Genetic Signatures Limited Annual Report 2021

Plain-text annual report

Annual Report 2021 Our Vision & Purpose Genetic Signatures improves patient care and outcomes by developing innovative diagnostic technologies which simplify molecular pathology. The Genetic Signatures' proprietary 3baseTM platform technology forms the cornerstone of our EasyScreen™ pathogen detection kits, and reduces the genetic complexity of infection detection in molecular testing. Our tests enable hospital and pathology facilities to use standard equipment and procedures to screen more accurately for a wide range of infectious diseases (pathogens). Results are delivered in hours, compared with days for traditional methods. Timely and accurate diagnosis results in appropriate infection control measures that reduce costs and save lives. By minimising customers' workloads and maximising results, Genetic Signatures delivers value to both customers and shareholders while improving community health globally. Contents Chairman’s Letter .......................... 4 CEO Report ..................................... 6 Full Year Results Highlights .......... 8 Commercialisation Update ......... 10 EasyScreenTM Kits ....................... 14 Our People .................................... 16 SARS-CoV-2 Update .................... 18 Financial Report 2021 ................. 20 Analysis of Shareholdings .......... 70 Genetic Signatures Limited – Annual Report 2021 3 Chairman’s Letter Dear fellow shareholder, It is my pleasure to present the Genetic Signatures annual report for the year ended 30 June 2021. Genetic Signatures has had another excellent year that delivered a dramatic increase in revenue and our first profitable full year in the company’s history. Excellent progress was made on a number of fronts across the product portfolio of molecular pathogen testing, over and above tests for the SARS-CoV-2 virus that causes COVID-19. The COVID-19 pandemic remains an ongoing backdrop for the company and for the community in general. Amid renewed and challenging lockdowns, management has been able to ensure the continued supply of testing kits to our customers while keeping staff safe. All staff are proud of the role that Genetic Signatures has played in providing the diagnostic tools to help limit the spread of COVID-19. I personally would like to commend each member of the Genetic Signatures global team for their dedication in performing their unique role in ensuring the Company’s critically important tests have contributed to the safety of the community in the ongoing period of the COVID-19 pandemic. Hopefully, increasing vaccination rates will help supress COVID-19. But with elimination of the SARS- CoV-2 virus increasingly difficult to achieve in the short term, citizens globally are likely going to have to coexist with the disease in one way or the other and this would imply strong ongoing demand for regular streamlined testing. To date, more than three million Genetic Signatures diagnostic tests of all types have been undertaken on patient samples. Based on our proprietary 3base™ technology and sold under the EasyScreen™ brand, these tests can detect groups of organisms – up to 20 at a time – from the one patient sample. While SARS-CoV-2 has been a contributor to the growth in revenue and overall financial performance, Genetic Signatures continues to focus on the development of its broader testing capabilities. Work continues on several new products that are at different stages of development, to supplement those products that have already received regulatory registrations in various global jurisdictions. This investment in R&D programs is targeting multiple new revenue opportunities. For example, European authorities registered the EasyScreen™ STI/Genital Pathogen Detection Kit during the year, which now brings to five Genetic Signatures Limited – Annual Report 2021Solutions (a business unit of Roche Diagnostics). A search is underway for additional Directors, to further strengthen our Board. On behalf of the Genetic Signatures board, I wish to sincerely thank the management team and all employees for their excellent work amid difficult conditions. In particular the board acknowledges Dr John Melki’s outstanding ongoing leadership. I would also like to thank shareholders for their ongoing support and look forward to updating the market on the next exciting chapters of the unfolding Genetic Signatures story. Dr Nick Samaras Chairman EasyScreen™ detection kits available for sale in Europe and UK. An application to the Therapeutic Goods Administration (TGA) for STI kit registration was also lodged and is currently pending approval. Additionally, clinical trials in the USA for the Enteric Protozoan test kit have continued to advance to support an application to the US FDA to be able to sell this product in the largest molecular diagnostics market in the world. Overall, Genetic Signatures had made great strides since its ASX listing in March 2015. Sales have increased from $1.8m in the first year of listing to $28.3m this financial year, and as reported in July, a very strong start to FY2022 sets up your company for the year ahead. Perhaps not surprisingly, recent interest in - and understanding of - molecular diagnostics has increased markedly as a result of the SARS-CoV-2 testing opportunities. I would like to recognise the outstanding commitment and stewardship of our Board. On the personnel front, we were delighted at the appointment of Dr Neil Gunn as a new director. Dr Gunn brings 30 years of medical device and diagnostics experience to the Company and most recently was President of Roche Sequencing 5 On a financial note, the solid demand for our unique Australian diagnostic technology continued to drive our revenue, with a strong finish in the June quarter. Sales for the year increased by more than 150 percent to $28.3m, and this momentum has continued into the new financial year. Notably, we have quadrupled the number of Genetic Signatures branded instruments in the field over the last 18 months. This is very important, as once the device is incorporated into a lab’s workflow it is easier to cross-sell other tests to the customer. We also announced at the end of FY2021 our investment in our next generation instrument. This instrument will further reduce technician hands-on-time and dramatically decrease the time-to-result, whilst preserving the broad number of testing targets. In light of the strong demand, Genetic Signatures invested in expanding manufacturing capacity through automation and increased staffing. We have now sold kits in all our major target markets of the US, Europe and Australia. The US and Europe together account for 75 per cent of global testing for infectious diseases. Thus, they are our key markets and we continue to leverage the market access we have gained during the pandemic, with a view to enhancing customer knowledge of our entire product suite. Meanwhile, trading in the current (first) quarter of FY2022 gives us confidence in the revenue momentum continuing. However, client order flows will be determined by the severity and location of further COVID-19 outbreaks, the take-up and ultimate effectiveness of vaccines, and different governments’ response to them. It is clear that symptomatic patients are now coming forward for testing more frequently than prior to the pandemic, and Genetic Signatures is well placed to provide the tests and throughput required by the testing laboratories. Dr John Melki Managing Director and CEO CEO Report Genetic Signatures has made great progress amid the one-in-100-year healthcare crisis. The pandemic has highlighted the need for rapid and effective diagnostic testing to ensure populations are kept as safe as possible by identifying those who need to isolate and who need appropriate treatment. While the company’s recent successes have been strongly influenced by the SARS-CoV-2 testing applications, the pandemic has demonstrated to commercial laboratories the benefits of molecular PCR based testing methods that are easy to use, with minimal intervention required. Genetic Signatures leveraged this interest to demonstrate the power of our 3base™ technology to medium and high throughput laboratories. The pandemic has opened the doors to high throughput laboratories overseas, introducing them to Genetic Signatures’ technology and empowering them to not only perform COVID-19 diagnosis but also introduce them to testing for other pathogens, be it respiratory, gastrointestinal, sexually transmitted infections or other infectious diseases. Genetic Signatures’ core 3base™ technology can detect 20+ different pathogens at a time, from one patient sample, whilst maintaining high throughput screening. Replacing traditional methods, such as the old ‘sample on a slide’ lab methods which are still prevalent overseas, our tests reduce turnaround time from days to hours, allowing medications such as antibiotics to be more quickly dispensed, or for patients to enter isolation sooner. Genetic Signatures Limited – Annual Report 2021 77 Full Year Results Highlights Revenue from operations ($m) FY21 Sales per region 4-year CAGR = 93% 28.3 11.3 2.8 4.9 FY18 FY19 FY20 FY20 Genetic Signatures finished the year with record revenue of $28.3m, 151% higher than FY2020 which was also a record. SARS-CoV-2 diagnostic kit sales drove the larger share of revenue though demand for enteric kits has returned to pre-pandemic levels. Instrument sales and reagent rentals were $1.5m for the year. The number of Genetic Signatures’ branded instruments in use has quadrupled since before the pandemic. EMEA 15% ASIA PACIFIC 79% AMERICAS 6% Overseas sales were 21% of overall revenue, up from 10% the previous year. In $ terms this represents a six-fold increase in the contribution from Europe and USA to $6m. Europe saw multiple new sites added during the year while in the USA the Company’s first customers were recruited. SARS-CoV-2 testing volumes in both regions have declined from their peak in December 2020 attributable largely to successful vaccine programs. While testing is increasing again in the first quarter of FY2022 it is unclear if this will result in an increased number of PCR tests being performed. Australia, representing the vast majority of current sales due to time in this market, increased revenue significantly and this momentum has continued into FY2022. Genetic Signatures Limited – Annual Report 2021 FY21 financial highlights ($m) Cash movements ($m) 28.3 30.0 0.4 (9.8) 31.2 2.6 0.3 (28.7) 0.2 30.1 (4.7) (0.3) (0.3) Sales revenue Cost of materials & freight Other income 1.8 Net profit (17.2) Other expenses (incl overhead) Genetic Signatures has reported its first full year Net Profit of $1.8m compared to a Net Loss of $2.1m in FY2020. Cost of materials increased in line with increased sales volumes though the gross profit on materials improved to 70% up from 67% in FY2020. Freight and warehousing are significant costs now from increased inventory levels and the higher proportion of shipments going overseas. Expenses grew by $5.2m (43%) overall, driven primarily by growth in employee benefits expense, scientific consumables and depreciation & amortisation expense. Employee benefits reflects the appointment of additional people across the organisation but particularly in sales and production, but also includes share-based payments expense of $1.5m that is a non cash item. Scientific consumables comprises R&D expenditure and costs associated with clinical trials. d c a l e i p t s e r r e a p li e r p p u y R p . b m S O s t o u C x r e f u n t s e D t a m & n P P O t h a h a h u r c u r c E & e r e o f P e o f I n t a s s s n e g i b l e p ti o e e p ri n e r c i s s a x L e n O a l c i p a l C I. b Cash balance at 30 June 2021 was $30.1m. Net operating cash inflows for the year were $4.2m. Gross outflows included investments in inventory which increased to $12.1m from $7.3m at 30 June 2020 to ensure that demand from customers could be met, and purchases of capital equipment for placement at customer sites or to expand the Group’s production capacity. The R&D tax refund will not be available as a cash item in future years due to sales exceeding the $20m threshold. 