Cryosite Limited
Annual Report 2019

Plain-text annual report

Cryosite Limited Appendix 4E ABN 86 090 919 476 Full year report Results for announcement to the market 1. Details of Reporting Period The financial information contained in this report is for the year ended 30 June 2019. Comparative amounts (unless otherwise indicated) relate to the year ended 30 June 2018. 2. Results for Announcement to the Market 2.1 Revenue from ordinary activities: Up 34.6% to 7,973k $A'000 2.2 Profit(loss) from ordinary activities after tax attributable to members: 2.3 Net profit (loss)for the period attributable to members: 3. Dividends Down 38.8% to (1,723) Down 38.8% to (1,723) The Board of Cryosite has recommended that no dividends be paid. 4. Commentary on the results to the market The audited annual accounts are attached. Please refer to these for full results and commentary. 1B5. NTA backing 8 Net tangible asset backing per ordinary security Current period Previous corresponding Period (3.7) cents 4.0 cents CRYOSITE LIMITED ABN 86 090 919 476 Annual Report for the year ended 30 June 2019 CRYOSITE LIMITED ANNUAL REPORT Table of Contents Page Corporate Information Director’s Report Auditor’s Independence Declaration Corporate Governance Directors Declaration Consolidated Statement Of Profit And Loss And Other Comprehensive Income Consolidated Statement Of Financial Position Consolidated Statement Of Changes In Equity Consolidated Statement Of Cashflows Notes To The Financial Statements 1 Corporate Information 2 Summary Of Significant Accounting Policies 3 Significant Accounting Judgements, Estimates And Assumptions 4 Transition To AASB 15 5 Segment Information 6 Revenue 7 Expenses 8 Income Tax 9 Earnings Per Share 10 Cash And Cash Equivalents 11 Statement Of Cash Flow Reconciliation 12 Current Assets - Trade and Other Receivables 13 Current Assets - Inventories 14 Prepayments 15 Other assets 16 Non-Current Trade And Other Receivables 17 Non-Current Assets - Investment in Subsidaries 18 Non-Current Assets - Plant And Equipment 19 Non-Current Assets - Intangible Assets 20 Deferred Costs 21 Current Liabilties - Trade And Other Payables 22 Unearned Income 23 Deferred Revenue 24 Provisions 25 Contributed Equity and Accumulated Losses 26 Reserves 27 Commitments And Contigencies 28 Auditors Remuneration 29 Related Party Disclosures 30 Share-Based Payments Expense 31 Key Management Personnel 32 Financial Instruments 33 Parent Entity Financial Information 34 Discontinued Operations 35 Legal Settlement Independent Auditor’s Report ASX Additional Shareholder Information 1 2 16 17 18 19 20 21 22 23 23 23 34 38 40 42 42 43 45 47 48 49 50 50 51 51 51 52 52 54 54 55 55 55 56 57 57 58 58 59 62 63 67 68 69 70 74 CRYOSITE LIMITED ANNUAL REPORT Corporate Information DIRECTORS Mr. Bryan Dulhunty (Executive Chairman) Mr. Andrew Kroger (Non-Executive Director) Mrs Nicola Swift (Non-Executive Director) COMPANY SECRETARY Mr. Bryan Dulhunty (CoSA Life Science - Corporate) REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS 13a Ferndell Street SOUTH GRANVILLE NSW 2142 Telephone: Fax: Email: corporate@cryosite.com +61 2 8865 2000 +61 2 8865 2090 SHARE REGISTER Link Market Services Limited Level 8, 580 George Street SYDNEY NSW, 2000 Telephone: +61 2 8260 7111 AUDITORS Mazars Risk & Assurance Pty Limited Level 12, 90 Arthur Street NORTH SYDNEY NSW, 2060 Telephone: +61 2 9922 1166 INTERNET ADDRESS www.cryosite.com Cryosite Limited Annual Report 1 Directors’ Report The directors present their report together with the financial statements on the consolidated entity (the Group) consisting of Cryosite Limited (the Company) and the entity it controlled for the year ended 30 June 2019. DIRECTORS The following persons were directors of Cryosite Limited during the whole of the financial year and up to date of this report unless otherwise stated: Mr. Bryan Dulhunty Mr. Andrew Kroger Mrs. Nicola Swift Executive Chairman (Non- executive up to the 27th June 2019) Non-executive Non-executive Names, qualifications, experience, interests and special responsibilities Bryan Dulhunty, BEc, CA Mr. Dulhunty brings a wealth of life science experience to the position having been involved in the industry for the past 20 years. Mr. Dulhunty provides a range of consulting services to the life science industry. Mr. Dulhunty has served as a director of a number of listed ASX and non-listed life science companies, including holding the positions of Executive Chairman and Managing Director of Viralytics Ltd from 2005 to 2012. Mr. Dulhunty is a Chartered Accountant and holds an Economics Degree from Sydney University. Mr. Dulhunty was appointed to the Board on 2nd March 2018 and Executive Chairman on the 27th June 2019. Interest in shares and options at date of report Shares Options Special responsibilities Mr. Andrew Kroger, BEc. LLB, Non-Executive Director 30,000 1,300,000 Executive Chairman Chair of the Audit and Risk Committee Company Secretary Mr. Kroger has had a career in stockbroking, law and general management including two years running Forsayth Group in 1990 which was Australia’s ninth largest gold producer at that time. Mr. Kroger is the owner of Process Wastewater Technologies LLC, a company with its major business being in wastewater in the United States. Mr. Kroger has a Bachelor of Economics and a Bachelor of Laws from Monash University. Mr. Kroger was appointed to the Cryosite Limited board in November 2011. Interest in shares at date of report 17,315,291 Mrs. Nicola Swift, BA (Mod) Legal Science, MA, CFA, GAICD, Non-Executive Director Mrs. Swift has an extensive background in the international investment management and securities industry as a research director, portfolio manager and equity analyst. She has over 16 years of experience gained in London, Sydney and Boston with various global institutional investors. Mrs Swift is a Chartered Financial Analyst, a graduate of the Australian Institute of Corporate Directors and holds an Honours Law degree and a Masters of Arts from Trinity College Dublin. She is the CEO of Heads Over Heels Connections Pty Ltd and is also a Director of Ascham Foundation Ltd and Ascham School Ltd. Mrs. Swift was appointed to the Board on 3 November 2016. Interest in shares at date of report Nil Special responsibilities Chair of the Remuneration and Nominations committee Cryosite Limited Annual Report 2 Directors’ Report (continued) COMPANY SECRETARY Bryan Dulhunty, BEc, CA Company Secretarial Services for Cryosite Limited are provided by CoSA Life Science - Corporate, a Company Secretarial firm specialising in the Life science industries. EARNINGS PER SHARE Basic earnings per share (cents) Diluted earnings per share (cents) 2019 (3.68) (3.62) 2018 (2.65) (2.61) DIVIDENDS No dividends were paid during the financial year. The total dividends declared were $nil (2018: nil). PRINCIPAL ACTIVITIES The company’s principal activities are the provision of supply chain logistics, management of pharmaceutical products used in clinical trials, management of biological materials and long-term storage of cord blood and tissue samples. Cryosite operates through two operating segments: Clinical Trials & Biological Services Logistics This business provides specialist temperature-controlled storage, sourcing, labelling, status management, secondary packaging, schedule drug distribution, destruction, returns and biological services to the clinical trial and research industry. Cord Blood and Tissues Storage This business provides long term storage for cord blood and tissue samples. REVIEW OF OPERATIONS In the 2018 Chairman’s letter to shareholders it was stated that “2019 will be a challenging year for the Company however the Company expects to end the year with a clear focus and a profitable and growing clinical trial logistic business supported by the long-term storage of Cord Blood and Tissue contracts” and this is exactly what occurred. The Company reporting sales growth of 34% to $7,912k, incurred a loss after tax of $1,723k and an operating cash outflow of $648k for the year ended 30 June 2019. These results are driven by a combination of one off costs, significant changes in accounting standards affecting our cord blood and tissue business segment, discontinuation of the processing of cord and tissue samples and changes to the sales product mix of the clinical trials logistic segment. One off costs The company incurred two one off costs totaling $1,488k; - ACCC fine and related costs of $1,157k reported in other items in the profit and loss statement (refer note 35) and -impairment losses of $331k as reported within expenses. (refer note 7) These items are discussed in detail in the annual report. Cryosite Limited Annual Report 3 Directors’ Report (continued) Sales Total sales revenue grew $2,048k to $7,912k. Cord blood and tissue revenue grew by $2,168 offset by a decline in clinical trial logistic revenue of $120k. Cord blood and tissue revenue grew substantially despite the company ceasing to process cord blood and tissue. This growth in revenue is the result of the introduction of a new accounting standard AASB 15. The effect of this standard has been to reinstate revenue and costs previously recorded in past periods as deferred revenue and costs on the Statement of Financial Position. Each year we then take to account a proportion of the total revenue and costs from prior periods spread over the life of the original contracts. The accounting effect of this is set out in note 4. It is important to note that the revenue and costs are principally deferred accounting entries and do not represent cash flow. Clinical trial logistics saw revenue decline by $120k to $5,190k. This was due to a change in the sales product mix. As previously announced, a client, at the start of the year, consolidated their warehousing and logistics management of a commercial scale product with an international distribution company. This product was a high margin product for Cryosite. While Cryosite’ s was able to introduce a new product offering to its existing client base and grow sales, the margins on this new product was much lower than the sales we lost. Operating Loss after tax As noted above one off costs of $1,488k contributed to the after tax loss of $1,723k. Other significant contributions to the loss was a decline in the clinical trial logistics margin of $457k as a result of the change in product sales mix discussed above, business development costs of $252k and system development costs of $183k. These items were offset by an increase in cord blood and tissue margin to $872k primarily due to the adoption of AASB 15 as noted above. Operating cash outflow The Company incurred an operating cash outflow of $648k for the period. Similar to the operating profit before tax, operating cash flow were affected by a number of unique one-off factors. One off cash payments relating to the ACCC fine and related costs of $687k and net cash outflows relating to our operating segments of $521k which was largely driven by an increased focus on business development ($458k) and system development costs($187k). These outflows were partially offset by cash inflows from the cord blood and tissue segment of $593k from the run off of customers paying down long-term cord blood and tissue plans. Outlook As can be seen from the above analysis the company faces a number of challenges. Operating profit: Excluding one off costs the business is fundamentally breaking even as a result of the loss of a high margin customer and fixed costs now having to be covered by the clinical trial segment instead of being spread over both the cord blood business segment and the clinical trial segment. As set out in the trading update of 27 June 2019 the Company has taken steps to address these challenges. Within the clinical trial segment there are a number of opportunities to increase gross margins as well as significant savings that can be made by using more appropriate business development strategies. The nature of this segment is it operates in a highly regulated environment and is dominated by a small number of large international pharmaceutical companies. The Company has had long term relationships with the majority of these companies. The management of these relationships require a very professional operational relationship based on trust and reliability. We are now taking steps to deepen these relationships with the provision of additional high margin services, provision of more extensive data and an extension of our partnership by assisting our customers in meeting challenges that occur in the rapidly changing regulatory environment in Cryosite Limited Annual Report 4 Directors’ Report (continued) Australia. Operating cashflow: In terms of operating cashflow we are faced with similar challenges. As set out above we will address these issues by offering higher margin product, driving efficiencies and cost cutting as set out in our trading update of 27 June 2019. The Company does face an additional cash challenge. The cord blood segment continues to store cord and tissue under 18 and 25 year contracts. The majority of these contracts had upfront or short-term payments terms covering the storage of the samples for the life of the contract. We are now in the run-out period of the remaining payment term contracts. As these amounts are received future cash flows will be reduced. The Company continues to hold substantial cord blood and tissue assets and is looking at ways to generate further long term cash and profitability from them. Returning Cryosite to a company generating an appropriate return on capital will not be a quick process but the initial steps are being taken. I do note that the Company does have a cash balance of $3,919k and no borrowing. Australian Competition and Consumer Commission (“ACCC”) As previously outlined in the 2018 Annual Report, on 23 June 2017 Cryosite entered into an agreement (Sale Agreement) to license, under the Cryosite brand, the collection, processing and storage of umbilical cord blood and tissue (CBT) and to sell certain of its CBT banking assets to Cell Care Australia Pty Ltd (Cell Care). On the 11th July 2018, the Company was notified by the ACCC that it would commence civil proceedings against Cryosite in the Federal Court of Australia. At the time it was reported that the Company would incur substantial legal costs with the potential to incur financial penalties in the 2019 financial year. The ACCC alleged in the proceeding that Cryosite breached the CCA by including a competition restraint provision in the Sale Agreement, which required Cryosite to refer all sales enquiries to Cell Care from the date of signing of the contract to the date on which the transaction closed. This constituted a 'cartel provision'. Further to this, the Company agreed to a settlement with the Australian Competition and Consumer Commission (ACCC) in relation to the proceeding against Cryosite in the Federal Court of Australia. While Cryosite agreed to the inclusion of the restraint clause in the Sale Agreement and referred 12 customers to Cell Care under this clause, Cryosite had no intention to breach the CCA and had no awareness that the Sale Agreement contained a clause which would contravene the CCA. It is to be noted that Cryosite retained external lawyers to advise it in relation to the drafting and terms of the Sale Agreement; that Cryosite’s external lawyers were involved in the negotiation of the Sale Agreement, but did not raise any concerns about cartel provisions; and any suggested changes to the draft Sale Agreement made by Cell Care were considered and agreed upon by the Board of Cryosite following legal advice. Cryosite is obviously disappointed to have been party to the proceeding. Under the terms of the settlement, the ACCC applied to the Federal Court seeking declarations that by entering into the Sale Agreement, Cryosite entered into a contract containing a cartel provision in contravention of section 44ZZRJ of the CCA and that, including by referring 12 customer enquiries, Cryosite gave effect to a cartel provision in contravention of section 44ZZRK of the CCA. The ACCC sought a pecuniary penalty of $1.1m (including legal costs) against Cryosite, with Cryosite being allowed to pay the penalty in instalments with $250,000 (including legal costs) to be paid within 30 day' of the Court's order and the balance to be paid in 10 equal annual instalments from 2020 to 2029. Cryosite agreed to the declarations of contravention and orders against it. On the 13th February 2019, the Federal Court of Australia approved this settlement. The Company has taken up these costs as “other liabilities” on the balance sheet. These costs (after discounting Cryosite Limited Annual Report 5 Directors’ Report (continued) of the non-current portion of the other liabilities) plus the legal costs associated with