Hydrix Limited Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 1 1 IMPROVING A BILLION LIVES Hydrix Limited (ASX: HYD) is a powerful product innovation company. Hydrix's purpose is to enhance the health, safety, and wellbeing of a billion lives. The company leverages its powerful product innovation capability across multiple growth platforms: • Hydrix Services designs and engineers client products which transform industries; • Hydrix Ventures generates equity returns through investing in high potential companies; • Hydrix Medical brings innovative medical technologies to market. CONTENTS Executive Chairman's Letter Highlights Hydrix Group Hydrix Services Hydrix Medical Hydrix Ventures Corporate Directory Financial Statements 03 05 06 08 14 20 22 23 Annual Report 20203 LETTER FROM THE EXECUTIVE CHAIRMAN Dear fellow Shareholders, It gives me great pleasure to report to you that Hydrix Limited achieved significant outcomes and reached key milestones throughout the year. Our ‘Buy, Build, Invest’ strategy continued to transform Hydrix from a product design and engineering services business into a powerful product innovation company. Our strategic initiatives, coupled with strong execution and focus on value creation, significantly improved the financial performance and strength of the Company on key metrics compared to the prior year, including: • • • • • • Group revenues up 12% to $15.9 million up from $14.2 million; Cash operating loss of $0.08 million, down significantly from $1.95 million loss in FY20; Acquired exclusive rights to distribute the world’s first implantable heart attack alert device; Announced our first sales and implants of AngelMed Guardian in August 2020; Invested $2.0 million opportunities under strategy; and in high potential Invest" “Buy, Build, Strengthened 30 June 2020 cash on hand to $4.2 million, including July 2020 capital raise. Hydrix financial performance came close to achieving its pre-COVID19 market guidance. Revenues grew 12% versus the target 15% year- on-year growth, a shortfall of $0.4 million. We narrowly missed being cash operating breakeven, with a small loss of $0.08 million (excluding ‘Buy, Build, Invest’ activities). When the COVID-19 disruptions unfolded in the second half, we moved quickly to implement various cost saving initiatives and access Government stimulus programs to align ongoing operating cost structures with the near-term revenue outlook. The employees and business operations the Government mandated remote work from home restrictions; clients continue to be very well serviced during extended lockdowns. transitioned seamlessly to To support ongoing investment initiatives, we raised net $2.35 million from new equity issuances in November 2019, recapitalised debt facilities in December 2019 raising net $1.9 million, and raised a further net $2.75 million from equity issuances in July 2020, bringing pro forma cash on hand at year end to $4.2 million, after paying down $0.75 million in debt. The year’s performance and progress demonstrate the business’ resilience and agility in challenging circumstances. The strengthened financial position and organisational capability sets up the new financial year to continue to pursue high potential growth opportunities. About Hydrix Hydrix is a powerful product innovation company and aspires to positively impact the health, safety, and wellbeing of a billion lives. This is a great time for shareholders to be excited by the potential of our “Buy, Build, Invest’ strategy to generate long term value. We are leveraging our product innovation capability to grow the scale and profitability of Hydrix Limited (collectively ‘Group’) across multiple growth platforms, including: ‘Hydrix Group’ or • • • Hydrix Services - design and engineer client products which transform industries; Hydrix Medical - bring innovative medical technologies to market; and Hydrix Ventures - generate equity returns through investing in high potential clients. These growth platforms provide for distinct revenue stream generation across complementary businesses linked by Hydrix’s core design and engineering capabilities. The Hydrix relationship with AngelMed is a great example of integrated platform synergies generated across the business segments. Hydrix Services is providing input into the design of AngelMed’s next generation Guardian system. Hydrix Medical will commercially distribute the AngelMed Guardian® device into eight countries across Asia Pacific. Hydrix Ventures invested in AngelMed to generate potential equity capital gains from AngelMed’s future global success. Annual Report 20204 5 Hydrix Services Hydrix Services first half client contract revenue was $8.2 million, a robust 44% increase over the first half prior year. As a result of Covid-19, Hydrix Services experienced some slowing and deferral of client projects, resulting in second half revenues of $6.8 million. Record full year client contract revenue of $14.9 million was a 12% increase over the prior year of $13.3 million. The earnings before interest, tax, depreciation, and amortisation (EBITDA) was $1.8 million and the cash operating profit was $1.2 million. Hydrix Services begins fiscal year 2021 with a healthy pipeline of more than $50 million. Michael Trieu was promoted to the role of Hydrix Services General Manager, having previously held senior management roles at Hydrix, Cochlear and Nanosonics. Michael leads a team of 50+ highly committed and talented people. Highly talented people are drawn to Hydrix for the personal growth and development opportunity gained from working with diverse global clients on high potential innovative technologies. insights throughout the know-how and market investment due diligence process and directly through Hydrix Services product development. During the year, Hydrix Ventures committed approximately $2.0 million in a mix of cash investments and equity in-kind for services to be rendered. Investments included AngelMed USA (4.6%), which has developed the world’s first implantable heart attack alert device, and Cyban Australia (7.5%), which is developing a non-invasive monitoring device for continuous measurement of brain tissue oxygen levels in patients who have suffered a brain trauma injury. Further, Hydrix Services continues to provide product design, engineering, and regulatory services to Gyder Surgical and can earn up to 15% equity (subject to project milestones). We also hold a minority equity position in ASX-listed Memphasys (<1%). These high potential investments in early stage medical technology companies who have engaged Hydrix Services in product design and engineering programs, have the potential to generate significant capital returns for Hydrix. Hydrix Medical Acknowledgments During the year, Hydrix invested $0.7 million in sales & marketing, regulatory, field support, and certain non- recurring transaction and start-up operating costs to establish Hydrix Medical and its Singapore subsidiary. We were very pleased to appoint Paul Kelly to the role of General Manager, bringing 40+ years’ cardiac device and distribution experience to Hydrix Medical. Paul also took up an appointment to our newly established Medical Advisory Committee which helps evaluate Group investment opportunities and provide strategic insights into certain client engagements. Hydrix Medical’s first strategic initiative was acquiring the exclusive rights to distribute the world’s first implantable heart attack alert system (the AngelMed Guardian), in eight countries in Asia Pacific including Australia, Singapore, and Japan. On 17 August 2020, we announced the world first implants of AngelMed’s upgraded Guardian device in four patients in Singapore. This was an outstanding collaborative achievement in a global COVID lockdown environment and represented a significant milestone for the company. The devices were supplied on commercial terms by Hydrix Medical under the distribution agreement. continue to evaluate several exciting We opportunities the Hydrix Medical cardiovascular and medical device product portfolio. to expand In addition to the executive appointments noted earlier, which have increased the breadth and capability of the leadership team, Peter Lewis moved from the role of CEO to EVP Corporate Development to focus on business development in Hydrix Services and assist with strategic initiatives across the Group. I am very pleased to continue serving as Chairman of the Board and to lead the company as Chief Executive through this transformational growth phase. In the year ahead, the Board and leadership team will build on recent successes. We will build an even more agile and adaptive organisation capable of managing in a COVID world and capitalise on growth initiatives which improve the financial performance and value of the business. I thank the Directors for their support and guidance, the members of the executive team and all Hydrix employees for their enormous contribution during the year, in the absence of which, none of this would be achievable. We have a remarkable group of people at Hydrix. I also thank our customers and suppliers who partner with Hydrix to create value together, and our shareholders who support the Company’s aspirations to create a highly respected and valuable Company dedicated to improving the health, safety and well-being of people all over the world. Yours sincerely, Hydrix Ventures Hydrix Ventures seeks to generate equity capital gains through making early stage product company investments. This business segment leverages Hydrix Services’ deep commercial product development Gavin Coote Executive Chairman QUARTERLY HIGHLIGHTS 1Q 20 • Hydrix Services enters cardiac device development project for Angel Medical Systems Inc., USA (“AngelMed”) • Two General Manager appointments: Michael Trieu in Hydrix Services and Paul Kelly in Hydrix Medical 2Q 20 • Hydrix Medical enters binding agreement to secure exclusive rights to distribute the AngelMed Guardian® • Hydrix Limited completes $2.6 million equity capital raise and enters into a $5 million debt recapitalisation facility 3Q 20 • Hydrix Medical completes acquisition of rights to distribute AngelMed Guardian® for eight Asia Pacific countries • Hydrix Ventures invests USD$1 million (cash and equity in-kind for services) to acquire 4.6% equity in AngelMed 4Q 20 • COVID-19 pandemic triggers shift to “work from home” and cost reshaping initiatives • Hydrix Ventures invests in Cyban acquiring 7.5% equity and Hydrix Services begins prototype product development 1Q 21 • Hydrix Medical first supply and implant of the next Generation AngelMed Guardian in Singapore • Hydrix Services and its client Memphasys (ASX: MEM) receive two Good Design Awards Annual Report 2020Annual Report 20206 7 HYDRIX POWERING GROWTH & INNOVATION Hydrix is leveraging its powerful product innovation capability to capture more of the value it creates across multiple growth platforms. Hydrix growth platforms provide for distinct revenue stream generation across complementary businesses linked by Hydrix’s core design and engineering capabilities. The Hydrix relationship with AngelMed is a great example of integrated platform synergies generated across the businesses. Hydrix Services is providing input into the design of AngelMed’s next generation Guardian system. Hydrix Medical will commercially distribute the AngelMed Guardian® device into eight countries across Asia Pacific. Hydrix Ventures invested in AngelMed to generate potential equity capital gains from AngelMed’s future global success. Indicative Market Capitalisation $60m $40m $20m 0 JUL 20 AUG 20 SEPT 20 OCT 20 Hydrix indicative market capitalisation between 1 July 2020 and 9 October 2020 reflects both the recent baseline after COVID-19 impacts manifested in March and the more recent uplift after completing the four AngelMed Guardian sales and implants in Singapore. M E D I C A L SERVICES S U RE V E N T HYDRIX SERVICES Hydrix Group’s powerful product innovation engine delivers world class design, engineering and regulatory services 12% growth FY20 revenue $14.9m HYDRIX VENTURES Pick winning investments in high potential medical technologies Cash & committed in-kind base $3.0m+ Potential for 5x value uplift HYDRIX MEDICAL Diagnostic, monitoring & interventional medtech products which improve patient quality of life AngelMed Guardian 500,000+ cardiac patient events p.a. A$100m revenue potential based on 3% capture rate Annual Report 2020Annual Report 20208 Hydrix Services WE DESIGN AND ENGINEER PRODUCTS WHICH TRANSFORM INDUSTRIES It has been a solid year for Hydrix Services with a 12% growth in client revenues to $14.9 million. The first half achieved revenues of $8.2 million, a strong increase of 44% over the same period in the year prior. The pandemic slowed and delayed some client projects in the second half resulting in revenues of $6.8 million. The full year Services cash operating profit was $1.2 million after rapid implementation of cost reduction initiatives in the second half. We finished the year with a healthy global client revenue pipeline of more than $50 million. The foundations of Hydrix Services continue to grow and deliver value outcomes for our global clients. As we expand our expertise in product design and development across the engineering team of electronics, human factors engineering, industrial design, mechanical, software and firmware, we continue to reinforce our complementary non- engineering capabilities in the areas of project management, regulatory, clinical, reimbursement, market insights and commercialisation. Overlaid with specialised experience from varying areas such as high-risk medical devices, robotics, IoT, mining and industrial – we offer a unique one-stop- shop with the ability to bring ideas from concept through to market. the businesses’ and implemented various cost The pandemic in the second half unquestionably demonstrated team’s resilience, perseverance, and grit. The business swiftly reduction initiatives while ensuring Government stimulus programs were accessed. Phased company restriction plans were put in place pre-emptive of Government restrictions, allowing projects to transition seamlessly to working from home arrangements. Enthusiastic about leveraging our capabilities in helping with the pandemic, we contributed to several COVID-19 related projects during the second half. Hydrix Services empowers the Groups balanced exploitation activities which strengthen the core Services business and create synergies that increase the potential value of the Hydrix Group to levels Services alone cannot achieve. We are helping realise innovative products into market for our clients, while also applying our insights and expertise to identify winning opportunities to invest in. Moreover, as engineering know-how and experience grows within the business, our own IP such as re-usable platforms are created and retained to be leveraged by our clients – producing win-win situations where clients can accelerate their product development by leaning on our rigorously tried and tested platforms. The success of Hydrix is due to the high calibre of its people and their commitment to Hydrix – our recent engagement survey again exceeded market benchmarks. I would like to thank every employee of the Hydrix team, who have all contributed to the success of where we are today. In the year to follow and within a persistent COVID-19 environment, we will continue to be creative and resourceful by leveraging our tremendous inhouse capability for solving highly complex problems. Strategic initiatives with razor sharp focus have been deployed to lead and navigate the business with clarity and direction through the new norm – while we pursue our purpose to improve one billion lives. Michael Trieu General Manager Hydrix Services 44% growth 1H20 revenue growth prior to Covid-19. Anticipate returning to revenue growth in 2H21 $14.9 million FY20 services revenue Increased from $13.3 in FY19 $50+ million Opportunity pipeline. Future projects remain healthy despite global challenges 100% at home Successful transition to work from home during COVID lockdown whilst maintaining project outputs MICHAEL TRIEU GENERAL MANAGER Hydrix Services Michael is an R&D innovation leader with over 18 years of hands on product development experience from identifying market needs through to product manufacturing. He is a forward thinker who is passionate about the application of disruptive technologies into different domains leading to positive impacts to people’s lives. His background varies from military underwater sonar, to robotics, to active implantable medical devices and has held senior roles at both Cochlear and Nanosonics. Annual Report 2020 10 Hydrix Services Unique people delivering outstanding results At Hydrix Services, we partner with our clients to help design, develop and commercialise transformative technologies. Our clients have chosen us for our powerful product innovation capabilities for more than 15 years, as demonstrated by our projects portfolio across diverse industries including MedTech, Mining and Utilities. Our development process starts with understanding our clients’ needs and their market requirements. We then apply our unique offering of clinical, regulatory and quality systems expertise combined with a full suite of product design and engineering capabilities to support our clients along their entire development journey, from blank sheet of paper to product distribution. As 2020 has progressed, we have pivoted to become more efficient in working remotely from the office. We have however worked hard to maintain our project team approach, and build our brand presence, specifically through online events such as hosting and/or presenting in webinars, both local and international, an important step in sharing our expertise and elevating the Hydrix brand. PLANNING & LEADERSHIP DEVICE ENGINEERING USER EXPERIENCE DESIGN HUMAN FACTORS ENGINEERING PROTOTYPE DEVELOPMENT TESTING & VERIFICATION QUALITY SYSTEMS REGULATORY APPROVALS CLINICAL EVIDENCE STRATEGY REIMBURSEMENT Annual Report 202013 Hydrix Services Developing award winning products GOOD DESIGN AWARDS 2020 Hydrix and its client, Memphasys, were recently named recipients of two 2020 Good Design Awards for the design of an instrument and cartridge system used to improve outcomes in IVF. The Memphasys FELIX won a Gold Good Design Award for the Engineering Design category and a Good Design Award for Product Design, Medical and Scientific category. These awards recognised the design and engineering of the FELIX, an automated, electrophoretic laboratory instrument for sperm separation for use in Assisted Reproductive Technology (IVF) procedures. The novel technology aims to improve the chances of achieving a successful pregnancy for infertile couples. Currently, there is no standard method for preparing sperm for IVF, and techniques, costs, and times vary substantially. Live birth success rates are only approximately 22% and the current labour-intensive sperm processing techniques can inadvertently select DNA-damaged cells, thereby reducing the effectiveness of treatments or passing on genetic damage. The FELIX automates the extraction of the highest quality sperm from a semen sample, through a quick, consistent and controlled process. It intends to increase the likelihood of couples successfully conceiving and giving birth. Hydrix’s role in developing this device was to evolve an initial technology concept into a commercially viable instrument and cartridge that was compact, intuitive to use, reliable, and laboratory friendly. More importantly, it’s a product that is safe for patients, safe for sperm, and safe for the operator. "The device is a world-first technology, so it is highly encouraging when independent assessors review the design and deem the device to be an example of class-leading engineering.” Alison Coutts Memphasys Executive Chair Annual Report 202014 Hydrix Medical BRINGING INNOVATIVE MEDICAL TECHNOLOGIES TO MARKET Welcome to my inaugural report as the General Manager – Hydrix Medical. To start I would like to share a little about my background and interests for joining the Hydrix Group. I have been involved in the medical device industry both clinically and commercially for over 40 years. During that time, I have been involved in the introduction of new technologies that have significantly improved the quality of people’s lives, altered the way treatment is delivered, and how diagnoses are made. Hydrix Medical focuses on medical devices for detection and treatment of Cardiovascular and Neurovascular diseases, collectively the biggest causes of death globally. Hydrix through its product design and engineering Services business, has a long association with companies in these areas. Establishing distribution of products in these categories provides us the opportunity to work with some of our Services clients to commercialise their products in Australia and South East Asia. You will be aware from last year’s annual report that Hydrix had entered into agreements to acquire the rights to distribute the AngelMed Guardian System in eight countries in South East Asia including Australia, Japan and Singapore. The agreements were completed in March 2020. Hydrix staff from Australia and Singapore underwent specialist field clinical engineering training at AngelMed in the USA to enable Hydrix to provide implant support to local physicians and their patients. Unfortunately, due to the COVID-19 pandemic our initial implants scheduled for Singapore in March 2020 were postponed until August 2020 after surgery embargoes were lifted. These implants involved substantial planning as all support from AngelMed in the USA and Hydrix in Australia needed to be provided using remote teleconference support. We were very happy to report that the four Singapore implants in August were successful and the patients and their physician are each very satisfied. Why is the AngelMed device potentially ground- breaking technology in cardiovascular disease management? The answer is simple, death from Cardiovascular disease and more importantly Ischaemic Heart Disease is the number one killer in the developed world. Despite hundreds of millions of dollars being poured into public education regarding dietary/lifestyle changes and symptom recognition, the incidence of heart attacks with late presentation continues to remain high compounding the patient chronic disease state. The later a patient presents to the emergency department, the higher the likelihood of either significant irreparable damage to heart muscle or death. The AngelMed Guardian is the world’s first and only implantable heart attack monitoring and alert system. Through clinical trials, it has been proven the device reduces the time from onset of the blockage of the artery that provides blood to the heart muscle, to critical intervention at a hospital, i.e., the device reduces the “Time-to-Door.” The device can alert a patient of a heart attack even when the patient has no symptoms at all, i.e., they suffer a silent heart attack. Patients from the clinical trials were surveyed and it was found that having the device significantly improved their quality of life due to increased certainty, and reduced state of stress and anxiety. We are evaluating opportunities to add additional products to our portfolio in the areas of Cardiovascular health diagnosis, monitoring and intervention. Paul Kelly General Manager Hydrix Medical 8 Asia-Pacific markets Secured for distribution of the AngelMed Guardian 500,000 potential customers For world leading AngelMed Guardian cardiac alert device A$100m potential revenue Based on just 3% penetration of potential customers for AngelMed Guardian PAUL KELLY GENERAL MANAGER Hydrix Medical Paul has 40+ years’ of cardiac device and distribution experience. After working with companies including Baxter and Medtronic managing a portfolio including cardiac pacemakers, heart valves and implantable nerve stimulators, he founded Cardioscan, an ambulatory cardiac monitoring company that disrupted the market. Paul is also a member of the Hydrix Medical Advisory Committee which helps evaluate Group investment opportunities and provides strategic insights on certain client engagements. Annual Report 2020 16 17 Hydrix Medical Market Opportunities for the AngelMed Guardian The AngelMed Guardian’s operation is based on the well understood and documented relationship between ST-segment changes and ischaemia. The AngelMed Guardian continuously monitors the patient’s heart signal for ST-segment changes and provides notification using triple-modality alerting when an abnormal change occurs. The abnormal change is measured by “ST-Shift” which is the difference between the patient’s current ST- segment and what is normal for that patient over the last 24-hours. Upon detection of a cardiac event the patient receives a vibration alert from the implanted monitor, plus auditory and visual alerts from the external pager-like device. The patient or their carer is responsible for calling an ambulance. Once at the