MediaValet
Annual Report 2020

Plain-text annual report

FULL YEAR REPORT 2020 Financial Year Ended 30 June 2020 (Previous corresponding period: financial year ended 30 June 2019) CHAIRMAN’S & CEO’S REPORT Key Achievements for FY20 Penthrox® Æ In-market sales in the UK and Ireland grew 23% Æ Australian Penthrox® sales grew 3%, with further growth into the GP & Hospital market curtailed in the last quarter due to COVID-19 Æ China IND approval Æ Russian Marketing Authorisation Application lodged Æ Russian Milestone payment received from partner Æ New approvals in Thailand, Hungary, Netherlands, Bosnia & Herzegovina Respiratory Medical Devices Æ Record year for our respiratory device business that grew sales by 61% Æ USA sales grew 98% Other Æ New 5-year agreement with CSIRO for Continuous Flow technology Æ Continued investment in clinical development programs and trials Æ Penthrox® launch in Italy Æ 386 customers in France Æ 182 customers across the rest of Europe Æ 670 customers in the UK and Ireland Æ Approved for use by UK Military and given a NATO number Æ Finalisation of the Post Authorisation Safety Study Clinical Report Æ Progressing USA IND Æ Progressing South Korea approval Æ Progressed the Paediatric Study in the UK and Ireland Æ UK and European sales grew 128% Æ Australian sales grew 43% Æ Received R&D Tax Incentive concession of $431,000 Æ MVP was admitted to the ASX 300 for the first time in June Annual Financial Report 2020 1 COVID-19 mixed impact on trading Medical Developments International Limited (“MVP”) (ASX: MVP) reported a 63% decrease in Net Profit after Tax to $0.379m (FY19 $1.037m) for the twelve months ended 30 June 2020. Revenue increased 11% to a record $23.6 million (FY19 $21.4 million) and Earnings Before Interest, Tax, Depreciation and Amortisation decreased 22% to $2.695m (FY19: $3.440m). Respiratory sales were an all-time high in FY20 growing by 61%. This was partly attributed to COVID-19 related purchasing but predominately related to new product launches and new pharmacy channel success in multiple markets. Respiratory sales in Australia grew 43% and sales in North America grew by 88%. Penthrox® revenue declined for the full year by 8%, after having increased 6% in the first half. With decreased sporting and outdoor activity, as well as reduced population movements, demand decreased in the last quarter within Emergency Services. Despite this, domestic sales increased by 3%, whilst UK in-market sales increased by 23%. Penthrox® EU sales were the primary contributing factor to the overall decline even though actual in-market sales grew 15%. As announced on 19 August 2020, MVP is taking back ownership of the Penthrox® EU distribution rights and growing this important market will be a primary focus in FY21 with plans already well advanced. Despite the immediate headwinds experienced by Penthrox® during the COVID-19 pandemic the convenience, utility and safety of the product within Emergency Services has been recognised whilst operating under difficult circumstances and we expect to emerge in a stronger position within these services. The internal and manufacturing operations of MVP have not been adversely impacted by COVID-19 shutdowns, given the company is recognised as an essential business and has been able to accommodate ongoing production and work from home practices. 2 FY20 Full Year Result Revenue was a record $23.6 million and gross margins decreased slightly reflective of a higher weighting of generally lower margin medical devices sales in FY20. Expenses Operating Expenses increased 15%. This increase is due to: • Increased ‘pharmacovigilance’ cost as a result of expanding geographic sales for Penthrox® and Medical Devices; • Marketing expenses as a result of growth in Penthrox® and Breath-A-Tech® sales in Australia; • ‘Non cash’ depreciation and interest expenses (change of accounting standard – AASB 16 Leases); and • Increased investment in R&D Cash flow At 30 June 2020, the group had $15.5million in cash. During the year MVP invested: • $5.4 million in clinical trials for Penthrox®; • $1.1 million in our manufacturing development program with the CSIRO; and • $1.5 million in various manufacturing equipment and leasehold improvements. Penthrox® United States of America MVP is hoping to receive feedback on the pre-clinical protocol shortly in order to commence this study by Q4 2020. Whilst awaiting FDA feedback, MVP has continued to compile its clinical package for the FDA which will be submitted in late August 2020 in anticipation of coordinating a Type C meeting with the FDA in late 2020. The completion of the Human Factors study which involves subjects trialling and administering the Penthrox® device, has been Medical Developments International LimitedPenthrox® in the USA delayed as it requires the direct involvement of USA health care professionals and participants which is restricted during times of COVID. MVP expects to be in a position to address in full all the clinical hold issues during the third quarter of CY21 with a view to filing the IND in CY21. MVP remains confident we will be able to supply the FDA with the additional information it requires. Our confidence is based on 40+ years of experience, the demonstrated safety profile of Penthrox® over that time, the additional clinical data we have to support our IND including our Post Authorisation Safety study, PK study, our ongoing clinical development program and our recent achievements in getting Penthrox® approved for sale in more than 40 countries around the world. The chart above represents the envisaged USA regulatory timeline. Europe In October 2019, Penthrox® was included and recommended as ‘first-line of treatment’ in the European Society of Emergency Medicine (“EUSEM”) guidelines for the ‘Management of acute pain in emergency situations’. In addition, the MEDITA clinical study was published in Europe demonstrating Penthrox® superiority over Standard of Care and IV morphine for acute trauma pain treatments in patients. These events should prove to be pivotal moments for Penthrox® in Europe. Europe in-market sales were up 15%, where there are 568 customers buying Penthrox® in Europe including 386 in France. We believe that number will grow strongly under our direct control as our focus is on achieving reimbursement in key target markets, building product awareness and demand within existing markets and undertaking aggressive and targeted new launches. A number of significant markets in Europe are yet to launch including Germany, the Netherlands and Spain. We believe that Penthrox® will become a mainstream analgesic in the European market. The regulatory reimbursement environment for pharmaceuticals in Germany remains unpredictable which has delayed the launch of Penthrox®. National Regulatory Applications are expected to be filed with the relevant agencies in Greece, Macedonia, Serbia, Albania, Liechtenstein, Montenegro, Kosovo, San Marino, Vatican City, Andorra and Monaco in due course. France In-market sales grew 15% in FY20 and feedback from this market continues to be very positive. France now has approval from 121 hospitals with 386 customers buying and using Penthrox®. UK and Ireland In the UK and Ireland, Galen continues to make good progress. In-market sales grew 23% in the current period. 145 hospitals have now approved Penthrox® and 670 customers are using the product. These include seven of the eleven Major Trauma Centres in the UK. Whilst Penthrox® is being used in all Ambulance Services and major hospitals 3 Annual Financial Report 2020in Ireland, the roll out into multiple UK ambulance services continues. Evaluations and assessments within the UK ambulance setting continue and significant penetration within the UK ambulance market is expected during FY21. We are buoyed by the positive in-market feedback that we received from the Ambulance Services and Galen, who remain confident Penthrox® will be a significant success. Penthrox® has been approved for use by the UK Military and given a NATO number which allows other NATO military organisations access to Penthrox® Australia Australian sales grew 3% in the current period, whilst in-market sales to non-ambulance channels grew 25%. Growth may have been curtailed in the last quarter due to COVID-19 related restrictions that impacted the movements of the wider Australian population, including our distribution partner’s General Practitioner and Hospital channels. We remain confident in our ability to drive future sales growth, particularly within the General Practitioner and Hospital channels. Penthrox® is now sold into more than 200 hospitals and medical clinics in Australia. Rest of World Chinese regulatory approval is well underway. The IND was approved during the year and patient recruitment for the human trials is targeted for late 2020. Whilst COVID-19 has delayed the recruitment of patients in China in recent months, MVP has used this time to finalise protocol amendments and continue with trial start up activities. The below chart outlines the envisaged timeline for approval in China: Penthrox® in China 4 Medical Developments International LimitedFuture for Penthrox® MVP continues to negotiate with interested parties from around the world in terms of registering and selling Penthrox®, whilst concurrently pursuing other important international regulatory submissions and preparations in countries including USA, China, Russia, Iran, Iraq and South Korea. New launches to occur in H1 FY21 include Thailand and Mexico. Respiratory Our respiratory device business achieved sales growth of 61%. Sales grew strongly in the United States up 98%, Canada up 58% and UK & Europe up 128%. Our Australian business sales were up 43%, led by our premium brand Breath-A-Tech® up 35%. In the USA market we continue to build on our growing reputation and awareness of the product in that market via our presence in an estimated 20,000 pharmacies. In August 2020, Walmart will launch their ‘equate’ branded spacer range, manufactured by MVP. This will be Walmart’s first private label prescription product under the ‘equate’ brand and will be available in all Walmart pharmacies (circa 4,600 stores in the USA). We are targeting further pharmacy chains in FY21 and expect to deliver significant sales growth in the USA in the years ahead. Sales growth in the EU can be attributed to COVID-19 related buying and also a launch via a new EU based distributor PIKDARE into new pharmacy channel markets within France and Portugal and also a number of smaller Middle Eastern countries. Sales of our premium spacer brand, Breath- A-Tech, grew 35% in Australia, on the back of a spike in demand caused by COVID-19, sales related to the launch of our new antistatic spacer and growth in sales of our new cardboard spacer. Commercial Continuous Flow In October 2019, MVP signed a new 5 year ‘global exclusive’ agreement with the CSIRO to further develop our continuous flow manufacturing technologies currently used at our Scoresby production site in Victoria. This initiative has the potential to deliver large commercial benefits over traditional ‘batch’ API manufacturing methods and in the process revolutionise the way some pharmaceuticals are made. This includes reducing the overall cost of manufacturing APIs by reducing cost of goods, capital expenditure, factory footprint and energy consumption while delivering significant improvements in process and quality. The program continues to progress well with advancements being made in the commercialisation of Lidocaine (analgesic) & Diclofenac (anti-inflammatory) APIs. Several 5 Annual Financial Report 2020new targets are under early investigation with promising results being seen in translation from batch to flow manufacture. Veterinary Sales in our Vet business declined 43% in FY20 to $0.351m. Outlook MVP’s ambition is to replicate the domestic success in analgesia and respiratory internationally, whilst capturing a greater share of the full margin on sales. Taking back the EU is a big step to achieving that. Recent clinical evidence that Penthrox® offers superior pain relief to IV morphine and other Standard of Care therapies, together with Penthrox®’s recommendation as a first line therapy in Europe are significant steps forward in achieving this ambition. Our Respiratory Device business is growing strongly. Over the next 12 months we expect to: • complete the handback of the Penthrox® EU distribution rights and aggressively pursue targeted country reimbursements, launches and expansion activity via a direct in-market presence in the EU; Further Information: • complete the roll-out of Penthrox® into Mexico, Iraq, Jordan and Thailand; • consolidate on our record year for respiratory and further grow our device sales in Australia, the USA, Europe and elsewhere; • resubmit our IND for Penthrox® in