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Annual Report 2022

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Annual Report 2022 ATO MO D IAGNOSTICS L I MITE D AC N 14 2 925 684 ATOMODIAGNOSTICS.COM ATOMO ANNUAL REPORT FY22 CON TE NTS 01 FY22 AT A GLANCE 02 CHAIRMAN’S LETTER 03 CEO REPORT 04 KEY ACHIEVEMENTS AND CHALLENGES FY22 2 3 5 7 05 DELIVERING ON OUR STRATEGY WITH UNIQUE TECHNOLOGY AND KNOWLEDGE 8 ‘We are a global company. From our research, development and corporate office in Sydney, Australia; with production capabilities in the U.S.A. and manufacture and distribution in South Africa – we are Atomo.’ Atomo Corporate Video 2022 06 WHAT WE VALUE, HOW WE CONTRIBUTE 07 STRATEGY FOR FY23 AND BEYOND 08 DIRECTORS’ REPORT 09 FINANCIAL STATEMENTS Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows 10 NOTES TO FINANCIAL STATEMENTS 11 DIRECTORS’ DECLARATION 12 INDEPENDENT AUDITOR'S REPORT 13 SHAREHOLDER INFORMATION 14 CORPORATE DIRECTORY 10 13 16 38 41 42 43 44 45 78 80 84 88 1 ATOMO ANNUAL REPORT FY22 01 FY22 AT A GLANCE COM PANY PERFORMANCE Y E AR O N YE AR ) m $ ( e u n e v e R s e l a S l a u n n A " The growing popularity of rapid testing reflects people exercising a greater level of cont rol over their health. Self-testing allows individuals to acc urately assess and act, based on their condi tion. REVENUE FR OM CUSTOM ER S For the FY22 $14.0m For the FY21 $6.7m Increase of 108% REVENUE GROWTH DRIVER S Increased sales of COVID-19 rapid tests = $10.4m in revenue, more than 1 million tests sold in Australia Increased sales of HIV products = more than half a million tests sold and revenue of $1.8m REVENUE GROWTH DRIVERS Revenue from licence and settlement fees with customer Access Bio of $1.65m A further $120k in customer revenues IN STALLED P RODUCTION CAPAC IT Y Now at 18 million devices per year 02 CHAIRMAN’S LETTER Dear Shareholders, 1. Infectious disease testing I write to you as we see signs of the COVID-19 pandemic easing and realise the benefits of the widespread adoption of rapid testing. The community’s everyday experiences of the pandemic include the widespread adoption of rapid testing in the workplace and at home, in addition to established clinical settings. The benefits of frequent and convenient screening relieve demands on centralised testing resources. The growing popularity of rapid testing reflects people exercising a greater level of control over their health. Self-testing allows individuals to accurately assess and act, based on their condition. It is against this transformed landscape that I am pleased to introduce Atomo Diagnostics’ Annual Report for the 2022 Financial Year. OUR BUSINESS Atomo supplies devices and screening tests for the rapid testing of medical conditions by professional users and consumers, detecting infectious diseases and chronic health conditions and assessing consumer wellness. Atomo participates in three markets in the development and commercialisation of diagnostic devices: Atomo develops, commercialises and sells finished products such as Atomo’s HIV Tests. Atomo contracted with US partner Access Bio to secure supplies of COVID-19 rapid antigen tests, delivered into Australian markets as Atomo COVID-19 rapid antigen tests. 2. OEM+ devices Atomo partners in the development and supply of our products for use in our partners’ rapid tests. The extent of our involvement in this process sees us describe the Original Equipment Manufacturer activity as OEM+. Tests include NG Biotech’s pregnancy test and Lumos Diagnostics’ FebriDx test, which identifies whether a condition is caused by a viral or bacterial infection. Atomo also supplies devices to both NG Biotech and Access Bio for their blood-based rapid antibody tests for the European and US markets respectively. 3. Consumer health and wellness Responding to decentralising health services, Atomo’s user-centric designed devices allow end users timely and accurate rapid test results. 2 3 ATOMO ANNUAL REPORT FY22 The accelerated adoption of rapid testing for COVID-19 is viewed as a watershed moment in the decentralisation of screening diagnostics and its acceptance by regulators and public health authorities. We see this in the continued popularity and adoption of telehealth consultations and corresponding validation by health authorities, insurers, and clinicians. In late 2021, we welcomed the TGA relieving restrictions on the sale of HIV self-tests, announcing in June 2022 that Atomo would partner with the Pharmacy Guild to develop education in HIV self-testing. During the year, we announced a material extension to our diagnostics products. We started developing swab and saliva devices to add to our existing portfolio of blood-based lateral flow devices, significantly expanding the addressable market in which Atomo can participate. Atomo’s swab device reflects our user-centric approach while incorporating the use of our blister to affect controlled solution delivery and utilise existing IP. OUR CAPABILITIES AND REGULATORY APPROVALS We responded to the immediate requirements to serve the public health needs arising from the COVID-19 pandemic. We also continued growing our production capability and product development, seeking out regulatory and other requisite approvals. OUR PEOPLE The people who make up Atomo – its executives, management, Board and our team – work tirelessly on the opportunities for rapid diagnostic testing that have become ever more apparent through the pandemic. Reflecting this growth, we are delighted to welcome San Diego-based Jim McMenamy as Head of Business Development and Partnerships, and London-based Anna Tucker as Vice President, Development – Europe, the Middle East and Africa. We celebrated Chandra Sukumar’s promotion to COO after four years with the company, an appointment that involved an extensive external and internal search. We thanked UK-based Mark Smith as he retired as our longstanding COO. We are also thrilled to have Palo Alto-based Deborah Neff join the Atomo Board as an Independent Non-Executive Director. Deborah’s contribution to the Board draws from her extensive executive responsibilities in healthcare and life sciences. Deborah chairs our People, Culture and Remuneration Committee among other roles. We thanked Connie Carnabuci as she retired from the Board. John Kelly, CEO, and Will Souter, CFO, have led with care and acumen throughout the year, navigating conditions that have offered changing opportunities and different risks. On behalf of shareholders, the Board warmly recognises these considerable efforts. Atomo continues to deliver on its objective to be a global leader in rapid diagnostics. The adoption of rapid diagnostics during the pandemic has changed users’ behaviours and expectations of testing. Atomo will continue to meet such demand. We welcome your continuing support and hope that you share in our excitement. John Keith Chair, Atomo Board " Beyon d exi st in g c han n els , Atomo re main s foc u sed on i n cre ase d en gagem en t wi t h th e broader di agnost i c mar ket an d on rai si n g awaren ess arou n d Atom o’s u ni qu e sol ut i on s , es pec i al l y i n t he US mar ket ... 03 CEO REPORT Atomo has, through the course of FY22, strived to balance two, at times resource competitive, objectives. On the one hand, there was a clear focus on near-term revenue generation through participation in the rapidly emerging COVID-19 test market. On the other, continuing to establish the company’s unique, integrated, user-friendly testing platforms as preferred solutions in the global point- of-care test market. This enabled the company to generate $14 million in revenue from customers, more than doubling revenue when compared to the prior period. And, importantly, providing a strong balance sheet as the company increasingly switches to commercial activities, particularly in the US. Further, a continued focus on delivering the core value proposition of better blood-based testing has increased engagement with the diagnostics market as it began its transition out of a COVID-19 pandemic mindset and into the vastly changed acceptance of home-based testing. Early in the pandemic we also recognised the need to expand Atomo’s range of products beyond blood-based testing. Our aim was to include swab and saliva-based solutions, and we have spent the last twelve months developing an integrated swab test device with the aim of improving workflow and test performance in swab-based testing. Proof of concept has been completed, with preliminary usability and performance evaluations carried out in Q4 FY21 suggesting that the swab device meets its goals. Initial market feedback on this product, when presented recently at a major US trade conference, was encouraging. Atomo has also completed the build of its proprietary second-generation automated blister production system; and that equipment is currently being qualified in Sydney. This will give the company the ability to manufacture up to 16 million blister components and support commercial scale-up of both blood and swab-based products. With the completion of most of the planned capital investment in production capacity, plant, and equipment there is now a shift of focus and spending towards commercial scale-up. This has included the establishment of a US subsidiary to support US market engagement and, as mentioned in the Chairman’s letter, the recruitment of several senior commercial resources in the US and Europe. This has enabled Atomo to exhibit at several recent conferences and raise awareness of the company and its unique product offerings. It has been pleasing that many US-based attendees have now seen first-hand the benefits of Atomo after several years of cancelled industry events and the inability of our management team to leave Australia. 4 5 5 5 The point-of-care market is now undergoing structural transformation as a result of the COVID-19 pandemic, with the rapid emergence of telehealth- supported healthcare, broad acceptance of home testing by the public and reduced clinical and regulatory barriers to expansion. The scale of this emerging opportunity, combined with reduced barriers to adoption, has seen the recent entry of large commercial players, including Amazon, to the sector. Additionally, there has been increased activity by established healthcare retailers looking to adapt to this new healthcare model where patients increasingly take more responsibility for their own healthcare and are demanding greater levels of access and convenience. Atomo believes that the increased focus on decentralised testing channels, particularly pharmacy and home-based testing, enlarges the addressable market for our consumer-focused solutions. We have been encouraged by the interest shown in our product solutions by both established diagnostic companies and emerging eHeath providers during FY22. We are also pleased to report on the continued improvement in our financial performance, detailed in this report. In FY22, customer revenues increased by 108% to $14.0m, with cash receipts from sales to customers for the year totalling $16.4m. Revenue growth was driven primarily by COVID-19-related product sales, with more than one million tests sold during the period. HIV Self-Test sales also increased during the period, with unit sales totalling more than 500,000 tests, including strong pick up in Australian sales volumes following a change in TGA guidelines. These guidelines related to the promotion of the Atomo HIV Self-Test and the removal of a prohibition of its supply via pharmacies in December 2021. As we move into FY23, Atomo is working to increase revenues associated with its current core business. In the HIV market, we continue to see sales growth in the Self-Test business across LMIC, Europe and here in Australia, and look to launching our professional use product in key international markets this year. We are also seeing a return to ordering from our existing OEM customer base. Beyond existing channels, Atomo remains focused on increased engagement with the broader diagnostic market and on raising awareness around Atomo’s unique solutions, especially in the US market where the opportunity for growth in the emerging home test market is clearly defined. We can point to the successful approvals, including Self-Test approval, that Atomo’s OEM customers have been able to achieve using our platforms and are encouraged by the return of projects for blood-based testing and new rapid test developments beyond COVID-19. Outside of OEM channel opportunities, we are excited by the emergence of a home testing segment supported by the rapid adoption of telehealth in the home and the widespread acceptance of at-home testing by the public, and we note with interest the entry of large eCommerce players to the space in the last year. Atomo is actively engaged with participants in this market that are seeking to build an online healthcare presence and intends to commercialise a number of new finished tests that address opportunities in the home test market. As we anticipate the most significant impact of the COVID-19 pandemic being behind us, FY23 promises to be an exciting year for Atomo. We will expand our core business and enter into new product applications, partnerships, and markets globally. John Kelly CEO, Atomo 04 KEY ACHIEVEMENTS AND CHALLENGES FY22 1. Completion of industralisation of operations to support volume production of Atomo products, including blister manufacturing – up to 18 million of installed cassette capacity per annum now available. and development and commercialisation of the next Atomo finished test product. FY22 HIGHLIGHTS • Strong revenue growth in FY22. 