hospital, the patient is diagnosed following the normal ACS protocol and treated as required. Early detection and alerting reduces pre-hospital delay and may reduce the amount of myocardial damage that occurs due to the reduction or cessation of blood flow caused by a coronary artery blockage. AngelMed Guardian System Benefits Improved care: Detects previously untreatable silent myocardial infarction (MI), reduces symptom-to-door time & detects other heart anomalies. Reduced costs: Reduces false positives hospital visits. Improved preservation of left ventricular status helps decrease long long-term costs. Improved clinical experience: The device data provides actionable information complimenting standard-of-care testing. Improved clinical experience: The added confidence of heart monitoring lowers anxiety, improves sleep and helps patients to exercise. AngelMed Guardian Market Potential 500,000+ cardiac patient events p.a. Revenue p.a. (est.) $35m to $100m based on 1% to 3% capture rate WORKING TOWARDS OUR CARDIAC PATIENT VISION Recent surveys estimate that IoT use in healthcare will be worth anywhere from USD $200 to $500 billion by 2025. Connected, wearable health monitoring devices are a key contributor to predicted market growth, especially as the devices become more sophisticated in their analytics. Indeed, the Heart Rhythm Society, an international nonprofit organization and a leading resource on cardiac pacing and electrophysiology recently confirmed the value of these new technologies stating “Wearables can contribute to an early diagnosis and to a better management of diseases”. Surveys also show that consumers wearing fitness trackers are most interested in heart health and cardiac related information. Hydrix Medical’s mission is to identify and distribute technology-rich cardiovascular products, technologies and services in Asia-Pacific markets that improve patient quality of life and well-being. In addition, we see potential to transform Hydrix through strong recurring product revenues, and applying Hydrix development knowhow to create disruptive telehealth and monitoring services revenue growth. PATIENT MONITORING Cardiac monitoring devices communicate to smart phone or external device CLINICAL BENEFITS Critical data has been pushed via cellular and cloud networks to the receiving hospital in case of emergency admission Secure data may be stored for GP retrieval Data available to specialist via local login Data available anytime, anywhere MANAGED INFORMATION Emergency tracking and alert 'data' transmitted through to managed cloud services network Addressing a market need Cardiovascular diseases (CVDs) are the number one cause of death globally 14% 17.9 31% of global population afflicted with CVD million people die through CVD of all global deaths (source WHO) Annual Report 2020Annual Report 202019 NG AI WEE REGIONAL MANAGER In my role as Regional Manager for Hydrix Medical, Singapore, I am responsible for the roll-out of the AngelMed Guardian in this significant cardiac technologies market. My role is to engage with Interventional Cardiologists and Electrophysiologists, educate them about the unique AngelMed Guardian technology, as well as supporting the implant team. I originally trained and qualified as a State Registered Nurse in Singapore and Australia where I became involved in cardiac surgery and intensive care. I also completed a Bachelor of Business in Swinburne University of Technology, Melbourne. Throughout my 20 years of experience in the healthcare industry I have held local and regional sales & marketing and project management roles on projects providing integrated care and measurably better healthcare performance including at Abbott Laboratories and SATO Healthcare. I was honoured to be involved with the initial implants of the AngelMed Guardian in Singapore. I actively participated as the field clinical engineer in the patients’ treatment including overseeing patient safety, undertaking final programming of the implanted devices, and interfacing between the Singapore medical team and the AngelMed team in the US. In this photo you can see me with the first Singapore recipient of the AngelMed Guardian. He was keen to pose with the device immediately after the implantation to say that medical science has improved, and he is one of the beneficiaries of modern technology. The technology has given him additional reassurance and a better chance to survive as a high-risk patient. It is now 37 years since his first heart attack, and the early warning system provided by the AngelMed Guardian is a step forward to helping him to live to send his grandchildren to school. My passion to improve the health of as many people as possible also extends beyond my work. Most recently, I have volunteered in organisations helping to improve health care services for migrant workers living in dormitory housing. Health is so essential for our happiness. That's what I am passionate about. To be able to contribute to improving patients' lives. Annual Report 202020 Hydrix Ventures GENERATING EQUITY RETURNS THROUGH INVESTING IN HIGH POTENTIAL COMPANIES Hydrix Ventures generates equity capital gains through making early stage product company investments. This business segment leverages Hydrix Services’ deep commercial product development know-how and market insights throughout the investment due diligence process and directly through Hydrix Services product development. Hydrix Medical and the Medical Advisory Committee also provide investment evaluation and recommendations to present to the Hydrix Board for final approval. During the year, Hydrix Ventures committed approximately $2.0 million in a mix of cash investments and equity in-kind for services to be rendered. Investments included AngelMed USA (4.6%), which has developed the world’s first implantable heart attack alert device, and Cyban Australia (7.5%), which is developing a non-invasive monitoring device for continuous measurement of brain tissue oxygen levels in patients who have suffered a brain trauma injury. Hydrix Services continues to provide product design, engineering, and regulatory services to Gyder Surgical and can earn up to 15% equity (subject to project milestones). We also hold a minority equity position in ASX-listed Memphasys (<1%) and continue to develop their next generation products. These high potential investments in early stage medical technology companies who have engaged Hydrix Services in product design and engineering programs, have the potential to generate significant capital returns for Hydrix. 7.5% equity in Cyban up to 15% equity in Gyder Surgical 4.6% equity in AngelMed <1.0% equity in Memphasys FOCUS ON CYBAN Hydrix is working with Cyban Pty Ltd, an Australian technology company focused on developing a novel, non-invasive continuous tissue oxygen monitor. Approximately 55% of patients with severe traumatic brain injury (TBI) develop a secondary brain injury, typically due to brain hypoxia, with evidence showing that early detection and treatment of brain hypoxia improves patient outcomes. The aim of the project is to develop and demonstrate the efficacy of the brain pulse oximeter BPOx for non-invasive monitoring of acutely injured and critically ill patients in Emergency Departments (ED) and Intensive Care Units (ICU). Images: Top Left - Memphasys, Middle - Gyder Surgical, Right - AngelMed Bottom - Cyban Annual Report 2020 22 23 CORPORATE DIRECTORY Directors Mr Gavin Coote (Executive Chairman) Ms Julie King (Non-Executive Director) Ms Joanne Bryant (Non-Executive Director) Mr Paul Wright (Non-Executive Director) Company Secretary Ms Alyn Tai Registered Office Principal place of business Share register Auditor Solicitors Stock Exchange Listing Websites 30-32 Compark Circuit Mulgrave VIC 3170 Phone: (03) 9550 8100 30-32 Compark Circuit Mulgrave VIC 3170 Boardroom Pty Limited Grosvenor Place Level 12, 225 George Street Sydney NSW 2000 Grant Thornton Audit Pty Ltd Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Holding Redlich Level 8, 555 Bourke Street Melbourne VIC 3000 Hydrix Limited's shares are listed on the Australian Securities Exchange (ASX code: HYD) www.hydrix.com www.hydrixmedical.com FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 ABN: 84 060 369 048 Genera l information The financial statements cover Hydrix Limited as a consolidated entity consisting of Hydrix Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Hydrix Limited's functional and presentation currency. Hydrix Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: R eg ist e r ed of fic e 3 0-3 2 C o mp ar k Ci rc ui t Mu lg ra ve VI C 31 70 Pr in c ip a l p lac e of bu sin e ss 3 0-3 2 C o mp ar k Ci r cui t Mu lg ra ve VI C 31 70 A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 25 August 2020. The directors have the power to amend and reissue the financial statements. Directors' Report Auditor's Independence Declaration Consolidated Statement of Prof it & Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Auditor's Report 24 37 38 39 40 41 42 77 78 84 Country of incorporation and domicile Australia Additional Securities Exchange Information Annual Report 2020Annual Report 202024 25 DI R ECTORS' REPORT The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the 'consolidated entity') consisting of Hydrix Limited (referred to hereafter as the 'company' or 'parent entity') and the entities it controlled at the end of, or during, the year ended 30 June 2020. Directors The following persons were directors of Hydrix Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Mr Gavin Coote Executive Chairman Appointed as Non-Executive Director 12 January 2017; appointed as Non-Executive Chairman 28 March 2017; appointed as Executive Chairman 1 January 2020 Mr Coote brings 25+ years executive leadership in corporate and financial strategy, and private equity. His experience includes 5 years with Pricewaterhouse Coopers in Australia and the USA, a decade in technology mergers & acquisitions, corporate development, and venture investing in the United States, and fifteen years in Australian private equity in various sectors healthcare, industrial and residential construction materials, leisure and hospitality, and sports and entertainment. He has played significant roles in several turnaround and acquisition-led growth strategies culminating in successful trade sales. These include NASDAQ-listed Platinum Technology Inc., where revenues grew from $100 million to over $1 billion in 4 years driven by organic revenue growth and 40+ acquisitions, and eventually sold to CA Technologies for $3.5 billion, and several above-average SME private-equity exits. Gavin has a Bachelor of Economics & Politics (Accounting) from Monash University, a Masters of Business Administration from University of Michigan, and is a Graduate of the Australian Institute of Company Directors. Ms Julie King Non-Executive Director Appointed 28 March 2017 Ms King holds a Bachelor of Commerce degree from the University of Melbourne. With 40 years’ experience in Australian and global businesses including maritime, airline, banking and FMCG industries, she is a specialist in negotiations and leading high-performance executive leadership, change and culture programs. Ms King developed and currently operates a family storage business, is a Trustee of private philanthropic Foundation, operates a Human Resources Consulting practice and is a Graduate of the Australian Institute of Company Directors. Ms Joanne Bryant Non-Executive Director Appointed 29 November 2016 Ms Bryant brings more than 40 years of experience in the health sciences as an occupational therapist, trainer and vocational specialist and uses this experience to provide expert forensic opinion to the Victorian court system. Ms Bryant is a Member of the Australian Association of Occupational Therapists, Australian Institute of Company Directors and a Director of NFP Outside the Locker Room. She has owned and managed a small business since 2006, contributing this experience and knowledge to her board work. She also manages a small privately owned investment company. Mr Paul Wright Non-Executive Director Appointed 8 August 2018 leading international Mr Wright has spent the last 18 years as CEO of three of Australia’s technology companies. At ASX-listed Universal Biosensors (“UBI”), Paul built long term partnerships with global diagnostics leaders Siemens Healthcare and Johnson & Johnson, and led the company through a period of strong growth and new product development. Before UBI, Paul was CEO of Invetech (1999- 2007), an internationally renowned product design and development company, and Vision BioSystems (2007-2008), the major subsidiary of ASX-listed Vision Systems Limited that developed, manufactured and marketed diagnostic instruments and consumables to pathology laboratories worldwide. Prior to this, Paul spent over 8 years working in Europe, North America and Asia with corporate strategy consultants Bain & Company, advising multi-national clients on growth strategy, mergers and acquisitions, and manufacturing improvement. As General Manager of Corporate Development at TNT Logistics, Paul played a key role in the development of a major contract logistics business in Asia establishing Joint Venture businesses in China, Malaysia, and Indonesia. Paul has a Masters Degree in Engineering from the University of Cambridge, has studied corporate finance at the London Business School, and is a Fellow of the Australian Institute of Company Directors. Annual Report 2020Annual Report 202026 DIRECTORS' REPORT Hydrix Limited Directors' Report 30 June 2020 Other current directorships Paul Wright is a director of Memphasys Limited (ASX: MEM). Company secretary Ms Alyn Tai LLB (Hons) has held the role of Company Secretary since June 2016. She is a Partner with law firm Holding Redlich specialising in corporate and commercial law, and the provision of company secretarial and legal counsel services to ASX-listed entities. Meetings of directors The number of meetings of the company's Board of Directors ('the Board') held during the year ended 30 June 2020, and the number of meetings attended by each director were: Director Mr Gavin Coote Ms Julie King Ms Joanne Bryant Mr Paul Wright Board of Directors' Meetings Attended 13 13 12 13 Held 13 13 13 13 Held: represents the number of meetings held during the time the director held office. Interest in the shares and options of the company At the date of this report, the relevant interests of directors in the company's securities were: Director Mr Gavin Coote (i) Ms Julie King (ii) Ms Joanne Bryant (iii) Mr Paul Wright (iv) No. of Ordinary Shares No. of Options No. of Performance Rights 2,191,883 17,639,345 1,515,051 801,782 500,000 182,657 - 666,667 - 126,256 158,066 300,000 The directors' relevant interests in the company's securities shown above are as follows: (i) Mr Gavin Coote has a relevant interest in 2,191,883 fully paid ordinary shares, held by Beachridge Advisory Services Pty Ltd as Trustee for the Coote Family Discretionary Trust. In addition, Gavin Coote has a relevant interest in 182,657 options and 500,000 performance rights. (ii) Ms Julie King has a relevant interest in 17,639,345 fully paid ordinary shares, held by John W King Nominees Pty Ltd. In addition, Julie King has a relevant interest in 666,667 options. (iii) Ms Joanne Bryant has a relevant interest in 1,515,051 fully paid ordinary shares, which are held as follows: a. 817,050 fully paid ordinary shares are held by ELG Nominees Pty Ltd as trustee for The Gude Family No. 2 A/C b. 508,001 fully paid ordinary shares are held by ELG Nominees Pty Ltd c. 190,000 fully paid ordinary shares are held by JBB Superannuation Pty Ltd as trustee for the JBB Super Fund A/C In addition, Joanne Bryant has a relevant interest in 126,256 options. 27 Hydrix Limited Directors' Report 30 June 2020 Principal activities The principal activities of the consolidated entity during the year were providing product design, engineering, and regulatory services to assist clients transform ideas into commercial products across medical, consumer, industrial, mining, defence, and rail industries. A fully integrated development team provides the design skills to take a product from concept to design-for-manufacture. The comprehensive range of services includes software and electronics; mechanical design; industrial, user experience and human factors engineering; and regulatory, clinical, reimbursement and quality systems. The consolidated entity’s services are charged on a fee-for-services basis under commercial contract arrangements. Clients operate in large, global growth market sectors which create growth opportunities and ongoing demand for the consolidated entity's services. The consolidated entity’s product innovation capability, skill mix and experience are not easily replicated and provide a competitive advantage to global customers. In addition, certain clients can access Australian R&D tax incentive schemes and benefit from strong foreign currency purchasing power. These factors help make Hydrix a very competitive and collaborative global product development business partner. Our regulatory, clinical, reimbursement and quality systems help clients navigate regulatory environments including US FDA, European CE, Australian TGA, and other areas of APAC such as China (NMPA) and Singapore (HSA). Our Quality Management System is compliant with ISO 13485 and ISO 9001. During the year, the business expanded its principal activities to include product distribution and early stage venture investment. Product distribution is focused on advanced cardiovascular technologies with the potential to improve the quality of patient life and mobility. Venture investing is in the development of high value products which directly leverage the consolidated entity's powerful product innovation capability. The consolidated entity has approximately 65 employees and its headquarters are located in Mulgrave, Victoria Australia. Dividends No dividends have been paid or declared since the start of the period and the directors do not recommend the payment of a dividend in respect of the period. Review of operations The consolidated entity delivered record revenues of $15,899,742 for a year-on-year increase of 12.2% (30 June 2019: $14,165,305). Net cash used in operating activities to support the growth and expansion of the consolidated entity was $1,316,565, a 68.6% improvement year on year (30 June 2019: $4,197,025). The consolidated entity experienced some slowing of existing client projects and some deferral of new projects during the second half due to COVID-19 disruptions. Management moved swiftly to lower ongoing operating costs through adjusting wage costs, reducing or deferring discretionary and capital expenditures, and accessing government stimulus programs. Net cash used in investing activities was $1,067,482 up from $26,192 in the prior year ending 30 June 2019. The consolidated entity made two direct venture investments in clients and entered one services contract under which it is entitled to earn equity in lieu in addition to cash fees for services rendered. These arrangements focus on high potential investment capital gains. Net cashflow from financing activities were $4,284,458 (excluding repayments of lease liabilities) compared to $4,297,696 for the prior year ending 30 June 2019. These activities included replacing $3,000,000 in shareholder loans with a $4,000,000 4-year debt facility with Pure Asset Management in December 2020, of which $500,000 was subsequently paid down in the June quarter of 2020. The pro forma cash-on-hand at 30 June 2020 was $4,190,000 taking into account net proceeds of approximately $2,750,000, raised under the 1- for-3 fully underwritten entitlement offer and placement in July 2020. (iv) Mr Paul Wright has a relevant interest in 801,782 fully paid ordinary shares, held by a custodian as registered owner on behalf of PKW Super Fund. In addition, Paul Wright has a relevant interest in 158,066 options and 300,000 performance rights. The consolidated entity made several leadership appointments during the year including Gavin Coote to full time Executive Chairman, Peter Lewis to EVP Corporate Development, Michael Trieu to General Manager Hydrix Services, and Paul Kelly to General Manager Hydrix Medical. In addition, Paul Kelly was appointed to the Hydrix Medical Advisory Board. These appointments were made to increase the capacity and capability of the organisation and support the expanding Group structure of the consolidated entity. Hydrix Ventures Pty Ltd and Hydrix Medical Pty Ltd were established as wholly owned subsidiaries of Hydrix Limited, and Hydrix Medical Singapore Pte Ltd was established as a wholly owned subsidiary of Hydrix Medical Pty Ltd. 7 8 Annual Report 2020Annual Report 2020 28 DIRECTORS' REPORT Hydrix Limited Directors' Report 30 June 2020 Outlook The long-term business prospects for the consolidated entity remain strong taking into consideration several factors, including: - the significant year-on-year improvement in the consolidated entity's financial performance; - the pro forma 30 June 2020 cash-on-hand of approximately $4,190,000; - potential product revenues and gross profit margins from Hydrix Medical distribution of cardiovascular products; - high potential capital gains from investments made by Hydrix Ventures; and - continued investment in business development efforts to build a high potential prospective client pipeline of design and engineering projects which was more than $50 million at 30 June 2020. Significant changes in the state of affairs Other than noted under review of operations above, there were no significant changes in the state of affairs of the consolidated entity during the financial year. Hydrix Limited Directors' Report 30 June 2020 REMUNERATION REPORT (Audited) 29 The remuneration report details the key management personnel (KMP) remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. KMP are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: - Details of key management personnel - Remuneration philosophy - Details of remuneration Matters subsequent to the end of the financial year In July 2020, the consolidated entity raised $1,990,647 through a 1-for-3 fully underwritten entitlement offer issuing 26,541,960 shares of new common stock, each issued with 1-for-3 attaching Options or 8,847,531 Options. There were a further 11,847,325 Options granted to corporate advisers and sub-underwriters. All Options have a strike price of $0.12 per share and an expiration date of 31 July 2022. Further, the consolidated entity raised $1,050,000 through a Placement offer issuing 14,000,000 shares of new common stock, with 1-for-3 attaching Options or 4,666,667 Options. Option strike price is $0.12 per share with an expiration date of 31 July 2022. The Placement is subject to shareholder approval, which will be sort at an extraordinary general meeting on 17 September 2020. Details of Key Management Personnel (i) Specified Directors Mr Gavin Coote Non-Executive Chairman - Appointed 28 March 2017, Executive Chairman - Appointed 1 January 2020 Ms Julie King Non-Executive Director - Appointed 28 March 2017 Ms Joanne Bryant Non-Executive Director - Appointed 29 November 2016 Mr Paul Wright Non-Executive Director - Appointed 8 August 2018 On 4 August 2020 the Victorian Government made public health and safety directions that required the consolidated entity to reduce its on-site operations for a period of six weeks due to the COVID-19 pandemic. The consolidated entity's business remains operational after complying with the additional restrictions, with most employees having already transitioned to working from home where possible. Where work is permitted on- site, the consolidated entity continues to operate with processes and protocols in place to support the safety and wellbeing of our employees. (ii) Specified Executives Mr Peter Lewis AM Chief Executive Officer - Appointed 17 May 2017, Executive Vice President Corporate Development - Appointed 1 January 2020 On 17 August 2020 the consolidated entity announced the first AngelMed Guardian patient implants in the Asia Pacific with four implants performed over a three day period in Singapore by Dr Leslie Lam. Each implant procedure was supported by a Hydrix Medical field clinical engineer with real-time remote support from Angel Medical Systems staff in the USA. Remuneration Philosophy The performance of the company depends on the quality of the company’s directors, executives and employees and therefore the company must attract, motivate and retain appropriately qualified industry personnel. Likely developments and expected results of operations The consolidated entity’s principal activities for the next financial year ending 30 June 2021 will continue to be design and engineering services, distribution of cardiovascular technologies and early stage venture investing. The remuneration policy of the company has been designed to align KMP objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific short-term and long-term incentives based on key performance areas affecting the company’s financial results. The Board believes the remuneration policy to be appropriate and effective in its ability to attract and retain the high- quality KMP to run and manage the company, as well as create goal congruence between directors, executives and shareholders. The consolidated entity will continue to pursue acquisition and investment opportunities which have the potential to increase market share and growth, and which extend the business' core capabilities and customer offer. Areas of focus are within the consolidated entity's experience and know-how developing and commercialising technologies which have the potential to accelerate shareholder value. The Board’s policy for determining the nature and amount of remuneration for KMP of the company is as follows: Environmental regulation The consolidated entity's operations are subject to environmental regulations under the law of the Commonwealth and State. The Board believes that the consolidated entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the consolidated entity. - The remuneration policy is to be developed and approved by the Board after professional advice is sought from independent external consultants where required. - All KMP receive a base salary, superannuation, fringe benefits, options (subject to shareholder approval in the case of directors) and performance incentives. - Performance incentives are only paid once predetermined key performance indicators (KPIs) have been met. - Incentives paid in the form of options or rights are intended to align the interests of the directors and company with those of the shareholders. In this regard, KMP are prohibited from limiting risk attached to those instruments by use of derivatives or other means. - The Board reviews KMP packages annually by reference to the consolidated entity's performance, executive performance and comparable information from industry sectors. 