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2021 ReportAnalytica Limited ABN 12 006 464 866 CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2017 Table of Contents Table of Contents Directors Report ______________________________________________________________________ 1 General information ___________________________________________________________________ 1 Information on directors _________________________________________________________ 1 Dr Michael Monsour _____________________________________________________________ 1 Mr Ross Mangelsdorf ____________________________________________________________ 2 Dr. Peter B. Corr. ________________________________________________________________ 2 Dr Thomas Lönngren. ____________________________________________________________ 3 Mr Warren Brooks. ______________________________________________________________ 3 Mr Carl Stubbings. ______________________________________________________________ 4 Principal activities and significant changes in nature of activities _______________________________ 5 Operating results and review of operations for the year ______________________________________ 5 Operating results _______________________________________________________________ 5 Review of Operations ____________________________________________________________ 5 Financial Review ______________________________________________________________________ 9 Financial position _______________________________________________________________ 9 Other items _________________________________________________________________________ 10 Significant changes in state of affairs_______________________________________________ 10 Changes in the controlled entities and divisions ______________________________________ 10 Events after the reporting date ___________________________________________________ 10 Environmental issues ___________________________________________________________ 10 Future developments and results _________________________________________________ 10 Non-audit services _____________________________________________________________ 11 Auditors independence declaration________________________________________________ 11 Company secretary _____________________________________________________________ 11 Meetings of directors ___________________________________________________________ 12 Employees ____________________________________________________________________ 12 Options ______________________________________________________________________ 13 Remuneration report (audited) ___________________________________________________ 13 Corporate Governance __________________________________________________________ 21 Key Management and Staff ____________________________________________________________ 25 Table of Contents Geoff Daly, Chief Executive Officer ________________________________________________ 25 Chelsea Cornelius – Product Development and Operations Manager _____________________ 25 Megan Henken – VP Global Marketing _____________________________________________ 25 Auditors Declaration of Independence ___________________________________________________ 26 Consolidated Statement of Profit or Loss and Other Comprehensive Income _____________________ 27 Consolidated Statement of Financial Position ______________________________________________ 29 Consolidated Statement of Changes in Equity ______________________________________________ 30 Consolidated Statement of Cash Flows for the Year Ended 30 June 2017 ________________________ 31 Notes to the Financial Statements _______________________________________________________ 32 1: Summary of Significant Accounting Policies _________________________________________ 32 2. Revenue from continuing operations __________________________________________________ 51 Result for the year ___________________________________________________________________ 51 3. Income Tax _______________________________________________________________________ 52 4. Key management personnel options and rights holdings ___________________________________ 53 4. Key management personnel shareholdings ______________________________________________ 54 5 Remuneration of Auditors ____________________________________________________________ 55 6 Earnings per Share __________________________________________________________________ 55 7 Cash and cash equivalents ____________________________________________________________ 56 8 Trade and other receivables __________________________________________________________ 56 10 Other financial assets ______________________________________________________________ 57 11 Property, plant and equipment _______________________________________________________ 57 (a) Movements in carrying amounts of property, plant and equipment ___________________ 58 12 Intangible Assets __________________________________________________________________ 58 13 Other assets ______________________________________________________________________ 59 14 Trade and other payables ___________________________________________________________ 59 15 Provisions ________________________________________________________________________ 60 16 Employee Benefits _________________________________________________________________ 60 17 Reserves and retained earnings ______________________________________________________ 61 Share option reserve ___________________________________________________________ 61 18 Issued Capital _____________________________________________________________________ 61 (b) Options ___________________________________________________________________ 62 (c) Capital Management _________________________________________________________ 62 19 Contingencies _____________________________________________________________________ 62 Table of Contents 20 Operating Segments _______________________________________________________________ 63 Segment information ___________________________________________________________ 63 Geographical information _______________________________________________________ 66 21 Cash Flow Information ______________________________________________________________ 66 22 Share-based Payments _____________________________________________________________ 67 23 Related Parties ____________________________________________________________________ 67 The Group's main related parties are as follows: _____________________________________ 67 Transactions with related parties _________________________________________________ 68 24 Financial Risk Management __________________________________________________________ 68 Specific risks __________________________________________________________________ 68 Financial instruments used_______________________________________________________ 68 Objectives, policies and processes _________________________________________________ 69 Liquidity risk __________________________________________________________________ 69 Market risk ___________________________________________________________________ 70 Credit risk ____________________________________________________________________ 71 25 Fair Value Measurement ____________________________________________________________ 72 Financial assets ________________________________________________________________ 72 26 Events Occurring After the Reporting Date _____________________________________________ 73 27 Company Details __________________________________________________________________ 73 Directors' Declaration _________________________________________________________________ 74 Independent Auditors Report ___________________________________________________________ 75 ASX Additional Information ____________________________________________________________ 80 Substantial shareholders ______________________________________________________________ 80 Distribution of equity security holders ___________________________________________________ 80 Twenty largest share holders ___________________________________________________________ 80 Twenty largest option holders __________________________________________________________ 81 Voting rights ________________________________________________________________________ 82 Ordinary Shares _______________________________________________________________ 82 Options ______________________________________________________________________ 82 Pg. 01 Directors Report Directors Report General information Information on directors The names, qualifications, experience and special responsibilities of each person who has been a director during the year and to the date of this report are as follows. Directors have been in office since the start of the year to the date of this report unless otherwise stated. Dr Michael Monsour MBBS-HONS, FACRRM, FAICD Chairman of the Board (appointed 28 June 2004) Dr Michael Monsour is a Medical Practitioner with extensive interests in Queensland medical and dental centres. Michael Monsour graduated from the University of Queensland in 1977 in medicine with honours. He operates a medical management company, which provides management support to medical and dental practitioners. He is the principal of Godbar Software (established 1988) which is one of the leading software developers of Occupational Health, Safety and Medical Accounting software packages in Australia. Interest in shares and options, Direct and indirect • Dr MP Monsour ordinary shares - 2,606,337 • MPAMM Pty Ltd ordinary shares - 44,687,785 • Halonna Pty Ltd ordinary shares - 279,413,038 • MP Monsour Medical Practice Pty Ltd ordinary shares - 235,747,277 Other related parties • Ordinary shares 2,037,481 Unlisted options • • 13,000,000 @ 3.24c expire 29/10/2018 20,000,000 @ 1.30c expires 21/12/2021 Listed options • ALTOA Options 16,666,666 @ 1.4c Expire 28/02/2018 Pg. 02 Directors Report Mr Ross Mangelsdorf B.Bus, FCA, CTA, MAICD Executive Director (appointed 7 October 2008) Mr Mangelsdorf performs the function of Chief Financial Officer. Mr Mangelsdorf is a Director/partner of a chartered accounting firm for 35 years. He works with SME production, manufacturing and retail firms assisting with business, taxation and management services. Interest in shares and options • Director's interest in ordinary shares: 217,411 Indirect • RM & JM Mangelsdorf - Ordinary shares 217,411 • Tambien Pty Ltd - Ordinary shares 37,878,775 Other related parties • Ordinary shares 20,269,458 Unlisted options • • 10,000,000 @ 3.24c expire 29/10/2018 10,000,000 @ 1.30c expires 21/12/2021 Listed options • ALTOA Options 2,614,995 @ 1.4c Expire 28/02/2018 Dr. Peter B. Corr. Non-Executive Director (appointed 23 May 2017) Received his doctorate from Georgetown University School of Medicine. Dr. Corr has extensive experience in the discovery and development of medicines as well as the sale of assets to major multinational corporations. Dr. Corr co-founded and is Managing General Partner of Auven Therapeutics, a private equity firm pursuing a life science investment strategy where products are acquired, developed and then sold to multinational pharmaceutical firms. Dr. Corr was previously a Professor of Medicine and Pharmacology at Washington University for 18 years. He then joined Searle as Senior VP of Discovery Research, and subsequently was President of Research and Development at Warner Lambert / Parke Davis and then President, worldwide Development at Pfizer, and Corporate Senior Vice President of Science and Technology at Pfizer. Pg. 03 Directors Report Interest in shares and options • Indirect director's interest: INOV8 LLC - Ordinary shares 320,702,362 Dr Thomas Lönngren. Non-Executive Director (appointed 10 August 2015) Degree in Pharmacy, Master of Science Degree in social and regulatory pharmacy. Honorary Doctorate from University of Bath, UK (2011), University of Uppsala, Sweden (2008), and Honorary Fellow of the Royal College of Physicians and Honorary Member of the Royal Pharmaceutical Society of Great Britain. Dr Lönngren has a profound knowledge and experience in drug and medical device regulation, and health economics across the world's major markets. His extensive network of contacts in multinational pharmaceutical and medical device companies and capital markets will be a great asset for our Company as we expand our operations into the United States and Europe. Other current directorships in listed entities. Dr Lönngren's current positions include Director and Founder of Pharma Executive Consulting Ltd in London, Strategic Advisor at NDA Group in Sweden, Germany, UK and Cambridge, MA, US and Non-Executive Director of Global Kinetics Corporation in Australia. Interest in shares and options Unlisted options: • • 10,000,000 @ 1.62c expires 10/12/2020 10,000,000 @ 1.30c expires 21/12/2021 Mr Warren Brooks. Non- Executive Director (appointed 25 July 2011) Securities Institute Certificate, Diploma in Financial Planning Warren previously had 30 years’ experience working in Investment Banking and Stockbroking. Interest in shares and options: Indirect director's interest: Pg. 04 Directors Report • W Brooks Investments Pty Ltd - Ordinary shares 48,645,000 Unlisted options: • • 8,000,000 @ 3.24c expires 29/10/2018 10,000,000 @ 1.30c expires 21/12/2021 Listed options: • ALTOA Options 5,405,000 @ 1.4c Expire 28/02/2018 Mr Carl Stubbings. Non-Executive Director (appointed 13 January 2013) Bachelor of Applied Science (Medical Technology) degree from the Queensland University of Technology. Mr Stubbings’ experience in the sector spans over 30 years with a focus on medical diagnostics as well as biotechnology. He has specialised in sales with a particular emphasis on marketing across North America, Latin America, Asia Pacific and Europe as well as roles covering manufacturing and