2. Successful participation in the local COVID-19* market with more than $10 million in sales revenue for the year, and well positioned for further market demand in FY23 and beyond. • Total GM of 42%, lower than FY21 due to skew to COVID Antigen product resales, and HIV LMIC global pricing. • OpEx steady (1m COVID-19 rapid tests; - $1.8 million from the sale of >500k HIV rapid self-tests; - $1.65 million in licence and settlement fees from Access Bio; - $120,000 in other customer revenue; and - A further $1.0 million R&D rebate income. * COVID-19 rapid testing detects SARS-COV-2, the virus that causes COVID-19 ** American Association for Clinical Chemistry 6 7 ATOMO ANNUAL REPORT FY22 05 DELIVERING ON OUR STRATEGY WITH UNIQUE TECHNOLOGY AND KNOWLEDGE " Atomo believes that the i ncre as ed fo cus on decentralised testing chann e ls , par ticularly pharmacy and hom e-based testing, enlarge s the addre ss able market for our consumer-focused soluti ons. John Kelly CEO COVID-19 has transformed the diagnostic testing landscape globally. In the early stages of the pandemic, Atomo supported its existing partners in securing approval for a rapid blood-based Antibody test in Europe and the US and invested time securing Rapid Antigen Test approval in Australia so that we could respond quickly when this technology was needed by the community. This enabled us to be an active participant in the COVID-19 market while continuing to drive forward with our core business of HIV Testing, assessing new product and OEM opportunities and continuing the development of unique user focused rapid test devices. OPERATIONAL CAPABILITY AND EXPERTISE Atomo has completed the expansion of its manufacturing capabilities to enable the company to commercialise a larger range of finished home tests and deliver better supply economics. We have invested in an improved manufacturing process for automated high-volume blister components. Compatible with Pascal and Elion- based blood tests and the Swab Test device, this proprietary integrated reagent functionality offers best-in-class usability across a range of point-of-care test markets. INCREASED DECENTRALISED SUPPLY CHAIN CAPABILITY AND EXPANDED CAPACITY • Goal of establishing North American-made product capability for US customers and future Government contracts (blister manufacturing currently in US and component moulding operations under development) • Validated annual cassette production capacity is currently ~18 million cassettes • Atomo runs a validated fully integrated SAP ERP system for all global operations and logistics. ATOMO’S GEN II BLISTER MACHINE ATOMO SWAB PLATFORM • Patented and commercialised proprietary reagent blister component / delivery process • Supports integrated test devices that require a controlled reagent volume to run an assay • Atomo has developed an automated manufacturing process to produce at high volumes, with a second machine built and in validation. The Atomo Swab Platform is a unique (patent pending*) device developed using Atomo’s existing core IP and know-how. Developed to simplify workflow and improve usability and performance of swab-based rapid tests, this product expands Atomo’s product range beyond blood-based testing. Designed to support swab testing across multiple applications (Nasal, nasopharyngeal, throat, STI and other types of swabs). The Atomo Swab platform delivers a measurable line intensity improvement when compared directly to two standard kits format swab rapid test products (based on internal company testing, not verified as yet by independent external studies) *Patent application number: 2022900285/P1812AU00 8 9 ATOMO ANNUAL REPORT FY22ATOMO ANNUAL REPORT FY22 06 WHAT WE VALUE, HOW WE CONTRIBUTE At Atomo our values are important to us. We hold each other accountable to our values and encourage them in our partners. We recognise each other for living these values through our Simply Better Rewards program. The goal of the program is to acknowledge staff that demonstrate core values by encouraging employees to “shout out” their peers for demonstrating the values These “shout outs” act as nominations for quarterly awards. The program reinforces that collaboration and teamwork stand out as essential elements of how we work as a global multi-disciplinary team. This year we have been particularly focused on how we can better collaborate virtually as our global footprint grows and new commercial team members have joined in the US and UK. This includes cross functional business project teams selecting problems that they seek to tackle through to fitness initiatives such as our Steptember global step challenge, which encourages wellness and provides an opportunity for an informal weekly global catch up to compare results. VALUES IMPACT Commercialising products that matter to our users. INNOVATION Fostering creative thinking and solutions. INTEGRITY Ensuring honesty and fairness in all that we do. COLLABORATION Working as one global team. EXCELLENCE Being recognised as experts in the field. EXAMPLES OF STAFF NOMINATIONS FOR EACH VALUE Impact – Commercialising products that matter to our users “Jimmy has done some great work improving conditions in SA where it was previously thought these things were not possible. Small changes have a big impact on the staff “ Innovation – Fostering creative thinking and solutions “Rohit is always thinking of new innovative ideas for Atomo products, in particular, the work he has done on the app and digital health solutions” Integrity – Ensuring honesty and fairness in all that we do “Hanszeline always acts in the best interest of the production staff… Not only does she show kindness but fairness as well.” Collaboration – Working as one global team “Rietha is definitely a team player, goes over and beyond what she needs to do… Honoured to have her as a mentor” Excellence – Being recognised as experts in our field “Mark has a plethora of Quality assurance experience and he never fails to find most practical solutions to Quality Assurance procedures” Atomo team members in our Sydney and Cape Town premises 10 11 ATOMO ANNUAL REPORT FY22 ATOMO – COMMUNITY IMPACT, LOCALLY AND GLOBALLY Atomo’s impact principles reflect our values of collaboration and respect for all our stakeholders. We operate in diverse communities globally and we are always conscious of the way in which we operate and interact. We partner with companies and other stakeholders that share our values, and, like us, place importance on legal compliance, local community engagement, and sustainability practices. Environment and sustainability We ensure materials, energy and resources are used efficiently. Our recycled pallet production targets reduction in wood use, changes to packaging reduce plastic use and with production based in South Africa our operations base is closer to primary LMIC markets helping to minimise logistics and supply chain impacts. We are constantly seeking to improve environmental and sustainability performance. Community engagement We seek to maximise local engagement in operations through employment and contracting. We demonstrate cultural sensitivity and respect for local customs and rights. We make cost- effective, high-quality diagnostic products that deliver better health outcomes for people worldwide, from remote regions of Africa to the streets of the big city. Health and safety We proactively apply best practice in our workplace environments, with the health and safety of our people central to what we do. We advocate for policy change to broaden access and make testing available to those that need it most. We commercialise products that matter to our users such as HIV, COVID-19 and pregnancy testing. Governance and compliance We maintain strict compliance with corporate governance standards. Our Board prioritises people, strategies and practices that instil and reinforce the company’s purpose and values, ensure health and wellbeing, and meet diversity and inclusion objectives. 07 STRATEGY FOR FY23 AND BEYOND " Atomo continues to deliver on its objective to be a global le ader in rapid diagnostics. The a doption of rapid diagnostics during the • Commercialise a range of new Finished Tests for Home and point of care market channels for the US market: - A blood-based pregnancy test for home use as well as a screening test in A&E/ Emergency; - An App/reader supported semi-quantitative pandemic has changed users ’ test for home monitoring; and behaviours and ex pe ctations of testing. John Keith Chair, Atomo Board Atomo is now switching focus and investment from the expansion of installed manufacturing capacity, which is now complete, to commercial scale up and business development, including focusing on: • Expansion of senior commercial resourcing and associated engagement with market and channel partners; • Attendance at key industry conferences – AACC, Next Gen Dx, Medica and Arab Health; • Refreshed marketing, collateral and increased promotion – website, materials, videos (watch our Corporate video at https://www.youtube.com/ watch?v=RVA3BBcOUP4&t=23s). • Scale up of Atomo’s OEM customer base utilising our proven blood testing platforms, eHealth solutions and in future Atomo’s swab device, across key OEM channels; • Direct engagement and promotion to diagnostic companies; • Establish a number of reseller partnerships – development companies with access to new test development programs; and • Explore adjacent market opportunities, including animal health. - A swab-based test utilising the Atomo swab device (once commercialised) – applications of potential interest include COVID/ Flu A & B combo plus a number of swab based STI’s. DIGITAL INTEGRATION FOR RAPID TESTING The importance of digital health • Digital health is changing how we predict, monitor, manage and make decisions about our health and well-being. Digital health supports the delivery of healthcare in a broader range of settings. Digital connectivity enhances the performance and usefulness of rapid testing within the healthcare ecosystem. The ability to promptly deliver actionable diagnoses in multimedia formats improves test outcomes. The ability to automatically read accurate results and, in many cases, quantitate the level of analyte removes user interpretation errors and provides increased precision in determining diagnostic outcomes. • The ability of digital health solutions to capture and transmit results provides traceability and eligibility for reimbursement, both of which are necessary for widespread adoption in the healthcare system. Rapidly connecting the dots between patients, healthcare professionals and supporters (either public health or private insurers) is critical to the emergence of decentralised testing channels in pharmacy retail and increasingly in the home. • The US is leading changes in the adoption of digital health support services and is implementing regulation that will optimise product speed to market while maintaining device safety and effectiveness. 12 13 ATOMO ANNUAL REPORT FY22 ST user app (fully developed and ready for commercialisation) Desktop reader (proof of concept developed, not fully developed for commercialisation) COMMERCIALISATION ROADMAP Atomo has reviewed the changing point of care test landscape post-pandemic, including engagement with emerging eHealth companies now opening up home-based healthcare. This assessment of emerging product demand, technical feasibility, regulatory pathway, and go-to-market channels is enabling the company to finalise its growth planning. The company now intends to bring to market during FY23 and FY24, in partnership with an established rapid test player, a number of home test and professional point of care tests utilising Atomo’s integrated cassette and digital solutions. Atomo’s focus on digital health • During the year, Atomo developed two platform offerings for use in the digital health space: an app and a digital reader solution. The app will accompany our existing platforms for use in home settings. The second solution is a portable reader compatible with our platforms for use in professional point of care settings, such as doctor offices and pharmacies. • The app has been specifically designed for untrained, self-test users and includes easy- to-follow, animated steps of use, an integrated incubation timer, functionality to capture a photo of the developed test, confirmation that blood has been delivered to the test and interpretation of results via image recognition. The result is then stored within the app and can be shared with a physician or nominated organisations such as insurance providers or employer. • The reader solution is designed for fast, quantitative throughput in point of care and resource limited professional use settings. Atomo is working with a number of leading reader manufacturers to ensure that the readers of the future in these channels are compatible with Atomo’s cassettes and that Atomo has a reader option to offer its customer base as well as being available for Atomo finished tests. EXPANDING DEMAND FOR OEM SUPPLY Post-COVID-19, Atomo is actively engaging with a receptive diagnostic market Resurgent interest in new products and home testing • Atomo has invested in growing our international footprint, with a US corporate structure established and senior business development resources engaged in the US and Europe. • Atomo has seen an increase in enquiries and interest in new test development alongside a significant market increase in point of care and home-based testing post pandemic. Anna Tucker and Jim McMenamy representing Atomo at AACC • Recent engagement with the market, most recently at AACC and the Next Gen Dx conferences in the US, is helping to raise awareness of Atomo in the industry and provides the company with confidence in the commercial opportunities open to its blood and swab-based solutions. Recent market engagement also generates an extensive list of potential new channel partners and customers. Scalable solutions With existing in-market products and customers, regulatory approvals and established production all demonstrated, Atomo’s products are well positioned to establish themselves as a gold standard for usability in rapid testing and offer the company an opportunity to rapidly expand its customer base and applications menu through partnerships. 14 15 ATOMO ANNUAL REPORT FY22 08 DIRECTORS' REPORT The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'Group') consisting of Atomo Diagnostics Limited (referred to hereafter as the 'Company' or 'Parent Entity') and the entities it controlled at the end of, or during, the year ended 30 June 2022. All amounts are presented in Australian dollars (AUD) unless otherwise stated. DIRECTORS The following persons were Directors of the Company during the year and up to the date of this report. The Directors were in office for this entire period unless otherwise stated: Director Appointed Resigned John Keith (Chair & Non-Executive Director) 2 December 2011 John Kelly (Managing Director) Curt LaBelle (Non-Executive Director) Paul Kasian (Non-Executive Director) Connie Carnabuci (Non-Executive Director) 1 April 2010 21 October 2016 4 February 2020 4 February 2020 n/a n/a n/a n/a 9 December 2021 Deborah Neff (Non-Executive Director) 15 September 2021 n/a The Company Secretary is Tharun Kuppanda, who was appointed on 25 January 2022 (Gilian Nairn resigned on 25 January 2022). OPERATING & FINANCIAL REVIEW Principal activities The principal activities of the Group during the course of the year were the development and sale of medical devices. There were no significant changes in the nature of the activities of the Group during the year. Review of operations The loss for the consolidated entity after providing for income tax amounted to $5,706,854 (2021: loss of $6,021,215). Revenue from customers increased by 108% for the year to $13.99 million, compared with $6.72 million in 2021. Revenue growth was driven by: • a substantial increase in sales of COVID-19 rapid tests which accounted for $10.4 million in revenue, with more than one million tests sold in Australia; • an increase in sales of HIV products, with more than half a million tests sold and revenue of $1.8 million; Cash and cash equivalents as at 30 June 2022 amounted to $12.97 million compared to $17.95 million as at 30 June 2021. Cash was invested in completing investment in manufacturing and production capacity such that Atomo is now in a position to produce its Galileo and Pascal blood-based rapid test devices at scale. Further, ongoing investment was made in R&D to continue innovation in rapid test devices, including in the research, design, development and initial pilot scale production of a swab-based device. Atomo also invested in growing its international footprint, with a US corporate structure established and senior business development resources engaged in the US and Europe. Significant changes in the state of affairs • On 8 November 2021, the Company issued 320,000 share options to William Souter, CFO, in relation to employment agreement re- negotiation. These options are exercisable at an exercise price of $0.25 per option and expire on 14 April 2024. • revenue in relation to licence and settlement • During the period, 2,293,184 options were fees with customer Access Bio of $1.65 million, reported as Other Income; and • a further $120,000 in other customer revenues. exercised resulting in the issue of 2,293,184 ordinary shares and a $68,800 cash contribution when the exercise price was paid. 16 16 17 ATOMO ANNUAL REPORT FY22• Tranche 1 (2,000,000 options) issued to Bondi Partners on 31 May 2021 were fully vested on 31 October 2022. These options are exercisable at an exercise price of $0.40 per option and expire on 30 April 2024. In the opinion of the Directors, there were no other significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year • 1,733,335 options issued to executives under the Company's Post-IPO option plan lapsed as the KPIs applicable to the options were not satisfied with respect to the year ended 30 June 2022. • The Board has exercised its discretion to allocate 1,199,999 options to executives under the Company's post-IPO option plan to reward the diligent execution of the corporate strategy and to ensure retention of the key talent needed to deliver strategic outcomes in the interest