Notes to the Consolidated Financial Statements
For the Half-Year 31 December 2017
1
|
Basis of Preparation of Half-Year Report
|
These condensed consolidated
interim report for the half-year reporting period ended 31 December 2017 have been prepared in accordance with Accounting Standard
AASB 134
Interim Financial Reporting
and the
Corporations Act 2001
.
These condensed consolidated
interim report do not include all the notes of the type normally included in an annual financial report. Accordingly, this report
is to be read in conjunction with the annual report for the year ended 31 December 2016 and any public announcements made by Immuron
Limited during the interim reporting period in accordance with the continuous disclosure requirements of the
Corporations Act
2001
.
The accounting policies adopted
are consistent with those of the previous financial year and corresponding interim reporting period.
A number of new or amended
standards became applicable for the current reporting period, however, the Company did not have to change its accounting policies
or make retrospective adjustments as a result of adopting these standards. There will be some changes to the disclosures in the
30 June 2018 annual report as a consequence of these amendments.
(b)
|
Fair Value Measurement
|
Due to the nature of the Group’s
operating profile, the Directors and management do not consider that the fair values of the Group’s financial assets and
liabilities are materially different from their carrying amounts at 31 December 2017.
2
|
Summary of Significant Accounting Policies
|
Some of the risks inherent in the development of
pharmaceutical products 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, and obtaining the necessary drug clinical regulatory authority approvals. A particular project may fail the
research and the clinical development process through lack of efficacy or safety, or may be stopped or abandoned due to
strategic imperatives including an assessment that the projects will not deliver a sufficient return on investment or have
been superseded by newer competitive products or technologies. There is a risk that the group will be unable to find suitable
development or commercial partners for its projects, and that these arrangements may not generate material returns for the
group.
Based on current budget forecast assumptions, the group will
need to access additional funding to meet future commitments and to pay its debts when they fall due, as well as funding the ongoing
group’s research & development programs. The ability of the group to successfully access additional capital, and the amount
of additional funds required is dependent on the outcome of its product research & development programs.
The Board and Management are confident that the Company will
be able to access, as and when necessary, the required additional funds through a number of available funding opportunities, including
some of which the Company has accessed in the past.
The current net loss for the period is AUD$1,891,944 (2016: AUD$3,409,349)
and the cash inflow / (outflow) for the period is AUD$3,186,278 (2016: (AUD$2,216,618)).
Notwithstanding the requirement to access additional funding
for the group, this interim financial report has been prepared on a going concern basis. Accordingly, the interim report does
not include adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification
of liabilities that might be necessary should the group not continue as a going concern.
Notes to the Consolidated
Financial Statements
For the Half-Year 31 December
2017
(Continued…)
(a)
|
Description of Segments
|
The executive management team
considers the business from both a product and a geographic perspective and has identified three reportable segments.
Segments
|
Research and Development (R&D)
|
Income and expenses directly
attributable to the company’s research and development projects performed in Australia and Israel.
|
HyperImmune Products
Income
and expenses directly attributable to Travelan activities which occur in Australia, New Zealand and United States.
Corporate
Other items
of income and expenses not directly attributable to R&D or HyperImmune Products segment are disclosed as corporate costs.
Corporate activities primarily occur within Australia. This segment includes interest expenses from financing activities and
depreciation.
The Board assesses the performance
of the operating segments at a number of operating levels including adjusted EBITDA.
