Cyclopharm Limited
Annual Report 2019
Cyclopharm Limited and its Controlled Entities
ABN 74 116 931 250
m
r
a
h
p
o
c
y
c
l
Contents
FINANCIAL HIGHLIGHTS
CHAIRMAN’S LETTER
MANAGING DIRECTOR’S REVIEW
DIRECTORS’ REPORT
AUDITOR’S INDEPENDENCE DECLARATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDIT REPORT
ASX ADDITIONAL INFORMATION
GENERAL INFORMATION
2
3
5
15
35
36
37
38
39
40
91
92
95
96
Cyclopharm Limited Annual Report 1
FINANCIAL HIGHLIGHTS
Cyclopharm Limited Annual Report 2
201720182019% ChangeSales Revenue$'00013,18913,40414,0795.0%Profit / (Loss) Before Tax$'000705118(2,425)(2155.1%)Loss After Tax$'000(1,525)(35)(2,912)(8220.0%)Diluted Loss Per Sharecents(2.25)(0.05)(4.28)(8460.0%)201720182019% ChangeTechnegas Division$'00013,18913,40414,0795.0%Molecular Imaging Division$'000- - - 0.0%Total Sales Revenue$'00013,18913,40414,0795.0%201720182019% ChangeTechnegas Division$'0001,165455(3,171)(796.9%)Molecular Imaging Division$'000(460)(337)746100.0%Total Net Profit/(Loss) Before Tax$'000705118(2,425)(2155.1%)Net Profit/(Loss) Before Tax for the Full Year ending 31 DecemberFull Year ending 31 DecemberSales Revenue for the Full Year ending 31 DecemberAsia Pacific, 19%Europe & Other, 63%North America, 18%Revenue by Region -201920182019ChangeChange$'000$'000$'000% Sales Revenue13,404 14,079 6755.0%Gross Margin10,855 11,619 7647.0%Gross Margin % Sales81.0%82.5%1.5%Underlying Profit Before Tax1,406887(519)(36.9%)Add back non-operating activities:Income Cyclopet Division(335)746*1,081(322.7%) R&D Tax Incentive Grant2,1222,93481238.3% Reversal of Contingent Consideration on Acquisition of Subsidiary314-(314)(100.0%) Unrealised Gain on Forward Exchange Contract275-(275)(100.0%) Recovery from German litigation-3393390.0%Expenses FDA expenses(2,965)(3,842)(877)29.6% Pilot Clinical Trials(251)(351)(100)39.8% Retirement / Severance Payments-(322)(322)0.0% Quality and Regulatory Department Expansion-(238)(238)0.0% CYC Quality System Investment-(827)(827)0.0% Litigation Expenses(410)(1,064)(654)159.5% Cost of Terminating Put Option-(309)(309)0.0% Cost of LTIP program(38)(378)(340)894.7%Reported Profit / (Loss) Before Tax118(2,425)(2,543)(2155.1%)* Includes One-Off Rent Abatement of $976kUnderlying Results for the Year ended 31 December
Chairman’s Letter
31 March 2020
Dear Shareholders,
Cyclopharm’s most significant business opportunity is gaining access to the US market for our
core Technegas products. Following significant work during 2019 to prepare a New Drug
Application (NDA) for the US regulator, we have increased confidence that approvals to sell
Technegas, in the USA, will be granted within the next 12 months.
Our submission of the Technegas NDA was lodged with the United States Food and Drug
Administration on 27 March 2020 and includes a priority review application and a fee waiver
request. The priority review application has the potential to accelerate the approval process,
while the fee waiver request may see the US$2.9 million cost for submitting the NDA refunded
or substantially reduced.
The total cost to gain US regulatory approval of Technegas is expected to be US$8.8 million,
excluding application fee costs, of which US$7.6 million had already been invested by the end
of 2019. The balance is fully funded following a successful capital raising last December, at a
premium to the Company’s share price. The funds from the capital raising will also support
Cyclopharm’s rapid entry into the US market and the delivery of our other strategic priorities.
The commercial launch of Technegas in the US is expected in late 2020 or early 2021. In
advance of this we are investing in building our US management team, distribution capabilities
and inventory. We estimate the size of the US market for Technegas to be US$90 million in
sales per annum. We expect to gain a 50% share of this market in the first 2 to 3 years, rising to
80% over 5 to 7 years.
While completing preparations for the commercial launch of Technegas in the US we continued
to pursue regulatory approval to sell Technegas in Russia and other European markets and
delivered a solid financial performance from our existing business.
We also made good progress against our key strategic initiatives. We continued to invest in
medical trials as part of our ‘Beyond PE’ initiative, aimed at broadening the use of Technegas in
new and significantly larger markets, such as the diagnosis and monitoring of COPD and
asthma.
We have reprioritised the registration of our Ultralute technology as a medical device in
Australia over Europe, as part of our developing and commercialising complementary
technologies initiative. This shift in priority is a result of changes to the regulatory regime in
Europe causing significant delays to the registration of Ultralute in that market. We do, however,
continue to consider Europe as our preferred market in which to launch Ultralute.
As part of our initiative around leveraging our core global strengths our European distribution
business has signed a 5 years’ agreement to distribute products to 14 European countries on
behalf of Jubilant Draximage Inc of Canada, starting in 2020.
The current spread of COVID-19 is affecting every business globally. Our people are integral to
our mission to provide our customers with the assurance of ongoing supply of Technegas®
Systems including consumables, accessories and service. As a company we are committed to
minimising the risk of contracting the virus and keeping our employees, their loved ones and our
communities safe.
Cyclopharm Limited Annual Report 3
Chairman’s Letter
Continued
Under the NSW Essential Services Act, organisations involved in the manufacture of
pharmaceuticals are designated to be an essential service. Based on this designation,
Cyclopharm will continue our manufacturing activities.
Our global offices are instituting flexible / remote work arrangements where possible. We will
comply with our customers policies and procedures in circumstances where our staff are
required to attend sites to both keep Technegas® Generators fully functional and support our
customers in the provision of uninterrupted lung imaging services.
In conclusion, 2019 is the year when we completed the work to position Cyclopharm for the next
growth phase. We have made tangible progress against each of our strategic priorities; we
continued to deliver a solid performance from our existing operations and ensured the company
retains the financial strength to maximise our growth opportunities and returns for shareholders.
On behalf of the Board, I thank our Managing Director, all our staff and wider stakeholders for
their commitment to the company and I thank you, the shareholders, for your continuing
support.
David Heaney
Chairman
Cyclopharm Limited Annual Report 4
MANAGING DIRECTOR’S REVIEW
Managing Director’s Review
Key features of Cyclopharm’s financial results for the 2019 year include:
• Technegas® Sales Revenue of $14.08 million up 5.0% on the prior year
• Underlying Operating Profit Before Tax 1 of $0.89 million in the Technegas® division
• $3.84 million spent on USFDA approval process of Technegas® - entering final stage
of the approval process to start sales of Technegas® in the United States market in
2020.
• Approved R&D tax incentive resulting in Other Income of $2.93 million
• Strong net cash position at year-end of $12.66 million following successful completion
of an institutional share placement in December 2019.
• Cyclopharm is financed for the next phase of growth
• Good progress in developing new clinical applications providing large, long term
growth opportunities for Technegas® – Beyond PE
• Final dividend maintained at 0.5 cents per share (cps), bringing total unfranked
dividends for FY19 to 1.0 cps.
Dear Shareholders,
Cyclopharm delivered another solid underlying financial performance in 2019 and continues to make
progress in line with our growth objectives.
Cyclopharm has four major strategies for growth:
1. Grow Technegas® sales by attaining approval to distribute Technegas® in the USA;
2. Expand the use of Technegas® beyond the traditional diagnosis of Pulmonary Embolism
(PE) into significantly larger applications such as Chronic Obstructive Pulmonary Disease
(COPD), Asthma, Lung Cancer, Lung Volume Reduction and Pulmonary Hypertension for
both diagnosis and patient management;
Identify, develop and commercialise complementary
Ultralute™; and
technology such as
innovative
3.
4. Leverage our core global regulatory strengths, fiscal discipline, strong balance sheet and
well-developed expertise in nuclear medicine and pulmonary healthcare by seeking out
complementary technologies and businesses.
Against these objectives, during 2019, Cyclopharm expanded sales of our core Technegas®
products in existing markets, delivered a Revenue of $14.08 million and entered the final stage of
the approval process to start sales of Technegas® in the USA market in 2020.
The company invested in further R&D and support of clinicians to expand the use of Technegas® in
new diagnostic applications ‘Beyond PE’; continued to work towards the registration of Ultralute™ as
a medical device in Europe and also Australia; and leveraged our infrastructure and capabilities to
expand our distribution partnerships which now include Jubilant Draximage based in Canada;
ROTOP Pharmaka based in Germany and Tema Sinergie based in Italy.
1 Underlying Results represent results from the Technegas® Division excluding R&D tax incentive, reversal of contingent consideration, FDA
Expenses, Pilot Clinical Trial expenses and net provisions for Germany.
Cyclopharm Limited Annual Report 5
Managing Director’s Review
Continued
Financial Performance
Cyclopharm’s revenue increased to $14.08 million during 2019, underpinned by initial sales of
Technegas® Generators in South America complemented by a significant uplift in generator sales in
Canada. In total, revenue from Generator sales increased 21% over the year to $2.16 million. PAS
revenue remained consistent at $10.61 million. Service revenue in markets where we distribute our
products directly, increased by 31% to $1.30 million. Gross margins increased slightly to 82%.
Cyclopharm recorded an underlying profit before tax of approximately $0.89 million, a decrease of
$0.52 million on the prior year. This performance primarily reflects the ongoing investment required
for Cyclopharm to meet global regulatory requirements to include the USFDA.
Expenditure on the Technegas® USFDA regulatory approval process in 2019 was $3.84 million,
compared to $2.96 million in the prior year. US$7.60 million has been spent on the current USFDA
approval process project up to 31 December 2019.
In 2020, the Company expects to spend approximately US$1.20 million on developing its New Drug
Application (NDA) required to gain regulatory approval to sell Technegas® in the US market. The
total anticipated expenditure to gain USFDA approval of Technegas® is expected to amount to
US$8.80 million, US$1.30 million in addition to the previous estimation of US$7.5 million.
In December 2019, Cyclopharm announced it had successfully raised $9.775 million via an
institutional placement of 8.5 million shares with Karst Peak Capital Limited (Karst Peak). The
placement was made at an 11.7% premium to the Company’s share price at that time. Following the
placement, Karst Peak holds a substantial position in Cyclopharm’s issued share capital.
The funds raised under the offer will be used to support the company’s planned entry into the US
market in 2020/21, and other strategic priorities, including expanding the use of Technegas®
beyond the pulmonary embolism market; ongoing research and development activities; and product
and systems enhancement.
A portion of Cyclopharm’s costs, associated with the Group’s overseas R&D activity, have been
approved for inclusion in an R&D Tax Incentive program administered by AusIndustry. This has
allowed the company to report Other Income of $2,934,187 for the year compared to $2,122,351
reported in 2018.
Net loss after tax for the year, which includes USFDA and Legal expenditure, was $2,912,440
compared to net loss after tax of $35,456 in the prior year, representing a Basic Loss per Share of
4.28 cents. A solid Underlying EBITDA supported the Board’s decision to maintain a full year final
dividend of 0.5 cent per share, bringing total dividends for 2019 to 1.0 cent per share.
Cyclopharm Limited Annual Report 6
Managing Director’s Review
Continued
CYCLOPHARM’S UNDERLYING RESULTS2.
YEAR ENDED 31 DECEMBER
2019
$’000
2018
$’000
CHANGE
$’000
CHANGE
%
SALES REVENUE
GROSS MARGIN
GROSS MARGIN % SALES
UNDERLYING PROFIT BEFORE TAX
ADD BACK NON-OPERATING ACTIVITIES:
14,079
13,404
11,619
82.5%
10,855
81.0%
887
1,406
INCOME
CYCLOPET DIVISION
R&D TAX INCENTIVE GRANT
REVERSAL OF CONTINGENT
CONSIDERATION ON ACQUISITION OF
SUBSIDIARY
-
UNREALISED GAIN ON FORWARD
EXCHANGE CONTRACT
RECOVERY FROM GERMAN LITIGATION
746*
2,934
-
339
EXPENSES
FDA EXPENSES
BEYOND PE PILOT CLINICAL TRIALS
RETIREMENT/SEVERANCE PAYMENTS
QUALITY AND REGULATORY DEPARTMENT
EXPANSION
CYC QUALITY SYSTEM INVESTMENT
LITIGATION EXPENSES
COST OF TERMINATING PUT OPTION
COST OF LTIP PROGRAM
(3,842)
(351)
(322)
(238)
(827)
(1,064)
(309)
(378)
(335)
2,122
314
275
-
(2,965)
(251)
-
-
-
(410)
-
(38)
675
764
1.5%
(519)
1,081
812
(314)
5%
7%
(37%)
323%
38%
(100%)
(275)
(100%)
339
-
(877)
(100)
(322)
(238)
(827)
(654)
(309)
(340)
(30%)
(40%)
-
-
-
(160%)
-
(895%)
REPORTED (LOSS) / PBT
*INCLUDES ONE-OFF RENT ABATEMENT OF $976K
(2,425)
118
(2,543)
(2,155%)
Operations and Strategy
During 2019, Cyclopharm’s core operations continued to generate healthy positive earnings and
cashflows. Significant progress was also made in implementing our strategy to commercialise our
intellectual property in new markets whilst developing new applications in all markets to improve
respiratory patient healthcare outcomes and enhance our growth strategy.
Operating highlights for the year included:
• Progressed to near final New Drug Application submission status in support of USFDA
•
approval to market and distribute Technegas® in the United States
Initiation of further pilot clinical trials targeting new applications for Technegas® in chronic
respiratory disease states
• Progressed the certification process of Cyclopharm’s patented UltraluteTM technology in the
medical device category in Europe and Australia
• Leveraged our existing capabilities and infrastructure to sign a European distribution
agreement to sell Jubilant DraxImage Inc. RUBY-FILL® generators and accessories.
• Recognition by regulatory bodies in both Canada and Europe of the market leading clinical
efficacy of Technegas® in diagnosing Pulmonary Embolism.
2 Underlying Results represent results from the Technegas® Division excluding R&D tax incentive, reversal of contingent consideration, FDA
Expenses, Pilot Clinical Trial expenses and net provisions for Germany.
Cyclopharm Limited Annual Report 7
Managing Director’s Review
Continued
EXPAND TECHNEGAS® REVENUES
Revenue from the core Technegas® division, of $14.08 million, rose 5.0% over the prior year.
Sales of generators and other service revenue represented 25% of revenue, up 25% on the prior
year. The increase was primarily a result of larger sales volumes of Generators in South America
and Canada, complemented by an increase in service and other revenue to $1.30 million, compared
to $0.99 million in 2018. Sales of Patient Administration Sets (PAS) represented 75% of the total
revenue, consistent with the prior year.
TECHNEGAS® SALES
COMPOSITION
PAS REVENUE
GENERATOR AND SERVICE
REVENUE
TOTAL
2016
$’000
10,782
3,604
2017
$’000
10,908
2,281
2018
$’000
10,624
2,780
2019
$’000
10,615
3,464
CHANGE
FY18 TO 19
%
(0.1%)
25%
14,386
13,189
13,404
14,079
5.0%
Each box of PAS is equal to 50 patient doses of Technegas®. Cyclopharm sold 3,642 PAS boxes
(182,100 patients) in 2019 down 6.4% from 3,893 in 2018. PAS Revenue remained consistent
despite the decline in volume due to a favourable sales mix toward more profitable regions. The
Group’s sales of PAS units was impacted by stocks being exhausted as part of the transition of the
distribution arrangement in the United Kingdom from a third party distributor to in house direct
distribution model, while muted sales volumes were recorded in Germany following continued IP
litigation disruption.
Canada returned as the largest country market by volume with 908 PAS boxes sold. In Australia
sales were primarily held back by a series of disruptions to the supply of nuclear medicine isotopes
from the Australian Nuclear Science and Technology Organisation (ANSTO). ANSTO’s supply
disruptions were resolved in November 2019, and the company expects sales of PAS in Australia in
2020 will return to historical levels.
The Group sold 58 Technegas® generators, up from 50 in the prior year with improved average
prices in the European market reflecting the improved distribution margins following the acquisition
of our Scandinavian distributor Medicall Analys AB (“MA”) in May 2018. With this acquisition and the
establishment of our own operations in the United Kingdom in early 2020, Cyclopharm now has
direct access in Europe to supply our products to Sweden, Norway, Finland, Belgium, Luxembourg,
Netherlands, Germany, Ireland, Northern Ireland, England, Scotland and Wales.
Regional review
Canada reclaimed its status as largest country market for Technegas® by posting a record sales
result of $2.55 million, up 19% on 2018. This result included the sale of 908 PAS boxes, 59 more
than the prior year. In 2019 Canada contributed 18% of global Technegas® revenue.
Revenue in Latin America was $335,843 which included 8 Generators sold (compared to none in
2018) and an 8% increase in PAS unit sales, from 108 to 117 boxes.
Europe also posted a record revenue result of $8.74 million, $0.40 million higher than 2018. In total
Europe contributes approximately 62% of global revenue. The record revenue result was produced
by 34 Generators sold, 10% higher than 2018 and despite PAS sales volumes of 1,803 being down
10% on 2018. Lower volumes were offset by improved average prices, with Cyclopharm capturing
the distribution margin, following the acquisition of the distributor for our Scandinavian market in May
2018.
Following the success of the change in the company’s distribution arrangements in European
markets, in 2019 the company commenced the process of transitioning its distribution arrangements
in the UK from a third-party distributor model to direct distribution. As part of this transition, stocks
Cyclopharm Limited Annual Report 8
Managing Director’s Review
Continued
held by that distributor were run down having a short-term impact on UK sales. Lower sales were
experienced in Germany whilst legal action, initiated by Cyclopharm against its former employee in
Germany, continues to run its course. Cyclopharm received a successful judgment in its first civil
case against its former distributer and was awarded payment of this full claim of $338,908 in early
2019.
Revenue in the Asia-Pacific region declined by 12% in 2019 to $2.35 million. In Australia, revenue
was 12% lower, with a 16% decrease in PAS boxes sold compared to 2018. Disruption to the
manufacture and supply of the Molybdenum-99 isotope to Australian hospitals, following a fault at
ANSTO’s manufacturing facility, had a consequential effect of decreasing demand for PAS during
the period of ANSTO’s disrupted supply. ANSTO’s supply disruptions were resolved in November
2019, and the company expects sales of PAS in Australia in 2020 will return to historical levels.
Generator sales volume decreased to 4 units, 2 less than in 2018. Sales revenue to Asia was down
13% in 2019 representing 3 generators and 195 PAS boxes compared to 5 Generators and 219 PAS
boxes in 2018.
Revenue from South Africa was down 22% to $102,782. No Generators were sold in 2019
compared to 3 units sold in 2018 while PAS sales increased by 11 units to 56 units.
TECHNEGAS® SALES BY
REGION
NORTH AMERICA - CANADA
EUROPE
ASIA PACIFIC
SOUTH AFRICA & LATIN
AMERICA
TOTAL
2016
$’000
2,258
7,936
3,999
193
2017
$’000
2,199
8,340
2,365
285
2018
$’000
2,144
8,348
2,663
249
2019
$’000
2,553
8,743
2,344
439
CHANGE
FY18 TO 19
%
19%
5%
(12%)
76%
14,386
13,189
13,404
14,079
5.0%
ACCESS USA & OTHER NEW MARKETS
The most significant business opportunity for Cyclopharm is gaining USFDA approval to sell
Technegas® in the US market.
The process for approving Technegas® sales in the US is nearing its final stages. The Company
through its Clinical Research Organisation (CRO) submitted the documentation required for a
505(b)(2) New Drug Application (NDA) to the United States Food and Drug Administration (USFDA)
on 27 March 2020.
As part of its New Drug Application to the USFDA, the company also submitted a priority review
application, which may, if granted, accelerate the typical NDA process post the 60 day initial
assessment from a 10 month to a 6 month approval evaluation.
Prior to submitting our Technegas® NDA, Cyclopharm has also submitted a fee waiver request. The
USFDA encourages small business to develop new products for the USA market by providing a
mechanism to waive or reduce the USD $ $2.9 million cost for submitting a NDA application. To
qualify for the small business fee waiver program the applicant company must demonstrate that it
has fewer than 500 employees, has limited resources for user fee purposes of less than USD $20
million and that it is submitting its first drug application. In 2008 Cyclopharm received written
confirmation from the USFDA that it qualified for their small business fee waiver program. Given that
Cyclopharm continues to meet the small business fee waiver criteria, the Company has updated its
documentation to the USFDA for processing along with further supporting information related to
innovation and public health. Whilst we understand that we will need to pay the fee upon lodgement,
we expect that the fee will be refunded.
In parallel, Cyclopharm is progressing the activities that will support a rapid market entry of
Technegas® in the United States with commercial launch, depending upon USFDA approval,
expected in late 2020 or early 2021. These steps included completing company business registration
Cyclopharm Limited Annual Report 9
Managing Director’s Review
Continued
in the United States, appointing new senior management in areas of quality, sales and technical
service and a focusing on enhancing our inventory management and product distribution
capabilities.
The existing market for nuclear medicine ventilation imaging in the USA is estimated to be
approximately USD$90 million annually, representing approximately 600,000 individual procedures.
