KZIA Kazia Therapeutics Ltd

Note 1. General information

The financial report covers Novogen Limited as a consolidated entity consisting of Novogen Limited and the entities it controlled. The financial report is presented in Australian dollars, which is Novogen Limited’s functional and presentation currency.

The financial report consists of the financial statements, notes to the financial statements and the directors’ declaration.

Novogen Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Level 1

16-20 Edgeworth David Avenue

Hornsby NSW 2077

A description of the nature of the consolidated entity’s operations and its principal activities are included in the directors’ report, which is not part of the financial report.

The financial report was authorised for issue, in accordance with a resolution of directors, on 27 February 2014. The directors have the power to amend and reissue the financial report.

Note 2. Significant accounting policies

These general purpose financial statements for the interim half-year reporting period ended 31 December 2013 have been prepared in accordance with Australian Accounting Standard AASB 134 ‘Interim Financial Reporting’ and the Corporations Act 2001, as appropriate for for-profit oriented entities. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 ‘Interim Financial Reporting’.

These general purpose financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the year ended 30 June 2013 and any public announcements made by the company during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The principal accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.

New, revised or amending Accounting Standards and Interpretations adopted

The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity.

The following Accounting Standards are most relevant to the consolidated entity:

AASB 10 Consolidated Financial Statements

The consolidated entity has applied AASB 10 from 1 July 2013, which has a new definition of ‘control’. Control exists when the reporting entity is exposed, or has the rights, to variable returns (e.g. dividends, remuneration, returns that are not available to other interest holders including losses) from its involvement with another entity and has the ability to affect those returns through its ‘power’ over that other entity. A reporting entity has power when it has rights (e.g. voting rights, potential voting rights, rights to appoint key management, decision making rights, kick out rights) that give it the current ability to direct the activities that significantly affect the investee’s returns (e.g. operating policies, capital decisions, appointment of key management). The consolidated entity not only has to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes.

10

Novogen Limited Notes to the financial statements 31 December 2013
Note 2. Significant accounting policies (continued)

AASB 11 Joint Arrangements

The consolidated entity has applied AASB 11 from 1 July 2013. The standard defines which entities qualify as joint arrangements and removes the option to account for joint ventures using proportional consolidation. Joint ventures, where the parties to the agreement have the rights to the net assets are accounted for using the equity method. Joint operations, where the parties to the agreements have the rights to the assets and obligations for the liabilities, will account for the assets, liabilities, revenues and expenses in accordance with the standards applicable to the particular asset, liability, revenue or expense

AASB 12 Disclosure of Interests in Other Entities

The consolidated entity has applied AASB 12 from 1 July 2013. The standard contains the entire disclosure requirement associated with interests in other entities: subsidiaries, joint arrangements (joint operations or joint ventures), associates and unconsolidated structured entities. It has significantly enhanced the disclosure requirements, when compared to the standards that have been replaced.

AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from  AASB  13

The consolidated entity has applied AASB 13 and its consequential amendments from 1 July 2013. The standard does not prescribe when to use fair value. Instead it provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the ‘exit price’ and it provides guidance on measuring fair value when a market becomes less active. The ‘highest and best use’ approach would be used to measure assets whereas liabilities would be based on transfer value.

AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards  arising from AASB 119 (September 2011)

The consolidated entity has applied AASB 119 and its consequential amendments from 1 July 2013. The standard eliminates the corridor approach for the deferral of gains and losses; streamlines the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income; and enhances the disclosure requirements for defined benefit plans. The standard also changed the definition of short-term employee benefits, from ‘due to’ to ‘expected to’ be settled within 12 months. Annual leave that is not expected to be wholly settled within 12 months is now discounted allowing for expected salary levels in the future period when the leave is expected to be taken.

AASB 127 Separate Financial Statements (Revised), AASB 128 Investments in Associates and Joint Ventures (Reissued) and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint  Arrangements Standard

The consolidated entity has applied AASB 127, AASB 128 and AASB 2011-7 from 1 July 2013. AASB 127 and AASB 128 have been modified to remove specific guidance that is now contained in AASB 10, AASB 11 and AASB 12 and AASB 2011-7 makes numerous consequential changes to a range of Australian Accounting Standards and Interpretations. AASB 128 has also been amended to include the application of the equity method to investments in joint ventures.

AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial  Liabilities

The consolidated entity has applied AASB 1012-2 from 1 July 2013, which enhanced the disclosure requirements of AASB 7 ‘Financial Instruments: Disclosures’ (and consequential amendments to AASB 132 ‘Financial Instruments: Presentation’) to provide information about netting arrangements, including rights of set-off related to an entity’s financial instruments and the effects of such rights on its statement of financial position.

AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle

The consolidated entity has applied AASB 2012-5 from 1 July 2013. The amendments affect five Australian Accounting Standards as follows: Confirmation that repeat application of AASB 1 (IFRS 1) ‘First-time Adoption of Australian Accounting Standards’ is permitted; Clarification of borrowing cost exemption in AASB 1; Clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 ‘Presentation of Financial Statements’; Clarification that servicing of equipment is covered by AASB 116 ‘Property, Plant and Equipment’, if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 ‘Financial Instruments: Presentation’ should be accounted for in accordance with AASB 112 ‘Income Taxes’; and clarification of the financial reporting requirements in AASB 134 Interim Financial Reporting’ and the disclosure requirements of segment assets and liabilities.

11

Novogen Limited Notes to the financial statements 31 December 2013
Note 2. Significant accounting policies (continued)

AASB 2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments

The consolidated entity has applied AASB 2012-10 amendments from 1 July 2013, which amends AASB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity’s previous accounting for its involvement with other entities are required and the timing of such adjustments.

Going concern

The consolidated entity incurred a loss after income tax of $3,069,898 (2012: $742,169) and had net cash outflows from operating activities of $2,100,814 (2012: $7,536,440) for the financial half-year ended 31 December 2013.

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal activities and realisation of assets and settlement of liabilities in the normal course of business. As is often the case with development companies, the ability of the consolidated entity to continue its development activities as a going concern including paying its debts as and when due, is dependent upon it deriving sufficient cash from investors and revenues.

The consolidated entity has received an election from the Triaxial convertible note holders that they will extinguish their liability, which as at 31 December 2013 was $1,500,000 into into ordinary shares, rather than receiving cash settlement.

As at 31 December 2013 the consolidated entity had cash in hand and at bank of $6,057,745.

Going concern is dependent upon the ability of the consolidated entity to draw down the final tranche of funds from Hudson Bay, a convertible note holder, which amounts to $2,500,000 and Hudson Bay electing to convert the notes into ordinary shares of the company. This draw down combined with cash on hand and at bank will provide sufficient working capital to fund the operation of the consolidated entity for at least 12 months from the issuance of these financial statements.

The directors are of the opinion that Hudson Bay will agree to a final draw down and accordingly have prepared the financial statements on a going concern basis. Should the drawn down not materialise or cash expenditure is greater than budgeted, there is material uncertainty whether the consolidated entity 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 these financial statements.

Note 3. Operating segments

Identification of reportable operating segments

The consolidated entity’s operating segment is based on the internal reports that are reviewed and used by the Board of Directors (being the Chief Operating Decision Makers (‘CODM’)) in assessing performance and in determining the allocation of resources.

Following the discontinued operations of the Oncology Drug Program and Wound Healing sectors and the consumer business in the prior year, the consolidated entity now operates in the Drug development business. There are no operating segments for which discrete financial information exists.

The information reported to the CODM, on at least a monthly basis, is the consolidated results as shown in the statement of profit or loss and other comprehensive income and statement of financial position.