9 10 Annual Report 2020Annual Report 2020 30 DIRECTORS' REPORT Hydrix Limited Directors' Report 30 June 2020 Hydrix Limited Directors' Report 30 June 2020 31 REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) The Board has not established a formal remuneration committee, having regard to the size of the company. The Board acknowledges that when the size and nature of the company warrants the necessity of a formal remuneration committee, such a committee will operate under the Remuneration Committee Charter which has been approved and adopted by the Board. The Board, in performing the function of the remuneration committee, reviews remuneration packages and practices applicable to the senior executives and the Board itself. This role also includes responsibility for share option schemes, incentive performance packages and retirement and termination entitlements. Remuneration levels are competitively set to attract the most qualified and experienced Directors and senior executives. The Board may obtain independent advice on the appropriateness of remuneration packages. The performance of KMP is measured against criteria agreed annually with each executive and is based predominantly on the progress related to developing and commercialising the technology. All bonuses and incentives must be linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options. Any change must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance results leading to long-term growth in shareholder wealth. KMP are also entitled and encouraged to participate in the employee share and option arrangements to align directors’ interests with shareholders’ interests. The employment terms and conditions of KMP are formalised in contracts of employment or consultancy agreements. Ms Joanne Bryant - Non-Executive Director i. Fixed remuneration – The base remuneration is $48,000 per annum (exclusive of GST, but inclusive of any applicable superannuation). ii. Expenses – Ms Bryant is entitled to claim from the company reimbursement of reasonable out-of-pocket expenses properly incurred in the performance of her duties and responsibilities (and upon production of satisfactory receipts). Mr Paul Wright - Non-Executive Director i. Fixed remuneration – The base remuneration is $48,000 per annum (exclusive of GST, but inclusive of any applicable superannuation). ii. Expenses – Mr Wright is entitled to claim from the company reimbursement of reasonable out-of-pocket expenses properly incurred in the performance of his duties and responsibilities (and upon production of satisfactory receipts). (ii) Specified Executive Remuneration Mr Peter Lewis AM - Executive Vice President Corporate Term and termination Mr Lewis’ appointment as Executive Vice – President Corporate Development was effective on 1 January 2020, and continues on an ongoing basis under a services agreement between Mr Lewis and the company. Either the company or Mr Lewis may terminate the services agreement with 3 months’ notice (other than by the company for cause). In accordance with the company’s Constitution, the aggregate remuneration that can be paid to the company’s Non-Executive Directors is $500,000 per annum, and the Board determines how this aggregate amount should be divided among individual directors and in what proportions. Remuneration Mr Lewis’ total fixed remuneration is $275,000 per annum (inclusive of superannuation). Variable performance-based reward will be in the form of short-term and long-term incentives, as determined by the Board at its sole discretion. Further details of the Key Management Personnel remuneration for the year are detailed in Note 25. Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred in consequence of their attendance at meetings of directors and otherwise in the execution of their duties as directors. A director may also be paid additional amounts as fees or as the directors determine where a director performs extra services or makes any special exertions, which in the opinion of the directors are outside the scope of the ordinary duties of a director. Restraints Mr Lewis must not, during his engagement, except with the written consent of the company, engage in (directly or indirectly) any undertaking or business of a similar nature to, or in competition with, the business of the company. In addition, certain non-compete and non-solicit restraints apply to Mr Lewis for a period of 12 months after termination of his employment with the company. Engagement of remuneration consultants During the financial year no external consultants were engaged to review the remuneration and provide recommendations relating to KMP. Details of remuneration (i) Specified Director Remuneration Mr Gavin Coote - Executive Chairman Term and termination Mr Coote’s appointment as Executive Chairman was effective on 1 January 2020, and continues on an ongoing basis under a services agreement between Mr Coote and the company. Either the company or Mr Coote may terminate the services agreement with 6 months’ notice (other than by the company for cause). Remuneration Mr Coote’s total fixed remuneration for his executive services under the employment agreement is $328,500 per annum (inclusive of superannuation). Mr Coote’s remuneration for his executive services is in addition to the fee of $60,000 per annum (inclusive of superannuation) that Mr Coote is currently entitled to receive (and will continue to receive) for his roles and responsibilities as Chairman and Director of the Company. Variable performance-based reward will be in the form of short-term and long-term incentives, as determined by the Board at its sole discretion. Restraints Mr Coote must not, during his employment, except with the written consent of the company, engage in (directly or indirectly) any undertaking or business of a similar nature to, or in competition with, the business of the company. In addition, certain non-compete and non-solicit restraints apply to Mr Coote for a period of 12 months after termination of his employment with the company. Ms Julie King - Non-Executive Director i. Fixed remuneration – The base remuneration is $48,000 per annum (exclusive of GST, but inclusive of any applicable superannuation). ii. Expenses – Ms King is entitled to claim from the company reimbursement of reasonable out-of-pocket expenses properly incurred in the performance of her duties and responsibilities (and upon production of satisfactory receipts). 11 12 Annual Report 2020Annual Report 202032 Hydrix Limited Hydrix Limited Hydrix Limited DIRECTORS' REPORT Directors' Report Directors' Report Directors' Report 30 June 2020 30 June 2020 30 June 2020 Hydrix Limited Directors' Report 30 June 2020 Hydrix Limited Hydrix Limited Hydrix Limited Directors' Report Directors' Report Directors' Report 30 June 2020 30 June 2020 30 June 2020 33 REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) REMUNERATION REPORT (Audited) (Continued) Remuneration details for the year ended 30 June 2020 The following tables detail, in respect to the financial year, the components of remuneration for each member of KMP of the company: Remuneration details for the year ended 30 June 2020 Remuneration details for the year ended 30 June 2020 The following tables detail, in respect to the financial year, the components of remuneration for each member of KMP of the company: The following tables detail, in respect to the financial year, the components of remuneration for each member of KMP of the company: The proportion of remuneration linked to performance and the fixed proportion are as follows: The proportion of remuneration linked to performance and the fixed proportion are as follows: The proportion of remuneration linked to performance and the fixed proportion are as follows: The proportion of remuneration linked to performance and the fixed proportion are as follows: Table of benefits and payments for the year ended 30 June 2020 Table of benefits and payments for the year ended 30 June 2020 Table of benefits and payments for the year ended 30 June 2020 Short-term benefits Short-term benefits Short-term benefits Salary Salary Salary $ $ $ Fees Fees Fees $ $ $ Post- Post- Post- employment employment employment benefits benefits benefits Super- Super- Super- annuation annuation annuation $ $ $ Long-term Long-term Long-term benefits benefits benefits Long Service Long Service Long Service Leave Leave Leave $ $ $ Share-based payments Share-based payments Share-based payments Equity-settled Equity-settled Equity-settled shares shares shares $ $ $ Equity-settled options $ Equity-settled Equity-settled options options $ $ Total Total Total $ $ $ Directors Directors Directors Mr Gavin Coote1,2 Mr Gavin Coote1,2 Mr Gavin Coote1,2 Ms Julie King Ms Julie King Ms Julie King Ms Joanne Bryant Ms Joanne Bryant Ms Joanne Bryant Mr Paul Wright1,3 Mr Paul Wright1,3 Mr Paul Wright1,3 Other KMP Mr Peter Lewis AM4 Other KMP Other KMP Mr Peter Lewis AM4 Mr Peter Lewis AM4 Total Total Total 192,260 100,900 12,565 45,600 45,600 42,627 192,260 100,900 12,565 192,260 100,900 12,565 45,600 45,600 45,600 45,600 42,627 42,627 - - - - - - 45,000 - - - - - - - - - - - - 45,000 45,000 2,486 92,769 - 2,486 92,769 - 2,486 92,769 - - - - - - - 400,980 - 45,600 - 45,600 147,245 400,980 400,980 - 45,600 - 45,600 - 45,600 - 45,600 147,245 147,245 3,956 - 55,662 - 3,956 - 55,662 - 3,956 - 55,662 - 262,557 262,557 262,557 - 24,943 - 24,943 - 24,943 3,399 - 3,399 - 3,399 - - - - 290,899 290,899 290,899 588,644 145,900 41,464 588,644 145,900 41,464 588,644 145,900 41,464 5,886 148,431 - 5,886 148,431 - 5,886 148,431 - 930,324 930,324 930,324 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote and Mr Paul Wright for consultancy and advisory work performed by them outside the scope of their roles as director; the fees are at arm's length rates agreed by the Board. 2 Mr Gavin Coote was appointed Executive Chairman effective 1 January 2020. 3 Non-salary short-term benefits payable to Mr Paul Wright are non-monetary and were settled by way of issuing 155,172 number of shares. 4 Mr Peter Lewis AM transitioned from CEO to the role of Executive Vice President - Corporate Development effective 1 January 2020. 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote and Mr Paul Wright for consultancy and advisory work 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote and Mr Paul Wright for consultancy and advisory work performed by them outside the scope of their roles as director; the fees are at arm's length rates agreed by the Board. performed by them outside the scope of their roles as director; the fees are at arm's length rates agreed by the Board. 2 Mr Gavin Coote was appointed Executive Chairman effective 1 January 2020. 2 Mr Gavin Coote was appointed Executive Chairman effective 1 January 2020. 3 Non-salary short-term benefits payable to Mr Paul Wright are non-monetary and were settled by way of issuing 155,172 number of shares. 3 Non-salary short-term benefits payable to Mr Paul Wright are non-monetary and were settled by way of issuing 155,172 number of shares. 4 Mr Peter Lewis AM transitioned from CEO to the role of Executive Vice President - Corporate Development effective 1 January 2020. 4 Mr Peter Lewis AM transitioned from CEO to the role of Executive Vice President - Corporate Development effective 1 January 2020. Table of benefits and payments for the year ended 30 June 2019 Table of benefits and payments for the year ended 30 June 2019 Table of benefits and payments for the year ended 30 June 2019 Short-term benefits Short-term benefits Short-term benefits Salary Salary Salary $ $ $ Fees Fees Fees $ $ $ Post- Post- Post- employment employment employment benefits benefits benefits Super- Super- Super- annuation annuation annuation $ $ $ Long-term Long-term Long-term benefits benefits benefits Long Service Long Service Long Service Leave Leave Leave $ $ $ Share-based payments Share-based payments Share-based payments Equity-settled Equity-settled Equity-settled shares shares shares $ $ $ Equity-settled options $ Equity-settled Equity-settled options options $ $ Total Total Total $ $ $ Directors Directors Directors Mr Gavin Coote1 Mr Gavin Coote1 Mr Gavin Coote1 Ms Julie King2 Ms Julie King2 Ms Julie King2 Ms Joanne Bryant3 Ms Joanne Bryant3 Ms Joanne Bryant3 Mr Paul Wright2 Mr Paul Wright2 Mr Paul Wright2 Other KMP Other KMP Other KMP Mr Peter Lewis AM Mr Peter Lewis AM Mr Peter Lewis AM Mr Peter Russell3 Mr Peter Russell3 Mr Peter Russell3 Total Total Total 60,000 132,065 - - 229,336 - 48,000 48,000 40,183 60,000 132,065 - - 229,336 - 60,000 132,065 - - 229,336 - 48,000 48,000 48,000 48,000 40,183 40,183 - - - - - - - - - - - - 3,817 - - 3,817 - - - - - - - - 3,817 - - 421,401 - 48,000 - 48,000 - 44,000 421,401 421,401 - 48,000 - 48,000 - 48,000 - 48,000 - 44,000 - 44,000 - - - - - - - - - 273,973 66,474 273,973 273,973 66,474 66,474 - 26,027 - - 26,027 - 26,027 - - 4,579 76,000 - 4,579 76,000 - 4,579 76,000 - - - 380,579 - 72,333 380,579 380,579 - 72,333 - 72,333 - 5,858 - 5,858 - 5,858 - 536,630 132,065 35,703 536,630 132,065 35,703 536,630 132,065 35,703 4,579 305,336 - 4,579 305,336 - 4,579 305,336 - 1,014,313 1,014,313 1,014,313 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote for consultancy and advisory work performed by him outside the scope of his role as director; the fees are at arm's length rates agreed by the Board. 2 Mr Paul Wright was appointed to the board on 8 August 2018. 3 Mr Peter Russell's contract for his role as General Manger, Commercial expired effective 30 November 2018. 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote for consultancy and advisory work performed by him 1 Non-salary short-term benefits relate to professional fees payable to Mr Gavin Coote for consultancy and advisory work performed by him outside the scope of his role as director; the fees are at arm's length rates agreed by the Board. outside the scope of his role as director; the fees are at arm's length rates agreed by the Board. 2 Mr Paul Wright was appointed to the board on 8 August 2018. 2 Mr Paul Wright was appointed to the board on 8 August 2018. 3 Mr Peter Russell's contract for his role as General Manger, Commercial expired effective 30 November 2018. 3 Mr Peter Russell's contract for his role as General Manger, Commercial expired effective 30 November 2018. Name Directors Mr Gavin Coote Ms Julie King Ms Joanne Bryant Mr Paul Wright Name Name Name Directors Directors Directors Mr Gavin Coote Mr Gavin Coote Mr Gavin Coote Ms Julie King Ms Julie King Ms Julie King Ms Joanne Bryant Ms Joanne Bryant Ms Joanne Bryant Mr Paul Wright Mr Paul Wright Mr Paul Wright Other KMP Mr Peter Lewis AM Mr Peter Russell Other KMP Other KMP Other KMP Mr Peter Lewis AM Mr Peter Lewis AM Mr Peter Lewis AM Mr Peter Russell Mr Peter Russell Mr Peter Russell Fixed remuneration 2020 2019 Fixed remuneration Fixed remuneration Fixed remuneration 2020 2019 2019 2020 2019 2020 2020 At risk - STI At risk - STI At risk - STI At risk - STI At risk - LTI At risk - LTI At risk - LTI At risk - LTI 2019 2020 2020 2020 2019 2019 2019 2020 2020 2019 2020 2020 2019 2019 2019 67% 100% 100% 43% 100% N/A 21% - - 67% 67% 67% 100% 100% 100% - - 100% 100% 100% 100% 100% - - 43% 43% 43% 100% - - 21% - - 21% - - 21% - - 33% 100% - - 100% - - 100% - - - 100% - - 100% - - 100% - - - 100% - - 100% - - 100% - - 33% 79% 33% 33% - - - - - - - - 57% - 79% 79% 79% - - - - - - 57% - 57% - 57% - 100% 100% 78% - - 100% N/A N/A N/A 100% - - 78% - - 78% - - 78% - - - 100% - - 100% - - 100% - - - - - - 22% - - - - 22% 22% 22% - - - Share-based compensation Issue of shares Details of shares issued to directors and other KMP as part of compensation during the year ended 30 June 2020 are set out below: Share-based compensation Share-based compensation Share-based compensation Issue of shares Issue of shares Issue of shares Details of shares issued to directors and other KMP as part of compensation during the year ended 30 June 2020 are set out below: Details of shares issued to directors and other KMP as part of compensation during the year ended 30 June 2020 are set out below: Details of shares issued to directors and other KMP as part of compensation during the year ended 30 June 2020 are set out below: Name Mr Gavin Coote Mr Paul Wright Name Name Name Mr Gavin Coote Mr Gavin Coote Mr Gavin Coote Mr Paul Wright Mr Paul Wright Mr Paul Wright Date 8-Nov-19 17-Dec-19 Date Date Shares Date 500,000 8-Nov-19 8-Nov-19 8-Nov-19 17-Dec-19 17-Dec-19 17-Dec-19 155,172 Issue Price Shares Shares Shares $0.71 500,000 500,000 500,000 $0.29 155,172 155,172 155,172 $ Issue Price Issue Price Issue Price $355,000 $0.71 $0.71 $0.71 $0.29 $0.29 $0.29 $45,000 $ $ $ $355,000 $355,000 $355,000 $45,000 $45,000 $45,000 The 500,000 shares issued to Mr Gavin Coote were for nil consideration, upon vesting of performance rights issued under the consolidated entity's long term incentive plan. The performance rights were granted on 12-Dec-17, vested on 30-Jun-19 and were exercised on 08-Nov-19. The 500,000 shares issued to Mr Gavin Coote were for nil consideration, upon vesting of performance rights issued under the consolidated The 500,000 shares issued to Mr Gavin Coote were for nil consideration, upon vesting of performance rights issued under the consolidated The 500,000 shares issued to Mr Gavin Coote were for nil consideration, upon vesting of performance rights issued under the consolidated entity's long term incentive plan. The performance rights were granted on 12-Dec-17, vested on 30-Jun-19 and were exercised on 08-Nov-19. entity's long term incentive plan. The performance rights were granted on 12-Dec-17, vested on 30-Jun-19 and were exercised on 08-Nov-19. entity's long term incentive plan. The performance rights were granted on 12-Dec-17, vested on 30-Jun-19 and were exercised on 08-Nov-19. Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other KMP in this financial year or future reporting years are as follows: Performance rights Performance rights Performance rights The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other KMP in this The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other KMP in this The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of directors and other KMP in this financial year or future reporting years are as follows: financial year or future reporting years are as follows: financial year or future reporting years are as follows: Name Name Name Name Mr Gavin Coote Mr Paul Wright Mr Gavin Coote Mr Paul Wright Mr Gavin Coote Mr Gavin Coote Mr Gavin Coote Mr Paul Wright Mr Paul Wright Mr Paul Wright Mr Gavin Coote Mr Gavin Coote Mr Gavin Coote Mr Paul Wright Mr Paul Wright Mr Paul Wright Number of performance rights granted 250,000 150,000 250,000 150,000 Number of Number of Number of performance performance performance Grant date rights rights rights granted granted granted 17-Dec-19 250,000 250,000 250,000 17-Dec-19 150,000 150,000 150,000 250,000 250,000 250,000 17-Dec-19 150,000 17-Dec-19 150,000 150,000 Vesting date & Grant date Grant date Grant date exercisable date 17-Dec-19 17-Dec-19 17-Dec-19 30-Jun-20 17-Dec-19 17-Dec-19 17-Dec-19 30-Jun-20 17-Dec-19 17-Dec-19 17-Dec-19 30-Jun-21 17-Dec-19 17-Dec-19 17-Dec-19 30-Jun-21 Performance rights granted carry no dividend or voting rights. Performance rights granted carry no dividend or voting rights. Performance rights granted carry no dividend or voting rights. Performance rights granted carry no dividend or voting rights. Expiry date Vesting date Vesting date Vesting date & & & exercisable exercisable exercisable date date date 30-Jun-20 30-Jun-20 30-Jun-21 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-22 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-22 Expiry date Expiry date Expiry date Exercise price Fair value per Exercise price Exercise price Exercise price option at grant date Fair value per Fair value per Fair value per option at grant option at grant option at grant date date date $0.00 30-Jun-21 30-Jun-21 30-Jun-21 $0.00 30-Jun-21 30-Jun-21 30-Jun-21 $0.00 30-Jun-22 30-Jun-22 30-Jun-22 $0.00 30-Jun-22 30-Jun-22 30-Jun-22 $0.275 $0.00 $0.00 $0.00 $0.275 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.275 $0.00 $0.275 $0.00 $0.00 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 Additional information The earnings of the consolidated entity for the five years ended 30 June 2020 are summarised below: Additional information Additional information Additional information The earnings of the consolidated entity for the five years ended 30 June 2020 are summarised below: The earnings of the consolidated entity for the five years ended 30 June 2020 are summarised below: The earnings of the consolidated entity for the five years ended 30 June 2020 are summarised below: Revenue (Loss) before tax (Loss) after tax Revenue Revenue Revenue (Loss) before tax (Loss) before tax (Loss) before tax (Loss) after tax (Loss) after tax (Loss) after tax 2020 $ 15,899,742 (2,872,734) (3,219,461) 2019 2020 2020 2020 $ $ $ $ 15,899,742 15,899,742 15,899,742 14,165,305 (2,872,734) (2,872,734) (3,994,173) (2,872,734) (3,219,461) (3,219,461) (3,219,461) (4,219,742) 2018 2019 2019 2019 $ $ $ $ 14,165,305 14,165,305 14,165,305 5,715,182 (3,994,173) (3,994,173) (3,994,173) (5,539,445) (4,219,742) (4,219,742) (4,219,742) (5,080,967) 2018 2018 2017 2018 $ $ $ $ 5,715,182 5,715,182 5,715,182 793,258 (5,539,445) (5,539,445) (5,539,445) (4,375,949) (5,080,967) (5,080,967) (5,080,967) (4,375,949) 2016 2017 2017 2017 $ $ $ $ 793,258 793,258 793,258 98,464 (4,880,714) (4,375,949) (4,375,949) (4,375,949) (4,375,949) (4,375,949) (4,375,949) (4,880,714) 2016 2016 2016 $ $ $ 98,464 98,464 98,464 (4,880,714) (4,880,714) (4,880,714) (4,880,714) (4,880,714) (4,880,714) The factors that are considered to affect total shareholders return (TSR) are summarised below: The factors that are considered to affect total shareholders return (TSR) are summarised below: The factors that are considered to affect total shareholders return (TSR) are summarised below: The factors that are considered to affect total shareholders return (TSR) are summarised below: 2020 $0.09 Share price at financial year end ($) Total dividends declared (cents per share) Basic loss per share (cents per share) Diluted loss per share (cents per share) Share price at financial year end ($) Share price at financial year end ($) Share price at financial year end ($) Total dividends declared (cents per Total dividends declared (cents per Total dividends declared (cents per share) share) share) Basic loss per share Basic loss per share Basic loss per share (cents per share) (cents per share) (cents per share) Diluted loss per share Diluted loss per share Diluted loss per share (cents per share) (cents per share) (cents per share) $0.00 (4.35) (4.35) 2020 2020 2020 2019 $0.09 $0.09 $0.22 $0.09 $0.00 (6.54) $0.00 $0.00 $0.00 (4.35) (4.35) (4.35) 2019 2019 2019 2018 $0.22 $0.22 $0.47 $0.22 2017 $0.38 2018 2018 2018 $0.47 $0.47 $0.47 $0.00 (9.40) $0.00 $0.00 $0.00 (6.54) (6.54) (6.54) $0.00 (8.64) $0.00 $0.00 $0.00 (9.40) (9.40) (9.40) 2017 2017 2016 2017 $0.38 $0.38 $0.38 $1.00 $0.00 $0.00 $0.00 $0.00 (8.64) (8.64) (8.64) (9.60) 2016 2016 2016 $1.00 $1.00 $1.00 $0.00 $0.00 $0.00 (9.60) (9.60) (9.60) (6.54) (4.35) (4.35) (4.35) (9.40) (6.54) (6.54) (6.54) (8.64) (9.40) (9.40) (9.40) (8.64) (8.64) (8.64) (9.60) (9.60) (9.60) (9.60) 13 13 13 14 14 14 14 Annual Report 2020Annual Report 2020 34 DIRECTORS' REPORT Hydrix Limited Directors' Report 30 June 2020 REMUNERATION REPORT (Audited) (Continued) Additional disclosures relating to KMP Shareholding The number of shares in the company held during the financial year by each director and other members of KMP of the consolidated entity, including their personally related parties is set out below: Mr Gavin Coote Ms Julie King Ms Joanne Bryant Mr Paul Wright Mr Peter Lewis AM Additions Disposals / Other Balance at the end of the year Balance at the start of the year Received as part of remuneration 971,498 500,000 15,639,345 1,136,287 - 155,172 226,220 17,973,350 172,414 - - - - - - - 172,414 - - - - 655,172 344,828 1,643,912 15,639,345 1,136,287 327,586 226,220 - 18,973,350 Performance rights holding The number of performance rights over ordinary shares in the company held during the financial year by each director and other members of KMP of the consolidated entity, including their personally related parties is set out below: Mr Gavin Coote Ms Julie King Ms Joanne Bryant Mr Paul Wright Mr Peter Lewis AM Balance at the start of the year Granted Exercised Expired / forfeited / other Balance at the end of the year 500,000 - 500,000 500,000 - - - - - - - - - 300,000 - - - - - - 500,000 800,000 500,000 500,000 - - 300,000 - - 800,000 35 Hydrix Limited Hydrix Limited Hydrix Limited Directors' Report Directors' Report Directors' Report 30 June 2020 30 June 2020 30 June 2020 Shares under option / performance rights Shares under option / performance rights Shares under option / performance rights At the date of this report, there were 21,377,483 options and 800,000 performance rights to acquire ordinary shares of the company as follows: At the date of this report, there were 21,377,483 options and 800,000 performance rights to acquire ordinary shares of the company as follows: At the date of this report, there were 21,377,483 options and 800,000 performance rights to acquire ordinary shares of the company as follows: Class of Unlisted Class of Unlisted Class of Unlisted Options Options Options Note Note Note Exercise Exercise Exercise Price Price Price Vesting Date Expiry Date Grant Date Vesting Date Expiry Date Grant Date Vesting Date Expiry Date Grant Date Fair Value at Fair Value at Fair Value at Grant Date Grant Date Grant Date Balance at 30 Balance at 30 Balance at 30 June 2020 June 2020 June 2020 Attaching options Attaching options Attaching options Attaching options Attaching options Attaching options Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Performance rights Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Employee LTIP Attaching options Attaching options Attaching options Underwriter options Underwriter options Underwriter options (i) (i) (i) (ii) (ii) (ii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iii) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (iv) (v) (v) (v) (vi) (vi) (vi) $0.80 $0.80 $0.80 $0.80 $0.80 $0.80 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.29 $0.12 $0.12 $0.12 $0.12 $0.12 $0.12 7-Aug-18 7-Aug-18 7-Aug-18 9-Nov-18 9-Nov-18 9-Nov-18 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-20 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 9-Mar-20 9-Mar-20 9-Mar-20 1-Jul-20 1-Jul-20 1-Jul-20 1-Jul-21 1-Jul-21 1-Jul-21 1-Jul-22 1-Jul-22 1-Jul-22 30-Jul-20 30-Jul-20 30-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-21 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-22 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 30-Jun-25 31-Jul-22 31-Jul-22 31-Jul-22 31-Jul-22 31-Jul-22 31-Jul-22 7-Aug-18 7-Aug-18 7-Aug-18 9-Nov-18 9-Nov-18 9-Nov-18 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 9-Mar-20 30-Jul-20 30-Jul-20 30-Jul-20 31-Jul-20 31-Jul-20 31-Jul-20 $0.107 $0.107 $0.107 $0.082 $0.082 $0.082 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.275 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.082 $0.033 $0.033 $0.033 $0.029 $0.029 $0.029 2,250,000 2,250,000 2,250,000 875,000 875,000 875,000 250,000 250,000 250,000 150,000 150,000 150,000 250,000 250,000 250,000 150,000 150,000 150,000 191,615 191,615 191,615 170,644 170,644 170,644 170,647 170,647 170,647 170,661 170,661 170,661 - - - - - - Balance at Balance at Balance at Date of this Date of this Date of this Report Report Report - - - - - - 250,000 250,000 250,000 150,000 150,000 150,000 250,000 250,000 250,000 150,000 150,000 150,000 170,675 170,675 170,675 170,644 170,644 170,644 170,647 170,647 170,647 170,661 170,661 170,661 7,897,531 7,897,531 7,897,531 11,847,325 11,847,325 11,847,325 (i) On 7 August 2018, 2,250,000 Attaching Options were issued under the Placement as announced by the consolidated entity on 31 July 2018. (i) On 7 August 2018, 2,250,000 Attaching Options were issued under the Placement as announced by the consolidated entity on 31 July 2018. (i) On 7 August 2018, 2,250,000 Attaching Options were issued under the Placement as announced by the consolidated entity on 31 July 2018. (ii) On 9 November 2018, following shareholder approval at the AGM held on 25 October 2018, 875,000 Attaching Options were issued to (ii) On 9 November 2018, following shareholder approval at the AGM held on 25 October 2018, 875,000 Attaching Options were issued to (ii) On 9 November 2018, following shareholder approval at the AGM held on 25 October 2018, 875,000 Attaching Options were issued to Directors under the Placement as announced by the consolidated entity on 31 July 2018. Directors under the Placement as announced by the consolidated entity on 31 July 2018. Directors under the Placement as announced by the consolidated entity on 31 July 2018. (iii) On 17 December 2019, 800,000 Performance Rights were issued to Directors under the LTIP. (iii) On 17 December 2019, 800,000 Performance Rights were issued to Directors under the LTIP. (iii) On 17 December 2019, 800,000 Performance Rights were issued to Directors under the LTIP. (iv) On 9 March 2020, 785,127 options were issued to employees under the LTIP, and subsequently 76,872 were forfeited due to failure to meet (iv) On 9 March 2020, 785,127 options were issued to employees under the LTIP, and subsequently 76,872 were forfeited due to failure to meet (iv) On 9 March 2020, 785,127 options were issued to employees under the LTIP, and subsequently 76,872 were forfeited due to failure to meet vesting conditions and 25,628 lapsed after not being exercised within 60 days of cessation of employment. These options vest subject to time- vesting conditions and 25,628 lapsed after not being exercised within 60 days of cessation of employment. These options vest subject to time- vesting conditions and 25,628 lapsed after not being exercised within 60 days of cessation of employment. These options vest subject to time- based and performance-based vesting conditions, including the employee remaining in the employ of the consolidated entity during the based and performance-based vesting conditions, including the employee remaining in the employ of the consolidated entity during the based and performance-based vesting conditions, including the employee remaining in the employ of the consolidated entity during the performance period and satisfaction of individual KPI's. performance period and satisfaction of individual KPI's. performance period and satisfaction of individual KPI's. The performance rights vest subject to satisfaction of prescribed vesting conditions including financial, operational, corporate governance, strategic planning and business development objectives set by the Board. (v) On 30 July 2020, 8,847,531 Attaching Options were issued under the Entitlement Offer as announced by the consolidated entity on 6 July (v) On 30 July 2020, 8,847,531 Attaching Options were issued under the Entitlement Offer as announced by the consolidated entity on 6 July (v) On 30 July 2020, 8,847,531 Attaching Options were issued under the Entitlement Offer as announced by the consolidated entity on 6 July 2020, and subsequently 950,000 were exercised on 24 August 2020. 2020, and subsequently 950,000 were exercised on 24 August 2020. 2020, and subsequently 950,000 were exercised on 24 August 2020. This concludes the remuneration report, which has been audited (vi) On 31 July 2020, 11,847,325 Attaching Options were issued to underwriters under the Entitlement Offer as announced by the consolidated (vi) On 31 July 2020, 11,847,325 Attaching Options were issued to underwriters under the Entitlement Offer as announced by the consolidated (vi) On 31 July 2020, 11,847,325 Attaching Options were issued to underwriters under the Entitlement Offer as announced by the consolidated entity on 6 July 2020. entity on 6 July 2020. entity on 6 July 2020. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related entity or in the Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related entity or in the Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related entity or in the interest issue of any other registered scheme. For details of options issued to directors and executives as remuneration, refer to the interest issue of any other registered scheme. For details of options issued to directors and executives as remuneration, refer to the interest issue of any other registered scheme. For details of options issued to directors and executives as remuneration, refer to the Remuneration Report. Remuneration Report. Remuneration Report. 15 16 16 16 Annual Report 2020Annual Report 2020 37 AUDITOR'S INDEPENDENCE DECLARATION 36 DIRECTORS' REPORT Hydrix Limited Directors' Report 30 June 2020 Indemnity and insurance of officers The company has indemnified the directors and executives of the consolidated entity for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the consolidated entity paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor To the extent permitted by law, the company has agreed to indemnify its auditors, Grant Thornton Audit Pty Ltd, as part of the terms of its audit engagement agreement against claims made by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Grant Thornton Audit Pty Ltd during or since end of the financial year. The company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the consolidated entity or any related entity against a liability incurred by the auditor. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. Non-audit services No non-audit services have been provided by the consolidated entity's auditor, Grant Thornton Audit Pty Ltd. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest dollar. 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 immediately after this directors' report. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Mr Gavin Coote Executive Chairman 25-August-2020 Melbourne 17 Collins Square, Tower 5727 Collins StreetMelbourne VIC 3008Correspondence to:GPO Box 4736Melbourne VIC 3001T+61 3 8320 2222Einfo.vic@au.gt.comWwww.grantthornton.com.auAuditor’s Independence Declaration To the DirectorsofHydrix LimitedIn accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Hydrix Limitedfor the year ended 30 June 2020, I declare that, to the best of my knowledge and belief, there have been:ano contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; andbno contraventions of any applicable code of professional conduct in relation to the audit.Grant Thornton Audit Pty LtdChartered AccountantsA C PittsPartner –Audit & AssuranceMelbourne, 25August 2020Grant Thornton Audit Pty Ltd ACN 130 913 594asubsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389www.grantthornton.com.au‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and donot obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not anAustralian related entity to Grant Thornton Australia Limited.Liability limited by a scheme approved under Professional Standards Legislation.18Annual Report 2020Annual Report 2020 38 39 Hydrix Limited Consolidated Statement of Profit & Loss and Other Comprehensive Income For the year ended 30 June 2020 Hydrix Limited CONSOLIDATED STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2020 Consolidated Statement of Profit & Loss and Other Comprehensive Income For the year ended 30 June 2020 Hydrix Limited Consolidated Statement of Financial Position As at 30 June 2020 Hydrix Limited Consolidated Statement of Financial Position As at 30 June 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2020 Revenue Revenue Interest revenue Revenue Revenue Interest revenue Operating expenses Operating expenses Employee benefits expense Employee benefits expense Project material expenses Project material expenses Depreciation and amortisation expense Depreciation and amortisation expense Finance costs Finance costs Rental expense Rental expense Selling, advertising and distribution expenses Selling, advertising and distribution expenses Research and development expenses Research and development expenses Other expenses Other expenses Share based payment expenses Share based payment expenses Impairment of receivables Impairment of receivables Gain/(Loss) on financial instruments at fair value through profit or loss Gain/(Loss) on financial instruments at fair value through profit or loss Gain/(Loss) on contingent consideration liability Gain/(Loss) on contingent consideration liability Impairment of plant and equipment Impairment of plant and equipment Debt extinguishment loss Debt extinguishment loss Unrealised foreign exchange Gain/(Loss) Unrealised foreign exchange Gain/(Loss) Note Note 2020 $ 2020 $ 2019 $ 2019 $ 4 4 5 5 5 5 5 5 5 31 8 5 5 31 8 5 9 17 9 17 15,887,868 15,887,868 11,875 11,875 15,899,742 15,899,742 14,150,353 14,150,353 14,952 14,952 14,165,305 14,165,305 (11,617,956) (11,617,956) (1,576,638) (1,576,638) (1,160,581) (1,160,581) (1,304,961) (1,304,961) (160,505) (160,505) (362,918) (362,918) 162,763 162,763 (2,292,113) (2,292,113) (183,484) (183,484) (133,091) (133,091) 927,303 927,303 (85,994) (85,994) (201,652) (201,652) (1,063,586) (1,063,586) 280,938 280,938 (18,772,476) (18,772,476) (10,284,158) (10,284,158) (2,377,798) (2,377,798) (691,596) (691,596) (465,921) (465,921) (829,479) (829,479) (482,288) (482,288) (100,648) (100,648) (2,250,885) (2,250,885) (612,546) (612,546) (64,158) (64,158) - - - - - - - - - - (18,159,478) (18,159,478) Loss before income tax expense Loss before income tax expense (2,872,734) (2,872,734) (3,994,173) (3,994,173) Income tax (expense)/ benefit Income tax (expense)/ benefit 6 6 (346,727) (346,727) (225,569) (225,569) Loss after income tax expense Loss after income tax expense (3,219,461) (3,219,461) (4,219,742) (4,219,742) Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Movement in fair value of long term equity investments Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Movement in fair value of long term equity investments 21 21 - - (17,754) (17,754) Total comprehensive loss for year attributable to the Owners of Hydrix Limited Total comprehensive loss for year attributable to the Owners of Hydrix Limited (3,219,461) (3,219,461) (4,237,496) (4,237,496) Loss per share Basic and diluted earnings per share (cents per share) Loss per share Basic and diluted earnings per share (cents per share) 30 30 Cents (4.35) Cents (4.35) $ $ Cents (6.54) Cents (6.54) $ $ The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes Current assets Current assets Cash and cash equivalents Cash and cash equivalents Trade and other receivables Trade and other receivables Contract assets Contract assets Prepayments Prepayments Total current assets Total current assets Non-current assets Non-current assets Financial assets at fair value through profit & loss Financial assets at fair value through profit & loss Deferred tax assets Deferred tax assets Plant and equipment Plant and equipment Right of use assets Right of use assets Intangible assets Intangible assets Other assets Other assets Security deposits Security deposits Total non-current assets Total non-current assets Total Assets Total Assets Current liabilities Current liabilities Trade and other payables Trade and other payables Contract liabilities Contract liabilities Borrowings Borrowings Derivative liabilities Derivative liabilities Employee benefits Employee benefits Lease liabilities C Lease liabilities C Other liabilities Other liabilities Total current Liabilities Total current Liabilities Non-current liabilities Non-current liabilities Borrowings NC Borrowings NC Employee benefits' Employee benefits' Lease liabilities NC Lease liabilities NC Provisions' Provisions' Other liabilities (NC) Other liabilities (NC) Total non-Current Liabilities Total non-Current Liabilities Total Liabilities Total Liabilities Net Assets Net Assets Equity Equity Issued capital Issued capital Reserves Reserves Accumulated losses Accumulated losses Total Equity Total Equity Note Note 2020 $ 2020 $ 2019 $ 2019 $ 7 8 13 7 8 13 11 6 9 19 10 11 6 9 19 10 12 13 17 18 15 19 14 12 13 17 18 15 19 14 17 15 19 16 14 17 15 19 16 14 1,690,194 1,690,194 3,088,210 3,088,210 681,832 681,832 140,278 140,278 5,600,514 5,600,514 234,627 234,627 3,598,196 3,598,196 851,516 851,516 171,401 171,401 4,855,740 4,855,740 2,234,704 2,234,704 - - 328,031 328,031 2,538,019 2,538,019 7,875,857 7,875,857 20,768 20,768 424,980 424,980 13,422,359 13,422,359 399,312 399,312 346,727 346,727 594,142 594,142 - - 3,996,123 3,996,123 567 567 419,177 419,177 5,756,048 5,756,048 19,022,873 19,022,873 10,611,788 10,611,788 1,247,101 1,247,101 1,291,008 1,291,008 276,664 276,664 450,782 450,782 734,011 734,011 507,294 507,294 120,000 120,000 4,626,860 4,626,860 2,010,866 2,010,866 635,962 635,962 4,230,445 4,230,445 - - 583,925 583,925 - - 412,195 412,195 7,873,393 7,873,393 5,742,597 5,742,597 248,931 248,931 3,393,824 3,393,824 190,209 190,209 2,524,482 2,524,482 12,100,043 12,100,043 - - 228,744 228,744 - - 180,854 180,854 1,192,289 1,192,289 1,601,887 1,601,887 16,726,903 16,726,903 9,475,280 9,475,280 2,295,970 2,295,970 1,136,508 1,136,508 20 21 22 20 21 22 82,506,939 82,506,939 1,814,874 1,814,874 (82,025,843) (82,025,843) 2,295,970 2,295,970 79,276,500 79,276,500 810,437 810,437 (78,950,429) (78,950,429) 1,136,508 1,136,508 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above consolidated statement of financial position should be read in conjunction with the accompanying notes The above consolidated statement of financial position should be read in conjunction with the accompanying notes The above consolidated statement of financial position should be read in conjunction with the accompanying notes 19 19 20 20 Annual Report 2020Annual Report 2020 40 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2020 Hydrix Limited Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Consolidated Issued Capital $ Reserves $ Accumulated Losses $ Total $ Balance at 1 July 2018 75,029,466 1,230,261 (75,303,848) 955,879 Loss after income tax expense for the year Other comprehensive income, net of tax Total comprehensive income for the year - - - - (17,754) (17,754) (4,219,742) - (4,219,742) (4,219,742) (17,754) (4,237,496) Transactions with owners in their capacity as owners: Share based payments Exercised options / performance rights Expired options Contributions of equity, net of transaction costs 76,000 365,455 - 3,805,579 536,546 (365,455) (573,161) - - - 573,161 - 612,546 - - 3,805,579 Balance at 30 June 2019 79,276,500 810,437 (78,950,429) 1,136,508 Consolidated Issued Capital $ Reserves $ Accumulated Losses $ Total $ Balance at 1 July 2019 79,276,500 810,437 (78,950,429) 1,136,508 Reclassification of financial assets Loss after income tax expense for the year Other comprehensive income, net of tax Total comprehensive income for the year - - - - 31,529 (31,529) - - - - (3,219,461) - (3,219,461) (3,219,461) - (3,219,461) Transactions with owners in their capacity as owners: Share based payments Exercised options / performance rights Expired options Contributions of equity, net of transaction costs Contingent equity consideration - 355,000 - 2,875,439 - 183,484 (355,000) (175,576) - 1,320,000 - - 175,576 - - 183,484 - - 2,875,439 1,320,000 Balance at 30 June 2020 82,506,939 1,814,874 (82,025,843) 2,295,970 Hydrix Limited Consolidated Statement of Cash Flows For the year ended 30 June 2020 Hydrix Limited Consolidated Statement of Cash Flows For the year ended 30 June 2020 41 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2020 Note Note 2020 $ 2020 $ 2019 $ 2019 $ Cash Flows from operating activities Cash Flows from operating activities Receipts from customers (including GST) Receipts from customers (including GST) Payments to suppliers and employees (including GST) Payments to suppliers and employees (including GST) Interest received Interest received Interest and other finance costs paid Interest and other finance costs paid Receipt of government grants Receipt of government grants Income tax receipt (R&D tax incentive) Income tax receipt (R&D tax incentive) Net cash used in operating activities Net cash used in operating activities Cash Flows from Investing Activities Cash Flows from Investing Activities Payments for plant and equipment Payments for plant and equipment Payments for intangible assets Payments for intangible assets Payments for investments Payments for investments Proceeds from release of security deposits Proceeds from release of security deposits 23 9 10 11 16,812,408 (17,749,255) 11,875 (1,131,485) 477,500 262,393 16,812,408 (17,749,255) 11,875 (1,131,485) 477,500 262,393 12,417,520 (17,339,871) 14,842 (97,496) - 807,981 12,417,520 (17,339,871) 14,842 (97,496) - 807,981 (1,316,565) 23 (1,316,565) (4,197,025) (4,197,025) (42,610) (42,610) 9 (12,362) (12,362) 10 (1,012,510) (1,012,510) 11 - - (47,859) - (3,333) 25,000 (47,859) - (3,333) 25,000 Net cash used in investing activities Net cash used in investing activities (1,067,482) (1,067,482) (26,192) (26,192) Cash Flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Borrowing transaction costs Repayments of borrowings Repayments of lease liabilities Cash Flows from financing activities Proceeds from issue of shares Share issue transaction costs Proceeds from borrowings Borrowing transaction costs Repayments of borrowings Repayments of lease liabilities Net cash flow from financing activities Net cash flow from financing activities 2,567,700 (209,461) 5,678,235 (120,000) (3,632,016) (444,844) 2,567,700 (209,461) 5,678,235 (120,000) (3,632,016) (444,844) 2,772,500 2,772,500 (249,804) (249,804) 1,775,000 1,775,000 - - - - - - 3,839,614 3,839,614 4,297,696 4,297,696 Net increase in cash and cash equivalents Net increase in cash and cash equivalents 1,455,567 1,455,567 74,479 74,479 Cash and cash equivalents at start of year Cash and cash equivalents at start of year 234,627 234,627 160,148 160,148 Cash and cash equivalents at end of year Cash and cash equivalents at end of year 7 1,690,194 7 1,690,194 234,627 234,627 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes The above consolidated statement of cash flows should be read in conjunction with the accompanying notes The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 21 22 22 Annual Report 2020Annual Report 2020 42 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 1 General Information The financial statements cover Hydrix Limited as a consolidated entity consisting of Hydrix Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Hydrix Limited's functional and presentation currency. Hydrix Limited is a company limited by shares and incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. A description of the nature of the consolidated entity's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue by the directors of the company on 25 August 2020. a) Basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The Company is a for-profit entity for financial reporting purposes under the Australian Accounting Standards. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of the financial statements are presented below and have been consistently applied unless stated otherwise. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and derivatives. Critical accounting estimates 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 consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to financial statements are disclosed in note 2. Going concern The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the ordinary course of business. For the year ended 30 June 2020, the consolidated entity incurred a net loss before tax of $2,872,734 and reported cash used in operations of $1,316,565. Furthermore, in March 2020, the World Health Organisation announced a global COVID-19 pandemic giving rise to a heightened risk of going concern and the impacts to the consolidated entity. Additionally subsequent to balance date, Victoria (the consolidated entity’s principal place of business) has suffered a second wave COVID-19 outbreak necessitating the need for this impact to also be considered. The above factors indicate an uncertainty which may cast doubt as to whether the business will continue as a going concern and therefore whether the consolidated entity will be able to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. 