MGC PHARMACEUTICALS LTD
ABN 30 116 800 269
ANNUAL REPORT
30 June 2023
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
2
Contents
Corporate Directory ................................................................................................................................................. 3
Directors’ Report ...................................................................................................................................................... 4
Auditor’s Independence Declaration .......................................................................................................................23
Consolidated Statement of Profit or Loss and Other Comprehensive Income ...................................................... 2 4
Consolidated Statement of Financial Position ........................................................................................................ 25
Consolidated Statement of Changes in Equity ....................................................................................................... 26
Consolidated Statement of Cash Flows .................................................................................................................. 27
Contents of the Notes to the Financial Statements ............................................................................................... 28
Directors’ Declaration ............................................................................................................................................ 59
Independent Auditor’s Report to Members .......................................................................................................... 60
Additional ASX Information .................................................................................................................................... 65
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
3
Corporate Directory
Directors
Stephen Parker
Non-Executive Chairman
Roby Zomer
Managing Director and CEO
Layton Mills
Non-Executive Director
Ross Walker
Non-Executive Director
Company Secretary
Rowan Harland
Registered Office and Principal Place of Business
Suite 1, 295 Rokeby Road
Subiaco WA 6008
Tel: +61 8 6555 2950
Solicitors
Steinepreis Paganin
Level 4, The Read Buildings
16 Milligan Street
Perth WA 6000
Auditors
Hall Chadwick
Level 40, 2 Park Street
Sydney NSW 2000
Securities Exchange Listing
MGC Pharmaceuticals Ltd securities are listed on the Australian Securities Exchange (ASX) and the London Stock
Exchange (LSE).
ASX Code: MXC
LSE Code: MXC
Share Registry
Computershare Investor Services Pty Limited
Level 17
221 St Georges Terrace
Perth WA 6000
Website
www.mgcpharma.co.uk
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
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Directors’ Report
The Directors present their report on MGC Pharmaceuticals Ltd (“the Company” or “the Parent”) and its controlled
entities (collectively, “MGC”, “the Group” or “MGC Pharma”) for the financial year ended 30 June 2023.
Directors
The names of Directors in office at any time during or since the end of the year are:
1. Mr Parker transitioned into the Chairman’s role 1 June 2023.
2. Mr Mitchell ceased being a director on 1 June 2023
3. Mr Segev ceased being a director on 1 June 2023
4. Mr Hayes ceased being a director on 1 January 2023
Company Secretary
Rowan Harland and Arron Canicais were appointed joint Company Secretaries on 1 March 2023 following David
Lim’s resignation. Arron Canicais subsequently resigned 28 July 2023 leaving Mr Harland as the sole Company
Secretary.
Principal Activities
MGC Pharmaceuticals Ltd (LSE: MXC, ASX: MXC) is a European based pharmaceutical company, focused on
developing and supplying accessible and ethically produced plant derived medicines, combining in-house research
with innovative technologies, with the goal of finding or producing treatments to for unmet medical conditions.
The Company’s founders and executives are key figures in the global pharmaceuticals industry and the core
business strategy is to develop and supply high quality plant derived medicines for the growing demand in the
medical markets in Europe, North America and Australasia.
MGC Pharma has a robust development pipeline targeting two widespread medical conditions and has further
products under development.
MGC Pharma has partnered with renowned institutions and academia to optimise the development of targeted
plant derived medicines, to be produced in the Company’s EU-GMP Certified manufacturing facilities.
MGC Pharma has a growing patient base in Australia, the UK, Brazil, and Ireland and has a global distribution
footprint via an extensive network of commercial partners meaning that it is poised to supply the global market.
Operating Results
The consolidated loss of the Group amounted to $21,133,535 (2022: $20,767,823).
Dividends Paid or Recommended
No dividends have been paid or declared for payment during, or since, the end of the financial year.
Director Title Appointment Date
Stephen Parker
1
Non-Executive Chairman 13 March 2019
Roby Zomer Managing Director & CEO 15 February 2016
Ross Walker Non-Executive Director 15 February 2016
Layton Mills Non-Executive Director 1 June 2023
Brett Mitchell
2
Non-Executive Chairman 4 April 2013
Nativ Segev
3
Non-Executive Director 15 February 2016
Evan Hayes
4
Non-Executive Director 1 September 2020
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
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Review of Operations
Highlights
Research & Development
• CannEpil®, MGC Pharma's Investigational Medicinal Product ("IMP") is now available in the United
Kingdom by Named Patient Request to be prescribed by doctors on The General Medical Council ("GMC")
specialist register across the UK.
• Clinical trials to be used in the US FDA Investigational New Drug submission continue to demonstrate the
efficacy and the anti-inflammatory effects of CimetrA®; these include pharmacokinetic profile and
Mechanism of Action studies.
• Over the Counter Status granted to COVID-19 clinically tested product ArtemiC™ in the USA, can now be
stocked on USA pharmacy shelves; supply and distribution partner, AMC, has submitted a purchase order
to the value of US$2 million following the listing on the National Drug Code Database.
• Peer reviewed Glioblastoma research findings published in international scientific research journal MDPI.
• Clinical study to assess the impact of ArtemiC
TM
on patients suffering from Long-COVID was completed,
demonstrating ArtemiC
TM
(Cimet’s ability to allieviate physical syptoms and mental confusion of study
participants.
Operations
• MGC’s Maltese fully automated, large scale pharmaceutical production facility was granted EU-Good
Manufacturing Practice (GMP) certification.
• After a strategic review of operations, the board implemented further cost reductions, consisting of a
~35% reduction in director fees, and key executive officers of the Company agreeing to a 10-20% reduction
in their cash remuneration.
Licences, Approvals and Distributions Agreements
• The first UK patient received CannEpil® through the 'I AM Billy Foundation', supporting the RESCAS study.
• Key US and EU commercial partnerships expanded, with delivery of $1m order of ArtemiC
TM
to US supply
and distribution partner, AMC Holdings Inc.
• Upgrade and EU GMP recertification of Slovenian production and research facility completed, along with
independent audit and inspection by key EU/UK distribution partner Sciensus Rare.
• The first patient was enrolled in the ZAM app in association with an observational trial for CannEpil® on
patients with Refractory, or drug resistant, Epilepsy.
Corporate
• MGC completed a successful UK led fundraising, raising a total of £1,204,525 (A$2,204,281) supported by
new and existing shareholders, brokers, and high net worth individuals in both the UK and Australia.
• Layton Mills was appointed as a Non-Executive Director of the Company.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
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Research and development / clinical trials
CannEpil® and ZAM
The first patient was enrolled in the Company's proprietary data collection app and machine learning algorithm,
ZAM, in order to log the data from an observational study monitoring the effects of CannEpil®, MGC Pharma's
epilepsy treatment. The app records daily metrics from patients, their symptoms, and the impact of their treatment
in order to establish a baseline. This will provide both MGC Pharma and medical practitioners with a detailed record
of the study and an enhanced understanding of the effects of CannEpil® on Refractory Epilepsy patients.
CimetrA®
MGC Pharma completed pre-clinical rodent studies on CimetrA® in January, a major step in the clinical pathway to
the targeted US Food and Drug Administration (FDA) IND Submission. Research using rodent and mammalian
models were used to delineate the pharmacokinetic profile and general safety of the drug, as well as identifying
toxicity patterns over a given period for the treatment before it advances to the next stage of trials, as stipulated
in the FDA criteria. No anomalies were observed over the course of the study, nor were any clinical or behavioural
adverse events recorded.
In March, the Company completed the pre-clinical study on CimetrA
®
, exploring the Mechanism of Action (MoA)
of the product. The study showed that the administering of CimetrA
®
following a stimulated immune response
resulted in a significant decrease in IL-32 mRNA expression and a subsequent decrease in inflammation. This study
was the final preclinical MoA study and will enable the Company to expand future trials to show its efficacy against
further indications. The study results will form part of the FDA application to register CimetrA
®
as an IND.
ArtemiC™ (CimetrA
® OTC Version)
In March, ArtemiC™, MGC Pharma’s proprietary, clinically tested COVID-19 treatment, was granted over-the-
counter (OTC) status on the National Drug Code Database (NDC) of the FDA, facilitated by MGC Pharma's supply
and distribution partner, AMC Pharma, LLC. ArtemiC™ can now be found on the FDA National Drug Code Directory
under the code: 83278.
OTC status means that AMC has been able to sell ArtemiC™ via US-based Pharmacy Benefit Management (PBM)
networks, including prescription discount services, since April 2023. AMC are negotiating with the largest US
pharmacy networks, and independent pharmacies for the inclusion of ArtemiC™ in shelf space now that the NDC
has been listed, increasing retail access and subsequent sales.
Following the NDC Listing, AMC submitted a purchase order for US$2m of ArtemiC™, with production to
commence immediately, for delivery in two instalments in Q3 and Q4 of this year. The NDC status was a major
breakthrough for the company, as MGC Pharma works to expand global footprint and retail access.
Malta Production Facility- EU GMP Approval Granted
MGC's Maltese, fully automated, large scale pharmaceutical production facility was granted EU-Good
Manufacturing Practice (GMP) certification.
A formal grant of GMP accreditation, an internationally recognised standard, guarantees high quality, standardised
production protocols and further enables quality control of MGC proprietary products within key markets globally.
The facility was built with the support of an 80% EU cash funded grant from Malta Enterprises, with the facility
commissioned during 2022.
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Annual Report for the year ended 30 June 2023
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The facility will be able to produce all MGC medicines and supplements and will be able to provide third party
production services for other pharmaceutical companies - adding a new potential revenue stream for MGC Pharma.
MGC's in house production capacity in Malta is now over 20,000 units a day of finished dose forms, which can
support all future needs of CannEpil® and CimetrA® once marketing authorisation is obtained in the USA and
Europe.
Pre-clinical Research collaboration
MGC Pharma’s research, in collaboration with the National Institute of Biology in Slovenia, on the effect of
Cannabidiol (CBD) and Cannabigerol (CBG) extracts on Glioblastoma
1
cells was published in the November 2022
edition of the peer review science journal, MDPI
2
. The research tested the effect of CBD and CBG extracts provided
by MGC Pharmaceuticals, on Glioblastoma cells. The study found that the GPR55 and TRPV1 receptors were the
best targets for the antagonistic cannabinoids CBD and CBG (in an optimised mixture) to eliminate Glioblastoma
(GBM) stem cells and avoided using tetrahydrocannabinol (THC) a psychoactive compound found in cannabis,
which is potentially harmful, particularly in older GBM patients, with MGC Pharma looking to undertake further
tests in animal experiments and clinical trials.
Slovenian Ministry of Health approval for research with Psilocybin
During the year, MGC Pharma received permission from the Slovenian Ministry of Health to undergo scientific
research development on the psychedelic compound Psilocybin. The permission granted covers the development
of analytical methods, research of physical-chemical properties of Psilocybin and development of pharmaceutical
forms that would be suitable for administration.
MGC Pharma is one of the first companies to obtain permission to undertake pharmaceutical research on Psilocybin
and the first in Slovenia. The company plans to work with other pharmaceutical businesses to collaborate and
provide research capabilities for understanding the properties of Psilocybin. This approval will allow MGC to take
the Psychedelic industry one step closer to the pharmaceutical industry by helping to develop and research new
medicines based on Psilocybin, and for MGC to provide such services to the growing industry of Psychedelics.
Funding and Cash Flow Reporting
During the year, the Company successfully raised £1.2 million (A$2.7m) (before expenses) by way of a conditional
placing of 476,132,620 new ordinary shares of no-par value in the capital of the Company at a price of 0.44 pence
(0.8 cents) per Placing Share, and 238,066,311 Fundraise Options. The Placing was supported by a mix of new and
existing institutional and high net worth shareholder in both the UK and Australia, including Premier Miton and
Cantheon Capital, in addition to the supplementary Broker Option raise.
Subsequent Events
Post year end, the Company conditionally raised £0.65 million (A$1.24 million) (before expenses) by way of a
placing and subscription of 541,666,667 new ordinary shares of no-par value (Ordinary Shares) in the capital of the
Company (Fundraising Shares) at a price of 0.12 pence (0.23 cents) per Fundraising Share (“Issue Price”). The
Company also agreed to issue one free attaching option exercisable at 0.12 pence (0.23 cents) with an expiry date
of 14 July 2026 for every one Fundraising Share subscribed for under the Placement and Subscription.
Additionally, the Company launched a Share Purchase Plan to its Australian shareholders to raise up to $2,685,728.
The Company received applications from eligible shareholders totalling A$834,000 to subscribe for 362,608,570
1
Glioblastoma is an aggressive form of cancer affecting the central nervous system.
2
Research Paper “
The Cytotoxic Effects of Cannabidiol and Cannabigerol on Glioblastoma Stem Cells May Mostly Involve GPR55 and TRPV1 Signalling
”
(https://www.mdpi.com/2072-6694/14/23/5918/pdf)
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
8
new fully paid ordinary shares in the capital of the Company at A$0.0023 (0.23 cents) per Share, with A$1,851,728
to be placed under a Shortfall Offer. Subject to shareholder approval to be sought at the Company’s upcoming
general meeting on 5 September 2023, applicants will receive one free attaching option exercisable at A$0.003
(0.3 cents) each on or before 31 July 2026 (Options) for every two (2) Shares subscribed for under the SPP, being
181,304,269 Options.
The Company terminated its operations in Czech and Russia subsequent to the year end.
The Company finalised early termination of its 65-year lease in Malta subsequent to the year end.
Corporate and Commercial News
Appointment of Joint Broker
As announced on 30 May 2023, Oberon Capital has been appointed as a joint broker in the UK with immediate
effect alongside Peterhouse Capital.
Appointment of Public and Investor Relations Advisor
IFC Advisory has been appointed as the Company's new UK-based Public and Investor Relations advisers. The IFC
team have in-depth experience in the pharmaceutical sector and will support MGC in its stated forward trajectory.
Personnel changes
On 1 June 2023 Mr Brett Mitchell and Mr Nativ Segev, stepped down from the Board, reflecting the changing
direction of the Company as MGC Pharmaceuticals moves away from the medicinal cannabis sector toward a more
pharma-focused business strategy. Dr Stephen Parker replaced Mr Mitchell as interim Non-Executive Chair.
MGC Pharma also appointed Mr. Layton Mills as a Non-Executive Director of the Company. Mr. Mills is an
experienced life-sciences executive, having worked in the biotechnology and life sciences industries for over 15
years, developing significant experience across human and animal health in pharmaceutical and consumer
healthcare. Mr. Mills is the founder of CannPal Animal Therapeutics Pty Ltd, an Animal Health Company developing
cannabinoid-based veterinary medicines for FDA-CVM registration, which he led through an Initial Public Offering
on the Australian Stock Exchange, followed by an acquisition by AusCann Group Holdings in 2021 where he served
as CEO. Mr Mills is also the founder and Managing Director of Subgenix Lifesciences, an early-stage biotechnology
Company using conventional drug development strategies to unlock the broader therapeutic potential of
psychedelic compounds for rare and underserved health needs.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
9
Information on Directors and Secretaries
Names, qualifications and experience of current directors and company secretaries:
Roby Zomer – Managing Director and CEO
Mr. Zomer was recruited into MGC Pharma by its founders at the inception of the company and has since
served in multiple roles within the company, culminating with his current role as MD and CEO. With 11
years of experience in large scale projects in the Biotech and Agrotech sectors, Mr. Zomer has been crucial
in moving MGC Pharma from a cannabis concept to a fully functioning biopharma company with global
activities.
Interest in MGC securities held as at date of this report
Chitta Lu Limited (an entity controlled by Mr Zomer)
1 Fully Paid Ordinary Shares
4,900,000 Performance Rights
HSBC Custody Nominees (Australia) Limited (shares held via custodial account)
33,819,672 Fully Paid Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
Dr Stephen Parker, D.Phil, MBA – Non Executive Chairman
Dr Stephen Parker is a seasoned executive with over 31 years’ experience in the pharmaceuticals and
biotechnology sectors, as a senior executive in the sector, a strategic consultant, a venture capitalist and a senior
corporate financier with Baring’s, Warburg’s and Apax Partners. Dr Parker is currently Chairman of Sareum
Holdings plc and Midatech Pharmaceuticals plc and a non-Executive Director of Eternans Limited. Stephen has a
D.Phil. from Oxford University and an MBA from City University Business School.