the USA; • conclude additional distribution partnerships for Penthrox® and Respiratory Devices for new countries; • advance our Continuous Flow intellectual property and our new manufacturing processes; and • continue our clinical program to extend the indications for use of Penthrox® globally. Over the next few years our global market approvals and ‘indication extensions’ for Penthrox® are expected to deliver strong growth, as will our respiratory device business. We are also making good progress with our continuous flow technology. This opportunity is significant and we are optimistic we will commercialise products from the technology. We continue to innovate our iconic products whilst developing new products and technologies. Significant progress was made this year in licensed areas with increased market approvals, new geographic sales territories and clinical evidence. We look forward to reporting our progress and successes. DAVID WILLIAMS CHAIRMAN MAX JOHNSTON ACTING CEO +61 414 383 593 +61 412 041 298 6 Medical Developments International LimitedBoard of Directors Mr David Williams Non-Executive Chairman Managing Director of Kidder Williams Ltd, with over 30 years experience in the investment banking sector. He is also Chairman of PolyNovo Ltd and RMA Global Limited. Mr Williams is Chairman of the MVP Remuneration and Nominations Committee. Mr Max Johnston Non-Executive Director and Acting CEO Mr Johnston is a Non-executive Director of Polynovo Limited, Cannpal Animal Therapeutics Limited, Bard1 Life Sciences Limited and is also a Non-executive Director and Chairman of Auscann Group Holdings Ltd. Mr Johnston is also a former Non-executive Director and Chairman of Probiotec Limited, a former Non-executive Director of Enero Group Limited and a former Director of Prolife Foods Ltd. For 11 years he was President and Chief Executive Officer of Johnson & Johnson Pacific and an Executive Director of Johnson & Johnson. Mr Johnston has also held several prominent industry roles as a past President of ACCORD Australasia Limited, a former Vice Chairman of the Australian Food and Grocery Council and a former member of the board of ASMI. Mr Johnston has had extensive overseas experience during his career in leading businesses in Western and Central-Eastern Europe, Africa as well as Asia- Pacific. Mr Johnston is also a member of the MVP Audit & Risk Committee. Mr Johnston has been acting CEO since the departure of the former CEO on 5 June 2020. Mr Philip Powell Non-Executive Director Mr Powell, a Chartered Accountant, has an extensive finance background and commenced working in investment banking in 1996 at Hambros Corporate Finance following ten years industry experience in senior finance roles with ASX listed public company OAMPS Limited. Prior to these roles, he worked for ten years within the Assurance Division at Arthur Andersen & Co. From January 2006 to July 2013 he was a Director at Corporate Finance Advisory firm Kidder Williams. Mr Powell is also a Non-executive Director of PolyNovo Limited and RMA Global Limited. Philip is Chairman of MDI’s Audit and Risk Committee. Ms Christine Emmanuel Non-Executive Director Ms Emmanuel is an experienced patent and trademark attorney, and a business development professional having more than 30 years experience locally and internationally. Ms Emmanuel is a former Executive Manager of Business Development and Commercial at the CSIRO, where she founded and led the management of CSIRO’s IP portfolio and managed the growth of the CSIRO equity portfolio for over 5 years. Prior to this role, Ms Emmanuel was in-house IP Counsel for Unilever in the UK and practised as a patent and trademark attorney for Wilson Gunn (UK) and Davies Collison Cave and Griffith Hack in Melbourne. She is also currently Non-executive Director of Polynovo Ltd, on the Council of Patent & Trademarks Attorneys of Australia and on the Life Sciences Council of SPE Australia. Mr Leon Hoare Non-Executive Director Mr Hoare is the Managing Director of Lohmann & Rauscher Australia/New Zealand (ANZ), a private EU based medical device company.  Previously he was Managing Director of Smith & Nephew ANZ, one of the company’s largest global subsidiaries outside the USA. Until 2014 he served as President of Smith & Nephew’s Asia Pacific Advanced Wound Management (AWM) business for 5 years. He was also a member of the Global Executive Management for the AWM Division. In his 24 years with Smith & Nephew, he also held roles in Marketing, Divisional and General Management. Mr Hoare’s career also included a senior role at Bristol-Myers Squibb in surgical products, and Vice-Chair of Australia’s peak medical device body, Medical Technology Association of Australia. He is also a Non-Executive Director of PolyNovo Limited (ASX: PNV). The above-named directors held office during and since the end of the financial year. Annual Financial Report 2020 7 7 Annual Financial Report 2020Here for you when every second counts. Product portfolio Pharmaceutical Analgesia • Penthrox® Medical Asthma • Anti-Static Compact Space Chamber Plus® • Anti-Static Space Chamber Plus® • Breath-A-Tech Spacer • Breath-A-Tech Hospital Spacer • Breath-A-Tech Portable Nebuliser • Breath-Alert® Peak Flow Meter • Compact Space Chamber Plus® • MyMDI™ Pulse Oximeter • Space Chamber Plus® • Space Chamber Plus® Autoclavable spacer • Space Chamber Slim® Face masks • EZ-fit Silicone Face Mask • MyMDI™ Anti-Static Silicone Face Mask • MyMDI™ Silicone Face Mask Oxygen • OXI-Port® oxygen therapy device • OXI-Sok oxygen therapy device • OXI-Pro oxygen resuscitation device • OXI-Life oxygen resuscitation device • OXI-Saver™ closed circuit oxygen resuscitation device • OXI-Vac™ suction system Regulators • KDK™ regulator/flow meter with oxygen flush Veterinary • Breath-Alert® breathing monitor • LANA closed circuit anaesthetic machine • Mini-KOM™ anaesthetic machine • MK5 closed circuit anaesthetic machine • Veterinary Spacers 9 Here for you to manage the pain. Pharmaceutical MVP is a world leader in the management of acute and procedural pain. Building our Business MVP manufactures its world leading inhaled analgesic from its premises located in Scoresby and Springvale, Victoria, Australia. MVP is the sole manufacturer of the active molecule worldwide and continues to develop new markets and applications for the iconic brand Penthrox®. Penthrox® continues to be a core medication for the treatment of pain in trauma by all Ambulance Services in Australia and New Zealand. MVP continues to focus on the Australian Ambulance services ensuring that the strong positioning of Penthrox® is maintained. Moving forward, the strategy is to continue to broaden the range of customers (hospitals and general practice) domestically via our partnership with Mundipharma Australia and globally with our other Penthrox® distribution partners. FY21 will see Penthrox® launched into multiple new countries. Product Suite MVP is continuing to develop additional formulations of Penthrox® to improve convenience, utility and value for its customers. This includes investing in the product development of next generation Penthrox® inhalers. 11 Here for you when you least expect it. Medical devices Building our product range MVP’s focus in FY21 will be to add to our established product range, to build on the solid foundation that has been established with our current partnerships in Australia and overseas. At the same time MVP will develop new collaborations for future growth. Core to the growth is the development of new and improved models of: • Asthma/COPD Space Chambers • Peak Flow Meters • Portable Nebulisers • Face Masks Asthma devices MVP’s Asthma devices business has been strong for many years and continues to provide solid sales and profit. The success of this business over recent years has been due to: • The acquisition and subsequent expansion of the Breath-A-Tech range • Growing sales of our range of Asthma products through established international partners and development of new partnerships. Of note is the ongoing growth in respiratory sales in the USA with MVP products now in approximately 20,000 pharmacies across the USA. MVP will be manufacturing spacers for Walmart under their ‘equate’ brand in FY21. Product development To assist in future growth MVP has developed new and improved Space Chambers to assist with product differentiation to increase domestic and international penetration. 13 Here for you anywhere, anytime. Oxygen and other medical equipment Safe, precision engineering and custom design kits and accessories MVP manufactures a range of oxygen therapy and resuscitation equipment, providing healthcare professionals and trained personnel with the ability to administer oxygen to patients in an emergency situation. These devices range from basic through to advanced systems of delivering oxygen therapy or resuscitation. Product suite • OXI-Port® oxygen therapy device • OXI-Sok oxygen therapy device • OXI-Pro oxygen resuscitation device • OXI-Life oxygen resuscitation device • OXI-Saver™ closed circuit oxygen resuscitation device • OXI-Vac™ suction system The market MVP’s oxygen equipment is purchased and used by: • Ambulance services • Fire brigades • Lifesaving clubs • Military 15 Here for man’s best friend. Veterinary MVP has a global Veterinary presence Products • Anaesthetic machines • Vaporisers • Breathing monitors • Veterinary Spacers The market MVP offers a range of open and closed circuit anaesthetic machines to the veterinary market, which are popularly known as Komesaroff anaesthetic machines. MVP has developed a unique market position regarding the design, manufacture and supply of closed circuit anaesthetic machines to this niche market in Europe. Whilst the majority of MDI’s veterinary products continue to be sold into Europe and China through our distributor, Kruuse, MVP also manufactures the VetOne animal spacer products for USA veterinary supplies company, MWI. 17 Here for your child when you can’t be. FULL YEAR REPORT Financial Year Ended 30 June 2020 (Previous corresponding period: financial year ended 30 June 2019) Contents Directors’ Report Independence Declaration Independent Auditor’s Report Directors’ Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position 20 31 32 36 38 39 Consolidated Statement of Changes in Equity 40 Consolidated Statement of Cash Flows Notes to the Financial Statements 41 43 19 Directors’ Report The directors of Medical Developments International Limited (“MVP”) herewith submit the annual financial report of the company for the financial year ended 30 June 2020. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Information about the Directors The names and particulars of the directors of the company during or since the end of the financial year are: Mr D J Williams, B.Ec (Hons), M.Ec, FAICD Non-Executive Chairman (since 16 September 2003) Managing Director of Kidder Williams Ltd, with over 30 years experience in the investment banking sector. He is also Chairman of PolyNovo Ltd and RMA Global Limited. Mr Williams is Chairman of the MVP Remuneration and Nominations Committee. Mr R M Johnston Non-Executive Director and Acting CEO (since 5 November 2012) Mr Johnston is a Non-executive Director of Polynovo Limited, Cannpal Animal Therapeutics Limited, Bard1 Life Sciences Limited and is also a Non-executive Director and Chairman of Auscann Group Holdings Ltd. Mr Johnston is also a former Non-executive Director and Chairman of Probiotec Limited, a former Non-executive Director of Enero Group Limited and a former Director of Prolife Foods Ltd. For 11 years he was President and Chief Executive Officer of Johnson & Johnson Pacific and an Executive Director of Johnson & Johnson. Mr Johnston has also held several prominent industry roles as a past President of ACCORD Australasia Limited, a former Vice Chairman of the Australian Food and Grocery Council and a former member of the board of ASMI. Mr Johnston has had extensive overseas experience during his career in leading businesses in Western and Central-Eastern Europe, Africa as well as Asia- Pacific. Mr Johnston is also a member of the MVP Audit & Risk Committee. Mr Johnston has been acting CEO since the departure of the former CEO on 5 June 2020. Mr L Hoare, AssocDipAppSc(Orth), GradDipBus, GAICD Non-Executive Director (since 27 September 2013) Mr Hoare is the Managing Director of Lohmann & Rauscher Australia/New Zealand (ANZ), a private EU based medical device company. Previously he was Managing Director of Smith & Nephew ANZ, one of the company’s largest global subsidiaries outside the USA. Until 2014 he served as President of Smith & Nephew’s Asia Pacific Advanced Wound Management (AWM) business for 5 years. He was also a member of the Global Executive Management for the AWM Division. In his 24 years with Smith & Nephew, he also held roles in Marketing, Divisional and General Management. Mr Hoare’s career also included a senior role at Bristol-Myers Squibb in surgical products, and Vice-Chair of Australia’s peak medical device body, Medical Technology Association of Australia. Mr Hoare joined the MVP Remuneration and Nominations Committee post the departure of Mr McCallum. Mr Hoare is also a Non-Executive Director of PolyNovo Limited (ASX: PNV). Mr P J Powell, B.Com (Hons) ACA, F Fin, MAICD Non-Executive Director (since 17 December 2014) Mr Powell, a Chartered Accountant, has an extensive finance background and commenced working in investment banking in 1996 at Hambros Corporate Finance following ten years industry experience in senior finance roles with ASX listed public company OAMPS Limited. Prior to these roles, he worked for ten years within the Assurance Division at Arthur Andersen & Co. From January 2006 to July 2013 he was a Director at Corporate Finance Advisory firm Kidder Williams. Mr Powell is also a Non-executive Director of PolyNovo Limited, RMA Global Limited and BARD1 Life Sciences Limited. Philip is Chairman of MVP’s Audit and Risk Committee. 