Note 4. Revenue

 

		Consolidated
		31/12/2013				31/12/2012
		$				$
Bank interest			29,206				32,101
Royalties			-				577,900
Revenue			29,206				610,001

 

 

12

---

Novogen Limited Notes to the financial statements 31 December 2013

 

Note 5. Other income

 

		Consolidated
		31/12/2013				31/12/2012
		$				$
Net foreign exchange gain			290,988				-
Gain on disposal of Glycotex			-				462,354
Glycotex sale of asset - Glucan Technology			-				150,000
Other income			-				5,441
Other income			290,988				617,795

Note 6. Expenses

 

		Consolidated
		31/12/2013				31/12/2012
		$				$
Profit/(loss) before income tax from continuing operations includes the following specific expenses:
Depreciation
Property, plant and equipment			2,517				492
Amortisation
Patents and intellectual property			285,052				-
Total depreciation and amortisation			287,569				492
Finance costs
Imputed interest on convertible note			139,089				-
Convertible loan fee			399,307				-
Finance costs expensed			538,396				-

Note 7. Current assets - cash and cash equivalents

 

		Consolidated
		31/12/2013				30/06/2013
		$				$
Cash at bank and on hand			5,284,377				673,288
Short-term deposits			773,368				2,065,147
			6,057,745				2,738,435

Novogen Limited has entered into a Deed of Set-off where it has agreed to hold a deposited sum with the bank of at least $250,000 (30 June 2013: $250,000) at all times as security for the multi-option facility. This amount is included in the short-term deposits and is not immediately available for use by the consolidated entity.

 

13

---

Novogen Limited Notes to the financial statements 31 December 2013

 

Note 8. Current liabilities - borrowings

 

		Consolidated
		31/12/2013				30/06/2013
		$				$
Convertible notes payable			3,565,829				1,415,595

Borrowings consist of the following convertible notes:

Convertible note 1 (Triaxial) carrying value of $1,500,000

The debt was repayable in December 2013, however the Triaxial note holders have elected to convert their debt into ordinary shares, rather than receiving cash settlement. The convertible note may be exercised at the holders discretion as follows:

 

•

On completion of Phase 1a clinical trials: $400,000 converted into 16,000,000 ordinary shares in the company

•

On receipt of Investigational New Drug approval from the US Food and Drug Administration $500,000 converted into 20,000,000 ordinary shares in the company

•

On completion of Phase II clinical trials: $600,000 converted into 24,000,000 ordinary shares in the company

Convertible note 2 (Hudson Bay) carrying value of $2,065,829

The convertible note was issued to Hudson Bay in four tranches, as follows:

Tranche 1 face value of $1,100,000, issued 4 July 2013

Tranche 2 face value of $1,100,000, issued 21 October 2013

Tranche 3 face value of $2,200,000, issued 15 November 2013

Tranche 4 face value of $1,650,000, issued 24 December 2013

The notes were issued at a discount of 10% on face value and are repayable between 21 days and 24 months after the date of issue, provided that the amount converted in each trance is no less than $25,000 and no more than 50% of the face value of the most recently issued note. The convertible notes do not bear interest and are unsecured. The conversion price for the convertible securities is either 90% of the average of 3 daily volume-weighted average price (‘VWAP’) per share, during the 20 consecutive trading days immediately prior to the relevant conversion notice day, or a limited number at 130% of the average of the daily VWAP per share for the 20 consecutive trading days immediately prior to execution of the agreement.

Refer to note 9 for details of conversions.

The remaining unconverted notes are as follows:

Tranche 2 face value of $55,000

Tranche 3 face value of $850,000

Tranche 4 face value $1,650,000

Note 9. Equity - contributed equity

 

		Consolidated
		31/12/2013				30/06/2013				31/12/2013				30/06/2013
		Shares				Shares				$				$
Ordinary shares - fully paid			161,498,858				138,276,033				141,478,844				137,662,915

 

14

---

Novogen Limited Notes to the financial statements 31 December 2013
Note 9. Equity - contributed equity (continued)

 

Movements in ordinary share capital

 