43 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 b) Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 28. c) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Hydrix Limited ('company' or 'parent entity') as at 30 June 2020 and the results of all subsidiaries for the year then ended. Hydrix Limited and its subsidiaries together are referred to in these financial statements as the 'consolidated entity'. Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the consolidated entity. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. d) Foreign currency translation The financial statements are presented in Australian dollars, which is Hydrix Limited's functional and presentation currency. Foreign currency transactions are translated into the functional currency 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 year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. e) Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the company's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the company's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Despite these facts, the directors are of the opinion that there are reasonable grounds to believe the consolidated entity will be able to continue as a going concern, after consideration of various factors including: f) - The consolidated entity had an available cash balance of $1,690,194 at 30 June 2020; - The consolidated entity had net current assets (current assets less current liabilities) of $973,654 at 30 June 2020; - Subsequent to balance date, the consolidated entity raised $1,990,647 before costs under a fully underwritten Entitlement Offer during July 2020 (refer to Note 33 for details); - Subsequent to balance date, the consolidated entity raised $1,050,000 through a Placement offer subject to shareholder approval, which will be sought at an extraordinary general meeting on 17 September 2020; - The directors believe the consolidated entity would be able to access additional funds from existing shareholders and new investors to support working capital and execute its strategic growth initiatives should additional capital be required; and - A budget and cash flow forecast for the 12 month period from the date of signing of the financial statements, which supports the directors' assertion, has been prepared based on assumptions about certain economic, operating and trading performance achievement contingent on future events and actions yet to occur, and which may not necessarily occur. Should the need arise, there are operating costs of the business that will be reduced if required. Whilst the directors believe the assumptions are best estimate assumptions based upon information available, the occurrence and timing of future events are not certain. The directors will continually monitor the operating performance against the budget and cash flow forecast. Impairment of assets At the end of each reporting period, the consolidated entity 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 received 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 of disposal and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. g) Goods and Services Tax ('GST') and other similar taxes Accordingly, the directors believe that the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report. The financial statements do not include any adjustments relating to amounts or classification of recorded assets or liabilities that might be necessary should the consolidated entity not be able to continue as a going concern. 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 tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. 23 24 Annual Report 2020Annual Report 202044 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 h) Trade and other receivables Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 m) Fair value measurement of financial instruments 45 Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. i) Contract assets The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 2 and level 3 are determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Contract assets are recognised when the consolidated entity has transferred goods or services to the customer but where an unconditional right to consideration is yet to be established, less any allowance for expected credit losses. The following table shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 30 June 2020 and 30 June 2019. j) Investments and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset, unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, its carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. k) Contract liabilities Contract liabilities represent the consolidated entity's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration before the consolidated entity has transferred the goods or services to the customer. l) Financial liabilities The consolidated entity’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as hedging instruments). All interest-related charges are included within finance costs or finance income. 30 June 2020 Financial assets Listed securities Investment in Angel Medical Systems, Inc. Investment in Cyban Pty Ltd Investment in Gyder Surgical Pty Ltd Total financial assets recognised at fair value Financial liabilities Embedded derivative liability Total financial liabilities recognised at fair value 30 June 2019 Financial assets Listed securities Investment in Angel Medical Systems, Inc. Investment in Cyban Pty Ltd Investment in Gyder Surgical Pty Ltd Total financial assets recognised at fair value Financial liabilities Embedded derivative liability Total financial liabilities recognised at fair value Level 1 $ Level 2 $ Level 3 $ Total $ 30,224 - - - 30,224 - - - - - - 1,625,000 200,010 379,470 2,204,480 30,224 1,625,000 200,010 379,470 2,234,704 - - 450,782 450,782 - - 450,782 450,782 Level 1 $ Level 2 $ Level 3 $ Total $ 19,842 - - - 19,842 - - - - - - - - - - - - 379,470 379,470 19,842 - - 379,470 399,312 - - - - There were no transfers between Level 1, Level 2, and Level 3 during the twelve month period to 30 June 2020. The valuation techniques used for instruments categorised in Levels 2, and 3 are described below: Embedded derivative liability (Level 2) A Black-Scholes model has been used as a valuation technique to value the embedded derivative liability. Investment in Angel Medical Systems, Inc. (Level 3) Management determined the fair value of this investment by reference to the issue price of Series A Preferred Stock achieved during its last capital raise during the year ended 30 June 2020. Angel Medical Systems, Inc. is a private company and its valuation is less prone to fluctuations in response to economic and business developments or general market sentiment as compared to a public company. Investment in Cyban Pty Ltd (Level 3) Management determined the fair value of this investment by reference to the issue price achieved during its last capital raise during the year ended 30 June 2020. Cyban Pty Ltd is a private company and its valuation is less prone to fluctuations in response to economic and business developments or general market sentiment as compared to a public company. Investment in Gyder Surgical Pty Ltd (Level 3) Management determined the fair value of the investment in Gyder Surgical Pty Ltd based on unobservable inputs using the best information available in the circumstances, which as Gyder Surgical’s engineering partner included data and information gathered during the development of the GYDER product. Management do not anticipate any change in forecast performance of the GYDER product. Gyder Surgical Pty Ltd is a private company and its valuation is less prone to fluctuations in response to economic and business developments or general market sentiment as compared to a public company. 25 26 Annual Report 2020Annual Report 2020 46 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 47 n) New or amended Accounting Standards and Interpretations adopted The recognised right-of-use assets relate to the following type of assets: The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Properties 30-Jun-19 $ - 1-Jul-19 $ 2,999,477 Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The adoption of these Accounting Standards and interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB Interpretation 23 ‘Uncertainty over Income Tax Treatments' Interpretation 23 requires the assessment of whether the effect of uncertainty over income tax treatments should be included in the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The Interpretation outlines the requirements to determine whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and how an entity considers changes in facts and circumstances. The consolidated entity has adopted Interpretation 23 from 1 July 2019, based on an assessment of whether it is ‘probable’ that a taxation authority will accept an uncertain tax treatment. Where it is probable, the company has determined tax balances consistently with the tax treatment used or planned to be used in its income tax filings. Where the company has determined that it is not probable that the taxation authority will accept an uncertain tax treatment, the most likely amount or the expected value has been used in determining taxable balances. There has been no impact from the adoption of Interpretation 23 in this reporting period. AASB 16 Leases The consolidated entity applied for the first time AASB 16 from 1 July 2019. AASB 16 introduced a single, on balance sheet accounting model for lessees. As a result, in relation to various leases, the consolidated entity has recognised right-of-use assets representing its right to use the underlying assets, and lease liabilities, representing its obligation to make lease payments. The new Standard has been applied using the modified retrospective approach, with no adjustment to opening retained earnings. The consolidated entity has elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of initial application of AASB 16, being 1 July 2019. Previously, the consolidated entity classified its office lease as an operating lease under AASB 117. This lease runs for a period of ten years and includes extension options which provide operational flexibility. The lease provides for additional rent payments that are based on changes in local price indices. At transition, for leases classified as operating leases under AASB 117, lease liabilities were measured at the present value of the remaining lease payments, discounted at the consolidated entity’s incremental borrowing rate as at 1 July 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. Impact of adoption The impact of AASB 16 on adoption resulted in total assets increasing by $2,999,477, and total liabilities increasing by $2,999,477. o) Leases As described above, the consolidated entity has applied AASB 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under AASB 117. Accounting policy applicable from 1 July 2019 For any new contracts entered into on or after 1 July 2019, the consolidated entity considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the consolidated entity assesses whether the contract meets three key evaluations which are whether: • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the consolidated entity; • the consolidated entity has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; • the consolidated entity has the right to direct the use of the identified asset throughout the period of use. The consoliated entity assesses whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. Prior to the application of AASB 16, the consolidated entity classified its office lease as an operating lease under AASB 117. The aggregate benefits of lease incentives receivable under the agreement for lease of premises were recognised as a reduction of rental expense over the lease term, on a straight-line basis. Measurement and recognition of leases as a lessee The consolidated entity recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. Right-of-use assets are depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Generally, the consolidated entity uses its incremental borrowing rate as the discount rate. Practical expedients applied The consolidated entity used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117: • applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of remaining lease term; • applied the practical expedient to apply a single discount rate to a portfolio of leases with similar characteristics; • excluded initial direct costs from measuring the right-of-use asset at the date of initial application; • used hindsight when determining the lease term if the contract contains options to extend or terminate the lease and; • adjusted the right-of-use assets by the amount of AASB 137 Provisions, Contingent Liabilities and Contingent Assets onerous contract provision immediately before the date of initial application, as an alternative to an impairment review. The consolidated entity has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the consolidated entity is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. 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 2020. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. p) New Accounting Standards and Interpretations not yet mandatory or early adopted The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under AASB 117 immediately before the date of initial application. On transition to AASB 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under AASB 16 was 10.0%. The following is a reconciliation of total operating lease commitments at 30 June 2019 to the lease liabilities recognised at 1 July 2019: Operating lease commitments as at 30 June 2019 Discounted using incremental borrowing rate Lease liabilities recognised at 1 July 2019 Of which are: Current lease liabilities Non-current lease liabilities $ 5,986,942 (1,640,980) 4,345,962 444,844 3,901,118 4,345,962 AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19-Related Rent Concessions This standard is applicable to annual reporting periods beginning on or after 1 June 2020. This standard makes amendments to AASB 16 Leases to provide a practical expedient that permits lessees not to assess whether rent concessions that occur as a direct consequence of the COVID-19 pandemic and meet specified conditions are lease modifications and, instead, to account for those rent concessions as if they were not lease modifications. 2 Critical Accounting Estimates, Assumptions and Judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. 27 28 Annual Report 2020Annual Report 2020 48 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Fair value measurement of non-cash consideration - revenue recognition (i) To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, the consolidated entity measures the non-cash consideration (or promise of non-cash consideration) at fair value. The fair value of non-cash consideration may vary because of the form of the consideration (for example, a change in the price of a share to which the consolidated entity is entitled to receive from a customer). If the fair value of the non-cash consideration promised by a customer varies for reasons other than only the form of the consideration (for example, the fair value could vary because of the consolidated entity’s performance) the consolidated entity includes in the transaction price some or all of an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the end of each reporting period, the consolidated entity updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The consolidated entity accounts for changes in the transaction price by recognising as revenue, or as a reduction of revenue, amounts allocated to satisifed performance obligations, in the period in which the transaction price changes. Share-based payment transactions (ii) The consolidated entity assesses the fair value of options granted applying the Black-Scholes valuation model. The use of this model requires management to make assumptions regarding key inputs such as risk free rate, share price volatility and time to maturity. (iii) Goodwill and other indefinite life intangible assets The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Recovery of deferred tax assets (iv) Deferred tax assets are recognised for deductible temporary differences only if the consolidated entity considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Employee benefits provision (v) The liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Lease make-good provision (vi) A provision has been made for the present value of anticipated costs for future restoration of leased premises. The provision includes future cost estimates associated with closure of the premises. The calculation of this provision requires assumptions such as application of closure dates and cost estimates. The provision recognised for each site is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for sites are recognised in the statement of financial position by adjusting the asset and the provision. Reductions in the provision that exceed the carrying amount of the asset will be recognised in profit or loss. (vii) Derivative liability Management uses valuation techniques, such as a Black-Scholes model, when determining the fair value of derivative liabilities. Inputs to the valuation technique include assumptions and estimates on volatility and risk-free interest rates. (viii) Leases The consolidated entity assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The consolidated entity recognises lease liabilities to make lease payments and right-of- use assets representing the right to use the underlying assets. Impairment of financial assets (ix) At the end of each reporting period, the consolidated entity assesses whether there is objective evidence that a financial asset has been impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). 49 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 3 Operating Segments Identification of reportable operating segments The consolidated entity is organised into three operating segments based on the internal reports that are reviewed and used by the Board of Directors [who are identified as the Chief Operating Decision Makers ('CODM')] in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. Operating segments are presented using the 'management approach’, where the information presented is on the same basis as the internal reports provided to the CODM, who are responsible for the allocation of resources to operating segments and assessing their performance. All the assets are located in Australia and all revenues are generated in Australia. Operating Segment Information Consolidated - 2020 Hydrix Limited $ Hydrix Limited Hydrix Services $ Hydrix Services Hydrix Ventures $ Hydrix Medical $ Total Operations $ Hydrix Hydrix Revenue Sales to external customers Revenue from ordinary activities Other revenue Total Segment Revenue Unallocated revenue: Other revenue Interest revenue Total Segment Revenue Government grant Government grant 176,020 178,469 354,489 178,469 928 179,396 14,949,975 770,371 15,720,346 - - 15,720,346 - - - - - - - - - - - EBITDA Unallocated EBITDA Total EBITDA Depreciation and amortisation expense Impairment of receivables Finance costs Gain/(Loss) on contingent consideration liability Unrealised foreign exchange Gain/(Loss) Contract asset write offs (c/fwd from FY19) Unallocated expenses: Debt extinguishment loss Depreciation and amortisation expense Finance costs Gain/(Loss) on financial instruments at FVTPL Impairment of plant and equipment Other Profit/(Loss) before income tax expense Income tax (expense)/ benefit (Loss) after income tax expense (1,328,891) 1,772,384 (2,576) (662,518) - - (1,063,586) (11,708) (871,110) 927,303 (201,652) 165,000 (2,384,646) - (2,384,646) (1,146,940) (133,091) (433,850) - - (74,508) - - - - - - (16,006) (346,727) (362,733) - - - - - - - - - - - - (2,576) - (2,576) (1,933) - - (85,994) 280,938 - - - - - - - (469,507) - (469,507) 14,949,975 770,371 15,720,346 178,469 927 15,899,742 1,107,290 (1,328,891) (221,601) (1,148,873) (133,091) (433,850) (85,994) 280,938 (74,508) (1,063,586) (11,708) (871,110) 927,303 (201,652) 165,000 (2,872,734) (346,727) (3,219,461) Assets Segment assets Unallocated assets: Cash and cash equivalents Other assets Total assets Liabilities Segment liabilities Unallocated liabilities: Borrowings Other liabilities Total liabilities 158,349 10,442,277 2,235,129 4,496,924 17,174,330 - - 10,442,277 - - 2,235,129 - - 4,496,924 1,690,194 158,349 19,022,873 158,349 768,822 7,356,022 - - 7,356,022 768,822 - - - - 2,609,461 9,965,483 - - 2,609,461 5,992,597 768,823 16,726,903 During the prior year, the consolidated entity was considered to be a single operating segment. 29 30 Annual Report 2020Annual Report 2020 50 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 4 Revenue Revenue from contracts with customers Rendering of services Project materials and travel recovered Support and maintenance Other revenue: Research and development tax incentive Rental income Government grant Other income Revenue from continuing operations Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Timing of revenue recognition Goods transferred at a point in time Services transferred over time 2020 $ 13,894,275 892,474 147,476 14,934,225 262,393 15,750 675,500 - 953,643 15,887,868 2019 $ 12,320,564 858,961 141,064 13,320,589 807,365 22,250 - 149 829,764 14,150,353 - 14,934,225 14,934,225 - 13,320,589 13,320,589 51 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue from contracts with customers Revenue is recognised over time at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability. (i) (ii) (iii) (iv) (v) Rendering of services Revenue is recognised over time by measuring progress towards the complete satisfaction of each performance obligation. The input method is used to measure progress of performance as a labour cost input method allows revenue to be recognised based on labour hours expended relative to the total labour hours expected to be input to the complete satisfaction of the performance obligation. At the end of each reporting period progress towards complete satisfaction of the performance obligation is remeasured. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Research and development tax incentive R&D tax incentives will be recognised in profit before tax (in EBIT) during the period in which they are received from the Australian Taxation Office. Government grant Government grant represents the job keeper and cash flow boost payments received from Federal Government in response to ongoing novel coronavirus (COVID-19) pandemic. Government grants are recognised in the financial statements at their fair values when there is a reasonable assurance that the Group will comply with the requirements and that the grant will be received. Other revenue Other revenue is recognised when it is received or when the right to receive payment is established. 5 Expenses (Loss) before income tax includes the following specific expenses: Employee benefits expenses Salaries, wages and leave entitlements Defined contribution superannuation expense Employee on-costs Employee training and development Total employee benefits expenses 2020 $ 10,056,523 880,543 570,320 110,570 11,617,956 2019 $ 8,893,208 824,052 507,800 59,098 10,284,158 31 32 Annual Report 2020Annual Report 2020 52 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 5 Expenses (continued) Depreciation Plant and equipment Computer equipment Furniture and fixtures Right-of-use Asset Amortisation Software - including CHEF Framework Customer Contracts & Relationships 28,844 41,755 36,470 461,458 568,527 525,054 67,000 592,054 43,995 51,481 37,249 - 132,725 491,871 67,000 558,871 Total depreciation and amortisation expense 1,160,581 691,596 Finance costs Interest expense on lease liabilities Pure Asset Management facility fees Interest on loans and borrowing costs Total finance costs Gain/(Loss) on financial instruments at fair value through profit or loss Gain/(Loss) on derivatives Gain/(Loss) on financial assets Other expenses Bad debts written off Consultancy charges Corporate advisory transaction costs Directors' fees Insurance IT related expenses Legal and professional charges Listing fees and share register maintenance Recruitment fees Travelling costs Administration expenses Total other expenses 414,942 111,712 778,307 1,304,961 916,921 10,382 927,303 74,508 305,225 447,250 197,783 116,034 367,006 250,631 85,797 124,243 119,744 203,892 2,292,113 - - 465,921 465,921 - - - - 106,525 349,433 200,000 92,063 339,086 329,984 106,929 325,990 207,479 193,396 2,250,885 $412,067 in other expenses from the prior year have been reclassified as selling, advertising and distribution expenses in profit and loss. Accounting Policy - Expenses Depreciation The depreciable amount of all fixed assets is depreciated on a diminishing value basis over the asset's useful life to the consolidated entity commencing from the time the asset is held ready for use. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Finance costs All finance costs are expensed in the period in which they are incurred. 53 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 6 Income Taxes (a) Income tax (expense)/ benefit Current income tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Numerical reconciliation of income tax benefit and tax at the statutory rate Loss before income tax expense 2020 $ - (346,727) - (346,727) 2019 $ - (225,569) - (225,569) 2,872,734 3,994,173 Tax at the statutory tax rate of 27.50% (Previous year 27.50%) 790,002 1,098,398 Tax effect amounts which are not (deductible) / taxable in calculating taxable income: Temporary differences Share based payments Other non allowable items Effect of R&D Rebate @ 43.5% of eligible expenses R&D tax incentive income - non assessable Deferred Tax Asset (DTA) on tax losses not brought to account (168,098) (50,458) - - 72,158 (990,331) (346,727) - (168,450) (1,394) (510,403) 222,025 (865,745) (225,569) (b) (c) (d) (e) (f) Deferred tax assets The balance comprises temporary differences attributable to: Allowance for expected credit losses Provision for annual leave Provision for long service leave Lease liability Lease incentive liability Accruals Lease make-good provision Deferred tax liabilities The balance comprises temporary differences attributable to: Contract assets Intangible assets Net deferred tax assets / (liabilities) Provision for impairment Movement in deferred tax assets/(liabilities) Opening balance Credited to profit and loss Credited to equity Closing Balance Deferred tax assets not brought to account at reporting date Operating losses Capital losses 54,243 139,990 130,318 1,072,807 - 25,885 52,307 1,475,550 187,503 941,320 1,128,823 17,643 115,636 107,848 - 370,283 181,539 49,735 842,684 234,167 261,790 495,957 346,727 - - 346,727 346,727 (346,727) - - 572,296 (225,569) - 346,727 5,635,121 78,372 4,880,416 78,300 The deferred tax asset not brought to account will only be obtained if: (a) future assessable income is derived of a nature and of an amount suﬃcient to enable the beneﬁt to be realised; (b) the conditions for deductibility imposed by tax legislation continue to be complied with; and (c) the company is able to meet the continuity of business and or continuity of ownership tests 33 34 Annual Report 2020Annual Report 2020 54 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Income tax Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 8 Trade and other receivables 55 The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. The value of Trade and other receivables has been restated in the 30 June 2019 comparative after netting off the value of services invoiced but not yet provided against Contract liabilities. The impact of the correction was to decrease the balance of Trade and other receivables by $2,200,000 with a corresponding decrease in the balance of Contract liabilities. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary diﬀerence is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Hydrix Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and the subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. 7 Cash and cash equivalents Cash at bank Cash on hand 2020 $ 1,690,192 2 2019 $ 234,625 2 1,690,194 234,627 Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Balance as per statement of cash flows Accounting Policy - Cash and cash equivalents 1,690,194 1,690,194 234,627 234,627 Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Current Trade receivables Less: Allowance for expected credit losses GST receivable Other receivables 2020 $ 2,998,012 (197,249) 2,800,763 21,437 266,010 3,088,210 2019 Restated $ 3,645,736 (64,158) 3,581,578 16,382 236 3,598,196 Allowance for expected credit losses The consolidated entity has recognised a loss of $133,091 in profit or loss in respect of the expected credit losses for the year ended 30 June 2020 (30 June 2019: loss of $64,158). The aging of the receivables and allowance for expected credit lossess provided for above are as follows: Consolidated Not overdue 0 to 3 months overdue 3 to 6 months overdue Over 6 months overdue Accounting Policy - Trade and other receivables Expected credit loss rate 2020 % Gross carrying amount 2020 $ 1% 0% 0% 90% 2,718,722 82,930 - 196,360 2,998,012 Allowance for expected credit losses 2020 $ 21,372 - - 175,877 197,249 Net carrying amount 2020 $ 2,697,350 82,930 - 20,483 2,800,763 Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. 35 36 Annual Report 2020Annual Report 2020 56 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 9 Plant and Equipment Plant and equipment At cost Less accumulated depreciation Computer equipment At cost - Computer equipment Less accumulated depreciation - Computer equipment Furniture and fixtures At cost - furniture and fixtures Less accumulated depreciation - furniture and fixtures 2020 $ 2019 $ 127,129 (67,345) 59,784 175,001 (124,517) 50,484 315,386 (97,623) 217,763 414,898 (128,106) 286,792 137,013 (82,762) 54,251 314,252 (61,153) 253,099 328,031 594,142 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance as at 1 July 2018 Additions Disposals Depreciation expense Plant & Equipment $ 325,105 5,682 - (43,995) Computer Equipment $ 84,078 21,705 (51) (51,481) Furniture & Fixtures $ 290,348 - - (37,249) Total $ 699,531 27,387 (51) (132,725) Balance as at 30 June 2019 286,792 54,251 253,099 594,142 Balance as at 1 July 2019 Additions Disposals Impairment expense Depreciation expense 286,792 3,488 - (201,652) (28,844) 54,251 37,988 - - (41,755) 253,099 1,134 - - (36,470) 594,142 42,610 - (201,652) (107,069) Balance as at 30 June 2020 59,784 50,484 217,763 328,031 Accounting Policy - Plant and equipment The useful lives adopted for each class of depreciable assets are: Class of Fixed Asset Plant and equipment Computer equipment Furniture and fixtures Leasehold improvements Useful lives 2 to 5 years 3 to 4 years 10 to 15 years Over the initial period of the lease Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(f) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset's employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 10 Intangible assets Distribution Rights (i) Less: Accumulated amortisation (ii) Goodwill Less: Impairment Brand Name Less: Impairment Customer Contracts & Relationships Less: Accumulated amortisation_ Software - including CHEF Framework Less: Accumulated amortisation- 57 2020 $ 4,459,426 - 4,459,426 1,269,400 - 1,269,400 525,000 - 525,000 536,000 (176,036) 359,964 2,582,139 (1,320,072) 1,262,067 2019 $ - - - 1,269,400 - 1,269,400 525,000 - 525,000 536,000 (109,036) 426,964 2,569,777 (795,018) 1,774,759 7,875,857 3,996,123 Distribution Rights The distribution rights is a finite life asset which is not yet available for use. The recoverable amount of the distribution rights has been determined using fair value less cost of disposal. (i) On the 13th of March 2020 the consolidated entity entered into an agreement to acquire the exclusive Asia Pacific distribution rights for the AngelMed Guardian System payable with a mix of upfront and contingent consideration. The distributions rights were measured based on the cost of shares issued and fair value of the contingent consideration on acquisition date. The contingent consideration is payable in three tranches upon receipt of FDA and other applicable regulatory approvals of AngelMed’s next generation product. (ii) No amortisation has been recognised on the distribution rights for the AngelMed Guardian System given the Distribution and Supply agreement continues in force for seven years, with year one starting no earlier than the 1st of January 2021. Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Balance as at 1 July 2018 Additions Impairment expense Amortisation expense Balance as at 30 June 2019 Distribution Rights $ - - - - - Goodwill $ 1,269,400 - - - Brand Name $ 525,000 - - - Customer Contracts $ 493,964 - - (67,000) Software including CHEF $ 2,010,742 255,888 - (491,871) Total $ 4,299,106 255,888 - (558,871) 1,269,400 525,000 426,964 1,774,759 3,996,123 Balance as at 1 July 2019 Additions Impairment expense Amortisation expense - 4,459,426 - - 1,269,400 - - - 525,000 - - - 426,964 - - (67,000) 1,774,759 12,362 - (525,054) 3,996,123 4,471,788 - (592,054) Balance as at 30 June 2020 4,459,426 1,269,400 525,000 359,964 1,262,067 7,875,857 37 38 Annual Report 2020Annual Report 2020 58 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 10 Intangible assets (continued) Impairment testing Brand Name and Goodwill acquired through business combinations have been allocated to the following cash-generating units: Engineering - Hydrix Services Pty Ltd 2020 $ 2019 $ 1,794,400 1,794,400 The recoverable amount of the consolidated entity's goodwill and indefinite life intangible asset (Brand Name) has been determined by a value- in-use calculation using a discounted cash flow model, based on a 2 year projection period approved by the directors and extrapolated for a further 3 years using a steady rate, together with a terminal value. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model for the engineering services division: Item Assumption Rationale Revenue Growth Rates – FY 2021 onwards Per approved budget Revenue Growth Rates – FY 2022 onwards 10% p.a annual average growth Expenditure Growth Rates – FY 2021 onwards Per approved budget Expenditure Growth Rates – FY 2022 onwards 5% p.a annual average growth Years forecasted Tax Rate Working Capital Discount Rate 5 years 27.50% 12% of revenues 16% pre-tax Based on existing contracts and proposals in various stages of negotiation The ‘buy, build, invest’ strategy is expected to continue to increase both the scale of the services business and generate other revenue streams In line with expected margins The business has existing capacity to deliver increased revenues without adding significant costs. Managements estimate also takes into account the prevailing interest rate and efforts to contain costs. 5 years as per recommended length of time per AASB136 Base rate entity company tax rate Average working capital required Management’s estimate of the Group’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements Sensitivity As disclosed in note 2, the directors have made judgements and estimates in respect of impairment testing of goodwill and other indefinite life intangible assets. Should these judgements and estimates not occur, the resulting goodwill carrying amount may decrease. The sensitivities are as follows: (a) Revenue would need to decrease by more than 3% for the engineering services division before goodwill would need to be impaired, with all other assumptions remaining constant. (b) The discount rate would be required to increase by 31% for the engineering services division before goodwill would need to be impaired, with all other assumptions remaining constant. The directors believe that other reasonable changes in the key assumptions on which the recoverable amount of engineering services division's goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. The directors believe that other reasonable changes in the key assumptions on which the recoverable amount of engineering services division's goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. 59 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Distribution Rights The acquired distribution rights have been measured based on the cost of shares issued and fair value of the contingent considerations on acquisition date. The distribution rights is a finite life asset which is not yet available for use. The recoverable amount of the distribution rights has been determined using fair value less cost of disposal. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Customer Contracts Customer contracts acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 8 years. Brand Name The Hydrix brand name is thought to have an indefinite life and is not amortised. Instead, the brand is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on the brand are taken to profit or loss are are not subsequently reversed. Software (including CHEF) Significant costs associated with the Common Hydrix Embedded Framework (CHEF) software are deferred and amortised on a straight-line basis over a period of 5 years given its assumed amortisation rate of 20%. Other software costs are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 2 years. 11 Financial assets at fair value through profit & loss Listed ordinary shares Unlisted ordinary shares 2020 $ 30,224 2,204,480 2,234,704 2019 $ 19,842 379,470 399,312 Reconciliation Reconciliation of the fair values at the beginning and end of the current and previous financial year are set out below: Opening fair value as at 1 July 2018 Additions Revaluation increments/(decrements) Closing fair value as at 30 June 2019 Opening fair value as at 1 July 2019 Additions (i) (ii) Revaluation increments/(decrements) Closing fair value as at 30 June 2020 Unlisted ordinary shares $ - 379,470 - 379,470 379,470 1,825,010 - 2,204,480 Listed ordinary shares $ 34,263 3,333 (17,754) 19,842 19,842 - 10,382 30,224 Total $ 34,263 382,803 (17,754) 399,312 399,312 1,825,010 10,382 2,234,704 (i) On the 13th of March 2020 the consolidated entity acquired 1,000,000 shares of Series A Preferred Stock in Angel Medical Systems, Inc., for $1,625,000 with $812,500 of that consideration being provided as services in-kind. (ii) During the last quarter of 2020 the consolidated entity acquired 6,667 shares of Series A Stock of Cyban Pty Ltd for $200,010. 39 40 Annual Report 2020Annual Report 2020 60 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 61 Accounting Policy - Financial assets at fair value through profit & loss Accounting Policy - Contract assets and contract liabilities All assets and liabilities, measured at fair value, are classified using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs for the asset or liability. Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. Refer to note 1(m) for further information on fair value measurement. Contract assets Contract assets are recognised when the consolidated entity has transferred goods or services to the customer but where an unconditional right to consideration is yet to be established, less any allowance for expected credit losses. Contract liabilities Contract liabilities represent the consolidated entity's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration before the consolidated entity has transferred the goods or services to the customer. 12 Trade and other payables Trade payables Other payables Accrued liabilities 2020 $ 684,371 363,619 199,111 2019 $ 763,609 819,682 427,575 1,247,101 2,010,866 Accounting Policy - Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 13 Contract assets and contract liabilities Contract assets Current 2020 $ 2019 $ 681,832 851,516 The value of contract assets at the end of the reporting period was $681,832 (30 June 2019: $851,516) and is expected to be invoiced in future periods as follows: Consolidated Within 6 months 6 to 12 months 12 to 18 months 18 to 24 months Contract liabilities Current 2020 $ 681,832 - - - 681,832 2020 $ 1,291,008 2019 $ 851,516 - - - 851,516 2019 Restated $ 635,962 Unsatisfied performance obligations The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period was $1,291,008 (30 June 2019: $635,962) and is expected to be recognised as revenue in future periods as follows: Consolidated Within 6 months 6 to 12 months 12 to 18 months 18 to 24 months 2020 $ 765,166 525,842 - - 1,291,008 2019 $ 635,962 - - - 635,962 The value of Contract liabilities has been restated in the 30 June 2019 comparative after netting off the value of services invoiced but not yet provided against Trade and other receivables. The impact of the correction was to decrease the balance of Contract liabilities by $2,200,000 with a corresponding decrease in the balance of Trade and other receivables. 14 Other liabilities Current Customer deposits Lease incentive liability Non - Current Contingent consideration liability Lease incentive liability (NC) 2020 $ 120,000 - 120,000 2,524,482 - 2,524,482 2019 $ 258,000 154,195 412,195 - 1,192,289 1,192,289 Contingent consideration liability The contingent consideration for the Asia Pacific distribution rights of the AngelMed Guardian System (refer to Note 10) is payable in three tranches upon receipt of FDA and other applicable regulatory approvals of AngelMed’s next generation product. Accounting Policy - Other liabilities Contingent consideration liability The contingent consideration liability is measured based on management's estimate of the expected cash outflows and the probability of meeting the milestones in accordance with the terms of the acquisition of AngelMed Distribution Rights agreement (see Note 10). The liability also factors in the time value of money at acquisition date and year-end; the discount rate applied was 10% and 9.36% respectively. Lease incentive liability Prior to the application of AASB 16, the consolidated entity classified its office lease as an operating lease under AASB 117. The aggregate benefits of lease incentives receivable under the agreement for lease of premises were recognised as a reduction of rental expense over the lease term, on a straight-line basis. The liability as at 30 June 2019 represented lease incentives pertaining to the unexpired period of lease. The consolidated entity applied AASB 16 for the first time from 1 July 2019. As a result, in relation to various leases, the consolidated entity has recognised right-of-use assets representing its right to use the underlying assets, and lease liabilities, representing its obligation to make lease payments (refer to Note 19 for details). The new standard has been applied using the modified retrospective approach, and therefore comparative information has not been restated and is still reported under AASB 117. 15 Employee benefits Current Annual leave Long service leave Non - current Long service leave (NC) 2020 $ 2019 $ 509,056 224,955 734,011 248,931 248,931 420,493 163,432 583,925 228,744 228,744 41 42 Annual Report 2020Annual Report 2020 62 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Employee benefits Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 17 Borrowings (continued) 63 Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, annual leave and long service leave which are expected to be settled within 12 months of the reporting date and which the entity does not have a conditional right to defer settlement beyond 12 months, are recognised as part of provisions in respect of employees’ service up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave The liability for long service leave is recognised in the provision for long service leave and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 16 Provisions Non - current Lease make-good provision 2020 $ 190,209 190,209 2019 $ 180,854 180,854 Lease make-good provision The provision represents the present value of the estimated costs to make-good the Mulgrave premises leased by the consolidated entity expiring in the year 2025 with options to extend to two further terms of four years each. Movements in provisions Movements in the lease make-good provision during the current financial year, other than employee benefits, are set out below: Consolidated Carrying amount at the start of the year Additional provisions recognised Amounts used Unused amounts reversed Carrying amount at the end of the year Accounting Policy - Provisions 2,020 $ 180,854 9,355 - - 190,209 2,019 $ 161,632 19,222 - - 180,854 A provision is recognised in the statement of financial position when the consolidated entity has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. 17 Borrowings Current Shareholder loans - Unsecured C Pure Asset Management loan - Secured C BOQ Finance Non-Current Shareholder loans - Unsecured Pure Asset Management loan - Secured Less: Capitalised Transaction Costs / Warrant Shares Refer to note 24 for further information on financial instruments. 2020 $ - 250,000 26,664 276,664 2,750,000 3,250,000 (257,403) 5,742,597 2019 $ 4,205,283 - 25,162 4,230,445 - - - - Total unsecured borrowings An unsecured loan facility of $1,750,000 has been provided by a major shareholder. As at 30 June 2020, this loan was fully drawn. The loan is repayable on 31 December 2022 or such later date as agreed by the parties. From 1 July 2020 the interest rate decreased from 10% to 6% p.a. During the financial year a separate unsecured loan facility of $1,000,000 with a 6% p.a. interest rate has been provided by a shareholder. As at 30 June 2020, this loan was fully drawn. This loan is repayable on 17 March 2022 or such later date as agreed by the parties. Total secured borrowings including assets pledged as security During the financial year a separate loan facility of $5,000,000 was provided by Pure Asset Management, in order to refinance $3,000,000 in shareholder loans, and to provide growth and general working capital. The loan is secured over the assets of the consolidated entity. The loan facility has an interest rate of 10% p.a. and is repayable on 6 December 2023. On 30 June 2020, the consolidated entity and Pure Asset Management entered into a Deed of Amendment and Restatement which substantially altered the obligations relating to amounts borrowed under the refinance facility as follows: - It was agreed that the consolidated entity would repay $250,000 by 31 July 2020 and that the refinance facility limit would be reduced to $3,250,000. - The financial covenants were simplified to cash-based only thresholds. - Subject to shareholder approval it was agreed that the exercise price for the warrant options would be repriced from $0.50 to the lower of the following: a) $0.50 (or as otherwise adjusted for reorganisa�ons of capital); and b) If the consolidated en�ty makes an issue, or series of related issuances, of shares that results in the total number of issued shares increasing by more than 15% (when compared with the total number of issued shares immediately prior to that issue or series of issuances): (i) The Theore�cal ex-rights price (TERP) per share of that issue; or (ii) In the case of a series of issuances, the volume weighted TERP per share of those issuances, and Paragraph b) applies to any new issue of shares occurring on or after 1 June 2020 and may apply on more than one occasion. Debt extinguishment loss The accounting for debt restructuring is dependent upon whether the modified debt terms are considered ‘substantially different’ to the previous debt terms. Management considers the revised terms of the Pure Asset Management debt facility, under the Deed of Amendment and Restatement, gives rise to a substantial qualitative change to the original terms by virtue of the removal of a key covenant element. Given the modified debt terms are considered to be substantially different, debt extinguishment accounting has been applied. The pre-existing debt was derecognised at its fair value with a non-cash extinguishment loss of $1,063,586 recognised in profit and loss. Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Pure Asset Management loan Shareholder loans Used at the reporting date Pure Asset Management loan Shareholder loans Unused at the reporting date Pure Asset Management loan Shareholder loans 2020 $ 3,500,000 2,750,000 6,250,000 3,500,000 2,750,000 6,250,000 2019 $ - 4,750,000 4,750,000 - 4,205,283 4,205,283 - - - - 544,717 544,717 43 44 Annual Report 2020Annual Report 2020 64 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Borrowings Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 19 Leasing (continued) Borrowings are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least 12 months after balance date. Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Set out below are the carrying amounts of the consolidated entity’s right-of-use assets: Right-of-use assets Depreciation 20 Equity - issued capital 65 Property $ 2,999,477 (461,458) 2,538,019 18 Derivative liability In December 2019, 8,000,000 warrant shares were issued to Pure Asset Management as interest consideration on the borrowings for an exercise price at the lower of $0.50 and the theoretical ex-rights price (TERP) with expiry date on 17 December 2023. Refer to Note 17 for details on the borrowings. The fair value of the embedded derivative liability was determined using the Black-Scholes model using the following inputs as at 30 June 2020: Share price at measurement date Expected volatility Dividend yield Risk-free interest rate Carrying amount of liability 30-Jun-20 $0.09 90.000% 0.000% 1.470% $450,782 The company obtained shareholder approval at its 2019 Annual General Meeting to consolidate its share capital in the ratio of 10:1. The consolidation was effective on 18 December 2019, and the figures above (number of warrant shares and exercise price) are provided on a post consolidation basis. 