the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. A list of controlled entities is contained in Note 11 to the financial statements. All controlled entities have 30 June 2020 financial year-end. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. In the separate financial statements of the Company, intra-group transactions ('common control transactions') are generally accounted for by reference to the existing book value of the items. Where the transaction value of common control transactions differ from their consolidated book value, the difference is recognised as a contribution by or distribution to equity participants by the transacting entities. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those policies applied by the parent entity. Subsidiaries are accounted for at cost in the parent entity. The results of subsidiaries acquired or disposed of during the year are included in profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. ANNUAL REPORT 202036 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (b) Income Tax The income tax expense is based on the taxable income for the year. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax is accounted for using the balance sheet liability method. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (excluding a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled. Current and deferred tax is recognised as an expense or income in Profit or Loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/Group intends to settle its current tax assets and liabilities on a net basis. Respiri Limited (head entity) and its wholly owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Where the company is entitled to a tax rebate under the R&D Tax Concession during a particular financial year, the rebate is recorded as revenue for the year when received, rather than when expenditure was incurred. (c) 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 a least 12 months after the reporting period. All other assets are classified as non-current. RESPIRI LIMITED37 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (c) Current and non-current classification (continued) 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. (d) 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. The cost of inventories comprises cost of purchase and costs incurred in bringing inventories to their present location and condition. Cost of purchased inventories is determined after deducting rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated selling costs. The Company periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly. If in a particular period production is not at normal capacity, the costs of inventories does not include additional fixed overheads in excess of those allocated based on normal capacity. Such unallocated overheads are recognised as an expense in Profit or Loss in the period in which they are incurred. Furthermore, cost of inventories does not include abnormal amounts of materials, labour or other costs resulting from inefficiency. (e) Property, plant and equipment Plant and equipment is stated at cost, less accumulated depreciation and impairment. Cost includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. 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 charged to Profit or Loss during the financial period in which they are incurred. Depreciation The depreciable amount of all plant and equipment is depreciated on a straight-line basis commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable asset are shown below: Fixed asset class Furniture and Fittings Computer Equipment Medical Equipment Depreciation rate 6 - 15% 15 - 33% 15% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is ANNUAL REPORT 202038 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (e) Property, plant and equipment (continued) greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in profit or loss. (f) Leases For comparative year Operating leases 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. Lease assessment at contract inception For current year At inception of a contract, the Group assesses whether a lease exists - i.e. does the contract convey the right to control the use of an identified asset for a period of time in exchange for consideration. RESPIRI LIMITED39 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (f) Leases (continued) Lease assessment at contract inception (continued) This involves an assessment of whether:    The contract involves the use of an identified asset - this may be explicitly or implicitly identified within the agreement. If the supplier has a substantive substitution right then there is no identified asset. The Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use. The Group has the right to direct the use of the asset i.e. decision making rights in relation to changing how and for what purpose the asset is used. Right-of-use asset At the lease commencement, the Group recognises a right-of-use asset and associated lease liability for the lease term. The lease term includes extension periods where the Group believes it is reasonably certain that the option will be exercised. The right-of-use asset is measured using the cost model where cost on initial recognition comprises of the lease liability, initial direct costs, prepaid lease payments, estimated cost of removal and restoration less any lease incentives received. The right-of-use asset is depreciated over the lease term on a straight-line basis and assessed for impairment in accordance with the impairment of assets accounting policy. Lease liability The lease liability is initially measured at the present value of the remaining lease payments at the commencement of the lease. The discount rate is the rate implicit in the lease, however where this cannot be readily determined then the Group's incremental borrowing rate is used. Subsequent to initial recognition, the lease liability is measured at amortised cost using the effective interest rate method. The lease liability is remeasured whether there is a lease modification, change in estimate of the lease term or index upon which the lease payments are based (e.g. CPI) or a change in the Group's assessment of lease term. Where the lease liability is remeasured, the right-of-use asset is adjusted to reflect the remeasurement or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Adoption of short-term leases or low value asset exception Exceptions to lease accounting The Group has elected to apply the exceptions to lease accounting for both short-term leases (i.e. leases with a term of less than or equal to 12 months) and leases of low-value assets. The Group recognises the payments associated with these leases as an expense on a straight-line basis over the lease term. ANNUAL REPORT 202040 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (g) Financial assets and liabilities Recognition Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial liabilities Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. A financial liability is removed from the balance sheet when the obligation specified in the contract is discharged or cancelled or expires. Non-derivative financial liabilities are recognised at amortised cost using the effective interest rate method, comprising original debt less principal payments, amortisation and impairment. (h) Intangibles Intellectual property Intellectual property relates to technology assets, know-how and patents related to assets acquired on acquisition of Respiri (Israel) Limited (previously KarmelSonix (Israel) Limited) and is recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over the expected life, being 10 years. Amortisation commences when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The amortisation period and the amortisation method for an intangible asset is reviewed at least at the end of each reporting period. If the expected useful life of the asset is different from the previous estimates, the amortisation shall be changed accordingly. Such changes are accounted for as changes in accounting estimates. (i) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity's functional and presentation currency. RESPIRI LIMITED41 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (i) Foreign currency transactions and balances (continued) Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are retranslated at the rates prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost are not retranslated. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Exchange differences arising on the translation of monetary items are recognised in Profit or Loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in Profit or Loss. For the purpose of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (and attributed to non-controlling interests as appropriate). Group companies The financial results and position of foreign operations whose functional currency is different from the Group's presentation currency are translated as follows:    assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are transferred directly to the Group's foreign currency translation reserve in the Statement of Financial Position. These differences are recognised in the Profit or Loss in the period in which the operation is disposed. (j) Employee benefits Annual leave and long service leave A liability is recognised for the Company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. ANNUAL REPORT 202042 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (j) Employee benefits (continued) Annual leave and long service leave (continued) Short-term benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions (Israel only) and are recognised as expenses as the services are rendered. Post employment benefits include superannuation and payments to insurance companies (Israel only) and are defined contribution plans. Such payments are made in accordance with the relevant legislation for country and/or state where an employee normally performs their duties as an employee. Payments are recognised as expenses as the services are rendered. Shared-based payments Shared-based compensation benefits are provided to employees via the Respiri Limited Employee Option Plan and an employee share scheme. The fair value of options granted under Respiri Limited Option Share Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at the grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date was determined using an option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. (k) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably measured. Provisions are not recognised for future operating losses. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. (l) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. (m) Revenue and other income The revenue recognition policies for the principal revenue streams of the Group are: Interest Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. All revenue is stated net of the amount of goods and services tax (GST). RESPIRI LIMITED43 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (m) Revenue and other income (continued) Sale of goods Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to Profit or Loss over the expected useful life of the related asset on a straight-line basis. Government grants received in Israel as support for research and development projects, include an obligation to pay royalties (ranging from 3.5% to 5%) conditional on future sales arising from the project. These grants are recognised upon receipt as a liability if future economic benefits are expected from the project (i.e. sales). If no economic benefits are expected, the grants are recognised as a reduction of the related research and development expenses and the royalty obligation treated as a contingent liability. At the end of each reporting date, the Company evaluates if there is reasonable assurance that the liability recognised, in whole or part, will not be repaid. If there are indications the liability will not be repaid, the appropriate amount of the liability is derecognised and recorded in Profit or Loss as a reduction of research and development expenses. Otherwise, the appropriate amount of the liability that reflects expected future royalty payments is recognised with a corresponding adjustment to research and development expenses. Royalty payments are treated as a reduction of the liability. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. R&D Tax Concession Refunds R&D Tax concession refunds are recorded as revenue for the year when received, rather than when expenditure was incurred. (n) Goods and services tax (GST) Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position sheet are shown inclusive of GST. Cash flows are presented in the Statement of Cash Flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (o) Share capital Ordinary share capital is recognised as the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. ANNUAL REPORT 202044 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (p) Earnings per share Basic earnings per share Basics earnings per share is calculated by dividing the profit attributed to the owners of Respiri Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (q) New Accounting Standards and Interpretations 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 2020. 