administration. Previously a board member of the Queensland North America Biotech Advisory Council. Other current directorships in listed entities. Mr Stubbings’ works as a business development consultant for Biotron (ASX:BIT) and BCAL Diagnostics. Mr Stubbings is also currently a non-executive director of unlisted public company Sienna Diagnostics and Otakaro Pathways Ltd (New Zealand), providing strategic input for both companies as they initiate commercialisation of their diagnostic tests. Interest in shares and options Indirect director's interest: • C&K Stubbings Super Fund - Ordinary shares 2,746,322 Unlisted options: • • 4,000,000 @ 1.62c expires 10/12/2020 10,000,000 @ 1.30c expires 21/12/2021 Listed options: • ALTOA Options 305,146 @ 1.4c Expire 28/02/2018 Pg. 05 Directors Report Principal activities and significant changes in nature of activities The principal activities of the Group during the year were: • • • • • The development of strategies on commercial sales of PeriCoach; The development of intellectual property of medical device and mobile health application in relation to patents and systems in the pelvic floor exercise field (PeriCoach); The development of intellectual property in the medical device field in relation to patents in the burette field (AutoStart Infusion System); The development of strategies for commercial sales of burette products; There were no significant changes in the Group's principal activities during the year, other than abandon the development of the medical device to assist neurologists treatment of muscular spasticity ELF. Operating results and review of operations for the year Operating results The consolidated loss of the Group amounted to $ (3,254,704), after providing for income tax. This represented a decrease on the loss of $626,768 result reported for the year ended 30 June 2016 of $(3,881,472). Decrease for market development of $1,511,793 to $356,037 (2016: $1,867,830). Research and development decrease by $199,692 to $2,341,091 (2016: $2,540,783) was due to the continued development of the PeriCoach system. Administration costs decreased by $308,964 to $877,280 (2016: $1,186,244). Review of Operations PeriCoach Executing the commercialisation strategy for the PeriCoach is focussed on the flowing milestones: • Building ‘best-in-class’ conservative treatment for pelvic floor conditions, with a particular focus on urinary incontinence. • Validate and extend clinical credibility and effectiveness of PeriCoach. • • Confirming market acceptance while creating a positive sales environment. Securing a competitive partnering agreement with a major multinational company with the resources to make the PeriCoach a global success. Pg. 06 Directors Report Best-In-Class • • • • • • The PeriCoach system qualifies for the Australian Government’s Research and Development Tax incentive. The company continues to make substantial investment in the PeriCoach to establish this unique approach as ‘best in class’. As a result of this investment Analytica received a $1,154,998 refund for 2016 year. Substantial investment in the development of PeriCoach has continued through 2017. The board strongly believe development must continue to secure and enhance the partnering value of the PeriCoach. The PeriCoach is a sophisticated medical device designed to collect valuable behavioural and performance data during treatment of pelvic floor dysfunction that has not been available previously outside of a clinical environment. The Australian limited market release in 2014 identified opportunities to improve ease of use, connectivity and responsiveness. These enhancements were incorporated in Version 2 of the PeriCoach. The company has continued to collect data and identified further enhancements to the PeriCoach, which include monitoring, and biofeedback capabilities. These additional features have been incorporated and introduced with the release of Version 3 of PeriCoach in 2017. The intuitive and patent-protected design of the PeriCoach incorporates sensors which provide an ongoing flow of data collected in real-time. This data is transmitted to Analytica’s proprietary cloud database for further analysis. The PeriCoach smartphone app simplifies the sensor information providing immediate feedback to the user which drives performance and motivation. The development of the software, sensor hardware and algorithms is an ongoing task as we continue to use the data and develop the science from our unique insights into women’s pelvic health. The data collected also provide a resource to demonstrate not only the efficacy of the product at a particular point in time, but how our product development program has improved efficacy over time. This improvement trajectory demonstrates to potential acquirers the first-mover advantage we have. Analytica has the world’s biggest database of pelvic floor exercise. We have the data, we can analyse the data and we can improve our treatments based on the evidence we possess. In conjunction with the release of PeriCoach the purchase and payment system was further refined. The UK and the US, ordering and payment portals are now linked to each country's logistics. The web page and digital media presence continues to evolve to ensure that the PeriCoach remains fresh and interesting to consumers. The marketing efforts assist with defining critical communication strategies and sales channels for a partner to access consumers. • Australian (TGA) and European (CE) registration was achieved in 2014 supported by extensive documentation and testing. Pg. 07 Directors Report • Following United States Food and Drug Administration (FDA) approval in March 2015 as a prescription only product the company lodged an application with the FDA for PeriCoach to be approved as an ‘Over the Counter’ (OTC) product, meaning it does not require a prescription. The FDA granted this important milestone in the world’s largest medical device market in July 2016. Establish and extend clinical credibility of effectiveness • Analytica conducted a post-clearance randomised, controlled clinical trial for incontinence treatment and sexual function, utilising the version 2 PeriCoach. Although not required for regulatory clearance, this trial was conducted to provide independent evidence and validation of the PeriCoach system efficacy for consumers, clinicians and potential partners. • Clinical advisory boards consisting of key opinion leaders in both Australia and the United States continue to provide expert guidance and clinical relations support. • Clinical papers and case studies using PeriCoach in treatment have been published in leading clinical urology journals. Data from the PeriCoach clinical trial was accepted and presented at international urogynaecology, physiotherapy and sexual health clinical conferences. Testing market acceptance and create a positive sales environment • • • • • The company has been represented at top urogynaecology and physiotherapy clinical conferences in Australia, United States, Europe, and the United Kingdom. These conferences are a platform to introduce product, gain clinical perspective on conservative management of PFD as well as disseminate PeriCoach clinical evidence and core differentiators to non-clinical competitors. Targeted regional clinical campaigns to educate clinicians and their support teams on product availability and updates, training program expansion, and efficacy data. Engagement of clinical advisory board members and key opinion leaders in clinical events. Expansion of the PeriCoach health care network. Continued creativity and refinement of brand assets to build momentum online among search engine marketing and social media. • Developing video training and promotional assets. • Strategic engagement with core demographic audience via bloggers and public relations efforts to garner regional brand ambassadors that resonate with a global audience. • Data driven programing to build awareness and derive evidence-based insights about our core audience, messaging and content triggers that prompt visits to www.pericoach.com. • Search Engine Optimization driven by expanded web content, responsive advertising, in addition to continuous Google Analytics monitoring, further define digital profile for online consumer journey. Pg. 08 Directors Report Partnership The US, EU and Chinese markets are considered the largest medical device markets in the world. Addressing these markets competitively will require significantly more marketing and sales resources than Analytica has available. The company is actively engaged in discussions with potential partners that have the capacity to maximise the sales of PeriCoach in these important regions. Directors Dr Peter Corr, Dr Thomas Lönngren and Carl Stubbings have experience and networks in the US and EU. In addition, consultants have been engaged to assist with the development of the company’s partnering strategy. ELF2 Analytica has abandoned the development of this medical device for treatment of muscular spasticity, devoting resources to the PeriCoach. It has been determined that the ELF2 device design will not be satisfactorily protected by patents and registered designs to be commercially viable. AutoStart Infusion System This product, despite overwhelming evidence of cost effectiveness and safety has struggled for a foothold in the small Australian market. Medical Australia Ltd (ASX:MLA) has successfully listed the AutoStart burette on the Queensland Health purchasing schedule. Inclusion in this schedule is a prerequisite for all public Queensland health facilities to purchase medical devices. Analytica believes this important step could provide a valuable opportunity to gain some market share in Australia. As a result of this listing the system is being trialled in a Queensland hospital, with encouraging support. Analytica is investigating the opportunities presented by home based hospital care for the AutoStart infusion system. Whereas hospitalisation costs upwards of US$1,500 to US$2,500 per day, the average cost of home infusion is US$150 to US$200 per day. Additionally, the potential savings accrued by preventing hospital-acquired infections are significant, as these infections result in direct costs to hospitals of US$28 to US$45 billion a year in the US. The global home infusion therapy market in 2014 was estimated at US$12,187 million. This is a market well suited to the AutoStart infusion system, with the AutoStart infusion system features of safety, simplicity, and cost effectiveness. Intellectual Property Analytica continues to develop and protect its intellectual property through patents, trademarks and design registrations. Protection of intellectual property is critical in partnering negotiations and assists in securing a potential partner’s freedom to operate in the market. Pg. 09 Directors Report The PeriCoach was granted patent protection in China in August 2016. China has an estimated 227 million women with urinary incontinence. Many jurisdictions allow patent protection for 20 years providing patent coverage until 2032. The PeriCoach was granted patent protection in Japan in February 2017. The PeriCoach was granted patent protection in Australia in May 2017. Analytica also has PeriCoach patents pending in the PCT national phase in Brazil, India, Germany, and France. Design registrations have also been granted in these jurisdictions. Analytica's R&D team has developed additional novel ideas for future products and product enhancements during the PeriCoach product development process. Analytica aims to investigate these ideas and assess their patentability and commercial viability in the coming year. Analytica's original licensed burette patents (1995) are maintained for the North American, Australian, and European markets and more recent (2006) patent-pending embodiments are extended in these regions and China until 2026. Patent protection for this later embodiment of the AutoStart burette was granted in United States in July 2016. Analytica's Flush feature developed in 2008 is currently in the Patent Cooperation Treaty (PCT) national phases, and has been granted patents in China, with US, Australia and Germany pending. Analytica also maintains registered trademarks in the various jurisdictions above, and owns the top-level (.com) internet domains with these trademarks. Financial Review Financial position The net assets of the Group have decreased by $ 87,621 from 30 June 2016 to $ 1,211,270 at 30 June 2017. The directors have allotted shares to secure the company’s financial position to continue the development of the PeriCoach, and support clinical evidence collection and market assessment of the PeriCoach in the USA and UK/Ireland. In 2016 Analytica announced the further support of INOV8 LLC with a placement of $500k. In 2017 Analytica announced a series of share placements totalling $1,887k with related party placements approved by shareholders in April 2017. The company continued the expenditure reduction program focusing only on Research and Development to further extend the company’s cash resources. Pg. 10 Directors Report Other items Significant changes in state of affairs The following significant changes in the state of affairs of the parent entity occurred during the year: • • • • • In July 2016, the PeriCoach was released for sale “over the counter”, that is a prescription is no longer needed in the United States of America. In February 2017 Analytica announced positive results of PeriCoach clinical trial. In May 2017, the PeriCoach Version 3 was released to market. In May 2017, the PeriCoach “8 Week Challenge” structured, data driven exercise program was released to market. In May 2017 Dr Peter