dorsaVi
Annual Report 2020

Plain-text annual report

dorsaVi Ltd and controlled entities ABN: 15 129 742 409 APPENDIX 4E - YEAR ENDED 30 JUNE 2020 dorsaVi Ltd and controlled entities APPENDIX 4E PRELIMINARY FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2020 Provided to the ASX under listing rule 4.3A ABN: 15 129 742 409 ASX CODE: DVL dorsaVi Ltd and controlled entities ABN: 15 129 742 409 APPENDIX 4E - YEAR ENDED 30 JUNE 2020 CONTENTS Appendix 4E Details of the reporting period and the previous corresponding period Results for Announcement to the Market Explanation of Results Statement of Accumulated Losses Details of entities over which control has been gained or lost during the period Audit of the Financial Report Attachment Annual Report for the year ended 30 June 2020 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 APPENDIX 4E - YEAR ENDED 30 JUNE 2020 Details of the reporting period and the previous corresponding period Reporting period: Year ended 30 June 2020 Previous corresponding period: Year ended 30 June 2019 Results for announcement to the market Revenue 2,397,059 3,223,869 (826,810) ($) ($) ($) (%) (26%) June 2020 June 2019 Change Change Loss from ordinary activities after tax attributable to members (7,593,079) (4,020,751) (3,572,328) 89% Loss for the period attributable to members (7,593,079) (4,020,751) (3,572,328) 89% Net Tangible asset per share Explanation of Results June 2020 (cents) June 2019 (cents) 0.20 1.43 Change (cents) (1.23) dorsaVi Ltd was impacted in the 6 months to 30 June 2020 by the COVID-19 pandemic and focused on: protecting its people, maintaining recurring revenue and controlling cost. Total revenue decreased 26% year on year with most of this decline occurring in the six months to 30 June 2020. The loss from continuing operations after income tax for the 2019 financial year was $7,593,079 (2019: $4,020,751), an increase of 89% on the 2019 financial year. Total expenditure was $10,447,502 for the 2020 financial year (2019: $7,811,269). The 2020 expenditure includes a provision for impairment of intangible assets of $4,018,354 (2019: $nil). The Directors have assessed the $4,018,354 carrying value of its Intangible Assets (patents and capitalised development expenditure) for impairment based on value in use calculations. Given the recent change in the Group’s business strategy (i.e. transition to a Software as a Service (SaaS) recurring revenue strategy), the Group’s forecasts have been updated based upon reasonable and prudent assumptions including growth rates, discount rates and terminal values. This has resulted in a provision for impairment of $4,018,354. The directors believe that the recurring revenue business strategy will maximise the group’s growth and financial performance prospects, and, should future performance exceed the forecasts, the current impairment provision may be reversed in future periods. Without the provision for impairment total expenditure for 2020 would have been $6,429,148 (2019: $7,811,269). This reduction of $1,382,121 was largely due to cost control measures undertaken by the Group throughout the financial year with employee benefits expense reducing 24% to $3,040,365 (2019: $3,979,898). During the financial year there were no returns to shareholders in any form. This report should be read in conjunction with any public announcements made by dorsaVi Ltd in accordance with the continuous disclosure requirements arising under the Corporations Act 2001 and ASX Listing Rules. The information provided in this report contains all the information required by ASX Listing Rule 4.3A. dorsaVi Ltd and controlled entities ABN: 15 129 742 409 APPENDIX 4E - YEAR ENDED 30 JUNE 2020 Consolidated Statement of Profit or Loss and Other Comprehensive Income Refer to the attached annual report Consolidated Statement of Financial Position Refer to the attached annual report Consolidated Statement of Changes in Equity Refer to the attached annual report Consolidated Statement of Cash Flows Refer to the attached annual report Dividends The board has declared no dividend for the years ended 30 June 2020 (2019: $Nil). There are no dividend reinvestment plans in operation. Statement of Accumulated Losses Consolidated Entity 2020 $ 2019 $ Balance at the beginning of year (33,315,228) (29,769,466) Net loss attributable to members of the parent entity Reversal of share-based payment reserve Total available for appropriation Dividends paid Balance at end of year (7,593,079) 53,730 (40,854,577) (4,020,751) 474,989 (33,315,228) - - (40,854,577) (33,315,228) Details of entities over which control has been gained or lost during the period There was no gain or loss in control of entities during the year ended 30 June 2020. Audit of the Financial Report The financial report has been audited and an unqualified opinion has been issued with an Emphasis of Matter in relation to Going Concern. Date: 26 August 2020 Finance Disclosure Committee dorsaVi Ltd ANNUAL REPORT 2020 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 dorsaVi Ltd (ABN: 15 129 742 409) Annual Report For the Year Ended 30 June 2020 CONTENTS CHAIRMAN’S REVIEW CEO REPORT FINANCIAL REPORT Financial Report Directors’ Report Auditor’s Independence Declaration Financial Report for the Year Ended 30 June 2020 Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of dorsaVi Ltd Shareholder Information dorsaVi Annual Report 2020 3 5 10 11 12 27 28 32 61 62 68 2 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CHAIRMAN’S REVIEW Dear Shareholders I am pleased to present dorsaVi Ltd’s (dorsaVi) 2020 annual report to our shareholders. With workplace health costs growing at unsustainable rates and injuries in the workplace continuing to be a major issue, efficient, technology-based solutions aiming to reduce health costs and minimise injuries in the workplace are attractive offerings. dorsaVi’s data driven solutions have been shown to improve health outcomes in clinical trials and reduce injuries in workplaces. dorsaVi is therefore very well positioned to expand their product uptake through the major markets. FY20 was a year of adapting to change for dorsaVi considering Coronavirus (COVID-19). The Company continued to focus on building recurring revenue, reducing costs through operational changes and navigating the challenges posed by COVID- 19. The Company has been able to show continued growth in challenging circumstances, growing recurring revenue through FY20, with the workplace market showing stronger resilience than the clinical market and noting that there was a reduction in total revenues during FY20 of close to 20%. The relocation of our CEO, Andrew Ronchi, to the US market, has allowed the Company to gain an in-depth knowledge of the US workplace and clinical markets and to focus on strategic deals with major corporates. The appointment of our General Manager of Operations, Matthew May, has allowed a focus on business operations and cost efficiency. Our Chief Technical Officer, David Erikson, is providing senior product guidance for the architectural design for dorsaVi’s current and future products to ensure that the Company’s products are in line with global medical device and data security requirements. The operational changes made in FY19 to reduce costs have been continued into FY20 and have been made even more stringent, especially during COVID-19 times. The Company’s non-executive directors received shareholder approval at the 2019 AGM, to accept options in lieu of directors’ fees, applicable from 1 March 2019. All staff across the Company have taken a reduction to their usual hours during COVID-19 and the executive team have taken significant salary reductions to assist the Company through this unprecedented time. I would like to thank the Directors, executive team and the dorsaVi staff for accepting these changes during this difficult time and acknowledge the support of both the Australian and the US Governments in supporting businesses with Government stimulus packages during this time. During FY20, the Company signed important deals in the workplace market including BHP Australia, PERMA (New York insurer), Northwell Health, VISY Board and Sydney Water, some of which are repeat customers. Many of our workplace clients have expanded their myViSafe™ offering across their wider business, providing evidence that the recurring revenue product is well positioned to scale. Workplace recurring revenue has stayed firm during the COVID-19 period with most customers continuing to pay their monthly subscriptions for the use of myViSafe™. In the last quarter of FY20, dorsaVi secured a partnership with major workers compensation insurer, QBE Australia. Insurers continue to be an important channel partner for dorsaVi, introducing our technology and data insights to companies with an appetite to reduce manual handling injuries. This deal assists both the insurer and its clients, as it can lead to fewer claims and lower premiums. In the clinical market the effect of COVID-19 was more immediate as some of our clinical customers requested their subscriptions be put on hold. We also saw a temporary slowing of new sales, noting that later in Q4 sales activity started to build again. There continues to be demand, especially in the US market, for dorsaVi’s data driven clinical solutions, Professional Suite™ and Movement Suite™, with the most popular module being the Athletic Movement Index. The large clinical franchise groups in the US market continue to be a major strategic opportunity for dorsaVi, with some of these groups piloting the dorsaVi products. One group, Select Medical, has dorsaVi products in over 75 of their 2,000 sites. Other strategic deals in the clinical market include a 2nd stage deal with Stryker, and a new pilot project with Medtronic. These synergistic projects with global medical device companies are further evidence that the data insights captured and interpreted by dorsaVi’s technology provide valuable and clinically relevant data for clinical practice. dorsaVi Annual Report 2020 3 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 We look forward to the new financial year knowing that sales activity has risen through Q4, hoping to leverage this trend into next year. We have put in place a frugal cost structure to ensure we protect our valuable cash reserves during these uncertain times. We will continue to focus on growing our recurring revenue in both the workplace and the clinical markets. We are optimistic that we will be able to execute on our strategies and will continue to update shareholders on our progress. On behalf of my fellow Board members, I would like to thank CEO, Andrew Ronchi, and his team for their hard work, their adapting to change and their dedication to dorsaVi. The Company’s leading technologies can assist patient’s recovery and drive improvement in workplace practices with the goal of reducing injuries in the workplace. To our shareholders, we are grateful for your continued support. Greg Tweedly Chairman dorsaVi Annual Report 2020 4 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CEO REPORT Introduction The FY20 has been a year that has demanded change and the necessity to adapt to a ‘new normal’ given the economic consequences of a global Coronavirus (COVID-19) pandemic. COVID-19 has increased the need for the adoption of digital solutions on the health and safety culture of the workplace. This has highlighted the need for companies to adapt to delivering both health and safety services and solutions remotely. dorsaVi has worked diligently over the past 3 years to ensure that our products are deliverable remotely, sold online and that our data is handled in an automated fashion, direct to the user. The dorsaVi business model is demonstrating resilience and leading through this period, evidenced by our recently released Q4 results. The Company modelled different scenarios of how COVID-19 could impact the business and we have been pleased with the retention of the recurring revenue through this period, with Q4 recurring revenue showing growth on Q3. This helps to validate the sticky nature of our recurring revenue, and the high value placed on our products by our existing customers. The other factor that allows dorsaVi to look forward with some optimism is that we have a diversified sales strategy across three geographies, the UK, US and Australia. As we have recently experienced in Victoria, the COVID-19 impact is unpredictable with more stringent lockdown measures implemented in Victoria. In the US, each state is determining their own management of COVID-19 and are broadly re-opening. This is important to dorsaVi as a significant portion of its recurring revenue is generated in the US market. dorsaVi has been focused on four strategic initiatives for FY20: i) growing recognised recurring revenue; ii) reducing cost of goods sold); iii) driving operational efficiencies; and iv) innovating product and systems in-line with market and data privacy requirements. This typically includes: i) Growth in Recognised Recurring Revenue (RRR) It is important to acknowledge that while total revenue for FY20 reduced by 19.7% when compared to FY19, recurring revenue grew by 17.4%. The Company’s strategy to transition from a heavy historical reliance on consulting revenue to a more sustainable Software-as-a-Service (SaaS) recurring revenue provides some background to this result. Our RRR for FY20 (unaudited) was $1.5m, an increase of 17.4% to FY19 ($1.28m). From a workplace product perspective, recurring revenue grew 69% on FY19 (increasing from $303k FY19 to $513k FY20). This growth is a direct result of companies engaging in dorsaVi’s myViSafe™ product, signing on to utilise the small, wearable sensors and an App-based product that allows safety professionals and corporations to manage injuries in a more efficient and engaging way. Figure 1: Growth in recurring revenue over the past 4 years The drivers for continued growth of recurring revenue include: aligning pricing models for core products with a focus on subscription fees and longer term contracts; continued focus on the large US workplace and clinical markets; continued engagement of a US based marketing agency to customise marketing initiatives in this growth market; and the focus on selling Professional Suite™ (clinical) and myViSafe™ (workplace) products (our SaaS style products). in recurring the year-on-year growth Aligned with revenue, retention of our products in the market is an important factor. Positively, the retention rate for our products has remained strong during the difficult COVID- 19 environment. The clinical product has a retention rate of >80%, while the workplace product’s retention rate has maintained a strong >90%. dorsaVi Annual Report 2020 5 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 ii) Reducing Cost of Goods Sold (COGS) As recurring revenue increases and operational efficiencies are improved across the business, we will continue to work hard to drive the reduction in COGS annually. This will ensure that once dorsaVi reaches a cash neutral position there is a healthy margin on our products. Our COGS have reduced from 30.8% in FY17 to 4.8% in FY20, which is an outstanding result, noting the effect of COVID-19 in reducing the consulting revenue faster than anticipated (which has a higher COGS than our subscription revenue products). We anticipate COGS as a percentage of sales would be in the 8-10% range as consulting revenue increases coming out of the COVID-19 period. Figure 2: Reduction in COGS over the past 4 years There are four factors that are driving the reduction in COGS and each of these are sustainable and significantly improve the overall efficiency of dorsaVi’s business. The four factors are noted below: a) Transitioning from consulting to subscription based revenue: Historically, the consulting projects for the workplace market involve additional time on site, scoping of jobs with the customer, data analytics and interpretation, and the delivery of the report/solution in a workshop. These projects usually have a COGS of 35- 40% and it’s been critical to ensure the value of the data and analytics for our customers. The future for dorsaVi is being able to hand-over the workplace product to the customers, conduct online training with these customers to enable them to use the automated reports. b) App-based products produced at a lower cost: dorsaVi’s newer products (myViSafe™ for the workplace market and Professional Suite™ for the clinical market) are produced at a lower cost than our previous hardware and software. c) More efficient production process: The technical team have created a more efficient and automated calibration process, reducing COGS and improving product output. d) Online sales and training of customers: Moving our sales and training away from face-to-face to online for both the workplace and clinical products, has reduced both travel and HR expenses. This enables our sales and account managers to focus on impacting their sales activity. The ability to sell online and to train new customers remotely has significantly improved business efficiency. iii) Driving Operational Efficiencies The Company continues to improve operational efficiency and its goal for FY21 is to continue to drive down operating costs by a further 20-40%. As referenced in the Chairman’s report, the Company’s non-executive directors accepted options in lieu of directors’ fees applicable from 1 March 2019. From my own perspective, as CEO of dorsaVi, I have benefited from living in the US over the past 2.5 years. This experience has provided the opportunity to build important strategic, sales and investor relationships. During the COVID-19 period, our selling moved exclusively to online which will allow me to return to Australia, maintain the critical US relationships and continue to sell online into the US and also creates a significant cost saving for the Company. Our team of US based staff will provide continuity and resume face-to-face contact with customers once conditions around COVID-19 return to more normal practices. Our General Manager has done an outstanding job in relation to reducing operational expenses across the business over the past two years. As an example, our salespeople work from home in all locations. This remote working environment has eliminated office spend in the UK and US. Matt May has driven positive change in our organisation’s business systems, leading to year-on-year improvement. From a technical perspective, our Chief Technical Officer has been with the business a little over 2 years and has brought in many technical efficiencies that have allowed dorsaVi to reduce the operational costs relating to the technical team and also reductions in the subscription and software related costs involved across our business. Each of our staff members across the Company have reduced their normal working hours during COVID-19 and the executive team have taken significant salary reductions through this unprecedented time. Other operational initiatives include: a reduction in corporate and marketing overheads and securing the tenure of a US-based marketing agency to provide more customised marketing initiatives to the large US clinical and workplace markets. dorsaVi Annual Report 2020 6 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 iv) Innovate our Products and Systems in-line with Market and Data Privacy Requirements One of my important roles whilst living in the US has been to understand the customer needs of our workplace and clinical customers. I attended over 10 conferences in the US in the past 2.5 years, was invited to speak at another 4 conferences on wearables in the workplace and held a membership role on an advisory council of the National Safety Council, Work to Zero initiative. Each of these interactions allowed me to validate, test, iterate and understand in depth what our existing and potential customers are looking for in dorsaVi’s next generation product. This helped me understand what features they like, those features they did not utilise and, critically, which features they must have going forward. Some of these features were already on our product roadmap and others have been incorporated into our plans to ensure our subsequent products meet the future needs of all our important customers. Financial Summary The growth in recurring revenue is significantly longer than the time to secure once-off and consulting revenue. dorsaVi has now built close to a $1m base in recurring revenue from the clinical market and over $500k of recurring revenue in the workplace (a 69% increase from FY19). This $1.5m base of recurring revenue across the clinical and workplace markets has been the Company’s