Based on Cyclopharm’s experience in the Canadian market, the directors are confident that
Technegas® can achieve a 50% share of the USA market over 2 to 3 years, post US market entry,
with an 80% share representing around 480,000 procedures per annum achievable over a 5 to 7-
year period
Consistent with its experience in other markets, Cyclopharm is targeting an 80% share of the
existing US nuclear medicine ventilation imaging market, representing around 480,000 individual
procedures per annum. Based on the Group’s experience of the rates of adoption of Technegas®
following regulatory approval in Canada, Cyclopharm believes that a 50% total market conversion is
achievable over 2 to 3 years with the balance of the target market converted within 5 to 7 years.
Independent to the current NDA submission, recruitment will continue for the Company’s clinical trial
program CYC-009. As at 27 March 2020, 204 of the target 240 patients have been completed.
Whilst the CYC-009 efficacy outcomes will not be assessed until the last patient is recruited, safety
data from 139 patients is included in the 505(b)(2) application.
In parallel with the clinical elements of our USFDA New Drug Application, Cyclopharm is continuing
the implementation of an updated Quality Management System at our manufacturing facility in
Sydney. Furthermore, the company has initiated a comprehensive documentation review of both our
medical devices and pharmaceutical products to ensure Cyclopharm meets the compliance
requirements of the most recent USFDA guidelines as well as the new International Medical Device
Single Audit Program (MDSAP) implemented in 2019 and upcoming compliance with European
Medical Device Regulations (MDR) that will be effective as of 2021.
MDSAP is a regulatory harmonisation initiative between Australia, Brazil, Japan, Canada and the
United States. MDSAP compliance will minimise disruptions due to multiple regulatory audits,
provide predictable audit schedules and incorporate the ISO 13485 compliance required for our CE
mark in Europe. The Company attained MDSAP certification during 1H 2019.
The MDR replaces the Medical Device Directive (93/42/EEC) and Active Implantable Medical Device
Directive (90/385/EEC). The MDR brings with it more scrutiny of technical documentation; it requires
a higher level of assessment pertaining to the elements of product safety and performance by
placing stricter requirements on clinical evaluation and post-market clinical follow-up; MDR also
requires increased traceability of devices through the supply chain.
In addition to the US market, Cyclopharm continues to pursue regulatory approvals to commence
sales of Technegas® in Russia and additional European markets.
BEYOND PE
Cyclopharm believes the extension of Technegas® into new applications such as the diagnosis and
monitoring of COPD, asthma and other respiratory disease states will create opportunities to
exponentially expand the market for Technegas® beyond its traditional PE market.
Cyclopharm’s strategy to expand Beyond PE is being delivered by targeting new applications
through clinical studies; educating clinicians; and engaging directly with respiratory medicine
referrers.
The University of Newcastle, Hunter Regional Medical Institute (HRMI) and John Hunter Hospital are
conducting a study into the use of Technegas® in patients with severe small airways disease.
Cyclopharm Limited Annual Report 10
Managing Director’s Review
Continued
The 100 patient study has now reached full recruitment. As part of the study, a 39-patient subset of
the 100 underwent tests using Technegas® to determine response to therapy.
The overall study has been designed to test two specific hypotheses:
1. There is ventilation heterogeneity among patients with severe obstructive airway diseases
imaging with
lung ventilation
functional
that can be assessed using Technegas®
quantification; and
2. Technegas® functional lung ventilation imaging with quantification is responsive to change
following intervention in patients with severe obstructive airway diseases.
Initial publications for the HRMI study are expected early 2020.
In addition to the Newcastle study, Cyclopharm is active globally in supporting four other clinical
initiatives targeting the use of Technegas® beyond PE. The implication in advancing these initiatives
could expand the use of Technegas® by improving the diagnosis and management of patients with
COPD and other small airways diseases. Cyclopharm estimates the global COPD market is 30 times
the size of the PE market and over 500 million patients suffering with COPD and Asthma could
benefit from the use of Technegas® in diagnosis and ongoing patient monitoring/management.
These markets represent significant opportunities to expand sales of Technegas® and drive
shareholder value over the medium term.
COMMERCIALISE ULTRALUTETM
As previously advised, the Company has been pursuing registration of our proprietary UltraluteTM
technology as a medical device in the European Union and to register UltraluteTM, through the
Australian Therapeutic Goods Administration (TGA), as a Class 1 Medical device listed on the
Australian Register of Therapeutic Goods.
The EU is currently undergoing a change in the regulatory regime as it shifts from the MDD to the
MDR regime. Consequently, authorised notified bodies are required to reassess and recertify the
conformity of all existing medical devices in accordance with the new MDR. The Company has been
advised that due to the enormity of the number of reassessment reviews in progress, as a result, any
new products being introduced within the region is taking longer than would otherwise be the case.
In response, the Company prioritised Ultralute™’s Australian Register of Therapeutic Goods (ARTG)
registration with the TGA while continuing to pursue registration in the EU once certification review
times improve.
Notwithstanding the changed registration environment in Europe, Cyclopharm continues to consider
that market as the most prospective and commercially viable to launch Ultralute™.
OTHER BUSINESSES
Cyclopharm’s European distribution business secures new contract
Cyclopharm is pleased to advise that, through its recently acquired European distribution
businesses, the Company has signed a 5-year agreement with Jubilant Draximage Inc of Canada to
distribute its RUBY-FILL® Generators and accessories in 14 European countries.
This new agreement demonstrates the success of the Company’s strategy to pursue revenue from
distributing third parties’ products, following the recent acquisition of certain of the Company’s
European distributors. We continue to leverage our infrastructure in Europe with new distribution
partnership agreements to include TEMA Sinergie based in Italy and ROTOP Pharmaka based in
Germany.
Sales under the new Jubilant Draximage agreement will commence in early 2020. Subject to
achieving certain sales targets, Cyclopharm anticipates the contract will contribute up to
approximately €500,000 to gross annual profit before tax by FY2023.
Cyclopharm Limited Annual Report 11
Managing Director’s Review
Continued
Joint Venture - Macquarie Medical Imaging
In 2019, Macquarie Connect and CycloPet finalised their agreement to a business transfer which
results in Macquarie University Hospital becoming the sole owner of imaging services provided by
Macquarie Medical Imaging (MMI).
Cyclopharm continues to maintain its 20% equity ownership in MMI and will be fully released from
any further obligations under its lease of premises along with the outstanding loans associated with
the fit-out and equipment when all accounts payable and receivables have been finalised during the
first half of 2020.
Further, Cyclopharm issued 300,000 ordinary shares in exchange for the termination of a put option
to a shareholder of MMI. The termination of the put option means that Cyclopharm is no longer
required to record a contingent liability in its accounts. The value of that contingent liability at 31
December 2018 was estimated not to exceed $2,838,442.
Business Venture Collaboration – CycloPet’s Cyclotron Facility at Macquarie University
Hospital
In December 2019, a business venture collaboration agreement between the Company, Pettech
Solutions Limited a wholly owned subsidiary of the Australian Nuclear Science and Technical
Organisation (‘ANSTO’) and Cyclotek was executed. The collaboration combines CycloPet and
Pettech’s cyclotron facilities under a single operating enterprise known as Cyclotek NSW.
CYC will benefit from eliminating an ongoing non-productive lease expense and gain access to a
potential income stream from what was a suspended business. Additionally, outcomes from
Cyclotek NSW’s R&D and commercial activities will provide for additional opportunities via the
international commercial rights to IP developed.
Under the Cyclotek NSW agreements, Cyclopharm estimates its total net ongoing operational
expense savings will be approximately $265,000 per annum, excluding any Cyclotek NSW profit
share payments.
The FY2019 financial impact resulting from both the MMI and the Cyclotron transaction announced
in December 2019 has resulted in a net benefit to Cyclopharm of $667,000 for FY2019.
Ongoing Litigation
Cyclopharm continues to vigorously and successfully defend its valuable Intellectual Property. In
2017, the company recorded bad debt provisions of approximately A$540,000 related to its former
General Manager and Director for the German subsidiary, Mr Bjorn Altmann and Almedis Altmann
GmbH (“Almedis”).
In 2019, Cyclopharm successfully brought an initial civil case against Altmann and Almedis which
resulted in the Company, being awarded and receiving a payment of approximately A$339,000,
which represents 100% of this claim. The company is continuing with its efforts to recover the
remainder of this bad debt provision along with other claims.
Cyclopharm has also initiated additional legal proceedings against individuals based in Australia
linked with Altmann. This legal action resulted in an increase in total litigation costs for the 2019 year
to approximately A$1.1 million (vs FY2018 $540k), which the Company will also seek to recover.
Cyclopharm is highly confident of a successful outcome to the current legal proceedings.
Cyclopharm Limited Annual Report 12
Managing Director’s Review
Continued
COVID-19
The global impact of the COVID-19 pandemic is unprecedented and continues to evolve.
Technegas® is primarily used to diagnose the life-threatening condition Pulmonary Embolism (PE).
Dyspnea or shortness of breath is a key symptom exhibited in both COVID-19 and PE.
Currently, the primary diagnostic method for determining the presence of the COVID-19 virus is a
laboratory test. We are receiving reports of an increase in the use of Technegas® to differentiate
between Covid-19 and Pulmonary Embolism where other first line diagnostic procedures are
inconclusive.
In many markets around the world, non-essential or outpatient imaging procedures are temporarily
being delayed. We believe that any delays in the use of Technegas® in noncritical procedures are
short term and are expected to rebound once gathering restrictions begin to lift.
Under the NSW Essential Services Act 1988 No 41, organisations involved in the manufacture of
pharmaceuticals are designated to be an essential service. Based on this designation, Cyclopharm
will continue to manufacture our life saving products through these challenging times.
Summary and Outlook
2019 was a year of significant investment in the strategic priorities that will drive the next phase of
Cyclopharm’s growth along with finalising outstanding issues of the past. During the year, we
recorded a solid underlying sales and earnings performance from our continuing operations,
supporting our USFDA trials, R&D and ongoing dividends.
In 2019, $3.84 million was invested to progress USFDA regulatory approval for the use of
Technegas® in the US for diagnosing PE, a market valued at US$90 million. Our USFDA
Investigational New Drug (IND) trial is expected to progress whilst our 505(b)2 NDA is being
assessed. Our current trial underscores the strength of or Beyond PE strategy as Technegas is
being used in the trial across several indications to include lung transplants, Pulmonary
Hypertension, CTEPH and acute Pulmonary Embolism. We are also continuing to pursue regulatory
approvals to commence sales of Technegas® in Russia and additional European markets.
In 2019 we expanded our Quality and Regulatory team to meet the compliance requirements in both
existing and future markets to include the USA. Included in our new Quality and Regulatory team are
the appointments of Ms Niamh McAree Head of Quality and Regulatory and Dr Mark Doverty, as our
Global Head of Regulatory Compliance and Clinical Research. Cyclopharm’s quality program has
made substantial continuous improvement advancements under the leadership and expertise of
Niamh and Mark.
We have also filled two other vital vacancies in our management team. Ms Sally Ann Cornelius joins
the Company as Head of Sales and Mr Chris Quinn has joined us as Global Service Manager. Both
Sally Ann and Chris bring with them extensive experience in the global nuclear medicine and
medical device industries.
We invested over $0.35 million in ‘Beyond PE’ pilot clinical trials to expand the use of Technegas®
into the diagnosis and monitoring of severe Asthma which represents a much larger market than our
current application in the Pulmonary Embolism market. We expect to see the first publication
generated from this study during the first calendar half of 2020.
In 2020, the company will continue to focus on developing and enhancing its quality systems and
processes, as we pursue to meet all relevant compliance benchmarks, including the USFDA and the
new European Medical Device Reporting requirements. As the company progresses towards the
anticipated USFDA’s approval to market Technegas® in the US market, we will invest in building our
inventory and sales capabilities to facilitate rapid market entry.
Cyclopharm Limited Annual Report 13
Managing Director’s Review
Continued
The company’s underlying solid financial performance and successful equity placement during
December 2019 allowed the Group to maintain its healthy capital position and dividend policy. In this
regard, the Final dividend was maintained at 0.5 cents per share (cps), bringing total unfranked
dividends for 2019 to 1.0 cps.
I look forward to continuing to report to our shareholders our progress against our next phase growth
drivers which are expected to deliver positive returns for our investors and support our strategic
priorities, which remain:
1. Expanding Technegas® sales by attaining approval to distribute Technegas® in the USA in
2020;
2. Expanding the use of Technegas® beyond the traditional diagnosis of Pulmonary Embolism
(PE) into significantly larger applications such as Chronic Obstructive Pulmonary Disease
(COPD) and Asthma, Lung Cancer, Lung Volume Reduction and Pulmonary Hypertension
for both diagnosis and ongoing patient /monitoring/management;
Identifying, developing and commercialising complementary innovative technology such as
Ultralute™; and
3.
4. Leveraging our core global regulatory strengths, fiscal discipline, strong balance sheet and
well-developed expertise in nuclear medicine and pulmonary healthcare to seek out
complementary technologies and businesses.
Finally, I thank all my colleagues, the Cyclopharm Board, with a special thanks to CYC’s Chief
Operating Officer Mathew Farag, who collectively have contributed to the growth of the Company
over recent years. The Cyclopharm management team, with the ongoing support of the Board, are
absolutely committed to delivering positive health outcomes for our patients and growing financial
rewards to our shareholders.
James McBrayer
Managing Director
Cyclopharm Limited Annual Report 14
Directors’ Report
The Directors of Cyclopharm submit their report for the year ended 31 December 2019.
DIRECTORS
The names and details of the Company’s Directors in office during the financial year and until the date of
this report are as follows. Directors were in office for this entire year unless otherwise stated.
Names, qualifications, experience and special responsibilities
Mr D J Heaney – Non Executive Chairman (Independent)
Mr Heaney was appointed to the Cyclopharm Board on 20 November 2007 and is currently the Chairman
of Cyclopharm and Chairman of the Remuneration and Board Nomination Committees. Until recently, he
was also Chairman of the Audit and Risk Committee.
Mr Heaney served as a non-executive director of Colorpak Limited from February 2004 until May 2016
and has also previously been a non-executive director of several other listed and non-listed companies.
Mr Heaney has more than 40 years experience in all aspects of wholesale banking and finance, gained in
senior management roles with National Australia Bank Limited and subsidiary companies in both
Australia and the US.
Mr J S McBrayer – Managing Director and Company Secretary
BSPharm, GDM, FAICD, AIM
Mr McBrayer has been a member of the Board since 3 June 2008 at which time he accepted the role of
Managing Director. Mr McBrayer serves as a member of the Board Nominations Committee.
Mr McBrayer has more than 30 years experience in nuclear medicine and is a trained Nuclear
Pharmacist. Mr McBrayer held the role of Managing Director at Lipa Pharmaceuticals, Australia’s largest
contract manufacturer of over-the-counter products and senior management positions with Brambles
Cleanaway business and Syncor,
therapeutic
pharmaceutical provider.
largest radioactive diagnostic and
the world’s
Mr T A McDonald –Non Executive Director (Independent)
B.Com, FCPA
Mr McDonald was appointed to the Board on 3 April 2017 and has been appointed Chairman of the Audit
and Risk Committee effective 1 March 2019. He holds a Bachelor of Commerce from UNSW and is a
Post Graduate of University of Technology Sydney in Business Finance. He is a Fellow of CPA Australia,
a member of the Australian Institute of Company Directors and an Associate with the Governance
Institute Australia.
Mr McDonald served as a non-executive director of ASX-listed FE Investments Group Limited, where he
was Chairman of the Audit and Risk Committee and a member of the Remunerations Committee. He has
previously held senior positions with ASX-listed Allomak Limited, CK Life Sciences Int’l Inc., ASX-listed
LIPA Pharmaceuticals Limited and ASX-listed Keycorp Limited.
Mr McDonald has more than 30 years experience in the technology and pharmaceutical industries and
has held global senior executive roles with international biotech Beckman Instruments Inc, with roles
based in USA and Asia Pacific.
Cyclopharm Limited Annual Report 15
Directors’ Report
Continued
DIRECTORS (CONTINUED)
Mr V R Gould – Non Executive Director (ceased on 27 November 2019)
M Com, FCA, FCPA, B Com
Mr Gould was a member of the Board commencing 21 November 2005. He was the Group Non-
Executive Chairman and Chairman of the Audit and Risk, Board Nominations, and Remuneration
Committees of the Group until his voluntary redesignation as a Non-Executive Director on 7 October
2016. Mr Gould remained as a member of the Audit and Risk, Board Nomination, and Remuneration
Committees as from that date until his cessation on 27 November 2019 following his disqualification from
serving as a director by reason of section 206B(1)(b)(ii) of the Corporations Act 2001.
Mr J S McBrayer – Company Secretary
Mr McBrayer was appointed as Company Secretary on 25 March 2011.
Interests in the shares and options of the Company and related bodies corporate
The number of ordinary Cyclopharm shares and options on issue held directly, indirectly or beneficially,
by Directors, including their personally-related entities as at the date of this report is as follows:
DIVIDENDS
On 26 February 2020, the Directors declared a final unfranked dividend of 0.5 cents per share in respect
of the financial year ended 31 December 2019, to be paid on 7 April 2020 to those shareholders
registered on 31 March 2020. An interim unfranked dividend of 0.5 cents per share was paid on 16
September 2019.
A final unfranked dividend of 0.5 cents per share in respect of the financial year ended 31 December
2018 was paid on 15 April 2019.
The balance of franking credits available for future dividend payments is $1,059.
PRINCIPAL ACTIVITIES
During the year, the principal activities of the consolidated entity consisted of the manufacture and sale of
medical equipment and radiopharmaceuticals, including associated research and development. There
were no significant changes in the nature of the consolidated entity’s principal activities during the
financial year.
Cyclopharm Limited Annual Report 16
InterestAs at report dateAs at report dateNo. of sharesNo. of optionsDirectorsMr DJ Heaney BI232,000-Mr JS McBrayerBI4,094,080200,000Mr TA McDonaldNBI37,800-4,363,880200,000NBI: Non beneficial interestsBI: Beneficial interest
Directors’ Report
Continued
OPERATING AND FINANCIAL REVIEW
Operating Results for the Year
For the financial year, Cyclopharm recorded a consolidated loss after tax of $2,912,440. Loss after tax
from the operations of the Technegas division was $4,190,859.
Technegas divisional revenue of $14,078,801 was 5.0% higher than the previous year (2018:
$13,404,222).
Technegas division Loss Before Tax of $3,170,891 recorded an unfavourable variance of $3,626,740,
impacted by higher legal and professional costs of $4,121,851 (2018:$2,184,313) associated with legal
actions in Germany and Australia initiated against former employees and consultancy costs incurred to
ensure compliance to the most recent USFDA guidelines as well as the new International Medical Device
Single Audit Program. Approximately $322,000 of retirement and severance payments were included in
salaries and wages of $4,564,313 (2018:$3,947,991) while $309,000 was incurred to issue 200,000
shares in exchange for the termination of a put option to a shareholder of Macquarie Medical Imaging Pty
Limited. Higher USFDA clinical trial costs totalling $3,841,534 (2018: $2,964,770) also contributed to the
Technegas division Loss Before Tax.
Cyclopet recorded a Profit Before Tax of $745,948 to the group (2018: Loss Before Tax of $337,441)
principally contributed by the accounting of a one-off rent abatement of $976,044 pursuant to the
execution of a business transfer agreement resulting in Macquarie University taking over the operations
of the imaging services provided by Macquarie Medical Imaging, an associate of Cyclopet.
Financial Position
Net assets increased to $23,203,945 at 31 December 2019 (2018: $17,015,969) assisted by gross
proceeds of $9,775,000 received in connection with an institutional share placement completed in
December 2019 offset by a net loss of $2,912,440.
Cashflow used in operations of $489,340 supported ongoing investment in USFDA and pilot clinical trials.
Net cash balance was $12,660,323 at 31 December 2019.
Further details of Cyclopharm’s Operating and Financial Review are set out on pages 5 to 12 of the
Managing Director’s Review.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
Shares Issued during the Year
(i) 200,000 Long Term Incentive Plan shares were issued on 30 May 2019,
(ii) 539,525 Long Term Incentive Plan shares were issued on 11 December 2019,
(iii) On 18 December 2019, 300,000 ordinary shares were issued in exchange for the termination of a
put option to a shareholder of Macquarie Medical Imaging Pty Ltd, an associated company of
Cyclopharm, and
(iv) On 24 December 2019, 8,500,000 ordinary shares were issued at a price of $1.15 per new share in
connection with an institutional share placement.
There were no other shares issued and cancelled during the year.
Options Issued during the Year
Apart from 200,000 options granted on 27 May 2019, no other options were issued and cancelled during
the year.
Incorporation of Wholly Owned Subsidiaries
(i) Cyclomedica USA, LLC was incorporated as a wholly owned subsidiary of Cyclomedica Ireland Ltd
on 31 May 2019, and
Cyclopharm Limited Annual Report 17
Directors’ Report
Continued
(ii) Cyclomedica UK Ltd was incorporated as a wholly owned subsidiary of Cyclomedica Europe Ltd on
31 October 2019.
Other than as set out above, there were no significant changes in the state of affairs of the Cyclopharm
Group during the year.
SIGNIFICANT EVENTS AFTER BALANCE DATE
FINAL DIVIDEND
On 26 February 2020, the Directors declared a final unfranked dividend of 0.5 cents per share in respect
of the financial year ended 31 December 2019, payable on 7 April 2020.
Other than the above, no matters or circumstances have arisen since the end of the financial year, not
otherwise dealt with in the financial report, which significantly affected or may significantly affect the
operations of the Group, financial position or the state of affairs of the Group in future financial periods.
COVID-19
The Directors have assessed the impact of Covid-19 and acknowledge that the situation is very fluid. In
many markets around the world, non-essential or outpatient imaging procedures are temporarily being
delayed. The Directors believe that any delays in the use of Technegas in noncritical procedures are
short term and are expected to rebound once restrictions begin to lift.
