BPH Energy Limited
Annual Report 2014

Plain-text annual report

HEALTH TECHNOLOGY RESOURCES 2014 A N N U A L R E P O R T Contents Chairman’s Letter Company Focus and Developments Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement 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 Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Securities Exchange Information Company Information 1 3 15 28 29 39 40 41 42 43 80 81 83 Directors David Breeze Chairman/Managing Director Registered Office 14 View Street North Perth WA 6006 Hock Goh Non-Executive Director Deborah Ambrosini Executive Director and Company Secretary Scientific Advisors Professor Peter Klinken Dr Robin Scaife Associate Professor David Liley Principal Business Address 14 View Street North Perth WA 6006 Telephone: (08) 9328 8366 Facsimile: (08) 9328 8733 www.bphenergy.com.au admin@bphenergy.com.au Auditor Nexia Perth Audit Services Pty Ltd Level 3, 88 William Street Perth WA 6000 Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 Australian Securities Exchange Listing Australian Securities Exchange Limited (Home Exchange: Perth, Western Australia) ASX Code: BPH Australian Business Number 41 095 912 002 HEALTH TECHNOLOGY RESOURCES Chairman’s Letter Dear Shareholder, The past year has been a tough year for all with difficult market conditions contributing to a moderate growth in the economy. However, in this challenging time BPH Energy has remained steady in the further development of its assets making difficult decisions where required. Advent Energy Ltd Cortical Dynamics Ltd During the year BPH has continued to maintain its oil and gas exploration investments through investee company Advent Energy Ltd (Advent Energy). During the period Cortical Dynamics continued with the development of the BAR monitor moving closer to its goal of commercialisation. In 2013 Cortical Dynamics completed its first human clinical trial using the complete BAR monitoring system within the operating room. The clinical trial, involving 25 patients undergoing elective coronary artery bypass surgery, was designed to evaluate the ability of the BAR monitor to distinguish between two different doses of the widely used intravenous Advent Energy received substantial independent confirmation of the Bonaparte Basin prospectivity for shale gas resource. A report titled Engineering energy: unconventional gas production by the Australian Council of Learned Academies (ACOLA) described a 6 trillion cubic feet shale gas resource for the onshore Bonaparte Basin. In energy equivalence, this was assessed as a resource of 1.09 billion barrels of oil equivalent. In August 2013 Advent Energy, through its wholly owned subsidiary Asset Energy Pty Ltd (Asset), settled the legal dispute involving Fugro Survey Pty Ltd (Fugro), RPS Energy Pty Ltd and Asset. This was settled at a court appointed mediation. The dispute arose over performance and fees in connection with pre-drilling site survey works conducted by Fugro at PEP11 in 2010. Asset settled Fugro’s claim of $2.2 million with a payment of $100,000. During the year Advent Energy continued with commercial discussions, planning and engineering evaluation for development of its gas resources in EP386 and RL1. It signed a letter of intent for gas supply and has maintained ongoing discussion on potential gas offtake agreements. In addition, Advent Energy has evaluated the optimum production process of CNG and LNG delivery of gas to mine sites and other potential customers. bph energy | ANNUAL REPORT 2014 1 Chairman’s Letter Cortical Dynamics Ltd (continued) analgesic fentanyl, in addition to assessing the immunity of the BAR monitor to a range of intra- operative mechanical and electrical artifacts known to complicate the EEG measurement of anaesthetic action. During the current year Cortical Dynamics principal scientist Dr Mehrnaz Shoushtarian was given the opportunity to present the findings of this trial at the American Society of Anesthesiologists annual meeting in San Francisco where it was well received by all who attended this notable event. The BAR monitor also received further confirmation recently when it was acknowledged in an article published in the ABC’s Health and Wellbeing. The article sought the thoughts of key opinion leaders in anaesthesiology and identified the BAR monitor as a new and novel method to monitor anaesthesia levels in the surgical patient. Molecular Discovery Systems Ltd BPH investee Molecular Discovery Systems (MDSystems) continued its drug discvery program during the year however; after careful consideration of general market conditions and of its available resources it was decided to temporarily suspend its early stage drug discovery program. MDSystems will however, continue its work with the Harry Perkins Institute of Medical Research (“Perkins Institute”) in relation to the tumour suppressor gene, HLs5. This collaboration is working to develop and validate HLs5 as a tumour suppressor. The team at the Perkins Institute have uncovered a role for HLs5 in leukaemia and breast cancer. HLs5, also known as TRIM 35, is a member of the family of tripartite motif (TRIM) containing proteins. Recent studies have indicated that several TRIM proteins function as important regulators in cancer development and progression. Research conducted at the Perkins Institute has shown that HLs5 has significant tumour suppressor properties. MDSystems will continue working with Professor Peter Klinken and his research group at the Perkins Institute with the aim of developing the HLs5 research to its full potential. We once again thank you for your continued support during a tough year and look forward to meeting the challenges head-on in 2015. Yours Sincerely, Mr David Breeze Chairman 2 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Company Focus and Developments Molecular Discovery Systems Drug Discovery and High-Content Screening Technology After careful consideration of general market conditions and of its available resources, Molecular Discovery Systems Limited (MDSystems) has decided to temporarily suspend its early stage drug discovery program. Although the Company has suspended its early stage drug discovery program, MDSystems is continuing its work with the Harry Perkins Institute of Medical Research (“Perkins Institute”) in relation to the tumour suppressor gene, HLs5. MDSystems will continue working with the Perkins Institute to develop and validate HLs5 as a tumour suppressor. MDSystems also has core expertise in high-content imaging and analysis. MDSystems’ owned IN Cell Analyser 1000 (GE Healthcare) is a semi-automated cellular imaging and analysis platform that combines high-resolution imaging and high-content analysis to provide a technology that rapidly detects and quantifies cellular properties much faster than conventional methods. MDSystems has developed and applied a range of high- content analysis protocols to analyse diverse cellular processes such as cell proliferation, cell cycle progression, apoptosis, cytoskeletal changes and dynamics of intracellular organelles. Screening of chemical libraries using high content imaging has become a powerful tool in drug discovery, widely used in the many stages of drug development. High-content screening (HCS) not only enables the end user to monitor the effects of drugs on complex molecular events but phenotypic changes of the whole cell can be observed. HCS thereby offers a valuable platform to identify modulators of a multitude of intractable molecular and cellular targets. Using high-content imaging and computational analyses MDSystems has previously screened for the effects of small molecules and natural extracts on cancer cell proliferation, these image-based drugs screening has now yielded several new compounds that potently inhibit cancer cell proliferation. In light of the encouraging results obtained previously using image-based drug screening, MDSystems has endeavoured to further develop and exploit this technology in an effort to identify new oncology drug candidates. By employing the semi-automated high-throughput imaging platform MDSystems has continued to develop a number of high content drug screens. These screens have identified compounds which have shown to interfere with a number of cancer associated signalling pathways. The identified compounds will require further optimisation before pre-clinical studies can be initiated. bph energy | ANNUAL REPORT 2014 3 Company Focus and Developments HLS5 Technology MDSystems is working with Professor Peter Klinken and his team at the Perkins Institute to develop and validate HLS5 as a novel tumour suppressor gene. A concerted research effort by leading Australian scientists has revealed that HLS5 works through multiple pathways that may target cancer as well as a range of other diseases such as Huntington’s, Parkinson’s and HIV infection. The team at the Perkins Institute have uncovered a role for HLs5 in leukaemia and breast cancer. HLs5, also known as TRIM 35, is a member of the family of tripartite motif (TRIM) containing proteins. Recent studies have indicated that several TRIM proteins function as important regulators in cancer development and progression. Research conducted at the Perkins Institute has shown that HLs5 has significant tumour suppressor properties. Their findings are supported by an independent publication implicating the role of HLs5 in cancer, demonstrating that the loss of Hls5 expression may be a critical event in liver cancer. MDSystems will continue working with Professor Peter Klinken and his research group at the Perkins Institute with the aim of developing the HLs5 research to its full potential. MDSystems has an extensive patent portfolio encapsulating the tumour suppressor gene HLS5 both as a potential therapeutic target and also underpinning its involvement in a variety of disease pathways. The patent portfolio surrounding HLS5 is currently going through the various stages of the patent application process in Australia, Europe and the US. The patent “Tumour Suppressor Factor” has been issued as a patent in the United States of America and Australia. Additionally, the patents titled ‘Sumoylation control agent and uses thereof’, ‘Agent for the treatment of hormone-dependent disorders and uses thereof’ and ‘Transcription factor modulator’ have been issued in Australia. 4 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Cortical Dynamics Limited BAR Technology Cortical Dynamics Limited (“Cortical”) is working with BPH and the Swinburne University of Technology (SUT) to develop and commercialise a unique depth of anaesthesia monitoring system for use during major surgery. The core technology is based on real time analysis of the patient’s brain electrical activity, electroencephalograph (EEG), using a proprietary algorithm based on a mathematically and physiologically detailed understanding of the brain’s rhythmic electrical activity. The theory developed by Professor David Liley, who heads the scientific team at Cortical, provides for the first time a meaningful way of relating brain electrical activity to the underlying physiological processes that generate EEG. Using this physiological approach Cortical has developed the Brain Anaesthesia Response (BAR) monitor, a monitor designed to better detect the effect of anaesthetic agents on brain activity and assist anaesthetists in keeping patients optimally anaesthetised. The BAR monitor distinguishes between changes in higher brain function that occur as result of anaesthetic action using two uniquely defined measures Cortical State (CS) and Cortical Input (CI). Cortical’s physiological approach is fundamentally different from all other devices currently available on the market which produce EEG indexes based on black boxed statistical approaches. Such data mining requires no physiological knowledge of how anaesthetic agents affect the brain. Cortical is confident that the BAR’s methodology and unique indicies will be a more sensitive measure of the state of the brain during anaesthesia than the current alternatives. Moreover, this unique physiological approach may allow the BAR monitor to be applied to markets beyond that of anaesthesia monitoring and may be applied to neuro-diagnostic applications, including the detection of the early onset of neurodegenerative diseases such as Alzheimer’s and Parkinson’s, and in development of drugs associated with these conditions. Funding received from a National Health and Medical Research Council Development Grant enabled substantial improvements in the performance of the BAR monitor. In particular, it has resulted in the development of a modified sensor layout having improved performance and sensitivity, as well as an upgrade of the data acquisition module to enable a greater resilience to the effects of noise and artefact in a range of clinical monitoring situations. Using data collected from a third party’s hardware, two clinical trials were initially completed to evaluate the BAR algorithm. The first trial was designed to test the sensitivity of a new method in quantifying the effect various levels of nitrous oxide have on measures of anaesthetic depth. The results were published in the peer reviewed international journal Computers in Biology and Medicine. The second trial was designed to evaluate the sensitivity of the BAR methodology to opioids and other intravenous anaesthetic drugs. These trials have provided evidence that the BAR algorithm is more sensitive than competitive monitors in detecting the effects of anaesthetics on brain activity. bph energy | ANNUAL REPORT 2014 5 Company Focus and Developments BAR Technology (continued) In order to corroborate the results of the trial above, a data set, from a similarly constructed trial, was obtained from Professor Michel Struys from the Department of Anaesthesia, Ghent University Hospital Belgium and Professor Tarmo Lipping from the Tampere University in Finland. The analysis of this European data set using the BAR’s methodology unambiguously indicated that the effects of remifentanil (a powerful synthetic opioid) and propofol (a widely used intravenous general anaesthetic agent) on brain electrical activity can be differentiated. These results suggest that analgesia and anaesthesia may be monitored independently using the EEG. The results of this analysis have been presented at the Australian and New Zealand College of Anaesthetists (ANZCA), and also published in the prestigious journal Anesthesiology in 2010. In what has already been a methodical validation process Cortical has completed its first human clinical trial using the BAR monitor end-to-end (from electrode to monitor). The aim of trial was to (a) evaluate the BAR monitor’s ability to distinguish between two doses of fentanyl, a commonly used analgesic agent, and (b) assess the immunity of the BAR monitor to a range of mechanical and electrical artifacts known to complicate EEG measurement. In the study a total of 25 patients undergoing coronary artery graft bypass surgery were recruited in to the trial. Significantly, the analysis concluded that CI could differentiate between the different doses of fentanyl while CS was well correlated with the Bispectral Index (BIS), a generally accepted measure of sedation. In addition this trial demonstrated the ability of the BAR monitor to operate effectively in an electrically noisy operating room environment. The trial’s findings suggest that the BAR monitor may find significant utility in the delivery of optimal and balanced surgical anaesthesia. The validation of the BAR monitor within the operating room is a significant step in the BAR’s development program. Cortical has partnered with the University of Melbourne in an Australian Research Council (ARC) Linkage Agreement. The project is using advanced computing methods applied to EEG recordings to track how the brain changes as a person undergoes general anaesthesia. Cortical anticipates the ARC project will add new processing capabilities to the BAR monitor, providing the framework for an improved depth of anaesthesia monitor. Cortical has 5 patent families that have all matured into National patent applications variously in Australia, Europe, New Zealand the United States, China and Japan. “Method of monitoring brain function” has been issued as a patent in New Zealand (541615), Australia (2004206763), Japan (4693763) and the United States (7937138). The patent “Brain Function Monitoring and Display System” has been issued in the People’s Republic of China (ZL200780027482.8), New Zealand (573460), Japan (5194290), Australia (2007257335) and the United States (8175696). Additionally, the patent “EEG Analysis System” has been issued in New Zealand (573459), Australia (2007257336), Japan (5194291)*, China (ZL200780027483.2) and the United States (8483815). The patent “Neurodiagnostic Monitoring and Display System” has been issued as a patent within Australia (2007354331). Cortical will continue to drive the development of the BAR monitor, maintain its intellectual property and concentrate on obtaining regulatory approval for the BAR monitor. * Due to a requirement of Japanese law the original patent application title of ‘EEG Analysis System’ was changed to ‘Method for displaying the activity of a brain and system for displaying the activity of the brain’. 