Genetic Signatures Limited
Annual Report 2020

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Annual Report 2020 Our Purpose & Vision Genetic Signatures is a molecular diagnostics (MDx) company focused on the development and commercialisation of its proprietary 3base™ platform technology. Our 3base™ technology (the cornerstone of our EasyScreen™ Pathogen Detection Kits), reduces the genetic complexity of infection detection in molecular testing. Our tests enable hospital and pathology facilities to use standard equipment and procedures to more accurately screen for a wide array of infectious diseases (pathogens) and deliver enhanced results in hours, not days, as compared to traditional methods. Our aim is to become a global leader in the supply of diagnostic solutions for the rapid detection of infectious diseases. Timely, accurate diagnosis improves patient outcomes and allows the implementation of appropriate infection control measures that reduce costs and save lives. Through minimising work and maximising results, Genetic Signatures drives customer and shareholder value whilst improving community health across the globe. Contents Chairman’s Letter ................................3 CEO Report ...........................................4 FY20 Results ........................................5 Commercialisation Update .................6 EasyScreenTM Kits .............................11 Market Oportunities ..........................12 Personnel ...........................................16 Financial Report 2020 .......................19 Genetic Signatures Limited – Annual Report 2020 Chairman’s Letter Dear Fellow Shareholder, Thank you for your support over the past year. The past financial year has given rise to significant commercial success for Genetic Signatures. In the wake of a global pandemic, the Company has established itself as a global supplier of COVID-19 tests. I am very proud of our employees who have worked extremely hard to respond quickly and effectively to the demands of the COVID-19 pandemic, leveraging our proprietary technology and internal capabilities to develop COVID-19 test kits to address this global health emergency. Genetic Signatures’ revenue base grew by 131% to $11.3 million in FY20, up from $4.9 million in FY19. Revenue has been bolstered by the rapid development of our COVID-19 test kit enabling significant domestic and international sales. Our Company established itself in Europe with sales of both diagnostic kits and instrumentation. Pleasingly, Genetic Signatures recorded a profit in the second half of FY20, a very important milestone for the Company. International expansion is now well underway and we are confident FY21 will see an increasing proportion of our revenue generated from outside our domestic market. The global COVID-19 pandemic has created opportunities to gain traction with numerous customers in a number of European countries, and we are focused on driving further customer acquisitions in this region. North America, the largest molecular diagnostics market opportunity globally, represents our next priority and our US sales team is actively pursuing COVID-19 opportunities under the recent FDA Emergency Use Application (EUA) guidance of which Genetic Signatures is uniquely positioned to combat with our 3baseTM technology. While our near-term focus centres on opportunities for SARS-CoV-2 commercialisation, in FY21 Genetic Signatures will continue to develop and launch EasyScreen™ detection kits in new markets. Genetic Signatures’ 3base™ technology provides a significant competitive advantage in capturing global market share, saving lives and improving patient outcomes. Genetic Signatures’ FY20 performance is a strong testament to the work of our employees over a number of years. Our success would not have been possible without the dedication and commitment provided by our personnel across all parts of the Company. The team has demonstrated resilience and commitment during this period of growth, and I would like to congratulate them on their achievements to date. Finally, let me thank our shareholders for their ongoing support of Genetic Signatures. The funds raised in late 2019 to invest in product and capability expansion enabled us to rapidly pivot to support the COVID-19 response. I look forward to continuing to share this exciting journey with you going forward. Dr Nick Samaras Chairman 3 In North America, Genetic Signatures EasyScreen™ SARS-CoV-2 Detection Kit can now be marketed under guidance provided by the FDA allowing laboratories certified by CLIA to perform high complexity testing using our platform to address the ever-increasing need for COVID-19 testing in the United States. Genetic Signatures is well placed to assist the pandemic globally due to our 3baseTM technology and the US sales team is actively following a number of sales leads. North America represents the largest diagnostics market globally and the Company has focused on building inventory of its kits to ensure it can facilitate new North American customer contracts, which could represent a step change in revenue. The Company continued to progress the commercialisation of further EasyScreen™ products in new markets. The Company filed TGA and CE-IVD submissions for the STI / Genital Pathogen Kit in 4Q FY20 and clearance is anticipated in the coming months. Clinical trials have now commenced for the new Enteric Protozoan kit in North America and the Flavivirus / Alphavirus kit in Australia and Europe. The Company is committed to achieving a number of commercial milestones throughout FY21 and beyond and to further accelerate revenue growth and deliver value to our shareholders. We expect the traction generated from new and existing customers over the last financial year to garner further interest in Genetic Signatures’ broader range of EasyScreen™ multiplex kits. The pressure worldwide to move away from lockdowns and get back to work has prompted increased demand for accurate testing of entire populations, highlighting the benefits of our technology and increasing demand for our products. We are excited about the growth prospects of the Company, particularly in EMEA and North America and our international sales team are well positioned to continue to drive growth. I look forward to updating you on all our accomplishments in the coming year. Dr John Melki Managing Director and CEO CEO Report In an exceptional year for Genetic Signatures, the Company made significant progress on its global expansion strategy, leveraging opportunities created by the COVID-19 pandemic and our internal capabilities to deliver record growth. In FY20, the Company generated sales revenue of $11.3m, representing a 131% increase over FY19. The revenue growth was underpinned by the fast mobilisation and sales of our SARS-CoV-2 Diagnostic Kit, with Genetics Signatures establishing itself as a global supplier of COVID-19 test kits amidst rising global demand. With the benefit of hindsight, Genetic Signatures went into the COVID-19 pandemic in a strong position. In October 2019 the Company raised a total of A$37.5m to support global expansion, comprising an A$35m Placement to institutional and sophisticated investors across Australia and Asia and an oversubscribed A$2.5m share purchase plan (SPP) from existing shareholders. The funds raised enabled Genetic Signatures to fund its global marketing and sales expansion in key international markets and advance product development in a defining year for the Company. Following the devastating emergence of a new deadly virus, Genetic Signatures was able to swiftly develop and validate its new EasyScreen™ SARS-CoV-2 Detection Kit. The Company then secured both CE-IVD and TGA registration within a month of applying. Additionally, we have successfully increased manufacturing capacity within our existing infrastructure to deliver supplies to our customers across EMEA and APAC. With a strong foothold in the domestic market, we are pleased with the sales traction we are building in EMEA for kits and instrumentation, driving unprecedented revenue growth, which is expected to continue over the coming months. Genetic Signatures Limited – Annual Report 2020 FY20 Results Genetic Signatures achieved sales revenues of $11.3 million in the financial year ended 30 June 2020, representing a 131% increase on FY19 and 4-year CAGR of 59%. Annual revenue growth is largely attributed to demand for the new EasyScreen™ SARS-CoV-2 Detection kit and increasing sales to customers in Australia and Europe. Revenue from operations ($m) FY21 Sales per region 4-year CAGR = 59% 2.8 2.0 11.3 4.9 FY17 FY18 FY19 FY20 Asia Pacific 90% EMEA 10% Overall sale growth included the first significant contribution from EMEA. Sales to European customers ($1.1m) accounted for 10% of global sales. FY20 financial highlights ($m) FY21 Sales per region 11.3 2.9 7.0 (4.3) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Sales revenue Cost of materials Gross profit Other income (5.0) (10.0) O s t o u C c e i p t s p li e r p p b m a l e r r e p u S (12.0) (2.1) Net loss Other expenses (incl overhead) Cash Movements ($m) 35.6 1.3 (0.3) 8.9 6.3 0.1 2.1 (20.6) n t s I n t e r e s t e m y a x D t a a h s e o f P R & u r c P (2.4) E & s a r e i s p ti o O h S u e n e x e e r c i s e L “ e c s a ( p ri n s t s o a l)” c i p The Company posted a net loss for FY20 of $2.1m representing a 40% improvement on the previous year. Cash balance was $31.2m at 30 June 2020, up from $6.3m at 30 June 2019. Net assets stand at $45.9m and include significant increases in inventory levels ($7.3m vs. 2019 $1.4m) to meet expected demand and higher trade receivables ($3.9m increase) from sales recorded late in the financial year. 5 5 Commercialisation Update Genetic Signatures Limited – Annual Report 2020 Genetic Signatures Limited – Annual Report 2020 Commercialisation Strategy 5 Key Pillars With the onset of COVID-19, Genetic Signatures has repositioned its objectives accordingly. Large demand for Genetic Signatures’ EasyScreen™ SARS-CoV-2 Detection kit has exposed the company to various new customers in both Australia and Europe. Genetic Signatures aims to develop these new relationships with other product offerings. Despite the challenges to clinical development posed by COVID-19, Genetic Signatures continues to progress the EasyScreen™ portfolio. This includes a multitude of formal applications submitted during the Financial Year as well as the continuation of clinical trials. Commercialisation Strategy – Milestones FY21 and beyond Focus on long-term customer contracts Genetic Signatures is focused on securing long-term customer contracts with high throughput pathology groups, hospitals or government run programs Leverage momentum from COVID-19 Genetic Signatures’ increasing international recognition through the EasyScreenTM SARS-CoV-2 launch creates new avenues to expand its customer base Promote new tests to existing