Cellmid Limited Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Australia ABN 69 111 304 119 T: +61 2 9221 6830 F: +61 2 9221 8535 E: info@cellmid.com.au www.cellmid.com.au 2013 Annual Report C E L L M I D L I M I T E D 2 0 1 3 A N N U A L R E P O R T Contents Chairman’s Letter CEO’s Report Directors’ Report Corporate Governance Statement Annual Financial Report Additional Information Corporate Directory 4 5 11 25 29 73 76 Cellmid Limited (ASX:CDY) Annual Report ABN 69 111 304 119 Suite 1802, Level 18 15 Castlereagh Street Sydney NSW 2000 Australia T: +61 2 9221 6830 F: +61 2 9221 8535 E: info@cellmid.com.au W: www.cellmid.com.au Chairman’s Letter Dear Shareholder I am pleased to present to you the 2013 Annual Report for Cellmid Limited. Despite the on-going challenging conditions in the equity market in which we operate the Company has, during the year, achieved a number of important milestones spanning the entire spectrum of our business activities. While our progress has not been reflected in share price performance, we believe that our focus on building a balanced pharmaceutical product development business with both sustainable revenues and scale-changing upside potential will ultimately be reflected in the share market. There are already some pleasing indications that market sentiment to the biotechnology sector is improving, and with the solid scientific foundations across our three focus areas of consumer health, diagnostics, and therapeutics, your company will be well positioned to benefit from further improvement in these sentiments. It is pleasing to be able to report the continuing growth and development of our suite of diagnostic licenses based on our core Midkine technology. The CxBladder test, developed by our licensee Pacific Edge, was launched commercially in March 2013, providing the Company with a significant milestone payment as well as the prospect of an early royalty stream. Quest (Celera) have also reported good progress on their development of a lung cancer diagnostic test using Midkine as one of the key markers, successfully transferring the test onto their commercial Luminex platform. We also entered into a new license agreement with major Japanese company Fujikura, who are already well advanced in developing a pathology-friendly latex based assay for Midkine. We are also confident that new research collaborations entered into during the year will lead to more licensing opportunities in the future. Progress with our suite of therapeutic antibodies has been equally pleasing, with highly encouraging results from experiments with an animal model of diabetic nephropathy (kidney disease). In addition, several collaborative studies are underway on the use of Midkine antibodies in a wide range of cancers. The results of all these studies will guide the Company in selecting the first disease indication to take to the clinic. We are fortunate indeed that so many researchers around the world are now focusing on Midkine (and its antibodies) in a wide range of disease indications; with the strong protection of our wide-ranging Midkine patent portfolio, we will be well placed to share in any commercial successes flowing from this research. The fostering of this exciting research is an important part of our development strategy, evidenced by our sponsoring the “Excellence in Midkine Research” conference/ workshop series - next to be held in April 2014 in Kyoto, 4 Cellmid 2013 Annual Report Japan, hosted by the scientists who discovered midkine in the late 1980’s. Our patent portfolio around Midkine continues to grow, with two new granted patents during the year (Ischemia and Vascular Occlusive Disease) to add to our existing 76 patents and 20 patent families. Cellmid is without doubt the global leader in Midkine intellectual property; an enviable position indeed as its role in a wide range of disease indications is becoming well established and recognized. Many shareholders may not be aware that based on early research work in Japan, Midkine has an important role in hair growth. Although we have not yet been able to actively pursue this application of Midkine, it did stimulate us some time ago to seek to position the Company in this important market sector. Thanks to the foresight and diligence of our CEO Maria Halasz and then director (now consultant) Ko Koike, we seized an opportunity in Japan in 2011 (?) to acquire limited rights to a suite of scientifically validated hair growth products based on natural plant extracts (FGF-5 inhibitors). The early response to our Australian launch of these products has been very encouraging, so much so that during the year we took the opportunity to acquire the owner of the core technology, Advangen Inc. This important acquisition, achieved with a modest cash component outlay, provides us with access to an established Japanese market and, importantly, the very substantial global market including China. The Advangen acquisition gives us a real opportunity to establish our Company as a global leader in scientifically and clinically validated hair growth technology; part of the scale- changing upside potential to which I referred earlier. Further details of all these important developments can be found in the report from our CEO and Managing Director Maria Halasz elsewhere in this Annual Report. During the year Robin Beaumont re-located overseas and so resigned from the Board. We thank Robin for his sterling service to the Company. We were delighted to welcome to the Board Graeme Kaufman and Martin Rogers, both exceptionally well qualified and experienced in the biotechnology sector. These additions to the Board, together with a dedicated executive and staff, ably led by CEO Maria Halasz, equip the Company well to deliver on its exciting business plan. I thank all shareholders for their continued support and encouragement. Dr David King Chairman CEO’s Report Dear Shareholder, I am delighted to report to you on this 2013 financial year, which was marked by the achievement of a number of impor- tant milestones for Cellmid in its therapeutic, diagnostic and consumer health businesses. The financial year has seen our Company grow substantially in its operations and revenues. Significantly up from the previous financial year the Company’s operational revenue reached $761,288 in 2013 ($171,273 in 2012). This growth was largely the result of increased sales from our consumer health division. With progress on all fronts this financial year we often received questions about the focus of the Company. As a pharma- ceutical product development company we are indeed fortu- nate with programmes in all stages of the product cycle. We have OTC (over-the-counter) and diagnostic products on the market and novel drugs and early cancer diagnostics in devel- opment. We are building a company with solid revenues while maintain- ing a strong potential for significant value inflection through cutting edge, proprietary and highly innovative therapies and diagnostic. We have adopted a low risk strategy to achieve these goals and have been consistent in managing costs and investing our shareholders’ funds wisely. We believe that this strategy has started to pay off and 2013 has seen many major developments. Early response to the Australian launch of the FGF-5 inhibi- tor hair growth products was strong, and we took advantage of the opportunity in early 2013 to acquire the owner of the technology, Advangen Inc., Japan. This exciting business represented immediate access to early revenues in Japan but most importantly shareholders should see gradual increase in sales following the broadening of the distribution in Australia and Japan and opening new markets in China, Europe, India and the USA in the coming years. The Company’s diagnostic division also started to deliver revenue during 2013 from milestone and upfront fees. Our third diagnostic license is also on its way with Fujikura signing an option agreement for the exclusive use of our reagents in Japan. Licensees Celera-Quest and Pacific Edge have both made significant progress in their respective diagnostic programmes. Importantly, the first commercial product with midkine as a biomarker, CxBladder, was launched by Pacific Edge in March 2013. In 2013 Cellmid embarked on a programme of evaluating our portfolio of therapeutic antibodies in multiple disease indica- tions. Our clear objective has been to produce compelling preclinical data that would determine a clinical development path for this valuable asset portfolio. Strong positive results in an animal model of diabetic nephropathy in January 2013 broadened the commercial opportunities for the Company’s anti-midkine antibodies, while several cancer studies have been ongoing in various locations during the year. Our Board has gone through a transition during the finan- cial year with the resignation of Robin Beaumont, and the appointments of Graeme Kaufman and Martin Rogers. Robin has guided us with his insights and we are thankful for his contribution to the Company’s development during his tenure. We are excited to have Graeme and Martin on board who have already shown that their extensive industry experience is invaluable for Cellmid. Since the beginning of the 2013 financial year Cellmid has raised a total of $2.6M in two separate issues of equities or rights. In October 2012 we completed an options rights issue and raised $545,000. In March 2013 a further $2M was raised through a private placement of shares to sophisticated investors. The Company delivered a solid financial performance with consolidated net loss down 22% to $1,541,307 ($1,972,483 in 2012), after providing for income tax, and eliminating non-controlling equity interests. Of the total of $761,288 operating revenue over $540K was attributable to wholesale product revenue. Therapeutics division: Anti-midkine Antibody Programme Cellmid’s anti-midkine antibody (MK antibody) program has delivered compelling results during the 2013 financial year in diabetic nephropathy. Several preclinical studies in xenograft models of cancer have also been completed using the Company’s proprietary antibodies during the financial year with results due in 4Q2013. The results of these studies will be important for making a decision on “first in men” studies of this novel drug class. The results have also been the culmination of 18 months of preclin- ical studies, in which Cellmid’s proprietary MK antibodies have been tested in several disease settings. These studies deliv- ered valuable efficacy and mechanism of action information in addition to showing early indication of safety. Once results of the cancer studies are evaluated Cellmid will be ready to undertake IND-enabling studies. Cellmid 2013 Annual Report 5 CEO’s Report Continued Outstanding preclinical results – diabetic nephropathy In March 2013 Cellmid reported on compelling results in a diabetic nephropathy study in a mouse model of the disease using the Company’s MK antibodies. Kidney damage was reduced significantly, as assessed by functional and histo- logical analysis, with kidney structure largely preserved in the treated animals. The study provided important new infor- mation given that it was the first time the proprietary MK antibodies have been used in a therapeutic setting in a kidney disease model. Renal histological assessment showed that glomerular sclero- sis was reduced from 48% in untreated animals to below 20% in the MK antibody treated groups (p<0.01). Interstitial volume was also significantly reduced, from 35% in untreated animals to 12% in MK antibody treated groups (p<0.01). MK antibody treatment has also maintained tubular cell height; untreated animals had mean cell heights below 2μm, compared to 4μm for treated animals (p<0.05). As a further indication of the efficacy of the Company’s MK antibodies kidney function was preserved, with treated animals showing reduced protein leakage into the urine compared to untreated controls. Protein casts in the kidney, indicating damage, were also significantly reduced in antibody treated animals (Figure 1). Importantly, the MK antibody treated animals showed healthy weight gain and reduced mortality compared to untreated controls; only 6.3% of treated animals died before the end of the study, compared to 25% of the untreated animals. Photographs show representative histological sections from treated and untreated mice. Protein casts are bright pink; yellow arrows indicate large protein cast deposits. Diabetic nephropathy is the leading cause of chronic kidney disease globally. It is also one of the most significant long- term complications in terms of morbidity and mortality for patients with diabetes. In the USA alone, diabetes affects 26 million people, and the US Centre for Disease Control (CDC) estimates that as many as one in three adults could have diabetes by 2050 if current trends continue. Currently, diabetic nephropathy is managed by keeping glucose levels under control, however many of the patients develop end stage renal disease (ESRD). It is estimated that 30-40% of all ESRD is caused by diabetic nephropathy. The results of the diabetic nephropathy study presented a promising start to the Company’s review of the therapeutic potential of its MK antibody portfolio and will form part of the decision to select the first disease indication Cellmid can then take into the clinic. Preclinical studies with MK antibodies completed in cancer – results due in 3Q2013 Several studies have been underway during the year using the Company’s MK antibodies. These studies are expected to deliver therapeutic information looking at tumour growth, metastasis and angiogenesis as markers of efficacy. Since its discovery MK’s role in cancer has been validated extensively. Approximately 200 peer-reviewed publications have been released on the topic. These studies, by multiple research groups around the world, show that MK is a key driver of tumorigenesis in at least 25 different types of cancers, including those of the breast, lung, colorectal, gastrointestinal, liver, pancreatic and brain. Furthermore, these studies describe multiple mechanisms of action by which MK promotes cancer Figure1. Anti-MK antibodies reduce protein cast deposits in the kidneys of mice with Adriamycin-induced nephropathy. Untreated Antibody 1 Antibody 2 6 Cellmid 2013 Annual Report The biology of how midkine promotes cancer has been well described by dozens of research groups globally. When devel- oping the current preclinical studies we have postulated that MK antibodies would have anti-cancer activities via multiple mechanisms of action. Given that these expectations are confirmed the MK antibody programme in cancer would be in the lead as Cellmid’s “first in men” study. Diagnostics division: midkine as an early cancer biomarker It has been a productive year for our diagnostic business with significant achievements by our licensing partners, a major new option to license and several new collaborations. We received around $200,000 in license fees in this business during the 2013 year, and a subsequent $1 million in cash and Pacific Edge shares in July 2013. As a major step in commercialising our diagnostic assets the Company signed an Option to License Agreement with Fujikura in February 2013, a Japanese diagnostics company. Fujikura is one of the largest suppliers of latex particles for the medical diagnostics industry in Japan. While traditionally servicing other industries with polymers and resins, Fujikura has been actively expanding into medical diagnostics. Under the terms of the Option to License Agreement Cellmid was to supply Fujikura with its proprietary anti-midkine diagnostic antibodies for validation on Fujikura’s latex platform. Cellmid received an initial fee in February 2013. During the first stage of the agreement Fujikura was able to reach accuracy of 500 picogram/ml midkine in serum on its proprietary latex diagnostic platform. This event triggered a further $400K payment in July 2013 when Fujikura elected to exercise its license option. A latex based test with a 500 picogram/ml accuracy means that the test will be able to identify individuals with elevated midkine levels, which may lead to the development of a number of cancer diagnostic products. Fujikura has regulatory and product development programmes in place to accelerate this path to market. Once Fujikura launches its cancer diagnostic products Cellmid will also receive royalties on any products sold. A latex based assay is well accepted in pathology labs and it can easily be automated, reducing processing costs. This is a significant agreement for Cellmid not only because it allows midkine to become a widely used test, but it is also the first significant reagent supply agreement where the Compa- ny’s proprietary diagnostic antibodies are sold in commercial quantities. Cellmid’s existing licensees, Quest and Pacific Edge, have also achieved significant milestones in their product devel- opment and commercialisation programmes, which resulted in the payment of a milestone fee from Pacific Edge and an Option fee from Fujikura, both in July 2013, after the closing of the financial year. Pacific Edge Limited - Bladder cancer license Cellmid signed a license agreement with Pacific Edge Limited in 2010 for the use of midkine as one of the biomarkers in their bladder cancer test (Cxbladder). Pacific Edge has achieved solid progress since the license was signed and has recently received CLIA registration of its Pennsylvania labs. With the CLIA registration Pacific Edge started to roll-out a sales and marketing programme in July 2013 and they expect revenues to grow gradually. The license between Cellmid and Pacific Edge provides for a milestone fee payable in shares, which is due on the first sale of Cxbladder in the USA. Commencement of sales in July triggered the issue of over 1M Pacific Edge shares with the value of over $600,000 at the time. Royalties on revenues are expected to be paid to Cellmid semi-annually. Bladder cancer is one of the most common forms of malignan- cies. In the United States around one million patients present annually with haematuria; of these, 68,000 are diagnosed with bladder cancer. Once treated patients will have regular cystoscopies, painful urethra endoscopies, to monitor reoccurrence. Pacific Edge’s Cxbladder has the potential to replace cystoscopy over time as a preferred method of patient monitoring tool. Cxbladder, with midkine as of the important biomarkers, has shown outstanding performance in clinical studies to date, with 100% sensitivity and 85% specificity in late stage bladder cancer. This specificity is expected to increase when using it in a monitoring setting. The test can also be used to differenti- ate between high and low grade cancers. Cxbladder was the subject of a comparative study of 485 patients and it signifi- cantly outperformed other commercially available bladder cancer tests. Importantly, it has identified 20 cases of bladder cancer that were not identified by cystoscopy during clinical work-up. On the basis of sales projections released by Pacific Edge Cellmid is expected to receive regular royalties from this license from late 2014. 