LIKELY DEVELOPMENTS AND FUTURE RESULTS
Technegas
The opportunities for developing additional Technegas indications, particularly for asthma and COPD, will
continue to be a key priority. If successful, there is significant potential to expand Technegas’ revenue
and profitability over the medium to longer term.
The Directors maintain their view that FDA approval to sell Technegas into the USA market provides
Cyclopharm with the opportunity to significantly expand its sales and profitability. We anticipate a
successful conclusion to the Phase 3 USFDA clinical trial of Technegas with approval for sales in 2020,
targeting USA commercialisation in 2021. As the USFDA approval process moves forward, the Directors
advise that additional expenditure on the USFDA trials will continue to be expensed until approval is
achieved.
Molecular Imaging
In December 2019, a business venture collaboration agreement between the Company, Pettech
Solutions Limited a wholly owned subsidiary of the Australian Nuclear Science and Technical
Organisation (‘ANSTO’) and Cyclotek was executed. The collaboration combines CycloPet and Pettech’s
cyclotron facilities under a single operating enterprise known as Cyclotek NSW.
Cyclopharm will benefit from eliminating an ongoing non-productive lease expense and gain access to a
potential income stream from what was a suspended business. Additionally, outcomes from Cyclotek
NSW’s R&D and commercial activities will provide for additional opportunities via the international
commercial rights to IP developed.
Cyclopharm Limited Annual Report 18
Directors’ Report
Continued
UltraluteTM
The Company has prioritised Ultralute™’s Australian Register of Therapeutic Goods (ARTG) registration
with the TGA while continuing to pursue registration in the European Union once certification review times
improve. Further details are set out on page 11 of the Managing Director’s Review.
MATERIAL BUSINESS RISKS
The Directors have identified the following material business risks which may, if they eventuate,
substantially impact on the future performance of the Cyclopharm Group, along with its approach to
managing these risks. The risk factors listed below are not exhaustive. Additional risks may also
adversely affect the financial performance of Cyclopharm.
Competition
To date, Cyclopharm has demonstrated that it can compete effectively in the medical equipment / drug
market in Australia and many other parts of the world.
The medical equipment / drug industry is very competitive and characterised by large international
companies supplying much of the global market requirements. The emergence of new and/or
unauthorised generic technologies could in certain circumstances make the Technegas System
redundant or negatively impact on the Cyclopharm Group’s plans to develop its Ultralute™ business.
Accordingly, there is a business risk in that Cyclopharm’s key revenue source from the Technegas
System could be severely disrupted or reduced. There are products that do compete with Technegas, in
particular Computed Tomography and DTPA. These products could replace Technegas and therefore
negatively impact Cyclopharm Group’s revenue and profitability. The Directors note that the lengthy
periods it takes to achieve regulatory approval and gain medical practitioners’ approval and acceptance of
new or generic products, Cyclopharm Group’s reputation for timely and quality service, the safety record
of Technegas and its competitive pricing, mitigate these risks.
In addition, the Cyclopharm Group’s business plan and stated strategy is to continue to develop sales in
new and existing international markets and to develop new diagnostic purposes for Technegas.
Reputation
The performance of the Cyclopharm Group’s products is critical to its reputation and to its ability to
achieve market acceptance of these products. Any product failure could have a material adverse effect
on the Cyclopharm Group’s reputation as a supplier of these products. Technegas has had no
contraindications or adverse patient events since the commencement of sales.
COVID-19
In many markets around the world, non-essential or outpatient imaging procedures are temporarily being
delayed. The Directors believe that any delays in the use of Technegas in noncritical procedures are
short term and are expected to rebound once restrictions begin to lift.
Disruption of Business Operations
As a manufacturer, the Cyclopharm Group is exposed to a range of operational risks relating to both
current and future operations. Such operational risks include supply chain disruptions, equipment
failures, IT system failures, external services failure (including energy supply), industrial action or disputes
and natural disasters. If one or more such operational risks materialize, they may have an adverse
impact on the operating and financial performance of Cyclopharm.
Reliance on Distributors / Loss of key customers
The Cyclopharm Group operates through a series of contractual relationships with customers, suppliers,
distributors and independent contractors. To date, the Cyclopharm Group has generally provided
products and services on the basis of tenders submitted to customers, followed by purchase orders
incorporating the customer’s standard terms and conditions of trade as a condition of the acceptance.
Cyclopharm Group maintains a spread of customers through direct and indirect sales channels. The loss
of a major distributor could have a significant, adverse impact on Cyclopharm’s projected earnings. The
Cyclopharm Limited Annual Report 19
Directors’ Report
Continued
majority of sales through distributors or agents are managed through contractual arrangements. Whilst
the Cyclopharm Group has distribution agreements in place, some may be terminated by the distributor
with up to six months’ notice prior to the expiration of the current terms (which vary). Other sales
arrangements are not in writing and depend on the ongoing goodwill of the parties. The Directors are
concerned to ensure that all such relationships are formalised.
All contracts, including those entered into by the Cyclopharm Group, carry a risk that the respective
parties will not adequately or fully comply with their respective contractual rights and obligations or that
these contractual relationships may be terminated.
Cyclopharm’s financial result could be adversely affected by the loss of large customers, a change in the
terms of business with a large customer, or by such customers not adequately or fully complying with
their respective contractual rights and obligations. However, the risks are mitigated by the existence of
numerous alternatives available given that Technegas is a highly sought after product.
Currency and Exchange Rate Fluctuations
The financial contribution to the Cyclopharm Group of the Technegas System will depend on the
movement in exchange rates between the Australian dollar and a number of foreign currencies,
particularly the Euro.
The exchange rate between various currencies may fluctuate substantially and the result of these
fluctuations may have a material adverse impact on Cyclopharm’s operating results and financial position.
In the long term, Cyclopharm’s ability to compete against imported products may be adversely affected by
an expectation of a sustained period of a high Australian dollar that would reduce the Cyclopharm
Group’s price competitiveness.
The majority of the Cyclopharm Group’s operational expenses are currently payable in Australian dollars.
The Cyclopharm Group also supplies its product to overseas markets and hence is exposed to
movements in the A$ exchange rate. The Cyclopharm Group does not enter into forward exchange
contracts to hedge its anticipated purchase and sale commitments denominated in foreign currencies
except for a forward exchange contract entered into on 14 July 2017 and fully settled on 15 January 2019
for anticipated payments in relation to the USFDA trials. Other than the aforementioned US$ contract
related to the USFDA trials, Cyclopharm is exposed to exchange rate fluctuations.
Doing Business Internationally
As the Cyclopharm Group is and will continue operating in numerous countries, the Cyclopharm Group
will be exposed to risks such as unexpected changes in regulatory requirements (including taxation),
longer payment cycles, problems in collecting debts, fluctuation in currency exchange rates, foreign
exchange controls which restrict or prohibit repatriation of funds and potentially adverse tax
consequences, all of which could adversely impact on Cyclopharm.
The Cyclopharm Group currently requires, and in the future may require further, licenses to operate in
foreign countries which may be difficult to obtain and retain depending on government policies and
political circumstances.
Regulatory
Future expansion of Cyclopharm’s range of products and services may be governed by regulatory
controls in each target market and it is not possible for Cyclopharm to guarantee that approvals in all
target markets will be obtained and maintained in the future.
The Technegas System is required to be registered with the relevant regulatory bodies in each country or
relevant jurisdiction. If for any reason such product registrations are withdrawn, cancelled (or otherwise
lose their registered status) or are not renewed, it may have a significant effect on the sales of products
which rely on them in the relevant country or countries.
The manufacture of Technegas does not involve the emission of any environmentally sensitive materials
and the Cyclopharm Group is not required to hold any environmental licence or consent under the
Environmental Protection Act (Cth). However, in order to expand the Company’s research and
Cyclopharm Limited Annual Report 20
Directors’ Report
Continued
development capabilities, in 2018, Cyclopharm secured a Radiation Management Licence from the NSW
EPA to sell, possess or store regulated materials.
It is possible that licensing requirements could change with the development of new products and any
additional regulatory requirements could impact upon the profitability of the group.
The Cyclopharm Group has obtained:
• a listing on the Australian Register of Therapeutic Goods Register for the Technegas generator and
•
the patient administration set (radio-aerosol set);
two separate CE Mark approvals for the device elements TechnegasPlus Technegas Generator and
patient administration set (PAS) of the Technegas System in EU;
• a marketing authorisation for the Pulmotec carbon crucible, which is the drug (medicine) aspect of
Technegas in EU; and
• a Medical Device Single Assessment Program (MDSAP) certificate and operates a Quality
Management System which has been assessed as complying complies with the requirements of
ISO13485:2016 for the design, manufacture, installation and repair service of the Technegas System.
Ongoing regulatory audits/inspections are necessary for the retention and re-certification of the above-
named certificates/licences for continued international distribution of the Technegas System.
Audits of the Kingsgrove manufacturing premises by the Therapeutic Goods Administration along with
other regulatory agencies and notified bodies required to market Technegas have been successfully
completed in 2019.
Cyclopet Pty Limited, which is involved in the operations of the cyclotron, is subject to significant
environmental regulations under the Radiation Control Act, 1990 by the Department of Environment,
Climate Change and Water.
Intellectual Property Rights
The Cyclopharm Group’s success may be affected by its ability to maintain patent protection for products
and processes, to preserve its trade secrets and to operate without infringing the proprietary rights of third
parties.
Patents
Unless challenged, the validity of a patent or trademark may be assumed. Any patent or trademark may
be challenged on a number of grounds but the onus is on the party seeking revocation to establish those
grounds.
All patents and trademarks require renewal at regular dates and if not renewed will expire. It is the
Cyclopharm Group’s practice to renew its patents and trademarks as required. The Directors note that
whilst some patents have expired or have not been renewed, or remain to be transferred or licensed to
Cyclopharm Group companies, there remains sufficient protection in these countries through other patent
arrangements in place or being put in place.
The validity and breadth of claims covered in patents involve complex legal and factual questions and
therefore may be highly uncertain. No assurance can be given that the pending applications will result in
patents being issued, that such patents or the current patents will provide a competitive advantage or that
competitors of the Cyclopharm Group will not design around any patents issued. Further, any information
contained in the patent applications will become part of the public domain, so that it will not be protected
as confidential information. As legal regulations and standards relating to the validity and scope of
patents evolve, the degree of future protection of the Cyclopharm Group’s proprietary rights is uncertain.
However, those regulations and standards in the field of nuclear medicine (in which the Cyclopharm
Group’s technology resides) are relatively well established and non-controversial.
ENVIRONMENTAL REGULATIONS
Cyclopet Pty Limited, a member of the consolidated group’s operations is subject to significant
environmental regulations under the Radiation Control Act, 1990 by the Department of Environment,
Cyclopharm Limited Annual Report 21
Directors’ Report
Continued
Climate Change and Water. The Board believe that the consolidated group has adequate systems in
place for the management of its environmental requirements as they apply to the consolidated group.
RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS
In accordance with the Company’s Constitution, all Directors have been elected by members at the
Annual General Meeting (AGM) with the exception of Mr McBrayer. Mr McBrayer was appointed as
Managing Director on 3 June 2008 and under the Constitution is exempt from election by members.
INDEMNIFICATION AND INSURANCE OF OFFICERS
In accordance with clause 49.1 of Cyclopharm’s constitution and section 199A of the Corporations Act
2001 the Company has resolved to indemnify its Directors and Officers for a liability to a third party
provided that:
1.
the liability does not arise from conduct involving a lack of good faith; or
2.
the liability is for costs and expenses incurred by the Director or Officer in defending proceedings
save as not permitted by law.
During or since the financial year, the Company has paid premiums in respect of a contract insuring all
the Directors against legal costs incurred in defending proceedings for conduct involving:
a) a wilful breach of duty; or
b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of
the Corporations Act 2001.
The total amount of insurance contract premiums paid for the year ending 31 December 2020 is $31,397
(for the year ended 31 December 2019: $25,761).
The Officers of the Company covered by the insurance policy include the Directors, the Company
Secretary and Executive Officers. The indemnification of the Directors and Officers will extend for a
period of at least 6 years in relation to events taking place during their tenure (unless the Corporations
Act 2001 otherwise precludes this time frame of protection.)
The liabilities insured include costs and expenses that may be brought against the Officers in their
capacity as Officers of the Company that may be incurred in defending civil or criminal proceedings that
may be brought against the Officers of the Company or a controlled entity.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act
2001 is set out on page 35.
Fees of $38,784 (2018: $28,619) have been paid for share registry services and fees of $15,448 (2018:
$10,901) for taxation services to an associate of Nexia Sydney Audit Pty Ltd for the year ended 31
December 2018 for non-audit related services. The Board of Directors is satisfied that the provision of
non-audit services during the year is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service does not
compromise the general principles relating to auditor independence in accordance with APES 110: Code
of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.
The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an
auditor of the Company or any related body corporate.
Cyclopharm Limited Annual Report 22
Directors’ Report
Continued
REMUNERATION REPORT (AUDITED)
The Remuneration Report outlines the director and executive remuneration arrangements of the
Company and the group and the remuneration disclosures required in accordance with the requirements
of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management
Personnel 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.
For the purposes of this report, the term 'executive' encompasses the Chief Executive, senior executives,
general managers and secretaries of the parent and the group.
Cyclopharm Limited Annual Report 23
Directors’ Report
Continued
Director and Executive Remuneration Table
* Mr Gould ceased as a member of the Board on 27 November 2019 following his disqualification from serving as a director by reason of section 206B(1)(b)(ii)
of the Corporations Act 2001.
** Mr McBrayer is employed on a rolling contract and his bonus, up to a maximum of $50,000, is based on achieving certain benchmarks and targets, which in
the absence of any formal agreement will default to achieving the budgeted underlying operating EBITDA approved by the Board of Directors effective 2017.
Cyclopharm Limited Annual Report 24
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%DirectorsDavid Heaney72,709 - - - - - 72,709 0%Non-Executive DirectorVanda Gould *47,303 - - - - - 47,303 0%Non-Executive DirectorTom McDonald 51,935 - - - - - 51,935 0%Non-Executive DirectorExecutive DirectorJames McBrayer **341,198 50,000 - 35,929 6,616 319,618 753,361 49%Managing DirectorTotal Directors' Compensation513,145 50,000 - 35,929 6,616 319,618 925,308 40%2019 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
Cyclopharm Limited Annual Report 25
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%Key Management PersonnelMathew Farag269,858 30,000 - 28,487 - 40,200 368,545 19%Chief Operating Officer269,858 30,000 - 28,487 - 40,200 368,545 19%Total Compensation783,003 80,000 - 64,416 6,616 359,818 1,293,853 34%Total Key Management Personnel's Compensation2019 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
* Mr McBrayer is employed on a rolling contract and his bonus, up to a maximum of $50,000, is based on achieving certain benchmarks and targets, which in
the absence of any formal agreement will default to achieving the budgeted underlying operating EBITDA approved by the Board of Directors effective 2017.
Cyclopharm Limited Annual Report 26
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%DirectorsDavid Heaney71,400 - - - - - 71,400 0%Non-Executive DirectorVanda Gould51,000 - - - - - 51,000 0%Non-Executive DirectorTom McDonald 51,000 - - - - - 51,000 0%Non-Executive DirectorExecutive DirectorJames McBrayer *334,804 50,000 - 35,367 5,371 - 425,542 12%Managing DirectorTotal Directors' Compensation508,204 50,000 - 35,367 5,371 - 598,942 8%2018 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
Cyclopharm Limited Annual Report 27
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%Key Management PersonnelMathew Farag252,300 27,000 - 26,533 - 27,450 333,283 16%Chief Operating Officer252,300 27,000 - 26,533 - 27,450 333,283 16%Total Compensation760,504 77,000 - 61,900 5,371 27,450 932,225 11%Total Key Management Personnel's Compensation2018 Short-term employee benefits
Directors’ Report
Continued
Cyclopharm Limited Annual Report 28
Cyclopharm LimitedDetails of Managing Director and Key Management Personnel's Share-based payments2019NameNumber of LTIP shares grantedFair Value at grant dateExercise price per LTIP share schemeAmount payable - limited recourse loanTermExpiry datePerformance HurdleMathew Farag225,000$0.196$0.900$202,5003 years18/4/2020Continuous employment with the Cyclopharm Group until 22 January 2020Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Approval of Technegas' use and distribution in the United States by the United States Food and Drug Administration ("USFDA")Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Continuous employment with the Cyclopharm Group until 31 March 2021Other non-Key Management Personnel200,000$0.318$1.500$300,0002 years29/5/2021The USFDA has approved the use and distribution of Technegas in the United States and continuous employment with the Cyclopharm Group until 23 May 2021James McBrayer (options)200,000$1.310$0.000$06 years31/7/2025The Company receiving approval from the USFDA for the distribution of Technegas products in the United StatesJames McBrayer269,614$1.065$0.000$02.41 years9/5/2022Held in a holding lock until the outstanding Financial Assistance on the Issued Shares issued on 13 July 2015 has been repaid in full on or before 9 May 2022.James McBrayer269,911$1.065$0.000$0N/AN/AShares are fully vested and tradeable immediately1,664,525$1,277,500Vested but unexercised during the yearJames McBrayer1,721,554$0.061$0.900$1,549,3995 years9/5/2022Other non-Key Management Personnel96,408$0.061$0.900$86,7675 years31/8/2022Other non-Key Management Personnel106,000$0.270$1.200$127,2005 years25/7/20231,923,962$1,763,366
Directors’ Report
Continued
* Shares vested during the current financial year.
Cyclopharm Limited Annual Report 29
Cyclopharm LimitedDetails of Managing Director and Key Management Personnel's Share-based payments2018NameNumber of LTIP shares grantedFair Value at grant dateExercise price per LTIP share schemeAmount payable - limited recourse loanTermExpiry datePerformance HurdleMathew Farag225,000$0.196$0.900$202,5003 years18/4/2020Continuous employment with the Cyclopharm Group until 22 January 2020Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Approval of Technegas' use and distribution in the United States by the United States Food and Drug Administration Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Continuous employment with the Cyclopharm Group until 31 March 2021725,000$977,500Vested but unexercised during the yearJames McBrayer1,721,554$0.061$0.900$1,549,3995 years9/5/2022Other non-Key Management Personnel96,408$0.061$0.900$86,7675 years31/8/2022Other non-Key Management Personnel*106,000$0.270$1.200$127,2005 years25/7/20231,923,962$1,763,366
Directors’ Report
Continued
Interests in the shares and options of the Company and related bodies corporate
The movement during the reporting period in the number of ordinary Cyclopharm shares and options on
issue held directly, indirectly or beneficially, by Directors and key management personnel, including their
personally-related entities is as follows:
1 Mr Gould ceased as a member of the Board on 27 November 2019 following his disqualification from
serving as a director by reason of section 206B(1)(b)(ii) of the Corporations Act 2001.
Remuneration Committee
The Remuneration Committee currently comprises of Mr Heaney, who is the Chairman of the
Remuneration Committee and Mr McDonald.
The Remuneration Committee is responsible for:
•
•
reviewing and approving the remuneration of Directors and other senior executives; and
reviewing the remuneration policies of the Company generally.
Remuneration philosophy
The performance of the Company depends upon the quality of its Directors and executives. To prosper,
the Company must attract, motivate and retain highly skilled Directors and executives.
To this end, the Company embodies the following principles in its remuneration framework:
•
•
•
•
provide competitive rewards to attract high calibre executives;
link executive rewards to shareholder value;
have a significant portion of executive remuneration 'at risk'; and
establish appropriate, demanding performance hurdles for variable executive remuneration.
Cyclopharm Limited Annual Report 30
Interest31 December 2018Granted under long term incentive schemesOn market purchasesCessation as director31 December 2019No. of sharesNo. of sharesNo. of sharesNo. of sharesNo. of sharesDirectorsMr DJ Heaney BI200,000---200,000Mr VR Gould1NBI12,241,314-19,412(12,260,726)-Mr JS McBrayerBI3,554,555539,525--4,094,080Mr TA McDonaldNBI19,830-14,970-34,80016,015,699539,52534,382(12,260,726)4,328,880Key Management PersonnelMr M FaragBI725,000---725,000NBI: Non beneficial interestsBI: Beneficial interest31 December 2018Granted31 December 2019No. of optionsNo. of optionsNo. of optionsDirectorsMr JS McBrayer-200,000200,000
Directors’ Report
Continued
Remuneration structure
In accordance with best practice corporate governance, the structure of non-executive Director and
executive remuneration is separate and distinct.
Non-executive Director remuneration
Objective
The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to
attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to
Shareholders.
Structure
The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive
Directors shall be determined from time to time by a general meeting. The latest determination was at the
Annual General Meeting held in May 2019 when Shareholders approved an aggregate remuneration
increase from $225,000 to $250,000 per year.
The amount of aggregate remuneration sought to be approved by Shareholders and the fee structure is
reviewed annually. The Board considers advice from external consultants as well as the fees paid to
non-executive Directors of comparable companies when undertaking the annual review process.
Each director receives a fee as set out in the Director and Executive Remuneration Table for being a
director of the Company. Directors’ fees cover all main Board activities and the membership of
committees. There are no additional fees for committee membership. These fees exclude any additional
‘fee for service’ based on arrangements with the Company, which may be agreed from time to time.
Agreed out of pocket expenses are payable in addition to Directors’ fees. There is no retirement or other
long service benefits that accrue upon appointment to the Board. Retiring non-executive Directors are not
currently entitled to receive a retirement allowance.