this action has resulted in total expense of $1,157,386 being recorded in the profit and loss. Details of these expenses are outlined in Note 35. Adoption of Accounting Standard AASB 15 On the 1st July 2018, the Company adopted Accounting Standard AASB 15 – Revenue from Contracts with Customers. This will a significant impact on future results of the Cord Blood and Tissue Storage, as the standard changes the timing and recognition of revenue and associated costs of long-term contracts. As previously noted in our 2018 annual report, the initial effect of the introduction of this standard was to reduce net assets of the Company on the 1st July 2018 as outlined below: Assets Liabilities Equity 30-Jun-18 7,743,679 5,800,264 1,943,415 AASB 1015 opening adjustment 1-Jul-18 22,823,305 30,566,984 24,789,440 30,589,704 (1,966,135) (22,720) AASB 15 resulted in the booking of an opening adjustment to recognize deferred revenue (representing collection and processing fees recognised upfront at the inception of the contract) and deferred costs (representing upfront costs on collection and processing of cord blood and tissue samples) as outlined in Note 4. These deferred balance sheet assets and liabilities will be taken to revenue and expense over the life of each individual contract which ranges from18 years to 25 years. In 2019, the total adjustment to the profit and loss statement was: Deferred Revenue Deferred Costs Net profit Income tax Net profit after income tax $ 2,259,252 (1,393,500) 865,752 238,068 627,684 This adjustment was allocated to the Cord Blood and Tissue Storage segment of the business. There is no impact on cash and all adjustments are expected to reverse over the period of the contracts. Full details of the impact of AASB 15 on the financial results is outlined in Note 4. EMPLOYEES The Company employed 21 full-time equivalent employees as at 30 June 2019 (2018: 23 employees). The Company recognises the value of diversity in the workplace and is committed to providing equal opportunity for all its staff with 51% of current employees being female. There are numerous religions and cultures and where possible offer flexible work practices and work life balance as a key retention tool. Cryosite is committed to providing a workplace free from any form of harassment, bullying and discrimination. EMPLOYEE INCENTIVE PLANS In February 2017, the Cryosite Employee Incentive Plan (CEIP) was introduced to attract, retain and motivate Cryosite Limited Annual Report 6 Directors’ Report (continued) management to strengthen their alignment with shareholder interests. This plan was ratified at the 2017 AGM. As at the date of this report there are 3,314,946 (2018: 1,009,249) unissued ordinary shares under the CEIP split between performance rights and options as noted: Performance rights Options Total 2019 714,946 2,600,000 3,314,946 2018 1,009,249 - 1,009,249 Please refer to the remuneration report for further details. The circumstances under which a Key Management Personnel is entitled to retain these performance rights and options if he or she should leave the Company before the vesting date is controlled by the terms of the CEIP and is at the discretion of the Board. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than detailed in the above there were no significant changes in the state of affairs of the Group during the year. SIGNIFICANT EVENTS AFTER THE BALANCE DATE As at the date of this report there are no significant events that have occurred since the 30th June 2019. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Board expects to focus on a growing clinical trial and biological services logistics business supported by the long-term storage of cord blood and tissue for existing clients. ENVIRONMENTAL REGULATIONS The Company provides a range of services that require compliance to a variety of regulatory and statutory bodies regulations, including the Therapeutic Goods Administration (TGA), the Office of Drug Control, the Department of Agriculture and Water Resources, the NSW Department of Health, and the Office of the Gene Technology Regulator (OGTR). Additionally, the Company must comply with the quality system requirements of many of its customers. The Company has implemented a Company-wide quality management system to ensure that it meets or exceeds the requirements of all these interests. There have been no significant known breaches of the consolidated entity’s licence conditions or any regulations to which it is subject. The Company, to the best of its knowledge, is not subject to any specific environmental regulations. BUSINESS RISKS Most of the services that Cryosite provide to generate income require some form of statutory licensing or compliance authority. The failure by Cryosite to attain and maintain such licences and approvals would have a significant negative effect on the Company’s ability to continue to provide such services and to maintain its viability. As referred to in other parts of this report, Cryosite is committed to mitigating risks in this area by the implementation and maintenance of a Company-wide Quality Management System. INSURANCE OF DIRECTORS AND OFFICERS The Company has paid a premium in respect of a contract insuring all the Directors and Officers against liability, except willful breach of duty, of a nature that is required to be disclosed under section 300(8) of the Corporations Act 2001. In accordance with commercial practice, further details of the nature of the liabilities insured against and the amount of the premium have not been disclosed. Cryosite Limited Annual Report 7 Directors’ Report (continued) In addition to the above, the Directors and certain Officers of the Company have entered into a Deed of Indemnity and Access confirming the Company’s obligation to maintain an adequate Director and Officer Liability insurance policy and confirming the individual Directors’ and Officers’ right to access board papers and other Company documents. In return, the individual Directors and Officers have agreed to allow the Company to conduct the defence should the event arise. The Company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an Officer or Auditor of the Company or of any related body corporate against a liability incurred as such an Officer or Auditor. REMUNERATION REPORT (Audited) This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent Company, and includes an executive in the Parent and the Group receiving the highest remuneration. This has been audited by Mazars Risk & Assurance Pty Limited and is included within the scope of the audit report on pages 8-13. Key Management Personnel Details of the nature and amount of each element of remuneration for key management personnel of the Company which includes those key management personnel receiving the highest compensation for the financial year are as follows: Mr. Bryan Dulhunty Mr. Andrew Kroger Mrs. Nicola Swift Mr. Mark Byrne Executive Chairman (Non- Executive Chairman up to the 27th June 2019) Non-Executive Director Non-Executive Director Chief Executive Officer On the 27th June 2019 it was announced that Mark Byrne has decided to step down up as CEO on the 30th September 2019 and take up a new part time role of COO - Finance and Administration. He will continue to work closely with the board. Mr Bryan Dulhunty has taken up the new role of executive chairman effective 27th June 2019. Due to the relatively small number of employees, apart from Mark Byrne, there were or are no other executives having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly during the current year. The role of the Nominations and Remuneration Committee While the Board maintains the authority and responsibility for the oversight of the Company’s remuneration policy and the principles and processes which underpins the policy, on 9 December 2016, the Board established a Nominations and Remuneration committee to provide advice and recommendations to the Board on the structure and level of remuneration for the directors, senior executives and Company secretary, and on the design and award of all executive incentive plans. The members of the committee are the independent non-executive director, Mrs. Nicola Swift (Chair) and executive chairman Mr. Bryan Dulhunty. Cryosite Limited Annual Report 8 Directors’ Report (continued) Use of external remuneration consultants As necessary the Nominations and Remuneration Committee obtained independent external recommendations and advice from Crichton and Associates Pty Ltd on matters including the design of a long-term incentive plan for employees, its implementation and management. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were received from Crichton and Associates Pty Ltd during this time period. Crichton and Associates Pty Ltd were paid $5,837 for services including the management of the Cryosite Employee Incentive Plan (CEIP). Remuneration philosophy The Company recognises the importance of structuring remuneration packages of its key management personnel so as to attract and retain people with the qualifications, skills and experience to help the Company achieve the required objectives. However, the Company understands that a prudent position must be observed in the total remuneration expense. Non-Executive Directors Cryosite has two non-executive directors and a non-executive Chairman (who become the Executive Chairman on the 27th June 2019). The remuneration of non-executive directors including the non-executive Chairman consists of fixed annual fees exclusive of statutory superannuation as below. Apart from reimbursement of expenses incurred on the Company’s behalf, non-executive directors are not eligible for any additional payments. Chairman of the Board: Non-Executive Directors: $75,000 per annum $60,000 per annum Performance based compensation is not part of the remuneration structure offered to non-executive directors. No performance rights or options are held by any non-executive director. Total remuneration paid to non-executive directors is determined by the Board from time to time for presentation to and resolution by shareholders at the Annual General Meeting. The current maximum aggregate remuneration paid to non-executive directors is $350,000 per year. During 2019 total aggregate remuneration paid to non- executive directors was $261,775. Executive Remuneration Key management personnel (other than non-executive directors) are employed on standard contracts which include a three month notice. The Company may terminate the employee's contract without notice if serious misconduct has occurred. Where termination with cause occurs, the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause, any performance rights that have granted but not vested will be forfeited. The Company does compare remuneration paid to key management personnel with other similar companies to ensure consistency. Executive total remuneration consists of the following components: Fixed Remuneration This comprised of a fixed base salary and statutory superannuation. This is reviewed annually although there is no guaranteed increase. Cryosite Limited Annual Report 9 Directors’ Report (continued) Short Term Incentive Plans 2019 Due to the on-going challenges facing the Company, no formal STIP plan was put in place for 2019. 2018 Due to the significant challenges facing the Company in 2018, no formal STIP plan was put in place. However, the Board has awarded limited discretionary bonuses to executives on a reasonable basis, taking into account the Company’s financial performance, in recognition of the efforts undertaken by the individuals. Long Term Incentive Plan: Cryosite Employee Incentive Plan (CEIP) On the 23rd February 2017, the Cryosite Employee Incentive Plan (CEIP) was established by the Company. On invitation, the CEIP provides executives the opportunity to receive a long-term equity based incentive in each financial year and is governed by the CEIP Plan Rules. Performance Rights Since the establishment of the CEIP, the company has granted a number of performance rights. This grant value, subject to shareholder approvals, is defined as a % of fixed remuneration or as otherwise agreed. The following %’s of fixed remuneration were used in determining the grant value for each executive. The grant value was converted into the number of performance rights to be issued using the WVAP of Cryosite shares in the 30 trading days following the release of the Annual Report.: Mark Byrne 2019 - 2018 30% The following components of the CEIP for performance rights are as follows; Up to 36 months from date of grant. Vesting date Vesting conditions Performance conditions Service conditions Expiry date Exercise of Rights Performance rights will only vest after certain performance and conditions are met. Compound Annual Growth Rates (CAGR) of the Earnings per Share (EPS) over measurement period need to be achieved from a base year. Continuous employment with Cryosite from the date of the performance rights are granted until the vesting date. Performance rights will expire 1 month after the vesting date Any Performance rights which meet the Vesting conditions will be available for exercise up until the Expiry date. The board has granted performance rights to the following key management personnel: Mark Byrne Balance granted as at 1st July 2017 Performance Rights granted 27/11/2017 Performance Rights granted 7/2/2018 Balance granted as at 30th June 2018 Balance granted as at 30th June 2019 No of Performance Rights 2019 - - 2018 503,944 503,944 Mark Byrne No 211,002 295,647 208,297 714,946 714,946 Cryosite Limited Annual Report 10 Directors’ Report (continued) 27 February 2017 1 September 2019 30 September 2019 7th February 2018 27 November 2017 1 September 2020 1 September 2020 30 September 2020 30 September 2020 1/7/2017 to 1/7/2017 to 30/6/2020 30/6/2020 1/7/2016 to 30/6/2019 2017 2017 2016 0.64 cents 0.48 cents 0.48 cents Earnings per Share (EPS) Compound Annual Growth Rate (CAGR) Conditions Grant date Vesting date Expiry date Period Base Year Basic EPS Measure Targets CAGR of EPS over measurement Period relative to base year Grant Date < 20% EPS (cents)Target per plan 27-Nov-17 <0.83 27-Feb-17 < 1.10592 7-Feb-18 <0.83 20% to 25% >25% 1.105592 to 1.25 >1.25 0.83 to 0.94 >0.94 0.83 to 0.94 >0.94 Percentage of Performance Rights that vest 0% 50-100% (pro- rata) 100% As at 30 June 2019, no performance rights had vested. Assumptions used to determine fair value of performance rights are outlined in Note 30. Options On the 27th June 2019, the board granted options to the following key management personnel: Options granted 27th June 2019 Total options issued as at 30th June 2019 Bryan Dulhunty* No 1,300,000 1,300,000 * There is a restriction on settlement as they have been granted without shareholder approval and therefore settlement will be restricted to on market purchase pursuant to ASX Listing Rule 10.15B. Shareholder approval will be sought at the 2019 AGM and, if received, this restriction may no longer apply. The following components of the CEIP for options are as follows; Vesting date Option price Vesting conditions Performance conditions Service conditions Expiry date Exercise of Options Up to 25 months from date of grant. 