1 Clinical Laboratory Improvement Amendment, CLIA, sets standards and issues certificates for clinical laboratory testing in the United States. It is administered by the US Centre for Medicare and Medical Devices, CMS Cellmid 2013 Annual Report 7 CEO’s Report Continued Quest (Celera) Lung Cancer License Consumer Health Division Cellmid signed a license agreement with Quest (Celera) in October 2009 enabling Quest to include midkine as one of the biomarkers in a lung cancer diagnostic test. The license covers using midkine for the early diagnosis, prognosis, disease monitoring and management of lung cancer. The terms of the agreement provide for a milestone payment at the time of regulatory clearance for the lung cancer test, and royalties to be paid semi-annually. In March 2013 Cellmid received an annual update on the progress made in the development of the lung cancer test. As a significant milestone on the road to market, Quest (Celera) has reported that they have transferred and validated their six-marker based lung cancer test from ELISA format onto the commercial Luminex platform. Luminex is widely used by pathology labs internationally, and should provide the ideal platform for product launch. Quest has also advised that they are progressing with clinical validation of the test. Samples obtained from the National Cancer Institute sponsored chest X-Ray screening Prostate, Lung, Colorectal and Ovarian Trial (PLCO) are used to demonstrate clinical accuracy of the test. Quest (Celera) is particularly focused on developing a test for the diagnosis of indeterminate pulmonary nodules identified through CT scan or chest x-ray. Lung cancer is the leading cause of cancer death in the United States. Currently CT scans are performed to diagnose lung cancer; however these are expensive, lack the required accuracy and have a poor safety profile. Cost effective, safer and more accurate methods, such as Quest’s lung cancer test, are urgently needed to improve survival, limit side effects and reduce costs. The next stage in the licensing agreement is a milestone payment, which is due to Cellmid at the time Quest (Celera) receives regulatory approval for the test. Other Diagnostic Collaborations Several research collaborations have been initiated during the 2013 financial year including a colorectal cancer screening programme, an early diagnosis study for hepatocellular carci- noma and two prostate cancer diagnostic projects. Cellmid will continue to report on these as they deliver results. The Company has also completed sample collection in its CK3000 healthy volunteer study with result expected in 4Q2013. 8 Cellmid 2013 Annual Report During the financial year our pharmacy distribution was expanded significantly and it was evident that our evolis® hair growth products addressed a large and growing market need. The Australian launch of this scientifically validated range of products in mid-2012 resulted in early adoption by many pharmacy buyer groups and the opening of around 700 pharmacy doors nationally. Our wholesale revenue results exceeded internal expectations reaching just under $540,000 (for the first eight months), reflecting retail sales of over $1.2M for the same period. This is an exceptional result for a brand new product, in a new segment and against the minimal early advertising spending. Frostbland was appointed as the Company’s exclusive Australian distributor to pharmacies in September 2012 and has done an excellent job at getting the products on the shelves. The roll-out of the products will be ongoing until we reach a market penetration of around 1,000-1,200 pharma- cies in Australia. We have commenced the systematic training of sales and pharmacy staff amongst our current stockists. We have regular checks on pharmacies to ensure correct stock- ing on the products and we have commenced test advertising in select geographical areas to learn how best we may spend our advertising dollars. In practice several months may pass between signing up a pharmacy chain to sell the products and actual stocking of shelves. Even more time is needed for the training of pharmacy sales staff, and therefore it is not unusual to see no sales from chain stores for 6-8 months. With this understanding, we have a marketing plan focused on signing up independent pharma- cies, delivering training and driving customer traffic by relevant local advertising. An increase in sales is expected to result nationally as both the training and advertising broadens, and this may be accelerated once a celebrity brand ambassador is appointed. With the acquisition of Advangen Inc., in May 2013 the Company’s consumer health division has become an interna- tional business. The market for hair loss products is US$1-2 billion annually in the USA alone, affecting 52 million patients (US Department of Health and Human Services, 2009). The global market is estimated to be several times this amount. There is an outstanding potential for Cellmid’s clinically proven FGF-5 inhibitor product range to gain a share of this market. We have also achieved a number of strategic objectives with the acquisition. The deal enables Cellmid full ownership of the FGF-5 inhibitor technology platform, which underpins the Company’s existing successful évolis® hair product range and is the basis of other Advangen Inc. brands generating revenues in Japan. The Company has gained immediate access to the established Japanese hair growth market. New market opportunities will also be pursued including China where import permits are already in place for the Lexilis® and Jo-Ju® branded products. The profitability of évolis® sold in Cellmid’s existing markets has improved as there will no longer be royalties payable to Advangen Inc. In addition, savings are expected on raw material costs of the active ingredients. Boosting the product pipeline of the merged group, Advangen’s FGF-5 inhibition technology comes with a number of new candidates that include natural extracts and novel compounds with very high potency. An important strategic driver has been accessing the hair growth product development expertise which comes with the scientific and regulatory staff of Advangen Inc. This should greatly facilitate Cellmid’s own programme to develop midkine as a hair loss treatment. This is a company changing deal for Cellmid. Our objective is to establish ourselves as a global leader in scientifically and clinically validated hair growth technology building a substan- tial business, which provides cash flow and adds significant shareholder value. Patent Portfolio Update Managing our patent portfolio has been one of the top priori- ties this year as we have faced several challenging prosecu- tions. As always we have had a very strong focus on build- ing a cohesive strategy that makes commercial sense while retaining our position as the midkine company. Our portfolio currently stands at 78 patents and 20 patent families, with two new granted patents in the 2013 financial year, as Cellmid remains the global leader in MK intellectual property. In July 2012 the Company was granted a key midkine protein patent by the United States Patent and Trademark Office (USPTO) entitled “Nitric oxide synthase activator” (‘277). This is a fundamentally important patent in the Company’s programme for the treatment of various forms of ischemia including heart attack. Patent ‘277 protects the use of midkine to treat ischemic disorders including heart attack. Specifically, this patent covers the stimulation of nitric oxide (NO) synthesis by MK injection. Nitric oxide is a key signalling molecule that mediates blood flow, vasodilation and angiogenesis (growth of new blood vessels). While this programme has not been advanced significantly during the 2013 financial year due to resourcing issues, it remains one of the most valuable assets with potential for early partnering. In January 2013 the European Patent Office (EPO) granted Cellmid’s patent application 06746805.8 entitled “Pharma- ceutical composition for vascular occlusive disease”. The application was filed in May 2006 and the patent is expected to expire in 2026. The claims granted cover the use of short interfering RNAs (siRNAs) to prevent midkine expression in blood vessel walls. Animal studies show that midkine expres- sion in damaged blood vessels contributes significantly to vessel narrowing and obstruction, and inhibiting midkine prevents or reduces this narrowing. Vascular occlusive disease is the biggest cause of prema- ture death in Western nations. Vascular occlusive disease occurs where blood vessels are narrowed or blocked, and it is observed at many sites in the body, including the heart (coronary heart disease, CHD), the brain (stroke), the kidney (renovascular disease) and the limbs (peripheral vascular disease such as deep vein thrombosis). Targeting MK in vascular disease is a novel potential treatment of both the initial vessel narrowing (stenosis) and the re-occur- rence of narrowing (restenosis) that frequently occurs after surgical interventions such as stenting. Cellmid does not have an siRNA programme in this indication, however this patent could represent product pipeline and partnering opportunities in the future. With this patent Cellmid’s patent coverage for siRNA and antibodies extends across cardiovascular disease, inflammatory and autoimmune diseases, cancer, multiple sclerosis and surgical adhesion. Although we can look back to an exceptionally productive financial year, it is not entirely satisfying as the Company’s share price hasn’t tracked the significant increase in the value of our assets. However, we believe that continuing on our growth path and taking advantage of the improving sentiment towards our sector may ultimately change this. I would like to thank our Chairman, Dr David King, the Board and the committed Cellmid team for their contribution in achieving these substantial milestones this financial year. I would also like to thank all our shareholders for their active support. Maria Halasz CEO and Managing Director Cellmid 2013 Annual Report 9 Directors’ Report 11 24 25 29 Contents Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Annual Financial Report Your directors present their report, together with the financial statements of the Group, being Cellmid Limited (Cellmid or the Company) and its controlled entities (Group), for the financial year ended 30 June 2013. Directors The following persons were directors of Cellmid during the financial year and up to the date of this report, unless otherwise stated: Dr David King (appointed 18 January 2008) Ms Maria Halasz (appointed 19 November 2007) Mr Robin Beaumont (resigned 27 August 2012) Mr Graeme Kaufman (appointed 27 August 2012) Mr Martin Rogers (appointed 19 September 2012) Other Key Management Personnel The following persons were key management personnel of Cellmid during the financial year and up to the date of this report, unless otherwise stated: Mr Nicholas Falzon (Company Secretary appointed 6 October 2010) Ms Jillian McGregor (Company Secretary appointed 16 July 2013) Mr Andrew Bald (Company Secretary appointed 6 August 2012 and resigned 8 April 2013) Principal Activities and Significant Changes in the Nature of Activities The principal activities of the Group during the financial year were: • the development and commercialisation of diagnostic and therapeutic products for the management of diseases such as cancer and various chronic inflammatory conditions by targeting midkine (Midkine Business); and • the development and sale of over-the-counter (OTC) treatments to alleviate excessive and abnormal hair loss and re- establish the natural hair growth cycle (Consumer Health Business) There were no significant changes in the nature of the activities during the financial year. Operating Results and Review of Operations for the Year The consolidated net loss of the Group was down 22% to $1,541,307 ($1,972,483 in 2012), after providing for income tax, and eliminating non-controlling equity interests. Revenue from product sales was up by more than 300% to $541,649 ($132,826 in 2012), while total Revenue was up by 345% to $761,288 for the year ($171,273 in 2012). Cellmid 2013 Annual Report 11 Directors’ Report Continued REVIEW OF OPERATIONS The Group has grown its Consumer Health Business significantly during the reporting period and, with the acquisition of Advangen Inc., opened up a global opportunity for the commercialisation of its FGF-5 inhibitor hair growth products. The Midkine Business has reached critical product development objectives in relation to the midkine antibody program and commencing the studies necessary for the ‘first in man’ phase 1/2a clinical trials of its anti-midkine antibodies in multiple solid tumours. Significant progress has also been achieved in the Group’s diagnostic business with the launch of the first commercial product with midkine as a biomarker, CxBladder by Pacific Edge Limited, and a new option to license agree- ment with Fujikura Kasei (Japan). Consumer Health Business - Acquisition of Advangen Inc. means a global opportunity for the FGF-5 inhibitor hair growth products Advangen International Pty Ltd, a controlled entity, was set up to commercialise over-the-counter hair growth products based on the FGF-5 inhibition technology developed by Advangen Inc. (Japan). Advangen International Pty Ltd originally negotiated exclusive manufacturing and distribution rights for Australia, USA and Europe and commenced its commercial proof of concept program in September 2012 in Australia by the appointment of a pharmacy distributor. The results of the commercial proof of concept program have indicated strong global potential for the FGF-5 inhibitor hair growth products. To fully exploit this opportunity the Group acquired Advangen Inc. (Japan) in May 2013. The transaction involved the payment of $1.2 million in cash and the issuing of 55,737,624 Cellmid shares at an agreed price of $0.05 each with a total deal value of $4.0 million. At the time of the acquisition Advangen Inc. had unaudited annualised sales of around $1 million and cash and equivalents of around $400,000. The acquisition of Advangen Inc. is expected to make a significant positive impact on the Group’s operations in future financial years. It provides global ownership of the FGF-5 inhibition technology and immediate access to the established Japanese markets for the products. It is a whole-of-chain acquisition resulting in reduced cost of goods and no royalties. The acquisition delivered valuable additional assets including Chinese import permits for the Lexilis and Jo-Ju brands, with the potential to accelerate geographical expansion of the distribution. It also provides