Executive remuneration
Objective
The Company aims to reward executives with a level and mix of remuneration commensurate with their
position and responsibilities within the Company so as to:
•
reward executives for Company, business unit and individual performance against targets set by
reference to appropriate benchmarks;
align the interests of executives with those of Shareholders; and
ensure total remuneration is competitive by market standards.
•
•
In determining the level and make-up of executive remuneration, the Remuneration Committee engages
external consultants as needed to provide independent advice.
The Remuneration Committee has entered into a detailed contract of employment with the Managing
Director and a standard contract with other executives. Details of these contracts are provided below.
Remuneration consists of the following key elements:
•
•
Fixed remuneration (base salary, superannuation and non-monetary benefits); and
Variable remuneration
o short term incentive (STI); and
o
long term incentive (LTI).
The proportion of fixed remuneration and variable remuneration (potential short term and long term
incentives) for each executive is set out in the Director and Executive Remuneration Table.
Cyclopharm Limited Annual Report 31
Directors’ Report
Continued
Fixed Remuneration
Objective
Fixed remuneration is reviewed annually by the Remuneration Committee. The process consists of a
review of Company, business unit and individual performance, relevant comparative remuneration in the
market and internally and, where appropriate, external advice on policies and practices. As noted above,
the Committee has access to external advice independent of management.
Structure
Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms
including cash and fringe benefits. It is intended that the manner of payment chosen will be optimal for the
recipient without creating undue cost for the Group. All forms of executive remuneration are detailed in
the Remuneration Report.
Variable remuneration - Short Term Incentive (STI)
The objective of the STI is to link the achievement of the Group’s operational targets with remuneration
received by the executives charged with meeting those targets. The total potential STI available is set at
a level so as to provide sufficient incentive to the executive to achieve the operational targets and such
that the cost to the Group is reasonable in the circumstances.
Actual STI payments granted to each executive depends on the extent to which specific targets set at the
beginning of the year are met. The targets consist of a number of Key Performance Indicators (KPI’s)
covering both financial and non-financial, corporate and individual measures of performance. Typically
included measures are sales, net profit after tax, customer service, risk management and leadership/team
contribution. These measures were chosen as they represent the key drivers for short term success of
the business and provide a framework for long term value.
The Group has predetermined benchmarks that must be met in order to trigger payments under the STI
scheme. On an annual basis, after consideration of performance against KPI’s, the Remuneration
Committee, in line with their responsibilities, determine the amount, if any, of the short term incentive to
be paid to each executive. This process usually occurs within 3 months of reporting date.
The aggregate of annual STI payments available for executives across the Group is subject to the
approval of the Remuneration Committee. Payments are delivered as a cash bonus in the following
reporting period. Participation in the Short Term Incentive Plan is at the Directors’ discretion.
Variable remuneration - Long Term Incentive (LTI)
Long Term incentives are delivered under the Long Term Incentive Plan (LTIP), which is designed to
reward sustainable, long-term performance in a transparent manner. Under the LTIP, individuals are
granted LTIP shares, which have a two or three year performance periods (Term). The number of LTIP
shares is determined by the Board. The number of LTIP shares that an individual will be entitled to at the
end of the Term will depend on the extent to which the hurdle has been met. Performance hurdles are
determined by the Board to align individual performance with the Company’s performance.
At the Annual General Meeting held on 8 May 2007, Shareholders approved the Company’s Long Term
Incentive Plan (“Plan”). An updated Plan was approved by Shareholders on 29 May 2018.
The purpose of the Plan is to encourage employees, Directors and officers to share in the ownership of
the Company and therefore retain and motivate senior executives to drive performance at both the
individual and corporate level. Performance hurdles have been determined by the Board to align
individual performance with the Company’s key success factors.
Cyclopharm Limited Annual Report 32
Directors’ Report
Continued
Employment contracts
Managing Director
The Managing Director, Mr McBrayer, is employed under a rolling contract. Mr McBrayer’s current
contract was executed on 13 May 2008. Mr McBrayer’s remuneration for 2019 and 2018 is disclosed in
the tables on pages 21 and 23. Under the terms of the present contract:
•
Each year from 1 January, on 31 December Mr McBrayer may be entitled to receive additional
amounts up to a maximum of $50,000 based on achieving certain benchmarks and targets, which
in the absence of any formal agreement will default to achieving the budgeted underlying operating
EBITDA approved by the Board of Directors effective 2017 (previously Profit After Tax). This
amount is entirely performance based and seeks to strengthen the alignment of the Managing
Director’s interests with those of the Company’s shareholders.
Mr McBrayer may resign from his position and thus terminate this contract by giving 6 months
written notice unless a mutually agreeable date can be agreed upon.
The Company may terminate this employment agreement by providing 6 months written notice or
providing payment in lieu of the notice period.
The Company may terminate the contract at any time without notice if serious misconduct has
occurred. Where termination with cause occurs the Managing Director is only entitled to that
portion of remuneration that is fixed, and only up to the date of termination.
Mr McBrayer is entitled to receive strictly limited recourse loans under the Company’s LTIP to
purchase shares.
On 1 September 2014, two strictly limited recourse loans were made to Mr McBrayer under the
Company’s LTIP to purchase shares for a period of 2 years. The first loan was to enable the
purchase of 861,728 shares at the price of 22 cents per share and the second loan was to enable
the purchase of 861,728 shares at the price of 25 cents per share. On 26 May 2015, shareholders
approved the performance hurdles to be “Employment as Managing Director for 2 years
commencing on 15 May 2013.” The LTIP shares vested on 26 May 2015, the date of the 2015
Annual General Meeting (“AGM”) given that it was more than 2 years since the 2013 AGM which
was held on 15 May 2013. The loans amounting to $353,308 were fully repaid by Mr McBrayer in
August 2018.
On 13 July 2015, a strictly limited recourse loan was made to Mr McBrayer under the Company’s
LTIP to purchase shares for a period of 2 years. The loan was to enable the purchase of 1,721,554
shares at the price of 90 cents per share. The LTIP shares vested on 9 May 2017, the date of the
2017 AGM.
On 9 May 2017, Mr McBrayer exercised his rights to purchase 1,721,554 LTIP shares and the
Company extended a loan totalling $1,549,398.60 for the purchase of the Plan Shares. The loan is
repayable in full within 5 years.
As approved by shareholders at the May 2019 AGM, 200,000 options were granted on 27 May
2019 and 539,525 ordinary shares were issued in accordance with the Company’s Long Term
Incentive Plan on 11 December 2019 to Mr McBrayer.
•
•
•
•
•
•
•
•
Other Executives (standard contracts)
All executives have rolling contracts. The Company may terminate the executive's employment
agreement by providing (depending on the individual’s contract) between 1 to 3 months’ written notice or
providing payment in lieu of the notice period. 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.
Related Parties
The Directors disclose any conflict of interests in Directors’ meetings as per the requirements under the
Corporations Act (2001). Any disclosures that are considered to fall under the definition of related parties
as per AASB 124 ‘Related Party Disclosures’ are made in the Directors’ meetings and minuted.
End of Remuneration Report
Cyclopharm Limited Annual Report 33
Directors’ Report
Continued
DIRECTORS’ MEETINGS
The number of meetings of Directors (including meetings of committees of Directors) held during the year
and the numbers of meetings attended by each director were as follows:
* Mr Gould ceased as a Director on 27 November 2019.
SHARE OPTIONS
200,000 share options are in issue as at year end.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the 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.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court
under section 237 of the Corporations Act 2001.
This report is made and signed in accordance with a resolution of the Directors:
James McBrayer
Managing Director and CEO
Sydney, 31 March 2020
Cyclopharm Limited Annual Report 34
DirectorNo. of Meetings Eligible to AttendNo. of Meetings AttendedNo. of Meetings Eligible to AttendNo. of Meetings AttendedNo. of Meetings Eligible to AttendNo. of Meetings AttendedMr D J Heaney883322Mr V R Gould *752222Mr J M McBrayer88----Mr T A McDonald883322Cyclopharm Board MeetingsAudit & Risk Committee MeetingsRemuneration Committee Meetings
Auditor’s Independence Declaration
The Board of Directors
Cyclopharm Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
To the Board of Directors of Cyclopharm Limited
Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
As lead audit director for the audit of the financial statements of Cyclopharm Limited for the year ended
31 December 2019, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(a)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b)
any applicable code of professional conduct in relation to the audit.
Yours sincerely
Nexia Sydney Audit Pty Ltd
Andrew Hoffmann
Director
Sydney
Dated: 31 March 2020
Consolidated Statement of
Profit or Loss And Other
Comprehensive Income
for the year ended 31 December 2019
The Statement of Comprehensive Income is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 36
20192018Notes$$CONTINUING OPERATIONSSales revenue514,078,801 13,404,222 Finance revenue525,513 103,411 Other revenue52,934,187 2,122,351 Total revenue17,038,501 15,629,984 Cost of materials and manufacturing5a (2,908,664) (2,965,588)Employee benefits expense5e (5,475,889) (4,457,135)Advertising and promotion expense (235,463) (319,148)Depreciation and amortisation expense5c (999,939) (510,230)Freight and duty expense (409,155) (436,340)Research and development expense5d (4,192,577) (3,219,385)Administration expense5f (5,747,946) (4,040,894)Reversal of contingent consideration- 313,922 Other income 5g786,448 149,351 (Loss) / Profit before tax and finance costs (2,144,684)144,537 Finance costs5b (280,259) (26,129)(Loss) / Profit before income tax (2,424,943)118,408 Income tax 6 (487,497) (153,864) (2,912,440) (35,456)Other comprehensive income after income taxExchange differences on translating foreign controlled entities (net of tax) (11,273)62,230 (2,923,713)26,774 Loss per share (cents per share)7centscents (4.28) (0.05) (4.28) (0.05) (4.28) (0.05)-diluted loss per share Consolidated -basic loss per share from continuing operations -basic loss per share Loss for the year Total comprehensive (loss) / income for the year Items that will be re-classified subsequently to profit and loss when specific conditions are met:
Consolidated Statement of
Financial Position
as at 31 December 2019
The Statement of Financial Position is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 37
20192018Notes$$AssetsCurrent AssetsCash and cash equivalents812,660,323 5,854,959 Trade and other receivables93,979,595 6,247,065 Inventories102,495,443 2,771,546 Current tax asset6225,585 78,377 Derivative - forward exchange contract- 274,904 Other assets249,674 227,599 Total Current Assets19,610,620 15,454,450 Non-current AssetsProperty, plant and equipment112,070,854 2,468,406 Right-of-use assets124,207,931 - Investments13- - Intangible assets145,145,349 4,570,344 Deferred tax assets61,493,663 1,043,521 Total Non-current Assets12,917,797 8,082,271 Total Assets32,528,417 23,536,721 LiabilitiesCurrent LiabilitiesTrade and other payables152,632,362 3,599,465 Interest bearing loans and borrowings 16- 58,985 Lease liabilities17172,582 61,592 Provisions18652,254 855,517 Tax liabilities622,932 643,644 Total Current Liabilities3,480,130 5,219,203 Non-current LiabilitiesTrade and other payables15- 336,864 Lease liabilities174,749,883 - Provisions1823,023 300,609 Deferred tax liabilities6277,568 517 Deferred income liabilities19793,868 663,559 Total Non-current Liabilities5,844,342 1,301,549 Total Liabilities9,324,472 6,520,752 Net Assets23,203,945 17,015,969 EquityContributed equity2031,576,003 21,905,035 Employee equity benefits reserve291,041,373 663,005 Foreign currency translation reserve29 (552,244) (540,971)Accumulated losses (8,861,187) (5,011,100)Total Equity23,203,945 17,015,969 Consolidated
Consolidated Statement of
Cash Flows
for the year ended 31 December 2019
The Statement of Cash Flows is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 38
20192018Notes$$Operating activitiesReceipts from customers15,509,819 14,137,456 Payments to suppliers and employees (19,866,221) (16,437,006)Interest received25,513 103,411 Borrowing costs paid (280,259) (26,129)Income tax received4,121,808 1,114,933 Net cash flows used in operating activities8 (489,340) (1,107,335)Investing activitiesPayment of deferred consideration on acquisition of subsidiary (343,209) (680,967)Cash acquired upon acquisition of subsidiary- 86,830 Purchase of property, plant and equipment (38,198) (206,098)Payments for intangible assets (439,084) (602,878)Net cash flows used in investing activities (820,491) (1,403,113)Financing activitiesProceeds from issue of shares9,775,000 - Share issue cost (net of tax) (413,032)- Settlement of loan for Long Term Incentive Plan Shares - 353,308 Dividends paid (660,501) (651,472)Repayment of bank borrowings (58,985) (54,289)Payment for lease liabilities (AASB 16) (551,229)- Net cash flows from / (used in) financing activities8,091,253 (352,453)6,781,422 (2,862,901)Cash and cash equivalents - at beginning of the period5,854,959 8,689,676 23,942 28,184 - at end of the year812,660,323 5,854,959 - net foreign exchange differences from translation of cash and cash equivalentsNet increase / (decrease) in cash and cash equivalents Consolidated
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019
The Statement of Changes in Equity is to be read in conjunction with the nostes to the financial statements.
Cyclopharm Limited Annual Report 39
Contributed Equity Other Contributed Equity Total Contributed Equity Retained Earnings / (Accumulated Losses) Foreign Currency Translation Reserve Employee Equity Benefits Reserve Total (Note 29(b)) (Note 29(a)) CONSOLIDATED$$$$$$$Balance at26,884,885 (5,333,158)21,551,727 (4,324,172) (603,201)625,038 17,249,392 Loss for the year- - - (35,456)- - (35,456)Other comprehensive loss- - - - 62,230 - 62,230 - - - (35,456)62,230 - 26,774 Payment of loan for Long Term Incentive Plan shares353,308 - 353,308 - - - 353,308 Dividends paid- - - (651,472)- - (651,472)Cost of share based payments- - - - - 37,967 37,967 353,308 - 353,308 (651,472)- 37,967 (260,197)- - - - - - - Balance at27,238,193 (5,333,158)21,905,035 (5,011,100) (540,971)663,005 17,015,969 Balance at27,238,193 (5,333,158)21,905,035 (5,011,100) (540,971)663,005 17,015,969 Adjustment for change in accounting policy (note 2)- - - (277,146)- - (277,146)Restated balance at 1 January 201927,238,193 (5,333,158)21,905,035 (5,288,246) (540,971)663,005 16,738,823 Loss for the year- - - (2,912,440)- - (2,912,440)Other comprehensive loss- - - - (11,273)- (11,273)- - - (2,912,440) (11,273)- (2,923,713)Issue of shares 10,084,000 - 10,084,000 - - - 10,084,000 Share issue cost (net of tax) (413,032)- (413,032)- - - (413,032)Dividends paid- - - (660,501)- - (660,501)Cost of share based payments- - - - - 378,368 378,368 9,670,968 - 9,670,968 (660,501)- 378,368 9,388,835 Balance at36,909,161 (5,333,158)31,576,003 (8,861,187) (552,244)1,041,373 23,203,945 31 December 2019 Total transactions with owners and other transfers Total comprehensive loss for the year Total transactions with owners and other transfers 1 January 2018 Total comprehensive loss for the year 31 December 20181 January 2019
Notes to the
Consolidated Financial Statements
for the year ended 31 December 2019
1. CORPORATE INFORMATION
The financial report of Cyclopharm Limited (“Cyclopharm” or “the Company”) for the year ended 31
December 2019 was authorised for issue by a resolution of the Directors as at the date of this
report.
Cyclopharm is a Company limited by shares incorporated and domiciled in Australia. The shares
are publicly traded on the Australian Securities Exchange (“ASX”) under the code “CYC”.
During the year the principal continuing activities of the consolidated entity (“the Group”) consisted
of the manufacture and sale of medical equipment and radiopharmaceuticals, including associated
research and development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Preparation
The financial statements are general purpose financial statements that have been prepared in
accordance with Australian Accounting Standards, Australian Accounting Interpretations, other
authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under
Australian Accounting Standards.
Australian Accounting Standards set out accounting policies that the AASB has concluded would
result in financial statements containing relevant and reliable information about transactions, events
and conditions. Compliance with Australian Accounting Standards ensures that the financial
statements and notes also comply with International Financial Reporting Standards as issued by the
IASB. Material accounting policies adopted in the preparation of these financial statements are
presented below and have been consistently applied unless stated otherwise.
Except for cash flow information, the financial statements have been prepared on an accruals basis
and are based on historical costs, modified, where applicable, by the measurement at fair value of
selected non-current assets, financial assets and financial liabilities.
The financial report is presented in Australian dollars.
b) New and Amended Accounting Policies Adopted by the Group
Consolidated financial statements
The Group adopted the following Australian Accounting Standards (new and amended) from the
mandatory application date of 1 January 2019.
AASB 16: Leases
The Group has adopted AASB 16 from 1 January 2019. The standard replaces AASB 117 Leases
and for lessees eliminates the classifications of operating leases and finance leases. Except for
short-term leases and leases of low-value assets, right-of-use assets and corresponding lease
liabilities are recognised in the statement of financial position. Straight-line operating lease expense
recognition is replaced with a depreciation charge for the right-of-use assets (included in operating
costs) and an interest expense on the recognised lease liabilities (included in finance costs). In the
earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher
when compared to lease expenses under AASB 117. However Loss before tax, depreciation and
finance results reduces as the operating expense is now replaced by interest expense and
depreciation in profit or loss. For classification within the statement of cash flows, the interest portion
is disclosed in operating activities and the principal portion of the lease payments are separately
disclosed in financing activities.
Cyclopharm Limited Annual Report 40
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) New and Amended Accounting Standards and Interpretations adopted by the Group
(continued)
Impact of adoption
AASB 16 was adopted using the modified retrospective approach and as such the comparatives
have not been restated. The impact of adoption as at 1 January 2019 was as follows:
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is
measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable,
any lease payments made at or before the commencement date net of any lease incentives
received, any initial direct costs incurred, and, except where included in the cost of inventories, an
estimate of costs expected to be incurred for dismantling and removing the underlying asset, and
restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or
the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain
ownership of the leased asset at the end of the lease term, the depreciation is over its estimated
useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of
lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for
short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments
on these assets are expensed to profit or loss as incurred.
* This includes the impact of assessing the lease term under AASB16 in determining the reduction in
opening retained profits as at 1 January 2019.
Cyclopharm Limited Annual Report 41
1 January 2019 $'000Operating lease commitments as at 1 January 2019 (AASB 117)3,308 Finance lease commitments as at 1 January 2019 (AASB 117)62 3,370 Operating lease commitments discount based on the weighted average incremental borrowing rate of 4.5% (AASB 16) * 2,313 Short-term leases not recognised as right-of-use assets (AASB 16) (73)Different treatment of options3,001 5,241 Lease liability - current655 Lease liability - non-current4,586 Plant and equipment - right-of-use-asset4,652 The change in accounting policy affected the following items in the balance sheet on 1 January 2019:Right-of-use assetsIncrease4,652 Property, plant & equipmentDecrease (214)Net deferred tax assetsIncrease80 Lease liabilitiesIncrease (5,241)Lease incentiveDecrease287 Make good liabilityDecrease159 Accumulated losses net impactDecrease277
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) New and Amended Accounting Standards and Interpretations adopted by the Group
(continued)
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially
recognised at the present value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined,
the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease
incentives receivable, variable lease payments that depend on an index or a rate, amounts expected
to be paid under residual value guarantees, exercise price of a purchase option when the exercise of
the option is reasonably certain to occur, and any anticipated termination penalties. The variable
lease payments that do not depend on an index or a rate are expensed in the period in which they
are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying
amounts are remeasured if there is a change in the following: future lease payments arising from a
change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is made to the
corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is
fully written down.
Interpretation 23: Uncertainty over Income Tax Treatments
Interpretation 23 clarifies how to apply the recognition and measurement requirements in AASB 112
Income Taxes when there is uncertainty over income tax treatments.
Consequential amendments are made to AASB 1 First-time Adoption of Australian Accounting
Standards as a result of Interpretation 23 by AASB 2017-4.
The adoption of this Interpretation does not have a material impact on the Group’s financial
statements.
AASB 2017-6: Amendments to Australian Accounting Standards – Prepayment Features with
Negative Compensation.
This Standard amends AASB 9 to permit entities to measure at amortised cost or fair value through
other comprehensive income particular financial assets that would otherwise have contractual cash
flows that are solely payments of principal and interest but do not meet that condition only as a result
of a prepayment feature.
The adoption of AASB 2017-6 does not have a material impact on the Group’s financial statements.
AASB 2017-7: Amendments to Australian Accounting Standards – Long-term Interests in
Associates and Joint Ventures
This Standard amends AASB 128 to clarify that an entity is required to account for long-term
interests in an associate or joint venture, which in substance form part of the net investment in the
associate or joint venture but to which the equity method is not applied, using AASB 9 Financial
Instruments before applying the loss allocation and impairment requirements in AASB 128.
The adoption of this Standard does not have a material impact on the Group’s financial statements.
Cyclopharm Limited Annual Report 42
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) New Accounting Standards and Interpretations Not Yet Adopted
Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily
applicable to the Group, together with an assessment of the potential impact of such
pronouncements on the Group when adopted in future periods, are discussed below:
Applicable to annual reporting periods beginning on or after 1 January 2022:
AASB 2014-10: Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (Amendments to AASB 10 and AASB 128)
Amend AASB 10 and AASB 128 to remove the inconsistency in dealing with the sale or contribution
of assets between an investor and its associate or joint venture. A full gain or loss is recognised
when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or
loss is recognised when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary.
The mandatory application date of AASB 2014-10 has been amended and deferred to annual
reporting periods beginning on or after 1 January 2022 by AASB 2017-5.