6 cents Options will only vest after certain performance and conditions are met. Earnings per Share (EPS), Operating cashflow Continuous employment with Cryosite from the date of the options are granted until the vesting date. Options will expire 36 months after the vesting date. Any options which meet the Vesting conditions will be available for exercise up until the Expiry date. Cryosite Limited Annual Report 11 Directors’ Report (continued) Conditions Grant date Vesting date Expiry date Period Exercise price Targets 27 June 2019 1 September 2021 1 September 2024 27/6/2019 to 1/9/2021 6 cents Conditions of Vesting Positive Earnings per share (EPS)* Positive Cashflow from Operations* Continuous service * Based on the 2021 audited accounts Target date 30 June 2021 30 June 2021 30 June 2021 Percentage of Performance Rights that vest 33.3% 33.3% 33.3% COMPENSATION FOR KEY MANAGEMENT PERSONNEL 2019 Year Ended 30 June 2019 Short term benefits Post employment benefits Share based payments Total Share based payments Performance based Salary & Fees $ Other Cash benefits $ Super $ (2) $ $ % % Non-Executive Directors Andrew Kroger 60,000 - 5,700 - 65,700 0.0% Bryan Dulhunty (1)* - 130,264 - 110 130,375 0.1% Nicola Swift 60,000 - 5,700 - 65,700 0.0% Total Non-executive directors Executives 120,000 130,264 11,400 110 261,775 0.0% 0.0% 0.1% 0.0% 0.0% Mark Byrne 228,310 - 21,689 37,571 287,570 13.1% 13.1% Total Executive 228,310 - 21,689 37,571 287,570 13.1% 13.1% Total 348,310 130,264 33,089 37,681 549,345 6.9% 6.8% * Bryan Dulhunty was appointed Executive Chairman on the 27th June 2019. (1) This includes payments to made to COSA Pty which is owned by Bryan Dulhunty. During the year the company charged the Company $48,502 for consulting services and $81,762 in respect to services provided by Bryan Dulhunty as a director and company secretary of the company. Bryan Dulhunty became executive chairman on the 27th June 2019 (2) This relates to the fair value of performance rights and options granted under the Cryosite Employee Incentive Plan (CEIP) Cryosite Limited Annual Report 12 Directors’ Report (continued) COMPENSATION FOR KEY MANAGEMENT PERSONNEL 2018 Year Ended 30 June 2018 Non-Executive Directors Short term benefits Salary & Fees $ Other Cash benefits $ Post employment benefits Share based payments Total Share based payments Performance based Super $ (3) $ $ % % Andrew Kroger 60,000 - 5,700 - 65,700 - Bryan Dulhunty (1),(2) - 51,375 - - 51,375 - Nicola Swift Stephen Roberts (1) 60,000 50,538 - 5,700 - 65,700 - - 4,801 - 55,339 - Total Non-executive directors Executives 170,538 51,375 16,201 - 238,114 - - - - - - Mark Byrne (4) 226,026 20,000 21,472 31,740 299,239 10.6% 17.3% Total Executive 226,026 20,000 21,472 31,740 299,239 10.6% 17.3% Total 396,564 71,375 37,674 31,740 537,353 5.9% 9.6% (1) Where directors or key personnel resigned or were appointed during the year payments shown above are for the period served (2) This includes payments to made to COSA Pty which is owned by Bryan Dulhunty. During the year the company charged the Company $24,000 for company secretarial services and $27,375 in respect to services provided by Bryan Dulhunty as a director of the company from 2nd March 2018. (3) This relates to the fair value of performance rights granted under the Cryosite Employee Incentive Plan (CEIP) (4) Other cash benefits relate to a discretionary bonus accrued by the Board to be paid in 2019 as recognition of the efforts undertaken by the individual in 2018. SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL Ordinary Shares held in Cryosite Limited Bryan Dulhunty Andrew Kroger 1 July 2018 30,000 17,315,291 Balance on appointment / (resignation) - - Share purchases - - 30 June 2019 30,000 17,315,291 17,345,291 - - 17,345,291 Ordinary Shares held in Cryosite Limited Bryan Dulhunty Andrew Kroger Stephen Roberts * *resigned 2/3/2018 N/A 1 July 2017 16,016,906 669,519 Balance on appointment / (resignation) 30,000 - (967,662) Share purchases - 1,298,385 298,143 30 June 2018 30,000 17,315,291 - 16,716,425 - 937,662 1,596,528 17,345,291 Cryosite Limited Annual Report 13 Directors’ Report (continued) LOANS TO KEY MANAGEMENT PERSONNEL There were no loans to key management personnel at the beginning of the year, at any time during the year, or at the end of the year. OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL There were no other transactions during the year with key management personnel or with any key management personnel related entities. In 2018 the Company settled a legal matter with a former Director and former employee for an amount of $276,818. Details of this are outlined in note 35. DIRECTORS’ MEETINGS During the financial year, the following meetings incurred and were attended by directors: Directors Andrew Kroger Bryan Dulhunty Nicola Swift Directors Meetings Eligible to attend 13 13 13 Eligible attended 13 13 13 Audit Risk Committee Meetings Remuneration and Nomination Meetings Eligible to attend - 3 3 Eligible attended - 3 3 Eligible to attend - 2 2 Eligible attended - 2 2 PROCEEDING ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporate Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. AUDITOR’S INDEPENDENCE DECLARATION AND NON-AUDIT SERVICES The directors have received the auditor’s independence declaration which is included on Page 16 of this report. No director of Cryosite Limited is currently or was formerly a partner of Mazars Risk and Assurance Pty Ltd. Non-audit services were provided by the entity’s auditor, Mazars Risk and Assurance Pty Ltd, during the financial year. Details of the services provided are disclosed in Note 28 of the Financial Statements. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services disclosed in Note 28 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: All non-audit services have been reviewed and approved to ensure that they do not impact the integrity or objectivity of the auditor; None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risks and rewards. Cryosite Limited Annual Report 14 AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF CRYOSITE LIMITED AND CONTROLLED ENTITY I declare that, to the best of my knowledge and belief during the year ended 30 June 2019, there have been: — no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and — no contraventions of any applicable code of professional conduct in relation to the audit. MAZARS RISK & ASSURANCE PTY LIMITED Paul Collins Director Sydney, on this 21st day of August 2019 LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 – PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 – www.mazars.com.au EMAIL: audit@mazars.com.au MAZARS RISK & ASSURANCE PTY LIMITED – ABN: 39 151 805 275 Liability limited by a scheme approved under Professional Standards Legislation Corporate Governance Cryosite is committed to implementing the highest possible standards of corporate governance. In determining what those high standards should involve, Cryosite has turned to the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles) and has a corporate governance framework that reflects those recommendations within the structure of the Company. The Board of Cryosite approved an updated series of policies and charters in line with the amendments to the ASX Principles. The Company’s policies and charters together form the basis of the Company’s governance framework were in place for the financial year ended 30 June 2019 and to the date of signing of the directors’ report. Within this framework: - - - - the Board of Directors is accountable to shareholders for the performance of the Company; the Company’s goals to achieve milestones are set and promulgated; the risks of the business are identified and managed, and the Company’s established values and principles underpin the way in which it undertakes its operations. The Company has in place an entrenched, well developed governance culture which has its foundations in the ethical values that the Board, management and staff bring to the Company and their commitment to positioning the Company as a leader in its field. In certain instances, due to the size and stage of development of Cryosite and its operations, it may not be practicable or necessary to implement the ASX Principles in their entirety. In these instances, Cryosite has identified the areas of divergence. In accordance with its Shareholder Communications Policy, Cryosite has made its corporate governance policies and charters publicly available on its website (www.cryosite.com). Cryosite Limited Annual Report 17 Consolidated Statement of Profit and Loss and Other Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2019 Sale of goods and rendering of services Other revenue Revenue Cost of providing services Depreciation and amortisation Impairment losses Marketing expenses Occupancy expenses Administration expenses Total expenses Profit (loss)from continuing operations before tax Income tax (expense) benefit Loss after tax from continuing operations Other items Legal settlement, net of tax Loss from discontinued operations, net of tax Net comprehensive loss for the year Earnings per share Basic, profit for the year attributable to ordinary equity holders of the parent Diluted, profit for the year attributable to ordinary equity holders of the parent Earnings per share for continuing operations Basic, profit for the year attributable to ordinary equity holders of the parent Diluted, profit for the year attributable to ordinary equity holders of the parent Notes 6 6 8 35 34 9 9 9 9 2019 $ 2018 $ 7,911,693 61,500 7,973,193 5,864,139 58,926 5,923,065 (4,603,392) (271,018) (330,873) (403,862) (615,342) (2,036,979) (8,261,466) (2,535,338) (338,448) - (152,297) (615,769) (1,962,848) (5,604,700) (288,273) (276,884) (565,157) 318,365 (393,645) (75,280) (1,157,386) - (169,416) (995,743) (1,722,543) (1,240,439) Cents Cents (3.68) (2.65) (3.62) (2.61) (0.012) (0.002) (0.012) (0.002) The above consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes. Cryosite Limited Annual Report 19 Consolidated Statement of Financial Position AS AT 30 JUNE 2019 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Income tax receivable Other assets Deferred costs Total Current Assets Non-Current Assets Trade and other receivables Deferred tax asset, net Prepayments Plant and equipment Intangible assets Deferred costs Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Unearned income Provisions Other liabilities Deferred revenue Total Current Liabilities Non-Current Liabilities Trade and other payables Unearned income Provisions Other liabilities Deferred revenue Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Share rights reserves Accumulated losses Notes 2019 $ 2018 $ 10 12 13 14 15 20 16 8(c) 15 18 19 20 21 22 24 35 23 21 22 24 35 23 3,919,897 838,100 22,859 279,369 29,081 476,262 1,381,183 6,946,751 186,502 2,412,234 - 387,181 6,978 13,232,356 16,225,251 23,172,002 876,942 23,066 155,804 47,464 2,250,487 3,353,763 441,682 - 237,799 578,144 20,276,684 21,534,309 24,888,072 (1,716,070) 4,535,827 1,359,131 23,845 289,078 21,680 152,277 - 6,381,838 243,264 148,938 290,205 622,654 56,780 - 1,361,841 7,743,679 455,046 425,414 261,156 - - 1,141,616 441,682 3,998,804 218,162 - - 4,658,648 5,800,264 1,943,415 25 26 25 5,861,788 69,532 (7,647,390) 5,861,788 40,339 (3,958,712) TOTAL EQUITY The above consolidated statement of financial position should be read in conjunction with the accompanying note (1,716,070) 1,943,415 Cryosite Limited Annual Report 20 Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED Attributable to equity holders of the company Contributed capital Accumulated losses Share Rights reserve Total equity At 1 July 2018 5,861,788 (3,958,712) 40,339 1,943,415 Total comprehensive income (loss) for the year AASB 15 adjustment Transactions with owners in their capacity as owners Performance rights / options granted Performance rights cancelled - - - - (1,722,543) (1,966,135) - - - (1,966,135) - - 52,121 (22,928) 52,121 (22,928) At 30 June 2019 5,861,788 (7,647,390) 69,532 (1,716,070) At 1 July 2017 5,861,788 (2,718,273) 5,091 3,148,606 Total comprehensive income (loss) for the year Transactions with owners in their capacity as owners Performance rights granted - - (1,240,439) - (1,240,439) - 35,248 35,248 At 30 June 2018 5,861,788 (3,958,712) 40,339 1,943,415 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Cryosite Limited Annual Report 21 Consolidated Statement of Cashflows FOR THE YEAR ENDED 30 JUNE 2019 Notes 2019 $ 2018 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers inclusive of GST Payments to suppliers and employees inclusive of GST* Interest received 6,941,491 7,719,025 (7,594,578) (7,988,124) 5,551 7,193 Net cash flows from operating activities 11 (647,536) (261,906) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of plant and equipment Software development costs Interest received - term deposits Net cash flows (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Equity dividend paid Net cash flows (used in) financing activities 18 19 (26,155) (180,781) - 57,761 31,606 (125) 41,806 (139,100) - - - - Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of year (615,930) (401,006) 4,535,827 4,936,833 Cash and cash equivalents at end of year 10 3,919,897 4,535,827 Cryosite Limited Annual Report 22 Notes to the Financial Statements For the Year Ended 30 June 2019 1 CORPORATE INFORMATION The financial report of Cryosite Limited and the controlled entity (the Group) for the year ended 30 June 2019 was authorised for issue in accordance with a resolution of the directors on 21st August 2019. Cryosite Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except when otherwise stated. (a) Compliance with IFRS The financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (b) Changes in accounting policy, accounting standards and interpretations. (i) Amendments to AASBs and the new Interpretation that are mandatorily effective for the current period  AASB 9 Financial Instruments  AASB 15 Revenue Contracts with Customers  AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share- based Payment Transactions The relevant standards for the Group follow: AASB 9, Financial Instruments AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 July 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting. Cryosite Limited Annual Report 23 Notes to the Financial Statements For the Year Ended 30 June 2019 The impact of adopting AASB 9 follows: (a) Classification and measurement The classification and measurement requirements of AASB 9 did not have a significant impact on the Group. (b) Impairment The adoption of AASB 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing AASB 139’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets. In May 2019 the Company undertook a detailed review of current debtors as well as the history of collections and write offs. Using this analysis and taking into account revenue history, it was concluded that trade receivables required an expected provision of $73,475. Consequently, the provision for bad debts was increased by $27,885 on the 30 June 2019. It should be noted that the impact on the opening balance of AASB 9 was considered immaterial and no disclosure on transition adjustment was considered required. (c) Hedge accounting The hedge accounting requirements of AASB 9 did not have a significant impact on the Group. IFRS 15 (“AASB 15”) Revenue from Contracts with Customers IFRS 15 Revenue from Contracts with Customers (‘AASB 15’) introduces a single revenue recognition model based on the transfer of goods and services and the consideration expected to be received for that transfer. The standard became effective from 1 July 2018. The Company has elected to apply the modified retrospective transition method with respect to implementation of AASB 15. In this case AASB 15 is applied retrospectively to only the current period presented in the financial statements with no restatement of the comparative period. As such, the cumulative effect of initially applying AASB 15 will be recognised as an adjustment to retained earnings as at 1 July 2018 (the date of initial application). On this basis, there is no impact to retained earnings as at the 30 June 2018. Cord Blood and Tissue Storage segment is impacted by AASB 15 in respect to cord blood and tissue contracts. The introduction of AASB 15 has a significant impact on the reported revenue and costs and statement of financial position of the Company. It is important to note there is no change to the expected timing or amount of cash impact collected from the cord blood and tissue contracts. These assets and liabilities will then be taken to revenue and expensed over the life of each individual contract which ranges from 18 years to 25 years. It should be noted that the Group has obtained legal advice which confirms that if any impact from AASB 15 adoption leads to negative net assets, the ability for the Company to declare dividends in the future will be impacted. The impact of adopting AASB 15 on the financial report is presented in Note 4. Cryosite Limited Annual Report 24 Notes to the Financial Statements For the Year Ended 30 June 2019 (ii) Standards and Interpretations issued not yet adopted IFRS 16 Leases IFRS 16 will be applied as of 1 January 2019 and the Company will use what is known as the “modified retrospective” transition method, under which a liability is recognized at the transition date for an amount equal to the present value of the residual lease payments alone, offset against a right- of- use asset adjusted for the amount of prepaid lease payments or within accrued expenses; all the impacts of the transition will be deducted from equity. The standard provides for various simplification measures during the transition phase; in particular, the Group has opted to apply the measures allowing it to exclude leases with a residual term of less than twelve months, exclude leases of low- value assets, continue applying the same treatment to leases that qualify as finance leases under AASB 17, and not capitalise costs directly related to signing leases. IFRS 16 will be applied from the 1 July 2019 and will impact the 30 June 2020. The financial impact of adopting of AASB 16 as at 1 July 2019 (date of initial application) will be: a. b. Recognition of right-of-use assets amounting to $792,831 Recognition of current lease liability of $230,180 and non-current lease liability of $562,651 In addition, the following impact to the profit or loss statement for year ending 30 June 2020 will be observed subsequent to the date of initial application: a. b. c. Increase in depreciation expense relating to right-of-use assets amounting to $240,045 and, Recognition of interest expense amounting to $24,420 and, Reversal of rent expense of $254,600. The overall estimated net profit and loss impact will amount to $9,865 for the year ending 30 June 2020. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Cryosite Limited (the Company) and its subsidiary (‘the Group’) as at 30 June each year. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The financial statements of the subsidiary are prepared for the same reporting year as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by the Company are accounted for at cost in the separate financial statements of the parent entity, less any impairment charges. Cryosite Limited Annual Report 25 Notes to the Financial Statements For the Year Ended 30 June 2019 (d) Foreign currency translation Both the functional and presentation currency of the Company and its Australian subsidiary is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. (e) Plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in the statement of comprehensive income as incurred. Major Depreciation rates are: 2019 2018 Leasehold improvements Plant and equipment: -Fixture and fittings -Information technology -Warehouse equipment -Office furniture and equipment -Plant and equipment under lease Lease term Lease term 5-10 years 2-3 years 4-10 years 2.5-8 years 5 years 5-10 years 2-3 years 4-10 years 2.5-8 years 5 years The assets’ residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate. An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. (f) 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 maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. (g) Intangible assets The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss as the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Cryosite Limited Annual Report 26 Notes to the Financial Statements For the Year Ended 30 June 2019 Licence fees Where licences are acquired for the purposes of assisting in research and development or for the entity’s use of patented techniques or processes in conducting operations, the costs are capitalised. Licenses acquired during the financial year have been assessed as having a useful life in line with that of the underlying patent and associated methodologies. Software development Software development costs are capitalised at the direct costs and amortised on a straight line basis over the period of their expected benefit being their finite life of 3 years. Amortisation starts at the time that the technology is activated and is used by both internal and external customers. The capitalised costs of platform technology include the direct costs of external consultants and any supporting software acquired from a third party. Intellectual Property The costs of the Stemlife assets are capitalised and amortised on a straight line basis over the period of their expected benefit being their finite life of 9 years. Amortisation starts at the time of the acquisition. These costs include the direct costs paid to Stemlife for the assets and the legal fees incurred in the transaction. The assessment of useful life is reviewed annually by the Board to determine whether the assumptions made continue to be appropriate and supportable. If not, the useful life assessment is changed on a prospective basis. (h) Prepayments Payments made in advance of services are recognised at the time of payment and classed as prepayments on the balance sheet. As the services are incurred, the relevant amounts are recognized as an expense in the profit and loss statement. In June 2018, an assessment confirmed that these costs do not meet the recognition criteria as capitalised costs under AASB 138, specifically the control criteria. This is on the basis the hardware and applications are controlled by the contracted service provider and cannot be transferred to another party or host under the agreement. In absence of specific guidance under AASB, the accounting hierarchy under AASB 108 para 12 has been applied which allows the use of recent pronouncements of other standard setting bodies. Based on this, costs incurred in 2018 relating to the implementation & development of applications were capitalised as a prepayment reflecting the economic benefits to be consumed over the contract service period. From 1st July 2019, all costs (including training and data conversion) associated with the implementation & development of application are expensed as incurred. The assessment of useful life of prepayments is reviewed annually by the Board to determine whether the assumptions made continue to be appropriate and supportable. If not, the useful life assessment is changed on a prospective basis. Based on the 30th June 2019 review the board determined that prepayments associated with capitalised applications were impaired and written down by $291, 093. (i) Inventories Inventories consist of consumables used in the provision of services. Inventories are valued at the lower of cost and net realisable value. Cost is determined by actual purchase price. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Cryosite Limited Annual Report 27 Notes to the Financial Statements For the Year Ended 30 June 2019 (j) Trade and other receivables Trade receivables (current), which generally have 30 day terms, are recognised initially at fair value less an allowance for impairment as per AASB 9 requirements. The adoption of AASB 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing AASB 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Group to record an allowance for ECL’s for all loans and other debt financial assets not held at FVPL. The Group’s ECL is based on an estimated percentage of past due receivables that are expected to default based on historical experience. (k) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank, in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (l) Trade and other payables Trade and other payables are carried at amortised costs and due to their short term nature, they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (m) Employee leave benefits Wages, Salaries and Annual Leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in provisions in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Unused sick leave on termination of employment is forfeited. Long Service Leave The liability for long service leave is recognised 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 the expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (n) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the Cryosite Limited Annual Report 28 Notes to the Financial Statements For the Year Ended 30 June 2019 obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (o) Share-based payment transactions The group provides benefits to employees including executive directors of the Group in the form of share based payment transactions, whereby the employees render services in exchange for rights over shares (‘equity- settled transactions’) under the Cryosite Employee Incentive Plan (CEIP) or individually negotiated share based payment arrangements. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a Black Scholes model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company (‘market conditions’). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects: the extent to which the vesting period has expired and (i) (ii) the number of awards that, in the opinion of directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it was granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. In the case where outstanding equity-settled awards have expired, the relevant amounts in respect to these awards in the share reserves are transferred to retained earnings. Cryosite Limited Annual Report 29 Notes to the Financial Statements For the Year Ended 30 June 2019 (p) Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. (q) Revenue from contracts with customers Rendering of services The Group provides the following services: a. b. specialist temperature-controlled storage, sourcing, labelling, status management, secondary packaging, schedule drug distribution, destruction, returns and biological services and; long term storage for cord blood and tissue samples. The Group identified that the above services are distinct and have assessed the revenue recognition in accordance with AASB 15 separately. Revenue from clinical trials and biological services logistics services Revenue from clinical trials pertain to processing and distribution of samples for clinical testing. The Group has assessed that each sample processed is distinct from each other and that asset is transferred to the customer at the completion of the service. Accordingly, the Group assessed that the performance obligation is satisfied at that point in time and revenue is recognised as and when the customer obtains control of the asset. The revenue recognition policy for clinical trials under AASB 15 is consistent with the provisions of the old standard, AASB 118 – Revenue; hence, clinical trials revenue is not impacted by the adoption of AASB 15. Revenue from cord blood and cord tissue storage Prior to the adoption of AASB 15, the Group accounted for the collection and processing of cord blood and tissue samples as a separate performance obligation from the storage service. Accordingly, upfront fees and costs related to collection and processing activities were recognised immediately as revenue and costs at the inception of the contract while the storage fee component is recognised as unearned revenue and amortised throughout the contract term of either 18 or 25 years. Under AASB 15, the Group assessed that the collection, processing and storage services for cord blood and tissue samples constitute a single performance obligation because none of the services are distinct and marketed independently of the others. In addition, it was determined that the performance obligation is performed over time (i.e throughout the storage contract period of 18 or 25 years). The Group performed a re-allocation of the contract consideration to recognise upfront revenue and costs throughout the life of the storage contract. This resulted to the recognition of “Deferred revenue” and “Deferred costs” in the statement of financial position as at 1 July 2018. These balance sheet items will unwind to revenue and costs for the remaining contract period. Cryosite Limited Annual Report 30 Notes to the Financial Statements For the Year Ended 30 June 2019 Interest revenue Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Dividend income Dividends: revenue is recognised when the Company’s right to receive the payment is established. (r) Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: - - Except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that the taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: - Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future tax profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Cryosite Limited Annual Report 31 Notes to the Financial Statements For the Year Ended 30 June 2019 Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Income taxes relating to items recognised directly in equity are recognised in equity and not in the statement of comprehensive income. Revenues, expenses and assets are recognised net of the amount of GST except: - where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included the net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. - Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (s) Contributed equity Contributed capital bares no special terms or conditions affecting income or capital entitlements of the shareholders. Ordinary share capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (t) Share options reserve The share options reserve captures the equity component of the company’s equity settled transactions of the share based payments schemes. (u) Impairment of assets Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period. Cryosite Limited Annual Report 32 Notes to the Financial Statements For the Year Ended 30 June 2019 (v) Earnings per share Basic EPS is calculated as net profit attributable to members of the parent, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members of the parent, adjusted for: - - Costs of servicing equity (other than dividends) and preference share dividends; The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and - Other non-discretionary changes in revenues or expenses during the year that would result from the dilution of potential ordinary shares Divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. The basic EPS and diluted EPS for continuing operations are calculated as above based on net profit after tax from continuing operations rather than net profit attributable to members of the parent. (w) Fair value measurement The Group measures financial instruments at fair value at each balance sheet date. Fair values of financial instruments measured at amortised cost are disclosed at Note 32. Fair value is the price that would be received to sell an asset or pair to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: - - In the principle market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability accessible to the Group. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in the highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. For the purpose of fair value disclosure, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. (x) Current versus non-current classification The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset as current when it is: - - - - Expected to be realised or intended to sold or consumed in normal operating cycle; Held primarily for the purpose of trading; Expected to be realised within 12 months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. Cryosite Limited Annual Report 33 Notes to the Financial Statements For the Year Ended 30 June 2019 All other assets are classified as noncurrent. A liability is current when: - - - - It is expected to be settled in normal operating cycle; It is held primarily for the purpose of trading; It is due to be settled within 12 months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. (y) Current versus non-current classification A discontinued operation is a component of an entity that either has been disposed of, discontinued or is classified as held for sale, and (i) (ii) (iii) represents a separate major line of business or geographical area of operations; is part of a single co-ordinated plan to dispose of a separate major line or geographical area of operations; or, is a subsidiary acquired exclusively with a view to resale. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss. Additional disclosures are provided in Note 34. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise. 3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates 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 and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from the source. Actual results may differ from these estimates and estimates under different assumptions and conditions. Management has identified the following critical accounting estimates and judgements: Capitalised Development Costs Initial capitalisation of development costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefit. At 30 June 2019, the carrying amount of capitalised development costs was nil (2018: $nil). Cryosite Limited Annual Report 34 Notes to the Financial Statements For the Year Ended 30 June 2019 Revenue from contracts with customers The Group applied the following judgements that significantly affect the determination of the amount and timing of revenue from contracts with customers:  Determining the timing of satisfaction of performance obligations The Group concluded that the revenue from collection, processing and storage of cord blood and tissue should be recognised over time because the customer simultaneously receives and consumes the benefits provided by the Group. The Group determined that the contract term of 18 or 25 years is the best method to determine the timing of satisfaction of performance obligations.  