B. Corr was appointed director. Changes in the controlled entities and divisions No changes. Events after the reporting date No other matters or circumstances have arisen since the end of the year which significantly affected or could significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years. Environmental issues The Group's operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory of Australia Future developments and results Continue the commercialisation strategy for the PeriCoach namely: • Executing the commercialisation strategy for the PeriCoach is focussed on the following milestones: • Building ‘best-in-class’ conservative treatment for pelvic floor conditions, with expansion from the current focus on urinary incontinence to include pelvic organ prolapse, a condition which affects up to 10% of all women at some stage of their lives. • Validate and extend clinical credibility and effectiveness of PeriCoach • • Confirming market acceptance while creating a positive sales environment Securing a competitive partnering agreement with a major multinational company with the resources to make the PeriCoach a global success. Pg. 11 Directors Report Non-audit services The Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor's independence for the following reasons: • • • all non-audit services are reviewed prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees were paid or payable to the external auditors for non-audit services provided during the year ended 30 June 2017: Bentleys QLD Pty Ltd Preparation of Tax Return Auditors independence declaration 2017 $3,000 2016 $2,600 The lead auditors, independence declaration for the year ended 30 June, 2017 has been received and can be found on page 27 of the financial report. Company secretary The following person held the position of Company secretary at the end of the year: Bryan Dulhunty (COSA Pty Ltd) has been the company secretary since 15 October 2012. COSA provides specialised Company Secretarial and CFO services to Life Science Companies. Bryan Dulhunty has extensive experience in the biotech industry having held roles covering Chairman, Managing Director, Company Secretary, CFO, and Non-Executive Director of listed and non-listed biotech companies. Pg. 12 Directors Report Meetings of directors During the year, 12 meetings of directors were held. Attendances by each director during the year were as follows: Dr Michael Monsour Mr Ross Mangelsdorf Mr Warren Brooks Mr Carl Stubbings Dr Thomas Lönngren Dr Peter Corr Number eligible to attend Number Attended 12 12 12 12 12 1 12 12 12 12 12 1 No indemnities have been given or insurance premiums paid, during or since the end of the year, for any person who is or has been an officer or auditor of Analytica Limited. Employees Analytica recognises the value of diversity in the workplace and is committed to providing equal opportunity for all of its staff. Over 65% of current full-time equivalent employees are female. Where possible Analytica offers flexible work practices and work life balance as a key retention tool. Analytica is also committed to providing a workplace free from any form of harassment, bullying and discrimination. Pg. 13 Directors Report Options Unissued shares under option At the date of this report, the unissued ordinary shares of Analytica Limited under option are as follows Grant Date Unlisted Options 30 June 2013 12 February 2014 22 May 2014 28 September 2015 26 November 2015 24 November 2016 9 June 2017 9 June 2017 28 June 2017 Listed Options 11 August 2015 Date of Expiry Exercise Price Number under Option 29 October 2018 $0.03220 12 February 2019 $0.04390 22 May 2019 $0.07330 28 February 2020 $0.01900 10 December 2020 $0.01620 22 December 2021 $0.01300 8 June 2022 $0.01300 8 June 2022 $0.01036 22 December 2021 $0.01300 28 February 2018 $0.01400 44,500,000 5,000,000 4,375,000 10,416,667 14,000,000 70,000,000 41,000,000 33,350,000 2,500,000 225,141,667 119,372,193 119,372,193 Option holders do not have any rights to participate in any issues of shares or other interests in the Company or any other entity. For details of options issued to directors and other key management personnel as remuneration, refer to the remuneration report. Remuneration report (audited) Remuneration policy The remuneration policy of Analytica Limited has been designed to align key management personnel (KMP) 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 Group's financial results. The Board of Analytica Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the Pg. 14 Directors Report 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 has been developed by the Board, following professional advice from independent external consultants when required. • All key management personnel receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits, and performance incentives. • • Performance incentives are based on predetermined key performance indicators. Incentives paid in the form of options or rights are intended to align the interests of the KMP and the Group with those of the shareholders. In this regard, key management personnel are prohibited from limiting risk attached to those instruments by use of derivatives or other means. The performance of key management personnel is measured against criteria agreed 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 receive a superannuation guarantee contribution required by the law, which is currently 9.5%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation. Upon retirement, key management personnel are paid employee benefit entitlements accrued to the date of retirement. Key management personnel are paid a percentage of between 5-10% of their salary in the event of redundancy. Any options not exercised before or on the date of termination will lapse. All remuneration paid to key management personnel is valued at the cost to the Group and expensed. The Board's 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, the current maximum is $ 550,000 which was approved at the Pg. 15 Directors Report 2011 AGM. In November 2004, the Board set individual directors fees at $50,000 per annum plus statutory superannuation and the chairman's fee at $75,000 plus statutory superannuation. Based on the current board structure total fees paid on a yearly basis will be $280,682 (2016: $269,792) plus statutory superannuation. Key management personnel employed by the Company during the year, in addition to the Company’s Directors, is the Company’s Operations Manager, Mr Geoff Daly (appointed on the 7 November 2005) and accepted the position of CEO on the 12 February 2014. Mr Daly has extensive experience in the design of medical devices, prototyping and manufacturing. Mr Daly is employed by the Company under the terms and conditions set out in an employment contract. Due to the size of the company and the nature of its operations, the contract is open-ended and not for a specific time frame. Mr Daly’s contract can be terminated by either party giving notice commensurate with the period of employment. There is no provision in the employment contract for the payment of any termination payments other than accrued statutory entitlements. Mr Mangelsdorf is employed by the Company as CFO. Mr Mangelsdorf has 36 years in the accounting profession. Due to the size of the company and the nature of its operations, the employment contract is open- ended and not for a specific time frame. Mr Mangelsdorf can be terminated by either party giving notice commensurate with the period of employment. There is no provision for the payment of any termination payments other than accrued statutory entitlements. Key management personnel are also entitled and encouraged to participate in the employee share and option arrangements to align their interests with shareholders' interests. Options granted under these arrangements do not carry dividend or voting rights. Each option is entitled to be converted into one ordinary share and is valued using the Black-Scholes methodology. Key management personnel who are subject to these arrangements are subject to a policy governing the use of external hedging arrangements. Such personnel are prohibited from entering into hedge arrangements, i.e. put options, on unvested shares and options which form part of their remuneration package. Terms of employment signed by such personnel contain details of such restrictions. Relationship between remuneration policy and company performance The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. Two methods have been applied to achieve this aim, the first being a performance-based bonus based on key performance indicators, and the second being the issue of options to directors and executives to encourage the alignment of personal and shareholder interests. The Company believes this policy has been effective in increasing shareholder wealth over the past 5 years. Pg. 16 Directors Report The following table shows the gross revenue, profits and dividends for the last five years for the Company, as well as the share prices at the end of the respective financial years. 2017 $ 2016 $ 2015 $ 2014 $ Revenue 1,254,337 2,116,243 1,119,378 587,483, 2013 $ 541,262 Net Profit/(Loss) Share Price at Year end Dividends Paid (cents) (3,254,704) (3,881,472) (5,315,604) (3,176,008) (1,135,752) 0.01 - 0.01 0.01 0.04 - - - 0.02 - Performance conditions linked to remuneration Company executive fees are not linked to the performance of the Group. However, to align executives' interests with shareholder interests, the executives are encouraged to hold shares in the Group. Employment details of members of key management personnel The following table provides employment details of persons who were, during the financial year, members of key management personnel of the Group. Pg. 17 Directors Report The table also illustrates the proportion of remuneration that was performance based, non-performance based, and the proportion of remuneration received in the form of options. Group KMP Position Held as at 30 June 2017 and any Change during the Year Contract Details Duration and Termination Proportions of Elements of Remuneration Related to Performance Proportions of Elements of Remuneration Not Related to Performance y r a l a s - n o N d e s a b - h s a C % s e v i t n e c n I % s t i n U s e r a h S i % s t h g R s n o i t p O % s e e F y r a l a S d e x i F % l a t o T Directors Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings Dr T Lönngren Dr P Corr KMP G Daly Chairman Annual Review Executive Director and Chief Financial Officer Non-executive Director Non-executive Director Non-executive Director Non-executive Director Annual Review* Annual Review Annual Review Annual Review Annual Review - - - - - - - - - - - - - - - - - - 100 100 100 100 100 100 100 100 100 100 100 100 Chief Executive Officer * - - - 100 100 * Open - ended contract; Termination by 5 weeks notice or 4 weeks employee. Service Agreements On appointment to the Board, all non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including remuneration, relevant to the office of director. The remuneration and other terms of employment for the Managing Director and senior executives Pg. 18 Directors Report are set out in formal service agreements as summarised below. All service agreements are for an unlimited duration. The agreements for executives (other than the Managing Director, Chief Executive Officer and Chief Finance Officer which require 5 weeks’ notice, may be terminated by giving 4 weeks’ notice (except in cases of termination for cause where termination is immediate). In cases of resignation, no separation payment is made to the executive, except for amounts due and payable up to the date of ceasing employment, including accrued leave entitlements. Remuneration details for the year ended 30 June 2017 The following tables of benefits and payment represents components of the current year and comparative year remuneration for each member of the key management personnel of the Group. Such amounts have been calculated in accordance with Australian Accounting Standards. 