19 Leasing The consolidated entity leases an office building. The lease liability is secured by the related underlying right-of-use asset. Future minimum lease payments at 30 June 2020 were as follows: Lease payments Finance charges Net present values Lease liabilities Current Non-current Minimum lease payments due Within one year One to five years $ $ After five years $ Total $ 874,573 (367,279) 507,294 3,750,786 (844,443) 2,906,344 501,796 (14,316) 487,480 5,127,156 (1,226,038) 3,901,118 2020 $ 507,294 3,393,824 3,901,118 2019 $ - - - Prior to the application of AASB 16, the consolidated entity classified its office lease as an operating lease under AASB 117. The aggregate benefits of lease incentives receivable under the agreement for lease of premises were recognised as a reduction of rental expense over the lease term, on a straight-line basis (refer to Note 14 for details). During July 2020 the consolidated entity and its landlord agreed to the following rent concessions as a direct consequence of the COVID-19 pandemic: a) for the period from 1 April 2020 to 30 June 2020, 100% of the rent is deferred; and b) for the period from 1 July 2020 to 30 September 2020, 50% of the rent is deferred The deferred rent is payable in equal monthly instalments during the period from 1 July 2021 to 31 December 2025. Lease payments not recognised as a liability The consolidated entity has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certian variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred. a) Ordinary shares - fully paid Movements in ordinary share capital Balance Issues of shares under Placement Issues of shares under Placement Issue of shares to KMP Issue of shares to KMP Issue of shares to KMP in lieu of cash payments Issues of shares to KMP under Placement Issue of shares to employees under company's LTIP Share issue transaction costs, net of tax Balance Issue of shares to KMP Issues of shares under Placement Issues of shares under Placement Issues of shares to KMP under Placement Issue of shares to KMP in lieu of cash payments Issue of shares towards purchase of distribution rights Share issue transaction costs, net of tax Balance Consolidated 2020 Shares 79,622,263 Date 1-Jul-18 7-Aug-18 28-Aug-18 24-Sep-18 24-Sep-18 24-Sep-18 9-Nov-18 3-Jun-19 30-Jun-19 8-Nov-19 8-Nov-19 27-Nov-19 17-Dec-19 17-Dec-19 12-Mar-20 30-Jun-20 2019 Shares 66,932,951 Shares 56,219,875 4,500,000 931,250 500,000 200,000 61,326 4,500,000 20,500 - 66,932,951 500,000 8,255,172 434,140 344,828 155,172 3,000,000 - 79,622,263 2020 $ 2019 $ 82,506,939 79,276,500 Issue price $ $0.400 $0.400 $0.710 $0.380 $0.978 $0.400 $0.510 $0.710 $0.290 $0.290 $0.290 $0.290 $0.140 75,029,466 1,800,000 372,500 355,000 76,000 60,000 1,800,000 10,455 (226,921) 79,276,500 355,000 2,394,000 125,900 100,000 45,000 420,000 (209,461) 82,506,939 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. b) Options issued At 1 July 2018 - Options which expired unexercised - Options issued under the Placement - Options cancelled on failure to meet vesting conditions At the end of the reporting period - 30 June 2019 At 1 July 2019 - Options which expired unexercised - Options issued under the LTIP - Options cancelled on failure to meet vesting conditions At the end of the reporting period - 30 June 2020 Options 2,235,000 (1,617,500) 3,125,000 (100,000) 3,642,500 3,642,500 (522,188) 785,127 (76,872) 3,828,567 45 46 Annual Report 2020Annual Report 2020 66 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 20 Equity - issued capital (continued) c ) Performance rights issued At 1 July 2018 - Performance rights cancelled on failure to meet vesting conditions - Performance rights exercised At the end of the reporting period - 30 June 2019 At 1 July 2019 - Performance rights issued - Performance rights exercised At the end of the reporting period - 30 June 2020 Refer to note 31 for share based payments in the current period. Performance rights 1,022,500 (2,000) (520,500) 500,000 500,000 800,000 (500,000) 800,000 The company obtained shareholder approval at its 2019 Annual General Meeting to consolidate its share capital in the ratio of 10:1. The consolidation was effective on 18 December 2019, and the figures on the previous page are provided on a post consolidation basis. Capital risk management The Board controls the capital of the consolidated entity in order to maintain a sustainable debt to equity ratio, generate long- term shareholder value and ensure that the consolidated entity can fund its operations and continue as a going concern. The consolidated entity’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the consolidated entity’s capital by assessing the consolidated entity's financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the consolidated entity since the prior year. Accounting Policy - Issued capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 21 Equity - reserves Share based payments reserve Contingent consideration equity reserve Financial assets at fair value reserve Consolidated 2020 $ 494,874 1,320,000 - 1,814,874 2019 $ 841,966 - (31,529) 810,437 Contingent consideration equity reserve The reserve records contingent equity consideration for the acquisition of the Asia Pacific distribution rights for the AngelMed Guardian System (refer to Note 10). The contingent consideration is made up of both cash payments (refer to Note 14) and equity issues. The equity contingent consideration component meets the definition of an equity as it is expected to be settled in a fixed number of shares. Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 21 Equity - reserves (continued) Movement in reserves Movement in each class of reserve during the current and previous financial year are set out below: 67 Balance at 1 July 2018 Share based payments Removing prior year expired options Cancelled options failing vesting conditions Performance rights exercised Revaluation of financial assets at fair value through Other comprehensive income Balance at 30 June 2019 Share based payments Removing prior year expired options Cancelled options failing vesting conditions Performance rights exercised Contingent equity consideration Reclassification - transfer to accumulated losses Contingent consideration equity reserve $ Share based payments reserve $ Financial assets at fair value reserve $ (13,775) - - - - Total Reserves $ 1,230,261 612,546 (573,161) - (441,455) 1,244,036 612,546 (573,161) - (441,455) - (17,754) (17,754) - - - - - - - - - - - 1,320,000 - 841,966 183,484 (175,576) - (355,000) - - (31,529) - - - - - 31,529 810,437 183,484 (175,576) - (355,000) 1,320,000 31,529 Balance at 30 June 2020 1,320,000 494,874 - 1,814,874 Accounting Policy - Equity reserves Share based payments reserve The share based payments reserve records items recognised as expenses on valuation of employee share options and performance rights. Contingent consideration equity reserve The contingent consideration equity reserve is measured based on the share price and number of shares to be issued under the tranche payment and the probability of meeting the required milestones on acquisition date. Equity is not subsequently remeasured. Financial assets at fair value reserve The financial assets at fair value reserve is used to recognise increments and decrements in the fair value of equity instruments through other comprehensive income. 22 Equity - accumulated losses Accumulated losses at the beginning of the financial year Loss after income tax expense for the year Dividends paid Transfer from options reserve to account for expired options Transfer from financial assets reserve to account for change in accounting policy Accumulated losses at the end of the financial year 2020 $ (78,950,429) (3,219,461) - 175,576 (31,529) (82,025,843) 2019 $ (75,303,848) (4,219,742) - 573,161 - (78,950,429) 47 48 Annual Report 2020Annual Report 2020 68 69 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 23 Reconciliation of loss after income tax to net cash from operating activities Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 24 Financial Instruments (continued) (Loss) after income tax expense for the year Adjustments for: Income tax expense / (benefit) Debt extinguishment loss Depreciation and amortisation Gain/(Loss) on contingent consideration liability Gain/(Loss) on financial instruments at fair value through profit or loss Impairment of plant and equipment Impairment of receivables Non-cash finance charges Services rendered for equity Share based payments Directors and consultant fees paid by issue of ordinary shares Unrealised foreign exchange (Gain)/Loss Unwinding of the discount on provisions Borrowings costs paid by issue of ordinary shares Interest capitalised Employee expenses capitalised Changes in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in contract assets Decrease/(increase) in prepayments Decrease/(increase) in other assets Increase/(decrease) in trade and other payables Increase/(decrease) in contract liabilities Increase/(decrease) in provisions Net cash from operating activities 2020 $ 2019 $ (3,219,461) (4,219,742) 346,727 1,063,586 1,160,581 85,994 (927,303) 201,652 133,091 166,714 (812,500) 183,484 45,000 (280,938) 9,355 - - - 429,095 169,684 31,123 (26,004) (763,765) 655,046 32,274 (1,316,565) 225,569 - 691,596 - - - - (379,470) 612,546 160,000 - 19,222 63,126 180,283 (239,322) (4,073,002) (600,004) (3,515) - 784,866 2,504,878 75,944 (4,197,025) Price risk The consolidated entity is exposed to equity securities price risk arising from investments held by the consolidated entity and classified on the Statement of Financial Position as fair value through profit or loss of $2,234,704 (2019: $399,312). Sensitivity Analysis At reporting date, if equity prices had been 10% lower/higher, profit or loss before income tax of the consolidated entity would have decreased/increased by $223,470 (2019: $39,931). The following investments constitute 5% or more of the consolidated entity's equity portfolio: Company 2020 Angel Medical Systems, Inc. Gyder Surgical Pty Ltd Cyban Pty Ltd Company 2019 Gyder Surgical Pty Ltd Fair Value ($) 1,625,000 379,470 200,010 Fair Value ($) % 72.7% 17.0% 9.0% % 379,470 95.0% Liquidity risk Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: 24 Financial Instruments Financial risk management objectives The entity's activities expose it to a variety of financial risks: market risk (consisting of interest rate risk), credit risk and liquidity risk. The consolidated entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. Shareholder loans The shareholder facilities may be drawn at any time. Consolidated 2020 $ - - 2019 $ 544,717 544,717 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The consolidated entity obtains guarantees where appropriate to mitigate credit risk. Receivables balances are in general unsecured and non-interest-bearing. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The consolidated entity does not hold any collateral. Market risk Interest rate risk The consolidated entity's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the consolidated entity to interest rate risk. Borrowings obtained at fixed rates expose the consolidated entity to fair value risk. As at 30 June 2020 all borrowings were at fixed rates. The consolidated entity's shareholder loans outstanding, totalling $2,750,000 (2019: $4,205,283), are interest only loans. Monthly cash outlays of $13,750 (2019: $36,673) are required to service the interest payments. No repayments on the loans are due until 17 March 2022. The consolidated entity's refinance facility loan, totalling $3,500,000 at 30 June 2020 (30 June 2019: nil), is an interest only loan. Quarterly cash outlays of $87,500 (2019: nil) are required to service the interest payments. $250,000 was repaid on 31 July 2020 with no further repayments on the loan due until 6 December 2023. 49 50 Annual Report 2020Annual Report 2020 70 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Hydrix Limited Notes accompanying the financial statements 24 Financial Instruments (continued) For the year ended 30 June 2020 Price risk Remaining The consolidated entity is exposed to equity securities price risk arising from investments held by the consolidated entity and classified on the contractual Statement of Financial Position as fair value through profit or loss of $2,234,704 (2019: $399,312). maturities 2020 $ Weighted average interest rate % Between 1 and 2 years Between 2 and 5 years 1 year or less Over 5 years $ $ $ $ Sensitivity Analysis Non-derivatives At reporting date, if equity prices had been 10% lower/higher, profit or loss before income tax of the consolidated entity would have Non-interest bearing decreased/increased by $223,470 (2019: $39,931). Trade payables Other payables The following investments constitute 5% or more of the consolidated entity's equity portfolio: Accrued liabilities - - - - - - - - - 684,371 363,619 199,111 Interest-bearing - fixed rate Pure Asset Management loan Shareholder loans Total non-derivatives 10.00% 6.00% Derivatives Warrants Total derivatives 250,000 - 1,497,101 Company 2020 - Angel Medical Systems, Inc. 1,000,000 Gyder Surgical Pty Ltd 1,000,000 Cyban Pty Ltd 3,250,000 1,750,000 5,000,000 Fair Value ($) - 1,625,000 - 379,470 - 200,010 450,782 450,782 Company - 2019 - Gyder Surgical Pty Ltd - - Fair Value ($) - - 379,470 684,371 363,619 199,111 % 3,500,000 72.7% 2,750,000 17.0% 7,497,101 9.0% % 450,782 450,782 95.0% Remaining Liquidity risk contractual Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and 2019 maturities available borrowing facilities to be able to pay debts as and when they become due and payable. $ $ Weighted average interest rate % Between 1 and 2 years Between 2 and 5 years 1 year or less Over 5 years $ $ $ Non-derivatives The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously Non-interest bearing monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Trade payables Other payables Financing arrangements Accrued liabilities Unused borrowing facilities at the reporting date: - - - - - - - - - 763,609 819,682 427,575 763,609 819,682 427,575 Interest-bearing - fixed rate Shareholder loans Total non-derivatives Shareholder loans 10.46% 4,205,283 6,216,149 - - - - Consolidated 2020 $ - - - - 2019 4,205,283 $ 6,216,149 544,717 544,717 Derivatives Warrants The shareholder facilities may be drawn at any time. Total derivatives - - - - - - - - - - 71 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Hydrix Limited Notes accompanying the financial statements 24 Financial Instruments (continued) For the year ended 30 June 2020 Price risk Accounting Policy - Financial instruments The consolidated entity is exposed to equity securities price risk arising from investments held by the consolidated entity and classified on the Statement of Financial Position as fair value through profit or loss of $2,234,704 (2019: $399,312). Recognition and Initial Measurement Financial assets and financial liabilities are recognised when the consolidated entity becomes a party to the contractual provisions to the Sensitivity Analysis instrument. For financial assets, this is equivalent to the date that the consolidated entity commits itself to either the purchase or sale of the At reporting date, if equity prices had been 10% lower/higher, profit or loss before income tax of the consolidated entity would have asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs except where the decreased/increased by $223,470 (2019: $39,931). instrument is classified ‘at fair value through profit or loss’ in which case transaction costs are expensed to profit or loss immediately. The following investments constitute 5% or more of the consolidated entity's equity portfolio: Classification and Subsequent Measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest method, or cost. Amortised cost is Company calculated as the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any 2020 reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount Angel Medical Systems, Inc. 72.7% calculated using the effective interest method. Gyder Surgical Pty Ltd 17.0% Cyban Pty Ltd 9.0% Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Fair Value ($) Company 2019 The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that Gyder Surgical Pty Ltd discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) over the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or Liquidity risk financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying amount with a consequential Vigilant liquidity risk management requires the consolidated entity to maintain sufficient liquid assets (mainly cash and cash equivalents) and recognition of an income or expense item in profit or loss. available borrowing facilities to be able to pay debts as and when they become due and payable. 1,625,000 379,470 200,010 Fair Value ($) 379,470 95.0% % % The consolidated entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements The consolidated entity manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously of Accounting Standards specifically applicable to financial instruments. monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. (i) Financial assets at fair value through profit or loss Financing arrangements Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, Unused borrowing facilities at the reporting date: derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance Consolidated evaluation where a company of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying amount being included in profit or loss. Shareholder loans 2020 $ 2019 $ 544,717 544,717 - - (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are The shareholder facilities may be drawn at any time. subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Fair value of financial instruments Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. (iii) Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. They are subsequently measured at fair value with any measurements other than impairment losses and foreign exchange gains and losses recognised in other comprehensive income. When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Financial assets a fair value through other comprehensive income are classified as non-current assets when they are expected to be sold after 12 months from the end of the reporting period. (iv) Financial Liabilities Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised. Impairment At the end of each reporting period, the consolidated entity assesses whether there is objective evidence that a financial asset has been impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash flows of the financial asset(s). 50 51 50 52 Annual Report 2020Annual Report 2020 72 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 25 Key Management Personnel Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 28 Parent entity information Compensation The aggregate compensation made to directors and other members of key management personnel (KMP) of the consolidated entity is set out below: Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Short-term employee benefits Fees paid to director Post-employment benefits Long-term benefits Share-based payments: - Expensed during the year Consolidated 2020 $ 588,644 145,900 41,464 2019 $ 536,630 132,065 35,703 5,886 4,579 148,431 930,324 305,336 1,014,313 Further information in relation to remuneration paid or payable to each member of the consolidated entity's KMP can be found in the Director's Remuneration Report. 26 Auditors remuneration During the financial year the following fees were paid or payable for services provided by Grant Thornton Audit Pty Ltd, the auditor of the company, its network firms and unrelated firms: Audit services - RSM Australia Partners Audit services - Grant Thornton Audit Pty Ltd Audit or review of the financial statements GT 27 Related party transactions Parent entity Hydrix Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 29. Consolidated 2020 $ - 60,000 60,000 2019 $ 63,000 - 63,000 Key management personnel Disclosures relating to key management personnel are set out in note 25 and the remuneration report included in the director's report. (Loss) after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued Capital Reserves Accumulated losses Total Equity Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity, and the subsidiaries are not a party to a deed of cross guarantee. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2020 (2019: nil) Capital commitments - Plant and equipment The parent entity had no capital commitments for plant and equipment as at 30 June 2020 and 30 June 2019. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1. 73 Parent 2020 $ 2019 $ (2,274,906) (2,154,708) (2,274,906) (2,172,462) Parent 2020 $ 1,176,246 2019 $ 58,538 14,322,931 10,243,292 763,656 561,681 6,761,419 4,774,637 82,506,939 1,814,874 (76,760,301) 7,561,512 79,276,500 810,437 (74,618,282) 5,468,655 Transactions with related parties The following transactions occurred with related parties: Loans received from shareholders Loans repaid to shareholders Interest expenses on loans from shareholders Receivable from and payable to related parties There were no receivables from / payables to related parties as at reporting date (30 June 2019: nil). Loans to/from related parties Loans from shareholders Consolidated 29 Interests in subsidiaries 2020 $ 1,544,717 3,000,000 335,052 2019 $ 955,283 - 373,554 Consolidated 2020 $ 2019 $ 2,750,000 4,205,283 The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned subsidiaries in accordance with the accounting policy described in note 1: Name Hydrix Services Pty Ltd Hydrix Ventures Pty Ltd Hydrix Medical Pty Ltd Hydrix Medical Pte Ltd Principal place of business / Country of incorporation Australia Australia Australia Singapore Ownership interest 2020 % 100% 100% 100% 100% 2019 % 100% 100% - - Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. Terms of the loans are disclosed in note 17. 53 54 Annual Report 2020Annual Report 2020 74 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 30 Earnings per share Loss after income tax attributable to the owners of Hydrix Limited Weighted average number of ordinary shares used in calculating basic earnings per share Anti-dilutive shares excluded from weighted average number of ordinary shares: Options over ordinary shares Warrant shares Contingent equity consideration Consolidated 2020 $ 2019 $ (3,219,461) (4,219,742) Number Number 74,014,724 64,517,516 3,828,567 8,000,000 12,000,000 3,642,500 - - Weighted average number of ordinary shares used in calculating diluted earnings per share 74,014,724 64,517,516 75 Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 31 Share-based payments (continued) The following options were in existence during the 2020 financial year. Grant date 5-Sep-16 7-Aug-18 9-Nov-18 9-Mar-20 Expiry date 5-Sep-19 31-Jul-20 31-Jul-20 30-Jun-25 Exercise price $4.00 $0.80 $0.80 $0.29 Fair value at grant date $0.30 $0.11 $0.08 $0.08 Balance at the start of the year 517,500 2,250,000 875,000 - 3,642,500 Options granted - - - 708,255 708,255 Options expired (517,500) - - (4,688) (522,188) Balance at the end of the year - 2,250,000 875,000 703,567 3,828,567 The options issued under the LTIP vest subject to time-based and performance-based vesting conditions, including the employee remaining in the employ of the consolidated entity during the performance period and satisfaction of individual KPI's. Basic and diluted loss per share Cents (4.35) Cents (6.54) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2020 is 1 year (2019: 11 months) The company obtained shareholder approval at its 2019 Annual General Meeting to consolidate its share capital in the ratio of 10:1. The consolidation was effective on 18 December 2019, and the figures above are provided on a post consolidation basis. Range of exercise price The range of exercise prices for options outstanding at end of the year was $0.29 - $0.80 (2019: $0.80 - $4.00). Accounting Policy - Earnings per Share The following performance rights were in existence during the 2020 financial year. Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Hydrix Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. 