Atomo Diagnostics Limited (formerly known as Atomo Diagnostics Pty Limited) ABN 37 142 925 684 Reissued Annual Financial Report 30 June 2019 Atomo Diagnostics Limited Contents Directors' report Lead auditor's independence declaration Reissued consolidated statement of profit or loss and other comprehensive income Reissued consolidated statement of financial position Reissued consolidated statement of changes in equity Consolidated statement of cash flows Reissued notes to the financial statements Directors' declaration Independent auditor's report 1 4 5 6 7 8 9 36 37 Atomo Diagnostics Limited Directors' report For the financial year ended 30 June 2019 The Directors present their reissued report together with the reissued consolidated financial statements of Atomo Diagnostics Limited (the "Company"), and its subsidiaries ("the Group") for the financial year ended 30 June 2019 and the auditor’s report thereon. This reissued directors’ report, has been revised and reissued as a result of the re- issuance of the financial report as described in Note 2 (a) to the reissued financial statements. 1 Directors The Directors of the Company at any time during or since the end of the financial year are: Directors John Perry Keith (Chairman) John Michael Kelly (Chief Executive Officer) George Alexander Sidis Curt Harold Labelle Doris-Ann Williams Connie Bernadette Carnabuci Paul Alexander Kasian Appointed 2 December 2011 1 April 2010 1 April 2010 21 October 2016 6 April 2017 4 February 2020 4 February 2020 Resigned 3 February 2020 22 January 2020 The Company Secretary is Gillian Maria Nairn who was appointed on 4 February 2020. Robert Joseph Snoch was appointed as Company Secretary from 8 December 2016 until 4 February 2020. 2 Principal activities The principal activities of the Group during the course of the year were development and sale of medical devices. There were no significant changes in the nature of the activities of the Group during the year. 3 Review of operations The loss for the Group for the financial year ended 30 June 2019 amounted to $5,055,112 (2018: net loss $4,900,173). 4 Significant changes in the state of affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Group that occurred during the financial year under review. 5 Environmental regulation The Group's operations are not subject to significant environmental regulations under both Commonwealth and State legislation. The Board believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group during the financial year covered by this report. 6 Dividends No dividends were paid or declared by the Company during or since the end of the financial year (2018: Nil). 1 Atomo Diagnostics Limited Directors' report (continued) For the financial year ended 30 June 2019 7 Matters subsequent to the end of the financial year 1. On the 21st January 2020, ASIC (and under the Corporations Act) gazetted for a month that the Company will change from a proprietary company to that of a public company. As such, on or about the 21st February 2020, the Company became a public company; 2. On 19 December 2019, the shareholders of the company approved a 1:8 split of the company’s share capital; 3. On 19 December 2019, the shareholders of the company approved the conversion of all Ord+ Shares into Ordinary Shares to be effective at the time that the company becomes a public company. On or around the 21st February 2020, all Ord+ shares were converted into Ordinary Shares on a 1 for 1 basis; 4. Between the months of September 2019 and November 2019, the Group raised $16 million through the issue of non-redeemable converting notes. These notes are interest bearing and convertible at the earlier of the occurrence of a significant equity raising transaction, or 12 months from the date of issue. Of this $16 million, a non-cash portion of $1.76m has been issued to Global Health Investment Fund LLC in satisfaction of the first repayment of their loan (as described in Note 14); 5. On 28 February 2020, holders of 17,872,992 Options (post-share split basis) had accepted an early cashless exercise offer presented by the Group, resulting in the issue of 8,592,043 Ordinary Shares; and 6. On 28 February 2020, the Global Health Investment Fund exercised 21,818,184 Options (post-share split basis) on a cashless basis resulting in the issue of 10,868,183 Ordinary Shares. Other than the matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 8 Likely developments and expected results of operations Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. 9 Shares under option As at the date of this report, the following options over unissued ordinary shares in the Company have been issued and not yet exercised: Expiry date Exercise price Number of options 2 years from date of vesting 24 November 2020 6 April 20201 6 April 2022 15 September 2022 11 April 2023 $0.03 $0.16 $0.16 $0.16 $0.16 $0.16 2,469,632 5,000,000 3,600,000 6,800,000 800,000 4,800,000 23,469,632 No shares or interest in the Company or a controlled entity have been issued during or since the end of the year as a result of the exercise of an option over unissued shares or interests. 2 Atomo Diagnostics Limited Reissued consolidated statement of profit or loss and other comprehensive income* For the financial year ended 30 June 2019 In AUD Revenue Cost of sales Gross profit Other income Employee benefits expenses Depreciation and amortisation Research and development expense Inventory obsolescence expense Occupancy expenses Other expenses Results from operating activities Finance income Finance costs Net finance income Loss before income tax Income tax benefit Loss for the year Other comprehensive income Foreign currency translation differences Total comprehensive income for the year Reissued Reissued Note 2019 2018 4 4 5(a) 5(b) 5(c) 5(c) 5(c) 11(a) 539,736 (443,419) 96,317 287,250 (227,897) 59,353 519,947 1,047,079 (2,104,304) (560,607) (1,335,561) (78,206) (78,364) (1,589,210) (5,129,988) 22,333 (752,995) (730,662) (1,789,357) (329,248) (2,878,853) (560,791) (74,600) (1,581,875) (6,108,292) 3,886 (1,095,767) (1,091,881) (5,860,649) (7,200,173) 805,538 (5,055,112) 2,300,000 (4,900,173) (28,223) (5,083,335) (15,029) (4,915,202) The notes on pages 9 to 35 are an integral part of these financial statements * Refer to note 2 (a) for the background to the error which led to the reissue of the financial statements for the year ended 30 June 2019. 