focus and this will continue, noting that 74% of the FY20 revenue was from recurring revenue, increasing from 51% in FY19. The focus on recurring revenue has led to a transition away from consulting projects and thus there is a short-term reduction in total sales revenue as the recurring revenue base builds. The sales revenue for FY20 was $2,019,220, a 19.7% reduction on our FY19 revenue of $2,514,992. Figure 3: Proportion of recurring revenue versus once-off revenue over the past 4 years Historically, when dorsaVi secured a workplace services contract valued at, say, $120k, the contract would be recognised across two quarters ($60k each quarter) without any further revenue unless additional work was won from the customer. With the change to recurring revenue, any contracts won within the same corporate group with our myViSafe™ product, for a 3-year period, in the first two quarters of this contract dorsaVi will recognise $10k each quarter. The benefit is seen in the longer term, being able to recognise revenue for the next 3 years from this one group, therefore providing more stable and predictable revenue growth. Total cash expenses reduced from $7.7m FY19 to $5.7m FY20, a reduction of $2m (26%) mainly due to cost reductions and operational efficiencies introduced during the year. We believe these reductions in expenses are sustainable and operational efficiency and cost reductions continue to be an ongoing focus for the business. Our closing cash as at 30 June 2020 was $1.69m, compared to cash at 31 March 2020 of $1.92m. dorsaVi’s Workplace Solutions (OHS) The growing trend for Workplace conferences to offer entire sessions dedicated to ‘Workplace Wearables’ means our potential customers now have a greater understanding of the value of movement or wearable sensors. dorsaVi’s workplace solutions sit in the category of ergonomic or manual handling wearables, aimed at understanding workplace risk of a task or work environment with the goal of finding a data driven solution. Insurers and corporate groups are interested in data insights to understand their worker’s risk profile and enable them to investigate whether the data driven solutions can solve their company’s manual handling injury problems. AIG and more recently QBE in Australia, are examples of insurers utilising dorsaVi’s workplace solution products to reduce risk in the workplace and improve productivity. Corporate groups also have a strong interest in scalable wearable solutions that they can distribute through their workforce. This is particularly relevant given the changes brought about by COVID-19, with corporates wanting ‘self-managed’ solutions rather than onsite consulting projects. dorsaVi Annual Report 2020 7 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Figure 4: myViSafe™ sensor, app and desktop dashboard During FY20, the Company signed a number of important deals in the workplace market including a new engagement with BHP Australia looking to understand exact risks on their workers in the mining sector. PERMA, a New York insurer have taken on the myViSafe™ product to enable their team of ergonomists to visit their clients and place sensors on their workers to measure, assess risk and mitigate their manual handling issues. Northwell Health, a large hospital group on the US east coast, have taken on myViSafe™ to mitigate their workplace injuries amongst their healthcare workers. In FY20, VISY Board and Sydney Water in Australia have also signed new workplace deals. Our workplace recurring revenue has remained solid, with the majority of customers continuing to pay their monthly subscriptions for the use of myViSafe™. This has provided stability in workplace recurring revenue and is part of the reason why the workplace recurring revenue for FY20 has continued to increase, despite the COVID-19 economic impact. The recurring revenue for the workplace market has increased from $303k in FY19 to $513k in FY20, an increase of $210k or 69%. Figure 5: dorsaVi’s workplace recurring revenue over the past 3 years dorsaVi secured a new partnership in Q4 with major workers compensation insurer, QBE Australia, who has pre-allocated $250k in funds over an initial 12-month period to enable their customers access to dorsaVi’s workplace products. Recent market analysis in the US workplace market, suggests there are approximately 230,000 corporates with over 100 workers that could utilise dorsaVi’s applications. This equates the total size of the direct addressable market to over $2.5B per annum. During COVID-19, there has been minimal impact on monthly workplace subscriptions yet there has been a significant reduction in consulting revenue as our staff have not been able to interact with employees directly. Across both the consulting product (ViSafe™) and the recurring revenue product (myViSafe™), new sales reduced significantly in Q3. It has been encouraging to see a return in new sales growth in Q4, albeit below the normal cadence of sales. dorsaVi Clinical market Throughout the clinical market the effect of COVID-19 was more immediate with 10-15% of our clinical customers requesting their subscriptions be put on hold. We also saw a reduction in new sales in Q3 and Q4, noting that later in Q4 the clinical sales activity started to build again with the clinical recurring revenue for Q4 being $265k, a $36k increase (or 15.7%) on Q3 FY20 ($229k). dorsaVi’s new clinical product, the App-based Professional Suite™, has been designed as a ‘set and go’ type of product which has a rapid set up time feature (15 seconds to commence a session with patients) and was designed by Physios for Physios. It can immediately interpret data and includes a patient App whereby the patient is able to access their reports and exercises anywhere. The online sales and training aspect of Professional Suite™ has been critical to its uptick in purchasing by Physios. The large clinical franchise groups in the US market continue to be a major strategic opportunity for dorsaVi with many of these groups already using dorsaVi’s clinical products. The most popular software module is the Athletic Movement Index (AMI), which is a screening and ‘return to play’ tool that is used to assess and manage sports related injuries. Groups like Select Medical, Team Rehab, HSS and HSHS are examples of large clinical groups in the US market with dorsaVi’s clinical products across multiple sites. In the US Physical Therapy (PT) market, there are approximately 105,000 PT clinics that could utilise dorsaVi’s applications. Potential revenue generation from each clinic would be $3k per year per dorsaVi kit, noting that many franchise groups require multiple dorsaVi kits. This makes the total size of the direct addressable market approximately $500m per annum. dorsaVi Annual Report 2020 8 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 The recurring revenue for the clinical market increased from $978k in FY19 to $991k in FY20, an increase of $13k or 1%, noting that Q3 and Q4 were impacted by COVID-19 subscription suspensions and a reduction in new sales. In the same clinical market, there are strategic deals which include global medical device companies. As examples of these deals, Stryker and Medtronic, are both using dorsaVi’s sensors, algorithms and software to gain new data insights for their businesses. The current Stryker project is an extension from the first project which delivered results that were very positive to Stryker. The 2nd stage Stryker project is an evaluation agreement in which Stryker’s staff will utilise and evaluate dorsaVi’s sensors, algorithms and software to assess patients and share this data with leading clinicians. A separate strategic deal was signed with Medtronic who are looking to pilot dorsaVi’s technology for a specific use case in the orthopaedics area. Medtronic adds to other global medical device companies, like Stryker and Johnson & Johnson, who are choosing dorsaVi’s technology above other technology providers to drive innovation in their businesses. This provides an indicative test for dorsaVi, illustrating the technology is market leading. In relation to the size of the opportunity in the orthopaedic market, there are approximately 1.5 million hip and knee replacements performed each year in the US and if every patient undergoing a hip or knee replacement used a sensor kit, this would be a market size of over $1.2b per annum. dorsaVi’s strength in the clinical market relates to the FDA clearance, clinically validated algorithms, and the traction of current products in the US market that generate recurring revenue. We look forward to reporting further progress in the clinical and the orthopaedic markets. We are excited by the steadily growing base of recurring revenue that is derived from both the workplace and clinical markets and will strive to make our business as successful as possible by continuing to innovate, optimise and drive efficiencies across our product offerings and business processes to secure new strategic deals in the workplace and the clinical markets. We recognise that further challenges are likely to arise as the business works its way through COVID-19. We will remain vigilant on managing these changes to our business and will pro-actively deal with these changes as they arise. Andrew Ronchi Chief Executive Officer dorsaVi Annual Report 2020 9 FINANCIAL REPORT For the Year Ended 30 June 2020 dorsaVi Annual Report 2020 10 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Financial Report For the Year Ended 30 June 2020 TABLE OF CONTENTS Financial Report Directors’ Report Auditor’s Independence Declaration Financial Report for the Year Ended 30 June 2020 Consolidated Statement Of Profit Or Loss And Other Comprehensive Income Consolidated Statement Of Financial Position Consolidated Statement Of Changes In Equity Consolidated Statement Of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report to the Members of dorsaVi Ltd Shareholder Information dorsaVi Annual Report 2020 11 12 27 28 28 29 30 31 32 61 62 68 11 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Directors’ Report The directors present their report together with the financial report of the Group consisting of dorsaVi and the entities it controlled, for the financial year ended 30 June 2020 and auditor’s report thereon. Directors The names of directors in office at any time during or since the end of the year are: Name Greg Tweedly Ashraf Attia Caroline Elliott Michael Panaccio Andrew Ronchi Designation Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer, Executive Director Appointed 29 October 2013 14 July 2008 24 November 2017 16 May 2008 18 February 2008 The directors have been in office since the start of the year to the date of this report unless otherwise stated. Principal Activities The principal activity of dorsaVi Ltd and its controlled entities during the financial year was the development and sale of innovative motion analysis technologies. These technologies are commercialised via license, sale or fixed fee consultancy. There has been no significant change in the nature of these activities during the financial year. Results The consolidated loss from continuing operations, after income tax, attributable to the members of dorsaVi Ltd was $7,593,079 (2019: $4,020,751). Review of Operations The Group consists of four entities: 1. dorsaVi Ltd; 2. dorsaVi Europe Ltd, a wholly owned subsidiary incorporated and domiciled in the UK; 3. dorsaVi USA, Inc., a wholly owned subsidiary incorporated and domiciled in the US; and 4. Australian Workplace Compliance Pty Ltd, a wholly owned subsidiary domiciled in Australia. As at 30 June 2020, net assets of the Group were $459,029 (2019: $6,989,294). Total revenue for the 2020 financial year was $2,397,059 (2019: $3,223,869). Sales revenue was $2,019,220 (2019: $2,514,992). Clinical Clinical income was $1,125,151 for the 2020 financial year (2019: $1,336,817). Workplace Workplace income, utilising ViSafe technology, was $894,069 for the 2020 financial year (2019: $956,624). The COVID-19 pandemic has significantly impacted total sales revenues in the six months to 30 June 2020. Sales revenues for the six months to 30 June 2020 were $860,011 as compared to $1,226,503 for the six months to 30 June 2019. Expenditure Total expenditure was $10,447,502 for the 2020 financial year (2019: $7,811,269). The 2020 expenditure includes a provision for impairment of intangible assets of $4,018,354 (2019: $nil). The Directors have assessed the $4,018,354 carrying value of its Intangible Assets (patents and capitalised development expenditure) for impairment based on value in use calculations. Given the recent change in the Group’s business strategy (i.e. transition to a Software as a Service recurring revenue strategy), the Group’s forecasts have been updated based upon reasonable and prudent assumptions including growth rates, discount rates and terminal values. This has resulted in a provision for impairment of $4,018,354. dorsaVi Annual Report 2020 12 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 The directors believe that the recurring revenue business strategy will maximise the Group’s growth and financial performance prospects, and, should future performance exceed the forecasts, the current impairment provision may be reversed in future periods. Without the provision for impairment total expenditure for 2020 would have been $6,429,148 (2019: $7,811,269). This reduction of $1,382,121 was largely due to cost control measures undertaken by the Group throughout the financial year with employee benefits expense reducing by 24% to $3,040,365 (2019: $3,979,898). The material business risks that are likely to have an effect on the financial prospects of the Group include: ▪ Over time, dorsaVi may be subjected to increased competition if potential competitors develop new technologies or ▪ make scientific or systems advances that compare with or compete with dorsaVi’s products. In the medical sector (but not the Elite Sports or OHS sectors), sales and adoption rates of dorsaVi’s system are, in part, likely to be influenced by the availability and level of reimbursement from government and/or insurance payers. Whilst dorsaVi’s products already benefit from reimbursement in some circumstances, there is no guarantee that the use of dorsaVi’s products will receive further reimbursement. ▪ General economic conditions, movements in interest and inflation rates and currency exchange rates may have an adverse effect on dorsaVi’s activities, as well as on its ability to fund those activities. In particular, much of its future income is expected to come from the US and European markets and therefore dorsaVi’s activities will be affected by currency exchange fluctuations. The COVID-19 pandemic has significantly impacted economic conditions in the six months to 30 June 2020 and is expected to continue to have an economic impact in the near future. ▪ dorsaVi is not currently profitable. Proceeds from the initial float and subsequent capital raisings were and are primarily being used to fund, both, the commercial rollout of dorsaVi’s products and continued product development. There is no guarantee that the commercial rollout will result in profitability for the Group. If the commercial roll out is slower or less successful than planned, dorsaVi may need to raise additional capital in the future. Significant Changes in the State of Affairs The following changes in the state of affairs occurred during the period: • • • • • • • • • On 18 November 2019, dorsaVi Ltd announced that it had been granted a “measuring reaction forces” patent in the USA. On 28 November 2019, dorsaVi Ltd launched a capital raising comprising: o The issue of 1,155,000 convertible notes at an issue price of $1 per convertible note with interest of 10% per annum and a maturity date of 6 December 2022 raising $1,155,000 before costs; The placement of 20,740,741 fully paid ordinary shares at $0.027 per share raising $560,000 before issue costs; and A share purchase plan to be offered to all eligible shareholders at $0.028 per share and closing on 19 December 2019. o o On 5 December 2019, dorsaVi Ltd announced (as approved by shareholders on 28 November 2019): o The issue of 1,280,488 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.086 per share and an expiry date of 4 December 2024; and The issue of 1,116,703 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.072 per share and an expiry date of 4 December 2024. o On 6 December 2019, dorsaVi Ltd announced the placement of 3,703,704 fully paid ordinary shares raising $100,000 before costs and the issue of 1,155,000 convertible notes. On 9 December 2019, dorsaVi Ltd announced the placement of 3,703,704 fully paid ordinary shares raising $100,000 before costs. On 19 December 2019, dorsaVi Ltd completed a share purchase plan to eligible shareholders and issued 6,670,000 fully paid ordinary shares at $0.028 per share raising $186,760 before costs. On 7 January 2020, dorsaVi Ltd announced (as approved by shareholders on 28 November 2019) the issue of 1,846,856 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.036 per share and an expiry date of 7 January 2025. On 28 January 2020, a general meeting of shareholders approved the allotment of 13,333,333 fully paid ordinary shares to related parties of dorsaVi Ltd raising $360,000 before costs. On 7 April 2020, dorsaVi Ltd announced (as approved by shareholders on 28 November 2019) the issue of 4,801,827 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.024 per share and an expiry date of 7 April 2025. After Balance Date Events dorsaVi Annual Report 2020 13 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 No matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years with the exception of the following: • On 7 July 2020, dorsaVi Ltd announced (as approved by shareholders on 28 November 2019) the issue of 3,693,714 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.018 per share and an expiry date of 7 July 2025. Likely Developments The following likely developments, in the business of the Group, are expected to influence its future financial results: ▪ The Group expects to increase, year on year, the annuity revenue proportion of total clinical and workplace revenue. ▪ The Group expects that product, released globally in recent years, will continue to support revenue growth. Environmental Regulation The Group’s operations are not subject to any significant environmental Commonwealth or State regulations or laws. Dividend Paid, Recommended and Declared No dividends were paid, declared or recommended since the start of the financial year. Equity Instruments There were no options over unissued ordinary shares granted to executives by dorsaVi Ltd during the financial year. During the financial year, 1,871,071 performance rights were granted to executives and, of these, 1,439,321 vested into shares and 1,750 lapsed. Further details regarding performance rights and shares granted as remuneration are provided in the Remuneration Report below. There were 12,739,588 options over unissued ordinary shares granted to non-executive directors during or since the financial year end in lieu of the payment of directors’ fees. Further details regarding options granted as remuneration are provided in the Remuneration Report below. Shares under Option Unissued ordinary shares of dorsaVi Ltd under option at the date of this report are as follows: Date Options Granted Number of Unissued Ordinary Shares under Option Exercise Price of Options Expiry Date of the Options 24 March 2016 15 May 2017 15 May 2017 15 May 2017 4 December 2019 4 December 2019 7 January 2020 7 April 2020 7 July 2020 200,000 500,000 55,000 24,166 1,280,488 1,116,703 1,846,856 4,801,827 3,693,714 13,518,754 $0.40 $0.33 $0.33 $0.33 $0.086 $0.072 $0.036 $0.024 $0.018 24 March 2021 15 May 2022 1 October 2022 1 October 2023 4 December 2024 4 December 2024 7 January 2025 7 April 2025 7 July 2025 No option holder has any right under the options to participate in any other share issue of the Group. Shares Issued on Exercise of Options To the date of this report, there have been no shares issued during or since the end of the year as a result of the exercise of an option over unissued shares. dorsaVi Annual Report 2020 14 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Shares Subject to Performance Rights Unissued ordinary shares of dorsaVi Ltd subject to performance rights at the date of this report are as follows: Date Performance Rights Granted Number of Unissued Ordinary Shares subject to Performance Rights Issue Price of Shares 18 September 2019 18 September 2019 18 September 2019 115,000 115,000 200,000 430,000 - - - Vesting Date of Performance Rights 1 