Consideration of significant financing component in a contract The storage contract for cord blood and cord tissue is either 18 or 25 years and the payment options available to the customers follow: i. ii. iii. Upfront payment of the full contract price at inception of the contract; Instalment payment of either 12 or 24 months; and, Partial upfront settlement with the remaining balance paid in instalment throughout the life of the contract (referred to by the Group as “Annual plans”). Management determined that there is a significant financing component included in the annual plans because the total amount paid under this plan is significantly higher than the upfront cash payment. The amount of financing component attributed to the contract is determined as the difference between the total Annual plan payments and the upfront cash payment. Taxation Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. The group’s accounting policy for taxation requires management’s judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised in the statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. The Group has $2,418,851 unconfirmed (2018: $981,322) tax losses carried forward which have not been recognised on the statement of financial position. Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management’s estimates of future cash flows. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact on the amount of deferred tax liabilities or assets recognised on the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the statement of comprehensive income. Share Based Payment Transactions The group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a binomial model. The accounting estimates and assumptions relating to equity-settled share based payments would Cryosite Limited Annual Report 35 Notes to the Financial Statements For the Year Ended 30 June 2019 have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact on expenses and equity. Estimated Useful Lives of Assets The estimation of the useful lives of assets and their residual values has been based on historical experience as well as manufacturers’ warranties. In addition, the condition of assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary. The estimated useful life of licenses acquired has been based upon the useful life of the patents and associated methodologies underpinning the license. The assessment of useful life is reviewed annually by the Board to determine whether the assumptions made continue to be appropriate and supportable given the license conditions and underlying patents. If the useful life assessment is assessed as inappropriate, either due to a change in license conditions or patents, it is changed on a prospective basis. As result of the decision to cease the collection and processing of cord blood and tissue samples, the board reviewed and concluded that these licences were impaired. Refer Note 18 for the details of the impairment loss recognised. Long Service Leave Provision The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Make Good Provisions includes A provision has been made for the present value of anticipated costs for future restoration of leased premises. This provision future cost estimates associated with dismantling, closure, decontamination and permanent storage of historical residues. The calculation of any provision requires assumptions such as application of environmental legislation, plant closure dates, available technologies and engineering cost estimates. These uncertainties may result in future actual expenditure differing from amounts provided. Any provision recognised will be periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs are recognised in the statement of financial position by adjusting both the expense or asset and provision. The appropriateness of the make good provision is assessed annually. Impairment for expected credit losses on trade receivables In accordance with AASB 9, the Group uses a provision matrix to calculate ECLs (expected credit losses) for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance). The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. Cryosite Limited Annual Report 36 Notes to the Financial Statements For the Year Ended 30 June 2019 Impairment of Non-Financial Assets other than Indefinite Life Intangible Assets The Company assesses impairment of non-financial assets other than indefinite life intangible assets at each reporting date by evaluating conditions specific to the Company and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number of key estimates and assumptions. In 2018 following management’s decision to cease the collection and processing of cord blood and cord tissue samples, board reviewed all non-financial assets associated with these operations and, as a result of this review, concluded that these assets were impaired. Refer to Note 34 for the impairment loss recognised. Prepayments In 2018 the Company incurred costs in the implementation and development of a new technology applications. These costs were capitalized and expensed over a period of time to reflect the economic benefits that will be consumed as a result of using this technology over this period. Based on the 30th June 2019 review the board determined that prepayments associated with capitalised applications were impaired and written down by $291, 093. From 1st July 2019, these costs are expensed as incurred. Discontinued Operations In October 2017, the Company completed the closure of the laboratory operations and the departure of staff associated with the collection and processing of cord blood and tissue samples. This resulted in the termination of operations associated with collection and processing of cord blood and tissue samples which has been disclosed separately in the accounts as discontinued operations. Discontinued operations result for 2018 includes revenue from a small number of contracts collected and processed in 2018. It also includes normal operating and employment costs associated with the activities of collection and processing which were separately identified up to the time of closure. Additional costs, such as redundancies and legal fees, associated with the actual closure have also been included. Further, as result of the decision to cease the collection and processing of cord blood and tissue samples, the board reviewed all non-financial assets associated with these operations and, as a result of this review, concluded that these assets were impaired. Consequently, they resolved to write down these assets by $555,586 in 2018. Cryosite Limited Annual Report 37 Notes to the Financial Statements For the Year Ended 30 June 2019 4 TRANSITION TO AASB 15 The consolidated entity has elected to adopt a modified retrospective application of the standard as permitted by AASB 15. The standard has therefore been applied to the current financial year only with an adjustment to opening retained earnings to reflect the cumulative impact of adoption on all contracts that were incomplete as at 1 July 2018. Comparative figures are therefore not affected. The adjustment to opening statement of financial position is a decrease in equity by $1,964,675. The current financial year impact on the financial statements of adopting AASB 15 as compared to AASB 111, AASB 118 and related interpretations that were in effect before change, is as follows: Statement of profit or loss and other comprehensive income Revenues Expenses Costs of providing services Depreciation and amortisation expense Impairment loss Marketing expenses Occupancy expenses Administration expenses 2019 AASB 15 $ 2019 AASB 111/118 $ Variance $ 7,973,193 5,713,941 2,259,252 (4,603,392) (3,209,892) 1,393,500 (271,018) (330,873) (403,862) (615,342) (271,018) (330,873) (403,862) (615,342) (2,036,979) (2,036,979) - - - - - Profit from continuing operations before tax (288,273) (1,154,025) 865,752 Income tax (expense) benefit (276,884) (38,816) (238,068) Profit after tax from continuing operations (565,157) (1,192,841) 627,684 Legal settlement, net of tax (1,157,386) (1,157,386) Discontinued operations Profit/(loss) after tax from discontinued operations - - - - Total comprehensive income, net of tax (1,722,543) (2,350,227) 627,684 Cryosite Limited Annual Report 38 Notes to the Financial Statements For the Year Ended 30 June 2019 4 TRANSITION TO AASB 15 (continued) 2019 AASB 15 $ 2019 AASB 111/118 $ Variance $ 3,919,897 3,919,897 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Income tax receivable Other assets Deferred costs Total Current Assets Non-Current Assets Trade and other receivables Deferred tax assets, net Deferred costs Plant and equipment Intangible assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Unearned Income Deferred revenue Other liabilities Provisions Total Current Liabilities Non-Current Liabilities Trade and other payables Deferred revenue Other liabilities Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Share rights reserves Accumulated losses TOTAL EQUITY 838,100 22,859 279,369 29,081 476,262 1,381,183 6,946,751 186,502 2,412,234 13,232,356 387,181 6,978 16,225,251 23,172,002 876,942 23,066 2,250,487 47,464 155,804 3,353,763 441,682 20,276,684 578,144 237,799 21,534,309 24,888,072 (1,716,070) 838,100 22,859 279,369 29,081 476,262 - 5,565,568 186,502 235,982 - 387,181 6,978 816,643 6,382,211 876,942 23,066 47,464 155,804 1,103,276 441,682 - 578,144 237,799 1,257,625 2,360,901 4,021,310 - - - - - - 1,381,183 1,381,183 - 2,176,252 13,232,356 - - 15,408,608 16,789,791 - - - 2,250,487 - 20,276,684 - - 20,276,684 22,527,171 (5,737,380) - (5,737,380) (5,737,380) - 2,250,487 5,861,788 69,532 (7,647,390) (1,716,070) 5,861,788 69,532 (1,910,010) (4,021,310) Cryosite Limited Annual Report 39 Notes to the Financial Statements For the Year Ended 30 June 2019 4 TRANSITION TO AASB 15 (continued) Explanation of significant changes The consolidated entity previously recognised revenue from cord blood services as follow:  Revenue from the rendering of non-storage services, such as collection and processing of biological samples, is recognised upon the delivery of the service to the customers; and,  Revenue from storage services is recognised over the period of the storage contract. Where the Group has a long term contract with its customers to provide cord blood services, a receivable is recognised at its net present value with a corresponding amount recognised as unearned income in the statement of financial position. AASB 15 required the collection, processing and storage services to be treated as a single performance obligation as none of the services are marketed as a stand-alone service. Consequently, the timing of revenue recognition and profit for cord blood and cord tissue collection and processing services has changed with the related revenue now recognised over time in accordance with the contract term of 18 or 25 years. Deferred revenue represents the upfront collection and processing fees recognized immediately to revenue at inception of the contract. Deferred costs represent upfront costs, such as laboratory fees, attributable for the collection and processing of cord blood and tissue samples. These are capitalised and amortised over the remaining life of the storage contracts. 5 SEGMENT INFORMATION Identification of Reportable Segments The Company has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The segment information provided is consistent with the internal management reporting. Two reportable segments have been identified as follows: Cord Blood and Tissue Storage Storage of cord blood and tissue samples Clinical Trials and Biological Services Logistics Specialist temperature-controlled storage, sourcing, labelling, status management, secondary packaging, schedule drug distribution, destruction, returns and biological services. The accounting policies used by the Company in reporting segments internally are the same as those contained in note 1 to the accounts. Cryosite Limited Annual Report 40 Notes to the Financial Statements For the Year Ended 30 June 2019 5 SEGMENT INFORMATION (continued) Operating Segments 2019 Operating Segment Clinical Trials and Biological Services Logistics Cord Blood and Tissue Unallocated Total Revenue 5,189,717 2,721,978 61,498 7,973,193 Net profit before tax Tax Net profit after tax Legal settlement, net of tax Total Comprehensive Income net of tax 992,951 872,450 (2,153,674) (288,273) (276,884) (565,157) (1,157,386) (1,722,543) Segment Assets 30 June 2019 Segment Liabilities 30 June 2019 Depreciation and Amortisation 563,320 498,158 (104,767) 17,277,866 23,170,103 (117,183) 5,330,816 1,219,811 (49,068) 23,172,002 24,888,072 (271,018) 2018 Operating Segment Clinical Trials and Biological Services Logistics Cord Blood and Tissue Unallocated Total Revenue 5,310,826 553,313 58,926 5,923,065 Net profit before tax Tax Net profit after tax Legal settlement, net of tax Discontinued Operations Total Comprehensive Income net of tax 2,006,242 24,978 (1,712,854) 318,365 (393,645) (75,280) (169,415) (995,743) (1,240,438) Segment Assets 30th June 2018 Segment Liabilities 30th June 2018 Depreciation and Amortisation 1,284,519 177,168 (126,839) 1,026,461 4,865,900 (148,668) 5,432,699 757,196 (62,941) 7,743,679 5,800,264 (338,448) Cryosite Limited Annual Report 41 Notes to the Financial Statements For the Year Ended 30 June 2019 6 REVENUE Customer contract revenues Revenue from clinical trials, logistics and biorepository services Revenue from cord blood and cord tissue storage* Other revenue Bank interest Consolidated 30-Jun-19 $ 30-Jun-18 $ 5,189,717 2,721,978 7,911,695 61,498 7,973,193 5,310,826 553,313 5,864,139 58,926 5,923,065 * The consolidated entity has adopted AASB 15 ‘Revenue from Contracts with Customers’ using the modified retrospective application method. Refer to Note 4 for impact. 35 7 EXPENSES (a) Legal costs Continuing operations Legal settlement Total (b) Lease payments Lease payments-operating leases (c) Employee benefits expense Continuing operations Wages and salaries Superannuation costs Discontinued operations Wages and salaries Superannuation costs Total Company Wages and Salaries Superannuation Total (d) Depreciation Depreciation – plant & equipment 18 and 19 (e) Impairment loss Continuing operations Discontinued operations Total (f) Amortisation of Intangibles Amortisation of Intangibles 18 34 19 101,573 407,626 509,199 172,313 198,677 370,990 363,704 318,753 2,126,477 208,507 2,334,984 - - - 2,126,477 208,507 2,334,984 2,090,603 205,913 2,296,516 390,563 37,104 427,667 2,481,166 243,017 2,724,183 260,996 362,866 330,873 - 330,873 - 555,586 555,586 10,022 61,881 Cryosite Limited Annual Report 42 Notes to the Financial Statements For the Year Ended 30 June 2019 8 INCOME TAX (a) Income tax expense The major components of income tax are: Statement of comprehensive income Current income tax (expense)/benefit Income tax expense reported in the statement of comprehensive income Income tax (expense)/benefit is attributable to the following: Continuing operations Legal settlement (refer note 35) Discontinued operations (refer note 34) Consolidated 30-Jun-19 $ (151,037) (151,037) (276,884) 125,847 - (151,037) 30-Jun-18 $ (46,095) (46,095) (393,645) 64,261 283,289 (46,095) (b) Numerical reconciliation between aggregate tax expense recognised in the statement of comprehensive income and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group's applicable income tax rate follows: Accounting profit(loss) before tax Income tax calculated at 27.5% (2018:27.5%) Tax losses not recognised Capital losses on impairment loss of intangible assets Other items Income tax (expense) benefit (c) Deferred tax assets, net Deferred income tax at 30 June relates to the following: Deferred taxes arising from AASB 15 adoption Deferred tax asset on deferred revenue Deferred tax liability on deferred costs Net deferred tax asset – AASB 15 Deferred taxes arising from normal business operations Post-employment benefits Provision for tax and audit fees Provision for doubtful debts Rent accruals Impairment and depreciation of plant and equipment Deferred tax assets Prepayments Consumables Deferred tax liabilities Net deferred tax asset – normal operations Net deferred tax assets (1,571,503) 432,163 (370,571) - (212,629) (151,037) (1,194,344) 328,444 (269,863) (88,927) (15,749) (46,095) 6,194,971 (4,018,719) 2,176,252 56,942 16,225 20,206 6,322 143,450 243,144 (875) (6,286) (7,161) 235,982 2,412,234 - - - 70,340 15,753 12,537 - 58,628 157,258 (1,763) (6,557) (8,320) 148,938 148,938 Cryosite Limited Annual Report 43 Notes to the Financial Statements For the Year Ended 30 June 2019 8 INCOME TAX (continued) (d) Tax (expense) benefit related to items of other comprehensive income. There were no items of comprehensive income during the year giving rise to any income expense (benefit). (e) Tax losses The Group has unconfirmed tax losses arising in Australia of $2,418,851(2018: $981,322) that are available for offset against future taxable profits of the company. The deferred income tax asset of $665,184 (2018: $269,863) arising from these losses has not been brought to account at reporting date, as realisation of the benefit is not probable at this point in time. The Group will continue to review this regularly to determine whether to recognize these tax losses as deferred tax asset in the future. Tax consolidation Effective from 1 July 2002, Cryosite Limited and its 100% owned subsidiary formed a tax consolidated group. On formation of the tax consolidated group, the entities in the tax consolidated group agreed to enter into a tax sharing deed which will, in the opinion of the directors, limit the joint and several liabilities of the wholly- owned entities in the case of default by the head entity Cryosite Limited. The tax sharing deed was signed on 12 May 2011. The entities have also agreed to enter into a tax funding agreement under which the wholly-owned entities fully compensate the Company for any current tax payable assumed and are compensated by the Company for any current tax loss, deferred tax assets and tax credits that are transferred to the Company under the tax consolidation legislation. The tax consolidated current tax liability or current year tax loss and other deferred tax assets are required to be allocated to the members of the tax consolidated group in accordance with UIG 1052. The group uses a group allocation method for this purpose where the allocated current tax payable, current tax loss, deferred tax assets and other tax credits for each member of the tax consolidated group is determined as if the company is a stand-alone taxpayer but modified as necessary to recognise membership of a tax consolidated group. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements which is determined having regard to membership of the tax consolidated group. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current inter-company receivables or payables. Cryosite Limited Annual Report 44 Notes to the Financial Statements For the Year Ended 30 June 2019 9 EARNINGS PER SHARE The following reflects the income used in the basic and diluted earnings per share computations: Basic earnings per share Diluted earnings per share Basic EPS disclosure Earnings used in EPS calculation Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Diluted EPS disclosure Earnings used in diluted EPS calculation Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Shares deemed to be used for no consideration – performance rights & options Weighted average number of ordinary shares used in the calculation of diluted EPS Consolidated 30-Jun-19 $ 30-Jun-18 $ (3.68) (3.62) (2.65) (2.61) (1,722,543) (1,240,439) (1,722,543) (1,240,439) No. of shares 46,859,563 46,859,563 (1,722,543) (1,240,439) (1,722,543) (1,240,439) No. of shares 46,859,563 46,859,563 727,234 640,114 47,586,797 47,499,677 There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before completion of these financial statements. Cryosite Limited Annual Report 45 Notes to the Financial Statements For the Year Ended 30 June 2019 9 EARNINGS PER SHARE (continued) The following reflects the income used in the basic and diluted earnings per share for continuing operations computations: Basic earnings per share Diluted earnings per share (0.012) (0.012) (0.002) (0.002) Consolidated 30-Jun-19 $ 30-Jun-18 $ Basic EPS for continuing operations disclosure Earnings used in EPS for continuing operations calculation Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share for continuing operations Diluted EPS for continuing operations disclosure Earnings used in diluted EPS for continuing operations calculation Net profit attributable to ordinary equity holders of the parent Weighted average number of ordinary shares for basic earnings per share Shares deemed to be used for no consideration – performance rights & options Weighted average number of ordinary shares used in the calculation of diluted EPS (565,157) (75,280) (565,157) (75,280) No. of shares 46,859,563 46,859,563 (565,157) (75,280) (565,157) (75,280) No. of shares 46,859,563 46,859,563 727,234 640,114 47,586,797 47,499,677 There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before completion of these financial statements. Cryosite Limited Annual Report 46 Notes to the Financial Statements For the Year Ended 30 June 2019 10 CASH AND CASH EQUIVALENTS Cash at bank and on hand Short-term deposit Total Cash and Cash Equivalents Consolidated 2019 $ 329,275 3,590,622 3,919,897 2018 $ 534,181 4,001,697 4,535,877 Cash at bank and on hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and six months depending on the immediate cash requirements of the group and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents for the consolidated group and parent entity is $3,919,897 (2018: $4,688,104). Change in comparative figures During the period, the Company has modified the statement of financial position where bank guarantee of $152,227 was previously included as part of short term deposits is now presented separately under “Other assets” in Note 15. Comparative amounts in the statement of financial position were reclassified to be consistent with current year presentation. The effect of the above reclassification follows: Statement of Financial Position for the period ended 30 June 2018 Cash and cash equivalents 4,688,104 - Other assets As previously presented Reclassification (152,227) 152,227 As represented 4,535,877 152,227 Reconciliation of cash For purposes of the Statement of Cash Flow, cash and cash equivalents as at 30 June 2019 and the prior year are as shown above. Cryosite Limited Annual Report 47 Notes to the Financial Statements For the Year Ended 30 June 2019 11 STATEMENT OF CASH FLOW RECONCILIATION Reconciliation of the net profit after tax to the net cash flows from operations Net profit Less: Transfer to investing activities Adjustments for non-cash items Depreciation and amortisation of non-current assets Impairment loss for discontinued operations Impairment loss for intangibles Impairment loss for prepayments Increase (Decrease) in employee benefits – LSL Cancellation of performance rights Grant of Performance rights Changes in assets and liabilities (Increase) Decrease in trade and other receivables Decrease (Increase) in deferred tax asset – AASB 15 Decrease (Increase) in deferred costs – AASB 15 Increase (Decrease) in deferred tax liability -AASB 15 Increase (Decrease) in deferred revenue -AASB 15 Decrease (Increase) in inventory Decrease (Increase) in prepayments Decrease in deferred tax asset Decrease (Increase) in other assets Increase (Decrease) in trade and other creditors Increase (Decrease) in current other liabilities Increase (Decrease) in non- current other liabilities Decrease (Increase) in unearned income Increase (Decrease) in income tax provision Decrease in employee claims provision Increase (Decrease) in bonus provision Increase (Decrease) in dividend provision Increase in employee benefits – annual leave Consolidated 2019 $ 2018 $ (1,722,543) (56,157) (1,240,439) (42,680) 271,650 - 39,780 291,093 3,298 (22,928) 52,808 574,702 621,294 1,393,500 (2,259,250) (383,216) 986 8,822 (87,044) (323,985) 421,896 80,189 545,418 (777) (8,079) - (41,501) - (47,492) 424,138 555,586 - - (49,145) - 35,248 1,214,737 - - - - 57,240 (446,850) 54,817 - (626,214) - - (59,461) - (130,000) 41,501 22 (50,406) Net cash flow from operating activities (647,536) (261,906) Cryosite Limited Annual Report 48 Notes to the Financial Statements For the Year Ended 30 June 2019 12 TRADE AND OTHER RECEIVABLES – CURRENT Trade receivables Allowance for impairment loss (a) Other receivables Carrying amount of trade and other receivables (a) Allowance for impairment loss Consolidated 2019 $ 652,545 (73,475) 579,070 259,030 838,100 2018 $ 1,319,588 (45,590) 1,273,998 85,133 1,359,311 Trade receivables (current), which generally have 30 day terms, are recognised initially at fair value less an allowance for impairment as per AASB 9 requirements. As per AASB 9, the Group’s accounting for impairment losses for financial assets is based on a forward-looking expected credit loss (ECL) approach. The Group’s ECL is based on an estimated percentage of past due receivables that are expected to default based on historical experience. Movements in the provision for impairment loss were as follows: Balance at the beginning of the period Increase(reduction) in impairment loss Balance at the end of the period (b) Analysis of trade receivables At 30 June, the ageing analysis of trade receivables is as follows: Consolidated 2019 $ 45,590 27,885 73,475 2018 $ 40,515 5,075 45,590 Total Not yet due 0-30 Days 31-60 Days $ $ $ $ 61-90 Days* PDNI $ +91 Days* PDNI $ +91 Days* CI $ 2019 Current Non-Current cURRENTDDD Total Consolidated DDDDcUCurr ent 2018 652,545 186,502 460,673 186,502 54,522 - 22,657 - 41,659 - 73,034 - 839,047 647,175 54,522 22,657 41,659 73,034 799,829 243,264 1,319,588 243,264 Current Non-Current Total Consolidate d *For 2018, aging is based on pre AASB 9 requirements and was split into the following categories: 1,562,852 1,043,093 192,661 - 197,058 - 42,163 - 41,682 - 192,661 197,058 42,163 41,682 - - - 45,590 - 45,590   Past due not impaired (“PDNI”) Past due considered impaired (“CI”) Cryosite Limited Annual Report 49 Notes to the Financial Statements For the Year Ended 30 June 2019 12 TRADE AND OTHER RECEIVABLES – CURRENT (continued) In 2019, as noted in 11(a), the impairment loss is based on ECL and not specific to certain debtors. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. (c) Fair value and credit risk Due to the nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities. 13 INVENTORIES Consumables at cost Total Inventories at cost 14 PREPAYMENTS Current Balance at beginning of period Additions (reductions) during the year Impairment loss Balance at end of period Non-Current Balance at beginning of period Additions (reductions) during the year Impairment loss Balance at end of period Consolidated 2019 $ 22,859 22,859 2018 $ 23,845 23,845 Consolidated 2019 2018 $ $ 289,078 (9,721) (888) 279,369 290,205 - (290,205) - 132,433 156,645 - 289,078 - 290,205 - 290,205 In 2018 prepayments included a payment for a new technology platform had been split into current of $72,551 and non-current of $290,205. During the year we expensed $71,663 of this new technology platform resulting in current balance of $888. In June 2019, an impairment review was conducted and it determined that this asset was fully impaired and subsequently this asset was written down to nil. Cryosite Limited Annual Report 50 Notes to the Financial Statements For the Year Ended 30 June 2019 15 OTHER ASSETS Bank guarantee* Term Deposit** Total 2019 $ 152,277 323,985 476,262 Consolidated 2018 $ 152,277 - 152,277 *Bank guarantee is a reclassification from cash on hand as outlined in Note 10. ** This term deposit matures on the 28th October 2019 with an annual interest of 1.75%. 16 TRADE AND OTHER RECEIVABLES – NON CURRENT Consolidated 2019 $ 2018 $ Trade receivables Trade receivables due under term payment plans 186,502 243,264 The maximum exposure to credit risk at the time of reporting is the carrying value of the receivables. 17 INVESTMENT IN CONTROLLED ENTITY Name – Cryosite Distribution Pty Limited Equity interest held by the consolidated entity Investment 2019 2018 2019 2018 Country of incorporation – Australia 100 100 % % $ 20 $ 20 Cryosite Limited Annual Report 51 Notes to the Financial Statements For the Year Ended 30 June 2019 18 PLANT AND EQUIPMENT Leasehold Improvements Fixtures and fittings Information Technology Warehouse Equipment Office furniture & equipment $ $ $ $ $ Total $ 200,000 108,635 234,555 4,214,685 14,358 4,772,233 11,613 25,194 28,823 98,989 16,896 181,515 211,613 133,829 263,378 4,313,674 31,254 4,953,748 - - - - - - 26,155 (632) - - 26,155 (632) Cost At 1 July 2017 Additions At 30 June 2018 Additions Disposals At 30 June 2019 211,613 133,829 263,378 4,339,197 31,254 4,979,271 Depreciation and Impairment At 1 July 2017 Depreciation charge Impairment loss* At 30 June 2018 Depreciation charge Disposals At 30 June 2019 (200,000) (73,075) (199,172) (3,369,462) (11,507) (3,853,216) (734) (5,911) (30,081) (321,523) (4,617) (362,866) - - - (115,012) - (115,012) (200,734) (78,986) (229,253) (3,805,997) (16,124) (4,331,094) (2,212) (6,994) (19,992) (227,715) (4,715) (260,996) - - - 632 - 632 (202,946) (85,980) (249,245) (4,033,080) (20,839) (4,592,090) Net Book Value - 30 June 2018 10,879 Net Book Value - 30 June 2019 8,667 54,843 47,849 34,125 14,133 507,677 306,117 15,130 10,415 622,654 387,181 *In 2018 as result of the decision to cease the collection and processing of cord blood and tissue samples, the board reviewed the assets associated with these operations and, as a result of this review, concluded that these assets were impaired and consequently they have resolved to write down these assets by $115,012. 19 INTANGIBLE ASSETS Licenses Licence fee - at cost less Accumulated amortisation and impairment expense Net Carrying Amount Software development Software development -at cost less Accumulated amortisation and impairment expense Net Carrying Amount Intellectual property Stemlife storage contracts - at cost less Accumulated amortisation and impairment expense Net Carrying Amount Total Net Carrying Amount Consolidated 2019 $ 2018 $ 255,310 (255,310) - 294,615 (287,637) 6,978 152,763 (152,763) - 6,978 255,310 (255,310) - 294,615 (237,835) 56,780 152,763 (152,763) - 56,780 Cryosite Limited Annual Report 52 Notes to the Financial Statements For the Year Ended 30 June 2019 19 INTANGIBLE ASSETS (continued) Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Licences $ 234,610 - (2,750) (231,860) - - - - - Software development $ 224,625 - (50,641) (117,204) 56,780 - (10,022) (39,780) 6,978 Intellectual property $ 100,000 - (8,490) (91,510) - - - - - Total $ 559,235 - (61,881) (440,574) 56,780 - (10,022) (39,780) 6,978 Balance at 30 June 2017 Additions Amortisation for the year Impairment loss Balance at 30 June 2018 Additions Amortisation for the year Impairment loss Balance at 30 June 2019 Licence Fee During the 2014 financial year, the Company entered into an exclusive licensing agreement within Australia and New Zealand to assist with the in-house development of new technologies to develop the range of stem cell service offerings. The Directors have assessed a finite life to the licence in line with the underlying patents and associated methodologies. The assessment of useful life is reviewed annually by the Directors to determine whether the assumptions made continue to be appropriate and supportable. If not, the useful life assessment is changed on a prospective basis. In 2018, the Company has ceased the collection and processing of new cord blood and cord tissue samples. As a result, the remaining net book value of the licence fee is fully impaired during the year. Refer to Note 34. Software Development During the 2016 and 2017 financial years, the Company has invested in the development of in-house software to enhance its operating capability. These costs include the direct costs of external consultants and any supporting software acquired from a third party. The assessment of useful life is reviewed annually by the Board to determine whether the assumptions made continue to be appropriate and supportable. If not, the useful life assessment is changed on a prospective basis. In 2018, the Company has ceased the collection and processing of new cord blood and cord tissue samples. As a result, software associated with this segment is considered fully impaired during the year. Refer to Note 34. Intellectual Property In 2017, the Company acquired the storage contracts from a liquidated company called Stemlife. The cost reflects the direct costs paid to Stemlife and the legal fees incurred in the transaction. The assessment of useful life is reviewed annually by the Directors to determine whether the assumptions made continue to be appropriate and supportable. If not, the useful life assessment is changed on a prospective basis. In 2018, the Company has ceased the collection and processing of new cord blood and cord tissue samples. As a result, the remaining net book value of intellectual property is fully impaired during the year. Refer to Note 34. Cryosite Limited Annual Report 53 Notes to the Financial Statements For the Year Ended 30 June 2019 20 DEFERRED COSTS Current Non-current Consolidated 2019 $ 1,381,183 13,232,356 14,613,539 2018 $ - - Deferred costs represent upfront costs, such as laboratory fees, attributable for the collection and processing of cord blood and tissue samples. These are capitalised and amortised over the remaining life of the storage contracts as required under AASB 15. 