opportunities for product improve- ments and further clinical validation programs to expand the markets for chemotherapy related hair loss and androgenic alopecia. Midkine business Advances in therapeutic product development - midkine antibodies heading to the clinic Under this program the Group has been developing its anti-midkine antibody drugs for the treatment of cancer and inflam- matory diseases. The program received a significant boost during the period with positive results in its pre-clinical programs in diabetic nephropathy and solid tumours, paving the way for clinical development. In January 2013 the Group received results indicating that its antibody drug reduced mortality and preserved kidney function in a study of a mouse model of diabetic nephropathy. Kidney damage was significantly reduced in this Adriamycin induced kidney damage model. This bolstered the Group’s preclinical data package, which has already included positive efficacy results in animal models of several cancer types such as osteosarcoma, rectal carcinoma and glioblastoma. The review of the pharmacological data package resulted in the development of a clinical development plan involving a phase 1/2a study for the Group’s anti-midkine antibody drug in multiple solid tumour types. The program is expected to be imple- mented in the coming financial year. Midkine (MK) Diagnostic Program Two of the Group’s licensees, Pacific Edge Limited and Celera-Quest, made significant progress towards commercialisa- tion of their respective products. The Group has also signed an option to license agreement with Fujikura Kasei for the use of two proprietary anti-midkine antibodies in Fujikura’s latex diagnostic products. Internal diagnostic programs, including 12 Cellmid 2013 Annual Report the colorectal cancer project at the John Hunter Hospital are progressing with sample collection and testing. This is a prospective program with results expected in late 2014. Pacific Edge Limited - launched CxBladder in the USA with midkine as one of the biomarkers The Group signed a license agreement with Pacific Edge Limited in 2010 for the use of the Group’s biomarker, midkine, as one of the biomarkers in CxBladder, a bladder cancer diagnostic test. According to the terms of the license Pacific Edge paid an upfront fee and was to pay a milestone fee in shares on reaching first sale of the product outside of Australia and New Zealand. Pacific Edge has made solid progress towards this milestone during the reporting period and successfully launched its CxBladder test in the USA in March 2013. Pacific Edge reported setting up a sales force to urologists in April with sales expected to commence shortly. Celera-Quest license update The Group signed a license agreement with Celera-Quest in 2009 enabling Quest to use midkine as one of six biomarkers in their test for the early diagnosis, prognosis and disease management of lung cancer. The Group received an upfront payment at the time of signing, a milestone payment will become payable by Celera-Quest at the time of regulatory clearance and royalties on sales. Celera-Quest provided their annual update to the Group in March 2013 confirming that they have transferred and validated the six marker assay on the Luminex platform. They have also advised that they are progressing with further clinical validation using serum samples from a National Cancer Institute sponsored trial. Fujikura Kasei option to license The Group signed an Option to License Agreement with Fujikura Kasei for the exclusive supply of the Group’s proprietary antibodies for validation in Fujikura’s latex diagnostic platform. The agreement provides that Fujikura will proceed to license subject to reaching the minimum 500 picogram/mL limit of detection. This is to ensure that Fujikura’s latex assay will be able to identify individuals with elevated midkine levels. The validation program was progressing well during the reporting period. Fujikura paid an option fee on signing and will pay a milestone fee upon completion of the validation and exercise of its option to license. Intellectual Property update The Group has a large and valuable patent portfolio which consists of 78 patents across 20 patent families. Of these 52 patents have been granted, 25 filed or under examination and one in PCT stage. Two significant midkine therapeutic patents have been granted during the reporting period. The patent entitled “Pharma- ceutical composition for vascular occlusive disease” (06746805.6) was granted by the European Patent office in January 2013. The Group’s patent application “Nitric oxide Synthase activator” (12/593,277) was granted in the USA in July 2012. Financial Position The net assets of the Group, after eliminating non-controlling interests, are significantly up at $5,305,157 ($2,089,484 as at 30 June 2012). The directors believe that the Group is in a stable financial position to expand and grow its current operations. Significant Changes in the State of Affairs The Group acquired Advangen Inc. (Japan) in May 2013. The transaction involved the payment of $1.2 million in cash and the issuing of 55,737,624 Cellmid shares at an agreed price of $0.05 each with a total deal value of $4 million. In the finan- cial statement the transaction is recorded at $2.9 million (“fair value”) as Cellmid shares were traded on market at $0.03 at the time of the acquisition. The acquisition is expected to have a significant positive impact on the Group’s operations. Dividends Paid or Recommended The Company has not paid or declared any dividends during the financial year (2012: nil). Cellmid 2013 Annual Report 13 Directors’ Report Continued Events after the Reporting Period There are two items which have occured after the reporting date as follows: - Pacific Edge have issued 1,084,622 shares to Cellmid having achieved their requisite milestone. The shares have been issued pursuant to the midkine diagnostic licence agreement signed on 17 May 2010; and - The escrow shares issued during the year will be released within the next 12 months. Other than these items, no other matter or circumstance has arisen since 30 June 2013 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Future Developments, Prospects and Business Strategies Likely developments, future prospects and business strategies of the operations of the Group and the expected results of those operations have not been included in this report as the directors believe, on reasonable grounds, that the inclusion of such information could result in unreasonable prejudice to the consolidated Group. Environmental Issues The Group’s operations are not subject to significant environmental regulations under the laws of the Commonwealth and the state. Board and Audit Committee meetings The number of meetings of directors held during the year and the number of meetings attended by each director were as follows: Ms Maria Halasz Dr David King Mr Robin Beaumont Mr Graeme Kaufman Mr Martin Rogers Board meetings Audit Committee meetings Number eligible to attend Number attended Number eligible to attend Number attended 6 6 3 3 3 6 6 3 3 3 5* 5 3 2 2 5 5 3 2 2 The Nomination Committee and Remuneration Committee of the board of directors (Board) met on several occasions during the financial year on an informal basis. * Maria Halasz was in attendance at audit committee and remuneration committee meetings by invitation. 14 Cellmid 2013 Annual Report Information on Directors and Company Secretaries David King Qualifications – Chairman (Non-executive) – Fellow of The Australian Institute of Company Directors, Fellow of the Australian Institute of Geoscientists and a PHD in Seismology from the Australian National University. Experience – Experience in high growth companies and a track record in starting business ventures and developing them into attractive investment and/ or take-over targets. Interest in Shares and Options – Shares: 22,500,000 indirectly held. Options: 11,250,000 indirectly held (Expiry: 23 October 2016, exercis- able at $0.034 each). Special Responsibilities – Chairman of the Remuneration Committee and Nomination Committee. Directorships held in other listed entities during the three years prior to the current year – Current directorships - Robust Resources Limited, Republic Gold Limited Previous directorship - Gas2Grid Limited and Ausmon Resources Limited and Sapex Limited, Eastern Star Gas Limited. Maria Halasz Qualifications Experience – Managing Director (Executive) – A Graduate of the Australian Institute of Company Directors; MBA, BSc in microbiology. – Over 19 years experience in biotechnology companies; initially working in executive positions in biotechnology firms, then managing investment funds and later holding senior positions in corporate finance specialising in life sciences. Interest in Shares and Options – Shares: 1,050,000 directly held. Shares: 5,700,000 indirectly held. Options: 7,000,000 (Expiry: 20 November 2014, exercisable at $0.056 each) indirectly held. Options: 1,362,625 (Expiry: 23 October 2016, exercisable at $0.034 each) indirectly held. Options: 5,000,000 (Expiry: 15 June 2017, exercisable at $0.032 each) indirectly held. (Shares in Advangen International Pty Ltd: 278,049, indirectly held). Special Responsibilities – Managing Director and Chief Executive Officer. Directorships held in other listed entities during the three years prior to the current year – None Cellmid 2013 Annual Report 15 Directors’ Report Continued Graeme Kaufman – Director – Non-executive (Appointed 27th August 2012) Qualifications Experience – BSc & MBA from Melbourne University – Over 45 years’ experience in biotechnology spanning technical, commercial and financial areas. Having worked for 34 years at CSL Limited, Australia’s largest biopharmaceutical company, he held senior positions including Production Director, General Manager Finance and General Manager Biosciences. Interest in Shares and Options – Options: 1,000,000 (Expiry: 1 June 2014, exercisable at $0.05 each) directly held. Special Responsibilities – Chairman of the Audit Committee and member of the Remuneration Directorships held in other listed entities during the three years prior to the current year and Nomination Committee. – Bionomics Ltd and IDT Australia Ltd Martin Rogers Qualifications Experience – Director – Non-executive (Appointed 19th September 2012) – Chemical Engineering and Science Degrees from University of New South Wales – Martin Rogers is the former CEO and current non-executive director of Prima BioMed Ltd. He has a depth of experience in incubating companies and publicly listed organisations. Mr Rogers has experience in all aspects of financial, strategic and operational management and has raised over $100m in equity. Interest in Shares and Options – Shares: 5,155,700 shares indirectly held. Options: 44,000,000 (Expiry: 23 October 2016, exercisable at $0.034 each) indirectly held Special Responsibilities – Member of the Audit Committee and member of the Remuneration Directorships held in other listed entities during the three years prior to the current year Jillian McGregor Qualifications Experience Committee – Consegna Limited, Prima BioMed Ltd and OncoSil Medical Limited – Company Secretary (Appointed 16 July 2013) – Bachelor of commerce and law from University of New South Wales – Jillian has worked as a corporate lawyer for more than 15 years in mid and top tier Australian law firms. During this time she has provided Corporations Act and ASX Listing Rule advice to many ASX listed companies including advice on related party transactions, capital raising requirements, and meeting continuous disclosure requirements. Interest in Shares and Options Special Responsibilities Directorships held in other listed entities during the three years prior to the current year – Nil – Nil – Nil 16 Cellmid 2013 Annual Report Nicholas Falzon Qualifications Experience – Company Secretary & Financial Controller – Bachelor of Business at UTS and a member of the Institute of Chartered Accountants of Australia – As a partner at Lawler Partners Nicholas works with a number of listed and unlisted companies advising them on all aspects of their financial management. Interest in Shares and Options Special Responsibilities Directorships held in other listed entities during the three years prior to the current year – Nil – Nil – Nil Remuneration report The information provided in this remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001. The remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service agreements D. Share-based compensation E. Additional information A. Principles used to determine the nature and amount of remuneration The performance of the Group depends on the quality of its directors and executives. To prosper, the Group must attract, motivate and retain highly skilled directors and executives. To this end, the Group embodies the following principles in its remuneration framework: • provide competitive rewards to attract high calibre executives; and • establish appropriate performance hurdles in relation to variable executive remuneration. The Board assesses the appropriateness of the nature and amount of remuneration of directors and senior managers of the Group on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Remuneration structure In accordance with best practice corporate governance, the structure of non-executive director and senior manager remuneration is separate and distinct. Cellmid 2013 Annual Report 17 Directors’ Report Continued Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and retain direc- tors of the highest calibre, while incurring costs that are acceptable to shareholders. Structure Each non-executive director receives a fixed fee for being a director of the Group. The constitution and the ASX Listing Rules specify that the maximum aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting of shareholders. At the general meeting of shareholders in 2005, the maximum amount was set at $300,000 per annum. In 2013, the Group paid non-executive directors a total of $145,802 (2012: $143,349). The amount of aggregate remuneration sought to be approved by shareholders and the fixed fees paid to directors are reviewed annually. The Board considers fees paid to non-executive directors of comparable companies when undertaking the annual review process. Executive remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and respon- sibilities within the Group and so as to: • reward executives for Group and individual performance against targets set by reference to appropriate benchmarks; • align the interests of executives with those of shareholders; and • ensure total remuneration is competitive by market standards. Structure A policy of the Board is the establishment of employment or consulting contracts with the CEO and other senior executives. Remuneration consists of fixed remuneration under an employment or consultancy agreement and may include long term equity-based incentives that are subject to satisfaction of performance conditions. The equity-based incentives are intended to retain key executives and reward performance against agreed performance objectives. Fixed remuneration The level of fixed remuneration is set so as to provide a base level of remuneration that is both appropriate to the position and competitive in the market. Fixed remuneration is reviewed annually by the Board and the process consists of a review of Group-wide and individual performance, relevant comparative remuneration in the market, and internal and (where appropriate) external advice on policies and practices. Senior managers are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and expense payment plans, such that the manner of payment chosen is optimal for the recipient without creating additional cost for the Group. 18 Cellmid 2013 Annual Report Remuneration policy and performance Other than the CEO, Ms Halasz, none of the director’s remuneration is’at risk’ remuneration. Refer to the table below for further information on Ms Halasz’s remuneration. B. Details of remuneration (audited) Details of the remuneration of the directors and key management personnel of the group (as defined in AASB 124 Related Party Disclosures) and the highest paid executives of Cellmid are set out in the following tables. 