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. Conceptual Framework for Financial Reporting (Conceptual Framework) The revised Conceptual Framework is applicable to annual reporting periods beginning on or after 1 January 2020 and early adoption is permitted. The Conceptual Framework contains new definition and recognition criteria as well as new guidance on measurement that affects several Accounting Standards. Where the consolidated entity has relied on the existing framework in determining its accounting policies for transactions, events or conditions that are not otherwise dealt with under the Australian Accounting Standards, the consolidated entity may need to review such policies under the revised framework. At this time, the application of the Conceptual Framework is not expected to have a material impact on the consolidated entity's financial statements. (r) Critical Accounting Estimates and Judgments The preparation of the financial statements requires the Directors and 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 estimates and underlying assumptions are continually evaluated. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. RESPIRI LIMITED45 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 1 Summary of Significant Accounting Policies (continued) (r) Critical Accounting Estimates and Judgments (continued) The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below: Share-based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees and consultants by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Monte Carlo model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The operating segments of the Group are determined to be Australia and Israel. For more information, refer to Note 22. 2 Parent entity The following information has been extracted from the books and records of the parent entity and has been prepared in accordance with the accounting standards. Statement of Financial Position Assets Current assets Non-current assets Total Assets Liabilities Current liabilities Non-current liabilities Total Liabilities Equity Issued capital Accumulated losses Reserves Total Equity Statement of Profit or Loss and Other Comprehensive Income Loss after income tax Total comprehensive income 2020 $ 2019 $ 4,409,427 190,479 936,913 12,257 4,599,906 949,170 1,972,140 128,046 2,497,771 - 2,100,186 2,497,771 113,694,614 106,043,361 (115,624,088) (109,497,962) 1,906,000 4,429,194 2,499,720 (1,548,601) (7,278,391) (8,884,482) (7,278,391) (8,884,482) ANNUAL REPORT 202046 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 2 Parent entity (continued) Parent Entity Contingencies and Commitments The parent entity does not have any contingent liabilities and commitments. Parent Entity Guarantees in Respect of the Debts of its Subsidiaries The parent entity has no guarantees in respect of its subsidiaries. 3 Revenue and Other Income Non-operating revenue - Interest - ATO cashflow boost Total Revenue Other Income - R&D Tax Concession Received (a) 2020 $ 2019 $ 1,660 50,000 51,660 5,136 - 5,136 2020 $ 2019 $ 2,155,307 1,026,252 2,155,307 1,026,252 a) The value of any allocable R&D tax concession refund with respect to eligible R&D expenditures incurred during the financial year 2020 has not yet been determined and have therefore not been included within the financial statements for financial year 2020. RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 4 Expenses Consulting, employee and director Consulting expenses Employee expenses Director expenses Equity-based payment Corporate administration Audit and accounting fees Foreign exchange loss/(gain) Corporate administration expenses Office rentals Depreciation Marketing and promotion Research and development Travel Total expenses 47 2020 $ 2019 $ 436,958 570,793 730,360 302,555 484,920 511,015 1,738,111 1,298,490 3,270,907 1,288,699 185,104 5,266 1,272,355 63,747 248,014 19,638 1,246,317 90,331 1,526,472 1,604,300 10,380 4,628 783,872 854,177 2,035,426 4,242,802 102,734 212,878 9,467,902 9,505,974 ANNUAL REPORT 202048 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 5 Income Tax Expense (a) The prima facie tax on loss from ordinary activities before the loss is reconciled to the income tax as follows: Loss before income tax Tax Income tax benefit calculated Add: Tax effect of amounts which are not deductible in calculating income tax: - share-based payments expenses - other expenses not deductible Other non-assessable income Other deductible items Deferred tax assets relating to tax losses and temporary differences not recognised Income tax expense (b) Unrecognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: - tax losses - prepayments - provision - accrual (c) Components of tax expense The components of tax expense comprise: Current tax Deferred tax Income tax expense 2020 $ 2019 $ (7,260,935) 27.50% (8,474,586) 27.50% (1,996,757) (2,330,511) 899,499 24,289 (606,459) 18,932 1,660,496 354,392 73,357 (282,219) (172,002) 2,356,983 - - 2020 $ 2019 $ 22,812,318 (45,735) 16,500 54,740 21,260,625 (147,045) 20,324 43,442 22,837,823 21,177,346 2020 $ 2019 $ - - - - - - RESPIRI LIMITED49 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 5 Income Tax Expense (continued) Included in the total of deferred tax assets attributable to tax losses not recognised are tax losses in relation to operations in Israel, United States of America and Australia. Tax losses in Australian entities alone of $21,605,123 (2019: $19,692,869) relate to losses generated from 22 November 2006 to 30 June 2020. The ongoing availability of these tax losses are subject to further review by the Company to ensure compliance with the relevant provisions of Australia Income Tax laws. 6 Key Management Personnel Remuneration The aggregate compensation made to Directors and other Key Management Personnel of the Consolidated entity is set out below: Short-term employee benefits Post-employment benefits Share-based payments (Note 23) 7 Auditors' Remuneration Remuneration of Company's auditor, RSM, for: - auditing or reviewing the financial report of the Group Remuneration of Company's former auditor, Deloitte, for: - auditing or reviewing the financial report of the Group Remuneration of Subsidiary Company's auditor, Earnst & Young Israel, for: - auditing or reviewing the financial report of the subsidiary (a) Total 2020 $ 1,192,398 91,192 3,185,766 2019 $ 870,730 66,913 354,261 4,469,356 1,291,904 2020 $ 2019 $ 40,000 40,000 - 6,075 40,000 46,075 9,378 49,378 8,068 54,143 a) Audit fees paid to Ernst & Young Israel for the auditing and/or review of the financial report of Respiri (Israel) Ltd. ANNUAL REPORT 202050 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 8 Loss per Share Basic loss per share (cents) Diluted loss per share (cents) (a) Net loss used in the calculation of basic and diluted loss per share (b) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic and diluted loss per share 2020 $ 2019 $ (1.27) (1.27) (7,260,935) (1.69) (1.69) (8,474,586) 570,054,649 499,122,902 Potential ordinary shares, including options, are excluded from the weighted average number of shares used in the calculations of basic loss per share as they are considered non-dilutive. 9 Cash and Cash Equivalents Cash at bank 2020 $ 3,552,334 2019 $ 306,655 3,552,334 306,655 The interest rates on cash at bank on 30 June 2020 was 0.9% (2019: 1.6%). The Group’s exposure to interest rate risk is discussed in Note 26(b). The maximum exposure to credit risk at the end of the financial year is the carrying amount of each class of cash and cash equivalents mentioned above. 