Kazia Therapeutics Annual Report 2021

56 Kazia Therapeutics Limited 56 Annual Report 2021 During the financial year ended 30 June 2017, the Company reached two milestones triggering the conversion of a portion of its convertible note as follows; • on 11 August 2016 the Company announced the submission of an IND application. On 10 September 2016, the Company received a letter from the FDA advising the study may proceed triggering conversion of 20,000,000 ordinary shares; and • on 31 October 2016, the Company announced it had licensed a Phase II ready molecule triggering the conversion of 16,000,000 ordinary shares. During the financial year ended 30 June 2018, a portion of the convertible notes was extinguished. The remaining portion of the convertible note will be exercised at the holders’ discretion on completion of Phase II clinical trial or achieving Breakthrough Designation, and would convert to 1,856,000 ordinary shares if converted. Completion will be deemed to occur upon the receipt by the consolidated entity of a signed study report or notification of the designation. There is a possibility for an early conversion of the convertible notes if a third party acquires more than 50% of the issued capital of the consolidated entity. NOTE 19. RESERVES Foreign currency translation reserve The reserve is used to recognise exchange differences arising from translation of the financial statements of foreign operations to Australian dollars. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and executive directors as part of their remuneration, and other parties as part of their compensation for services. NOTE 20. DIVIDENDS There were no dividends paid, recommended or declared during the current or previous financial year. NOTE 21. FINANCIAL INSTRUMENTS Financial risk management objectives The consolidated entity’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The consolidated entity uses different methods to measure and manage the different types of risks to which it is exposed. These methods include monitoring the levels of exposure to interest rates and foreign exchange, ageing analysis and monitoring of specific credit allowances to manage credit risk, and, rolling cash flow forecasts to manage liquidity risk. Market risk Foreign currency risk The consolidated entity operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollars (‘USD’). Foreign exchange risk arises from future transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency and net investments in foreign operations. As of 30 June 2021, the consolidated entity did not hold derivative financial instruments in managing its foreign currency, however, the consolidated entity may from time to time enter into hedging arrangements where circumstances are deemed appropriate. The consolidated entity used natural hedging to reduce the foreign currency risk, which involved processing USD payments from cash held in USD. Foreign subsidiaries with a functional currency of Australian Dollars (‘AUD’) have exposure to the local currency of these subsidiaries and any other currency these subsidiaries trade in. The carrying amount of the consolidated entity’s foreign currency denominated financial assets and financial liabilities at the reporting date was as follows: Assets Liabilities 2021 2020 2021 2020 Consolidated $ $ $ $ US dollars 21,072,592 272,450 3,447,803 2,196,281 Euros - - 15,943 - 21,072,592 272,450 3,463,746 2,196,281 The consolidated entity had net assets denominated in foreign currencies of $17,608,845 as at 30 June 2021 (2020: net liabilities $1,923,831). NOTE 18. OTHER CONTRIBUTED EQUITY (CONTINUED)