customers Genetic Signatures’ tests become embedded in workflow and customers typically adopt new tests once workflow established. Focus on customer satisfaction Focus on maintaining 100% customer retention through providing reliable and quality customer service. Genetic Signatures favourable unit economics are expected to underpin growth through FY21 and beyond. Development of new EasyScreenTM Kits Focus on launching kits in new markets and continuously expanding the EasyScreen™ portfolio through the development of new kits. 7 Commercialisation update Asia Pacific Sales progress The strong domestic demand for Genetic Signatures’ EasyScreen™ SARS-CoV-2 Detection Kit is a large component of the Company’s record revenues in FY20. The detection kit is currently being used both as a standalone test and in combination with the broader EasyScreen™ Respiratory Pathogen Detection Kit by a number of new and existing customers. APAC revenue increased to $10.2 million in FY20, up 116% from $4.7 million in FY19, and includes instrument sales of $0.7m. In previous years, a significant proportion of Genetic Signatures’ domestic revenue was generated from the sale of the EasyScreen™ Enteric product range. While the impact of lockdowns and social distancing has reduced demand for these kits in FY20, the Company expects sales to return to the pre-pandemic levels as restrictions ease. Similarly, Australia experienced a relatively soft flu season in FY20. Many of Genetic Signatures’ long-term customers have continued to screen patients with the broader EasyScreen™ Respiratory Pathogen Detection Kit along with the new SARS-CoV-2 assay and a number of new customers have expressed an interest and are trialing the broader product. Regulatory update The Company received Australian Registration (TGA) for its EasyScreen™ SARS-CoV-2 Detection Kit in April 2020, allowing for marketing of the test across Australia. During 4Q 2020, Genetic Signatures also submitted formal applications for its EasyScreen™ STI / Genital Pathogen Detection Kit. Work is set to recommence on the EasyScreen™ Flavivirus / Alphavirus Detection Kit to support a future TGA registration. Genetic Signatures Limited – Annual Report 2020 Commercialisation update North America Sales progress Regulatory update Clinical trials have recently commenced for the EasyScreen™ Enteric Protozoan Detection Kit FDA submission, despite disruptions caused by COVID-19. North America is the largest market opportunity globally, accounting for an estimated 42% of the global molecular diagnostics market1. The Company’s North American sales team are pursuing a direct sales approach with approved laboratories. Genetic Signatures is permitted to supply EasyScreen™ SARS-CoV-2 Detection Kit to USA laboratories certified to perform high complexity testing under a Section IVc exemption2 following notification to FDA on the Company’s intent to do so. The FDA only grants the IVc exemption once it has reviewed product documentation and deems it to be of the appropriate standard. 1 Kalorama Information, Molecular Testing Markets for Infectious Diseases (Sepsis, Respiratory Diseases, HIV, Hepatitis, TB Testing, STIs and Other Tests), July 2019 2 The FDA is permitting manufacturers that have or will submit an EUA for a SARS-CoV-2 test to supply their test prior to receiving the EUA. The FDA describes this marketing route in Section IV.C. of their Policy for Coronavirus Disease-2019 Tests During the Public Health Emergency (Revised)2 Under the exemption the manufacturer must have validated the kit and is required to notify the FDA of their intent to supply the test. The use of the test is limited to laboratories that have been certified under CLIA (Clinical Laboratory Improvement Amendments) to perform high complexity testing and the laboratory is required to disclaim the status of the test on all results that are issued using the test. (https://www.fda.gov/regulatory-information/search-fda-guidance-documents/policy-coronavirus-disease- 2019-tests-during-public-health-emergency-revised) 9 Commercialisation update EMEA Sales progress Regulatory update EMEA represents a significant opportunity in the global molecular diagnostics market, accounting for close to 35% of global testing3. Europe is a key focus for Genetic Signatures through FY21 and beyond. EMEA revenue increased to $1.1m in FY20, up 580% from $0.2m in FY19, including instrument sales of $0.3m. Genetic Signatures continues to successfully build traction across EMEA, with the proportion of group revenues growing from 3% to 10% from FY19 to FY20. The launch of the EasyScreen™ SARS-CoV-2 Detection Kit in EMEA was the primary driver of FY20 revenue growth in the region, as well as new instrumentation. The Company remains focused on securing long-term relationships with customers and has strategically identified and partnered with customers where there is potential demand for additional products in Genetic Signatures’ broader range of EasyScreen™ Detection Kits. In April 2020, the Company received CE-IVD registration for its EasyScreen™ SARS-CoV-2 Detection Kit, allowing for marketing of the test within the European Union. During 4Q 2020, Genetic Signatures also submitted formal applications for its EasyScreen™ STI / Genital Pathogen Detection Kit and CE-IVD is expected in 1H21. Work is set to recommence on the EasyScreen™ Flavivirus / Alphavirus Detection Kit in preparation for CE-IVD registration. GSS Representation around Europe Direct and appointed distributors Direct presence Appointed distributors Direct presence Direct and appointed distributors Appointed distributors 3 Kalorama Information, Molecular Testing Markets for Infectious Diseases (Sepsis, Respiratory Diseases, HIV, Hepatitis, TB Testing, STIs and Other Tests), July 2019 Investor Presentation August 2019 2 Investor Presentation August 2019 2 Genetic Signatures Limited – Annual Report 2020 v v Expanding range of EasyScreen™ Kits While laboratories, pathology groups and hospitals around the world remain preoccupied with the fight against COVID-19, Genetic Signatures is focused on commercialising its EasyScreen™ SARS-COV-2 Detection Kit as well as a broader range of detection kits for various infectious diseases. Long before the onset of the COVID-19 pandemic, health experts around the world were increasingly recognising infectious diseases as serious and concerning global health threats. The recent pandemic has highlighted the importance of rapid and accurate detection of infectious diseases. Many regions around the world that were hit the hardest by the pandemic were slow to implement accurate, reliable, and widespread diagnostic solutions. Genetic Signatures is pleased to play a leading role in the fight against infectious diseases, where its 3base™ technology allows the provision of a low cost, high throughput solution suitable for widespread and broad- spectrum diagnostic solution. EasyScreenTM products Product Outcome Global market size4 (A$m per annum) Enteric Respiratory ESBL & CPO Detects 20 of the most common bacterial, viral and protozoan (parasitic) infections responsible for gastroenteritis, such as Salmonella, Giardia and Norovirus. Registered in Australia and Europe $573 Detection kits identify 14 common respiratory diseases, including Influenza types A&B, Rhinovirus and RSV. Also includes the new SARS-CoV-2 Detection Kit. Registered in Australia and Europe. $627 $6,300 (SARS-CoV-2)5 Detection of antibiotic resistant pathogens also colloquially known as “superbugs”. Registered for sale in Australia and Europe. Emerging market STI / Reproductive Health Detects the most prevalent pathogen infections (Chlamydia, Gonorrhoeae, Syphilis and Trichomoniasis) plus many others. Applications submitted for registration in Australia and Europe. Alphavirus / Flavivirus Refers to mosquito born pathogens including Dengue fever, Zika virus, West Nile virus and others. In development but may be used as a research use only product. Meningitis Identifies 8 viral meningitis pathogens. In development but may be used as a research use only product. $1,900 $69 $156 Atypical Respiratory Additional targets under the Respiratory banner. In development but may be used as a research use only product. See Respiratory 4 Kalorama Information, Molecular Testing Markets for Infectious Diseases (Sepsis, Respiratory Diseases, HIV, Hepatitis, TB Testing, STIs and Other Tests), July 2019, and company estimates. 5 Molecular Diagnostics Markets in the COVID-19 Era (Markets for Molecular COVID-19 IVD Tests, Respiratory Tests, Blood Screening, Cancer Markers and Other IVD Tests) Kalorama Information, Published: 9/7/2020 11 Market Opportunities SARS-CoV-2 The COVID-19 pandemic, caused by the SARS-CoV-2 virus, has led to more than 30.6 million confirmed cases, with over 950k deaths globally (WHO, 20 September 2020)6. Living and working conditions of billions of people worldwide have been disrupted as a result of various forms of social distancing and lockdowns. While countries’ responses to COVID-19 have differed across the world, the recognition of the importance of large-scale diagnostic testing is universal. Genetic Signatures has played a leading role in the global fight against COVID-19 by ensuring people have access to low cost and reliable diagnostic solutions that ultimately reduce the spread of the virus. The Company’s EasyScreen™ SARS-CoV-2 Detection Kits in conjunction with the Company’s highest throughput instrument, GS-1000, provides laboratories the ability to process approximately 1,500 samples per instrument in a 24-hour period. Testing is our window into the pandemic and proliferation of the virus. The multiplexed real- time PCR screening assays and high throughput capabilities of our technology provides healthcare workers with a valuable mechanism to diagnose the pathogen responsible for patient symptoms. If a patient is exhibiting cold or flu symptoms, a clear diagnosis of the underlying pathogen empowers both patients and healthcare workers to implement appropriate measures to slow and reduce the spread of the virus. As countries move towards re-opening, widespread testing will remain critically important. Many countries across Europe are experiencing a resurgence in case numbers and expanding testing capabilities have enabled greater identification of active cases. The UK conducted approximately 20k tests daily in April 2020, over 200k COVID-19 tests are now processed each day7 . In the US, over 103m tests have been reported identifying 8.3m positive tests8. While infection rates have been trending down in Australia, a high testing capacity supports our nation’s response to the pandemic, with over 7.1 million tests conducted to date9. Testing is crucial across a range of different scenarios to track the spread of disease. Different types of tests enable a range of different public health interventions including contact tracing, isolation, quarantine, and appropriate clinical management of afflicted individuals. As summarised in the table over the page, each test available on the market offers a range of benefits and applications. Molecular (or PCR) tests that detect the virus’s genetic material are still considered the gold standard for infectious disease diagnosis. 