IMRN Immuron Ltd

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017

These condensed consolidated interim report for the half-year reporting period ended 31 December 2017 have been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001 .

These condensed consolidated interim report do not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2016 and any public announcements made by Immuron Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 .

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

A number of new or amended standards became applicable for the current reporting period, however, the Company did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards. There will be some changes to the disclosures in the 30 June 2018 annual report as a consequence of these amendments.

Due to the nature of the Group’s operating profile, the Directors and management do not consider that the fair values of the Group’s financial assets and liabilities are materially different from their carrying amounts at 31 December 2017.

Some of the risks inherent in the development of pharmaceutical products include the uncertainty of patent protection and proprietary rights, whether patent applications and issued patents will offer adequate protection to enable product development or may infringe intellectual property rights of other parties, and obtaining the necessary drug clinical regulatory authority approvals. A particular project may fail the research and the clinical development process through lack of efficacy or safety, or may be stopped or abandoned due to strategic imperatives including an assessment that the projects will not deliver a sufficient return on investment or have been superseded by newer competitive products or technologies. There is a risk that the group will be unable to find suitable development or commercial partners for its projects, and that these arrangements may not generate material returns for the group.

Based on current budget forecast assumptions, the group will need to access additional funding to meet future commitments and to pay its debts when they fall due, as well as funding the ongoing group’s research & development programs. The ability of the group to successfully access additional capital, and the amount of additional funds required is dependent on the outcome of its product research & development programs.

The Board and Management are confident that the Company will be able to access, as and when necessary, the required additional funds through a number of available funding opportunities, including some of which the Company has accessed in the past.

The current net loss for the period is AUD$1,891,944 (2016: AUD$3,409,349) and the cash inflow / (outflow) for the period is AUD$3,186,278 (2016: (AUD$2,216,618)).

Notwithstanding the requirement to access additional funding for the group, this interim financial report has been prepared on a going concern basis. Accordingly, the interim report does not include adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should the group not continue as a going concern.

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017 (Continued…)

The executive management team considers the business from both a product and a geographic perspective and has identified three reportable segments.

HyperImmune Products Income and expenses directly attributable to Travelan activities which occur in Australia, New Zealand and United States.

Corporate Other items of income and expenses not directly attributable to R&D or HyperImmune Products segment are disclosed as corporate costs. Corporate activities primarily occur within Australia. This segment includes interest expenses from financing activities and depreciation.

The Board assesses the performance of the operating segments at a number of operating levels including adjusted EBITDA.

The Board assesses the operating segment at a number of operating levels for the reportable segments for the half-year 31 December 2017 is as follows:

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017 (Continued…)

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017 (Continued…)

4 Contributed Equity

(a) Share capital  

During the half year ended 31 December 2017, the Company issued the following ordinary shares:

(ii)       Rights of each type of share

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands every holder of ordinary shares present at a meeting or by proxy, is entitled to one vote. Upon a poll every holder is entitled to one vote per share held. The ordinary shares have no par value.

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017 (Continued…)

The following table shows a breakdown of the Statement of Financial Position line item “other reserves” and the movements in these reserves during the half year.

A description of the nature and purpose of each reserve is provided below the table.

The Company had no contingent liabilities and assets at 31 December 2017 (2016: nil).

The Company received AUD$2,156,206 Research and Development Tax Concession Refund on 9 February 2018,

Post reporting period, the Company entered into a short-term loan arrangement with Great Accommodation Pty Ltd to fund on going R&D expenditure, for an amount of AUD$500,000 at an interest rate of 15% per annum and a AUD$15,000 establishment fee. The loan was repaid on 12 February 2018.

(a) Transactions with Other Related Parties

The following transactions occurred with related parties:

Notes to the Consolidated Financial Statements  

For the Half-Year 31 December 2017 (Continued…)

Exhibit 99.2

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis includes certain forward-looking statements with respect to the business, financial condition and results of operations of our company. The words “estimate,” “project,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements within the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in Exhibit 99.1.

Background

Immuron Limited and subsidiaries (a development stage enterprise), or the Company, was incorporated under the laws of the Commonwealth of Australia in 1994. Immuron Limited (ASX: IMC, NASDAQ: IMRN), is a biopharmaceutical company focused on developing and commercialising oral immunotherapeutics for the treatment of gut mediated diseases. Immuron has a unique and safe technology platform that enables a shorter development therapeutic cycle.

The Company currently markets and sells Travelan® for the prevention of Travellers’ Diarrhea and its lead clinical candidate, IMM-124E, is in Phase II clinical trials for Non-Alcoholic Steatohepatitis (NASH), Severe Alcoholic Hepatitis (SAH) and Pediatric Nonalcoholic Fatty Liver Disease (NAFLD). Immuron’s second clinical stage asset, IMM-529, is targeting Clostridium difficile Infections (CDI). These products together with the Company’s other preclinical immunotherapy pipeline products targeting immune-related diseases currently under development, will meet a large unmet need in the global immunotherapy market.

The principal listing of our ordinary shares and options to purchase our ordinary shares is on the Australian Securities Exchange (ASX). Immuron completed its secondary listing of American Depository Receipts (ADRs) and Warrants on the NASDAQ Capital Market under the symbol “IMRN” on June 9, 2017.

Our interim consolidated financial statements appearing in Exhibit 99.1 are prepared in Australian dollars and in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and comply with both IFRS as issued by the IASB and Australian equivalents to International Financial Reporting Standards, or A-IFRS. In this report, all references to “U.S. dollars” or “US$” are to the currency of the United States of America, and all references to “Australian dollars” or “A$” are to the currency of Australia.

Our current revenues are generated in Australian, Canadian, and U.S. dollars, and are converted to Australian dollars for financial reporting purposes as it is the Company’s functional operating and reporting currency. The majority of our expenses are also incurred in Australian, Canadian, and U.S. dollars.