(b)
|
Segment Information Provided to the Board
|
The Board assesses the operating
segment at a number of operating levels for the reportable segments for the half-year 31 December 2017 is as follows:
Consolidated Entity
31 December 2017
|
|
Research
& Development
|
|
|
HyperImmune
Products
|
|
|
Corporate
|
|
|
Total
|
|
|
|
AUD$
|
|
|
AUD$
|
|
|
AUD$
|
|
|
AUD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue
& other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
|
—
|
|
|
|
919,138
|
|
|
|
—
|
|
|
|
919,138
|
|
R&D tax concession refund
|
|
|
1,386,790
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,386,790
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
|
|
43
|
|
Other income
|
|
|
—
|
|
|
|
206
|
|
|
|
—
|
|
|
|
206
|
|
Total segment revenue &
other income
|
|
|
1,386,790
|
|
|
|
919,344
|
|
|
|
43
|
|
|
|
2,306,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,277
|
)
|
|
|
(2,277
|
)
|
Finance costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,767
|
)
|
|
|
(3,767
|
)
|
Share-based payments
|
|
|
—
|
|
|
|
—
|
|
|
|
(59,512
|
)
|
|
|
(59,512
|
)
|
Other operating
expenses
|
|
|
(1,540,436
|
)
|
|
|
(429,631
|
)
|
|
|
(2,162,498
|
)
|
|
|
(4,132,565
|
)
|
Total segment expenses
|
|
|
(1,540,436
|
)
|
|
|
(429,631
|
)
|
|
|
(2,228,054
|
)
|
|
|
(4,198,121
|
)
|
Income tax expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(Loss)/Profit for the period
|
|
|
(153,646
|
)
|
|
|
489,713
|
|
|
|
(2,228,011
|
)
|
|
|
(1,891,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Assets
|
|
|
2,884,901
|
|
|
|
2,536,093
|
|
|
|
736,997
|
|
|
|
6,157,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Liabilities
|
|
|
(481,023
|
)
|
|
|
(154,886
|
)
|
|
|
(537,911
|
)
|
|
|
(1,173,820
|
)
|
Notes to the Consolidated
Financial Statements
For the Half-Year 31 December
2017
(Continued…)
3
|
Segment Information
(continued…)
|
(b) Segment
Information Provided to the Board
(continued…)
Consolidated Entity
|
|
Research
& Development
|
|
|
HyperImmune
Products
|
|
|
Corporate
|
|
|
Total
|
|
|
|
AUD$
|
|
|
AUD$
|
|
|
AUD$
|
|
|
AUD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue
& other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
|
—
|
|
|
|
703,099
|
|
|
|
—
|
|
|
|
703,099
|
|
R&D tax concession refund
|
|
|
779,826
|
|
|
|
—
|
|
|
|
—
|
|
|
|
779,826
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
6,791
|
|
|
|
6,791
|
|
Other income
|
|
|
25,007
|
|
|
|
—
|
|
|
|
5,308
|
|
|
|
30,315
|
|
Total segment revenue &
other income
|
|
|
804,833
|
|
|
|
703,099
|
|
|
|
12,099
|
|
|
|
1,520,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortisation
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,975
|
)
|
|
|
(1,975
|
)
|
Finance costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,183
|
)
|
|
|
(13,183
|
)
|
Share-based payments
|
|
|
(80,308
|
)
|
|
|
—
|
|
|
|
(233,467
|
)
|
|
|
(313,775
|
)
|
Other operating expenses
|
|
|
(2,037,559
|
)
|
|
|
(379,504
|
)
|
|
|
(2,183,384
|
)
|
|
|
(4,600,447
|
)
|
Total segment expenses
|
|
|
(2,117,867
|
)
|
|
|
(379,504
|
)
|
|
|
(2,432,009
|
)
|
|
|
(4,929,380
|
)
|
Income tax expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
(Loss)/Profit for the period
|
|
|
(1,313,034
|
)
|
|
|
323,595
|
|
|
|
(2,419,910
|
)
|
|
|
(3,409,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Assets
|
|
|
702,623
|
|
|
|
1,949,595
|
|
|
|
3,203,583
|
|
|
|
5,855,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Liabilities
|
|
|
(708,474
|
)
|
|
|
(131,630
|
)
|
|
|
(1,462,517
|
)
|
|
|
(2,302,621
|
)
|
Notes to the Consolidated
Financial Statements
For the Half-Year 31 December
2017
(Continued…)
4 Contributed Equity
(a)
Share capital
|
|
31 December 2017
|
|
|
30 June 2017
|
|
|
|
No.
of Shares
|
|
|
AUD$
|
|
|
No.