9 Regions Commercialisation Update Asia Pacific Sales progress Asia Pacific sales at at this stage primarily means Australia. This is Genetic Signatures’ home base and, as a consequence, the Company’s most mature market, Australia still accounts for the largest share of Genetic Signatures' sales globally. Australia has also been an early adopter of molecular testing methodologies, even though it only represents 1-2 per cent of the global molecular diagnostics testing market. Sales were boosted by the recurrence of outbreaks of COVID-19 and the resultant lockdowns in NSW and Victoria, our two largest markets. Naturally, these outbreaks resulted in increased demand for rapid testing for SARS-CoV-2. During the year new sites across Australia were added to the portfolio including the acquisition of the first Queensland laboratory as a client. Regulatory update In Australia, Genetic Signatures has four EasyScreen™ detection kits listed on the Australian Register of Therapeutic Goods (ARTG) - SARS- CoV-2, respiratory, enteric and antimicrobial resistance (ESBL/CPO). The company has also lodged an application for its EasyScreen™ STI/ Genital Pathogen Detection kit - registration has been delayed by COVID-19 but is anticipated soon. Genetic Signatures Limited – Annual Report 2021Regions Commercialisation Update North America Sales progress Regulatory update The USA remains the largest molecular diagnostics market globally so is a focus for Genetic Signatures. The Group acquired its first customers in USA during the financial year for SARS-CoV-2 testing and this contributed $1.6m in revenue. Overall, COVID-19 testing volumes in the USA have reduced from their peak in Dec 2020 which impacted the Company's volumes in the 4th quarter. North America also includes Canada, and we were pleased to announce the appointment of Somagen Diagnostics as a distributor. Somagen Diagnostics is a leading provider of innovative technologies over the past 25 years committed to providing patient focused clinical diagnostic solutions across Canada. Genetic Signatures identified that testing for Enteric Protozoa (parasites) is an underserved market in the USA, and this offers a significant opportunity for molecular tests using our 3base™ technology to greatly enhance this testing capability. There are an estimated 5.5 million tests done per annum and achieving a 40% market share could generate up to US$88m per annum for Genetic Signatures. To gain access to the Enteric Protozoan testing market Genetic Signatures needs to secure US Food and Drug Administration (510k) clearance for its EasyScreen™ diagnostics kit. A key component of the application is provision of clinical data from 3 US trial sites and a minimum 1,500 samples. Sites have been selected and data collection is underway, though access to “live” samples has been hampered by delays due to the pandemic. The first site has almost completed its data collection, the second site is in progress, and the last site has been initiated and is ready to start. The company is still confident that a submission will be lodged by the end of the year, however this will depend on patient recruitment numbers. Market analysis is also being undertaken to determine the next products to pursue FDA clearance. 11 Regions Commercialisation Update EMEA Europe, Middle East and Africa Sales progress This region was responsible for 15% of the Group’s revenue in FY2021, up from 10% in FY2020 and an impressive four-fold increase in dollar terms. A number of new customer sites were established using SARS-CoV-2 test kits, and encouragingly, discussions are now underway with some of these, and others, about adopting additional tests into their testing portfolios. Part of the transformative effect of FY21 is that the COVID-19 pandemic has led to Genetic Signatures securing its first consistent customers in Europe, leading to sales levels that are almost 27 times what they were just two years ago. Regulatory update In January the company was granted CE-IVD for the EasyScreen™ STI/Genital Pathogen Kit, allowing the Company to market this product to all 28 European Union member countries plus the UK. Globally the STI testing market is estimated to be $1.9bn pa. This is the 5th diagnostic kit that has achieved CE-IVD registration. GSS Representation Direct presence Direct and appointed distributors Appointed distributors Direct presence Direct and appointed distributors Appointed distributors Investor Presentation August 2019 2 Investor Presentation August 2019 2 Genetic Signatures Limited – Annual Report 202113 Expanding Range of EasyScreen™ Kits There are currently 9 product groupings at different stages of development, including 4 that are registered for sale in at least 1 major jurisdiction. Registered products still require continued review and enhancements to ensure they are best in class diagnostic kits. Recently Genetic Signatures advised 3 new product groups for which tests are being developed in addition to the Flavi/ Alpha viruses and Meningitis tests that have been spoken of before. These are Measles/Mumps/Rubella, Tick-borne infections, and Dermatophytes. Measles/ Mumps/Rubella Tick-Borne Disease Measles, Mumps and Rubella (MMR) are highly contagious viral diseases in which symptoms usually develop 10-18 days after exposure to an infected person and last 7-14 days. Although all three diseases are vaccine preventable, recently there has been a resurgence of disease due to declining vaccine uptake. In 2017 over 110,000 people died from measles alone. Genetic Signatures has been asked by several hospitals if it was possible for us to produce a rapid multiplexed MMR assay, which we have developed. The next stage of this process will be clinical assessment. Ticks are a species that can transmit a large number of infectious agents to humans due to their lifecycle. TBD is caused by various species of bacteria, virus and protozoa, which are carried by ticks. Perhaps the most well-known is Lyme disease which is endemic world-wide. Other diseases include Rocky Mountain spotted fever, typhus, Colorado tick fever, anaplasmosis, tularemia, ehrlichiosis and tick-borne encephalitis. Many TBDs cause chronic debilitating diseases that are resistant to therapies and are the cause of significant morbidity worldwide. Very few molecular methods for the diagnosis of TBD exist thus Genetic Signatures’ has embarked on a new program to design an entirely novel way to identify all agents of TBD rapidly and sensitively from clinical samples to help diagnose these neglected pathogens. Genetic Signatures Limited – Annual Report 2021Dermatophytes Dermatophytes cause infections of the skin, hair and nails. A well-known example of these fungal skin infections is ringworm or tinea. Fungal growth is usually restricted to the nonliving layer of the skin or nails because of their inability to penetrate viable tissue in healthy people. Infection may become chronic and widespread if the host is immunocompromised. When invasion occurs it elicits a host immune response that can range from mild to severe. Due to the unique 3base™ extraction technology we believe our method will be superior, quicker and have broader coverage than other currently available commercial products. Next Generation Instrument While GSS diagnostic kits are generally platform agnostic (i.e. can be used on most commercially available instruments), we currently offer four different GSS branded instruments that have been customised to improve processing efficiency while maintaining throughput. These instruments are either sold to customers or are provided under a reagent rental arrangement. One of our strategic objectives was the commitment to developing a next generation “sample to result” instrument that will be optimised for 3base™. Funds raised in October 2019 were partly dedicated to this project. Work has commenced on this project and several suitable partners have been engaged. Through the market research conducted, especially learning from the COVID-19 pandemic, there are key attributes the market wants to address. It gives GSS a great opportunity to tailor solutions based on market needs. This is an exciting project of significant importance for the long-term success of the Company. 15 Our people A large reason for the success of Genetic Signatures, in conjunction with its technology, is its people. The Company has a growing team of dedicated and highly capable individuals around the world who ensure that the products are suited for purpose, that our customers are supplied and supported to the best of our ability, and that Genetic Signatures meets all its regulatory and ESG obligations. Investment in people, particularly into the Sales and Production teams over the last 18 months has allowed the Company to meet the extra demands that COVID-19 has imposed. Total staff numbers are now approximately 30% higher than pre-pandemic. The value of diversity in the workforce is also recognised, and the Group can boast an even split of personnel between male and female, plus people from many different cultural backgrounds. Genetic Signatures Limited – Annual Report 2021Staff allocation by function Staff allocation by function ADMIN & SUPPORT 18% PRODUCTION /QC 19% SALES 33% R&D/VALIDATION 30% 80% 60% 40% 20% 0% Sales R&D/Val Production/QC Admin Female Male 17 SARS-CoV-2 Update The COVID Virus Detecting SARS-CoV-2 The coronavirus pandemic began in China in late 2019 (COVID-19) and is caused by the severe acute respiratory corona virus 2 (SARS-CoV-2). Scientists have been studying the coronavirus family, single stranded RNA viruses, for some time, including MERS, SARS and the seasonal respiratory coronaviruses, in an attempt to understand their potential to cause a global pandemic. By January 2020 scientists in China and then France rapidly sequenced and shared the entire SARS- CoV-2 genome. Genetic Signatures moved quickly to use its 3base™ technology to develop a rapid, accurate, low-cost diagnostic test for the presence of SARS-CoV-2 genes. Genetic Signatures’ EasyScreen™ SARS- CoV-2 Detection Kit uses a polymerase chain reaction (PCR) test, which remains a ‘gold standard’ for SARS-CoV-2 detection. EasyScreen™ detection kits can be readily used with a range of front-end sampling approaches and back-end diagnostic (pathology) laboratories. Over the past year Genetic Signatures achieved significant domestic and international registrations and sales of its EasyScreen™ SARS-CoV-2 Detection Kit. Detecting SARS-CoV-2 will remain critical to understanding and managing the pandemic, which has an uncertain duration and severity1. Understanding COVID-19 Risks and Treatments Genetic tools are also key to understanding how people respond to and how we can potentially treat COVID-19 infections. The genetic makeup of each person contributes to their susceptibility and response to the virus along with other factors like underlying health. Since March 2020 research teams have studied the genomes of more than 100,000 people with COVID-19 trying to find genes that might indicate who is susceptible to severe disease2. A dozen or so genetic variants have strong statistical association with severe COVID-19 3. Studies of common and rare mutations are helping us to understand the biological mechanisms of disease and what drugs to test including those that boost natural antiviral defences. This is particularly key to understanding who is susceptible to and mechanisms underlying ‘long- Covid’ in order to continue to develop treatments. There remains a particular need to study the genomes of non-European populations to more fully understand and address how COVID-19 is impacting populations across the world. Viral infections have the ability to alter the epigenetic code and leave imprints in the human genome. Genetic Signatures is investigating how it can use its 3base™ technology platform to detect certain genetic markers as an indicator of severe COVID-19. Genetic Signatures Limited – Annual Report 2021Identifying and Mapping Strains of SARS-CoV-2 RNA viruses typically have high mutation rates. While SARS-CoV-2 has a notable ability to ‘proofread’ its transcriptions, epidemiologists estimate it still has a mutation rate of 2 mutations per month or about half that of influenza4. Mutations are essentially mistakes in the genetic sequence when the RNA replicates. The number of mutations with potential negative impacts on people will increase with each wave of infection. Genomic epidemiology uses genomic sequence data to study and model disease transmission and population dynamics including how mutations arise and spread. As the pandemic progressed, scientists have named and mapped key variations of the SARS-CoV-2 genome, like the Delta strain, to understand how it is being transmitted and spread at a local and global level. By March 2021 nearly a million SARS-CoV-2 genomic sequences had been shared globally5. Some mutations have the potential to increase transmissibility, infectiousness and/or virulence and to make vaccines less effective. Ultimately global suppression of the pandemic is required to minimise mutations and further outbreaks. We have a shared interest in suppressing the virus in every country. We therefore need to increase our ability to undertake quality global genomic surveillance for SARS-CoV-2 and potentially other respiratory pathogens. Genetic Signatures 3base™ technology enables real time, accurate, high volume and low-cost diagnosis needed to continue to understand and manage COVID-19 outbreaks across all countries including those with low testing capability. While Genetic Signatures have chosen to use gold-standard PCR for EasyScreen™ detection kits, and have developed efficient workflows on Genetic Signatures branded instruments, the technology remains compatible with all nucleic acid detection technology, and can be “open platform” or suitable to be run on equipment already present in testing laboratories. Genetic Signatures’ front-line assays can detect Delta and all other known new variants of SARS- CoV-2. Genetic Signatures is developing assays to identify specific strains of concern, such as the Delta variant. Through unprecedented global collaboration and investment, effective vaccines for SARS-CoV-2 have been developed in less than a year. With new messenger RNA (mRNA) vaccines, synthetic mRNA encodes a protein that activates the immune system. As mRNA vaccines are safe, inexpensive and can be scaled up, they will help us develop boosters to counter new COVID-19 variants. With the roll out of vaccines, governments are trialling differing COVID-19 testing strategies. However, the need to monitor and respond to COVID-19 outbreaks including new strains will continue, with such monitoring becoming an on-going part of all health systems as COVID-19 becomes an endemic disease akin to the management of seasonal flu. 1 https://www.nationalgeographic.com/science/article/how-will-the-pandemic- end-the-science-of-past-outbreaks-offers-clues 2 https://www.nature.com/articles/d41586-021-01827-w 3 Nature https://doi.org/10.1038/s41586-021-03767-x (2021). 