Interest in MGC securities held as at date of this report
Dr Stephen Parker
600,000 Ordinary Shares
Held through a UK Individual Savings Account (Barclays Bank PLC)
282,316 Fully Paid Ordinary Shares
Held through Hargraves Lansdown Asset Management Limited
1,111,111 Fully Paid Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
Dr Ross Walker, MBBS (Hons), FRACP, FCSANZ - Non-Executive Director and Chairman of Strategic Advisory Board
Dr Ross Walker is an eminent practicing cardiologist with over 36 years’ experience as a clinician. For the past 21
years, he has been focusing on preventative cardiology and is one of Australia’s leading preventative health
experts.
Dr Walker is considered one of the world’s best keynote speakers and life coaches, he is the author of seven best-
selling books and a health presenter in the Australian Media
Interest in MGC securities held as at date of this report
Ross G T Walker Pty Ltd (an entity controlled by Mr Walker)
4,970,370 Ordinary Shares
Directorships held in other ASX listed entities in the past three years
Nil.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
10
Layton Mills, Adv Dip Bus Mgt & Marktg– Non-Executive Director
Mr. Mills is an experienced life-sciences executive, having worked in the biotechnology and life sciences industries
for over 15 years, developing significant experience across human and animal health in pharmaceutical and
consumer healthcare.
Mr. Mills is the founder of CannPal Animal Therapeutics Pty Ltd, an Animal Health Company developing
cannabinoid-based veterinary medicines for FDA-CVM registration, which he led through an Initial Public Offering
on the Australian Stock Exchange, followed by an acquisition by AusCann Group Holdings in 2021 where he served
as CEO. Mr Mills is also the founder and Managing Director of Subgenix Lifesciences, an early-stage biotechnology
Company using conventional drug development strategies to unlock the broader therapeutic potential of
psychedelic compounds for rare and underserved health needs.
He has extensive international business experience having been involved in corporate business activities across
Europe, Asia and North America, including government-led trade incentives with the Canberra Business Chamber.
Interest in MGC securities held as at date of this report
Nil.
Directorships held in other ASX listed entities in the past three years
Cannpal Animal Therapeutics Ltd (ASX:CP1)
Brett Mitchell, B. Ec – Non - Executive Chairman (Retired 1 June 2023)
Mr Mitchell is a corporate finance executive with over 25 years of experience in the venture capital, equity capital
markets, technology and resources sectors. He has been involved in the founding, financing and management of
both private and publicly listed companies and was instrumental in the successful LSE listing for MGC Pharma in
February 2021.
Mr Mitchell is a founder and director of Chieftain Securities Pty Ltd, a Perth based Corporate Advisory & Venture
Capital firm and founder and shareholder of Graft Polymer (UK) Ltd. Mr Mitchell is also currently Executive
Chairman of an Australian unlisted public company, Australian Cannabis Ventures Limited.
Nativ Segev – Non-Executive Director (Retired 1 June 2023)
Mr Segev founded MGC Pharma in 2014 with a goal to expand into international markets and raise the quality of
medicinal phytocannabinoid products, in addition to making them accessible to patients all over the world. Prior
to establishing MGC Pharma, Mr. Segev was a leader in the Medical Cannabis industry with a sizeable patient-base.
He has over 11 years of experience in implementation, legislation and lobbying in the global Medical Cannabis
industry, combined with over 16 years of experience in diverse executive roles.
Evan Hayes, MSC Biotech, BSC BioChem, NICM Adjunct Fellow, GAICD, MASM – Non-Executive Director (Retired
1 January 2023)
Mr Hayes is a highly experienced Board member and brings over 20+ commercial and leadership experience within
the healthcare and biotechnology sectors. Mr Hayes graduated with a Master of Science 1st Class Honours
(Biotechnology) from the National University of Ireland, Galway and prior to this he finished first in his class from
the National University of Ireland, Cork with a Bachelor of Science degree (Honours). Mr Hayes’ has also won the
Daniel O’Carroll Award for Scientific Research.
Mr Hayes is currently the Asia Pacific Managing Director of Factors Group, Canada’s largest natural health
company. Prior to this Mr Hayes was the Director of Sourcing and Product development at Australia’s largest
natural health company, Blackmores, leading the Procurement, Technical, New product development, and
Strategic sourcing divisions and managed a budget of $250m. Evan has served on multiple boards, worked in
Europe the USA and in Australia evidenced by his strong knowledge of both the FDA and the TGA. Mr Hayes is an
author of multiple patents including one world patent.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
11
Rowan Harland – Company Secretary
Mr Harland is a corporate advisory executive at SmallCap Corporate, a Perth based corporate advisory firm. Mr
Harland is responsible for a range of services including Company Secretarial services for listed and unlisted entities.
Mr Harland holds a Master of Finance degree as well as a Bachelor of Commerce from Curtin University.
Arron Canicais – Company Secretary (Resigned 28 July 2023)
Mr Canicais is an experienced finance professional who holds Company Secretary and Chief Financial Officer
positions with public and private companies across several sectors. He is an associate of the Governance Institute
of Australia and Chartered Accountants Australia and New Zealand
David Lim – Company Secretary (Resigned 1 March 2023)
Mr Lim is a finance and corporate governance professional with over 16 years of experience working for ASX Listed
companies. He has previously performed the role of Group CFO and Company Secretary at a number of ASX listed
businesses in the resources sector.
Mr Lim is a Certified Practicing Accountant and holds a Graduate Diploma of Applied Corporate Governance from,
and is an Associate member of, the Governance Institute of Australia.
Business Risks
Sufficiency of funding
The Group’s business strategy will require substantial expenditure and there can be no guarantees that the
Company’s existing cash reserves and funds generated over time by the Company’s business will be sufficient to
successfully achieve all the objectives of the Company’s business strategy. Further funding of projects may be
required by the Company to support the ongoing activities and operations of the Group, including the need to
conduct further research and development, enhance its operating infrastructure and to acquire complementary
businesses and technologies.
Accordingly, the Company may need to engage in equity or debt financing to secure additional funds. If the
Company is unable to use debt or equity to fund expansion after utilising existing working capital, there can be no
assurance that the Company will have sufficient capital resources for that purpose, or other purposes, or that it
will be able to obtain additional resources on terms acceptable to the Company or at all.
Any additional equity financing may be dilutive to the Company’s existing Shareholders and any debt financing, if
available, may involve restrictive covenants, which limit the Company’s operations and business strategy. If the
Company is unable to raise capital if and when needed, this could delay or suspend the Company’s business
strategy and could have a material adverse effect on the Company’s activities.
Default Risk – Debt and Convertible Securities Agreement
As announced on 10 September 2020, the Company entered into a convertible securities agreement with Mercer,
a United States based investment group (2020 Convertible Securities Agreement). Pursuant to the 2020
Convertible Securities Agreement, the Company was provided with funding of up to $15,000,000 (Mercer Facility).
Under the 2020 Convertible Securities Agreement, a total of 6,325,000 convertible notes were issued in two
tranches (representing drawdowns of A$5,750,000) (Convertible Notes). The Company has obligations to either
repay outstanding amounts owed by the Company, or issue Shares upon receipt of a conversion notice. As at the
date of this Prospectus, a total of 4,225,000 Convertible Notes have been converted into Shares and the balance
of 2,100,000 Convertible Notes remain on issue. As announced on 2 February 2023, the Company and Mercer
agreed to extend the maturity date of the 2,100,000 convertible notes on issue from 24 November 2022 to 1
February 2024.
As announced on 29 July 2022, the Company entered into an agreement with Mercer (2022 Convertible Securities
Agreement), whereby Mercer conditionally agreed to provide the Company with up to a total of US$10 million in
funding. During the period from 4 August 2022 to 1 November 2022, the Company drew down an aggregate of
US$3,100,000 in exchange for the issue of 3,410,000 Convertible Notes. During the period from 28 December 2022
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
12
to 6 February 2023, the Company drew down an additional US$1,133,120 in exchange for the issue of 1,246,432
Convertible Notes. On 9 March 2023 (prior to the general meeting of Shareholders), the Company drew down an
additional US$500,000 in exchange for the issue of 550,000 Convertible Notes.
At the date of this report, the Company has issued 2,100,000 Convertible Notes under the 2020 Convertible
Securities Agreement and 5,206,432 Convertible Notes under the 2022 Convertible Securities Agreement.
The Company expects to be able to redeem the Convertible Notes or make interest payments in respect of the
amounts advanced under the Convertible Notes using the proceeds from future debt or equity raisings, cash flows
from operations or proceeds from the sale of assets. However, there is a risk that the Company may be unable to
procure or raise sufficient cash resources from its operations, future debt or equity raisings. Should the Company
default on its obligations under the Convertible Securities Agreement, an event of default will occur. In these
circumstances, if the Company is unable to raise sufficient funds or otherwise cure the default, Mercer will be able
to seek immediate repayment of the debts due or enforce the security granted under the associated security
document and sell some or all of the Company’s assets.
The Group does not have its own distribution operations and is reliant on contractual arrangements with third
parties
The Group does not have its own distribution capability and at present, relies on partnerships with pharmaceutical
distributors and logistics providers in key territories to facilitate the import and distribution of its products.
For example, the Company has signed a distribution agreement with Sciensus Rare, a part of UK health care group,
Sciensus, for the distribution of CannEpil® and CogniCann® in key European territories and the UK. In each
jurisdiction, the Group’s products are imported by appointed distributors who hold the required controlled
substance licences and distribution capability.
The ability of the Group to distribute its products may be severely and adversely affected, delayed or unable to
continue at all. Delays in the distribution of the Group’s products may arise due to operational issues or delays
affecting or arising from the distribution partners, which are outside the control of the Group such as any of them
losing or failing to maintain requisite licences and approvals.
The Group’s intellectual property protection may be limited
The Company is actively trademarking both its brands and ingredients of the Group’s product suites and has filed
for trademarks in both the EU and Australia, for CannEpil®, Cimetra®, CogniCann™, TopiCann™, CannEkid and
CannaHub™ (the Group’s collaboration with RMIT and HUJI). The Group has two patent protections of its products,
CimetrA and CannEpil IL. Nevertheless, the patents may be infringed by other companies around the world without
the Company’s knowledge.
Foreign exchange risks
The Company and its Australian operating subsidiary, MGC Research (Aus) Pty Ltd, are incorporated and registered
in Australia, the other members of the Group operate in numerous jurisdictions, including the United Kingdom,
Slovenia and Malta. Consequently, the Group may generate revenue and incurs costs and expenses in more than
one currency, predominately the Euro. Accordingly, the depreciation and/or the appreciation of the Euro, for
example, relative to the Australian Dollar would result in a foreign currency loss/gain. Any depreciation of the Euro,
relative to the Australian Dollar may result in lower than anticipated revenue, profit and earnings of the Company.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
13
Remuneration Report (Audited)
This report details the nature and amount of remuneration for each key management person of MGC
Pharmaceuticals Ltd, and for the executives receiving the highest remuneration.
Remuneration Policy
The remuneration policy of MGC Pharmaceuticals Ltd has been designed to align key management personnel
objectives with shareholder and business objectives by providing a fixed remuneration component and offering
specific long-term incentives based on key performance areas affecting the consolidated group’s financial results.
The Board of MGC Pharmaceuticals Ltd believes the remuneration policy to be appropriate and effective in its
ability to attract and retain the best key management personnel to run and manage the Group, as well as create
goal congruence between directors, executives and shareholders.
The Board’s policy for determining the nature and amount of remuneration for key management personnel of the
Group is as follows:
• The remuneration policy, setting the terms and conditions for the key management personnel, was
developed and approved by the Board.
• All key management personnel receive a base salary (which is based on factors such as length of service
and experience), superannuation, fringe benefits, options and performance incentives.
• The Board reviews key management personnel packages annually by reference to the consolidated
group’s performance, executive performance and comparable information from industry sectors.
The performance of key management personnel is measured against criteria agreed annually with each executive
and is based predominantly on the forecast growth of the Group’s profits and shareholders’ value. All bonuses and
incentives must be linked to predetermined performance criteria. The Board may, however, exercise its discretion
in relation to approving incentives, bonuses and options. Any changes must be justified by reference to measurable
performance criteria. The policy is designed to attract the highest calibre of executives and reward them for
performance that results in long-term growth in shareholder wealth.
Key management personnel are also entitled to participate in the employee securities incentive plan.
All remuneration paid to key management personnel is valued at the cost to the Company and expensed. Shares
given to key management personnel are valued as the difference between the market price of those shares and
the amount paid by key management personnel. Options are valued using the Black-Scholes methodology.
The Board policy is to remunerate Non-Executive Directors at market rates for time, commitment, and
responsibilities. The Board determines payments to the Non-Executive Directors and reviews their remuneration
annually, based on market practice, duties, and accountability. Independent external advice is sought when
required. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to
approval by shareholders at the Annual General Meeting. Fees for Non-Executive Directors are not linked to the
performance of the consolidated group. However, to align directors’ interests with shareholder interests, the
Directors are encouraged to hold shares in the Company and are able to participate in the employee securities
incentive plan.
Performance-based Remuneration
The Board deemed it appropriate to ensure both management and the Directors had incentive performance rights
issued. These performance rights are considered a combination of service-based criteria and milestones linked to
share price growth. The Board considers this appropriate, as it aligns with creating shareholder value and also
assists retaining key people which are paid at or below market rates to reduce cash outlay.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
14
Company Performance, Shareholder Wealth and Director and Executive Remuneration
Overview of Company Performance
The table below sets out information about MGC Pharmaceuticals Group earnings and movements in shareholder
wealth for the past five years up to and including the current financial year.
30 June 2023 30 June 2022 30 June
2021
30 June 2020 30 June 2019
Net loss after tax ($)
attributable to members
of the parent entity
(20,823,584) (20,347,439) (15,871,978) (19,370,226) (8,623,856)
Share price at year end
($)
0.005 0.02 0.037 0.02 0.052
Basic loss per share
(cents)
(0.71) (0.79) (0.83) (1.40) (0.71)
Dividends paid - - - - -
Key Management Personnel Remuneration Policy
The Board's policy for determining the nature and amount of remuneration of key management for the Group is
as follows:
The remuneration structure for key management personnel is based on a number of factors, including length of
service, particular experience of the individual concerned, and overall performance of the Company. The contracts
for service between the Company and key management personnel are on a continuing basis, the terms of which
are not expected to change in the immediate future. Upon retirement key management personnel are paid
employee benefit entitlements accrued to date of retirement.
All Directors had contracts in place with the Company during the financial year as detailed below.
Material terms of agreements in place during the financial year:
Brett Mitchel
l
, Non - Executive Chairman
o Mr Mitchell ceased being a director on 1 June 2023, continuing in the role of Corporate Advisor to the
Board
S
ervices Agreement with Sibella Capital Pty Ltd, an entity controlled by Mr Mitchel
l
• MGC Pharmaceuticals Ltd executive services agreement. This is a 12-month rolling contract with 90 days’
notice and no termination fee payable;
o Fees of £13,000 per month paid at agreed exchange rate of 0.52504 AUD per GBP.
Dr Stephen Parker, Non-Executive Chairman
• Director Agreement dated 1 July 2020, no termination date or payment on termination;
o Non-Executive Director fees of £2,200 per month
Roby Zomer, CEO & Managing Director
• Director Agreement dated 1 July 2020, no termination date or payment on termination;
o Standard director fee of £2,500 per month
• MGC Pharma (UK) Ltd Non-Executive Director agreement commenced 30 June 2016; no termination date
or payment on termination;
o Fees of £910 per month
• MGC Pharmaceuticals d.o.o (the Group’s Slovenian subsidiary) director agreement addendum commenced
25 January 2022; no termination date or payment on termination;
o Fees of €1,203.36 per month
Paid to Chitta Lu Limited, an entity controlled by Mr Zomer:
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
15
Roby Zomer, CEO & Managing Director
• MGC Pharmaceuticals Ltd executive services agreement. This is a 12-month rolling contract with 90 days’
notice and no termination fee payable;
o Fees of £11,000 per month.