21 TRADE AND OTHER PAYABLES CURRENT LIABILTIES Trade payables Other payables Total current payables NON-CURRENT LIABILTIES Client deposits Total non-current payables Fair value Consolidated 2019 $ 239,694 637,248 876,942 2018 $ 163,486 291,560 455,046 441,682 441,682 441,682 441,682 Trade payables are non-interest bearing and are normally settled on 30 to 90 day terms. Therefore, their carrying value is assumed to be their fair value. Other payables are non-interest bearing and are on ranging from 30 days to 12 month terms. Their carrying value is assumed to be fair value. At 30 June, the ageing analysis of trade payables is as follows: Total $ Not Yet due $ 0-30 Days $ 31-60 Days $ 61-90 Days $ 2019 Consolidated 2018 Consolidated 239,694 - 172,279 57,719 9,696 163,486 114,149 43,379 - 5,958 +91 Days $ - - Other balances within trade and other payables are not past due. It is expected that these other balances will be paid. Cryosite Limited Annual Report 54 Notes to the Financial Statements For the Year Ended 30 June 2019 22 UNEARNED INCOME Current Non-current Consolidated 2019 $ 23,066 - 23,066 2018 $ 425,414 3,998,804 4,424,218 Prior to adoption of AASB 15, the majority of unearned income represented cord blood and tissue storage income received in advance for services to be rendered under long-term storage contracts. Subsequent to the adoption of AASB 15 on 1 July 2018, the full amount associated with cord blood and tissue storage is reclassed to deferred revenue. 23 DEFERRED REVENUE Current Non-current Consolidated 2019 $ 2,250,487 20,276,684 22,527,171 2018 $ - - - Prior to adoption of AASB 15, the Group immediately recognises to revenue the amount received for collection and processing of cord blood and cord tissue. Subsequent to adoption of AASB 15 on 1 July 2018, upfront revenue was reclassed to deferred revenue, which is amortised over the term of the contract. 24 PROVISIONS Current Annual leave Long service leave Provision for bonuses Dividend payable Non-current Long service leave Lease make good Movements in provisions Annual leave Balance at beginning of the year Arising /(taken) during the year Long Service Leave Balance at beginning of the year Arising / (taken) during the year Consolidated 2019 $ 2018 $ 130,403 24,019 - 1,382 155,804 37,799 200,000 237,799 177,895 (47,492) 130,403 40,358 21,460 61,818 177,895 40,358 41,501 1,382 261,156 18,162 200,000 218,162 228,301 (50,406) 177,895 72,449 (32,091) 40,358 Nature and timing of long service leave provision is based on the accounting policy and the significant Cryosite Limited Annual Report 55 Notes to the Financial Statements For the Year Ended 30 June 2019 estimations and assumptions applied in the measurement of this provision as in Note 3. 24 PROVISIONS (Continued) Provision for Bonuses Balance at beginning of the year Raised (paid) during the year Nature and timing of lease make-good provision 2019 $ 2018 $ 41,501 (41,501) - - 41,501 41,501 In accordance with the current lease agreement with Allsup Pty Limited for the premises in Granville, at the end of the lease term in October 2019, the Group may either restore the leased premises in Granville to its original condition or alternatively remove unfixed chattels and equipment and pay an amount of $150,000 (excluding GST). In June 2019 the current lease agreement was extended for another 3 years until 31 October 2022 and this make good provision was increased to $165,000. This was considered adequate based on the Company’s current agreement with Allsup Pty Limited and the understanding reached to date. The provision of $200,000 has been raised in respect of the Group’s obligation to reflect this arrangement regarding the leased premises and is included in the carrying amount of plant and equipment. Because of the long-term nature of the liability, the greatest uncertainty in estimating the provision is the actual cost that may ultimately be renegotiated and finalised with Allsup Pty Limited covering either a renewal of the existing or negotiating a new lease with them though $200,000 is considered fairly stated in either circumstance. For the relevant accounting policy and the significant estimations and assumptions applied in the measurement of this provision refer to Note 3. 25 CONTRIBUTED EQUITY AND ACCUMULATED LOSSES Ordinary shares Movement in ordinary shares on issue Consolidated 2019 $ 5,861,788 2018 $ 5,861,788 Beginning of the financial year End of the financial year 2019 2018 Shares No. 46,859,563 46,859,563 $ 5,861,788 5,861,788 Shares No. 46,859,563 46,859,563 $ 5,861,788 5,861,788 Terms of conditions of contributed equity Ordinary shares carry the right to receive dividends and entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Cryosite Limited Annual Report 56 Notes to the Financial Statements For the Year Ended 30 June 2019 25 CONTRIBUTED EQUITY AND ACCUMULATED LOSSES (continued) Movement in accumulated losses Balance at the beginning of the year AASB 15 adjustment Net profit for the year Balance at the end of the year 26 RESERVES Share rights reserve Movement in share options/rights reserve Balance at the beginning of the year Performance rights/options granted Performance rights/options cancelled Balance at the end of the year Consolidated 2019 $ (3,958,712) (1,966,135) (1,722,543) (7,647,390) 2018 $ (2,718,273) - (1,240,439) (3,958,712) Consolidated 2019 $ 69,532 2018 $ 40,339 Consolidated 2019 $ 40,339 52,121 (22,928) 69,532 2018 $ 5,901 35,248 (8,677) 40,339 The purpose of the share rights reserve is to record the value of share-based payments provided to employees as part of their remuneration. Refer to Note 30 for further details of these plans. 27 COMMITMENTS AND CONTINGENCIES (a) Operating lease commitments – Group as lessee Group as lessee Commercial property On 1 November 2016, the company entered into a four-year lease over a commercial property at South Granville in Sydney. This lease was renewed in June 2019 and extended another 3 years to 31st October 2020. Future minimum rentals payable under commercial property leases as at 30 June are as follows: Within one year After one year but not more than five years Consolidated 2019 $ 254,600 616,003 870,603 2018 $ 247,490 83,040 330,530 Cryosite Limited Annual Report 57 Notes to the Financial Statements For the Year Ended 30 June 2019 27 COMMITMENTS AND CONTINGENCIES (continued) Commercial Property Security deposits The security deposit for the lease at Granville is covered by a bank guarantee for $152,227 issued by the Commonwealth Bank of Australia. Cash deposit is held as security as per note 15. Plant and equipment The Group currently has a number of operating leases on items of plant and equipment used in day to day operations of the business. Leases have an average life of five years with renewal terms included in the contracts. Renewals are at the option of the specific entity that holds the lease. There are no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: Within one year After one year but not more than five years (b) Plant and equipment commitments There are no capital expenditure commitments at reporting date. (c) Contingent Liabilities The Group is not aware of any contingent liabilities at reporting date. 28 AUDITORS REMUNERATION Amounts received or due and receivable by Mazars for: - Audit or review of the financial report of the entity and any other entity in the consolidated group - Other services in relation to the entity and any other entity in the consolidated group 29 RELATED PARTY DISCLOSURES Consolidated 2019 $ 4,880 - 4,880 2018 $ 14,640 4,880 19,520 Consolidated 2019 $ 2018 $ 70,717 75,104 5,750 76,467 4,300 79,404 The consolidated financial statements include the financial statements of Cryosite Limited and its wholly owned subsidiary Cryosite Distribution Pty Limited. For details, refer to Note 17. During the year total payments of $130,264 were made to COSA Pty Ltd which is owned by Bryan Dulhunty, a director of the Company. COSA Pty Ltd charged the Company $48,502 for consulting fees and $81,762 (directors fees of $75,000 plus 9.5% superannuation) in respect to services provided by Bryan Dulhunty as a director and company secretary of the company during the year. Cryosite Limited Annual Report 58 Notes to the Financial Statements For the Year Ended 30 June 2019 29 RELATED PARTY DISCLOSURES (continued) Cryosite Limited is the ultimate parent entity. Cryosite Distribution Pty Limited neither has a bank account nor does it hold any cash in its own right. All receipts and payments for this entity are made by Cryosite Limited, with the amounts charged against an inter-company loan account. No interest is payable on this balance and no amounts are due and payable. Cryosite Limited and Cryosite Distribution Pty Limited are part of a tax consolidation group and has entered into a tax funding agreement. Under this agreement, payments are to be made for tax losses transferred between entities in the group. Refer to Note 8. Cryosite Limited has received a dividend from Cryosite Distribution Pty Limited for $3,708,145 (2018: $3,500,000). 30 SHARE-BASED PAYMENTS EXPENSE Total Expense (income) recognized in the profit and loss relating to share based payments Performance rights and options granted Consolidated 2019 $ 52,121 52,121 2018 $ 35,248 35,248 Long Term Incentive Plan: Cryosite Employee Incentive Plan (CEIP) On the 23rd February 2017, the Cryosite Employee Incentive Plan (CEIP) was established by the Company. On invitation, the CEIP provides executives the opportunity to receive a long-term equity based incentive in each financial year and is governed by the CEIP Plan Rules. Full details of the performance rights and options issued to executives are noted in the remuneration report which forms part of the Directors’ Report. Performance Rights Since the establishment of the CEIP, the company has granted a number of performance rights. This grant value, subject to shareholder approvals, is defined as a % of fixed remuneration or as otherwise agreed. The following %’s of fixed remuneration were used in determining the grant value for each executive. The grant value was converted into the number of performance rights to be issued using the WVAP of Cryosite shares in the 30 trading days following the release of the Annual Report. The following components of the CEIP for performance rights are as follows; Vesting date Vesting conditions Performance conditions Service conditions Expiry date Exercise of Rights Up to 36 months from date of grant. Performance rights will only vest after certain performance and conditions are met. Compound Annual Growth Rates (CAGR) of the Earnings per Share (EPS) over measurement period need to be achieved from a base year. Continuous employment with Cryosite from the date of the performance rights are granted until the vesting date. Performance rights will expire 1 month after the vesting date Any Performance rights which meet the Vesting conditions will be available for exercise up until the Expiry date. Cryosite Limited Annual Report 59 Notes to the Financial Statements For the Year Ended 30 June 2019 30 SHARE-BASED PAYMENTS EXPENSE (continued) The board has granted performance rights during the year to the following personnel: Key management personnel Staff No of Performance Rights 2019 - - - 2018 503,944 294,303 798,247 Balance granted as at 1st July 2017 Performance Rights granted 27/11/2017 Performance Rights granted 7/2/2018 Balance granted as at 30th June 2018 Performance Rights cancelled Balance granted as at 30th June 2019 Key management personnel No 211,002 295,647 208,297 714,946 - 714,946 Staff No - 294,303 - 294,303 (294,303) - Total No 211,002 589,950 208,297 1,009,249 (294,303) 714,946 Conditions Grant date Vesting date Expiry date Period Base Year Basic EPS Measure 27 February 2017 1 September 2019 30 September 2019 7th February 2018 27 November 2017 1 September 2020 1 September 2020 30 September 2020 30 September 2020 1/7/2017 to 1/7/2017 to 30/6/2020 30/6/2020 1/7/2016 to 30/6/2019 2017 2017 2016 0.64 cents 0.48 cents 0.48 cents Earnings per Share (EPS) Compound Annual Growth Rate (CAGR) Targets for performance rights CAGR of EPS over measurement Period relative to base year Grant Date < 20% 20% to 25% >25% 27-Feb-17 < 1.10592 1.105592 to 1.25 >1.25 EPS (cents)Target per plan 27-Nov-17 <0.83 0.83 to 0.94 >0.94 7-Feb-18 <0.83 0.83 to 0.94 >0.94 Percentage of Performance Rights that vest 0% 50-100% (pro-rata) 100% As at 30 June 2019, no performance rights had vested. Cryosite Limited Annual Report 60 Notes to the Financial Statements For the Year Ended 30 June 2019 30 SHARE-BASED PAYMENTS EXPENSE (continued) Options On the 27th June 2019, the board granted options to the following personnel: Key personnel management Staff No of Options* 2019 1,300,000 1,300,000 2,600,000 *In relation to the options to be issued to the key personnel management, there is a restriction on settlement as they have been granted without shareholder approval and therefore settlement will be restricted to on market purchase pursuant to ASX Listing Rule 10.15B. Shareholder approval will be sought at the 2019 AGM and, if received, this restriction may no longer apply. Options granted 27th June 2019 Balance granted as at 30th June 2019 Key management personnel No 1,300,000 1,300,000 Staff No 1,300,000 1,300,000 Total No 2,600,000 2,600,000 The following components of the CEIP for options are as follows; Vesting date Option price Vesting conditions Performance conditions Service conditions Expiry date Exercise of Options Conditions of options Grant date Vesting date Expiry date Period Exercise price Targets for options Up to 25 months from date of grant. 6 cents Options will only vest after certain performance and conditions are met. Earnings per Share (EPS), Positive operating cashflow Continuous employment with Cryosite from the date of the options are granted until the vesting date. Options will expire 36 months after the vesting date. Any options which meet the Vesting conditions will be available for exercise up until the Expiry date. 27 June 2019 1 September 2021 1 September 2024 27/6/2019 to 1/9/2021 6 cents Conditions of Vesting Positive Earnings per share (EPS)* Positive Cashflow from Operations* Continuous service * Based on the 2021 audited accounts Target date 30 June 2021 30 June 2021 30 June 2021 Percentage of Performance Rights that vest 33.3% 33.3% 33.3% As at 30 June 2019, no performance rights or options had vested. Cryosite Limited Annual Report 61 Notes to the Financial Statements For the Year Ended 30 June 2019 30 SHARE-BASED PAYMENTS EXPENSE (continued) Assumptions used to determine fair value of performance rights and options The fair value of the performance rights and options granted was calculated using a Black Scholes model using the following assumptions: Date of effective valuation: Fair value at valuation date Risk-free rate: Standard deviation (annualised): Closing share price at Effective Date: Exercise price: Expected life Annualised dividend rate 27-Feb-17 $0.178 1.93% 45% $0.200 $0.000 2.51 4.6% 27-Nov-17 $0.135 1.90% 50% $0.135 $0.000 2.77 0.0% 7-Feb-18 $0.100 2.11% 50% 27-Jun-19 $0.0169 0.99% 50% $0.100 $0.000 2.54 0.0% $0.051 $0.060 3.00 0.0% 31 KEY MANAGEMENT PERSONNEL (a) Key Management Personnel Non-Executive Directors Mr Bryan Dulhunty Mr Andrew Kroger Mrs Nicola Swift Chairman (Non-executive) * Director Director *Bryan Dulhunty was appointed Executive Chairman on the 27th June 2019. Executive Mr Mark Byrne Chief Executive Officer Due to the relatively small number of employees, there is only one key management personnel having authority and responsibility for planning, directing and controlling the activities of the entity either directly or indirectly. Cryosite Limited Annual Report 62 Notes to the Financial Statements For the Year Ended 30 June 2019 31 KEY MANAGEMENT PERSONNEL (continued) (b) Compensation for key management personnel Non-executive directors Short-term employee benefits* Post-employment benefits Share base payments Sub-total non-executive directors Key Management Personnel Short-term employee benefits Post-employment benefits Share base payments Sub-total key management personnel Total compensation 2019 $ Consolidated 2018 $ 250,265 11,400 110 261,775 228,310 21,689 37,571 387,570 549,345 221 ,913 16,201 - 238,114 246,026 21,472 31,740 299,238 537,352 *This includes payments to made to COSA Pty which is owned by Bryan Dulhunty. During the year the company charged the Company $48,502 for consulting services and $81,762(directors fees of $75,000 plus 9.5% superannuation) (2018 $51,375) in respect to services provided by Bryan Dulhunty as a director and company secretary of the company. Bryan Dulhunty became executive chairman on the 27th June 2019. 32 FINANCIAL INSTRUMENTS The Group’s principal financial liabilities comprise of trade payables. The Group has various financial assets such as trade receivables, cash and short-term deposits, which arise directly from its operations. The Group does not enter into any derivative transactions. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and credit risk. The Board of Directors reviews and monitors each of these risks. (a) Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to: - - cash and cash deposits with floating interest rates; and assessments of appropriate discount rates for deferred arrangements. The consolidated entity's exposure to interest rate risk and the effective weighted average interest rate for classes of financial assets is set out below: Cryosite Limited Annual Report 63 Notes to the Financial Statements For the Year Ended 30 June 2019 32 FINANCIAL INSTRUMENTS (continued) 2019 Note Weighted average effective interest % Floating Interest $ Non-Interest bearing $ Total $ Financial assets Interest bearing deposits Cash and equivalents Current receivables Non-Current receivables 10 10 12 16 2.13% 0.46% - - 3,597,839 322,839 - - - 3,597,839 322,839 - 838,100 838,100 186,502 186,502 Total 3,920,678 1,024,602 4,945,280 Financial Labilities Trade creditors and accruals 21 2.20% - 239,693 239,693 2018 Note Weighted average effective interest % Floating Interest $ Non-Interest bearing $ Total $ Financial assets Interest bearing deposits Cash and equivalents Current receivables Non-Current receivables Total Financial Labilities Trade creditors and accruals 10 10 12 16 1.85% 0.59% - - 4,153,923 534,181 - - 4,688,104 - 4,153,923 534,181 - 1,380,811 1,380,811 243,264 243,264 6,312,179 1,624,075 21 2.20% 114,149 340,897 455,046 Interest rate sensitivity analysis The Group has no material exposure to any probable interest volatility. (b) Credit Risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables. The Group's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The Group trades with a number of types of customers, the main ones being: - Incorporated companies - Research institutes both private and academic - Individuals. Incorporated Companies The Group trades with recognised, publicly listed companies and large unlisted proprietary companies and as such collateral is not requested nor is it the Group's policy to securitise its trade and other receivables. Cryosite Limited Annual Report 64 Notes to the Financial Statements For the Year Ended 30 June 2019 32 FINANCIAL INSTRUMENTS (Continued) Research institutes both private and academic The Group also trades with research institutes that are either publicly, privately or government owned along with recognised universities. Such customers are subject to credit search and collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. Individuals The Group ensures that credit card information is obtained for all individual customers. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the Board. These risk limits are regularly monitored. There are no significant concentrations of credit risk within the Group. There are no transactions that are not denominated in the functional currency of the Group. (c) Capital management When managing capital, the boards’ objective is to ensure the entity continues as a going concern as well as to maintain returns to shareholders. The board also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. As part of regular reviews, management considers the cost of capital and the risks associated with each class of capital. Upon review, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt. The Group's overall strategy remains unchanged from 2017. The Board of Directors is responsible for assessing financial risks, related controls and other financial risk management strategies. The Company deploys its assets and liabilities so as to manage risk at commercially appropriate. levels, bearing in mind the constraints imposed by the consolidated entity’s size, results and other financial circumstances. The Company aims to balance opportunities to improve profitability against related risks of losses of assets or the incurrence of additional liabilities. (d) Fair value All financial assets and liabilities have been disclosed in the financial statements and notes thereto at their carrying value, which approximates their net fair values. The fair value of the assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair values of balances related to long term revenue contracts are determined using a discounted cash flow method using discount rates that reflect the appropriate level of risk over the life of the long term revenue stream. (e) Liquidity Risk The Group has assessed liquidity risk to be low at balance date and at the date of this report based on total current assets, including cash and equivalents, of $6,622,766 (2018: $6,381,838) at balance date less current liabilities of $3,029,778 (2018: $1,141,616) an excess of current assets over current liabilities amounting to $3,592,988 (2018: $4,967,222) The Group generated a negative $647,536 (2018: $261,906) cash flow from operations during the current year. Liquidity risks are managed by matching the payment and receipt cycle. Cryosite Limited Annual Report 65 Notes to the Financial Statements For the Year Ended 30 June 2019 32 FINANCIAL INSTRUMENTS (Continued) Maturity analysis of financial assets and liabilities based on management’s expectation. Year ended 30 June 2019 Less than 6 months $ 6-12 months $ 1-5 years $ Greater than 5 $ years Total $ Consolidated Financial Assets Cash and cash equivalents 3,919,897 - - - 3,919,897 Trade and other receivables 841,444 25,737 178,794 7,708 1,053,683 Other assets 323,985 - - - 323,985 5,085,326 25,737 178,794 7,708 5,297,765 Consolidated Financial liabilities Trade and other payables Net maturity Year ended 30 June 2018 876,942 - - - 876,942 4,208,384 25,737 178,794 7,708 4,420,623 Less than 6 months $ 6-12 months $ 1-5 years $ Greater than 5 $ years Total $ Consolidated Financial Assets Cash and cash equivalents 4,535,827 - - - 4,535,827 Trade and other receivables 1,266,988 113,823 233,098 10,166 1,624,075 Consolidated Financial liabilities Trade and other payables 455,046 - - - 455,046 5,802,815 113,823 233,098 10,166 6,159,902 Net maturity 5,347,769 113,823 233,098 10,166 5,704,856 The risk implied from the values shown in the table above, reflects a balanced view of cash inflows and outflows. Trade payables and other financial liabilities mainly originate from investment in working capital such as inventories and trade receivables. These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as enable an effective controlling of future risks the Directors monitor the expected settlement of financial assets and liabilities. Cryosite Limited Annual Report 66 Notes to the Financial Statements For the Year Ended 30 June 2019 33 PARENT ENTITY FINANCIAL INFORMATION The individual financial statements for the parent entity show the following aggregate amounts: (a) ASSETS Total Current Assets Total Non-Current Assets TOTAL ASSETS (b) LIABILITIES Total Current Liabilities Total Non-Current Liabilities TOTAL LIABILITIES (c) EQUITY Contributed equity Share option reserves Accumulated losses TOTAL EQUITY 2019 $ 2018 $ 7,333,042 19,625,106 5,777,743 1,361,861 26,958,148 7,139,603 3,592,160 25,140,477 1,161,023 4,658,649 28,732,637 5,819,672 5,861,788 69,532 (7,705,809) 5,861,788 40,339 (4,582,196) (1,774,489) 1,319,931 (d) TOTAL COMPREHENSIVE INCOME Net Profit of the parent entity for the year net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR (1,159,117) (1,159,117) (1,364,490) (1,363,490) (e) GUARANTEES ENTERED INTO BY THE PARENT ENTITY No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries. (f) COMMITMENTS AND CONTINGENCIES OF THE PARENT ENTITY Commitments and contingencies for the parent entity are the same as those disclosed in Note 27. Cryosite Limited Annual Report 67 Notes to the Financial Statements For the Year Ended 30 June 2019 34 DISCONTINUED OPERATIONS In October 2017, the Company completed the closure of the laboratory operations and the departure of staff associated with the collection and processing of cord blood and tissue samples. The Company will continue to service its existing storage contracts until the full contract terms of either 18 or 25 years. As result of the decision to cease the collection and processing of cord blood and tissue samples, the board reviewed all non-financial assets associated with these operations and, as a result of this review, concluded that these assets were impaired. Consequently, they resolved to write down these assets by the following amounts: Property, plant and equipment Licence fees Intellectual property Software Total impairment loss 2019 $ 2018 $ - - - - - 115,012 231,860 91,510 117,204 555,586 No impairment was deemed necessary for the assets related to the storage and maintenance of cord blood and tissue samples. The results of operations related to collection and processing of cord blood and tissue samples are presented below: Revenue Expenses Impairment loss Pre-tax profit/(loss) for the financial year Income tax credit/(expense) Post-tax profit/(loss) for the financial year from discontinued operations 2019 $ 2018 $ - - - - - - 240,108 (963,554) (555,586) (1,279,032) 283,289 (995,743) The storage revenue from existing cord blood and storage contracts are presented as part of continuing operations from Cord Blood and Tissue segment (see Note 5 and Note 6). Cryosite Limited Annual Report 68 Notes to the Financial Statements For the Year Ended 30 June 2019 35 LEGAL SETTLEMENT (a) (a) (b) Penalty from ACCC Less discounted factor due to payment plan Discounted penalty from ACCC Legal fees paid to ACCC Final ACCC settlement Final settlement to employee Legal expenses incurred Provision for employee claims reversed Accruals reversed Pre-tax expense Income tax credit Post tax loss from legal settlement a) Legal settlement to ACCC Consolidated 2019 $ 2018 $ (1,050,000) 224,393 (825,607) (50,000) (875,607) - (407,626) - - (1,283,233) 125,847 (1,157,386) - - - - - (195,000) (198,677) 130,000 30,000 (233,677) 64,261 (169,416) On the 13th February 2019, the Company settled with the Australian Competition and Consumer Commission (ACCC) in relation to the proceeding against Cryosite in the Federal Court of Australia. Under the terms of the settlement, the Company agreed to pay a pecuniary penalty of $1.1m (including costs) to the ACCC, with Cryosite being allowed to pay the penalty in instalments with $250,000 (including $50,000 in legal costs) to be paid within 30 days of the Court's order and the balance to be paid in 10 equal annual instalments from 2020 to 2029. Background details to this settlement are outlined in the Directors Report. The initial accounting treatment of the ACCC penalty was as follows: Penalty $ 50,000 200,000 850,000 1,100,000 Income Statement Impact $ Balance Sheet Impact $ Classification 50,000 200,000 625,608 875,608 50,000 Other payables - current 200,000 Other liabilities - current 625,608 Other liabilities – non-current 875,608 Legal fees Initial payment Payment plan * Total On the 8th March 2019, Cryosite paid $250,000 resulting in a balance of $625,607 outstanding on 30th June 2019 made up of: Other liabilities – current Other liabilities – non-current Total liabilities $ 47,464 578,144 625,608 *The payment plan of $850,000 has been discounted by $224,393 over a 10 year period using a discount rate of 6% to reflect the 10 equal annual instalments of $85,000. b) Legal settlement to employee A former Director and former employee made a claim against the company in respect to statutory entitlements and an additional termination entitles. This claim was subsequently settled by the Group in 2018. Cryosite Limited Annual Report 69 INDEPENDENT AUDITOR’S REPORT TO THE DIRECTORS OF CRYOSITE LIMITED AND CONTROLLED ENTITY Report on the Financial Report Opinion We have audited the accompanying financial report of Cryosite Limited and controlled entity (the “Group”), which comprises the statement of financial position as at 30 June 2019 and statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, other selected explanatory notes and the directors’ declaration as set out on pages 19 to 69. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and complying with Australian Accounting Standards to the extent described in Note 2 and the Corporations Regulations 2001. Basis of Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accounts (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report for the current year. We have determined that there are no key audit matters to communicate in our report. LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 – PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 – www.mazars.com.au EMAIL: audit@mazars.com.au MAZARS RISK & ASSURANCE PTY LIMITED – ABN: 39 151 805 275 Liability limited by a scheme approved under Professional Standards Legislation Other Information The directors of the group are responsible for the other information. The other information comprises the information included in the “Annual Report”, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Group are responsible for the preparation of the financial report that gives a true and fair view and have determined that the basis of preparation described in Note 2 to the financial report is appropriate to meet the requirements of the Corporations Act 2001 and is appropriate to meet the needs of the members. The directors’ responsibility also includes such internal control as the directors determine is necessary to enable the preparation of a financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 – PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 – www.mazars.com.au EMAIL: audit@mazars.com.au MAZARS RISK & ASSURANCE PTY LIMITED – ABN: 39 151 805 275 Liability limited by a scheme approved under Professional Standards Legislation As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence that is sufficient and appropriate to provide a basis for the auditor’s opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of the director’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If the auditor concludes that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that the auditor identifies during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable related safeguards. LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 – PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 – www.mazars.com.au EMAIL: audit@mazars.com.au MAZARS RISK & ASSURANCE PTY LIMITED – ABN: 39 151 805 275 Liability limited by a scheme approved under Professional Standards Legislation Report on the Remuneration Report We have audited the Remuneration Report for the year ended 30 June 2019 as outlined on pages 8 to 13 of the financial report. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of Cryosite Limited for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Yours sincerely, MAZARS RISK AND ASSURANCE PTY LTD Paul Collins Director Sydney, on this 21st day of August 2019 LEVEL 12, 90 ARTHUR STREET, NORTH SYDNEY NSW 2060 – PO BOX 1994, NORTH SYDNEY NSW 2059 TEL: +61 2 9922 1166 - FAX: +61 2 9922 2044 – www.mazars.com.au EMAIL: audit@mazars.com.au MAZARS RISK & ASSURANCE PTY LIMITED – ABN: 39 151 805 275 Liability limited by a scheme approved under Professional Standards Legislation ASX Additional Shareholder Information Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 12 August 2019. SUBSTANTIAL SHAREHOLDERS The names of any substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: Shareholder Andrew Kroger and related entities Cell Care Australia Pty Ltd 2019 No of shares % of issued capital 2018 No of shares % of issued capital 17,315,291 9,229,995 36.95 19.70 17,315,291 9,229,995 36.95 19.70 TWENTY LARGEST SHAREHOLDERS The names of the twenty largest holders of quoted shares are: SHAREHOLDERS LISTED ORDINARY SHARES Andrew Kroger and related entities Cell care Australia Pty Ltd Mr Alistair David Strong BNP Paribas Nominees Pty Ltd Bell Potter Nominees Ltd Mrs Jane Susan Milliken Mr Stephen Roberts Sunnyit Pty Ltd Mr Theodore Onisforou Talston Pty Ltd H F A Administration Pty Limited Mr Peter Howells CVF Australia Pty Ltd Wifam Investments Pty Ltd Castlereagh Equity Pty Ltd Mr Ashley McKeon Integument Pty Ltd Mr Gabriel Hewitt Wheen Finance Pty Limited Dr Anthony Francis Chan No of shares 17,315,291 9,229,995 2,000,000 1,826,861 1,758,236 1,302,917 967,662 851,000 642,477 500,000 480,000 465,730 459,085 300,000 300,000 300,000 262,013 234,112 228,454 215,000 39,638,833 % of ordinary shares 36.95 19.70 4.27 3.90 3.75 2.78 2.07 1.82 1.37 1.07 1.02 0.99 0.98 0.64 0.64 0.64 0.56 0.50 0.49 0.46 84.59 Cryosite Limited Annual Report 74 ASX Additional Shareholder Information DISTRIBUTION OF EQUITY SECURITIES Number of Shareholders by Size of Holding Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total Voting Rights No of Holders No of ordinary shares 38 207 58 106 43 452 2 12,549 793,256 464,231 3,307,085 42,282,442 46,859,563 All ordinary shares carry one vote per share without restriction. Number of shareholders holding less than a marketable parcel The number of shareholders holding less than a marketable parcel of shares is 283 and they hold 1,070,036 shares. Cryosite Limited Annual Report 75 

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