5 Atomo Diagnostics Limited Reissued consolidated statement of financial position* As at 30 June 2019 In AUD Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Total current assets Non-current assets Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Employee benefits Total current liabilities Non-current liabilities Borrowings Employee benefits Total non-current liabilities Total liabilities Net liability Equity Share capital Foreign currency translation reserve Share based payment reserve Accumulated losses Total deficiency in equity Reissued Reissued Restated Note 2019 2018 2017 6(a) 7 8 11(b) 9 10 12 13 14 13 14 16(a) 1,855,706 582,005 787,718 771,177 3,996,606 1,153,296 900,396 2,053,692 6,050,298 1,993,596 403,040 258,493 3,300,000 5,955,129 8,276,556 426,497 677,829 1,000,000 10,532,434 908,601 892,341 1,800,942 7,756,071 473,709 862,295 1,336,004 11,868,438 1,049,876 3,928,101 74,369 5,052,346 1,042,438 2,771,153 69,209 3,882,800 753,533 2,889,401 70,422 3,713,356 6,410,560 58,978 6,469,538 11,521,885 8,718,111 43,641 8,761,752 12,644,552 8,074,417 32,846 8,107,263 11,820,619 (5,471,587) (4,888,481) 47,819 17,110,055 (55,493) 585,105 (23,111,254) (5,471,587) 13,194,931 (27,270) - (18,056,142) (4,888,481) 13,216,029 (12,241) - (13,155,969) 47,819 The notes on pages 9 to 35 are an integral part of these financial statements * Refer to note 2 (a) for the background to the error which led to the reissue of the financial statements for the year ended 30 June 2019. 6 Atomo Diagnostics Limited Reissued consolidated statement of changes in equity* For the financial year ended 30 June 2019 In AUD Share capital Accumulated losses Foreign currency translation reserve Share based payment reserve Total deficiency in equity Restated balance at 1 July 2017 13,216,029 (13,155,969) Loss for the year Other comprehensive income Total other comprehensive income Total comprehensive income for the year Transactions with owners, recorded directly in equity Capital raising costs Share buy back Total transactions with owners - - - - 8,902 (30,000) (21,098) (4,900,173) - - (4,900,173) - - - (12,241) - (15,029) (15,029) (15,029) - - - Reissued balance at 30 June 2018 13,194,931 (18,056,142) (27,270) Reissued balance at 1 July 2018 13,194,931 (18,056,142) Loss for the year Other comprehensive income Total other comprehensive income Total comprehensive income for the year - - - - (5,055,112) - - (5,055,112) Transactions with owners, recorded directly in equity Ordinary shares issued during the year Capital raising costs Equity-settled share based payments Total transactions with owners 3,923,122 (7,998) - 3,915,124 - - - - (27,270) - (28,223) (28,223) (28,223) - - - - - - - - - - - - - - - - - - 585,105 585,105 47,819 (4,900,173) (15,029) (15,029) (4,915,202) 8,902 (30,000) (21,098) (4,888,481) (4,888,481) (5,055,112) (28,223) (28,223) (5,083,335) 3,923,122 (7,998) 585,105 4,500,229 Reissued balance at 30 June 2019 17,110,055 (23,111,254) (55,493) 585,105 (5,471,587) The notes on pages 9 to 35 are an integral part of these financial statements * Refer to note 2 (a) for the background to the error which led to the reissue of the financial statements for the year ended 30 June 2019. 7 Atomo Diagnostics Limited Consolidated statement of cash flows For the financial year ended 30 June 2019 In AUD Note 2019 2018 Cash flows from operating activities Receipts from customers Receipts from grant donors Payments to suppliers and employees Cash used in operations Interest received Interest paid Income tax (R&D rebate received) Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Payments for transaction costs Net cash from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at end of the year 477,023 390,725 (5,429,490) (4,561,742) 22,333 (633,439) 3,334,361 (1,838,487) (739,915) (73,442) (813,357) 2,442,315 (7,998) 2,434,317 (217,527) 1,993,596 79,637 1,855,706 425,555 826,407 (6,181,480) (4,929,518) 3,886 (634,685) - (5,560,317) (552,587) (90,047) (642,634) - - - (6,202,951) 8,276,556 (80,009) 1,993,596 6(b) 9 10 16(a) 16(a) 6(a) 6(a) The notes on pages 9 to 35 are an integral part of these financial statements 8 Atomo Diagnostics Limited Reissued notes to the financial statements For the financial year ended 30 June 2019 1 Corporate information Atomo Diagnostics Limited (the "Company") is a company domiciled in Australia. The address of the Company's registered office is Level 2, 701-703 Parramatta Road, Leichhardt, NSW 2040. These consolidated financial statements comprise the Company and its subsidiaries (collectively the "Group" and individually "Group companies"). The Group is a for-profit entity and primarily involved in the development and sale of medical devices. Basis of preparation 2 (a) Reissued financial statements The previously issued financial statements of the Group for the year ended 30 June 2019 dated 24 October 2019 have been withdrawn and are replaced by financial statements dated 2 March 2020. The financial report has been reissued due to the warrants issued to third party lenders not previously being recognised as a liability measured at fair value with changes recorded in profit and loss. As a result, the financial statements have been impacted as follows: Note Reissued Previously issued 2019 8,555,542 2,835,353 6,903,412 9,738,765 (3,688,467) Restated and Reissued 2018 11,489,264 3,882,800 8,761,752 12,644,552 (4,888,481) Previously issued 2018 9,470,979 1,111,647 9,514,620 10,626,267 (2,870,195) Restated 2017 10,963,818 3,713,356 8,107,263 11,820,619 47,819 Previously issued 2017 9,100,363 823,995 9,133,209 9,957,164 1,911,274 2019 10,338,661 5,052,346 6,469,538 11,521,885 (5,471,587) (752,995) (5,860,649) (5,055,112) (23,111,254) (988,161) (6,095,816) (5,290,278) (21,328,134) (1,095,767) (7,200,173) (4,900,173) (18,056,142) (940,937) (7,045,343) (4,745,343) (16,037,856) (1,626,848) (6,147,733) (5,148,490) (13,155,969) (624,274) (5,145,559) (4,145,916) (10,266,568) Borrowings Current Liabilities Non-current liabilities Total liabilities Net assets/(liabilities) Finance costs Loss before tax Loss after tax Accumulated losses 14 5 (c) (b) Statement of compliance In the opinion of the Directors, the Company is not publically accountable. The consolidated financial statements are Tier 2 general purpose financial statements which have been prepared in accordance with Australian Accounting Standards - Reduced Disclosure Requirements ("AASBs") adopted by the Australian Accounting Standards Board ("AASB") and the Corporations Act 2001. The financial statements were approved by the Board of Directors and authorised for issue on the same date as the signing of the Directors' declaration. (c) Basis of measurement The financial statements have been prepared on a historical cost basis, except for derivative financial instruments which have been recognised at fair value through profit and loss. (d) Functional and presentation currency The financial statements are presented in Australian dollars, which is the Group's functional currency. 9 Atomo Diagnostics Limited Reissued notes to the financial statements For the financial year ended 30 June 2019 (e) Use of judgements and estimates In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosure of contingent liabilities. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively. The specific judgements, estimates and assumptions that have the most significant effect on the amounts recognised in the consolidated financial statements are: Impairment of intangible assets The Group tests intangible assets for impairment for each reporting period or more frequently if events or changes in circumstances indicate it has suffered any impairment, in accordance with the accounting policy stated in Note 3(r). The recoverable amount of a cash generating unit ("CGU") is determined based on value-in-use calculations whereby cash flows are projected and extrapolated over a five year period with growth rates that do not exceed the long-term average growth rate for the market in which the Group operates. The discount rate used reflects the Group's pre-tax weighted average cost of capital. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of options is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Derivative financial instruments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value of options is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. (f) Going concern The financial report has been prepared on the going concern basis of accounting, which assumes the Group will be able to continue trading, realise assets and settle liabilities in the ordinary course of business for a period of at least one year from the date of signing these financial statements. The Group recorded a loss for the year ended 30 June 2019 of $5,055,112 and had cash outflows from operating activities of $1,838,487. As at 30 June 2019, the Group also had a net asset deficiency of $5,471,587. Further, the Group recorded a loss for the half-year ended 31 December 2019 of $2,259,765, net liabilities of $7,570,735 and had cash outflows from operating activities of $2,173,075. At 31 December 2019, the Group had cash available of $12,440,269. Forecasts have been prepared which indicate that the Group will have adequate cash to continue its operations, particularly because converting notes were issued between September 2019 and November 2019, in the amount of $16,048,378 (refer to note 23). The converting notes will mandatorily convert into shares at the converting date (being the earlier of 12 months from issue or a "Conversion Event" and will therefore, not result in a cash outflow. Accordingly, the Directors believe the Group will have sufficient cash reserves to be able to fulfil all obligations as and when they fall due for the foreseeable future, being at least twelve months from the date of approval of these financial statements. 10 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 3 Significant accounting policies The Group has consistently applied the following accounting policies to all periods in these financial statements. (a) Principles of consolidation Business combinations (i) The Group accounts for business combinations using the acquisition method when control is transferred to the Group, unless it is a combination involving entities or businesses under common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not relationships. Such amounts are generally recognised in profit or loss. include amounts related to the settlement of pre-existing (ii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (iii) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. (iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (b) Changes in accounting policies The Group has initially applied AASB 15 and AASB 9 from 1 July 2018. A number of other new standards are also effective from 1 July 2018 but they do not have a material effect on the Group's financial statements. Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards. 11 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (b) Changes in accounting policies (continued) AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much, and when revenue is recognised. It replaced AASB 118 Revenue , AASB 111 Construction Contracts and related interpretation. Under AASB 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer control - a point in time or over time - requires judgement. The Group has adopted AASB 15 using the cumulative effect method (without practical expedients) with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018). Accordingly, the information presented for the year ended 30 June 2018 has not been restated - i.e. it is presented, as previously reported under AASB 118, AASB 111 and related interpretations. Additionally, the disclosure requirements in AASB 15 have not generally been applied to comparative information. The adoption of AASB 15 has not had a material impact on either the consolidated statement of financial position, consolidated statement of profit & loss, consolidated statement of changes in equity or the consolidated statement of cash flows. AASB 9 Financial Instruments AASB 9 replaces the provisions of AASB 139 Financial Instruments: Recognition and Measurement that relate to recognition, classification and measurement of financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of AASB 9 Financial Instruments form 1 July 2018 resulted in changes in accounting policies however, no adjustments were required to the amounts recognised in the financial statements in the previous periods. The application of AASB 9 has had no impact on the classification and measurement of the Group's financial assets and liabilities. (c) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognised in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into the functional currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into the functional currency at the exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income ("OCI") and accumulated in the translation reserve, except to the extent that the translation difference is allocated to non-controlling interest ("NCI"). 12 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (d) Revenue (Policy applicable from 1 July 2018) The Group has initially applied AASB 15 from 1 July 2018. Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer. The following table provides information about the nature and timing of the satisfaction of performance obligation in contracts with customers, including significant payments terms, and the related revenue recognition policies. Revenue recognition AASB15 (Applicable from 1 July 2018 Revenue recognition AASB118 (applicable before 1 July 2018) Since none of the contracts permit the customer to return an item, revenue is recognised for all the goods once the goods have been released by QA and are available for Atomo’s warehouse. collection at Revenue was recognised when the goods were delivered to the customers' premises, which was taken to be the point in time at which the customer accepted the goods and the related risks and rewards of ownership transferred. Nature and timing of satisfaction of performance obligations, including significant payment terms Revenue is measured based on the consideration specified in a contract with Group recognises revenue when it transfers control over a good or service to a customer. customer. The a It is and then (QA). Invoices Customers obtain control of the HIV self-testing kits when the goods are by Quality ready released Assurance the responsibility of the customer to make the necessary arrangements for freight and the collection of goods from Atomo’s warehouse. are generated once the goods are released by QA and ready for collection by the customer. Invoices are usually payable within 30 to 75 