Mr Nativ Segev, Non-Executive Director
• Mr Segev ceased being a director on 1 June 2023
• MGC Pharmaceuticals d.o.o (the Group’s Slovenian subsidiary) director agreement terminated 30/06/2023
S
ervices Agreement with Brighgh
t
Global Limited, an entity controlled by Mr Segev, valid from 1 July 202
0
• MGC Pharmaceuticals Ltd services agreement this automatically renews every 12 months unless
terminated, 90 days’ notice;
o Fees of $9,000 per month
o Terminated 30 June 2023
Dr Evan Hayes, Non-Executive Director
• Mr Hayes ceased being a director on 1 January 2023
Dr Ross Walker, Non-Executive Director
• Director Agreement dated 1 July 2020, no termination date or payment on termination;
o Non-Executive Director fees of $4,000 per month
Layton Mills
,
Non-Executive Director
• Director Agreement dated 1 June 2023, no termination date or payment on termination;
o Non-Executive Director fees of $4,000 per month
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
16
Details of Remuneration
Key Management Personnel Remuneration
Short-term Benefits
Post-
e
mployment
benefits
Directors
Cash and
salary
Perfor-
mance
Bonus
Other
ii
Super-
annuat
ion
Termin
ation
benefit
s
Equit
y
Share
based
Payment
s
i
Total
Perform-
ance
related
%
2023
Brett Mitchell 337,928 - - - - - - 337,928 -
Roby Zomer 354,018 - - - - - - 354,018 -
Nativ Segev 116,732 - - - - - - 116,732 -
Ross Walker 44,000 - - - - - - 44,000 -
Stephen Parker 30,591 - - - - - - 30,591 -
Evan Hayes 35,200 - - - - - - 35,200 -
Layton Mills - - - - - - - -
Total 918,469 - - - - - - 918,469 -
2022
Brett Mitchell 378,344 - - - - - 144,730 523,074 27.67%
Roby Zomer 421,692 - 62,940 - - - 144,730 629,362 23.00%
Nativ Segev 129,992 - - - - - 8,375 138,367 7.20%
Ross Walker 48,000 - - - - - 8,375 56,375 14.86%
Stephen Parker 67,666 - - - - - 11,166 78,832 14.16%
Evan Hayes 48,000 - - - - - 11,166 59,166 18.87%
Total 1,093,694 - 62,940 - - - 328,542 1,485,176
All Directors have contracts with the Company.
Option Holdings of Key Management Personnel
Directors Opening Balance
Granted as
Compensation
Options Exercised
Net Other
Changes
Closing Balance
(vested and
exercisable)
2023
Brett Mitchell
i
4,500,000 - - - 4,500,000
Roby Zomer - - -
-
-
Nativ Segev - - -
-
-
Ross Walker - - -
-
-
Stephen Parker - - -
-
-
Evan Hayes - - -
-
-
Total 4,500,000 - - - 4,500,000
2022
Brett Mitchell 5,055,554 - (555,554) - 4,500,000
i
Roby Zomer - - - - -
Nativ Segev - - - - -
Ross Walker - - - - -
Stephen Parker - - - - -
Total 5,055,554 - (555,554) - 4,500,000
i. 4,500,000 options are held by YCAGAGF Investments Pty Ltd a company of which Mr Mitchell is a director and 33% shareholder.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
17
Performance Rights held by Key Management Personnel
Details of performance rights held directly, indirectly or beneficially by KMP and their related parties are as follows:
Directors
Opening
Balance
Granted as
Compensation
Performance
Rights
Exercised
Net Other
Changes
Balance at
Date of
Retirement
Closing
Balance
Vested
Unexercised
2023
Roby Zomer 22,400,000
-
- (17,500,000)
iii
-
4,900,000
4,900,000
Stephen Parker
1,400,000 - - (1,400,000)
iii
- - -
Ross Walker
1,050,000 - - (1,050,000)
iii
- - -
Layton Mills
v
- - - - - - -
Brett Mitchell
i
22,400,000 - -
(17,500,000)
iii
4,900,000
-
-
Nativ Segev
i
1,650,000 - - (1,050,000)
iii
600,000 - -
Evan Hayes
ii
2,000,000 - - - 2,000,000 - -
Total 50,900,000 - - (38,500,000)
7,500,000
4,900,000
4,900,000
2022
Brett Mitchell 5,000,000 27,400,000
iv
-
(10,000,000)
iii
-
22,400,000
2,400,000
Roby Zomer 5,000,000
27,400,000
iv
- (10,000,000)
iii
-
22,400,000
2,400,000
Nativ Segev
- 2,100,000
iv
- (450,000)
iii
- 1,650,000 600,000
Ross Walker
- 2,100,000
iv
(600,000) (450,000)
iii
- 1,050,000 -
Stephen Parker
- 2,600,000
iv
(600,000) (600,000)
iii
- 1,400,000 -
Evan Hayes
- 2,600,000
iv
- (600,000)
iii
- 2,000,000 600,000
Total 10,000,000 64,200,000 (1,200,000) (22,100,000)
-
50,900,000
6,000,000
i. Ceased being a Director on 1 June 2023.
ii. Ceased being a Director on 1 January 2023.
iii. Lapsed as vesting conditions not satisfied.
iv. Granted and vested during the FY22 reporting period subsequent to shareholder approval.
v. Joined as a director 1 June 2023
Shareholdings of Key Management Personnel
Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by KMP and
their parties are as follows:
Shareholdings
Directors
Opening Balanc
e
Granted as
Compensatio
n
Convertible
Securities
Exercised
Net Other
Changes
Balance at
Date of
Retirement
Closing
Balance
2023
Roby Zomer 33,819,673
-
-
- -
33,819,673
Stephen Parker 1,993,427
- - - -
1,993,427
Ross Walker 4,970,370
- - - -
4,970,370
Layton Mills
iv
-
- - - -
-
Brett Mitchell
i
30,960,558
-
-
-
30,960,558 -
Nativ Segev
i
58,000,001
- - -
58,000,001 -
Evan Hayes
ii
295,000
- - -
295,000 -
Total 130,039,029 - - -
89,255,559
40,783,470
2022
Brett Mitchell 30,405,004
-
555,554
- -
30,960,558
Roby Zomer 33,000,001
-
-
819,672
iii
-
33,819,673
Nativ Segev 53,000,001
- - 5,000,000
iii
-
58,000,001
Ross Walker 4,370,370
- 600,000 - -
4,970,370
Stephen Parker 282,316
- 600,000 1,111,111i
ii
-
1,993,427
Evan Hayes -
- - 295,000
iii
-
295,000
Total 121,057,692 - 1,755,554 7,225,783
-
130,039,029
i. Ceased being a Director on 1 June 2023
ii. Ceased being a Director on 1 January 2023
iii. Acquired on market
iv. Joined as a director 1 June 2023
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
18
Share-based and other performance-based compensation
No share-based payments were issued to Directors during the current financial year.
Performance bonuses
No performance bonuses were issued during the current financial year.
Options
There were no options over ordinary shares granted to and/or vested by directors and other key management
personnel as part of compensation during the year ended 30 June 2023.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
19
Transactions with Director related entities
Directors and officers, or their personally-related entities, hold positions in other entities that result in them having
controls or significant influence over the financial or operating policies of those entities.
Details of non-remuneration related transactions including amounts receivable and payable at the end of the year
are as follows:
Transactions Balances
(owing to)/ owed by
Related Party
Relations
h
ip
Nature of transactions
Full Year
30-Jun-23
$
Full Year
30-Jun-22
$
Full Year
30-Jun-23
$
Full Year
30-Jun-22
$
CHIEFTAIN
SECURITIES PTY LTD
(CHIEFTAIN)
(i)
Corporate services from Chieftain
– 1 Jul 20 to 31 Dec 20
- - - -
CHIEFTAIN
SECURITIES (WA) PTY
LTD (CHIEFTAIN WA)
(ii)
Corporate services from Chieftain
– 1 Jul 21 to 30 June 22
- 60,000 22,000 22,000
SPUTNIK
ENTERPRISES LTD
(iii) Corporate Advisory Services
- 149,201 - -
CHITTA LU LIMITED (iv)
Charges from CLL to corporate
administrative costs
- 7,115 - -
AUSTRALIA
CANNABIS VENTURES
LIMITED (ACV)
(v)
(Re-charges) to ACV for corporate
administrative costs
- (1,078) - -
(i) Mr Brett Mitchell holds a 25% shareholding in Chieftain Securities Pty Ltd.
(ii) Mr Brett Mitchell holds a 25% shareholding in Chieftain Securities (WA) Pty Ltd.
(iii) Mr Roby Zomer and Mr Brett Mitchell each holds a 50% shareholding in Sputnik Enterprises LTD
(iv) Mr Roby Zomer is a Director and 100% shareholder of Chitta Lu Limited
(v) Mr Brett Mitchell is an Executive Chairman and shareholder of Australian Cannabis Ventures Limited.
End of Remuneration Report
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
20
Meetings of Directors
The Directors attendances at Board meetings held during the year were:
Board Meetings
Held Attended
Roby Zomer 4 4
Stephen Parker 4 4
Ross Walker 4 4
Layton Mills
iii
- -
Brett Mitchell
i
4 4
Nativ Segev
i
4 4
Evan Hayes
ii
2 2
i. Retired 1 June 2023
ii. Retired 1 January 2023
iii. Joined as a director 1 June 2023
In additional to attending board meetings a number of Board Resolutions were passed by Written Resolution
The Company has remuneration, nomination and audit and risk committees in place. The attendances of the Sub-
Committee Members for the meetings held during the year were:
Remuneration Committee Nomination Committee Audit and Risk Committee
Held Attended Held Attended Held Attended
Brett Mitchell - - - - 3 3
Ross Walker - - - - 3 3
Stephen Parker - - - - 3 3
Evan Hayes - - - - 2 2
Corporate Governance
In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of MGC
Pharmaceuticals Ltd support and have adhered to the principles of sound corporate governance. The Board
recognises the recommendations of the ASX Corporate Governance Council, and considers that the Company is in
compliance with many of those guidelines which are of importance to the commercial operation of the Company.
During the financial year, shareholders continued to receive the benefit of an efficient and cost-effective corporate
governance policy for the Company. The Company’s Corporate Governance Policy is available for review on the
Company’s website www.mgcpharma.co.uk
Options
At the date of this report the options on issue for MGC Pharmaceuticals Ltd are as follows:
Date of Expiry Exercise Price Number
12 Apr 2024 $0.012 166,035,793
30 Nov 2024 £0.02 9,000,000
30 Jun 2025 $0.013 50,000,000
14 Jul 2026 $0.0012 452,358,614
31 Jul 2026 $0.003 181,304,269
TOTAL 858,698,676
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
21
Rights
At the date of this report the performance rights on issue for MGC Pharmaceuticals Ltd are as follows:
Description Exercise Price Vested
Number
Dec 19 Director Rights nil Yes 5,000,000
Apr 21 Employee Class C nil yes 7,500,000
Apr 21 Director Class C nil yes 5,400,000
Dec 21 Employee Class D nil yes 250,000
Dec 21 Employee Class E nil no 250,000
TOTAL 18,400,000
Convertible Notes
At the date of this report the convertible notes on issue for MGC Pharmaceuticals Ltd are as follows:
Issue Date Conversion Price
Face Value per
security
Maturity Date Number
20 Nov 2020 $0.010
1
A$1.00 1 Feb 2024 2,100,000
4 Aug 2022 $0.010
2
US$1.00 4 Feb 2024 1,320,000
26 Aug 2022 $0.010
2
US$1.00 26 Feb 2024 825,000
23 Sep 2022 $0.010
2
US$1.00 23 Mar 2024 605,000
1 Nov 2022 $0.010
2
US$1.00 1 May 2024
660,000
28 Dec 2022
$0.010
2
US$1.00 28 Jun 2024
586,432
3 Feb 2023
$0.010
2
US$1.00 3 Aug 2025
660,000
8 Mar 2023
$0.010
2
US$1.00 8 Sep 2025
550,000
Total 7,306,432
1. Shareholder approval granted on 31 March 2023 to amend the minimum conversion price of the
Remaining 2020 Convertible Notes from “not less than A$0.018” to “not less than A$0.01”.
2. Shareholder approval granted on 31 March 2023 to amend the minimum conversion price of the 2022
Convertible Notes from “not less than A$0.014” to “not less than A$0.01”.
Indemnifying Officers or Auditor
The Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay
insurance premiums as follows:
The Company has paid premiums to insure all of the Directors of the Company as named above, the company
secretary and all executive officers of the Company against any liability incurred as such by a director, secretary or
executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits
disclosure of the notice of the liability and the amount of the premium.
To the extent permitted by law, the Company has agreed to indemnify its auditors, Hall Chadwick, as part of the
terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Hall Chadwick during or since the financial year.
Proceedings on behalf of Company
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any
proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for
all or any part of those proceedings. The Company was not a party to any such proceedings during the year.
Non-audit Services
The following non-audit services were provided by the entity's auditor, Hall Chadwick: R&D rebate application and
tax compliance. The directors are satisfied that the provision of non-audit services is compatible with the general
standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type
of non-audit service provided means that auditor independence was not compromised.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Directors’ Report
22
Auditor’s Independence Declaration
The lead auditor’s independence declaration for the year ended 30 June 2023 has been received and can be found
on the following page of the financial report.