20 Medical Developments International LimitedMs C Emmanuel, B Sci (Hons), M. ENT, FICPI, MAICD Non-Executive Director (since 26 May 2020) Ms Emmanuel is an experienced patent and trademark attorney, and a business development professional having more than 30 years experience locally and internationally. Ms Emmanuel is a former Executive Manager of Business Development and Commercial at the CSIRO, where she founded and led the management of CSIRO’s IP portfolio and managed the growth of the CSIRO equity portfolio for over 5 years. Prior to this role, Ms Emmanuel was in-house IP Counsel for Unilever in the UK and practised as a patent and trademark attorney for Wilson Gunn (UK) and Davies Collison Cave and Griffith Hack in Melbourne. She is also currently Non-executive Director of Polynovo Ltd, on the Council of Patent & Trademarks Attorneys of Australia and on the Life Sciences Council of SPE Australia. Directorships of other listed companies Directorships of other listed companies held by the directors in the 3 years immediately before the end of the financial year are as follows: Name Company Period of Directorship David Williams Max Johnston Philip Powell Polynovo Limited (Chairman) Since 13 March 2014 RMA Global Limited (Chairman) Since November 2014 Polynovo Limited Since 13 May 2014 CannPal Animal Therapeutics Limited BARD1 Life Sciences Limited Since 21 April 2017 Since 17 June 2019 Auscann Group Holdings Ltd Since 20 December 2019 Polynovo Limited Since 13 May 2014 RMA Global Limited BARD1 Life Sciences Limited Since 5 April 2018 Since 17 June 2019 Leon Hoare Polynovo Limited Since 27 January 2016 Christine Emmanuel Polynovo Limited Since 13 May 2020 Company Secretary Mr Mark Edwards, CA. Mr Edwards is also the Chief Financial Officer of the company. Principal Activities The company’s principal activities during the course of the financial year were the manufacture and distribution of a pharmaceutical drug and medical and veterinary equipment. Review of Operations Penthrox® Developments United States of America MVP is hoping to receive feedback on the pre- clinical protocol shortly in order to commence this study by Q4 2020. Whilst awaiting FDA feedback, MVP has continued to compile its clinical package for the FDA which will be submitted in late August 2020 in anticipation of coordinating a Type C meeting with the FDA in late 2020. The completion of the Human Factors study which involves subjects trialling and administering the Penthrox® device, has been delayed as it requires the direct involvement of USA health care professionals and participants which is restricted during times of COVID. MVP expects to be in a position to address in full, all the clinical hold issues during the third quarter of CY21 with a view to filing the Investigational New Drug (IND) application in CY21. MVP remains confident we will be able to supply the FDA with the additional information it requires. Our confidence is based on 40+ years of experience, the demonstrated safety profile of Penthrox® over that time, the additional clinical data we have to support our IND including our Post Authorisation Safety Study, PK study, our ongoing clinical development program and our recent achievements in getting Penthrox® approved for sale in more than 40 countries around the world. 21 Annual Financial Report 2020Europe In October 2019, Penthrox® was included and recommended as ‘first-line of treatment’ in the European Society of Emergency Medicine (‘EUSEM’) guidelines for the ‘Management of acute pain in emergency situations’. In addition, the MEDITA clinical study was published in Europe demonstrating Penthrox® superiority over Standard of Care and IV morphine for acute trauma pain treatments in patients. These events should prove to be pivotal moments for Penthrox® in Europe. Europe in-market sales were up 15%, where there are 568 customers buying Penthrox® in Europe including 386 in France. We believe that number will grow strongly under our direct control as our focus is on achieving reimbursement in key target markets, building product awareness and demand within existing markets and undertaking aggressive and targeted new launches. A number of significant markets in Europe are yet to launch including Germany, the Netherlands and Spain. We believe that Penthrox® will become a mainstream analgesic in the European market. The regulatory reimbursement environment for pharmaceuticals in Germany remains unpredictable which has delayed the launch of Penthrox®. National Regulatory Applications are expected to be filed with the relevant agencies in Greece, Macedonia, Serbia, Albania, Liechtenstein, Montenegro, Kosovo, San Marino, Vatican City, Andorra and Monaco in due course. France In-market sales grew 15% in FY20 and feedback from this market continues to be very positive. France now has approval from 121 hospitals with 386 customers buying and using Penthrox®. UK and Ireland In the UK and Ireland, Galen continues to make good progress. In-market sales grew 23% in the current period. 145 hospitals have now approved Penthrox® and 670 customers are using the product. These include seven of the eleven Major Trauma Centres in the UK. Whilst Penthrox® is being used in all Ambulance Services and major hospitals in Ireland, the roll out into multiple UK ambulance services continues. Evaluations and assessments within the UK ambulance setting continue and significant penetration within the UK ambulance market is expected during FY21. We are buoyed by the positive in-market feedback that we received from the Ambulance Services and Galen, who remain confident Penthrox® will be a significant success. Penthrox® has been approved for use by the UK Military and given a NATO number which allows other NATO military organisations access to Penthrox® Australia Australian sales grew 3% in the current period, whilst in-market sales to non-ambulance channels grew 25%. Growth may have been curtailed in the last quarter due to COVID-19 related restrictions that impacted the movements of the wider Australian population, including our distribution partner’s General Practitioner and Hospital channels. We remain confident in our ability to drive future sales growth, particularly within the General Practitioner and Hospital channels. Penthrox® is now sold into more than 200 hospitals and medical clinics in Australia. Penthrox®: Rest of World The Chinese regulatory approval is well underway. The IND was approved during the year and patient recruitment for the human trials is targeted for late 2020. Whilst COVID-19 has delayed the recruitment of patients in China in recent months, MVP has used this time to finalise protocol amendments and continue with trial start up activities. MVP continues to negotiate with interested parties from around the world in terms of registering and selling Penthrox®, whilst concurrently pursuing other important international regulatory submissions and preparations in countries including USA, China, Russia, Iran, Iraq and South Korea. New launches to occur in H1 FY21 include Thailand and Mexico. Respiratory Our respiratory device business achieved sales growth of 61%. Sales grew strongly in the 22 Medical Developments International LimitedUnited States up 98%, Canada up 58% and UK & Europe up 128%. Our Australian business sales were up 43%, led by our premium brand Breath-A-Tech up 35%. In the USA market we continue to build on our growing reputation and awareness of the product in that market via our presence in an estimated 20,000 pharmacies. In August 2020, Walmart will launch their ‘equate’ branded spacer range, manufactured by MVP. This will be Walmart’s first private label prescription product under the ‘equate’ brand and will be available in all Walmart pharmacies (circa 4,600 stores in the USA). We are targeting further pharmacy chains in FY21 and expect to deliver significant sales growth in the USA in the years ahead. Sales growth in the EU can be attributed to COVID-19 related buying and also a launch via a new EU based distributor PIKDARE into new pharmacy channel markets within France and Portugal and also a number of smaller Middle Eastern countries. Sales of our premium spacer brand, Breath- A-Tech, grew 35% in Australia, on the back of a spike in demand caused by COVID-19, sales related to the launch of our new antistatic spacer and growth in sales of our new cardboard spacer. Continuous Flow In October 2019, MVP signed a new 5 year ‘global exclusive’ agreement with the CSIRO to further develop our continuous flow manufacturing technologies currently used at our Scoresby production site in Victoria. This initiative has the potential to deliver large commercial benefits over traditional ‘batch’ API manufacturing methods and in the process revolutionise the way some pharmaceuticals are made. This includes reducing the overall cost of manufacturing APIs by reducing cost of goods, capital expenditure, factory footprint and energy consumption while delivering significant improvements in process and quality. The program continues to progress well with advancements being made in the commercialisation of Lidocaine (analgesic) & Diclofenac (anti-inflammatory) APIs. Several new targets are under early investigation with promising results being seen in translation from batch to flow manufacture. Vet Our Vet business declined 43% in FY20. FY20 Full Year Financial Result Revenue was a record $23.6 million whilst gross margin decreased slightly, reflective of a higher weighting of revenue to lower margin medical devices in FY20. Operating Expenses increased 15%. This increase is due to: • Increased ‘pharmacovigilance’ costs as a result of expanding geographic sales for Penthrox® and Medical Devices; • Marketing expenses as a result of growth in Penthrox® and Breath-A-Tech sales in Australia; • ‘Non-cash’ depreciation and interest expenses (change of accounting standard – AASB 16 Leases - refer to note 1(u) for further detail); and • Increased investment in R&D. Cash flow At 30 June 2020, the group had $15.5m in cash reserves. During the year MVP invested: • $5.4 million in clinical trials and registrations for Penthrox®; • $1.1 million in our manufacturing development program with the CSIRO; and • $1.5 million in various manufacturing equipment and leasehold improvements. COVID-19 The internal and manufacturing operations of MVP have not been adversely impacted by COVID-19 shutdowns, given the company is recognised as an essential business and has been able to accommodate ongoing production and work from home practices. Refer above for impact of COVID-19 on the Groups respective segments. Financial Position The capital structure of the group remained stable during the period and the group has no bank debt. 23 Annual Financial Report 2020Changes in State of Affairs During the financial year there was no significant change in the state of affairs of the company other than that referred to in the financial statements or notes thereto. Subsequent Events On 19 August 2020 the company announced that it had reached an in-principle agreement to take back the distribution rights for Penthrox® in Europe from Mundipharma. This transition is to take place over a 6-month period from 1 September 2020 to 28 February 2021. As the Group is a pharmaceutical and medical device business, it has been considered an essential business in Victoria and has not been subject to COVID-19 Stage 4 related business shutdown restrictions and has therefore been able to continue with critical production and selling activities from its Victorian based locations. There has not been any other matter or circumstance that has arisen that has significantly affected, or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future