days, dependent on The the contracts do not allow the customers to return the goods as the testing kits have a set shelf-life and have gone to through vigorous delivery. testing prior agreement. contracted 13 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (e) Revenue (Policy applicable prior to 1 July 2018) Revenue is measured at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (i) Sale of goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale. (ii) Grant income Grant income is recognised at fair value in the statement of profit or loss when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. (f) Employee benefits (i) Short-term employee benefits Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled within 12 months of the end of the financial year in which employees render the related service. Short-term employee benefits include salaries and wages plus related on-costs such as payroll tax, superannuation and workers compensation insurance and are measured at the undiscounted amounts expected to be paid when the obligation is settled. (ii) Other long-term employee benefits Other long-term employee benefits includes employees' long service leave and annual leave entitlements not expected to be settled within 12 months of the end of the financial year in which 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, duration 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 long-term employee benefits are recognised in profit or loss in the periods in which the changes occur. (iii) Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to employees' defined contribution plans are recognised as an expense as the related service is provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. 14 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (f) Employee benefits (continued) (iv) Share-based payment arrangements The grant date fair value of options granted to employees (equity-settled) is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become entitled to the options. The amount recognised as an expense is adjusted to reflect the number of options for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of options that meet the related service and non-market performance conditions at the vesting date. (g) Finance income and finance costs Finance income comprises interest income, dividend income and foreign currency gains. Interest income is recognised in profit or loss as it accrues using the effective interest method. Finance costs comprise interest expense on borrowings, foreign currency losses, fair value changes on warrants giving rise to a financial liability and impairment losses recognised on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. (h) (i) Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax liability arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met. 15 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 Income tax (continued) (h) (ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, or on taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that could follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if certain criteria are met. Inventories Inventories are measured at the lower of cost and net realisable value. The costs of inventories is based on the first-in, first-out principle. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and if it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. (i) (j) 16 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (k) Goods and Services Tax (GST) Revenues, expenses and purchased assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (l) (i) Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. If significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Any gain and loss on disposal of an item of property, plant and equipment is recognised in profit or loss. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. (iii) Depreciation Depreciation is calculated based on the cost of property, plant and equipment less their estimated residual values using the straight-line basis over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of property, plant and equipment are as follows: • Plant and equipment • Software 2-5 years 4 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (m) Leases (i) Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate. 17 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (m) Leases (continued) Lease payments (ii) Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance lease is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. (n) (i) Intangible assets Recognition and measurement Computer software Computer software comprises computer application system software and licenses. Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to computer software. Costs capitalised include external direct costs of materials and services, direct payroll and payroll- related costs. Patents, trademarks and licences Other intangible assets, including patents, trademarks and licences that are acquired by the Group and have finite useful lives are measured at cost less any accumulated amortisation and impairment losses. Research and development Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. (ii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the including expenditure on internally generated specific asset to which it relates. All other expenditure, goodwill and brands, is recognised in profit or loss as incurred. (iii) Amortisation Amortisation is calculated based on the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. The estimated useful lives of intangible assets are as follows: • Patents and trademarks • Other intangibles 10-20 years 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (o) Nature and purpose of reserves The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. 18 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (p) Financial instruments - AASB 9 (Policy applicable from 1 July 2018) AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of the financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting. In accordance with the transitional provisions in AASB 9, comparative figures have not been restated. Classification and measurement - non derivative financial assets and financial liabilities On 1 July 2018 (the date of initial application of AASB 9), the Group's management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate AASB 9 categories. Financial assets classified as held-to-maturity and loans and receivables under AASB 139 that were measured at amortised cost continue to be measured at amortised cost under AASB 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. In relation to the impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under AASB 139. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. Consequently, it is no longer necessary for a credit even to have occurred before credit losses are recognised. The Group has one type of financial assets (trade and other receivables) that are subject to AASB 9's new expected credit loss model. Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Warrants at fair value through profit and loss The warrants and derivatives embedded in the converting notes are initially measured at fair value through profit and loss and any net gains and losses are recognised in profit and loss. These liabilities will be derecognised when the warrants are exercised and the converting notes have been converted into ordinary shares, respectively. The difference between the carrying amount and the consideration paid (including any non-cash assets transferred or liabilities assume) is recognised in profit and loss. Apart from the above, the application of AASB 9 has had no impact on the classification and measurement of the Group's financial assets and liabilities. The table below illustrates the classification and measurement of financial assets and financial liabilities under AASB 9 and AASB 139 at the date of initial application, 1 July 2018. 19 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (p) Financial instruments - AASB 9 (Policy applicable from 1 July 2018) (continued) 1 July 2018 Trade and other receivables Trade and other payables Measurement Measurement category AASB 9 category AASB 139 Loans and receivables Financial assets at Financial liabilities at amortised cost amortised cost Financial liabilities at amortised cost Carrying amount Carrying amount AASB 139 ($) 403,040 403,041 AASB 9 ($) 1,042,438 1,042,438 (q) Financial instruments (Policy applicable prior to 1 July 2018) The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The Group classifies non-derivative financial liabilities into the other financial liabilities category. (i) Non derivative financial assets and financial liabilities – recognition and de-recognition The Group initially recognises loans and receivables issued on the date that they are originated. All other financial assets and financial liabilities are recognised initially on the trade date. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. (ii) Non derivative financial assets – measurement Financial assets at fair value through profit or loss A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend income, are recognised in profit or loss. Loans and trade receivables These assets are initially recognised at fair value. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method, less any provision for impairment. Other receivables are recognised at amortised cost, less any provision for impairment. Cash and cash equivalents Cash comprises cash on hand and cash equivalents are short-term, highly liquid investments that are readily convertible to known cash amounts of cash and which are subject to an insignificant risk of changes in value. In the statement of cash flows, cash and cash equivalents includes bank overdrafts (if any) that are repayable on demand and form an integral part of the Group’s cash management. 20 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (q) Financial instruments (Policy applicable prior to 1 July 2018) (continued) (iii) Non-derivative financial liabilities – measurement Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest rate method. (iv) Share capital Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognised as a deduction from equity. (v) Financial instruments recognised at fair value through profit and loss Warrants granted to financiers are initially measured at fair value through profit and loss and any net gains and losses are recognised in profit and loss. These liabilities will be derecognised when the warrants are exercised. The difference between the carrying amount and the consideration paid (including any non-cash assets transferred or liabilities assume) is recognised in profit and loss. (r) (i) Impairment Non-derivative financial assets Financial assets not classified as at fair value through profit or loss are assessed at each reporting date to determine whether there is evidence of impairment. Refer to 3(q). An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be recognised. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. 21 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 (r) Impairment (continued) (ii) Non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units ("CGUs"). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amount of assets in the CGU on a pro rata basis. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Segment reporting The Group manages its operations as a single business operation and there are no parts of the Group that qualify as operating segments under AASB 8 Operating Segments. The CEO (Chief Operating Decision Maker or “CODM”) assesses the financial performance of the Group on an integrated basis only and accordingly, the Group is managed on the basis of a single segment, being medical device research and development. Information presented to the CODM on a monthly basis is categorised by type of expenditure. New Standards and interpretations not yet adopted AASB 16 Leases AASB 16 removes the classification of leases as either operating lease or finance leases – for the lessee – effectively treating all lease as finance leases. Short-term leases (less than 12 months) and leases of low- value assets (such as personal computers) are exempt from the lease accounting requirements. There are also changes in accounting over the life of the lease. In particular, companies will not recognise a front- loaded pattern of expenses for most lease, even when they pay constant rentals. AASB 16 is effective from annual reporting periods beginning on or after 1 January 2019, with early adoption permitted for entities that also adopt AASB 15. The Group is assessing the potential impact on its consolidated financial statements resulting from the application of AASB 16. (s) (t) 22 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 4 Revenue and other income In AUD Revenue Revenue from sale of goods Revenue from freight Other income Grants received Development fees Other income Total revenue and other income 5 Expenses In AUD (a) Employee benefits expenses Salaries and wages Contributions to defined contribution superannuation funds Increase / (decrease) in annual leave Increase / (decrease) in long service leave Equity-settled share-based payments Other employee related expenses (b) Depreciation and amortisation expense Depreciation expense Amortisation expense (c) Net finance income Interest income Finance income Interest expense Net foreign exchange loss Finance costs 2019 2018 467,646 72,090 539,736 271,989 15,261 287,250 427,567 - 92,380 519,947 1,059,683 826,407 220,672 - 1,047,079 1,334,329 Note 2019 2018 1,315,768 118,531 5,058 15,336 585,105 64,506 2,104,304 1,570,116 133,598 (1,160) 10,796 - 76,007 1,789,357 9 10 495,220 65,387 560,607 269,247 60,001 329,248 22,333 22,333 3,886 3,886 (973,418) (381,006) (1,354,424) (936,617) (277,398) (1,214,015) Adjusted position in reissued financial report (refer to Note 2 for more detail) Fair value gain/(loss) on financial liabilities Reissued finance costs 2 (a) 601,429 (752,995) 118,248 (1,095,767) Net finance income recognised in profit or loss (730,662) (1,091,881) 23 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 Cash and cash equivalents 6 (a) Cash and cash equivalents in statement of cash flows In AUD Cash at bank (b) Reconciliation of cash flows from operating activities In AUD Loss for the year Adjustments for: Depreciation and amortisation Unrealised currency translation movements Equity-settled share-based payment transactions Fair value (gain)/loss on financial liabilities Finance costs Income tax benefit Operating profit before changes in working capital and provisions Change in operating assets and liabilities: Change in trade and other receivables Change in trade and other payables Change in inventories Change in employee benefits Income tax (R&D rebates received) Net cash from operating activities 7 Trade and other receivables In AUD Current Receivables from trade customers Other receivables 2019 2018 1,855,706 1,855,706 1,993,596 1,993,596 Note Reissued 2019 Restated 2018 (5,055,112) (4,900,173) 5(b) 15 11(a) 560,607 513,264 585,105 (601,429) 310,509 (805,538) (4,492,593) 329,248 386,772 - (118,248) 300,803 (2,300,000) (6,301,598) (178,965) 7,438 (529,225) 20,498 (5,172,848) 23,457 288,906 419,336 9,582 (5,560,317) 3,334,361 (1,838,487) - (5,560,317) 2019 2018 314,306 267,699 582,005 174,074 228,966 403,040 The carrying value of trade receivables is considered a reasonable approximation of fair value due to the short-term nature of the balances. 8 Inventories In AUD Raw materials Work in progress Finished goods Inventory provisioning 2019 2018 1,038,968 78,791 86,810 (416,851) 787,718 774,115 12,237 32,932 (560,791) 258,493 24 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 9 Property, plant and equipment In AUD Software Plant and equipment Total Cost Balance at 1 July 2017 Additions Balance at 30 June 2018 Balance at 1 July 2018 Additions Balance at 30 June 2019 Accumulated depreciation Balance at 1 July 2017 Depreciation Balance at 30 June 2018 Balance at 1 July 2018 Depreciation Balance at 30 June 2019 Carrying amounts At 30 June 2018 At 30 June 2019 10 Intangible assets In AUD Cost Balance at 1 July 2017 Acquisitions Balance at 30 June 2018 Balance at 1 July 2018 Acquisitions Balance at 30 June 2019 Accumulated amortisation Balance at 1 July 2017 Amortisation Balance at 30 June 2018 Balance at 1 July 2018 Amortisation Balance at 30 June 2019 Carrying amounts At 30 June 2018 At 30 June 2019 3,420 - 3,420 3,420 - 3,420 3,420 - 3,420 3,420 - 3,420 787,840 704,139 1,491,979 791,260 704,139 1,495,399 1,491,979 739,915 2,231,894 1,495,399 739,915 2,235,314 314,131 269,247 583,378 317,551 269,247 586,798 583,378 495,220 1,078,598 586,798 495,220 1,082,018 - - 908,601 1,153,296 908,601 1,153,296 Patents and trademarks Other intangibles Total 914,972 89,976 1,004,948 1,004,948 73,442 1,078,390 108,197 48,454 156,651 156,651 53,531 210,182 91,358 71 91,429 91,429 - 91,429 35,838 11,547 47,385 47,385 11,856 59,241 1,006,330 90,047 1,096,377 1,096,377 73,442 1,169,819 144,035 60,001 204,036 204,036 65,387 269,423 848,297 868,208 44,044 32,188 892,341 900,396 25 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 11 Income tax (a) Income tax benefit Income tax benefit comprises current and deferred tax expense and is recognised in profit or loss, except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. The components of income tax benefit comprise: In AUD Current tax Deferred tax Total income tax benefit Reissued 2019 Restated 2018 (805,538) - (805,538) (2,300,000) - (2,300,000) The prima facie tax on profit before income tax is reconciled to the income tax expense as follows: In AUD Loss before income tax Tax using the Company's domestic Australian tax rate of 30% (2018: 30%) Permanent differences Under provision of tax in prior years Tax losses not brought into account R&D rebate refund Total income tax benefit 2019 2018 (5,860,649) (7,200,173) (1,758,195) 206,141 (34,361) 1,586,415 (771,177) (771,177) (2,160,052) 938,756 (68,572) 1,289,868 (2,300,000) (2,300,000) (b) Current tax assets The current tax asset at 30 June 2019 of $771,177 (2018: $3,300,000) represents income tax rebates receivable from relevant tax authorities on the Group's research and development expenditure. (c) Deferred tax assets Due to the uncertainty of the the Group generating sufficient taxable income to offset tax losses carried forward, the future tax benefits of these losses has not been brought to account in these financial statements. 12 Trade and other payables In AUD Current Trade payables Accrued expenses Other payables 2019 2018 604,033 417,169 28,674 1,049,876 459,322 576,307 6,809 1,042,438 All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. 26 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 13 Borrowings In AUD Current Loan from Global Health Investment Fund LLC Warrants recognised at fair value through profit and loss Non-current Loan from Global Health Investment Fund LLC Loan from Grand Challenges Canada Reissued 2019 Reissued 2018 2 (a) 1,758,376 2,169,725 3,928,101 - 2,771,153 2,771,153 6,410,560 - 6,410,560 7,464,890 1,253,221 8,718,111 Loan from Global Health Investment Fund LLC (GHIF) In December 2015, the Company received a loan from GHIF for an amount of US$6,000,000. The principal of the loan is repayable: (i) 20% of the Principal Drawn by 31 December 2019, (ii) a further 35% of the Principal Drawn by 31 December 2020; and (iii) the remainder of the loan by 31 December 2021. Interest is payable at the rate of 7% annually in arrears at 31 December each year. Security is provided by a floating charge over the revolving assets (inventory, negotiable instruments and plant and equipment) of the Company and fixed charge over all other collateral (all other property). The loan agreement requires certain performance commitments including (i) making products and services available to disadvantaged patients on a tiered pricing structure. This commitment also applies to partners, distributors of the Company or assignee of Intellectual property; and (ii) until full repayment of the loan, dividends or distributions paid by the Company cannot exceed 50% of the cumulative retained profits of the Company. GHIF also has an option to receive up to 2,727,273 shares in the Company at an exercise price of US$0.55. The option exercise period expires on 31 December 2021. If GHIF holds 2,000,000 shares or more, it shall have the right to appoint a Board member. The impact of this warrant is recognised at fair value through profit and loss. Refer to note 2 (a) to the financial statements for further detail. 