This report is made in accordance with a resolution of Directors. These financial statements were authorised for
issue in accordance with a resolution by the Directors of the Company on 29 September 2023
Roby Zomer
Managing Director
Dated 29 September 2023
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
24
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For
the year ended 30 June 2023
30-Jun-23 30-Jun-22
Note
$ $
Revenue from contracts with customers 4a) 3,387,567 4,732,012
Cost of sales 5a)
(1,936,890 ) (2,922,119 )
Gross profit
Other operating income 4c)
Administrative expenses 5b)
(14,787,073 ) (11,829,361 )
Other operating expenses 5c)
(3,642,897 ) (4,323,682 )
Fair value movement on financial instruments 5f)
(131,409 ) (1,240,814 )
Impairment expense 5d)
(4,532,940 ) (4,983,858 )
Operating loss (21,115,429 ) (20,558,632 )
Finance costs 5e)
(257,403 ) (210,142 )
Finance income 4b)
Other income
Loss before income tax
(21,131,517 ) (20,767,823 )
Income tax expense
6
(2,018 ) -
Loss for the year
(21,133,535 ) (20,767,823 )
Attributable to:
Members of the parent entity
(20,823,584 ) (20,347,439 )
Non-controlling interest
(309,951 ) (420,384 )
(21,133,535 ) (20,767,823 )
Other comprehensive income for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on the translation of foreign operations
Other comprehensive income (net of tax) for the year
Total comprehensive loss for the year
(19,868,713 ) (21,710,014 )
Total comprehensive loss attributable to:
Members of the parent entity
(19,897,587 ) (21,170,411 )
Non-controlling interest
(19,868,713 ) (21,710,014 )
Earnings per share
Basic and diluted loss for the year attributable to ordinary
equity holders of the parent
18
(0.71 )
(0.79 )
The accompanying notes form part of these financial statements
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
25
Consolidated Statement of Financial Position
As at 30 June 2023
30-Jun-23 30-Jun-22
Note
$ $
CURRENT ASSETS
Cash and cash equivalents
7
Inventory 8
Trade and other receivables 9
Prepayments
Total Current Assets
NON-CURRENT ASSETS
Plant and equipment 1
0
Intangible assets and goodwill 11
Financial assets 2
0
Right-of-use assets 14
Total Non-Current Assets
TOTAL ASSETS 9,983,652 18,557,818
CURRENT LIABILITIES
Trade and other payables 13a)
Deferred revenue 13b)
Financial liabilities at fair value through profit or loss 15
Lease liabilities 14
Total Current Liabilities
NON-CURRENT LIABILITIES
Provisions
Deferred revenue 13c)
Lease liabilities 14
Total Non-Current Liabilities
TOTAL LIABILITIES 18,015,487 13,378,035
NET (LIABILITIES) ASSETS (8,031,835 ) 5,179,783
EQUITY
Contributed equity 16a)
Share based payment reserve 16bi)
Foreign currency translation reserve 16bii)
Consolidation reserve
(382,404 ) (382,404 )
Accumulated losses
(119,168,919 ) (98,345,335 )
Equity attributable to equity holders of the parent
(7,403,080 ) 5,837,412
Non-controlling interest (628,755 ) (657,629 )
TOTAL EQUITY
(8,031,835 ) 5,179,783
The accompanying notes form part of these financial statements
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
26
Consolidated Statement of Changes in Equity
For the year ended 30 June 2023
Contributed
Equity
Share Based
Payment
Reserve
Foreign
Currency
Translation
Reserve
Consolidation
Reserve
Retained
Earnings
Non-
Controlling
Interest
Total
$ $ $ $ $ $ $
Balance at 30 June 2021 84,511,983 7,490,483 212,381 (382,404 ) (77,997,896 ) (8,648 ) 13,825,899
Other comprehensive income - - (822,972 ) - (119,219 ) (942,191 )
Loss after income tax expense - - - - (20,347,439 ) (420,384 ) (20,767,823 )
Total comprehensive loss for the year - - (822,972 ) - (20,347,439 ) (539,603 ) (21,710,014 )
Shares issued during the year (net of share issue costs) 9,243,118 - - - - 9,243,118
Exercise of performance rights 406,050 (406,050 ) - - - - -
Acquisition of Czech/Russia - - - - - (109,378 ) (109,378 )
Share based payments 90,545 839,831 - - - - 930,376
Exercise of options 509,081 - - - - - 509,081
Conversion of convertible note 2,490,701 - - - - - 2,490,701
Balance at 30 June 2022 97,251,478 7,924,264 (610,591 ) (382,404 ) (98,345,335 ) (657,629 ) 5,179,783
Balance at 1 July 2022 97,251,478 7,924,264 (610,591 ) (382,404 ) (98,345,335 ) (657,629 ) 5,179,783
Other comprehensive income
Loss after income tax expense
Total comprehensive loss for the year
Shares issued during the year (net of share issue costs) 2,768,965 - - - - - 2,768,965
Exercise of performance rights
Acquisition of ZAM Software Ltd
Share based payments
Equity issued to extinguish financial liabilities
Balance at 30 June 2023
The accompanying notes form part of these financial statements
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
27
Consolidated Statement of Cash Flows
For the year ended 30 June 2023
30-Jun-23 30-Jun-22
Note
$ $
Cash flows from operating activities
Receipts from customers 3,959,182 6,378,021
Payments to suppliers and employees
(13,794,361 ) (14,269,817 )
Payments for research expenses
(2,262,030 ) (4,241,927 )
Research and development rebate
Government grants and tax paid
(2,018 ) 650
Interest received
Interest paid
(257,403 ) (25,453 )
Net cash used in operating activities 24
(11,985,175 ) (12,158,225 )
Cash flows from investing activities
Cash acquired through assets acquisition (MGC Czech) - 151,426
Government grant received relating to plant and equipment
Payments for investments in unrelated entities
Purchase of plant and equipment / assets under construction
(189,871 ) (2,693,100 )
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issue of shares and conversion of options
Proceeds from borrowings
Payment of lease liabilities
(200,955 ) (263,008 )
Partial repayment of loan by third party
Transaction costs on issue of shares
(317,838 ) (764,061 )
Net cash provided by financing activities
Net decrease in cash and cash equivalents held
(1,655,989 ) (3,531,597 )
Cash and cash equivalents at beginning of year
Foreign exchange movement in cash
Cash and cash equivalents at end of year
7
The accompanying notes form part of these financial statements
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
28
Contents of the Notes to the Financial Statements
1. CORPORATE INFORMATION 29
2. SIGNIFICANT ACCOUNTING POLICIES 29
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 34
4. REVENUE AND OTHER INCOME 35
5. COST OF SALES AND EXPENSES 36
6. INCOME TAX 37
7. CASH AND CASH EQUIVALENTS 38
8. INVENTORY 38
9. TRADE AND OTHER RECEIVABLES 39
10. PLANT AND EQUIPMENT 39
11. INTANGIBLE ASSETS AND GOODWILL 41
12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD 41
13. PAYABLES AND DEFERRED REVENUE 42
14. LEASES 43
15. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 44
16. CONTRIBUTED EQUITY AND RESERVES 45
17. DIVIDENDS 47
18. EARNINGS PER SHARE 48
19. FINANCIAL RISK MANAGEMENT 48
20. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS 50
21. CONTROLLED ENTITIES 52
22. SEGMENT REPORTING 52
23. CONTINGENCIES AND COMMITMENTS 53
24. CASH FLOW INFORMATION 53
25. AUDITOR’S REMUNERATION 54
26. PARENT COMPANY DISCLOSURES 54
27. RELATED PARTY TRANSACTIONS 55
28. SHARE BASED PAYMENTS 55
29. EVENTS AFTER THE REPORTING DATE 58
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
29
1. CORPORATE INFORMATION
The financial statements of MGC Pharmaceuticals Ltd for the year ended 30 June 2023 were authorised for issue
in accordance with a resolution of Directors on 29 September 2023. These consolidated financial statements and
notes represent those of MGC Pharmaceuticals Ltd (the “Company”) and Controlled Entities (the “consolidated
group” or “Group”). MGC Pharmaceuticals Ltd is a for-profit com pany limited by shares incorporated and domiciled
in Australia
of the London Stock Exchange (“LSE”). The registered office of the Company is Suite 1, 295 Rokeby Road, Subiaco,
MGC Pharmaceuticals Ltd (LSE: MXC, ASX: MXC) is a European based pharmaceutical company, focused on
developing and supplying accessible and ethically produced plant derived medicines, combining in-house research
with innovative technologies, with the goal of finding or producing treatments to for unmet medical conditions.
The Company’s founders and executives are key figures in the global pharmaceuticals industry and the core
business strategy is to develop and supply high quality plant inspired medicines for the growing demand in the
medical markets in Europe, North America and Australasia.
MGC Pharma has a robust development pipeline targeting two widespread medical conditions and has further
products under development.
MGC Pharma has partnered with renowned institutions and academia to optimise the development of targeted
plant inspired medicines, to be produced in the Company’s EU-GMP Certified manufacturing facilities.
MGC Pharma has a growing patient base in Australia, the UK, Brazil, and Ireland and has a global distribution
footprint via an extensive network of commercial partners meaning that it is poised to supply the global market.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Statement of Compliance
The financial statements are general purpose financial statements that have been prepared in accordance with
Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of
the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001 as appropriate for ‘for-profit’
orientated entities.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial
statements containing relevant and reliable information about transactions, events and conditions. Compliance
with Australian Accounting Standards ensures that the financial statements and notes also comply with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board
(“IASB”). Material accounting policies adopted in the preparation of these financial statements are presented
below and they have been consistently applied unless otherwise stated.
Basis of Preparation
The financial statements have been prepared on an accruals basis and are based on historical costs, modified,
where applicable, by the measurement at fair value of financial assets and liabilities.
The preparation of the 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 group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements are disclosed in note 3.
Financial report prepared on a going concern basis
The financial statements have been prepared on the going concern basis of accounting, which assumes the
continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary
course of business.
At 30 June 2023, the Group had a cash and cash equivalents balance of $239,821 and had a net working capital
deficit of $10,801,481, which included convertible notes with a face value of $9,179,515 repayable on 24 November
2022 if not converted prior to maturity. The Group incurred a loss for the year ended 30 June 2023 of $21,133,535
and had net cash outflows from operating and investing activities of $11,378,980.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
30
The Group’s cashflow forecast for the 12 months ending 30 September 2024 indicates that the Group will require
additional capital to refinance existing debt and fund ongoing corporate expenditure and working capital
requirements.
At the date of this report, the directors are satisfied there are reasonable grounds to believe that the Group will
be able to continue its planned operations, meet its obligations as and when they fall due and thus continue as a
going concern, for the following reasons:
• On 29 July 2022 the Group entered into a new convertible securities finance agreement (“the second
agreement”) with Mercer Street Global Opportunity Fund, LLC (“the investor”) to provide the Group with
a funding facility of up to a total of US$10,000,000. At the date of this report, convertible note funding of
US$4,733,120 has been received under this agreement in seven tranches.
• Any further drawdown of funds under the second agreement is at the investor’s discretion, and the
Company having sufficient capacity under Chapter 7 of the ASX Listing Rules to issue the convertible notes,
or shareholder approval being obtained.
• The Convertible Securities Finance Agreement (“the first agreement”) entered into with the investor on 8
September 2020 expired on 8 March 2022. At the date of this report, convertible notes with a face value
of US$2,100,000 remain on issue under the first agreement with an extended Maturity Date of 24
November 2022. On 1 February 2023, the Company executed an agreement to extend the maturity date
of the A$2,100,000 convertible notes on issue, which has extended the maturity date of these convertible
notes to 1 February 2024. The investor has the option to convert these convertible notes to ordinary
shares on or prior to the Maturity Date or to demand repayment, at their discretion.
• The ability of the Group to raise additional capital in the form of debt and/or equity as part of the future
plan.
The ability of the Group to continue as a going concern is dependent on:
• The Group being able to secure additional debt and/or equity funding as and when required during the
next 12 months to conduct its planned activities and meet its corporate expenditure requirements.
• The Group’s current fundraising and commitment to further reducing overheads, as well as the
opportunity to restructure the agreements with Mercer.
These conditions indicate the existence of a material uncertainty that may cast a significant doubt about the
Group’s ability to continue as a going concern.
Should the Group not be able to continue as a going concern, it may be required to realise its assets and discharge
its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the
financial statements. The financial report does not include any adjustments relating to the recoverability and
classification of recorded asset amounts, nor to the amounts or classification of liabilities that might be necessary
should the Group not be able to continue as a going concern.
b) Principles of Consolidation
The consolidated financial statements comprise the financial statements of MGC Pharmaceuticals Ltd and its
subsidiaries as at 30 June 2023 (“the Group”).
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. Specifically, the Group
controls an investee if and only if the Group has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities
of the investee);
• Exposure, or rights, to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect its returns.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
31
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all
relevant facts and circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee;
• Rights arising from other contractual arrangements; and
• The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Group gains control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of
the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests
having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities,
equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated
in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary it, de-recognises the assets (including goodwill) and
liabilities of the subsidiary; de-recognises the carrying amount of any non-controlling interests; de-recognises the
cumulative translation differences recorded in equity; recognises the fair value of the consideration received;
recognises the fair value of any investment retained; recognises any surplus or deficit in profit or loss; and
reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as
appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
The Group applies the acquisition method in accounting for business combinations. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest (NCI) in the acquiree. Acquisition costs are expensed as incurred.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the
amount recognised for NCI over the fair value of the identifiable net assets acquired and liabilities assumed.
c) Foreign Currency
Functional and Presentation Currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”). The consolidated financial
statements are presented in Australian dollars, which is the Company’s functional and presentation currency.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in the statement of profit and loss and other comprehensive income, except when they
are attributable to part of the net investment in a foreign operation.
Foreign exchange gains and losses that relate to borrowings are presented in the statement of comprehensive
income, within finance costs. All other foreign exchange gains and losses are presented in the statement of profit
or loss on a net basis within other income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value was determined. Transaction differences on assets and liabilities carried at fair
value are reported as part of the fair value gain or loss.
Foreign operations
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
32
On consolidation, the assets and liabilities of foreign operations are translated into Australian dollars at the rate of
exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates
prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation
purposes are recognised in other comprehensive income. On disposal of a foreign operation, the component of
other comprehensive income relating to that particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign
operation and translated at the spot rate of exchange at the reporting date.
d) Trade Receivables and Other Short-Term Debtors
Trade receivables and other short-term debtors are all classified as financial assets held at amortised cost on the
basis they are held with the objective of collecting contractual cash flows and the cash flows relate to payments of
principal and interest on the principal amount outstanding.
The Group applies the simplified approach in measuring expected credit losses (ECLs) for trade receivables and
other short-term debtors, whereby an allowance for impairment is considered across all trade receivables and
other short-term debtors, regardless of whether a credit event has occurred, based on the expected losses over
the lifetime of the receivable. Therefore, the Group does not track changes in credit risk but instead recognises a
loss allowance based on lifetime ECLs at each reporting date. The Group’s exposure to bad debts is not significant
and default rates have historically been very low. Trade and other short-term receivables are written off when
there is no reasonable expectation of recovery, which may be indicated by the debtor failing to engage in a
payment plan or the debtor failing to make timely contractual payments.
e) Other Financial Assets
Other financial assets are initially measured at fair value. Transaction costs are included as part of the initial
measurement, except for financial assets at fair value through profit or loss. Other financial assets are subsequently
measured at either amortised cost or fair value depending on their classification. Classification is determined based
on both the business model within which such assets are held and the contractual cash flow characteristics of the
financial asset unless, an accounting mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and
the consolidated entity had transferred substantially all the risks and rewards of ownership. When there is no
reasonable expectation of recovering part, or all, of a financial asset, it’s carrying value is written off.
Financial assets at fair value through profit or loss
Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified
as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for
trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit,
or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are
recognised in profit or loss.
f) Impairment of Non-Financial Assets
Non-financial assets are tested for impairment when there is an indication that the asset may be impaired (which
is assessed at least each reporting date). Impairment exists when the carrying value of an asset or cash generating
unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use.
Fair value less costs of disposal calculations are based on available data from binding sales transactions, conducted
at arm’s length, for similar assets or observable market prices less incremental costs of disposing of the asset. Value
in use calculations are based on a discounted cash flow (“DCF’) model, where relevant. The cash flows are derived
from the budget for the next five years and do not include restructuring activities that the Group is not yet
committed to or significant future investments that will enhance the performance of the assets of the CGU being
tested.
g) Current and Non-Current Classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current
classification. An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
33
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• A cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
All other assets are classified as non-current. A liability is current when it is:
• Expected to be settled in normal operating cycle;
• Held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period; or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after
the reporting period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
h) Government Grants
Government grants are recognised when there is a reasonable assurance that the grant will be received and all
attached conditions will be compiled with. When the grant relates to an expense item, it is recognised as income
on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed. When the
grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related
asset.
i) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred
is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost
of acquisition of the asset, or as part of an item of the expense. Receivables and payables in the statement of
financial position are shown inclusive of GST.
Cash flows are presented in the consolidated statement of cash flows on a gross basis, except for the GST
component of investing and financing activities, which are disclosed as operating cash flows.
j) Leases
Group as Lessee
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain
ownership of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on
a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject
to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease payments include fixed payments (including in substance
fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate,
and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised b
y the Group and payments of penalties for
terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
34
payments that do not depend on an index or a rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion
of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments
or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of office rental (i.e. those
leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are
considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
k) Investments in associates
Investments in associates and joint ventures are accounted for using the equity method.
The carrying amount of the investment and associates and joint ventures is increased or decreased to recognise
the group’s share of the profit or loss and other comprehensive income of the associate and joint venture, adjusted
where necessary to ensure consistency with the accounting policies of the group.