of shareholders. No other matter or circumstance has arisen since 30 June 2022 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group's state of affairs in future financial years. Impacts of COVID-19 During FY22, COVID-19 continued to have an impact on operating conditions for the Company, both positive and negative. Customers and target customers in the diagnostics industry continued to focus their efforts and investment on responding to demand for COVID-19 testing solutions and prioritised these over other opportunities. This continued to delay some opportunities for Atomo to move more quickly ahead with new partnerships for OEM sales or finished product development. The company’s performance was positively impacted by COVID-19 as the Delta and Omicron variants drove significant demand for Atomo’s COVID-19 rapid tests in Australia over the period, resulting in sales of more than one million tests to the local Australian market in FY22. Likely developments and expected results of operations With approximately $13 million of cash at bank and no debt, Atomo is in a position to continue to vigorously pursue its strategic goals in FY23. This includes focusing on the following areas of activity: • Continuing to support customer demand for COVID-19 testing solutions as and when required, and in the event that new variants impact on the dynamics of the market; • Continue to expand the Atomo HIV Self-Test and point of care business, including growing the Australian market, working with existing distributors to ramp up activity in the UK, Europe and global health markets, and targeting the appointment of new distributors for the Atomo HIV professional use product; • Build and expand the OEM customer pipeline with continued ramp up in market-facing activities in developed markets, in particular Australia, North America and UK/Europe; • Finalise development and optimisation of the Atomo swab device and seek initial commercialisation partners; and • Continue to work on integration of digital functionality to enhance Atomo’s product offerings, in particular the Atomo App for home use and a clip in reader for point of care settings. ENVIRONMENTAL AND SOCIAL RISKS The Group’s operations are not subject to any significant environmental regulation under Australian Commonwealth or State law. The Company has identified the following sustainability issues most material to its business and are important to key stakeholders such as investors, consumers, customers, supplier, governments and employees. • Employee health and safety: Ensuring our employees work in a safe environment, which meets or exceeds relevant regulatory expectations, addresses health and safety concerns as they arise and mitigates the risk of reoccurrence of incidents. • Product quality and safety: Choosing materials from quality sources, complying with ISO 13485 Medical Devices Quality Management, and delivering safe products to customers. Atomo aims to adhere to or exceed strict regulatory standards in all jurisdictions that it serves, and investigates all concerns to ensure our products maintain the highest quality. • Ethical purchasing and human rights in the supply chain: Responsibility to partners to ensure our product line is free from human rights concerns such as forced labour and trafficking, unsafe labour standards and unfair treatment. These issues can arise wherever human resources are utilised across the supply chain. • Corruption and bribery: Business must be conducted with transparency, and free from unethical persuasion. Ethical business practices relate to every aspect of Atomo’s business, from identifying product sources, through the development of diagnostics, transactions with regulatory bodies and sale to customers. • Compliance: Responsibility to drive compliance with legal and regulatory requirements applicable to our global business. Includes development of policies and controls, communication and training, oversight and continuous improvement. Consequently, compliance affects every aspect of what we do, to deliver quality products to consumers. • Resource use and waste management: Includes energy usage during manufacture and logistics, water usage and waste as a by-product of manufacture, with particular consideration given to the fact that the products are classified as medical waste upon use. Stakeholders increasingly demand disclosure of resource usage and waste management for a more sustainable product investment. • Product pricing and accessibility: Strategies and initiatives designed to provide more affordable diagnostic pricing and accessibility to products for patients through development, manufacture and marketing of high-quality generic and branded products, with a particular focus on accessible diagnostics for the global health and Lower and Middle Income markets. The Board believes that the Group has adequate systems in place for the management of its exposure to environmental & social risks. 18 19 ATOMO ANNUAL REPORT FY22INFORMATION ON DIRECTORS Name: John Keith Title: Non-Executive Chair Experience and expertise: John Keith has served as a Non-Executive Director of Atomo since December 2011 and became Chair in 2014. Mr Keith is one of the Managing Director at BNP Paribas, establishing and leading its financial institutions coverage team. Prior to joining BNP Paribas in 2011, Mr Keith held country management and senior business and coverage positions for Nomura Securities in Sydney and Hong Kong. His career comprises working with supranational, sovereign and institutional clients across all areas of investment and institutional banking. Mr Keith holds a Bachelor of Arts (Hons) majoring in Economic History from the Victoria University of Wellington, a Master of Applied Finance from Macquarie University and a Global Executive MBA from the University of Sydney. Other current directorships: Nil Former directorships (last 3 years): Nil. Special responsibilities: Member of the Audit and Risk Committee and Member of the People, Culture & Remuneration Committee. Interests in shares: 3,261,056 Interests in options: 1,200,000 Contractual rights to shares: Nil Name: John Kelly Title: Managing Director and CEO Experience and expertise: John Kelly is the Managing Director and CEO of Atomo. For more than 20 years Mr Kelly has focused on developing and commercialising medical devices to enhance usability and performance, having started with CR Bard in Europe developing Class III implantable cardiology products. Prior to co-founding Atomo in 2010, Mr Kelly acted as the Chief Operating Officer (COO) of Unilife Corporation, which was previously an ASX-listed company (ASX:UNS) and subsequent to his departure, a Nasdaq listed company (NASDAQ:UNIS). At Unilife Corporation, he led the global operations team from 2005 to 2008, developing ‘Unifill’, the world’s first glass prefilled drug delivery device with integrated auto retract safety feature, and this technology was successfully licensed to Sanofi Aventis for US$47 million. Prior to joining Unilife in 2005, Mr Kelly spent five years at ResMed where he led the New Product Implementation Group and managed the development of the ground-breaking Mirage Swift and Activa mask systems. Mr Kelly holds an Honours degree in Mechanical Engineering from the University of Liverpool, a Master’s degree in Manufacturing Systems Engineering from Queen’s University Belfast, and an Executive MBA from the University of Sydney, where he was awarded the Business School’s inaugural ‘Excellence in Leadership’ scholarship. Other current directorships: Nil Former directorships (last 3 years): Nil Special responsibilities: Nil Interests in shares: 72,490,248 Interests in options: 999,999 Contractual rights to shares: Nil Name: Curt LaBelle Title: Non-Executive Director Name: Paul Kasian Title: Non-Executive Director Experience and expertise: Curt LaBelle has served as a Non-Executive Director of Atomo since October 2016. Dr LaBelle has been actively involved in the healthcare industry for over 20 years, both operationally and as an investor. Dr LaBelle is President at the Global Health Investment Fund (GHIF), a social impact investment fund, which manages approximately US$108 million backed by the Gates Foundation, JP Morgan and others. He also serves as a director on the boards of Z Optics, Revelation Bio and Atticus Medical. Prior to joining GHIF, Dr LaBelle was Managing Director at Tullis Health Investors and Vice President at Investor Growth Capital. He is a former chairman of Impulse Monitoring (acquired by Nuvasive), Exagen Inc. (NASDAQ:XGN) and a former director of Sirion Therapeutics (products acquired by Alcon and Bausch), SafeOp Surgical (acquired by AlphaTec) and KAI Pharmaceuticals (acquired by Amgen). As Dr LaBelle is President at GHIF, a substantial shareholder of Atomo, Dr LaBelle is not considered to be an independent Director. Dr LaBelle holds a Bachelor of Economics from Brigham Young University, and MD and MBA degrees from Columbia University. Other current directorships: Director of Eyenovia Inc. (NASDAQ:EYEN) Former directorships (last 3 years): Former chairman of Exagen Inc. (NASDAQ: XGN) Special responsibilities: Nil Interests in shares: 65,051,280 (inclusive of the GHIF Holding) Interests in options: 1,200,000 Contractual rights to shares: Nil Experience and expertise: Dr Kasian is an experienced executive director with demonstrated success in both domestic and international companies encompassing senior leadership, strategy, investment and risk roles. His other roles have included Chief Investment Officer and Head of Global Financials at HSBC Asset Management, Founding Director of Accordius and Founding Director of Wallara Asset Management. He holds a PhD in Microbiology and a Master of Business Administration, both from the University of Melbourne, and is a Graduate Member of the Australian Institute of Company Directors. Other current directorships: Dr Kasian is currently Non-Executive Director (appointed 31 August 2016) and Chair (appointed 15 September 2018) of IODM Limited (ASX: IOD). He was appointed a Non Executive Director of Zucero Therapeutics Limited on 10 March 2021 and currently holds the role of Chairman. He is also Non Executive Director of Eco Systems Ltd (appointed 16 October 2019). Former directorships (last 3 years): Previously he served as a Non-Executive Director, then Chairman and CEO of Genetic Technologies Limited (appointed 12 December 2013 and resigned 23 September 2019). Special responsibilities: Chair of the Audit and Risk Committee and member of the People, Culture & Remuneration Committee. Interests in shares: 100,000 Interests in options: Nil Contractual rights to shares: Nil 20 21 ATOMO ANNUAL REPORT FY22 Name: Connie Carnabuci Title: Non-Executive Director (Resigned 9 December 2021) Name: Deborah Neff Title: Non-Executive Director (Appointed 15 September 2021) Experience and expertise: Connie Carnabuci has over 35 years' experience advising intellectual property and technology intensive businesses in Australia and across Asia on commercial, corporate and regulatory matters. She was recognised by the 2021 Australasian Law Awards as one of the most influential lawyers in Australia. She is a professional Non-Executive Director and currently serves on the Board and Remuneration Committee of OFX Group Limited (ASX: OFX). Ms Carnabuci is the former General Counsel of the Australian Broadcasting Corporation and a former partner of Mallesons Stephen Jacques and Freshfields Bruckhaus Deringer. She is a member of the Business Advisory Council of the UNSW Business School. She was a director and the Chair of the NFP, Kids Giving Back, from 2015 to 2018. Ms Carnabuci is a graduate of UNSW (B.Commerce (Marketing), with merit/LLB, 1986) and the Australian Institute of Company Directors. Other current directorships: Connie Carnabuci currently serves as a Non-Executive Director on the Board, and the Remuneration Committee of OFX Group Limited (ASX: OFX). Former directorships (last 3 years): Nil Special responsibilities: Nil Interests in shares: 75,000 Interests in options: Nil Experience and expertise: A veteran of the life sciences industry, Deborah has spent most of her career building market-leading global businesses. As principal of DJN Consulting, LLC based in the San Francisco Bay Area, Deborah currently works with several privately held healthcare start-up companies providing strategic business advice and mentoring to the executive management teams. Previously was CEO of Evanostics, LLC, Pathwork Diagnostics Inc, and COO at Complete Genomics following a 15 year career with Becton Dickinson, where she last served as President of BD Biosciences, a major business unit of the company. She is an Executive Trustee of the University of California, Davis Foundation and also chairs the College of Biological Sciences Leadership Council at the University. She serves as an independent Director and member of the Governance committee for Guide Dogs for the Blind, Inc. Deborah holds a Bachelor in Science degree from the University of California, Davis. Other current directorships: Non-Executive Director and member of the Audit Committee for Cytek Biosciences, Inc. Former directorships (last 3 years): Nil Special responsibilities: Chair of the People, Culture & Remuneration Committee and member of the Audit and Risk Committee. Interests in shares: Nil Interests in options: Nil Contractual rights to shares: Nil Contractual rights to shares: Nil Other current and former (last 3 years) directorships' quoted above are directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. COMPANY SECRETARY Tharun Kuppanda has over 10 years of legal and governance experience with public companies including previous roles as a Corporate Advisory Lawyer. Mr Kuppanda currently manages the Technical Advisory function for BoardRoom Pty Ltd’s Company Secretarial consulting practice. In his role, Mr Kuppanda predominantly advises on large- scale corporate actions and an entity’s continuous disclosure obligations. Prior to joining BoardRoom, Tharun worked in the Company Secretarial team of a large financial institution and has previously held public and private Company Secretarial appointments in a number of industry sectors. Mr Kuppanda holds a Bachelor of Laws and a Bachelor of Business & Commerce (Accounting) from WSU and a Graduate Diploma in Legal Practice from ANU. He is a former associate of the Governance Institute of Australia and holds a current NSW legal practising certificate. Mr Kuppanda was appointed as Company Secretary on 25 January 2022. (Gillian Nairn held the position between 1 July 2021 to 25 January 2022). MEETINGS OF DIRECTORS The number of meetings of the Company's Board of Directors ('the Board') and of each Board Committee held during the year ended 30 June 2022, and the number of meetings attended by each director were: Board Audit & Risk Committee People, Culture & Remuneration Committee Held^ Attended Held^ Attended Held^ Attended John Keith John Kelly Curt LaBelle1 Connie Carnabuci2 Paul Kasian Deborah Neff1,2 13 13 13 8 13 9 13 13 12 8 13 7 6 - 2 3 6 4 6 - 2 3 6 4 4 - - 3 4 1 4 - - 3 4 1 ^ Represents the number of meetings when the Director was eligible to attend as a member of the relevant committee. 1 Deborah Neff replaced Curt LaBelle on the Audit and Risk Committee effective 15 September 2021. 2 Deborah Neff replaced Connie Carnabuci as Chair of the People, Culture and Remuneration Committee effective 9 December 2021. 