4 https://www.nature.com/articles/d41586-020-02544-6 5 https://www.gisaid.org 19 For the financial year ended 30 June 2021 Contents Directors’ Report ..............................................................22 Remuneration Report .......................................................28 Financial Report Consolidated Statement of Profit or Loss and other Comprehensive Income ..........................36 Consolidated Statement of Financial Position ....................................................37 Consolidated Statement of Changes in Equity .....38 Consolidated Statement of Cash Flows ................39 Notes to the Financial Statements .......................40 Directors’ Declaration ......................................................64 Auditors Declaration ........................................................65 Independent Audit Report ...............................................66 Analysis of Holdings ........................................................70 Shareholders Information ...............................................71 Genetic Signatures Limited – Annual Report 2021 Financial Report 2021 21 Directors’ Report DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 The directors present their report, together with the financial statements, on the company and its controlled entities for the year ended 30 June 2021. 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 Neil Gunn (appointed 6 April 2021) 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 exceptional year in which Company revenues have grown materially during FY21, largely due to demand for the EasyScreen™ SARS-CoV-2 Detection Kit globally. The Group successfully established itself in Europe and USA with supply agreements signed with new customers in both regions. In the financial year ending 30 June 2021, Genetic Signatures’ revenue was $28,284,000 representing a 151% increase over the previous year. This revenue growth was driven by demand for EasyScreen™ SARS-CoV-2 Detection Kit and has resulted in a quadrupling of instruments in use versus pre-pandemic placements. Encouragingly, the proportion of sales to overseas customers rose to 21% of total sales, up from 10% in FY21, in line with Company strategy to pursue the large regions of Europe and USA that together represent ~75% of all molecular testing. Revenue from operations ($m) 28.3 6.0 22.2 FY21 2.8 FY18 4.9 FY19 11.3 1.1 10.2 FY20 APAC International Genetic Signatures posted a maiden full year net profit of $1,756,000 compared to a net loss of $2,086,000 in FY20. 2 Genetic Signatures Limited – Annual Report 2021 for the financial year ended 30 June 2021 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Gross margins on materials were 70%, a 3% improvement over the previous year. Freight and warehousing costs now represent a significant cost due to increased volumes generally plus overseas shipments. Margins should continue and possibly improve in future as the proportion of international sales rises. Employee benefits expense were up 50% vs. prior corresponding period to $10,024,000 as additional personnel were added to the teams in Europe, USA and locally across all functions. This expense line also includes share-based payments expense of $1,484,000, a non-cash item. Scientific consumables also increased over 50% over prior year, reflecting the work on continuing and new R&D projects, and clinical trial costs for the US FDA Enteric Protozoan submission. Depreciation and amortisation expenses were also up as a result of significant growth in fixed assets, primarily instruments to place at customer sites but also automation of manufacturing processes. Cash balance was $30,121,000 at 30 June 2021. The Group has reported net operating cash inflows for the year of $4,195,000 which includes collections from customers of $30,031,000. Offsetting this were $4,653,000 investments in instrumentation for use at customer sites, and machinery for production. Inventory balances are higher than 30 June 2020, though are declining as the increased purchases made during the year to meet customer demand is now being used. Genetic Signatures is well capitalised to make investments in future growth opportunities. Commercialisation Progress by Market Australia Genetic Signatures’ home market continues to represent an important share of revenue contribution to the Group. Sales were boosted late in the year as SARS-CoV-2 kit deliveries increased to meet demand caused by the surge testing in NSW and Victoria. The Company started supplying a number of new sites in Australia during the year and has recently secured its first site in Queensland. Research and development activity continued through the year on current and newly announced projects which include a next generation “sample to result” instrument optimised for 3base™ assays that Genetic Signatures believes will give real competitive advantage to the Group. Other new infectious diseases identified as opportunities are for measles/mumps/rubella due to falling vaccine rates globally, tick-borne diseases, and dermatophytes which are fungal infections. Europe Europe (European Union and United Kingdom) represents ~35% of global molecular diagnostics market 1. Sales increased four-fold over FY20 to $4.4m. All sales were COVID-19 related, though discussions are underway with customers regarding adoption of other tests including the expanded Respiratory assays and the Enteric range. Genetic Signatures now has five products registered for sale under CE-IVD: SARS-CoV- 2, Respiratory, Enteric, Anti-Microbial Resistance, and Sexually Transmitted Infections (STI) which achieved its registration during the financial year. North America This is the largest market opportunity globally, and the US accounts for an estimated 40% of worldwide molecular PCR testing revenue1. First routine sales were achieved in the region this financial year with a contribution of $1.6m in SARS-CoV-2 kits and related equipment. Testing volumes have decreased from their peak in December 2020 due to the concerted vaccination program through USA, though infection rates appear to be increasing again. It is not apparent whether this will result in an increase in the number of PCR tests performed. FDA clearance for the Enteric Protozoan Detection Kit is a major plank in the Group’s strategy to expand Genetic Signatures’ markets, and the Company is targeting up to 40% market share within 5 years of clearance being granted, generating potential revenue of up to US$88m per annum. Clinical trials are being conducted at three US sites to accompany the FDA application. These trials have been slower than hoped with data collection being hampered by COVID related restrictions, such as sample collection and availability of laboratories. One of the three sites is nearing completion of their sample testing though, while the other sites are at the early stages. Genetic Signatures is still hopeful that its 510k application will be submitted to FDA by the end of 2021. 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 3 23 Directors’ Report DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Looking Forward Genetic Signatures plans to continue to consolidate its gains through FY2022 and beyond, particularly in international markets. The new financial year has started strongly, with the Group announcing sales of $4m in July from testing due to outbreaks globally, but particularly in Australia. Whilst COVID-19 has been an opportunity, the focus is on expanding the range of EasyScreen™ tests that current and new customers use day to day. The keys to future success for Genetic Signatures are: • Focus on long term customer contracts and customer satisfaction. Ensuring that customers are receiving both high performance products and a reliable service allows repeat business and a secure future. • Leverage COVID-19 to promote new tests to new and existing customers. SARS-CoV-2 has introduced many laboratories to the benefits of both molecular PCR testing generally but also the 3base™ advantages, particularly for multiplex screening. The introduction of new tests using the same platforms and workflow is relatively simple. • Further product development. Continue to leverage the 3base™ technology to increase the number of pathogens that can be tested. If these can be achieved Genetic Signatures has a bright future. 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 (2020: 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 2021, 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 authorities in countries where Genetic Signatures supplies test kits, such as speed and effectiveness of vaccine rollout, 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 2021 for the financial year ended 30 June 2021 DIRECTORS Name: Qualifications: Experience: DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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. Special responsibilities: Non-Executive Chairman; Chairman Nomination and Remuneration Committee; Chairman Audit & Risk Committee Directorships of other listed companies: Nil Interests in shares and options: 2,024,016 ordinary shares Name: Qualifications: Experience: 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 over 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’ 3base™ technology. Special responsibilities: Managing Director and Chief Executive Officer Directorships of other listed companies: Nil Interests in shares and options: 1,096,000 ordinary shares, 550,000 options over ordinary shares 5 25 Directors’ Report Name: Qualifications: Experience: DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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. Special responsibilities: 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: Neil Gunn (appointed 6 April 2021) BSc, Msc, PhD Dr Gunn holds a PhD and Master of Science from Portsmouth Polytechnic, UK. He has over 30 years’ experience in medical devices and diagnostics. Most recently he was the President of Roche Sequencing Solutions where he oversaw all aspects of the business and managed a team of approximately 900 people. His team developed and launched more than 20 products per year. Prior to this he was Vice President of Roche’s Molecular Diagnostics business and was responsible for over 120 diagnostic product launches principally into the IVD clinical market. Dr Gunn is based in San Francisco, USA. Special responsibilities: None Directorships of other listed companies: Nil Interests in shares and options: Nil 6 Genetic Signatures Limited – Annual Report 2021 for the financial year ended 30 June 2021 Name: Qualifications: Experience: DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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 roles at Central Diagnostics Laboratory. He currently serves as a director on boards of Alveo Technologies, Techcyte and CytoBay. 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. leadership Special responsibilities: 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. DIRECTORS’ MEETINGS The number of meetings of the board of directors (including board committees) held during the year ended 30 June 2021, 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 Neil Gunn (appt. April 2021) Board Audit & Risk Committee Nomination & Remuneration Committee Held 8 8 8 8 2 Attended 8 8 7 8 2 Held 2 - 2 - - Attended 2 - 2 - - Held 2 - 2 - - Attended 2 - 2 - - 7 27 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 DIRECTORS’ REPORT Ongoing, commenced November 2014 Ongoing, commenced November 2014 $360,000, exclusive of superannuation, to be reviewed annually by $360,000, exclusive of superannuation, to be reviewed annually by the Remuneration Committee. the Remuneration Committee. Payment on early termination by the Group, other than for gross Payment on early termination by the Group, other than for gross misconduct, equal to the base salary plus superannuation misconduct, equal to the base salary plus superannuation entitlements for three months. entitlements for three months. Director & Chief Executive Officer Director & Chief Executive Officer John Melki John Melki Contract term: Contract term: Base salary: Base salary: Termination payments: Termination payments: Michael Aicher Michael Aicher Executive Director – US Operations Executive Director – US Operations Contract term: Contract term: Base salary: Base salary: Termination payments: Termination payments: Ongoing, commenced April 2014 Ongoing, commenced April 2014 $US120,000, to be reviewed annually by the Remuneration $US120,000, to be reviewed annually by the Remuneration Committee. Committee. No payment on early termination. Contract is terminable by either No payment on early termination. Contract is terminable by either party on one months’ notice. party on one months’ notice. Peter Manley Peter Manley Chief Financial Officer Chief Financial Officer Contract term: Contract term: Base salary: Base salary: Termination payments: Termination payments: Directors’ Report Ongoing, commenced October 2018 Ongoing, commenced October 2018 $232,635 exclusive of superannuation, to be reviewed annually by $232,635 exclusive of superannuation, to be reviewed annually by the Remuneration Committee. the Remuneration Committee. Payment on early termination by the Group, other than for gross Payment on early termination by the Group, other than for gross misconduct, equal to the base salary plus superannuation for three misconduct, equal to the base salary plus superannuation for three months. months. This concludes the remuneration report which has been audited. This concludes the remuneration report which has been audited. OPTIONS OPTIONS There were 4,360,000 unissued ordinary shares of the company under option outstanding at the date of There were 4,360,000 unissued ordinary shares of the company under option outstanding at the date of this report. During the financial year 1,715,000 new options were issued, 296,250 were exercised, and this report. During the financial year 1,715,000 new options were issued, 296,250 were exercised, and 337,500 were forfeited. 