of Shares
|
|
|
AUD$
|
|
Ordinary shares - fully paid
(i)
|
|
|
129,315,462
|
|
|
|
53,846,391
|
|
|
|
130,041,417
|
|
|
|
53,632,995
|
|
(i) Movements
in ordinary shares
|
|
No.
of Shares
|
|
AUD$
|
|
|
|
|
|
Opening balance 1 July 2017
|
|
|
130,041,417
|
|
|
|
53,632,995
|
|
Shares issued during the year
|
|
|
1,274,045
|
|
|
|
215,333
|
|
Cancellation of shares
|
|
|
(2,000,000
|
)
|
|
|
—
|
|
Transaction Costs
|
|
|
—
|
|
|
|
(1,937
|
)
|
Balance 31 December 2017
|
|
|
129,315,462
|
|
|
|
53,846,391
|
|
During the half year ended 31 December 2017, the
Company issued the following ordinary shares:
Details
|
|
Date
|
|
|
No.
|
|
|
Issue
Price
AUD$
|
|
|
Total
Value
AUD$
|
|
Issue of equity for the repayment of
convertible note
|
|
|
28
Jul 2017
|
|
|
|
399,045
|
|
|
|
0.19
|
|
|
|
75,333
|
|
Cancellation of collateral shares in escrow for the
convertible note as approved by shareholders on 13 November 2017
|
|
|
13
Nov 2017
|
|
|
|
(2,000,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Issue of shares to Grandlodge Pty Ltd in lieu of
cash payment for services rendered as approved by shareholders on 13 November 2017
|
|
|
13
Nov 2017
|
|
|
|
875,000
|
|
|
|
0.16
|
|
|
|
140,000
|
|
Transaction Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,396
|
|
(ii) Rights
of each type of share
Ordinary shares entitle the
holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On
a show of hands every holder of ordinary shares present at a meeting or by proxy, is entitled to one vote. Upon a poll every holder
is entitled to one vote per share held. The ordinary shares have no par value.
Notes to the Consolidated
Financial Statements
For the Half-Year 31 December
2017
(Continued…)
The following table
shows a breakdown of the Statement of Financial Position line item “other reserves” and the movements in these reserves
during the half year.
A description of
the nature and purpose of each reserve is provided below the table.
|
|
No.
of
Options
|
|
|
Amount
|
|
|
Foreign
currency translation reserve
|
|
|
Total
|
|
|
|
|
|
|
AUD$
|
|
|
AUD$
|
|
|
AUD$
|
|
Balance at 1 July 2017
|
|
|
63,287,523
|
|
|
|
2,434,135
|
|
|
|
36,282
|
|
|
|
2,470,417
|
|
Options/warrants issued during the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expense of vested options
|
|
|
—
|
|
|
|
59,512
|
|
|
|
—
|
|
|
|
59,512
|
|
Lapse of unexercised options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other comprehensive loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
28,281
|
|
|
|
28,281
|
|
At 31 December 2017
|
|
|
63,287,523
|
|
|
|
2,493,647
|
|
|
|
64,563
|
|
|
|
2,558,210
|
|
The Company had no contingent liabilities and assets
at 31 December 2017 (2016: nil).
6
|
Events Occurring After the Reporting Period
|
The Company received AUD$2,156,206
Research and Development Tax Concession Refund on 9 February 2018,
Post reporting period, the
Company entered into a short-term loan arrangement with Great Accommodation Pty Ltd to fund on going R&D expenditure, for an
amount of AUD$500,000 at an interest rate of 15% per annum and a AUD$15,000 establishment fee. The loan was repaid on 12 February
2018.
7
|
Related Party Transactions
|
(a) Transactions with Other Related Parties
The following transactions occurred with related parties:
Premises rental services received from Wattle Laboratories Pty Ltd to Immuron Limited:
|
31 Dec 2017
|
31 Dec2016
|
Wattle Laboratories Pty
Ltd (Wattle) is an entity part-owned and operated by Immuron Directors Peter and Stephen Anastasiou.