22 23 ATOMO ANNUAL REPORT FY22 REMUNERATION REPORT (AUDITED) Remuneration governance This Remuneration Report details the remuneration arrangements of the key management personnel of the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel ('KMP') are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including all Directors of the Company. The key management personnel of the Group during the financial year consisted of the following Directors of the Company: • John Keith – Non-Executive Chair • John Kelly – Founder and Managing Director • Curt LaBelle – Non-Executive Director • Paul Kasian – Non-Executive Director • Connie Carnabuci – Non-Executive Director (Resigned on 9 December 2021) • Deborah Neff – Non-Executive Director (Appointed 15 September 2021) And the following executives: • William Souter – Chief Financial Officer • Mark Smith – Chief Operating Officer (Resigned on 31 March 2022) • Chandra Sukumar– Chief Operating Officer (Appointed on 18 April 2022) • Fabio Baglioni – Chief Commercial Officer (Resigned on 30 July 2021) The information in this Remuneration Report is set out under the following headings: • Remuneration governance To assist the Board in fulfilling its responsibilities in respect of remuneration and nomination related matters, shortly prior to listing, the Board established a Nomination and Remuneration Committee. During the financial year, on the recommendation of the Nomination and Remuneration Committee, the Board extended the scope of the Nomination and Remuneration Committee’s responsibilities to include monitoring and making recommendations to the Board in relation to: (i) recruitment, retention and termination policies and practices for Executive Directors and direct reports to the Managing Director and the alignment of the policies and practices with the promotion and sustainment of a culture aligned with Atomo’s values, the promotion of long-term sustainable success and the achievement of the Company’s business objectives; (ii) people strategies and practices which will instil and reinforce the Company’s purpose and values, ensure health and wellbeing (physical and mental) and support the achievement of the Company’s long-term business objectives; and (iii) the development of, and progress in meeting, the Company’s diversity objectives. To reflect the extended scope of the Nomination and Remuneration Committee's responsibilities, the Board renamed the Committee the 'People, Culture & Remuneration Committee' and the Board resumed nomination responsibilities. The members of the People, Culture and Remuneration Committee at the date of this report are: • Non-Executive Directors’ remuneration • Deborah Neff (Chair) • Details of remuneration • Service agreements • Share-based compensation • Additional disclosures relating to KMP • John Keith • Paul Kasian The role and responsibilities, composition, structure and membership requirements of the People, Culture and Remuneration Committee are documented in the People, Culture and Remuneration Committee Charter available on Atomo’s website at: https://atomodiagnostics. com/governance/ The People, Culture and Remuneration Committee Charter provides that the Committee should comprise at least three members, all of whom are Non-Executive Directors and a majority of whom are independent Directors and the Chair of the Committee should be an independent Director who is not Chair of the Board. All of the current members of the PCRC have been assessed by the Board as being independent Non- Executive Directors and the Chair of the Committee is not Chair of the Board. Principles used to determine the nature and amounts of remuneration Non-Executive Directors' remuneration Each of the Non-Executive Directors has entered into appointment letters with Atomo confirming the terms of their appointment and their roles and responsibilities. The appointment letters are on standard commercial terms. The Chair, John Keith, receives an annual fee of $130,000 and each Non-Executive Director receives an annual fee of $50,000. Each Chair of a Board Committee receives an additional amount of $20,000 per annum. The Chair of the Audit and Risk Committee is Paul Kasian. Connie Carnabuci was the Chair of the People, Culture and Remuneration Committee until her resignation on 9 December 2021, at which date Deborah Neff assumed the position. During the period, a wholly owned subsidiary was established in the US (Atomo US, Inc) which required the appointment of a local US based Director. Deborah Neff was appointed Director of Atomo US, Inc effective 30 March 2022, for which she receives an annual fee of $20,000. Directors may also be reimbursed for expenses properly incurred by them in dealing with the Company’s business or in carrying out their duties as a Director. Under the Constitution, the Board decides the amount paid to each Non-Executive Director as remuneration for their services as a Director. However, under the ASX Listing Rules, the total amount of fees paid to all Non-Executive Directors for their services must not exceed in aggregate in any financial year the amount fixed by the Company’s shareholders in general meeting. This amount has been fixed initially in the Company’s Constitution at $500,000 per annum in aggregate and may be varied by ordinary resolution in a general meeting. Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: • base pay and non-monetary benefits; • short-term performance incentives; • long-term performance incentives; and • other remuneration such as superannuation and long service leave. The combination of these comprises the executive's total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, is reviewed annually by the People, Culture and Remuneration Committee based on individual and business unit performance, the overall performance of the Group and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the Executive. The Company's short-term incentives ('STI') plan is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to Executives based on specific targets and key performance indicators ('KPI's') being achieved. Details of STIs paid to executives during the year can be found under the heading 'Amounts of remuneration" below. 24 25 ATOMO ANNUAL REPORT FY22The Company's long-term incentive ('LTI') plan includes share-based payments. Further details in relation to Atomo’s Employee Share Option Plan ('ESOP') can be found under the heading “Share-based compensation” below. Details of remuneration Amounts of remuneration Details of the remuneration of the KMP of the Group are set out in the following tables. Where individuals were KMP for only part of the year, only remuneration relating to that period is included in the tables below. Short Term Benefits Post- employment benefits Cash bonus $ Other monetary $ Super- annuation $ Long-term benefits Share-based payments Long service leave $ Equity- settled shares $ Equity- settled options $ Cash salary and fees $ 130,000 50,000 63,636 28,228 53,880 2022 Non-Executive John Keith Curt LaBelle Paul Kasian Connie Carnabuci* Deborah Neff ** Executive Directors John Kelly 367,825 94,500 Other Key Management Personnel William Souter ++ 267,117 90,000 Chandra Sukumar ^ 62,864 Mark Smith ^^ Fabio Baglioni + 186,553 52,227 - - - - - - - - - - - - - - 22,727 - - - - - 6,364 2,823 - - - - - - 38,356 7,748 29,670 5,159 - - 1,226 4,621 - - Total $ 130,000 50,000 70,000 31,051 53,880 - - - - - 24,662 533,091 39,459 450,199 - 72,644 15,784 202,337 - 52,227 79,905 1,645,428 - - - - - - - - - - - 1,262,329 184,500 22,727 82,372 13,595 * Resigned on 9 December 2021. ** Appointed on 15 September 2021. ^ Appointed on 18 April 2022. ^^ Resigned on 31 March 2022. + Resigned on 30 July 2021. ++ One-off payment of $25,000 (inclusive of super) included in Other monetary in relation to employment agreement re-negotiation Short-term benefits Post- employment benefits Cash salary and fees $ Cash bonus $ Other monetary $ Super- annuation $ Long- term benefits Long service leave $ Share-based payments Equity- settled shares $ Equity- settled options $ Total $ 130,000 50,000 63,927 70,000 - - - - 372,262 84,000 280,902 287,360 230,480 45,000 41,391 - 1,484,931 170,391 - - - - - - - - - - - 6,073 - - - - - 36,438 7,023 26,027 - - 601 257 - 68,538 7,881 - - - - - - - - - 20,337 22,730 - - 150,337 72,730 70,000 70,000 (32,422) 467,301 (25,938) 326,592 (25,938) 303,070 (25,938) 204,542 (67,169) 1,664,572 2021 Non-Executive John Keith Curt LaBelle* Paul Kasian Connie Carnabuci** Executive Directors John Kelly Other Key Management Personnel William Souter Mark Smith ^ Fabio Baglioni ^^ * Amounts included under “Equity-settled options” include amounts paid to GHIF, of which Curt LaBelle is President. ** Resigned on 9 December 2021. ^ Resigned on 31 March 2022. ^^ Resigned on 30 July 2021. The proportion of remuneration linked to performance and the fixed proportion are as follows: Name 2022 2021 2022 2021 2022 2021 Fixed remuneration At risk – STI At risk – LTI 100% 100% 100% 100% 100% 100% 100% 100% 100% - 78% 89% 66% 100% 92% 100% 94% - 95% 100% - - - - - - - - - - - - - - - - - - - - - - - - - 18% 5% (7%) 14% - 14% - 9% - - - (8%) - (9%) - Non-Executive Directors John Keith Curt LaBelle Paul Kasian Connie Carnabuci * Deborah Neff ** Executive Directors John Kelly Other Key Management Personnel William Souter Chandra Sukumar ^ Mark Smith ^^ Fabio Baglioni + * Resigned on 9 December 2021. ** Appointed on 15 September 2021. ^ Appointed on 18 April 2022. ^^ Resigned on 31 March 2022. + Resigned on 30 July 2021. 26 27 ATOMO ANNUAL REPORT FY22Cash bonuses are dependent on meeting defined performance measures. The maximum bonus values are established at the start of each financial year and amounts payable to KMPs are determined by the Board in consultation with the People, Culture and Remuneration Committee. The proportion of the cash bonus paid/payable or forfeited is as follows: Name Non-Executive Directors John Keith Curt LaBelle Paul Kasian Connie Carnabuci Deborah Neff Executive Directors John Kelly Other Key Management Personnel William Souter Chandra Sukumar* Mark Smith Fabio Baglioni * Appointed on 18 April 2022. SERVICE AGREEMENTS Cash bonus paid/payable Cash bonus forfeited 2022 2021 2022 2021 - - - - - - - - - - 75% 100% 100% - - - 75% - 75% - - - - - - - - - - - - - - - - - - - Remuneration and other terms of employment for KMPs are formalised in service agreements. Details of these agreements are as: Name: Title: John Kelly Managing Director Employment commenced: 1 October 2011 Term of agreement: Not specified. Details: Annual salary of $421,917.80 (including superannuation). The fixed remuneration will alter by any changes in the compulsory superannuation contribution that Atomo Diagnostics Limited is required to make. Plus a cash bonus of up to 30% of gross salary (subject to the satisfaction of performance criteria), to be reviewed annually by the People, Culture and Remuneration Committee. John Kelly is entitled to participate in the Company’s share and option plans. Please refer to the section titled “Share-based compensation” for further details. Ten (10) week termination notice by either party, however this notice period does not apply if the employment is terminated for serious and wilful misconduct or any conduct by John Kelly that amounts to fraud, theft, violence, harassment, gross negligence or any other action that may otherwise bring the Company into disrepute. Name: Title: William Souter Chief Financial Officer Employment commenced: 10 March 2020 Term of agreement: Not specified. Details: Annual salary of $301,369.90 (including superannuation). The fixed remuneration will alter by any changes in the compulsory superannuation contribution that Atomo Diagnostics Limited is required to make. Plus a cash bonus of up to 30% of gross salary (subject to the satisfaction of performance criteria), to be reviewed annually by the People, Culture and Remuneration Committee. William Souter is entitled to participate in the Company’s share and option plans. Please refer to the section titled “Share-based compensation” for further details. Sixteen (16) week termination notice by either party however this notice period does not apply if the employment is terminated for serious and wilful misconduct or any conduct by William Souter that amounts to fraud, theft, violence, harassment, gross negligence or any other action that may otherwise bring the Company into disrepute. Name: Title: Chandra Sukumar Chief Operating Officer Employment commenced: 31 October 2016 (appointed as COO on 18 April 2022) Term of agreement: Not specified. Details: Annual salary of $250,000 (excluding superannuation) following appointment to COO role on 18 April 2022. The fixed remuneration will alter by any changes in the compulsory superannuation contribution that Atomo Diagnostics Limited is required to make. Plus a cash bonus of up to 30% of base salary (subject to the satisfaction of performance criteria), to be reviewed annually by the People, Culture & Remuneration Committee. Chandra Sukumar is entitled to participate in the Company’s share and option plans. Please refer to the section titled “Share-based compensation” for further details. Ten (10) week termination notice by either party however this notice period does not apply if the employment is terminated for serious and wilful misconduct or any conduct by Chandra Sukumar that amounts to fraud, theft, violence, harassment, gross negligence or any other action that may otherwise bring the Company into disrepute. 28 29 ATOMO ANNUAL REPORT FY22 Name: Title: Mark Smith Chief Operating Officer Employment commenced: 1 October 2019 Resigned on: 31 March 2022 Term of agreement: Not specified. Details: Annual salary of GBP 150,000 plus a cash bonus of up to 20% of base salary (subject to the satisfaction of performance criteria), to be reviewed annually by the People, Culture & Remuneration Committee. Prior to his resignation, Mark Smith is entitled to participate in the Company’s share and option plans. Please refer to the section titled “Share-based compensation” for further details. Eight (8) week termination notice by either party however this notice period does not apply if the employment is terminated for serious and wilful misconduct or any conduct by Mark Smith that amounts to fraud, theft, violence, harassment, gross negligence or any other action that may otherwise bring the Company into disrepute. Name: Title: Fabio Baglioni Chief Commercial Officer Employment commenced: 17 February 2020 Agreement terminated: 30 July 2021 Term of agreement: Not specified. Details: Annual salary of kr 1,320,000 plus a cash bonus of up to 20% of base salary (subject to the satisfaction of performance criteria) to be reviewed annually by the Nomination and Remuneration Committee/ Company. In addition, the Company will also pay the CCO’s occupational pension to Collectum under the terms of the benefit of ITP1. Prior to his resignation, Fabio Baglioni was entitled to participate in the Company’s share and option plans. Please refer to the section titled “Share- based compensation” for further details. Eight (8) week termination notice by either party however this notice period does not apply if the employment is terminated for serious and wilful misconduct or any conduct by Fabio Baglioni that amounts to fraud, theft, violence, harassment, gross negligence or any other action that may otherwise bring the Company into disrepute. Share-based compensation Share plan details Prior to being listed on the ASX, the Company established a tax exempt employee share plan (“Tax Exempt Plan”). Under the Tax Exempt Plan, the Company may offer an eligible person restricted shares in the Company which are subject to a three year holding lock while the person remains employed by the Company. Offers of restricted shares under the Tax Exempt Plan not exceeding a total value of A$1,000 or such other amount as permitted under Subdivision 83A-B of the Tax Act may be reduced from the assessable income of that eligible person for the income year in which the eligible person acquires those restricted shares. The objective of the Tax Exempt Plan is to align the interests of eligible Atomo employees and contractors with shareholders through the sharing of a personal interest in the future growth and development of the Company and to provide a means of attracting and retaining skilled and experienced eligible persons. As at the date of this report, 320,000 shares have been granted under the Tax Exempt Plan. Option plan details 1. Pre-IPO option plan details In prior financial years, the Company issued options to employees, Directors and key stakeholders to align the interests of those parties through the sharing of a personal interest in the future growth and development of the Company and to provide a means of attracting and retaining skilled and experienced eligible persons. As at the date of this report, the Company had the following options outstanding under the pre-IPO option plans: Expiry Date 11 April 2023 Total Exercise price Number of options $0.16 4,800,000 4,800,000 All options were granted over unissued fully paid ordinary shares in the Company. Options granted carry no dividend or voting rights. 