October 2020 1 October 2021 1 September 2022 A performance right holder does not have any right to participate in any other share issue of the Group until the performance rights vest and are converted to ordinary shares. Shares Issued on Vesting of Performance Rights During the year ended 30 June 2020 and to the date of this report, 2,826,601 shares were allocated on the vesting of 2,826,601 performance rights. These shares were allocated from previously issued shares to employees that had been forfeited. During the year ended 30 June 2020 and to the date of this report, 155,470 performance rights were cancelled. There remain 430,000 performance rights that do not convert to issued shares unless performance conditions are met, and they vest. Information on Directors and Company Secretary Greg Tweedly, B. Com, CPA, GAICD – Non-executive Chairman Greg Tweedly is Chairman of dorsaVi Ltd and serves on the Nomination and Remuneration Committee. He was appointed to the Board on 29 October 2013. Greg is a Director of Melbourne Health, Deputy Chair of Environment Protection Authority Victoria, Chair of the Personal Injury Education Foundation and was a Director and CEO of the Victorian WorkCover Authority (WorkSafe) from 2003 to 2012. Prior to joining WorkSafe, Greg was an executive with the Transport Accident Commission from 1996 to 2002 in various senior roles including Chief Operating Officer. He was formerly a Director of the Emergency Services and Telecommunications Authority, Director of the Institute of Safety Compensation and Recovery Research, a Director of the Personal Injury Education Foundation, a Director and Chair of the Victorian Trauma Foundation, Chair of the Heads of Workers’ Compensation Authorities of Australia and New Zealand and Member of SafeWork Australia and its predecessor organisation. No other directorships of listed companies were held during the three years to 30 June 2020. Ashraf Attia, BSc (Eng)(Hons), MSc (Med. Eng), Dip (Mktg), FAICD – Non-executive Director Ash Attia was appointed as a director of dorsaVi on 14 July 2008 and chairs the Nomination and Remuneration Committee and serves on the Audit and Risk Committee. Ash has had senior management experience in multinational operations for over 30 years within the medical devices, biotechnology and diagnostics industries. He is currently Chief Executive Officer of Bionic Vision Technologies, a company developing an implantable device to restore sight to the blind. Ash was most recently Vice President of Asia Pacific, Middle East and Israel at TransMedics Inc, a company based in Boston, USA, and is carrying out revolutionary work in the area of heart, lung and Liver organ transplants and preservation. He has held several senior executive roles with global medical devices organizations and has special expertise in the areas of commercialization, business development, clinical, regulatory, R&D, strategic marketing, sales and distribution management. No other directorships of listed companies were held during the three years to 30 June 2020. Michael Panaccio, BSc (Hons), MBA, PhD, FAICD – Non-executive Director Michael Panaccio serves on the Audit and Risk Committee and the Nomination and Remuneration Committee. He was appointed to the Board on 16 May 2008. Michael is one of the founding directors of Starfish Ventures Pty Ltd, an Australian based venture capital manager. He was formerly an Investment Manager with JAFCO Investment (Asia Pacific). Prior to joining JAFCO, Michael was Head of the dorsaVi Annual Report 2020 15 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Department of Molecular Biology at the Victorian Institute of Animal Sciences. Michael has previously been a director of numerous technology businesses in Australia and the US including ImpediMed Ltd, SIRTeX Medical Ltd, Protagonist Therapeutic Inc and Energy Response Pty Ltd. No other Directorships of listed companies were held during the three years to 30 June 2020. Michael is also a director of Starfish Ventures Pty Ltd. Caroline Elliott, B. Ec, CA, GAICD – Non-executive Director Caroline Elliott is chair of the Audit and Risk Committee and was appointed to the Board on 24 November 2017. Caroline is currently a Director of the National Film and Sound Archive of Australia, St John’s Ambulance Australia (Vic) and Wiltrust Nominees Pty Ltd. She has previously held non-executive director roles at Cell Therapies Pty Ltd, Peter MacCallum Cancer Centre and the Public Transport Ombudsman Limited. She is currently the Chief Executive Officer at apparel business, The Propel Group Pty Ltd, and was previously the CFO and Company Secretary at Optal Ltd. No other directorships of listed companies were held during the three years to 30 June 2020. Andrew Ronchi, B. App. Sci. (Physio), PhD (RMIT Eng), GAICD – Chief Executive Officer, Director Andrew Ronchi was appointed to the Board on 18 February 2008. Before co-founding dorsaVi, Andrew was a practising physiotherapist both at an AFL club and in private practice. He has also been founding partner in two physiotherapy centres, the largest of these employing 28 staff (including 13 physiotherapists). Andrew completed a PhD in Computer and Systems Engineering, investigating the reliability and validity of transducers for measuring lumbar spine movement. As CEO of dorsaVi Ltd, Andrew is responsible for all aspects of the Group’s operations. No other directorships of listed companies were held during the three years to 30 June 2020. Brendan Case, MComLaw (Melb), BEc, CPA, Grad Dip App Fin, Dip FP, FCIS Brendan Case has served as dorsaVi Ltd’s secretary since 29 October 2013 and has more than 20 years of company secretarial, corporate governance and finance experience. He is a former Associate Company Secretary of National Australia Bank Limited (NAB), former secretary of NAB’s Audit and Risk Committees and has held senior management roles in risk management and regulatory affairs. Directors’ Meetings The number of meetings of the board of directors and of each board committee held during the financial year and the numbers of meetings attended by each director were: G Tweedly A Attia C Elliott M Panaccio A Ronchi G Tweedly A Attia M Panaccio Board of Directors Audit and Risk Committee Eligible to Attend 16 16 16 16 16 Attended 16 16 14 16 16 Eligible to Attend - 2 2 2 - Attended - 2 2 2 - Nomination and Remuneration Committee Eligible to Attend 2 2 2 Attended 2 2 2 Directors’ Interest in Shares, Performance Rights or Options as at the date of this report. Names of Holders M Panaccio A Ronchi G Tweedly A Attia C Elliott dorsaVi Annual Report 2020 Ordinary Shares 101,819,921 13,099,827 815,129 461,518 370,370 Options 2,918,381 - 3,984,445 2,918,381 2,918,381 16 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 The directors have no interests in performance rights. As approved by shareholders at the 2019 Annual General Meeting (AGM), non-executive directors have been progressively granted 12,739,588 options over ordinary shares in dorsaVi Ltd over the course of the year ended 30 June 2020 and up to the date of this report. The details of each non-executive director’s entitlement to options granted and a summary of the related terms is included in Table 5 of this report. Indemnification and Insurance of Directors and Officers The Group has insured its Directors, Secretary and executive officers for the financial year ended 30 June 2020. Under the Group’s Directors and Officers Liability Insurance Policy, the Group cannot release to any third party or otherwise publish details of the nature of the liabilities insured by the policy or the amount of the premium. The Group also indemnifies every person who is or has been an officer of the Group against any liability (other than for legal costs) incurred by that person as an officer of the Group where the Group requested the officer to accept appointment as Director. To the extent permitted by law and subject to the restrictions in section 199A and 199B of the Corporations Act 2001, the Group indemnifies every person who is or has been an officer of the Group against reasonable legal costs incurred in defending an action for a liability incurred by that person as an officer of the Group. ASIC Instrument on Rounding of Amounts In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the directors’ report and in the financial statements have been rounded to the nearest dollar. Indemnification and Insurance of Auditors No indemnities have been given or insurance premiums paid during or since the end of the financial year for any auditors of the Group. Proceedings on behalf of the Group No person has applied for leave of Court to bring proceedings on behalf of the Group. Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Non-audit Services Non-audit services were provided by the auditors of entities in the consolidated group during the year, namely Pitcher Partners (Melbourne), network firms of Pitcher Partners, and other non-related audit firms, as detailed below. The directors are satisfied that the provision of the non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 for the following reasons: ▪ All non-audit services were subject to the corporate governance procedures adopted by dorsaVi Ltd; and ▪ The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for dorsaVi Ltd or any of its related entities, acting as an advocate for dorsaVi Ltd or any of its related entities, or jointly sharing risks and rewards in relation to the operations or activities of dorsaVi Ltd or any of its related entities. Amounts Paid and Payable to Pitcher Partners Melbourne for Non-audit Services: Taxation and Other Compliance Services Total Remuneration for Non-audit Services 2020 $ 14,901 14,901 2019 $ 18,727 18,727 dorsaVi Annual Report 2020 17 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Remuneration Report (Audited) The Directors present the Group’s 2020 Remuneration Report, which details the remuneration information for dorsaVi Ltd’s, Directors and other Key Management Personnel (KMP). A. Details of the Key Management Personnel Period of Responsibility Position Non-Executive Directors: Greg Tweedly Caroline Elliott Ashraf Attia Michael Panaccio Executive Director: Andrew Ronchi Executives: Matthew May Damian Connellan David Erikson Full Year Full Year Full Year Full Year Full Year Full Year Full Year Full Year B. Remuneration Policies Nomination and Remuneration Committee Chairman, Non-Executive Director Independent, Non-Executive Director Independent, Non-Executive Director Non-Executive Director Chief Executive Officer/Director General Manager Chief Financial Officer Chief Technology Officer The Nomination and Remuneration Committee of the Board of Directors is responsible for making recommendations to the Board on the remuneration arrangements for each Non-Executive Director, Executive Director/Chief Executive Officer (CEO) and each Executive reporting to the CEO. The current members of the Nomination and Remuneration Committee are: Ashraf Attia, Michael Panaccio and Greg Tweedly. The Nomination and Remuneration Committee assess the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of high quality, high performing directors and executive team. In determining the level and composition of executive remuneration, the Nomination and Remuneration Committee may also engage external consultants to provide independent advice. The primary responsibility of the Nomination and Remuneration Committee is to review and recommend to the Board: ▪ Executive remuneration and incentive policies and practices; ▪ The Executive Director's total remuneration having regard to remuneration and incentive policies; ▪ The design and total proposed payments from any executive incentive plan and reviewing the performance hurdles for any equity-based plan; ▪ The remuneration and related policies of Non-Executive Directors for serving on the board and any committee (both individually and in total); and ▪ Any other responsibilities as determined by the Nomination and Remuneration Committee or the Board from time to time. Remuneration Strategy The remuneration strategy of dorsaVi Ltd is designed to attract, motivate and retain Employees, Executives and Non- Executive Directors in Australia, the United States and Europe by identifying and rewarding high performers and recognising the contribution of each employee to the continued growth and success of the Group. To this end, the key objectives of the Group’s reward framework are to: ▪ Align remuneration with the Group’s business strategy; ▪ Offer an attractive mix of remuneration benchmarked against the applicable market’s region and country practices; ▪ Provide strong linkage between individual and Group performance and rewards; ▪ Offer remuneration based on merit and individual skill matching the role requirements with their experience and responsibilities; ▪ Align the interests of executives with shareholders and share the success of the Group with the employees; and ▪ Support the corporate mission statement, values and policies through the approach to recruiting, organizing and managing people. dorsaVi Annual Report 2020 18 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Remuneration Structure In accordance with best practice corporate governance, the structure of the Non-Executive Directors and Executive remuneration is separate and distinct. Non-Executive Director Remuneration Structure The ASX Listing Rules specify that an entity must not increase the total aggregate amount of remuneration of Non-Executive Directors without the approval of holders of its ordinary securities. The Board, and since its inception the Nomination and Remuneration Committee, considers the level of remuneration required to attract and retain Non-Executive Directors with the necessary skills and experience for the Group’s Board. This remuneration is reviewed with regard to market practice and Non-Executive Directors’ duties and accountability. The constitution provides that the Non-Executive Directors are entitled to remuneration for their services as determined by the Board up to an aggregate limit of $500,000 (which may be increased with Shareholder approval). The Group has previously obtained advice about remuneration levels for Directors of listed companies and, based on that advice, set the following annual Non-Executive Directors’ fees: ▪ Chairman: $75,092 plus superannuation; ▪ Other Directors: $50,000 plus superannuation; and ▪ Further fees for acting as chairman of a committee: $5,000 plus superannuation per committee. The Group determines the maximum amount for remuneration, including thresholds for share-based remuneration for Executives, by resolution. The remuneration received by the Non-Executive Directors for the year ended 30 June 2020 is detailed in Table 1 of this section of the report. As approved at the 2019 AGM, Non-Executive Directors were, in lieu of the payment of directors’ fees, granted 12,739,588 options over ordinary shares. Refer table 5 below for details of the options granted. Executive Remuneration Structure The Group provides a remuneration package that incorporates both cash-based remuneration and share-based remuneration. The contracts for service between the Group and Executives are on a continuing basis the terms of which are not expected to change in the immediate future. Share-based remuneration is conditional upon continuing employment thereby aligning Executives with shareholder interests. Remuneration consists of the following key elements: ▪ Fixed remuneration (base salary and superannuation); and ▪ Variable remuneration – short term incentives (STI) in the form of an annual incentive plan and long-term equity incentive (LTI). STI and LTI are currently only provided to KMP by way of share-based payments and include no cash component. Fixed Remuneration Objective Fixed remuneration is reviewed annually by the Board and Nomination and Remuneration Committee. The process consists of a review of the Group and individual performance, relevant comparative remuneration from external and internal sources and where appropriate, external advice on policies and practices. Structure Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and allowances (such as motor vehicle allowance). It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group. dorsaVi Annual Report 2020 19 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Variable Remuneration – Short-Term Incentive (STI) Objective The key objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the Executives charged with meeting those targets. Structure Any STI granted depend on the extent to which specific targets set at the beginning of the financial year or on appointment are met. The Key Milestones or Key Performance Indicators (KPI’s) cover individual, team and organisational financial measures of performance. Typically included are measures such as: Achieving sales/revenue targets and/or growth, and meeting Group compliance requirements. These measures were chosen as they represent the key drivers for the short-term success of dorsaVi. The Group has predetermined benchmarks that must be met in order to trigger STI under the STI scheme. Either on an annual or financial year basis, after consideration of performance against the Key Milestones or KPIs, the Nomination and Remuneration Committee, in line with their responsibilities determine the amount, if any, of the STI to be awarded to each Executive. This process usually occurs within one month after the trigger date. Typically, STI awards are made under the Employee Share Ownership Plan (ESOP) and are delivered in the form of share options or performance rights. Each option entitles the holder to one fully paid ordinary share of dorsaVi Ltd at an exercise price to be determined in accordance with the ESOP or by determination by the Nomination and Remuneration Committee. Each performance right vested entitles the holder to one fully paid ordinary share of dorsaVi Ltd at $Nil price. The annual STI available for executives across the Group are subject to the approval of the Nomination and Remuneration Committee. Variable Remuneration – Long-Term Incentive (LTI) Objective The objectives of providing long term incentives are: To motivate and retain key dorsaVi employees; to attract quality employees; to create commonality of purpose between dorsaVi and its employees; to add wealth for all shareholders of the Group through the motivation of dorsaVi’s employees; and by allowing dorsaVi’s employees to share in the rewards of the success of dorsaVi through the acquisition of, or entitlements to, shares and options. Structure The Board offers LTIs to reward the performance of employees, which is in alignment with shareholders’ interests and the long-term benefit of the Group. LTI awards are made under the Employee Share Ownership Plan (ESOP) and are delivered in the form of share options, performance rights or loan for shares. Each option entitles the holder to one fully paid ordinary share of dorsaVi Ltd at an exercise price to be determined in accordance with the ESOP or by determination by the Nomination and Remuneration Committee. Each performance right vested entitles the holder to one fully paid ordinary share of dorsaVi Ltd at $Nil price. Where an LTI participant ceases employment prior to vesting in their award, the options and unvested performance rights are forfeited unless the Nomination and Remuneration Committee applies its discretion to allow vesting at or post cessation of employment in appropriate circumstances. Options and performance rights have been granted, under the ESOP. Refer Table 5 for details of options and performance rights granted to Executives under the ESOP. Employment Agreements The Group has entered into employment agreements with all Executives, including the CEO. The Group may terminate an Executive’s employment agreement by providing written notice or providing payment in lieu of the notice period (based on the fixed component of the Executive’s remuneration). The Group may terminate the contract at any time without notice if serious misconduct has occurred. The notice periods for key management personnel are as follows: Name Andrew Ronchi Matthew May Damian Connellan David Erikson Notice Period 6 months 3 months 3 months 3 months dorsaVi Annual Report 2020 20 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CEO Remuneration At the commencement of the 2020 financial year, Andrew Ronchi’s fixed remuneration was US$221,499, including medical benefits insurance, plus director’s fees of A$10,000 per annum. Subsequent to the start of the 2020 financial year Andrew Ronchi agreed to reduce his fixed remuneration to US$203,712, including medical benefits insurance, plus director’s