27 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 14 Employee benefits In AUD Current Liability for annual leave Non-current Liability for long service leave 2019 2018 74,369 74,369 69,209 69,209 58,978 58,978 43,641 43,641 15 Share-based payment arrangements Employee share option plan (equity-settled) In November 2016, the Group established an Employee Share Option Plan ("ESOP") that allows Directors and certain key management personnel and employees to purchase shares in the Company. The holders of vested options are entitled to purchase one share for each option held at an exercise price of $1.25 per share ($0.16 per share post share-split). Options granted to employees vest in three tranches: (i) 25% on grant date, (ii) 25% on the first anniversary of the grant date, and (iii) 50% on the second anniversary of the grant date. Options granted to Directors vest in two tranches: (i) 50% on the first anniversary of the grant date, and (ii) 50% on the second anniversary of the grant date. Certain options carry performance related conditions in order for these options to vest. None of these conditions have been met at the end of the current financial reporting period. The Group has determined the fair value of the equity instruments granted by using the Black-Scholes valuation method. This method is considered to be the most effective in determining the appropriate value of the share options. During the financial year, options with an exercise price equal to the market price of the underlying shares were issued. The value of these options, relative to each employee's service period during the current financial year, being $585,105 (as shown in Note 5(a)), have been recognised as share based payments within employee expenses. This amount includes the value of options issued in previous years and not recognised at that time (as the exercise price of the options exceeded the market value of the underlying shares at the time of the grant). As at the date of this report, the following options over unissued ordinary shares in the Company have been issued and not yet exercised: Expiry date Exercise price Number of options 2 years from date of vesting 24 November 2020 6 April 20201 6 April 2022 15 September 2022 11 April 2023 $0.03 $0.16 $0.16 $0.16 $0.16 $0.16 2,469,632 5,000,000 3,600,000 6,800,000 800,000 4,800,000 23,469,632 No shares or interest in the Company or a controlled entity have been issued during or since the end of the year as a result of the exercise of an option over unissued shares or interests. 28 Atomo Diagnostics Limited Notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 16 Capital and reserves (a) Share capital In number of shares In issue at 1 July Issued during the year Conversion of debt Share buy-back In issue at 30 June in AUD In issue at 1 July Issued during the year Conversion of debt Share buy-back Capital raising costs In issue at 30 June Ordinary shares 2019 2018 Class B shares Ord+ Shares Total 2019 2018 2019 2018 2019 2018 28,428,647 - - - 28,428,647 28,458,647 - - (30,000) 28,428,647 4,555,993 - 1,423,853 - 5,979,846 4,555,993 - - - 4,555,993 - 1,953,852 - - 1,953,852 8,638,938 - - - (7,998) 8,630,940 8,660,036 - - (30,000) 8,902 8,638,938 4,555,993 - 1,480,807 - - 6,036,800 4,555,993 - - - - 4,555,993 - 2,442,315 - - - 2,442,315 - - - - - - - - - - - 32,984,640 1,953,852 1,423,853 - 36,362,345 33,014,640 - - (30,000) 32,984,640 13,194,931 2,442,315 1,480,807 - (7,998) 17,110,055 13,216,029 - - (30,000) 8,902 13,194,931 29 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 16 Capital and reserves (continued) (a) Share capital (continued) Ordinary shares The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. The holders of these shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at general meetings of the Company. Class B shares B Class shares have the same rights as existing ordinary voting shares and are subject to the terms of the Investors Agreements and the Company's Constitution, save for the special terms that will attach to B Class shares which are as follows: (i) Upon winding-up of the Company, each B Class share shall convert into 1.2 ordinary shares; (ii) In the event of sale of all the shares in the Company for a total consideration of not more than US$20,000,000, each B Class share shall convert into 1.2 ordinary shares with effect immediately prior to the sale. If the sale price is more than US$20,000,000 then the B Class shares shall convert into ordinary shares on a 1 for 1 basis; (iii) In the event of listing of the Company’s shares on a securities exchange at an initial price implying a total company market capitalisation of not more than US$20,000,000, each B Class share shall convert into 1.2 ordinary shares with effect immediately prior to the sale. If the initial price implies a total company market capitalisation of more than US$20,000,000 then the B class shares shall convert into ordinary shares 1 for 1; and (iv) For any period when a B Class shareholder holds a minimum of 2 million shares in the Company (whether B class or ordinary shares), the shareholder shall have the right to appoint a Director to the board. Ord+ shares Ord+ shares have the same rights as existing ordinary voting shares and are subject to the terms of the Investors Agreements and the Company's Constitution, save for the special terms that will attach to Ord+ shares which are as follows: (i) The shares will be issued with an accompanying entitlement to bonus shares which are to be issued in the event that the subsequent capital activity occurs at a price less than $1.50 per ordinary share; and (ii) The bonus shares entitlement will apply in respect of the next capital activity that has one of the following characteristics: 1) 2) if the company issues further ordinary shares for a price less than $1.50 per share (other than in response to the exercise of existing share options or warrants), with an aggregate issue offer value in excess of $3,000,000; or if an agreement is made by which all of the ordinary shares in the Company are to be sold at an average price of less that $1.50 per share. On or around 21st February 2020, all Ord+ shares were converted to Ordinary Shares on a 1 for 1 basis. (b) Dividends No dividends were paid or declared by the Company during the year (2018: Nil). 30 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 16 Capital and reserves (continued) (c) Dividend franking account In AUD Franking credits available to shareholders of Atomo Diagnostics Limited for subsequent financial years based on a tax rate of 30% (2018: 30%) 2019 2018 - - The ability to utilise the franking credits is dependent upon the ability to declare dividends. (d) Capital management The Group's objectives when managing capital are to safeguard its ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders, maintain sufficient financial flexibility to pursue its growth objectives and maintain an optimal capital structure to reduce the cost of capital. 17 Parent entity information As at, and throughout, the financial year ended 30 June 2019 the parent entity of the Group was Atomo Diagnostics Limited. Statement of profit or loss and other comprehensive income In AUD Loss for the year Other comprehensive income Total comprehensive income Statement of financial position In AUD Assets Total current assets Total non-current assets Total assets Liabilities Total current liabilities Total non-current liabilities Total liabilities Total net assets Equity Share capital Share based payment reserve Retained earnings Total equity Parent Reissued Reissued 2019 2018 (3,701,142) - (3,701,142) (3,548,997) - (3,548,997) 7,139,760 1,927,679 9,067,439 8,002,768 1,800,942 9,803,710 3,849,182 3,194,605 6,422,270 8,750,101 9,616,875 12,599,283 (549,436) (2,795,573) 17,110,055 13,194,931 - (15,990,504) (2,795,573) 585,105 (18,244,596) (549,436) The parent entity did not have any contingent liabilities or capital commitments as at 30 June 2019 or 30 June 2018, other than those disclosed at Note 21. The parent entity had not entered into a deed of cross guarantee as at 30 June 2019 or 30 June 2018. 