Announcement PDF              APPENDIX4D AND 30JUNE2020HALF YEARREPORT  Avecho Biotechnology Limited Appendix 4D Half-year report 1. Company details Name of entity: ABN: Reporting period: Previous period: Avecho Biotechnology Limited 32 056 482 403 For the period ended 30 June 2020 For the period ended 30 June 2019 2. Results for announcement to the market $ Revenues from ordinary activities down 95.3%* to 196,989 Loss from ordinary activities after tax attributable to the owners of Avecho Biotechnology Limited down 137.8% to (872,487) Loss for the period attributable to the owners of Avecho Biotechnology Limited down 137.8% to (872,487) Explanation of loss from ordinary activities after tax *Total revenue was decreased by 95.3% for the period to $196,989 (2019: $4,176,196), mainly due to prior period revenue including one-time licence fee from Ashland for the global exclusive manufacturing rights to Vital ET® and TPM® for use in personal care products. The loss for the Consolidated Entity after providing for income tax amounted to $872,487 (30 June 2019: profit of $2,305,152). Other income was increased by 116% to $615,671 (2019: $285,013), attributed to COVID-19 PAYG and payroll tax subsidy of $70,245 from the Australian Federal and State Government (2019: nil), $64,072 EMDG grant (2019: nil), and net foreign exchange gain of $192,464 (2019: $8,675 loss). Expenses from continuing operations were considerably lower at $1,640,477 (2019: $1,982,808), consisting of: ● ● ● lower amortisation and depreciation expense of $288,084 due to majority of fixed assets being fully depreciated in the prior year (2019: $345,580); lower travel costs of $2,484 (2019: $109,283); and lower spend on R&D of $75,282 (2019: $122,069). 3. Net tangible assets Reporting period Cents Net tangible assets per ordinary security 4. Control gained over entities Not applicable. 0.21 Previous period Cents 0.32 Avecho Biotechnology Limited Appendix 4D Half-year report 5. Loss of control over entities Not applicable. 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Audit status The financial statements were subject to a review by the auditors and the review report is attached as part of the Half Year Report. 11. Attachments Details of attachments (if any): The Half Year Report of Avecho Biotechnology Limited for the period ended 30 June 2020 is attached. 12. Signed Signed ___________________________ Dr Greg Collier Chairman Date: 27 August 2020 Avecho Biotechnology Limited ABN 32 056 482 403 Half Year Report - 30 June 2020 Avecho Biotechnology Limited Contents 30 June 2020 Corporate directory Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's review report to the members of Avecho Biotechnology Limited 1 2 3 5 6 7 8 9 10 17 18 Avecho Biotechnology Limited Corporate directory 30 June 2020 Directors Dr Greg Collier (Non-Executive Chairman) Dr Ross Murdoch (Non-Executive Director) Mr David Segal (Non-Executive Director) Mr Matthew McNamara (Non-Executive Director) Chief Executive Officer Dr Paul Gavin Company Secretary Ms Melanie Leydin Registered office Unit A8, 2A Westall Road Clayton VIC 3168 Australia Principal place of business Unit A8, 2A Westall Road Clayton VIC 3168 Australia Telephone: +61 3 9002 5000 Email: info@avecho.com.au Share register Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 Australia Telephone: +61 3 9415 5000 Fax: +61 3 9473 2500 Auditor Grant Thornton Audit Pty Ltd Collins Square Tower 5 727 Collins Street Melbourne VIC 3008 Stock exchange listing Avecho Biotechnology Limited securities are listed on the Australian Securities Exchange. (ASX code: AVE) Website www.avecho.com.au 2 Avecho Biotechnology Limited Directors' report 30 June 2020 The directors present their report, together with the financial statements, on the Consolidated Entity consisting of Avecho Biotechnology Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled at the end of, or during, the period ended 30 June 2020. Directors The following persons were directors of Avecho Biotechnology Limited during the whole of the financial period and up to the date of this report, unless otherwise stated: Dr Greg Collier (Non-Executive Chairman) (Executive Chairman until 30 April 2020, and becoming Non-Executive Chairman on 1 May 2020) Dr Ross Murdoch (Non-Executive Director) Mr David Segal (Non-Executive Director) Mr Matthew McNamara (Non-Executive Director) (appointed 13 January 2020) Principal activities The principal activities of the Consolidated Entity are the development, production, sale and licensing of products incorporating its patented platform technology TPM, for the pharmaceutical, animal health and nutrition industries. Review of operations Avecho’s core business strategy is to develop and commercialise its TPM® technology. Each of the business