10 Trade and Other Receivables CURRENT Other receivables (a) 2020 $ 2019 $ 8,199 8,199 161,566 161,566 a) Other receivables include GST/V.A.T receivable. Refer to Note 26(c) for more information on the Group's credit risk management policy. RESPIRI LIMITED51 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 11 Controlled Entities Parent Entity Respiri Limited Subsidiaries of Respiri Limited KarmelSonix Australia Pty Ltd iSonea (Israel) Limited iSonea USA Inc. Principal place of business / Country of Incorporation Percentage Owned (%)* Percentage Owned (%)* 2020 2019 Australia Australia Israel United States of America - 100 100 100 - 100 100 100 *The percentage of ownership interest held is equivalent to the percentage voting rights for all subsidiaries. 12 Property, plant and equipment Office equipment At cost Accumulated depreciation Total office equipment Computer equipment and software At cost Accumulated depreciation Right-of-Use asset At cost Accumulated depreciation Total Right-of-Use asset Total property, plant and equipment 2020 $ 2019 $ 4,145 (6) 4,139 - - - 42,305 (29,577) 33,588 (24,086) 12,728 9,502 175,740 (4,882) 170,858 187,725 - - - 9,502 ANNUAL REPORT 202052 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 12 Property, plant and equipment (continued) (a) Movements in carrying amounts of property, plant and equipment Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year: Year ended 30 June 2020 Balance at the beginning of year Additions Depreciation expense Balance at the end of the year Year ended 30 June 2019 Balance at the beginning of year Additions Depreciation expense Balance at the end of the year 13 Other assets CURRENT Prepayments Deposits Prepaid materials NON-CURRENT Other Office Equipment Computer Equipment Right-of-Us e Asset $ $ $ Total $ - 4,145 (6) 9,502 8,718 (5,492) - 175,740 (4,882) 9,502 188,603 (10,380) 4,139 12,728 170,858 187,725 Office Equipment Computer Equipment Right-of-Use Asset $ $ $ Total $ - - - - 10,951 3,179 (4,628) 9,502 - - - - 10,951 3,179 (4,628) 9,502 2020 $ 2019 $ 146,366 48,997 366,000 522,323 12,386 - 561,363 534,709 64 64 1,173 1,173 RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 14 Inventories CURRENT Inventories 15 Trade and Other Payables CURRENT Trade payables Accrued expenses 53 2020 $ 2019 $ 309,219 309,219 - - 2020 $ 2019 $ 870,436 260,847 1,525,149 231,806 1,131,283 1,756,955 Terms and conditions of the above financial liabilities:   Trade payables are non-interest bearing and are normally settled on between 30 - 45 day terms Accrued expenses are non-interest bearing Refer to Note 27(a) for more information on the Group’s foreign currency risk management policy. 16 Borrowings Opening balance Add: Loan drawdown (a) Add: Capitalised interest Less: Repayments Closing balance 2020 $ 806,442 1,265,864 121,922 (1,477,084) 2019 $ - 800,000 6,442 - 717,144 806,442 a) Short-term R&D credit loan facility of$1.4 million provided by FundSquire based on 80% of expected FY2019 R&D tax refund at interest rate of 1.35% per month was repaid in full in October 2019. A further short-term R&D credit loan facility of $600k was provided by Fundsquire based on 80% of expected FY2020 R&D tax refund at an interest rate of 1.75% per month during the 2020 year. The Company has drawn down the full amount of this facility as at 30 June 2020. ANNUAL REPORT 202054 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 17 Other Financial Liabilities CURRENT Lease liabilities Other financial liability (a) Other financial liability unsecured 2020 $ 2019 $ 47,694 12,912 87,049 147,655 - 12,912 33,074 45,986 a) Detailed information in relation to the Chief Scientist grants received in Israel is contained in Note 20. NON-CURRENT Lease liabilities Total 18 Issued Capital 2020 $ 2019 $ 128,046 128,046 - - The Company has an unlimited authorised share capital of no par value ordinary shares. 2020 No. 2020 $ 2019 No. 2019 $ Fully paid ordinary shares Balance at beginning of the year Shares issued during the year Shares cancelled during the year (a) Transaction costs relating to share issues 525,883,098 106,043,361 473,383,224 102,332,258 4,199,990 128,956,692 - (3,125,000) (488,887) 52,499,874 - - 8,616,165 (250,000) (714,912) - Total issued capital 651,714,790 113,694,614 525,883,098 106,043,361 a) On 18 December 2018, 3,125,000 shares were issued to key Development Partner (Two Bulls) in exchange for the provision of future services. These services were not delivered, and the shares were subsequently cancelled on 20 December 2019. RESPIRI LIMITED55 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 18 Issued Capital (continued) During the year-ended 30 June 2020, the Company issued the following securities: Date Details 8 Aug 2019 10 Dec 2019 6 Apr 2020 8 May 2020 3 Jun 2020 11 Jun 2020 Issue of shares to certain professional and sophisticated investors as announced to the market on 8 August 2019 Issue of shares to former director as announced to the market on 9 December 2019 Issue of shares to certain professional and sophisticated investors as announced to the market on 6 April 2020 Issue of shares to certain professional and sophisticated investors as announced to the market on 6 May 2020 Issue of shares in lieu of cash payment for services rendered as announced to the market on 1 June 2020 Issue of shares to directors as announced to the market on 10 June 2020 No. of Shares Issue Price $ Total Value $ 33,000,000 0.1000 3,300,000 500,000 0.1000 50,000 30,051,228 0.0550 1,652,815 57,090,909 0.0550 3,140,000 617,284 0.0810 50,000 7,697,271 0.0550 423,350 128,956,692 8,616,165 Terms and Conditions of Issued Capital Ordinary Shares: Ordinary shareholders have the right to receive dividends as declared and in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy at a meeting of the Company. Options: Option holders do not have the right to receive dividends and are not entitled to vote at the meeting of the Company until options are exercised into ordinary shares by payment of the exercise price. Options may be exercised at any time from the date they vest to their expiry date. Share options convert into ordinary shares on a one for one basis on the date they are exercised. Capital Risk Management: The consolidated entity’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as a value adding relative to the current company’s share price at the time of the investment. The consolidated entity is not actively pursuing additional investment in the short-term as it continues to develop its technologies. ANNUAL REPORT 202056 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 19 Reserves Options Balance at beginning of the year Unlisted options issued during the year (a) Adjustment for options issued in prior year (b) Expense recorded over vesting period Options expired/forefeited (c) Cancellation of options (d) 2020 No. 2020 $ 2019 No. 2019 $ 59,000,000 174,500,000 - - 1,906,000 3,319,526 413,433 - (18,000,000) (24,000,000) (58,225) (1,151,540) 30,000,000 15,000,000 14,000,000 - - - 346,414 277,795 934,438 347,353 - - Balance at end of the year 191,500,000 4,429,194 59,000,000 1,906,000 FX Reserve Balance at beginning of the year Other comprehensive income for the year, net of tax Balance at end of the year Total Reserves - - - (315,524) (7,573) (323,097) - - - (305,904) (9,620) (315,524) 191,500,000 4,106,097 59,000,000 1,590,476 a) b) c) 20,000,000 unlisted options were granted to senior management personnel at the May 2020 EGM. As at 30 June 2020, of the total granted, 14,000,000 options with a fair value of $69,154 are yet to be allotted to individual members. 