2017 short term Total post employment long term share based payments Total s e e f y r a a s h s a c l $ s u n o b y r a t e n o m n o n r e h t o $ $ $ $ n o i t a u n n a r e p u s $ t s o p r e h t o t n e m y o p m e l n o i t a n m r e t i $ $ s t h g i r & s n o i t p o $ s t i n u & s e r a h s d e l t t e s - h s a c $ $ $ Directors Dr M Monsour 75,000 Mr R Mangelsdorf 176,000 - - - - - 75,000 7,125 - 176,000 16,720 Mr W Brooks 50,000 - - - 50,000 4,750 - - - - - - 126,265 63,133 - - - - 208,390 255,853 63,133 - - 117,883 Mr C Stubbings 50,000 - - - 50,000 4,750 - - 67,097 - - 121,847 Dr T Lönngren 50,000 - - - 50,000 4,750 Dr P Corr 5,682 5,682 540 KMP G Daly 210,000 616,682 - - - - - 210,000 19,950 - 616,682 58,585 - - - - - - - - 73,042 - 181,783 574,453 - - - - - - - - 127,792 6,222 411,733 1,249,720 Pg. 19 Directors Report 2016 short term Total post employment long term share based payments Total s e e f y r a a s h s a c l s u n o b y r a t e n o m n o n r e h t o n o i t a u n n a r e p u s l t n e m y o p m e t s o p r e h t o n o i t a n m r e t i s t h g i r & s n o i t p o s t i n u & s e r a h s d e l t t e s - h s a c $ $ $ $ $ $ $ $ $ $ $ $ $ Directors 75,000 Dr M Monsour Mr R Mangelsdorf 176,000 Mr W Brooks 50,000 Mr C Stubbings 50,000 Dr T Lönngren 49,047 KMP G Daly 210,000 610,047 - - - - - - - - - - - - - - - 75,000 7,125 - 176,000 16,720 - - - 50,000 4,750 50,000 4,750 49,047 - - 210,000 19,950 - 610,047 53,295 - - - - - - - - - - - - - - - - - - - - - - - - 7,432 18,580 - 26,012 - - - - - - - - - - - - - - 82,125 192,720 54,750 62,182 67,627 229,950 689,354 Securities received that are not performance related No members of key management personnel are entitled to receive securities which are not performance-based as part of their remuneration package Cash performance-related bonuses There were no bonuses granted as remuneration to key management personnel and other executives during the year ended 30 June 2017 (2016: nil). Pg. 20 Directors Report Description of options/rights granted as remuneration Details of the options granted as remuneration to those key management personnel and executives during the year: 2017 Directors Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr Carl Stubbings Dr Thomas Lönngren Mr Carl Stubbings * Dr Thomas Lönngren * KMP Mr G Daly Mr G Daly Mr G Daly Mr G Daly 2016 Directors Mr Carl Stubbings * Dr Thomas Lönngren * Granted as remuneration Value of options at grant date Vested during the year Lapsed during the year Value of lapsed options at lapse date No. $ No. No. $ 20,000,000 10,000,000 10,000,000 10,000,000 10,000,000 4,000,000 10,000,000 10,000,000 10,000,000 14,000,000 4,250,000 0.0063 0.0063 0.0063 0.0063 0.0063 0.003 0.003 0.0046 0.0046 0.0049 0.0049 - - - - - 1,333,333 3,333,333 - - 14,000,000 - - - - - - - - - - - - - - - - - - - - - - - Granted as remuneration Value of options at grant date Vested during the year Lapsed during the year Value of lapsed options at lapse date No. $ No. No. $ 4,000,000 10,000,000 0.003 0.003 1,333,333 3,333,333 - - - - Options were approved at the 2016 November AGM for directors. These options are brought to account at valuation prepared by BDO Chartered Accountants. Employee Share Option Plan was approved at the April 2017 EGM. Employee options were issued under this plan in June 2017. These options are brought to account at valuation prepared by BDO Chartered Accountants. *Options were issued to Mr C Stubbings and Dr T Lonngren in 2016 and vest over 3 years. All options were issued by Analytica Limited and entitle the holder to ordinary shares in Analytica Limited for each option exercised. Pg. 21 Directors Report Description of options/rights granted as remuneration (continued) There have not been any alterations to the terms or conditions of any share based payment arrangements since grant date. Corporate Governance Analytica Ltd is committed to implementing the highest possible standards of corporate governance. In determining what those high standards should involve, Analytica Ltd has turned to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles) and has a corporate governance framework that reflects those recommendations within the structure of the Company. The Board of Analytica Ltd approved an updated series of policies and charters in line with the amendments to the ASX Principles. The Company’s policies and charters together form the basis of the Company’s governance framework at the date of signing of the directors’ report. Within this framework: • • • • the Board of Directors is accountable to shareholders for the performance of the Company; the Company’s goals to achieve milestones are set and promulgated; the risks of the business are identified and managed, and the Company’s established values and principles underpin the way in which it undertakes its operations. The Company has in place an entrenched, well developed governance culture which has its foundations in the ethical values that the Board, management and staff bring to the Company and their commitment to positioning the Company as a leader in its field. In certain instances, due to the size and stage of development of Analytica and its operations, it may not be practicable or necessary to implement the ASX Principles in their entirety. In these instances, Analytica Ltd has identified the areas of divergence. Pg. 22 Directors Report Key management personnel options and rights holdings 2017 Balance beginning of year Granted as remuneration d e s i c r e x E r e h t O e g n a h c Balance at the end of year Vested during the year Vested and exercisable Directors Unlisted Options @ 3.24 cents, Expire 29/10/18 Dr M Monsour 13,000,000 Mr R Mangelsdorf 10,000,000 Mr W Brooks Unlisted Options @ 1.62 cents, Expire 10/12/20 8,000,000 Mr C Stubbings Dr T Lonngren Unlisted Options @ 1.3 cents, Expire 21/12/21 4,000,000 10,000,000 - - 10,000,000 20,000,000 Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings Dr T Lonngren Other KMP Unlisted Options @ 3.24 cents, Expire 29/10/18 10,000,000 10,000,000 10,000,000 - - - G Daly Unlisted Options @ 4.50 cent, Expire 12/02/19 6,000,000 G Daly Unlisted Options @ 1.30 cent, Expire 8/06/22 5,000,000 - - G Daly Unlisted Options @ 1.30 cent, Expire 8/06/22 10,000,000 - G Daly Unlisted Options @ 1.036 cent, Expire 8/06/22 10,000,000 - G Daly Unlisted Options @ 1.036 cent, Expire 8/06/22 14,000,000 - G Daly - 4,250,000 56,000,000 98,250,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,000,000 - 13,000,000 10,000,000 - 10,000,000 8,000,000 - 8,000,000 4,000,000 10,000,000 1,333,333 3,333,333 2,666,666 6,666,666 20,000,000 10,000,000 10,000,000 10,000,000 10,000,000 6,000,000 5,000,000 10,000,000 10,000,000 - - - - - - - - - - - - - - 6,000,000 - - - 14,000,000 14,000,000 14,000,000 4,250,000 - - 154,250,000 18,666,666 60,333,332 Pg. 23 Directors Report Key management personnel options and rights holdings 2016 Balance at beginning of year Granted as remuneration d e s i c r e x E r e h t O s e g n a h c Balance at the end of year Vested during the year Vested and exercisable Directors Unlisted Options @ 3.24 cents, Expire 29/10/18 13,000,000 Dr M Monsour Mr R Mangelsdorf Mr W Brooks - Unlisted Options @ 1.62 cents, Expire 10/12/20 10,000,000 8,000,000 - - Mr C Stubbings Dr T Lonngren Other KMP Unlisted Options @ 3.24 cents, Expire 29/10/18 4,000,000 10,000,000 - - G Daly - Unlisted Options @ 4.50 cent, Expires 12/02/19 6,000,000 G Daly 5,000,000 - 42,000,000 14,000,000 - - - - - - - - - - - - - - - - 13,000,000 10,000,000 8,000,000 - - - 13,000,000 10,000,000 8,000,000 4,000,000 10,000,000 1,333,333 3,333,333 1,333,333 3,333,333 6,000,000 5,000,000 - - 6,000,000 - 56,000,000 4,666,666 41,666,666 Key management personnel shareholdings The number of ordinary shares in Analytica Limited held by each key management person of the Group during the year is as follows: 2017 Balance at beginning of year On exercise of options Other changes during the year Balance at end of year Directors Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings Dr P Corr KMP Mr G Daly 500,266,164 50,571,377 48,645,000 2,746,322 202,324,638 804,553,501 881,658 805,435,159 - - - - - - - - 62,188,273 562,454,437 8,011,678 - - 58,583,055 48,645,000 2,746,322 118,377,724 320,702,362 188,577,675 993,131,176 - 881,658 188,577,675 994,012,834 Pg. 25 Directors Report Key Management and Staff Geoff Daly, Chief Executive Officer Mr Daly is a Chartered Biomedical and Mechanical Engineer with 24 years of professional engineering experience, the last 20 in the medical device industry. Mr Daly has expertise in design processes, quality systems, and business system improvement, and is trained in the use of Six Sigma tools. He has extensive hands-on design experience of product development in FDA QSR and ISO 13485 environments in some of Australia's largest and smallest medical device companies. Chelsea Cornelius – Product Development and Operations Manager Chelsea started at Analytica in 2008 and has been a key developer of the PeriCoach. Chelsea has a double degree of Arts (Cultural Studies) and Engineering (Mechanical; Hons) at Swinburne University, and a Masters of Biomedical Engineering at Melbourne University. In 2016 Chelsea received the Medical Technology Association of Australia Outstanding Achievement Award. Megan Henken – VP Global Marketing Megan has a degree in Business Management, emphasis in Marketing from Colorado State University. She is a global marketing and sales strategist with over 10 years of healthcare commercial experience, launching of over 20 FDA regulated products. Her experience spans clinical diagnostics, point of care medical devices and health care distribution. Pg. 27 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Profit or Loss and Other Comprehensive Income Income (k) 2,000 1,500 1,000 500 0 3,000 2,500 2,000 1,500 1,000 500 0 Sales Revenue Grant Income Investment revenue Royalty Income 2017 2016 Expenses (k) 2017 2016 Pg. 28 Consolidated Statement of Profit or Loss and Other Comprehensive Income Continuing operations Sales Revenue Cost of Sales Gross Profit Grant Income Investment revenue Royalty Income Administration expense Depreciation, amortisation and impairments Finance expenses Foreign Currency Gains and Losses Investments Fair Value Adjustment Marketing expenses Occupancy expenses Option Expenses Patent maintenance expenses Research and development expense Loss before income tax Income tax expense Loss for the year Other comprehensive income for the year Total comprehensive income for the year Loss attributable to: Members of the parent entity Total comprehensive income attributable to: Members of the parent entity Note 2 2 2 2 2 2 2 2 2 2 3 2,017 $ 73,410 (37,656) 35,754 1,154,998 15,306 10,623 (877,280) (17,664) (231) (26,535) (2,089) (356,037) (4,147) (827,285) (19,026) (2,341,091) (3,254,704) - (3,254,704) - (3,254,704) - (3,254,704) - (3,254,704) 2,016 $ 190,802 (81,392) 109,410 1,893,605 21,157 10,679 (1,186,244) (117,793) (2,272) (50,140) (15,671) (1,867,830) (5,180) (4,607) (125,803) (2,540,783) (3,881,472) - (3,881,472) - (3,881,472) - (3,881,472) - (3,881,472) Earnings per share Basic earnings per share (dollars) Diluted earnings per share (dollars) 6 6 (0.0014) (0.0014) (0.0027) (0.0027) Pg. 29 Consolidated Statement of Financial Position Consolidated Statement of Financial Position Assets Current Assets Cash and cash equivalents Inventories Prepayments Trade and other receivables Non-current Assets Intangible assets Other financial assets Property, plant and equipment Total Assets Liabilities Current Liabilities Employee benefits Short-term provisions Trade and other payables Non-Current Liabilities Provision for Long Service Leave Total Liabilities Net Assets Equity Current Year Earnings Issued capital Reserves Retained Earnings Total Equity Consolidated Group 2017 $ Notes 2016 $ 7 9 13 8 12 10 11 16 15 14 16 18 17 1,211,983 191,316 63,787 25,196 1,492,282 145,886 2,089 24,273 172,248 1,664,530 141,083 61,100 231,485 433,668 19,592 1,252,514 224,325 225,852 19,136 1,721,827 36,822 4,179 30,078 71,079 1,792,906 155,017 53,050 267,844 475,911 18,104 453,260 494,015 1,211,270 1,298,891 (3,254,704) 99,254,783 1,361,130 (96,149,939) (3,881,472) 96,910,986 537,845 (92,268,468) 1,211,270 1,298,891 Pg. 30 Consolidated Statement of Changes in Equity Consolidated Statement of Changes in Equity 2017 Consolidated Group Note Ordinary Shares Retained Earnings $ $ Option Reserve $ Total $ Balance at 1 July 2016 96,910,986 (96,149,939) 537,844 1,298,891 Profit/(Loss) attributable to members of the parent entity Options issued/exercised during the year Shares issued during the year Transaction costs Shares bought back during the year - - 2,387,435 (43,638) - (3,254,704) - (3,254,704) - - - - 823,286 823,286 - - - 2,387,435 (43,638) - Balance at 30 June 2017 18 99,254,783 (99,404,643) 1,361,130 1,211,270 2016 Consolidated Group Note Ordinary Shares $ Retained Earnings $ Option Reserve $ Total $ Balance at 1 July 2015 92,114,779 (92,268,467) 534,737 381,049 Profit/(Loss) attributable to members of the parent entity Options issued/exercised during the year Shares issued during the year Transaction costs Shares bought back during the year - - 5,235,681 (439,474) - (3,881,472) - (3,881,472) - - - - 3,107 3,107 - - - 5,235,681 (439,474) - Balance at 30 June 2016 18 96,910,986 (96,149,939) 537,844 1,298,891 Pg. 31 Consolidated Statement of Cash Flows for the Year Ended 30 June 2017 Consolidated Statement of Cash Flows for the Year Ended 30 June 2017 Cash flows from operating activities: Receipts from customers Receipt from grants Receipt from royalty income Payments to suppliers and employees Interest received Finance costs Interest paid Net cash provided by (used in) operating activities Cash flows from investing activities: Payment for intangible asset Purchase of property, plant and equipment Net cash used by investing activities Cash flows from financing activities: Proceeds from issue of shares Costs of fund raising Net cash used by financing activities 73,410 1,154,998 10,623 (3,517,512) 15,306 - (231) 21 (2,263,406) (112,304) (8,618) (120,922) 2,387,435 (43,638) 2,343,797 Net increase (decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of year Cash and cash equivalents at end of financial year (40,531) 1,252,514 1,211,983 7 191,061 1,893,605 7,271 (6,204,351) 21,157 - (2,272) (4,093,529) (17,962) (11,165) (29,127) 5,235,681 (439,474) 4,796,207 673,551 578,963 1,252,514 Pg. 32 Notes to the Financial Statements Notes to the Financial Statements These consolidated financial statements and notes represent those of Analytica Listed Public Limited and Controlled Entities (the “consolidated group” or “group”). The separate financial statements of the parent entity, Analytica Listed Public Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The financial statements were authorised for issue on 6th September 2017 by the directors of the company. 1: Summary of Significant Accounting Policies Basis of Preparation These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations of the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless stated otherwise. Except for cash flow information, 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 selected non-current assets, financial assets and financial liabilities. a. Principles of Consolidation. The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Analytica Listed Public Limited) and all of the subsidiaries (including any structured entities). Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 23. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises Pg. 33 Notes to the Financial Statements non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non- controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument, are recognised as expenses in profit or loss when incurred. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Goodwill Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of: i. ii. the consideration transferred; any non-controlling interest (determined under either the full goodwill or proportionate interest method); and iii. the acquisition date fair value of any previously held equity interest; over the acquisition date fair value of net identifiable assets acquired. The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements. Pg. 34 Notes to the Financial Statements Fair value re measurements in any pre-existing equity holdings are recognised in profit or loss in the period in which they arise. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss. The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquired either at fair value (full goodwill method) or at the non-controlling interest's proportionate share of the subsidiary's identifiable net assets (proportionate interest method). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination. Under the full goodwill method, the fair value of the non-controlling interest is determined using valuation techniques which make the maximum use of market information where available. Under this method, goodwill attributable to the non-controlling interest is recognised in the consolidated financial statements. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested for impairment annually and is allocated to the Group's cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored and not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of. Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill. b. Income Tax. The income tax expense (income) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of Pg. 35 Notes to the Financial Statements an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. With respect to non-depreciable items of property, plant and equipment measured at fair value and items of investment property measured at fair value, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount of the asset will be recovered entirely through sale. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (i) a legally enforceable right of set-off exists; and (ii) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. c. Fair Value of Assets and Liabilities. The Group measures some of its assets and liabilities at fair value on either a recurring or non- recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. Pg. 36 Notes to the Financial Statements These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (ie the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share- based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. d. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate proportion of variable and fixed overheads. Cost of inventory is determined using the fist-in-first-out basis and are net of any rebates and discounts received. e. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Property Freehold land and buildings are carried at their fair value (being the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less accumulated depreciation for buildings. Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognised against revaluation surplus directly in equity; all other decreases are recognised in profit or loss. Pg. 37 Notes to the Financial Statements Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised as expenses in profit or loss during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and equipment Depreciation Rate 13.33% – 20% Plant and equipment leased to external parties 33% – 66.67% Leased plant and equipment 33% - 100% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Pg. 38 Notes to the Financial Statements An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are recognised in profit or loss in the period in which they arise. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. f. Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership – are transferred to entities in the consolidated group, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. g. Financial Instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the entity commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and Pg. 39 Notes to the Financial Statements any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential recognition of an income or expense item in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint ventures as being subject to the requirements of Accounting Standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit or loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. (ii) Loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial asset is derecognised. (iv) Available-for-sale investments. Available-for-sale investments are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with any re measurements other than impairment losses and foreign exchange gains and losses recognised in Pg. 40 Notes to the Financial Statements other comprehensive income. When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are classified as non-current assets when they are not expected to be sold within 12 months after the end of the reporting period. All other available-for-sale financial assets are classified as current assets. (v) Financial liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Impairment A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). In the case of available-for-sale financial assets, a significant or prolonged decline in the market value of the instrument is considered to constitute a loss event. Impairment losses are recognised in profit or loss immediately. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified into profit or loss at this point. In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously recognised in the allowance account. When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been renegotiated so that the loss events that have occurred are duly considered. Financial guarantees Where material, financial guarantees issued that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified Pg. 41 Notes to the Financial Statements debtor fails to make payment when due are recognised as a financial liability at fair value on initial recognition. The fair value of financial guarantee contracts has been assessed using a probability-weighted discounted cash flow approach. The probability has been based on: – the likelihood of the guaranteed party defaulting during the next reporting period; – the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and – the maximum loss exposure if the guaranteed party were to default. Financial guarantees are subsequently measured at the higher of the best estimate of the obligation in accordance with AASB 137: Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised in accordance with AASB 118. Derecognition Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. h. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or joint ventures deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs of disposal and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group Pg. 42 Notes to the Financial Statements estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. i. Intangibles Other than Goodwill Patents and trademarks Patents and trademarks are recognised at cost of acquisition. They have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Patents and trademarks are amortised over their useful lives ranging from 0 to 20 years. Research and development expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably. Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. j. Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, which is the parent entity’s functional currency. Transactions and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year- end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the underlying gain or loss is recognised in other comprehensive income; otherwise the exchange difference is recognised in profit or loss. Group companies The financial results and position of foreign operations, whose functional currency is different from the Group’s presentation currency, are translated as follows: Pg. 43 Notes to the Financial Statements – assets and liabilities are translated at exchange rates prevailing at the end of the reporting period; –income and expenses are translated at average exchange rates for the period; and –retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations with functional currencies other than Australian dollars are recognised in other comprehensive income and included in the foreign currency translation reserve in the statement of financial position. The cumulative amount of these differences is reclassified into profit or loss in the period in which the operation is disposed of. k. Employee Benefits Short-term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as part of current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave and long service leave entitlements are recognised as provisions in the statement of financial position. Other long-term employee benefits Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined by reference to market yields at the end of the reporting period on corporate bonds that have maturity dates that approximate the terms of the obligations. Any re measurements for changes in assumptions of obligations for other long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial position, except where the Group does not have an unconditional right to defer settlement for at least 12 months after the end of the reporting period, in which case the obligations are presented as current provisions. Pg. 44 Notes to the Financial Statements Termination benefits When applicable, the Group recognises a liability and expense for termination benefits at the earlier of: (i) the date when the Group can no longer withdraw the offer for termination benefits; and (ii) when the Group recognises costs for restructuring pursuant to AASB 137: Provisions, Contingent Liabilities and Contingent Assets and the costs include termination benefits. In either case, unless the number of employees affected is known, the obligation for termination benefits is measured on the basis of the number of employees expected to be affected. Termination benefits that are expected to be settled wholly before 12 months after the annual reporting period in which the benefits are recognised are measured at the (undiscounted) amounts expected to be paid. All other termination benefits are accounted for on the same basis as other long-term employee benefits. Equity-settled compensation The Group operates an employee share and option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortised over the vesting periods. Share- based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. l. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. m. Provision for Warranties Provision is made in respect of the Group’s best estimate of the liability on all products and services under warranty at the end of the reporting period. The provision is measured as the present value of future cash flows estimated to be required to settle the warranty obligation. The future cash flows have been estimated by reference to the consolidated group’s history of warranty claims. Pg. 45 Notes to the Financial Statements n. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are reported within borrowings in current liabilities on the statement of financial position. o. Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Interest revenue is recognised using the effective interest method. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint ventures are accounted for in accordance with the equity method of accounting. Royalty revenue is recognised in the consolidated statement of profit or loss and other comprehensive income when it is probable that the economic benefits gained from royalty will flow to the entity and the amount of the royalty can be measured reliably. The Group is eligible for Federal Government grants in respect of Research and Development expenditure. Such grants are accounted for when there is reasonable assurance that the Group will comply with the conditions attaching to the grant and the grant will be received. All revenue is stated net of the amount of goods and services tax. p. Trade and Other Receivables Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently measured at Pg. 46 Notes to the Financial Statements amortised cost using the effective interest method, less any provision for impairment. q. Trade and Other Payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. r. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. s. 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 Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. t. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements, an additional (third) statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements is presented. u. Rounding of Amounts The parent entity has applied the relief available to it under ASIC Corporations (Rounding in financial statements (Directors’ Report Instrument) 2016/191. Accordingly, amounts in the financial statements have been rounded off to the nearest $1. Pg. 47 Notes to the Financial Statements v. Going concern The financial statements have been prepared on a going concern basis. This basis has been adopted as the company has sufficient cash at 30 June 2017 to conduct its affairs. The company has a guarantee of continuing financial support from Dr Monsour to allow the company to meet its liabilities and it is the belief that such financial support will continue to be made available. The company’s forward cash flow projections currently indicate that the company will be required to raise additional funds to meet forecast needs. The Directors have considered this position and have assessed available funding options and believe should funding be required that sufficient funds could be sourced to satisfy creditors as and when they fall due. The company also expects to generate sales income during the 2018 year from the sales of its PeriCoach. However, if adequate capital raising is not achieved the company may be unable to continue as a going concern. No adjustments have been made relating to the recoverability and classification of recorded assets amounts and classification of liabilities that might be necessary should the company not continue as a going concern. w. Earnings per share The Group presents basic and diluted earnings per share information for its ordinary shares. Basic earnings per share is calculated by dividing the profit/loss attributable to owners of the company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share adjusts the basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. x. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options which vest immediately are recognised as a deduction from equity, net of any tax effect. y. Critical accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the interim financial statements 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. Pg. 48 Notes to the Financial Statements Key estimates – impairment The Group assesses impairment at the end of each reporting year by evaluating conditions specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. z. New Accounting Standards for Application in Future Periods Accounting Standards issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: – AASB 9: Financial Instruments and associated Amending Standards (applicable to annual reporting periods beginning on or after 1 January 2018). The Standard will be applicable retrospectively (subject to the provisions on hedge accounting outlined below) and includes revised requirements for the classification and measurement of financial instruments, revised recognition and derecognition requirements for financial instruments and simplified requirements for hedge accounting. The key changes that may affect the Group on initial application include certain simplifications to the classification of financial assets, simplifications to the accounting of embedded derivatives, upfront accounting for expected credit loss, and the irrevocable election to recognise gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. AASB 9 also introduces a new model for hedge accounting that will allow greater flexibility in the ability to hedge risk, particularly with respect to hedges of non-financial items. Should the entity elect to change its hedge policies in line with the new hedge accounting requirements of the Standard, the application of such accounting would be largely prospective. Although the directors anticipate that the adoption of AASB 9 may have an impact on the Group’s financial instruments, including hedging activity, it is impracticable at this stage to provide a reasonable estimate of such impact. – AASB 15: Revenue from Contracts with Customers (applicable to annual reporting periods beginning on or after 1 January 2018, as deferred by AASB 2015-8: Amendments to Australian Accounting Standards – Effective Date of AASB 15). When effective, this Standard will replace the current accounting requirements applicable to revenue with a single, principles-based model. Except for a limited number of exceptions, including leases, the new revenue model in AASB 15 will apply to all contracts with customers as well as non-monetary exchanges between entities in the same line of business to facilitate sales to customers and potential customers. The core principle of the Standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that Pg. 49 Notes to the Financial Statements reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. To achieve this objective, AASB 15 provides the following five-step process: - identify the contract(s) with a customer; - identify the performance obligations in the contract(s); - determine the transaction price; - allocate the transaction price to the performance obligations in the contract(s); and - recognise revenue when (or as) the performance obligations are satisfied. The transitional provisions of this Standard permit an entity to either: restate the contracts that existed in each prior period presented per AASB 108: Accounting Policies, Changes in Accounting Estimates and Errors (subject to certain practical expedients in AASB 15); or recognise the cumulative effect of retrospective application to incomplete contracts on the date of initial application. There are also enhanced disclosure requirements regarding revenue. Although the directors anticipate that the adoption of AASB 15 may have an impact on the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. – AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019). When effective, this Standard will replace the current accounting requirements applicable to leases in AASB 117: Leases and related Interpretations. AASB 16 introduces a single lessee accounting model that eliminates the requirement for leases to be classified as operating or finance leases. The main changes introduced by the new Standard include: - recognition of a right-to-use asset and liability for all leases (excluding short-term leases with less than 12 months of tenure and leases relating to low-value assets); -depreciation of right-to-use assets in line with AASB 116: Property, Plant and Equipment in profit or loss and unwinding of the liability in principal and interest components; - Inclusion of variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index or rate at the commencement date; - by application of a practical expedient, to permit a leasee to elect not to separate non-lease components and instead account for all components as a lease; and - additional disclosure requirements. The transitional provisions of AASB 16 allow a lessee to either retrospectively apply the Standard to comparatives in line with AASB 108 or recognise the cumulative effect of retrospective application as an adjustment to opening equity on the date of initial application. Pg. 50 Notes to the Financial Statements Although the directors anticipate that the adoption of AASB 16 will impact the Group's financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. - AASB 2014-10: Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (applicable to annual reporting periods beginning on or after 1 January 2018, as deferred by AASB 2015-10: Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128). This Standard amends AASB 10: Consolidated Financial Statements with regards to a parent losing control over a subsidiary that is not a “business” as defined in AASB 3 to an associate or joint venture, and requires that: - a gain or loss (including any amounts in other comprehensive income (OCI)) be recognised only to the extent of the unrelated investor’s interest in that associate or joint venture; - the remaining gain or loss be eliminated against the carrying amount of the investment in that associate or joint venture; and - any gain or loss from remeasuring the remaining investment in the former subsidiary at fair value also be recognised only to the extent of the unrelated investor’s interest in the associate or joint venture. The remaining gain or loss should be eliminated against the carrying amount of the remaining investment. The application of AASB 2014-10 will result in a change in accounting policies for transactions of loss of control over subsidiaries (involving an associate or joint venture) that are businesses per AASB 3 for which gains or losses were previously recognised only to the extent of the unrelated investor’s interest. The transitional provisions require that the Standard should be applied prospectively to sales or contributions of subsidiaries to associates or joint ventures occurring on or after 1 January 2018. Although the directors anticipate that the adoption of AASB 2014-10 may have an impact on the Group’s financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact. Pg. 51 Notes to the Financial Statements 2. Revenue from continuing operations Sale of goods revenue Other Revenue R & D tax incentive revenue Investment revenue Royalty Income Total Revenue Result for the year Consolidated Group 2017 $ 73,410 1,154,998 15,306 10,623 1,180,927 1,254,337 2016 $ 190,802 1,893,605 21,157 10,679 1,925,441 2,116,243 Profit before income tax from continuing operations includes the following specific expenses Finance expenses External Related entities Administration expense Administration – compliance Administration – employment Administration – general Depreciation, amortisation and impairments Intangible assets Property, plant and equipment Marketing expenses Marketing – employment Marketing – PeriCoach Patent maintenance expenses Patent Maintenance - AutoStart Burette Patent Maintenance – ELF Patent Maintenance - PeriCoach Consolidated Group 2017 $ 2016 $ 231 - 231 256 2,016 2,272 480,261 369,088 27,931 877,280 3,241 14,423 17,664 659,251 466,044 60,949 1,186,244 98,324 19,469 117,793 40,991 315,046 356,037 245,609 1,622,221 1,867,830 6,587 8,741 3,698 19,026 26,429 32,756 66,618 125,803 Pg. 52 Notes to the Financial Statements Research and development expense R & D – Employment R & D – Other R & D – PeriCoach 3. Income Tax Profit/(Loss) for the year Tax Add: Tax effect of: - non deductible expenses Less: Tax effect of: - non assessable income Temporary differences and tax losses not brought to account Income tax attributable to parent entity 514,571 9,430 1,817,090 2,341,091 534,284 - 2,006,499 2,540,783 Consolidated Group 2017 $ (3,254,704) 27.5% (895,044) 2016 $ (3,881,472) 30% (1,164,442) 847,424 (47,620) 740,900 (423,542) (317,624) (568,081) 365,244 991,623 - - Carried forward tax losses of $17,456,030 (2016:$ 15,120,591) have not been brought to account as a deferred tax asset because it is not yet considered probable that they will reverse to the extent of being utilised in the future. Pg. 53 Notes to the Financial Statements 4. Key management personnel options and rights holdings Balance beginning of year 2017 Granted as remuneration r e h t O e g n a h c d e s i c r e x E Balance at the end of year Vested during the year Vested and exercisable 8,000,000 10,000,000 13,000,000 4,000,000 10,000,000 Directors Unlisted Options @ 3.24 cents, Expire 29/10/18 Dr M Monsour Mr R Mangelsdorf Mr W Brooks Unlisted Options @ 1.62 cents, Expire 10/12/20 Mr C Stubbings Dr T Lonngren Unlisted Options @ 1.3 cents, Expire 21/12/21 Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings Dr T Lonngren Other KMP Unlisted Options @ 3.24 cents, Expire 29/10/18 G Daly Unlisted Options @ 4.50 cent, Expire 12/02/19 G Daly Unlisted Options @ 1.30 cent, Expire 8/06/22 G Daly Unlisted Options @ 1.30 cent, Expire 8/06/22 G Daly Unlisted Options @ 1.036 cent, Expire 8/06/22 G Daly Unlisted Options @ 1.036 cent, Expire 8/06/22 G Daly 5,000,000 - 6,000,000 - 20,000,000 10,000,000 10,000,000 10,000,000 10,000,000 14,000,000 10,000,000 10,000,000 4,250,000 - 56,000,000 98,250,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,000,000 10,000,000 - 13,000,000 - 10,000,000 8,000,000 - 8,000,000 4,000,000 10,000,000 1,333,333 3,333,333 2,666,666 6,666,666 20,000,000 10,000,000 10,000,000 10,000,000 10,000,000 6,000,000 5,000,000 10,000,000 10,000,000 - - - - - - - - - - - - - - 6,000,000 - - - 14,000,000 14,000,000 14,000,000 - - 4,250,000 - - 154,250,000 18,666,666 60,333,332 Pg. 54 Notes to the Financial Statements Balance at beginning of year 2016 Granted as remuneration d e s i c r e x E r e h t O s e g n a h c Balance at the end of year Vested during the year Vested and exercisable 8,000,000 10,000,000 13,000,000 Directors Unlisted Options @ 3.24 cents, Expire 29/10/18 Dr M Monsour Mr R Mangelsdorf Mr W Brooks Unlisted Options @ 1.62 cents, Expire 10/12/20 Mr C Stubbings Dr T Lonngren Other KMP Unlisted Options @ 3.24 cents, Expire 29/10/18 G Daly Unlisted Options @ 4.50 cent, Expires 12/02/19 G Daly 6,000,000 5,000,000 - - 4,000,000 10,000,000 - - - - - 42,000,000 14,000,000 - - - - - - - - - - - - - - - - 13,000,000 10,000,000 8,000,000 - 13,000,000 - 10,000,000 - 8,000,000 4,000,000 10,000,000 1,333,333 3,333,333 1,333,333 3,333,333 6,000,000 5,000,000 - - 6,000,000 - 56,000,000 4,666,666 41,666,666 4. Key management personnel shareholdings 2017 Directors Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings Dr P Corr KMP Mr G Daly Balance at beginning of year On exercise of options 500,266,164 50,571,377 48,645,000 2,746,322 202,324,638 804,553,501 881,658 805,435,159 - - - - - - - - Other changes during the year Balance at end of year 62,188,273 562,454,437 8,011,678 - - 118,377,724 188,577,675 - 188,577,675 58,583,055 48,645,000 2,746,322 320,702,362 994,012,834 881,658 994,012,834 Pg. 55 Notes to the Financial Statements 2016 Balance at beginning of year On exercise of options Other changes during the year Balance at end of year Directors Dr M Monsour Mr R Mangelsdorf Mr W Brooks Mr C Stubbings KMP Mr G Daly 131,290,332 22,067,559 