fees of A$5,000 per annum. In addition, Andrew Ronchi has previously, as approved at a meeting of shareholders, been granted performance rights. During 2020; 513,000 performance rights vested into shares and 87,000 lapsed. As at 30 June 2020; no performance rights remain outstanding. Upon termination of Andrew Ronchi’s employment contract, he will be subject to a restraint of trade for a maximum of 12 months. Details of Key Management Personnel Remuneration Non-Executive Directors’ Remuneration: Table 1 C. (a) 2020 Non-Executive Directors G Tweedly A Attia C Elliott M Panaccio (i) Short-Term Salary fees $ Post-employment Pension Plan $ Share-based payments (ii) Options $ TOTAL $ Total performance related Options as % of total % % - - - - - - - - 80,096 58,667 58,667 58,667 80,096 58,667 58,667 58,667 - - 256,097 256,097 - - - - - 100% 100% 100% 100% (i) (ii) Michael Panaccio provides his services via Starfish Ventures Pty Ltd. Includes fees for the period 1 March 2019 through 30 June 2019, subsequently approved by shareholders at the 2019 AGM. 2019 Non-Executive Directors C Elliott A Attia M Panaccio (i) G Tweedly TOTAL Total performance related Share based payments as % of total Short-Term Salary fees $ Post-employment Pension Plan $ $ 34,833 34,833 34,276 47,558 151,500 3,309 3,309 - 4,518 11,136 38,142 38,142 34,276 52,076 162,636 % - - - - - % - - - - - (i) Michael Panaccio provides his services via Starfish Technology Fund II, LP. (b) Executives’ Remuneration: Table 2 Short-Term Post- employment Share-based payments Total Total performance related Share based payments as % of total 2020 Executive Director: A Ronchi (iii) Executives: D Connellan D Erikson M May Salary, fees $ Other (i) $ Pension Plan $ Equity (ii) $ $ % 285,473 31,996 5,000 30,356 352,825 8.6 71,205 188,009 210,128 754,815 - - - 31,996 - 17,861 19,962 42,823 19,091 14,737 2,690 66,874 90,296 220,607 232,780 896,508 21.1 6.7 1.2 7.5 % 8.6 21.1 6.7 1.2 7.5 (i) Other benefits include the payment of certain health insurance premiums in the US. (ii) Share based payments comprise the grant of performance rights and shares, and, for accounting purposes, are valued the same as options. (iii) Foreign currency amounts are converted into AUD at the average exchange rates applicable throughout the year. Short-Term Post-employment Total dorsaVi Annual Report 2020 21 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 2019 Executive Director: A Ronchi (iii) Executives: M Blackburn (v) D Connellan M Connell (iv) D Erikson M May Z Whyatt (iii), (vi) Salary, fees $ Other (i) $ Pension Plan $ Share based payments Equity (ii) $ $ % Total performance related Share based payments as % of total 389,709 30,445 21,250 91,079 532,483 17.1 89,837 51,527 145,091 190,000 240,000 16,842 - - - - - 3,183 8,439 - 11,935 18,050 20,531 1,138 1,358 - 695 - 48,544 891 99,634 51,527 157,721 208,050 309,075 22,054 1,123,006 33,628 81,343 142,567 1,380,544 1.4 - 0.4 - 15.7 4.0 10.3 % 17.1 1.4 - 0.4 - 15.7 4.0 10.3 (i) Other benefits include the payment of certain health and disability related insurance premiums in the US and UK. (ii) Share based payments comprise mixture of the grant of options, performance rights, and loan shares backed by an interest free, non-recourse loan. For accounting purposes, all these equity instruments are valued the same as options. (iii) Foreign currency amounts are converted into AUD at the average exchange rates applicable throughout the year. (iv) Resigned, 22 March 2019. (v) Resigned, 21 December 2018. (vi) Resigned, 10 August 2018. D. (a) Relationship between Remuneration and Group Performance Remuneration Not Dependent on Satisfaction of Performance Condition The non-executive remuneration policy is not directly related to Group performance. The Board considers a remuneration policy based on short-term returns may not be beneficial to the long-term creation of wealth by the Group for shareholders. (b) Remuneration Dependent on Satisfaction of Performance Condition A portion of the Executive Remuneration is based on attainment of performance conditions. Performance-based remuneration may include short-term and long-term incentive plans. Performance-based remuneration granted to key management personnel has regard to Group performance over a twelve month to 3-year period. Summary of the performance conditions for KMP with performance-linked equity instruments: Table 3 KMP Andrew Ronchi Matthew May Damian Connellan David Erikson Conditions for vesting of Options and Performance Rights Key Milestones as determined by and at the discretion of the Board Key Milestones as determined by and at the discretion of the Board Key Milestones as determined by and at the discretion of the Board Key Milestones as determined by and at the discretion of the Board The conditions were selected to promote the creation of shareholder wealth during the period. (c) Consequences of Group’s Performance on Shareholder Wealth Summary of Group Performance and Key Performance Indicators: Table 4 Company Performance Revenue % increase/(decrease) Loss after tax % (increase)/decrease Change in share price Dividend paid to shareholders Return of capital Total remuneration of KMP Total performance based remuneration 2020 2,397,059 (26%) 2019 3,223,869 (27%) 2018 4,394,271 13% 2017 3,897,882 20% 2016 3,238,138 75% (7,593,079) (4,020,751) (3,727,073) (3,876,248) (5,237,102) (89%) (68%) - - 1,152,605 66,874 (8%) (58%) - - 1,543,180 142,567 4% (59%) - - 2,433,653 369,702 26% 7% - - 2,182,038 290,885 35% 4% - - 2,450,850 98,264 dorsaVi Annual Report 2020 22 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 E. (a) Key Management Personnel’s Share-Based Compensation Details of Compensation Equity Table 5 2020 Grant Date (i), (ii) Number Granted Non-Executive Directors: G Tweedly: Vested during the year Year in which equity may vest Value per unit at grant date $ 0.026 0.026 0.026 0.010 0.029 0.026 0.026 0.026 0.010 0.029 0.026 0.026 0.026 0.010 0.029 0.026 0.026 0.026 0.010 0.029 400,486 349,261 577,625 1,501,824 1,155,249 293,334 255,814 423,077 1,100,001 846,155 293,334 255,814 423,077 1,100,001 846,155 293,334 255,814 423,077 1,100,001 846,155 400,486 349,261 577,625 1,501,824 1,155,249 293,334 255,814 423,077 1,100,001 846,155 293,334 255,814 423,077 1,100,001 846,155 293,334 255,814 423,077 1,100,001 846,155 150,000 450,000 0.45 0.45 63,000 450,000 20,000 125,000 200,000 0.27 0.31 0.31 100,000 70,000 115,000 115,000 200,000 200,000 1,071,071 15,555,659 0.04 0.04 0.04 0.04 0.04 0.04 0.01 - 75,750 200,000 100,000 68,250 - - - 200,000 1,071,071 14,967,659 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020 2025 2020 2020 2020 2020 2021 2022 2023 2020 2020 Terms and conditions for each grant Lapsed/re- moved during the year Exercise Price Expiry Date First Exercise Date Last Exercise Date $ 0.086 0.072 0.036 0.024 0.018 0.086 0.072 0.036 0.024 0.018 0.086 0.072 0.036 0.024 0.018 0.086 0.072 0.036 0.024 0.018 - - 0.40 - - - - - - - - - - - - - - - - - - - - - - - - - - - 87,000 - - 49,250 - - 1,750 - - - - - 138,000 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 N/A N/A 5-Nov-24 N/A N/A N/A N/A 1-Oct-20 1-Oct-21 1-Sep-22 4-Dec-20 4-Dec-20 7-Jan-20 7-Apr-20 7-Jul-20 4-Dec-20 4-Dec-20 7-Jan-20 7-Apr-20 7-Jul-20 4-Dec-20 4-Dec-20 7-Jan-20 7-Apr-20 7-Jul-20 4-Dec-20 4-Dec-20 7-Jan-20 7-Apr-20 7-Jul-20 N/A N/A N/A N/A N/A 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 4-Dec-24 4-Dec-24 7-Jan-25 7-Apr-25 7-Jul-25 N/A N/A N/A N/A N/A N/A N/A 1-Oct-20 1-Oct-21 1-Sep-22 N/A N/A 1-Oct-20 1-Oct-21 1-Sep-22 N/A N/A N/A N/A N/A N/A Vest % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 42% 100% 100% 61% 100% 100% 98% - - - 100% 100% 28-Nov-19 28-Nov-19 7-Jan-20 7-Apr-20 7-Jul-20 A Attia: 28-Nov-19 28-Nov-19 7-Jan-20 7-Apr-20 7-Jul-20 C Elliott: 28-Nov-19 28-Nov-19 7-Jan-20 7-Apr-20 7-Jul-20 M Panaccio: 28-Nov-19 28-Nov-19 7-Jan-20 7-Apr-20 7-Jul-20 Executives: A Ronchi: 29-Nov-16 29-Nov-16 M May: 5-Nov-14 5-Jun-17 5-Jun-17 D Erikson: 18-Sep-19 18-Sep-19 18-Sep-19 18-Sep-19 18-Sep-19 D Connellan: 18-Sep-19 25-Jun-20 (i) The options granted to non-executive directors are in lieu of the payment of directors’ fees. (ii) The performance rights granted to executives are subject to performance and retention conditions. dorsaVi Annual Report 2020 23 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 2019 Grant Date (i) Executives: A Ronchi: 29-Nov-16 29-Nov-16 29-Nov-16 M May: 5-Nov-14 5-Jun-17 5-Jun-17 5-Jun-17 M Blackburn: (ii) 5-Jun-17 5-Jun-17 5-Jun-17 M Connell: (iii) 5-Jun-17 5-Jun-17 5-Jun-17 Z Whyatt: (iv) 15-May-17 15-May-17 15-May-17 15-May-17 15-May-17 Number Granted Value per unit at grant date $ Vested during the year Year in which equity may vest 150,000 150,000 450,000 20,000 125,000 125,000 200,000 100,000 100,000 150,000 50,000 50,000 150,000 500,000 78,333 133,333 133,334 350,000 3,015,000 0.45 0.45 0.45 0.27 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.31 0.33 0.33 0.33 0.33 0.33 11,250 - - - 22,500 - - 22,500 - - 11,500 - - - - 24,166 - - 91,916 2019 2020 2020 2019 2019 2020 2020 2019 2020 2020 2019 2020 2020 2017 2018 2019 2020 2020 Vest % 8% - - 100% 18% - - 23% - - 23% - - 100% 100% 18% - - (i) The options and performance rights granted are subject to performance and retention conditions. (ii) M Blackburn resigned, 21 December 2018. (iii) M Connell resigned, 22 March 2019. (iv) Z Whyatt resigned, 10 August 2018. Terms and conditions for each grant Forfeited during the year Exercise Price Expiry Date First Exercise Date Last Exercise Date $ - - - 138,750 - - N/A 1-Oct-19 29-Nov-19 N/A 1-Oct-19 29-Nov-19 N/A 1-Oct-19 29-Nov-19 - 0.40 5-Nov-19 - - - - - - - - - N/A 1-Oct-19 1-Jul-19 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1-Oct-19 1-Jul-19 1-Oct-19 1-Jul-19 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.33 0.33 0.33 - - 15-May-22 1-Oct-22 15-May-17 1-Oct-17 15-May-22 1-Oct-22 1-Oct-23 1-Oct-18 1-Oct-23 N/A N/A N/A N/A N/A N/A 102,500 - - 77,500 100,000 150,000 38,500 50,000 150,000 - - 109,167 133,334 350,000 1,399,751 As at 30 June 2020, no options have been exercised and, accordingly, no shares have been issued as a result of options previously vested. F. (a) Key Management Personnel’s Equity Holdings Number of Equity Holdings held by Key Management Personnel As at 30 June 2020, no key management personnel held options, under the Group’s Employee Share Ownership Plan 2013. The non-executive directors, as approved at the 2019 AGM, were granted 12,739,588 options over ordinary shares in lieu of the payment of directors’ fees, refer table 5 above. As at 30 June 2020, key management personnel held 430,000 performance rights under the Group’s Employee Share Ownership Plan 2013, which, on vesting, convert to 430,000 ordinary shares of the Group. As at 30 June 2020, none of these performance rights had vested and converted to shares. dorsaVi Annual Report 2020 24 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (b) Number of Shares held by Key Management Personnel (Consolidated) The relevant interest of each key management personnel in the share capital of the Group as notified the ASX as at 30 June 2020 is as follows: Table 7 2020 Non-Executive Directors A Attia C Elliott M Panaccio M Panaccio (relevant interest) G Tweedly Executive Director A Ronchi Executives D Connellan D Erikson M May Balance 30 June 2019 Vested on Achievement of KPI Participation in share Issue Net Change Other Balance 30 June 2020 281,518 - 180,000 - - 370,370 - 12,469,259 89,280,662 - 1,000,000 - 700,000 115,129 - - 461,518 - 370,370 - 101,749,921 70,000 - 815,129 (930,000) 8,886,323 513,000 3,700,504 - 13,099,827 - 1,271,071 - 168,250 275,750 195,000 2,228,071 99,758,632 700,000 - - 18,120,133 - 1,971,071 - 168,250 - 470,750 119,176,836 (930,000) G. (a) Loans to Key Management Personnel Aggregate of Loans Made There were no loans made to key management personnel during the 2020 financial year (2019: $Nil). There were no outstanding loans to key management personnel as at 30 June 2020 (30 June 2019: $Nil). H. (a) Other Transactions with Key Management Personnel Transactions with Key Management Personnel of the Entity or its Parent and their Personally Related Entities During the year, dorsaVi Ltd did not enter into any transactions with key management personnel or their personally related entities. (b) Transactions with Other Related Parties Starfish Ventures Pty Ltd is considered a related party in accordance with the definition under AASB 124: Related Parties. During the first five months of the year ended 30 June 2019, Starfish Ventures Pty Ltd leased property and charged rent to dorsaVi Ltd. The Rental arrangement ceased in November 2018. Total value of rental charges during the year ended 30 June 2020 was $Nil (2019: $83,570). The rent was charged to dorsaVi on normal terms and conditions. The balance outstanding at balance date was $Nil (2019: $Nil). During the year ended 30 June 2020, dorsaVi Ltd paid $Nil (2019: $34,276) to Starfish Technology Fund II, LP on behalf of Michael Panaccio for director’s fees. As approved by shareholders at the 2019 AGM, Non-Executive Directors were granted options over ordinary shares in lieu of the payment of directors’ fees as from 1 March 2019. During the year ended 30 June 2020, Starfish Ventures Pty Ltd was granted 2,918,381 options (refer table 5) on behalf of Michael Panaccio (2019: Nil). dorsaVi Annual Report 2020 25 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 I. Use of Remuneration Consultants During the year the Board did not engage remuneration consultants. J. Voting and Comments made at the Group’s 2019 Annual General Meeting (AGM) At the Group’s most recent AGM, resolution to adopt the prior year remuneration report was put to the vote and at least 75% of ‘yes’ votes were cast for adoption of that report. No comments were made on the remuneration report that was considered at the AGM. -----------------------------------End of the Remuneration Report------------------------------------------ Signed in accordance with a resolution of the directors Greg Tweedly Chairman Andrew Ronchi Director and CEO Melbourne Date: 26 August 2020 Melbourne Date: 26 August 2020 dorsaVi Annual Report 2020 26 dorsaVi Ltd and controlled entities ABN 15 129 742 409 AUDITOR’S INDEPENDENCE DECLARATION To the Directors of dorsaVi Ltd In relation to the independent audit for the year ended 30 June 2020, to the best of my knowledge and belief there have been: (i) (ii) No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of APES 110 Code of Ethics for Professional Accountants. This declaration is in respect of dorsaVi Ltd and the entities it controlled during the year. S SCHONBERG Partner 26 August 2020 PITCHER PARTNERS Melbourne Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities 27 Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Financial Report for the Year Ended 30 June 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue and other income: Sales revenue Other income Less: Expenses: Cost of sales Advertising expenses Conference expenses Consultancy expenses Depreciation and amortisation expenses Employee benefits expenses Provision for impairment of intangibles Finance costs Change in fair value of derivative liability Occupancy expenses Professional fees Software expenses Travel expenses Other expenses Loss before income tax benefit Income tax benefit Loss from continuing operations Notes 2020 $ 2019 $ 4 4 2,019,220 2,514,992 377,839 708,877 2,397,059 3,223,869 5 (96,967) (448,597) 5 5 5 (212,323) (185,009) (83,460) (137,852) (55,644) (218,940) (1,039,647) (965,854) (3,040,365) (3,979,898) (4,018,354) (167,451) - (32,136) (278,151) - (100,084) (198,495) (486,184) (459,934) (291,562) (330,821) (141,929) (207,899) (435,381) (645,834) (10,447,502) (7,811,269) (8,050,443) (4,587,400) 6 457,364 566,649 (7,593,079) (4,020,751) Other comprehensive income: Items that may be reclassified subsequently to profit and loss: Exchange differences on translation of foreign subsidiaries net of tax Other comprehensive income for the year Loss for the year 19,511 19,511 (7,573,568) (500,365) (500,365) (4,521,116) Loss per share for loss from continuing operations attributable to equity holders of the parent entity: Basic loss per share Diluted loss per share 22 22 (3.49 cents) (3.49 cents) (2.15 cents) (2.15 cents) The above statement should be read in conjunction with the accompanying notes. dorsaVi Annual Report 2020 28 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2020 Notes 2020 $ 2019 $ Current assets Cash and cash equivalents Receivables Inventories Other assets Total current assets Non-current assets Intangible assets Plant and equipment Total non-current assets Total assets Current liabilities Payables Borrowings Lease liability Provisions Total current liabilities Non-current liabilities Borrowings Lease liability Provisions Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Accumulated losses Total equity 8 9 10 11 12 13 14 15 16 17 15 16 17 18 19 19 1,685,288 931,220 683,139 149,721 3,449,368 - 378,411 378,411 3,827,779 1,240,480 181,941 144,269 206,911 1,773,601 1,482,993 102,715 9,441 1,595,149 3,368,750 459,029 2,766,419 1,363,607 308,520 142,578 4,581,124 4,069,915 577,695 4,647,610 9,228,734 1,513,207 - 125,524 340,133 1,978,864 - 235,470 25,106 260,576 2,239,440 6,989,294 41,080,353 233,253 (40,854,577) 40,381,715 (77,193) (33,315,228) 459,029 6,989,294 The above statement should be read in conjunction with the accompanying notes. dorsaVi Annual Report 2020 29 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Entity Share capital Reserves $ $ Accumulated losses $ Total Equity $ Balance as at 1 July 2018 Loss for the year Exchange differences on translation of foreign operations, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of shares Cost of raising capital Employee share ownership plan Equity instruments lapsed 38,455,224 - 731,407 (29,769,466) - (4,020,751) 9,417,165 (4,020,751) - (500,365) - (500,365) - (500,365) (4,020,751) (4,521,116) 2,088,616 (162,125) - - - 166,754 - (474,989) (308,235) 1,926,491 - 2,088,616 - (162,125) - 166,754 474,989 474,989 - 2,093,245 Balance as at 30 June 2019 40,381,715 (77,193) (33,315,228) 6,989,294 Balance as at 1 July 2019 Loss for the year Exchange differences on translation of foreign operations, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of shares Cost of raising capital Employee share ownership plan Equity instruments lapsed 40,381,715 - (77,193) (33,315,228) - (7,593,079) 6,989,294 (7,593,079) - 19,511 - 19,511 - 19,511 (7,593,079) (7,573,568) 746,760 (48,122) - - - 344,665 - (53,730) 290,935 698,638 - 746,760 - (48,122) - 344,665 53,730 53,730 - 1,043,303 Balance as at 30 June 2020 41,080,353 233,253 (40,854,577) 459,029 The above statement should be read in conjunction with the accompanying notes. dorsaVi Annual Report 2020 30 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flow from operating activities Receipts from customers Payments to suppliers and employees Interest paid Grants and sundry income received Interest received Income tax refunded Net cash used in operating activities Cash flow from investing activities Payment for plant and equipment Payment for intangibles Net cash used in investing activities Cash flow from financing activities Proceeds from share issue Proceeds from convertible note issue Cost of raising capital and issuing convertible note Proceeds from borrowings Repayment of borrowings Payment of principal portion lease liability Net cash provided by financing activities Reconciliation of cash Cash at beginning of the financial year Net decrease in cash held Cash at end of the year Notes 2020 $ 2019 $ 2,300,250 (5,331,856) (104,844) 278,252 99,587 579,057 (2,179,554) 3,593,957 (6,716,175) (32,136) 140,225 46,610 884,476 (2,083,043) 20 (b) (4,073) (784,729) (788,802) (34,023) (969,139) (1,003,162) 746,760 1,155,000 (105,872) 240,317 (34,970) (114,010) 1,887,225 2,088,616 - (162,125) - - (40,724) 1,885,767 2,766,419 (1,081,131) 1,685,288 3,966,857 (1,200,438) 2,766,419 20 (a) The above statement should be read in conjunction with the accompanying notes. dorsaVi Annual Report 2020 31 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Notes to the Financial Statements TABLE OF CONTENTS NOTE 1: NOTE 2: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS NOTE 3: FINANCIAL RISK MANAGEMENT NOTE 4: NOTE 5: REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME LOSS FROM CONTINUING OPERATIONS NOTE 6: INCOME TAX NOTE 7: DIVIDENDS NOTE 8: CASH AND CASH EQUIVALENTS NOTE 9: RECEIVABLES NOTE 10: INVENTORIES NOTE 11: OTHER ASSETS NOTE 12: INTANGIBLE ASSETS NOTE 13: PLANT AND EQUIPMENT NOTE 14: PAYABLES NOTE 15: BORROWINGS NOTE 16: LEASE LIABILITY NOTE 