337,500 were forfeited. INDEMNIFICATION OF OFFICERS AND AUDITORS INDEMNIFICATION OF OFFICERS AND AUDITORS Genetic Signatures Ltd paid an insurance premium during the financial year, for Directors’ & Officers Genetic Signatures Ltd paid an insurance premium during the financial year, for Directors’ & Officers Liability insurance cover. Liability insurance cover. No person has applied for leave of court to bring proceedings on behalf of the company or intervene in any 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 DIRECTORS’ REPORT 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. FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 company for all or any part if those proceedings. DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 The company’s operations are not regulated by any significant environmental regulation under a law of the The company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. DIRECTORS’ REPORT NON-AUDIT SERVICES Commonwealth or of a state or territory. FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 During the financial year, the following fees for non-audit services were paid or payable to the auditor, PROCEEDINGS ON BEHALF OF THE COMPANY NON-AUDIT SERVICES BDO or their related practices: PROCEEDINGS ON BEHALF OF THE COMPANY DIRECTORS’ REPORT During the financial year, the following fees for non-audit services were paid or payable to the auditor, 2020 2021 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 BDO or their related practices: DIRECTORS’ REPORT NON-AUDIT SERVICES No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring $ $ FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 2020 2021 No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring During the financial year, the following fees for non-audit services were paid or payable to the auditor, proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party 15,700 27,345 Tax compliance services $ $ proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party BDO or their related practices: for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. 11,500 - Other non-audit services NON-AUDIT SERVICES 15,700 27,345 Tax compliance services for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. 2020 2021 During the financial year, the following fees for non-audit services were paid or payable to the auditor, $ $ NON-AUDIT SERVICES 11,500 - Other non-audit services 27,200 27,345 Total fees for non-audit services BDO or their related practices: During the financial year, the following fees for non-audit services were paid or payable to the auditor, 27,345 Tax compliance services 15,700 2021 2020 BDO or their related practices: 27,200 27,345 Total fees for non-audit services 11,500 - Other non-audit services On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- $ $ 2021 2020 audit services by the auditor, as set out above, did not compromise the auditor independence Tax compliance services 15,700 27,345 $ $ 27,200 27,345 Total fees for non-audit services On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- requirements of the Corporations Act 2001 for the following reasons: 27,345 15,700 NON-AUDIT SERVICES Other non-audit services - 11,500 audit services by the auditor, as set out above, did not compromise the auditor independence • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that During the financial year, the following fees for non-audit services were paid or payable to the auditor, - 11,500 requirements of the Corporations Act 2001 for the following reasons: BDO or their related practices: On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- they do not impact the integrity and objectivity of the auditor; and Total fees for non-audit services 27,345 • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that audit services by the auditor, as set out above, did not compromise the auditor independence • None of the non-audit services undermine the general principles relating to auditor 27,345 they do not impact the integrity and objectivity of the auditor; and requirements of the Corporations Act 2001 for the following reasons: Tax compliance services independence as set out in APES 110 Code of Ethics for Professional Accountants. On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- • None of the non-audit services undermine the general principles relating to auditor • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that Other non-audit services audit services by the auditor, as set out above, did not compromise the auditor independence independence as set out in APES 110 Code of Ethics for Professional Accountants. On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- they do not impact the integrity and objectivity of the auditor; and Total fees for non-audit services requirements of the Corporations Act 2001 for the following reasons: audit services by the auditor, as set out above, did not compromise the auditor independence • None of the non-audit services undermine the general principles relating to auditor AUDITOR’S INDEPENDENCE DECLARATION • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that requirements of the Corporations Act 2001 for the following reasons: independence as set out in APES 110 Code of Ethics for Professional Accountants. On the advice of the Audit and Risk Committee, the directors are satisfied that the provision of non- A copy of the auditor’s independence declaration as required under section 307C of the Corporations they do not impact the integrity and objectivity of the auditor; and audit services by the auditor, as set out above, did not compromise the auditor independence • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that AUDITOR’S INDEPENDENCE DECLARATION Act 2001 is set out on page 65. requirements of the Corporations Act 2001 for the following reasons: A copy of the auditor’s independence declaration as required under section 307C of the Corporations independence as set out in APES 110 Code of Ethics for Professional Accountants. Act 2001 is set out on page 65. • None of the non-audit services undermine the general principles relating to auditor they do not impact the integrity and objectivity of the auditor; and AUDITOR’S INDEPENDENCE DECLARATION Rounding of Amounts A copy of the auditor’s independence declaration as required under section 307C of the Corporations independence as set out in APES 110 Code of Ethics for Professional Accountants. The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding Rounding of Amounts Act 2001 is set out on page 65. off’ of amounts. Amounts in this report have been rounded off in accordance with the instrument to the AUDITOR’S INDEPENDENCE DECLARATION The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding nearest thousand dollars, or in certain cases, to the nearest dollar. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations off’ of amounts. Amounts in this report have been rounded off in accordance with the instrument to the Rounding of Amounts 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. nearest thousand dollars, or in certain cases, to the nearest dollar. The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 65. off’ of amounts. Amounts in this report have been rounded off in accordance with the instrument to the Act 2001 is set out on page 19. Rounding of Amounts Rounding of Amounts nearest thousand dollars, or in certain cases, to the nearest dollar. The company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding 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 This report is made in accordance with a resolution of directors. nearest thousand dollars, or in certain cases, to the nearest dollar. 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. 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. • None of the non-audit services undermine the general principles relating to auditor DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 they do not impact the integrity and objectivity of the auditor; and Tax compliance services Other non-audit services • All non-audit services have been reviewed by the Audit and Risk Committee to ensure that • 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. Total fees for non-audit services 2021 $ 27,345 - 2020 $ 15,700 11,500 27,200 27,200 13 13 27,345 27,200 This report is made in accordance with a resolution of directors. This report is made in accordance with a resolution of directors. This report is made in accordance with a resolution of directors. This report is made in accordance with a resolution of directors. John Melki Director John Melki John Melki Director Director John Melki Sydney Director 25 August 2021 Sydney Sydney 25 August 2021 John Melki 25 August 2021 Director Sydney John Melki 25 August 2021 Director Sydney 25 August 2021 Sydney 25 August 2021 14 14 14 14 14 14 Genetic Signatures Limited – Annual Report 2021 29 Remuneration Report DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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 $450,000 excluding share-based payments which are subject to separate shareholder approval. This was increased from $250,000 at the last AGM in November 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. 8 Genetic Signatures Limited – Annual Report 2021 for the financial year ended 30 June 2021 DIRECTORS’ REPORT DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 1.2 Key management personnel 1.2 Key management personnel The following persons were key management personnel of Genetic Signatures Limited during the financial year: 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 Dr Neil Gunn (appointed 6 April 2021) Non-executive directors Dr Nickolaos Samaras - Chairman Dr Anthony J Radford AO Dr Neil Gunn (appointed 6 April 2021) Executive directors Dr John R Melki - Managing Director & Chief Executive Officer Michael A Aicher - Executive Director, US Operations 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 Other executives Peter L Manley - Chief Financial Officer/Company Secretary 2 NON-EXECUTIVE DIRECTOR REMUNERATION 2 NON-EXECUTIVE DIRECTOR REMUNERATION 2.1 Directors’ Fees 2.1 Directors’ Fees The current remuneration was increased for Directors in recognition of business growth and resulting extra time and commitment from Non-executive Directors. Fees are inclusive of committee fees. The current remuneration was increased for Directors in recognition of business growth and resulting extra time and commitment from Non-executive Directors. Fees are inclusive of committee fees. Board fees per annum Board fees per annum Chairman Non-executive director (Australian based) Non-executive director (overseas) Chairman Non-executive director (Australian based) Non-executive director (overseas) $108,000 $108,000 $60,000 $60,000 60,000 (USD, EUR or GBP depending on location) 60,000 (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. 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. 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. 2.2 Non-executive director remuneration 2.2 Non-executive director remuneration Non-executive directors Non-executive directors Nickolaos Samaras Nickolaos Samaras Anthony J Radford Anthony J Radford Neil Gunn Neil Gunn Total Total Year Year 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2021 2020 2020 Cash salary Cash salary and fees and fees $ $ 96,000 96,000 60,000 60,000 56,250 56,250 45,000 45,000 19,479 19,479 - - Super- Super- annuation annuation $ $ 9,120 9,120 5,700 5,700 5,344 5,344 4,275 4,275 - - - - 171,729 171,729 14,464 14,464 Share-based Share-based payments payments $ $ - - - 1,553 - - - - - 1,553 - - - - Total Total $ $ 105,120 105,120 65,700 65,700 61,594 61,594 50,828 50,828 19,479 19,479 - - 186,193 186,193 105,000 105,000 9,975 9,975 1,553 1,553 116,528 116,528 9 9 31 Remuneration Report DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 EXECUTIVE REMUNERATION 3 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 2021, 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. 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. 350,000 options were issued in 2021 to key management personnel as at the date of this report. 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 a history of ongoing losses as the consolidated entity continue to develop new products, commercialise its existing products and develop new markets and customers. 10 Genetic Signatures Limited – Annual Report 2021for the financial year ended 30 June 2021 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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) 2021 $ 28,284 1,756 2020 $ 11,263 (2,086) 2019 $ 4,866 (3,492) 2018 $ 2,840 (3,254) 1.10 - 2.15 - 1.35 - 0.37 - 2017 $ 2,038 (2,671) 0.395 - Voting and Comments made at the Company’s 2020 Annual General Meeting (‘AGM’) The Company received 99.9% of “for” votes in relation to its remuneration report for the year ended 30 June 2020. No issues were raised with Directors concerning the Report. 