31 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 18 Group entities Set out below is a list of material subsidiaries of the Group. Parent entity Atomo Diagnostics Limited Subsidiaries Atomo Australia Pty Limited Atomo Limited 19 Related parties (a) Key management personnel compensation Country of incorporation Ownership interest 2019 2018 Australia Australia United Kingdom 100% 100% 100% 100% Key management personnel ("KMP") are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly and indirectly, and include the Directors, executive and non-executive, as well as certain other senior executives. The totals of remuneration of the KMP of the Company included within employee expenses are as follows: In AUD Key management personnel compensation 2019 2018 306,600 301,125 No remuneration was provided to the non-executive Directors. Short term employee benefits Short term employee benefits include fees and benefits paid to the executive Directors and other KMP as well as all salary, fringe benefits and cash bonuses awarded to the non-executive Directors. Post-employment benefits Post-employment benefits are the cost of superannuation contributions made during the year. Other long term benefits Other long term benefits represent long service leave and long-term annual leave benefits accrued during the year. (b) Key management personnel transactions Directors of the Company represent 44% (2018: 41%) of the controlling interest in the shares of the Company as at 30 June 2019. 32 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 19 Related parties (continued) (c) Other related party transactions Transactions between related parties are on normal commercial terms and conditions and no more favourable than those available to other parties, unless stated otherwise. The following transactions occurred with related parties: In AUD 2019 2018 A company jointly controlled by George Sidis, a non-executive Director of the Company, provided the following services: Purchase of inventory Research and development Plant and equipment Other services At the end of the year the following amounts were shown owing to related parties in trade payables: 399,676 1,242,145 599,357 168,332 2,409,510 19,489 2,503,461 548,701 199,758 3,271,409 392,073 392,073 355,631 355,631 20 Segment reporting The Group manages its operations as a single business operation and there are no parts of the Group that qualify as operating segments under AASB 8 Operating Segments. The CEO (Chief Operating Decision Maker or “CODM”) assesses the financial performance of the Group on an integrated basis only and accordingly, the Group is managed on the basis of a single segment, being medical device research and Information presented to the CODM on a monthly basis is categorised by type of development. expenditure. 21 Commitments and contingencies (a) Capital expenditure commitments Capital expenditure commitments committed for: In AUD Process tooling and blister production (MacTec) 2019 2018 - - 500,000 500,000 (b) Contingencies During the 2016 financial year, the Group received a grant from The NSW Health Medial Devices Fund for $1.8 million to support development and validation of AtomoRapid HIV Self Test project. The project has detailed budget and completion milestones. The funding is classified as a grant, however, if the Group achieves a result greater than $500,000 EBITDA for the project, then repayments of the grant and an amount of imputed capitalised interest will be required. It is not foreseen that the Group will earn EBITDA greater than $500,000 for the project. 33 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 22 Financial risk management The main risks of that the Group is exposed to through its financial instruments are liquidity risk and market risk consisting of interest rate risk and foreign currency risk. The Group's financial instruments consist mainly of deposits with banks, instruments, short-term investments, borrowings and accounts receivable and payable. The totals for each category of financial instrument is as follows: In AUD Financial assets Cash and cash equivalents local money market 2018 2019 1,855,706 1,855,706 1,993,596 1,993,596 Financial liabilities Borrowings 10,338,661 11,489,264 10,338,661 11,489,264 23 Events after the reporting period 1. On the 21st January 2020, ASIC (and under the Corporations Act) gazetted for a month that the Company will change from a proprietary company to that of a public company. As such, on or about the 21st February 2020, the Company became a public company; 2. On 19 December 2019, the shareholders of the company approved a 1:8 split of the company’s share capital; 3. On 19 December 2019, the shareholders of the company approved the conversion of all Ord+ Shares into Ordinary Shares to be effective at the time that the company becomes a public company. On or around the 21st February 2020, all Ord+ shares were converted into Ordinary Shares on a 1 for 1 basis; 4. Between the months of September 2019 and November 2019, the Group raised $16 million through the issue of non-redeemable converting notes. These notes are interest bearing and convertible at the earlier of the occurrence of a significant equity raising transaction, or 12 months from the date of issue. Of this $16 million, a non-cash portion of $1.76m has been issued to Global Health Investment Fund LLC in satisfaction of the first repayment of their loan (as described in Note 14); 5. On 28 February 2020, holders of 17,872,992 Options (post-share split basis) had accepted an early cashless exercise offer presented by the Group, resulting in the issue of 8,592,043 Ordinary Shares; and 6. On 28 February 2020, the Global Health Investment Fund exercised 21,818,184 Options (post-share split basis) on a cashless basis resulting in the issue of 10,868,183 Ordinary Shares. Other than the matters discussed above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Group, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 34 Atomo Diagnostics Limited Reissued notes to the consolidated financial statements (continued) For the financial year ended 30 June 2019 24 Auditor's remuneration In AUD Audit and assurance related services KPMG Australia Audit of financial statements Total audit and assurance services Other services KPMG Australia Taxation advisory services Total other services Total auditors' remuneration 2019 2018 58,000 58,000 40,000 40,000 13,250 13,250 26,550 26,550 71,250 66,550 35
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