6 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Diagnostic Array Systems Diagnostic Array Systems (DAS) has created the BacTrak™ System which is a diagnostic test for the detection of respiratory infections (e.g. diagnosis of pneumonia, Tuberculosis (TB) and Legionella disease). Our system identifies the cause of disease by testing for multiple bacteria in a single sputum sample quickly, efficiently and more accurately than current techniques. The test has important implications for the clinical management of infectious diseases by identifying the specific bacteria responsible for a disease and suggesting the most effective therapy. Utilisation of the novel test is intended to provide more information, quicker than alternative methods. It has the potential to accelerate therapeutic treatment, lead to a reduction in hospitalisations and help reduce the overuse of antibiotics. Amongst all infectious diseases, respiratory diseases are the most common illnesses in the world. They are highly contagious and are easily spread. The disease causing bacteria can remain in the air where they can easily reach other individuals by inhalation. The number of patients suffering from respiratory infections is increasing, as is the number of deaths caused by these diseases. DAS has completed its research with in-house validation and has held discussions with third parties to license the technology. BPH has assisted with funding the development of BacTrak™ which includes a number of key features that underpin its commercial potential. These include: • Rapid simultaneous detection of 16 respiratory pathogens including Tuberculosis (TB), Legionella, and Methicillin Resistant Staphylococcus Auus (MRSA). • Results within hours rather than days using the current culture gold standard. • Sensitivity and positive confirmation for the 16 pathogens from easily obtained clinical sputum samples. Direct benefits from the project development include: • Earlier, pathogen specific treatment; • Shorter length of hospital stay; • Earlier potential isolation of hospital patients; and • Reduction in the over-prescription of broad-spectrum antibiotics. The core technology underlying this multiplexed screening has been granted in the US, Australia and Japan. bph energy | ANNUAL REPORT 2014 7 Company Focus and Developments Advent Energy Western Australia / Northern Territory – Onshore Bonaparte Basin Advent Energy, through wholly owned subsidiary Onshore Energy Pty Ltd, holds 100% of each of EP386 and RL1 in the onshore Bonaparte Basin in northern Australia. The Bonaparte Basin is a highly prospective petroliferous basin, with significant reserves of oil and gas. Most of the basin is located offshore, covering 250,000 square kilometres, compared to just over 20,000 square kilometres onshore. Location of EP386 and RL1 including Weaber, Waggon Creek and Vienta gas fields, and other prospects and leads. Advent Energy holds Exploration Permit EP386 (2,568 square kilometres in area) which is the sole petroleum permit in the Western Australian section of the onshore Bonaparte Basin. Since 1960 twelve wells have been drilled in or near EP386 and only sixteen in the whole of the onshore basin, with a resultant excellent technical success rate of encountering hydrocarbons. Waggon Creek-1, drilled in 1995, provided strong evidence of a significant sweet gas-charged stratigraphic trap with fair to good quality sandstone reservoir within the upper Milligans Formation. Drilling of Vienta-1 in 1998 demonstrated numerous gas shows within Enga Sandstone units, with dry gas flowed to surface and visual porosity described in the cuttings. Both Waggon Creek-1 and Vienta-1 were cased and suspended for future production. 8 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Following application by Advent Energy, the WA Department of Mines & Petroleum granted a suspension of the condition requiring the completion of the Year 2 work by 31 March 2015. In the NT, Advent Energy holds Retention Licence RL1 (166 square kilometres in area), which covers the Weaber Gas Field, originally discovered in 1985. Advent Energy has previously advised that the 2C Contingent Resources* for the Weaber Gas Field in RL1 are 11.5 billion cubic feet (Bcf) of natural gas following an independent audit by RISC. Significant upside 3C Contingent Resources of 45.8 Bcf have also been assessed by RISC. The results are summarised below: Weaber Field Gas Initially In Place (Bcf) Contingent Resources (Bcf) 1C 0.33 0.25 2C 13.9 11.5 3C 54.1 45.8 Mean1 21.9 18.4 1 The mean is the average of the probabilistic resource distribution * Contingent Resources, as defined under the Society of Petroleum Engineers Petroleum Resource Management System (SPE PRMS) guidelines. bph energy | ANNUAL REPORT 2014 9 Company Focus and Developments Production testing at Waggon Creek-1 during 2012. The current rapid development of the Kununurra region in northern Western Australia, including the Ord River Irrigation Area phase 2, the township of Kununurra, and numerous regional resource projects provides an exceptional opportunity for Advent Energy to potentially develop its nearby gas resources. Advent Energy is in an exceptional position to potentially satisfy this growing regional demand where it remains the operator and 100% owner of key petroleum permits in this region. Unconventional Resources Within EP386 and RL1 The prospectivity of the Bonaparte Basin is evident from the known oil and gas fields in both the offshore and onshore portions of the basin. Advent Energy’s onshore EP386 and RL1 contain many large structures with conventional reservoir gas discoveries. Advent Energy has identified significant shale areas in EP386 and RL1 and is continuing to assess these resources. The following data illustrates detail from that study showing results from the re-analysis of the well logs from prior drilling in Advent Energy’s areas using enhanced computer processes. • Advent Energy has indicated significant potential upside in prospective shale gas resources with estimated unrisked original gas in place (OGIP) in the range from 19 Tcf to 141 Tcf for the 100% Advent Energy owned EP386 and RL1; • The thickness of the prospective shale gas play varies from 300m to over 1500m; • In addition to the existing gas discoveries in conventional petroleum reservoirs, composite wireline and mudlog gas display of these wells have consistently indicated the presence of continuous elevated gas shows. Source rock analyses on core, sidewall core and cuttings samples have indicated the presence of source rocks with up to 4.3 % Total Organic Carbon (TOC) and mature for gas and oil generation; and • Advent Energy has calculated 9.8 Tcf prospective resource (best estimate) for the shale gas areas of the Bonaparte permits of EP386 and RL1. The low estimate is 1.9 Tcf and the high estimate is 25.4 Tcf prospective resources. 10 bph energy | annual report 2014 Garimala-1: Elevated Gas Shows over Milligans-Langfield Section HEALTH TECHNOLOGY RESOURCES Example well composite log from Garimala-1 demonstrating elevated gas shows over a considerable shale sequence. Composite well logs from all onshore Bonaparte Basin wells demonstrate similar characteristics. Example well composite log from Garimala-1 demonstrating elevated gas shows over a considerable shale sequence. Composite well logs from all onshore Bonaparte Basin wells demonstrate similar characteristics. Advent Energy has recognised a considerable potential hydrocarbon resource and is working toward identifying and understanding the nature of the unconventional shale gas/condensate play in its 100% owned EP386 and RL1 permits. A recently published independent report has assessed the shale gas potential in Australia’s sedimentary basins, and has described a 6 trillion cubic feet (Tcf) resource for the onshore Bonaparte Basin, equal to a 1.09 billion barrels of oil equivalent (BOE) resource. The report, titled Engineering energy: unconventional gas production, as a study of shale gas in Australia was undertaken by the Australian Council of Learned Academies (ACOLA). The ACOLA resource assessment made in the onshore Bonaparte Basin was assessed from the Milligans Formation gas zone. In calculating the recoverable gas resource of 6 Tcf (over 1 billion BOE), the ACOLA report uses a figure of only 120 feet (36 metres) as a shale thickness. Advent Energy has previously analysed the well logs of 16 conventional wells drilled in its areas in the Bonaparte Basin. The thickness of the shales in these wells within the Milligans Formation varies from 300 metres to 1700 metres (984 feet to 5574 feet), and is materially thicker than the ACOLA figure. bph energy | ANNUAL REPORT 2014 11 Company Focus and Developments Unconventional Resources Within EP386 and RL1 (continued) The ACOLA report also used a TOC of 1.8% in deriving its assessment of shale source. Advent Energy has reprocessed its well logs and observed TOC of up to 5% in a number of wells. Gas flow results from the conventional gas wells in Advent Energy’s acreage have been up to 4.5 million standard cubic feet per day (MMscf/d). Whilst encouraging that one of Australia’s premier petroleum producing basins is finally getting the recognition it deserves for its rich petroleum potential, the report’s assessment of the onshore Bonaparte Basin’s shale gas potential has not had the benefit of using information now available from the reprocessed petrophysical logs from the numerous wells in the area. This additional information provides further confidence in their findings and impacts positively on the potential estimates of unconventional gas resources in the area. PEP11 Oil and Gas Permit Advent Energy, through wholly owned subsidiary Asset, holds 85% of Petroleum Exploration Permit PEP11 – an exploration permit prospective for natural gas located in the Offshore Sydney Basin. Joint Venture partner Bounty Oil & Gas NL holds the remaining 15%. PEP11 is a significant offshore exploration area with large scale structuring and potentially multi-Trillion cubic feet (Tcf) gas charged Permo-Triassic reservoirs. The prospectivity of this proven petroleum basin has been enhanced by the confirmation of the presence of apparent ongoing hydrocarbon seeps. Sub-bottom profile data, swath bathymetry, seismic and echosounder data collected by Geoscience Australia along the continental slope / permit margin has demonstrated active erosional features in conjunction with geophysical indications of gas escape. Gas flowing during production testing at Advent Energy’s Waggon Creek-1 well in EP386. 12 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Advent Energy has previously interpreted significant seismically indicated gas features. Key indicators of hydrocarbon accumulation features have been interpreted following review of the 2004 seismic data (reprocessed in 2010). The seismic features include apparent Hydrocarbon Related Diagenetic Zones (HRDZ), Amplitude Versus Offset (AVO) anomalies and potential flat spots. Mapped prospects and leads within the Offshore Sydney Basin are generally located less than 50km from the Sydney-Wollongong-Newcastle greater metropolitan area. This area has a population of approximately 5,000,000 people. Advent Energy has demonstrated considerable gas generation and migration within PEP11, with the mapped prospects and leads highly prospective for the discovery of gas. On 21 August 2013, Asset settled its dispute with Fugro Services Pty Ltd and RPS Energy following a court appointed mediation. The dispute between Asset, Fugro and RPS arose over performance and fees in connection with pre-drilling site survey works conducted by Fugro in PEP11 in 2010. Asset settled Fugro’s claim of $2.2 million with a payment of $100,000. Advent Energy has commenced preparations for seismic acquisition in PEP11 in the offshore Sydney Basin, offshore NSW. Pending the necessary regulatory approvals and contracting of a suitable seismic vessel, the survey is intended to take place over a 4 – 5 week period between November 2014 and May 2015. bph energy | ANNUAL REPORT 2014 13 Company Focus and Developments Western Australia – Exmouth Sub-Basin (EP325) Advent Energy Ltd has an 8.3% interest (Permit Operator: Strike Energy Ltd) in a shallow, near shore permit in the Exmouth sub-Basin region of the Carnarvon Basin, which contains the undeveloped Rivoli Gas Field. The Rivoli Gas Field contains approximately 6.8 – 18 PJ of gas. The permit also contains the Rivoli Deep prospect and other leads. The Joint Venture has applied to the Western Australian Department of Mines and Petroleum (DMP) for a conversion of the graticular blocks comprising Rivoli and nearby prospects and leads into a Retention Lease. 14 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Directors’ Report The directors of BPH Energy Ltd (”BPH Energy” or the “Company”) present their report on the company and its controlled entities for the financial year ended 30 June 2014. Directors The names of directors in office at any time during or since the end of the year are: D L Breeze G Gilbert (resigned 11 December 2013) H Goh D Ambrosini Company Secretary Ms Deborah Ambrosini continues in her role of Company Secretary. She also holds the position of Chief Financial Officer of the Company and has over 15 years’ experience in Corporate accounting roles. Principal Activities The principal activities of the consolidated entity during the financial year were investments in biotechnology entities and an oil and gas exploration entity. Operating Results The consolidated loss of the economic entity after providing for income tax was $1,266,079 (2013: loss $594,908). Dividends The directors recommend that no dividend be paid in respect of the current period and no dividends have been paid or declared since the commencement of the period. bph energy | ANNUAL REPORT 2014 15 Directors’ Report Review of Operations Investment in Oil and Gas Exploration Company Advent Energy Ltd (“ Advent Energy”): BPH Energy currently holds an interest of 27% in unlisted Australian exploration company Advent Energy (“Advent Energy”). Advent Energy has assembled a range of hydrocarbon permits which contain near term production opportunities with pre-existing infrastructure and exploration upside. Advent Energy’s assets include EP386 and RL1 (100%) in the onshore Bonaparte Basin in the north of Western Australia and Northern Territory, PEP11 (85%) in the offshore Sydney Basin and EP325 (8.3%) in the Exmouth Sub-basin of the Carnarvon Basin near Exmouth in WA. Advent Energy’s portfolio of assets has an estimated AUD $156m invested historically on exploration. Advent Energy is investigating a considerable potential shale gas resource within EP386 and RL1. Studies indicate significant potential upside in prospective shale gas resources with an estimated (Best Estimate) prospective recoverable resource of 9.8 Tcf (Low Estimate is 1.9 Tcf and High Estimate is 25.4 Tcf). A 2C Contingent Resource of 11.5 Bcf (1C is 0.3 Bcf and 3C is 45.8 Bcf) for the Weaber Gas Field (RL1) has been assessed by an independent third party as a component of Advent Energy’s drive to commercialise its 100% owned onshore Bonaparte Basin assets. The rapid development of the Kununurra region in northern Western Australia, including the Ord Irrigation Expansion Project and numerous resource projects, provides an exceptional opportunity for Advent Energy to potentially develop its nearby gas resources for the benefit of the region along with Advent Energy and its shareholders. The Sydney Basin is a proven petroleum basin with excellent potential for the discovery of gas and oil. Advent Energy has demonstrated an active hydrocarbon system with seeps reported in the offshore area and sampling has indicated the presence of thermogenic hydrocarbon gas. This is considered to occur in basins actively generating hydrocarbons and/or that contain excellent migration pathways. Previous drilling has shown that the early Permian geological sequence is mature for hydrocarbons. Undiscovered prospective recoverable gas resources for structural targets within the PEP11 offshore permit have been estimated at 5.7 Tcf (at the Best Estimate level). A Low Estimate of 0.3 Tcf and High Estimate of 67.8 Tcf has been assessed by Pangean Resources in 2010. PEP11 lies adjacent to the most populous region of Australia and the major industrial hub and port of Newcastle. 16 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Investment in Biotechnology Companies BPH Energy’s existing Biotechnology investments include its 3.89% interest in Cortical Dynamics Limited; 51.82% interest in Diagnostic Array Systems Pty Ltd and its 20% interest in Molecular Discovery Systems Limited. Molecular Discovery Systems Limited (”MDSystems”) Drug Discovery: To date, utilising the automated high resolution imaging platform, In-Cell analyzer, MDSystems has developed a number of high content drug screens. These screens have led to the identification of several compounds which have been shown to interfere with a number of cancer associated cell signalling pathways. However, during the year after careful consideration of general market conditions and available resources, MDSystems made a decision to temporarily suspend its early stage drug discovery program. This change was made effective from July 2014. HLs5 Project: MDSystems will continue working with the Harry Perkins Institute of Medical Research (formerly Western Australian Institute of Medical Research) (“Perkins Institute”) to develop and validate HLs5 as a novel tumour suppressor gene.  A concerted research effort by leading Australian scientists has revealed that HLs5 works through multiple pathways that may target cancer as well as a range of other diseases such as Huntington’s, Parkinson’s and HIV infection. MDSystems has an extensive patent portfolio encapsulating the tumour suppressor gene HLs5 both as a potential therapeutic target and also underpinning its involvement in a variety of disease pathways. Cortical Dynamics Limited (“Cortical Dynamics”): Cortical Dynamics is working with BPH Energy and the Swinburne University of Technology (”SUT”) to develop and commercialise a unique depth of anaesthesia monitoring system for use during major surgery.  