3.1 Executive director remuneration Fixed remuneration Variable remuneration Cash salary and fees $ 354,736 Non- monetary benefits $ 1,964 Year 2021 Long-term benefits: Annual and long service leave $ Super- annuation $ 25,000 28,818 Subtotal $ 410,518 2020 308,137 16,320 25,047 27,351 376,855 2021 161,552 2020 178,097 2021 227,264 2020 220,636 - - - - - - - - 161,552 178,907 24,485 18,623 270,372 22,778 18,051 261,465 2021 743,552 1,964 49,485 47,441 842,442 2020 707,680 16,320 47,825 45,402 817,227 John R Melki CEO Michael A Aicher1 Executive Director Peter L Manley CFO Total Short term incentive2 $ Share- based payments3 $ Total $ 624,750 - - 148,070 161,552 563,827 72,490 141,742 38,902 - - 15,000 124,606 95,981 45,000 402,446 87,490 266,348 1,196,280 193,070 134,883 1,145,180 178,907 409,978 John R Melki CEO Michael A Aicher1 Executive Director Peter L Manley CFO Remuneration proportions Fixed % At risk STI % At risk LTI % 65% 67% 100% 100% 66% 65% 12% 26% 0% 0% 4% 11% 23% 7% 0% 0% 30% 24% Year 2021 2020 2021 2020 2021 2020 1 M Aicher is paid in USD. Changes in base pay are attributable to the stronger AUD against the USD through 2 3 FY21 (Ave rate FY21: 0.7428, FY20: 0.6707). 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. 11 33 Remuneration Report DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Short term incentives J.R. Melki M.A. Aicher P.L. Manley* STI potential Percentage of base $ 108,000 - - % 30 Paid % 72 Forfeited % 28 * Bonus payable to P Manley is 100% at discretion of the Board EQUITY DISCLOSURES 4 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 2020 Granted as compensation Received on conversion of restricted shares Other changes Balance at 30 June 2021 Balance held nominally N. Samaras J.R Melki M.A Aicher A.J Radford N Gunn P.L Manley Total 2,024,016 1,096,000 645,785 240,000 - 20,408 4,026,209 - - - - - - - Employee Incentive Plan - - - - - - - - - - - - - - 2,024,016 1,393,000 1,096,000 1,096,000 645,785 240,000 - 20,408 4,026,209 3,395,193 645,785 240,000 - 20,408 Balance at 1 July 2020 Granted during the year No. Value1 $ No. Value1 $ J.R Melki 300,000 132,523 250,000 385,910 Exercised during the year Value2 $ - No. - P.L Manley 200,000 195,389 100,000 177,437 - - Forfeited during the year Balance at 30 June 2021 Unvested at 30 June 2021 Value2 $ - Value1 $ 550,000 518,429 350,000 No. No. - 300,000 372,825 200,000 No. - - 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 EMPLOYMENT AGREEMENTS 5 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: 12 Genetic Signatures Limited – Annual Report 2021 for the financial year ended 30 June 2021 DIRECTORS’ REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 John Melki Director & Chief Executive Officer Contract term: Base salary: Termination payments: Ongoing, commenced November 2014 $360,000, 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: Peter Manley Chief Financial Officer 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. Ongoing, commenced October 2018 $232,635 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 for three months. This concludes the remuneration report which has been audited. OPTIONS There were 4,360,000 unissued ordinary shares of the company under option outstanding at the date of this report. During the financial year 1,715,000 new options were issued, 296,250 were exercised, and 337,500 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. The company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. 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. 13 35 Financial Report 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 2021 Note Consolidated 2021 $’000s Sales Revenue Other income Cost of materials used Freight on materials & finished goods Employee benefits expense Directors’ and consultancy fees Depreciation and amortisation expenses Finance costs Scientific consumables Travel and accommodation Other expenses Profit/(loss) before income tax Income tax benefit 2 4 5 6 28,284 435 (8,486) (1,318) (10,024) (399) (1,425) (36) (2,761) (262) (2,252) 1,756 - 2020 $’000s 11,263 2,910 (3,739) (566) (6,671) (443) (883) (33) (1,769) (327) (1,828) (2,086) - Profit/(loss) attributable to members of the entity 1,756 (2,086) 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 Earnings/(loss) per share to ordinary equity holders of the company Diluted Earnings/(loss) per share to ordinary equity holders of the company 29 29 20 1,776 2021 cents 1.23 1.21 (111) (2,197) 2020 cents (1.64) (1.64) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes 17 Genetic Signatures Limited – Annual Report 2021 Consolidated Statement of Financial Position CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Note Consolidated 2021 $’000s 2020 $’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 Intangible assets 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 30,121 5,373 12,134 - 47,628 5,659 371 389 6,419 31,176 5,223 7,252 2,554 46,205 2,675 101 734 3,510 54,047 49,715 3,352 334 938 4,624 65 18 83 2,368 313 657 3,338 428 20 448 4,707 3,786 49,340 45,929 84,164 3,334 (38,158) 84,013 1,830 (39,914) 49,340 45,929 The above Consolidated statement of financial position should be read in conjunction with the accompanying notes 18 37 Financial Report Consolidated Statement of Changes in Equity CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Consolidated Issued Capital $’000s Share based payments reserve $’000s Foreign currency translation reserve $’000s Accumulated losses $’000s Total $’000s Balance at 1 July 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 Profit 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: Share issues on conversion of options, net of costs (note 15) Forfeiture of share-based payments (note 16) Share-based payments (note 16) - - - 151 - - Balance at 30 June 2021 84,164 - - - - (235) 1,719 3,469 - 20 20 - - - 1,756 - 1,756 20 1,756 1,776 - - - 151 (235) 1,719 (135) (38,158) 49,340 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes 19 Genetic Signatures Limited – Annual Report 2021 Consolidated Statement of Cash Flows CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note Consolidated 2021 $’000s 2020 $’000s Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees inclusive of GST) Interest and other income received Lease costs (interest) Research and development concession received Net cash provided by/(used in) operating activities Cash flows from investing activities Purchase of plant and equipment Purchase of intangible assets 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 (used in)/provided by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial year Exchange differences on cash and cash equivalents 12 25(b) 11 15 15 15 15 Cash and equivalents at end of financial year 25(a) 30,031 (28,680) 326 (36) 2,554 4,195 (4,653) (326) (4,979) - - 163 (12) (341) (190) (974) 8,882 (20,619) 129 (33) 2,147 (9,494) (2,275) (75) (2,350) 37,500 1,234 143 (1,892) (299) 36,686 24,842 31,176 6,312 (81) 30,121 22 31,176 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 20 39 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 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 Company has adopted all the amendments to Australian Accounting Standards issued by the Australian Accounting Standards Board, which are relevant to and effective for the Company’s financial statements for the financial year beginning 1 July 2020. There was no material impact on the financial statements from the adoption of these new accounting standards. 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) 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. (b) 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. 21 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) 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. (c) 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. 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 period 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. 22 41 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) (d) 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. (e) 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. 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. 23 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) (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 ongoing COVID-19 pandemic. (f) 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 – Reagents 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 and rental 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 by applying the interest rate within the lease arrangement to the future lease payments and the estimated value of any unguaranteed end of term earnings or secondary income. 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. 24 43 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) 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. (g) Trade and other payables Accounts payable represent the principal amounts outstanding at the reporting date plus, where applicable, any accrued interest. (h) 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. (i) 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. (j) Inventories Inventories include raw materials, work in progress and all items available for resale, including equipment (defined in 1(f)) 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. (k) 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 1% of receivables and are immaterial. The Group has made a provision for impairment against an invoice that is in dispute and is considered to be at reasonable risk. Other receivables are recognized at amortised cost, less any provision for impairment. 25 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) (l) 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. (m) 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. (n) 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. (o) Leases 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 payments 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. 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. Refer to note 12 for further information pertaining to the Group’s right of use assets and liabilities. (p) 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. (q) 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. 26 45 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) (r) 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. Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account dilutive potential ordinary shares. (s) 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 reporting date. The revenues and expenses of The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at 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. (t) Software development Costs incurred in developing or acquiring software, licences or systems that will contribute future financial benefits are capitalised. These include external direct costs of materials and service. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility, where the Group has the intention and ability to use the asset. (u) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2021. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. 27 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 1: Statement of Significant Accounting Policies (continued) (v) Critical Accounting Estimates and Judgments The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company. Key estimates – valuation of employee share option plan shares At each reporting date, the entity revises its estimate of the number of rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to the original estimates, is recognised in profit or loss with a corresponding adjustment to equity. The fair value is measured at grant date and recognised over the period during which the employee becomes unconditionally entitled to the restricted shares or options. Judgements - research and development claim Judgement is required in determining the amount of grant revenue relating to the research and development claim. There are certain transactions and calculations undertake during the ordinary course of business for which the ultimate tax determination may be subject to change. The company calculates its research and development claim based on the company’s understanding of the tax law. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the profit or loss in the year in which such determination is made. Judgements – provisioning for inventory Inventories generally have expiry dates and the Group provides for product that have expired or are close to expiry. Expiry dates for raw material are no longer relevant once the materials are used in production. At this stage the relevant expiry date is that applicable to the resultant intermediate or finished product. Various factors affect the assessment of recoverability of the carrying value of inventory, including regulatory approvals and future demand for the Group’s products. These factors are taken into consideration in determining the appropriate level of provisioning for inventory. Judgements - COVID-19 pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. 