Details		Date		No of shares				Issue price				$
Balance		1 July 2013			138,276,033								137,662,915
Share based payment expense		4 July 2013			822,369				$0.133				124,918
Part redemption of convertible note tranche 1		26 July 2013			1,315,790				$0.133				175,261
Part redemption of convertible note tranche 1		8 August 2013			1,013,514				$0.128				129,525
Part redemption of convertible note tranche 1		14 August 2013			675,676				$0.128				86,542
Part redemption of convertible note tranche 1		22 August 2013			405,406				$0.128				52,080
Part redemption of convertible note tranche 1		27 August 2013			337,838				$0.129				43,481
Part redemption of convertible note tranche 1		2 September 2013			337,838				$0.132				44,691
Part redemption of convertible note tranche 1		5 September 2013			506,757				$0.132				67,109
Part redemption of convertible note tranche 1		16 September 2013			517,242				$0.130				67,375
Part redemption of convertible note tranche 1		8 October 3013			413,794				$0.143				59,141
Part redemption of convertible note tranche 2		1 November 2013			337,838				$0.154				52,188
Part redemption of convertible note tranche 2		5 November 2013			506,757				$0.182				92,384
Final redemption of convertible note tranche 1		7 November 2013			1,891,892				$0.207				391,482
Part redemption of convertible note tranche 2		7 November 2013			5,202,703				$0.186				965,652
Part redemption of convertible note tranche 2		11 November 2013			974,026				$0.224				218,345
Part redemption of convertible note tranche 3		20 November 2013			5,089,821				$0.158				806,653
Part redemption of convertible note tranche 3		23 November 2013			2,873,564				$0.153				439,102
Balance		31 December 2013			161,498,858								141,478,844

Share buy-back

There is no current on-market share buy-back.

Note 10. Equity - reserves

 

		Consolidated
		31/12/2013				30/06/2013
		$				$
Available-for-sale reserve			4,389				-
Foreign currency reserve			(7,929)				-
Convertible note reserve			216,101				216,101
			212,561				216,101

Note 11. Equity - dividends

Dividends paid during the financial half-year were as follows:

 

		Consolidated
		31/12/2013				31/12/2012
		$				$
On 27 November 2012, a dividend was paid via an in-specie distribution of shares in MEI Pharma, Inc. representing 23.87 cents per ordinary share.			-				24,774,709

There were no dividends paid, recommended or declared during the previous financial year.

 

15

---

Novogen Limited Notes to the financial statements 31 December 2013

 

Note 12. Fair value measurement

Fair value hierarchy

The following tables detail the consolidated entity’s assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: Unobservable inputs for the asset or liability

 

		Level 1				Level 2				Level 3				Total
Consolidated - 31/12/2013		$				$				$				$
Liabilities
Derivative financial instruments on convertible note			-				259,303				-				259,303
Total liabilities			-				259,303				-				259,303

There were no transfers between levels during the financial half-year.

Note 13. Contingent liabilities

As a condition of establishing bank facilities Novogen Limited and its subsidiaries, Novogen Laboratories Pty Ltd and Novogen Research Pty Ltd have entered into a Guarantee and Indemnity with St George Bank in January 1997. The effect of the guarantee is to guarantee amounts owed to the bank by any of the above Novogen companies.

Although the consolidated entity assigned its liability for the property lease at 140 Wicks Road, North Ryde NSW 2113, in June 2012, it remains as the original lessee and should the assignee default on the lease, a potential liability may exist. Offsetting this contingent liability the consolidated entity holds a letter of personal guarantee from the director of the assignee company, which guarantees the obligations of the assignee company contained or implied in the original lease.

The consolidated entity is continuing to prosecute its Intellectual Property (‘IP’) rights and in June 2007 announced that the Vienna Commercial Court had upheld a provisional injunction against an Austrian company, APOtrend. The consolidated entity has provided a guarantee to the value of € 250,000 ($325,299) with the court to confirm its commitment to the ongoing enforcement process. The receivable balance is currently classified as ‘deposits held’.

The consolidated entity has attempted to reach an amicable settlement with APOtrend, however, APOtrend has recently initiated court action, having applied for legal aid, to ensure that the case continues. The consolidated entity’s legal advisers have indicated a potential maximum exposure of € 60,000 should the consolidated entity lose the case. The consolidated entity is of the opinion that it will be successful in defending the case and therefore no amount has been provided in these financial statements. Should the consolidated entity win it would appear unlikely APOtrend would have the ability to pay any settlement due to the level of unpaid court costs it has incurred.