Commencing on 1 January
2016, Immuron executed a Lease Agreement with Wattle whereby Immuron will lease part of their Blackburn office facilities for Immuron’s
operations at an arms-length commercial rental rate of AUD$38,940 per annum, payable in monthly instalments. The rental agreement
is subject to annual rental increases, and effective 1 January 2018, the annual rent was increased to AUD$40,275.
The lease is for
a 3-year term with an additional 3-year option period.
The lease is cancellable
by either party upon 6 months written notice of termination of the agreement.
|
|
|
Rental fees
paid to Wattle Laboratories Pty Ltd during the year through
the issue of
equity:
|
AUD$Nil
|
AUD$Nil
|
Total
paid by the Company to Wattle Laboratories Pty Ltd during the year:
|
AUD$9,881
|
AUD$19,470
|
At year end the Company owed Wattle Laboratories Pty Ltd:
|
AUD$Nil
|
AUD
$21,417
|
Notes to the Consolidated
Financial Statements
For the Half-Year 31 December
2017
(Continued…)
(a)
|
Transactions with Other Related Parties
(continued…)
|
Service rendered by Grandlodge Pty Ltd to Immuron Ltd:
|
31 Dec2017
|
31 Dec 2016
|
Grandlodge, and its associated
entities, are marketing, warehousing and distribution logistics companies.
Commencing on 1 June 2013,
Grandlodge was contracted on commercial market arms-length terms to provide warehousing, distribution and invoicing services for
Immuron’s products for AUD$70,000 per annum. These fees will be payable in new fully paid ordinary shares in Immuron Limited
at a set price of AUD$0.16 per share representing Immuron Limited’s share price at the commencement of the agreement.
The shares to be issued
to Grandlodge, or its associated entities, as compensation in lieu of cash payment for the services rendered under this agreement
have been subject to the approval of Immuron shareholders at Company shareholder meetings held over the past 18 months.
Grandlodge will
also be reimbursed in cash for all reasonable costs and expenses incurred in accordance with their scope of works under the agreement,
unless both parties agree to an alternative method of payment. The agreement is cancellable by either party upon providing the other
party with 30 days written notice of the termination of the agreement.
|
|
|
Service
fees paid to Grandlodge Pty Ltd during the year through the issue of equity:
|
AUD$140,000
|
AUD$87,500
|
Total
paid by the Company to Grandlodge Pty Ltd during the year:
|
AUD$Nil
|
AUD$87,500
|
At year end the Company owed Grandlodge Pty Ltd:
|
AUD
$Nil
|
AUD$35,000
|
|
|
31 December 2017
|
|
|
31 December 2016
|
|
|
|
AUD$
|
|
|
AUD$
|
|
Basic/Diluted loss per shares (cents)
|
|
|
(1.454
|
)
|
|
|
(3.318
|
)
|
(a) Net loss used in the calculation of basic and diluted loss
per share
|
|
|
(1,891,944
|
)
|
|
|
(3,409,349
|
)
|
(b) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic and diluted loss per share
|
|
|
130,086,505
|
|
|
|
102,756,793
|
|
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The
following discussion and analysis includes certain forward-looking statements with respect to the business, financial
condition and results of operations of our company. The words “estimate,” “project,” “intend,” “expect” and
similar expressions are intended to identify forward-looking statements within the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated by such forward-looking statements. This discussion and analysis should be
read in conjunction with our consolidated financial statements and notes thereto included in Exhibit 99.1.
Background
Immuron
Limited and subsidiaries (a development stage enterprise), or the Company, was incorporated under the laws of the
Commonwealth of Australia in 1994. Immuron Limited (ASX: IMC, NASDAQ: IMRN), is a biopharmaceutical company focused on
developing and commercialising oral immunotherapeutics for the treatment of gut mediated diseases. Immuron has a unique
and safe technology platform that enables a shorter development therapeutic cycle.