6,000,000 Unlisted Options issued to former CEO on 14 December 2017 were cancelled following resignation in October 2019. This matter along with various other matters were in dispute, but has since been resolved. As part of the total settlement, the vested options were reinstated and expense recognised in the 2020 year. 6,000,000 Unlisted Options issued on 7 June 2019 exercisable at 0.0050 on or before 31 December 2020, and 4,000,000 unlisted options issued on 7 June 2019 exercisable at 0.1250 on or before 31 December 2021 to former CXO lapsed following resignation in December 2019. 8,000,000 Unlisted Options issued on 19 December 2017 exercisable at 0.03 on or before 31 December 2025 and 6,000,000 Unlisted Options issued on 19 December 2017 exercisable at 0.03 on or before 31 December 2024 to former CEO lapsed following resignation in October 2019. Following a legal dispute, the 6,000,000 Unlisted Options issued on 19 December 2017 exercisable at 0.03 on or before 31 December 2024 were subsequently reinstated. d) 10,000,000 Unlisted Options issued to former directors on 20 December 2016 exercisable at 0.285 on or before 30 November 2019 cancelled. 8,000,000 and 6,000,000 Unlisted Options issued to former directors on 19 December 2017 exercisable at 0.03 on or before 31 December 2023 and 31 December 2024 respectively were cancelled at EGM held in May 2020. RESPIRI LIMITED57 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 19 Reserves (continued) During the year-ended 30 June 2020, the Company issued the following options: Date Details 26 May 2020 26 May 2020 26 May 2020 3 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 16 Jun 2020 Issue to Key Management Personnel under Employee Share Option Plan (ESOP) - Class 15 Issue to Key Management Personnel under Employee Share Option Plan (ESOP) Issue to Key Management Personnel under Employee Share Option Plan (ESOP) Issue to Corporate Advisor for services rendered Issue to Directors - Tranche 1 Issue to Directors - Tranche 2 Issue to Directors - Tranche 3 Issue to Directors - Tranche 4 (with market vesting condition) Issue to Directors - Tranche 4 Issue to Directors - Tranche 5 Issue to Consultants for advisory services rendered - Class 13 Issue to Consultants for advisory services rendered - Class 14 Option Reserve: No. of options Option fair value $ Total value $ 6,000,000 0.0363 47,959 6,000,000 0.0257 33,973 8,000,000 0.0199 35,181 5,000,000 00298 148,934 65,000,000 30,000,000 12,500,000 7,500,000 5,000,000 12,500,000 7,000,000 10,000,000 174,500,000 0.0414 0.0309 0.0273 0.0303 0.0258 0.0227 0.0288 0.0416 2,689,592 85,703 11,610 4,733 2,680 4,267 201,893 53,000 3,319,526 The option reserve recognises the proceeds from the issue of options over ordinary shares and the expense recognised in respect of share based payments. 20 Contingent Liabilities Office of the Chief Scientist- Israel Following approval from the Office of the Chief Scientist in Israel (OCS), four OCS grants totaling USD$541,470 were received by Karmel Medical Acoustic Technologies Ltd (KMAT) prior to 2006 to assist with the R&D of technologies. The R&D associated with these OCS grants was acquired by Respiri from KMAT in 2006, together with the associated OCS grant obligations. In 2008, Respiri subsequently received two further grants from the OCS totaling USD$307,047 to assist in the funding of ongoing R&D work. The terms of the OCS grant scheme specify that should technologies be developed with the direct assistance of a grant, and be commercialised, and generate sale revenue for the company, a royalty of between 3% - 3.5% of the associated sales revenue will be paid to the OCS until that OCS grant(s) amount, plus applicable interest applied to that grant(s) amount (based on LIBOR) has been repaid. ANNUAL REPORT 202058 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 21 Segment Reporting AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Information reported to the Group’s Chief Operating Decision Makers for the purposes of resource allocation and assessment of performance is more specifically focused on the geographical locations of the Group’s operations. The Group’s reportable segments under AASB 8 are therefore as follows:   Australia Israel The Australia reportable segment activities include research, development and commercialisation of medical devices, and the production of mobile health applications in Australia. The Israel reportable segment activities include research, development and commercialisation of medical devices, and the production of mobile health applications in Israel. In prior years, the Group has had operations in United States; however, these operations have ceased and therefore are no longer reported as a reportable segment. Information regarding these segments is presented below. The accounting policies of the reportable segments are the same as the Group’s accounting policies. RESPIRI LIMITED59 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 21 Segment Reporting (continued) Medical Devices Segment Medical Devices Segment Segment Australia Israel Total Corporate Total $ $ $ $ $ 30 June 2020 Segment Revenue External Sales Other income Total Segment Revenue Interest revenue Total Revenue EBITDA Segment depreciation expenses Interest revenue Finance costs Profit/(loss) before income tax Income tax expense - 2,155,307 2,155,307 - 2,155,307 685,201 - - - - - - - - (124,275) - - - 685,201 - (124,275) - - 2,155,307 2,155,307 - - - 50,000 2,205,307 50,000 2,205,307 1,660 1,660 2,155,307 51,660 2,206,967 560,926 (7,689,293) (7,128,367) (10,380) (10,380) 1,660 1,660 (123,848) (123,848) - - - 560,926 (7,821,861) (7,260,935) - - - Profit/(loss) after income tax 685,201 (124,275) 560,926 (7,821,861) (7,260,935) Assets Segment assets Total Assets Liabilities Segment liabilities Total Liabilities 4,108 18,368 22,476 4,596,428 4,618,904 4,108 18,368 22,476 4,596,428 4,618,904 - - 23,942 23,942 2,100,186 2,124,128 23,942 23,942 2,100,186 2,124,128 ANNUAL REPORT 202060 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 21 Segment