divisions, Human Health, Animal Health and Nutrition, and Production, have progressed with the common goal of advancing commercialisation of the Company’s TPM® technology. Avecho has remained largely unaffected by the current COVID-19 crisis. Strict social distancing guidelines and work from home practices have been implemented, and staff continue to work to advance the ongoing programs. There have been minor delays where research studies relied on partnership or collaboration with third parties around the world, as local shutdowns for specific countries have affected ongoing laboratory practices and the ability to transport material. During the six-month ending 30 June 2020. Avecho completed a management restructure, with the appointment of Dr Paul Gavin and Dr Roksan Libinaki, as CEO and COO, respectively. Human Health Avecho continued its initial development of an oral cannabinoid product with enhanced solubility and absorption. The Company signed supply partnerships with Purisys and Tasmanian Alkaloids for the provision of both synthetic cannabinoids and natural cannabis extracts to facilitate this early research and development, as well as safeguard future commercial supply. Early work undertaken by Avecho and partners demonstrated that TPM® could increase the solubility of cannabinoids, a limitation that leads to poor oral bioavailability, high variability in absorption, and difficulty in developing aqueous dosage forms. Ongoing research aims to identify optimal formulation compositions that maximise these effects invitro and in subsequent animal models in-vivo. These studies will prioritise formulations for testing in upcoming clinical trials. Avecho’s cannabinoid program will aim to develop a pharmaceutical dosage form and will support the benefits of including TPM® in natural extracts for the medicinal cannabis market. This will open additional licensing opportunities for the use of TPM® in third-party medicinal cannabis products, both in Australia and around the world, including the large North American markets. This year our core injectables program continued to advance. Having passed formal stability, business development materials were finalised for a number of products in the injectable portfolio to support further licensing discussions. In parallel, the Company interviewed a range of international partnering and advisory firms in order to broaden the outreach and increase the likelihood of successful licensing deals. Avecho’s preferred firm was subsequently engaged and has now begun work on the licensing campaign. Our Propofol TPM® formulation, previously partnered with Terumo, was successfully reformulated and has resumed development. It will also form part of the business development campaign. Animal Health portfolio The Company continued to pursue animal health opportunities with third parties. A number of our commercial partners continued to evaluate the utility of TPM® in feed and veterinary products for livestock. Performance and proof-of-concept studies are being undertaken by and with these partners. Avecho is currently working with the European Food and Safety Authority (EFSA) in regards to its application for TPM® to be utilised as a feed additive in the EU. 3 Avecho Biotechnology Limited Directors' report 30 June 2020 Production portfolio We continue to support Ashland’s manufacturing requirements, under our previous arrangement (i.e. at profit) for Vital ET® and TPM® for use in personal care products, as they work to implement and scale up the manufacturing methods in their US facilities. We manufactured 1.8 tonnes of product in 2020. Review of financial results The loss for the Consolidated Entity after providing for income tax amounted to $872,485 (30 June 2019: profit of $2,305,152). Total revenue was decreased by 95.3% for the period to $196,989 (2019: $4,176,196), mainly due to prior period revenue including one-time licence fee from Ashland for the global exclusive manufacturing rights to Vital ET® and TPM® for use in personal care products. Other income was increased by 116% to $615,671 (2019: $285,013), attributed to COVID-19 PAYG and payroll tax subsidy $70,245 from the Australian Federal and State Government, $64,072 EMDG grant (2019: nil) and net foreign exchange gain of $192,464 (2018: $8,675 loss). ● ● ● lower amortisation and depreciation expense of $288,084 due to the majority of fixed assets being fully depreciated in prior year (2019: $345,580); lower travel costs of $2,484 (2019: $109,283); and lower spend on R&D of $75,282 (2019: $122,069). As at 30 June 2020, the Consolidated Entity held $2,548,118 in cash and cash equivalents (31 December 2019: $3,210,540). The net assets of the Consolidated Entity decreased by $752,485 to $4,006,466 as at 30 June 2020 (31 December 2019: $4,758,951). Working capital, being current assets less current liabilities, was $3,259,785 (31 December 2019: $3,733,319). The net operating cash outflow for the period was $806,569 (2019: inflow $2,607,310). This is mainly due to $3,571,429 ontime licence fee received in prior year from Ashland. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Consolidated Entity during the financial period. On 27 April 2020, the Company issued 20,000,000 fully paid ordinary shares to employees as a Sign-on Bonus in accordance with their letter of appointment. Matters subsequent to the end of the financial period On 18 August 2020, the Company issued 7,221,847 unlisted performance rights to a consultant for nil consideration. Each performance right is a right to acquire one fully paid share, subject to the satisfaction of vesting conditions. No other matter or circumstance has arisen since 30 June 2020 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. Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors' report. This report is made in accordance with a resolution of directors, pursuant to section 306(3)(a) of the Corporations Act 2001. On behalf of the directors ___________________________ Dr Greg Collier Chairman 27 August 2020 4 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Avecho Biotechnology Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the review of Avecho Biotechnology Limited for the period ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b no contraventions of any applicable code of professional conduct in relation to the review. Grant Thornton Audit Pty Ltd Chartered Accountants M A Cunningham Partner – Audit & Assurance Melbourne, 27 August 2020 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘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. 5 Avecho Biotechnology Limited Consolidated statement of profit or loss and other comprehensive income For the period ended 30 June 2020 Consolidated Note 30 June 2020 30 June 2019 $ $ Revenue from contracts with customers Cost of sales 5 Gross profit 196,989 (44,671) 4,176,196 (180,842) 152,318 3,995,354 Other income 6 615,675 292,606 Employee and directors benefits expenses Legal expenses Research expenses Consultancy and professional fees Amortisation and depreciation Other expenses Finance costs 7 (693,256) (11,510) (75,282) (232,272) (288,084) (336,872) (3,204) (650,098) (26,777) (122,069) (295,518) (345,580) (539,741) (3,025) (872,487) 2,305,152 - - (872,487) 2,305,152 Items that may be reclassified subsequently to profit or loss Foreign currency translation 2 13 Other comprehensive income for the period, net of tax 2 13 (872,485) 2,305,165 Cents Cents 8 Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense for the period attributable to the owners of Avecho Biotechnology Limited Other comprehensive income Total comprehensive income for the period attributable to the owners of Avecho Biotechnology Limited Basic earnings per share Diluted earnings per share 13 13 (0.06) (0.06) 0.15 0.15 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 6 Avecho Biotechnology Limited Consolidated statement of financial position As at 30 June 2020 Consolidated 31 December Note 30 June 2020 2019 $ $ Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets 2,548,118 1,000,206 140,264 71,836 3,760,424 3,210,540 755,432 148,764 163,412 4,278,148 75,417 46,426 627,000 748,843 93,710 86,218 857,000 1,036,928 4,509,267 5,315,076 Current liabilities Trade and other payables Lease liabilities Provisions Total current liabilities 175,909 53,154 271,576 500,639 188,061 89,493 267,275 544,829 Non-current liabilities Lease liabilities Provisions Total non-current liabilities 2,162 2,162 7,696 3,600 11,296 502,801 556,125 4,006,466 4,758,951 Non-current assets Plant and equipment Right-of-use assets Intangibles Total non-current assets 9 Total assets Liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses 10 Total equity 232,752,424 232,632,424 28,152,822 28,152,820 (256,898,780) (256,026,293) 4,006,466 4,758,951 The above consolidated statement of financial position should be read in conjunction with the accompanying notes 7 Avecho Biotechnology Limited Consolidated statement of changes in equity For the period ended 30 June 2020 Issued capital $ Consolidated Balance at 1 January 2019 232,632,424 Adjustment to opening accumulated losses for change in accounting standard 30,415,923 (259,148,541) - Balance at 1 January 2019 - restated Accumulated losses Total equity $ $ Reserves $ 232,632,424 - 3,899,806 (7,115) (7,115) 30,415,923 (259,155,656) 3,892,691 Profit after income tax expense for the period Other comprehensive income for the period, net of tax - 13 2,305,152 - 2,305,152 13 Total comprehensive income for the period - 13 2,305,152 2,305,165 