2. Post-IPO option plan details Shortly prior to being listed on the ASX, the Company established a new employee option plan to align the interests of eligible employees and Directors with shareholders through the sharing of a personal interest in the future growth and development of the Company and to provide a means of attracting and retaining skilled and experienced eligible persons. Upon Atomo’s admission to the official list of ASX, Atomo granted a total of 6,800,000 options under the post- IPO option plan to the four (4) executive KMPs exercisable at $0.25 within thirty six (36) months from the date of vesting. The options vest in three equal tranches in 12 months, 24 months and 36 months respectively, subject to the satisfaction of vesting conditions relating to KPIs determined by the Managing Director or in the case of the Managing Director, determined by the Board in consultation with the People, Culture and Remuneration Committee, as follows: KPI 1: ROI Hurdle: 15% per annum calculated using the following formula: Change in EBITDA year on year/amount invested in operating assets during the year. 30 31 ATOMO ANNUAL REPORT FY22 KPI 2: Revenue Hurdle: Tranche 1/FY21 – Revenue growth of 60% Tranche 2/FY22 – Revenue growth of 40% Tranche 3/FY23 – Revenue growth of 25% As at the date of this report, the Company had on issue 4,013,330 options to KMPs under the post-IPO option plan. Name John Kelly John Kelly William Souter William Souter Mark Smith Mark Smith Total Vesting date and exercisable date Grant date Expiry date Exercise price 14-Apr-20 14-Apr-23 14-Apr-26 8-Nov-21 8-Nov-21 14-Apr-24 14-Apr-20 14-Apr-23 14-Apr-26 8-Nov-21 8-Nov-21 14-Apr-24 14-Apr-20 14-Apr-23 14-Apr-26 8-Nov-21 8-Nov-21 14-Apr-24 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 Fair value per option at grant date $0.141 $0.074 $0.141 $0.074 $0.141 $0.074 Number of options granted 666,666 333,333 533,333 533,333 533,333 213,333 2,813,331 In addition to the above, subsequent to 30 June 2022, the Board has exercised its discretion to allocate the following new options to management as part of the Company's remuneration scheme to reward the diligent execution of the corporate strategy and to ensure retention of the key talent needed to deliver strategic outcome in the interest of shareholders: John Kelly 666,666 options William Souter 533,333 options Total 1,199,999 options These options are exercisable at $0.25 per option and expire on 14 April 2025. In addition, these options are conditional upon the executive remaining employed by the Company and in the case of John Kelly, on Shareholder approval of the allocation. All options were granted over unissued fully paid ordinary shares in the Company. Options granted carry no dividend or voting rights. Additional disclosures relating to Key Management Personnel Shareholding: The number of shares in the Company held during the financial year by each Director and other members of the KMP of the Group, including their personally related parties, is set out below: Ordinary shares John Keith John Kelly Curt LaBelle* Paul Kasian Connie Carnabuci ** Deborah Neff ^ William Souter Mark Smith ^^ Chandra Sukumar + Totals Balance at the start of the year Exercise of options Balance at the end of the year 3,261,056 73,530,248 65,051,280 100,000 75,000 - 250,000 7,790,224 170,000 - ( 1,040,000) - - - - - - - 3,261,056 72,490,248 65,051,280 100,000 75,000 - 250,000 7,790,224 170,000 150,227,808 ( 1,040,000) 149,187,808 * Includes shares held by Global Health Investment Fund LLC. Curt LaBelle is President at GHIF. ** Resigned on 9 December 2021. ^ Appointed on 15 September 2021. ^^ Resigned on 31 March 2022. + Appointed on 18 April 2022. Option holding: The number of options over ordinary shares in the Company held during the financial year by each Director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Granted Exercised Expired/ forfeited/ other Balance at the end of the year Balance at the start of the year 3,600,000 1,333,333 2,400,000 - - - 1,066,667 1,066,667 - Options over ordinary shares John Keith John Kelly Curt LaBelle * Paul Kasian Connie Carnabuci ** Deborah Neff ^ William Souter Mark Smith ^^ Chandra Sukumar + - 333,333 - - - - 533,333 213,333 - Totals 9,466,667 1,079,999 - - - - - - - - - - (2,400,000) (666,667) (1,200,000) 1,200,000 999,999 1,200,000 - - - - - - (533,334) (533,334) - 1,066,667 746,666 - (5,333,335) 5,213,331 32 33 * Includes shares held by Global Health Investment Fund LLC. Curt LaBelle is President at GHIF. ** Resigned on 9 December 2021. ^ Appointed on 15 September 2021. ^^ Resigned on 31 March 2022. + Appointed on 18 April 2022. ATOMO ANNUAL REPORT FY22 Other transactions with Key Management Personnel and their related parties: Shares Under Option 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: Curt LaBelle is a Non-Executive Director of the Company and is also President of GHIF. GHIF is a substantial shareholder of the Company holding 11.4% of the issued capital of the Company as at 30 June 2022 (2021: 11.4%). Statutory performance indicators The Company aims to align its executive remuneration to its strategic and business objective and the creation of shareholder wealth. The table below shows measures of the Group’s financial performance over the last three years (being the extent of available historic audited performance information) as required by the Corporations Act 2001 . However, these are not necessarily consistent with the measures used in determining the variable amounts of remuneration to be awarded to KMPs. As a consequence, there may not always be a direct correlation between the statutory key performance measures and the variable remuneration awarded. Measure 2022 2021 2020 Loss for the year attributable to the Company ($) (5,706,854) (6,021,215) (9,218,105) Basic earnings per share (cents) (1.00) (1.07) (2.59) Dividend payments Dividend payout ratio^ - - - - - - Increase/(decrease) in share price^^ (70%) (46%) 70% Total KMP incentives as a percentage of profit/(loss) for the year (28.8%) (27.6%) (13.3%) ^ The dividend payout ratio is calculated on dividends paid and profit for the year. ^^ Atomo’s shares first traded on the ASX on 16 April 2020 after successful completion of its IPO. Accordingly, no share price information has been provided prior to FY20. For FY20, the movement in shares price has been calculated as the difference between the IPO price (i.e. $0.20) and the closing price as at 30 June 2020 (i.e. $0.34). Unissued ordinary shares of Atomo Diagnostics Limited under option as at the date of this report are as follows: Expiry Date 11 April 2023 14 April 2024 14 April 2025 14 April 2026 30 April 2024 30 April 2024 Total Exercise Price Number of Options $0.16 $0.25 $0.25 $0.25 $0.40 $0.60 4,800,000 1,613,332 533,331 2,266,668 2,000,000 2,000,000 13,213,331 In addition to the above, the Board has exercised its discretion to allocate the following new options to management as part of the Company's remuneration scheme to reward the diligent execution of the corporate strategy and to ensure retention of the key talent needed to deliver strategic outcome in the interest of shareholders: John Kelly 666,666 options William Souter 533,333 options Total 1,199,999 options These options are exercisable at $0.25 per option and expire on 14 April 2025. In addition, these options are conditional upon the executive remaining employed by the Company and in the case of John Kelly, on Shareholder approval of the allocation. No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares issued on the Exercise of Options The following ordinary shares of Atomo Diagnostics Limited were issued during the year ended 30 June 2022 and up to the date of this report on the exercise of options granted: This concludes the Remuneration Report, which has been audited. Date options granted Exercise Price Number of Options 21 November 2012 $0.03 Total 2,293,185 2,293,185 34 35 ATOMO ANNUAL REPORT FY22 Indemnity and insurance of officers Officers of the Company who are former partners of the Company’s auditors The Company has indemnified the Directors and Executives of the Group for costs incurred, in their capacity as a Director or Executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Group paid a premium in respect of a contract to insure the Directors and Executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of the auditor The Group has not, during or since the end of the financial year end, indemnified or agreed to indemnify the auditor of the Group or any related entity against any liability incurred by the auditor. During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group or any related entity. Proceedings on behalf of the Group No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the Company’s auditors for non-audit services provided during the financial year by the auditors are outlined in Note 19 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditors (or by another person or firm on the auditors’ behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The Directors are of the opinion that the services as disclosed in Note 19 to the financial statements do not compromise the external auditors’ independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditors; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. There are no officers of the company who are former partners of BDO. Rounding of amounts The Group is of a kind referred to in Corporations Instrument 2016/191 , issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest dollar. Auditor’s independence declaration A copy of the auditor's independence declaration as required under Section 307C of the Corporations Act 2001 is set out immediately after this Directors' Report. Auditor BDO Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to Section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors: John Keith Chair 25 August 2022 Sydney 36 37 ATOMO ANNUAL REPORT FY22 ATOMO ANNUAL REPORT FY22 09 FINANCIAL STATEMENTS AUDITOR’S DECLARATION Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia DECLARATION OF INDEPENDENCE BY GARETH FEW TO THE DIRECTORS OF ATOMO DIAGNOSTICS LIMITED As lead auditor of Atomo Diagnostics Limited for the year ended 30 June 2022, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Atomo Diagnostics Limited and the entities it controlled during the period. Gareth Few Director BDO Audit Pty Ltd Sydney 25 August 2022 38 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 39 CONTENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report 41 42 43 44 45 78 80 GENERAL INFORMATION The financial statements cover Atomo Diagnostics Limited as a consolidated entity consisting of Atomo Diagnostics Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian Dollars, which is Atomo Diagnostics Limited's functional and presentation currency. Atomo Diagnostics Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Registered office Principal place of business Level 1 3 - 5 George Street Leichhardt NSW 2040 Level 1 3 - 5 George Street Leichhardt NSW 2040 A description of the nature of the Group’s operations and its principal activities are included in the Directors’ Report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of Directors, on 25 August 2022. The Directors have the power to amend and reissue the financial statements. Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2022 Revenue Cost of sales Gross profit Other income Employee benefits expenses Foreign exchange gains/(losses) Depreciation and amortisation Research and development expenses Insurance Inventory obsolescence expense IT expenses Occupancy expenses Professional and consulting fees expense Regulatory expenses Travel expenses Other expenses Results from operating activities Finance income Finance costs Net finance income/(cost) Loss before income tax Income tax (expense)/benefit Loss for the year Other comprehensive income and expenses Foreign currency translation reserve Consolidated Note 2022 2021 3 3 12,336,111 (8,090,427) 4,245,684 6,715,659 (3,296,835) 3,418,824 2,685,407 814,226 4(a) (4,102,416) 4(b) 4(c) 4(c) 4(c) 5(a) 87,653 (1,997,405) (1,410,756) (441,499) (362,889) (264,263) (43,929) (3,813,094) (408,689) (1,318,327) (820,640) (349,621) (332,332) (214,862) (6,417) (2,325,613) (1,786,510) (689,010) (123,735) (954,069) (397,854) 12,573 (901,403) (5,696,840) (6,104,126) 5,456 (15,470) (10,014) 90,696 (7,785) 82,911 (5,706,854) (6,021,215) - - (5,706,854) (6,021,215) 164,612 223,652 Total comprehensive income for the period (5,542,242) (5,797,563) Loss per share for profit attributable to owners of Atomo Diagnostics Limited Basic earnings per share Diluted earnings per share 27 27 Cents (1.003) (1.003) Cents (1.067) (1.067) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 40 41 ATOMO ANNUAL REPORT FY22 Consolidated Statement of Financial Position As at 30 June 2022 Consolidated Statement of Changes in Equity For the Year Ended 30 June 2022 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Lease liabilities Provisions Total current liabilities Non-current liabilities Lease liabilities Provisions Total non-current liabilities Total Liabilities Net assets Equity Issued capital Foreign currency translation reserve Share based payment reserve Accumulated losses Total equity Consolidated Note 2022 2021 6(a) 12,966,400 17,946,517 7 8 9 10 11 12 13 14 13 14 15 16 16 2,678,106 3,420,647 4,494,368 3,042,245 19,065,153 25,483,130 3,665,230 316,786 3,574,690 7,556,706 3,662,977 66,865 3,025,834 6,755,676 26,621,859 32,238,806 1,083,212 1,783,958 155,926 291,158 67,589 276,804 1,530,296 2,128,351 184,879 92,970 277,849 - 23,074 23,074 1,808,145 2,151,425 24,813,714 30,087,381 68,036,837 67,921,661 (63,078) 866,426 (227,690) 713,027 (44,026,471) (38,319,617) 24,813,714 30,087,381 The above statement of financial position should be read in conjunction with the accompanying notes Loss for the year Other comprehensive income Total other comprehensive income for the year Transactions with owners, recorded directly in equity Equity-settled share based payments Exercise of options Issue costs Issued Capital Foreign Currency Translation Reserve Share Based Payment Reserve Accumulated Losses Total Equity Balance as at 1 July 2020 66,514,571 (451,342) 746,970 (32,329,359) 34,480,840 - - - - 223,652 223,652 - - - (6,021,215) (6,021,215) - 223,652 (6,021,215) (5,797,563) 108,000 1,311,482 (12,392) - - - - - 320,951 (188,373) - (166,521) (33,943) - - - 30,957 30,957 428,951 1,123,109 (12,392) (135,564) 1,404,104 Lapsed and Cancelled Options - Total transactions with owners 1,407,090 Balance as at 30 June 2021 67,921,661 (227,690) 713,027 (38,319,617) 30,087,381 Balance as at 1 July 2021 67,921,661 (227,690) 713,027 (38,319,617) 30,087,381 Loss for the year Other comprehensive income Total other comprehensive income for the year Transactions with owners, recorded directly in equity Equity-settled share based payments Exercise of options Issue costs Total transactions with owners - - - - 116,426 (1,250) 115,176 - 164,612 164,612 - - - (5,706,854) (5,706,854) - 164,612 (5,706,854) (5,542,242) - - - - 201,029 (47,630) - 153,399 - - - - 201,029 68,796 (1,250) 268,575 Balance as at 30 June 2022 68,036,837 (63,078) 866,426 (44,026,471) 24,813,714 The above