Reporting (continued) 30 June 2019 Segment Revenue External sales Interest revenue Other income Segment Expenses Segment depreciation expenses Segment expenses Income tax expense Net Result Assets Segment assets Total Assets Liabilities Segment liabilities Total Liabilities Medical Devices Segment Medical Devices Segment Segment Australia Israel Total Corporate Total $ $ $ $ $ - - 1,026,252 1,026,252 - (4,059,200) - - - - - - 1,026,252 - 5,136 - - 5,136 1,026,252 1,026,252 5,136 1,031,388 - (3,628) (123,074) (4,182,274) (5,139,072) (9,501,346) (4,628) - - - - - - (3,032,948) (123,074) (3,156,022) (5,138,564) (8,473,586) 18,592 14,271 32,863 980,742 1,013,605 18,592 14,271 32,863 980,742 1,013,605 950 41,043 41,993 2,534,316 2,576,309 950 41,043 41,993 2,534,316 2,576,309 RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 22 Cash Flow Information (a) Reconciliation of cash flow from operations with loss after income tax Net loss for the year Non-cash flows in profit: - depreciation - share-based payments - capitalised interest on loan - foreign exchange adjustments - facility fees on loan Changes in assets and liabilities: - (increase)/decrease in trade and other receivables - (increase)/decrease in other assets - (increase)/decrease in inventories - increase/(decrease) in trade and other payables Cashflows from operations (b) Non-cash financing and investing activities 61 2020 $ 2019 $ (7,260,935) (8,474,586) 10,380 3,219,841 121,922 5,266 22,636 153,368 (25,545) (309,219) (625,670) 4,628 1,738,699 6,442 19,639 - (42,805) (423,062) - 759,721 (4,687,956) (6,411,324) Please refer to Note 18 and 19 for further details regarding equity issued for nil cash consideration. ANNUAL REPORT 202062 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 23 Share-based Payments (a) Employee share and option plan The following options were issued during the current year under ESOP: No. of Options Grant date Expiry date Share price (a) 6,000,000 (a) 6,000,000 8,000,000 (a) 65,000,000 (b) 30,000,000 (c) 12,500,000 (d) (e) 7,500,000 5,000,000 (e) 12,500,000 (f) 26 May 2020 30 Sep 2024 26 May 2020 30 Sep 2024 26 May 2020 30 Sep 2024 16 Jun 2020 12 Jun 2024 16 Jun 2020 30 Sep 2024 16 Jun 2020 31 Mar 2025 16 Jun 2020 30 Sep 2025 16 Jun 2020 30 Sep 2025 16 Jun 2020 31 Mar 2026 a) Options will vest after 30 September 2020 b) Options have vested c) Options will vest after 30 September 2020 d) Options will vest after 31 March 2021 e) Options will vest after 30 September 2021 Options will vest after 31 March 2022 f) at grant date $ 0.071 0.071 0.071 0.083 0.083 0.083 0.083 0.083 0.083 Exercise price Expected volatility Dividend yield Risk-free interest rate $ 0.100 0.20 0.30 0.100 0.200 0.300 0.400 0.400 0.600 77.55% 77.55% 77.55% 78.01% 78.01% 78.01% 78.01% 78.01% 78.01% - - - - - - - - - 0.26% 0.26% 0.26% 0.26% 0.26% 0.39% 0.39% 0.39% 0.39% Fair value at grant date $ 0.036 0.026 0.020 0.041 0.031 0.027 0.030 0.026 0.023 The weighted average fair value of the share options granted during the financial year is $0.034 (2019: $0.058). Expected volatility is based on the historical share price volatility over the past 2 years. To allow for the effects of early exercise, it was assumed that executives and senior employees would exercise the options after vesting date when the share price is two and a half times the exercise price. (b) Fair value of share options granted in the year outside of the ESOP For the options granted during the current financial year, the Black Scholes Option valuation model inputs used to determine the fair value at the grant date, are as follows: No. of Options Grant date Expiry date 5,000,000 (a) (a) 7,000,000 10,000,000 (b) 3 Jun 2020 16 Jun 2020 16 Jun 2020 28 May 2023 1 Jul 2022 1 Jul 2024 (a) Options have vested (b) Options will vest after 23 September 2020 Share price at grant date $ 0.078 0.083 0.083 Exercise price Expected volatility Dividend yield Risk free interest rate $ 0.100 0.100 0.100 77.15% 78.01% 78.01% - - - 0.27% 0.27% 0.26% Fair value at grant date $ 0.030 0.029 0.042 RESPIRI LIMITED63 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 23 Share-based Payments (continued) (c) Movement in share options during the year The following reconciles the share options outstanding at the beginning and end of the year: 2020 Weighted Average Exercise Price $ 0.08 0.20 - - - - 0.21 0.10 2020 No. of Options 59,000,000 174,500,000 - - (18,000,000) (24,000,000) 191,500,000 82,000,000 2019 No. of Options 30,000,000 15,000,000 14,000,000 - - - 59,000,000 29,000,000 2019 Weighted Average Exercise Price $ 0.12 0.08 0.03 - - - 0.08 0.13 Outstanding at the beginning of the year Granted Adjustment for granted in prior period Exercised Expired/lapsed Cancelled Outstanding at year-end Exercisable at year-end (d) Share options exercised during the year No options were exercised during the financial year 2020. (e) Share options outstanding at the end of the year The options outstanding at 30 June 2020 had a weighted average exercise price of $0.21 (2019: $0.08) and a weighted average remaining contractual life between 0.5 to 6.5 years. Exercise price range from $0.03 (2019: $0.005) to $0.6(2019: $0.28) in respect of options outstanding at 30 June 2020. ANNUAL REPORT 202064 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 23 Share-based Payments (continued) (f) Share-based payments expense Share-based payments - options issued to directors - options issued to suppliers (a) - options issued to other key management personnel - options issued to employees - options issued to former CEO (b) - options to former CXO cancelled (c) - options to former CEO cancelled (b) - options issued to former directors 2020 $ 2019 $ 2,798,586 403,828 78,075 39,038 413,434 (6,908) (51,318) - 347,353 270,887 6,908 - - - - 934,438 3,674,735 1,559,586 a) b) The Company issued 5,000,000 options to its corporate advisor for services rendered, and issued 17,000,000 options to consultants for advisory services. The shareholders approved the issuance of 20,000,000 unlisted RSH Options to the former CEO in accordance with resolution 3b of the 2018 Annual General Meeting. The Company subsequently cancelled Tranches 2 (6,000,000) and 3 (8,000,000) of these options following the former CEO's resignation in October 2019. The matter was in dispute and has since been resolved with the tranche 2 options reinstated and expense recognised in the 2020 financial year. c) The Company cancelled 10,000,000 options issued to former CXO following resignation in December 2019. 24 Related Party Transactions The Group's related parties comprise of subsidiaries and key management personnel. Disclosures relating to key management personnel are set out in the remuneration report. Transactions between the parent company and its subsidiaries are eliminated on consolidation and are not disclosed in this note. As part of its April 2020 placement, 7,515,453 fully paid ordinary shares were issued to the Company directors. 