The
Company currently markets and sells Travelan® for the prevention of Travellers’ Diarrhea and its lead clinical
candidate, IMM-124E, is in Phase II clinical trials for Non-Alcoholic Steatohepatitis (NASH), Severe Alcoholic Hepatitis
(SAH) and Pediatric Nonalcoholic Fatty Liver Disease (NAFLD). Immuron’s second clinical stage asset, IMM-529, is
targeting Clostridium difficile Infections (CDI). These products together with the Company’s other preclinical immunotherapy
pipeline products targeting immune-related diseases currently under development, will meet a large unmet need in the global
immunotherapy market.
The
principal listing of our ordinary shares and options to purchase our ordinary shares is on the Australian Securities Exchange
(ASX). Immuron completed its secondary listing of American Depository Receipts (ADRs) and Warrants on the NASDAQ Capital
Market under the symbol IMRN on June 9, 2017.
Our
interim consolidated financial statements appearing in Exhibit 99.1 are prepared in Australian dollars and in accordance
with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or
IASB, and comply with both IFRS as issued by the IASB and Australian equivalents to International Financial Reporting Standards,
or A-IFRS. In this report, all references to U.S. dollars or US$ are to the currency
of the United States of America, and all references to Australian dollars or A$ are to the
currency of Australia.
Our
current revenues are generated in Australian, Canadian, and U.S. dollars, and are converted to Australian dollars for financial
reporting purposes as it is the Company’s functional operating and reporting currency. The majority of our expenses
are also incurred in Australian, Canadian, and U.S. dollars.
Overview
We
are a clinical-stage biopharmaceutical company with a proprietary technology platform focused on the development and commercialization
of a novel class of immunomodulator polyclonal antibodies that we believe can address significant unmet medical needs. Our
oral polyclonal antibodies offer targeted delivery within the gastrointestinal (GI) track but do not cross into the bloodstream,
potentially leading to much improved safety and tolerability, without sacrificing efficacy. We believe that our two lead
immunomodulator product candidates, IMM-124E and IMM-529, have the potential to transform the existing treatment paradigms
for (Non-Alcoholic Steatohepatitis) (NASH) and for Clostridium difficile (C.
difficile
),
respectively. We also market an over-the-counter (OTC) product, Travelan, that is the only product approved as a preventative
to Traveler’s Diarrhea. Travelan is also based on the same technology. We recently began to market Protectyn
,
a health product targeting LPS bacteria in the gut to prevent gut dysbiosis, improve bacterial clearance, reduce chronic
inflammation and improve immune function. The safety profile of our compounds, which have a Generally Regarded as Safe (GRAS)
status, enables us to commercialize our platform-derived products through a range of regulatory pathways, including prescriptions
(Rx), medical foods, OTC medicines and dietary supplements.
Our
American Depositary Shares (each, an ADS and, collectively the ADSs) and warrants (each,
a Warrant) are listed on the NASDAQ Capital Market under the symbols IMRN and IMRNW,
respectively. Each ADS represents forty (40) of our ordinary shares. Each Warrant has a per ADS exercise price of US$10.00,
and expires five years from the date of issuance. Our ordinary shares are also listed on the Australian Securities Exchange
under the symbol IMC.
In
this report, all references to U.S. dollars or US$ are to the currency of the United States,
and all references to Australian dollars, A$ or AUD$ are to the currency of Australia.
Unless otherwise indicated or the context implies otherwise, all references to we, us, or
our refers to Immuron Limited, an Australian corporation.
Except
for the historical information contained in this report, the statements contained in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended,
with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our
current view with respect to future events and financial results. We urge you to consider that statements which use the
terms anticipate, believe, do not believe, expect, plan,
intend, estimate, and similar expressions are intended to identify forward-looking statements.
We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties
and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity,
or our achievements, or industry results, to be materially different from any future results, performance, levels of activity,
or our achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including
the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking
statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted
to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section
that appears in Item 3.D.
Key Information-Risk Factors.
of our Form 20-F for the year ended June 30, 2017.
To
date, we have funded our operations primarily through the sale of equity securities, proceeds from the exercise of options,
government grants, tax incentive payments, licensing and research collaborations and interest income.
Since
completing our initial public offering in Australia, we have concentrated our resources toward the pursuit of developing our clinical
research and development product portfolio pipeline. For additional details regarding our clinical trials see Item 4.A.,
Information on the Company - History and Development of the Company, of our Form 20-F for the year ended June 30, 2017.