Note 14. Events after the reporting period

No matter or circumstance has arisen since 31 December 2013 that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the consolidated entity’s state of affairs in future financial years.

 

16

---

Novogen Limited Notes to the financial statements 31 December 2013

 

Note 15. Earnings per share

 

		Consolidated
		31/12/2013				31/12/2012
		$				$
Earnings per share for profit/(loss) from continuing operations
Profit/(loss) after income tax			(3,069,898)				18,528
Non-controlling interest			14,635				-
Profit/(loss) after income tax attributable to the owners of Novogen Limited			(3,055,263)				18,528
		Number				Number
Weighted average number of ordinary shares used in calculating basic earnings per share			144,949,785				105,814,372
Weighted average number of ordinary shares used in calculating diluted earnings per share			144,949,785				105,814,372
		Cents				Cents
Basic earnings per share			(2.108)				0.018
Diluted earnings per share			(2.108)				0.018
		Consolidated
		31/12/2013				31/12/2012
		$				$
Earnings per share for profit from discontinued operations
Profit after income tax			-				723,641
Non-controlling interest			-				(246,292)
Profit after income tax attributable to the owners of Novogen Limited			-				477,349
		Number				Number
Weighted average number of ordinary shares used in calculating basic earnings per share			144,949,785				102,435,227
Weighted average number of ordinary shares used in calculating diluted earnings per share			144,949,785				102,435,227
		Cents				Cents
Basic earnings per share			-				0.466
Diluted earnings per share			-				0.466
		Consolidated
		31/12/2013				31/12/2012
		$				$
Earnings per share for profit/(loss)
Profit/(loss) after income tax			(3,069,898)				742,169
Non-controlling interest			14,635				(246,292)
Profit/(loss) after income tax attributable to the owners of Novogen Limited			(3,055,263)				495,877

 

17

---

Novogen Limited Notes to the financial statements 31 December 2013
Note 15. Earnings per share (continued)

 

		Number				Number
Weighted average number of ordinary shares used in calculating basic earnings per share			144,949,785				102,435,227
Weighted average number of ordinary shares used in calculating diluted earnings per share			144,949,785				102,435,227
		Cents				Cents
Basic earnings per share			(2.108)				0.484
Diluted earnings per share			(2.108)				0.484

6,007,216 (2012: 2,007,216) options have not been included in the determination of earnings per share as they would be anti-dilutive.

18

Novogen Limited Directors’ declaration 31 December 2013

In the directors’ opinion:

Signed in accordance with a resolution of directors made pursuant to section 303(5)(a) of the Corporations Act 2001.

On behalf of the directors

Graham Kelly

Chairman

27 February 2014

Sydney

19

Independent Auditor’s Review Report

To the Members of Novogen Limited

We have reviewed the accompanying half-year financial report of Novogen Limited (“Company”), which comprises the consolidated financial statements being the statement of financial position as at 31 December 2013, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a statement or description of accounting policies, other explanatory information and the directors’ declaration of the consolidated entity, comprising both the Company and the entities it controlled at the half-year’s end or from time to time during the half-year.

Directors’ responsibility for the half-year financial report

The directors of Novogen Limited are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such controls as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express a conclusion on the consolidated half-year financial report based on our review. We conducted our review in accordance with the Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Novogen Limited consolidated entity’s financial position as at 31 December 2013 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Novogen Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies.

20

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we complied with the independence requirements of the Corporations Act 2001.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Novogen Limited is not in accordance with the Corporations Act 2001, including:

Material Uncertainty Regarding Going Concern

Without qualifying our opinion, we draw attention to the net loss for the period of $3,069,898, net operating cash outflows of $2,100,814 and Note 2 to the financial report which indicates a number of uncertainties regarding the going concern assumption. The matters outlined in Note 2 indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report.

		GRANT THORNTON AUDIT PTY LTD
		Chartered Accountants
		L M Worsley
		Partner - Audit & Assurance
		Sydney, 27 February 2014

21