17: PROVISIONS NOTE 18: SHARE CAPITAL NOTE 19: RESERVES AND ACCUMULATED LOSSES NOTE 20: CASH FLOW INFORMATION NOTE 21: COMMITMENTS AND CONTINGENCIES NOTE 22: LOSS PER SHARE NOTE 23: SHARE BASED PAYMENTS NOTE 24: SUBSIDIARIES AND RELATED PARTY DISCLOSURES NOTE 25: AUDITOR'S REMUNERATION NOTE 26: PARENT ENTITY INFORMATION NOTE 27: SEGMENT INFORMATION NOTE 28: SUBSEQUENT EVENTS dorsaVi Annual Report 2020 33 41 41 45 45 46 46 46 46 47 47 47 48 50 50 51 51 51 52 53 54 55 55 58 58 59 59 60 32 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2020 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies adopted by the Group in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Basis of Preparation of the Financial Report This financial report is a general purpose financial report that has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards, Interpretations and other applicable authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report covers dorsaVi Ltd and controlled entities as a Group. dorsaVi Ltd is a company limited by shares, incorporated and domiciled in Australia at: 86 Denmark Street, Kew, Victoria, 3101. dorsaVi Ltd is a for-profit entity for the purpose of preparing the financial statements. The financial report was authorised for issue by the directors on the date of the directors’ report. Compliance with International Financial Reporting Standards: The consolidated financial statements of dorsaVi Ltd also comply with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Historical Cost Convention: The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets and liabilities as described in the accounting policies. Significant Accounting Estimates and Judgements: The preparation of the financial report requires the use of certain estimates and judgements in applying the entity’s accounting policies. Those estimates and judgements significant to the financial report are disclosed in Note 2. (b) New and Revised Accounting Standards Effective at 30 June 2020 The Group has applied all new and revised Australian Accounting Standards that apply to annual reporting periods beginning on or after 1 July 2019. AASB 16 Leases was adopted during the year ended 30 June 2019. The group has elected to early adopt AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions in the current reporting period, with effect from 1 July 2019 (the beginning of the current reporting period). AASB 2020-4 amends AASB 16 Leases to provide an optional practical expedient to lessees from assessing whether a rent concession related to COVID-19 is a lease modification. Lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. The practical expedient only applies to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all the following conditions are met: (a) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (b) any reduction in lease payments affects only payments due on or before 30 June 2021; and (c) there is no substantive change to other terms and conditions of the lease. In accordance with AASB 2020-4, the group has elected to apply the practical expedient not to assess whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications, and to account for any changes in lease payments resulting from the rent concessions as if the changes were not lease modifications. Any gains arising from COVID-19 related rent concessions are recognised in profit or loss. (c) Going Concern The financial report has been prepared on a going concern basis. The Group incurred a loss from ordinary activities after income tax of $7,593,079 during the year ended 30 June 2020 (2019: $4,020,751) after providing for the impairment of intangible assets of $4,018,354 (2019: $nil). The group had a net decrease in cash of $1,081,131 (2018: decrease $1,200,438) after raising additional share capital of $746,760 and issuing convertible notes totalling $1,155,000 before costs. As at 30 June 2020, the Group’s current assets exceed current liabilities by $1,675,767 (2019: $2,602,260). Throughout the year the Group has continued its strong focus on cost management and creating a sustainable cost base for dorsaVi Annual Report 2020 33 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 the business. There remains an emphasis on expansion into the US market and building annuity revenue streams through the launch of Software as a Service (SaaS) platforms. Opportunities for future growth are expected to come from product exposure in the US market and the scalability of annuity products. COVID-19 had a detrimental effect on the ability to grow revenues in the 2nd half of the year. Whilst the timing of COVID- 19’s impact remains uncertain, the effect on sales revenue is considered to be temporary. COVID-19 has also caused the company to more aggressively reduce costs than would have otherwise been the case, and the company has also been the recipient of various COVID-19 government assistance packages. The Group is also considering means by which additional equity or debt funding may be obtained. There are inherent uncertainties associated with the forecast assumptions regarding the ability to sustain and grow revenues and contain and reduce costs, and ability to obtain additional debt or equity funding if required. In determining the basis for preparation of the financial report, the Directors have assessed the financial performance, future operating plans, financial forecasts, existing financial position and additional funding opportunities potentially available to the Group. The Directors believe there are reasonable grounds to expect the Group to be able to continue as a going concern for at least 12 months from the date of issue of the financial report, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. As a result of the above, the Directors have concluded that the going concern basis is appropriate. Given the circumstances detailed above, there exists a material uncertainty that may cast significant doubt on the ability of the Group to continue as a going concern and therefore, whether it will be able to realise its assets and extinguish its liabilities in the normal course of business, and at the amounts stated in the financial report. (d) Principles of Consolidation The consolidated financial statements are those of the Group, comprising the financial statements of the parent entity and all of the entities which the parent controls. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Subsidiaries are consolidated from the date on which control is established and are de-recognised from the date that control ceases. (e) Revenue from contracts with customers The Group derives revenue from the sale of wearable sensors and software. The devices, when used with Group software, allow the accurate measurement of movement at a variety of different places on the human body or the activity of muscles. Revenue from integrated sales of devices and software: The Group’s contracts with customers are typically integrated and requires the provision of devices and software which is not separately identifiable and so is considered a bundle of goods and services. Revenue from the sale or lease of devices and licencing of software is recognised over the licence term. Revenue from consulting: Revenue from consulting contracts is recognised over time, as the services are provided to the customer, based on service hours performed as a percentage of estimated total service hours under the contract. Recognising revenue on the basis of service hours is considered an appropriate method of recognising revenue as it is consistent with the manner in which services are provided to the customer. Revenue from the sale of consumables: The Group sells various consumables goods to customers to support their ongoing use of their wearable sensors. Revenue from the consumables is recognised at the point in time when control of the goods is transferred to the customer, which generally occurs at the time of delivery. Customers are, either, required to pay in full for all goods received at the time of purchase, or, are invoiced on a monthly basis depending on the contract. Outstanding invoices are due for payment within 30 days of the invoice date. Consideration included in the measurement of revenue: The consideration to be received from customers is generally fixed and based on the customer contract. dorsaVi Annual Report 2020 34 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Receivables from contracts with customers: A receivable from a contract with a customer represents the Group’s unconditional right to consideration arising from the transfer of goods or services to the customer (i.e. only the passage of time is required before payment of the consideration is due). Subsequent to initial recognition, receivables from contracts with customers are measured at amortised cost and are tested for impairment. Contract assets: A contract asset represents the Group’s right to consideration (not being an unconditional right recognised as a receivable) in exchange for goods or services transferred to the customer. Contract assets are measured at the amount of consideration that the Group expects to be entitled in exchange for goods or services transferred to the customer. Contract liabilities: A contract liability represents the Group’s obligation to transfer goods or services to the customer for which the company has received consideration (or an amount of consideration is due) from the customer. Amounts recorded as contract liabilities are subsequently recognised as revenue when the Group transfers the contracted goods or services to the customer. (f) Cash and Cash Equivalents Cash and cash equivalents include cash on hand and at banks, short-term deposits with an original maturity of three months or less held at call with financial institutions, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (g) Inventories Inventories are measured at the lower of cost and net realisable value. Cost comprises all costs of purchase, cost of conversion and other costs incurred in bringing inventories to their present location and condition. (h) Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation and any accumulated impairment loss. Depreciation: The depreciable amount of all fixed assets is depreciated over their estimated useful lives commencing from the time the asset is held ready for use. Class of Fixed Asset Testing equipment Leased devices Office equipment Furniture, fixtures and fittings Right to use asset Tooling (i) Leases Lease assets: Depreciation Rates 10-50% 20% 10-67% 10-20% 31% 10% Depreciation Basis Diminishing value Straight line Diminishing value Diminishing value Straight line Straight line At the commencement date of a lease (other than leases of 12-months or less and leases of low value assets), the company recognises a lease asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Lease assets are initially recognised at cost, comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date of the lease, less any lease incentives received, any initial direct costs incurred by the company, and an estimate of costs to be incurred by the company in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. Subsequent to initial recognition, lease assets are measured at cost (adjusted for any remeasurement of the lease liability), less accumulated depreciation and any accumulated impairment loss. dorsaVi Annual Report 2020 35 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Lease assets are depreciated over the shorter of the lease term and the estimated useful life of the underlying asset, consistent with the estimated consumption of the economic benefits embodied in the underlying asset. Lease liabilities: At the commencement date of a lease (other than leases of 12-months or less and leases of low value assets), the company recognises a lease asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Lease liabilities are initially recognised at the present value of the future lease payments (i.e. the lease payments that are unpaid at the commencement date of the lease). These lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined, or otherwise using the company’s incremental borrowing rate. Subsequent to initial recognition, lease liabilities are measured at the present value of remaining lease payments (i.e. the lease payments that are unpaid at the reporting date). Interest expense on lease liabilities is recognised in profit or loss (presented as a component of finance costs). Lease liabilities are remeasured to reflect changes to lease terms, changes to lease payments and any lease modifications not accounted for as separate leases. The group has elected to early adopt AASB 2020-4 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions in the current reporting period, with effect from 1 July 2019 (the beginning of the current reporting period). Refer Note 1(b) for more detail. Variable lease payments not included in the measurement of lease liabilities are recognised as an expense when incurred. Leases of 12-months or less and leases of low value assets: Lease payments made in relation to leases of 12-months or less and leases of low value assets (for which a lease asset and a lease liability has not been recognised) are recognised as an expense on a straight-line basis over the lease term. (j) Intangibles Patents: Patents, trademarks and licenses are recognised at cost and depreciated on a straight-line basis over their effective lives, which is estimated to be 10 and 20 years. Research: Expenditure on research activities is recognised as an expense when incurred. Development Expenditure: Development expenditure encompasses the cost of developing new products including mobile applications, algorithms, sensors, hardware and firmware. Development expenditure is capitalised when the entity can demonstrate all of the following: the technical feasibility of completing the asset so that it will be available for use or sale; the intention to complete the asset and use or sell it; the ability to use or sell the asset; how the asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the asset; and the ability to measure reliably the expenditure attributable to the asset during its development. Capitalised development expenditure is carried at cost less any accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using a straight-line method to allocate the cost of the intangible asset over its estimated useful life, which range from 5 to 10 years. Amortisation commences when the intangible asset is available for use. Other development expenditure is recognised as an expense when incurred. (k) Impairment of Non-Financial Assets Intangible assets not yet ready for use and intangible assets with indefinite useful lives are not subject to amortisation and are therefore tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. For impairment assessment purposes, assets are generally grouped at the lowest levels for which there are largely independent cash flows - Cash Generating Units (CGU). Accordingly, most assets are tested for impairment at the cash- generating unit level. Intangible assets not yet ready for use and intangible assets with indefinite useful lives are assessed for impairment whenever events or circumstances arise that indicate the asset may be impaired. dorsaVi Annual Report 2020 36 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 An impairment loss is recognised when the carrying amount of an asset or CGU exceeds the asset’s or CGU’s recoverable amount. The recoverable amount of an asset or CGU is defined as the higher of its fair value less costs to sell and value in use. Refer to Note 2 for a description of how management determines value in use. Impairment losses in respect of individual assets are recognised immediately in profit or loss unless the asset is carried at a revalued amount in which case the impairment loss is treated as a revaluation decrease in accordance with the applicable Standard. Impairment losses in respect of CGU’s are allocated first against the carrying amount of any goodwill attributed to the CGU with any remaining impairment loss allocated on a pro rata basis to the other assets comprising the relevant CGU. (l) Income Tax Current income tax benefit is the tax receivable on the current period's taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities. Current income tax benefit incudes refundable research and development tax offsets. Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be recovered or liabilities settled. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax Consolidation: dorsaVi Ltd (parent entity) and its wholly owned subsidiary, Australian Workplace Compliance Pty Ltd, have applied tax consolidation legislation and formed a tax-consolidated group from 1 July 2014. The parent entity and subsidiary in the tax- consolidated group have entered into a tax funding agreement such that each entity in the tax-consolidated group recognises the assets, liabilities, expenses and revenues in relation to its own transactions, events and balances only. This means that: ▪ The parent entity recognises all current and deferred tax amounts relating to its own transactions, events and balances only; ▪ The subsidiary recognises current or deferred tax amounts arising in respect of their own transactions, events and balances; ▪ Current tax liabilities and deferred tax assets arising in respect of tax losses, are transferred from the subsidiary to the head entity as inter-company payables or receivables. The tax-consolidated group also has a tax sharing agreement in place to limit the liability of the subsidiary in the tax- consolidated group arising under the joint and several liability requirements of the tax consolidation system, in the event of default by the parent entity to meet its payment obligations. (m) Employee Benefits (i) Short-Term Employee Benefit Obligations: Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within twelve months of the reporting date are measured at the amounts based on remuneration rates which are expected to be paid when the liability is settled. The expected cost of short-term employee benefits in the form of compensated absences such as annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Long-Term Employee Benefit Obligations: The provision for employee benefits in respect of long service leave and annual leave which, are not expected to be settled within twelve months of the reporting date, are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. Employee benefit obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. dorsaVi Annual Report 2020 37 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (iii) Retirement Benefit Obligations: The Group makes contributions to defined contribution superannuation plans in respect of employee services rendered during the year. These superannuation contributions are recognised as an expense in the same period when the employee services are received. (iv) Share-Based Payments: The Group operates share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. In respect of share-based payments that are dependent on the satisfaction of performance conditions, the number of shares and options expected to vest is reviewed and adjusted at each reporting date. The amount recognised for services received as consideration for these equity instruments granted is adjusted to reflect the best estimate of the number of equity instruments that eventually vest. (v) Bonus Plan: The Group recognises a provision when a bonus is payable in accordance with the employee’s contract of employment and the amount can be reliably measured. (n) Borrowing Costs Borrowing costs include interest expense calculated using the effective interest method, finance charges in respect of leases, and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred. (o) Financial Instruments Initial recognition and measurement: Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either the purchase or sale of the asset. Financial instruments are initially measured at fair value adjusted for transaction costs, except where the instrument is classified as fair value through profit or loss, in which case transaction costs are immediately recognised as expenses in profit or loss. Classification of financial assets: Financial assets recognised by the Group are subsequently measured in their entirety at either amortised cost or fair value, subject to their classification and whether the Group irrevocably designates the financial asset on initial recognition at fair value through other comprehensive income (FVtOCI) in accordance with the relevant criteria in AASB 9. Financial assets not irrevocably designated on initial recognition at FVtOCI are classified as