Unrealised gains and losses on transactions between the group and its associates and joint ventures are eliminated
to the extent of the group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset
is also tested for impairment.
l) Other significant accounting policies
Refer to the relevant notes to the financial statements for other accounting policies, including revenue (note 4),
income taxes (note 6), government grants (note 4), cash and cash equivalents (note 7) inventory (note 8), plant
and equipment (note 10), share-based payments (note 28) and employee benefits (note 27).
m) Rounding of Amounts
The Company is a kind referred to in Legislative Instrument 2016/191 issued by the Australian Securities and
Investment Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the
financial statements have been rounded off in accordance with that class order to the nearest dollar.
n) New and amended Accounting Standards and Interpretations adopted by the Group
The Group has adopted all of the new and revised Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective from 1 July
2022, with no material impact to the Group.
The Group has not early adopted any new or amended Accounting Standards or Interpretations issued but not yet
effective, the impacts of which are not expected to be material to the Group.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Directors evaluate estimates and judgements incorporated into the financial report based on historical
knowledge and best available current information. Estimates assume a reasonable expectation of future events
and are based on current trends and economic data, obtained both externally and within the Group. Judgements
and estimates which are material to the financial report are found at the following notes:
a) Share based payments (refer note 28).
b) Valuation of financial liabilities valued at fair value through profit or loss
(refer note 15).
c) Leases (refer note 14).
d) Research and development rebate (refer note 5c).
e) Impairment assessment of non-current assets (refer note 11 and note 12).
f) Expected credit losses (refer note 9).
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
35
4. REVENUE AND OTHER INCOME
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to
be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the
consolidated entity identifies the contract with the customer, identifies the performance obligations in the contract
and determines the transaction price (which takes into account estimates of variable consideration and the time
value of money). The consolidated entity then allocates the transaction price to the separate performance
obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered,
and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer
to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent
events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The
measurement of variable consideration is subject to a constraining principle whereby revenue will only be
recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable
consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially
recognised as deferred revenue in the form of a separate refund liability.
Revenue from sale of pharma products
Revenue from the sale of cannabinoids is recognised when the goods have been delivered, at which point the
customer obtains control of the goods. In most cases, sales are B2B with revenue recognised as they are delivered
to the pharmacy.
Revenue from consulting services
Revenue from providing clinical research services are recognised over time as the performance obligations are
satisfied.
Revenue from sale of non-pharma products
Revenue from the sales of non-pharma products is recorded when the products have been delivered to the
consumer, signifying transfer of ownership and the point the customer obtains control of the goods.
Interest revenue
Interest revenue is recognised using the effective interest rate method.
| 30-Jun-23 | 30-Jun-22 | |
| a) Revenue from contracts with customers | ||
| $ | $ | |
| Pharma sales | ||
| 2,506,782 | 4,026,130 | |
| Consulting services (clinical research fees and clinic consults) | ||
| 6,967 | 477,666 | |
| Non-pharma sales | ||
| 873,818 | 228,216 | |
| 3,387,567 | 4,732,012 | |
| b) Finance income | ||
| Interest income calculated using the effective interest rate | ||
| method | ||
| 240 | 301 | |
| 240 | 301 | |
| c) Other operating income | ||
| Government grants | ||
| 528,213 | 9,190 | |
| 528,213 | 9,190 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
36
Research and development rebates are accounted for as a government grant. Management judgement is required
to assess that the rebate meets the recognition criteria and in determining the measurement of the rebate
including the assessment of the eligibility and appropriateness of the apportionment of eligible expenses based on
research and development activities undertaken by the consolidated entity and taking into consideration relevant
legislative requirements.
Further, the Research and Development rebate program in Australia is a self-assessment regime and there is a
four-year period from the date of lodgement where the claim may be subject to a review by the Australian Taxation
Office or AusIndustry, with any amounts over-claimed being potentially subject to full repayment with interest and
penalties.
5. COST OF SALES AND EXPENSES
| 30-Jun-23 | 30-Jun-22 | |
| a) Cost of sales | ||
| $ | $ | |
| Cost of goods sold - Pharma | ||
| 1,862,942 | 2,466,361 | |
| Cost of sales – Consulting services | ||
| 6,296 | 415,255 | |
| Cost of goods sold – Non-pharma | ||
| 67,652 | 40,503 | |
| 1,936,890 | 2,922,119 | |
| b) Administrative expenses | ||
| Corporate costs | ||
| 276,396 | 376,799 | |
| Professional and consultancy fees | ||
| 976,377 | 1,270,081 | |
| Directors’ fees | ||
| 918,469 | 1,127,436 | |
| Employee benefit expenses | ||
| 5,153,098 | 3,796,318 | |
| Employee share based payment expense | ||
| 2,656,885 | 643,782 | |
| Travel expenses | ||
| 924,940 | 975,851 | |
| Marketing expenses | ||
| 926,914 | 1,009,157 | |
| Depreciation | ||
| 751,937 | 247,689 | |
| Office and administrative expenses | ||
| 2,202,057 | 2,382,248 | |
| 14,787,073 | 11,829,361 | |
| c) Other operating expenses | ||
| Unrealised foreign exchange | ||
| 33,230 | (240,520) | |
| Realised foreign exchange | ||
| 1,183,422 | 155,952 | |
| Inventory write-off | ||
| 164,215 | 166,323 | |
| Laboratory operating expenses | ||
| 269,360 | 1,524,130 | |
| Research expense | ||
| 1,992,670 | 2,717,797 | |
| 3,642,897 | 4,323,682 |
| 30-Jun-23 | 30-Jun-22 | |
| d) Impairment expense | ||
| Impairment of goodwill (refer note 11) | ||
| 3,145,724 | 3,903,156 | |
| Impairment of work-in-progress balance on delayed site | ||
| - | 1,080,702 | |
| Impairment of equity-accounted investments (refer note 12) | ||
| 1,231,245 | - | |
| Impairment of financial assets | ||
| 155,971 | - | |
| 4,532,940 | 4,983,858 |
| 30-Jun-23 | 30-Jun-22 | |
| e) Finance cost | ||
| Finance costs | ||
| 257,403 | 210,142 | |
| 257,403 | 210,142 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
37
| Note | |||
| 30-Jun-23 | 30-Jun-22 | ||
| f) Fair value movement on financial instruments | |||
| Fair value loss on financial liability – convertible notes | |||
| 15 | |||
| 131,409 | 555,938 | ||
| Fair value loss on financial asset – investment in unlisted entity | |||
| 20 | |||
| - | 573,703 | ||
| Fair value gain on financial asset – pre-acquisition loan to MGC | |||
| Pharmaceuticals (sro) | |||
| 9 | |||
| - | (533,984) | ||
| Fair value loss on financial asset – loans to third parties | |||
| 9 | |||
| - | 645,157 | ||
| 131,409 | 1,240,814 |
6. INCOME TAX
The income tax expense/(benefit) for the period is the tax payable on the current period’s taxable income based
on the applicable income tax rate for each jurisdiction adjusted by changes in the deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate
taxable income.
Deferred income tax is provided on all temporary differences at the statement of financial position date, arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements,
and are recognised for all taxable temporary differences,
• Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, except where the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, the carry-forward of unused
tax credits and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilised:
• Except where the deferred income tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor the taxable profit or loss; and
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and
interests and joint ventures, deferred tax assets are only recognised to the extent that it is probable that
the temporary differences will reverse in the foreseeable future extent that it is probable that the temporary
differences can be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the statement of financial position date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of
profit or loss and other comprehensive income.
Tax Consolidation
The Company and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under
the tax consolidated legislation. Each entity in the Group recognises its own current and deferred tax assets and
liabilities. Such taxes are measured using the ‘stand-alone taxpayer’ approach to allocation. The Group notified
the Australian Taxation Office that it had formed an income tax consolidated group to apply from 21 October 2005.
The tax consolidated group has entered a tax funding agreement whereby each company in the Group contributes
to the income tax payable by the Group in proportion to their contributions to the Group’s taxable income.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
38
The Group has carried forward tax losses which have not been recognised as deferred tax assets as it is not
considered sufficiently probable that these losses will be recouped by means of future profits taxable in the
relevant jurisdictions.
| 30-Jun-23 | ||
| 30-Jun-22 | ||
| $ | ||
| $ | ||
| a) Major components of income tax expense for the periods | ||
| presented: | ||
| Current tax | ||
| 2,018 | ||
| - | ||
| Deferred tax | ||
| - | ||
| - | ||
| Income tax expense | ||
| 2,018 | ||
| - | ||
| b) The prima facie tax on (loss) before income tax is reconciled to | ||
| the income tax as follows: | ||
| Prima facie tax payable on (loss) before income tax at 25% (2022: | ||
| 25%) | ||
| (5,282,879) | (5,191,956) | |
| Adjustments due to permanent differences | ||
| 1,860,385 | 1,125,513 | |
| Deferred tax assets not brought to account | ||
| 3,422,494 | 4,066,443 | |
| Under/over provision of prior year | ||
| 2,018 | - | |
| Income tax expense | ||
| 2,018 | - | |
| c) Deferred Tax Assets Not Brought to Account in Australia, the | ||
| benefits of which will only be realised if the conditions for | ||
| deductibility set out above are met: | ||
| Tax losses | ||
| 9,797,970 | 8,425,862 | |
| Temporary differences | ||
| 363,744 | 579,706 | |
| Total | ||
| 10,617,714 | 9,005,568 |
7. CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities
of three months or less that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts.
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Cash at bank | ||
| 239,821 | 1,886,347 | |
| 239,821 | 1,886,347 |
8. INVENTORY
Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-
in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated
costs of completion and costs necessary to make the sale.
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Finished goods – at lower of cost and net realisable value | ||
| 523,405 | 819,615 | |
| Raw materials – at cost | ||
| 839,097 | 1,018,188 | |
| 1,362,502 | 1,837,803 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
39
9. TRADE AND OTHER RECEIVABLES
Trade receivables are generally due for settlement between thirty (30) and ninety (90) days from the date of
recognition. They are presented as current assets unless collection is not expected for more than 12 months after
reporting date.
| 30-Jun-23 | 30-Jun-22 | |
| Current | ||
| $ | $ | |
| Trade receivables | ||
| 208,742 | 738,531 | |
| Other receivables | 249,259 | 422,515 |
| GST/VAT receivable | ||
| 73,313 | 776,068 | |
| 1 | ||
| Financial assets at fair value through profit or loss | ||
| - | - | |
| 531,314 | 1,937,114 |
Other receivables are non-interest bearing and are generally on terms of 30 days.
| 30-Jun-23 | 30-Jun-22 | |
| 1 | ||
| Financial assets at fair value through profit or loss | ||
| $ | $ | |
| Opening - financial asset at fair value through profit or loss | ||
| - | - | |
| Loans acquired in asset acquisition | ||
| - | 256,527 | |
| Loan repayment received | ||
| - | (61,424) | |
| Foreign currency translation | ||
| - | (77,886) | |
| Loans advanced to third parties | ||
| - | 527,940 | |
| Net fair value loss on financial assets | ||
| - | (111,173) | |
| Acquisition of MGC Pharmaceuticals (sro) | ||
| - | (533,984) | |
| Closing – financial asset at fair value through profit or loss | ||
| - | - |
Pre-acquisition loan to MGC Pharmaceuticals (sro)
A loan was advanced to MGC Pharmaceuticals (sro) in the prior period and was classified as a financial asset at fair
value through profit or loss, with a fair value determined to be nil at the acquisition date of 31 September 2021
due to the equity risk associated with the loan. During the prior year, the Group acquired MGC Pharmaceuticals
(sro) and recognised a fair value gain of $533,984 to reverse the loss recorded in the year before. This was included
in the “net fair value gain/(loss) on financial assets” line above. Subsequent to the acquisition, the loan eliminates
on consolidation. Subsequent to the acquisition, the loan eliminates on consolidation.
10. PLANT AND EQUIPMENT
Plant and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of plant and equipment over
their expected useful lives as follows:
Plant and equipment 3-5 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic
benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit
or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained profits.
During the prior year the Group completed construction of a fully functioning GMP certified manufacturing facility
in Malta for liquid dose form products and the anti-inflammatory product ArtemiC™. At 30 June 2023 the facility
had been fully commission with a GMP licence granted in March 2023. The facility was 80% funded by way of
grant from Malta Enterprises (refer to note 13c).
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
40
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Plant and equipment | ||
| * | ||
| - gross carrying amount at cost | 2,664,866 | 2,203,496 |
| - accumulated depreciation | ||
| (1,824,984) | (1,353,483) | |
| 839,882 | 850,013 | |
| Malta manufacturing facility | ||
| - gross carrying amount at cost | ||
| 7,378,613 | 6,867,601 | |
| - accumulated depreciation and impairment | ||
| (1,354,083) | (1,052,816) | |
| 6,024,530 | 5,814,785 | |
| Total property, plant and equipment | 6,864,412 | 6,664,798 |
*
Plant and equipment primarily comprises of laboratory fixtures and fittings and equipment.
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Property, plant and equipment movement | ||
| Opening balance at 1 July | ||
| 6,664,798 | 5,272,202 | |
| Additions | ||
| 189,871 | 2,693,099 | |
| Impairment | ||
| - | (1,080,702) | |
| Depreciation | ||
| (539,498) | (247,686) | |
| Foreign currency translation | ||
| 549,241 | 27,885 | |
| 6,864,412 | 6,664,798 |
Impairment testing
Slovenia
The Group did not identify any indicators of impairment in relation to the Slovenia CGU, primarily the GMP
laboratory.
Malta
The Group’s plant and equipment balance in Malta consisted of fully constructed manufacturing facility. This facility
was granted a GMP Licence in March 2023. The Group has decided that the larger project is no longer in the long
term interest of the company and has terminated the lease on that site. All capitalised design and engineering costs
relating to the larger project had been provided for in the previous year. The Group did not identify any indicators
of impairment in relation to the current facility.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
41
11. INTANGIBLE ASSETS AND GOODWILL
| 30-Jun-23 | 30-Jun-22 | |
| Goodwill | ||
| $ | $ | |
| Opening balance at 1 July | ||
| 3,145,724 | 7,048,880 | |
| - Impairment | (3,145,724) | (3,903,156) |
| - | 3,145,724 |
Impairment of MediCaNL Israel 2019 Ltd (MediCaNL)
On 21 April 2021, MGC Pharma completed the 100% acquisition of MediCaNL Israel 2019 Ltd (MediCaNL), an Israeli
company operating and providing specialist services to the pharmaceutical sector for development of new
medicines. Performance since acquisition has been lower than expected and the Group’s impairment testing
determined that the recoverable amount of the CGU was nil as at 30 June 2023 and recorded an impairment
expense of $3,145,724 in the profit and loss.
Acquisition of MGC Pharmaceutical sro (Czech Republic) – asset acquisition
During the prior period, the Group acquired a 54% interest in MGC Pharmaceutical sro (Czech Republic), which in
turn held a 100% interest in MGC Pharmaceuticals Ltd (Russia). The acquisition occurred via a share transfer with
nil consideration. The acquiree did not meet the definition of a business and therefore the acquisition was
accounted for as an asset acquisition.
A non-controlling interest of $109,377 was recognised at the acquisition date. The non-controlling interest’s share
of loss for the year was $309,951 (2022: $410,503) and the non-controlling interest’s share of other comprehensive
income for the year was $338,825 (2022: $119,219).
Subsequent to the year end MGC Pharmaceutical (sro) was disposed of as being no longer relevant to the core
business of the Group.
12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
On 5
th
August 2022 the Company acquired 40% of the issued capital of ZAM Software Ltd, a private entity that
owns a real-time data collection software with proprietary Artificial Intelligence (AI) algorithms.
ZAM Software Ltd contributed A$nil operating profit after tax for the period from acquisition to 30 June 2023. At
30 June 2023 the Company determined that the recoverable amount of the investment was nil as at 30 June 2023
and recorded an impairment expense of $1,231,245 in the profit and loss.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
42
13. PAYABLES AND DEFERRED REVENUE
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial
year, which remain unpaid at year end. The amounts are unsecured and are usually paid within 60 days of
recognition. They are recognised at fair value on initial recognition and subsequently measured at amortised cost,
using the effective interest rate method.