2013 Name Short-term benefits Post employment benefits Share- based payment Cash salary and Cash bonus Non-monetary Superannuation Retirement Options Total Non-executive directors David King (Chairman) Robin Beaumont 2 Graeme Kaufman Martin Rogers Total non-executive directors fees $ 65,000 4,767 34,058 33,062 136,887 Executive directors and key Management Maria Halasz Nicholas Falzon 1 Total Executive directors and key Management Total 400,000 - 400,000 536,887 $ - - - - - - - - - benefits $ - - - - - - - - - $ 5,850 - 3,065 - 8,915 36,000 - 36,000 44,915 benefits $ - - - - - - - - - $ - - - - - - - - - $ 70,850 4,767 37,123 33,062 145,802 436,000 - 436,000 581,802 1. Nicholas Falzon, company secretary, was appointed on 6 October 2010, is a partner of Lawler Partners Pty Ltd who provides accounting and company secretarial services to Cellmid Limited. The contract is based on normal commercial terms. A total of $92,125 (2012 $75,250) was received by Lawler Partners Pty Limited in relation to this contract for the year. 2. Robin Beaumont resigned as director on 27th August 2012. Cellmid 2013 Annual Report 19 Directors’ Report Continued 2012 Name Short-term benefits Post employment Benefits Share- based payment Cash salary and Cash bonus Non-monetary Superannuation Retirement Options Total fees benefits benefits Non-executive directors David King (Chairman) Robin Beaumont Total non-executive directors 65,000 30,000 95,000 Executive directors and key Management Maria Halasz Nicholas Falzon 1 Total Executive directors and key Management Total 400,000 - 400,000 495,000 - - - - - - - - - - - - - - 5,850 - 5,850 36,000 - 36,000 41,850 - - - - - - - - 42,499 42,499 70,850 72,499 143,349 30,500 466,500 - - - - 466,500 609,849 1. Nicholas Falzon, company secretary, was appointed on 6 October 2010, is the partner of Lawler Partners Pty Ltd who provides accounting and company secretarial services to Cellmid Limited. The contract is based on normal commercial terms. A total of $75,250 (2011 $52,300) was received by Lawler Partners Pty Limited in relation to this contract for the year. The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Fixed remuneration At risk STI At risk LTI 2013 2012 2013 2012 2013 2012 Directors David King Maria Halasz Robin Beaumont Graeme Kaufman Martin Rogers 100% 100% 100% 100% 100% 100% 96% 41% n/a n/a Other company and group executives Nicholas Falzon Andrew Bursill 100% 100% 100% n/a - - - - - - - - - - - - - n/a - - - - - - - - 4% 59% n/a n/a - - 20 Cellmid 2013 Annual Report C. Service agreements The CEO, Maria Halasz, is an employee of the group under an agreement signed on 21 September 2007. Under the terms of the present contract: • Ms Halasz may resign from her position and thus terminate this contract by giving six months’ written notice. On resignation any unvested options will be forfeited. • The group may terminate the employment agreement by providing six months’ written notice or providing payment in lieu of the notice period (based on the fixed component of Ms Halasz’s remuneration). • The group may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the CEO is only entitled to that portion of remuneration which is fixed, and only up to the date of termination. On termination with cause, any unvested options will immediately be forfeited. • Ms Halasz’s employment agreement provides for issuing performance incentives subject to the discretion of the board. During the 2013 financial year there has been no performance incentive issued to Ms Halasz. D. Share-based compensation Options 2013 Options Granted in 2013 Value of options at grant date Options Vested In 2013 Value of options expensed in 2013 Proportion of Remuneration $ - - - - - - % 0% 0% 0% 0% 0% 0% Maria Halasz David King Graeme Kaufman Martin Rogers Robin Beaumont Total - - - - - - - - - - - - - - - - - - No options were granted to the directors as share-based compensation during the financial year. No options have been granted since the end of the financial year. This concludes the remuneration report which has been audited. Loan to directors and executives There were no loans to directors or executives during or since the end of the year. Cellmid 2013 Annual Report 21 Directors’ Report Continued Shares under option Unissued ordinary shares of Cellmid under option at the date of this report are as follows: Unlisted options Unlisted options Unlisted options Unlisted options Unlisted options Unlisted options Unlisted options Unlisted options Listed options Unlisted options Unlisted options Total Expiry Date 19 March 2014 01 June 2014 01 July 2014 20 November 2014 20 November 2014 19 February 2015 15 November 2015 15 November 2016 23 October 2016 15 June 2017 14 August 2017 Exercise Price Number under option $0.05 $0.05 $0.05 $0.056 $0.035 $0.062 $0.10 $0.03 $0.034 $0.032 $0.034 27,198,435 8,250,000 5,002,006 7,000,000 2,000,000 600,000 100,000 3,971,962 290,542,770 5,000,000 1,440,000 351,105,173 No shares were issued on the exercise of options during the income year ended 30 June 2013 (2012: nil). No amounts are unpaid on any of the shares for the 2013 income year (2012:$nil). 2,000,000 options were lapsed during the income year ended 30 June 2013 (2012: 6,599,995). Director and Officer Insurance During the financial year, the Group paid a premium to insure the directors and officers of the Group. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities (other than legal costs) that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of informa- tion to gain advantage for them or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Indemnifying Officers or Auditor During or since the end of the financial year, the Group has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums in favour of its directors as follows: • a right to access certain Board papers of the Group during the period of their tenure and for a period of seven years after that tenure ends • subject to the Corporation Act 2001, an indemnity in respect of liability to persons other the Company and its related bodies corporate that they may incur while acting in their capacity as an officer of the Company or a related body corporate, except for specified liabilities where that liability involves a lack of good faith or is for legal costs for defending certain legal proceedings; and • the requirement that the Group maintain appropriate directors’ and officers’ insurance for the officer. No liability has arisen under these indemnities as at the date of the report. There is no indemnity cover in favour of the auditor of the Group during the financial year. 22 Cellmid 2013 Annual Report Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group and/or the Group are important. Details of the amounts paid or payable to the auditor, BDO (formerly PKF) for audit and non-audit services provided during the year are set out below. Auditing or reviewing the financial statement BDO (formerly PKF) BDO Japan Rounding off of amounts Consolidated group 2013 $ 54,900 10,200 65,100 2012 $ 45,000 - 45,000 The Company is of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors’ report and the annual financial report are rounded off to a dollar, unless otherwise indicated. Auditor’s Declaration The lead auditor’s independence declaration under s 307C of the Corporations Act 2001 is set out on page 24 for the annual report ended 30 June 2013. This report is signed in accordance with a resolution of the Board of Directors made pursuant to s.298(2) of the Corpora- tions Act 2001. On behalf of the directors Director Dr David King Sydney Dated this day of 28 August 2013 Cellmid 2013 Annual Report 23 24 Cellmid 2013 Annual Report Corporate Governance Statement Unless disclosed below, all the recommendations of the ASX Corporate Governance Council (including 2010 amendments) have been applied for the entire financial year ended 30 June 2013 (ASX Principles). Board Composition The skills, experience and expertise relevant to the position of each director who is in office at the date of the annual report and their term of office are detailed in the directors’ report. The names of independent directors that have served on the board of directors of the Company (Board) during the period are: o David King o Robin Beaumont (Resigned on 27 August 2012) o Graeme Kaufman (Appointed on 27 August 2012) o Martin Rogers (Appointed on 19 September 2012) Independent directors are those who have the ability to exercise their duties unfettered by any business or other relationship and are willing to express their opinions free of concern about their position or the position of any third party. The Board does not believe it is possible to draft a list of criteria which is appropriate to characterise, in all circumstances, whether a non-executive director is independent. However, in determining the independent status of a director the Board will consider whether the director: o is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; o is employed, or has previously been employed in an executive capacity by the Company or another group member; o has within the last three years been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided; o is a material supplier or customer of the company or another group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; o has a material contractual relationship with the Company or another group member other than as a director. In some cases the Board needs to make an assessment of the materiality of a relationship in order to determine if a direc- tor is independent. A “material relationship” includes a direct or indirect interest or relationship that could reasonably be considered to influence in a material way the director’s decisions in relation to the Company. When considering whether a relationship is “material”, the Board will consider the materiality to each of the Company, the director and the person or or- ganisation with which the director is related (as customer, supplier, or adviser). The Board has not set materiality thresholds, considering it more effective to assess relationships on the individual circumstances applicable on a case-by-case basis and where appropriate, with the assistance of external advice. Independent directors have the right to seek independent professional advice in the furtherance of their duties as directors at the Company’s expense. Written approval must be obtained from the Chairman prior to incurring any expense on behalf of the Company. David King, Graeme Kaufman and Martin Rogers are members of the nomination committee. These members have attend- ed meetings of the nomination committee on an ad hoc basis as needed during the year. When appointing new directors, the Board and the nomination committee look to ensure that an appropriate balance of skills, experience, expertise and diversity is maintained. The Board has not approved a formal nomination committee charter and as such, no such charter or summary of such charter is disclosed on the company’s website. Cellmid 2013 Annual Report 25 Corporate Governance Continued Ethical Standards The Board acknowledges and emphasises the importance of all directors and employees maintaining the highest stand- ards of corporate governance practice and ethical conduct. A code of conduct has been established requiring directors and employees to: • act honestly and in good faith; • exercise due care and diligence in fulfilling the functions of office; • avoid conflicts and make full disclosure of any possible conflict of interest; • comply with the law; • encourage the reporting and investigating of unlawful and unethical behaviour; and • comply with the share trading policy outlined in the code of conduct. Directors are obliged to be independent in judgment and ensure all reasonable steps are taken to ensure due care is taken by the Board in making sound decisions. Diversity Policy Diversity includes, but is not limited to, gender, age, ethnicity and cultural background. The Company is committed to diversity and recognises the benefits arising from employee and Board diversity and the importance of benefiting from all available talent. The Board believes that the Company benefits from this diversity. However, due to the size of the Company and small number of persons employed by the company and its controlled enti- ties, the Board has not established a formal diversity policy in accordance with Recommendation 3.2 of the ASX Principles. As such and for the same reasons, the Company is not able to disclose in this annual report the measurable objectives for achieving gender diversity in accordance with the diversity policy and progress towards achieving those objectives. The Company is able to disclose the following gender diversity statistics for the company and its controlled entities as at the date of this annual report: • women employees (67%); • women in senior executive positions (57%); and • women on the Board (25%). Trading Policy The Company has a policy on the sale and purchase of its securities by its directors and employees. In addition, this policy applies to advisers, contractors and consultants who may obtain confidential or price sensitive information in relation to the Company. The purpose of the policy is to avoid conduct known as ‘insider trading’. In some respects, the Company’s policy extends beyond the strict requirements of the Corporations Act 2001 (Cth) (Corporations Act). Audit Committee The names and qualifications of those appointed to the audit committee and their attendance at meetings of the committee are included in the directors’ report. 26 Cellmid 2013 Annual Report CEO/CFO Declaration As required by section 295A of the Corporations Act, the CEO and CFO have declared that in their opinion: a. the financial records of the company and controlled entities for the financial year have been properly maintained in accordance with section 286 of the Corporations Act; b. the financial statements and notes for the financial year comply with accounting standards; c. the financial statements and notes for the financial year give a true and fair view of the financial position and performance of the company and its controlled entities in accordance section 297 of the Corporations Act; d. any other matters prescribed by the Corporations Regulations in relation to the financial statements and notes for the financial year have been satisfied. In addition, in accordance with Recommendation 7.3 of the ASX Principles, the CEO and CFO stated to the Board that the declaration provided under section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Performance Evaluation An annual performance evaluation of the Board has not been made during the year. A performance evaluation for the CEO has taken place during the financial year in accordance with the evaluation process disclosed by the Company. This evaluation has been conducted by the Chairman on a quarterly basis during the year with regard to performance measures set at the commencement of the year. A performance evaluation for other senior management has been conducted by the CEO during the financial year in ac- cordance with the evaluation process disclosed by the Company. Board Roles and Responsibilities The Board is first and foremost accountable to its shareholders through delivery of timely and balanced disclosures. The Board sought external guidance to assist the drafting of its “Board Charter” which has been made publicly available on the Company’s website. This document details the adopted practices and processes in relation to matters reserved for the Board’s consideration and decision-making. The Board is ultimately responsible for ensuring its actions are in accordance with key corporate governance principles. Shareholder Rights Shareholders are entitled to vote on significant matters impacting on the business, which include the election and remu- neration of directors and changes to the constitution. Shareholders are strongly encouraged to attend and participate in the Annual General Meetings of the Company, to lodge questions to be answered by the Board and/or the CEO, and are able to appoint proxies. Risk Management The Board considers identification and management of key risks associated with the business as vital to maximise share- holder wealth. A yearly assessment of the risk profile of the business is undertaken and reviewed by the Board, covering all aspects of the business from the operational level through to strategic level risks. The CEO has been delegated the task of implementing internal controls to identify and manage risks for which the Board provides oversight and is required to report to the Board on whether such risks are being managed effectively. The effectiveness of the implemented internal controls is monitored and reviewed regularly. During the year, the CEO has reported to the Board as to the effectiveness of the Company’s management of its material business risks. Cellmid 2013 Annual Report 27 Remuneration Policies The Company’s remuneration committee comprises of the following non-executive directors: o David King (Chair, independent) o Graeme Kaufman (independent) o Martin Rogers (independent) The remuneration committee reviews the senior executive packages annually by reference to company performance, ex- ecutive performance, comparable information from industry sectors and other listed companies and independent advice. Executives may also be entitled to participate in the Company’s employee incentive plan. The amounts of remuneration for all key management personnel for the Company, including all monetary and non-mon- etary components, are detailed in the directors’ report under the heading key management personnel compensation. All remuneration paid to executives is valued at the cost to the Company and expensed. Shares given to executives are valued as the difference between the market price of those shares and the amount paid by the executive. Options are valued using the Black-Scholes methodology. The Board expects that the remuneration structure implemented will result in the Company being able to attract and retain the best executives to run the consolidated group. It will also provide executives with the necessary incentives to work to grow long-term shareholder value. The payment of bonuses, options and other incentive payments are reviewed by the remuneration committee annually as part of the review of executive remuneration and a recommendation is put to the Board for approval. All bonuses, options and incentives must be linked to predetermined performance criteria. The Board can exercise its discretion in relation to approving incentives, bonuses and options and can recommend changes to the committee’s recommendations. Any changes must be justified by reference to measurable performance criteria. Remuneration Committee The names of the members of the remuneration committee and their attendance at meetings of the committee are detailed in the directors’ report. The Board has not approved a formal remuneration committee charter and as such, no such charter or summary of such charter is disclosed on the Company’s website. There are no schemes for retirement benefits other than statutory superannuation for non-executive directors. 