years. Dividends No dividend was declared in relation to the full year ended 30 June 2020. Indemnification of Officers and Auditors During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (as named above) and all executive officers of the company against a liability incurred as such a director, secretary or executive officer 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. The company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an officer or auditor of the company against a liability incurred as such an officer or auditor. Directors’ Shareholdings The following table sets out each director’s relevant interest in shares as at the date of this report. Fully paid shares D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel 9,650,782 39,868 14,129 264,565 - Directors hold no options over shares as at 30 June 2020. Directors’ Meetings The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, nine Board meetings, two Audit and Risk Committee meetings and two Remuneration and Nominations committee meeting were held. Board of Directors Audit & Risk Committee Remuneration & Nominations Committee Held Attended Held Attended Held Attended D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel* 9 9 9 9 1 9 9 9 9 1 - 2 - 2 - - 2 - 2 - 2 - 2 - - 2 - 2 - - *Christine Emmanuel joined the Board on 26 May 2020 and was therefore only eligible to attend one meeting in the current year. 24 Medical Developments International LimitedAudited Remuneration Report This remuneration report, which forms part of the directors’ report, sets out information about the remuneration of Medical Developments International Limited’s key management personnel for the financial year ended 30 June 2020. The term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the consolidated entity, directly or indirectly, including any director (whether executive or otherwise) of the consolidated entity. The prescribed details for each person covered by this report are detailed below under the following headings: • Key management personnel • Remuneration policy • Relationship between the remuneration policy and company performance • Remuneration of key management personnel • Key terms of employment contracts. Key Management Personnel Details The company’s key management personnel consist of the following directors and executives: The directors of the company during or since the end of the financial year were: • D.J. Williams (Chairman, Non-executive) • R.M. Johnston (Non-executive) • L. Hoare (Non-executive) • P. Powell (Non-executive) • C. Emmanuel (Non-executive appointed 26 May 2020) The company executives during or since the end of the financial year were: • J. Sharman (Chief Executive Officer) (resigned 5 June 2020) • M. Edwards (Chief Financial Officer/ Company Secretary) Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year. Key management personnel equity holdings – fully paid ordinary shares 2020 D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel J. Sharman* M. Edwards Balance at 30 June 2019 No. Issued during the year via DRP No. 9,608,754 42,028 39,694 14,068 263,413 - 5,179 - 174 61 1,152 - 23 - - - - - - (5,202) - 9,931,108 43,438 (5,202) *John Sharman resigned on 5 June 2020 Disposals No. Acquired No. Net Other Change No. - - - - - - - - - - - - - - - - 2019 D.J. Williams M. Johnston L. Hoare P.J. Powell J. Sharman M. Edwards Balance at 30 June 2018 No. Issued during the year via DRP No. 9,459,584 99,924 30,576 10,191 256,936 5,125 - 368 127 2,727 54 - 9,762,412 103,200 Disposals No. Acquired No. Net Other Change No. - - - - - - - 49,246 8,750 3,750 3,750 - - 65,496 - - - - - - - Balance at 30 June 2020 No. 9,650,782 39,868 14,129 264,565 - - - 9,969,344 Balance at 30 June 2019 No. 9,608,754 39,694 14,068 263,413 5,179 - 9,931,108 25 Annual Financial Report 2020Remuneration Policy The board continues to set remuneration at a level that will attract directors and executives of high calibre. The two key elements are: • Base salary and fees, which are determined by reference to the market rate based on payments at similar sized companies in the industry; and • Performance incentives, which have two components – short term incentives based on achieving key performance indicators during the year and payable in cash, and long-term incentives payable in equity, the value of which depends on the share price of the company. The remuneration and nominations committee, comprised of D.J. Williams and L. Hoare, determines the salary package of the CEO of the company and reviews the compensation of the non-executive directors on an annual basis. Changes are approved by the board as a whole. Relationship between the Remuneration Policy and Company Performance The Board aims to ensure there is a strong link between company performance and remuneration and believes that the use of performance incentives ensures that company performance is reflected in the quantum of payments made to executives. Performance metrics are selected to ensure that the interests of management are aligned with those of shareholders. For short term incentives, key metrics are Revenue, EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation and NPAT (Net Profit after Tax), used to directly link company earnings and cash bonuses and other operational measures and individual specific performance measures, the achievement of which provides the basis for future growth and profitability. The long-term incentive scheme is centred around the achievement of regulatory related performance measures for key territories. The table and graph below depict the company’s earnings for the current financial year and the previous seven financial years, which demonstrate that the company has been consistently profitable. Net Profit After Tax 2013-2020 0 0 0 $ ’ 2,500 2,000 1,500 1,000 500 0 2013 2014 2015 2016 2017 2018 2019 2020 The following table shows the company’s share prices for the current financial year and the previous seven financial years. Share price - start ($) Share price - end ($) Interim Dividend (cps)* Final Dividend (cps)* Basic Earnings per Share (cps) Diluted Earnings per Share (cps) 2013 2014 2015 2016 2017 2018 2019 2020 0.79 1.27 3.00 2.00 4.10 4.10 1.27 1.32 - - 1.50 1.50 1.32 2.68 - - 2.65 2.65 2.68 6.10 2.00 2.00 1.61 1.60 6.10 4.95 2.00 2.00 3.10 3.10 4.95 5.80 2.00 2.00 0.41 0.41 5.80 5.30 2.00 2.00 1.61 1.60 5.30 6.98 2.00 - 0.58 0.58 *Franked to 100% at 27.5% corporate income tax rate. 26 Medical Developments International LimitedDividends No dividend has been declared for the full year. Elements of director and executive remuneration Remuneration packages contain the following key elements: 1. Primary benefits – salary/fees and cash bonuses 2. Post-employment benefits – superannuation 3. Equity – rights to share options granted under the Long-Term Incentive Plan. The following table discloses the remuneration of the directors of the company in 2020: 2020 Directors D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel Short-Term Employee Benefits Post Employment Bonus $ Superannuation $ Long- Term Employee Benefits Share- Based Payments Long Service Leave $ Options & Rights $ - - - - - - 8,242 5,205 5,205 5,205 434 24,291 - - - - - - - - - - - - Salary & Fees $ 86,758 54,795 54,795 54,795 4,566 255,709 Total $ 95,000 60,000 60,000 60,000 5,000 280,000 The following table discloses the remuneration of the key executives of the company in 2020: 2020 Executives J. Sharman (Chief Executive Officer) M. Edwards (CFO/ Company Secretary) Short-Term Employee Benefits Post Employment Salary & Fees $ Bonus $ Superannuation $ Long- Term Employee Benefits Long Service Leave $ Share- Based Payments Remuneration Linked to performance Total Options & Rights (i) $ $ 414,889 60,000 31,394 (7,700) (234,095) 264,488 -66% 197,108 9,132 19,593 5,654 55,421 286,908 22% 611,997 69,132 50,987 (2,046) (178,674) 551,396 (i) The value of the options granted to Mr Sharman and Mr Edwards as part of their remuneration was calculated at grant date using a Black Scholes Option Pricing Model. Additional details in relation to the valuation are outlined below and also within note 33 of the Annual Report. John Sharman (former CEO) resigned on 5 June 2020. There were no payouts on termination other than owing salary and leave accruals. As the CEO option plan was forfeited, the previously accrued share-based payments recognised in relation to the plan were reversed and the options subsequently cancelled. 27 Annual Financial Report 2020Executive remuneration is principally fixed in nature, with a short-term incentive that is also subject to a discretionary overlay to capture and reward individual performance. In FY20, Mr Sharman and Mr Edwards remuneration comprised a performance related component of $60,000 and $9,132 respectively. Director’s remuneration did not contain a performance related component. The following table discloses the remuneration of the directors of the company in 2019: Short-Term Employee Benefits Post Employment Bonus $ Superannuation $ Long-Term Employee Benefits Share- Based Payments Long Service Leave $ Options & Rights $ - - - - - - - 7,230 1,952 1,952 4,446 4,446 4,446 24,472 - - - - - - - - - - - - - - 2019 Directors D.J. Williams A.D. McCallum H.F. Oxer M. Johnston L. Hoare P.J. Powell Salary & Fees $ 76,104 20,548 20,548 46,804 46,804 46,804 257,612 Total $ 83,334 22,500 22,500 51,250 51,250 51,250 282,084 The following table discloses the remuneration of the key executives of the company in 2019: 2019 Executives J. Sharman (Chief Executive Officer) M. Edwards (CFO/Company Secretary) Short-Term Employee Benefits Post Employment Long-Term Employee Benefits Share- Based Payments Remuneration Linked to performance Total Salary & Fees $ Bonus $ Superannuation $ Long Service Leave $ Options & Rights $ $ 366,456 - 33,544 9,892 234,095 643,987 36% 177,078 4,566 17,256 5,654 44,821 249,375 19% 543,533 4,566 50,800 15,546 278,916 893,362 In FY19, Mr Edwards remuneration comprised a short-term performance related component of $4,566. Director’s remuneration did not contain a performance related component. No key management personnel appointed during the period received a payment as part of his or her consideration for agreeing to hold the position. Elements of remuneration related to performance Fees paid to non-executive directors are not directly tied to performance. Salaries paid to the key executives are also not directly tied to performance. The short term and long-term incentive programmes are directly related to performance and regulatory approvals, and the conditions and assessment methods are explained below. Short-term incentives The determination and approval of any potential bonuses is at the discretion of the Board. During the 2020 financial year, discretionary bonuses totalling $69,132 (2019: $4,566) were determined and approved by the Remuneration and Nominations Committee 28 Medical Developments International Limitedin relation to key management personnel in respect of their performance in the 2019 financial year. Long-term incentives Executive Option Plans Under the Executive Option plan awards were made to executives who have an impact on the Group’s performance. LTI awards are delivered in the form of options over shares which vest on the achievement of specific performance measures, being the approval of Penthrox® in the USA. The fair value of share options granted is estimated at the date of grant using a Black Scholes Option Pricing Model, taking into account the terms and conditions upon which the share options were granted including the option price, the life of the option, the share price of the underlying shares on grant date and the expected share price volatility. It also takes into account historical and expected dividends. There are no cash settlement alternatives for the employees and The Group does not have a past practice of cash settlement for these awards. All outstanding options will be cancelled if the employee leaves or is no longer employed by MVP for any reason. When the Long-Term Incentive Plan ‘LTIP’ has met its vesting criteria and delivers an entitlement to an equity interest, the employee will have 3 months to exercise the relevant options, after which the relevant options will lapse. In each case, 60% of the new shares issued by exercising options will be escrowed for a period of 12 months from issue date. In the case of an unconditional takeover, the escrow conditions will not apply. Each share option converts into one ordinary share of Medical Developments Limited on exercise. No amounts are paid or payable by the recipient on the receipt of the option nor are they tradeable at any time. The options carry neither rights to dividends or voting rights. Executive share option plans The following share-based payment arrangements were