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled within 12 months after the period end in which the employees render the related service
are recognised in respect of employees’ services up to the end of the reporting period and are measured at the
amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick
leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are
presented as payables.
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| a) Current trade and other payables | ||
| Trade payables | ||
| (2,185,662) | (2,523,618) | |
| Accruals | ||
| (535,546) | (688,128) | |
| Other payables | ||
| (582,618) | (307,460) | |
| (3,303,826) | (3,519,206) | |
| b) Deferred revenue - Current | ||
| Deferred revenues – customer advance | ||
| - | (1,559,501) | |
| Deferred revenue – Malta grant* | ||
| (658,133) | (250,860) | |
| (658,133) | (1,810,361) |
Deferred revenue represents the Group’s obligation to transfer goods or services to a customer for which the Group
has received consideration at 30 June 2023.
Refer to note 19 for details on management of financial risk.
c) Deferred Revenue – Non-Current
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Deferred Revenue – Malta grant* | ||
| (4,277,865) | (3,679,413) | |
| (4,277,865) | (3,679,413) |
* During the year ending June 2021, the Group received approval for a grant from Malta Enterprises to cover 80% of the
construction costs of a production facility, to the value of €3,073,000 ($4,925,000). As at 30 June 2023, an amount of €2,908,000
$4,785,411 had been received from Malta Enterprise. In accordance with AASB 120, the grant is being recognised as income on
a systematic basis over the useful life of the building once completed. Under the conditions of the grant, the Group was to
complete construction of the facility within 6 months of 10 December 2020 and, should the Group cease operations in Malta
within five years from the start of operations, Malta Enterprise retains the right to take possession of assets funded through the
grant. In March 2021 the Group received approval from Malta Enterprise to extend the period for completion of construction to
October 2021. Construction was completed in October 2021 and the facility was issued a GMP licence in March 2023.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
43
14. LEASES
At reporting date the Group has two long-term leases for the use of the land for the construction of facilities in
Malta – a 65 year lease entered into in the prior period for the larger site and a 5 year lease with 5 years option to
renew for the ArtemiC production facility. The Group also has other immaterial leases for office and lab rental.
Below are the carrying amounts of right-of-use assets recognised for the period:
| 30-Jun-23 | 30-Jun-22 | |
| Right-of-use assets | ||
| $ | $ | |
| Opening balance at 1 July | ||
| 2,133,685 | 1,869,006 | |
| Additions of right-of-use assets in period | 217,527 | 422,213 |
| Depreciation of right-of-use assets | ||
| (212,439) | (157,534) | |
| Decrease on early termination of lease | ||
| (1,628,799) | - | |
| Foreign exchange | ||
| 78,702 | - | |
| Closing balance | ||
| 588,676 | 2,133,685 |
Below are the carrying amounts of lease liabilities for the period:
| 30-Jun-23 | 30-Jun-22 | |
| Lease liabilities | ||
| $ | $ | |
| Opening balance at 1 July | ||
| 2,252,608 | 1,982,807 | |
| Additions to lease liabilities | ||
| 217,527 | 422,213 | |
| Interest on lease liabilities | ||
| 173,014 | 153,189 | |
| Lease payments | ||
| (373,969) | (263,785) | |
| Decrease on early termination of lease | ||
| (1,790,155) | - | |
| Foreign exchange | ||
| 96,114 | (41,816) | |
| Closing balance | ||
| 575,139 | 2,252,608 | |
| Current | 190,570 | 277,689 |
| Non-current | ||
| 384,569 | 1,974,919 | |
| Total lease liability | ||
| 575,139 | 2,252,608 |
The following amounts were recognised in the consolidated statement of profit or loss and comprehensive income
for the period:
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Depreciation on right-of-use asset | ||
| 212,439 | 157,534 | |
| Interest expense on lease liabilities | ||
| 173,014 | 153,189 | |
| Expense related to short-term leases | ||
| 38,844 | 118,738 | |
| Total amounts recognised in profit or loss | ||
| 424,297 | 429,461 |
The following are amounts recognised in the consolidated statement of cash flows:
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Total cash outflows for leases | ||
| 373,969 | 382,523 |
Malta long-term lease agreement
The group has determined that the larger site no longer meets the long term requirements of the group, and has
agreed an early termination of the lease agreement with the lessor. This has resulted in a significant decrease in
the long term lease liabilities and right of use assets of the company, with any differences expensed to the profit
and loss account.
Refer to note 23 for disclosures relating to additional commitments on the Malta leases.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
44
15. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Convertible notes
Australian dollar denominator facility
In September 2020, the Company entered into a convertible note financing facility with Mercer Street Global
Opportunity Fund (Mercer), under which up to A$15,000,000 can be drawn down in exchange for the issue of a
number of convertible notes with a face value of A$1.00 each equal to 110% of the amount of funding received.
The facility expired on 8 March 2022 and can no longer be drawn on. The notes drawn under this facility were
repayable at face value 12 months from the date of the respective draw down, if not converted or repurchased
prior to maturity.
On 1 February 2023, the Company executed an agreement to extend the maturity date of the A$2,100,000
convertible notes on issue, which has extended the maturity date of these convertible notes to 1 February 2024
(2020 Extension Agreement).
The notes are convertible at the discretion of Mercer at any time prior to maturity, with a conversion price as
follows:
• The conversion price will be the lower of A$0.035 or 92% of the lowest daily VWAP of the Company’s shares
selected by Mercer over the 10 trading days on which the Company’s shares are traded on the ASX immediately
prior to the issue of the conversion notice, subject to the conversion price being no less than A$0.018.
US dollar denominated facility
In July 2021, the Company entered into a convertible note financing facility with Mercer Street Global Opportunity
Fund (Mercer), under which up to US$10,000,000 can be drawn down in exchange for the issue of a number of
convertible notes with a face value of US$1.00 each equal to 110% of the amount of funding received. The facility
expires on 18 January 2024. The notes are repayable at face value 18 months from the date of the respective draw
down, if not converted or repurchased prior to maturity (US$ Con Note Facility).
Between 19 July 2022 and 7 March 2023, the Company drew down US$4,733,120 (A$7,581,350) in funding from
the US$ Con Note Facility, issuing Mercer 4,733,120 US$1.00 convertible notes. The US$ convertible notes are
convertible at the discretion of Mercer at any time prior to maturity, with a conversion price as follows:
• The conversion price will be the lower of A$0.020 or 92% of the lowest daily VWAP of the Company’s shares
selected by Mercer over the 10 trading days on which the Company’s shares are traded on the ASX immediately
prior to the issue of the conversion notice, subject to the conversion price being no less than A$0.014.
On 1 February 2023, subsequent to the balance date, the Company executed an agreement with Mercer to vary
the US$ Con Note Facility so the convertible notes issued after 23 December 2022 would have a minimum
conversion price of A$0.010, and to seek shareholder approval, before 31 March 2023, to reduce the minimum
conversion price of the 3,410,000 US$1.00 convertible notes issued before 23 December 2022, reduced from
A$0.014 to A$0.010 (2022 Variation Agreement).
The convertible notes are determined to be hybrid financial instruments and have been designated as at fair value
through profit or loss.
| 30-Jun-23 | 30-Jun-22 | |
| Financial liabilities at fair value through profit or loss | ||
| $ | $ | |
| Convertible notes | ||
| Opening balance – at 1 July | 2,100,000 | 4,034,763 |
| Issue of convertible notes | ||
| 6,948,106 | - | |
| Converted to ordinary shares | ||
| - | (2,490,701) | |
| Loss on remeasurement of financial liability | ||
| 131,409 | 555,938 | |
| Closing balance – fair value at 30 June | ||
| 9,179,515 | 2,100,000 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
45
The fair value (Level 3) of the hybrid contract was determined using valuation techniques including use of a Black-
Scholes option pricing model, with estimates of projected conversion prices and the following significant inputs to
the valuation at 30 June 2023:
| Australian dollar | ||
| facility | ||
| US dollar | ||
| facility | ||
| Valuation date | 30 June 2023 | 30 June 2023 |
| Share price | $0.005 | $0.005 |
| Exercise price | $0.010 to $0.035 | |
| 1 | ||
| $0.010 to $0.035 | ||
| 1 | ||
| Expiry date | Feb 2024 | Feb – Sep 2024 |
| Expected future volatility | 150% | 150% |
| Risk free rate | 3.00% | 3.00% |
| Dividend yield | nil | nil |
1
calculated using a weighted average of $0.030
16. CONTRIBUTED EQUITY AND RESERVES
a) Contributed equity
Issued and paid up capital is recognised at the fair value of the consideration received by the Group. Any transaction
costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the proceeds
received.
| 30-Jun-23 | 30-Jun-22 | 30-Jun-23 | 30-Jun-22 | |
| NUMBER | NUMBER | $ | $ | |
| Ordinary shares on issue, fully paid | 3,450,692,750 | 2,728,293,852 | 103,690,800 | 97,251,478 |
| 3,450,692,750 | 2,728,293,852 | 103,690,800 | 97,251,478 |
Reconciliation of movement in share capital
| No. Of Shares | Issue Price | Amount | |
| Closing balance at 30 June 2021 | 2,319,502,595 | 84,511,983 | |
| Exercise of $0.045 Options – 8 Jul 2021 | 55,555 | 0.0450 | 2,500 |
| Conversion of performance rights – 8 Jul 2021 | 400,000 | ||
| 0.0610 | |||
| 24,400 | |||
| Conversion of Convertible Notes | |||
| 1 | |||
| – 8 Jul 2021 | 14,792,899 | ||
| 0.0380 | |||
| 562,130 | |||
| Conversion of Convertible Notes | |||
| 1 | |||
| –3 Sep 2021 | 35,714,285 | ||
| 0.0540 | |||
| 1,928,571 | |||
| Exercise of $0.045 Options – 9 Sep 2021 | 11,257,368 | ||
| 0.0450 | |||
| 506,581 | |||
| Conversion of performance rights –9 Sep 2021 | 3,550,000 | ||
| 0.0610 | |||
| 216,550 | |||
| Acquisition of MediCaNL (Tranche 2) – release of unissued | |||
| shares - 20 Sep 2021 | |||
| 17,923,153 | |||
| - | |||
| - | |||
| Conversion of performance rights – 20 Sep 2021 | 300,000 | 0.0610 | 18,300 |
| Conversion of performance rights (Director) – 7 Oct 2021 | |||
| 600,000 | 0.0410 | 24,600 | |
| Conversion of performance rights (Director) – 24 Nov 2021 | |||
| 600,000 | 0.0410 | 24,600 | |
| Conversion of performance rights – 24 Nov 2021 | |||
| 200,000 | 0.0610 | 12,200 | |
| Acquisition of MediCaNL (Tranche 3) – 24 Nov 2021 – | |||
| release of unissued shares | |||
| 17,923,153 | - | - | |
| Shares issued for UK/US placement – 6 Dec 2021 | |||
| 275,000,000 | 0.0371 | 10,194,370 | |
| Consideration for Mercer CN extension – 8 Dec 2021 | |||
| 750,000 | 0.0420 | 31,500 | |
| Conversion of performance rights – 1 Feb 2022 | |||
| 500,000 | 0.0610 | 30,500 | |
| Employee bonus – 1 Feb 2022 | |||
| 1,440,117 | 0.0410 | 59,045 | |
| Acquisition of MediCaNL (Tranche 4) – 22 Feb 2022 – | |||
| release of unissued shares | |||
| 17,923,153 | - | - | |
| Conversion of performance rights – 7 Apr 2022 | |||
| 900,000 | 0.0610 | 54,900 | |
| Acquisition of MediCaNL (Tranche 5) – 13 May 2022 – | |||
| release of unissued shares | |||
| 8,961,574 | - | - | |
| Less: costs of issue | |||
| - | (951,252) | ||
| Closing balance at 30 June 2022 | |||
| 2,728,293,852 | 97,251,478 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
46
| No. Of Shares | Issue Price | Amount | |
| Opening balance at 1 July 2022 | 2,728,293,852 | 97,251,478 | |
| Issue of Mercer Commencement Shares – 3 Aug 2022 | |||
| 21,511,545 | 0.0200 | 430,231 | |
| Issue of shares in lieu of cash – 3 Aug 2022 | 15,000,000 | ||
| 0.0200 | |||
| 300,000 | |||
| Acquisition of ZAM Software Ltd – 5 Aug 2022 | 65,841,924 | ||
| 0.0187 | |||
| 1,231,245 | |||
| Issue of shares in lieu of cash – 26 Aug 2022 | 20,000,000 | ||
| 0.0200 | |||
| 400,000 | |||
| Issue of shares in lieu of cash – 1 Nov 2022 | 15,000,000 | ||
| 0.0100 | |||
| 150,000 | |||
| Exercise of performance rights (T7) – 1 Nov 2022 | 200,000 | ||
| 0.0100 | |||
| 2,000 | |||
| Exercise of performance rights (Class C) – 27 Feb 2023 | 600,000 | ||
| 0.0090 | |||
| 5,400 | |||
| Share issue to UK placement – 14 Apr 2023 | 180,005,680 | 0.0080 | 1,440,045 |
| Share issue to UK/AU placement – 18 Apr 2023 | |||
| 58,315,909 | 0.0080 | 466,527 | |
| Share issue to Mercer – 18 Apr 2023 | |||
| 93,750,000 | 0.0080 | 750,000 | |
| Issue of shares in lieu of cash – 5 May 2023 | |||
| 43,691,589 | 0.0107 | 467,500 | |
| Issue of shares to employees in lieu of salaries – 5 May | |||
| 2023 | |||
| 82,864,778 | 0.0107 | 886,653 | |
| Issue of shares to employees in lieu of salaries – 5 May | |||
| 2023 | |||
| 24, 617,673 | 0.0090 | 221,559 | |
| Exercise of performance rights (T8) – 21 Jun 2023 | |||
| 1,000,000 | 0.0090 | 6,000 | |
| Less: costs of issue | |||
| - | (317,838) | ||
| 3,350,692,950 | 103,690,800 |
1.
In September 2020 the Company entered into a $15,000,000 convertible note facility with Mercer Street Global Opportunity
Fund, in exchange for notes with a face value of $1.00 each, being 110% of the funding received. During the current and
prior periods there were a number of conversions of notes issued into equity. Refer to note 15 for additional information.
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the
number of shares held. At a shareholders’ meetings each ordinary share is entitled to one vote when a poll is called,
otherwise each shareholder has one vote on a show of hands. Ordinary shares have no par value.
Capital risk management
The Group’s objective when managing capital is to safeguard their ability to continue as a going concern, so that
they can continue to provide returns to shareholders and benefits to other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group manages its capital by assessing the Group’s financial risk and
adjusts its capital structure in response to changes in these risks and in the market. These responses include the
management of debt levels, distributions to shareholders and share issues.
There have been no changes in the strategy adopted by management to control the capital of the Group since the
prior year. The Group is not subject to any externally imposed capital requirements.
b) Reserves
i. Share Based Payment Reserve
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Opening balance at 1 July | ||
| 7,924,264 | 7,490,483 | |
| Exercise of performance rights | ||
| (8,000) | (406,050) | |
| Share based payments | ||
| 225,773 | 839,831 | |
| 8,142,037 | 7,924,264 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
47
ii. Foreign currency translation reserve
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Opening balance at 1 July | ||
| (610,591) | 212,381 | |
| Currency translation differences arising during the year | ||
| 925,997 | (822,972) | |
| 315,406 | (610,591) |
Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency
translation reserve as described above. The reserve is recognised in profit and loss when the net investment is
disposed of.