28 Cellmid 2013 Annual Report Financial Report 31 32 33 34 35 70 71 Contents Statements of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors' declaration Independent Auditor's Report Cellmid 2013 Annual Report 29 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2013 Consolidated Group Note 3 3 3 Revenue Other revenue Other income Less Expenditure Cost of sales Advertisement & marketing expenses Bad debts Consultancy expenses Communication expenses Depreciation and amortisation expenses Director's remuneration Employee benefits expenses Finance costs (Gain) / Loss on foreign exchange Reclassification of impairment loss on available for sale asset 20 Occupancy expenses Professional fees Research and development expenses Share - based compensation Subscriptions expenses Travel expenses Other expenses Loss before income tax Income tax benefit Loss for the year Other comprehensive income, net of tax Total comprehensive loss for the year Net loss attributable to Owners of Cellmid Limited Non-controlling interests Earnings per share for loss attributable to the ordinary equity holders of the Company Basic earnings per share (cents) Diluted earnings per share (cents) 8 8 2013 $ 541,649 170,764 48,875 761,288 84,606 214,411 1,227 422,171 37,122 16,634 150,640 885,483 1,124 (13,338) - 102,058 108,434 475,361 4,032 71,035 201,255 326,206 2012 $ 132,826 38,447 - 171,273 33,157 58,454 - 300,122 38,339 11,419 108,350 873,947 39,714 (49,237) 7,090 95,864 164,721 599,047 228,999 88,018 155,674 126,598 3,088,461 2,880,276 4 5 (2,327,173) (2,709,003) 785,866 736,520 (1,541,307) (1,972,483) - - (1,541,307) (1,972,483) (1,528,041) (1,970,360) (13,266) (2,123) (1,541,307) (1,972,483) Cents (0.27) (0.27) Cents (0.46) (0.46) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Cellmid 2013 Annual Report 31 Consolidated Statement of Financial Position As at 30 June 2013 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other financial assets Plant and equipment Intangibles assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Accumulated Losses Capital and reserves attributable to owners of Cellmid Limited Non-controlling interest TOTAL EQUITY Note Consolidated Group 2013 $ 2012 $ 9 10 11 15 12 13 14 16 17 17 18 19 19 1,754,994 1,050,593 255,695 71,168 1,694,926 1,289,237 73,321 30,638 3,778,936 2,441,636 - 51,633 2,163,150 2,214,783 5,993,719 42,910 32,276 1,440 76,626 2,518,262 501,299 134,755 636,054 52,508 52,508 688,562 258,577 135,448 394,025 34,753 34,753 428,778 5,305,157 2,089,484 25,336,522 20,799,831 1,966,375 1,746,085 (21,969,496) (20,441,455) 5,333,401 2,104,461 (28,244) (14,978) 5,305,157 2,089,483 This consolidated statement of financial position should be read in conjunction with the accompanying notes. 32 Cellmid 2013 Annual Report Consolidated Statement of Changes in Equity For the year ended 30 June 2013 Consolidated Group Attributable to owners of Cellmid Limited Reserves General Reserve Foreign exchange reserve Available for Sale Reserve Accumu- lated Losses Total Non- controlling interest Total equity Note Issued Capital Share Based Payments Reserve $ $ Balance at 1 July 2011 18,838,712 1,660,231 Loss for the year as reported in the 2011 financial statements Other comprehensive income Total comprehensive income for the year 30 June 2012 Transactions with equity holders: Contributions of equity Share based compensation Movement in share based payment reserve Movement in available for sale reserve Net movement as a result of shares issued to minority interest - - - 1,805,120 156,000 - - - - - - - - 62,999 - - $ - - - - (11,005) - - - 33,860 Total 1,961,120 62,999 22,855 Balance at 30 June 2012 18 & 19 20,799,832 1,723,230 22,855 Balance at 1 July 2012 20,799,832 1,723,230 22,855 Loss for the year as reported in the 2013 financial statements Other comprehensive income Total comprehensive income for the year 30 June 2013 Transactions with equity holders: - - - Contributions of equity 4,536,690 Share based compensation Movement in share based payment reserve Movement in available for sale reserve Movement in foreign exchange reserve Net movement as a result of shares issued to minority interest - - - - - - - - - 4,033 - - - - Total 4,536,690 4,033 - - - - - - - - - - $ - - - - - - - - - - - - - - - - - - - 216,257 - 216,257 $ $ $ 10,120 (18,471,095) 2,037,968 $ - $ 2,037,968 - (1,970,360) (1,970,360) (2,123) (1,972,483) - - - - - - (1,970,360) (1,970,360) (2,123) (1,972,483) - - - (10,120) - - - - - - 1,794,115 21,005 1,815,120 156,000 62,999 (10,120) - - - 156,000 62,999 (10,120) 33,860 (33,860) - (10,120) (1,970,360) 66,494 (14,978) 51,516 - (20,441,455) 2,104,462 (14,978) 2,089,484 - - - (20,441,455) 2,104,462 (14,978) 2,089,484 (1,528,041) (1,528,041) (13,266) (1,541,307) - - - - - (1,528,041) (1,528,041) (13,266) (1,541,307) - - - - - - - - - - - - - 4,536,690 4,033 - - 216,257 - - - - - - - 4,536,690 4,033 - - 216,257 - - 4,756,980 - 4,756,980 Balance at 30 June 2013 18 & 19 25,336,522 1,727,263 22,855 216,257 - (21,969,496) 5,333,401 (28,244) 5,305,157 This statement of changes in equity should be read in conjunction with the accompanying notes. Cellmid 2013 Annual Report 33 Consolidated Statement of Cash Flows For the year ended 30 June 2013 CASH FLOWS FROM OPERATING ACTIVITIES Receipts (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Research and development expenses Interest received Income tax benefit Other grant income Finance costs Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payment for acquisition of subsidiary, net of cash acquired Proceeds on sale of financial asset Purchase of non-current assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares (net of share issue costs) Repayment of borrowings Net cash provided by financing activities Net increase / (decrease) in cash held Cash and cash equivalents at beginning of financial year Effect of exchange rate changes Consolidated Group 2013 $ 2012 $ Note 20 28 644,080 116,225 (2,552,229) (1,977,623) (475,361) 30,833 785,866 115,167 (1,124) (599,047) 5,370 736,520 - (39,714) (1,452,768) (1,758,269) (803,911) 91,785 (26,734) (738,860) - - (31,931) (31,931) 2,864,561 - 2,864,561 672,933 1,805,120 (556,835) 1,248,285 (541,915) 1,050,593 1,592,508 31,468 - Cash and cash equivalents at end of financial year 9 1,754,994 1,050,593 This statement of cash flows should be read in conjunction with the accompanying notes. 34 Cellmid 2013 Annual Report Notes to the Financial Statements Contents 1 Summary of Significant Accounting Policies 2 Parent Information 3 Revenue and Other Revenue 4 Profit/(Loss) for the year 5 Income Tax Expense 6 Interests of Key Management Personnel (KMP) 7 Auditor’s Remuneration 8 Earnings per Share 9 Cash and Cash Equivalents 10 Trade and Other Receivables 11 Inventories 12 Other Financial Assets 13 Plant and Equipment 14 Intangible Assets 15 Other Assets 16 Trade and Other Payables 17 Provisions 18 Contributed Equity 19 Reserves and Accumulated Losses 20 Cash Flow Information 21 Critical Accounting Estimates and Judgements 22 Events after the Reporting Period 23 Related Party Transactions 24 Financial Risk Management 25 Subsidiary and Transactions with non-controlling Interest 26 Segment Information 27 Commitments 28 Business Combinations 29 Contigent Liabilities 30 Company Details 36 45 46 46 47 48 51 51 52 52 53 53 54 54 55 55 55 56 60 61 62 62 62 63 65 65 68 68 69 69 Cellmid 2013 Annual Report 35 Notes to the Financial Statements Continued NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The company is a public company, listed on the Australian Stock Exchange. It is incorporated in Australia and is domiciled in Australia. The financial statements are general purpose financial statements that have been prepared in accordance with Austral- ian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001, as appropriate for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) The financial statements comprise the consolidated financial statements of the Group. The financial statements were authorised for issue by the directors on 28 August 2013. Basis of Preparation The financial statements have been prepared on an accruals basis and are based on historical costs, except for certain non-current assets and financial instruments that are measured at re-valued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The preparation of financial statements in conformity with AIFRS requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 21. New, revised or amending Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Aus- tralian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Any significant impact on the accounting policies of the Group from the adoption of these Accounting Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. The following Accounting Standards and Interpretations are most relevant to the Group: AASB 2011-9 Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income The Group has applied AASB 2011-9 amendments from 1 July 2012. The amendments requires grouping together of items within other comprehensive income on the basis of whether they will eventually be ‘recycled’ to the profit or loss (reclassification adjustments). The change provides clarity about the nature of items presented as other comprehensive income and the related tax presentation. The amendments also introduced the term ‘Statement of profit or loss and other comprehensive income’ clarifying that there are two discrete sections, the profit or loss section (or separate statement of profit or loss) and other comprehensive income section. 36 Cellmid 2013 Annual Report a. Going Concern The Directors have prepared the financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. Based on anticipated levels of operational cash flow, the Group has sufficient cash to fund current operations for more than one year. b. Principles of Consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Cellmid Limited at the end of the reporting period. A controlled entity is any entity over which Cellmid Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. Income and expenses 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 dis- posal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the company and to the non-controlling interests even if this results in the non-controlling interest having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. c. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, is the Board of Directors. d. Revenue and Other Income Recognition Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Revenue from the sale of goods is recognised at the point of delivery as this cor- responds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Interest revenue is recognised using the effective interest rate method. Royalties determined on a time basis are recognised on a straight-line basis over the period of the agreement. Government grants are recognised in profit and loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate, but not before the receipt of the grant is relatively certain. e. Income Tax The income tax expense (revenue) for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to tem- porary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is prob- able that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Cellmid 2013 Annual Report 37 Notes to the Financial Statements Continued Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net set- tlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. f. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are reported within short- term borrowings in current liabilities in the statement of financial position. g. Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. h. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated cost necessary to make the sale. i. Plant and Equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. The cost of fixed assets constructed within the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss and other comprehen- sive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Furniture and fittings Office equipment Depreciation Rate 20% 6.7-33.33% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. 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. 38 Cellmid 2013 Annual Report Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of profit or loss and other comprehensive income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. j. Investments and Other Financial Assets The Group classified its investments in the following categories: loans and receivables and available for sale financial assets. The classification depends on the nature and purpose of the investment and is determined at the time of initial recognition. (i) 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. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. Loan and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. (ii) Available-for-sale financial assets Listed shares and listed redeemable notes held by the group that are traded in an active market are classified as available-for-sale financial assets and are stated at fair value. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit and loss. The fair value of available-for- sale assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognised in profit and loss are determined based on the amortised cost of the monetary asset. Other foreign gains and losses are recognised in other comprehensive income. k. Intangibles Other than Goodwill 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. The Group has determined the useful life of the intan- gible assets at 20 years. There is no amortisation charge to the intangible assets in the 2013 financial Year. Research and development Expenditure on research activities is recognised as an expense in the period in which is incurred. Expenditure on development projects (relating to the design and testing of new or improved products) are capitalised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Cellmid 2013 Annual Report 39 Notes to the Financial Statements Continued I. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a re-valued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116). Any impairment loss of a re-valued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. m. Trade and Other Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. n. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. o. Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to the end of the reporting period. Employee benefits that are expected to be settled within the income year have been measured at the amounts expected to be paid when the liability is settled. In determining the liability, consideration is given to employee wages increases and the probability that the employee may satisfy vesting requirements. Wages and salaries, annual leave and sick leave Liability for wages and salaries, including non monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave Liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and period of service. Retirement benefit obligations Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contribu- tions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is available. Contribu- tions are paid into the fund nominated by the employee. 