subsequently measured at amortised cost, FVtOCI or fair value through profit or loss (FVtPL) on the basis of both: the Group’s business model for managing the financial assets; and (a) the contractual cash flow characteristics of the financial asset. (b) Classification of financial liabilities: Financial liabilities classified as held-for-trading, contingent consideration payable by the Group for the acquisition of a business, and financial liabilities designated at FVtPL, are subsequently measured at fair value. All other financial liabilities recognised by the Group are subsequently measured at amortised cost. Trade and other receivables: Trade and other receivables arise from the Group’s transactions with its customers and are normally settled within 30 days. Consistent with both the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the assets, trade and other receivables are subsequently measured at amortised cost. Impairment of financial assets: The following financial assets are tested for impairment by applying the ‘expected credit loss’ impairment model: dorsaVi Annual Report 2020 38 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (a) (b) (c) debt instruments measured at amortised cost; debt instruments classified at fair value through other comprehensive income; and receivables from contracts with customers and contract assets. The Group applies the simplified approach under AASB 9 to measuring the allowance for credit losses for both receivables from contracts with customers and contract assets. Under the AASB 9 simplified approach, the Group determines the allowance for credit losses for receivables from contracts with customers and contract assets on the basis of the lifetime expected credit losses of the financial asset. Lifetime expected credit losses represent the expected credit losses that are expected to result from default events over the expected life of the financial asset. For all other financial assets subject to impairment testing, when there has been a significant increase in credit risk since the initial recognition of the financial asset, the allowance for credit losses is recognised on the basis of the lifetime expected credit losses. When there has not been an increase in credit risk since initial recognition, the allowance for credit losses is recognised on the basis of 12-month expected credit losses. ’12-month expected credit losses’ is the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date. The Group consider a range of information when assessing whether the credit risk has increased significantly since initial recognition. This includes such factors as the identification of significant changes in external market indicators of credit risk, significant adverse changes in the financial performance or financial position of the counterparty, significant changes in the value of collateral, and past due information. The Group assumes that the credit risk on a financial asset has not increased significantly since initial recognition when the financial asset is determined to have a low credit risk at the reporting date. The Group considers a financial asset to have a low credit risk when the counterparty has an external ‘investment grade’ credit rating (if available) of BBB or higher, or otherwise is assessed by the Group to have a strong financial position and no history of past due amounts from previous transactions with the Group. The Group determines expected credit losses using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the financial asset as well as current and future expected economic conditions relevant to the financial asset. When material, the time value of money is incorporated into the measurement of expected credit losses. There has been no change in the estimation techniques or significant assumptions made during the reporting period. The Group has identified expected credit loss rates for the purpose of measuring expected credit losses. These credit loss rates have been selected based on the Group’s historical experience. Because contract assets are directly related to unbilled work in progress, contract assets have a similar credit risk profile to receivables from contracts with customers. Accordingly, the Group applies the same approach to measuring expected credit losses of receivables from contracts with customers as it does to measuring impairment losses on contract assets. The measurement of expected credit losses reflects the Group’s ‘expected rate of loss’, which is a product of the probability of default and the loss given default, and its ‘exposure at default’, which is typically the carrying amount of the relevant asset. Expected credit losses are measured as the difference between all contractual cash flows due and all contractual cash flows expected based on the Group’s exposure at default, discounted at the financial asset’s original effective interest rate. Financial assets are regarded as ‘credit-impaired’ when one or more events have occurred that have a detrimental impact on the estimated future cash flows of the financial asset. Indicators that a financial asset is ‘credit-impaired’ include observable data about the following: (a) (b) (c) significant financial difficulty of the issuer or the borrower; breach of contract; the lender, for economic or contractual reasons relating to the borrower’s financial difficulty, has granted concessions to the borrower that the lender would not otherwise consider; or it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation. (d) The gross carrying amount of a financial asset is written off (i.e. reduced directly) when the counterparty is in severe financial difficulty and the Group has no realistic expectation of recovery of the financial asset. Financial assets written off remain subject to enforcement action by the Group. Recoveries, if any, are recognised in profit or loss. (p) Foreign Currency Translations and Balances Functional and Presentation Currency: The financial statements of each entity within the Group are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars which is the Group’s functional and presentation currency. dorsaVi Annual Report 2020 39 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Transactions and Balances: Transactions undertaken in foreign currencies are recognised in the Group’s functional currency at the rate of exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the financial year. Except for certain foreign currency hedges, all resulting exchange differences arising on settlement or re-statement are recognised as revenues and expenses in the financial year in which they arose. Foreign Subsidiaries: Entities that have a functional currency different to the presentation currency are translated as follows: ▪ Assets and liabilities are translated at the closing rate on reporting date; ▪ Income and expenses are translated at actual exchange rates or average exchange rates for the period, where appropriate; and ▪ All resulting exchange differences are recognised in other comprehensive income. (q) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (r) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency. (s) Rounding of Amounts In accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, the amounts in the directors’ report and in the financial statements have been rounded to the nearest dollar. dorsaVi Annual Report 2020 40 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 2: SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS Certain accounting estimates include assumptions concerning the future, which, by definition, will seldom represent actual results. Estimates and assumptions based on future events have a significant inherent risk, and where future events are not as anticipated there could be a material impact on the carrying amounts of the assets and liabilities discussed below: (a) Impairment of Non-Financial Assets other than Goodwill All assets are assessed for impairment at each reporting date by evaluating whether indicators of impairment exist in relation to the continued use of the asset by the Group. Impairment triggers include declining product performance, technology changes, adverse changes in the economic or political environment or future product expectations. If an indicator of impairment exists, the recoverable amount of the asset is determined. The recoverable amount of a CGU is based on value in use calculations. The Directors have determined that there is one CGU applicable to the cash flows generated. Value in use calculations are based on projected cash flows approved by management covering a maximum five-year period. Management’s determination of cash flow projections are based on past performance and its expectations of the future. (b) Income Tax Deferred tax assets and liabilities are based on the assumption that no adverse change will occur in the income tax legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (c) Employee Benefits The calculation of long-term employment benefits requires estimation of the retention of staff, future wage levels and timing of the settlement of employee entitlements. The estimates are based on historical trends. (d) Share Based Payments The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments on the date at which they are granted. The value of equity instruments granted is determined according to the fair value of goods or services received unless that fair value cannot be estimated reliably, in which case the fair value is determined by reference to the underlying value of equity instruments granted. NOTE 3: FINANCIAL RISK MANAGEMENT The Group is exposed to a variety of financial risks comprising: Interest rate risk ▪ Currency risk ▪ ▪ Credit risk ▪ Liquidity risk The Board of directors has overall responsibility for identifying and managing operational and financial risks. The Group holds the following financial instruments: Financial assets: Cash and cash equivalents Trade receivables Other receivables Finance liabilities: Trade payables Borrowings Lease liability Other payables 2020 $ 2019 $ 1,685,288 284,886 646,334 2,616,508 2,766,419 617,700 745,907 4,130,026 79,656 1,664,934 246,984 1,160,824 3,152,398 228,668 - 360,994 1,284,539 1,874,201 dorsaVi Annual Report 2020 41 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (a) Currency Risk The Group undertakes transactions denominated in foreign currencies. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group is exposed to foreign currency risk through the operation of wholly owned subsidiaries in the United Kingdom and the United States of America and transactions occurring with countries in currencies that differ to the presentation currency of the Group. Whilst operations in these geographical regions are in their infancy, the Group has not established a hedging policy to mitigate adverse currency risk. The carrying amount of foreign currency denominated monetary assets and monetary liabilities at reporting date are: Current assets Current liabilities Sensitivity: 2020 $ 2019 $ USD GBP USD GBP 366,204 224,352 141,853 202,301 244,044 (41,743) 450,706 251,895 198,811 483,970 352,753 131,217 If foreign exchange rates were to increase/decrease by 10% from rates used in the profit or loss during the financial year, assuming all other variables that might impact on fair value remain constant, then the impact on loss for the year and equity is as follows: +/- 10% Impact on loss after tax Impact on equity (b) Interest Rate Risk 2020 $ 96,780 96,780 2019 $ 131,019 131,019 Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The Group’s exposure to interest rate risk in relation to future cash flows and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: dorsaVi Annual Report 2020 42 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 2020 Financial Instruments Financial assets Cash Term Deposit Term Deposit Term Deposit Trade receivables Other receivables Non-interest bearing $ Total carrying amount $ Weighted average effective interest rate Interest Bearing $ 1,556,908 51,381 27,932 49,067 - - - - 1,556,908 51,381 27,932 49,067 284,886 646,334 2,616,508 0.70% Floating 2.65% Fixed 2.20% Fixed 1.92% Fixed 0.00% 0.00% - - 1,685,288 284,886 646,334 931,220 Financial liabilities Trade payables Insurance finance facility Paycheck Protection Program loan Convertible note Lease liability Other payables - 79,656 52,455 152,892 1,459,587 246,984 - - - - - 1,911,918 1,160,824 1,240,480 79,656 52,455 152,892 1,459,587 246,984 1,160,824 3,152,398 0.00% 3.9% Fixed 1% Fixed 10% Fixed 12% Fixed 0.00% 2019 Financial Instruments Financial assets Cash Flexi Deposit Term Deposit Term Deposit Term Deposit Trade receivables Other receivables Financial liabilities Trade payables Lease liability Other payables Interest Bearing $ Non-interest bearing $ Total carrying amount $ 1,638,124 999,856 51,381 27,932 49,126 - - 2,766,419 - - - - - 617,700 745,907 1,363,607 1,638,124 999,856 51,381 27,932 49,126 617,700 745,907 4,130,026 Weighted average effective interest rate 0.70% Floating 1.80% Fixed 2.66% Fixed 2.20% Fixed 2.61% Fixed 0.00% 0.00% - 360,994 - 360,994 228,668 - 1,284,539 1,513,207 228,668 360,994 1,284,539 1,874,201 0.00% 12.00% Fixed 0.00% No other financial assets or financial liabilities are expected to be exposed to interest rate risk. There are no variable interest borrowings in the Group. The Group is exposed to variable interest cash and cash deposits held; however, fluctuations due to interest rates are considered immaterial. dorsaVi Annual Report 2020 43 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (c) Credit Risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date of recognised financial assets is the carrying amount of those assets, net of any provisions for impairment of those assets, as disclosed in consolidated statement of financial position and notes to the consolidated financial statements. The Group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Group. The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a number of known and existing customers and reputable organisations. (i) Cash Deposits: Credit risk for cash deposits is managed by holding all cash deposits with major Australian banks. (ii) Trade Receivables: Credit risk for trade receivables is managed by setting credit limits and completing credit checks for new customers. Outstanding receivables are regularly monitored for payment in accordance with credit terms. The ageing analysis of trade and other receivables is provided in Note 9. As the Group undertakes transactions with a large number of customers and regularly monitors payment in accordance with credit terms, the financial assets that are neither past due nor impaired, are expected to be received in accordance with the credit terms. (iii) Other Receivables: Other receivables relate to research and development tax concessions receivable from the Australian Taxation Office and do not pose a material credit risk and unbilled debtors in relation to accrued income. (d) Liquidity Risk The Group’s approach to managing liquidity risk is to ensure, as far as possible, that, at all times, it has sufficient liquidity to meet its liabilities. The Group has cash reserves and expects to settle all financial liabilities when they fall due. (e) Fair Value The fair value of financial assets and financial liabilities approximates their carrying amounts as disclosed in the consolidated statement of financial position and notes to the consolidated financial statements. dorsaVi Annual Report 2020 44 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME Revenue recognised at a point in time: Clinical income Workplace income Project income Revenue recognised over time: Clinical income Workplace income Revenue from contracts with customers is disclosed in the segment note as follows: Clinical income Workplace income Project income Other income: Grant and other income Interest income Foreign exchange gain 2020 $ 2019 $ 134,482 381,529 - 516,011 359,020 653,576 221,551 1,234,147 990,669 512,540 1,503,209 2,019,220 977,797 303,048 1,280,845 2,514,992 1,125,151 894,069 - 2,019,220 1,336,817 956,624 221,551 2,514,992 278,252 99,587 - 377,839 2,397,059 140,225 46,610 522,042 708,877 3,223,869 Revenue from device sales is recognised over time and not at a point in time in accordance with AASB 15. Foreign exchange gains or losses on the translation of foreign operations, previously recorded through the statement of comprehensive profit or loss are now accounted for through a reserve, refer Note 19. NOTE 5: LOSS FROM CONTINUING OPERATIONS Loss before income tax has been determined after: Depreciation Amortisation of patents and intangibles Provision for impairment of patents and intangibles Employee benefits expense: - Share based payments - Other employee benefits Less employee benefits capitalised Employee benefits expense Operating lease rental Research and development expense Cost of sales Bad debts 203,357 836,290 4,018,354 5,058,001 344,665 3,353,872 3,698,537 658,172 3,040,365 182,377 783,477 - 965,854 166,754 4,514,547 4,681,301 701,403 3,979,898 - 1,051,411 96,967 27,375 198,495 1,302,641 448,597 171,092 dorsaVi Annual Report 2020 45 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 INCOME TAX NOTE 6: (a) Components of tax benefit Current tax (b) Prima facie tax payable The prima facie tax refundable on loss before income tax is reconciled to the income tax benefit as follows: Prima facie income tax refundable on loss before income tax at 27.5% (2019: 27.5%) Add tax effect of: - Accounting R&D expenditure - Other non-allowable items - Impairment of intangibles - Deferred tax assets/liabilities not recognised - Share based payments expense - Tax losses not recognised Less tax effect of: - R&D tax offset - Deduction under s40-880 - Under provision for tax in the prior year - Effect of foreign tax rates - Deferred tax assets not recognised Income tax benefit attributable to loss (c) Deferred tax assets not brought to account Temporary differences Operating tax losses NOTE 7: DIVIDENDS There were no dividends paid during the period. NOTE 8: CASH AND CASH EQUIVALENTS Cash at bank and on hand Deposits at call NOTE 9: RECEIVABLES CURRENT Receivables from contracts with customers Allowance for credit losses Contract assets R&D tax offset refundable 2020 $ 2019 $ (457,364) (566,649) (2,213,872) (1,261,535) 281,293 - 1,105,047 27,255 94,783 786,660 2,295,038 444,955 49,566 12,409 31,601 - 538,531 (457,365) 371,997 172 - - 45,857 1,059,944 1,477,970 566,649 - - 12,529 203,906 783,084 (566,649) 229,734 7,832,197 8,061,931 202,563 6,846,669 7,049,232 2020 $ 1,556,908 128,380 1,685,288 2019 $ 1,638,124 1,128,295 2,766,419 374,727 (89,841) 284,886 744,311 (126,611) 617,700 201,379 444,955 931,220 179,259 566,648 1,363,607 dorsaVi Annual Report 2020 46 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Credit losses: The group applies the simplified approach under AASB 9 to measuring the allowance for credit losses for both receivables from contracts with customers and contract assets. Under the AASB 9 simplified approach, the group determines the allowance for credit losses for receivables from contracts with customers and contract assets on the basis of the lifetime expected credit losses of the instrument. Lifetime expected credit losses represent the expected credit losses that are expected to result from default events over the expected life of the financial asset. The group determines expected credit losses using a provision matrix based on the group’s historical credit loss experience, adjusted for factors that are specific to the financial asset as well as current and future expected economic conditions relevant to the financial asset. When material, the time value of money is incorporated into the measurement of expected credit losses. There has been no change in the estimation techniques or significant assumptions made during the reporting period. Life-time expected credit losses - receivables from contracts with customers: Loss allowance at 1 July Net remeasurement of loss allowance Amounts written off Loss allowance at 30 June 2020 $ 2019 $ (126,611) (27,375) 64,145 (89,841) (80,978) (171,092) 125,459 (126,611) 30 June 2020: Estimated total gross carrying amount at default Expected credit loss rate Expected credit loss 30 June 2019: Estimated total gross carrying amount at default Expected credit loss rate Expected credit loss NOTE 10: INVENTORIES CURRENT Finished goods, at cost Work in progress, at cost NOTE 11: OTHER ASSETS Not past due Past due 0-30 days Past due 30-90 days Past due 90+ days Total 69,457 -% - 107,223 -% 31 37,928 1% 475 160,119 56% 89,335 374,727 24% 89,841 178,090 1% 268,932 3% 1,781 8,068 82,061 10% 8,206 215,228 50% 