Overview

We are a clinical-stage biopharmaceutical company with a proprietary technology platform focused on the development and commercialization of a novel class of immunomodulator polyclonal antibodies that we believe can address significant unmet medical needs. Our oral polyclonal antibodies offer targeted delivery within the gastrointestinal (GI) track but do not cross into the bloodstream, potentially leading to much improved safety and tolerability, without sacrificing efficacy. We believe that our two lead immunomodulator product candidates, IMM-124E and IMM-529, have the potential to transform the existing treatment paradigms for (Non-Alcoholic Steatohepatitis) (“NASH”) and for Clostridium difficile (“C. difficile ”), respectively. We also market an over-the-counter (OTC) product, Travelan, that is the only product approved as a preventative to Traveler’s Diarrhea. Travelan is also based on the same technology. We recently began to market Protectyn , a health product targeting LPS bacteria in the gut to prevent gut dysbiosis, improve bacterial clearance, reduce chronic inflammation and improve immune function. The safety profile of our compounds, which have a Generally Regarded as Safe (“GRAS”) status, enables us to commercialize our platform-derived products through a range of regulatory pathways, including prescriptions (Rx), medical foods, OTC medicines and dietary supplements.

Our American Depositary Shares (each, an “ADS” and, collectively the “ADSs”) and warrants (each, a “Warrant”) are listed on the NASDAQ Capital Market under the symbols “IMRN” and “IMRNW”, respectively. Each ADS represents forty (40) of our ordinary shares. Each Warrant has a per ADS exercise price of US$10.00, and expires five years from the date of issuance. Our ordinary shares are also listed on the Australian Securities Exchange under the symbol “IMC.”

In this report, all references to “U.S. dollars” or “US$” are to the currency of the United States, and all references to “Australian dollars”, “A$” or “AUD$” are to the currency of Australia. Unless otherwise indicated or the context implies otherwise, all references to “we,” “us,” or “ our” refers to Immuron Limited, an Australian corporation.

Except for the historical information contained in this report, the statements contained in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 3.D. “ Key Information-Risk Factors. ” of our Form 20-F for the year ended June 30, 2017.

To date, we have funded our operations primarily through the sale of equity securities, proceeds from the exercise of options, government grants, tax incentive payments, licensing and research collaborations and interest income.

Since completing our initial public offering in Australia, we have concentrated our resources toward the pursuit of developing our clinical research and development product portfolio pipeline. For additional details regarding our clinical trials see Item 4.A., “Information on the Company - History and Development of the Company,” of our Form 20-F for the year ended June 30, 2017.

Key highlights for the six months ended December 31, 2017 were :

On March 8, 2018, we announced positive topline results of our IMM-124E Phase II Non - Alcoholic Steatohepatitis (NASH) Clinical study. The results demonstrated excellent safety and tolerability and a statistically significant reduction in serum LPS levels in patients with NASH.

Six Months Ended December 31, 2017 Compared to Six Months Ended December 31, 2016

Revenue from ordinary activities

Revenues received from the sale of goods increased favorably by A$216,039 from fiscal half year 2017 to 2018.

Revenue from the sale of our flagship product Travelan increased by 27% and our geographic sales mix of the product changed as we achieved a 250% growth in sales of Travelan in the U.S. and a 27% increase in sales in Australia. The growth in these regions was achieved through a series of strategic supply arrangements coupled with a new pharmacy education program which boosted distribution outlets, improved on-shelf positioning in stores, enhanced advertising, key distributor sale agreements and a twelve-month trade promotional initiative.

We anticipate these markets will continue on this steady growth trajectory for the remainder of this fiscal year.

Other income

Our other income increased by A$570,107, or 70% during the fiscal half year 2018 in comparison to the same time last year predominantly due to an increase in the Group’s estimate of R&D tax incentives claimable from the Australian Tax Office. This amount was calculated based on the tax incentive policy introduced by the Australian Government on July 1, 2011. The Group is entitled to 43.5% of tax incentives based on the total eligible research and development expenditure incurred during the period. The significant increase in our level of eligible research and development expenditures being incurred during the fiscal half year 2018. This research and development increase was predominantly due to the increased expenditures of our major Phase II NASH clinical trial as the program recruitment accelerated and more patients entered the trial.

Research and development expenses

Research and development expenses decreased to A$1,540,436 for the six months ended December 31, 2017 from A$2,117,867 for the six months ended December 31, 2016, which represented a decrease of A$577,431, or 27%. The decrease in research and development expenses during the six months ending December 31, 2017 is attributable to the slowing down of expenditures of the NASH clinical trial as the trail program and patient recruitment and dosing reached completion.

Marketing and promotion expenses

Marketing and promotion expenses decreased by A$233,543, or 50% for the six months ended December 31, 2017 to A$238,192 compared to A$471,735 for the six months ended December 31, 2016 as the Company reduced its investor relations and marketing campaigns which it had invested in leading up to the US IPO during the prior period.

Consulting, employee and director expenses

Consulting, employee and director expenses decreased by A$92,158, or 10% for the six months ended December 31, 2017 to A$815,232 compared to A$907,390 for the six months ended December 31, 2016 as the Company reduced its operational head count and consultant costs during the period.

Travel and entertainment expenses

Travel and entertainment expenses increased by A$62,534, or 56% for the six months ended December 31, 2017 to A$174,987 compared to A$112,453 for the six months ended December 31, 2016 as the Company increased its presence in the U.S. with key company personnel speaking at key industry forums, conferences, and investor events to lift the Company’s profile.

Inflation and Seasonality

Management believes that inflation has had no material impact on the Company’s operations or financial condition and that our operations are not currently subject to seasonal influences.