The core technology is based on real time analysis of the patients electroencephalograph (EEG) using a proprietary algorithm based on a mathematically and physiologically detailed understanding of the brain’s rhythmic electrical activity. The Cortical Dynamics’ team lead by Professor David Liley had previously analysed a comprehensive data set obtained from Europe using the Brain Anaesthesia Response (“BAR”) methodology. The detailed results were published in the prestigious peer-reviewed international Journal of Anesthesiology, 2010. The paper indicated the potential of the BAR’s methodology to separately monitor hypnotic and analgesic state. Cortical Dynamics has completed its first clinical trial utilising the BAR monitor. The trial is a significant event in the BAR monitor’s development program as it is the first time the complete monitoring system has been used in the operating room. A detailed analysis of the clinical trial data indicated that the BAR monitor’s Cortical Input (CI) index can discriminate between two doses of fentanyl, a commonly used analgesic agent. The study also concluded that the BAR monitor’s Cortical State (CS) index was highly correlated with the Bispectral Index (BISTM), a generally accepted measure of sedation. The trial’s findings in combination with the results of the 2010 publication suggest that the BAR monitor may find significant utility in the delivery of optimal and balanced surgical anaesthesia. bph energy | ANNUAL REPORT 2014 17 Directors’ Report Review of Operations (continued) Investment in Biotechnology Companies (continued) Diagnostic Array Systems (“DAS”) DAS is working to develop and commercialise BacTrak™, a diagnostic tool that will enable pathology laboratories and the emergency departments of hospitals to provide patients with fast and accurate identification of disease causing bacteria from a single sputum sample.  The test has important implications for the clinical management of infectious diseases by identifying the specific bacteria responsible for a disease.  Utilisation of the novel test is intended to provide more information, more quickly, than alternative methods.  It has the potential to accelerate therapeutic treatment, lead to a reduction in hospitalisations and help reduce the overuse of antibiotics. Financial Position The net assets of the economic entity decreased by $1,249,999 to $46,947,298 at 30 June 2014. This has largely resulted from cash balances decreasing as BPH Energy continued to provide financial support to its investee companies MDSystems and Cortical Dynamics Ltd and the impairment of the company’s investment in MDSystems, due primarily to the temporary suspension of MDSystem’s drug discovery program. The consolidated entity has incurred losses for the year ended 30 June 2014 of $1,266,079 (2013: losses of $594,908) and has a net cash outflow from operating activities of $400,388 (2013: $412,426). The Group has a working capital deficit of $1,177,793 (See note 18 b) (2013: surplus of 1,838,120). Included in trade creditors and payables is director fee accruals of $806,902 (30 June 2013: $598,111). The directors have reviewed their expenditure and commitments for the consolidated entity and have implemented methods of costs reduction. The directors as a part of their cash monitoring, have voluntarily suspended cash payments for their directors’ fees to conserve cash resources. The group has current financial liabilities of $561,836. Subsequent to year end the Group has received confirmation from the lender that the current financial liabilities of $561,836 $ (2013: $502,978) will not be called for a period of 12 months from the date of this financial report or until such time as the Group it’s financially independent. The directors have prepared cash flow forecasts that indicate that the consolidated entity will have sufficient cash flows via debt and equity funding for a period of at least 12 months from the date of this report. Based on the cash flow forecasts and the monitoring of operational costs, the directors are satisfied that, the going concern basis of preparation is appropriate. The financial report has therefore been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. 18 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Significant Changes in State Of Affairs The major activities throughout the period were: • During the year Cortical Dynamics completed its first human clinical trial using the BAR monitoring system which was conducted at St Vincent’s Hospital, Melbourne. The findings of the St Vincent’s trial were presented at the 2013 Annual Scientific Meeting of the Australian and New Zealand College of Anaesthetists; • During the year Cortical Dynamics partnered with the University of Melbourne in an Australian Research Council (ARC) Linkage Agreement. Cortical expects the project will add new processing capabilities to the Brain Anaesthesia Response (BAR) monitoring system. This project will use advanced computing methods applied to electroencephalographic (EEG) recordings, to track how the brain changes as a person undergoes general anaesthesia during surgery. These methods will provide a framework for developing improved devices to monitor depth of anaesthesia; • A key patent family relating to the BAR monitor had applications granted in Australia and Japan, the patents were entitled ‘ Brain function monitoring and display system’; • A key patent family relating to the BAR monitor had three applications granted in China, Australia and Japan, the patents are from the patent family entitled ‘EEG Analysis System’;  • MDSystems signed a collaboration agreement with the Peter MaCallum Centre. The collaborative research program is aimed at the discovery and development of new cancer drugs that normalise the function of the key tumour suppressor p53; • Two Australian patents have been granted in the HLs5 patent portfolio. The issued patents are entitled ‘Agent for the treatment of hormone-dependent disorders and uses thereof’ and ‘Transcription factor modulator’; • BPH investee Advent Energy has commenced preparations for seismic acquisition in PEP11 in the offshore Sydney Basin, offshore NSW; • During the period, Advent Energy’s wholly owned subsidiary Asset Energy Pty Ltd applied to NOPTA for a 12 month suspension and extension of the Year 2 permit obligations for the key offshore Sydney Basin permit Petroleum Exploration Permit 11 (PEP11) The suspension and extension was being assessed at year end. • Following application by Advent Energy through its wholly owned subsidiary Onshore Energy Pty Ltd, the WA Department of Mines & Petroleum granted a suspension of the condition requiring the completion of the Year 2 work (one exploration well) by 31 March 2015 within EP386. EP386 lie in the onshore Bonaparte Basin, north-eastern Western Australia; and • A report titled Engineering energy: unconventional gas production by the Australian Council of Learned Academies (ACOLA) described a 6 trillion cubic feet (Tcf) shale gas resource for the onshore Bonaparte Basin. This assessment is equivalent to a resource of 1.09 billion barrels of oil equivalent (boe). After Balance Date Events There have not been any other matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations of the company, the results of those operations, or the state of affairs of the company in future financial years. Environmental Issues The consolidated group’s operations are not regulated by any significant environmental regulation under law of the Commonwealth or of a state or territory. bph energy | ANNUAL REPORT 2014 19 Directors’ Report Future Developments The entity will continue its investment in energy resources and to assist its investee companies to commercialise breakthrough biomedical research developed in universities, medical institutes and hospitals. Information on Directors D L Breeze Managing Director and Executive Chairman – Age 60 Shares held – 6,509,811 Unlisted Options held – 1,000,000 David is a Corporate Finance Specialist with extensive experience in the stock broking industry and capital markets. He has been a corporate consultant to Daiwa Securities; was formerly Manager of Corporate Services for Eyres Reed McIntosh and the State Manager and Associate Director for the stock broking firm BNZ North’s. David has a Bachelor of Economics and a Masters of Business Administration, and is a Fellow of the Financial Services Institute of Australasia, and a Fellow of the Institute of Company Directors of Australia. He has published in the Journal of Securities Institute of Australia and has also acted as an Independent Expert under the Corporations Act. He has worked on the structuring, capital raising and public listing of over 70 companies involving in excess of $250M. These capital raisings covered a diverse range of areas including oil and gas, gold, food, manufacturing and technology. David is Chairman of Grandbridge Limited, a publicly listed investment and advisory company and an Executive Director of MEC Resources Ltd, Advent Energy Ltd and Cortical Dynamics Limited. G Gilbert (resigned 11 December 2013) Non-Executive Director – Age 66 Shares held – nil Unlisted Options held – nil Greg is a specialist in strategy and planning and works in the health and aged care sector. He has a Masters in Science from Cranfield University in the UK and, in addition, has a Masters in Health Administration from La Trobe University, an MBA from Deakin University, a BA from the University of Queensland, and a Dip.App Sc from the Royal Military College Duntroon. Greg has an extensive background in merchant banking and banking, having held the positions of Global Head of Strategy and Finance and Project Director Global Credit Review with the National Australia Bank, as well as having worked in executive roles with Capel Court Investment Bank, CIBC Australia Limited and Bentley and Chau. Greg has also worked with the National Australia Bank as an Internal Consultant on strategic operational reviews with Mckinsey and Company and Booz Allen and Hamilton consultants. A former Lieutenant Colonel in the Australian Defence Force, he has extensive senior management experience in strategic planning, financial management, change management and project management as well as merchant banking and corporate advisory experience in mergers and acquisitions and valuations. 20 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES H Goh Non-Executive Director – Age 59 Shares held – 480,769 Unlisted Options held – nil Hock was formerly President of Network and Infrastructure Solutions, a division of Schlumberger Limited, based in London with revenue in excess of US$1.5 billion. He had global responsibility of Schlumberger’s outsourcing services, security, business continuity and networked related business units. Prior to that, Hock was President of Schlumberger Asia based in Beijing, China where he managed their Asian operations consisting of a broad range of services including oil field services, outsourcing, financial software and smartcards. Hock was responsible for US$800 million in revenue and more than 2,000 employees spread across 17 countries. In his 25 year career with Schlumberger, Hock held several other field and management responsibilities in the oil and gas industry spanning more than ten countries in Asia, the Middle East and Europe. Hock started as an oil field service engineer in Indonesia in 1980 before moving to Australia where he worked on rigs in Roma, Queensland, Bass Strait in Victoria and the Northwest Shelf, offshore Western Australia. Hock is also an operating partner with Baird Capital Partners, the U.S. based buyout fund of Baird Private Equity, providing change-of-control and growth capital to middle-market companies. Baird Private Equity has raised and managed $1.7 billion in capital. Hock is the Chairman of Netgain Systems, a network monitoring software provider. He also serves on the Board of Xaloy Holdings, a US based steel components manufacturer for the plastic industry, as well as an independent director of THISS Technologies Pte Limited, a Singapore based satellite communication provider. He received his B Eng (Hons) in Mechanical Engineering from Monash University, Australia. He also completed an Advanced Management Program at INSEAD/ France in 2004. Hock is Chairman of ASX listed company MEC Resources Ltd. D Ambrosini Executive Director – Age 40 Shares held – nil Unlisted Options held – 500,000 Deborah is a chartered accountant with over 15 years’ experience in accounting and business development spanning the biotechnology, mining, IT communications and financial services sectors. She has extensive experience both nationally and internationally in financial and business planning, compliance and taxation. Deborah is a member of the Institute of Chartered Accountants and was a state finalist in the 2009 Telstra Business Woman Awards. Deborah was also a recipient of the highly regarded 40 under 40 award held by WA Business News. Deborah is also a Director of ASX listed MEC Resources Ltd and Grandbridge Limited and unlisted entities Advent Energy Ltd, Cortical Dynamics Limited and Molecular Discovery Systems Limited. bph energy | ANNUAL REPORT 2014 21 Directors’ Report Remuneration Report (Audited) This report details the nature and amount of remuneration for key management personnel of BPH Energy. D L Breeze – Executive Chairman and Managing Director H Goh – Non Executive Director G Gilbert – Non Executive Director (resigned 11 December 2013) D Ambrosini – Executive Director and Company Secretary All the parties have held their current position for the whole of the financial year and since the end of the financial year unless otherwise stated. Remuneration Policy The remuneration policy of BPH Energy Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives as determined by the board and/or shareholders. The remuneration report as contained in the 2013 financial accounts was adopted at the Company’s 2013 annual general meeting. The board believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the economic entity, as well as create goal congruence between directors, executives and shareholders. The board’s policy for determining the nature and amount of remuneration for board members and senior executives of the economic entity is as follows: • The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed and approved by the board. • All executives receive a base salary (which is based on factors such as length of service and experience), superannuation, fringe benefits and options. • The board reviews executive packages annually by reference to the economic entity’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The performance of executives is measured against criteria agreed biannually with each executive and is based predominantly on the amount of their workloads and responsibilities for the company. The board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes to recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. The executive directors and executives which receive salaries receive a superannuation guarantee contribution required by the government, which is currently 9.50%, and do not receive any other retirement benefits. 22 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Shares given to directors and executives are valued as the difference between the market price of those shares and the amount paid by the director or executive. Options are valued using an appropriate valuation methodology. The board policy is to remunerate non executive directors at market rates for comparable companies for time, commitment and responsibilities. Payments to non-executive directors are based on market practice, duties and accountability. Independent external advice is sought when required on payments to non-executive directors. The maximum aggregate amount of fees that can be paid to non executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non executive directors are not linked to the performance of the economic entity. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in the employee option plan. The board does not have a policy in relation to the limiting of risk to directors and executives in relation to the shares and options provided. Employment contracts of key management personnel The employment conditions of the managing director and all of the key management personnel are formalised in contracts of employment. The employment contracts stipulate a six month resignation period. The Company may terminate an employment contract without cause by providing six months written notice or making payment in lieu of notice, based on the individual’s annual salary component together with a redundancy payment of six months of the individual’s fixed salary component. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the company can terminate employment at any time. Any options not exercised before or on the date of termination will lapse. The remaining directors are consultants to BPH Energy and each party can terminate their services by written notice. bph energy | ANNUAL REPORT 2014 23 Directors’ Report Details of Remuneration for the year ended 30 June 2014 The remuneration for each key management personnel of the consolidated entity during the year was as follows: 2014 Key Management Person D L Breeze G Gilbert H Goh D Ambrosini 2014 (continued) Short-term Benefits Post-employment Benefits Cash and fees Bonus Non-cash benefit Other Superannuation 148,000 10,416 25,000 25,000 - - - - - - - - - - - - - - - - Key Management Person Long-term Benefits Share-based payment Total Performance Related Other Equity Options $ - - - - - - - - - - - - 148,000 10,416 25,000 25,000 % - - - - D L Breeze G Gilbert H Goh D Ambrosini 2013 Compensation Relating to Options % - - - - Key Management Person Short-term Benefits Post-employment Benefits Cash and fees Bonus Non-cash benefit Other Superannuation D L Breeze G Gilbert H Goh D Ambrosini 148,000 25,000 25,000 25,000 - - - - - - - - - - - - - - - - 24 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES 2013 (continued) Key Management Person Long-term Benefits Share-based payment Total Performance Related D L Breeze G Gilbert H Goh D Ambrosini Other Equity Options $ - - - - - - - - - - - - 148,000 25,000 25,000 25,000 % - - - - Compensation Relating to Options % - - - - Company performance, shareholder wealth and director and executive remuneration The following table shows the gross revenue and the operating result for the last 5 years for the listed entity, as well as the share price at the end of the respective financial years. Analysis of the actual figures shows a slight decrease in the revenue from the previous year accompanied by an increase in the loss in the current year which can be attributed to the reduced tax credit calculated for the current year and the impairment of the company’s investment in MDSystems, due primarily to the temporary suspension of MDSystem’s drug discovery program. Actions have been taken by the Board to ensure that expenses remained constant or were reduced during the last 12 months with a focus on further significant reductions in the coming year. Revenue and other income 339,253 604,748 300,978 301,808 265,663 2010 2011 2012 2013 2014 Operating loss attributable to members of the company Share price at Year end Earnings per shares (cents) Share based payments: (208,785) (220,903) (739,165) (568,454) (1,253,563) $0.068 (0.80) $0.03 (0.13) $0.017 (0.41) $0.01 (0.33) $0.008 (0.73) The following are the share payments payment arrangement in existence during the year: Grant Date Date of Expiry Fair Value at Grant Date Exercise Price Vesting Date 24 December 2009 31 December 2014 $0.0266 $0.894 At grant date There were no grants of share based payment compensation to directors and senior management during the year. There were no grants of share based payment compensation to directors and senior management during the year. There are no further service or performance criteria that need to be met in relation to options granted. No options were granted or exercised during the year (2013:nil). End of remuneration report. bph energy | ANNUAL REPORT 2014 25 Directors’ Report Additional Information Meetings of Directors During the financial year, one meeting of directors was held. Attendances by each director during the year were: D L Breeze D Ambrosini G Gilbert H Goh Directors’ Meetings Number eligible to attend Number attended 1 1 1 1 1 1 1 1 Indemnifying Officers or Auditors During or since the end of the financial year the company has given an indemnity or entered an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: The company has paid premiums to insure each of the following directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the company, other than conduct involving a wilful breach of duty in relation to the company. The amount of the premium was $22,144. • D Breeze • D Ambrosini • H Goh The company has not indemnified the current or former auditor of the Company. Non-audit Services The board of directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: • all non-audit services are reviewed and approved by the board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and • the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. No fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2014 (2013: Nil). 26 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Options At the date of this report, the unissued ordinary shares of BPH Energy Ltd under option are as follows: Unlisted Options Grant Date Date of Expiry Exercise Price Number Under Option 25 September 2009 30 September 2014 24 December 2009 31 December 2014 21 January 2011 21 January 2016 1 July 2013 30 June 2018 $0.594 $0.894 $0.16 $0.08 75,000 1,500,000 325,000 1,075,000 During the year ended 30 June 2014 nil ordinary shares of BPH Energy Ltd were issued on the exercise of options granted under the BPH Energy Ltd Incentive Option Scheme (2013: Nil). No amounts are unpaid on any of the shares. No person entitled to exercise the option had or has any right by virtue of the option to participate in any share issue of any other body corporate. No shares or interest have been issued during or since the end of the financial year as a result of exercise of an option. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2014 has been received and can be found on page 28. The directors’ report is signed in accordance with a resolution of directors made pursuant to S298(2) of the Corporations Act 2001. David Breeze Dated this 13th August 2014 bph energy | ANNUAL REPORT 2014 27 Auditor’s Independence Declaration Lead auditor’s independent declaration under section 307C of the Corporations Act 2001. To the directors of BPH Energy Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2014 there has been: (i) no contraventions of the auditor’s independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Nexia Perth Audit Services Pty Ltd Amar Nathwani B.Eng, CA Director Perth 13 August 2014 28 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Corporate Governance Statement The Board of Directors of BPH Energy Limited (“BPH Energy” or “the Company”) (“Group”) is responsible for the corporate governance of the economic entity. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. To ensure that the Board is well equipped to discharge its responsibilities, it has established guidelines and accountability as the basis for the administration of corporate governance. Corporate Governance Disclosures BPH Energy Limited and the board are committed to achieving and demonstrating the highest standards of corporate governance. The board continues to review the framework and practices to ensure they meet the interests of shareholders. The company and its controlled entities together are referred to as the Group in this statement. Composition of the Board The composition of the Board is determined in accordance with the following principles and guidelines: • • • the Board should have at least one independent non-executive director; the Board should have at least one director with an appropriate range of qualifications and expertise; and the Board shall meet at regular intervals and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items. When a vacancy exists, through whatever cause, or where it is considered that the Board would benefit from the service of a new director with particular skills, the Board selects a candidate or panel of candidates with the appropriate expertise. The Board then appoints the most suitable candidate, who must stand for election at the next general meeting of shareholders. The Company does not have a formal Nomination Committee. Remuneration and Nomination Committees The Company does not have a formal Remuneration or Nomination Committee. The full Board attends to the matters normally attended to by a Remuneration Committee and a Nomination committee. Remuneration levels are set by the Company in accordance with industry standards to attract suitably qualified and experienced Directors and senior executives. Audit Committee The Company does not have a formal Audit Committee. The full Board carries out the functions of an Audit Committee. Due to the status of the Company and the relatively straight forward accounts of the Company anticipated in the financial year, the Directors believe that there presently would be no additional benefits obtained by establishing such a committee. The Board follows the Audit Committee Charter, a copy of which is available on request. bph energy | ANNUAL REPORT 2014 29 Corporate Governance Statement Board Responsibilities As the Board acts on behalf of and is accountable to the shareholders, it seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways. The responsibility for the operation and administration of the economic entity is delegated by the Board to the Managing Director. The Board ensures that the Managing Director is appropriately qualified and experienced to discharge his responsibilities, and has in place procedures to assess the performance for the Company’s officers, employees, contractors and consultants. The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. It has a number of mechanisms in place to ensure this is achieved, including the following: • Board approval of a strategic plan, designed to meet shareholder needs and manage business risk; • Implementation of operating plans and budgets by management and Board monitoring progress against budget; and • Procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense. Monitoring of the Board’s Performance In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all directors is to be reviewed annually by the chairperson. Directors whose performance is unsatisfactory are asked to retire. 30 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Best Practice Recommendation Outlined below are the 8 Essential Corporate Governance Principles as outlined by the ASX and the Corporate Governance Council. The Company has complied with the Corporate Governance Best Practice Recommendations except as identified below. Action taken and reasons if not adopted Principle 1: Lay solid foundations for management and oversight The relationship between the board and senior management is critical to the Group’s long-term success. The directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed. The responsibilities of the board include: • providing strategic guidance to the Group including contributing to the development of and approving the corporate strategy; • reviewing and approving business plans, and financial plans including major capital expenditure initiatives; • overseeing and monitoring: - organisational performance and the achievement of the Group’s strategic goals and objectives; and - progress of major capital expenditures and other significant corporate projects including any acquisitions or divestments; • monitoring financial performance including approval of the annual and half-year financial reports; • appointment, performance assessment and, if necessary, removal of the Managing Director; • ratifying the appointment and/or removal and contributing to the performance assessment for the members of the senior management team including the CFO and the Company Secretary (Deborah Ambrosini); • ensuring there are effective management processes in place and approving major corporate initiatives; • enhancing and protecting the reputation of the organization; and • overseeing the operation of the Group’s system for compliance and risk management reporting to shareholders. Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the board to the Managing Director and senior executives. bph energy | ANNUAL REPORT 2014 31 Corporate Governance Statement Action taken and reasons if not adopted Principle 2: Structure the board to add value The board operates in accordance with the broad principles set out in its charter. The charter details the board’s composition and responsibilities. The board seeks to ensure that : • at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the Group and directors with an external or fresh perspective; and • the size of the board is conducive to effective discussion and efficient decision-making. Directors’ independence The board has adopted specific principles in relation to directors’ independence. These state that when determining independence, a director must be a non-executive and the board should consider whether the director: • • is a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; is or has been employed in an executive capacity by the company or any other Group member within three years before commencing to serve on the board; • within the last three years has been a principal of a material professional adviser or a material consultant to the company or any other Group member, or an employee materially associated with the service provided; • has a material contractual relationship with the company or a controlled entity other than as a director of the Group; and • is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s independent exercise of their judgement. Materiality for these purposes is determined on both quantitative and qualitative bases. A transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the director’s performance. The board assesses independence each year. To enable this process, the directors must provide all information that may be relevant to the assessment. Board members Details of the members of the board, their experience, expertise, qualifications, term of office, relationships affecting their independence and their independent status are set out in the directors’ report under the heading ‘’Information on directors’’. At the date of signing the directors’ report, there is one non-executive director and two executive directors, two of whom have no relationships adversely affecting independence and so are deemed independent under the principles set out above. • Mr Breeze has business dealings with the Group as disclosed in note 25 to the financial report. 32 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Action taken and reasons if not adopted Term of office The company’s Constitution specifies that all non-executive directors must retire from office no later than the third annual general meeting (AGM) following their last election. Where eligible, a director may stand for re-election, subject to the following limitations: • on attaining the age of 72 years a director will retire, by agreement, at the next AGM and will not seek re-election. Chair and Managing Director The Chair is responsible for leading the board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating board discussions and managing the board’s relationship with the company’s senior executives. In accepting the position, the Chair has acknowledged that it will require a significant time commitment and has confirmed that other positions will not hinder his effective performance in the role of Chair. The Managing Director is responsible for implementing Group strategies and policies. The Chairman does not satisfy the Independence test as the role of the Chairman and the Managing Director is exercised by the same person. The board is of the opinion that the Chairman’s role as Chairman of the Board is appropriate given his experience and knowledge of the business. Committees The number of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2014, and the number of meetings attended by each director is disclosed on page 26. It is the company’s practice to allow its executive directors to accept appointments outside the company. No appointments of this nature were accepted during the year ended 30 June 2014. The Company is not of a size at the moment that justifies having a separate Nomination Committee. However, matters typically dealt with by such a committee are dealt with by the Board of Directors. Notices of meetings for the election of directors comply with the ASX Corporate Governance Council’s best practice recommendations. bph energy | ANNUAL REPORT 2014 33 Corporate Governance Statement Action taken and reasons if not adopted Principle 3: Promote ethical and responsible decision making The company has developed a statement of values which has been fully endorsed by the board and applies to all directors and employees. The Statement is regularly reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Group’s integrity and to take into account legal obligations and reasonable expectations of the company’s stakeholders. The Statement requires that at all times all company personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies. The Company’s share trading policy is set out on the Company’s website. The purchase and sale of company securities by directors and employees is monitored by the Board. The Company’s policy regarding diversity is set out on the Company’s website. The Company’s diversity policy does not include measurable objectives as the Board believes that the Company will not be able to successfully meet these given the size and stage of development of the Company. If the Company’s activities increase in size, nature and scope in the future, the suitable measurable objectives will be agreed and put into place. Notwithstanding this, the Company strives to provide the best possible opportunities for current and prospective employees of all backgrounds in such a manner that best adds to overall shareholder value and which reflects the values, principles and spirit of the Company’s Diversity Policy. The company is committed to Diversity and Equal Opportunity within its workforce placing particular focus on the level of gender diversity at senior levels of the organisation. The company ensures this is achieved by: • ensuring recruitment and selection practices enable the availability of a diverse candidate pool for appointments at senior levels; • development of high potential women; • implementation of flexible working arrangements; and • ensuring remuneration practices are free from gender bias. At conclusion of the reporting year, one of BPH Energy’s three directors is female. 