28 47 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 2: Revenue Disaggregation of revenue The Group derives revenue from the transfer of goods and services over time and at a point in time in the following major product and geographical regions Consolidated - 2021 Revenue lines Reagents & consumables Equipment sales & rental Service contracts Timing of revenue recognition Goods transferred at a point in time Services transferred over time Consolidated - 2020 Revenue lines Reagents & consumables Equipment sales & rental Service contracts Timing of revenue recognition Goods transferred at a point in time Services transferred over time Note 3: Financial Reporting Segments Asia Pacific $’000s EMEA $’000s Americas $’000s Total $’000s 21,743 483 19 3,589 837 - 1,435 178 - 26,767 1,498 19 22,245 4,426 1,613 28,284 22,226 19 4,426 - 1,613 - 28,265 19 22,245 4,426 1,613 28,284 Asia Pacific $’000s EMEA $’000s Americas $’000s Total $’000s 9,430 663 60 770 337 - 3 - - 10,203 1,000 60 10,153 1,107 3 11,263 10,093 60 1,107 - 3 - 11,203 60 10,153 1,107 3 11,263 The Group is operated under one business segment which was the research and commercialisation of identifying individual genetic signatures to identify diseases and disabilities. Major customers During the year ended 30 June 2021 there were two customers (2020: two) that each contributed over 10% of the consolidated entity’s external revenue. 29 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 3: Financial Reporting Segments (continued) Geographic locations Asia Pacific The Group’s head office and manufacturing operation is based in Sydney, Australia. 79% of the revenue was generated within the Australian entity. EMEA This business comprises Eastern and Western Europe, Middle East including Israel, and Africa. The Group is represented by employees in UK and Germany. Americas The Group’s North American business includes the United States and Canada. The Group proposes to sell products in this region and is currently having its products evaluated by the US FDA. Operations are currently based in California, USA. Consolidated - 2021 Asia Pacific $’000s EMEA $’000s Americas $’000s Total Segment revenue Intersegment sales Total sales from external customers Other revenue Segment revenue from external customers 25,397 (3,152) 22,245 - 22,245 4,447 (21) 4,426 - 4,426 1,679 (66) 1,613 - 1,613 31,523 (3,239) 28,284 - 28,284 Segment result from external customers 9,948 1,541 (457) 3,032 Unallocated revenue less unallocated expenses Profit before income tax Income tax Net profit after tax Consolidated - 2020 (1,276) 1,756 - 1,756 Segment revenue Intersegment sales Total sales from external customers Other revenue Segment revenue from external customers 10,153 - 10,153 2,554 12,707 1,107 - 1,107 - 1,107 3 - 3 - 3 11,263 - 11,263 2,554 13,817 Segment result from external customers 23 (515) (952) (1,444) Unallocated revenue less unallocated expenses Loss before income tax Income tax Net loss after tax (642) (2,086) - (2,086) 30 49 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 4: Other income Interest income Government Grant (R&D Rebate)* Export Market Development Grant Other income Total other income Consolidated 2021 $’000s 2020 $’000s 206 - 100 129 435 271 2,554 - 85 2,910 * The group exceeded the $20 million aggregate turnover rate imposed by the ATO and therefore did not qualify for the R&D cash rebate for the 30 June 2021 financial year. Note 5: Expenses Finance costs Interest charges Superannuation expense Defined contribution superannuation expense (including non-executive Directors) Write-down of inventory to net realisable value* Items included in other expenses include: Patents – lodgement and maintenance Foreign exchange loss Consolidated 2021 $’000s 2020 $’000s 36 33 466 290 270 143 71 - 153 133 * Write-down of inventory to net realisable value included in the cost of materials used in the statement of profit or loss and other comprehensive income. Refer to Note 9 for details of inventories. Note 6: Income tax Consolidated 2021 $’000s 2020 $’000s Numerical reconciliation of income tax benefit to prima facie tax payable Prima facie income tax (benefit) on profit/(loss) from ordinary activities at 26% (2020: 27.5%) 715 (1,048) Add/(less)tax effect of: - non-deductible items - tax losses not brought to account - research and development tax credit - temporary differences not brought to account Income tax benefit attributable to entity 2,459 329 (2,902) (601) - 1,862 (587) - (328) - 31 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 6: Income tax (continued) The consolidated entity has recorded its first profit during the year ended 30 June 2021. The consolidated entity currently has carried forward losses of $6,384,000 from prior years in respect to its Australian operations, approximately US$3,633,000 in respect to its North American operations, and GBP164,000 from its UK operations. The utilisation of these carried forward losses is conditional on the consolidated entity meeting the conditions for deductibility imposed by the law in the period in which the consolidated entity derives sufficient taxable income in order to utilise these losses. For the year ended 30 June 2021, management has reviewed the deductibility of these losses in comparison to the estimated taxable income derived by the consolidated entity and are confident that sufficient losses are available to offset the taxable income for the financial year ended 30 June 2021. Whilst the consolidated entity has continued to trade positively due to the COVID-19 induced demand, it is currently not known with sufficient certainty how the consolidated entity’s trade will transpire for the FY22 period and beyond. As a consequence, the consolidated entity has elected not to recognise any deferred tax assets or carried forward income tax losses until the probability of recoupment is sufficiently certain. Note 7: Cash and cash equivalents Cash at bank and on hand Cash on deposit (maturity < 12 months) Consolidated 2021 $’000s 5,121 25,000 30,121 2020 $’000s 16,176 15,000 31,176 Cash at bank and on hand bears floating interest rates. The interest rate relating to cash and cash equivalents for the year was between nil% and 0.4% (2020: between nil% and 1.8%). Genetics Signatures Limited has an unused credit card facility with the bank at the year-end date of $57,000 (2020: $57,000). Note 8: Trade and other receivables Consolidated Current Trade debtors (a) Provision for expected credit losses Other receivables (b) 2021 $’000s 5,106 (143) 4,963 410 5,373 2020 $’000s 4,649 - 4,649 574 5,223 a. Past due but not impaired and impairment of receivables Customers with balances past due amount to $810,000 as at 30 June 2021 ($502,000 as at 30 June 2020) of which the company has recognised a provision for expected credit losses of $143,000 (2020: $NIL) in profit or loss for the year ended 30 June 2021 (2020: $NIL). b. Other receivables These amounts relate to prepayments and accrued interest. None of these receivables are impaired or past due but not impaired. c. Fair value and credit risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. Information about the Company’s exposure to fair value and credit risk in relation to trade and other receivables is provided in note 27. 32 51 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 9: Inventory Consolidated 2021 $’000s 6,681 737 4,963 23 (270) 12,134 Consolidated 2021 $’000s - Consolidated 2021 $’000s 9,539 (3,880) 5,659 Plant & equipment $’000s 4,019 2,275 (632) 5,662 (2,646) (521) 180 (2,987) 2,675 5,662 4,653 (775) 9,540 (2,987) (1,025) 131 (3,881) 5,659 2020 $’000s 2,423 170 2,911 1,748 - 7,252 2020 $’000s 2,554 2020 $’000s 5,661 (2,986) 2,675 Total $’000s 4,019 2,275 (632) 5,662 (2,646) (521) 180 (2,987) 2,675 5,662 4,653 (775) 9,540 (2,987) (1,025) 131 (3,881) 5,659 Raw materials Work in progress Finished goods Stock in transit Provision for obsolescence Note 10: Government grant receivable Research & Development tax concession Note 11: Property, plant and equipment Plant and equipment: At cost Less: accumulated depreciation Movement in plant and equipment is as follows: Cost at 1 July 2019 Additions Disposals Cost at 30 June 2020 Accumulated depreciation 1 July 2019 Depreciation expense Disposal of assets Accumulated depreciation 30 June 2020 Carrying amount 30 June 2020 Cost at 1 July 2020 Additions Disposals Cost at 30 June 2021 Accumulated depreciation 1 July 2020 Depreciation expense Disposal of assets Accumulated depreciation 30 June 2021 Carrying amount 30 June 2021 33 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 12: Right of use assets - leases (i) Amounts recognised in the statement of financial position Right of use assets Buildings Equipment Lease liabilities Current Non-current (ii) Amounts recognised in the statement of profit or loss Amortisation charge of right of use assets Buildings Equipment Interest expense (included in finance costs) Expenses related to short-term leases (included in other expenses) Note 13: Trade and other payables Current – unsecured Trade creditors Other creditors Note 14: Provisions Current Employee benefits Non-Current Employee benefits Consolidated 2021 $’000s 2020 $’000s 385 4 389 334 65 399 344 2 346 36 189 728 6 734 313 428 741 303 2 305 33 94 Consolidated 2021 $’000s 2020 $’000s 2,755 597 3,352 1,779 589 2,368 Consolidated 2021 $’000s 2020 $’000s 938 18 657 20 34 53 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 15: Issued capital Number $’000s Opening balance at 1 July 2019: Movement in ordinary share capital Share placement Share Purchase Plan Repayment of loans over employee share plan shares Exercise of employee share options Less: Share issue costs Closing balance at 30 June 2020 Movement in ordinary share capital Exercise of employee share options Less: Share issue costs 104,034,437 35,714,286 2,551,023 - 311,250 - 142,610,996 296,250 - 47,028 35,000 2,500 1,234 143 (1,892) 84,013 163 (12) Closing balance as at 30 June 2021 142,907,246 84,164 All fully paid ordinary shares and founder shares have equal voting rights, of one vote per share, and subject to the prior rights of preference shares, have equal rights to receive dividends in proportion to the number of ordinary shares held. Note 16: Reserves Share based payments reserve Balance 1 July Transferred to accumulated losses upon forfeiture Share-based payment expenses Balance 30 June Consolidated 2021 $’000s 1,985 (235) 1,719 3,469 2020 $’000s 1,413 (59) 631 1,985 The share-based payments reserve is used to recognise the fair value of equity benefits provided to employees and Directors as part of their compensation. Foreign currency translation reserve Balance 1 July Arising from translation of foreign subsidiaries Balance 30 June Consolidated 2021 $’000s (155) 20 (135) 2020 $’000s (44) (111) (155) The foreign currency translation reserve is used to recognise the exchange difference on the translation of the US and UK subsidiaries into AUD. 35 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 17: Related party transactions Related parties (a) The company's main related parties are as follows: Key management personnel: Any persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. Key Management personnel include: Nickolaos Samaras – Director John R Melki – Director and Chief Executive Officer Michael A Aicher – Director Anthony J Radford – Director Neil Gunn – Director (appointed April 2021) Peter L Manley – Chief Financial Officer/Company Secretary For details of disclosures relating to key management personnel, refer to Note 19. (b) Transactions with related parties: There were no related party transactions during the year other than transactions with key management personnel as part of their remuneration. Note 18: Share-based payments Options were issued during the year, pursuant to the Equity Incentive Plan. Fair values at grant date are determined using a Black-Scholes Option Pricing Model that takes into account the exercise price, the term of the option, the share price at the grant date, the expected volatility of the underlying share, and risk free interest rate for the term of the option. The model inputs for options granted during the year ended 30 June 2021 are noted below: Grant date Expiry date Vesting period (mths) Exercise price Sep 20 Sep 35 Nov 20 Nov 35 Feb 21 Feb 36 Apr 21 Apr 36 48 48 48 48 Share price at issue date $2.00 Fair value at issue date $1.77 $2.30 $2.30 $1.75 $1.54 $1.88 $1.83 $1.83 $1.56 $1.44 $1.29 Est. volatility Expected dividend yield Average risk-free rate 82% 83% 83% 83% - - - - 0.97% 0.86% 0.86% 1.57% The company was admitted to the official list on ASX on 30 March 2015. Historical 12 month volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of future movements. 