108,5566 744,311 17% 126,611 2020 $ 2019 $ 661,342 21,797 683,139 265,751 42,769 308,520 Prepayments 149,721 142,578 NOTE 12: INTANGIBLE ASSETS Patents, at cost Less accumulated amortisation Less provision for impairment Development expenditure, at cost Less accumulated amortisation Less provision for impairment 1,158,274 (255,624) (902,650) - 5,261,956 (2,146,252) (3,115,704) - - 1,045,537 (197,440) - 848,097 4,589,964 (1,368,146) - 3,221,818 4,069,915 dorsaVi Annual Report 2020 47 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (a) Reconciliations Reconciliation of the carrying amounts of intangible assets at the beginning and end of the current financial year: Total Development Expenditure Patents 2020 $ 2019 $ 2020 $ 2019 $ 2020 $ 2019 $ Opening carrying amount Additions Amortisation expense Provision for impairment Closing carrying amount 848,097 112,737 (58,184) (902,650) 786,575 111,381 (49,859) 3,221,818 671,992 (778,106) - (3,115,704) 3,097,678 857,758 (733,618) 4,069,915 784,729 (836,290) - (4,018,354) 3,884,253 969,139 (783,477) - - 848,097 - 3,221,818 - 4,069,915 Additions to intangibles during the year related to product that had progressed from the research phase to where it has been determined that the product will be developed for progressive release to the market (refer Note 1 (j)). During the year the Group have assessed carrying value of its intangible assets for impairment based on value in use calculations. Given the recent change in the Group’s business strategy (i.e. transition to a SaaS recurring revenue strategy), the Group’s forecasts have been updated based upon reasonable and prudent assumptions including growth rates (2.5%), discount rates (16%) and terminal values. This has resulted in a provision for impairment of $4,018,354 in this financial year. Should future performance exceed Group forecasts, the current impairment provision may be reversed in future periods. NOTE 13: PLANT AND EQUIPMENT Testing equipment, at cost Accumulated depreciation Leased devices, at cost Accumulated depreciation Office equipment, at cost Accumulated depreciation Furniture, fixtures and fittings, at cost Accumulated depreciation Right to use asset, at cost (i) Accumulated depreciation Tooling, at cost Accumulated depreciation Total 2020 $ 2019 $ 128,760 (120,764) 7,996 128,635 (116,160) 12,475 267,743 (244,265) 23,478 267,743 (208,185) 59,558 290,239 (228,823) 61,416 286,291 (203,929) 82,362 63,691 (21,137) 42,554 63,691 (16,384) 47,307 401,718 (206,004) 195,714 401,718 (82,404) 319,314 94,258 (47,005) 47,253 378,411 94,258 (37,579) 56,679 577,695 (i) On 15 November 2018, the Group entered into a 39-month property lease. The agreement does not include variable lease payments or residual guarantees. Standard extension options are not expected to be exercised. dorsaVi Annual Report 2020 48 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (a) Reconciliations Reconciliation of the carrying amounts of plant and equipment at the beginning and end of the current financial year: 2019 $ 2020 $ Testing equipment: Opening carrying amount Additions Depreciation expense Closing carrying amount Leased devices: Opening carrying amount Depreciation expense Closing carrying amount Office equipment: Opening carrying amount Additions Depreciation expense Closing carrying amount Furniture, fixtures and fittings: Opening carrying amount Depreciation expense Closing carrying amount Right to use asset: Opening carrying amount Additions Depreciation expense Closing carrying amount Tooling: Opening carrying amount Depreciation expense Closing carrying amount Total: Opening carrying amount Additions Depreciation expense Closing carrying amount 12,475 125 (4,604) 7,996 20,321 - (7,846) 12,475 59,558 (36,080) 23,478 109,086 (49,528) 59,558 82,362 3,948 (24,894) 61,416 76,225 34,023 (27,886) 82,362 47,307 (4,753) 42,554 52,594 (5,287) 47,307 319,314 - (123,600) 195,714 - 401,718 (82,404) 319,314 56,679 (9,426) 47,253 66,105 (9,426) 56,679 577,695 4,073 (203,357) 378,411 324,331 435,741 (182,377) 577,695 dorsaVi Annual Report 2020 49 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 14: PAYABLES CURRENT Unsecured liabilities Trade payables Contract liabilities Sundry creditors and accruals NOTE 15: BORROWINGS CURRENT Unsecured liabilities Premium finance facility (i) Convertible note host debt (iii) NON-CURRENT Unsecured liabilities Paycheck Protection Program loan (ii) Convertible note host debt (iii) Derivative liability (iii) 2020 $ 2019 $ 79,656 866,136 294,688 1,240,480 228,668 1,070,347 214,192 1,513,207 52,455 129,486 181,941 - - - 152,892 - 620,376 709,725 1,482,993 1,664,934 - - - - (i) (ii) (iii) In March 2020, the Group entered into a finance facility for the annual insurance liability of dorsaVi Ltd. The facility is repayable monthly over a 10 month period ending in December 2020 at an interest rate of 3.9%. Under USA federal government Covid19 relief measures, dorsaVi’s US subsidiary was, on 23 June 2020, provided a Small Business Administration (SBA) Paycheck Protection Program (PPP) loan of US$104,930. The facility is 60 month facility bearing fixed interest at the rate of 1% p.a. If certain conditions are met, within a covered 24 week period commencing 25 June 2020, the SBA may forgive up to 100% of the PPP loan balance and associated accrued interest. Systematic principal and interest payments, on any unforgiven loan balance, commence after the amount of loan forgiveness is determined or 9 October 2021 whichever occurs first. In December 2019 1,155,000 convertible notes were issued with a face value of $1 each. The notes will mature in December 2022. Interest is payable at a rate of 10% p.a., monthly in arrears. As reflected in the above table, and, in accordance with Accounting Standards, the convertible notes are considered a financial liability with a host debt contract, held at amortised cost, and an embedded derivative liability, held at fair value through the profit and loss. Accordingly, the derivative liability will be revalued at each reporting date. Upon maturity the notes will convert into fully paid ordinary shares according to a 40 day VWAP calculation. In accordance with the terms of the note agreement the maximum number of fully paid ordinary shares that can be issued will be 38,500,000 and the minimum number will be 16,500,000. dorsaVi Annual Report 2020 50 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 16: LEASE LIABILITY On 15 November 2018, the Group entered into a 39-month property lease and, in accordance with AASB 16: Leases, a lease liability and a corresponding non-current asset, Right of Use Asset, refer Note 13, have been recognised. Future minimum lease payments and the present value of the net minimum lease payments: 2020 - Not later than one year - Later than one year and not later than 5 years Total minimum lease payments - Future finance charges Present value of minimum lease payment Current lease liability Non-current lease liability NOTE 17: PROVISIONS CURRENT Employee benefits NON-CURRENT Employee benefits $ 163,500 104,949 268,449 (21,465) 246,984 2019 $ 160,000 268,449 428,449 (67,455) 360,994 144,269 102,715 246,984 125,524 235,470 360,994 206,911 340,133 9,441 25,106 (a) Aggregate employee benefits liability 216,352 365,239 NOTE 18: SHARE CAPITAL The Group’s share capital is as follows: Ordinary Shares Parent Equity 2020 Parent Equity 2019 No of Shares $ No of Shares $ Beginning of the financial year Issued during the financial year: - Employee share scheme (i) - Shares issued in capital raising (ii) - Cost of raising capital End of the financial year 204,016,783 40,381,715 167,918,222 38,455,224 - 27,410,741 - 231,427,524 - 746,760 (48,122) 41,080,353 87,941 36,010,620 - 204,016,783 - 2,088,616 (162,125) 40,381,715 (i) Shares Issued under the Employee Share Ownership Plan: During the prior year performance rights previously granted to employees under the Employee Share Ownership Plan (ESOP) vested into shares. The shares were issued for $Nil consideration. dorsaVi Annual Report 2020 51 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (ii) Shares Issued in a Capital Raising: During the year ended 30 June 2020, the Group issued: ▪ 20,740,741 fully paid ordinary shares, at $0.027 per share, to sophisticated and institutional investors raising $560,000 before costs; and ▪ 6,670,000 fully paid ordinary shares, at $0.028 per share, under a share purchase plan to eligible shareholders, raising $186,760 before costs. During the year ended 30 June 2019, the Group issued 36,010,620 fully paid ordinary shares at $0.058 per share, under a 1 for 3 non-renounceable pro-rata rights offer to eligible shareholders, raising $2,088,616 before costs. Rights of each Type of Share Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders’ meetings, each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Capital Management When managing capital, management's objective is to ensure the Group continues as a going-concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. This is achieved through the monitoring of historical and forecast performance and cash flows. Employee Share Ownership Plan (ESOP) The Group continued to offer employee participation in short-term and long-term incentive schemes as part of the remuneration packages for the employees of the Group. Refer to Note 23, Share Based Payments, for detailed disclosures. NOTE 19: RESERVES AND ACCUMULATED LOSSES Notes 2020 $ 2019 $ Share-based payment reserve Foreign currency translation reserve 19(a) 19(b) 983,554 (750,301) 233,253 692,619 (769,812) (77,193) Accumulated losses 19(c) (40,854,577) (33,315,228) (i) Nature and Purpose of Reserves The share based payment reserve is used to record the fair value of options and shares issued to employees as part of their remuneration. The balance is transferred to share capital when options are granted, and the balance is transferred to retained earnings when options lapse. dorsaVi Ltd has monetary items receivable and payable to and from its subsidiaries. Under AASB 121: The Effects of Changes in Foreign Exchange Rates, these items are reviewed annually. During the financial year ending 30 June 2020 it was determined that these items would be treated as an investment in those foreign operation. As a result, exchange differences on these items are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment. dorsaVi Annual Report 2020 52 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (ii) Movements in reserve (a) Share-based payment reserve Balance at beginning of year Employee share ownership plan Transfers to retained earnings Balance at end of year (b) Foreign currency translation reserve Balance at beginning of year Exchange differences on translation of foreign operations Balance at end of year (c) Accumulated losses Balance at beginning of year Net loss attributable to members of dorsaVi Ltd Transfers from share based payment reserve Balance at end of year NOTE 20: CASH FLOW INFORMATION (a) Reconciliation of Cash: 2020 $ 2019 $ 692,619 344,665 (53,730) 983,554 1,000,854 166,754 (474,989) 692,619 (769,812) 19,511 (750,301) (269,447) (500,365) (769,812) (33,315,228) (7,593,079) 53,730 (29,769,466) (4,020,751) 474,989 (40,854,577) (33,315,228) Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash at bank and on hand Cash on deposit 1,556,908 128,380 1,685,288 1,638,124 1,128,295 2,766,419 dorsaVi Annual Report 2020 53 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (b) Reconciliation of cash flow used in operations with loss after income tax: Loss from ordinary activities after income tax (7,593,079) (4,020,751) 2020 $ 2019 $ Adjustments and non-cash items: Amortisation Depreciation Provision for impairment of intangibles Share Based Payments Movement in debtor provision Foreign exchange differences on operating assets Unrealised foreign exchange differences through profit and loss Change in fair value of derivative liability Interest adjustment on convertible note host debt Adjustment to carrying value of convertible note through the profit and loss Changes in assets and liabilities: Decrease in receivables (Increase) / decrease in other assets (Increase) / decrease in inventories Increase in payables (Increase) / decrease in R&D tax offset receivable Increase / (decrease) in provisions Cash flows used in operating activities 836,290 203,357 4,018,354 344,665 (36,770) 19,511 - 278,151 62,607 21,579 347,464 (7,143) (374,619) (272,727) 121,693 (148,887) 5,413,525 (2,179,554) 783,477 182,377 - 166,754 45,633 38,455 (538,820) - - - 462,012 93,417 16,414 428,563 317,827 (58,401) 1,937,708 (2,083,043) (c) Reconciliation of liabilities arising from financing activities: Balance at the beginning of the year New leases acquired Interest accrued Payments made Balance at the end of the year 360,994 - 37,836 (151,846) 246,984 - 401,718 32,136 (72,860) 360,994 NOTE 21: COMMITMENTS AND CONTINGENCIES (a) Expenditure commitments Acquisition of inventories, less than one year Total expenditure commitments (b) Contingent asset and liabilities There are no contingent assets or contingent liabilities at balance date. - - 291,102 291,102 dorsaVi Annual Report 2020 54 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 22: LOSS PER SHARE Reconciliation of loss used in calculating loss per share: Loss from continuing operations Loss used in calculating basic loss per share Loss used in calculating diluted loss per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities: Equity instruments Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share NOTE 23: SHARE BASED PAYMENTS (a) Employee Shares 2020 $ (7,593,079) (7,593,079) (7,593,079) 2019 $ (4,020,751) (4,020,751) (4,020,751) 2020 No of Shares 2019 No of Shares 217,396,418 186,924,883 - - 217,396,418 186,924,883 In 2013 the Board established an ESOP to facilitate the acquisition of Shares, Options and Performance Rights by those employed, or otherwise engaged by, or holding a position of office in, dorsaVi Ltd. They key objective of the plan is to provide an incentive for employees to align their interests with those of the shareholders. Other objectives of the ESOP include: ▪ To attract, motivate and retain quality employees and Directors of dorsaVi Ltd; ▪ To create a committed and united purpose between the employees and Directors and dorsaVi Ltd; and ▪ To add wealth for all shareholders of dorsaVi through the motivation of dorsaVi’s employees and Directors. Only a person who is an Eligible Person may be invited and authorised by the Board to participate in this plan. An Eligible person means: ▪ An employee of dorsaVi Ltd or a subsidiary of dorsaVi Ltd; or ▪ A Director of dorsaVi Ltd or a subsidiary of dorsaVi Ltd who holds a salaried employment or office in dorsaVi Ltd or a subsidiary of dorsaVi Ltd; or ▪ A contractor engaged by dorsaVi Ltd or a subsidiary of dorsaVi and whom the Group has determined is an Eligible Person to participate in this plan. There is no maximum limit on the number of Securities that may be acquired by Eligible Persons under the ESOP. However, the Board intends to restrict further issues of Securities to no more than 5% of the Group’s issued share capital. This limit will be maintained unless shareholder approval is subsequently sought to increase this level. (b) Loan Shares and Options The plan allows for dorsaVi to offer employees non-recourse and interest-free loans to acquire fully paid shares. On 20 September 2013, the Group’s shareholders approved the giving of such financial assistance. Loan shares are treated as options in accordance with accounting standards. Loan Shares are subject to restriction agreements imposing loan repayment obligations, and, that the holders of Shares are not able to trade them within 12 months of issuance. After 12 months, 1/3rd of the issued shares can be traded. Contingent upon continued employment with the Group and meeting loan repayment obligations, the remaining shares become available for trading at a monthly rate of 1/36th of the shares issued over the subsequent 24 months. During the year ended 30 June 2020 and to the date of this report no options over ordinary shares or loan shares were granted to employees (2019: Nil) and 12,739,588 options over ordinary shares were granted to non-executive directors in lieu of the payment of directors’ fees (2019: Nil). During the year a total of 50,000 options were cancelled (2019: 592,501 options cancelled). At 30 June 2020, 13,518,754 had been granted but not converted into ordinary shares (2019: 829,166). dorsaVi Annual Report 2020 55 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 (c) Employee Performance Rights Performance rights are subject to performance vesting conditions in accordance with each agreement. The performance rights do not vest into shares unless the performance conditions are met. During the year ended 30 June 2020, 2,331,071 performance rights were granted (2019: Nil). During the year ended 30 June 2020, 2,826,601 (2019: 87,941) performance rights vested into shares. During the year ended 30 June 2020, 155,470 performance rights lapsed (2019: 1,242,725). At 30 June 2020, 430,000 performance rights remain outstanding (2019: 1,081,000). Details of shares, options and performance rights granted are as follows: 2020 Grant date Expiry date Exercise price Balance at 1/7/2019 Granted during the year Vested during the year Expired during the year Balance at 30/6/2020 Exercisable at year end 5-Nov-24 5-Nov-14 25-Feb-25 25-Feb-15 24-Mar-21 24-Mar-16 1-Oct-19 29-Nov-16 29-Nov-19 29-Nov-16 15-May-17 15-May-22 1-Oct-22 15-May-17 1-Oct-23 15-May-17 1-Oct-19 15-May-17 1-Jul-19 15-May-17 1-Oct-19 5-Jun-17 1-Jul-19 5-Jun-17 18-Sep-19 18-Sep-19 1-Oct-19 18-Sep-19 1-Oct-20 18-Sep-19 1-Oct-21 18-Sep-19 18-Sep-22 18-Sep-19 4-Dec-24 4-Dec-19 4-Dec-24 4-Dec-19 7-Jan-25 7-Jan-20 7-Apr-25 7-Apr-20 25-Jun-20 25-Jun-20 7-Jul-25 7-Jul-20 TOTAL $0.40 $0.36 $0.40 $0.33 $0.33 $0.33 20,000 50,000 200,000 - 150,000 - 450,000 550,000 55,000 24,166 - 39,000 - 117,000 - 125,000 - 200,000 - - 760,000 - - 70,000 - - 115,000 - - 115,000 - - 200,000 - 1,280,488 - 1,116,703 - 1,846,856 - 4,801,827 - - 1,071,071 - 3,693,714 15,070,659 1,980,166 20,000 - - - 20,000 50,000 - - 50,000 100,000 - - - 200,000 87,000 - - - 63,000 - - - - 450,000 500,000 - - 50,000 500,000 55,000 - - - 55,000 - - - 24,166 24,166 - - - 21,530 17,470 - - - - 117,000 49,250 - 75,750 - - - - - - 200,000 - - - 760,000 - - 1,750 68,250 - - - 115,000 - - - 115,000 - - - 200,000 1,280,488 - 1,280,488 1,280,488 1,116,703 - 1,116,703 1,116,703 1,846,856 - 1,846,856 1,846,856 - 4,801,827 4,801,827 4,801,827 - - - 1,071,071 3,693,714 - 3,693,714 3,693,714 13,488,754 14,018,754 205,470 15,566,189 $0.086 $0.072 $0.036 $0.024 $0.018 Other additional information associated with these share performance rights and option grants include: ▪ The weighted average remaining contractual life for equity entitlements outstanding at the end of the period was 3.2 years. ▪ The weighted average share price for performance rights vesting into shares during the year was $Nil (2019: $Nil). ▪ There were no options exercised during the year (2019: none exercised). ▪ The fair value was determined using the binomial tree method or the Black-Scholes option-pricing models: a. The share price at grant date ranged from: $0.01 to $0.40 b. Expected price volatility of the Group’s shares: 80% c. Dividends: $Nil d. Risk free interest rate: 1.51% to 2.50% dorsaVi Annual Report 2020 56 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 2019 Grant date Expiry date Exercise price Balance at 1/7/2018 Granted during the year Vested during the year Expired during the year 3-Jul-14 2-Sep-14 5-Nov-14 25-Feb-15 17-Aug-15 24-Mar-16 29-Nov-16 29-Nov-16 29-Nov-16 15-May-17 15-May-17 15-May-17 15-May-17 15-May-17 15-May-17 15-May-17 15-May-17 5-Jun-17 5-Jun-17 5-Jun-17 5-Jun-17 5-Jun-17 - - 5-Nov-19 25-Feb-20 - 24-Mar-21 - 1-Oct-19 29-Nov-19 15-May-22 1-Oct-22 1-Oct-23 - - - 1-Oct-19 1-Jul-19 - 1-Oct-19 1-Jul-19 - - $0.46 $0.40 $0.40 $0.36 $0.26 $0.40 - - - $0.33 $0.33 $0.33 $0.33 $0.33 - - - - - - - - 250,000 100,000 20,000 80,000 500,000 200,000 150,000 150,000 450,000 550,000 55,000 133,333 133,334 350,000 39,000 39,000 117,000 275,000 275,000 500,000 83,334 333,332 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11,250 - - - - - - - 9,775 - - 56,500 - - 10,416 - 250,000 100,000 - 30,000 500,000 - 138,750 - - - - 109,167 133,334 350,000 29,225 - - 218,500 150,000 300,000 72,918 333,332 Balance at 30/6/2019 Exercisable at year end - - - - 20,000 50,000 20,000 50,000 - - 200,000 - 150,000 450,000 550,000 55,000 24,166 - - - 39,000 117,000 - 125,000 200,000 - - 100,000 - - - 550,000 55,000 24,166 - - - - - - - - - - TOTAL 4,783,333 - 87,941 2,715,226 