17. DIVIDENDS
No dividends have been paid or provided in 2023 and 2022 financial year.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
48
18. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is calculated by dividing the net profit or loss after income tax attributable to equity
holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted
average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary
shares issued during the year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the post income tax effect of interest and other financing costs associated with dilutive potential ordinary
share and the weighted average number of shares assumed to have been issued for no consideration in relation to
dilutive potential ordinary shares.
| 30-Jun-23 | 30-Jun-22 | |
| Earning per share | ||
| Basic loss per share (cents) | ||
| (0.71) | (0.79) | |
| Diluted loss per share (cents) | ||
| (0.71) | (0.79) |
| Reconciliation of earnings to profit or loss | ||
| $ | $ | |
| (Loss) used in calculating basic and diluted EPS | ||
| (20,823,584) | (20,347,439) | |
| Earnings per share | ||
| Basic loss per share (cents) | ||
| (0.71) | (0.79) | |
| Diluted loss per share (cents) | ||
| (0.71) | (0.79) |
| Reconciliation of earnings to profit or loss | ||
| $ | $ | |
| (Loss) used in calculating basic and diluted EPS | ||
| (20,823,584) | (20,347,439) |
| Number | Number | |
| Weighted average number of ordinary shares and potential | ||
| ordinary shares | ||
| Weighted average number of ordinary shares used in calculating | ||
| basic and diluted EPS | ||
| 2,947,177,984 | 2,566,210,688 |
At 30 June 2023, the Company had the following convertible securities on issue: performance rights 18,400,000
(2022: 68,675,000), options 284,028,101 (2022: 94,432,986) and convertible notes face value of A$2,100,000 and
US$4,733,120 (2022: A$2,100,000). Given the Group made a loss during the current financial year, these potential
shares are considered non-dilutive and therefore not included in the diluted EPS calculation.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
49
19. FINANCIAL RISK MANAGEMENT
The Group’s financial instruments consist mainly of cash at bank, payables, receivables and the convertible notes.
The Group has not formulated any specific management objectives and policies in respect to debt financing,
derivatives or hedging activity. As a result, the Group has not formulated any specific management objectives and
policies in respect to these types of financial instruments. Should the Group change its position in the future, a
considered summary of these policies will be disclosed at that time.
The Group’s current exposure to the risk of changes in the market is managed by the Board of Directors.
Market risks
The Group is exposed to a variety of financial risks through its financial instruments for example, interest rate risk,
liquidity risk and credit risk, equity price risk on the convertible notes, as well as foreign currency risk.
Interest rate risk
At reporting date, other than leases and the convertible notes carried at fair value, the Group does not have long
term borrowings and its exposure to interest rate risk is assessed as low. The group monitors its interest rate risk
through sensitivity analysis, as outlined below.
The consolidated group’s exposure to interest rate risk which is the risk that a financial instrument’s value will
fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes
of financial assets of the Group are summarised in the following tables:
| Floating | |||||||
| interest rate | |||||||
| 1 Year or | |||||||
| less | |||||||
| Over 1 to | |||||||
| 5 years | |||||||
| Over 5 | |||||||
| Years | |||||||
| Non- | |||||||
| interest | |||||||
| bearing | |||||||
| Remaining | |||||||
| contractua | |||||||
| l | |||||||
| maturities | |||||||
| Weigh | |||||||
| ted | |||||||
| averag | |||||||
| e | |||||||
| intere | |||||||
| st rate | |||||||
| 30-Jun-23 | $ | $ | $ | $ | $ | $ | % |
| Financial assets | |||||||
| Cash and cash | |||||||
| equivalents | |||||||
| 239,821 | 239,821 | - | - | 239,821 | 0.10% | ||
| Trade and other | |||||||
| receivables | |||||||
| - | - | - | 531,314 | 531,314 | |||
| 239,821 | 239,821 | - | - | 531,314 | 771,135 | ||
| Financial liabilities | |||||||
| Trade and other | |||||||
| payables | |||||||
| - | - | - | - | 3,303,826 | 3,303,826 | ||
| Convertible notes | - | - | - | - | 9,179,515 | 9,179,515 | |
| Lease liabilities | - | 190,570 | 347,412 | 37,157 | - | 575,139 | |
| - | 190,570 | 347,412 | 37,157 | 12,483,341 | 13,058,480 | ||
| 30-Jun-22 | $ | $ | $ | $ | $ | $ | % |
| Financial assets | |||||||
| Cash and cash | |||||||
| equivalents | |||||||
| 1,886,347 | 1,886,347 | - | - | 1,886,347 | 0.02% | ||
| Trade and other | |||||||
| receivables | |||||||
| - | - | - | 1,937,114 | 1,937,114 | |||
| 1,886,347 | 1,886,347 | - | - | 1,937,114 | 3,823,461 | ||
| Financial liabilities | |||||||
| Trade and other | |||||||
| payables | |||||||
| - | - | - | - | 3,519,206 | 3,519,206 | ||
| Convertible notes | - | - | - | - | 2,100,000 | 2,100,000 | |
| Lease liabilities | - | 277,689 | 807,010 | 1,167,909 | - | 2,252,608 | |
| - | 277,689 | 807,010 | 1,167,909 | 5,619,206 | 7,871,814 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
50
1
The initial investment amount for the convertible notes represented a 10% discount to their face value. As the notes are
accounted for at fair value through profit or loss, the Group would have exposure to fair value movements arising from changes
in market interest rates.
At 30 June 2023 and 2022, a reasonably possible change in interest rates would not have resulted in a material
change to the Group’s post-tax loss or net assets for the year.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient cash to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation. The Group monitors forecast cash flows on regular basis to manage its liquidity
risk.
Credit risk
Management has assessed the credit risk exposure as minimal at reporting date. Credit risk arises from exposure
to trade receivables, deposits with banks and other receivables, the balances of which at 30 June 2022 represent
the Group’s maximum exposure to credit risk. Management monitors its exposure to ensure recovery and
repayment of outstanding amounts. Cash deposits are only made with reputable banking institutions.
Foreign currency risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the GBP (£), Euro (€), and ILS (₪).
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities
denominated in a currency that is not the entity’s functional currency. The risk is measured using cash flow
forecasting.
The consolidated entity has not entered into any derivative financial instruments to hedge such transactions and
anticipated future receipts or payments that are denominated in a foreign currency. The board manages the
purchase of foreign currency to meet operational requirements.
The consolidated entity’s exposure to foreign currency risk at the reporting date was not material. A reasonably
possible change in the value of the Australian dollar against the above currencies at 30 June would not have had a
material effect on the Group’s post-tax loss or net assets.
20. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The following table presents the Group’s financial assets and liabilities measured and recognised at fair value.
| 30 June 2023 | ||||
| Level 1 | Level 2 | Level 3 | Total | |
| Financial assets | ||||
| $ | $ | $ | $ | |
| Other financial assets (equity investments) | ||||
| - | - | - | - | |
| Closing balance at 30 June 2023 | - | - | - | - |
| Financial liabilities | ||||
| Other financial liabilities (convertible note) | - | - | 9,179,515 | 9,179,515 |
| Closing balance at 30 June 2022 | ||||
| - | - | 9,179,515 | 9,179,515 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
51
| 30 June 2022 | Level 1 | Level 2 | Level 3 | Total |
| Financial assets | ||||
| $ | $ | $ | $ | |
| Other financial assets (equity investments) | ||||
| - | - | 155,971 | 155,971 | |
| Closing balance at 30 June 2022 | - | - | 155,971 | 155,971 |
| Financial liabilities | ||||
| Other financial liabilities (convertible note) | - | - | 2,100,000 | 2,100,000 |
| Closing balance at 30 June 2022 | ||||
| - | - | 2,100,000 | 2,100,000 |
Refer to note 10 for disclosures in relation to the loan accounted for as fair value through profit or loss (level 3).
| Movement of Level 3 financial instruments | ||
| 30-Jun-23 | 30-Jun-22 | |
| Opening Balance | ||
| 155,971 | 564,186 | |
| Addition of financial asset-investment in unlisted entity | - | 155,971 |
| Fair value loss on financial asset – investment in unlisted entity | ||
| - | (573,703) | |
| Foreign exchange gain on financial asset | ||
| - | 9,517 | |
| Impairment expense | ||
| (155,971) | ||
| - | ||
| Closing Balance | ||
| - | 155,971 |
a) Valuation techniques used to derive Level 1 fair values
The fair value of financial instruments recognised under Level 1 are measured based on the active market value,
determined in this case by the value a third party is willing to pay for the assets.
b) Valuation techniques used to derive Level 3 fair values
The fair value of financial instruments that are not traded in an active market are determined using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely
as little as possible on entity specific estimates.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level
3. A significant unobservable input to the valuation of the Group’s investment in an unlisted entity classified within
level 3 of the fair value hierarchy in prior year was information obtained from the investee in relation to the value
per share of the most recent capital raising conducted by the entity, which was Euro 100/share ($151.63/share).
A 10% increase or decrease in the value per share of the unlisted entity would have a corresponding fair value
movement on the carrying value of the Group’s investment. During the current year the value of the investment
was written down to nil.
Refer to note 15 for additional disclosures on the other financial liability accounted for at fair value through profit
or loss.
c) Fair value of other financial instruments
The Group also has a number of financial instruments that are not measured at fair value in the balance sheet. The
carrying value of cash, trade receivables and payables is a reasonable approximation of their fair values due to
their short-term nature.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
52
21. CONTROLLED ENTITIES
The consolidated financial statements of the Group include:
| Country of | Percentage Owned (%)* | ||
| Parent Entity: | |||
| incorporation | |||
| 30-Jun-23 | 30-Jun-22 | ||
| MGC Pharmaceuticals Ltd | |||
| Australia | |||
| Subsidiaries of MGC Pharmaceuticals Ltd: | |||
| MGC Pharma (UK) Limited | |||
| UK | |||
| 100 | 100 | ||
| MGC Research (Aus) Pty Ltd | |||
| Australia | |||
| 100 | 100 | ||
| Medicinal Cannabis Clinics Pty Ltd | |||
| Australia | |||
| 100 | 100 | ||
| Subsidiaries of MGC Pharma (UK) Limited: | |||
| MGC Pharmaceuticals d.o.o | |||
| Slovenia | |||
| 100 | 100 | ||
| Panax Pharma s.r.o | |||
| Czech Republic | |||
| 87 | 87 | ||
| MGC Nutraceuticals d.o.o | |||
| Slovenia | |||
| 100 | 100 | ||
| MGC Pharmaceuticals (sro) | |||
| Czech Republic | |||
| 54 | 54 | ||
| MGC Pharma (Malta) Holdings Limited | |||
| Malta | |||
| 100 | 100 | ||
| MGC Pharma (Malta) R&D Limited | |||
| Malta | |||
| 100 | 100 | ||
| MedicaNL Israel 2019 Ltd | |||
| Israel | |||
| 100 | 100 | ||
| Subsidiaries of MGC Pharma (Malta) Holdings Limited | |||
| MGC Pharma (Malta) Property Limited | |||
| Malta | |||
| 100 | 100 | ||
| MGC Pharma (Malta) Operations Limited | |||
| Malta | |||
| 100 | 100 | ||
| Subsidiaries of MGC Pharmaceuticals (sro) | |||
| MGC Pharmaceuticals Ltd (Russia) | |||
| Russia | |||
| 100 | 100 |
* Percentage of voting power in proportion to ownership
22. SEGMENT REPORTING
The Group identifies operating segments on the basis of internal reports about components of the Group that are
regularly reviewed by the chief operating decision maker (“CODM”) in order to allocate resources to the segments
and to assess their performance.
The Group has assessed its operating segments and determined that the Group’s operations comprise of two
segments. The first being the production and supply of medicinal cannabis products and the second being the
production and supply of non-cannabis phytomedicines, on the basis that the Group’s CODM reviews financial
information in relation to operating results at the Group level.
Geographic information on the Group’s revenue by location of operations for the period and total assets at 30 June
2023 is as follows:
| Malta | Israel | Slovenia | ||
| Australia and | ||||
| others | ||||
| 30 June 2023 | ||||
| $ | $ | |||
| $ | $ | |||
| Sales revenue | ||||
| - | 7,098 | 2,846,926 | 533,543 | |
| Total assets | 6,412,025 | 28,170 | 2,228,708 | 1,314,748 |
| 30 June 2022 | ||||
| Sales revenue | - | 456,596 | 3,219,710 | 1,055,706 |
| Total assets | 8,639,316 | 572,711 | 3,507,953 | 5,837,838 |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
53
23. CONTINGENCIES AND COMMITMENTS
a) Commitments
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| No later than one year | ||
| - | 37,396 | |
| Later than one year and not later than five years | - | 36,767 |
| Total commitments | ||
| - | 74,163 |
Commitments relate to office leases in Slovenia, which had been signed prior to 30 June 2022 but not yet
commenced.
Malta long-term leases – construction commitments
Larger site - 65 year lease
Further to the approval of the Company’s original planned project in Malta, the Company agreed to invest a
minimum of €6,000,000 in improvements to site, plant, machinery and equipment within 3 years from the date of
allocation of the site.
On allocation of a site, the Company also entered into a long-term lease with Malta Industrial Parks (refer note 14
for further details). The Emphyteutical lease requires that the allocated site is used solely for industrial purposes
and that the erection of proper, solid buildings costing no less than €2,700,000, net of value added tax, was to
commence within three months of the date of the necessary approvals being received, being 8 August 2019, but
be completed no later than eighteen months from the date all permits by law are issued. The Company agreed an
early termination of the lease with Malta Industrial Parks on the larger site during the year resulting the minimum
expenditure commitment is no longer required.
24. CASH FLOW INFORMATION
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Reconciliation of Cash Flow from Operations with Loss after Income | ||
| Tax | ||
| (Loss) after income tax | ||
| (21,133,535) | (20,767,823) | |
| Cash flows excluded from loss attributable to operating activities | ||
| Non-cash flows in loss | ||
| Depreciation and amortisation | ||
| 751,937 | 141,438 | |
| Gain on lease modifications | ||
| (161,356) | - | |
| Share based payment expense | ||
| 2,656,885 | 524,494 | |
| Loss on financial liabilities at fair value | ||
| 131,409 | 667,111 | |
| Impairment of intangible assets | ||
| 3,145,724 | 4,983,858 | |
| Impairment of equity investment | ||
| 1,231,245 | ||
| Impairment of unlisted investment | ||
| 155,971 | 573,703 | |
| Other non-operating Items | ||
| (216,338) | 7,647 | |
| Other non-trading Income | ||
| (528,213) | (9,191) | |
| Exchange differences | ||
| (88,636) | (240,518) | |
| Changes in assets and liabilities, net of the effects of purchase of | ||
| subsidiaries | ||
| Decrease / (increase) in inventory | ||
| 475,301 | (965,359) | |
| Decrease / (increase) in trade and other receivables | ||
| 1,405,800 | 1,293,101 | |
| Increase / (decrease) in trade payables and accruals | ||
| 188,631 | 1,633,314 | |
| Cash flow used in operations | ||
| (11,985,175) | (12,158,225) |
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
54
25. AUDITOR’S REMUNERATION
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Fees to Hall Chadwick (2022: Ernst & Young Australia): | ||
| Fees for auditing the statutory financial report of the parent | ||
| covering the group and auditing the statutory financial reports | ||
| of any controlled entities | ||
| 140,000 | 199,925 | |
| Fees for other services | ||
| - R&D rebate application and tax compliance | ||
| 14,918 | 29,075 | |
| Total auditor’s remuneration | ||
| 154,918 | 229,000 |
26. PARENT COMPANY DISCLOSURES
The financial information for the parent entity, MGC Pharmaceuticals Ltd, has been prepared on the same basis as
the consolidated financial statements.
i) Summary of financial information
The individual financial statements for the parent entity show the following aggregate amounts:
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Current assets | ||
| 227,872 | 1,427,454 | |
| Non-current assets | 18,735,115 | 10,015,355 |
| Total Assets | ||
| 18,962,987 | 11,442,809 | |
| Current liabilities | 10,570,460 | 3,517,037 |
| Total Liabilities | ||
| 10,570,460 | 3,517,037 | |
| Contributed equity | 103,690,800 | 97,251,478 |
| Share based payment reserve | ||
| 8,142,037 | 7,924,264 | |
| Accumulated losses | ||
| (103,440,310) | (97,249,970) | |
| Total Equity | ||
| 8,392,527 | 7,925,772 | |
| Loss for the year | (6,190,340) | (26,019,392) |
| Total comprehensive loss for the year | ||
| (6,190,340) | (26,019,392) |
ii) Commitments and contingent liabilities of the parent
The parent entity did not have any contingent liabilities or commitments as at 30 June 2023 (30 June 2022: nil)
other than as disclosed at note 23.
iii) Guarantees entered into the parent entity
There were no guarantees entered into by the parent entity.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
55
27. RELATED PARTY TRANSACTIONS
a) Key Management Personnel Remuneration
Compensation
The aggregate compensation made to directors and other members of key management personnel of the
consolidated entity is set out below:
| 30-Jun-23 | 30-Jun-22 | |
| $ | $ | |
| Short-term employee benefits | ||
| 918,469 | 1,156,634 | |
| Post-employment benefits | - | - |
| Long-term benefits | ||
| - | - | |
| Share-based payments | ||
| - | 328,542 | |
| 918,469 | 1,485,176 |
b) Transactions with Director related entities
Directors and officers, or their personally related entities, hold positions in other entities that result in them having
controls or significant influence over the financial or operating policies of those entities.