40 Cellmid 2013 Annual Report Share-based payments The fair value of options granted is recognised as a benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the directors and executives become uncondition- ally entitled to the options. The fair value at grant date is determined using binomial option pricing model that takes into account the exercise price, the term of option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to reflect market vesting conditions, but excludes the impact of any non market vesting conditions. Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The 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 and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. p. Equity-settled compensation The Group operates an employee share ownership plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortised over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the binominal pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. Upon the exercise of options, the balance of the share based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. q. Functional and Presentation Currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environ- ment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rate at the date of the transaction, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed. Cellmid 2013 Annual Report 41 Notes to the Financial Statements Continued r. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recover- able from, or payable to, the ATO is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activi- ties which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers. s. Business Combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instru- ments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling inter- est in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of contingent consideration classified as an asset or liability is recognised in profit or loss. Con- tingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non¬controlling inter- est in the acquiree and the fair value of the consideration transferred and the fair value of any pre¬existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new in- formation obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. t. Earnings per Share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Cellmid Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. 42 Cellmid 2013 Annual Report Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential or- dinary shares. u. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the earliest comparative period will be disclosed. v. Rounding of Amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the finan- cial statements and directors’ report have been rounded off to the nearest $1. w. New Accounting Standards for Application in Future Periods The AASB has issued new and amended Accounting Standards and Interpretations that have mandatory application dates for future reporting periods and which the group has decided not to early adopt. A discussion of those future requirements as they apply to the group and their impact on the group is as follows: – AASB 10 Consolidated Financial Statements This standard is applicable to annual reporting periods beginning on or after 1 January 2013. The standard has a new definition of ‘control’. Control exists when the reporting entity is exposed, or has the rights, to variable returns (e.g. dividends, remuneration, returns that are not available to other interest holders including losses) from its involvement with another entity and has the ability to affect those returns through its ‘power over that other entity. A reporting entity has power when it has rights (e.g. voting rights, potential voting rights, rights to appoint key management, decision making rights, kick out rights) that give it the current ability to direct the activities that significantly affect the investee’s returns (e.g. operating policies, capital decisions, appointment of key management). The Group will not only have to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. The adoption of this standard from 1 July 2013 may have an impact where the Group has a holding of less than 50% in an entity, has de facto control, and is not currently consolidating that entity. – AASB 12 Disclosure of Interests in Other Entities This standard is applicable to annual reporting periods beginning on or after 1 January 2013. It contains the entire disclosure requirement associated with other entities, being subsidiaries, associates and joint ventures. The disclosure requirements have been significantly enhanced when compared to the disclosures previously located in AASB 127 ‘Consolidated and Separate Financial Statements’, AASB 128 ‘Investments in Associates’, AASB 131 ‘Interests in Joint Ventures’ and Interpretation 112 ‘Consolidation - Special Purpose Entities’. The adoption of this standard from 1 July 2013 will significantly increase the amount of disclosures required to be given by the Group such as significant judgements and assumptions made in determining whether it has a controlling or non¬controlling interest in another entity and the type of non-controlling interest and the nature and risks involved. Cellmid 2013 Annual Report 43 Notes to the Financial Statements Continued – AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 This standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the ‘exit price’ and it provides guidance on measuring fair value when a market becomes less active. The ‘highest and best use’ approach would be used to measure assets whereas liabilities would be based on transfer value. As the standard does not introduce any new requirements for the use of fair value, its impact on adoption by the Group from 1 July 2013 should be minimal, although there will be increased disclosures where fair value is used. – AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) This revised standard and its consequential amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments make changes to the accounting for defined benefit plans and the definition of short-term employee benefits, from ‘due to’ to ‘expected to’ be settled within 12 months. The later will require annual leave that is not expected to be wholly settled within 12 months to be discounted allowing for expected salary levels in the future period when the leave is expected to be taken. The adoption of the revised standard from 1 July 2013 is expected to reduce the reported annual leave liability of the Group. – AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirement These amendments are applicable to annual reporting periods beginning on or after 1 July 2013, with early adoption not permitted. They amend AASB 124 ‘Related Party Disclosures’ by removing the disclosure requirements for individual key management personnel (XIVIR). The adoption of these amendments from 1 July 2014 will remove the duplication of information relating to individual KMP in the notes to the financial statements and the directors report. As the aggregate disclosures are still required by AASB 124 and during the transitional period the requirements may be included in the Corporations Act or other legislation, it is expected that the amendments will not have a material impact on the Group. – AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards The amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments make numerous consequential changes to a range of Australian Accounting Standards and Interpretations, following the issuance of AASB 10, AASB 11, AASB 12 and revised AASB 127 and AASB 128. The adoption of these amendments from 1 July 2013 will not have a material impact on the Group. – AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009- 2011 Cycle The amendments are applicable to annual reporting periods beginning on or after 1 January 2013. The amendments affect five Australian Accounting Standards as follows: Confirmation that repeat application of AASB 1 (IFRS 1) ‘First- time Adoption of Australian Accounting Standards’ is permitted; Clarification of borrowing cost exemption in AASB 1; Clarification of the comparative information requirements when an entity provides an optional third column or is required to present a third statement of financial position in accordance with AASB 101 ‘Presentation of Financial Statements; Clarification that servicing of equipment is covered by AASB 116 ‘Property, Plant and Equipment’, if such equipment is used for more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity transaction costs in AASB 132 ‘Financial Instruments: Presentation’ should be accounted for in accordance with AASB 112 ‘Income Taxes’; and clarification of the financial reporting requirements in AASB 134 ‘Interim Financial Reporting’ and the disclosure requirements of segment assets and liabilities. The adoption of the amendments from 1 July 2013 will not have a material impact on the Group. 44 Cellmid 2013 Annual Report – AASB 2012-9 Amendment to AASB 1048 arising from the Withdrawal of Australian Interpretation 1039 This amendment is applicable to annual reporting periods beginning on or after 1 January 2013. The amendment removes reference in AASB 1048 following the withdrawal of Interpretation 1039. The adoption of this amendment will not have a material impact on the Group. – AASB 2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments These amendments are applicable to annual reporting periods beginning on or after 1 January 2013. They amend AASB 10 and related standards for the transition guidance relevant to the initial application of those standards. The amendments clarify the circumstances in which adjustments to an entity’s previous accounting for its involvement with other entities are required and the timing of such adjustments. The adoption of these amendments will not have a material impact on the Group. NOTE 2: PARENT INFORMATION STATEMENT OF FINANCIAL POSITION ASSETS Current assets TOTAL ASSETS LIABILITIES Current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses Share based payment reserve TOTAL EQUITY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Loss of the parent entity Total comprehensive loss 2013 $ 2012 $ 2,500,986 6,273,428 2,719,856 2,794,729 480,084 532,593 380,914 415,667 5,740,835 2,379,062 25,273,651 20,799,832 (21,317,677) (20,144,000) 1,784,862 5,740,836 1,733,350 2,389,182 (1,173,677) (1,173,677) (1,842,581) (1,842,581) Cellmid 2013 Annual Report 45 Notes to the Financial Statements Continued NOTE 3: REVENUE AND OTHER INCOME Consolidated Group 2013 $ 2012 $ 541,649 541,649 132,826 132,826 30,833 115,167 24,000 358 406 170,764 712,413 48,875 48,875 5,370 - 24,000 704 8,373 38,447 171,273 - - Consolidated Group 2013 $ 2012 $ (84,606) (1,124) (33,157) (39,714) (813,602) (810,563) (71,880) 13,338 (63,384) 49,237 (95,842) (91,176) (16,634) (475,361) (11,419) (599,047) Revenue from continuing operations Sales revenue: – sale of goods Other revenue: – interest received – government grants received – rental revenue – royalties – other revenue Total revenue Other income: – Gain on disposal of financial assets Total other income NOTE 4: LOSS FOR THE YEAR Loss before income tax from continuing operations includes the following specific expenses: Cost of sales Finance cost Employee benefits expense Defined contribution superannuation expenses Foreign currency translation gain/(losses) Rental expense on operating leases: – minimum lease payments Depreciation and amortisation – Plant and equipment Research and development expense 46 Cellmid 2013 Annual Report NOTE 5: INCOME TAX EXPENSE a. The components of tax expense comprise: – Income tax benefit b. Numerical reconciliation of income tax expense to Loss before income tax expense Prima facie tax benefit on loss from ordinary activities before income tax at 30% (2012: 30%) A: Add: Tax effect of: – Research and development expenditure – Share based payment – Deduction on un-deducted & R&D core technology expenditure – Impairment loss on asset revaluation – Sundry items Adjusted income tax Consolidated Group 2013 $ 2012 $ 785,866 785,866 736,520 736,520 (2,327,173) (2,709,003) (698,152) (812,701) 396,695 1,210 (190,438) - 6,406 213,873 (484,279) 523,910 68,700 (190,438) 2,127 13,313 417,612 (395,089) Tax losses not brought to account 484,279 395,089 Research and development tax benefit 785,866 736,520 Income tax benefit 785,866 736,520 A $785,866 (2012 $736,520) research and development tax offset was received for a claim in accordance with the Com- monwealth Governments Research and Development Tax Incentive. c. Tax losses Carried forward unused tax losses Current unused tax losses for which no deferred tax asset has been recognised Total Potential future tax benefit at notional tax rate 30% All unused tax losses were incurred by Australian entities. This income tax benefit arose from losses will only be obtained if: 11,853,317 10,536,355 1,614,264 1,316,962 13,467,581 11,853,317 4,040,274 3,555,995 i The group derives future assessable income of a nature and of an amount sufficient to enable to benefit from the deductions for the losses to be realised; ii. The group continues to comply with the conditions for deductibility imposed by tax legislation; and iii. No changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses. Cellmid 2013 Annual Report 47 Notes to the Financial Statements Continued d. As Advangen International Pty Ltd ceased to be a wholly owned subsidiary of Cellmid Limited on 13 March 2012, it ceased to be part of the tax consolidated group from that date. NOTE 6: INTERESTS OF KEY MANAGEMENT PERSONNEL (KMP) a. Directors and key management personnel The following persons were directors or key management personnel of Cellmid Limited during the financial year. David King (Chairman) - appointed from 18 January 2008 to current Ms Maria Halasz (Chief Executive Officer) - appointed from 19 November 2007 to current Mr Robin Beaumont (Non executive) - appointed from 12 October 2009 to 27 August 2012 Mr Graeme Kaufman (Non executive) - appointed from 27 August 2012 to current Mr Martin Rogers (Non executive) - appointed from 19 September 2012 to current Mr Nicholas Falzon (Secretary and Financial Controller) - appointed from 6 October 2010 to current Mr Andrew Bald (Secretary) - appointed from 6 August 2012 to 8 April 2013 Ms Jillian McGregor (Secretary) - appointed from 16 July 2013 to current b. Directors and key management personnel compensation Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2013. The totals of remuneration paid to KMP of the company and the Group during the year are as follows: Short - term employee benefits Post - employment benefits Share - based payments 2013 $ 536,887 44,915 - 581,802 2012 $ 495,000 41,850 72,999 609,849 c. Equity instrument disclosures relating to key management personnel Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration, together with terms and conditions of the options, can be found in note 18. 48 Cellmid 2013 Annual Report (i) KMP Options Holdings The numbers of options over ordinary shares in the Company held during the financial year by each director of Cellmid Limited and other key management personnel of the group, including their personally related parties, are set out as table below. 30 June 2013 Balance at Beginning of the Year Granted as remuneration during the Year Exercised during the Year Other Changes during the Year Balance at end of Year Vested and Exercisable at the end of the Year Directors of Cellmid Limited M Halasz D King R Beaumont G Kaufman M Rogers 17,000,000 - 3,971,962 Other key management personnel J McGregor N Falzon A Bald - - - - - - - - - - - - - - - - - - - - - (637,375) 16,362,625 16,362,625 11,250,000 11,250,000 11,250,000 - 3,971,962 3,971,962 1,000,000 1,000,000 1,000,000 44,000,000 44,000,000 44,000,000 - - - - - - - - - Maria Halasz owns 16,362,625 options indirectly. David King owns 11,250,000 options indirectly. Martin Rogers owns 44,000,000 options indirectly. 30 June 2012 Balance at Beginning of the Year Granted as remuneration during the Year Exercised during the Year Other Changes during the Year Balance at end of Year Vested and Exercisable at the end of the Year Directors of Cellmid Limited M Halasz D King R Beaumont Other key management personnel N Falzon (ii) KMP Shareholdings 12,000,000 5,000,000 - - - - 3,971,962 - - - - - - - - - 17,000,000 17,000,000 - - 3,971,962 3,971,962 - - The numbers of shares in the Company held during the financial year by each director and key management personnel of Cellmid Limited, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. Cellmid 2013 Annual Report 49 Notes to the Financial Statements Continued Balance at Beginning of the Year Received during the Year on the exercise of options Other Changes during the Year Balance at the end of the Year 2,725,250 22,500,000 1,875,000 - - - - - - - - - - - - 4,024,750 6,750,000 - - - 22,500,000 1,875,000 - 5,155,700 5,155,700 - - - - - - Balance at Beginning of the Year Received during the Year on the exercise of options Other Changes during the Year Balance at the end of the Year 1,365,000 13,476,669 700,000 - - - - - 1,360,250 2,725,250 9,023,331 22,500,000 1,175,000 1,875,000 - - 30 June 2013 Directors of Cellmid Limited M Halasz D King R Beaumont G Kaufman M Rogers Other key management personnel J McGregor N Falzon A Bald Maria Halasz owns 5,700,000 shares indirectly. David King owns 22,500,000 shares indirectly. Robin Beaumont owns 1,875,000 shares indirectly. Martin Rogers owns 5,155,700 shares indirectly. 