These new and amended Standards are not expected to have a significant impact on the Group’s
financial statements.
d) Basis of consolidation
Cyclopharm Limited is the ultimate parent entity (“the Parent”) in the wholly owned group. The
consolidated financial statements comprise the financial statements of Cyclopharm and its
subsidiaries as at 31 December each year ('the Group').
The Group’s financial statements consolidate those of the parent company and all of its subsidiaries
as of 31 December 2019. All subsidiaries have a reporting date of 31 December.
Subsidiaries
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. Where there is
loss of control of a subsidiary, the consolidated financial statements include the results for the part
of the reporting period during which the Parent has control.
The financial statements of subsidiaries are prepared for the same reporting period as the parent
Company, using consistent accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies that may exist.
Transactions eliminated on consolidation
All intercompany balances and transactions, including unrealised profits arising from intra-group
transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be
recovered.
For business combinations involving entities under common control, which are outside the scope of
AASB 3 Business Combinations, the Company applies the purchase method of accounting by the
legal parent.
Cyclopharm Limited Annual Report 43
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e) Foreign currency translation
Functional and presentation currency
The functional currency of each of the group’s entities is measured using the currency of the
primary economic environment in which that entity operates. The consolidated financial statements
are presented in Australian dollars (AUD $) which is the parent entity’s functional and presentation
currency.
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency at the exchange
rates ruling at the date of the transaction. Foreign currency monetary items are translated at the
year-end exchange rate. Non-monetary items that are measured in terms of historical cost continue
to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at
fair value are reported at the exchange rate when the fair value was determined.
Exchange differences arising on the translation of monetary items are recognised in the Statement
of Comprehensive Income, except where deferred in equity as a qualifying cash flow hedge or net
investment hedge. On disposal of a foreign entity the deferred cumulative amount in equity is
recognised in the Statement of Comprehensive Income.
Group companies
The functional currency of the overseas subsidiaries Cyclomedica Ireland Limited, Cyclomedica
Germany GmbH, Cyclomedica Europe Limited, and Inter Commerce Medical bvba, is European
Euro (Euro €), Medicall Analys AB is Swedish Kroner (SEK) and Cyclomedica Canada Limited is
Canadian dollars (Can $).
The financial results and position of foreign operations whose functional currency is different from
the group’s presentation currency are translated as follows:
• Assets and liabilities are translated at year-end exchange rates prevailing at the reporting date.
• Income and expenses are translated at the average exchange rates for the period.
• Retained profits/equity are translated at the exchange rates prevailing at the date of the
transaction.
Exchange differences arising on the translation of foreign operations are recognised in other
comprehensive income and are transferred directly to the Group’s foreign currency translation
reserve in the Statement of Financial Position. On disposal of a foreign operation, the related
cumulative translation differences recognised in equity are reclassified to profit or loss and are
recognised as part of the gain or loss on disposal. Exchange differences are charged or credited to
other comprehensive income and recognised in the currency translation reserve in equity.
Cyclopharm Limited Annual Report 44
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f)
Income tax
Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is
recognised in the Statement of Comprehensive Income, except to the extent that it relates to items
recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted or substantially enacted at the
Statement of Financial Position date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the Statement of Financial Position liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantially enacted at the Statement of Financial Position
date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is
settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.
Tax consolidation
Cyclopharm Limited is the head entity of the tax consolidated group comprising all the Australian
wholly owned subsidiaries. The implementation date for the tax consolidated group was 31 May
2006. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from
temporary differences of the members of the tax consolidated group are recognised in the separate
financial statements of the members of the tax consolidated group using a "stand-alone basis
without adjusting for intercompany transactions" approach by reference to the carrying amounts of
assets and liabilities in the separate financial statements of each entity and the tax values applying
under consolidation.
Any current Australian tax liabilities (or assets) and deferred tax assets arising from unused tax
losses of the subsidiaries is assumed by the head entity in the tax consolidated group and are
recognised as amounts payable (receivable) to (from) other entities in the tax consolidated group.
Any difference between these amounts is recognised by the head entity as an equity contribution or
distribution.
Cyclopharm Limited recognises deferred tax assets arising from unused tax losses of the tax
consolidated group to the extent that it is probable that future taxable profits of the tax consolidated
group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a
result of revised assessments of the probability of recoverability is recognised by the head entity
only.
g) Property, plant and equipment
Plant and equipment is measured at cost less accumulated depreciation and impairment losses.
The cost of fixed assets constructed within the economic entity includes the cost of materials, direct
labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent
costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the group
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to
the Statement of Comprehensive Income during the financial period in which they are incurred.
Cyclopharm Limited Annual Report 45
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment
The carrying amount of plant and equipment is reviewed annually by Directors to consider
impairment. The recoverable amount is assessed on the basis of the expected net cash flows that
will be received from the assets employment and subsequent disposal. The expected net cash
flows have been discounted to their present values in determining recoverable amounts.
Depreciation
The depreciable amount of all fixed assets including capitalised lease assets are depreciated on a
straight-line basis over their useful lives commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the
lease or the estimated useful lives of the improvements.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as
follows:
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on de-recognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the Statement of Comprehensive
Income in the year the item is derecognised.
h)
Investments Accounted For Using The Equity Method
Associates are companies in which the Group has significant influence through holding, directly or
indirectly, 20% or more of the voting power of the Group. Investments in associates are accounted for
in the financial statements by applying the equity method of accounting, whereby the investment is
initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s
share of net assets of the associate company. In addition, the Group’s share of the profit or loss of
the associate company is included in the Group’s profit or loss.
The carrying amount of the investment includes goodwill relating to the associate. Any discount on
acquisition whereby the Group’s share of the net fair value of the associate exceeds the cost of
investment is recognised in profit or loss in the period in which the investment is acquired. The
carrying amount of the investment also includes loans made to the associate which are not expected
to be repaid in the short term.
Profit and losses resulting from transactions between the Group and the associate are eliminated to
the extent of the Group’s interest in the associate.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the
Group discontinues recognising its share of further losses unless it has incurred legal or constructive
obligations or made payments on behalf of the associate. When the associate subsequently makes
profits, the Group will resume recognising its share of those profits once its share of the profits equals
the share of the losses not recognised.
Details of the Group’s investments in associates are provided in Note 13.
Cyclopharm Limited Annual Report 46
Plant and equipmentLeasehold ImprovementsMotor vehiclesUseful livesLicenses - InfiniteMethod usedImpairment test / Recoverable Amount testingBasisMethodPatents - FiniteFinite8 - 10 years - Straight line9 years - Straight lineAnnually and where an indicator of impairment existsAmortisation method reviewed at each financial year-end; Reviewed annually for indicator of impairment20 - 50%Straight-line methodNew Patents and licencesTechnegas Development costs5 - 33%Straight-line method20 - 25%Straight-line method
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i)
Intangibles
Intangible assets
Intangible assets acquired as part of a business combination other than goodwill, are initially
measured at their fair value at the date of the acquisition. Intangible assets acquired separately are
initially recognised at cost.
Indefinite life intangible assets are not amortised and are subsequently measured at cost less any
impairment. Finite life intangible assets are subsequently measured at cost less amortisation and
any impairment.
The gains and losses recognised in profit or loss arising from the derecognition of intangible assets
are measured as the difference between net disposal proceeds and the carrying amount of the
intangible assets. The method and useful lives of finite life intangible assets are reviewed annually.
Internally generated intangible assets, excluding development costs, are not capitalised and are
recorded as an expense in the Statement of Profit or Loss.
Intangible assets are tested for impairment where an indicator of impairment exists, and in the case
of indefinite life intangibles, at each reporting date, either individually or at the cash generating unit
level. Useful lives are also examined on an annual basis and adjustments, where applicable, are
made on a prospective basis.
Research and development costs
Expenditure on research activities is recognised as an expense when incurred.
Expenditure on development activities is capitalised only when it is probable that the project will be
a success considering its commercial and technical feasibility; the Group is able to use or sell the
asset; the Group has sufficient resources; and intend to complete the development and its costs can
be measured reliably. Development expenditure is measured at cost less any accumulated
amortisation and impairment losses. Amortisation is calculated using a straight-line method to
allocate the costs over a period during which the related benefits are expected to be realised.
Expenditure on the development of the Technegas Plus and Ultralute generator has been
capitalised. Costs will be amortised once the asset development is completed and the asset ready
for use. No impairment provision has been deemed appropriate. The Directors are satisfied that the
future economic benefits will eventuate to justify the capitalisation of the expenditure incurred.
Development expenditure is tested annually for impairment or more frequently if events or changes
in circumstances indicate that it might be impaired.
Cyclopharm Limited Annual Report 47
Useful livesLicenses - FiniteMethod usedImpairment test / Recoverable Amount testingBasisMethodPatents - FiniteFinite8 - 10 years - Straight line9 years - Straight lineAnnually and where an indicator of impairment existsAmortisation method reviewed at each financial year-end; Reviewed annually for indicator of impairmentNew Patents and licencesTechnegas Development costs
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j)
Inventories
Inventories are valued at the lower of cost and net realisable value where 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.
Costs incurred in bringing each product to its present location and conditions are accounted for as
follows:
• Raw materials: purchase cost on a first-in, first-out basis;
• Finished goods and work-in-progress: cost of direct materials and labour and an appropriate
portion of manufacturing overheads based on normal operating capacity but excluding borrowing
costs.
k) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised
cost using the effective interest method, less any allowance for expected credit losses. Trade
receivables are generally due for settlement within 90 days. The Group has applied the simplified
approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To
measure the expected credit losses, trade receivables have been grouped based on days overdue.
l) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, short-term
deposits with an original maturity of three months or less and bank overdrafts. For the purposes of
the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as
defined above.
m) Trade and other payables
Trade payables and other payables are carried at amortised cost and 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. Trade payables are normally settled within 30 to 60 days.
n)
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration
received net of issue costs associated with the borrowing. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the effective interest rate
method. Amortised cost is calculated by taking into account any issue costs and any discount or
premium on settlement. Gains and losses are recognised in the Statement of Comprehensive
Income when the liabilities are derecognised and as well as through the amortisation process.
o) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a
result of past events, for which it is probable that an outflow of economic benefits will result and that
an outflow can be reliably measured. Where the Group expects some or all of a provision to be
reimbursed, for example under an insurance contract, 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.
Cyclopharm Limited Annual Report 48
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
p) Employee entitlements
Provision is made for employee benefits accumulated as a result of employees rendering services
up to the reporting date. These benefits include wages and salaries, annual leave and long service
leave.
Employee benefits expected to be settled within twelve months of the reporting date are measured
at their nominal amounts based on remuneration rates which are expected to be paid when the
liability is settled plus related on-costs. All other employee benefit liabilities are measured at the
present value of the estimated future cash outflow (after applying probability) to be made in respect
of services provided by employees up to the reporting date. In determining the present value of
future cash outflows, the market yield as at the reporting date on national government bonds, which
have terms to maturity approximating the terms of the related liability, are used.
Employee benefit expenses and revenues arising in respect of wages and salaries, non-monetary
benefits, annual leave, long service leave and other leave benefits; and other types of employee
benefits are recognised against profits on a net basis in their respective categories.
q) Employee share and performance share schemes
The fair value of performance rights issued under the Cyclopharm Long Term Incentive Plan are
recognised as a personnel expense over the vesting period with a corresponding increase in
Employee Equity Benefits Reserve.
The fair value of the implied option attached to shares granted is determined using a pricing model
that takes into account factors that include exercise price, the term of the performance option, the
vesting and performance criteria, the share price at grant date and the expected price volatility of
the underlying share. The fair value calculation excludes the impact of any non-market vesting
conditions. Non-market vesting conditions are included in assumptions about the number of
performance options that are expected to become exercisable. At each balance date, the entity
revises its estimate of the number of performance rights that are expected to become exercisable.
The personnel expense recognised each period takes into account the most recent estimate.
Shares issued under employee and executive share plans are held in trust until vesting date.
Unvested shares held by the trust are consolidated into the group financial statements.
r) Other Revenue
Interest
Revenue is recognised as the interest accrues using the effective interest rate method, which is the
rate that exactly discounts estimated future cash receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset.
Research & Development Tax Incentive
Government grants, including Research and Development incentives, are recognized at fair value
where there is reasonable assurance that the grant will be received and all grant conditions will be
met.
Grants relating to cost reimbursements are recognized as other income in profit or loss in the period
when the costs were incurred or when the incentive meets the recognition requirements (if later)
All revenue is stated net of the amount of goods and services tax (“GST”).
Cyclopharm Limited Annual Report 49
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
s) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except where the GST
incurred is not recoverable from the Australian Taxation Office (“ATO”) and is therefore recognised
as part of the asset’s cost or as part of the expense item. Receivables and payables are stated
inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as
part of receivables or payables in the Statement of Financial Position. Cash flows are presented 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.
t) Financial instruments
Financial assets and liabilities are recognised when the entity becomes a party to the contractual
provisions to the instrument.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market and are stated at amortised cost using the effective interest rate
method.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
are subsequently remeasured to their fair value at each reporting date. The accounting for
subsequent changes in fair value depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged.
De-recognition of financial instruments
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a de-recognition of the original liability and the recognition of
a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
Impairment of financial assets
The Group assesses at each Statement of Financial Position date whether a financial asset or
group of financial assets is impaired.
Cyclopharm Limited Annual Report 50
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
u) Contributed equity
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Other contributed equity
In accordance with AASB112 Income Taxes, additional contributed equity was recorded to
recognise the transfer of tax liabilities from Vita Medical Limited to Vita Life Sciences Limited, being
the parent of the Australian tax consolidated group at the relevant time. This event occurred prior to
Cyclopharm Limited acquiring its interests in the net assets of Vita Medical Limited.
As part of the restructure a subsidiary of Cyclopharm Limited, Vita Medical Australia Pty Ltd
acquired all the assets, liabilities and business from Vita Medical Limited, the former group parent.
With effect from 31 May 2006, Cyclopharm Limited also acquired 100% of the other group operating
subsidiaries from the ultimate holding company, Vita Life Sciences Limited. Accordingly, the group
comprises Cyclopharm Limited and the following wholly owned subsidiaries:
• Cyclomedica Australia Pty Ltd (formerly Vita Medical Australia Pty Ltd)
• Cyclomedica Ireland Ltd (formerly Vitamedica Europe Ltd)
• Cyclomedica Europe Ltd
• Cyclomedica Canada Limited (formerly Vita Medical Canada Ltd)
• Cyclomedica Germany GmbH
• Allrad 28 Pty Ltd (deregistered 16 July 2017)
• Allrad 29 Pty Ltd (deregistered 16 July 2017)
These entities collectively comprise the medical diagnostic equipment and associated consumables
business formerly operated as the Vita Medical Group – now known as the Cyclopharm Group. The
transaction has been accounted for as a ‘reverse acquisition’ as defined in AASB 3 Business
Combinations whereby Cyclopharm Limited is the legal parent and Cyclomedica Australia Pty
Limited is the financial parent, which for accounting purposes is deemed to be the acquirer.
The consideration for the minority interests of the controlled entities and costs of acquisition have
been charged to other contributed equity in accordance with AASB 127 Consolidated and Separate
Financial Statements.
Cyclopharm Limited Annual Report 51
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
v) Earnings per share
Basic earnings per share
Basic earnings per share is determined by dividing the net profit/(loss) after income tax attributable
to members of the Company by the weighted average number of ordinary shares outstanding during
the financial year. Where there is a change in the number of ordinary shares on issue without a
corresponding change in recognised resources during the year, the number of ordinary shares for
all periods presented are correspondingly adjusted as if the event had occurred at the beginning of
the earliest period presented.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share
to take into account the after-income tax effect of interest and other financing costs associated with
dilutive potential ordinary shares and the weighted average number of shares assumed to have
been issued for no consideration in relation to dilutive potential ordinary shares. Where there is a
change in the number of ordinary shares on issue without a corresponding change in recognised
resources during the year, the number of ordinary shares for all periods presented are
correspondingly adjusted as if the event had occurred at the beginning of the earliest period
presented.
w) Fair Value
The Group subsequently measures some of its assets at fair value on a non-recurring basis. Fair
value is the price the Group would receive to sell an asset in an orderly (i.e. unforced) transaction
between independent, knowledgeable and willing market participants at the measurement date.
As fair value is a market-based measure, the closest equivalent observable market pricing
information is used to determine fair value. Adjustments to market values may be made having
regard to the characteristics of the specific asset. The fair values of assets that are not traded in an
active market are determined using one or more valuation techniques. These valuation techniques
maximise, to the extent possible, the use of observable market data.
To the extent possible, market information is extracted from either the principal market for the asset
(i.e. the market with the greatest volume and level of activity for the asset) or, in the absence of
such a market, the most advantageous market available to the entity at the end of the reporting
period (i.e. the market that maximises the receipts from the sale of the asset after taking into
account
fair value
measurement also takes into account a market participant’s ability to use the asset in its highest
and best use or to sell it to another market participant that would use the asset in its highest and
best use.
transport costs). For non-financial assets,
transaction costs and
the
x) Significant Accounting Judgements and Estimates
The preparation of financial statements requires management to make judgements, estimates and
assumptions that effect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses.
The following are the critical judgements and estimates that the directors have made in the process
of applying the Group’s accounting policies and that have the most significant effect on the amounts
recognised in the financial statements.
Cyclopharm Limited Annual Report 52
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Key Estimates
Impairment – general
The Group assesses impairment at the end of each reporting period by evaluating conditions and
events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of
relevant assets are reassessed using value-in-use calculations which incorporate various key
assumptions.
The Group’s property, plant and equipment relating to the Cyclotron facility have been fully
impaired, based on management’s assessment that the fair value of those assets is nil in the
current industry circumstances and the condition of the damaged assets. Extensive damage to the
Cyclotron facility caused by substantial water damage in June 2014, delayed any decisions about
the future use of the Cyclotron facility until it is restored to its former operational status. Recent
negotiations with other parties to establish a new business have concluded with the Company
entering into a Business Venture Collaboration Agreement with Cyclotek Australia Pty Ltd and
Pettech, a wholly owned subsidiary of ANSTO. In parallel the Company entered into a Business
Sale Transfer agreement for the operations conducted at the Company’s Cyclotron facility located
at Macquarie University Hospital.
The assumptions used in the estimation of recoverable amount and the carrying amount of
intangible assets are discussed in Note 14. No impairment has been recognised in respect of
intangible assets at the end of the reporting period.
Useful lives of property, plant and equipment
The estimation of the useful lives of assets has been based on historical experience as well as
lease terms and turnover policies. In addition, the condition of the assets is assessed at least once
per year and considered against the remaining useful life. Adjustments to useful lives are made
when considered necessary.
Lease term
The lease term is a significant component in the measurement of both the right-of-use asset and
lease liability. Judgement is exercised in determining whether there is reasonable certainty that an
option to extend the lease or purchase the underlying asset will be exercised, or an option to
terminate the lease will not be exercised, when ascertaining the periods to be included in the lease
term. In determining the lease term, all facts and circumstances that create an economical incentive
to exercise an extension option, or not to exercise a termination option, are considered at the lease
commencement date. Factors considered may include the importance of the asset to the
Company's operations; comparison of terms and conditions to prevailing market rates; incurrence of
significant penalties; existence of significant leasehold improvements; and the costs and disruption
to replace the asset. The Company reassesses whether it is reasonably certain to exercise an
extension option, or not exercise a termination option, if there is a significant event or significant
change in circumstances.
Incremental borrowing rate
Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing
rate is estimated to discount future lease payments to measure the present value of the lease
liability at the lease commencement date. Such a rate is based on what the Company estimates it
would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value
to the right-of-use asset, with similar terms, security and economic environment.
Cyclopharm Limited Annual Report 53
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 accounting estimates and
assumptions relating to equity-settled share-based payments would have no impact on the carrying
amounts of assets and liabilities within the next annual reporting period but may impact expenses
and equity.
The Group measures the cost of share-based payments at fair value at the grant date using the
Black-Scholes formula, taking into account the terms and conditions upon which the instruments
were granted. Refer to Note 27 for details of the Company’s Share Based Payment Plan.
Key Judgements
Taxation
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
on 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.
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 the amount of deferred tax assets and
deferred tax liabilities 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 the
carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting
in a corresponding credit or charge to the consolidated statement of comprehensive income.
Cyclopharm Limited Annual Report 54
Notes
Continued
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
There are no impairment losses on receivables and contract assets arising from contracts with
customers.
Cyclopharm Limited Annual Report 55
TechnegasMolecular ImagingTotal$$$Type of goods or serviceSales of equipment and consumables12,774,045 - 12,774,045 After sales services1,304,756 - 1,304,756 Total revenue from contracts with customers14,078,801 - 14,078,801 Geographical marketsAsia Pacific2,313,912 - 2,313,912 Europe8,742,760 - 8,742,760 Canada2,558,344 - 2,558,344 Other463,785 - 463,785 Total revenue from contracts with customers14,078,801 - 14,078,801 Timing of revenue recognitionGoods transferred at a point in time13,840,520 - 13,840,520 Services transferred over time238,281 - 238,281 Total revenue from contracts with customers14,078,801 - 14,078,801 For the year ended 31 December 2019SegmentsTechnegasMolecular ImagingTotal$$$Type of goods or serviceSales of equipment and consumables12,411,070 - 12,411,070 After sales services993,152 - 993,152 Total revenue from contracts with customers13,404,222 - 13,404,222 Geographical marketsAsia Pacific2,662,870 - 2,662,870 Europe8,348,476 - 8,348,476 Canada2,145,411 - 2,145,411 Other247,465 - 247,465 Total revenue from contracts with customers13,404,222 - 13,404,222 Timing of revenue recognitionGoods transferred at a point in time13,164,161 - 13,164,161 Services transferred over time240,061 - 240,061 Total revenue from contracts with customers13,404,222 - 13,404,222 For the period ended 31 December 2018Segments
Notes
Continued
4. OPERATING SEGMENTS
The Group has identified its operating segments based on the internal reports that are reviewed and
used by the Board of Directors (chief operating decision makers) in assessing performance and
determining the allocation of resources. The Group is managed primarily on the basis of product
category as the Group's risks and returns are affected predominantly by differences in the products
and services produced. The Group also monitors the performance of the business on a
geographical basis.