Key
highlights for the six months ended December 31, 2017 were
:
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Fatty
liver trials are on track for release of top-line results in:
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-
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Q4
2018 for Pediatric NAFLD; and
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NASH
Phase II Study Completes major milestone
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Severe
Alcoholic Hepatitis Phase II trial reaches 46 (~70%) patient recruitment milestone
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Paediatric
NAFALD Phase II trial recruits 15 (~38%) of targeted 40 patients
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Clostridium
difficile infection trial obtains Ethics and Ministry of Health approval - first clinical
site open and screening patients
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US
Department of Defence completes Research Report on Travelan®
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Travelan®
enjoys continued strong sales growth in US and AUS
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On
March 8, 2018, we announced positive topline results of our IMM-124E Phase II Non - Alcoholic Steatohepatitis (NASH)
Clinical study. The results demonstrated excellent safety and tolerability and a statistically significant reduction in serum
LPS levels in patients with NASH.
Six
Months Ended December 31, 2017 Compared to Six Months Ended December 31, 2016
Revenue
from ordinary activities
Revenues
received from the sale of goods increased favorably by A$216,039 from fiscal half year 2017 to 2018.
Revenue
from the sale of our flagship product Travelan increased by 27% and our geographic sales mix of the product changed as we
achieved a 250% growth in sales of Travelan in the U.S. and a 27% increase in sales in Australia. The growth in these
regions was achieved through a series of strategic supply arrangements coupled with a new pharmacy education program which
boosted distribution outlets, improved on-shelf positioning in stores, enhanced advertising, key distributor sale agreements
and a twelve-month trade promotional initiative.
We
anticipate these markets will continue on this steady growth trajectory for the remainder of this fiscal year.
Other
income
Our
other income increased by A$570,107, or 70% during the fiscal half year 2018 in comparison to the same time last year predominantly
due to an increase in the Group’s estimate of R&D tax incentives claimable from the Australian Tax Office. This
amount was calculated based on the tax incentive policy introduced by the Australian Government on July 1, 2011.
The Group is entitled to 43.5% of tax incentives based on the total eligible research and development expenditure incurred
during the period. The significant increase in our level of eligible research and development expenditures being incurred
during the fiscal half year 2018. This research and development increase was predominantly due to the increased expenditures
of our major Phase II NASH clinical trial as the program recruitment accelerated and more patients entered the trial.
Research
and development expenses
Research
and development expenses decreased to A$1,540,436 for the six months ended December 31, 2017 from A$2,117,867
for the six months ended December 31, 2016, which represented a decrease of A$577,431, or 27%. The decrease in
research and development expenses during the six months ending December 31, 2017 is attributable to the slowing
down of expenditures of the NASH clinical trial as the trail program and patient recruitment and dosing reached completion.
Marketing
and promotion expenses
Marketing
and promotion expenses decreased by A$233,543, or 50% for the six months ended December 31, 2017 to A$238,192
compared to A$471,735 for the six months ended December 31, 2016 as the Company reduced its investor relations
and marketing campaigns which it had invested in leading up to the US IPO during the prior period.
Consulting,
employee and director expenses
Consulting,
employee and director expenses decreased by A$92,158, or 10% for the six months ended December 31, 2017 to A$815,232
compared to A$907,390 for the six months ended December 31, 2016 as the Company reduced its operational head count
and consultant costs during the period.
Travel
and entertainment expenses
Travel
and entertainment expenses increased by A$62,534, or 56% for the six months ended December 31, 2017 to A$174,987
compared to A$112,453 for the six months ended December 31, 2016 as the Company increased its presence in the
U.S. with key company personnel speaking at key industry forums, conferences, and investor events to lift the Company’s
profile.
Inflation
and Seasonality
Management
believes that inflation has had no material impact on the Company’s operations or financial condition and that our
operations are not currently subject to seasonal influences.