34 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Action taken and reasons if not adopted Principle 4: Safeguard integrity in financial reporting Adopted except as follows:- The Company does not have a separate Audit Committee. The full Board carries out the functions of an Audit Committee. The Board has the authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. Due to the status of the Company and the relatively straight forward accounts of the Company, the Directors at the moment can see no additional benefits to be obtained by establishing such a committee. The Board follows the Audit Committee Charter, a copy of which is available on request. External auditors The Board’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. Nexia was appointed as the external auditor in 2012. It is the Corporation Act’s policy to rotate audit engagement partners on listed companies at least every five years. A partner should not be re-assigned to a listed entity audit engagement if this equates to the partner serving in this role for more than 5 out of 7 successive years. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the directors’ report and in note 5 to the financial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the Board. The external auditor will attend the annual general meeting and be available to answer shareholders’ questions about the conduct of the audit and the preparation and content of the audit report. The Company is not of a size at the moment that justifies having an internal audit division. bph energy | ANNUAL REPORT 2014 35 Corporate Governance Statement Action taken and reasons if not adopted Principle 5&6: Make timely and balanced disclosures and respect the rights of shareholders Continuous disclosure and shareholder communication The company has policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the company’s securities. These policies and procedures also include the arrangements the company has in place to promote communication with shareholders and encourage effective participation at general meetings. The Company Secretary has been nominated as the person responsible for communications with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. All information disclosed to the ASX is posted on the company’s website as soon as it is disclosed to the ASX. When analysts are briefed on aspects of the Group’s operations, the material used in the presentation is released to the ASX and posted on the company’s web site. Procedures have also been established for reviewing whether any price sensitive information has been inadvertently disclosed and, if so, this information is also immediately released to the market. All shareholders receive a copy of the company’s annual and half-yearly reports. In addition, the company seeks to provide opportunities for shareholders to participate through electronic means. Recent initiatives to facilitate this include making all company announcements, media briefings, details of company meetings, and financial reports available on the company’s website. 36 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Action taken and reasons if not adopted Principle 7: Recognise and manage risk The board and senior executives are responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. In summary, the company policies are designed to ensure strategic, operational, legal, reputational and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Group’s business objectives. Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of accountability and delegation of authority. The board actively promotes a culture of quality and integrity. The responsibility for the operation and administration of the economic entity is delegated by the board to the Managing Director. The board ensures that the Managing Director is appropriately qualified and experienced to discharge his responsibilities, and has in place procedures to assess the performance for the Company’s officers, employees, contractors and consultants. The board receives monthly updates as to the effectiveness of the company’s management of material risks that may impede meeting business objectives. The board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. It has a number of mechanisms in place to ensure this is achieved, including the following: • Board approval of a strategic plan, designed to meet shareholder needs and manage business risk; • Implementation of operating plans and budgets by management and board monitoring progress against budget; and • Procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense. Control procedures cover management accounting, financial reporting, project appraisal, IT security, compliance and other risk management issues. The Managing Director is required to ensure that appropriate controls are in place to effectively manage the identified risks. This is monitored by the board on a monthly basis. The environment Information on compliance with significant environmental regulations is set out in the directors’ report. Corporate reporting The Managing Director and CFO have made the following certifications to the board: • • • that the company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and Group and are in accordance with relevant accounting standards; that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board; and that the company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects in relation to financial reporting risks. bph energy | ANNUAL REPORT 2014 37 Corporate Governance Statement Action taken and reasons if not adopted Principle 8: Remunerate fairly and responsibly The Company is not of a size at the moment that justifies having a separate Remuneration Committee. However, matters typically dealt with by such a committee are dealt with by the board. The board makes specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. The board also reviews gender pay equity on an annual basis to ensure equality. Each member of the senior executive team signs a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. The standard contract refers to a specific formal job description. Further information on directors’ and executives’ remuneration, including principles used to determine remuneration, is set out in the directors’ report under the heading ‘’Remuneration report’’. In accordance with Group policy, participants in equity-based remuneration plans are not permitted to enter into any transactions that would limit the economic risk of options or other unvested entitlements. The board with the Managing Director also assumes responsibility for overseeing management succession planning, including the implementation of appropriate executive development programmes and ensuring adequate arrangements are in place, so that appropriate candidates are recruited for later promotion to senior positions. 38 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2014 Revenue from ordinary activities Other income Share of associates’ loss Impairment of investment in associate Administration expenses Advertising and Promotion expenses Consulting and Legal expenses Research and Development expenses Depreciation and amortisation expense Employee expense Insurance expenses Service Fees Other expenses Operating Loss Before Income Tax Income tax (expense) /benefit Operating Loss for the Period Other Comprehensive Income Items that will never be reclassified to profit or loss Items that are or may be reclassified to profit or loss Total Comprehensive loss for the period Operating loss attributable to non-controlling interests Operating Loss attributable to members of the parent entity Total Comprehensive loss attributable to owners of the Company Total Comprehensive loss attributable to non-controlling interests Earnings Per Share – Basic and diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. Note 2 2 13 13 3 3 Consolidated 2014 $ 151,563 114,100 2013 $ 187,708 114,100 (312,867) (562,945) (736,965) (109,486) - - (34,700) (1,815) (148,612) (159,867) (18,902) (49,840) (302) (800) (344,728) (336,365) (29,867) (35,907) (137,585) (137,585) (6,988) (8,744) (1,580,639) (1,026,760) 14 314,560 431,852 (1,266,079) (594,908) - - - - (1,266,079) (594,908) (12,516) (26,454) (1,253,563) (568,454) (1,253,563) (568,454) (12,516) (26,454) 6 (0.73) (0.33) bph energy | ANNUAL REPORT 2014 39 Consolidated Statement of Financial Position as at 30 June 2014 Consolidated 2014 $ 2013 $ Note 7 8 10 9 10 13 11 12 15 16 17 29 16 17 181,111 900,599 3,848 97,625 27,863 1,977 1,637,691 29,660 310,447 2,569,927 2,995,145 995,119 48,640,707 49,690,539 72,454 169 72,454 471 51,708,475 50,758,583 52,018,922 53,328,510 898,541 561,836 23,409 1,483,786 702,147 - 26,432 728,579 3,583,290 3,899,656 - 502,978 4,548 - 3,587,838 4,402,634 5,071,624 5,131,213 46,947,298 48,197,297 18 19 41,511,195 41,511,195 15,450,726 15,434,646 (9,896,412) (8,642,849) (118,211) (105,695) 46,947,298 48,197,297 Current Assets Cash and cash equivalents Trade and other receivables Financial Assets Other current assets Total Current Assets Non-Current Assets Financial assets Investments in associates Intangible assets Property, plant & equipment Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Financial liabilities Provisions Total Current Liabilities Non-Current Liabilities Deferred Tax liabilities Financial liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserve Accumulated losses Non-controlling interest Total Equity The accompanying notes form part of these financial statements. 40 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated Statement of Changes in Equity for the year ended 30 June 2014 Ordinary Share Capital $ Accumu- lated losses $ Option Reserve $ Note Consolidated Fair value Adjust- ment $ Total attributable to owners of the parent entity $ Non- controlling Interest $ Total $ Balance at 1 July 2012 41,511,195 (8,074,395) 416,590 15,015,000 48,868,390 (79,241) 48,789,149 Loss attributable to members of consolidated entity Other Comprehensive income (net of tax) Total Comprehensive income for the year Transactions with owners in their capacity as owners Employee options expense - - - - - (568,454) - (568,454) - - - - - - 3,056 - - - - - (568,454) (26,454) (594,908) - - - (568,454) (26,454) (594,908) - 3,056 - - - 3,056 Balance at 30 June 2013 41,511,195 (8,642,849) 419,646 15,015,000 48,302,992 (105,695) 48,197,297 Balance at 1 July 2013 41,511,195 (8,642,849) 419,646 15,015,000 48,302,992 (105,695) 48,197,297 Loss attributable to members of consolidated entity Other Comprehensive income (net of tax) Total Comprehensive income for the year Transactions with owners in their capacity as owners Employee options expense - - - - (1,253,563) - (1,253,563) - - - - - 16,080 - - - - - (1,253,563) (12,516) (1,266,079) - - - (1,253,563) (12,516) (1,266,079) 16,080 - 16,080 Balance at 30 June 2014 41,511,195 (9,896,412) 435,726 15,015,000 47,065,509 (118,211) 46,947,298 The accompanying notes form part of these financial statements. bph energy | ANNUAL REPORT 2014 41 Consolidated Statement of Cash Flows for the year ended 30 June 2014 Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Income taxes paid Interest received Consolidated 2014 $ 2013 $ Note - - (408,868) (448,802) (1,806) 10,286 - 36,376 Net cash used in operating activities 21 (400,388) (412,426) Cash Flows From Investing Activities Loans to related parties Repayments received Net cash used in investing activities Net decrease in Cash Held Cash At the Beginning Of The Financial Year Cash At The End Of The Financial Year The accompanying notes form part of these financial statements. (394,100) (485,899) 75,000 - (319,100) (485,899) (719,488) (898,325) 900,599 1,798,924 7 181,111 900,599 42 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Notes to the Financial Statements for the year ended 30 June 2014 1. Statement of Significant Accounting Policies Corporate Information The financial report includes the consolidated financial statements and the notes of BPH Energy Limited and its controlled entities (‘Consolidated Group’ or ‘Group’). BPH Energy Limited is a company incorporated and domiciled in Australia and listed on the Australian Securities Exchange. The financial report was authorised for issue on 13 August 2014 by the board of directors. Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards other authoritative pronouncements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001. BPH Energy Ltd is a for-profit entity for the purpose of preparing the financial statements. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report has been prepared on an accruals basis and is based on historical costs, modified, where stated below. Compliance with IFRS The consolidated financial statements of BPH Energy Limited Group comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Financial Position The consolidated entity has incurred losses for the year ended 30 June 2014 of $1,266,079 (2013: losses of $594,908) and has a net cash outflow from operating activities of $400,388 (2013: $412,426). The Group has a working capital deficit of $1,177,793 (See note 18 b) (2013: surplus of 1,838,120). Included in trade creditors and payables is director fee accruals of $806,902 (30 June 2013: $598,111). The directors have reviewed their expenditure and commitments for the consolidated entity and have implemented methods of costs reduction. The directors as a part of their cash monitoring, have voluntarily suspended cash payments for their directors’ fees for at least a period of 12 months to conserve cash resources. The group has current financial liabilities of $561,836. Subsequent to year end the Group has received confirmation from the lender that the current financial liabilities of $561,836 $ (2013: $502,978) will not be called for a period of 12 months from the date of this financial report or until such time as the Group is financially independent. The directors have prepared cash flow forecasts that indicate that the consolidated entity will have sufficient cash flows via debt and equity funding for a period of at least 12 months from the date of this report. Based on the cash flow forecasts and the monitoring of operational costs, the directors are satisfied that, the going concern basis of preparation is appropriate. The financial report has therefore been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. bph energy | ANNUAL REPORT 2014 43 Notes to the Financial Statements for the year ended 30 June 2014 1. Statement of Significant Accounting Policies (continued) Accounting Policies (a) Principles of Consolidation (i) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group 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 Group. They are deconsolidated from the date that control ceases. A list of controlled entities is contained in Note 20 to the financial statements. All controlled entities have a June financial year-end. As at reporting date, the assets and liabilities of all controlled entities have been incorporated into the consolidated financial statements as well as their results for the year then ended. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. The acquisition method of accounting is used to account for business combinations by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Changes in ownership interests Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. 44 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (b) Income Tax The charge for current income tax expense is based on the profit for the year adjusted for any non- assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the statement of financial position date. Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is recognised in the statement of comprehensive income except where it relates to items that may be recognised directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences or unused tax losses and tax credits can be utilised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. BPH Energy Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated Group under the tax consolidation regime. The Group notified the Australian Taxation Office on 30 June 2006 that it had formed an income tax consolidated Group to apply from 30 June 2006. The tax consolidated Group has entered a tax funding agreement whereby each company in the Group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated Group. Tax incentives The company may be entitled to claim special tax deductions in relation to qualifying expenditure. As the company is not in a position to recognise current income tax payable or current tax expense, a refundable tax offset will be received in cash and recognised as rebate revenue in the period the underlying expenses have been incurred. bph energy | ANNUAL REPORT 2014 45 Notes to the Financial Statements for the year ended 30 June 2014 1. (c) Statement of Significant Accounting Policies (continued) Property, Plant & Equipment Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation The depreciable amount of fixed assets is depreciated on a straight-line basis over their useful lives. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and equipment Depreciation Rate 15 - 33 % The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. 