The operating businesses are organised and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that
offers different products and serves different markets.
The Technegas segment is a supplier of diagnostic equipment and consumables used by
physicians in the detection of pulmonary embolism.
The Molecular Imaging segment will produce radiopharmaceuticals to be used by physicians in the
detection of cancer, neurological disorders and cardiac disease.
Transfer prices between business segments are set on an arm's length basis in a manner similar to
transactions with third parties. Segment revenue, segment expense and segment result include
transfers between business segments. Those transfers are eliminated on consolidation.
Business segments
The tables under the heading business segments present revenue and profit information and certain
asset and liability information regarding business segments for the years ended 31 December 2019
and 31 December 2018.
Geographical segments
The tables under the heading geographical segment present revenue and asset information
regarding geographical segments for the years ended 31 December 2019 and 31 December 2018.
Cyclopharm Limited Annual Report 56
Notes
Continued
4. SEGMENT REPORTING (continued)
Business Segments
AASB 16 was adopted using the modified retrospective approach as such the comparatives have not
been restated. Therefore, the current and comparative Loss before tax, depreciation and finance costs
are not directly comparable.
Cyclopharm Limited Annual Report 57
TechnegasMolecular ImagingTotal$$$RevenueSales to external customers14,078,801 - 14,078,801 Finance revenue 23,980 1,533 25,513 Other revenue2,934,187 - 2,934,187 Total revenue17,036,968 1,533 17,038,501 Result(Loss) / profit before tax and finance costs (2,903,095)758,411 (2,144,684)Finance costs (267,796) (12,463) (280,259)(Loss) / profit before income tax (3,170,891)745,948 (2,424,943)Income tax (1,019,968)532,471 (487,497)(Loss) / profit after income tax (4,190,859)1,278,419 (2,912,440)Assets and liabilitiesSegment assets31,172,974 1,355,443 32,528,417 Segment asset increases for the period : - capital expenditure238,446 - 238,446 Segment liabilities (9,287,959) (36,513) (9,324,472)Other segment informationDepreciation and amortisation (737,653) (262,286) (999,939)31 December 2019ConsolidatedFor the year ended
Notes
Continued
4. SEGMENT REPORTING (continued)
Business Segments (continued)
Cyclopharm Limited Annual Report 58
TechnegasMolecular ImagingTotal$$$RevenueSales to external customers13,404,222 - 13,404,222 Finance revenue 101,870 1,541 103,411 Other revenue2,122,351 - 2,122,351 Total revenue15,628,443 1,541 15,629,984 ResultProfit / (loss) before tax and finance costs479,301 (334,764)144,537 Finance costs (23,452) (2,677) (26,129)Profit / (loss) before income tax455,849 (337,441)118,408 Income tax expense (180,631)26,767 (153,864)Profit / (loss) after income tax275,218 (310,674) (35,456)Assets and liabilitiesSegment assets20,664,136 2,872,585 23,536,721 Segment asset increases for the period : - capital expenditure279,143 - 279,143 Segment liabilities (5,476,181) (1,044,571) (6,520,752)Other segment informationDepreciation and amortisation (510,174) (56) (510,230)31 December 2018ConsolidatedFor the year ended
Notes
Continued
4. SEGMENT REPORTING (continued)
Geographical Segments
Cyclopharm Limited Annual Report 59
ConsolidatedAsia PacificEuropeCanadaOtherTotal$$$$$RevenueSales to external customers2,313,912 8,742,760 2,558,344 463,785 14,078,801 Finance revenue 15,893 9,620 - - 25,513 Other revenue2,934,187 - - - 2,934,187 Total segment revenue5,263,992 8,752,380 2,558,344 463,785 17,038,501 AssetsSegment assets24,608,560 7,007,539 912,318 - 32,528,417 31 December 2019For the year endedConsolidatedAsia PacificEuropeCanadaOtherTotal$$$$$RevenueSales to external customers2,662,870 8,348,476 2,145,411 247,465 13,404,222 Finance revenue 103,316 95 - - 103,411 Other revenue2,122,351 - - - 2,122,351 Total segment revenue4,888,537 8,348,571 2,145,411 247,465 15,629,984 AssetsSegment assets16,025,379 6,686,068 825,274 - 23,536,721 31 December 2018For the year ended
Notes
Continued
5. REVENUES AND EXPENSES
Cyclopharm Limited Annual Report 60
20192018Notes$$RevenueSales revenue14,078,801 13,404,222 Finance revenue - Interest received from other parties25,513 103,411 Other RevenueR&D Tax incentive refund2,934,187 2,122,351 Total other revenue2,934,187 2,122,351 (Note 3 discloses the disaggregation of the Group's revenue from contracts with customers)Expensesa)Cost of materials and manufacturingCost of materials and manufacturing 2,908,664 2,965,588b)Finance costsInterest paid on loans from external parties 46,868 26,129Interest on leased assets (AASB 16) 233,391- Total finance costs 280,259 26,129c)Depreciation of plant and equipment 122,283 144,358Depreciation of leasehold improvements 222,337 275,757Depreciation of leased assets (AASB 16) 551,229- Amortisation of intangibles 104,090 90,115 999,939 510,230d)Research & development expenseFDA expenses3,841,534 2,964,770 Pilot Clinical Trial expenses350,844 251,301 Research expenses199 3,314 4,192,577 3,219,385 e) Employee benefits expenseSalaries and wages 4,564,3133,947,991 Defined contribution superannuation expense 361,261 297,777Non-Executive Director fees 171,947 173,400Share-based payments expense27a 378,36837,967 5,475,889 4,457,135f)Administration expenseLegal and professional costs 4,121,851 2,184,313Office and facility costs 900,579 707,308Provision for / (Reversal of) doubtful debts 17,534(122,220)Operating lease expenses- 718,351Travel and motor vehicle costs 707,982 553,142 5,747,946 4,040,894g)Other (income) / expenseRealised Foreign exchange gains (54,171) (86,574)Unrealised Foreign exchange gains (100,275) (277,724)Recoveries from litigation (338,908)- Costs of terminating put option309,000 - Rent waiver from landlord of cyclotron facility (976,044)- Other373,950 214,947 (786,448) (149,351)Consolidated Depreciation and amortisation
Notes
Continued
6.
INCOME TAX
Cyclopharm Limited Annual Report 61
20192018$$The components of income tax expense comprise:Current income tax expense (423,756) (98,216)Deferred tax expense (63,741) (55,648) (487,497) (153,864)Accounting (loss) / profit before income tax (2,424,943)118,408 Statutory income tax rate of 27.5% (2018: 27.5%)666,859 (32,562)Effects of lower rates on overseas income197,077 161,606 Expenditure not allowable for income tax purposes (2,093,312) (2,130,823)Non-assessable income806,901 1,195,552 Overprovsion of previous years- 709,074 Temporary differences reversed in Australian group (64,132) (55,554)Temporary differences recognised overseas391 94 Tax losses not recognised overseas (1,281) (1,251)Total income tax expense (487,497) (153,864)Effective income tax rate20.1%(129.9%)Current income tax asset225,585 78,377 Current income tax liability22,932 643,664 Deferred tax relating to capital raising costs, credited directly to equity156,668 - Deferred tax assetsInvestments1,110,124 402,139 Provisions and accruals24,195 458,584 Other359,344 182,798 Total deferred tax assets1,493,663 1,043,521 Movements in deferred tax assetsOpening balance1,043,521 1,098,949 Adjustment on adopting AASB 16 Leases 80,164 - Temporary differences brought to account (reversed) 369,978 (55,428) Closing balance1,493,663 1,043,521 Deferred tax liabilitiesInvestments277,568- Provisions and accruals- 517 Total deferred tax liabilities277,568 517 Movements in deferred tax liabilitiesOpening balance517 549 Temporary differences brought to account (reversed) 277,051 (32) Closing balance277,568 517 Deferred tax assets for which no benefit has been recognised:- arising from temporary differences - at 27.5% 826,669 873,948 - arising from capital tax losses - at 27.5% 21,686 21,686 Deferred tax assets from temporary differences on:Deferred tax liabilities from temporary differences on:A reconciliation of income tax expense applicable to accounting (loss) / profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate is as follows:
Notes
Continued
7. NET TANGIBLE ASSETS AND LOSS PER SHARE
Net Tangible Assets per share
The number of ordinary shares includes the effects of 539,525 Long Term Incentive
Performance (‘LTIP’) shares issued on 11 December 2019, 200,000 LTIP shares issued on 30
May 2019 (2018: 500,000 Long Term Incentive Performance shares issued on 2 July 2018) and
excludes 55,443 expired LTIP shares cancelled on 8 October 2018 as set out in Note 20.
Loss per share
The weighted average number of ordinary shares for basic loss per share excludes the effects
of 269,911 LTIP shares issued on 11 December 2019, 200,000 LTIP shares issued on 30 May
2019, 500,000 LTIP shares issued on 2 July 2018 and 225,000 LTIP shares issued on 19 April
2017 set out in Note 20 as they are contingently returnable.
Cyclopharm Limited Annual Report 62
20192018$$Net assets per share0.30 0.25 Net tangible assets per share0.23 0.18 NumberNumberNumber of ordinary shares for net assets per share78,238,398 68,698,873 20192018$$Net assets23,203,945 17,015,969 Net tangible assets18,058,596 12,445,625 Consolidated20192018centscentsBasic loss per share for continuing operations (4.28) (0.05)Basic loss per share (4.28) (0.05)Diluted loss per share (4.28) (0.05)NumberNumber68,121,079 67,973,873 68,121,079 67,973,873 20192018$$Loss used to calculate basic earnings per share (2,912,440) (35,456)Loss used to calculate diluted earnings per share (2,912,440) (35,456)Consolidated Weighted average number of ordinary shares for basic loss per share Weighted average number of ordinary shares for diluted loss per share
Notes
Continued
8. CASH AND CASH EQUIVALENTS
Cyclopharm Limited Annual Report 63
20192018$$Cash at bank and in hand12,660,323 5,854,959 Total cash and cash equivalents12,660,323 5,854,959 Reconciliation of Statement of Cash Flows20192018$$Cash at bank and in hand12,660,323 5,854,959 12,660,323 5,854,959 Net loss after tax (2,912,440) (35,456)Adjustments for non-cash income and expense items:Depreciation895,849 420,115 Amortisation104,090 90,115 Property, plant and equipment written off213,548 - Cost of terminating put option309,000 - Movement in intangible assets- (1,290,551)Movement provision for employee benefits (194,502) (86,832)Movement in foreign exchange (35,215)34,046 Movement in employee benefits reserve378,368 37,967 Movement in other provisions (268,813)558,264 (1,510,115) (272,332)Increase/decrease in assets and liabilities: Decrease / (increase) in receivables2,681,053 (744,320)Decrease / (increase) in inventories276,103 (94,243)Decrease / (increase) in other receivables178,288 (448,946)Increase in current tax asset (147,208) (50,599)(Increase) / Decrease in deferred tax assets (450,142)55,428 (Decrease) / Increase in creditors (1,303,967)1,175,008 Decrease in current tax liabilities (620,712) (929,415)Increase / (Decrease) in deferred tax liabilities277,051 (32)Increase in deferred income liability130,309 202,116 Net cash flow used in operating activities (489,340) (1,107,335)For the purpose of the Statement of Cash Flows, cash and cash equivalents comprise the following:(a) Reconciliation of net loss after tax to net cash flows from operationsConsolidatedCash at bank and in hand earns interest at floating rates based on daily bank deposit rates.The fair value of cash equivalents is $12,660,323 (2018: $5,854,959).
Notes
Continued
8. CASH AND CASH EQUIVALENTS (continued)
(b) Non-cash financing and investing activities
The following Long Term Incentive Plan (LTIP) shares were issued by way of loans:
•
•
200,000 Long Term Incentive Plan (LTIP) shares were issued on 30 May 2019,
500,000 Long Term Incentive Plan (LTIP) shares were issued on 2 July 2018.
During 2018, 138,000 LTIP shares vested and an election was made to extend the exercise period for up
to 5 years, whilst 55,443 LTIP shares lapsed and were cancelled. Refer to Note 20 Contributed Equity
and Note 27 Share Based Payment Plans.
9. TRADE AND OTHER RECEIVABLES
Terms and conditions
Terms and conditions relating to the above financial instruments
(i)
(ii)
Trade receivables are non-interest bearing and generally on 30 and 60-day terms.
Other receivables are non-interest bearing and have repayment terms between 30 and
90 days.
Other receivables for the financial year ended 31 December 2018 included accrued R&D
Tax Incentive of $2,324,467 which was received upon lodgement and processing of the
2018 income tax return. The R&D Tax Incentive for the current financial year was received
in November 2019.
Related party details are set out in the Note 23 Related Party Disclosures.
A court awarded payment of $338,908 was received in January 2019 upon the successful
outcome of litigation brought against a former General Manager for Germany and Almedis
Altmann GmbH, an entity controlled by him.
This amount has been written off as unrecoverable upon MQ Health taking over the
business operations of Macquarie Medical Imaging Pty Ltd from 7 December 2019.
(iii)
(iv)
(v)
(vi)
Cyclopharm Limited Annual Report 64
20192018Notes$$CurrentTrade receivables, third parties3,673,271 3,954,464 Allowance for expected credit loss(v) (107,259) (417,610)Net Trade receivables, third parties(i)3,566,012 3,536,854 Other receivables(ii), (iii)413,583 2,710,211 Total Current trade and other receivables3,979,595 6,247,065 Non-currentTrade receivables, associate(vi)- 230,782 Allowance for expected credit loss(vi)- (230,782)Total Non-current trade and other receivables- - Total trade and other receivables3,979,595 6,247,065 Consolidated
Notes
Continued
9. TRADE AND OTHER RECEIVABLES (continued)
Movements in the allowance for expected credit losses are as follows:
10. INVENTORIES
Cyclopharm Limited Annual Report 65
20192018Notes$$Opening balance417,610 551,730 Unused amounts reversed (310,351) (134,120)Closing balance107,259 417,610 Consolidated*20192018Notes$$CurrentRaw materials at cost1,334,713 1,198,130 1,199,849 1,614,033 (39,119) (40,617)Total inventory2,495,443 2,771,546 Consolidated Finished goods at lower of cost or net realisable value Provision for obsolescence
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT
* Impairment arising from the Group’s decision to cease commercial production at its cyclotron facility at the end
of April 2014. Extensive damage to the cyclotron facility caused by substantial water damage in June 2014 has
delayed any final decisions about the future use of the cyclotron facility until its restoration to its former
operational status. Accordingly, the suspended cyclotron business is not considered to be a discontinued
operation pending that decision and its outcome. The Group initially recognises and measures its Land and
Buildings, Plant and Equipment and Leasehold Improvements at cost. The Group subsequently measures some
of its Buildings, Plant and Equipment and its Leasehold Improvements at fair value on a non-recurring basis in
accordance with AASB 136: Impairment of Assets. Refer Note 2 (x).
Cyclopharm Limited Annual Report 66
Leasehold Land and buildings Leasehold improvements Plant and equipment Leased Plant and Equipment Capital Work in Progress Total Consolidated$$$$$$at written down value299,890 1,702,595 388,091 - 77,830 2,468,406 Additions / Transfers10,006 21,790 134,989 - 71,661 238,446 Disposals / Transfers- (213,548)- (77,830) (291,378)Foreign exchange translation- - - Depreciation for the year (10,241) (222,337) (112,042)- - (344,620)at written down value299,655 1,288,500 411,038 - 71,661 2,070,854 Cost value2,383,603 5,010,569 8,295,535 120,901 77,830 15,888,438 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (201,753) (699,062) (3,538,153) (120,901)- (4,559,869)Net carrying amount299,890 1,702,595 388,091 - 77,830 2,468,406 Cost value2,393,609 4,818,811 8,430,524 120,901 71,661 15,835,506 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (211,994) (921,399) (3,650,195) (120,901)- (4,904,489)Net carrying amount299,655 1,288,500 411,038 - 71,661 2,070,854 31 December 2019Year ended31 December 20191 January 201931 December 20191 January 2019
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT (continued)
* Impairment arising from the Group’s decision to cease commercial production at its cyclotron facility at the end
of April 2014. Extensive damage to the cyclotron facility caused by substantial water damage in June 2014 has
delayed any final decisions about the future use of the cyclotron facility until its restoration to its former
operational status. Accordingly, the suspended cyclotron business is not considered to be a discontinued
operation pending that decision and its outcome. The Group initially recognises and measures its Land and
Buildings, Plant and Equipment and Leasehold Improvements at cost. The Group subsequently measures some
of its Buildings, Plant and Equipment and its Leasehold Improvements at fair value on a non-recurring basis in
accordance with AASB 136: Impairment of Assets. Refer Note 2 (x).
Fair Value Measurement
AASB 13 Fair Value Measurement requires the disclosure of fair value information by level of the fair value
hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level
that an input that is significant to the measurement can be categorised into, as follows:
•
•
•
Level 1: Measurements based on quoted prices in active markets for identical assets that the entity can access at
the measurement date.
Level 2: Measurements based on inputs other than the quoted prices included in Level 1, but that are observable
for the asset, either directly or indirectly.
Level 3: Measurements based on unobservable inputs for the asset or liability.
Cyclopharm’s management considers that the inputs used for the fair value measurement are Level 2 inputs.
Cyclopharm Limited Annual Report 67
Leasehold Land and buildings Leasehold improvements Plant and equipment Leased Plant and Equipment Capital Work in Progress Total Consolidated$$$$$$at written down value305,098 1,883,597 445,726 - 48,002 2,682,423 Additions / Transfers- 90,910 116,573 - 71,660 279,143 Disposals / Transfers- - (206)- (41,832) (42,038)Foreign exchange translation4,798 3,845 (39,650)- - (31,007)Depreciation for the year (10,006) (275,757) (134,352)- - (420,115)at written down value299,890 1,702,595 388,091 - 77,830 2,468,406 Cost value2,378,282 4,919,659 8,191,866 120,901 48,002 15,658,710 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (191,224) (427,150) (3,376,849) (120,901)- (4,116,124)Net carrying amount305,098 1,883,597 445,726 - 48,002 2,682,423 Cost value2,383,603 5,010,569 8,295,535 120,901 77,830 15,888,438 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (201,753) (699,062) (3,538,153) (120,901)- (4,559,869)Net carrying amount299,890 1,702,595 388,091 - 77,830 2,468,406 31 December 2018Year ended31 December 20181 January 201831 December 20181 January 2018
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT (continued)
Valuation techniques
AASB 13 requires the valuation technique used to be consistent with one of the following valuation approaches:
• Market approach: techniques that use prices and other information generated by market transactions for
•
identical or similar assets.
Income approach: techniques that convert future cash flows or income and expenses into a single discounted
present value.
• Cost approach: techniques that reflect the current replacement cost of an asset at its current service capacity.
The Cyclopharm Board decided to cease commercial production at its Cyclotron facility at the end of April 2014
due to the impact on the Group’s profits of the government-owned competition. In making that decision, the
Board valued the Cyclotron facility, comprised of buildings, leasehold improvements and plant and equipment at
a fair value of nil, using the market approach and income approach techniques. The market technique
predominantly used recent observable market data for similar new equipment in Australia, adjusted for loss in
value caused by physical deterioration, functional obsolescence, economic obsolescence and the industry
specific aspects affecting this highly specialised asset i.e. the government-owned competition which had
rendered further participation in the molecular imaging industry uneconomic and its future use uncertain. The
same industry specific factors were applied to the income approach technique. Both techniques resulted in a fair
value of nil being recognised for the Cyclotron facility as at 31 December 2014. Cyclopharm considers that the
same conditions still apply at 31 December 2019. Furthermore, the damage caused to the Cyclotron facility in
June 2014 has delayed any final decisions about the future use of the Cyclotron facility until its restoration to its
former functionality. Accordingly, Cyclopharm has concluded that as a result of this uncertainty, the fair value of
the Cyclotron remains at nil as at 31 December 2019.
Inputs used in the market approach technique to measure Level 2 fair values were:
•
•
•
current replacement cost of the property being appraised less the loss in value caused by physical deterioration,
functional obsolescence and economic obsolescence, and industry specific factors set out above.
historical cost and relevant market data and industry expertise.
sales comparison for assets where available.
The assessments of the physical condition, functional obsolescence and economic obsolescence are considered
Level 3 inputs.
Non-Recurring fair value measurements:
Buildings
Plant and equipment
Leasehold improvements
Total non-financial assets recognised at fair value
Level 2
2019
$
-
-
-
-
Level 2
2018
$
-
-
-
-
The highest and best use of the assets in normal circumstances is the value in continued use, using the income
approach technique. However, in the current unusual circumstances as set out above, the fair value using this
approach is nil.
Cyclopharm Limited Annual Report 68
Notes
Continued
12. RIGHT-OF-USE ASSETS
The Group leases land and buildings for its offices, manufacturing facilities and warehouse under
agreements of between two to ten years with, in some cases, options to extend. The leases have
various escalation clauses. On renewal, the terms of the leases are negotiated. The Group also
leases plant and equipment under agreements of four years.