6 WHO COVID-19 Dashboard (13 September 2020) 7 Public Health England (17 September 2020) 8 Centers for Disease Control and Prevention (20 September 2020) 9 Australian Government Department of Health (17 September 2020) Genetic Signatures Limited – Annual Report 2020 Common types of SARS- Cov-2 Tests Molecular Test Antigen Test Also known as… Diagnostic test, viral test, molecular test, nucleic acid amplification test (NAAT), RT-PCR test, LAMP test Rapid diagnostic test (Some molecular tests are also rapid tests.) How the sample is taken… Nasal or throat swab (most tests) Saliva (a few tests) How long it takes to get results… Same day (some locations) or up to a week One hour or less Is another test needed… This test is typically highly accurate and usually does not need to be repeated. Positive results are usually highly accurate but negative results may need to be confirmed with a molecular test. What it shows… Diagnoses active Diagnoses active coronavirus infection coronavirus infection Antibody Test Serological test, serology, blood test, serology test Nasal or throat swab Finger stick or blood draw Same day (many locations) or 1-3 days Sometimes a second antibody test is needed for accurate results. Shows if you’ve been infected by coronavirus in the past What it can’t do… Show if you ever had COVID-19 or were infected with the coronavirus in the past { Definitively rule out active coronavirus infection. Antigen tests are more likely to miss an active coronavirus infection compared to molecular tests. Your health care provider may order a molecular test if your antigen test shows a negative result but you have symptoms of COVID-19. Diagnose active coronavirus infection at the time of the test or show that you do not have COVID-19 3base™ technonogy is a molecular test, which is recognised as the gold-standard for indectious disease diagnosis Source: https://www.fda.gov/media/140161/download 13 Market Opportunities Enteric Protozoan Infectious gastroenteritis remains a worldwide health issue and is the leading killer of children under 510. In the United States, there are more than 350 million cases of acute gastroenteritis annually and infections accounts for 200,000 hospital admissions of children under 5 each year11. Early identification of causative pathogens remains a challenge in the clinical laboratory. Traditional diagnosis of infectious gastrointestinal disease can be both incomprehensive and time consuming, two factors effectively addressed by the 3base™ real-time PCR assays. Genetic Signatures has identified that testing for Enteric Protozoa (parasites) is an underserved market in the USA, with microscopy being used by most laboratories as the primary means used to diagnose protozoan infections. An estimated 5.5m samples are tested each year in USA12. Due to the time involved in undertaking these tests and their limited accuracy many laboratories do not provide the test unless specifically requested. Current molecular tests only identify up to 4 protozoan pathogens. Conversely, Genetic Signatures EasyScreen™ Enteric Protozoan Detection Kit on the other hand can detect 8 of the most common protozoa in a single sample without losing accuracy or processing speed. Clinical trial work has now recommenced for our application for FDA clearance of the EasyScreen™ Enteric Protozoan Detection Kit following the gradual easing of COVID-19 restrictions. The Company is targeting FDA submission for the EasyScreen™ Enteric Protozoan Detection Kit in the new year, conditional upon clinical sites’ ability to complete the trials while the COVID-19 pandemic is progressing. Securing FDA clearance will open of the next phase of development for Genetic Signatures in the United States. Genetic Signatures Limited – Annual Report 2020 STI/Reproductive Health Genetic Signatures has determined that STIs are a significant market opportunity and has completed development and validation of a detection kit and submitted applications for regulatory approvals in both Europe (CE-IVD) and Australia (TGA) this year. These registrations are expected before the end of 2020. The Company’s EasyScreen™ STI/Genital Pathogen Detection Kit simultaneously detects 12 of the most commonly encountered STIs. Sexually Transmitted Infections (STI’s) can have a significant impact on sexual and reproductive health. There are an estimated 1 million STI’s contracted daily around the world, and the 4 most commonly reported infections (Chlamydia, Gonorrhoea, Syphilis and Trichomoniasis) account for approximately 376 million cases per annum13. The testing market value is estimated to be US$420m pa just for Chlamydia and Gonorrhoea14, and forecast to grow at 7% p.a. 10 April 2015; Source: Zhang, H., Morrison, S., & Tang, Y. W. (2015). Multiplex polymerase chain reaction tests for detection of pathogens associated with gastroenteritis. Clinics in laboratory medicine, 35(2), 461-486. 11 August 2020; Source: Sattar, S. B. A., & Singh, S. (2020). Bacterial gastroenteritis. 12 Bell Potter Securities Estimates (Initiation of Coverage Report) and World Market for Molecular Diagnostics, 5th. Edition (Infectious Disease, Oncology, Blood Screening, Pre-Natal and Other Areas) Kalorama Information, Published: 1/9/2013 13 https://www.who.int/en/news-room/fact-sheets/detail/sexually-transmitted-infections-(stis) 14 Kalorama Information, Molecular Testing Markets for Infectious Diseases (Sepsis, Respiratory Diseases, HIV, Hepatitis, TB Testing, STIs and Other Tests), July 2019 15 Personnel Derek Joesting Director of Sales, North America Derek joined Genetic Signatures US operations in March 2020. He brought with him more than 20 years medical devices and diagnostics sales experience from companies such as Thermo Fisher Scientific and was one of the first commercial leaders of T2 Biosystems where he was most recently their Head of Market Development and Strategic Sales. Derek has a small team of sales and field support staff and is based in Minnesota. “I see in Genetic Signatures a rare opportunity to introduce a completely new company to the USA and help to fill an unmet need in the growing molecular diagnostic market. The opportunity for our 3baseTM technology is unique as we can provide a high-throughput solution with a broad menu of targets that gives our customers great flexibility and efficiency. As a growing company we can respond quickly to market conditions and provide solutions that are individualized for each of our customers.” Genetic Signatures Limited – Annual Report 2020 Genetic Signatures recognises that a key to its success lies with choosing the best people possible then supporting them to achieve both ours and their goals. In FY20 many new staff were employed to meet the increasing demands in all areas of the company, but particularly in sales and production. A key goal of the Company is to expand the international opportunities and we have been fortunate to secure the services of 2 talented individuals to lead the sales operations in North America and Europe. John Buckels Director of Sales & Support, Europe John has been with Genetic Signatures since February this year. Like Derek he brings a wealth of experience from the molecular biology field. His previous role was Senior Director and Head of Infectious Disease Sales for Europe at Qiagen, where he spent 14 years. John is based in UK. His team of sales and support staff are spread between UK, Germany and the Netherlands. “It is an exciting time to have joined Genetic Signatures. Our footprint in Europe is growing sustainably despite the destabilisation from COVD-19 and we have a strong trajectory for our syndromic panels in both respiratory and enterics. Our excellent Quality System and recently established European Supply Chain capabilities back up our business together with the experienced and growing European organisation.” 17 For the financial year ended 30 June 2020 Contents Directors’ Report ...................................................20 Consolidated Statement of profit or loss and other comprehensive income ....................... 35 Consolidated Statement of financial position ..................................................36 Consolidated Statement of changes in equity ...37 Consolidated Statement of cash flows ...............38 Notes to the Financial Statements ....................39 Directors’ Declaration ...........................................64 Auditors Declaration ............................................ 65 Independent Audit Report ....................................66 Analysis of Holdings .............................................70 Shareholders Information ....................................71 Genetic Signatures Limited – Annual Report 2020 Financial Report 2020 19 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 The directors present their report, together with the financial statements, on the company and its controlled entities for the year ended 30 June 2020. This will hereafter be referred to as company, consolidated entity or group. DIRECTORS The following persons were directors of the company during the whole of the financial year and up to the date of this report, unless otherwise stated: Nickolaos Samaras John R Melki Michael A Aicher Anthony J Radford Phillip J Isaacs (retired November 2019) PRINCIPAL ACTIVITIES The principal activities of the Company during the financial year were the research and commercialisation of identifying individual genetic signatures to aid in the diagnosis of infectious diseases and the sale of associated products into the diagnostic and research marketplaces. There have been no significant changes in these activities during the year. REVIEW OF OPERATIONS Genetic Signatures has had an outstanding year against the backdrop of the global COVID-19 pandemic. Company revenues have grown materially during FY20, largely due to domestic and European demand for the EasyScreen™ SARS-CoV-2 Detection Kit. Genetic Signatures was able to leverage its internal capabilities to successfully develop a new test for SARS-CoV-2 and then to scale up manufacturing capacity to meet the significant increase in customer demand. This provided an opportunity for the Company to demonstrate its product offering to a wider range of laboratories, and to establish new users of the EasyScreenTM tests in both Australia and Europe. In the financial year ending 30 June 2020, Genetic Signatures’ revenue was $11,263,000 representing a 131% increase over the previous year. This revenue growth was driven by demand for EasyScreen™ SARS-CoV-2 Detection Kit, following regulatory registrations in Europe and Australia. Sales to European