46 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (d) Financial Instruments Recognition and Initial Measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Classification and Subsequent Measurement (i) Financial assets at fair value through profit or loss Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of profit taking, where they are derivatives not held for cash flow hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost using the effective interest rate method. (iii) Available-for-sale financial assets Available-for-sale (AFS) financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. Listed shares held by the Group that are traded in an active market are classified as AFS and are stated at fair value. The Group also has investments in unlisted shares that are not traded in an active market but that are also classified as AFS financial assets and stated at fair value (because the directors consider that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. bph energy | ANNUAL REPORT 2014 47 Notes to the Financial Statements for the year ended 30 June 2014 1. (d) Statement of Significant Accounting Policies (continued) Financial Instruments (continued) Classification and Subsequent Measurement (continued) (v) Financial Liabilities Non-derivative financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and valuation models using non-market inputs prepared by independent experts. Impairment At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale equity financial instruments, a significant or prolonged decline in the value of the instrument below cost is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Assets carried at amortised cost For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan or held- to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. Assets classified as available-for-sale If there is objective evidence of impairment for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses on equity instruments that were recognised in profit or loss are not reversed through profit or loss in a subsequent period. If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. 48 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (e) Impairment of Assets The group reviews non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are 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. For the purpose of impairment testing, assets that cannot be tested individually 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 groups of assets (the “cash-generating unit” or “CGU”). An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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. (f) Investments in Associates Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the parent entity financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The equity method of accounting recognises the Group’s share of post-acquisition reserves of its associates. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the profit or loss, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s profit or loss, while in the consolidated financial statements they reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. bph energy | ANNUAL REPORT 2014 49 Notes to the Financial Statements for the year ended 30 June 2014 1. (f) Statement of Significant Accounting Policies (continued) Investments in Associates (continued) Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Where an investment is classified as a financial asset in accordance with AASB 139, at the date significant influence is achieved, the fair value of the investment needs to be assessed. Any fair value gains are recognised in accordance with the treatment the classification the financial asset as required by AASB 139. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. (g) Intangibles Research Expenditure during the research phase of a project is recognised as an expense when incurred. Patents and Trademarks Patents and trademarks are recognised at cost of acquisition. Patents and trademarks have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Patents and trademarks are amortised over their useful life of 10 years. (h) Employee Benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Short term employee benefits have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Long term employee benefits have been measured at the present value of the estimated future cash outflows to be made for those benefits. (i) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. (j) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position. 50 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (k) Revenue and Other Income Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable. Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from the rendering of a service is recognised by reference to the stage of completion of the contract. All revenue is stated net of the amount of goods and services tax (GST). (l) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (m) Trade and other payables Liabilities are recognized for amounts to be paid in the future for goods or services received, whether or not billed to the consolidated entity. The amounts are unsecured and are usually paid within 30 days. (n) Share based payments The fair value of options granted under the Company’s Employee Option Plan is recognized as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognized over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using an appropriate option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of financial position date, the entity revises its estimate of the number of options that are expected to vest. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital. (o) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, the directors (see Note 23). bph energy | ANNUAL REPORT 2014 51 Notes to the Financial Statements for the year ended 30 June 2014 1. (p) Statement of Significant Accounting Policies (continued) Earnings per share Basic earnings per share (EPS) is calculated as net profit/loss attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. 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 additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (q) Critical accounting estimates and judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. Key judgements — Provision for Impairment of Loans Receivables Included in the accounts of Consolidated entity are amounts from current loan receivables of $97,625 (2013: $1,637,691) and non-current loan receivables of $2,995,145 (2013: $941,679). The directors believe that the full amount of the debt will be recoverable from each entity and that no provision for impairment of receivables has been made at 30 June 2014. The directors obtained an independent expert’s valuation report at year end which supports the recoverable amount of loan receivables. The recoverable amount exceeded the carrying value of the loans and hence no impairment loss was recognised. Key Judgments —Impairment of Intangible Assets No impairment has been recognised in respect of intangible assets for the year ended 30 June 2014 (2013: $nil).  The directors believe that the carrying value of all intangibles is appropriate after reviewing the status of each entity’s developments. The directors are confident that the products will provide the necessary returns to the Company. Key Judgments —Provision for impairment of Investments in Associates The directors obtained an independent expert’s valuation report at year end which supports the recoverable amount of the investments in associates of $48,640,707 (2013: $49,690,539). Investment in Molecular Discovery Systems The recoverable amount of the investment in Molecular Discovery Systems Limited was less than the carrying amount of the investment and hence an impairment loss of $736,965 was recognised (2013 $nil) – refer to note 13. Investment in Advent Energy Ltd Refer to note 13. 52 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (r) Application of New and Revised Accounting Standards Standards adopted in the current year The group has adopted a number of new or revised accounting standards this year that have resulted in changes in accounting policies in the financial statements. (i) AASB 10 Consolidated Financial Statements, AASB 12 Disclosure of Interests in Other Entities (2011) AASB 10 Consolidated Financial Statements was issued in August 2011 and replaces the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements. The group has reviewed its investments in other entities to assess whether the conclusion to consolidate is different under AASB 10 than under AASB 127. No differences were found and therefore no adjustments to any of the carrying amounts in the financial statements are required as a result of the adoption of AASB 10. AASB 12 brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. AASB 12 requires the disclosure of information about the nature, risks and financial effects of these interests. The adoption of these standards has not had a significant impact. (ii) AASB 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and the guidance contained in a related interpretation, Interpretation 113 Jointly Controlled Entities – Non-Monetary Contributions by Venturers, has been incorporated in AASB 128 (as revised in 2011). AASB 11 deals with how a joint arrangement of which two or more parties have joint control should be classified and accounted for. Under AASB 11, there are only two types of joint arrangements – joint operations and joint ventures. The classification of joint arrangements under AASB 11 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. Previously, AASB 131 Interests in Joint Ventures contemplated three types of joint arrangements – jointly controlled entities, jointly controlled operations and jointly controlled assets. The classification of joint arrangements under AASB 131 was primarily determined based on the legal form of the arrangement (e.g. a joint arrangement that was established through a separate entity was accounted for as a jointly controlled entity). bph energy | ANNUAL REPORT 2014 53 Notes to the Financial Statements for the year ended 30 June 2014 1. (r) Statement of Significant Accounting Policies (continued) Application of New and Revised Accounting Standards (continued) Standards adopted in the current year (continued) (ii) AASB 11 Joint Arrangements (continued) The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures are accounted for using the equity method (proportionate consolidation is no longer allowed). Investments in joint operations are accounted for such that each joint operator recognises its assets (including its share of any assets jointly held), its liabilities (including its share of any liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation) and its expenses (including its share of any expense incurred jointly). Each joint operation accounts for the assets and, liabilities, as well as revenue and expenses, relating to its interest in the joint operation in accordance with the applicable Standards. During the period, the Company did not hold investments in joint arrangements and consequently, the new standard did not have any impact in the financial report. (iii) AASB 13 Fair Value Measurement (2011) AASB 13 Fair Value Measurement aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Australian Accounting Standards. The standard does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other Australian Accounting Standards. Previously the fair value of financial liabilities (including derivatives) was measured on the basis that the financial liability would be settled or extinguished with the counterparty. The adoption of AASB 13 has clarified that fair value is an exit price notion, and as such, the fair value of financial liabilities should be determined based on a transfer value to a third party market participant. As a result of this change, the fair value of derivative liabilities changed on transition to AASB 13, due to incorporating own credit risk into the valuation. As required under AASB 13, the change to fair value measurements on adoption of the standard is applied prospectively, in the same way as a change in an accounting estimate. Comparative amounts have not been restated. (iv) AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ This standard removes the individual key management personnel disclosure requirements in AASB 124 ‘Related Party Disclosures’ As a result the Group only discloses the key management personnel compensation in total and for each of the categories required in AASB 124. In the current year the individual key management personnel disclosure previously required by AASB 124 is now disclosed in the remuneration report due to an amendment to Corporations Regulations 2001 issued in June 2013. Standards in issue not yet adopted A number of new standards and amendments to standards are effective for annual periods beginning after 1 July 2013, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. 54 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (i) AASB 9 Financial Instruments (2010), AASB 9 Financial Instruments (2009) AASB 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under AASB 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. AASB 9 (2010) introduces additional changes relating to financial liabilities. The IASB currently has an active project that may result in limited amendments to the classification and measurement requirements of AASB 9 and add new requirements to address the impairment of financial assets and hedge accounting. AASB 9 (2010 and 2009) are effective for annual periods beginning on or after 1 January 2017 with early adoption permitted. The standard is not expected to have a material impact on the group financial instruments. (ii) AASB 1031 Materiality (2013) The revised AASB 1031 is an interim standard that cross-references to other Standards and the Framework for the Preparation and Presentation of Financial Statements (issued December 2013) that contain guidance on materiality. The AASB is progressively removing references to AASB 1031 in all Standards and Interpretations, and once all these references have been removed, AASB 1031 will be withdrawn. The revised AASB 1031 is effective from 1 January 2014 and early adoption is not permitted. AASB 1031 (2013) is effective for annual periods beginning on or after 1 January 2014 and not available for early adoption. (iii) AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments The AASB approved amending Standard AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments on 20 December 2013. AASB 2013-9 incorporates the IASB’s Standard IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39). Part A of AASB 2013-9 makes consequential amendments arising from the issuance of AASB CF 2013-1 Amendments to the Australian Conceptual Framework. Part B mainly makes amendments to particular Australian Accounting Standards to delete references to AASB 1031. Part C makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge Accounting into AASB 9 Financial Instruments. The main amendments regarding financial instruments are as follows: - - - to add Hedge Accounting and make consequential amendments to AASB 9 and numerous other Standards; to permit requirements relating to the ‘own credit risk’ of financial liabilities measured at fair value to be applied without applying any other requirements of AASB 9 at the same time; and to amend the mandatory application date of AASB 9 so that AASB 9 is required to be applied for annual reporting periods beginning on or after 1 January 2017 instead of 1 January 2015. AASB 2013-9 is effective for annual periods beginning on or after 1 January 2014. bph energy | ANNUAL REPORT 2014 55 Notes to the Financial Statements for the year ended 30 June 2014 2. Revenue Revenue Interest revenue cash accounts Interest revenue: other entities Other income Consultancy fees 3. Expenses Included in Loss for the year Depreciation - Depreciation Employee costs - Salary - Superannuation - Director fees - Share based payments - Other payroll costs Total employee costs Consolidated 2014 $ 2013 $ 10,286 141,277 151,563 36,376 151,332 187,708 114,100 114,100 114,100 114,100 302 800 201,095 15,622 110,416 16,080 1,515 187,933 14,015 125,000 3,056 6,361 344,728 336,365 56 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES 4. Key Management Personnel Compensation Names and positions held of economic and parent entity key management personnel in office at any time during the financial year are: Key Management Personnel D L Breeze – Executive Chairman H Goh – Non-Executive Director G Gilbert – Non-Executive Director (resigned 11 December 2013) D Ambrosini – Executive Director and Company Secretary Short term employee benefits Consolidated 2014 $ 208,416 208,416 2013 $ 223,000 223,000 Key management personnel remuneration has been included in the Remuneration report section of the Directors Report. Options and Rights Holdings 2014 Number of Options Held by Key Management Personnel Balance 1.7.2013 Granted as Compen- sation Options Exercised Net Change Other* Balance 30.6.2014 Total Vested 30.6.2014 Total Exercisable and Vested 30.6.2014 Total Unexercis- able 30.6.2014 D L Breeze 1,000,000 G Gilbert H Goh - - D Ambrosini 500,000 - - - - - - - - - - - - 1,000,000 1,000,000 1,000,000 - - - - - - 500,000 500,000 500,000 - - - - 2013 Number of Options Held by Key Management Personnel Balance 1.7.2012 Granted as Compen- sation Options Exercised Net Change Other * Balance 30.6.2013 Total Vested 30.6.2013 Total Exercisable and Vested 30.6.2013 Total Unexercis- able 30.6.2013 D L Breeze 1,000,000 G Gilbert H Goh - - D Ambrosini 1,000,000 - - - - - - - - - - - 1,000,000 1,000,000 1,000,000 - - - - - - (500,000) 500,000 500,000 500,000 - - - - *The Net Change Other reflected above includes those options that have been forfeited by holders, directors that have resigned, options that have expired and recompliance of holdings during the year. bph energy | ANNUAL REPORT 2014 57 