Cyclopharm Limited Annual Report 69
20192018$$Land and buildings - right-of-use5,200,067 - Less: Accumulated depreciation (1,030,860)- 4,169,207 - Motor vehicle - right-of-use260,097 - Less: Accumulated depreciation (221,373)- 38,724 - Total right-of-use assets4,207,931 - Consolidated
Notes
Continued
13. INVESTMENTS
(a) The share of the associate’s loss not recognised during the year was $7,994 (2018: loss of
$517,879) and the cumulative share of the associate’s loss not recognised as at 31 December 2019
was $3,459,836 (31 December 2018: $3,451,842). The comparative amounts have been revised
after the receipt of the audited financial report of the associate subsequent to the last financial
report of the Group.
The share of loss of associate not recognised as at 31 December 2019 is extracted from the
unaudited financial report of the associate, and it may be revised when that financial report has
been audited.
The fair value of the Group’s investment in Macquarie Medical Imaging Pty Ltd was $nil (2018: $nil).
Cyclopharm Limited Annual Report 70
20192018 Equity accounted investments Notes$$Associated companies(a)- - Name Principal Activities Principal place of business Measurement Method 20192018Macquarie Medical Imaging Pty LtdImaging centre Sydney, Australia Equity method20%20%20192018Extract from the associate's statement of financial position:Notes$$Current Assets5,470,644 1,667,541 Non-current Assets1,577,468 9,622,837 Current Liabilities (19,647,135) (14,671,387)Non-current Liabilities- (8,733,080)Net Liabilities (12,599,023) (12,114,089)Share of associate's Net Liabilities(a) (2,519,805) (2,422,818)20192018Extract from the associate's statement of comprehensive income:Notes$$Revenue14,650,032 14,650,032 Net Loss(a) (39,973) (2,589,397)ConsolidatedMacquarie Medical Imaging Pty Ltd ("MMI") is a private entity that provided medical imaging facilities for Macquarie University Hospital. From 7 December 2019, the business operations of MMI have been transferred to MQ Health, an entity associated with Macquarie University Hospital.ConsolidatedOwnership InterestConsolidated
Notes
Continued
13. INVESTMENTS (continued)
Contingent liabilities
(b) There were no contingent liabilities as at the date of this report (2018: $2,838,442). In
December 2019, Cyclopharm issued 300,000 ordinary shares in exchange for the termination of
a put option to a 50% shareholder of Macquarie Medical Imaging Pty Limited (“MMI”). The cost
had the put option been exercised at 31 December 2018 was estimated not to exceed
$2,838,442.
14. INTANGIBLE ASSETS
* Goodwill on consolidation arising upon the acquisition of Inter Commerce Medical bvba on 1 October
2017 and Medicall Analys AB on 1 May 2018.
The recoverable amount of Technegas Development and Ultralute costs have been assessed using a
discounted cash flow methodology forecasting five years of pre-tax cash flows.
The following describes each key assumption on which management has based its value in use
calculations:
(a)
(b)
(c)
Five-year pre-tax cash flow projections, based upon management approved budgets and growth
rates covering a one year period, with the subsequent periods based upon management
expectations of growth excluding the impact of possible future acquisitions, business
improvement capital expenditure and restructuring.
The pre-tax discount rate used was 25.00% in 2019 (2018: 25.00%). The discount rate reflects
management’s estimate of the time value of money and the Group’s adjusted weighted average
cost of capital to reflect the current market risk–free rate but also price for the uncertainty
inherent in the assets.
The Directors have concluded that the recoverable amount of the Ultralute costs and other
intangibles exceed their carrying value.
Cyclopharm Limited Annual Report 71
Intellectual PropertyGoodwill on consolidation*LicencesTechnegas DevelopmentTargetUltraluteTotalConsolidated$$$$$$$Balance at54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 Additions344,101 - - 65,490 - 269,504 679,095 Transfers- - - - - - - Amortisation (18,981)- (85,109)- - - (104,090)Balance at379,632 865,273 665,537 788,588 27,419 2,418,900 5,145,349 Non-Current379,632 865,273 665,537 788,588 27,419 2,418,900 5,145,349 379,632 865,273 665,537 788,588 27,419 2,418,900 5,145,349 Non-Current54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 31 December 2019Total1 January 201931 December 201931 December 2018Total
Notes
Continued
15. TRADE AND OTHER PAYABLES
Terms and conditions
Terms and conditions relating to the above financial instruments:
(i)
(ii)
(iii)
Trade payables are non-interest bearing and are normally settled on 30-60 day terms.
Other payables and accruals are non-interest bearing and have an average term of 4
months.
The non-interest bearing loan, related party loan is payable when called upon. Related
party details are set out in the Note 23 Related party disclosures.
16. INTEREST BEARING LOANS AND BORROWINGS
Cyclopharm Limited Annual Report 72
20192018Notes$$CurrentTrade payables, third parties(i)1,407,567 2,366,062 Other payables and accruals(ii)1,224,795 1,233,403 Total current trade and other payables2,632,362 3,599,465 Non-currentOther payables and accruals- 336,864 Total Non-current trade and other payables- 336,864 Total trade and other payables2,632,362 3,936,329 Consolidated20192018$$CurrentBank loan - secured (b)- 58,985 Interest bearing loans and borrowings (current)- 58,985 Total interest bearing loans and borrowings- 58,985 Consolidated
Notes
Continued
16. INTEREST BEARING LOANS AND BORROWINGS (continued)
(a)
Financing facilities available:
At reporting date, the following financing facilities had been negotiated and were available:
(b)
Secured Bank Loans
Cyclopharm’s wholly owned subsidiary, Inter Commerce Medical bvba (“ICM”)’s loan provided
by Bank Nagelmackers nv has been fully repaid in December 2019. The facility is secured by
bank deposits held by the vendor of ICM.
17. LEASE LIABILITIES
Cyclopharm Limited Annual Report 73
20192018Notes$$Total facilities available:- secured bank loans, third party- 58,985 - 58,985 Facilities used at reporting date:- secured bank loans, third party16- 58,985 - 58,985 Total facilities- 58,985 Facilities used at reporting date:- (58,985)Facilities unused at reporting date:- - Consolidated20192018$$CurrentLease liabilty 172,582 61,592 Lease liability (current)172,582 61,592 Non-currentLease liabilty4,749,883 - Interest bearing loans and borrowings (non-current)4,749,883 - Total interest bearing loans and borrowings4,922,465 61,592 Consolidated
Notes
Continued
18. PROVISIONS
A provision has been recognised for employee entitlements relating to long service and annual
leave. The measurement and recognition criteria relating to employee benefits have been
disclosed in Note 2.
19. DEFERRED INCOME LIABILITIES
A portion of the Research & Development Grant refund received during the year has been
recognised as deferred income liabilities and will be amortised over the same period as the
amortisation of the related intangible development asset.
Cyclopharm Limited Annual Report 74
Employee EntitlementsMake good TotalConsolidated$$$Balance at869,779 286,347 1,156,126 Utilised (194,502)- (194,502)AASB16 adjustmnet- (286,347) (286,347)Balance at675,277 - 675,277 Current652,254 - 652,254 Non-Current23,023 - 23,023 675,277 - 675,277 Number of employeesNumber of employees at year end37 Current855,517 - 855,517 Non-Current14,262 286,347 300,609 869,779 286,347 1,156,126 Number of employeesNumber of employees at year end32 Consolidated31 December 2018Total1 January 201931 December 201931 December 2019Total20192018$$Deferred income liabilities793,868 663,559 Consolidated
Notes
Continued
20. CONTRIBUTED EQUITY
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all
surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy,
at a meeting of the Company.
(i) 539,525 LTIP shares were issued on 11 December 2019, 200,000 LTIP shares were issued on 30 May 2019 and 500,000 LTIP shares were issued on 2 July 2018
as set out in Note 27.
(ii) On 18 December 2019, 300,000 ordinary shares were issued in exchange for the termination of a put option to a shareholder of MMI as set out in Note 13(b).
(iii) On 24 December 2019, 8,500,000 ordinary shares were issued at a price of $1.15 per new share in connection with an institutional share placement.
(iv) 55,443 expired LTIP shares were cancelled on 8 October 2018.
(iv) Proceeds from settlement of loan to acquire LTIP shares.
Cyclopharm Limited Annual Report 75
2019201820192018NotesNumberNumber$$Issued and paid up capitalOrdinary shares(a)78,238,398 68,698,873 36,909,161 27,238,193 Other contributed equity(b)- - (5,333,158) (5,333,158)Total issued and paid up capital78,238,398 68,698,873 31,576,003 21,905,035 (a) Ordinary sharesBalance at the beginning of the period68,698,873 68,254,316 27,238,193 26,884,885 (i)739,525 500,000 - - (ii)300,000 309,000 (iii)8,500,000 - 9,775,000 - (iii)- - (413,032)- (iv)- (55,443)- - (v)- - - 353,308 78,238,398 68,698,873 36,909,161 27,238,193 (b) Other contributed equity- - (5,333,158) (5,333,158) Balance at the beginning and end of the period Issue of shares via institutional placement Consolidated Share issue cost (net of tax) Balance at end of period Issue of Long Term Incentive Plan shares Cancellation of expired Long Term Incentive Plan shares Settlement of loan for Long Term Incentive Plan shares Issue of shares to settle obligations under put option
Notes
Continued
20. CONTRIBUTED EQUITY (continued)
When managing capital, management’s objective is to ensure the entity continues as a going
concern as well as to maintain optimal returns for shareholders and benefits for other
stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost
of capital available to the entity.
Management constantly assesses the capital structure to take advantage of favourable costs of
capital and/or high returns on assets. As the market is continually changing, management may
issue dividends to shareholders, issue new shares, increase the entity’s short or long term
borrowings or sell assets to reduce borrowings.
Management monitors capital through the gearing ratio (net debt/total capital). Management aims
to ensure that the Group’s gearing ratio does not exceed 45%. There are no banking covenants
as at 31 December 2019.
Dividends
During the current financial year, the Directors declared an unfranked interim dividend of 0.5 cent per
share in respect of the financial year ended 31 December 2019 and an unfranked final dividend of 0.5
cent per share in respect of the financial year ended 31 December 2018. During the 2018 financial
year, the Directors declared an unfranked interim dividend of 0.5 cent per share in respect of the
financial year ended 31 December 2018 and an unfranked final dividend of 0.5 cent per share in
respect of the financial year ended 31 December 2017.
The final unfranked dividend of 0.5 cent per share has not been recognised in these consolidated
financial statements as it was declared subsequent to 31 December 2019.
Cyclopharm Limited Annual Report 76
Consolidated20192018Notes$$Total interest bearing loans and borrowings- 58,985 Less: cash and cash equivalents8 (12,660,323) (5,854,959)Net interest bearing loans and borrowings / (cash) (12,660,323) (5,734,382)Total equity23,203,945 17,015,969 Gearing ratio0.0%0.3%2019201820192018 Cents per share Cents per share $$Fully paid ordinary sharesFinal dividend in respect of the previous financial year - No franking credits attached0.50 0.50 330,250 321,653 - No franking credits attached0.50 0.50 330,251 329,819 1.00 1.00 660,501 651,472 Consolidated Interim dividend in respect of the current financial year
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES
The Group’s principal financial instruments comprise receivables, payables, bank loans, cash and
short-term deposits. The Group manages its exposure to key financial risks, including interest rate
and currency risk in accordance with the Group’s financial risk management policy. The objective
of the policy is to support the delivery of the Group’s financial targets while protecting future
financial security.
The Group uses different methods to measure and manage different types of risks to which it is
exposed. These include monitoring levels of exposure to interest rate, foreign exchange risk and
assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing
analysis and monitoring of specified credit allowances are undertaken to manage credit risk,
liquidity risk is monitored through the development of future rolling cash flow forecasts.
The Board review and agrees policies for managing each of these risks as summarised below.
Primary responsibility for identification and control of financial risks rests with the Audit and Risk
Management Committee under the authority from the Board. The Board reviews and agrees
policies for managing each of the risks identified below, including for interest rate risk, credit
allowances and cash flow forecast projections. It is, and has been throughout the year under
review, the Group’s policy that no trading in financial instruments shall be undertaken.
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial liability and equity instrument are
disclosed in Note 2.
(a)
Interest rate risk
As the Group has moved into a low debt, strong cash position, the main interest rate risk is
now in cash assets exposure.
The following sensitivity analysis is based on the interest rate risk exposures in existence at
the Statement of Financial Position date.
At 31 December 2019, if interest rates had moved, as illustrated in the table below, with all
other variables held constant, pre-tax profit would have been affected as follows:
The movements in profit are due to possible higher or lower interest income from cash
balances.
Cyclopharm Limited Annual Report 77
20192018$$(Loss) / Profit before income tax+1.0% (100 basis points)126,396 57,960 -0.5% (50 basis points) (63,198) (28,980)Consolidated Judgements of reasonably possible movements:
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
At balance date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk:
(a) Interest rate risk (continued)
Cyclopharm Limited Annual Report 78
ConsolidatedTotalYear ended1 year or less 1 to 5 yearsMore than 5 years$$$$$$FINANCIAL ASSETSCash and cash equivalents80.35%- 12,660,323 - - - 12,660,323 Trade and other receivables9n/a3,979,595 - - - - 3,979,595 Total financial assets3,979,595 12,660,323 - - - 16,639,918 FINANCIAL LIABILITIESTrade payables, third parties15n/a2,632,362 - - - - 2,632,362 Leases, third party174.50%- - 172,582 697,017 4,052,866 4,922,465 Secured bank loans, third party164.30%- - - - - - Total financial liabilities2,632,362 - 172,582 697,017 4,052,866 7,554,827 Net exposure1,347,233 12,660,323 (172,582) (697,017) (4,052,866)9,085,091 ConsolidatedTotalYear ended1 year or less 1 to 5 yearsMore than 5 years$$$$$$FINANCIAL ASSETSCash and cash equivalents82.20%- 5,854,959 - - - 5,854,959 Trade and other receivables9n/a6,247,065 - - - - 6,247,065 Total financial assets6,247,065 5,854,959 - - - 12,102,024 FINANCIAL LIABILITIESTrade payables, third parties15n/a3,936,329 - - - - 3,936,329 Leases, third party170.50%- - 61,592 - - 61,592 Secured bank loans, third party164.30%- - 58,985 - - 58,985 Total financial liabilities3,936,329 - 120,577 - - 4,056,906 Net exposure2,310,736 5,854,959 (120,577)- - 8,045,118 Fixed interest maturing inWeighted average interest rate %31 December 201931 December 2018Floating interest rateNon interest bearingWeighted average interest rate %Non interest bearingFloating interest rateFixed interest maturing in
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(b) Credit risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash
equivalents and 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 does not hold any credit derivatives to offset its credit exposure.
The Group trades only with recognised, creditworthy third parties and as such collateral is
not requested nor is it the Group’s policy to scrutinise its trade and other receivables. It is
the Group’s policy that all customers who wish to trade on credit terms are subject to
credit verification procedures such as reviewing their industry reputation, financial position
and credit rating. In addition, receivable balances are monitored on an ongoing basis
with the result that the Group’s exposure to bad debts is constantly managed.
There are no significant unprovided concentrations of credit risk within the Group.
(c) Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank overdrafts and bank loans.
The Group has no borrowings as at 31 December 2019. At 31 December 2018, 100% of
the Group’s debt was due to mature in less than one year.
Refer to the table above with the heading 21 (a) Interest Rate Risk, which reflects all
contractually fixed pay-offs for settlement of financial liabilities and collection of financial
assets. Trade payables and other financial liabilities generally originate from the financing
of assets used in our ongoing operations such as investments in working capital e.g.
inventories and trade receivables and investment in property, plant and equipment. These
assets are considered in the Group’s overall liquidity risk. To monitor existing financial
assets and liabilities as well as to enable an effective controlling of future risks, the Board
and management monitor the Group’s expected settlement of financial assets and liabilities
on an ongoing basis.
The Group monitors the rolling forecast of liquidity reserves based on expected cash flow.
At balance date the Group has no unused credit facilities (2018: $nil).
(d) Commodity price risk
The Group’s exposure to commodity price risk is minimal.
Cyclopharm Limited Annual Report 79
ConsolidatedTotalYear endedNote$$$$$Trade payables, third parties152,632,362 - - - 2,632,362 Leases, third party1786,485 86,097 697,017 4,052,866 4,922,465 Secured bank loans, third party16- - - - - 2,718,847 86,097 697,017 4,052,866 7,554,827 Trade payables, third parties153,262,601 336,864 336,864 - 3,936,329 Leases, third party1730,796 30,796 - - 61,592 Secured bank loans, third party1629,493 29,492 - - 58,985 3,322,890 397,152 336,864 - 4,056,906 1 year to 5 yearsGreater than 5 years31 December 201931 December 20186 months to 1 yearLess than 6 months
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk
As a result of significant investment operations in Europe, the Group’s Statement of
Financial Position can be affected significantly by movements in the EURO / A$ exchange
rates. The Group does not hedge this exposure.
The Group also has transactional currency exposures. Such exposure arises from sales or
purchases by an operating unit in currencies other than the unit’s functional currency.
Approximately 83% (2018: 78%) of the Group’s sales are denominated in currencies other
than the functional currency of the operating unit making the sale, whilst approximately
54% (2018: 60%) of costs are denominated in the unit’s functional currency.
At 31 December 2019, the Group had the following financial instrument exposure to foreign
currency fluctuations:
Management believe the balance date risk exposures are representative of the risk exposure
inherent in the financial instruments.
Cyclopharm Limited Annual Report 80
20192018$$United States dollarsAmounts payable594,663 4,628,580 *Amounts receivable109,299 19,339 EurosAmounts payable191,107 303,270 Amounts receivable2,132,103 2,156,252 Canadian dollarsAmounts payable- 10,596 Amounts receivable562,159 301,079 Swedish KronersAmounts payable67,161 80,411 Amounts receivable391,166 571,480 Japanese YenAmounts payable10,033 13,821 Amounts receivable3,056 1,657 Net exposure (2,010,814)2,477,940 * includes forward exchange contract commitment.Consolidated
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk (continued)
Forward Exchange Contracts
The Company has not entered into foreign exchange forward contracts as at 31 December
2019. During the previous year, the Company was party to a foreign exchange forward
contract which was taken out as protection against possible future falls in the value of the
Australian dollar against the US Dollar.
Fair values
All of the Group’s financial instruments recognised in the Statement of Financial Position
have been assessed at their fair values using Level 1 inputs: Quoted prices (unadjusted) in
active markets for identical assets or liabilities that the entity can access at the measurement
date.
Foreign currency sensitivity
Currency risk is measured using sensitivity analysis. A portion of Cyclopharm’s receivables
and payables are exposed to movements in the values of those currencies relative to the
Australian dollar. Cyclopharm management have determined that it is not cost effective to
hedge against other foreign currency fluctuations.
Cyclopharm is most exposed to European Euro (Euro), Canadian Dollar (CAD), US Dollar
(USD) and Swedish Kroner (SEK) movements. The following table details Cyclopharm’s
sensitivity to a 10% change in the Australian dollar against those respective currencies with
all other variables held constant as at reporting date for unhedged foreign exposure risk. A
positive number indicates an increase in net profit/equity.
Cyclopharm Limited Annual Report 81
Notes
Continued
21. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk (continued)
A sensitivity has been selected as this is considered reasonable given the current level of
exchange rates and the volatility observed on a historic basis and market expectation for
future movement.
Cyclopharm Limited Annual Report 82
Increase in AUD of 10%Decrease in AUD of 10%$$EuroNet (loss) / profit (171,487)188,636 Equity (decrease) / increase (171,487)188,636 Net (loss) / profit (168,453)185,298 Equity (decrease) / increase (168,453)185,298 CADNet (loss) / profit (51,105)56,216 Equity (decrease) / increase (51,105)56,216 Net (loss) / profit (26,408)29,048 Equity (decrease) / increase (26,408)29,048 USDNet profit / (loss)44,124 (48,536)Equity increase / (decrease)44,124 (48,536)Net (loss) / profit419,022 (460,924)Equity (decrease) / increase419,022 (460,924)SEKNet (loss) / profit (29,455)32,401 Equity (decrease) / increase (29,455)32,401 Net (loss) / profit (44,643)49,107 Equity (decrease) / increase (44,643)49,107 31 December 201931 December 201831 December 201931 December 201831 December 201931 December 2018Consolidated31 December 201931 December 2018
Notes
Continued
22. COMMITMENTS & CONTINGENCIES
(a) Capital commitments
Cyclopharm has entered into agreements to fund research projects with unrelated
institutions. The commitments for these projects total $423,473 and will be expensed when
incurred. Payments will be made based on the achievement of certain milestones.
There were no other capital commitments as at the date of this report (2018: $nil).
(b) Contingent liabilities
In December 2019, a business venture collaboration agreement combined CycloPet Pty Ltd
and Pettech Solutions Limited’s cyclotron facilities under a single operating enterprise known
as Cyclotek NSW Pty Limited (“Cyclotek NSW”). Cyclopharm and Cyclotek NSW have
entered into a sub-lease agreement as tenants in common whereby Cyclotek NSW is solely
responsible for the tenant’s obligations except for make good obligations until such time as it
exercises the right to transfer its interest as tenant in common to Cyclopharm. Being a
tenant in common, Cyclopharm’s contingent liabilities as at 31 December 2019 amounts to
$3,366,657 if Cyclotek NSW is unable to fulfil its obligations as tenant. The amount
comprises payments under a sub-lease agreement commencing 1 January 2020 until the
expiry of two options to renew expiring on 31 December 2039.