30 June 2012 Directors of Cellmid Limited M Halasz D King R Beaumont Other key management personnel N Falzon Maria Halasz owns 2,725,250 shares indirectly. David King owns 22,500,000 shares indirectly. Robin Beaumont owns 1,875,000 shares indirectly. (iii) Other KMP Transactions There have been no other transactions involving equity instruments other than those described in the tables above. The chief executive officer is employed under an employment service contract. 50 Cellmid 2013 Annual Report NOTE 7: AUDITOR’S REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and a non-related audit firm: – auditing or reviewing the financial statement BDO – BDO Japan NOTE 8: EARNINGS PER SHARE a. Basic and diluted earnings per share: Basic EPS and dilutive EPS Consolidated Group 2013 $ 54,900 10,200 65,100 2012 $ 45,000 - 45,000 Consolidated Group 2013 $ 2012 $ (0.27) (0.46) b. Loss used in calculating basic and diluted earnings per share: Loss (1,541,307) (1,972,483) c. Weighted average number of shares used as the denominator Weighted average number of ordinary shares used in calculating dilutive EPS 563,832,659 427,266,234 No. No. d. Information concerning the classification of securities. Options Options granted to executives and directors are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. In the year ended 30 June 2013, these options were in fact anti-dilutive, and consequently diluted EPS is the same as basic EPS. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in Note18. Cellmid 2013 Annual Report 51 Notes to the Financial Statements Continued NOTE 9: CASH AND CASH EQUIVALENTS Cash at bank and in hand Consolidated Group 2013 $ 2012 $ 1,754,994 1,754,994 1,050,593 1,050,593 The effective interest rate on short term bank deposits was 3.5 - 4.5% (2012: 3.5-4.5%); these deposits were all on call. Reconciliation of cash 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 1,754,994 1,754,994 1,050,593 1,050,593 NOTE 10: TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Total current trade and other receivables Effective interest rates and credit risk Consolidated Group 2013 $ 41,123 214,572 255,695 2012 $ 52,791 18,377 71,168 The Group has no significant concentration of credit risk with respect to any single counterparty, or group of counterpar- ties other than those receivables specifically provided for and mentioned within Note 10. The class of assets described as ‘trade and other receivables” is considered to be the main source of credit risk related to the group. There is no interest rate risk for the balances of trade and other receivables. There is no material credit risk associated with other receivables. No receivables are past due or impaired. 52 Cellmid 2013 Annual Report NOTE 11 : INVENTORIES Inventory at lower of cost and net realisable value Total inventories NOTE 12: OTHER FINANCIAL ASSETS Available-for-sale financial assets Total non-current financial assets Available-for-sale financial assets Listed investments, at fair value: – shares in listed corporations Total available-for-sale financial assets Consolidated Group 2013 $ 2012 $ 1,694,926 1,694,926 1,289,237 1,289,237 Consolidated Group 2013 $ - - - - 2012 $ 42,910 42,910 42,910 42,910 Cellmid 2013 Annual Report 53 Notes to the Financial Statements Continued NOTE 13: PLANT AND EQUIPMENT Consolidated Group Note PLANT AND EQUIPMENT Plant and equipment at cost: Accumulated depreciation Total plant and equipment Note Consolidated Group Balance at 1 July 2011 Additions Disposals Depreciation expense Balance at 30 June 2012 Additions through business combinations 28 Additions Disposals Depreciation expense Balance at 30 June 2013 NOTE 14: INTANGIBLE ASSETS Consolidated Group: Balance at 1 July 2012: Intangibles acquired with acquisition of Advangen Incorporated (Note 28) Patent 1 Patent 2 Closing value at 30 June 2013 2013 $ 366,065 (314,432) 51,633 Plant and Equipment $ 11,764 31,931 - (11,419) 32,276 9,257 26,734 - (16,634) 51,633 2012 $ 129,759 (97,483) 32,276 Total $ 11,764 31,931 - (11,419) 32,276 9,257 26,734 - (16,634) 51,633 Trademarks & Licences $ 1,440 1,441,140 720,570 2,163,150 Intangible assets, other than goodwill, have finite useful lives. The Group has determined the useful life of the intangible asset at 20 years. There is no amortisation charge to the intangible assets in the 2013 financial year. The net exchange difference regarding intangible assets acquired with the acquisition of Advangen Incorporated arising on the translation of a foreign operation into the presentation currency is $152,805 (2012: Nil). 54 Cellmid 2013 Annual Report NOTE 15: OTHER ASSETS Prepayments Total other assets NOTE 16: TRADE AND OTHER PAYABLES Unsecured liabilities: Trade payables Sundry payables and accrued expenses Total trade and other payables NOTE 17: PROVISIONS Consolidated Group Opening balance at 1 July 2012 Additional (Reversal of) provisions Balance at 30 June 2013 Analysis of total provisions Current Non-current Provision for Employee Benefits Consolidated Group 2013 $ 73,321 73,321 2012 $ 30,638 30,638 Consolidated Group 2013 $ 271,936 229,363 501,299 2012 $ 112,702 145,875 258,577 Employee Benefits Annual Leave Long Service Leave $ $ 135,448 (693) 134,755 34,753 17,755 52,508 Consolidated Group 2013 $ 134,755 52,508 187,263 2012 $ 135,448 34,753 170,201 A provision has been recognised for employee entitlements relating to annual leave and long service leave. Cellmid 2013 Annual Report 55 Notes to the Financial Statements Continued NOTE 18: CONTRIBUTED EQUITY Consolidated Group Note 2013 No. 2012 No. 2013 $ 2012 $ a. Share Capital At the beginning of the year 520,843,117 392,634,129 20,741,843 18,780,723 Shares issued during the year 129,626,962 128,208,988 3,962,418 1,961,120 At the end of the year 18.c 650,470,079 520,843,117 24,704,261 20,741,843 b. Options Balance at the beginning of the year Listed Other Directors Executives 36,923,968 34,552,001 57,989 57,989 - - - 317,181,205 (6,599,995) 574,272 - - 3,971,962 5,000,000 - - - - - At the end of the year 18.d 354,105,173 36,923,968 632,261 57,989 Total contributed equity 25,336,522 20,799,832 Capital Risk Management The consolidated entity’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current parent entity’s share price at the time of the investment. The consolidated entity is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. 56 Cellmid 2013 Annual Report c. Movement in ordinary share capital Consolidated Group Date Details Opening balance 1 July 2011 4/10/2011 Share issue 2/12/2011 Share issue 13/12/2011 Share issue 13/01/2012 Exercise of converting note options 24/01/2012 Share issue 17/02/2012 Exercise of converting note options 20/02/2012 Exercise of converting note options 27/02/2012 Exercise of converting note options 2/03/2012 Exercise of converting note options 16103/2012 Exercise of converting note options 28/03/2012 Exercise of converting note options 4/04/2012 Exercise of converting note options 12/04/2012 Exercise of converting note options 20/04/2012 Exercise of converting note options 4/05/2012 Share issue 7/05/2012 Share issue 30/05/2012 Share issue 12/06/2012 Share issue Closing balance 30 June 2012 Opening balance 1 July 2012 27/07/2012 Share issue 31/08/2012 Capital raising costs 19/03/2013 Share issue 20/03/2013 Share issue 22/03/2013 Share issue 27/03/2013 Share issue 31/03/2013 Capital raising costs 9/04/2013 Capital raising costs 21/05/2013 Capital raising costs Number of shares 392,634,129 4,000,000 23,560,944 4,411,765 1,666,667 22,500 1,442,309 2,083,333 3,191,489 3,191,489 1,595,745 2,105,263 2,777,778 3,333,333 14,196,360 12,283,641 5,175,428 31,689,481 11,481,463 520,843,117 520,843,117 24,242,424 - 14,650,000 14,991,359 13,755,555 6,250,000 - - - 10/05/2013 Cellmid FPO escrowed for 3 months from Issue 7,500,000 20/05/2013 Cellmid FPO escrowed for 6 months from Issue 10,217,822 20/05/2013 Cellmid FPO escrowed for 12 months from Issue 38,019,802 Closing balance 30 June 2013 650,470,079 Issued price $ 0.0390 0.0170 0.0160 0.0120 - 0.0104 0.0096 0.0094 0.0094 0.0094 0.0095 0.0090 0.0090 0.0090 0.0165 0.0165 0.0165 0.0165 0.0165 0.0400 0.0400 0.0400 0.0400 0.0300 0.0300 0.0300 18,780,723 156,000 400,708 71,250 20,000 - 15,000 20,000 30,000 30,000 15,000 20,000 25,000 30,000 127,767 202,680 85,395 522,876 189,444 20,741,843 20,741,843 400,000 (20,000) 586,000 599,654 550,222 250,000 (7,014) (60,000) (8,573) 225,000 306,535 1,140,594 24,704,261 Cellmid 2013 Annual Report 57 Notes to the Financial Statements Continued Ordinary shares No limit has been set on the total number of ordinary shares that the Company may issue. The ordinary shares do not carry par value. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in propor- tion to the number of and amounts paid on the shares held. On a show of hand every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Consolidated Group Number of options $ 34,552,001 (549,995) 3,971,962 (6,050,000) 5,000,000 36,923,968 36,923,968 1,400,000 40,000 244,542,770 18,000,000 3,000,000 - - 25,000,000 9,825,000 7,370,635 6,002,800 3,375,000 625,000 (2,000,000) 354,105,173 57,989 - - - - 57,989 57,989 - - 489,086 57,600 6,000 (22,908) (32,705) 50,000 9,825 7,371 6,003 3,375 625 - 632,261 d. Movement in options Date Details Opening balance 1 July 2011 8 Jan 12 Options lapsed 7 Mar 12 Options issued 8 May 12 Options lapsed 12 Jun 12 Options issued Closing balance 30 June 2012 Opening balance 1 July 2012 14/08/2012 Options issued 15/08/2012 Options issued 29/10/2012 Options issued 30/10/2012 Options issued 16111/2012 Options issued 1/11/2012 Capital Raising Costs 1/12/2012 Capital Raising Costs 6112/2012 Options issues 19/03/2013 Options issues 20/03/2013 Options issues 22/03/2013 Options issues 27/03/2013 Options issues 2/04/2013 Options issues 16104/2013 Options lapsed Closing balance 30 June 2013 58 Cellmid 2013 Annual Report Options On 14th and 15th August 2012, 1,440,000 share options were granted to Mr Darren Jones, Ms Anita Hicks and Ms Erin Grant as part of the employee share scheme. The options are exercisable on or before 14th August 2017 with an exer- cise price at $0.034 each. The options hold no voting or dividend rights and are not transferable. On 30th October 2012, 18,000,000 share options were granted to Mr Martin Rogers in lieu of cash payment for consult- ing fees accrued prior to his directorship with Cellmid. The options are exercisable on or before 23rd October 2016 with an exercise price at $0.034 each. The options hold no voting or dividend rights and are not transferable. These options vested immediately on grant date. Further details of these options are provided in the directors’ report. The options hold no voting or dividend rights and are not listed. During the financial year, no other options vested with key management personnel (2012: Nil). Cellmid 2013 Annual Report 59 Notes to the Financial Statements Continued NOTE 19: RESERVES AND ACCUMULATED LOSSES a. Reserves Share based payment reserve Balance 1 July Option expense Balance 30 June Options Consolidated Group 2013 $ 2012 $ 1,723,230 1,660,231 4,033 62,999 1,727,263 1,723,230 On 14th and 15th August 2012, 1,440,000 share options were granted to Mr Darren Jones, Ms Anita Hicks and Ms Erin Grant as part of the employee share scheme. The options are exercisable on or before 14th August 2017 with an exer- cise price at $0.034 each. The options hold no voting or dividend rights and are not transferable. Available for sale reserve Balance 1 July Gain (loss) on revaluation Reclassification impairment loss to profit and loss Balance 30 June General reserve Balance 1 July Net movement as a result of shams issued to minority interest Contributions of equity Balance 30 June Foreign exchange reserve Balance 1 July Foreign exchange expense Balance 30 June - - - - - 22,855 - 22,855 - 22,855 - 216,257 216,257 10,120 (17,210) (7,090) 7,090 - - 33,860 33,860 (11,005) 22,855 - - - Foreign exchange reserve is the net exchange difference arising on the translation of the financial statements into the presentation currency and on the translation of a foreign operation into the presentation currency. Total reserves Balance 1 July Revalution, option expense and foreign exchange expense Balance 30 June 1,746,085 1,670,351 220,290 75,734 1,966,375 1,746,085 60 Cellmid 2013 Annual Report b. Accumulated losses Movements in accumulated losses were as follows: Balance 1 July Net income (loss) for the year Balance 30 June NOTE 20: CASH FLOW INFORMATION a. Reconciliation of Cash Flow from Operations with Loss after Income Tax Loss for the year Non - cash flows in loss: - Depreciation and amortisation - Share base payment - Bad and doubtful debt - Gain on sale of financial asset Consolidated Group 2013 $ 2012 $ (20,441,455) (18,471,095) (1,528,041) (1,970,360) (21,969,496) (20,441,455) Consolidated Group 2013 $ 2012 $ (1,541,307) (1,972,483) 16,634 4,033 1,227 (48,875) 11,419 228,999 - - - Impairment loss on non - current investment - 7,090 Changes in assets and liabilities, net of the effects of purchase of subsidiaries : - (increase)/decrease in trade and other receivables - (increase)/decrease in prepayments - (increase)/decrease in inventories - increase/(decrease) in trade and other payables - increase/(decrease) in provisions Cash flow from operations 22,890 (11,583) (59,303) 146,453 17,063 (43,565) 617 (192,055) 124,873 76,836 (1,452,768) (1,758,269) Cellmid 2013 Annual Report 61 Notes to the Financial Statements Continued NOTE 21: CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. a. Critical accounting estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, manage- ment believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. i. Estimated impairment of intellectual property The group tests annually whether intellectual property has suffered any impairment, in accordance with the accounting policy stated in note 1. The recoverable amounts of the intellectual property have been determined based on reviewing the status of the research and development program, progress on its patent applications and projected cash flow calcu- lations. These calculations require the use of assumptions, including estimating timing of cash flows, product develop- ment and availability of resources to exploit the assets. NOTE 22: EVENTS AFTER THE REPORTING PERIOD There are two items which have occured after the reporting date as follows: - Pacific Edge have issued 1,084,622 shares to Cellmid having achieved their requisite milestone. The shares have been issued pursuant to the midkine diagnostic licence agreement signed on 17 May 2010; and - The escrow shares issued during the year will be released within the next 12 months; Other than these items, no other matter or circumstance has arisen since 30 June 2013 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. NOTE 23: RELATED PARTY TRANSACTIONS Related Parties a. The group’s main related parties are as follows: Parent entities: Cellmid Limited is the ultimate parent entity. Subsidiaries: For details of disclosures relating to subsidiaries, refer to Note 25: Controlled Entity. Key management personnel: For details of disclosures relating to key management personnel, refer to Note 6: Interests of Key Management Personnel (KMP) and the remuneration report in the directors’ report. 62 Cellmid 2013 Annual Report b. Transactions with related parties Key management personnel: Martin Rogers received 18,000,000 options in lieu of a consulting fee. The consulting work was performed prior to his directorship. There were no other related party transactions during the year ended 30 June 2013. Subsidiaries: The transactions with subsidiaries have been eliminated on consolidation of the group. NOTE 24: FINANCIAL RISK MANAGEMENT Specific Financial Risk Exposures and Management The Group’s activities expose it to a number of financial risks as described below. The Group’s overall risk management program seeks to minimise potential adverse effects on the financial performance of the Group. To date, the group has not had the need to utilise derivative financial instruments such as foreign exchange contracts or interest rate swaps to manage any risk exposures identified. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the account- ing policies to these financial statements, are as follows: Financial assets Cash and cash equivalents Loans and receivables Available-for-sale financial assets Total financial assets Financial liabilities Financial liabilities at amortised cost: - trade and other payables Total financial liabilities a. Credit risk Note Consolidated Group 2013 $ 2012 $ 1,754,994 1,050,593 255,695 - 71,168 42,910 2,010,689 1,164,671 501,299 501,299 258,577 258,577 9 10 12 16 Credit risk is managed on a Group basis. The group has no significant concentration of credit risk. The maximum exposure to credit risk by class of recognised financial assets at the end of the reporting period is equivalent to the carrying value and classification of those financial assets (net of any provisions) as presented in the table above. Trade and other receivables that are neither past due nor impaired are considered to be of high credit quality. Credit risk related to balances with banks and other financial institutions is managed by management in accord- ance with approved board policy. Such policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA-. Cellmid 2013 Annual Report 63 Notes to the Financial Statements Continued b. Liquidity risk The Group manages this risk through the following mechanisms: - preparing forward-looking cash flow analysis in relation to its operational, investing and financing activities; - managing credit risk related to financial assets; - only investing surplus cash with major financial institutions The Group is not exposed to any material liquidity risk. The table below analyse the group’s financial liabilities into relevant maturity groupings based on their contractual maturities for: (a) all non-derivative financial liabilities (b) net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carving balances as the impact of discounting is not significant. Contractual maturities of financial liabilities Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flow Carrying amount liabilities As 30 June 2013 $ $ $ $ $ $ $ Non-derivative Trade and other payable Total Derivative Borrowings Total 501,299 501,299 - - Contractual maturities of financial liabilities Less than 6 months 6-12 months As 30 June 2012 $ $ Non-derivative Trade payable Total Derivative Borrowings Total 258,577 258,577 - - c. Market risk Foreign exchange risk - - - - - - - - - - - - - - - - - - - - - - - - 501,299 501,299 - - Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flow Carrying amount liabilities $ $ $ $ $ - - - - - - - - - - - - - - - - 258,577 258,577 - - Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group. 64 Cellmid 2013 Annual Report The Group has no significant concentration of foreign exchange risk. The maximum exposure to foreign exchange risk is the fluctuation in the US dollar on its USD denominated bank account and also the Japanese Yen bank accounts. Price risk The Group is not exposed to any material price risk. NOTE 25: SUBSIDIARY AND TRANSACTIONS WITH NON-CONTROLLING INTEREST a. Significant investments in subsidiary Country of Incorporation Percentage Owned (%) Subsidiaries of Cellmid Limited Advangen International Pty Limited Advangen Limited Advangen Incorporated Australia Australia Japan 2013 2012 95 100 100 95 - - NOTE 26: SEGMENT INFORMATION Identification of reporting segments The Group’s organised into two operating segments: (1) research and development of diagnostics and therapeutics and (2) research, development and marketing of hair growth products. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (identified as the Chief Operating Decision Makers (CODM)) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. The CODM reviews both adjusted earnings before interest, tax, depreciation and amortisation (segment result) and profit before income tax. Types of products and services The principal products and services of each of these operating segments are as follows: R&D R&D and marketing Diagnostics and therapeutics for cancer and inflammatory conditions Hair growth products Geographic segment information The primary geographic segment within which the Group operates is Australia as at 30 June 2013. For primary reporting purposes, the Group operates in two geographic segment as described as at 30 June 2013. Major customers During the year ended 30 June 2013 approximately 70% of the Group’s external revenue was derived from sales to Frost- bland Pty Ltd (32%) and Fujikura Kasai Co Limited (38%) through the biotechnology and retailing operating segments. Cellmid 2013 Annual Report 65 Notes to the Financial Statements Continued Operating segment information 30 June 2013 Biotechnology Retailing Retailing Consolidated Revenue Sales revenue Total sales revenue Interest received Royalties Rental revenue Government grant received Other revenue Total Revenue Expenses Share-based compensation Gain on disposal of financial assets Depreciation Finance costs $ $ Australia Australia 215,279 215,279 30,833 358 24,000 115,167 - 385,637 311,098 311,098 - - - - 398 311,496 $ Japan 15,272 15,272 - - - - 8 15,280 $ 541,649 541,649 30,833 358 24,000 115,167 406 712,413 (2,374,994) (576,661) (115,015) (3,066,671) (4,032) 48,875 (13,919) (1,110) - - (156) (14) - - (2,561) - (4,032) 48,875 (16,635) (1,124) Loss before income tax expenses (1,959,543) (265,335) (102,296) (2,327,173) Income tax benefit Loss after income tax benefit 785,866 (1,541,307) 30 June 2013 Biotechnology Retailing Retailing Consolidated $ $ Australia Australia $ Japan $ 2,545,805 369,363 3,078,552 5,993,720 (532,592) (79,483) (76,487) - - 5,993,720 (688,562) (688,562) Assets Segment assets Unallocated assets: Other financial assets Total assets Liabilities Segment liabilities Total liabilities 66 Cellmid 2013 Annual Report 30 June 2012 Biotechnology Retailing Retailing Consolidated $ $ Australia Australia $ Japan $ Revenue Sales of products Total sales revenue Interest received Royalties Rental revenue Government grant received Other revenue Total Revenue Expenses Share-based compensation Gain on disposal of financial assets Depreciation Finance costs 12,590 12,590 5,370 704 24,000 - 11,077 53,741 115,704 115,704 - - - - 1,828 117,532 (2,412,460) (236,921) (228,999) 49,237 (11,110) (39,509) - - (309) (205) Loss before income tax expenses (2,589,100) (119,903) Income tax benefit Loss after income tax benefit Assets Segment assets Unallocated assets: Other financial assets Total assets Liabilities Segment liabilities Total liabilities 2,135,203 340,149 (415,667) (13,111) - - - - - - - - - - - - - - - 736,520 - - 42,910 128,294 128,294 5,370 704 24,000 - 12,905 171,273 (2,649,381) (228,999) 49,237 (11,419) (39,714) (2,709,003) (1,972,483) 2,475,352 2,518,262 (428,778) (428,778) Cellmid 2013 Annual Report 67 Notes to the Financial Statements Continued NOTE 27: COMMITMENTS Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years More than five years Consolidated Group 2013 $ 174,039 554,061 728,100 2012 $ - - - Operating lease commitments includes contracted amounts for office space under non-cancellable operating lease expir- ing within five years with no option to extend. NOTE 28: BUSINESS COMBINATIONS On 24 May 2013 Cellmid Limited acquired 100% of the ordinary shares of Advangen Incorporated (Japanese entity) for the total consideration transferred of JPY¥285,171,564. This has been translated to AUD$2,893,968 using the exchange rate per Reserve Bank of Australia (RBA) on 24 May 2013. The acquired business contributed revenues of $15,280 and loss after tax of $102,297 to the Group for the period from 25 May 2013 to 30 June 2013. The values identified in relation to the acquisition of Advangen Incorporated are final as at 30 June 2013. Details of the acquisition are as follows: Book Value Fair Value Exchange Rate Fair Value ¥JPY ¥JPY 41,182,636 41,182,636 19,594,272 19,594,272 31,742,886 31,742,886 2,850,035 2,850,035 848,292 848,292 - 198,099,144 (9,145,701) (9,145,701) 87,072,420 285,171,564 - - 285,171,564 98.54 98.54 98.54 98.54 98.54 98.54 98.54 Cash and cash equivalents Trade and other receivables Inventories Other assets Plant and equipment Intangibles assets Trade and other payables Net assets acquired Goodwill Acquisition date fair value of the total consideration transferred Representing: - Cash - Fair value of issued shares Cash used to acquire business, net of cash acquired: Cash to acquire subsidiary Less: Cash and cash equivalents on acquisition Net cash used 68 Cellmid 2013 Annual Report $AU 417,928 198,846 322,132 28,923 8,609 2,010,342 (92,812) 2,893,968 - 2,893,968 1,221,839 1,672,129 2,893,968 1,221,839 417,928 803,911 NOTE 29: CONTIGENT LIABILITIES a. b. Contingent liabilities The parent entity and Group had no contingent liabilities at 30 June 2012 or at 30 June 2013. Contingent assets The parent entity and Group had no contingent assets at 30 June 2012 or at 30 June 2013. NOTE 30: COMPANY DETAILS The registered office of the company is: Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 The principal places of business are: Cellmid Limited, Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Advangen International Pty Limited. Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Advangen Limited. Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Advangen Incorporated, Chiba Industry Advancement Centre Tokatsu Techno Plaza 511-6 Kashiwanoha Kashiwa, Chiba 277-0082 Japan Cellmid 2013 Annual Report 69 Directors’ Declaration DIRECTORS’ DECLARATION The directors of the company declare that: 1. the financial statements and notes, as set out on pages 31-69, are in accordance with the Corporations Act 2001, the Corporations Regulations 2001 and other mandatory professional reporting equirements and: a. comply with Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position as at 30 June 2013 and of the performance for the year ended on that date of the company and the group; c. the remuneration disclosures contained in the Remuneration Report comply with section 300A of the Corporations Act 2001; 2. the Chief Executive Officer and Chief Financial Officer have each declared that: a. the financial records of the company for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001; b. the financial statements and notes for the financial year comply with Accounting Standards; and c. the financial statements and notes for the financial year give a true and fair view; and 3. in the directors’ opinion there are reasonable grounds to believe that the group will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the Board of Directors made pursuant to Section 295 (5) of the Corporations Act 2001. Dr David King Director Dated 28th day of August 2013 70 Cellmid 2013 Annual Report Cellmid 2013 Annual Report 71 72 Cellmid 2013 Annual Report Additional Information The information in this section has been prepared as at 12 September 2013. 20 LARGEST SHAREHOLDERS Holder Name Cell Signals Inc Seistend (Super) Pty LtdHera Investments Pty Ltd Mr James Patrick Tuite & Mrs Wendy Tuite Mr Gregory Glenn Worth Mr Trevor Gottlieb Bhp No 2 Investment Limited Partnership Mr Gregory Bernard Hilton Dr Kuen Seng Chan Bainpro Nominees Pty Limited Dr Noriie Itoh Biotech Healthcare No 1 Limited Partnership Moore Family Nominee Pty Ltd Mr Ivan Staresinic RAH STC Pty Ltd Mr Harold Leonard Gottlieb & Mrs Helen Cynthia Gottlieb Direct Capital Pty Ltd Mr Darin Anjoul & Mrs Tania Anjoul Mr Paul Ruggiero & Mrs Lorissa Ruggiero Mr Paul Ruggiero & Mrs Lorissa Ruggiero Balance Percent 28,000,000 22,500,000 21,250,000 20,646,462 19,000,000 15,350,000 14,257,426 10,897,000 10,000,000 9,860,000 9,504,950 8,732,673 7,500,000 7,500,000 6,250,000 6,000,000 5,700,000 5,500,000 5,239,814 5,125,001 4.305 3.459 3.267 3.174 2.921 2.360 2.192 1.675 1.537 1.516 1.461 1.343 1.153 1.153 0.961 0.922 0.876 0.846 0.806 0.788 Total Issued Share Capital 238,813,326 650,470,078 36.714 20 LARGEST HOLDERS OF QUOTED OPTIONS Holder Name Structure Investments Pty Ltd Mr Trevor Gottlieb Seistend (Super) Pty Ltd Mr James Patrick Tuite & Mrs Wendy Tuite Mr Janakan Krishnarajah Paesler Trading Pty Ltd Mr Oscar Dario Rosero Mr Gregory Glenn Worth Mr Paul Philip Ranby Mr Egan Harvey Johnson Hera Investments Pty Ltd Balance 41,000,000 13,255,500 11,250,000 10,323,231 10,000,000 10,000,000 10,000,000 8,000,000 7,535,813 5,258,400 5,000,000 Percent 14.112 4.562 3.872 3.553 3.442 3.442 3.442 2.753 2.594 1.810 1.721 Cellmid 2013 Annual Report 73 Additional Information Continued Mr Paul Ruggiero & Mrs Lorissa Ruggiero Mr Sherman Yip Mr Dragoslav Jevtic & Mrs Nicole Jevtic Goffacan Pty Ltd Mr Darin Anjoul & Mrs Tania Anjoul Mr Darin Anjoul & Mrs Tania Anjoul Stanley George Malcolm Black Cygnet Pty Ltd Mr Steven Andrew Cooper* Rogers SF Management Pty Ltd * Talrind Pty Ltd * Prof William James Vagg* Total Issued Quoted Options * Quoted option holders on equal 20th position SUBSTANTIAL HOLDERS 5,000,000 5,000,000 4,540,000 4,500,000 4,000,000 4,000,000 3,750,000 3,129,232 3,000,000 3,000,000 3,000,000 3,000,000 177,542,176 290,542,770 1.721 1.721 1.563 1.549 1.377 1.377 1.291 1.077 1.033 1.033 1.033 1.033 61.107 Cellmid Limited is a substantial holder of itself. It has a relevant interest in 48,237,624 ordinary shares. The relevant interest has arisen as it is a party to a number of voluntary restriction agreements with its shareholders under which the relevant shareholder is prohibited from disposing of its shares for a prescribed period of time. Holdings Ranges 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Totals Holders Total Units 48 36 135 897 625 7,254 112,180 1,247,077 44,030,909 605,072,658 1,741 650,470,078 % 0.001 0.017 0.192 6.769 93.021 100.000 NUMBER OF HOLDERS AND VOTING RIGHTS IN EACH CLASS OF SECURITIES Class of Security Ordinary Shares Quoted Options $0.034 expiring 23 October 2016 Unlisted $0.05 Options expiring 19 March 2014 Unlisted $0.05 Options expiring 1 June 2014 Unlisted $0.05 Options expiring 1 July 2014 Unlisted $0.035 Options expiring 20 November 2014 Unlisted $0.056 Options expiring 20 November 2014 Unlisted $0.062 Options expiring 19 February 2015 Unlisted $0.10 Options expiring 15 November 2015 Unlisted $0.03 Options expiring 15 November 2016 Unlisted $0.032 Options expiring 15 June 2017 Unlisted $0.034 Options expiring 14 August 2017 74 Cellmid 2013 Annual Report No of Holders Voting Rights 1,741 410 35 7 14 1 1 1 1 1 1 3 Yes No No No No No No No No No No No Subject to the ASX Listing Rules, the Company’s constitution and any special rights or restrictions attached to a share, at a meeting of shareholders: • On a show of hands, each shareholder present (in person, by proxy, attorney or representative) has one vote; and • On a poll, each shareholder present (in person, by proxy, attorney or representative) has: o One vote for each fully paid share they hold; and o A fraction of a vote for each partly paid share they hold. UNMARKETABLE PARCELS OF SHARES The number of shareholders with less than a marketable parcel of shares is 338. SECURITIES SUBJECT TO VOLUNTARY ESCROW The following shares are subject to voluntary escrow arrangements: Escrow Period 6 months from issue (to be released 20 November 2013) 12 months from issue (to be released 20 May 2014) CLASSES OF UNQUOTED SECURITIES Class of Security Unlisted $0.05 Options expiring 19 March 2014 Unlisted $0.05 Options expiring 1 June 2014 Unlisted $0.05 Options expiring 1 July 2014 Unlisted $0.035 Options expiring 20 November 2014 Unlisted $0.056 Options expiring 20 November 2014 Unlisted $0.062 Options expiring 19 February 2015 Unlisted $0.10 Options expiring 15 November 2015 Unlisted $0.03 Options expiring 15 November 2016 Unlisted $0.032 Options expiring 15 June 2017 Unlisted $0.034 Options expiring 14 August 2017 No of Ordinary Shares 10,217,822 38,019,802 No of Holders Total Units 35 7 14 1 1 1 1 1 1 3 27,198,435 8,250,000* 5,002,006 2,000,000 7,000,000 600,000 100,000 3,971,962 5,000,000 1,440,000 * Wise-Owl.com Pty Ltd holds 48.45% of the unquoted options in this class (4,000,000 options) GENERAL There is no current on-market buy-back for the Company’s securities. Cellmid 2013 Annual Report 75 Corporate Directory Office Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Australia Tel: +612 9221 6830 Fax: +612 9221 8535 Email: info@cellmid.com.au www.cellmid.com.au Non-Executive Chairman Dr David King Chief Executive Officer and Managing Director Maria Halasz Graeme Kaufman (appointed 27 August 2012) Martin Rogers (appointed 19 September 2012) Nicholas Falzon Andrew Bald (resigned 8 April 2013) Jillian McGregor (appointed 16 July 2013) BDO Chartered Accountants Level 10, 1 Margaret Street Sydney NSW 2000 Australia Piper Alderman Governor Macquarie Tower 1 Farrer Place Sydney NSW 2000 Australia FB Rice & Co Level 23, 44 Market Street Sydney NSW 2000 Australia Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Australia Non-Executive Director Company Secretary Auditors Solicitors Patent Attorney Share Registry 76 Cellmid 2013 Annual Report Cellmid Limited Suite 1802, Level 18, 15 Castlereagh Street Sydney NSW 2000 Australia ABN 69 111 304 119 T: +61 2 9221 6830 F: +61 2 9221 8535 E: info@cellmid.com.au www.cellmid.com.au 2013 Annual Report C E L L M I D L I M I T E D 2 0 1 3 A N N U A L R E P O R T