1,980,166 799,166 (d) Expenses Recognised from Share-Based Payment Transactions The expense recognised in relation to the share-based payment transactions was recorded within employee benefits expense in the statement of comprehensive income were as follows: Share options Performance rights Total expenses recognised from share-based payment transactions 2020 $ 256,097 88,568 344,665 2019 $ 891 165,863 166,754 dorsaVi Annual Report 2020 57 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 24: SUBSIDIARIES AND RELATED PARTY DISCLOSURES The consolidated financial statements include the financial statements of dorsaVi Ltd and its controlled entities listed below: dorsaVi Europe Ltd dorsaVi USA, Inc. Australian Workplace Compliance Pty Ltd Country of incorporation Ownership interest held by DVL UK USA AUS 2020 % 100 100 100 2019 % 100 100 100 ▪ dorsaVi Europe Ltd was incorporated on 3 February 2014. ▪ dorsaVi USA, Inc. was incorporated on 19 May 2014. ▪ Australian Workplace Compliance Pty Ltd was purchased on 3 July 2014. (a) Transactions with Entities with Associates: There were no transactions with associates or their entities during the year ended 30 June 2020 (2019: $nil). (b) Transactions with Directors, Key Management Personnel and Other Related Parties: Starfish Ventures Pty Ltd is considered a related party in accordance with the definition under AASB 124: Related Parties. During the first five months of the year ended 30 June 2019, Starfish Ventures Pty Ltd leased property and charged rent to dorsaVi Ltd. The Rental arrangement ceased in November 2018. Total value of rental charges during the year ended 30 June 2020 was $Nil (2019: $83,570). The rent was charged to dorsaVi on normal terms and conditions. The balance outstanding at balance date was $Nil (2019: $Nil). During the year ended 30 June 2020, dorsaVi Ltd paid $Nil (2019: $34,276) to Starfish Technology Fund II, LP on behalf of Michael Panaccio for director’s fees. As approved by shareholders at the 2019 AGM, non-executive directors were granted options over ordinary shares in lieu of the payment of directors’ fees as from 1 March 2019. During the year ended 30 June 2020, Starfish Ventures Pty Ltd was granted 2,918,381 options on behalf of Michael Panaccio (2019: nil). NOTE 25: AUDITOR'S REMUNERATION Audit and Other Assurance Services Amounts paid and payable to Pitcher Partners (Melbourne) for: (i) An audit or review of the financial report of the entity and any other entity in the consolidated entity Total remuneration for audit and other assurance services (ii) Taxation and other compliance services Total remuneration for non-audit services Total remuneration of Pitcher Partners (Melbourne) Other Non-audit Services 2020 $ 109,900 109,900 14,901 14,901 124,801 2019 $ 116,236 116,236 18,727 18,727 134,693 dorsaVi Annual Report 2020 58 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 NOTE 26: PARENT ENTITY INFORMATION (a) Summarised statement of financial position Assets: Current assets Non-current assets Total assets Liabilities: Current liabilities Non-current liabilities Total liabilities Net assets Equity: Share capital Share-based payment reserve Accumulates losses Total equity (b) Summarised statement of comprehensive income Loss for the year Other comprehensive income for the year Total comprehensive income for the year NOTE 27: SEGMENT INFORMATION (a) Description of Segments 2020 $ 2019 $ 4,135,287 378,411 4,513,698 17,818,775 4,647,610 22,466,385 2,095,663 2,146,073 1,339,542 3,435,205 1,078,493 25,106 2,171,179 20,295,206 41,080,353 983,554 (40,985,414) 1,078,493 40,381,715 692,619 (20,779,128) 20,295,206 (20,260,016) (1,961,876) - - (20,260,016) (1,961,876) For the years ended 30 June 2019 and 2020, management has differentiated operating segments based on product. The Group’s chief operating decision maker has identified the following reportable segments: ▪ Segment 1: Clinical; ▪ Segment 2: Workplace; and ▪ Segment 3: Projects. The operating segments have been identified based on internal reports reviewed by the Group’s chief operating decision makers in order to allocate resources to the segment and assess its performance. Assets and liabilities are reported to management on a consolidated basis. (b) Segment Information The Group’s chief operating decision maker’s use segment revenue and segment result to assess the financial performance of each operating segment. Amounts for segment information are measured in the same way in the financial statements. They include items directly attributable to the segment and those that can reasonably be allocated to the segment based on the operations of the segment. There has been no inter-segment revenue during the year. dorsaVi Annual Report 2020 59 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Segment information is reconciled to financial statements and underlying profit disclosure notes as follows: 2020 Segment revenue: Segment revenue from external source Non-segment revenue Total revenue Segment result: Segment result from external source Non-segment revenue Non-segment expenses Income tax benefit Loss from continuing operations 2019 Segment revenue: Segment revenue from external source Non-segment revenue Total revenue Segment result: Segment result from external source Non-segment revenue Non-segment expenses Income tax benefit Loss from continuing operations Revenue by geographic location: 2020 Revenue by geographic location Total revenue from external source 2019 Revenue by geographic location Total revenue from external source (c) Major Customers Clinical $ Workplace $ Projects $ Total $ 1,125,151 894,069 - - - - 2,019,220 377,839 2,397,059 1,054,240 868,013 - - - - - - 1,922,253 - - 377,839 - (10,350,535) 457,364 - (7,593,079) Clinical $ Workplace $ Projects $ Total $ 1,336,817 - 956,624 - 221,551 - 2,514,992 708,877 3,223,869 1,086,076 816,371 - - - - - - 163,948 - - - 2,066,395 708,877 (7,362,672) 566,649 (4,020,751) Australia $ Europe $ USA $ Total $ 902,619 902,619 436,250 436,250 1,058,190 1,058,190 2,397,059 2,397,059 1,608,442 1,608,442 290,607 290,607 1,324,820 1,324,820 3,223,869 3,223,869 In 2020 and 2019 no customer contributed greater than 10% of the Group’s total revenue. NOTE 28: SUBSEQUENT EVENTS No matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years with the exception of the following: • On 7 July 2020, dorsaVi Ltd announced (as approved by shareholders on 28 November 2019) the issue of 3,693,714 options to non-executive directors, in lieu of directors’ fees, at an exercise price of $0.018 per share and an expiry date of 7 July 2025. dorsaVi Annual Report 2020 60 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Directors’ Declaration The directors declare that the financial statements and notes set out on pages 28 to 60 in accordance with the Corporations Act 2001: a) Comply with Accounting Standards and the Corporations Regulations 2001, and other mandatory professional reporting requirements; b) As stated in Note 1(a) the consolidated financial statements also comply with International Financial Reporting Standards; and c) Give a true and fair view of the financial position of the Group as at 30 June 2020 and of its performance for the year ended on that date. In the directors’ opinion, there are reasonable grounds to believe that dorsaVi Ltd will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made by the chief executive officer and chief financial officer to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2020. This declaration is made in accordance with a resolution of the directors. Greg Tweedly Chairman Andrew Ronchi Director and CEO Melbourne Date: 26 August 2020 Melbourne Date: 26 August 2020 dorsaVi Annual Report 2020 61 dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd Report on the Audit of the Financial Report Opinion We have audited the financial report of dorsaVi Ltd “the Company” and its controlled entities “the Group”, which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other 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 dorsaVi Ltd, is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (b) 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 a Financial Report section of our report. We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) “the Code” that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1(c) in the financial report that conditions exist that indicate a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 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. Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd Key Audit Matter How our audit addressed the key audit matter Capitalisation of development expenditure within intangible assets Refer to Note 12 - Intangible Assets - $NIL The research and development of new and existing the Group’s operations. Each project undertaken represents an investment made by the business for which future economic benefits are expected to be derived. Our procedures included amongst others: • Obtaining of and evaluating the accounting processes and internal controls relating to the capitalisation of development costs; • Reviewing management reconciliations for understanding is part of technology an The capitalisation of any development costs is highly subjective and based on management judgement and to various recognition criteria as detailed in AASB 138 Intangible assets. is also subject • Key management judgements to be made include the following: • Stage of the development cycle - research vs development; Ability to accurately record and allocate costs incurred including employee costs; and Technical and commercial viability of individual projects undertaken. individual projects, • • for We focused on capitalised development costs as a key audit matter due to the number and type of judgement and estimation events required. ` the amounts capitalised, including: • Testing the mathematical accuracy of reconciliations prepared for costs that had been capitalised; Selecting a sample of transactions from the and development capitalised performing the following: costs • Reviewing employee costs allocated to different development projects, and testing a sample of employee rates and captured hours the amounts capitalised and tracing to employee timesheets; for • Reviewing external contractor costs allocated to the different development projects, and sampling and testing supporting contractor information the expenditure; substantiate costs to to • • Evaluating management’s process regarding capitalisation of development costs, and reviewing development projects against the recognition criteria as detailed in AASB 138 Intangible assets; and Assessing the adequacy of the disclosures in the financial statements. Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd Key Audit Matter Provision for Impairment on Intangible assets Refer to Note 12 - Intangible Assets - $NIL The is Intangibles assets considered a key audit matter due to the following: • impairment of assumptions within There is significant management judgement required in assessing these balances for in particular, selecting impairment and appropriate the Discounted Cash Flow (DCF) impairment assessment model, including identification of the appropriate Cash Generating Unit (CGU), revenue growth assumptions, and discount rate. During the year the Group has undertaken an impairment assessment of the carrying value of its intangible assets based on value in use (DCF) calculations. The outcome has resulted in a provision for impairment of $4,018,354. We focused on impairment assessment of intangible assets as a key audit matter due to the quantum of this assets carrying value and the number and judgement and estimation events required. type of How our audit addressed the key audit matter Our procedures included amongst others: • Obtaining an understanding of and evaluating the accounting processes and internal controls relating to impairment assessments; Assessment of management’s determination of the Group’s CGU based on our understanding of the nature of the Group’s business; • • • Comparing the DCF forecasts to Board approved forecasts, and analysis of assumptions within those forecasts; Assessing the reliability of the Group’s DCF forecasts and business plans, including detailed analysis of key inputs and drivers including revenue growth, contract attrition rates and expenditure; • Comparing DCF forecasts to recent financial • • • • performance; Assessing the discount rate used in the Group’s DCF; Performing sensitivity analysis on the DCF model; Assessing the value of the Group’s intangible value utilising other valuation methodologies; Assessing the adequacy of the disclosures in the financial statements. Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd Key Audit Matter Convertible Note Liability Refer to Note 15 – Convertible note host debt - $749,862 Refer to Note 15 – Derivative liability- $709,725 How our audit addressed the key audit matter Our procedures included amongst others: • Obtaining an understanding of and evaluating the accounting processes and internal controls relating to convertible notes; • Reviewing the terms of the Convertible notes; • Assessing the appropriate treatment of the Convertible notes in accordance with AASB 9: Financial Instruments; • Reviewing the external valuation obtained by • • • the Group; Evaluating the credentials of the external valuer; Assessing the appropriateness of the valuation methodology and inputs utilised by the external valuer; Assessing the adequacy of the disclosures in the financial statements. The measurement of the Convertible notes issued during the year is considered a key audit matter due to the following: • The terms of the Convertible notes were assessed as being a financial liability with a host debt contract held at amortised cost, and an embedded derivative liability, held at fair value through the profit and loss. Accordingly, the host debt and derivative liability components of the Convertible notes require valuation upon initial recognition, and the derivative liability is required to be revalued at each reporting date. The initial valuation of the respective components, and the subsequent valuation of the derivative liability contains complexity. The initial recognition of the host debt was $687,255 and the initial fair value of the derivative liability was $431,574. The fair value adjustment of the derivative liability at balance date was an increase to $709,725, with the $278,151 change of fair value being recognised as an expense in the profit and loss. We focused on the initial recognition of the host debt and derivative liability, and subsequent fair value adjustment of the derivative liability at balance date as a key audit matter due to the complexity of the valuations required. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’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 Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN 15 129 742 409 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF dorsaVi Ltd We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions to eliminated threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 18 to 26 of the directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of dorsaVi Ltd, for the year ended 30 June 2020 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. S SCHONBERG PITCHER PARTNERS Partner Melbourne 26 August 2020 Pitcher Partners. An independent Victorian Partnership ABN 27 975 255 196. Level 13, 664 Collins Street, Docklands, VIC 3008 Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities Adelaide Brisbane Melbourne Newcastle Sydney Perth pitcher.com.au dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Shareholder Information Corporate Governance: The Group’s Corporate Governance Statement can be obtained at https://www.dorsavi.com/au/en/investor- relations/ Overview: The Group’s securities are listed for quotation in the form of Ordinary Shares on the Australian Securities Exchange (ASX) and trade under the symbol “DVL”. The shareholder information below was applicable as at 13 August 2020. The Group’s share capital was as follows: Type of Security: Ordinary Shares Options Performance Rights Substantial Holders: Names of Holders Starfish Technology Fund II, LP, Starfish Ventures, Michael Panaccio and Cristiana Panaccio and Micana Family Trust Unmarketable Parcels: Number of Securities 231,427,524 13,518,754 430,000 Number of Holders 1,273 7 1 Number of Shares Held % of Total Shares 101,819,921 44% Based on the closing market price on 13 August 2020, there were 663 shareholders holding less than a marketable parcel (i.e. a parcel of securities of less than $500). Options and Performance Rights (not listed on ASX): There were 13,518,754 unquoted options on issue to purchase ordinary shares under the Group’s Incentive Stock Option Agreement. The Options have been issued in accordance with the terms and conditions of the dorsaVi Ltd 2013 Share Ownership Plan. There were 430,000 unquoted Performance Rights granted, but not vested into ordinary shares, under the Group’s Incentive Agreements. The Performance Rights have been granted in accordance with the terms and conditions of the dorsaVi Ltd 2013 Share Ownership Plan. Restricted Securities and Escrow Agreements: There are no securities which are restricted or subject to escrow agreements. Voting Rights: At a general meeting, each Shareholder present (in person or by proxy, attorney or representative) has one vote on a show of hands and one vote for each share held when voting is done via a poll. Proxy forms will be included in each notice of meeting sent to Shareholders. Holders of issued but unexercised options are not entitled to vote. dorsaVi Annual Report 2020 68 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Required Statements: a) b) There is no current on-market buy-back of the Group’s securities. The Group’s securities are not quoted on any exchange other than the ASX. Distribution Schedule: Number of Shares 1 – 1,000 1,001 - 5,000 5,001 - 10,000 10,001 – 100,000 100,001 and above Total dorsaVi Ltd’s Top 20 Shareholders: Set out below is a schedule of the 20 largest holders of each class of securities quoted. Rank Name 1 2 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 STARFISH TECHNOLOGY FUND II LP STARFISH TECHNOLOGY FUND II NOMINEES A PTY LTD STARFISH TECHNOLOGY FUND II NOMINEES B PTY LTD AR BSM PTY LTD BANNABY INVESTMENTS PTY LIMITED DRNEWNHAM SUPER PTY LTD TANARNY SUPER FUND PTY LTD MS GABRIELLE BANAY ANDREW RONCHI MRS AMITY BROOKE JOHNSON DAMIAN CONNELLAN MR SHANE TIMOTHY BALL MR SHENG SUN MR BRIAN TULLY + MRS MARGARET TULLY MASTO PTY LTD MR STUART ANDREW LEWIN TRUJON INVESTMENT HOLDINGS PTY LTD VALENCE HOLDINGS PTY LTD THE PW & CM STINTON MR WAI KIT LEE DANIEL RONCHI Total shares held by top 20 shareholders Total shares held by all other shareholders Number of Holders 41 187 196 627 222 1,273 No of Shares Held 60,597,345 18,464,557 18,464,557 7,021,814 4,428,497 4,231,516 3,703,704 3,233,482 2,374,309 2,000,000 1,971,071 1,850,000 1,730,000 1,656,125 1,625,129 1,579,000 1,517,333 % of Total Shares 26.18 7.98 7.98 3.03 1.91 1.83 1.60 1.40 1.03 0.86 0.85 0.80 0.75 0.72 0.70 0.68 0.66 1,486,991 0.64 1,278,920 1,244,668 140,459,018 90,968,506 0.55 0.54 60.69 39.31 dorsaVi Annual Report 2020 69 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 Corporate Directory: Board of Directors and Company Secretary: Mr Gregory Tweedly Mr Ashraf Attia Ms Caroline Elliott Dr Michael Panaccio Dr Andrew Ronchi Chairman Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer and Executive Director Company Secretary Mr Brendan Case Executive Team: Dr Andrew Ronchi Mr Damian Connellan Mr David Erikson Mr Matthew May Chief Executive Officer Chief Financial Officer Chief Technical Officer General Manager Registered Office in Australia: C/- Pitcher Partners, Level 13, 664 Collins Street, Docklands, VIC 3008 Tel: +61 3 8610 5000 Principal Administrative Office: 85 Denmark Street, Kew, VIC 3101 Tel: 1800 367 728 Share Registry: Computershare Investor Services Pty Limited GPO Box 2975, Melbourne, VIC 3001 Tel: + 61 3 9415 4062 Auditor: Pitcher Partners Level 13, 664 Collins Street, Docklands, VIC 3008 Tel: +61 3 8610 5000 Annual General Meeting Date and Venue: The Annual General Meeting will be held Friday, 27 November 2020 at 9:00 am. Due to the COVID 19 pandemic the venue, and, or, means by which the meeting will be conducted has yet to be determined. This will be advised to shareholders and the ASX at a later date but not later than 27 October 2020. dorsaVi Annual Report 2020 70 dorsaVi Ltd and controlled entities ABN: 15 129 742 409 dorsaVi Annual Report 2020 71 

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