Transactions with owners in their capacity as owners: Transfer Employee equity settlement benefits - (2,154,301) 10,186 2,154,301 - 10,186 28,271,821 (254,696,203) 6,208,042 Balance at 30 June 2019 232,632,424 Issued capital $ Consolidated Balance at 1 January 2020 Accumulated losses Total equity $ $ Reserves $ 232,632,424 28,152,820 (256,026,293) 4,758,951 Loss after income tax expense for the period Other comprehensive income for the period, net of tax - 2 (872,487) - (872,487) 2 Total comprehensive income for the period - 2 (872,487) (872,485) 120,000 - - 120,000 28,152,822 (256,898,780) 4,006,466 Transactions with owners in their capacity as owners: Issue of shares as sign-on bonus Balance at 30 June 2020 232,752,424 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 8 Avecho Biotechnology Limited Consolidated statement of cash flows For the period ended 30 June 2020 Consolidated Note 30 June 2020 30 June 2019 $ $ Cash flows from operating activities Receipts from customers (inclusive of GST) Receipt of recoveries Receipt of government grants Other receipts Payments to suppliers and employees (inclusive of GST) 195,791 114,072 33,000 (1,149,432) 4,429,842 87,500 (1,910,032) (806,569) 2,607,310 Cash flows from investing activities Interest received 605 15,907 Net cash from investing activities 605 15,907 Cash flows from financing activities Principle element of lease payments (45,713) (44,611) Net cash used in financing activities (45,713) (44,611) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Effects of exchange rate changes on cash and cash equivalents (851,677) 3,210,539 189,256 2,578,606 2,111,171 - Cash and cash equivalents at the end of the financial period 2,548,118 4,689,777 Net cash from/(used in) operating activities The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 9 Avecho Biotechnology Limited Notes to the consolidated financial statements 30 June 2020 Note 1. General information The financial statements cover Avecho Biotechnology Limited as a Consolidated Entity consisting of Avecho Biotechnology Limited and the entities it controlled at the end of, or during, the period. The financial statements are presented in Australian dollars, which is Avecho Biotechnology Limited's functional and presentation currency. Avecho Biotechnology Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Unit A8, 2A Westall Road Clayton VIC 3168 Australia 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 statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 27 August 2020. Note 2. Significant accounting policies These general purpose financial statements for the interim half-year reporting period ended 30 June 2020 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 31 December 2019 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. Basis of preparation These general purpose financial statements for the interim half-year reporting period ended 30 June 2020 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 2019 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. Going concern The Consolidated Entity has incurred a loss after tax of $872,487 during the half year ended 30 June 2020 (2019: profit of $2,305,152), experienced net cash outflows from operations of $806,569 (2019: net inflow of $2,607,310) and at 30 June 2020 has cash and cash equivalents of $2,548,118 (31 December 2019: $3,210,540). During and since the end of the financial year, the directors continue to pursue a number of actions to ensure the Consolidated Entity can continue to fund its operations including meeting with potential business partners on licencing and partnering opportunities. The Consolidated Entity may need to raise additional capital in order to execute its near term and medium term plans for development and commercialisation of its technology, in the event that sufficient revenue is not generated in the normal course of business. The existence of these conditions indicates a material uncertainty that may cast significant doubt on the Consolidated Entity's ability to continue as a going concern. 10 Avecho Biotechnology Limited Notes to the consolidated financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Notwithstanding the above, the financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity, the realisation of assets, settlement of liabilities through the normal course of business including the presumption that sufficient funds will be available to finance the operations of the Consolidated Entity. In adopting this position, the directors have had regard to the Consolidated Entity’s successful track record in raising capital. The directors believe the Consolidated Entity has the ability to raise additional capital from existing and new investors should it be required. The directors plan to continue the Consolidated Entity's operations on the basis as outlined above, and believe sufficient plans are in place to ensure the Consolidated Entity can meet its obligations and liabilities for at least twelve months from the date of this report. If the Consolidated Entity is unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the normal course of business and at amounts different to those stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of liabilities that might result should the Consolidated Entity be unable to continue as a going concern and meet its debts as and when they become due and payable. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Consolidated Entity for the period ended 30 June 2020. Note 3. Critical accounting judgements, estimates and assumptions The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas of assumptions and estimates are: (1) R&D Tax Incentives From 1 July 2011 the Australian Government has provided a tax incentive, in the form of a refundable tax offset of 43.5%, for eligible research and development expenditure. Management has assessed its research and development activities and expenditure to determine which are likely to be eligible under the scheme. For the period ended 30 June 2020 the Consolidated Entity has recorded an item in other income of $258,552 (2019: $197,513) to recognise this amount which relates to this period. (2) Share-based payment transactions The Consolidated Entity measures the cost of equity-settled transactions with employees 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 binomial and BlackScholes methods 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 expenses and equity. (3) Estimated impairment of intangibles The Consolidated Entity tests whether intangible assets have suffered any impairment at each reporting date. The recoverable amount of intangible assets is assessed at its value in use. This calculation requires the use of assumptions. Note 4. Operating segments Identification of reportable operating segments The Consolidated Entity has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer in assessing the performance and in determining the allocation of resources. The operating segments are identified by management based on the Consolidated Entity’s risks and returns that are affected predominantly by differences in the products and services provided. The reportable segments are based on aggregated operating segments determined according to the nature of the products and services provided, with each reportable segment representing a strategic business unit that offers different products and serves different markets. 11 Avecho Biotechnology Limited Notes to the consolidated financial statements 30 June 2020 Note 4. Operating segments (continued) Production Production portfolio manufactures and sells TPM® and Vital ET® for the use in drug delivery and cosmetic formulations. Human Health Avecho’s Human Health portfolio covers the reformulation of pharmaceutical injectable, oral and topical/transdermal dosage forms. Revenue is derived from royalty streams, licencing and contract research. The division continues to prioritise development on a range of injectable dosage forms that use TPM® to increase drug solubility. These products are the focus of an ongoing licensing campaign, which also includes other assets developed by the Human Health division (TPM®/Oxymorphone, TPM®/Oxycodone and TPM®/Diclofenac). Avecho commenced its initial development of an oral cannabinoid product with enhanced solubility and absorption. Early work undertaken by Avecho and partners demonstrated that TPM® could increase the solubility of cannabinoids, a limitation that leads to poor oral bioavailability, high variability in absorption, and difficulty in developing aqueous dosage forms. Avecho’s cannabinoid program will aim to develop a pharmaceutical dosage form and will support the benefits of including TPM® in natural medicinal cannabis extracts. This will open additional licensing opportunities for the use of TPM® in third-party medicinal cannabis products, both in Australia and around the world, including the large North American markets. All other segments The Animal Health and Nutrition segment did not meet materiality levels and is included in the other segments. Operating segment information Human Health $ Production $ Consolidated - 30 June 2020 Sales, Licences and Royalties Cost of sales Income from government subsidy and grants Other Income Net foreign exchange gain Interest revenue Depreciation and amortisation Consulting and professional expenses Employee and directors benefits expenses Expenses allocated to inventory Research expenses Other operating expenses from continuing operations Profit/(loss) before income tax expen