customers represented approximately 10% of total sales for the year. Revenue from operations ($m) 11.3 2.0 FY17 4.9 2.8 FY18 FY19 FY20 The Company posted a net loss of $2,086,000 in FY20, a $1,406,000 improvement over FY2019. Genetic Signatures is pleased to report that its 2nd half result was a maiden profit for the Group of $260,000, showing the impact of higher sales. Gross margins were 62%, which is slightly lower than the previous year and impacted by pandemic induced higher prices for some raw materials, product mix and significantly higher transport costs. Margins should improve in future as the proportion of international sales rises. Employee benefits 2 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 expense were up 35% vs. prior corresponding period to $6,671,000 as additional personnel were added to the teams in Europe, USA and locally across all functions. Scientific consumables increased 50% over prior year, reflecting the work done on SARS-CoV-2, continuing R&D projects, and initial clinical trial activity for the US FDA Enteric Protozoan submission. Depreciation and amortisation expenses appear high, but includes lease amortisation per the new accounting standard, AASB16. Cash balance was $31,176,000 at 30 June 2020. A capital raise for $37.5m (placement and share purchase plan, both oversubscribed) was completed in December 2019 to accelerate our commercialisation strategy, and gave Genetic Signatures the funds to scale up for the increased demand from SARS-CoV-2 testing. Net operating cash outflows for the year were $9,494,000 with a large proportion of those funds applied to inventory purchases to ensure the Group could meet its commitment to customers regarding supply. Genetic Signatures can proudly claim that none of its customers has been without product to undertake testing to date. Trade receivables balances are also higher due to the higher sales late in the year. Commercialisation Progress by Market Australia Represents approximately 1-2% of the world molecular diagnostic market1 • TGA registration and launch of EasyScreen™ SARS-CoV-2 Detection Kit • New customers adopt EasyScreen™ SARS-CoV-2 test • Production capacity further increased to meet current demand and more production expansion underway • Application lodged with TGA for STI / Genital Pathogen Detection Kit to be included on ARTG • Alphavirus / Flavivirus clinical trials deferred due to COVID-19 • Continued development of other new kits. Europe Europe (European Union and United Kingdom) represents ~35% of global molecular diagnostics market1 • Achieved European registration (CE-IVD) for the EasyScreen™ SARS-CoV-2 Detection Kit, and product launched • New customers established, including 3 new European distributors • Additional sales and support staff appointed • European applications for EasyScreen™ STI / Genital Pathogen Detection Kit lodged. North America Largest market opportunity globally, accounting for estimated 40% of test revenue1 • Emergency Use Authorisation (EUA) application submitted to the FDA for the EasyScreen™ SARS- CoV-2 Detection Kit • Permitted to supply EasyScreen™ SARS-CoV-2 Detection Kit to USA laboratories certified to perform high complexity testing under a Section IVc exemption2 following notification to FDA on the Company’s intent to do so Initial clinical work has now commenced for FDA clearance of the EasyScreen™ Enteric Protozoan Detection Kit • • New sales team appointed with strong pedigree in the industry. 1 World Market for Molecular Diagnostics, 5th. Edition (Infectious Disease, Oncology, Blood Screening, Pre-Natal and Other Areas) Kalorama Information, Published: 1/9/2013 & company estimates 2 The FDA is permitting manufacturers that have or will submit an EUA for a SARS-CoV-2 test to supply their test prior to receiving the EUA. The FDA describes this marketing route in Section IV.C. of their Policy for Coronavirus Disease-2019 Tests During the Public Health Emergency (Revised)2 Under the exemption the manufacturer must have validated the kit and is required to notify the FDA of their intent to supply the test. The use of the test is limited to laboratories that have been certified under CLIA (Clinical Laboratory Improvement Amendments) to perform high complexity testing and the laboratory is required to disclaim the status of the test on all results that are issued using the test. (https://www.fda.gov/regulatory-information/search-fda-guidance-documents/policy-coronavirus-disease- 2019-tests-during-public-health-emergency-revised) 3 21 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Looking Forward Genetic Signatures sees the year ahead as an opportunity to consolidate its gains and grow the business, particularly in international markets. Encouragingly, first quarter FY2021 is on track to report sales growth of more than 25% above fourth quarter FY2020. The COVID-19 pandemic has also given the Group a chance to demonstrate its technology and broader syndromic testing platform to a greater range of laboratories and hospitals, and the Group is already preparing for when the COVID-19 restrictions are lifted. As such the following milestones have been set for FY2021: • US FDA Emergency Use Authorisation (EUA) for the EasyScreen™ SARS-CoV-2 Detection Kit • First North American contracts • FDA submission for the EasyScreen™ Enteric Protozoan Detection Kit • CE-IVD and TGA registration for EasyScreen™ STI / Genital Pathogen Detection Kits • CE-IVD and TGA registration for EasyScreen™ Flavivirus / Alphavirus Detection Kits • Commence development of new instrumentation. STATE OF AFFAIRS There have been no significant changes in the state of affairs of the Group during the year. DIVIDENDS No dividends were paid or were payable during the year (2019: NIL). EVENTS SUBSEQUENT TO THE REPORTING DATE The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has been financially positive for the consolidated entity up to 30 June 2020, it is not practicable to estimate the potential impact, positive or negative, after the reporting date. The situation is rapidly developing and is dependent on measures imposed by the Australian Government and other countries, such as maintaining social distancing requirements, quarantine, travel restrictions and any economic stimulus that may be provided. Other than the above, there has not arisen in the interval between the end of the financial year and the date of this report any other item, transaction or event of a material and unusual nature likely in the opinion of the directors of the Company to affect significantly the operations of the Company, the results of those operations or the state of affairs of the Company in future financial years. LIKELY FUTURE DEVELOPMENTS Likely developments in the operations of the Company and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the Company. ENVIRONMENTAL COMPLIANCE The Company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. 4 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 DIRECTORS Name: Qualifications: Experience: Special responsibilities: Nickolaos Samaras BSc (Hons), PhD, MBA, FAIM, FAICD Dr. Samaras has had over 30 years’ business experience in the global Life Sciences industry and is a recognised and respected industry expert. He has held a number of senior executive level positions in management, marketing, sales, and research and development. His roles have included appointments as Managing Director of Applied Biosystems Pty Ltd (now part of Thermo Fisher), and senior roles with Perkin Elmer and AMRAD Corporation (now part of CSL). Dr. Samaras is an experienced executive, non-executive and Board Chairman, having served on the boards of several biotechnology companies including one that was ASX-listed. For the past 16 years Dr. Samaras has focused his efforts on facilitating the international market expansion of a number of US biotechnology companies and developing commercial revenue channels outside of their traditional onshore markets. Dr. Samaras holds a BSc with Honours in Pathology and Immunology from Monash University and a PhD from the Department of Medicine at The University of Melbourne. He also holds postgraduate business qualifications which include an MBA from the School of Management at RMIT University and is a Fellow of the Australian Institute of Company Directors and the Australian Institute of Management. Non-Executive Chairman; Chairman Nomination and Remuneration Committee; Member Audit & Risk Committee Directorships of other listed companies: Nil Interests in shares and options: 2,024,016 ordinary shares Name: Qualifications: Experience: Special responsibilities: John R Melki BSc (Hons), PhD Dr. Melki has led the commercialisation efforts of Genetic Signatures as Chief Executive Officer since 2011. Dr. Melki originally joined Genetic Signatures in 2003 where he was responsible for leading the commercialisation of two research products (worldwide) and five diagnostic products (locally and Europe) in the role of Senior Principal Research Scientist. He has authored 20 peer-reviewed articles and is listed as an inventor on eight patent applications. Dr. Melki received his BSc from the University of New South Wales and his PhD from the University of Sydney, where his thesis was awarded the Peter Bancroft Prize from the Medical School. His primary research focus was in the sodium bisulphite conversion of DNA which is at the core of Genetic Signatures’ technology. Managing Director and Chief Executive Officer Directorships of other listed companies: Nil Interests in shares and options: 1,096,000 ordinary shares, 300,000 options over ordinary shares 5 23 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Name: Qualifications: Experience: Special responsibilities: Anthony J Radford AO FTSE BSc (Hons) PhD DipCorpMan Dr. Anthony Radford has a PhD from La Trobe University, and was a member of the CSIRO team that invented the QuantiFERON method for Cellular Immune based diagnostics. He later joined AMRAD in pharmaceutical research and was Head of Development in 2000 when he left to co-found the diagnostic company Cellestis Limited, which listed on the ASX in 2001. Establishing offices and operations in the USA, Europe and Japan, Cellestis developed QuantiFERON –TB Gold, the worldwide benchmark for diagnosis of tuberculosis infection. Dr. Radford was CEO of Cellestis from founding until its acquisition by QIAGEN NV in 2011. He is a Fellow of the Australian Academy of Technology and Engineering, and a recipient of their Clunies Ross Prize. Non-Executive; Member of Audit & Risk Committee and Nomination & Remuneration Committee Directorships of other listed companies: Nil Interests in shares and options: 240,000 ordinary shares Name: Qualifications: Experience: Phillip J Isaacs (retired November 2019) MSc JP Mr. Isaacs holds an MSc in Biochemistry from the University of Sydney. He commenced the operation of Beckman Instruments in Australia and worked as Managing