in existence during the current reporting period: CEO Option Plan On 18 July 2018 the company announced it has agreed to a LTIP with Mr. John Sharman, the CEO of Medical Developments International Limited to encourage his long- term commitment to the business. This plan was forfeited on 5 June 2020 upon resignation of the former CEO and therefore no vesting occurred, and the options were subsequently cancelled. Senior Management Option Plan In September 2018 the company announced it has agreed to a LTIP with key Senior Management Team members. Under the plan the effected Senior Management team members were granted options with a strike price of $0.01. The options will only vest on the earlier of FDA approval of Penthrox® for sale in the USA or the company receives an unconditional takeover offer worth more than $350m. A summary of the options granted during the year and outstanding as at 30 June 2020 is outlined below: Granted as remuneration No. Exercised No. Lapsed/ forfeited No. Balance vested at 30 June 2020 but not exercised No. Balance not vested at 30 June 2020 No. Options vested during the year No. Balance at 30 June 2020 No. Balance at 30 June 2019 No. 300,000 100,000 2020 J. Sharman (CEO) M. Edwards (CFO) Senior Management - - 225,000 75,000 - - - (300,000) - - - 100,000 300,000 - - - - 100,000 300,000 - - - 29 Annual Financial Report 2020The CEO option plan was forfeited on resignation on 5 June 2020. All outstanding options were cancelled. Issuing Entity Personnel Tranche Number of shares under option Class of shares Exercise price of option Expiry date of options Medical Developments International Ltd M. Edwards 100,000 Ordinary $0.01 No expiry Fair value of share options granted during the year There were no new options granted to Key Management Personnel during the year. The prior year option plan contains non- market performance hurdles, that have been valued using a ‘Black-Scholes’ Option Pricing Model. Where relevant, the expected useful life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability and exercise restrictions. Expected volatility is based on the historical share price volatility over the past 2 years. Inputs into the option pricing model were as follows: Grant date share price Exercise price Option Fair Value Expected volatility Expected option life Dividend (Bi-annually) Risk-free interest rate CFO $3.90 $0.01 $3.69 45% 5 years 2c 2.17% For valuation purposes a probability of 75% has been applied to the likelihood of achieving FDA approval for Penthrox® in the USA. Contracts for services Mr Edwards is employed under an open- ended contract with a notice period of four weeks. The contract does not provide for any termination payments beyond payment for the notice period and any accrued annual leave. Non-audit services The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The non-audit services related to the provision of 30 taxation services ($26,300). The directors do not believe that the nature of these services compromises the general principles relating to auditor’s independence, as set out by the Chartered Accountants Australia and New Zealand. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 7 to the financial statements. Corporate Governance Statement A copy of the Company’s Corporate Governance statement can be found at www.medicaldev.com/investors-media Auditor’s independence declaration The auditor’s independence declaration is included on page 31 of the annual report. Rounding off of amounts The Company is a Company of the kind referred to in ASIC Corporations (rounding in Financial/Director’s Reports) Instrument 2016/191 dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the directors. David Williams Chairman Melbourne, 20 August 2020 Medical Developments International LimitedDeloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au The Board of Directors Medical Developments International Limited 4 Caribbean Drive Scoresby VIC 3179 20 August 2020 Dear Board Members Medical Developments International Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Medical Developments International Limited. As lead audit partner for the audit of the financial statements of Medical Developments International Limited for the financial year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) The auditor independence requirements of the Corporations Act 2001 in relation to the audit (ii) Any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Travis Simkin Partner Chartered Accountants 31 31 Annual Financial Report 2020 Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au Independent Auditor’s Report to the members of Medical Developments International Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Medical developments International Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 for 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. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network 32 32 Medical Developments International Limited Key Audit Matter Recoverability of Goodwill As at 30 June 2020 the Group’s Goodwill balance totals $9.095m as disclosed in Note 13. Significant judgement is required by management to determine assumptions and estimates involved in preparing a discounted cash flow model (‘value in use’) for each of the Group’s Cash Generating Units (‘CGU’s), including: • • Forecast EBITDA and free cash flow for each CGU, EBITDA growth rates over the forecast period and terminal value of each CGU, and • Discount rates appropriate to the risk profile of each CGU. Changes to these assumptions can impact the valuation of the recoverable amount determined for each CGU. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: • Obtaining an understanding of the process undertaken by management to prepare the value in use model for each CGU and an understanding of key controls supporting this process, In conjunction with our valuation specialists, evaluating and testing the key assumptions used in management’s value in use model including: • - Assessing the consistency and appropriateness of forecast revenue, EBITDA and free cash flows with reference to expected sales by geography and customer, - Assessing the appropriateness of EBITDA growth rates applied over the forecast period and terminal value with reference to management’s current business plans, - Assessing the historical accuracy of forecasts of the Group’s operating results, - - Comparing the expected discount rate for each CGU to the rate calculated by management, Performing sensitivity analysis on the impairment model by applying varied discount rates and growth projections to simulate alternative market conditions and outcomes. Capitalisation of intangible assets Our procedures included, but were not limited to: We have also assessed the appropriateness of the disclosures in Note 13 to the financial statements. As at 30 June 2020 the Group’s Intangible assets total $35.820m as disclosed in Note 14. Capitalisation of other intangible assets requires management judgement to determine whether: • • • • Expenditure relates to development activity and not research activity, Expected future economic benefits attributable to the intangible assets will flow to the Group, The amortisation of intangible assets should commence, with reference to when the asset is available for use and when revenue is generated, and The useful lives assigned to each individual category are appropriate. • • Obtaining an understanding of the process undertaken by management to determine whether expenditure should be capitalised as intangible assets and to understand key controls supporting the process, Assessing the appropriateness of management’s accounting policy, Assessing all capitalised intangible assets not yet available for use and a sample of capitalised intangible assets available for use at balance date to determine whether it is probable that expected future economic benefits attributable to those assets will flow to the Group, and • • Reviewing the listing of capitalised intangible assets at balance date to verify that: - Amortisation has commenced on assets that are available for use, and The useful lives assigned to each intangible asset are appropriate. intangible - We have also assessed the appropriateness of the disclosures in Note 14 to the financial statements. 33 33 Annual Financial Report 2020 Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting intentional omissions, involve collusion, fraud may from error, as misrepresentations, or the override of internal control. forgery, • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are 34 34 Medical Developments International Limited based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 25 to 30 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Medical Development International Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Travis Simkin Partner Chartered Accountants Melbourne, 20 August 2020 35 35 Annual Financial Report 2020 Directors’ Declaration The directors declare that: a. in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; b. in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; c. the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 of the financial statements; and d. the directors have been given the declarations required by s.295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the directors. David Williams Chairman Melbourne, 20 August 2020 36 Medical Developments International Limited Here for your convenience. 37 Annual Financial Report 2020Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Financial Year Ended 30 June 2020 2020 $’000 23,640 (1,105) 22,535 (7,543) 14,992 336 (1,299) (4,083) (1,266) (4,321) (2,342) (114) (1,582) 321 58 379 (42) 337 379 337 0.58 0.58 2019 $’000 21,382 (506) 20,876 (6,692) 14,184 448 (1,197) (3,072) (1,269) (4,135) (1,999) (71) (1,338) 1,551 (513) 1,038 17 1,055 1,038 1,055 1.61 1.60 Gross revenue from sale of goods and contracts Less discounts and claims Net revenue from sale of goods and contracts 4(a) Note Cost of sales Gross profit Other income Distribution expenses Marketing expenses Occupancy expenses Administration expenses Regulatory expenses Finance expenses Other expenses Profit before income tax expense Income tax expense Profit for the year Other Comprehensive Income 4(a) 5(a) Items that may be reclassified subsequently to profit or loss, net of income tax Exchange differences on translating foreign operations 22 Total comprehensive income for the year Profit for the year attributable to: Owners of the parent Total comprehensive income for the year attributable to: Owners of the parent Earnings per share: Basic (cents per share) Diluted (cents per share) 24 24 Notes to the financial statements are included on pages 43-75 38 Medical Developments International LimitedConsolidated Statement of Financial Position as at 30 June 2020 Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax receivable Other Total Current Assets Non-Current Assets Property, plant and equipment Deferred tax assets Goodwill Other intangible assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Provisions Current tax liabilities Other Lease liability Total Current Liabilities Non-Current Liabilities Borrowings Provisions Other Lease liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings Total Equity Note 30(a) 8 9 5(c) 10 12 5(d) 13 14 15 16 17 5(c) 19 20 16 18 19 20 21 22 23 Notes to the financial statements are included on pages 43-75 2020 $’000 15,544 4,082 5,882 33 416 2019 $’000 25,620 6,384 3,049 - 301 25,957 35,354 11,781 2,106 9,095 35,820 58,802 84,759 5,001 91 401 - 2,394 326 8,213 - 269 30,000 2,939 33,208 41,421 43,338 40,954 1,957 427 43,338 8,558 2,129 9,095 29,665 49,447 84,801 3,406 91 357 2,020 2,521 - 8,395 91 302 31,425 - 31,818 40,213 44,588 40,410 1,508 2,670 44,588 39 Annual Financial Report 2020Consolidated Statement of Changes in Equity 2020 Opening balance Profit for the year Other comprehensive income for the year, net of income tax Total comprehensive income for the year Share based payments Dividends paid Options issues as part of CSIRO agreement Dividends reinvested in the form of shares Equity raising costs Closing balance 2019 Opening balance Profit for the year Other comprehensive income for the year, net of income tax Total comprehensive income for the year Share based payments Dividends paid Shares issued - placement Shares issued - share purchase plan Options issues as part of CSIRO agreement Dividends reinvested in the form of shares Equity raising costs Closing balance Issued capital $’000 Retained earnings $’000 Employee equity settled benefits reserve $’000 CSIRO option reserve $’000 Foreign currency translation reserve $’000 Total $’000 40,410 2,670 711 800 (3) 44,588 - - - - - - 557 (13) 379 - 379 - (2,622) - - - - - - 91 - - - - - - - - - 400 - - - 379 (42) (42) (42) 337 - - - - - 