Liquidity
and Capital Resources
The
Company’s cash on hand as at December 31, 2017 totaled A$588,863. In addition, the Company has recorded a trade receivable
at December 31, 2017 of A$1.387 million from the Australian Tax Office. This amount is in respect of the 2017 R&D
tax incentive claim which was refunded to the Company on February 9, 2018. The Company also anticipates that it will receive
an R&D tax incentive refund claim for the 12 months ended June 30, 2018 sometime towards the end of calendar
year 2018.
As at
December 31, 2017 our accumulated deficit totaled A$51,420,430. Since our initial public offering, we have financed
our operations primarily through sales of equity securities, proceeds from the exercise of options, sale of Travelan,
government grants, tax incentive payments, licensing and research collaborations and interest earned on investments.
On March 16, 2018, we
completed an A$5.1 million private placement of our securities to an institutional investment fund. We sold 13,162,744
ordinary shares at A$0.39 per share, plus three (3) five-year options for every five(5) ordinary shares sold, or an
aggregate of 7,897,646 options, with an exercise price of A$0.468 per option. We also issued the placement
agents five-year warrants to purchase 526,510 ordinary shares at an exercise price of A$0.585.
We
have on issue a total of up to 214 million listed and unlisted, unexercised options and
warrants. The
options have
exercise prices ranging from
A$0.30 to A$1.892. If all unlisted options were exercised, we would receive
consideration of approximately A$31.7 million in total. There is no guarantee that we will receive
any funds from the exercise of options or warrants.
Capital
expenditures for the six months ended December 31, 2017 were A$2,180 compared to capital expenditures for the
six months ended December 31, 2016 of A$1,879. These expenditures were principally for computer equipment. We
currently do not have significant capital spending or purchase commitments, but we expect to continue to engage in capital
spending consistent with the level of our operations.
We
believe that the Australian Government tax incentive scheme relating to eligible research and development activities, introduced
on July 1, 2011, will provide us with significant benefits in future years. Such eligible R&D activities include
but are not limited to:
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Core
activities, which are experimental activities whose outcome cannot be known or determined in advance, but can only be determined
by applying a systematic progression of work;
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Core
activities conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved processes
and materials); or
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Supporting
activities that are directly related and designed to support the above.
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Under
the research and development incentive scheme, entities with an aggregated turnover for the income year of less than A$20 million
will be entitled to a 43.5% (2016: 45%) refundable tax offset. In the half-year ended December 31, 2017, we recorded
A$1,386,790 in other income with respect to funds we will receive in relation to the 2017 financial year under the research and
development incentive scheme. In the half-year ended December 31, 2016, we recorded A$779,826 in other income with respect
to funds we received in relation to the 2016 financial year under the research and development incentive scheme.
Cash
Flows
Net
cash used in operating activities increased by A$969,660 to A$3,186,278 for the six months ended December 31, 2017
compared to A$2,216,618 for the six months ended December 31, 2016. Net cash used in operating activities primarily
consists of payments to suppliers and employees. The increase in net cash used in the 2017 period was primarily due to the
increased research & development activities the Company undertook as it’s NASH Phase II clinical trial expended
and dosing of patients at clinical trial sites commenced.
Net
cash used by investing activities increased but was only negligible for the six months ended December 31, 2017
as well as for the six months ended December 31, 2016. Cash flows used for investing activities was primarily
attributable to payments for the purchase of computer and office equipment in both periods.
Net
cash used in financing activities for the six months ended December 31, 2017 was A$245,884 predominantly to repay a
loan facility the Company had in place to finance its Directors & Officers’ insurance premium. For the six months ended
December 31, 2016, the Company experienced a significant net cash inflow from financing activities of A$3,031,394 following
completion of a right issue capital raising in July 2016, followed by a shortfall placement of the remaining rights issue
in Sept 2017.
Off-Balance
Sheet Arrangements
We
are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing
or partnership entities that are likely to create material contingent obligations.
Conditions
in Australia
We
are incorporated under the laws of, and our principal offices and research and development facilities are located in, the
Commonwealth of Australia. Therefore, we are directly affected by political and economic conditions in Australia.