36 55 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Employee Share Ownership Plan Shares Set out below are the summaries of restricted shares and options granted under the plan: 2021 Grant date Options October 2016 November 2016 October 2017 October 2017 August 2018 November 2018 February 2019 May 2019 November 2019 March 2020 September 2020 November 2020 February 2021 April 2021 Balance at beginning of the year Granted during the year Converted during the year Exercise price Number Number Number Expired/ Forfeited during the year Number Balance at the end of the year Number Vested and convertible at year end Number $0.52 $0.52 $0.34 $0.38 $0.53 $0.53 $0.84 $1.10 $0.98 $1.13 $2.30 $2.30 $1.88 $1.56 301,250 100,000 387,500 250,000 625,000 200,000 150,000 200,000 865,000 200,000 - - - - - - - - - - (120,250) - (62,500) - (75,000) - - - - - - - - - - (26,000) (30,000) (12,500) (87,500) 181,000 100,000 325,000 250,000 550,000 200,000 150,000 200,000 809,000 100,000 - - - - 1,350,000 250,000 100,000 15,000 - - - (120,000) 1,230,000 (100,000) 250,000 - - 15,000 181,000 100,000 218,750 187,500 230,000 100,000 75,000 100,000 190,250 25,000 - - - - Total Weighted average option exercise price Weighted average remaining contractual life of options (years) 3,278,750 1,715,000 $2.27 $0.70 (296,250) (337,500) 4,360,000 1,407,500 $0.55 $1.75 $1.25 12.96 $0.61 37 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Exercise price Balance at beginning of the year Granted during the year Converted during the year Expired/ Forfeited during the year Balance at the end of the year Number Vested and convertible at year end 2020 Grant date Options October 2016 November 2016 June 2017 October 2017 October 2017 August 2018 November 2018 February 2019 May 2019 November 2019 March 2020 $0.52 $0.52 $0.39 $0.34 $0.38 $0.53 $0.53 $0.84 $1.10 $0.98 $1.13 490,000 100,000 200,000 447,500 250,000 730,000 200,000 150,000 200,000 - - - - - - - - - - - 945,000 200,000 Total Weighted average option exercise price $1.01 Weighted average remaining contractual life of options (years) 1,145,000 2,767,500 $0.53 Restricted Shares March 2015 April 2016 $0.40 $0.49 3,000,000 70,000 - - Total Weighted average option exercise price Weighted average remaining contractual life of options (years) 3,070,000 $0.40 $ - - (141,250) (47,500) - - (100,000) (100,000) (37,500) (22,500) - - (32,500) (72,500) - - - - - - - - (80,000) - 301,250 100,000 - 387,500 250,000 625,000 200,000 150,000 200,000 865,000 200,000 213,750 75,000 - 175,000 125,000 145,000 50,000 37,500 50,000 - - (311,250) (322,500) 3,278,750 871,250 $0.46 $0.58 $0.70 14.28 $0.51 (3,000,000) (70,000) (3,070,000) - - - $0.40 $ - - - - $ - - - - - $ - Restricted shares were offered and funded by an interest free loan from the Group at the time of listing. Restricted shares have vested and were converted to ordinary shares following repayment of the loan, which were repaid in FY20. 38 57 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 19: Key management personnel disclosures Short-term employee benefits Non-monetary benefits Short term incentive Post-employment benefits Long-term benefits Termination benefits Share based payments 2021 $ 915,281 1,964 87,490 63,949 47,441 - 266,348 1,382,473 2020 $ 812,680 16,320 193,070 57,800 45,402 - 136,436 1,261,708 Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. Note 20: Leasing Commitments Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Minimum lease payments payable: Not later than one year 2021 $’000s - - 2020 $’000s 3 3 Note 21: Events Subsequent to Reporting Date The impact of the Coronavirus (COVID-19) pandemic is ongoing and while it has been financially positive for the consolidated entity through 30 June 2021, 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 authorities in countries where Genetic Signatures supplies test kits, such as speed and effectiveness of vaccine rollout, 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. Note 22: Subsidiaries a) Parent entity Genetic Signatures Limited b) Controlled entities Genetic Signatures USA Ltd Genetic Signatures UK Ltd Country of incorporation Australia Equity holding in subsidiaries 2021 % 2020 % USA UK 100% 100% 100% 100% 39 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 23: Auditors’ remuneration Note 23: Auditors’ remuneration Note 23: Auditors’ remuneration BDO BDO BDO Audit and review of financial statements Audit and review of financial statements Audit and review of financial statements Other non-audit services Other non-audit services Other non-audit services Tax compliance services Tax compliance services Tax compliance services Consulting services Consulting services Consulting services Total non-audit services Total non-audit services Total non-audit services Total audit and non-audit services Total audit and non-audit services Total audit and non-audit services Note 24: Contingent liabilities Note 24: Contingent liabilities Note 24: Contingent liabilities Consolidated Consolidated Consolidated 2021 2021 2021 $ $ $ 80,482 80,482 80,482 27,345 27,345 27,345 - - - 27,345 27,345 27,345 107,827 107,827 107,827 2020 2020 2020 $ $ $ 74,138 74,138 74,138 17,340 17,340 17,340 9,300 9,300 9,300 26,640 26,640 26,640 100,778 100,778 100,778 The company does not have any material contingent liabilities at year-end (2020: nil). The company does not have any material contingent liabilities at year-end (2020: nil). The company does not have any material contingent liabilities at year-end (2020: nil). Note 25: Cash Flow Information Note 25: Cash Flow Information Note 25: Cash Flow Information (a) Reconciliation of Cash (a) Reconciliation of Cash (a) Reconciliation of Cash Consolidated Consolidated Consolidated 2021 2021 2021 $’000s $’000s $’000s 2020 2020 2020 $’000s $’000s $’000s Cash at the end of the financial year as shown in the Cash at the end of the financial year as shown in the Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related statement of cash flows is reconciled to the related statement of cash flows is reconciled to the related items in the statement of financial position as follows: items in the statement of financial position as follows: items in the statement of financial position as follows: Cash on hand and at bank Cash on hand and at bank Cash on hand and at bank 30,121 30,121 30,121 31,176 31,176 31,176 (b) Reconciliation of Profit/(Loss) after Income Tax to (b) Reconciliation of Profit/(Loss) after Income Tax to (b) Reconciliation of Profit/(Loss) after Income Tax to net Cash inflows/(outflows) from Operations net Cash inflows/(outflows) from Operations net Cash inflows/(outflows) from Operations Profit/(loss) after income tax Profit/(loss) after income tax Profit/(loss) after income tax 1,756 1,756 1,756 (2,086) (2,086) (2,086) Non cash flows included within profit/(loss) Non cash flows included within profit/(loss) Non cash flows included within profit/(loss) Depreciation Depreciation Depreciation Share based payments expenses Share based payments expenses Share based payments expenses Loss on disposal of assets Loss on disposal of assets Loss on disposal of assets Inventory provision Inventory provision Inventory provision Bad debts provision Bad debts provision Bad debts provision Amortisation of leases Amortisation of leases Amortisation of leases Transfers between inventory and fixed assets Transfers between inventory and fixed assets Transfers between inventory and fixed assets Changes in operating assets and liabilities: Changes in operating assets and liabilities: Changes in operating assets and liabilities: (Increase) in trade and other receivables (Increase) in trade and other receivables (Increase) in trade and other receivables (Increase)/decrease in government grant receivable (Increase)/decrease in government grant receivable (Increase)/decrease in government grant receivable (Increase) in inventories (Increase) in inventories (Increase) in inventories Increase in provisions Increase in provisions Increase in provisions Increase in payables Increase in payables Increase in payables Net cash inflow/(outflow) from operating activities Net cash inflow/(outflow) from operating activities Net cash inflow/(outflow) from operating activities 1,079 1,079 1,079 1,483 1,483 1,483 (13) (13) (13) 270 270 270 143 143 143 346 346 346 759 759 759 (293) (293) (293) 2,554 2,554 2,554 (5,152) (5,152) (5,152) 279 279 279 984 984 984 4,195 4,195 4,195 577 577 577 572 572 572 26 26 26 - - - - - - 306 306 306 (448) (448) (448) (4,360) (4,360) (4,360) (407) (407) (407) (5,899) (5,899) (5,899) 908 908 908 1,317 1,317 1,317 (9,494) (9,494) (9,494) 40 40 40 59 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 26: Parent Entity Financial Information (a) Summary financial information: Assets Current Assets Cash and cash equivalents Trade and other receivables Inventory Government grant receivable Total Current Assets Non-Current Assets Plant and equipment Right of use assets Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables Provisions Leases Total Current Liabilities Non-Current Liabilities Leases Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity Profit/(loss) for the year Other comprehensive income/(loss) Total comprehensive income/(loss) for the year 2021 $’000s 2020 $’000s 29,394 7,990 11,054 - 48,438 4,994 389 5,383 31,010 10,885 5,505 2,554 49,954 2,622 734 3,356 53,821 53,310 3,202 862 334 4,398 65 18 83 2,361 657 313 3,331 428 20 448 4,481 3,779 49,340 49,531 84,164 3,469 (38,293) 49,340 (1,826) - (1,826) 84,013 1,985 (36,467) 49,531 (1,132) - (1,132) (b) Summary financial information: The Parent entity did not have any contingent liabilities as at 30 June 2021 or 30 June 2020. (c) Significant accounting policies: The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. 41 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 27: Financial risk management The company's financial instruments consist mainly of deposits with banks, accounts receivable and payable, and lease liabilities. The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies to these financial statements, are shown at their net fair value. Net Fair Value The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the statement of financial position. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties at arm's length transaction. Fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have material impact on the amounts estimated. Financial assets Cash and cash equivalents Trade and other receivables Total Financial Assets Net Carrying Value 2021 Net Fair Value 2021 Net Carrying Value 2020 $’000s 30,121 5,373 35,494 $’000s 30,121 5,373 35,494 $’000s 31,176 5,223 36,399 Net Fair Value 2020 $’000s 31,176 5,223 36,399 Financial Liabilities Trade creditors Other creditors Lease liabilities Total Financial Liabilities 2,755 597 399 3,751 2,755 597 399 3,751 1,779 589 741 3,109 1,779 589 741 3,109 The values disclosed in the above table have been determined based on the following methodologies: Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments in nature whose carrying value is equivalent to fair value. The fair value of lease liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Interest Rate Risk The company's main interest rate risk arises from the cash balance which is invested at variable rates. Sensitivity Significant changes in market interest rates may have an effect on the Company's income and operating cash flows. The Company manages its cash flow interest rate risk by placing excess funds in term deposits. Based on the cash held at reporting date, the sensitivity to a 1% increase or decrease in interest rates would increase/(decrease) after tax profit by $301,000 (2020 loss: $311,000). 42 61 Financial Report NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Credit risk Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposure to domestic and international customers, including outstanding receivables and committed transactions. The Company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The majority of customers have long term relationships with the Company and sales are secured with supply contracts. Sales are secured by letters of credit when deemed appropriate. The Company has policies that limit the maximum amount of credit exposure to any one financial institution. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to historical information about counterparty default rates. The table below summarises the assets which are subject to credit risk. Financial assets Cash and cash equivalents Trade and other receivables Total Financial Assets Consolidated 2021 $’000s 30,121 5,373 35,494 2020 $’000s 31,176 5,223 36,399 The group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for trade receivables. Further detail is explained in Note 1(k). Liquidity Risk Liquidity Risk arises from the possibility that the company might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The company manages this risk through the following mechanisms: - preparing forward-looking cash flow analysis in relation to its operational, development and financing activities; obtaining funding from a variety of sources including equity issues; only investing surplus cash with major financial institutions. - - Financial liability maturity analysis (undiscounted payments) 2021 Weighted average interest rate % Within 1 Year $’000s 1 to 5 Years $’000s Total contractual cash flows Total Carrying amount $’000s $’000s Financial liabilities due for payment Trade and other payables - Lease liabilities 4.5% Total expected outflows 3,352 340 3,692 - 70 70 3,352 410 3,762 3,352 399 3,751 2020 Weighted average interest rate Within 1 Year $’000s 1 to 5 Years $’000s Total contractual cash flows $’000s Total Carrying amount $’000s Financial liabilities due for payment Trade and other payables - Lease liabilities 4.5% Total expected outflows 2,368 368 2,736 - 441 441 2,368 809 3,177 2,368 741 3,109 43 Genetic Signatures Limited – Annual Report 2021 Notes to the Financial Statements for the financial year ended 30 June 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2021 Note 28: Capital Risk Management The company’s objective when managing capital is to safeguard the ability to continue as a going concern so that they can provide returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure. Management effectively manages the company’s capital by assessing the company’s financial risks and adjusting its capital structure in response to changes in these risks and the market. There were no externally imposed capital requirements during the year. Note 29. Earnings per share Profit/(loss) after income tax Profit/(loss) after income tax attributable to the owners of Genetic Signatures Limited Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options over ordinary shares Weighted average number of ordinary shares used in calculating diluted earnings per share Basic profit/(loss) per share Diluted profit/(loss) per share Consolidated 2021 $’000s 2020 $’000s 1,756 (2,086) 1,756 (2,086) Number Number 142,801,623 126,937,639 2,867,918 - 145,669,541 126,937,639 Cents Cents 1.23 1.21 (1.64) (1.64) The options on issue were not considered in the diluted earnings per share in the comparative period as their effect was anti-dilutive. 