91 (2,622) 400 557 (13) 40,954 427 802 1,200 (45) 43,338 Issued capital $’000 Retained earnings $’000 Employee equity settled benefits reserve $’000 CSIRO option reserve $’000 Foreign currency translation reserve $’000 Total $’000 16,121 4,209 331 400 (20) 21,041 - - - - - 17,000 7,475 - 860 (1,046) 1,038 - 1,038 - - - - 380 (2,576) - - - - - - - - - - - - - - - - - - 400 - - - 1,038 17 17 17 1,055 - - - - - - - 380 (2,576) 17,000 7,475 400 860 (1,046) 40,410 2,670 711 800 (3) 44,588 Notes to the financial statements are included on pages 43-75 40 Medical Developments International LimitedConsolidated Statement of Cash Flows for the Financial Year Ended 30 June 2020 Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Receipts from government grants Upfront and milestone payments received Interest paid - lease Interest paid Income tax received/(paid) Net cash generated by operating activities 30(b) Cash flows from investing activities Interest received Payments for plant and equipment Payments for other intangible assets Net cash used in investing activities Cash flows from financing activities 2020 $’000 22,822 (20,896) 158 200 (119) (20) (1,973) 172 429 (1,492) (7,409) (8,472) Dividends paid (net of DRP) 25 (2,065) Proceeds from the issue of shares/options Share issue transaction costs Repayment of lease liability Payments for hire purchase finance Repayment of borrowings Net cash generated by financing activities Net decrease in cash and cash equivalents 16 16 400 (13) (197) - (91) (1,966) (10,266) 2019 $’000 16,484 (16,595) 52 20,845 - (71) 556 21,271 330 (1,487) (8,378) (9,535) (1,717) 24,875 (1,045) - (11) (9,059) 13,043 24,779 Cash and cash equivalents at the beginning of the financial year 25,620 794 Effects of exchange rate changes on the balance of cash held in foreign currencies 190 47 Cash and cash equivalents at the end of the financial year 30(a) 15,544 25,620 Notes to the financial statements are included on pages 43-75 41 41 Annual Financial Report 2020Here for when you need pain relief. Notes to the Financial Statements for the financial year ended 30 June 2020 43 1. Significant accounting policies Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Group is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 20 August 2020. Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions 44 that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 or value in use in AASB 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability. The Company is a Company of the kind referred to in ASIC Corporations (rounding in Financial/Director’s Reports) Instrument 2016/191 dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Medical Developments International LimitedWhere necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. Significant accounting policies The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method. (b) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. (c) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of wages and salaries and annual leave expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of annual leave and long service leave which are not expected to be settled within 12 months are measured using an estimate of the present value of the future cash outflows to be made by the company in respect of services provided by employees up to reporting date. (d) Financial assets Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest rate method less impairment. Interest income is recognised by applying the effective interest rate. Impairment of financial assets Financial assets, other than those at fair value through profit and loss, are assessed for indicators of impairment at each balance sheet date. In relation to the impairment of financial assets, AASB 9 requires an expected credit loss model as opposed to an incurred credit loss model under AASB 139. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit even to have occurred before credit losses are recognised. The group continues to assess the risk of non-recoverability or expected credit loss on its receivables to be very low. Trade receivables are typically collected within a 30-90-day period and despite the occasional debtor being slow paying, empirical evidence suggests there has been a very low level of credit losses in recent years (losses over the last 4 financial years total less than $25k). There has been no observed increased credit risk to date associated with COVID-19. 45 Annual Financial Report 2020(e) Financial instruments issued by the company Debt and equity instruments Instruments issued are classified as either debt or as equity in accordance with the substance of the contractual arrangement. Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which they relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and would not have been incurred had those instruments not been issued. Interest and dividends Interest and dividends are classified as expenses or as distributions of profit consistent with the balance sheet classification of the related debt or equity instruments or component parts of compound instruments. (f) Foreign currency The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Australian dollars (‘$’), which is the functional currency of the Company and the presentation currency for the consolidated financial statements. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise, except for: • exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; • exchange differences on transactions entered into in order to hedge certain foreign currency risks below for hedging accounting policies; and • exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). (g) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: • where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or • for receivables and payables which are recognised inclusive of GST. 46 Medical Developments International LimitedThe net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the Consolidated Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (h) Goodwill Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable net assets acquired, is recognised as an asset and not amortised but tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Any impairment is recognised immediately in the Consolidated Statement of Profit or Loss and Other Comprehensive Income and is not subsequently reversed. Refer also to note 1(j). (i) Government grants Government grants are assistance by the government in the form of transfers of resources to the company in return for past or future compliance with certain conditions relating to the operating activities of the company. Government grants include government assistance where there are no conditions specifically relating to the operating activities of the company other than the requirement to operate in certain regions or industry sectors. Government grants relating to income are recognised as income over the periods necessary to match them with the related costs. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the company with no future related costs are recognised as income of the period in which it becomes receivable. Wage subsidies such as JobKeeper have been recognised as an offset against the Employee Benefits expense to which it relates. Government grants relating to assets are treated as deferred income and recognised in the profit and loss over the expected useful lives of the assets concerned. (j) Impairment of assets At each reporting date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the company estimates the recoverable amount of the cash generating unit to which the asset belongs. Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash- generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income immediately. Where an impairment loss (other than Goodwill) subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. 47 Annual Financial Report 2020(k) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Where the Group qualifies for the research and development tax incentive refund (at 38.5%), this reduces the current tax expense recognised in profit and loss for the period. Deferred tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by 48 the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. (l) Intangible assets Patents, trademarks and licenses Patents, trademarks and licenses are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight-line basis over their estimated useful lives of 10 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally- generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: • the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. Medical Developments International LimitedInternally-generated intangible assets in respect of development costs are stated at cost less accumulated amortisation and impairment and are amortised on a straight- line basis over their estimated useful life of 5-10 years commencing from the date that revenue results. Registration costs Items of expenditure on registrations are capitalised to the extent that such costs can be measured reliably, future economic benefits are attributable to the expenditure, and it is probable that such future economic benefits will eventuate. Any capitalised registration costs are amortised over a period of 5 - 10 years in which the corresponding benefits are expected to arise, commencing from commercial sales to any of the countries for which the registration costs contributed to a successful registration. The unamortised balance of registration costs capitalised in previous periods is reviewed regularly at each reporting date, to ensure the criteria for deferral continue to be met. Where such costs are no longer recoverable, they are written off as an expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Brandnames Brandnames arising on acquisition of a business are carried at cost as established at the date of acquisition of the business less any applicable impairment charge (if any). They are not amortised but subject to annual tests for impairment. For the purposes of impairment testing, brandnames are allocated to the relevant Group cash generating unit to which they relate. (m) Inventories Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. (n) Leases Refer to note 1(u) for the impact of AASB 16 leases on the current year financial statements and the treatment adopted in relation to the current year financial statements. Comparative Year treatment - Leases were classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments were recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (o) Financial Liabilities Trade payables and other accounts payable are classified as financial liabilities and are recognised when the company becomes obliged to make future payments resulting from the purchase of goods and services. Financial liabilities are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest rate method, with interest expense recognised on an effective yield basis. The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or where appropriate, a shorter period. (p) Plant and equipment Plant and equipment and leasehold improvements are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of the acquisition. Other than the charge over the groups assets held in relation to the bank bill loan, all other assets are not encumbered by any additional charge or mortgage. 49 Annual Financial Report 2020Depreciation Depreciation is provided on plant and equipment and is calculated on a straight-line basis so as to write off the cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. The following estimated useful lives are used in the calculation of depreciation: Leasehold improvements: 5 - 10 years Plant & equipment and Right-Of-Use asset: 4 - 12 years after sales service embedded or attached to the underlying sale. Settlement and volume discounts granted to customers are accounted for as offsets against sales. Upfront and Milestone income Revenue from upfront and milestone payments is amortised to the income statement over the underlying contract term. As the performance obligation continues to be the right of the Group’s partners to exclusively sell product in a specific market for a period of time, the consumption of the right and benefit occurs evenly over the contract period. Interest income Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. (q) Provisions Provisions are recognised when the Group has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. (s) Share based payments Equity-settled share-based payments granted are measured at fair value at the date of grant. Fair value is measured by use of a Black Scholes valuation model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the company’s estimate of options that will eventually vest with a corresponding increase in equity. At the end of the reporting period, the Group revises its estimate of the number of equity instruments expected to vest and the impact of any revision on the original estimates is also recognised in the profit and loss. (t) Research and development recoveries R&D tax credits receivable as compensation for expenses or losses already incurred by the Company with no future related costs are recognised in profit or loss in the period in which they are quantified and become receivable. The company applies the income tax approach for the accounting and presentation of the R&D tax credit. Accordingly, the tax benefit is presented as a reduction of income tax expense in the Statement of Income and other Comprehensive Income. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the receivable can be measured reliably. Dividends A liability is recognised for dividends when they have been declared, determined or publicly recommended by the directors on or before the reporting date. (r) Revenue recognition Sale of goods Revenue from the sale of goods is recognised when the company has transferred control of the product to the buyer. The key and sole performance milestone relates to the delivery of the product related to the order with no 50 Medical Developments International Limited(u) Application of new and revised Accounting Standards Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the Group has not applied the following new and revised Australian Accounts Standards, Interpretations and amendments that have been issued but are not yet effective: Standard/Amendment/Interpretation AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material AASB 2019-1 Amendments to Australian Accounting Standards – References to the conceptual framework AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of new IFRS Standards Not Yet Issued in Australia AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-20 and Other Amendments Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2020 30 June 2021 1 January 2020 30 June 2021 1 January 2020 30 June 2021 1 January 2020 30 June 2021 1 January 2022 30 June 2023 1 January 2022 30 June 2023 The adoption of the above Accounting Standards and Interpretations may affect the accounting for future transactions or arrangements. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: • AASB 16 Leases (discussed below); • AASB 2018-1 Amendments to Australian Accounts Standards - Annual Improvements 2015-2017 Cycle (no impact on the financial statements); and • Interpretation 23 Uncertainty Over Income Tax Treatments (no impact). AASB 16 Leases In the current year the Group has applied AASB 16 Leases which is effective for annual periods that begin on or after 1 January 2019 therefore the date of initial application of AASB 16 for the Group was 1 July 2019. The Group elected to transition to the new standard using the modified retrospective approach, whereby the lease liability and right of use asset initially recorded on the date of transition are matched. Consequently, no restatement of comparative information was required. Right-of-use assets The Group recognised a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Where an extension is available under the lease contract to the initial lease term and it is probable the Group will exercise that option, that additional period is also taken into account. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use assets are periodically reduced by impairment losses in accordance with AASB 136 Impairment of Assets, if any, and adjusted for certain remeasurement of the lease liability. The right of use asset is included with property, plant and equipment in the consolidated statement of financial position. 51 Annual Financial Report 2020The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is measured at amortised cost using the effective interest method. In circumstances where the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of- use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group did not make any such adjustment during the current period. Short-term leases and leases of low-value assets The Group has elected not to recognise right- of-use assets and lease liabilities for short-term leases of office and IT equipment that have a lease term of 12 months or less or for leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Lease liabilities The lease liability is initially measured at 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 Group’s incremental borrowing rate as the discount rate. The weighted average incremental borrowing rate used to calculate the lease liabilities as of 1 July 2019 was 3.55%. Lease payments included in the measurement of the lease liability comprise the following: • Fixed payments, including in substance fixed payments less any lease incentives receivables; • Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement rate; • Amounts expected to be payable under a residual value guarantee; • The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and • Payment of penalties for early termination of a lease unless the Group is reasonably certain not to terminate early 52 Medical Developments International LimitedImpact on financial statements The effect on 1 July 2019 of the recognition of the new right-of-use assets and lease liabilities is disclosed below. Increase in right-of-use assets Decrease in provisions due to reclassification of lease incentives to the right of-use-asset Increase in lease liabilities -current Increase in lease liabilities -non-current Impact on retained earnings Operating lease commitments disclosed as at 30 June 2019 Extension option included deemed reasonably certain of being exercised Discount using incremental borrowing rate at 1 July 2019 Lease liability recognised as at 1 July 2019 Lease liabilities Balance at 1 July 2019 Additions Interest incurred Payments on lease liability Balance at 30 June 2020 Of which are: Current lease liabilities Non-current lease liabilities Balance at 30 June 2020 1 July 2019 $’000 3,074 388 (316) (3,146) - 2,183 2,066 (787) 3,462 3,462 - 119 (316) 3,265 326 2,939 3,265 The recognised right-of-use assets relate to the following types of assets: Right-of-use assets Balance at 1 July 2019 Depreciation charge Balance at 30 June 2020 Property $’000 Equipment $’000 3,074 (271) 2,803 - - - Total $’000 3,074 (271) 2,803 The below table highlights the impact on the income statement from the first-time application of AASB 16 Impact on profit/(loss) for the year Decrease in occupancy expenses Increase in depreciation of right-of-use asset Increase in finance costs Increase/(decrease) in profit for the year 2020 $’000 283 (271) (119) (107) 53 Annual Financial Report 20202. Critical accounting judgements and key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date was $9,095,000 (2019: $9,095,000). Further details are provided in note 13. Measurement of lease term The Group has a 5-year extension available to it in relation to its right-of-use head office site lease asset. It has been deemed that the exercising of this first 5-year extension is likely and was therefore factored into the first time recognition of the right-of-use asset and lease liability. Impairment of intangible assets not yet available for use The Group has material capitalised registration costs in relation to obtaining registration of Penthrox® in a number of jurisdictions (primarily the USA and China). Management tests the intangible assets not yet available for use using a fair value less costs to sell basis each year. Useful life of capitalised registration costs Capitalisation of other intangible assets requires judgement by management to determine whether: • Expenditure relates to development activity and not research activity, • Expected future economic benefits attributable to the intangible assets will flow to the Group, • The timing of the commencement of the amortisation of the asset which should commence when revenue has been generated, and • The useful lives assigned to each individual category are appropriate. Details of the other intangible assets are provided in Note 14 Useful life of plant and equipment and right of use assets Refer note 1(p) for further discussion on useful life assessments relating to plant and equipment. Deferred tax assets The carrying amount of deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will eventuate to enable recovery of the asset. Going concern The FY20 Financial statements have been prepared on a going concern basis. The going concern assumption continues to apply to Medical Developments International Ltd as at 30 June 2020 as the Group is profitable, generates positive operating cash flows, has considerable cash reserves and continues to be in a positive net asset position, which enables the Group to meet its debts and obligations as and when they fall due. Refer to note 30 for a summary of the Groups’ cash position and available facilities. As the Group is a pharmaceutical and medical device business, it has been considered an essential business in Victoria and has not been 54 Medical Developments International Limitedsubject to COVID-19 related business lockdown restrictions and has therefore been able to continue with critical production and selling activities from its Victorian based locations. 3. Segment information Products and services within each business segment For management purposes, the company is organised into three business units – Pharmaceuticals, Medical Devices and Veterinary products. These units are the basis on which the company reports its primary segment information. The principal products and services of each of these divisions are as follows: • Pharmaceuticals – the sale of Penthrox® primarily within Australia, New Zealand, Europe the UK and some sales in Canada, the Middle East, Asia and South Africa. • Medical Devices – the sale of medical devices, particularly the Space Chamber and Breath-Alert Peak-Flow meters, primarily within Australia, UK/Europe and North America, with some sales in Asia and New Zealand. • Veterinary Products – the sale of veterinary products within Australia, Europe, and Asia. No operating segments have been aggregated in arriving at the reportable segments of the group. There have also been no sales between reportable segments. Segment revenues and results Pharmaceuticals Medical Equipment Veterinary Equipment Unallocated Total 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Revenues: External revenue (gross) 13,138 14,322 10,151 6,442 351 618 Sales discounts and claims - - (1,105) (506) - - Total external revenue (net) 13,138 14,322 9,046 5,936 351 618 Results: Segment results 4,007 5,334 1,446 573 117 184 - - - - - - 23,640 21,382 (1,105) (506) - 22,535 20,876 - 5,570 6,091 (2,875) (2,650) (2,875) (2,650) Unallocated Profit before interest, income tax depreciation & amortisation 4,007 5,334 1,446 573 117 184 (2,875) (2,650) 2,695 3,441 Depreciation & Amortisation (2,132) (1,805) (201) (249) (24) (25) (240) (188) (2,597) (2,267) Profit before interest and tax 1,875 3,529 1,245 324 93 159 (3,115) (2,838) 98 1,174 Net Interest Profit before income tax expense Income tax expense Net profit for the period from continuing operations Assets and Liabilities Assets Liabilities Other Segment Information Acquisition of segment assets 223 377 223 377 (2,892) (2,461) 321 1,551 58 (513) 58 (513) (2,834) (2,974) 379 1,038 52,832 44,236 11,474 9,973 976 1,108 19,444 29,484 84,726 84,801 - - - - - - 41,421 40,213 41,421 40,213 8,378 8,994 338 291 33 13 153 567 8,902 9,865 55 Annual Financial Report 2020 The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Geographical information The Group operates in two principal geographical areas: Australia (country of domicile); and ‘International’ comprising predominately Europe, North America, Middle East, Asia and South Africa. Unallocated assets primarily include cash reserves, deferred tax assets and prepayments. Liabilities are not disclosed per segment as it is not possible to track these on a segment basis. The Group’s revenue from continuing operations from external customers and information about its non-current assets by location of assets are detailed below: Geographical Information Australia International Revenue from external customers 2020 $’000 12,109 11,531 23,640 Revenue from external customers 2019 $’000 11,208 10,174 21,382 % 51.2% 48.8% 100.0% The Group’s non-current assets by location are detailed below: Non-Current Segment Assets Leasehold improvements at cost Plant and equipment at cost Goodwill at gross carrying amount Other intangible assets at cost Deferred tax asset Australia $’000 Overseas $’000 113 11,126 9,095 35,820 2,056 58,210 - 542 - - 50 592 % 52.4% 47.6% 100.0% Total $’000 113 11,668 9,095 35,820 2,106 58,802 Information about major customers The Group’s only individual customers who contributed 10% or more to the Group’s total 2020 sales revenue was Mundipharma Australia whose 2020 revenue contribution was $7.985m (2019: $1.113m). 