Director and Area Director for the Asia Pacific region, being responsible for both the Diagnostic and Life Science equipment markets. He was Vice President of Asia Pacific for Cytyc Corporation (now Hologic) which developed the ThinPrep Pap Test and was responsible for the development of the Company in Asia Pacific. He was also the Founding Chairman of the Australian Proteome Analysis Facility (APAF) in Sydney. Special responsibilities: Directorships of other listed companies: Nil Interests in shares and options: 1,602,143 ordinary shares 6 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Name: Qualifications: Experience: Special responsibilities: Michael A Aicher BSc, MBA Mr. Aicher has over 30 years of industry experience and was CEO and founder of National Genetics Institute (NGI) which was acquired by Laboratory Corporation of America, Inc. (LabCorp) in 2000. Mr. Aicher led LabCorp’s Esoteric Business Units, which generated more than $1 billion in annual revenue. Prior to NGI, Mr. Aicher served in a number of executive leadership roles at Central Diagnostics Laboratory. He currently serves as a director on boards of Alveo Technologies and Fabric Genomics. He is certified by the University of California at Berkeley as a Global Biotechnology Executive and is a recipient of Ernst & Young’s “Entrepreneur of the Year” award for emerging technologies. Mr. Aicher received a BS in Business Administration from the University of Redlands and an MBA in Economics from Columbus University. Executive Director – US Operations Directorships of other listed companies: Nil Interests in shares and options: 645,785 ordinary shares Company Secretary Name: Experience: Peter Manley Peter Manley was appointed Company Secretary of Genetic Signatures in March 2019. Peter is an experienced company secretary who also holds the position of Chief Financial Officer. Previous roles include CFO & Company Secretary for listed life sciences companies AtCor Medical Holdings Limited (now Cardiex Ltd) and Sirtex Medical Ltd. 7 25 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 DIRECTORS’ MEETINGS The number of meetings of the board of directors (including board committees) held during the year ended 30 June 2020, and the numbers of meetings attended by each director are set out below: Name Nickolaos Samaras John R Melki Anthony J Radford Michael A Aicher Phillip J Isaacs (ret. Nov 2019) Board Audit & Risk Committee Nomination & Remuneration Committee Held 7 7 7 7 2 Attended 7 7 7 7 2 Held 2 - 2 - 1 Attended 2 - 2 - 1 Held 2 - 2 - 1 Attended 2 - 2 - 1 REMUNERATION REPORT - AUDITED The remuneration report is set out under the following main headings: 1. Remuneration principles and key management personnel 2. Non-executive director remuneration 3. Executive remuneration 4. Equity disclosures 5. Employment agreements The information provided includes remuneration disclosures that are required under AASB 124 – Related Party Disclosures. These disclosures have been transferred from the financial report and have been audited. 1 REMUNERATION PRINCIPLES AND KEY MANAGEMENT PERSONNEL 1.1 Policy for determining the nature and amount of key management personnel remuneration The Board’s remuneration policy determines the nature and amount of remuneration for Board members and senior executives of the Company. The policy, setting the terms and conditions for the Executive Directors and other senior executives, was developed by the Remuneration & Nomination Committee and approved by the Board. The Board ensures that the Company’s remuneration levels are appropriate in the markets in which it operates and are applied, and seen to be applied, fairly. Non-executive directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed with reference to market rates for comparable companies. The chairman’s fees are determined independently to the fees of non-executive directors. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-executive directors are entitled to receive share options, following approval by the shareholders of Genetic Signatures Limited. Non-executive directors’ fees are captured within an aggregate directors’ pool limit, which is periodically recommended for approval by shareholders. The pool stands at $250,000 excluding share-based payments which are subject to separate shareholder approval. The pool has not been changed since listing in 2015. 8 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Executive directors and senior executives The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives, and the creation of value for shareholders. The Board ensures that executive reward satisfies the following key criteria. Alignment to company and shareholders’ interests: • Has company growth as a core component of plan design • Focuses on sustained long-term growth in shareholder wealth • Attracts and retains high calibre executives • Total remuneration is comparable to market standards. Alignment to program participants’ interests: • Rewards capability and experience • Reflects competitive reward for contribution to growth in company value • Provides a clear structure for earning rewards • Provides recognition for contribution. The framework provides a mix of fixed and variable pay, and a blend of short and long-term incentives. 1.2 Key management personnel The following persons were key management personnel of Genetic Signatures Limited during the financial year: Non-executive directors Dr Nickolaos Samaras - Chairman Dr Anthony J Radford AO Phillip J Isaacs (retired November 2019) Executive directors Dr John R Melki - Managing Director & Chief Executive Officer Michael A Aicher - Executive Director, US Operations Other executives Peter L Manley - Chief Financial Officer/Company Secretary 2 NON-EXECUTIVE DIRECTOR REMUNERATION 2.1 Directors’ Fees The current remuneration is unchanged from prior year. Fees are inclusive of committee fees. Board fees per annum Chairman Non-executive director (Australian based) Non-executive director (overseas) $60,000 $45,000 40,000 (USD, EUR or GBP depending on location) Superannuation Superannuation contributions for Australian-based non-executive directors are in addition to the Board fees and are calculated at a rate of 9.5% of the base fee, as required under the statutory superannuation guarantee. Directors may elect to salary sacrifice additional payments to their fund. Share-based payments Non-executive directors are not entitled to any performance related remuneration but may receive option or equity grants if approved by shareholders. 9 27 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 2.2 Non-executive director remuneration Non-executive directors Nickolaos Samaras Anthony J Radford Phillip J Isaacs Total Year 2020 2019 2020 2019 2020 2019 2020 2019 Cash salary and fees $ 60,000 60,000 45,000 29,456 18,750 45,000 123,750 134,456 Super- annuation $ 5,700 5,700 4,275 19,819 1,781 4,275 11,756 29,794 Share-based payments $ - 9,724 1,553 6,934 - 1,514 1,553 18,172 Total $ 65,700 75,424 50,828 56,209 20,531 50,789 137,059 182,422 3 EXECUTIVE REMUNERATION The executive pay and reward framework has four components: • Base pay and benefits • Other remuneration such as superannuation • Short-term performance incentives, and • Long-term incentives through participation in the Genetic Signatures Employee Incentive Plan The combination of these comprises the executive’s total remuneration. Base pay Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the executive’s discretion. Executives are offered a market competitive base pay that comprises the fixed component of pay and rewards. Base pay for executive directors and senior executives is reviewed annually to ensure the executive’s pay is aligned with the market. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases included in any executives’ contracts. Benefits Executives may receive benefits including parking, car allowances or health insurance. Retirement Benefits Statutory superannuation payments are made to a fund selected by Australian based executives. Executives may also elect to salary sacrifice additional payments to their fund. No other retirement benefits are offered. Short term incentives Each executive may have a target short-term incentive (STI) opportunity depending on the accountabilities of the role and impact on the organisation or business unit performance. Each year the remuneration committee considers the appropriate financial targets and KPI’s to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI. For the year ended 30 June 2020, the KPI’s linked to STI plans were based on group, individual and personal objectives. The KPI’s required performance growing sales revenue, with particular emphasis on progress in overseas markets. The remuneration committee is responsible for assessing whether KPI’s are met. To help make this assessment, the committee receives detailed reports on performance from management. 10 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 The short-term bonus payments may be adjusted up or down in line with under or over achievement against the target performance levels. This is at the discretion of the remuneration committee. Long term incentives Genetic Signatures Equity Incentive Plan (EIP) Options are issued to executives (including the CEO) with the aim of aligning executive interests with those of shareholders. The proportion of long-term incentives increases with the level of seniority of the executive. Options are granted under the EIP. The Plan is open to those employees and Directors whom the Directors believe have a significant role to play in the continued development of the Group’s activities. Options are granted under the Plan for no consideration. They are granted for a 15-year period, and 25% of each new tranche vests and is exercisable after each of the first four anniversaries of the date of the grant. No options were issued in 2020 to key management personnel as at the date of this report. Genetic Signatures Employee Share Ownership Plan (ESOP) Restricted shares were offered and funded by an interest free loan from the Group at the time of listing. Restricted shares have vested and can be converted to ordinary shares following repayment of the loan. The restricted shares are subject to a service condition of continuous employment from grant date to the relevant vesting date, otherwise the restricted shares will lapse. Restricted shares may be released following the payment of the outstanding loan prior to lapsing. No new shares were issued under this Plan during the year. An offer to extend expiring loans was offered to all participants in 2019. Three of five Directors took this option, whilst two elected to pay their loan balance due. All loans have now been repaid and restriction removed from the shares. Relationship between Remuneration Policy and Company Performance The remuneration policy has been tailored to align shareholders, directors and executives’ goals. Two methods have been applied to achieve this aim, the first being a performance-based bonus based on KPIs, and the second being the issue of options to directors, executives and staff to encourage the alignment of personal and shareholder interests. The following table shows the gross revenue, profits and dividends for the last five years for the consolidated entity, as well as the share prices at the end of the respective financial years. Analysis of the actual figures show ongoing losses as the consolidated entity continue to develop new products, commercialise its existing products and develop new markets and customers. The Board is of the opinion that these results can be attributed, in part, to the previously described remuneration policy and is satisfied with the results over the past five years. Revenue Net profit/(loss) attributable to owners of the parent entity Share price at year end Dividends paid (cents per share) 2020 $ 11,263 (2,086) 2019 $ 4,866 (3,492) 2018 $ 2,840 (3,254) 2.15 - 1.35 - 0.37 - 2017 $ 2,038 (2,671) 0.395 - 2016 $ 1,825 (3,027) 0.53 - *The Company was admitted to the official list on the ASX on 30 March 2015. Voting and Comments made at the Company’s 2019 Annual General Meeting (‘AGM’) The Company received 93.5% of “for” votes in relation to its remuneration report for the year ended 30 June 2019. No issues were raised with Directors concerning the Report. 