Refer to the remuneration report contained in the directors’ report for details of non-remuneration related
transactions including amounts receivable and payable at the end of the year.
28. SHARE BASED PAYMENTS
Share based compensation relating to share options are recognised at fair value.
The fair value of the options is recognised as an employee benefit expense in the statement of profit or loss and
other comprehensive income, with a corresponding increase in equity. The total amount to be expensed is
determined by reference to the fair value of the options granted, which includes any market performance
conditions and the impact of any non-vesting conditions but excludes the impact of any service and non-market
performance vesting conditions.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
Upon exercise of share options, the proceeds received net of any directly attributable transaction costs are
allocated to share capital.
The fair value for all share options, as detailed below, are determined using a binomial option pricing method that
takes into account the exercise price, the term of the option, the probability of exercise, the share price at grant
date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for
the term of the option.
The inputs used for the valuations are tabled below for each class of security issued.
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future
trends, which may also not necessarily be the actual outcome. The probability of the performance conditions
occurring, where applicable are included in determining the fair value of the options.
The assessed fair value at grant date of share based payments granted during the period was determined using a
binomial option pricing model that takes into account the exercise price, the price of the underlying share at grant
date, the life of the option, the volatility of the underlying share, the risk-free rate and expected dividend payout
and any applicable vesting conditions.
Management was required to make assumptions and estimates in order to determine the inputs into the binomial
option pricing model.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
56
a) Performance Rights
2023
No additional performance rights were issued during the year.
2022
Directors
On 31 March 2021, the Company agreed to issue performance rights to the Directors and other management
personnel, to incentivise and retain its workforce. The performance rights issued to Directors were subject to
shareholder approval, which was received subsequent to year-end on 12 August 2021, refer to disclosure made in
the 2021 year below. As a result of the Company receiving shareholder approval at the General Meeting of
shareholders on 12 August 2021, MGC issued 64,200,000 performance rights to directors of the Company on 9
September 2021.
Employees
On 12 November 2021 the Company’s Key Account Manager was issued 500,000 performance rights over fully paid
shares over the Company in accordance with the terms of their employment contract. The performance rights
were valued and expensed on the contract execution date of 30 April 2021 (Prior Year) and were valued at the
share price on that day being $0.06 per performance right.
Material terms of the Performance Rights issued are set out in the following table:
| Class | Vesting milestone | Performance rights | Milestone date |
| D | The participant remaining an Eligible Participant of the | ||
| Company’s ESOP until 30 April 2022 | |||
| 250,000 | 30 Apr 22 | ||
| E | The participant remaining an Eligible Participant of the | ||
| Company’s ESOP until 30 April 2023 | |||
| 250,000 | 30 Apr 23 | ||
| 500,000 |
On 1 February 2022 the Company’s Head of Quality Unit/QP was issued 1,440,117 fully paid ordinary shares in the
Company in accordance with the terms of their employment contract. The employee’s contract, in consideration
for accepting a below market salary, includes the provision for the grant of an annual bonus of €37,200, at the
board’s discretion, payable in fully paid ordinary shares. On 16 December 2021 the board approved the grant of
the bonus to the employee. The shares issued were expensed on grant using a share value of A$0.041 per share.
Reconciliation of Performance Rights
| Opening | |||||
| Balance | |||||
| Granted as | |||||
| i | |||||
| compensation | |||||
| Exercised | Lapsed | Outstanding at | |||
| 30 June | |||||
| Outstanding and | |||||
| Exercisable at 30 | |||||
| June | |||||
| 2023 | |||||
| 68,875,000 | - | 1,800,000 | (48,475,000) | 18,400,000 | 18,400,000 |
| 2022 | |||||
| 37,550,000 | 64,700,000 | (7,050,000) | (26,525,000) | 68,875,000 | 14,950,000 |
i. Refer to “Performance rights” section above for details of rights granted and vested during the period, which Director rights were still
subject to shareholder approval at 30 June 2022 and therefore had not yet been issued.
b) Options
2022
In consideration for the execution of the variation agreement to convertible notes facility with Mercer Street Global
Opportunity Fund (refer to note 15), the company agreed to issue Mercer 50,000,000 unlisted options with an
exercise price of $0.013 and an expiry date of 30 June 2025. The options issued were expensed on grant date as
share based payment expense using a fair value of A$0.013 per option.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
57
Inputs to the valuation of the abovementioned options are tabled below.
| Broker options | |
| Number options issued | 50,000,000 |
| Grant date | 1 Feb 2023 |
| Spot price | $0.011 |
| Exercise price | $0.013 |
| Expiry date | 30 Jun 2025 |
| Expected future volatility | 29% |
| Risk free rate | 3.324% |
| Dividend yield | Nil |
| Value per option | $0.013 |
2021
On 15 December 2021, the £5.5 million Placement announced on 1 December 2021 MGC Pharma issued 9,000,000
options over fully paid ordinary shares of the Company to the UK based Lead Manager under the terms of the
placement agreement.
Inputs to the valuation of the abovementioned options are tabled below.
| Broker options | |
| Number options issued | 9,000,000 |
| Grant date | 15 Dec 21 |
| Spot price | $0.042 |
| Exercise price | £0.02 |
| Expiry date | 01 Dec 2024 |
| Expected future volatility | 70% |
| Risk free rate | 0.093% |
| Dividend yield | Nil |
| Value per option | $0.021 |
The Lead Manager’s options have been valued based on the fair value of the equity instruments issued, as the
Company was unable to reliably determine the fair value of the services provided. Total amount included within
share issue costs equated to $187,191.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Notes to the Financial Statements
58
Table of share-based payment options
| Description | Opening | ||||
| Balance | |||||
| Granted | Exercised | Lapsed | Closing | ||
| Balance | |||||
| Unlisted options exercisable at | |||||
| £0.01475 expiring 31 Mar 2023 | |||||
| 26,440,678 | - | - | (26,440,678) | - | |
| Unlisted options exercisable at | |||||
| $0.026 expiring 31 Mar 2023 | |||||
| 7,692,308 | - | - | (7,692,308) | - | |
| Unlisted options exercisable at $0.05 | |||||
| expiring 31 Aug 2023 | |||||
| 16,300,000 | - | - | - | 16,300,000 | |
| Unlisted options exercisable at $0.06 | |||||
| expiring 31 Aug 2023 | |||||
| 17,500,000 | - | - | - | 17,500,000 | |
| Unlisted options exercisable at $0.07 | |||||
| expiring 31 Aug 2023 | |||||
| 17,500,000 | - | - | - | 17,500,000 | |
| Unlisted options exercisable at £0.02 | |||||
| expiring 1 Dec 2024 | |||||
| 9,000,000 | - | - | - | 9,000,000 | |
| Unlisted options exercisable at | |||||
| $0.013 expiring 30 Jun 2025 | |||||
| - | 50,000,000 | - | - | 50,000,000 | |
| TOTAL | 94,432,986 | 50,000,000 | - | (34,132,986) | 110,300,000 |
Share-based payment expense
For the year ended 30 June 2023, the Group has recognised $1,339,385 of share-based payment expenses in the
statement of profit or loss (30 June 2022: $652,640) relating to share-based payments to directors and employees.
The Group has also recognised $1,317,500 (30 June 2022: $nil) of share-based payment expense in relation to
extinguishing financial liabilities.
29. EVENTS AFTER THE REPORTING DATE
Post year end, the Company conditionally raised £0.65 million (A$1.24 million) (before expenses) by way of a
placing and subscription of 541,666,667 new ordinary shares of no-par value (Ordinary Shares) in the capital of the
Company (Fundraising Shares) at a price of 0.12 pence (0.23 cents) per Fundraising Share (“Issue Price”). The
Company also agreed to issue one free attaching option exercisable at 0.12 pence (0.23 cents) with an expiry date
of 14 July 2026 for every one Fundraising Share subscribed for under the Placement and Subscription.
Additionally, the Company launched a Share Purchase Plan to its Australian shareholders to raise up to $2,685,728.
The Company received applications from eligible shareholders totalling A$834,000 to subscribe for 362,608,570
new fully paid ordinary shares in the capital of the Company at A$0.0023 (0.23 cents) per Share, with A$1,851,728
to be placed under a Shortfall Offer. Subject to shareholder approval to be sought at the Company’s upcoming
general meeting on 5 September 2023, applicants will receive one free attaching option exercisable at A$0.003
(0.3 cents) each on or before 31 July 2026 (Options) for every two (2) Shares subscribed for under the SPP, being
181,304,269 Options.
The Company terminated its operations in Czech and Russia subsequent to the year end.
The Company finalised early termination of its 65 year lease in Malta subsequent to the year end.
Other than those matters disclosed in the financial statements, there have been no significant events occurring
after the balance date which may affect either the Group’s operations or results of those operations or the group’s
state of affairs.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
59
Directors’ Declaration
The Directors’ of the Company declare that in their opinion:
1. The financial statements and notes, as set out in pages 24 to 58, are in accordance with the Corporations Act
2001 and:
a) comply with Accounting Standards and the Corporations Regulations 2001;
b) are in accordance with International Financial Reporting Standards, as stated in note 2a to the financial
statements;
c) give a true and fair view of the consolidated group’s financial position as at 30 June 2023 and its
performance for the year ended on that date; and
d) representations made throughout the Directors report are fair and reasonable.
2. The Directors have been given the declaration required by section 295A of the Corporations Act 2001.
3. The remuneration disclosures contained in the Remuneration Report comply with s300A of the Corporations
Act 2001.
4. In the Directors opinion, subject to the matters set out in note 2(a) to the financial statements, there are
reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
This declaration is made in accordance with a resolution of the Board of Directors.
Roby Zomer
Managing Director
29 September 2023
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2022
Additional ASX Information
65
Additional ASX Information
EXCHANGE LISTING
MGC Pharmaceuticals Ltd shares are listed on the Australian Securities Exchange under ASX code MXC. The
Company is also listed on the London Stock Exchange via the trading of depositary interests, under code MXC.
SUBSTANTIAL SHAREHOLDERS (HOLDING MORE THAN 5%)
Name
Number of Fully Paid
Ordinary Shares
Voting Power
Premier Fund Managers Ltd
383,885,951 8.67%
CLASS OF SHARES AND VOTING RIGHTS
At 21 September 2023, there were 10,119 holders of 4,427,968,187 ordinary fully paid shares of the Company. The
voting rights attaching to the ordinary shares are in accordance with the Company’s Constitution being that:
a. each Shareholder entitled to vote may vote in person or by proxy, attorney or Representative;
b. on a show of hands, every person present who is a Shareholder or a proxy, attorney or Representative of
a shareholder has one vote; and
c. on a poll, every person present who is a shareholder or a proxy, attorney or Representative of a
shareholder shall, in respect of each fully paid Share held by him, or in respect of which he is appointed a
proxy, attorney or Representative, have one vote for the Share, but in respect of partly paid Shares, shall,
have such number of votes as bears the proportion which the paid amount (not credited) is of the total
amounts paid and payable (excluding amounts credited).
ESCROWED SECURITIES
There are currently no escrowed securities on issue.
CASH USAGE
Since the time of listing on ASX, the entity has used its cash and assets in a form readily converted to cash that it
had at the time of admission to the official list of ASX in a manner which is consistent with its business objectives.
RANGE OF ORDINARY SHARES AS AT 21 SEPTEMBER 2023
Range Total Holders Shares %
1 - 1,000
153 22,777 0.00
1,001 - 5,000
233 1,011,321 0.02
5,001 - 10,000
1,036 8,542,053 0.19
10,001 - 100,000
6,004 254,974,609 5.76
100,001 and Over
2,693 4,163,417,427 94.03
Total 10,119 4,427,968,187 100.00
The number of shareholders holding less than a marketable parcel is 8,649.
MGC PHARMACEUTICALS LTD
Annual Report for the year ended 30 June 2023
Additional ASX Information
66
UNLISTED SECURITIES AS AT 21 SEPTEMBER 2023
Securities
Number of
Securities
on issue
Number
of
Holders
Name of Holders holding more than
20%
Number
Held
Options exercisable at $0.012
expiring 12/04/2024
166,035,793 26
MERCER STREET GLOBAL OPPORTUNITY
FUND LLC
46,875,000
Options exercisable at £0.02
expiring 30/11/2024
9,000,000 1 JIM NOMINEES LIMITED 9,000,000
Options exercisable at $0.013
expiring 30/06/2025
50,000,000 1
MERCER STREET GLOBAL OPPORTUNITY
FUND LLC
50,000,000
Options exercisable at $0.003
expiring 14/07/2026
452,358,614 5
ORCA CAPITAL GMBH 150,786,205
AURORA NOMINEES LIMITED 111,204,826
NORTRUST NOMINEES LIMITED 99,273,828
Options exercisable at $0.003
expiring 31/07/2026
181,304,269 241
Convertible Notes 5,306,432 1
MERCER STREET GLOBAL OPPORTUNITY
FUND LLC
5,306,432
Performance Rights 18,400,000 26
CHITTA LU LIMITED 4,900,000
MR BRETT MITCHELL + MRS MICHELLE
MITCHELL <MITCHELL SPRING FAMILY
A/C> + <LEFTHANDERS SUPER FUND
A/C>
4,900,000
TOP 20 SHAREHOLDERS AS AT 21 SEPTEMBER 2023
Rank Name
Number of
Shares
% of
Shares
1
COMPUTERSHARE CLEARING PTY LTD <CCNL DI A/C> 1,416,661,256 31.99
2
BIOHEKA LIMITED 107,000,000 2.42
3
CITICORP NOMINEES PTY LIMITED 95,516,192 2.16
4
ORCA CAPITAL GMBH 94,287,918 2.13
5
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 93,845,701 2.12
6
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM 85,199,520 1.92
7
MR SHACHAR SHIMONY 69,500,000 1.57
8
MERCER STREET GLOBAL OPPORTUNITY FUND LLC 65,600,000 1.48
9
SOFIA EVEN 51,000,000 1.15
10
MR MICHAEL SEAN NEWTON 48,000,000 1.08
11
CHETCUTI HOLDINGS PTY LTD 46,044,900 1.04
12
MR GEORGE BISHAY 36,822,890 0.83
13
BNP PARIBAS NOMS PTY LTD <DRP> 36,108,923 0.82
14
MRS ILENA ALEMAO 23,343,478 0.53
15
MRS YIFAT STEUER 17,193,146 0.39
16
FAIRBROTHER HOLDINGS PTY LTD 16,043,478 0.36
17
JEP PTY LTD <JP PENSION FUND A/C> 13,675,805 0.31
18
IBI TRUST MANAGEMENT <NADYA LISOVODER A/C> 13,372,365 0.30
19
MR GAGANDEEP SINGH 13,333,333 0.30
20
MR PAUL MERLO 13,043,488 0.29
Total 2,355,592,393 53.20
Total issued capital – selected security class(es) 2,072,375,794 46.80