25 Events Occurring After the Reporting Date The Victorian Government announced a State of Disaster on the 2 August 2020 and “Stage 4” restrictions were applied to Metro Melbourne. This event does not affect amounts recognised in the 2019/20 financial statements. At this stage, it is not possible to estimate what if any affect this will have on the company's financial performance during 2020/21. At the 2020 annual EGM held on 26 May 2020, shareholders approved the issue of 20 million unlisted options to senior management personnel of the Company as an incentive in lieu of cash. These options have a number of performance related vesting conditions attached to them and a value of $117,113 as at 30 June 2020. 14 million of the 20 million options were not formally issued until 21st August 2020 and were held in Trust until this date. Except for the above, no other matters or circumstances have arisen since the end of the financial year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 26 Financial Risk Management The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Other borrowings Other financial liabilities Total financial liabilities (a) Foreign exchange risk 65 2020 $ 2019 $ 3,552,334 8,199 306,655 161,566 3,560,533 468,221 1,131,283 717,144 275,701 1,756,955 806,442 45,986 2,124,128 2,609,383 The Group engages in international purchase transactions and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the US dollar (USD) and Israeli shekel (ILS). The parent has minimal exposure to foreign exchange risk as it does not hold any foreign currency cash reserves and only makes minor foreign currency payments. The Group does not make use of derivative financial instruments to hedge foreign exchange risk. The carrying amount of the foreign currency denominated monetary assets and liabilities at the reporting date is as follows, all amounts in the table below are displayed in $AUD at year-end spot rates: Cash and trade and other receivables - ILS - USD Trade and other payables - ILS - USD 2020 $ 2019 $ 4,400 - 4,400 4,068 44,190 48,258 (11,029) - (28,130) (36,545) (11,029) (64,675) ANNUAL REPORT 202066 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 26 Financial Risk Management (continued) Sensitivity Analysis The following tables demonstrate the sensitivity to a reasonably possible change in USD and ILS exchange rates, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives and embedded derivatives. The Group’s exposure to foreign currency changes for all other currencies is not material. USD Effect on profit before tax ILS Effect on profit before tax (b) Interest rate risk 2020 2019 +5% -5% +5% -5% - - 382 (382) 331 (331) 1,203 (1,203) The Group's exposure to interest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities. The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk (against the implied 30 day bank bill rate). The table also represents the quantitative impact on the financial statements should the variation occur. 30 June 2020 Financial assets Cash and cash equivalents Total (decrease)/increase Financial liabilities Fundsquire loan Total (decrease)/increase 30 June 2019 Financial assets Cash and cash equivalents Total (decrease)/increase Financial liabilities Weighted average interest rate (1%) effect on profit before tax 1% effect on profit before tax Carrying amount $ % $ $ 3,552,334 3,552,334 0.90 (35,523) - (35,523) 35,523 35,523 (717,144) (717,144) 0.90 7,171 (7,171) - 7,171 (7,171) 306,655 306,655 1.67 (3,067) - (3,067) 3,067 3,067 RESPIRI LIMITED67 Respiri Limited ABN 98 009 234 173 Notes to the Financial Statements For the Year Ended 30 June 2020 26 Financial Risk Management (continued) (c) Credit risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Group. The Group has no significant concentration of credit risk in the current or prior year. The Group ensures that surplus cash is invested with financial institutions of appropriate credit worthiness and limits the amount of credit exposure to any one counter party. (d) Liquidity risk Liquidity risk is the risk that the Group will not pay its debtors when they fall due. Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages liquidity risk by maintaining sufficient bank balances to fund its operations and the availability of funding through committed credit facilities. Management manages this risk by monitoring rolling forecasts of the Group's liquidity reserve on the basis of expected cash flows. The table below analyses the Group's financial liabilities. 30 June 2020 Trade and other payables Other borrowings Lease liabilities 30 June 2019 Trade and other payables Other borrowings (e) Capital Risk Management 0-12 months Maturing 1 to 3 years $ $ Total $ 1,131,283 717,144 47,693 - - 128,046 1,131,283 717,144 175,739 1,896,120 128,046 2,024,166 1,756,955 806,442 2,563,397 - - - 1,756,955 806,442 2,563,397 The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain a capital structure that maximises shareholder value. In order to maintain or achieve an optimal capital structure, the Group may issue new shares or reduce its capital, subject to the provisions of the Group's constitution. The capital structure of the Group consists of equity attributed to equity holders of the Group, comprising contributed equity and reserves disclosed in Notes 18 and 19. By monitoring undiscounted cash flow forecasts and actual cash flows provided to the Board by the Group's Management the Board monitors the need to raise additional equity from the equity markets. ANNUAL REPORT 202068 Respiri Limited ABN 98 009 234 173 Directors' Declaration The directors of the Company declare that: 1. the financial statements and notes, as set out on pages 22 to 61, and the remuneration disclosures that are contained within the Remuneration Report within the Directors' report, set out on pages 8 to 20, are in with the Corporations Act 2001 and: a. In the directors' opinion there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable; In the directors' opinion the financial statements and notes also comply with the International Financial Reporting Standards as disclosed in Note 1; In the directors' opinion the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and b. c. d. The directors have been given the declaration required by s295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to s.295(5) Corporations Act 2001. On behalf of the Directors Mr Nicholas Smedley Executive-Chairman Dated this the 25th Day of August 2020 Melbourne, Australia RESPIRI LIMITED69 RSM Australia Partners Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT To the Members of Respiri Limited Opinion We have audited the financial report of Respiri Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other 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 2020 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 (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial report, which indicates that the Group incurred a net loss of $7,260,935 and had net operating cash outflows from operating activities of $4,687,956 during the year ended 30 June 2020. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation ANNUAL REPORT 202070 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How our audit addressed this matter Share based payments Refer to Note 23 in the financial statements Respiri Limited have an Employee’s, Directors’ and Consultants’ Share and Option Plan (ESOP). The ESOP is intended to reward directors, employees and/or consultants for their contributions to the Group. We identified share-based payments as a key risk due the complexity in the valuation of the options issued, and the estimates made by management in relation to the achievement of vesting conditions. Our audit procedures in relation to share based payments included:  Assessing the reasonableness of option valuation inputs into the Black Scholes Option Valuation Model including assessment of the share volatility rates applied in comparison to entities in the similar industry;   Performing a recalculation the Black Scholes Option Valuation Model for a sample of options issued; Testing a sample of options issued to signed ESOP agreements;  Reviewing the accounting for the share-based payments in accordance with AASB 2 Share-based Payments; and  Reviewing the reasonableness of management’s estimates of the likelihood of the achievement of vesting conditions for the options issued. 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 2020, 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. RESPIRI LIMITED71 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: www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Respiri Limited, for the year ended 30 June 2020, 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 B Y CHAN Partner Dated: 26 August 2020 Melbourne, Victoria ANNUAL REPORT 202072 Respiri Limited ABN 98 009 234 173 SHAREHOLDERS INFORMATION as at 24 August 2020 Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: Holder INVESTMENT HOLDINGS PTY LTD NETWEALTH INVESTMENTS LIMITED NETWEALTH INVESTMENTS LIMITED MR PETER KARL BRAUN MR WILLIAM JOHN RICHARDS & MRS MARY MITCHELL RICHARDS P & A MIHAILOU PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED LUHOPI PTY LTD MR GARY RONALD HEATH & MRS MELISSA LOUISE HEATH DR BELINDA DEBORAH JACKSON COONAN FAMILY SUPERANNUATION FUND PTY LTD EQUITAS NOMINEES PTY LIMITED ATLANTIS INVESTIGATIONS PTY LIMITED MALLAMANDA PTY LTD MR ROSS SPENCE BAYNES MORE INVESTMENT GROUP PTY LTD MRS MARY MITCHELL RICHARDS & MS KERRY MITCHELL MCCARTHY CLEMWELL PTY LTD DL MARSHALL SUPER PTY LTD OODACHI PTY LTD

Ordinary shares held 72,008,027 14,841,052 14,267,181 13,654,325 9,790,000 8,000,000 7,834,313 7,533,614 7,377,274 7,269,429 7,000,000 6,642,449 6,105,078 6,087,203 5,500,000 5,151,818 5,050,000 5,035,678 4,650,455 4,545,455 % of total shares issued 11.03% 2.27% 2.19% 2.09% 1.50% 1.23% 1.20% 1.15% 1.13% 1.11% 1.07% 1.02% 0.94% 0.93% 0.84% 0.79% 0.77% 0.77% 0.71% 0.70% Unquoted equity securities Unquoted equity securities Number on issue Number of holders Unquoted ordinary shares 1,125,000 Hares Options over ordinary shares issued 191,500,000 1 17 Substantial holders Holder Designation Ordinary shares held % of total shares issued INVESTMENT HOLDINGS PTY LTD 72,008,027 11.03% RESPIRI LIMITED 73 Respiri Limited ABN 98 009 234 173 Voting rights The voting rights attached to ordinary shares are set out below: Ordinary shares On a show of hands every member present at a meeting in person or proxy shall have one vote and upon a poll each share shall have one vote. There are no other classes of equity securities. On-market buy-backs There is no current on-market buy-back in relation to the Company’s securities. Securities subject to voluntary escrow There are no securities subject to voluntary escrow. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and above Unmarketable parcels Number of Holders of ordinary shares 117 181 456 1,298 738 As at the above date there were 206 shareholders with unmarketable parcels on the register ANNUAL REPORT 202074 Respiri Limited ABN 98 009 234 173 SHAREHOLDER ENQUIRIES Shareholders with enquiries about their shareholdings should contact the Share Register: Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, Victoria, 3067 Telephone: +61 (0)3 9415 4000 Facsimilie: +61 (0)3 9473 2500 Email: www.investorcentre.com/contact CHANGE OF ADDRESS, CHANGE OF NAME, CONSOLIDATION OF SHAREHOLDINGS Shareholders should contact the Share Registry via your Investor Centre portal. REMOVAL FROM THE ANNUAL REPORT MAILING LIST Shareholders who no longer wish to receive the Annual Report should notify the Share Registry via the shareholder’s respective Investor Centre portal. These shareholders will continue to receive all other shareholder information. TAX FILE NUMBERS It is important that Australian resident shareholders, including children, have their tax file number or exemption details noted by the Share Registry. CHESS (Clearing House Electronic Sub-register System) Shareholders wishing to move to uncertified holdings under the Australian Stock Exchange (CHESS) system should contact their stockbroker. UNCERTIFIED SHARE REGISTER Shareholding statements are issued at the end of each month in which there is a transaction that alters the balance of your holding. RESPIRI LIMITEDRespiri Limited ABN 98 009 234 173 STATUTORY INFORMATION AUSTRALIAN COMPANY NUMBER (ACN) 009 234 173 Respiri Limited is a Public Company Limited by shares and is domiciled in Australia. Appointed on 25th November 2019 Appointed on 30th October 2019 Appointed on 11th February 2020 Resigned on 10th February 2020 Resigned on 15th November 2019 Resigned on 25th October 2019 REGISTERED OFFICE Level 10, 446 Collins Street Melbourne, Victoria AUSTRALIA 3000 Telephone: + 61 (0)3 9602 3366 Fax: + 61 (0)3 9602 3606 SOLICITORS Gadens Lawyers Level 13, Collins Arch 447 Collins Street Melbourne, Victoria, 3000 AUSTRALIA Telephone: +61 (0)3 9252 2555 Fax: +61 (0)3 9252 2500 BANKERS National Australia Bank (NAB) 330 Collins Street, Melbourne, Victoria, 3000 Australia DIRECTORS Mr Marjan Mikel Mr Nicholas Smedley Dr Thomas Duthy Prof. Bruce Thompson Mr Ross Blair-Holt Mr Mario Gattino COMPANY SECRETARY Mr Alastair Beard PRINCIPAL PLACE OF BUSINESS Level 9, 432 St Kilda Road Melbourne, Victoria AUSTRALIA 3004 Telephone: +61 (0)3 9653 9160 SHARE REGISTRY Computershare Investor Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, Victoria, 3067 Australia Telephone: +61 (0)3 9415 4000 Facsimile: +61 (0)3 9473 2500 AUDITORS RSM Australia Pty Ltd Level 21, 55 Collins Street Melbourne, Victoria, 3000 Australia Telephone: +61 (0) 3 9286 8000 WEBSITE www.respiri.co SECURITIES QUOTED Australian Securities Exchange - Ordinary Fully Paid Shares (Code: RSH)

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