32,430,000 1,830,882 187,618,773 881,658 188,500,431 - - - - - - - 368,975,832 28,503,818 16,215,000 915,440 414,610,090 500,266,164 50,571,377 48,645,000 2,746,322 602,228,863 - 881,658 414,610,090 603,110,521 5 Remuneration of Auditors Consolidated Group 2017 $ 2016 $ Remuneration of the auditor of the company, Bentleys, for auditing or reviewing the financial report other services 68,639 3,000 64,952 2,600 6 Earnings per Share (a) Reconciliation of earnings to profit or loss from continuing operations Loss from continuing operations Earnings used to calculate basic EPS from operations (b) Earnings used to calculate overall earnings per share Earnings used to calculate overall earnings per share Consolidated Group 2017 $ (3,254,704) (3,254,704) 2016 $ (3,881,472) (3,881,472) (3,254,704) (3,881,472) Pg. 56 Notes to the Financial Statements (c) Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS Weighted average number of dilutive options outstanding Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS Earnings per share Basic earnings per share (dollars) Diluted earnings per share (dollars) 7 Cash and cash equivalents Cash at bank and in hand Short term bank deposits 8 Trade and other receivables Accrued Revenue GST Refundable Sundry Debtors Consolidated Group 2017 No. 2016 No. 2,310,242,589, 1,415,930,397 - - 2,310,242,589 1,415,930,397 (0.0014) (0.0014) (0.0027) (0.0027) Consolidated Group 2017 $ 86,473 1,125,510 1,211,983 2016 $ 67,005 1,185,509 1,252,514 Consolidated Group 2017 $ 7,118 18,078 - 25,196 2016 $ 3,408 11,051 4,677 19,136 The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties. The class of assets described as “trade and other receivables” is considered to be the main source of credit risk related to the Group. Pg. 57 Notes to the Financial Statements 9 Inventories PC Stock - Finished Goods PC Stock - Materials PC Stock - WIP 10 Other financial assets Consolidated Group 2017 $ 12,990 160,875 17,451 191,316 2016 $ 24,739 199,586 - 224,325 Financial assets at fair value through profit or loss are shares held for trading for the purpose of short - term profit taking. Changes in fair value are included in the consolidated statement of profit or loss and other comprehensive income. Listed investments at fair value Investments in Invion Financial assets at fair value through profit and loss Listed shares at cost less fair value adjustment 11 Property, plant and equipment Computer Equipment at cost Computer Equipment Dep'n Accum Office Equipment at cost Office Equipment Dep'n Accum Plant & Machinery at cost Plant & Machinery Dep'n Accum. Consolidated Group 2017 $ 2016 $ 2,089 4,179 522,356 (520,267) 2,089 522,356 (518,177) 4,179 Consolidated Group 2017 $ 114,144 (101,822) 12,322 14,787 (10,992) 3,795 28,253 (20,097) 8,156 24,273 2016 $ 108,890 (89,866) 19,024 12,450 (9,632) 2,818 27,226 (18,990) 8,236 30,078 Pg. 58 Notes to the Financial Statements (a) Movements in carrying amounts of property, plant and equipment Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current year: Consolidated Year ended 30 June, 2017 Balance at the beginning of year Additions Disposals - written down value Depreciation expense Balance at the end of the year Year ended 30 June, 2016 Balance at the beginning of year Additions Disposals - written down value Depreciation expense Balance at the end of the year 12 Intangible Assets Plant & Equipment Office Equipment Computer Equipment Total $ $ $ $ 8,236 1,027 - (1,107) 8,156 8,645 590 - (999) 8,236 2,818 2,337 - (1,359) 3,796 1,923 1,605 - (710) 2,818 19,024 5,254 - (11,957) 12,321 30,078 8,618 - (14,423) 24,273 27,814 8,970 - (17,760) 19,024 38,382 11,165 - (19,469) 30,078 Patents, trademarks and other rights Cost Accumulated amortisation/impairment Net carrying value Licences and franchises Accumuated amortisation/impairment Consolidated Group 2017 $ 385,754 (239,868) 145,886 20,000 (20,000) - 145,886 2016 $ 273,450 (236,628) 36,822 20,000 (20,000) - 36,822 Pg. 59 Notes to the Financial Statements Consolidated Patents, trademarks Software Total Year ended 30 June, 2017 Balance at the beginning of the year Additions Amortisation Closing value at 30 June, 2017 Year ended 30 June, 2016 Balance at the beginning of the year Additions Amortisation $ $ $ 36,822 112,304 (3,240) 145,886 - - - - 36,822 112,304 (3,240) 145,886 19,464 17,962 97,720 117,184 - 17,962 (604) (97,720) (98,324) Closing value at 30 June, 2016 36,822 - 36,822 13 Other assets Prepayments Prepayments - Suppliers 14 Trade and other payables Trade payables Other payables Consolidated Group 2017 $ 51,137 12,650 63,787 2016 $ 50,595 175,257 225,852 Consolidated Group 2017 $ 212,183 19,302 231,485 2016 $ 241,824 26,020 267,844 Pg. 60 Notes to the Financial Statements 15 Provisions Provn for Audit Fees Provn for Tax Return Costs 16 Employee Benefits Current liabilities Provision for Holiday Pay Provision for Holiday Pay Super Provision for Long Service Leave - ST Provision for long-term employee benefits Provision for long service leave Consolidated Group 2017 $ 39,600 21,500 61,100 2016 $ 43,000 10,050 53,050 Consolidated Group 2017 $ 2016 $ 94,973 9,022 37,088 141,083 111,083 10,553 33,381 155,017 19,592 18,104 Provision for employee benefits represents amounts accrued for annual leave and long service leave. The current portion for this provision includes the total amount accrued for annual leave entitlements and the amounts accrued for long service leave entitlements that have vested due to employees having completed the required period of service. Based on past experience, the Group does not expect the full amount of annual leave or long service leave balances classified as current liabilities to be settled in the next 12 months. However, these amounts must be classified as current liabilities since the group does not have an unconditional right to defer the settlement of these amounts in the event the employees wish to use their leave entitlement. The non-current portion for this provision includes amounts accrued to long service leave entitlements that have not yet vested in relation to those employees who have not yet completed the required period of service. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historic data. Pg. 61 Notes to the Financial Statements 17 Reserves and retained earnings Opening balance Options issued Adjust options exercised Share option reserve Consolidated Group 2017 $ 537,845 823,285 - 1,361,130 2016 $ 534,738 52,309 (49,202) 537,845 This reserve records the cumulative value of share based payments including employee service received for the issue of share options. When the option is exercised the amount in the share option reserve is transferred to share capital 18 Issued Capital Fully paid 2,549,136,332 (2016: 2,165,855,368) Ordinary shares Total (a) Ordinary shares Consolidated Group 2017 $ 2016 $ 99,254,783 96,910,986 99,254,783 96,910,986 Consolidated Group 2017 No. 2016 No. At the beginning of the reporting period 2,165,855,366 939,220,439 Shares issued during the year 1 September 2016 4 October 2016 Placement @ 0.070 cents per share 35,714,285 Placement @ 0.070 cents per share 35,714,286 16 February 2017 Placement @ 0.059 cents per share 132,700,849 9 March 2017 Placement @ 0.068 cents per share 17 March 2017 Placement @ 0.065 cents per share 44,117,647 13,000,000 24 April 2017 Placement @ 0.059 cents per share 122,033,899 12 August 2015 Rights issue @ 0.8 cents per share 1 March 2016 22 March 2016 Options converted Placement @ 0.11 cents per share @ 0.255 cents per share 28 April 2016 SPP @ 0.255cents per share 28 April 2016 Placement @ 0.3 cents per share 28 April 2016 Placement @ 0.255 cents per share 358,117,144 418,602 109,813,725 222,627,485 333,333,333 202,324,638 At the end of the reporting period 2,549,136,332 2,165,855,366 Pg. 62 Notes to the Financial Statements The holders of ordinary shares are entitled to participate in dividends and the proceeds on winding up of the Company. On a show of hands at meetings of the Company, each holder of ordinary shares has one vote in person or by proxy, and upon a poll each share is entitled to one vote. The Company does not have authorised capital or par value in respect of its shares. (b) Options (i) For information relating to the Analytica Limited employee option plan, including details of options issued, exercised and lapsed during the year and the options outstanding at year-end, refer to Note 23 Share-based payments. (ii) For information relating to share options issued to key management personnel during the year, refer to Note 23 (c) Capital Management Management controls the capital of Analytica Limited in order to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Capital consists of share capital, reserves and retained profit. There are no externally imposed capital requirements. The Group monitors capital through the gearing ratio, which is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is defined as equity per the consolidated statement of financial position plus net debt. The target for Analytica Limited's gearing ratio is between 0% and 50%. The gearing ratios at the current and prior years are shown below: Debt to equity gearing ratio for 2017 is 0% (2016: 0%). There have been no changes in the strategy adopted by management during the year. 19 Contingencies In the opinion of the Directors, the Company did not have any contingencies at 30 June 2017 (30 June 2016 :None). Pg. 63 Notes to the Financial Statements 20 Operating Segments Segment information Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The Group is managed primarily on the basis of product category and service offerings as the diversification of the group's operations inherently have notably different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis. Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following: • • • • • the products sold and/or services provided by the segment; the manufacturing process; the type or class of customer for the products or services; the distribution method; and any external regulatory requirements. Performance is measured based on segment profit before income tax as included in the internal financial reports. Types of products and services by reportable segment (i) Medical Devices • AutoStart Burette • • ELF2 PeriCoach (Perineometer) Analytica's lead product is the Perineometer device branded PeriCoach, to assist women and their clinicians in treatment of Stress Urinary Incontinence. The PeriCoach entered controlled market release in June 2014, with clinical trials undertaken in November 2014, with its public release in Australia and United Kingdom January 2015 and release in the United States in June 2015. The PeriCoach V3 was released in May 2017. The PeriCoach has a TGA ARTG entry, CE-marking, and USFDA 510(k) 'approval'. Analytica is also commercialising the AutoStart Burette infusion system. The AutoStart Burette set automatically restarts the delivery of intravenous fluid once the burette has dispensed its predetermined amount of liquid or drug. Automatic restart of Pg. 64 Notes to the Financial Statements the IV fluid, once the drug is dispensed can provide enormous savings in nursing time during and following a medication event, and reduces the risk of blood clots forming that may obstruct the intravenous cannula. Analytica has licensed the AutoStart Burette and other burette intellectual property to Medical Australia (Formerly BMDI Tuta) for distribution in the Australian Market. The AutoStart Burette has a TGA ARTG entry and USFDA 510(k) clearance. Analytica has abandoned the development of the medical device for treatment of muscular spasticity. The development was not able to be protected by patent. The ELF2 device delivers a low-frequency voltage used by neurologists to locate nerve endings during Botulinum neurotoxin A injection treatment. (ii) Corporate The corporate segment includes all other operations including the administration, and associated listed public company expenditure. Basis of accounting for purposes of reporting by operating segments (a) Accounting policies adopted Unless stated below, all amounts reported to the Board of Directors, being the chief operating decision maker with respect to operating segments, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. Income tax expense Income tax expense is calculated based on the segment operating net profit using a notional charge of 30%. The effect of taxable or deductible temporary difference is not included for internal reporting purposes. (b) Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. Pg. 65 Notes to the Financial Statements (c) Segment liabilities Liabilities are allocated to segments where there is direct nexus between the incurrence of the liability and the operations of the segment. Borrowings and tax liabilities are generally considered to relate to the Group as a whole and are not allocated. Segment liabilities include trade and other payables and certain direct borrowings. Medical Devices Corporate 2017 $ 2016 $ 2017 $ 2016 $ Total 2017 $ Total 2015 $ - 73,410 10,623 - - 84,033 (3,241) (37,656) - - 1,154,998 1,893,605 1,154,998 1,893,605 190,802 10,679 - - - - - - 15,306 21,157 - - 73,410 10,623 15,306 - 190,802 10,679 21,157 - 201,481 1,170,304 1,914,762 1,254,337 2,116,243 (98,324) (81,392) (14,423) (19,469) - - - (231) (2,272) (17,664) (37,656) (231) (117,793) (81,392) (2,272) REVENUE Grant revenue Sales revenue Royalty revenue Interest revenue Loss sale of equipment Total segment revenue Depreciation/amortisation Cost of sales Interest expense Marketing Patent Maintenance (19,026) (125,803) (356,037) (1,867,830) - - - - (356,037) (1,867,830) (19,026) (125,803) Other expense - - (1,737,336) (1,261,842) (1,737,336) (1,261,842) Research & development (2,341,091) (2,540,783) - - (2,341,091) (2,540,783) Total segment expense (2,757,051) (4,714,132) (1,751,990) (1,283,583) (4,509,041) (5,997,715) Segment profit (loss) (2,673,018) (4,512,651) (581,686) 631,179 (3,254,704) (3,881,472) (e) Segment assets Segment assets 362,398 280,283 1,300,043 1,508,444 1,662,441 1,788,727 Financial assets at fair value through profit and loss (f) Segment liabilities Segment liabilities - - - - 2,089 4,179 2,089 4,179 453,260 494,015 453,260 494,015 Pg. 66 Notes to the Financial Statements Geographical information In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers whereas segment assets are based on the location of the assets. Australia United Kingdom United States 21 Cash Flow Information 2017 Revenue 1,205,294 10,492 38,551 2016 Revenue 2,042,659 33,369 40,215 Consolidated Group 2017 $ 2016 $ (3,881,472) (3,254,704) 3,241 14,423 Profit for the year Cash flows excluded from profit attributable to operating activities Non-cash flows in profit: - amortisation - depreciation - fair value adjustment Invion Limited (previously CBio Limited) - net (gain)/loss on disposal of property, plant and equipment - share options expensed Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries: - (increase)/decrease in trade and other receivables - (increase)/decrease in prepayments - (increase)/decrease in inventories - increase/(decrease) in trade and other payables - increase/(decrease) in provisions - increase/(decrease) in employee benefits Cashflow from operations (6,060) 162,065 33,009 (36,359) 8,050 (12,446) (2,263,406) 823,285 2,089 - 98,324 19,469 15,671 - 3,107 357 (153,941) 7,367 (220,973) (600) 19,163 (4,093,528) Pg. 67 Notes to the Financial Statements 22 Share-based Payments Grant Date Unlisted Options Date of Expiry Exercise Price Start of Year Granted during the year g n i r u d d e s i c r e x E r a e y e h t g n i r u d d e t i e f r o F 30/06/2013 29/10/2018 0.0322 44,500,000 12/02/2014 12/02/2019 0.0439 5,000,000 22/05/2014 22/05/2019 0.0733 4,375,000 28/09/2015 28/02/2020 0.0190 10,416,667 26/11/2015 10/12/2020 0.0162 14,000,000 24/11/2016 22/12/2021 0.0130 9/06/2017 08/06/2022 0.0130 9/06/2017 08/06/2022 0.0104 28/06/2017 22/12/2021 0.0130 - - - - - 70,000,000 41,000,000 33,350,000 2,500,000 78,291,667 146,850,000 - - - - - - - - - - Listed Options 11/08/2015 28/02/2018 $0.0140 119,372,193 119,372,193 r a e y e h t Balance at the end of the year Vested & exercisable end of year - - - - - - - - - 44,500,000 44,500,000 5,000,000 4,375,000 4,375,000 10,416,667 10,416,667 14,000,000 9,333,333 70,000,000 41,000,000 33,350,000 14,000,000 2,500,000 - 225,141,667 82,625,000 23 Related Parties The Group's main related parties are as follows: (i) Key management personnel: Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity are considered key management personnel. For details of remuneration disclosures relating to key management personnel, refer to Note 4: Interests of Key Management Personnel (KMP) and the remuneration report in the Directors' Report. Other transactions with KMP and their related entities are shown below. Loan facility to the company up to $400,000 provided by Dr Monsour. No funds have been drawn-down as at reporting date. (2016: nil). Pg. 68 Notes to the Financial Statements (ii) Subsidiaries: The consolidated financial statements include the financial statements of Analytica Limited and the following subsidiaries: Name of subsidiary % ownership interest % ownership interest PeriCoach Pty Ltd Transactions with related parties 2017 100 2016 100 Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. 24 Financial Risk Management The Company is exposed to a variety of financial risks through its use of financial instruments. This note discloses the Company‘s objectives, policies and processes for managing and measuring these risks. The Company‘s overall risk management plan seeks to minimise potential adverse effects due to the unpredictability of financial markets. The Company does not speculate in financial assets. The most significant financial risks to which the Company is exposed to are described below: Specific risks • Market risk - currency risk, cash flow interest rate risk and price risk • • Liquidity risk Credit risk Financial instruments used The principal categories of financial instrument used by the Company are: Trade receivables • • Cash at bank • Bank overdraft • • Investments in listed shares Trade and other payables Pg. 69 Notes to the Financial Statements Objectives, policies and processes The CFO has primary responsibility for the development of relevant policies and procedures to mitigate the risk exposure of the Company, these policies and procedures are tabled at the board meeting following their approval. Reports are presented at each Board meeting regarding the implementation of these policies and any risk exposure which the Risk Management Committee believes the Board should be aware of. Specific information regarding the mitigation of each financial risk to which Company is exposed is provided below. Liquidity risk Liquidity risk arises from the Company’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The Company maintains cash and marketable securities to meet its liquidity requirements for up to 30-day periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day period are identified monthly. At the reporting date, these reports indicate that the Company expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances and will not need to draw down any of the financing facilities. The Company‘s liabilities have contractual maturities which are summarised below Not later than 1 month Trade Payables Other payables 2017 $ 212,183 19,302 231,485 2016 $ 241,824 26,020 267,844 Pg. 70 Notes to the Financial Statements Market risk (i) Foreign currency sensitivity Most of the Company transactions are carried out in Australian Dollars. Exposures to currency exchange rates arise from the Company's overseas sales and purchases, which are primarily denominated in USD and CHF. The Company did not actively reduce exposure of foreign currency risk by utilising forward exchange contracts for non-Australian Dollar cash flows during the 2017 or 20165 year. Whilst these forward contracts are economic hedges of the cash flow risk, the Company does not apply hedge accounting to these transactions. The implications of this decision are that unrealised foreign exchange gains and losses are recognised in profit and loss in the period in which they occur. Generally, the Company‘s risk management procedures distinguish short-term foreign currency cash flows (due within 6 months) from longer-term cash flows. Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken. Foreign currency denominated assets translated into Australian Dollars at the closing rate are included in the inventory balance of $191,316 (2016:$224,325). Net currency gains/losses of $26,534 (20165:$50,140) are disclosed in the statement of profit and loss. Any increase or decrease in exchange rates would not significantly impact users of the financial statements, as such no sensitivity analysis is disclosed. (ii) Cash flow interest rate sensitivity The Company is exposed to interest rate risk as funds are borrowed at floating and fixed rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Company's policy is to minimise interest rate cash flow risk exposures on long-term financing. The following table illustrates the sensitivity of the net result for the year and equity to a reasonably possible change in interest rates of +2.00% and -2.00% (2016: +2.00%/-2.00%), with effect from the beginning of the year. These changes are considered to be reasonably possible based on observation of current market conditions. Pg. 71 Notes to the Financial Statements The calculations are based on the financial instruments held at each reporting date. All other variables are held constant. 2017 2016 2.00% -2.00% 2.00% -2.00% $ $ $ $ 24,240 (24,240) 25,050 (25,050) 24,240 (24,240) 25,050 (25,050) - - - - - - - - Cash and cash equivalents Net results Equity Borrowings Net results Equity (iii) Other price risk The Company are exposed to equity securities price risk. This arises from listed and unlisted investments held by the Company and classified as available-for-sale on the consolidated statement of financial position. Equity instruments are held for strategic rather than trading purposes and the Company does not actively trade these investments. The Company is not exposed to commodity price risk. There is no profit impact, except for investments held at fair value through profit or loss. Equity would increase / decrease as a result of fair value movements through the investment reserve. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposure to wholesale and retail customers, including outstanding receivables and committed transactions. The Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The utilisation of credit limits by customers is regularly monitored by line management. Customers who subsequently fail to meet their credit terms are required to make purchases on a prepayment basis until creditworthiness can be re-established. Pg. 72 Notes to the Financial Statements Trade receivables consist of a number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Board receives monthly reports summarising the turnover, trade receivables balance and aging profile of each of the key customers individually and the Company's other customers analysed by industry sector as well as a list of customers currently transacting on a prepayment basis or who have balances in excess of their credit limits. Management considers that all the financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings. 25 Fair Value Measurement The Group measures the following assets and liabilities at fair value on a recurring basis Financial assets AASB 13 Fair Value Measurement requires all assets and liabilities measured at fair value to be assigned to a level in the fair value hierarchy as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 Unobservable inputs for the asset or liability. The table below shows the assigned level for each asset and liability held at fair value by the Group: Fair value hierarchy 2017 Recurring fair value measurements Level 1 Level 2 Level 3 Total $ $ $ $ Listed shares 2,089 - - 2,089 2016 Recurring fair value measurements Level 1 Level 2 Level 3 Total $ $ $ $ Listed shares 4,179 - - 4,179 Pg. 73 Notes to the Financial Statements 26 Events Occurring After the Reporting Date No matters or circumstances have arisen since the end of the year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 27 Company Details The registered office of the company is: Share Registry: Analytica Limited Link Market Services c/o Avance Chartered Accountants Level 15, 324 Queen Street 222 Bazaar Street, Brisbane, Queensland 4000 Maryborough Qld 4655 Telephone: +61 1300 554 474 Telephone: (07) 3278 1950 Email: registrars@linkmarketservices.com.au The postal address for the registered office of the company is: The principal place of business is: Analytica Limited PO Box 438 320 Adelaide Street Brisbane Qld 4000 Maryborough Qld 4650 Telephone: (07) 3278 1950 Pg. 80 ASX Additional Information ASX Additional Information Additional information required by the ASX Listing Rules and not disclosed elsewhere in this report is set out below. This information is effective as at 14 August, 2017. Substantial shareholders The number of substantial shareholders and their associates are set out below: HALONNA PTY LTD INOV8 Distribution of equity security holders 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total 781 233 111 1,126 1,201 3,452 363,069 632,360 962,595 52,079,386 2,495,098,922 2,549,136,332 0.01 0.02 0.04 2.04 97.88 100.00 There were 2,141 holders of less than a marketable parcel (100,000 securities) and they hold 43,037,408 ordinary shares Twenty largest share holders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 INOV8 LLC HALONNA PTY LTD M P MONSOUR MEDICAL PRACTICE PTY LTD IGNATIUS LIP PTY LTD DR T M MULLINS + DR P J MULLINS MR M ARUNDEL + MRS S ARUNDEL W BROOKS INVESTMENTS PTY LTD M P A M M PTY LTD CMONSUPER PTY LTD VAN AM MARKETING PTY LTD HALONNA PTY LIMITED MR R T H DALY + MRS S K DALY BNP PARIBAS NOMINEES PTY LTD TAMBIEN PTY LTD 320,702,362 241,913,038 235,747,277 91,073,534 58,094,250 52,000,000 48,645,000 44,687,785 44,117,647 38,091,018 37,500,000 34,869,344 29,923,618 27,823,517 Pg. 81 ASX Additional Information 15 16 17 18 19 20 FITZWILL SUPERANNUATION PTY LTD NEATFORD PTY LTD MRS SABINA LIP MR M O T ARUNDEL + MRS S J ARUNDEL MRS M KALATZIS + MR I KALATZIS MRS M M Y LIP Twenty largest option holders 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HALONNA PTY LIMITED J MOODY NOMINEES PTY LTD MR J A JARVIS IGNATIUS LIP PTY LTD W BROOKS INVESTMENTS PTY LTD MR M ARUNDEL + MRS S ARUNDEL D B M (VIC) PTY LTD MRS M M Y LIP MR J A VIRGIN M P MONSOUR MEDICAL PRACTICE CRIMSON PERMANENT ASSURANCE MR J A JARVIS MR S J BURNS HALONNA PTY LTD TAMBIEN PTY LTD MR M O T ARUNDEL + MRS S J ARUNDEL MRS S LIP MR V PEREIRA MR M P HETRELEZIS VAN AM MARKETING PTY LTD 25,000,000 22,863,279 20,522,184 19,060,000 17,474,576 17,370,586 1,427,479,015 12,500,000 8,600,000 7,446,110 5,699,208 5,405,000 3,030,000 2,999,999 2,943,136 2,738,455 2,500,000 2,376,470 1,775,000 1,666,666 1,666,666 1,333,333 1,250,000 1,250,000 1,166,666 1,142,513 1,137,805 68,627,027 Pg. 82 ASX Additional Information Voting rights Ordinary Shares On a show of hands, every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Options No voting rights.
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