Notes to the Financial Statements for the year ended 30 June 2014 4. Key Management Personnel Compensation (continued) Shareholdings 2014 Number of Shares Held by Key Management Personnel D L Breeze G Gilbert H Goh D Ambrosini Balance 1.7.2013 6,509,811 480,769 480,769 - Received as Compensation Options Exercised Net Change Other Balance 30.6.2014 - - - - - - - - - (480,769) - - 6,509,811 - 480,769 - 2013 Number of Shares Held by Key Management Personnel D L Breeze G Gilbert H Goh D Ambrosini Balance 1.7.2012 6,509,811 480,769 480,769 - Received as Compensation Options Exercised Net Change Other Balance 30.6.2013 - - - - - - - - - - - - 6,509,811 480,769 480,769 - *The Net Change Other reflected above includes those shares of directors that have resigned during the year. 5. Auditors’ Remuneration Remuneration of the auditor of the parent entity for: - auditing or reviewing the financial report Nexia Perth Audit Services Consolidated 2014 $ 2013 $ 37,655 37,655 34,000 34,000 58 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated 2014 $ 2013 $ (1,253,563) (568,454) (1,253,563) (568,454) (0.73) (0.73) (0.33) (0.33) 6. Earnings per share For basic and diluted Earnings Per Share Total earnings per share attributable to ordinary equity holders of the company Earnings used in the calculation of basic earnings per share and diluted earnings per share For basic and diluted Earnings Per Share From continuing operations Total Basic Earnings per Share and Diluted Earnings per Share Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS and diluted EPS No. 172,562,245 No. 172,562,245 7. Cash and cash equivalents Cash at Bank and in hand Short-term bank deposits Reconciliation of cash Consolidated 2014 $ 2013 $ 173,133 892,836 7,978 7,763 181,111 900,599 Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash and cash equivalents 181,111 900,599 bph energy | ANNUAL REPORT 2014 59 Notes to the Financial Statements for the year ended 30 June 2014 8. Trade and other receivables Current Other receivables 9. Other Assets Prepaid insurance 10. Financial Assets Loans and receivables at amortised cost Current Unsecured Loans to other entities: (a) Grandbridge Limited MEC Resources Limited Advent Energy Ltd Secured Loans to other entities: (b) Cortical Dynamics Limited Molecular Discovery Systems Limited Non - Current Loans and receivables at amortised cost Unsecured Loans to other entities: (a) Cortical Dynamics Limited Molecular Discovery Systems Limited Secured Loans to other entities: (b) Cortical Dynamics Limited Molecular Discovery Systems Limited Available for sale financial assets at fair value Investments in unlisted entities (c) 60 bph energy | annual report 2014 Consolidated 2014 $ 2013 $ 3,848 3,848 1,977 1,977 27,863 27,863 29,660 29,660 55,645 2,494 39,486 55,645 2,494 39,486 - - 1,142,376 397,690 97,625 1,637,691 485,070 575,200 485,070 461,100 1,469,827 416,099 - - 48,949 2,995,145 48,949 995,119 HEALTH TECHNOLOGY RESOURCES (a) Unsecured loans These loans to other entities are non-interest bearing and payable on demand. The company has, however, issued letters to these entities confirming that they will not call upon their loans for at least 12 months from signing the financial report or until such time the company is financially independent. (b) Secured loans These loans are secured by a charge over all of the assets and undertakings of each entity and interest bearing. Subject to the conditions of the agreement BPH Energy has the right to conversion to satisfy the debt on or before the termination date. The company has a convertible loan agreement with MDSystems. The loan is for a maximum amount of $500,000 and is to be used for short term working capital requirements. Subject to MDSystems being admitted to the Official list, BPH Energy has a right of conversion to satisfy the debt on or before the termination date. As at reporting date the loan had been drawn down by an amount of $416,099 (2013: $397,690). The company has two convertible loan agreements with Cortical Dynamics. One loan is for a maximum amount of $500,000 and is to be used for short term working capital requirements. Subject to Cortical being admitted to the Official list, BPH Energy has a right of conversion to satisfy the debt on or before the termination date. As at reporting date the loan had been drawn down by an amount of $464,561 (2013: $479,371). On 28th February 2012 BPH Energy entered into a second convertible loan agreement with Cortical Dynamics. The facility is for a maximum amount of $1,000,000 and has an annual interest rate of 9.40%. The loan will be used for short term working capital requirements and funding further development of the BAR monitor. The loan is convertible at BPH’s election if Cortical is unsuccessful in its application for admission to the Official List. As at reporting date the loan had been drawn down by an amount of $1,005,266 (2013: $663,005). (c) Available for sale financial assets at fair value Cortical Dynamics Limited Consolidated 2014 $ 48,949 48,949 2013 $ 48,949 48,949 bph energy | ANNUAL REPORT 2014 61 Notes to the Financial Statements for the year ended 30 June 2014 11. Intangible assets Patent costs capitalised Cost Accumulated amortisation and impairment Net carrying value Total intangibles Patent costs include all costs associated with the filing and maintenance of the patents for the company’s technologies. 12. Property, Plant and Equipment Plant and Equipment: At cost Accumulated depreciation Total Property, Plant and Equipment (a) Movements in Carrying Amounts Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. Consolidated 2014 $ 2013 $ 72,454 72,454 - 72,454 72,454 - 72,454 72,454 41,486 (41,317) 169 41,486 (41,015) 471 Balance at the beginning of the year 471 1,271 Additions Disposals Depreciation expense Carrying amount at the end of the year - - (302) 169 - - (800) 471 62 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated 2014 $ 2013 $ 48,028,838 48,296,464 611,869 1,394,075 48,640,707 49,690,539 13. Investments accounted for using the equity method Shares in Associates Advent Energy Limited Molecular Discovery Systems Limited Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Name of Entity Ownership Interest % 2014 2013 Country of Incorporation Principal Activity Molecular Discovery Systems Limited Australia 20% 20% Biomedical Research Advent Energy Limited Australia 27% 27% Oil and Gas Exploration The consolidated group’s associate, Advent Energy Ltd, has commitments for its exploration permits of $3,997,500 over the next 12 months. To assist in meeting these commitments Advent Energy is continually seeking and reviewing potential sources of both equity and debt funding. Advent Energy is currently in negotiations with a number of parties on the terms of investment, however there is no certainty at this stage that those discussions will result in further funding being made available. Advent Energy’s wholly owned subsidiary, Asset Energy, has lodged an application with the National Offshore Petroleum Titles Administrator (“NOPTA”) to suspend the year 2 work commitment for Petroleum Exploration Permit 11(“PEP11”) and request a subsequent extension of the permit term. Asset is currently required to complete 200km of 2D seismic within the PEP11 area by 12 August 2014. Asset recently announced that it has commenced preparations for seismic and it is intending to perform a 3D seismic survey of approximately 225 km2 over a 4 – 5 week period between November 2014 and May 2015.The application for deferral is currently being assessed by NOPTA. In addition, Advent Energy is committed to drill an exploration well by March 2015 for EP386. These 2 commitments comprise the significant balance of $3,997,500. While management is confident the commitments under the exploration permits or as varied by the relevant authorities will be met, the above conditions indicate the uncertainty that may affect the ability of the group to realise the carrying value of the group’s investment in Advent Energy in the ordinary course of business. bph energy | ANNUAL REPORT 2014 63 Notes to the Financial Statements for the year ended 30 June 2014 13. Investments accounted for using the equity method (continued) (a) Summarised financial information of associates The results of its associates aggregated assets (including goodwill) and liabilities, including the group’s share of net assets and net loss for the period are as follows: Total of Associate Reconciliation to the Carrying Amount Current Assets Non- Current Assets Current Liabilities Non- Current Liabilities Reve- nues Loss for the Year Total Compre- hensive Loss for the Year Net Assets of Asso- ciate Owner- ship interest % Goodwill Carrying Amount of the Group’s Interest Other Adjust- ments* 2014 Molecular Discovery Systems Limited 172,838 393,585 455,623 803,083 56,000 (226,207) (226,207) (138,457) 20 1,487,291 (736,965) 611,869 172,838 393,585 455,623 803,083 56,000 (226,207) (226,207) (138,457) 1,487,291 (736,965) 611,869 Advent Energy Ltd 259,999 29,843,078 1,143,34 3,600,000 12,364 (989,727) (989,727) 6,950,089 27.4 19,628,749 21,450,000 48,028,838 259,999 29,843,078 1,143,34 3,600,000 12,364 (989,727) (989,727) 6,950,089 27.4 19,628,749 21,450,000 48,028,838 2013 Molecular Discovery Systems Limited 218,752 465,300 431,705 718,425 128,000 (198,589) (198,589) (93,216) 20 1,487,291 218,752 465,300 431,705 718,425 128,000 (198,589) (198,589) (93,216) 1,487,291 - - 1,394,075 1,394,075 Advent Energy Ltd 1,768,195 29,871,792 5,297,962 1,768,195 29,871,792 5,297,962 - - 80,866 (2,209,604) (2,209,604) 7,217,715 27.4 19,628,749 21,450,000 48,296,464 80,866 (2,209,604) (2,209,604) 7,217,715 27.4 19,628,749 21,450,000 48,296,464 * Other adjustments comprise: Molecular Discovery Systems Ltd – Impairment Loss: At 30 June 2014, the directors obtained an independent expert’s valuation report which indicated that the carrying value of BPH’s investment was impaired. Accordingly, an adjustment for the difference in the carrying value and fair value of BPH’s investment in MDS was recognised this year. Advent Energy Ltd – Revaluation Gain: In 2010, BPH performed a step acquisition of Advent Energy to eventually hold a significant influence (20%) in the company. At the time that Advent Energy was first recognised as an associate, the increase in fair value was recognised through other comprehensive income. 64 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated 2014 $ 2013 $ 1,806 - - - (316,366) (431,852) (314,560) (431,852) (54,350) - (262,016) (431,852) (316,366) (431,852) (474,192) (308,028) 4,609 (1,806) 58,309 98,520 6,127 - - (129,951) 14. Income Tax Expense (a) The components of tax expense/(benefit) comprise: Adjustments recognised in the current year in relation to the current tax of prior years Current tax Deferred income tax credit Deferred income tax (credit)/expense included in income tax expense comprises: Increase in deferred tax assets (note 29) Decrease in deferred tax liabilities (note 29) (b) The prima facie tax on profit from operations before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from operations before income tax at 30% (2013: 30%) Add tax effect of: Non deductible expenses Tax benefit of revenue losses not recognised Effect of previously unrecognised and unused tax losses now recognised as deferred tax assets Temporary differences Income tax expense/(benefit) recognised (314,560) (431,852) (c) Income tax expense recognised in other comprehensive income Fair value gain adjustments (d) Current tax liabilities Income tax - - - - - - - - bph energy | ANNUAL REPORT 2014 65 Notes to the Financial Statements for the year ended 30 June 2014 15. Trade and other payables Trade payables Sundry payables and accrued expenses 16. Financial Liabilities Current Current borrowings – unsecured Non - Current Non - Current borrowings – unsecured 17. Provisions Employee entitlements: Opening balance at 1 July 2013 Reduction/addition to provision Balance at 30 June 2014 Current Non-Current Consolidated 2014 $ 2013 $ 24,183 874,358 898,541 32,236 669,911 702,147 561,836 561,836 - - - - 502,978 502,978 26,432 1,525 20,072 6,360 27,957 26,432 23,409 4,548 27,957 26,432 - 26,432 Provision for Employee Entitlements Provisions have been recognised for employee entitlements relating to annual leave. The measurement and recognition criteria relating to employee benefits has been included in Note 1 to this report. 66 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Consolidated 2014 $ 2013 $ 18. Issued Capital 172,562,245 (2013: 172,562,245) fully paid ordinary shares 41,511,195 41,511,195 The Company has no authorised capital and the issued shares do not have a par value. Consolidated Consolidated 2014 $ 2013 $ 2014 No. 2013 No. (a) Ordinary Shares At the beginning of reporting period 41,511,195 41,511,195 172,562,245 172,562,245 At reporting date 41,511,195 41,511,195 172,562,245 172,562,245 Capital Raising There were nil options exercised during the year (2013: nil). Fully Paid Ordinary Share Capital Fully paid ordinary shares carry one vote per share and carry the right to dividends. Options There were 2,975,000 employee options on issue at the end of the year: Total number Exercise price Expiry date 75,000 1,500,000 325,000 1,075,000 2,975,000 $0.594 $0.894 $0.160 $0.080 30 September 2014 31 December 2014 21 January 2016 30 June 2018 The market price of the company’s ordinary shares at 30 June 2014 was 0.008 cents. The holders of options do not have the right, by virtue of the option, to participate in any share issue or interest issue of any other body corporate or registered scheme. bph energy | ANNUAL REPORT 2014 67 Notes to the Financial Statements for the year ended 30 June 2014 18. Issued Capital (continued) (b) Capital risk management The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they may continue to provide returns for shareholders and benefits for other stakeholders. The focus of the Group’s capital risk management is the current working capital position against the requirements of the Group to meet corporate overheads. The Group’s strategy is to ensure appropriate liquidity is maintained to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The working capital position of the Group at 30 June 2014 and 30 June 2013 are as follows: Cash and cash equivalents Trade and other receivables Trade payables and financial liabilities Working capital position* *Refer to note 1 for further details of the Group’s financial position and plans to manage the working capital deficit at 30 June 2014. 19. Reserves Options Reserve (a) Asset Revaluation Reserve (b) (a) Option Reserve The option reserve records items recognized as expenses on the valuation of Director and Employee share options. Reconciliation of movement Opening balance Option charges during the year Closing balance (b) Asset Revaluation Reserve The asset revaluation reserve records the revaluation of available for sale investments to fair value. Opening balance Available for sale asset revalued to fair value (net of tax) Closing balance 68 bph energy | annual report 2014 Consolidated 2014 $ 2013 $ 181,111 900,599 101,473 1,639,668 (1,460,377) (702,147) (1,177,793) 1,838,120 435,726 419,646 15,015,000 15,015,000 15,450,726 15,434,646 419,646 16,080 435,726 416,590 3,056 419,646 15,015,000 15,015,000 - - 15,015,000 15,015,000 HEALTH TECHNOLOGY RESOURCES 20. Controlled Entities Name of Entity Principal Activity Country of Incorporation Ownership Interest % 2014 2013 Parent Entity BPH Energy Ltd Subsidiaries of BPH Energy Ltd Diagnostic Array Systems Pty Ltd Investment Australia BioMedical Research Australia 51.82 51.82 21. Cash Flow Information (a) Reconciliation of Cash Flow from Operations with Profit after income tax Operating loss after income tax Non-cash flows in profit: Depreciation and amortisation Interest Revenue Share based payment expense Intercompany recharges Share of Associates’ Losses Impairment of investment in associate Changes in net assets and liabilities, net of effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and other receivables Decrease/(increase) in other assets Increase/(decrease) in provisions Increase in trade payables and accruals (Decrease) in deferred tax liabilities Cash outflow from operations (b) Financing Facilities Credit card facility (limit) Used credit card facility Consolidated 2014 $ 2013 $ (1,266,079) (594,908) 302 800 (141,277) (151,332) 16,080 59,275 312,867 736,965 (1,871) 1,797 1,525 3,056 73,496 562,945 - - (11,471) 6,360 196,394 130,480 (316,366) (431,852) (400,388) (412,426) 20,000 20,000 - - bph energy | ANNUAL REPORT 2014 69 Notes to the Financial Statements for the year ended 30 June 2014 22. Financial Risk Management (a) Financial Risk Management The Group’s financial instruments consist mainly of deposits with banks, investments, accounts receivable and payable, and loans to and from subsidiaries. The main purpose of non-derivative financial instruments is to raise finance for Group operations policies. i. Financial Risk Exposures and Management The main risks the Group is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and equity price risk. Interest rate risk Interest rate risk is managed with a mixture of fixed and floating rate financial assets. The group’s financial liabilities are currently not exposed to interest rate risk as the group has no interest bearing financial liabilities. Liquidity risk The Group manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows. Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance 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. The directors obtained an independent expert’s valuation report at year end which supports the recoverable amount of loan receivables. The recoverable amount exceeded the carrying value of the loans and hence no impairment loss was recognised. Foreign currency risk The Group is not exposed to any material risks in relation to fluctuations in foreign exchange rates. 70 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES (b) Financial Instruments i. Interest rate risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, based on contractual maturities, is as follows: Consolidated Group 2014 Financial Assets Weight Effective Interest Rate % Floating Interest Rate $ Fixed Interest Rate 1 Year of less Fixed Interest Rate 1 to 5 Years Non-Interest Bearing $ Total $ Cash and cash equivalents 2.27 181,111 Trade and other receivables Other financial assets 8.58 - - - - 1,885,926 Total Financial Assets Financial Liabilities Trade and sundry payables Financial liabilities Total Financial Liabilities 181,111 1,885,926 - - - - - - - - - - - - - - 181,111 3,848 3,848 1,157,895 3,043,821 1,161,743 3,228,780 898,541 561,836 898,541 561,836 1,460,377 1,460,377 * The non-interest bearing loans made to other entities are repayable on demand. The company has, however, issued letters to these entities confirming that they will not call upon their loans for at least 12 months from signing the financial report or until such time the company is financially independent. Weight Effective Interest Rate % Floating Interest Rate $ Fixed Interest Rate 1 Year of less Fixed Interest Rate 1 to 5 Years Non-Interest Bearing $ Total $ 2013 Financial Assets Cash and cash equivalents 2.5 900,599 Trade and other receivables Other financial assets 8.58 - - - - 1,540,066 Total Financial Assets Financial Liabilities Trade and sundry payables Financial liabilities Total Financial Liabilities 900,599 1,540,066 - - - - - - - - - - - - - - 900,599 1,977 1,977 1,043,795 2,583,861 1,045,772 3,486,437 702,147 502,978 702,147 502,978 1,205,125 1,205,125 bph energy | ANNUAL REPORT 2014 71 Notes to the Financial Statements for the year ended 30 June 2014 22. Financial Risk Management (continued) (b) Financial Instruments (continued) ii. Fair Values The fair values of: • Term receivables are determined by discounting the cash flows, at the market interest rates of similar securities, to their present value. • Other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings to their present value. • For unlisted investments where there is no organised financial market, the fair value has been based on valuation techniques incorporating non-market data prepared by independent valuers. No financial assets and financial liabilities are readily traded on organised markets in standardised form. 2014 2013 Carrying Amount Fair Value Carrying Amount Fair Value Financial Assets Available-for-sale financial assets 48,949 48,949 48,949 48,949 Loans and receivables Financial Liabilities Other loans and amounts due Trade payables iii. Sensitivity Analysis Interest Rate Risk 3,043,821 3,043,821 2,585,838 2,585,838 3,092,770 3,092,770 2,634,787 2,634,787 561,836 898,541 561,836 898,541 502,978 702,147 502,978 702,147 1,460,377 1,460,377 1,205,125 1,205,125 The Group has performed sensitivity analysis relating to its exposure to interest rate risk at balance date. This sensitivity analysis demonstrates the effect on the current year results and equity which could result from a change in these risks. The effect on profit and equity as a result of changes in the interest rate, with all other variables remaining constant would be as follows: Change in profit — Increase in interest rate 1% — Decrease in interest rate by 0.5% Consolidated Group 2014 2013 9,005 (4,503) 14,412 (7,206) 72 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES iv. Liquidity risk The Group manages liquidity risk by maintaining adequate reserves and borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Liquidity is the risk that the company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The following are the contractual maturities at the end of the reporting period of financial liabilities. 30 June 2014 Contractual cash flows Carrying amount Total 2 mths or less 2-12 mths 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables 898,541 (898,541) Unsecured loan 561,836 (561,836) 1,460,377 (1,460,377) 30 June 2013 - - - (898,541) (561,836) (1,460,377) - - - - - - - - - Contractual cash flows Carrying amount Total 2 mths or less 2-12 mths 1-2 years 2-5 years More than 5 years Financial liabilities Trade and other payables 702,147 (702,147) Unsecured loan 502,978 (502,978) 1,205,125 (1,205,125) - - - (702,147) - - (502,978) (702,147) (502,978) - - - - - - (c) Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). There were no transfers between and of the levels for recurring fair value measurements during the year. bph energy | ANNUAL REPORT 2014 73 Notes to the Financial Statements for the year ended 30 June 2014 22. Financial Risk Management (continued) (c) Fair value measurements recognised in the statement of financial position (continued) Specific valuation techniques used to value financial instruments include: • For unlisted investments where there is no organised financial market, the fair value has been based on valuation techniques incorporating non-market data prepared by independent valuers. 30 June 2014 Available for sale financial assets — Investments in unlisted entities Total 30 June 2013 Available for sale financial assets — Investments in unlisted entities Total Reconciliation of fair value measurements of financial assets Opening balance Reclassifications Purchases Total gains or losses in other comprehensive income Total gains or losses in the profit and loss Level 1 Level 2 Level 3 Total - - - - - - - - 48,949 48,949 48,949 48,949 48,949 48,949 48,949 48,949 2014 2013 Level 3 Level 3 48,949 48,949 - - - - - - - - Closing balance 48,949 48,949 Based on valuations prepared by independent experts, management have made an assessment and believe that there is no material change in the fair value of their investments at reporting date The fair value of the Group’s investment in Cortical Dynamics as at 30 June 2014 has been arrived at on the basis of a valuation performed on the respective date by an independent expert valuer to the company. The valuer holds the appropriate qualifications and recent experience in the valuation of investments of this nature. The fair value was determined using the relative valuation methodology. The approach considers the value of broadly comparable listed entities which are at a similar stage of biotechnology product life cycle to Cortical Dynamics. The valuation supported the carrying value of BPH’s AFS investment in the company. 74 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES 23. Operating Segment Operating segments have been identified on the basis of internal reports of the Company that are regularly reviewed by  the chief operating decision maker in order to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the board receives financial information on the consolidated entity on a basis similar to the financial statements presented in the financial report, to manage and allocate their resources. The consolidated entity’s only operating segment is investments. The consolidated entity holds investments in two principal industries and these are biotechnology, and oil and gas exploration and development, as disclosed in Note 10 (c) and Note 13. 24. Events after the Statement of financial position Date There have not been any matters or circumstances that have arisen since the end of the financial year, that have significantly affected, or may significantly affect, the operations of the company, the results of those operations, or the state of affairs of the company in future financial years. 25. Related Party Transactions (a) Equity interests in controlled entities Details of the percentage of ordinary shares held in controlled entities are disclosed in note 20 to the financial statements. (b) Directors’ Remuneration Details of the directors’ remuneration and retirement benefits is located in the Directors Report and in note 4. (c) Directors’ Equity Holdings Ordinary Shares Held as at the date of this report by directors and their director-related entities in: BPH Energy Limited Other Equity Instruments Options Held as at the date of this report by directors and their director-related entities in: BPH Energy Limited Parent 2014 No. 2013 No. 6,990,580 7,471,349 1,500,000 1,500,000 bph energy | ANNUAL REPORT 2014 75 Notes to the Financial Statements for the year ended 30 June 2014 25. Related Party Transactions (continued) (d) Directors The Company has an agreement with Trandcorp Pty Limited on normal commercial terms procuring the services of David Breeze to provide product development services. $98,000 (2013: $98,000) was paid during the year. (e) Interest in Associates A loan receivable exists between BPH Energy and MDSystems $575,200 (2013: $461,100). This amount is unsecured, non interest bearing and repayable on demand. A loan payable exists between BPH Energy and MDSystems $61,310 (2013: $61,310). This amount is unsecured, non interest bearing and repayable on demand. A convertible loan agreement exists between BPH Energy and MDSystems. The loan is for a maximum amount of $500,000 and is to be used for short term working capital requirements. Subject to MDSystems being admitted to the Official list, BPH Energy has a right of conversion to satisfy the debt on or before the termination date. As at reporting date, the loan has been drawn down by an amount of $416,099 (2013: $397,690). Interest charged on the loan totalled $23,408 (2013: $46,700). During the year, BPH Energy provided consultancy services to MDSystems of $114,100 (2013: $114,100). A loan payable exists between Advent Energy and BPH Energy of $39,486 (2013: $39,486). This amount is unsecured, non interest bearing and repayable on demand. (f) Other Cortical Dynamics is a related party of BPH Energy. Refer to Note 10 for the investment and loan receivables it has with the company. 76 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES 26. Share-Based Payments The following share-based payment arrangements existed at 30 June 2014: Total number Grant Date Exercise price 75,000 25 September 2009 1,500,000 24 December 2009 325,000 1,075,000 2,975,000 21 January 2011 1 July 2013 $0.594 $0.894 $0.160 $0.080 Fair value at grant date $0.0423 $0.0266 $0.0220 $0.0013 Expiry date 30 September 2014 31 December 2014 21 January 2016 30 June 2018 All options granted to key management personnel are to purchase ordinary shares in BPH Energy Limited, which confer a right of one ordinary share for every option held. Outstanding at the beginning of the year Granted Forfeited Expired Cancelled Outstanding at year-end Exercisable at year-end Number of Options  2,400,000 1,075,000 - (500,000) - 2,975,000 2,258,333 Consolidated Group 2014 2013 Weighted Average Exercise Price $ 0.68 0.08 - 0.29 - 0.51 0.65 Number of Options 4,075,000 - - (1,375,000) (300,000) 2,400,000 2,291,667 Weighted Average Exercise Price $ 0.25 - - 0.24 0.16 0.66 0.68 No options were exercised during the year ended 30 June 2014 (2013: nil). Included under employee benefits expense in the profit and loss is $16,080 (2013: $3,056), and relates, in full, to equity. bph energy | ANNUAL REPORT 2014 77       Notes to the Financial Statements for the year ended 30 June 2014 27. Commitments and Contingencies At reporting date there are no contingent liabilities. 28. Parent Entity Disclosures Financial Position Assets Current assets Non-current assets Total asset Liabilities Current liabilities Non-current liabilities Total liabilities Equity Issued Capital Retained earnings Reserves Option Reserve Asset Revaluation Reserve Total equity Financial Performance Profit/Loss for the year Other comprehensive income Total comprehensive income 78 bph energy | annual report 2014 Parent 2014 $ 2013 $ 306,407 3,531,426 52,700,498 50,686,130 53,006,905 54,217,556 1,439,629 714,411 3,675,724 4,361,115 5,115,353 5,075,526 41,511,195 41,511,195 (9,070,369) (7,803,811) 435,726 419,646 15,015,000 15,015,000 47,891,552 49,142,030 (1,266,558) (662,697) - - (1,266,558) (662,697) 29. Tax (a) Liabilities Current Income tax Non Current Deferred tax liabilities comprises: Prepayments Fair value gain adjustments (b) Assets Deferred tax assets comprise: Provisions Accrued expenses Tax losses (c) Deferred tax Deferred tax balances are presented in the statement of financial position as follows: Deferred tax assets Deferred tax liabilities Closing balance HEALTH TECHNOLOGY RESOURCES Consolidated 2014 $ 2013 $ - - 8,359 3,442 6,023,740 6,290,673 6,032,099 6,294,115 8,387 6,562 7,229 190,953 2,433,860 2,196,277 2,448,809 2,394,459 2,448,809 2,394,459 (6,032,099) (6,294,115) (3,583,290) (3,899,656) bph energy | ANNUAL REPORT 2014 79 Directors’ Declaration The directors of the company declare that: 1. the financial statements and notes, as set out on pages 39 to 79 are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; (b) give a true and fair view of the financial position as at 30 June 2014 and of the performance for the year ended on that date of the consolidated entity; 2. 3. in the Directors’ opinion, 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 financial statements and notes comply with International Financial Reporting Standards as disclosed in Note 1. 4. the directors have been given the declarations required by S295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to S295(5) of the Corporations Act 2001. David Breeze Executive Chairman Dated this 13th day of August 2014 80 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Independent Auditor’s Report Independent auditor’s report to the members of BPH Energy Limited Report on the financial report We have audited the accompanying financial report of BPH Energy Limited, which comprises the consolidated statement of financial position as at 30 June 2014, and 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 ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. bph energy | ANNUAL REPORT 2014 81 Independent Auditor’s Report Independent auditor’s report to the members of BPH Energy Limited (continued) Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of BPH Energy Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of BPH Energy Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Emphasis of Matter We draw attention to Note 13 to the financial statements which describes the uncertainty around the basis of recognising the carrying value of an investment in an associate. Our opinion is not modified in respect of this matter. Report on the remuneration report We have audited the remuneration report included in pages 22 to 25 of the directors’ report for the year ended 30 June 2014. 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. Opinion In our opinion, the remuneration report of BPH Energy Limited for the year ended 30 June 2014, complies with Section 300A of the Corporations Act 2001. Nexia Perth Audit Services Pty Ltd Amar Nathwani B.Eng, CA Director Perth, 13 August 2014 82 bph energy | annual report 2014 HEALTH TECHNOLOGY RESOURCES Additional Securities Exchange Information Additional information required by Australian Securities Exchange Limited and not shown elsewhere in this report as follows. The information is made up to 11th August 2014 1. Substantial Shareholder The name of the substantial shareholder listed in the company’s register is: Shareholder MEC Resources Ltd Shares 14,366,095 2. (a) Distribution of Shareholders Range of Holding Shareholders Number Ordinary Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 416 506 387 1,051 263 2,623 179,684 1,673,544 2,996,286 38,146,295 129,566,436 172,562,245 % 8.33 % 0.10 0.97 1.74 22.11 75.08 100.00 The number of shareholders with less than a marketable parcel is 2,193, holding in total 27,440,878 shares. (b) Distribution of Unlisted Optionholders Range of Holding Shareholders 10,001 – 100,000 100,001 and over 3 5 10 Number Ordinary Shares 225,000 2,750,000 2,975,000 % 7.56 92.44 100.00 3. Voting Rights - Shares All ordinary shares issued by BPH Energy Limited carry one vote per share without restriction. 4. Voting Rights - Options The holders of employee options do not have the right to vote. 5. Restricted Securities Shares Number of Shares free of escrow 172,562,245 bph energy | ANNUAL REPORT 2014 83 Additional Securities Exchange Information 6. Twenty Largest Shareholders as at 11th August 2014 The names of the twenty largest shareholders of the ordinary shares of the company are: Name MEC Resources Ltd BT Portfolio Svcs Ltd Trandcorp Pty Ltd Gleneagle Sec Aust PL JP Morgan Nom Aust Ltd Lam Terry Luong Grandbridge Limited Jomot PL Avatar Equities PL Batras One PL Pannu PL Lam Terry L and Chan PS Cottee Enid Ruth Trandcorp Pty Ltd Tre PL Jamber Inv PL Cox Leonard Keith and EM Baruta Mark Mccreed Simon Charles Yewfong Co Pl Number of ordinary fully paid shares % held of issued ordinary capital 14,366,095 5,877,013 4,772,500 4,596,450 3,649,371 3,600,000 3,389,100 2,260,735 2,192,223 2,149,872 1,958,800 1,931,267 1,789,000 1,591,926 1,460,000 1,350,000 1,305,237 1,300,000 1,300,000 1,250,000 8.33 3.41 2.77 2.66 2.11 2.09 1.96 1.31 1.27 1.25 1.14 1.12 1.04 0.92 0.85 0.78 0.76 0.75 0.75 0.72 62,089,589 35.99 84 bph energy | annual report 2014 14 View Street, North Perth Western Australia 6006 Telephone: (08) 9328 8366 Facsimile: (08) 9328 8733 Email: admin@bphenergy.com.au www.bphenergy.com.au m o c . f i t 8 e r c y b d e n g i s e D 

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