statement of changes in equity should be read in conjunction with the accompanying notes 42 43 ATOMO ANNUAL REPORT FY22 10 NOTES TO THE FINANCIAL STATEMENTS Consolidated Statement of Cash Flows For the Year Ended 30 June 2022 Cash flows from operating activities Receipts from customers (inc. GST) Payments to suppliers and employees (inc. GST) Cash used in operations Interest received Interest paid R&D and other government incentives received Consolidated Note 2022 2021 16,315,588 8,012,295 (20,951,514) (13,480,610) (4,635,926) (5,468,315) 5,456 - 90,696 (5,430) 1,823,828 1,157,798 Net cash from/(used in) operating activities 6(b) (2,806,642) (4,225,251) Cash flows from investing activities Payments for property, plant and equipment Payments for intangible asset Net cash from/(used in) investing activities Cash flows from financing activities Repayment of leases Net proceeds from issue of share capital Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effect of exchange rate fluctuations on cash held (1,392,793) (3,119,797) (912,709) (2,777,775) (2,305,502) (5,897,572) (49,938) 67,546 17,608 (113,347) 1,110,718 997,371 (5,094,536) (9,125,452) 17,946,517 27,103,838 114,419 (31,869) Cash and cash equivalents at the end of the financial year 6(a) 12,966,400 17,946,517 The above statement of cash flows should be read in conjunction with the accompanying notes 44 4545 ATOMO ANNUAL REPORT FY22 NOTES TO THE FINANCIAL STATEMENTS Note 1: Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The Directors have reviewed all of the new and revised accounting standards and interpretations issued by the Australian Accounting Standards Board for annual reporting periods beginning or after 1 July 2021. It has been determined that there is no impact, material or otherwise, of any other new or revised accounting standards and interpretations. (b) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001 , as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). Historical cost The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments. Reclassification of prior year amounts and balances: When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Critical accounting estimates: The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 2. (c) Parent entity In accordance with the Corporations Act 2001 , these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 24. (d) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Atomo Diagnostics Limited ('company' or 'parent entity') as at 30 June 2022 and the results of all subsidiaries for the year then ended. Atomo Diagnostics Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity 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 to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated except where such amounts arise on monetary items that form part of the net investments in a foreign operation, in which case they are recognised in reserves. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. (e) Operating segments 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 in 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. (f) Foreign currency translation The financial statements are presented in Australian dollars, which is Atomo Diagnostics Limited's functional and presentation currency. Foreign currency transactions: Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations: The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. (g) Revenue recognition The consolidated entity recognises revenue as follows: Revenue from contracts with customers and sale of goods 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. 46 47 ATOMO ANNUAL REPORT FY22 Customers obtain control of the HIV self-testing kits when the goods are ready and released by Quality Assurance (QA). It is then the responsibility of the customer to make the necessary arrangements for freight and the collection of goods from the Group’s warehouse. Invoices 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 contracted agreement. The contracts do not allow the customers to return the goods as the testing kits have a set shelf-life and have gone through vigorous testing prior to delivery. Where sales are made to customers on an OEM basis for use in their own test, including for COVID-19, revenue is recognised at the point transfer of control over those products at the warehouse delivery point. 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 collection at the Group’s warehouse. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. (h) 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. 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. R&D tax incentives: R&D tax incentives received by the Group are recognised as other income over the periods necessary to match the benefit of the incentive with the costs for which it is intended to compensate (“associated costs”). Such periods will depend on whether the associated costs are capitalised or expensed as incurred. Under this policy, for that portion of associated costs which are expensed during the period, the proportional incentive is recognised in other income in full during the same period. For that portion of associated costs which are capitalised during the period, the proportional incentive is initially offset against the capitalised associated costs and recognised against amortisation expense on a systematic basis matching the useful life of the capitalised asset. (i) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non- current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. (j) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (k) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days but certain customers have longer payment terms. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. (l) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. 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. (m) 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. 48 49 ATOMO ANNUAL REPORT FY22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. 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. The estimated useful lives of property, plant and equipment are as follows: Plant and equipment 2 - 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (n) Leases The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right- of-use assets are determined on the same basis as those of property and equipment. In addition, the right-ofuse asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. (o) 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. Capitalised development costs Capitalised development costs relate to the Company’s rapid test platforms and associated manufacturing assets and are 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. Expenditure on research activities is recognised in profit or loss as incurred. Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. 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 Capitalised development costs 10 - 20 years 10 years 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (p) Impairment 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. 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"). 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. (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. (r) Financial instruments Classification and measurement – non-derivative financial assets and financial liabilities: The Group's management assessed which business models applied to the financial assets held by the Group and 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 continued 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. 50 51 ATOMO ANNUAL REPORT FY22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 event 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. Apart from the above, the application of AASB 9 had no impact on the classification and measurement of the Group's financial assets and liabilities. (s) Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the consolidated entity will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. (t) Employee benefits Short-term employee benefits: Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits: The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense: Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments: Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. Where early exercise has occurred, this cost is accelerated. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows: • during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period. • from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date. All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. (u) Fair value measurement When an asset or liability, financial or non- financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used 52 53 ATOMO ANNUAL REPORT FY22when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. (v) Issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (w) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. (x) Earnings per share Basic earnings per share: Basic earnings per share is calculated by dividing the profit attributable to the owners of Atomo Diagnostics Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share: Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) Goods and Services Tax (‘GST’) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. 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 tax authority is included in other receivables or other 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 tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. (z) Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest dollar. Note 2: Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Revenue recognition: When recognising revenue in relation to the sale of goods to customers, the key performance obligation is considered to be the point the customer obtains control of the goods as outlined in the arrangement. Share-based payment transactions: 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 and includes assumptions which require judgement. Allowance for expected credit losses: The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. Write-down of inventories: Any write-down of inventories requires a degree of estimation and judgement. The level of the write- down is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. Fair value measurement hierarchy: The Group is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) 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; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. 54 55 ATOMO ANNUAL REPORT FY22Estimation of useful lives of assets: The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the consolidated entity estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. Lease make good provision A provision has been made for the present value of anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with closure of the premises. The calculation of this provision requires assumptions such as application of closure dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be recognised in profit or loss. Employee benefits provision As discussed in note 1, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition. 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(o). 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. Note 3: Revenue and other income Revenue: Revenue from sale of goods COVID-19 HIV Other OEM Other Other income: R&D tax rebate R&D tax rebate overprovisioned in prior year COVID-19 Government grants License and settlement fees Other income Consolidated 2022 2021 10,416,675 1,799,271 - 120,165 12,336,111 1,029,205 - - 1,656,202 - 2,685,407 3,664,613 1,082,528 1,942,878 25,640 6,715,659 754,676 (161,808) 108,588 - 112,770 814,226 Total revenue and other income 15,021,518 7,529,885 Note 4: Expenses Loss before income tax from continuing operations includes the following specific expenses: (a) Employee benefits expense Salaries, wages and Directors’ fees Contributions to superannuation Equity-settled share-based payments Other employment related expenses (b) Depreciation and amortisation expense Depreciation expense (Note 9) Amortisation expense (Note 11) Right-of-use assets (Note 10) (c) Net finance income/(cost) Interest income Cash interest expense Effective Interest Expense (Note 13) Consolidated 2022 2021 3,210,355 3,141,315 263,815 201,029 427,217 267,779 293,386 110,614 4,102,416 3,813,094 1,390,540 487,992 118,873 1,997,405 5,456 - (15,470) (10,014) 884,690 319,396 114,241 1,318,327 90,697 (2,880) (4,906) 82,911 56 57 ATOMO ANNUAL REPORT FY22 Note 5: 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: Current tax Deferred tax Total income tax benefit Consolidated 2022 2021 - - - - - - The prima facie tax on profit before income tax is reconciled to the income tax benefit as follows: Loss before income tax Tax using the Company’s domestic Australian tax rate of 26.0% (2021: 26%) Permanent and temporary differences Tax losses not brought to account Total income tax benefit (b) Deferred tax assets and liabilities Consolidated 2022 2021 (5,706,854) (6,021,215) 1,516,038 (480,166) (1,035,872) - 1,444,097 (1,093,633) (350,464) - Due to the uncertainty of the Group generating sufficient taxable income to offset tax losses carried forward, the future tax benefits of these losses, to the extent that they do not set off temporary differences that have resulted in deferred tax liabilities, has not been brought to account in these financial statements. Net tax effect of carried forward losses not brought to account 3,800,722 2,804,480 Note 6: Current assets – cash and cash equivalents (a) Cash and cash equivalents in statement of cash flows Cash at bank (b) Reconciliation of cash flows from operating activities Loss for the year Adjustments for: Depreciation and amortisation Unrealised currency translation movements Equity-settled share-based payment transactions Finance costs Operating profit before changes in working capital and provisions Changes in working capital and provisions: Decrease in trade and other receivables Decrease in trade and other payables Increase in inventories Increase in employee benefits Consolidated 2022 2021 12,966,400 12,966,400 17,946,517 17,946,517 (5,706,854) (6,021,215) 1,997,405 1,318,327 48,944 201,029 15,470 255,522 293,386 - 2,262,848 1,867,235 (3,444,006) (4,153,980) 1,712,120 (731,853) (377,152) 34,249 637,364 1,369,989 359,024 (1,832,569) 32,285 (71,271) Net cash from operating activities (2,806,642) (4,225,251) Note 7: Current assets – trade and other receivables Receivables from trade customers Expected credit loss/bad debt provision R&D Tax Rebate Receivable Other receivables Consolidated 2022 2021 975,854 (56,884) 1,171,954 587,182 2,678,106 1,934,717 (70,433) 1,823,828 806,256 4,494,368 58 59 ATOMO ANNUAL REPORT FY22 Note 7: Current assets – trade and other receivables (continued) Note 9: Non-current assets – property, plant and equipment (continued) Allowance for expected credit losses: Reconciliations: The Group monitors its level of debt recovery at each reporting date (including interim reporting dates) in order to assess for any changes in the probability of customers’ ability to pay, including due to external factors such as the COVID-19 pandemic. The ageing of receivables from trade customers and allowance for expected credit losses provide for above are as follows: Consolidated – 2022 0 to 30 Days 31 to 60 Days 61 to 90 Days 91 to 120 Days 121+ Days Total Trade receivables 621,507 172,178 12,586 Allowance for expected credit losses (8,128) (6) (378) Carrying value of trade receivables before additional bad debt provisions 613,379 172,172 12,208 - - - 169,583 975,854 (48,372) (56,884) 121,211 918,970 Note 8: Current assets – inventories Raw material Raw materials provision Work in progress Work in progress provision Finished goods Finished goods provision Consolidated 2022 2021 1,924,952 1,809,489 (23,541) 58,349 (24,871) 1,485,758 - 3,420,647 (8,247) 130,498 - 1,309,497 (198,992) 3,042,245 Note 9: Non-current assets – property, plant and equipment Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Additions Depreciation expense Balance at 30 June 2021 Balance at 1 July 2021 Additions Depreciation expense Balance at 30 June 2022 Note 10: Non-current assets – right-of-use assets Land and buildings – right-of-use (Note 13) Less: Accumulated depreciation (Note 13) Plant and equipment – right-of-use (Note 13) Less: Accumulated depreciation (Note 13) Total right-of-use assets Plant and equipment 1,452,598 3,091,543 (881,164) 3,662,977 3,662,977 1,392,793 (1,390,540) 3,665,230 Total 1,452,598 3,091,543 (881,164) 3,662,977 3,662,977 1,392,793 (1,390,540) 3,665,230 Consolidated 2022 2021 436,930 (123,767) 313,163 14,493 (10,870) 3,623 316,786 68,136 (8,517) 59,619 14,493 (7,247) 7,246 66,865 Plant and equipment – at cost Less: Accumulated depreciation Total plant and equipment Total property, plant and equipment Consolidated 2022 2021 7,534,920 6,142,127 (3,869,690) (2,479,150) 3,665,230 3,662,977 3,665,230 3,662,977 The Company entered into a new lease prior to 30 June 2021 which commenced in September 2021. Upon commencement, a lease liability in the amount of $320,711 was recognised along with a corresponding right-of-use asset. The Group leases land and buildings for its offices in Sydney Australia and warehouse in South Africa under agreements of between one (1) to three (3) years with, in some cases, options to extend, which have not been taken up. The Group also leases a single piece of office equipment under a five (5) year agreement. 