11 29 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 3.1 Executive director remuneration Fixed remuneration Variable remuneration Cash salary and fees $ Year John R Melki - CEO 2020 308,137 Non- monetary benefits $ 16,320 Super- annuation $ 25,047 Long-term benefits: Annual and long service leave $ Subtotal Short term incentive2 $ 27,351 376,855 148,070 Share- based payments3 $ 38,902 Total $ 563,827 2019 291,717 4,894 24,228 15,180 336,019 Michael A Aicher1 Executive Director Peter L Manley (commenced Oct 2018) Total 2020 178,097 2019 167,691 2020 220,636 2019 142,788 - - - - - - - 178,907 - 167,691 - - - 54,366 390,385 - 178,907 9,724 177,415 22,778 23,289 18,051 261,465 2,531 168,608 45,000 95,981 402,446 - 11,782 180,390 2020 707,680 16,320 47,825 45,402 817,227 193,070 134,883 1,145,180 2019 602,196 4,894 47,517 17,711 672,318 - 75,872 748,190 Remuneration proportions John R Melki - CEO Michael A Aicher1 Executive Director Peter L Manley (commenced Oct 2018) Year 2020 2019 2020 2019 2020 2019 Fixed % 67% 86% 100% 95% 65% 93% At risk STI At risk LTI % 26% 0% 0% 0% 11% 0% % 7% 14% 0% 5% 24% 7% 1 2 3 M Aicher is paid in USD. Changes in base pay are attributable to the weaker AUD against the USD through FY20 (Ave rate FY20: 0.6707, FY19: 0.7156). Cash bonus is the amount paid or payable for the respective financial year. This represents the proportional fair value of options on issue not yet vested or vested during the reporting period. Options are valued using a Black-Scholes model as described in Note 18 to the accounts. 12 Genetic Signatures Limited – Annual Report 2020 for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Short term incentives J.R. Melki M.A. Aicher P.L Manley STI potential Percentage of base $ 155,000 - 45,000 % 44 - 20 Paid % 95 - 100 Forfeited % 5 - - 4 EQUITY DISCLOSURES 4.1 Key Management Personnel Share Movements Details of equity instruments (other than employee share ownership plan restricted shares) held directly, indirectly or beneficially by key management personnel are as follows: Name Balance at 1 July 2019 Granted as compensation Received on conversion of restricted shares Other changes Balance at 30 June 2020 Balance held nominally N. Samaras J.R Melki M.A Aicher A.J Radford P.J Isaacs (ret Nov 19) P.L Manley Total 1,520,000 196,000 165,785 170,000 1,553,127 - 3,604,912 - - - - - - - 480,000 900,000 480,000 70,000 - - 1,930,000 24,016 - - - 49,016 20,408 93,440 2,024,016 1,393,000 1,096,000 1,096,000 645,785 240,000 738,930 645,785 240,000 1,602,143 20,408 20,408 5,628,352 4,134,123 4.2 Share Based Payments Details of restricted shares and options held directly, indirectly or beneficially by key management personnel are as follows, terms and conditions are summarised in section 3 (Long term incentives): Employee Share Ownership Plan Holdings Converted on Repayment of loan (480,000) (900,000) (480,000) (70,000) - - (1,930,000) Balance at 1 July 2019 480,000 900,000 480,000 70,000 - - 1,930,000 Other Changes - - - - - - - Total vested and convertible at 30 June 2020 - - - - - - - Unvested at 30 June 2020 - - - - - - - Balance at 30 June 2020 - - - - - - - Name N. Samaras J.R Melki M.A Aicher A.J Radford P.J Isaacs P.L Manley Total 13 31 Directors’ Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Employee Incentive Plan Balance at 1 July 2019 No. Value1 $ J.R Melki 300,000 132,523 P.L Manley 200,000 188,007 Granted during the year Value1 $ - No. - - Exercised during the year Value2 $ - No. - Forfeited during the year Value2 $ - No. - Balance at 30 June 2020 No. Value1 $ 300,000 132,523 Unvested at 30 June 2020 No. 175,000 - - - - - 200,000 188,007 150,000 1 2 This represents the total value of the options over the life of the options from grant date using a Black-Scholes valuation method. The amount is allocated against remuneration over the vesting period (total allocation vests in 4 equal tranches from the 1st anniversary of the issue date). Value equals the difference between the exercise price and the closing share price per the ASX on the date of exercise/forfeiture multiplied by the number of options. 5 EMPLOYMENT AGREEMENTS Service contracts have been entered into by the Company with key management personnel, describing the components and amounts of remuneration applicable on their initial appointment, including terms and performance criteria for performance-related cash bonuses. These contracts do not fix the amount of remuneration increases from year to year. Remuneration levels are reviewed generally each year by the Remuneration Committee to align with changes in job responsibilities and market salary expectations. All contracts are for an ongoing period. All contracts can be terminated by either party with 3 months’ notice (or one month in the case of Michael Aicher), subject to termination payments as described below: John Melki Director & Chief Executive Officer Contract term: Base salary: Termination payments: Ongoing, commenced November 2014 $350,000, exclusive of superannuation, to be reviewed annually by the Remuneration Committee. Payment on early termination by the Group, other than for gross misconduct, equal to the base salary plus superannuation entitlements for three months. Michael Aicher Executive Director – US Operations Contract term: Base salary: Termination payments: Ongoing, commenced April 2014 $US120,000, to be reviewed annually by the Remuneration Committee. No payment on early termination. Contract is terminable by either party on one months’ notice. 14 Genetic Signatures Limited – Annual Report 2020 GENETIC SIGNATURES LIMITED GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 5 EMPLOYMENT AGREEMENTS Service contracts have been entered into by the Company with key management personnel, 5 EMPLOYMENT AGREEMENTS describing the components and amounts of remuneration applicable on their initial appointment, Service contracts have been entered into by the Company with key management personnel, including terms and performance criteria for performance-related cash bonuses. These contracts do describing the components and amounts of remuneration applicable on their initial appointment, not fix the amount of remuneration increases from year to year. Remuneration levels are reviewed including terms and performance criteria for performance-related cash bonuses. These contracts do generally each year by the Remuneration Committee to align with changes in job responsibilities and not fix the amount of remuneration increases from year to year. Remuneration levels are reviewed market salary expectations. All contracts are for an ongoing period. generally each year by the Remuneration Committee to align with changes in job responsibilities and market salary expectations. All contracts are for an ongoing period. All contracts can be terminated by either party with 3 months’ notice (or one month in the case of Michael Aicher), subject to termination payments as described below: All contracts can be terminated by either party with 3 months’ notice (or one month in the case of Michael Aicher), subject to termination payments as described below: John Melki John Melki Director & Chief Executive Officer Director & Chief Executive Officer Contract term: Base salary: Contract term: for the financial year ended Base salary: Termination payments: 30 June 2020 Termination payments: Ongoing, commenced November 2014 $350,000, exclusive of superannuation, to be reviewed annually by Ongoing, commenced November 2014 the Remuneration Committee. $350,000, exclusive of superannuation, to be reviewed annually by Payment on early termination by the Group, other than for gross the Remuneration Committee. misconduct, equal to the base salary plus superannuation Payment on early termination by the Group, other than for gross entitlements for three months. misconduct, equal to the base salary plus superannuation entitlements for three months. Michael Aicher Michael Aicher Executive Director – US Operations Contract term: Executive Director – US Operations Base salary: Contract term: Base salary: Termination payments: Ongoing, commenced April 2014 $US120,000, to be reviewed annually by the Remuneration Ongoing, commenced April 2014 Committee. $US120,000, to be reviewed annually by the Remuneration No payment on early termination. Contract is terminable by either Committee. party on one months’ notice. No payment on early termination. Contract is terminable by either party on one months’ notice. Termination payments: Peter Manley Peter Manley Chief Financial Officer Chief Financial Officer Contract term: Base salary: Contract term: Base salary: Termination payments: Termination payments: Ongoing, commenced October 2018 $225,920, exclusive of superannuation, to be reviewed annually by Ongoing, commenced October 2018 the Remuneration Committee. $225,920, exclusive of superannuation, to be reviewed annually by GENETIC SIGNATURES LIMITED Payment on early termination by the Group, other than for gross the Remuneration Committee. misconduct, equal to the base salary plus superannuation for three ABN: 30 095 913 205 Payment on early termination by the Group, other than for gross months. misconduct, equal to the base salary plus superannuation for three DIRECTORS’ REPORT months. FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 This concludes the remuneration report which has been audited. This concludes the remuneration report which has been audited. OPTIONS There were 3,278,750 unissued ordinary shares of the company under option outstanding at the date of this report. During the financial year 1,145,000 new options were issued, 311,250 were exercised, and 322,500 were forfeited. INDEMNIFICATION OF OFFICERS AND AUDITORS Genetic Signatures Ltd paid an insurance premium during the financial year, for Directors’ & Officers Liability insurance cover. No person has applied for leave of court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part if those proceedings. 