44 63 Directors’ Declaration DIRECTORS' DECLARATION In the directors' opinion: ● ● ● ● the attached financial statements and notes thereto comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes thereto give a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The directors have been given the declaration required by section 295A of the Corporation Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors John Melki Director Sydney, 25 August 2021 45 Genetic Signatures Limited – Annual Report 2021 Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia Auditor’s Declaration INDEPENDENT AUDITOR'S REPORT To the members of Genetic Signatures Limited Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia Level 11, 1 Margaret St Sydney NSW 2000 Australia Report on the Audit of the Financial Report Opinion We have audited the financial report of Genetic Signatures Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES to the financial report, including a summary of significant accounting policies and the directors’ LIMITED DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES declaration. LIMITED In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: As lead auditor of Genetic Signatures Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: As lead auditor of Genetic Signatures Limited for the year ended 30 June 2021, I declare that, to the 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in best of my knowledge and belief, there have been: Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and relation to the audit; and (i) (ii) 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in 2. No contraventions of any applicable code of professional conduct in relation to the audit. Complying with Australian Accounting Standards and the Corporations Regulations 2001. relation to the audit; and Basis for opinion 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the period. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the Report section of our report. We are independent of the Group in accordance with the Corporations period. Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Martin Coyle Director BDO Audit Pty Ltd We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. Martin Coyle Sydney, 28 August 2020 Director We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO Audit Pty Ltd Key audit matters Sydney, 25 August 2021 Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 65 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia Independent Auditor’s Report INDEPENDENT AUDITOR'S REPORT Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia To the members of Genetic Signatures Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Genetic Signatures Limited (the Company) and its subsidiaries DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the LIMITED consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ As lead auditor of Genetic Signatures Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: declaration. relation to the audit; and 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: 2. No contraventions of any applicable code of professional conduct in relation to the audit. (i) Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the period. (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Martin Coyle Report section of our report. We are independent of the Group in accordance with the Corporations Director Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) BDO Audit Pty Ltd that are relevant to our audit of the financial report in Australia. We have also fulfilled our other Sydney, 28 August 2020 ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Genetic Signatures Limited – Annual Report 2021 Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia Existence and valuation of inventory Key audit matter How the matter was addressed in our audit As disclosed in Note 9, the Group held Our audit procedures for addressing this key audit matter included, but inventory with a carrying value of were not limited to, the following: $12,134,000 as at 30 June 2021 which Observed the inventory count procedures at key locations represented approximately 22% of the DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES Group’s total assets. LIMITED Inventory valuation and existence was compared these to the underlying inventory records. around the year-end and performed detailed test counts and Evaluated the assumptions applied by management’s in considered a key audit matter due to assessing potential obsolescence for near-expiry and slow- As lead auditor of Genetic Signatures Limited for the year ended 30 June 2020, I declare that, to the the significant value of these assets in best of my knowledge and belief, there have been: the Consolidated Statement of moving inventory by comparing to recent sales experience and • • the ageing of inventory. Financial Position, the various 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in locations that inventory was held, in relation to the audit; and addition to the key estimates and 2. No contraventions of any applicable code of professional conduct in relation to the audit. judgements applied by management in prior periods and to expectations. Analysed inventory turnover by product group in comparison to Reviewed management’s processes and estimates for • • assessing the net realisable value This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the (‘NRV’) of inventory. period. calculating the overhead and labour costs included within manufactured finished goods inventory. • • Performed various analytical procedures in relation to inventory including an analysis of monthly gross margins and inventory turnover, comparing to prior years and expectations. Tested a sample of inventory items on hand to initial supplier invoices and subsequent sales invoices to ascertain whether inventory was being correctly recognised at the lower of cost and NRV. Martin Coyle Director BDO Audit Pty Ltd Sydney, 28 August 2020 Revenue recognition Key audit matter How the matter was addressed in our audit As disclosed in Note 2, the Group To determine whether revenue was appropriately accounted for and recognised revenue of $28,284,000 disclosed within the financial statements, we performed, amongst during the financial year ended 30 others, the following audit procedures: June 2021 (2020: $11,263,000). Due to the significant increase in revenue during the year and the • Critically evaluated the revenue recognition policies for all material revenue sources including reviewing any new sales agreements entered during the year to identify any variable overall significance of revenue to the consideration / multiple performance obligation arrangements Group as a key performance indicator, to ensure revenue was recognised in accordance with we considered this area to be a key accounting standard AASB 15 Revenue from Contracts with audit matter. Customers. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 67 Independent Auditor’s Report Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia Key audit matter How the matter was addressed in our audit • • Tested the operating effectiveness of key internal controls surrounding the existence and occurrence of revenues. Performed substantive analytical procedures over the key revenue streams, comparing against expectations developed from discussions with management and supporting DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES LIMITED information. • Substantively testing a sample of revenue transactions throughout the financial year by tracing sales invoices to As lead auditor of Genetic Signatures Limited for the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been: supporting sales documentation, shipping documentation and cash receipts. 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in Performed detailed cut-off testing to ensure that revenue • relation to the audit; and transactions around the year-end had been recorded in the 2. No contraventions of any applicable code of professional conduct in relation to the audit. correct period. This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the Other information period. The directors are responsible for the other information. The other information comprises the information in the Directors’ Report (excluding the audited Remuneration Report section) for the year ended 30 June 2021, but does not include the financial report and the auditor’s report thereon, which we obtained prior to the date of this auditor’s report, and the Annual Report to Shareholders, which is Martin Coyle expected to be made available to us after that date. Director Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. BDO Audit Pty Ltd In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial Sydney, 28 August 2020 report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Annual Report to Shareholders, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and will request that it is corrected. If it is not corrected, we will seek to have the matter appropriately brought to the attention of users for whom our report is prepared. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Genetic Signatures Limited – Annual Report 2021 Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free DECLARATION OF INDEPENDENCE BY MARTIN COYLE TO THE DIRECTORS OF GENETIC SIGNATURES from material misstatement, whether due to fraud or error, and to issue an auditor’s report that LIMITED includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material As lead auditor of Genetic Signatures Limited for the year ended 30 June 2020, I declare that, to the if, individually or in the aggregate, they could reasonably be expected to influence the economic best of my knowledge and belief, there have been: decisions of users taken on the basis of this financial report. 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: 2. No contraventions of any applicable code of professional conduct in relation to the audit. https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf relation to the audit; and This description forms part of our auditor’s report. This declaration is in respect of Genetic Signatures Limited and the entities it controlled during the period. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors’ report under the heading ‘Remuneration Report’ for the year ended 30 June 2021. Martin Coyle Director In our opinion, the Remuneration Report of Genetic Signatures Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities BDO Audit Pty Ltd The directors of the Company are responsible for the preparation and presentation of the Sydney, 28 August 2020 Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd Martin Coyle Director Sydney, 25 August 2021 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 69 Analysis of Holdings Genetic Signatures Limited Analysis of Holdings as at 23 September 2021 Additional Informaton Required Under ASX Listing Rules The additional information required by the Australian Securities Exchange (ASX) and not shown elsewhere in this report is set out below. The information is current at 23 September 2021. Issued Capital As at 23 September 2021 the Company had 143,036,246 fully paid ordinary shares on issue. Distribution of Equity Securities Analysis of numbers of equity security holders for GSS fully paid ordinary shares by size of holding: Holdings Ranges Holders 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Totals 602 734 308 461 100 2,205 Total Units 311,070 2,120,932 2,481,678 16,237,125 121,885,441 143,036,246 % 0.220 1.480 1.730 11.350 85.210 100.000 Unmarketable parcel of shares "The number of indivdual shareholders holding less than a marketable parcel of shares was 274 (a total of 62,755 shares held by 274 shareholders)." 329 fully paid ordinary shares comprise a marketable parcel at GSS' closing share price of $1.52 on 23 September 2021. Genetic Signatures Limited – Annual Report 2021 Shareholder Information Equity Security Holders The names of the twenty largest shareholders of quoted securities are listed below: Shareholder ASIA UNION INVESTMENTS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED UBS NOMINEES PTY LTD BRISPOT NOMINEES PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED BNP PARIBAS NOMS PTY LTD CS FOURTH NOMINEES PTY LIMITED CAPITAL CONCERNS PTY LIMITED BRAHAM CONSOLIDATED PTY LTD BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM MR JOHN ROBERT MELKI S LOADER PTY LTD IDOLLINK PTY LTD QUICKINVEST PTY LTD BRAHAM INVESTMENTS PTY LTD JULEYU PTY LTD MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED Total Securities of Top 20 Holdings Total of Securities Substantial Holders Shareholder ASIA UNION INVESTMENTS PTY LTD PERENNIAL VALUE MANAGEMENT LIMITED FIL LIMITED Balance as at 23 September 2021 37,500,000 14,559,740 10,703,125 7,511,567 4,944,346 4,710,178 3,864,975 2,956,153 2,452,135 2,300,000 1,828,463 1,516,075 1,255,124 1,096,000 1,050,680 1,029,890 1,000,000 886,368 863,213 688,824 % 26.22% 10.18% 7.48% 5.25% 3.46% 3.29% 2.70% 2.07% 1.71% 1.61% 1.28% 1.06% 0.88% 0.77% 0.73% 0.72% 0.70% 0.62% 0.60% 0.48% 102,716,856 143,036,246 74.97% Balance as at 23 September 2021 37,500,000 21,313,482 10,984,948 % 26.22% 14.90% 7.68% 71 Head Office Genetic Signatures Ltd 7 Eliza Street Newtown NSW 2042 Australia Phone: +61 2 9870 7580 Email: info@geneticsignatures.com www.geneticsignatures.com

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