60 61 ATOMO ANNUAL REPORT FY22 Note 11: Non-current assets – intangible assets Note 12: Current liabilities – trade and other payables Patents and trademarks – at cost Less: accumulated amortisation Total patents and trademarks Product development assets – at cost Less: accumulated amortisation Total product development assets Other intangibles – at cost Less: accumulated amortisation Total other intangibles Total intangible assets Reconciliations: Consolidated 2022 2021 1,627,443 (668,822) 958,621 2,909,418 (706,905) 2,202,513 492,902 (79,346) 413,556 1,555,258 (598,715) 956,543 2,317,974 (291,428) 2,026,546 119,683 (76,938) 42,745 3,574,690 3,025,834 Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Additions Amortisation expense Capitalisation of R&D rebate Reversal of over-accrued capitalised R&D rebate from prior year Capitalised R&D rebate recognised as income Patents and trademarks Product devel- opment costs Other intangibles 913,060 106,034 (62,551) - - - 584,995 2,671,740 (254,583) (1,162,207) 93,546 93,055 20,279 28,254 (5,788) - - - Total 1,518,334 2,806,028 (322,922) (1,162,207) 93,546 93,055 Balance at 30 June 2021 956,543 2,026,546 42,745 3,025,834 Balance at 1 July 2021 Additions Amortisation expense Capitalisation of R&D rebate Capitalised R&D rebate recognised as income 956,543 72,185 (70,107) - - 2,026,546 734,193 (415,477) (319,374) 176,625 42,745 373,219 (2,408) - - 3,025,834 1,179,597 (487,992) (319,374) 176,625 Balance at 30 June 2022 958,621 2,202,513 413,556 3,574,690 Trade payables Accrued expenses Other payables Consolidated 2022 2021 378,262 627,986 76,964 654,502 825,188 304,268 1,083,212 1,783,958 All amounts are short term and the carrying values are considered to be a reasonable approximation of fair value. Note 13: Lease liabilities Current: Lease liabilities (Note 10) Non-current: Lease liabilities (Note 10) Total lease liabilities Please refer to Note 10 for further details on leases entered into. Note 14: Provisions Current: Liability for annual leave Liability for long service leave Non-current: Liability for long service leave Make good provision Consolidated 2022 2021 155,926 155,926 184,879 184,879 340,805 67,589 67,589 - - 67,589 Consolidated 2022 2021 211,167 79,991 291,158 42,970 50,000 92,970 204,561 72,243 276,804 23,074 - 23,074 Total provisions 384,128 299,878 The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current since the consolidated entity does not have an unconditional right to defer settlement. Make good provision recognised in the current period in respect of new lease as per Note 10 and Note 13. 62 63 ATOMO ANNUAL REPORT FY22 Note 15: Equity – issued capital Movements in ordinary share capital: Ordinary Shares Total 2022 2021 2022 2021 Number of shares: On issue as at 1 July 568,597,807 561,077,807 568,597,807 561,077,807 Issue of Shares Under Employee Share Plan - 320,000 - 320,000 Exercise of Options On issue as at 30 June Value ($): On issue as at 1 July Issue of Shares Under Employee Share Plan Exercise of Options Costs Associated with the Issues of Shares 2,293,184 7,200,000 2,293,184 7,200,000 570,890,991 568,597,807 570,890,991 568,597,807 67,921,661 66,514,571 67,921,661 66,514,571 - 116,426 (1,250) 108,000 1,311,482 (12,392) - 108,000 116,426 (1,250) 1,311,482 (12,392) Note 16: Equity – reserves Foreign currency translation reserve Share based payment reserve Consolidated 2022 2021 (63,078) 866,426 803,348 (227,690) 713,027 485,337 Foreign currency translation reserve: This reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars and the effect of permanent loans with foreign operations within the Group. Share based payment reserve: This reserve is used to recognise the fair value of equity-settled share-based payments where they relate to yet-to-be exercised options. On issue as at 30 June 68,036,837 67,921,661 68,036,837 67,921,661 Movements in reserves: Ordinary shares: Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. 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. Capital risk management: The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders, maintain sufficient financial flexibility to pursue its growth objectives and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may take one of several actions which may include the issue of new shares, the payment of dividends, a return capital to shareholders, or sell assets to reduce debt. The Group is not actively pursuing or considering any of these options at the time of this report. The Company may look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to grow its existing businesses. The Group currently has no debt and is not subject to any finance arrangement covenants. Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2020 Equity-settled share-based payments Exercise of options Lapsed and Cancelled Options Foreign currency translation Balance at 30 June 2021 Balance at 1 July 2021 Equity-settled share-based payments Exercise of options Foreign currency translation Balance at 30 June 2022 Foreign currency Share based payment (451,342) - - - 223,652 (227,690) (227,690) - - 164,612 (63,078) 746,970 320,951 (188,373) (166,521) - 713,027 713,027 201,029 (47,630) - 866,426 Total 295,628 320,951 (188,373) (166,521) 223,652 485,337 485,337 201,029 (47,630) 164,612 803,348 Note 17: Equity – dividends No dividends were paid or declared during the financial year (2021: Nil). Franking credits: Franking credits available for subsequent financial years - - Consolidated 2022 2021 64 65 ATOMO ANNUAL REPORT FY22 Note 18: Financial risk management Financial risk management objectives The Group's activities expose it to a variety of financial risks including market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management objectives seek to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, ageing analysis for credit risk and beta analysis in respect of investment portfolios to determine market risk. Risk management is carried out by senior finance executives ('finance') under policies approved by the Board of Directors ('the Board'). These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies and evaluates financial risks within the Group. Finance reports to the Board on a monthly basis. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Foreign currency risk The consolidated entity undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial liabilities at the reporting date were as follows: Consolidated 2022 2021 2022 2021 Assets Liabilities US Dollars British Pounds South African Rand EURO Swiss Franc 136,504 22,025 932,485 - - 2,693,426 4,455 491,346 - - 1,091,014 3,189,227 7,711 8,981 25,978 53,974 - 96,644 240,296 11,163 33,990 - 14,420 299,869 Note 18: Financial risk management (continued) Reasonably possible movements in the Australian dollar against all other currencies as at 30 June 2022 would have affected the measurement of financial instruments denominated in a foreign currency and affected profit or loss and equity by the amounts shown below. This analysis assumes that all other variables remain constant and ignores any impact of forecast sales and purchases: Consolidated AUD Strengthening by 10% AUD Weakening by 10% Price risk Profit Before Tax Equity 2022 2021 2022 2021 (90,397) 110,486 (262,669) 321,040 (90,397) 110,486 (262,669) 321,040 The Group is not exposed to any significant price risk. Interest rate risk As at 30 June 2022, the Group was not exposed to any significant interest rate risk. There is minimal exposure to the impact of adverse changes in benchmark interest rates. The Group was exposed to variable interest rate risks on cash and short-term deposits. A reasonably possible change of 100 basis points in interest rates during the year would have increased or decreased profit before tax by $119,561 (2021: $198,794). This analysis assumes that all other variables remain constant. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a code of credit, including undertaking customer due diligence, confirming references and setting appropriate credit limits as appropriate. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. 66 67 ATOMO ANNUAL REPORT FY22Note 18: Financial risk management (continued) Note 19: Remuneration of auditors Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements: The Group has no used or unused financing facilities in place as at 30 June 2022 (2021: Nil). Remaining contractual maturities: The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated – 2022 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing Lease liabilities Total non-derivatives Consolidated – 2021 Non-derivatives Non-interest bearing Trade payables Other payables Interest-bearing Lease liabilities Total non-derivatives Weighted average interest rate 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Remaining contractual maturities - - 378,262 704,950 - - - - 5.18% 169,517 1,252,729 142,985 142,985 48,205 48,205 - - - - - - - - Weighted average interest rate 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Remaining contractual maturities - - 654,502 1,129,456 7.00% 67,589 1,851,547 - - - - - - - - - - - - - - - - The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. During the financial year the following fees were paid or payable for services provided by the Company’s auditors, their network firms and unrelated firms: Audit and assurance services: BDO Australia: Audit and review of financial statements Total audit and assurance services Other services: BDO Australia: Tax advisory services Other services Total other services Consolidated 2022 2021 88,000 88,000 11,755 52,416 64,171 81,000 81,000 30,000 11,442 41,442 Total auditors’ remuneration 152,171 122,442 Note 20: Contingent assets There were no contingent assets as at 30 June 2022. Note 21: Contingent liabilities There were no contingent liabilities as at 30 June 2022. Note 22: Commitments Capital commitments Committed at the reporting date but not recognised as liabilities payable: Plant and equipment and intangibles - 2,189,174 Consolidated 2022 2021 Other commitments Inventory Lease liabilities Total commitments 145,060 - 145,060 1,037,221 320,711 3,547,106 Inventory commitments relate to volumes of devices committed to be purchased throughout the year for sale to customers. Capital commitments relate to the expansion of manufacturing capacity to support growth. Plant and equipment to be purchased includes additional tooling, assembly lines and associated machinery to support increased production of Atomo’s suite of devices. Lease liabilities relate to a new lease which the Company entered into prior to 30 June 2021 but which did not commence until September 2021. Upon commencement, a lease liability in the amount of $320,711 was recognised along with a corresponding right-of-use asset. 68 69 ATOMO ANNUAL REPORT FY22Note 23: Related party transactions Parent entity: Atomo Diagnostics Limited is the Parent Entity. Subsidiaries: Interests in subsidiaries are set out in Note 25. Key management personnel compensation: The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Total key management personnel compensation Consolidated 2022 2021 1,469,556 1,655,322 82,372 13,595 79,905 1,645,428 68,538 7,881 (67,169) 1,664,572 Further details relating to key management personnel compensation are set out in the remuneration report included in the Directors’ report. Transactions with other related parties: There were no other transactions between related parties during the year (2021: Nil) Key management personnel transactions: Directors and other key management personnel hold 26.1% of the issued capital of the company as at 30 June 2022 (30 June 2021: 26.4%). Note 24: Parent entity information Set out below is the supplementary information about the Parent Entity. Statement of profit or loss and other comprehensive income Loss for the year Other comprehensive income Total comprehensive income Statement of financial position 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 2022 2021 (15,708,461) (11,982,954) - - (15,708,461) (11,982,954) Parent 2022 2021 15,087,005 7,895,767 22,982,772 1,555,247 277,848 1,833,095 24,096,206 7,031,323 31,127,529 2,059,279 23,074 2,082,353 21,149,677 29,045,176 68,036,837 67,921,661 866,426 713,027 (47,753,586) (39,589,512) 21,149,677 29,045,176 Guarantees entered into by the Parent Entity in relation to the debts of its subsidiaries None. Contingent liabilities There were no contingent liabilities attributed to the parent entity as at 30 June 2022 (2021: Nil). 70 71 ATOMO ANNUAL REPORT FY22Note 24: Parent entity information (continued) Note 25: Interests in subsidiaries Commitments Capital commitments Committed at the reporting date but not recognised as liabilities payable: Plant and equipment and intangibles - 2,106,035 Consolidated 2022 2021 Other commitments Inventory Lease liabilities Total commitments 145,060 - 1,037,221 320,711 145,060 3,463,967 Inventory commitments relate to volumes of devices committed to be purchased throughout the year for sale to customers. Capital commitments relate to the expansion of manufacturing capacity to support growth. Plant and equipment to be purchased includes additional tooling, assembly lines and associated machinery to support increased production of Atomo’s suite of devices. Lease liabilities relate to a new lease which the Company entered into prior to 30 June 2021 but which does not commence until September 2021. Upon commencement, a lease liablity in the amount of $320,711 will be recognised along with a corresponding right-of-use asset. Significant accounting policies The accounting policies of the Parent Entity are consistent with those of the consolidated entity, as disclosed in Note 1, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the Parent Entity. • Dividends received from subsidiaries are recognised as other income by the Parent Entity and its receipt may be an indicator of an impairment of the investment. The consolidated financial statements incorporate the assets, liabilities and results of the following wholly- owned subsidiaries andbranch operations in accordance with the accounting policy described in Note 1: Name Parent entity: Atomo Diagnostics Limited Subsidiaries: Atomo Australia Pty Limited Atomo Limited Atomo US Inc. Atomo Operations US LLC Branch operations: Atomo South Africa (operating branch of Atomo Australia Pty Limited) Principal place of business/ Country of incorporation Ownership interest 2022 % 2021 % Australia Australia United Kingdom United States United States 100% 100% 100% 100% 100% 100% n/a n/a South Africa 100% 100% Note 26: Events after the reporting period • 1,733,335 options issued to executives under the Company’s Post-IPO options plan lapsed as the KPIs applicable to the options were not satisfied with respect to the year ended 30 June 2022. • The Board has exercised its discretion to allocate 1,199,999 options to executives under the Company's post-IPO option plan to reward the diligent execution of the corporate strategy and to ensure retention of the key talent needed to deliver strategic outcomes in the interest of shareholders. No other matter or circumstance has arisen since 30 June 2022 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. 