15 The company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. 15 PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. NON-AUDIT SERVICES During the financial year, the following fees for non-audit services were paid or payable to the auditor, BDO or their related practices: Tax compliance services Other non-audit services Total fees for non-audit services 2020 $ 17,340 9,300 2019 $ 15,700 11,500 26,640 27,200 On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non-audit services by the auditor, as set out above, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that they do not impact the integrity and objectivity of the auditor; and • None of the non-audit services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 33 16 Directors’ Report for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 65. Rounding of Amounts The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts. Amounts in this report have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of directors. John Melki Director Sydney 28 August 2020 17 Genetic Signatures Limited – Annual Report 2020 Financial Report ABN: 30 095 913 205 GENETIC SIGNATURES LIMITED Consolidated Statement of profit or loss and other comprehensive income CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note Consolidated 2020 $’000s Sales Revenue Other income Cost of materials used Employee benefits expense Directors’ and consultancy fees Depreciation and amortisation expenses Finance Costs Scientific consumables Travel and accommodation Other expenses Loss before income tax Income tax benefit 2 4 5 6 11,263 2,910 (4,305) (6,671) (443) (883) (33) (1,769) (327) (1,828) (2,086) - 2019 $’000s 4,866 2,327 (1,686) (4,933) (432) (471) (1) (1,175) (347) (1,640) (3,492) - Loss attributable to members of the entity (2,086) (3,492) Other comprehensive income/(loss) Items that maybe reclassified subsequently to profit or loss: Foreign Currency translation of foreign operations Total comprehensive income/(loss) for the year, net of tax Earnings (loss) per share Basic and diluted loss per share to ordinary equity holders of the company 29 (111) (2,197) 2020 cents (1.64) (14) (3,506) 2019 cents (3.36) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes 20 35 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 Consolidated Statement of financial position CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 Note Consolidated 2020 $’000s 2019 $’000s Assets Current Assets Cash and cash equivalents Trade and other receivables Inventory Government grant receivable Total Current Assets Non-Current Assets Property, plant and equipment Right of Use Assets - Leases Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables Lease liabilities Provisions Total Current Liabilities Non-Current Liabilities Lease liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity 7 8 9 10 11 12 13 12 14 12 14 15 16 31,176 5,223 7,252 2,554 46,205 2,776 734 3,510 6,312 862 1,354 2,147 10,675 1,455 - 1,455 49,715 12,130 2,368 313 657 3,338 428 20 448 1,051 - 491 1,542 19 19 3,786 1,561 45,929 10,569 84,013 1,830 (39,914) 47,028 1,369 (37,828) 45,929 10,569 The above Consolidated statement of financial position should be read in conjunction with the accompanying notes 21 Genetic Signatures Limited – Annual Report 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 Consolidated Statement of changes in equity CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Consolidated Issued Capital $’000s Share based payments reserve $’000s Foreign currency translation reserve $’000s Accumulated losses $’000s Total $’000s Balance at 1 July 2018 46,778 988 (30) (34,336) 13,400 Loss attributable to members of the entity Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 15) Forfeiture of share-based payments (note 16) Share-based payments (note 16) - - - - 250 - - - - - - - (28) 453 - (3,492) (3,492) (14) (14) - - - - - (14) (3,492) (3,506) - - - - - 250 (28) 453 Balance at 30 June 2019 47,028 1,413 (44) (37,828) 10,569 Loss attributable to members of the entity Other comprehensive income/(loss) Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs (note 15) Repayment of loans against shares (note 15) Share issues on conversion of options Forfeiture of share-based payments (note 16) Share-based payments (note 16) - - - 35,608 1,234 143 - - - - - - - - (59) 631 - (2,086) (2,086) (111) (111) - (111) (2,086) (2,197) - - - - - - - - - - 35,608 1,234 143 (59) 631 Balance at 30 June 2020 84,013 1,985 (155) (39,914) 45,929 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 22 37 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 Consolidated Statement of cash flows CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note Consolidated 2020 $’000s 2019 $’000s Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Lease costs (interest) Research and development concession received Net cash used in operating activities Cash flows from investing activities Purchase of plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of costs Proceeds from conversion of employee share ownership plan restricted shares Proceeds from exercise of options Share issue costs Lease costs (principal) Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year Exchange differences on cash and cash equivalents 25(b) 11 15 15 15 15 8,882 (20,619) 129 (33) 2,147 (9,494) (2,350) (2,350) 37,500 1,234 143 (1,892) (299) 36,686 24,842 5,229 (10,227) 168 - 2,561 (2,269) (610) (610) 201 55 (6) - 250 (2,629) 6,312 8,955 22 (14) 6,312 Cash and equivalents at end of financial year 25(a) 31,176 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 23 Genetic Signatures Limited – Annual Report 2020 Notes to the Financial Statements for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These general-purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board ('IASB'). The financial report has been prepared on an accrual basis and is based on historical costs, modified, where applicable by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 1(v). (a) Going Concern The Consolidated Entity incurred losses for the year to 30 June 2020 of 2,086,000 (2019: $3,492,000), leading to net operating cash outflows of $9,494,000 (2019: $2,269,000). The ability of the Consolidated Entity to continue as a going concern is dependent on the entity being able to generate sufficient revenue from successfully developing Genetic Signatures research. The financial report has been prepared on a going concern basis, as during the year, the Consolidated Entity has successfully grown sales by 131% and has produced a profit of $260,000 in the second half of the financial year. At balance date the Consolidated Entity held $31,176,000 in cash reserves and carries no debt. The directors are confident that, given the amount of cash on hand at year-end, plus the ongoing ability of the Consolidated Entity to increase its sales, and to raise capital as needed, it has sufficient funds to operate as a going concern for the foreseeable future. (b) Basis of Consolidation The consolidated financial statements comprise the financial statements of Genetic Signatures Limited and its subsidiaries, Genetic Signatures US Ltd and Genetic Signatures UK Ltd. Subsidiaries are entities (including structured entities) over which the group has control. The group has control over an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to use its power to affect those returns. Subsidiaries are consolidated from the date on which control is transferred to the group and are deconsolidated from the date that control ceases. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. 24 39 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) (c) Income tax The income tax expenses/(benefit) for the year comprise current income tax expense/(benefit) and deferred tax expenses/(benefit). Current income tax expenses charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at the end of the reporting period. Current tax liabilities/assets are therefore measured at the amounts expected to be paid to /recovered from the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investment in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. (d) Property, plant and equipment Each class of plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors of the company to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employed and subsequent to disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance expenses are charged to the income statements during the financial period in which are incurred. 25 Genetic Signatures Limited – Annual Report 2020 Notes to the Financial Statements for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over their estimated useful lives to the company commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable asset are: Class of fixed asset Plant and equipment Depreciation rate 1-10 years The assets residual values and useful lives are reviewed and adjusted if appropriate at each reporting date. Gains and losses on disposal are determined by comparing the net proceeds with the carrying amount prior to disposal. Any gains or losses are included in the statement of profit or loss and comprehensive income. (e) Goods and Services Tax Revenues, expenses and assets are recognised net of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included within other receivables or payables in the statements of financial position. Cash flows are presented on a gross basis, except for the GST component of investing and financing activities which are recoverable from, or payable to ATO are disclosed as operating cash flows. (f) Financial instruments Classification The Group classifies financial assets as either: • Those to be measured subsequently at fair value; or • Those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will be either recorded in profit & loss or other comprehensive income. Recognition and derecognition Purchases and sales of financial assets are recognised on the date the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. 