31 Share-based payments On 8 November 2019 500,000 shares were issued to key management personnel with a total fair value of $355,000. A second issue of 155,172 shares with a total fair value of $45,000 was made to key management personal on 17 December 2019 as identified in the issued capital disclosure (note 20). Recognised share-based payment expenses The expense recognised from employee services received during the year is shown in the table below: Expenses arising from equity-settled share-based payment transactions Consolidated 2020 $ 183,484 2019 $ 612,546 Types of share-based payment plan Employee Share Option Plan, ‘ESOP’ A Long Term Incentive Plan (LTIP) has been established and approved by shareholders where the company may, at the discretion of the Board, grant options over the ordinary shares of Hydrix Limited to Directors, Executives, contractors and employees of the consolidated entity. The exercise of the options are subject to time-based and performance-based vesting conditions. The options cannot be transferred and will not be quoted on the ASX. Grant date 12-Dec-17 17-Dec-19 17-Dec-19 17-Dec-19 17-Dec-19 Vesting date 30-Jun-19 30-Jun-20 30-Jun-20 30-Jun-21 30-Jun-21 Exercise price $0.00 $0.00 $0.00 $0.00 $0.00 Fair value at grant date $0.71 $0.28 $0.28 $0.28 $0.28 Balance at the start of the year 500,000 - - - - 500,000 Performance rights granted - 250,000 150,000 250,000 150,000 800,000 Performance rights exercised (500,000) - - - - (500,000) Balance at the end of the year - 250,000 150,000 250,000 150,000 800,000 The performance rights vest subject to satisfaction of prescribed vesting conditions including financial, operational, corporate governance, strategic planning and business development objectives set by the Board. Weighted average remaining contractual life The weighted average remaining contractual life for the performance rights outstanding as at 30 June 2020 is 1 year and six months (2019: 1 year). Weighted average fair value The weighted average fair value of performance rights granted during the year was $0.275 (2019: N/A). For movements in share options during the prior year, refer to note 20. For the performance rights granted during the current financial year, the fair value at the grant date was equal to the share price. The company obtained shareholder approval at its 2019 Annual General Meeting to consolidate its share capital in the ratio of 10:1. The consolidation was effective on 18 December 2019, and the figures above are provided on a post consolidation basis. 55 56 Annual Report 2020Annual Report 2020 76 NOTES TO THE FINANCIAL STATEMENTS Hydrix Limited Notes accompanying the financial statements For the year ended 30 June 2020 Accounting Policy - Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services, where the amount of cash is determined by reference to the share price. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. 32 Contingent liabilities The consolidated entity had no contingent liabilities as at 30 June 2020 (2019: nil). 33 Events after the reporting period 77 DIRECTORS' DECLARATION Hydrix Limited Directors' Declaration 30 June 2020 In the directors' opinion: - - - - the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes 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 give a true and fair view of the consolidated entity's financial position as at 30 June 2020 and of its performance for the financial year ended on that date; there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. In July 2020, the consolidated entity raised $1,990,647 through a 1 for 3 fully underwritten entitlement offer issuing 26,541,960 shares of new common stock, each issued with 1 for 3 attaching Options or 8,847,531 Options. There were a further 11,847,325 Options granted to corporate advisers and sub-underwriters. All Options have a strike price of $0.12 per share and an expiration date of 31 July 2022. Mr Gavin Coote Executive Chairman Dated: 25 August 2020 Further, the consolidated entity raised $1,050,000 through a Placement offer issuing 14,000,000 shares of new common stock, with 1 for 3 attaching Options or 4,666,667 Options. Option strike price is $0.12 per share with an expiration date of 31 July 2022. The Placement is subject to shareholder approval, which will be sort at an extraordinary general meeting in September 2020. On 4 August 2020 the Victorian Government made public health and safety directions that required the consolidated entity to reduce its on-site operations for a period of six weeks due to the COVID-19 pandemic. The consolidated entity's business remains operational after complying with the additional restrictions, with most employees having already transitioned to working from home where possible. Where work is permitted on-site, the consolidated entity continues to operate with processes and protocols in place to support the safety and wellbeing of our employees. On 17 August 2020 the consolidated entity announced the first AngelMed Guardian patient implants in the Asia Pacific with four implants performed over a three day period in Singapore by Dr Leslie Lam. Each implant procedure was supported by a Hydrix Medical field clinical engineer with real-time remote support from Angel Medical Systems staff in the USA. 57 58 Annual Report 2020Annual Report 2020 78 INDEPENDENT AUDITOR'S REPORT 79 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Going concern and the impacts of COVID-19 – Note 1(a) The consolidated entity incurred a net loss before tax of $2,872,734 and net operating cash outflows of $1,316,565 for the year ended 30 June 2020. Our procedures included, amongst others:  Reviewing management’s cash flow forecasts and assessing the appropriateness of the model used;       Reviewing the forecast used for mathematical accuracy; Testing the quality of management forecasting by comparing cash flow forecasts for prior periods to actual outcomes; Considering year to date results, cash and net working capital position; Considering any events arising subsequent to year-end that may impact the going concern assumption of the consolidated entity; Assessing key judgements and assumptions and performed a sensitivity analysis of the inputs in the model; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. Furthermore, in March 2020, the World Health Organisation announced a global COVID-19 pandemic giving rise to a heightened risk of going concern and the impacts to the consolidated entity. Additionally subsequent to balance date, Victoria (the consolidated entity’s principal place of business) has suffered a second wave COVID-19 outbreak necessitating the need for this impact to also be considered. The Directors have determined that the use of the going concern basis of accounting is appropriate in preparing the financial report. Their assessment of going concern was based on the preparation of cash flow projection and successful capital raising subsequent to year-end which was completed in July 2020. The preparation of these projections incorporated a number of assumptions and judgements, and the Directors have concluded that the range of possible outcomes considered in arriving at their judgement does not give rise to a significant doubt on the consolidated entity’s ability to continue as a going concern. The consolidated entity’s use of the going concern basis of accounting and the associated extent of uncertainty of the impacts of COVID-19 is a key audit matter due to the high level of judgement required by us in evaluating the consolidated entity’s assessment of going concern. 60 Collins Square, Tower 5727 Collins StreetMelbourne VIC 3008Correspondence to:GPO Box 4736Melbourne VIC 3001T+61 3 8320 2222Einfo.vic@au.gt.comWwww.grantthornton.com.auIndependent Auditor’s ReportTo the Members of Hydrix LimitedReport on the audit of the financial reportwww.grantthornton.com.auGrant Thornton Audit Pty Ltd ACN 130 913 594asubsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory servicesto their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.Liability limited by a scheme approved under Professional Standards Legislation.59Basis for opinionWe 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 Reportsection of our report. We are independent of the Groupin accordance with theauditorindependence requirements of the Corporations Act 2001andthe ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code ofEthics for Professional Accountants(the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.OpinionWe have audited the financial report of Hydrix Limited (the Company)and its subsidiaries (the Group),which comprises the consolidated statement of financial position as at 30 June 2020, the consolidatedstatement of profit or loss and other comprehensive income, consolidatedstatement of changes in equity and consolidatedstatement of cash flows for the year thenended, and notes to the consolidatedfinancial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Groupis in accordance with the Corporations Act 2001, including:agiving a true and fair view of the Group’s financial position as at 30 June 2020and of its performance for the year ended on that date; and bcomplying with Australian Accounting Standards and the Corporations Regulations 2001.Annual Report 2020Annual Report 202080 INDEPENDENT AUDITOR'S REPORT 81 Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter Carrying value of intangible assets – Note 10 As at 30 June 2020, the carrying value of intangible assets is $7,875,857. In accordance with AASB 136 Impairment of Assets, the consolidated entity is required to assess if there are any indicators of impairment and in respect to goodwill, brand name and distribution rights, assess if the carrying value of each CGU is in excess of the recoverable amount. This area is a key audit matter due to the high level of management judgement and estimation required to determine the recoverable value of the CGU. Revenue recognition – Note 4 For the year ended 30 June 2020, the consolidated entity recognised revenue of $14,934,225 (2019: $13,320,589) from variable and fixed price service contracts. Revenue is recognised in accordance with AASB 15 Revenue from Contracts with Customers. The process to measure the amount of revenue to recognise in the financial statements, including the determination of the appropriate timing of recognition and fair value of the transaction price, involves significant management judgement. This area is a key audit matter due to the complexity and judgement associated with the recognition of revenue. Our procedures included, amongst others:  Reviewing the value-in-use (VIU) model, for goodwill and brand name, for compliance with AASB 136;         Verifying the mathematical accuracy and methodology appropriateness of the underlying VIU model calculations; Evaluating the cash flow projections including revenue and costs and the process by which they are developed; Assessing key judgements and assumptions and performed a sensitivity analysis of the inputs in the model; Utilising an Auditor’s Expert in reviewing the appropriateness of the VIU model; Reviewing the fair value less cost of disposal calculation for distribution rights; Reviewing management’s assessment of the existence of impairment indicators on other intangible assets during the year; Reviewing customer contracts and relationships to ensure the contracts are ongoing; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. Our procedures included, amongst others:  Gained an understanding of revenue trends for significant revenue categories through analytical review;      Testing a sample of revenue transactions to supporting documentation and assessing whether revenue has been accurately recorded in the correct period; Testing a sample of contracts to ensure compliance with AASB 15; Testing the revenue recognition where consideration is in the form of equity issue in the customer’s share capital; Reviewing the progress of fixed price contracts to gain an understanding of the project stage of completion and progress against project budget; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. Acquisition of AngelMed Distribution Rights - Note 10 (i), Note 14 and Note 21 During the year the consolidated entity acquired the exclusive distribution rights for the AngelMed Guardian system. The distribution rights was measured based on the cost of shares issued and fair value of the contingent considerations on acquisition date in accordance with AASB 138 Intangible Assets. The consideration is payable with a mix of upfront and contingent consideration. The contingent consideration is payable in three tranches depending on FDA and other regulatory approvals. This is a key audit matter given the significance of the transaction during the year and the quantum of Financial Statement line items materially impacted. Our procedures included, amongst others:      Reviewing the key terms of the acquisition agreement; Assessing the acquisition in line with AASB 138; Obtaining and testing the mathematical accuracy of management’s calculation of the fair value of consideration given in the form of shares issued on completion and shares and cash to be issued as contingent consideration; Reviewing estimates, judgements and assumptions used by management in the treatment of the contingent consideration liability and equity to be issued; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. Borrowings - restructure of Pure Asset Management debt facility – Note 17 Our procedures included, amongst others:  Reviewing key terms in the original debt facility agreement and amended debt facility agreement with Pure Asset Management;      Reviewing the covenants within the amended debt facility to ensure compliance; Re-calculating the interest expense based on the loan’s terms to ensure it was in-line with expectations; Reviewing management’s position paper on the debt restructuring and assessment of extinguishment or modification; Consulting with Grant Thornton internal experts on the treatment of the warrant shares issued and debt restructure; and Assessing the adequacy of disclosures for compliance in accordance with the Australian Accounting Standards. During the year the consolidated entity executed a new debt facility agreement with Pure Asset Management. The debt facility was drawn down and simultaneously 8,000,000 warrant shares were issued to Pure Asset Management at an exercise price of $0.50 per share. On 30 June 2020, the consolidated entity executed an amended debt facility agreement with Pure Asset Management. The key components of the amendment were to remove the revenue covenants, reschedule principal repayments and reprice the warrants issued. The borrowings restructure was accounted for as an extinguishment of the existing debt and recognition of the new amended debt in accordance with AASB 9 Financial Instruments. This required the new financial instruments to be recognised at fair value at the date of the amendment. The debt restructure resulted in an extinguishment loss of $1,063,586 recognised in the statement of profit or loss and other comprehensive income. This area is a key audit matter as there is a significant degree of estimation and judgement required to determine whether the amended facility was a modification or extinguishment and in determining the fair value of the original borrowings at settlement and the fair value of the amended borrowings at 30 June 2020. 61 62 Annual Report 2020Annual Report 202082 INDEPENDENT AUDITOR'S REPORT 83 Information other than the financial report and auditor’s report thereon Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants A C Pitts Partner – Audit & Assurance Melbourne, 25 August 2020 The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/auditors_responsibilites/ar1_2020.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 10 to 15 of the Directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Hydrix Limited, for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. 63 64 Annual Report 2020Annual Report 202084 85 ADDITIONAL SECURITIES EXCHANGE INFORMATION In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 12 October 2020 (Reporting Date). CORPORATE GOVERNANCE STATEMENT The Company’s Directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations) to the extent appropriate to the size and nature of the Group’s operations. The Company has prepared a statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations (Corporate Governance Statement). In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement will be available for review on the Company’s website (https://www.hydrix.com/about/corporate-governance), and will be lodged together with an Appendix 4G with ASX at the same time that this Annual Report is lodged with ASX. The Appendix 4G will particularise each Recommendation that needs to be reported against by the Company, and will provide shareholders with information as to where relevant governance disclosures can be found. The Company’s corporate governance policies and charters are all available on its website at https://www.hydrix.com/about/corporate- governance SUBSTANTIAL HOLDERS As at the Reporting Date, the names of the substantial holders of the Company and the number of ordinary voting shares in which those substantial holders and their associates have a relevant interest (based on the Company’s share register as at the Reporting Date and/or substantial holding notices given to the Company) are as follows: Holder of Equity Securities Class of Equity Securities Number of Equity Securities held % of total issued securities capital in relevant class John W King Nominees Pty Ltd Ordinary shares 17,639,345 13.96% John King* Julie King** Ordinary shares 17,939,811 14.19% Ordinary shares 17,639,345 13.96% Patagorang Pty Limited Ordinary shares 6,666,666 5.28% * John King has a relevant interest in the shares held by: - King Family Foundation Ltd - John W King Nominees Pty Ltd ** Julie King has a relevant interest in the shares held by John W King Nominees Pty Ltd NUMBER OF HOLDERS As at the Reporting Date, the number of holders in each class of equity securities: Class of Equity Securities Fully paid ordinary shares Listed options exercisable at $0.12 each, expiring on 31 July 2022 LTIP Options exercisable at $0.075 each, expiring on 30 June 2025 LTIP Options exercisable at $0.029 each, expiring on 30 June 2025 Warrants LTIP Performance rights Number of holders 4,619 549 59 51 1 2 VOTING RIGHTS OF EQUITY SECURITIES The only class of equity securities on issue in the Company which carries voting rights is ordinary shares. As at the Reporting Date, there were 4,619 holders of a total of 126,385,670 ordinary shares of the Company. At a general meeting of The Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a vote equivalent to the proportion which the amount paid up (not credited) on that partly paid share bears to the total amounts paid and payable (excluding amounts credited) on that share. Amounts paid in advance of a call are ignored when calculating the proportion. Annual Report 2020Annual Report 202086 87 ADDITIONAL SECURITIES EXCHANGE INFORMATION DISTRIBUTION OF HOLDERS OF EQUITY SECURITIES The distribution of holders of equity securities on issue in the Company as at the Reporting Date is as follows: Distribution of ordinary shareholders Distribution of performance rights holders Holdings Ranges Holders Total Units Holdings Ranges Holders Total Units % Distribution of listed option holders Distribution of warrant holders Holdings Ranges Holders Total Units Holdings Ranges Holders Total Units 1,434 1,530 579 902 174 723,006 4,024,287 4,624,287 26,856,472 90,157,584 4,619 126,385,670 100.00 Totals % 0.57 3.18 3.66 21.25 71.34 % 0.32 2.81 2.61 13.51 80.75 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals 158 199 70 95 27 549 62,782 551,130 510,605 2,647,222 15,820,622 Distribution of unlisted option holders Holdings Ranges Holders Total Units 19,592,361 100.00 Totals 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Totals 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - 2 15 85 1 - 8,335 107,675 1,974,967 134,375 % 0.00 0.37 4.84 88.75 6.04 LESS THAN MARKETABLE PARCELS OF ORDINARY SHARES (UMP SHARES) The number of holders of less than a marketable parcel of ordinary shares based on the closing market price at the Reporting Date is as follows: Total Shares 126,385,670 UMP Shares UMP Holders % of issued shares held by UMP holders 1,276,071 1,849 1.01% 103 2,225,352 100.00 - - - - 2 2 - - - - 800,000 800,000 1 - - - - 1 1 - - - - 1 - - - - 100.00 100.00 % 100.00 - - - - 100.00 Annual Report 2020Annual Report 202088 89 ADDITIONAL SECURITIES EXCHANGE INFORMATION TWENTY LARGEST SHAREHOLDERS The Company has two classes of quoted securities, being ordinary shares and HYDO options (exercisable at $0.12 each, expiring on 31 July 2022 (ASX: HYDO)). The names of the 20 largest holders of each quoted class of securities, and the number of securities and percentage of capital held by each holder is as follows: Ordinary shares: Shareholder Name Balance as at Reporting Date % HYDO options: Shareholder Name Balance as at Reporting Date % JOHN W KING NOMINEES PTY LTD 17,639,345 13.957% CS THIRD NOMINEES PTY LIMITED 2,250,728 11.488% PATAGORANG PTY LIMITED 6,666,666 5.275% PATAGORANG PTY LIMITED 2,222,222 11.342% INVIA CUSTODIAN PTY LIMITED 3,333,333 2.637% NETHERFIELD INVESTMENTS PTY LTD 1,360,000 6.941% INVIA CUSTODIAN PTY LIMITED 3,333,333 2.637% INVIA CUSTODIAN PTY LIMITED 1,111,111 5.671% JASPER CAPITAL LTD 3,000,000 2.374% INVIA CUSTODIAN PTY LIMITED 1,111,111 5.671% BEACHRIDGE ADVISORY SERVICES PTY LTD 2,191,883 1.734% MADORA VIEW PTY LTD MR PETER DAVID RUSSELL & MS DOMINIQUE KAREN DU MAURIER 2,000,000 1.582% BESTRAWL PTY LTD CS THIRD NOMINEES PTY LIMITED 1,671,200 1.322% JOHN W KING NOMINEES PTY LTD GOETZKE SUPER COMPANY PTY LTD 1,629,494 1.289% MR BRIAN BAHRAM MAHBOD AUSTRALIAN PHILANTHROPIC & SERVICES FOUNDATION P/L 1,590,000 1.258% MR TUDOR JOHN EVANS FLET SUPERANNUATION PTY LTD 1,470,000 1.163% MACKLY PTY LTD FLET INVESTMENTS PTY LTD 1,134,112 0.897% HENSLOW PTY LTD BNP PARIBAS NOMINEES PTY LTD 1,053,816 0.834% CONDRON FAMILY PTY LTD CMC MARKETS STOCKBROKING NOMINEES PTY LIMITED 1,000,000 0.791% MR ROUZBEH ROSS HAGHIGHAT BDKM INVESTMENTS PTY LTD 990,452 0.784% MR MOBEEN IQBAL 932,473 4.759% 811,463 4.142% 666,667 3.403% 566,667 2.892% 542,000 2.766% 533,334 2.722% 485,700 2.479% 483,334 2.467% 366,667 1.871% 305,000 1.557% MR JULIAN KENNETH THOMAS & MRS LIANNE MARGARET THOMAS 923,458 0.731% AUSTRALIAN PHILANTHROPIC & SERVICES FOUNDATION P/L 295,691 1.509% P A MEAGHER PTY LTD

859,684 0.680% LAMPSAC PTY LTD E L G NOMINEES PTY LTD 817,050 0.646% KIMBRY PTY LTD 247,222 1.262% 217,578 1.111% MR TUDOR JOHN EVANS BRIDGESTAR PTY LTD 808,000 0.639% SUPER FOR SUNDOWNERS PTY LTD 205,000 1.046% 806,000 0.638% BEACHRIDGE ADVISORY SERVICES PTY LTD 182,657 0.932% Total number of shares of Top 20 Holders 52,917,826 41.870% Total number of shares of Top 20 Holders Total Remaining Holders Balance 126,385,670 58.13% Total Remaining Holders Balance 14,896,625 76.033% 19,592,361 23.967% Annual Report 2020Annual Report 202090 91 OTHER INFORMATION The Company is not currently conducting an on-market buy-back. There are no issues of securities approved for the purposes of item 7 of section 611 of the Corporations Act which have not yet been completed. No securities were purchased on-market during the reporting period under or for the purposes of an employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to acquire securities granted under an employee incentive scheme. ADDITIONAL SECURITIES EXCHANGE INFORMATION COMPANY SECRETARY The Company’s secretary is Ms Alyn Tai. REGISTERED OFFICE The address and telephone number of the Company’s registered office is: 30 – 32 Compark Circuit Mulgrave Victoria 3170 Telephone: +61 (0)3 9550 8100 SHARE REGISTRY The address and telephone number of the Company’s share registry, Boardroom Pty Limited, are: Grosvenor Place Level 12, 225 George Street Sydney NSW 2000 Telephone: 1300 737 760 / +61 (0)2 9290 9600 STOCK EXCHANGE LISTING The Company’s ordinary shares and HYDO options are quoted on the Australian Securities Exchange (ASX) (ASX issuer code: HYD). ESCROW As at the reporting date, the Company has 3,000,000 ordinary shares on issue which are subject to voluntary escrow until 12 March 2022. UNQUOTED EQUITY SECURITIES The number of each class of unquoted equity securities on issue, and the number of holders in each such class, are as follows: Class of Equity Securities LTIP Options exercisable at $0.075 each, expiring on 30 June 2022 LTIP Options exercisable at $0.29 each, expiring on 30 June 2025 Warrant LTIP Performance rights Number of unquoted Equity Securities Number of holders 1,440,225 785,127 1 800,000 59 51 1 2 The Warrant is held by Pure Asset Management Pty Ltd ABN 46 616 178 771 in its capacity as trustee for The Income and Growth Fund. The Warrant was issued to the holder under a loan facility agreement, and is exercisable into 8,000,000 ordinary shares. All other unquoted equity securities on issue in the Company were issued under the Company’s Long Term Incentive Plan. Annual Report 2020Annual Report 2020Throughout FY20, the Hydrix team A thank you has continued to perform above and beyond, under the challenging conditions of COVID-19 lockdowns. They have continued to deliver great project outcomes for our clients, remotely managed and facilitated implants in Singapore, and maintained focus in growing the business, locally and internationally. We are grateful for, and acknowledge, their hard-work, their dedication, and their extraordinary commitment. Hydrix Limited ABN: 84 060 369 048 30-32 Compark Circuit Mulgrave, Victoria, 3170 Australia +61 3 9550 8100 hydrix.com

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