72 73 ATOMO ANNUAL REPORT FY22 Note 27: Earnings per share Consolidated 2022 2021 Note 28: Share-based payments Set out below are summaries of options granted: 2022 Loss after income tax attributable to the owners of Atomo Diagnostics Limited (5,706,854) (6,021,215) Loss after income tax attributable to the owners of Atomo Diagnostics Limited used in calculating diluted earnings per share (5,706,854) (6,021,215) Grant date Note Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year Basic earnings per share Diluted earnings per share Weighted average number of ordinary shares: Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Cents (1.003) (1.003) Cents (1.067) (1.067) Number Number 568,949,638 564,334,355 No adjustments given that in a loss situation, this would be anti-dilutive - - Weighted average number of ordinary shares used in calculating diluted earnings per share 568,949,638 564,334,355 21/11/2012 6/04/2018 11/04/2019 14/04/2020 14/04/2020 14/04/2020 31/05/2021 31/05/2021 28(a) 28(a) 28(a) 28(b) 28(b) 28(b) 28(c) 28(c) 14/04/2022 06/04/2022 11/04/2023 14/04/2024 14/04/2025 14/04/2026 30/04/2024 30/04/2024 $0.03 $0.16 $0.16 $0.25 $0.25 $0.25 $0.40 $0.60 2,293,184 6,800,000 4,800,000 - - - 533,333 1,079,999 2,266,666 2,266,668 2,000,000 2,000,000 - - - - (2,293,184) - - - (6,800,000) - - 4,800,000 1,613,332 (1,733,335) 533,331 - - - 2,266,668 2,000,000 2,000,000 - - - - - - - Weighted average exercise price $0.23 $0.25 $0.03 $0.18 Weighted average remaining contractual life (years) $0.29 1.8 22,959,851 1,079,999 (2,293,184) (8,533,335) 13,213,331 2021 Grant date Note Expiry date Exercise price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 21/11/2012 24/11/2016 6/04/2017 6/04/2018 15/09/2018 11/04/2019 14/04/2020 14/04/2020 14/04/2020 31/05/2021 31/05/2021 28(a) 28(a) 28(a) 28(a) 28(a) 28(a) 28(b) 28(b) 28(b) 28(c) 28(c) 14/04/2022 24/11/2020 6/04/2021 6/04/2022 15/09/2022 11/04/2023 14/04/2024 14/04/2025 14/04/2026 30/04/2024 30/04/2024 $0.03 $0.16 $0.16 $0.16 $0.16 $0.16 $0.25 $0.25 $0.25 $0.40 $0.60 2,293,184 5,000,000 3,600,000 6,800,000 800,000 4,800,000 2,799,999 2,799,999 2,800,002 - - - - - - - - - - - 2,000,000 2,000,000 - - 2,293,184 (4,000,000) (1,000,000) (2,400,000) (1,200,000) - - - (800,000) - - - - - - - - - 6,800,000 - 4,800,000 (2,266,666) 533,333 (533,333) 2,266,666 (533,334) 2,266,668 - - 2,000,000 2,000,000 31,693,184 4,000,000 (7,200,000) (5,533,333) 22,959,851 Weighted average exercise price $0.17 $0.50 $0.16 $0.21 Weighted average remaining contractual life (years) $0.23 2.1 74 75 ATOMO ANNUAL REPORT FY22 (a) Pre-IPO Options (c) Other Options During the prior financial year, the Company issued 4,000,000 new options to Bondi Partners as part of Bondi Partners' appointment to assist with the development and execution of its US go-to-market strategy and commercial engagements across both private and public sectors as announced to the ASX on 30 April 2021. Tranche 1 (2,000,000 options) issued to Bondi Partners on 31 May 2021 were fully vested on 31 October 2022. These options are exercisable at an exercise price of $0.40 per option and expire on 30 April 2024. Tranche 2 (2,000,000 options) are exercisable at $0.60, were fully vested on 30 April 2022 and expire on 30 April 2024. The Company has adopted the 'Black-Scholes' option model to determine the fair value of these options. The valuation model inputs used to determine the fair value at the grant date, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date 31/05/2021 30/04/2024 31/05/2021 30/04/2024 $0.22 $0.22 $0.40 $0.60 60.00% 60.00% 0.00% 0.00% 0.25% 0.25% $0.051 $0.031 In estimating the expected volatility, management relied on historical volatility trends applicable to the Company's shares. Accordingly, the expected volatility used to assess the fair value of options may not necessarily be indicative of the actual volatility of Atomo's shares over the exercise period(s). In prior financial years, the Company issued options to employees, directors and key stakeholders to align the interests of those parties through the sharing of a personal interest in the future growth and development of the Company and to provide a means of attracting and retaining skilled and experienced eligible persons. All options were granted over unissued fully paid ordinary shares in the Company. Options granted carry no dividend or voting rights. (b) Post-IPO Options Shortly prior to being listed on the ASX, the Company established a new employee option plan to align the interests of eligible employees and Directors with shareholders through the sharing of a personal interest in the future growth and development of the Company and to provide a means of attracting and retaining skilled and experienced eligible persons. Upon Atomo’s admission to the official list of ASX, Atomo granted a total of 8,400,000 options under the post-IPO option plan to the four (4) executive KMPs exercisable at $0.25 within thirty six (36) months from the date of vesting. The options vest in three equal tranches in 12 months, 24 months and 36 months respectively, subject to the satisfaction of vesting conditions relating to KPIs determined by the Managing Director or in the case of the Managing Director, determined by the Board in consultation with the People, Culture and Remuneration Committee as follows: KPI 1: ROI Hurdle 15% per annum calculated using the following formula: Change in EBITDA year on year/amount invested in operating assets during the year. KPI 2: Revenue Hurdle Tranche 1/FY21 – Revenue growth of 60% Tranche 2/FY22 – Revenue growth of 40% Tranche 3/FY23 – Revenue growth of 25% In addition, KPIs with respect to an additional 1,733,335 options with an expiry date of 14 April 2025 were not satisfied and have subsequently lapsed. Accordingly, as at the date of this report, the Company had on issue 2,813,331 options to KMPs under the post-IPO option plan. In addition, subsequent to 30 June 2022, the Board has exercised its discretion to allocate the following new options to management as part of the Company's remuneration scheme to reward the diligent execution of the corporate strategy and to ensure retention of the key talent needed to deliver strategic outcome in the interest of shareholders: John Kelly 666,666 options William Souter 533,333 options Total 1,199,999 options These options are exercisable at $0.25 per option and expire on 14 April 2025. In addition, these options are conditional upon the executive remaining employed by the Company and in the case of John Kelly, on Shareholder approval of the allocation. 76 77 ATOMO ANNUAL REPORT FY22ATOMO ANNUAL REPORT FY22 1 1 DIRECTORS' DECLARATION DIRECTOR’S DECLARATION In the Directors’ opinion: • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; • the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; • the attached financial statements and notes give a true and fair view of the consolidated entity’s financial position as at 30 June 2022 and of its performance for the financial year ended on that date; and • there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors: John Keith Chair 25 August 2022 Sydney 78 78 79 ATOMO ANNUAL REPORT FY22ATOMO ANNUAL REPORT FY22 1 2 INDEPENDENT AUDITOR'S REPORT INDEPENDENT AUDITOR’S REPORT To the members of Atomo Diagnostics Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Atomo Diagnostics Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2022, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the Directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the Directors of the Company, would be in the same terms if given to the Directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 80 80 81 ATOMO ANNUAL REPORT FY22 Revenue recognition Key audit matter How the matter was addressed in our audit As disclosed in Note 3, the Group recognised revenue of $12,336,111 for the year ended 30 June 2022. Revenue was identified as a key audit matter as it is a key performance indicator to the users of the financial report. Our procedures, amongst others, include: - Reviewed whether the revenue recognition policies are in accordance with Australian Accounting Standards and the Group’s accounting policies described in Note 1; - Substantive testing around year end to ensure revenue is correctly recorded in the period to which it relates; - Performed controls testing around the process in place for revenue transactions; - Performed analytical procedures on material revenue streams and compared them against expectations; and - Selected a sample of revenue transactions during the year and substantively test to ensure revenue has been appropriately reflected in the financial statements for the year ended 30 June 2022. Carrying Value of Intangible Assets Key audit matter How the matter was addressed in our audit As at 30 June 2022, the Group recognised intangible assets with a carrying value of $3,574,690 as disclosed in Note 11. The valuation of intangible assets is significant to our audit because of the significant value in the Statement of Financial Position and the significant judgement required by management in assessing recoverability. The Group has determined the recoverable amount through a value-in-use calculation for the cash generating unit. This process is judgmental and based on management’s assumptions, specifically those in relation to growth rates, estimated expenditure and discount rates, which are affected by current and future markets. Our procedures, amongst others, include: - Obtained management’s value-in-use model and assessment of impairment; - Critically assessed the valuation and impairment analysis completed by management, including the reasonableness of the assumptions and estimates used to determine the recoverable amount of its intangible assets; - Together with BDO valuation specialists, assessed the reasonableness of the discount rates applied by management; - Where appropriate, considered the accuracy of the Group’s historical cash flow forecasts; and - Evaluated the sensitivity analysis applied to the discounted cash flow model to assess whether changes in the key assumptions would impact the recoverable amount of the intangible assets. Other information The Directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2022, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Atomo Diagnostics Limited, for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd Gareth Few Director 25 August 2022 Sydney 82 83 ATOMO ANNUAL REPORT FY22ATOMO ANNUAL REPORT FY22 1 3 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 31 August 2022. Number of security holders At the specified date, there were 8,387 holders of ordinary shares (quoted and unquoted) and 10 holders of options (unquoted) over ordinary shares. These were the only classes of equity securities on issue. DISTRIBUTION OF EQUITABLE SECURITIES Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Number of holders 297 3,452 1,504 2,662 472 8,387 Number of shares 186,186 9,371,629 12,192,195 88,421,255 460,719,726 570,890,991 EQUITY SECURITY HOLDERS Twenty largest holders of quoted ordinary shares The names of the twenty largest holders of quoted ordinary shares are listed below: Dalraida Holdings Pty Limited Global Health Investment Fund Walker Group Holdings Pty Ltd Hsbc Custody Nominees J P Morgan Nominees Australia Grand Challenges Canada Liverbird Pty Ltd Mr Xiaoyi Lin Mark Andrew Smith I D E Pty Ltd Mr Ian Fredrick Johnson John Michael Kelly Leo James Lynch & Judith Anne Beswick Australia North Holdings Pty Citicorp Nominees Pty Limited Ruth Karen Devney H & L Management Pty Ltd Sokolov Pty Ltd Rue Des Rocs Pty Ltd GZ Family Holdings Pty Ltd Total top 20 shareholders Ordinary shares Number held % of total share issued 65,120,000 64,811,280 37,660,718 16,426,792 14,768,406 11,390,824 10,931,653 9,500,000 7,790,224 7,542,816 7,506,080 7,370,248 7,321,121 6,500,000 5,923,014 5,626,408 4,050,000 4,031,888 3,735,843 3,448,616 11.41 11.35 6.60 2.88 2.59 2.00 1.91 1.66 1.36 1.32 1.31 1.29 1.28 1.14 1.04 0.99 0.71 0.71 0.65 0.60 301,455,931 52.80 84 84 85 ATOMO ANNUAL REPORT FY22VOTING RIGHTS The voting rights attached to ordinary shares are set out below: 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. There are no other classes of equity securities. UNMARKETABLE PARCELS There are 4,393 holders of an unmarketable parcel of shares based on the closing market price of $0.065 at the specified date. OTHER ASX REQUIRED INFORMATION During the period between admission to the Official List of ASX and the end of the reporting period, the Company used the cash and assets in a form readily convertible to cash that it had at the time of admission to the ASX, in a way consistent with its business objectives. This statement is made pursuant to ASX Listing Rule 4.10.19. SUBSTANTIAL HOLDERS* Substantial holders in the company as disclosed in substantial holding notices given to the Company are set out below: John Kelly Global Health Investment Fund LLC Walker Group Holdings Pty Ltd Ellerston Capital Limited Total substantial shareholders * Based on substantial holder notices lodged Ordinary shares Number held % of total shares issued 72,490,248 64,811,280 37,660,718 42,736,544 217,698,790 12.70 11.35 6.60 7.49 38.14 UNQUOTED RESTRICTED SECURITIES There are no unquoted restricted ordinary shares securities and unquoted options over ordinary shares as at 31 August 2022. OPTION HOLDING DISTRIBUTION Size of option holding 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Number of holders Number of options % of Issued Options - - - - 10 10 - - - - 13,746,664 13,746,664 - - - - 100 100 UNQUOTED OPTIONS OVER ORDINARY SHARES There were 13,746,664 unquoted options over ordinary shares on issue as follows: Unquoted options – description Options exercisable at 0.15625 expiring 11 Apr 2023 Options exercisable at $0.25 expiring various dates Options exercisable at $0.25 expiring on various dates Options exercisable at $0.40 expiring 30.4.2024 Options exercisable at $0.60 expiring 30.4.2024 Number of options 4,800,000 2,599,999 2,346,665 2,000,000 2,000,000 Number of holders 5 2 2 1 1 One option holder holds more than 20% of the unquoted options on issue. 86 87 ATOMO ANNUAL REPORT FY22ATOMO ANNUAL REPORT FY22 1 4 CORPORATE DIRECTORY Directors John Keith (Chair & Non-Executive Director) John Kelly (Managing Director & CEO) Curt LaBelle (Non-Executive Director) Paul Kasian (Non-Executive Director) Deborah Neff (Non-Executive Director) Company Secretary Tharun Kuppanda Registered office Principal place of business Share registry Auditor Solicitors Level 1 3 - 5 George Street Leichhardt NSW 2040 Tel: +61 2 9099 4750 Level 1 3 - 5 George Street Leichhardt NSW 2040 Tel: +61 2 9099 4750 Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Tel: 1300 554 474 BDO Audit Pty Ltd Level 11, 1 Margaret Street Sydney NSW 2000 HWL Ebsworth Lawyers Level 14, Australia Square 264 - 278 George Street Sydney NSW 2000 Stock exchange listing Atomo Diagnostics Limited shares are listed on the Australian Securities Exchange (ASX code: AT1) Website www.atomodiagnostics.com Corporate Governance Statement www.atomodiagnostics.com/governance 88 89 ATOMO DIAGNOSTICS LIMITED ACN 142 925 684 

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