There were no other contingent liabilities as at the date of this report (2018: $2,838,442). In
December 2019, Cyclopharm issued 300,000 ordinary shares in exchange for the
termination of a put option to a 50% shareholder of Macquarie Medical Imaging Pty Limited
(“MMI”). The cost had the put option been exercised at 31 December 2018 was estimated
not to exceed $2,838,442.
23. RELATED PARTY DISCLOSURES
The consolidated financial statements include the financial statements of Cyclopharm and its
subsidiaries as listed below. Balances and transactions between the Company and its
subsidiaries, which are related parties of the Company have been eliminated on consolidation
and are not disclosed in this note.
The following table provides the total amount of transactions that were entered into with related
parties for the relevant financial year (for information regarding outstanding balances at year-
end, refer to Note 9 Trade and Other Receivables, Note 15 Trade and Other Payables and Note
16 Interest Bearing Loans and Borrowings):
Ultimate parent entity
Cyclopharm Limited is the ultimate parent entity in the wholly owned group.
Cyclopharm Limited Annual Report 83
Sales to related parties Purchases from related parties Amounts owed by/ (to) related parties Provision for doubtful debts on Amounts owed by related parties CONSOLIDATED$$$$Cell Structures Pty Ltd2019- 51,935 (28,611)- 2018- 51,000 (28,050)- Macquarie Medical Imaging2019- - - - 2018- - 230,782 230,782
Notes
Continued
23. RELATED PARTY DISCLOSURES (continued)
Terms and conditions of transactions with related parties
• During the year, payments of $51,935 (2018: $51,000) were made to Cell Structures Pty Ltd
(an entity controlled by Director, Mr. Tom McDonald). All payments relate to Mr. McDonald’s
role as a non-executive director including consultancy services provided by him.
• CycloPet Pty Ltd, a wholly owned subsidiary of Cyclopharm has a 20% interest in Macquarie
Medical Imaging. Prior to ceasing commercial operations at the end of April 2014, CycloPet
manufactured products that were sold to Macquarie Medical Imaging Pty Ltd. As the trade
debtor balance of $230,782 as at 31 December 2018 was not expected to be repaid in the
short term, it was included as an interest in the associate and a share of the associate’s
losses had been recognised under the equity method in the 2014 financial year. This
amount has been written off as unrecoverable upon MQ Health taking over the business
operations of Macquarie Medical Imaging Pty Ltd from 7 December 2019. Refer to Note 13
for details of the investment in the associate.
Transactions between related parties are at normal commercial prices and on normal
commercial terms and conditions no more favourable than those available to other parties
unless otherwise stated.
Cyclopharm Limited Annual Report 84
Notes
Continued
23. RELATED PARTY DISCLOSURES (continued)
Controlled Entities
24. EVENTS AFTER THE BALANCE DATE
FINAL DIVIDEND
On 26 February 2020, the Directors declared a final unfranked dividend of 0.5 cent per share in
respect of the financial year ended 31 December 2019, payable on 7 April 2020.
No other matters or circumstances have arisen since the end of the financial year, not otherwise
dealt with in the financial report, which significantly affected or may significantly affect the
operations of the economic entity, the results of those operations, or the state of affairs of the
economic entity in future financial periods.
Cyclopharm Limited Annual Report 85
Name Note Country of Incorporation 20192018Cyclopharm Limited1,2AustraliaControlled entitiesCycloPET Pty Ltd2 Australia 100%Cyclomedica Australia Pty Limited2 Australia100%100%Cyclomedica Ireland Limited3 Ireland100%100%Cyclomedica Europe Limited3 Ireland100%100%Inter Commerce Medical bvba4 Belgium100%100%Medicall Analys AB5 Sweden100%100%Cyclomedica Germany GmbH6 Germany100%100%Cyclomedica Canada Limited7 Canada100%100%Cyclomedica USA LLC8 United States of America 100%0%Cyclomedica UK Ltd9 United Kingdom100%0%Notes1.2.3.Audited by Andrew P.Quinn & Associates Limited, Republic of Ireland.4.5.6.7.Audited by Schwartz Levitsky & Feldman LLP, Toronto, Canada.8.Dormant9.Dormant Percentage of equity interest held Cyclopharm Limited is the ultimate parent entity in the wholly owned group.Audited by Nexia Sydney Audit Pty Ltd, Australia.Audited by HLB Dodemont - Van Impe, Belgium, acquired on 1 October 2017.Audited by Nexia Revision, Stockholm, Sweden, acquired on 1 May 2018.Audited by Bilanzia GmbH Wirtschaftsprufungsgesellschaft, Germany.
Notes
Continued
25. AUDITORS’ REMUNERATION
The following total remuneration was received, or is due and receivable, by auditors of the
Company in respect of:
26. DIRECTOR AND KEY MANAGEMENT PERSONNEL DISCLOSURE
Individual Directors and executives compensation disclosures
Information regarding individual Directors and executives’ compensation and some equity
instruments disclosures as required by Corporations Regulation 2M.3.03 are provided in the
Remuneration Report Section of the Directors’ report.
Summary of remuneration of Directors & Key Management Personnel:
Short-term salary, bonus, fees and leave
These amounts include fees and benefits paid to the non-executive Chair and non-executive
directors as well as salary, paid leave benefits, fringe benefits and cash bonuses awarded to
executive directors and other Key Management Personnel.
Cyclopharm Limited Annual Report 86
20192018$$Audit and review of the financial statements164,016 140,052 Other services:- tax compliance15,448 10,901 - share registry38,784 28,618 218,248 179,571 Audit of the financial statements of controlled entities127,704 108,501 Other services94,471 66,440 222,175 174,941 Amounts received or due and receivable by other audit firms for:ConsolidatedAmounts received or due and receivable by the auditor of the parent entity and associated entities for: Post employment benefits Other Long-term benefits Share-based payment Total Salary & Fees Cash Bonus Superannuation Consolidated$$$$$$2019783,003 80,000 64,416 6,616 359,818 1,293,853 2018760,504 77,000 61,900 5,371 27,450 932,225 Short-term employee benefits
Notes
Continued
26. DIRECTOR AND KEY MANAGEMENT PERSONNEL DISCLOSURE (continued)
Post-employment benefits
These amounts are the current-year’s estimated cost of providing for superannuation
contributions made during the year.
Other long term benefits
These amounts represent long service leave benefits accruing during the year.
Termination benefits
These amounts represent termination benefits paid out during the year.
Share based payment expense
These amounts represent the expense related to the participation of Key Management
Personnel in equity-settled benefit schemes as measured by the fair value of the Implied
Options granted on grant date.
Further information in relation to Key Management Personnel remuneration can be found in the
Directors’ Report.
27. SHARE BASED PAYMENT PLANS
(a) Recognised share-based payment expenses
The expense recognised for employee services received in relation to share based
payments during the year is shown in the table below:
The share-based payment reserve at 31 December 2019 was $1,041,373 (2018: $663,005).
(b) Share-based payment other than implied options
i) During the year, the Company issued shares to settle a contingent liability in relation to
Macquarie Medical Imaging Pty Limited (“MMI”) as set out in Note 13 (b), and
ii) During the year, the Company issued 269,911 LTIP shares to the Managing Director for
nil consideration. These shares are freely traded on and from the date of issue as
approved by shareholders on 21 May 2019.
Cyclopharm Limited Annual Report 87
20192018$$378,368 37,967 Consolidated Expense arising from equity-settled share-based payment transactions (note 5)
Notes
Continued
27. SHARE BASED PAYMENT PLANS (continued)
(c) Type of share based payment plans
The share-based payment plan is described below. There have not been any modifications to
the Long-Term Incentive Plan (“Plan”) following its approval by members at the Annual General
Meeting held on 8 May 2007 other than an amendment to allow allotment or transfer of Plan
shares to an entity wholly owned and controlled by the participant. The amendment was
approved by members at the Annual General Meeting held on 26 May 2015. An updated Plan
was approved by members at the Annual General Meeting held on 29 May 2018.
Shares
Long Term Incentive Plan (“Plan”) Shares (“Shares”) are granted to certain Directors and certain
employees.
In valuing transactions settled by way of issue of shares, performance conditions and market
conditions linked to the price of the shares of Cyclopharm Limited are taken into account. All
shares issued have market performance conditions so as to align shareholder return and reward
for the Company’s selected management and staff (“Participants”).
The Shares vest upon the satisfaction of certain performance conditions (“Hurdles”) within the
term (“Term”) specified for Participants in the Plan. The Board has residual discretion to
accelerate vesting (i.e. reduce or waive the Hurdles) and exercise of Shares in the event of a
takeover or merger or any other circumstance in accordance with the terms of the Plan.
Shares in relation to which Hurdles have not been satisfied (i.e. that do not vest) will lapse and
will not be able to be exercised, except in the circumstances described below. Shares which
have not vested will lapse where a Participant ceases employment with Cyclopharm other than
on retirement, redundancy, death or total and permanent disablement or unless as otherwise
determined by the Board in its absolute discretion.
Where a Participant has ceased employment with Cyclopharm as a result of resignation,
retirement, redundancy, death or total and permanent disablement prior to the end of a
performance period, only shares that have vested may be retained by the Participant on a pro-
rata basis. If a Participant ceases employment for any reasons mentioned above prior to the first
anniversary of the grant date, the Participant forfeits all entitlement to Shares.
LTIP Shares issued
At the Annual General Meeting held on 8 May 2007, Shareholders approved the Company’s
Plan with an updated Plan approved by Shareholders on 29 May 2018.
Implied Options
AASB 2 Share Based Payments requires that the benefit to an employee arising from an
employee share scheme such as the Cyclopharm Long Term Incentive Plan be treated as an
expense over the vesting period. All of the issues of Plan shares have been treated as Plan
Share Options (“Implied Options”) in accordance with AASB 2. The employee benefit is deemed
to be the Implied Option arising from the Plan. Consequently, the value of the discount which
has been determined using the Black Scholes option pricing model will be charged to the
Statement of Comprehensive Income and credited to the Employee Equity Benefits Reserve
over the vesting period.
Where employee shares are issued under a non-recourse loan payment plan, the loan assets
and the increments to Contributed Equity are not recognised at grant date but rather the
increments to Contributed Equity are recognised when the share loans are settled by the
relevant employees.
Cyclopharm Limited Annual Report 88
Notes
Continued
27. SHARE BASED PAYMENT PLANS (continued)
(d) Summary of Options and Implied Options granted
The following table summarises the movements in Options during the current year:
(i) No LTIP shares (2018: 138,000) vested during the year.
(e) Range of exercise price, weighted average remaining contractual life and weighted
average fair value
The weighted average exercise price for Options at the end of the year was $0.92 (2018: $1.35). The
weighted average remaining contractual life for the Options outstanding as at 31 December 2019 is
3.93 years (2018: 2.13 years). The weighted average fair value of Options granted during the year
was $0.98 (2018: $0.153).
(f) Option pricing models
The following assumptions were used to derive a value for the Options granted using the Black
Scholes Option model as at the grant date, taking into account the terms and conditions upon which
the Shares were granted:
Expected volatility percentages used for the Option pricing calculations were determined using
historic data over 24 months and were adjusted to reflect comparable companies in terms of industry
and market capitalisation. The Options arising from the Plan are not listed and as such do not have
a market value.
Cyclopharm Limited Annual Report 89
Weighted AverageWeighted AverageExercise PriceExercise Price2019201820192018NumberNumber$$725,000 363,000 1.35 1.01 669,614 500,000 0.45 1.55 (i) - (138,000)- 1.20 1,394,614 725,000 0.92 1.35 1,923,962 1,923,962 ConsolidatedConsolidated Balance at the beginning of the year Granted during the year Vested but unexercised during the year Vested but unexercised at the end of the year Balance at the end of the year Exercise price per Option$0.00$1.50$0.00Number of recipients1 2 1 Number of Options200,000 200,000 269,614 Grant Date27/05/1930/05/1911/12/19Dividend yield- - - 42.99%42.99%42.99%Risk-free interest rate1.23%1.23%0.80%6.18 years2 years2.5 years$1.431$0.366$1.065$1.47$1.49$1.065Expensed at market price at grant date over expected life of OptionBlack ScholesExpensed at market price at grant date over expected life of Option Expected life of Option (years) Fair value per Option Share price at grant date Model used Expected annual volatility
Notes
Continued
28. PARENT ENTITY DISCLOSURE
29. RESERVES
Nature and purpose of reserves:
(a) Employee equity benefits reserve
The employee share based payments reserve is used to record the value of share based
payments provided to employees, including key management personnel, as part of their
remuneration.
(b) Foreign currency Translation Reserve
The foreign currency translation reserve is used to record exchange differences arising from
the translation of the financial statements of foreign subsidiaries.
Cyclopharm Limited Annual Report 90
20192018$$(i)AssetsCurrent Assets10,335,490 6,205,679 Non-current Assets22,410,228 14,689,676 Total Assets32,745,718 20,895,355 LiabilitiesCurrent Liabilities180,645 560,499 Non-current Liabilities10,469,275 8,856,700 Total Liabilities10,649,920 9,417,199 Net assets22,095,798 11,478,156 EquityContributed equity31,776,534 22,105,568 Employee equity benefits reserve1,041,373 663,005 Accumulated Losses (10,722,109) (11,290,417)Total Equity22,095,798 11,478,156 (ii)Financial PerformanceProfit for the year953,905 1,819,490 Other comprehensive income- - Total Profit for the year953,905 1,819,490 Financial Position
Directors’ Declaration
In the opinion of the Directors of Cyclopharm Limited:
1.
(a)
The financial statements and notes of the consolidated entity as set out on pages 36 to 90
are in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 31
December 2019 and of its performance for the year ended on that date; and
complying with Accounting Standards which, as stated in accounting policy Note
2(a) to the financial statements, constitutes explicit and unreserved compliance
with International Financial Reporting Standards (IFRS); and
(b)
There are reasonable grounds to believe that the consolidated entity will be able to pay its
debts as and when they become due and payable.
2.
The Directors have been given the declarations required by section 295A of the Corporations Act
2001 from the chief executive officer and chief financial officer for the financial year ended 31
December 2019.
Signed in accordance with a resolution of the Directors:
James McBrayer
Managing Director and CEO
Sydney, 31 March 2020
Cyclopharm Limited Annual Report 91
Independent Auditor’s Report to the Members of Cyclopharm Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Cyclopharm Limited (the Company and its subsidiaries (the Group)), which
comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for
the year then ended, and notes to the financial statements, including a summary of significant accounting policies,
and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
i) giving a true and fair view of the Group’s financial position as at 31 December 2019 and of its financial
performance for the year then ended; and
ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the ‘auditor’s responsibilities for the audit of the financial report’ section of our
report. We are independent of the entity in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report of the current period. These matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Capitalised Development Costs for Ultralute
($2,418,900)
Our audit procedures on the Ultralute development costs
included, amongst others:
Refer to note 14
Included in the Group’s intangible assets are capitalised
development costs $2,418,900 in respect of the Ultralute
product. Capitalised Ultralute development costs are
considered to be a key audit matter due to the quantum of
the asset; the degree of management judgement and
assumptions applied in measuring the carrying value of the
asset; and assessing the presence of impairment of a
development phase asset.
We assessed the project against the requirements for
capitalisation contained in AASB 138 Intangible Assets.
We tested material expenditure capitalised during the
year and checked that they were appropriately
allocated to the development asset.
We assessed management’s determination of the
Group’s cash generating units based on our
understanding of the nature of the Group’s business
and how earnings streams are monitored and reported.
Cyclopharm Limited Annual Report 92
Cyclopharm Limited Annual Report 105
Key audit matter
How our audit addressed the key audit matter
The most significant and sensitive judgments incorporated
into the assessment for impairment of capitalised
development costs include projections of cash flows,
discount rates applied and assumptions regarding the
Group’s ability to exploit new markets.
Other considerations and judgments include whether the
capitalised costs qualify for capitalisation as development
phase costs in accordance with AASB 138 Intangible
Assets. This includes an understanding of the Group’s
process for recording and measuring internally developed
assets and the Group's ability to complete the
development and demonstrate its ability to generate future
cash flows from that asset.
Other information
We tested the Group’s assumptions and estimates used
to determine the recoverable value of its assets,
including those relating to forecast revenue, cost,
capital expenditure, and discount rates by
corroborating the key market related assumptions to
external data and by reference to our understanding of
the business.
We performed sensitivity analysis in two main areas to
assess whether the carrying value of the capitalised
development costs exceeded its recoverable amount.
These were the discount rate and growth assumptions.
The directors are responsible for the other information. The other information comprises the information in
Cyclopharm Limited’s annual report for the year ended 31 December 2019, but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial report or our knowledge
obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of the other
information we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the entity’s ability 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 entity or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibility for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at The Australian Auditing
and Assurance Standards Board website at: www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description
forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 23 to 33 of the directors’ Report for the year ended
31 December 2019.
Cyclopharm Limited Annual Report 106
In our opinion, the Remuneration Report of Cyclopharm Limited for the year ended 31 December 2019, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Nexia Sydney Audit Pty Limited
Andrew Hoffmann
Director
Dated: 31 March 2020
Sydney
ASX Additional Information
Cyclopharm Limited Annual Report 95
ShareholderNo. of ordinary shares heldPercentage held of issued ordinary capitalAnglo Australian Christian and Charitable Fund13,211,332 16.89%Barings Acceptance Limited11,433,424 14.61%8,600,000 10.99%8,147,592 10.41%8,000,000 10.23%6,965,868 8.90%CategoryOrdinary ShareholdersPercentage held of issued ordinary capital1 - 1,0001220.08%1,001 - 5,0002851.08%5,001 - 10,0001371.36%10,001 - 100,0001807.02%100,001 and over4290.46%Total766 100.00%Number heldPercentage of issued shares1Anglo Australian Christian and Charitable Fund13,211,332 16.89%2Barings Acceptance Limited11,433,424 14.61%38,600,000 10.99%48,147,592 10.41%58,000,000 10.23%66,965,868 8.90%7McBrayer Reid Investments Pty Ltd 1,721,554 2.20%81,176,470 1.50%9Lloyds & Casanove Investment Partners Limited975,965 1.25%10Mr James McBrayer861,728 1.10%11Mr James McBrayer861,728 1.10%12South Seas Holdings Pty Ltd675,000 0.86%12Melbourne Corporation Of Australia Pty Ltd667,376 0.85%(Super Fund A/c)14City & Westminster Limited544,789 0.70%15Malackey Holdings Pty Ltd420,220 0.54%16Mr Anthony Rex Morgan & Mrs Elena Morgan410,000 0.52%17Melbourne Corp Of Australia Pty Limited400,000 0.51%18Melbourne Corporation Of Australia Pty Ltd350,000 0.45%(Super Fund A/c)19Sydney Schools Pty Limited300,500 0.38%20Macquarie Connect Pty Limited300,000 0.38%66,023,54684.39%Other equity security holders12,214,85215.61%Total 78,238,398100.00%D. VOTING RIGHTSHSBC Custody Nominees (Australia) Limited - A/c 2National Nominees LimitedChemical Overseas LimitedNational Nominees LimitedTwenty largest quoted equity security holdersOrdinary sharesB. DISTRIBUTION OF EQUITY SECURITY HOLDERSC. EQUITY SECURITY HOLDERS(ii) There were 58 holders of less than a marketable parcel of ordinary shares.(i) Analysis of numbers of equity security holders by size of holding as at 28 February 2020The Company's constitution details the voting rights of members and states that every member, present in person or by proxy, shall have one vote for every ordinary share registered in his or her name.HSBC Custody Nominees (Australia) Limited - A/c 2Chemical Overseas LimitedCVC Limited CVC Limited Chemical Trustee LimitedThe following have advised that they have a relevant interest in the capital of Cyclopharm Limited. The holding of a relevant interest does not infer beneficial ownership . Where two or more parties have a relevant interest in the same shares, those shares have been included for each party.The following information is current at 28 February 2020A. SUBSTANTIAL SHAREHOLDERS
General Information
Directors
David Heaney
Non-Executive Chairman
James McBrayer
Managing Director & CEO
Thomas McDonald
Non-Executive Director
Company Secretary
James McBrayer
Registered Office
Cyclopharm Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
T: 02 9541 0411
F: 02 9543 0960
Auditors
Nexia Sydney Audit Pty Limited
Level 16, 1 Market Street
Sydney NSW 2000
Cyclomedica Australia Pty
Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
T: 02 9541 0411
F: 02 9543 0960
Share Registry
NextRegistries
Level 16, 1 Market Street
Sydney NSW 2000
T: 02 9276 1700
F: 02 9251 7138
Bankers
National Australia Bank
Level 21, 255 George Street
Sydney NSW 2000
Solicitors
HWL Ebsworth
Level 19, 480 Queen Street
Brisbane QLD 4001
Securities Exchange Listing
The ordinary shares of
Cyclopharm Limited are listed on
the Australian Securities
Exchange Ltd (code: CYC).
Corporate Governance
Statement
http://cyclopharm.com/corporate-
governance/
CycloPET Pty Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
Cyclomedica Canada Limited
35 Main St N Suite 23,
Waterdown,
Ontario L0R 2H0
Canada
Cyclomedica Germany GMBH
Lützenkirchener Str. 410
51381 Leverkusen
Germany
Cyclomedica Europe
Unit A5,
Calmount Business Park
Ballymount
Dublin 12, D12 AX06
Ireland
Inter Commerce Medical bvba
Stoksebaan 14
Vosselaar, 2350
Belgium
Medicall Analys AB
Gustavslundsvagen 145 plan 3
Bromma, 16751
Sweden
Cyclopharm Limited Annual Report 96
This page has been intentionally left blank.
Cyclopharm Limited Annual Report 97