26 41 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) Measurement At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. (i) Loans and receivables Loans and receivables are assets held for collection of contractual cashflows where those cashflows represent payment of principal and interest measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period, which will be classified as non-current assets. Any interest income from these financial assets is included in finance income using the effective interest rate method. (ii) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. (iii) Equity instruments The group subsequently measures all equity investments at fair value. Changes in the fair value of financial assets are recognised in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments are not reported separately from other changes in fair value. The Group does not currently hold any equity investments. Fair Value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group applies the AASB9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. These assumptions include recent sales, historical collection rates and forward looking information, including consideration for the potential impact of the COVID-19 pandemic. 27 Genetic Signatures Limited – Annual Report 2020 Notes to the Financial Statements for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) (g) Revenue recognition Revenue from the sale of goods is recognised when control of the goods has passed to the buyer which usually occurs on delivery. This revenue is classified into 3 categories, being: Sale of Goods – Test Kits and Consumables The Group manufactures and sells test kits for use in pathology laboratories. It also purchases disposable items for resale that are used by the pathology laboratories in conjunction with the test kits. Sales are recognised when control of the products has transferred, being the point in time when the products are delivered to the customer’s specified location, the amount of revenue can be measured reliably, and it is probable that payment will be received by the Group. Sale of Goods – Equipment The consolidated entity provides equipment to customers if required which may be as an outright sale or be a placement under a lease arrangement. Where the equipment is sold the sale is recognised when control of the products has transferred, being the point in time when the products are delivered to the customer’s specified location, the amount of revenue can be measured reliably, and it is probable that payment will be received by the Group. In the event the Group enters a lease, an assessment will be made as to the classification of that lease. A lease will be classified as a finance lease if it transfers substantially all of the risks and rewards associated with the underlying asset. Otherwise the lease will be classified as an operating lease. Where the lease meets the definition of a finance lease revenue is recognised when control of the products has transferred, being the point in time when the products are delivered to the customer’s specified location. Operating lease income will be recognised as income over time per the terms of the agreement with the customer, which may be as a cost per test or a periodic rental value. Sale of Goods – Service If a customer has purchased or is using Group owned equipment there may be a service charge levied to maintain the equipment. Revenue is recognised over time in the period that the service is rendered. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. All revenue is stated net of the amount of goods and services tax (GST). Grant revenue is recognised when it is received or when the right to receive payment is established. (h) Trade and other payables Accounts payable represent the principal amounts outstanding at the reporting date plus, where applicable, any accrued interest. (i) Impairment At each reporting date, the company assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income. Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. 28 43 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) (j) Cash and cash equivalents For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions and net of bank overdrafts. (k) Inventories Inventories include raw materials and all items available for resale, including equipment (defined in 1(g)) and goods in transit. Inventories are measured at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate portion of variable and fixed overheads, the latter being allocated on the basis of normal operation capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (l) Trade and other receivables Trade receivables are initially recognized at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. The Group applies the AASB9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. Trade receivables and contract assets have shared credit risk characteristics and, as such, the expected loss rates for trade receivables are a reasonable approximation of loss rates for contract assets. Losses incurred in the last 3 years represent less than 0.01% of receivables and are immaterial. Therefore, no impairment has been recorded. Other receivables are recognized at amortised cost, less any provision for impairment. (m) Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred, including interest in respect of lease liabilities. (n) Employee benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to the reporting date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. (o) Provisions Provisions are recognised when the entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result, and that outflow can be reliably measured. (p) Leases Lease payments for operating leases of low value items or for a period of less than 12 months, where substantially all the risks and benefits remain with the lessor, are charged as expense in the period in which they are incurred. 29 Genetic Signatures Limited – Annual Report 2020 Notes to the Financial Statements for the financial year ended 30 June 2020 GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 Note 1: Statement of Significant Accounting Policies (continued) (q) Share-based payments Equity-settled share-based payments with employees and others providing similar services are measured at fair value of the equity instrument at the grant date. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 18. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. (r) Parent entity financial information The financial information for the parent entity, Genetic Signatures Limited, disclosed in note 26, has been prepared on the same basis as the consolidated financial statements. (s) Earnings per share Basic earnings per share are calculated by dividing: • • the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares; and by the weighted average number of ordinary shares outstanding during the financial year. (t) Foreign currency translation The financial statements are presented in Australian dollars, which is Genetic Signatures Limited's functional and presentation currency. Foreign currency transactions Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. (u) New, revised or amending Accounting Standards and Interpretations adopted i. AASB16 – Leases The Group has elected to apply AASB 16 on a modified retrospective basis, and therefore, the comparative information has not been restated and continues to be reported under the preceding standard, AASB 117. This means AASB 16 is applied retrospectively with an adjustment to opening equity on the initial application date, as opposed to the previous accounting period. As a major component of the right of use assets recognised by the Group relates to a new lease agreement which took effect in August 2019, the transition exercise on adopting AASB 16 resulted in an immaterial adjustment to the opening balance of equity as at 1 July 2019, and therefore, no restatement has been recognised. 30 45 Financial Report GENETIC SIGNATURES LIMITED ABN: 30 095 913 205 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 The Group leases business premises (offices and laboratories) and office equipment. Rental contracts are typically for a fixed period of 12 months to 60 months and may include extension options. From 1 July 2019 leases are recognised as a right of use asset and a corresponding liability at the date at which the lease is available for use by the Group. Assets and liabilities are measured on a present value basis. Lease payment are discounted using the interest rate implicit in the lease. Where a rate cannot be readily determined from the lease (generally the case) then the lessee’s incremental borrowing rate will be used, being the rate the lessee would have to pay to borrow the funds to obtain the equivalent asset. As the Group does not have any borrowings the incremental borrowing rate has been determined using a build-up approach whereby the risk-free rate is adjusted for credit risk, considering factors such as term, country, and currency. The Group has no variable lease payments in its leases, nor do any of the leases have an option to extend the term. Right of use assets are depreciated on a straight-line basis over the term of the lease. Payments associated with short term leases (with a term <12 months), and leases of low value ( BRISPOT NOMINEES PTY LTD 10. CAPITAL CONCERNS PTY LIMITED 11. DR NICK SAMARAS AND ASSOCIATED ENTITIES 12. BRAHAM CONSOLIDATED PTY LTD 13. MR PHILLIP ISAACS AND ASSOCIATED ENTITIES 14. MR JOHN ROBERT MELKI 15. S LOADER PTY LTD 16. BRAHAM INVESTMENTS PTY LTD 17. CS FOURTH NOMINEES PTY LIMITED 18. IDOLLINK PTY LTD 19. QUICKINVEST PTY LTD 20. BNP PARIBAS NOMINEES PTY LTD Balance as at 08 October 20 37,500,000 15,934,528 12,951,351 6,942,586 5,968,614 5,598,723 4,171,672 2,256,965 2,113,799 2,110,000 2,024,016 1,654,073 1,612,143 1,096,000 1,042,880 886,368 802,578 796,927 756,349 736,164 % 26.29% 11.17% 9.08% 4.87% 4.18% 3.92% 2.92% 1.58% 1.48% 1.48% 1.42% 1.16% 1.13% 0.77% 0.73% 0.62% 0.56% 0.56% 0.53% 0.52% Total Securities of Top 20 Holdings Total of Securities 106,955,736 74.97% 142,665,996 71 Shareholder Information Substantial Holders Shareholder ASIA UNION INVESTMENTS PTY LTD KARST PEAK CAPITAL LIMITED PERENNIAL VALUE MANAGEMENT LIMITED FIL LIMITED On-Market Buy Back There is no current on-market buy back. Balance as at 08 October 2020 % of total shares issued 37,500,000 15,934,528 13,399,698 10,984,948 26.29% 11.17% 9.40% 7.70% Voting Rights The voting rights attached to ordinary shares are set out below: On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each shares shall have one vote. There are no other classes of equity securities. Voluntary Escrow There are no shares subject to voluntary escrow. Stock Exchange Listing GSS securities are only listed on the ASX. Company Secretary: Peter Manley Share Registry BoardRoom Pty Limited Level 12, 225 George Street Sydney NSW 2000 T: 1300 737 760 (within Australia) T: +61 2 9290 9600 (from overseas) Principal registered office in Australia 7 Eliza St Newtown NSW 2042 Genetic Signatures Limited – Annual Report 2020 73 Driving better healthcare through innovation Genetic Signatures Limited – Annual Report 2020 75 Head Office Genetic Signatures Ltd 7 Eliza Street Newtown NSW 2042 Australia Phone: +61 2 9870 7580 Email: info@geneticsignatures.com ISO:13485:2016 certified quality management systems www.geneticsignatures.com

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