56 Medical Developments International Limited4. Items included in profit and loss (a) Revenue and other income Gross revenue from sale of goods Sales discounts and claims Upfront and milestone income Total Revenue (net) Interest revenue - bank deposits (b) Expense items included in profit and loss Profit before income tax has been arrived at after charging the following expenses: Depreciation of non-current assets Amortisation of non-current assets Research & development costs Share based payments (equity settled) Gain/(loss) on foreign currency transactions Finance Expenses Interest on lease liability Interest on bank loans Interest on other loans/hire purchase arrangements Employee benefit expense Employee benefits Government subsidies Superannuation contributions 2020 $’000 21,175 (1,105) 2,465 22,535 336 22,871 (1,343) (1,254) (396) (91) 192 (119) - 5 (114) (4,581) 396 (679) 2019 $’000 18,964 (506) 2,418 20,876 448 21,324 (1,003) (1,263) (253) (380) 382 - (46) (25) (71) (4,559) - (594) 57 Annual Financial Report 20205. Income taxes (a) Income tax recognised in profit or loss Tax expense comprises: Current tax expense/(benefit) Deferred tax expense/(benefit) relating to origination and reversal of temporary differences Adjustments recognised in the current year in relation to the current tax of prior year Total tax expense 2020 $’000 2019 $’000 1,924 (1,972) (10) (58) (2,905) 3,371 47 513 The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the financial statements as follows: Profit from operations Income tax calculated at 27.5% (2019: 27.5%) Research & development benefit Non deductible expenses Adjustments recognised in relation to the current tax of prior year Effect of different tax rates of subsidiaries operating in other jurisdictions Income tax expense recognised in the Statement of Profit or Loss and Other Comprehensive Income 321 88 (163) 39 (10) (12) (58) 1,551 426 (127) 130 47 37 513 The tax rate used in the above reconciliation is the corporate tax rate of 27.5% payable by Australian corporate entities on taxable profits under Australian tax law. (b) Income tax recognised directly in equity No current and deferred tax amounts have been charged directly to equity during the period (2019: $nil) (c) Current tax assets/liabilities Income tax (payable)/receivable 33 (2,020) MVP has received upfront payments during the current and prior years and for tax purposes these are deemed as assessable on a cash received basis or when unconditional entitlement arises. This resulted in a significant tax payable in 2019. The group is in a tax loss position in 2020 due to the lower profits of the group and the significantly reduced level of upfront payments received in 2020. (d) Deferred tax asset (current) Temporary differences Tax losses (e) Deferred tax liabilities Temporary differences Net Deferred Tax Asset 58 10,182 2,016 12,198 (10,091) 2,106 9,849 67 9,916 (7,787) 2,129 Medical Developments International LimitedTaxable/Deductible temporary differences arise from the following: 2020 Deferred tax assets/(liabilities): Accrued expenses Deferred revenue Lease liability Lease asset Other Intangibles Property, Plant & Equipment Provisions Brandnames 2019 Deferred tax assets/(liabilities): Accrued expenses Deferred revenue Other Intangibles Property, Plant & Equipment Provisions Brandnames Opening balance $’000 Charged to income $’000 Closing balance $’000 186 9,335 952 (845) (36) (426) (54) 75 150 8,909 898 (770) (7,556) (1,528) (9,084) (10) 221 (221) 2,062 (6) 4 - (1,972) (16) 225 (221) 90 Opening balance $’000 Charged to income $’000 Closing balance $’000 117 4,253 (5,728) (4) 274 (221) (1,309) 69 5,082 (1,828) (6) 54 - 3,371 186 9,335 (7,556) (10) 328 (221) 2,062 6. Key management personnel compensation The aggregate compensation of the key management personnel of the company and the Group is set out below: Short-term employee benefits Post employment benefits Long term employee benefits Share based payments 7. Remuneration of auditors Audit or review of the financial report Taxation services Other audit services The auditor of the entity is Deloitte Touche Tohmatsu. 2020 $’000 2019 $’000 937 806 75 (2) (179) 832 75 16 279 1,176 2020 2019 104,000 90,000 26,300 26,300 - 10,675 130,300 126,975 59 Annual Financial Report 20208. Current receivables 2020 $’000 2019 $’000 Trade receivables 3,923 6,273 GST recoverable 159 111 4,082 6,384 The average credit period on sales of goods to domestic customers is 30 days, international customers 60 days. No interest is charged on trade receivables. Included in the trade receivable balance are debtors with a carrying amount of $487,300 (2019: $647,906) which are past due at the reporting date. The Group holds an allowance for expected credit loss of $100,000 in respect to aged debtors that are subject to collection actions. The Group does not hold any collateral over its trade receivable balances. Ageing of past due but not impaired. 60 - 90 days > 90 days 2020 $’000 2019 $’000 44 343 387 386 262 648 the date the credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. 9. Current inventories Raw materials: At cost Work in progress: At cost Finished goods: At cost Provision for obsolesence 2020 $’000 2019 $’000 1,244 1,200 1,430 825 3,358 (150) 1,169 (145) 5,882 3,049 The provision for obsolescence at 30 June 2020 represented predominantly obsolete materials. 10. Other current assets In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from Prepayments 2020 $’000 2019 $’000 416 301 11. Subsidiaries Details of the Group’s subsidiaries at the end of the reporting period are as follows. Name of Subsidiary Principle activity Place of incorporation and operation Proportion of ownership interest and voting power held by the Group Medical Developments UK Limited Distribution of pharmaceutical drug and medical and veterinary equipment United Kingdom 2020 100% 2019 100% Medical Developments MD&P Limited Medical Developments USA Inc. Holder of European Penthrox® Marketing Authorisation Ireland 100% 100% Distribution of medical devices United States of America 100% 100% Medical Flow Technologies Pty Ltd Non-operating Australia 100% N/A 60 Medical Developments International Limited12. Property, plant & equipment and right of use asset Leasehold improvements at cost $’000 Scoresby Right of Use Asset $’000 Manufacturing Facility $’000 Plant and equipment at cost $’000 Total $’000 Gross carrying amount Balance at 30 June 2018 Additions Balance at 30 June 2019 Additions Balance at 30 June 2020 Accumulated depreciation Balance at 30 June 2018 Depreciation expense Balance at 30 June 2019 Depreciation expense Balance at 30 June 2020 Net book value As at 30 June 2019 As at 30 June 2020 13. Goodwill 563 22 585 7 592 (358) (61) (419) (60) (479) 166 113 Gross carrying amount Balance at beginning of financial year 2020 $’000 2019 $’000 9,095 9,095 Additions - - Balance at end of financial year 9,095 9,095 Net book value Balance at beginning of financial year Pharmaceuticals Medical devices 9,095 9,095 Veterinary equipment Balance at end of financial year 9,095 9,095 During the year, the company assessed the recoverable amount of goodwill and determined that there was no impairment (2019: $nil). - - - 3,074 3,074 - - - (271) (271) - 2,803 4,087 6,984 11,634 - 1,465 4,087 8,449 1,487 13,121 - 1,485 4,566 4,087 9,934 17,687 (136) (341) (477) (341) (818) (3,066) (3,560) (601) (1,003) (3,667) (4,563) (671) (1,343) (4,338) (5,906) 3,610 3,269 4,782 8,558 5,596 11,781 Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to three cash-generating units: pharmaceutical business, medical devices business and veterinary equipment business. The carrying amount of goodwill allocated to cash-generating units is as follows: 2020 $’000 2019 $’000 3,808 4,706 581 3,808 4,706 581 9,095 9,095 The recoverable amount of all three cash- generating units is based on a value in use calculation for each unit which uses cash flow projections based on a five-year projection period and terminal value. The Board of Directors approved financial budget for the following year is used to determine the cash flows for year 1. 61 Annual Financial Report 2020Recoverable amount testing has been based on EBITDA growth rates for years 2-5 of: economic conditions and expected future performance. Pharmaceuticals: 20% based on expansion of existing markets (2019: 25%) Medical Devices: 15% based on expansion of existing markets (2019: 15%) Veterinary Equipment: 2.5% based on expansion of existing markets (2019: 2.5%) A terminal value after 5 years based on a long-term growth rate of 2.5%, and a post-tax discount rate of 10.3% per annum (2019: 10.15% per annum) have been used to calculate the carrying value of the intangible assets. As the global outbreak of COVID-19 continues to progress and evolve, it is extremely challenging to predict the full extent and duration of its impact on the Group’s business activities. The Group believes that the assumptions adopted in the value in use calculations reflect an appropriate balance between the Group’s experience to date, the uncertainty associated with the COVID-19 pandemic and the long-term growth expectations of its respective businesses, as discussed in the Directors Report. Accordingly, the Group has concluded that no impairment is required based on current market and • The recoverable amount for the Pharmaceuticals business relies on continued growth in the short to medium term, particularly in Europe. We believe sales will continue to grow strongly as we focus on building product awareness and demand within existing markets and undertaking aggressive and targeted new launches. We believe that Penthrox® will continue to grow to become a mainstream analgesic in the European market. Refer also to Note 29 Subsequent Events. • The recoverable amount for the Medial Devices business is expected to be supported by growth opportunities, particularly in the US market. In August 2020, Walmart will launch their ‘equate’ branded spacer range, manufactured by MVP. This will be Walmart’s first private label prescription product under the ‘equate’ brand and will be available in Walmart pharmacies (circa 4,600 stores in the USA). We are targeting further pharmacy chains in FY21 and expect to deliver significant sales growth in the USA in the years ahead. • The recoverable amount of the Vet business is reliant upon trading performance stabilising at current levels. 14. Other intangible assets 2020 Gross carrying amount Balance at 30 June 2018 Additions Balance at 30 June 2019 Additions Balance at 30 June 2020 Accumulated amortisation Balance at 30 June 2018 Amortisation expense Balance at 30 June 2019 Amortisation expense Balance at 30 June 2020 Net book value As at 30 June 2019 As at 30 June 2020 62 Development $’000 Patents & trademarks $’000 Capitalised registration costs $’000 Brandnames $’000 Other $’000 Total $’000 3,083 1,455 4,538 1,547 6,085 (497) (257) (754) (233) (987) 1,043 94 1,137 180 1,317 (381) (100) (481) (100) (581) 20,421 6,829 27,250 5,672 32,922 (2,496) (820) (3,316) (835) (4,151) 738 - 738 - 738 - - - - - 867 - 867 10 877 (228) (86) (314) (86) (400) 26,152 8,378 34,530 7,409 41,939 (3,602) (1,263) (4,865) (1,254) (6,119) 3,784 5,098 657 736 23,934 28,771 738 738 553 477 29,665 35,820 Medical Developments International Limited The amortisation charge for the year of $1,254,000 (2019: $1,263,000) has been included in administration expenses. For an explanation of amortisation periods refer Note 1(l). For the purposes of impairment testing, intangible assets (except for those related to approval of Penthrox® in the US and Chinese markets) are allocated to relevant cash generating units as discussed in Note 13. The recoverable amount for intangibles assets related to the approval of Penthrox® in the US and Chinese markets has been based on an estimate of fair value less costs to sell, which uses cash flow projections based on a five-year projection period and terminal value. Key assumptions include: • Expected costs to be incurred to achieve approval in these markets; • Expected sales, gross margin and operating costs; • Discount rate of 25% (2019: 25%) • Long term growth rate of 3% (2019: 3%) As highlighted in the Directors Report, MVP remains confident of achieving approval in these markets based on our 40+ years of experience, the demonstrated safety profile of Penthrox® over that time, our ongoing clinical development program and our recent achievements in getting Penthrox® approved for sale in more than 40 countries around the world. 15. Current trade and other payables Trade payables (i) Accrued expenses Employee benefits payable PAYG witholding tax payable 2020 $’000 3,841 1,102 55 3 2019 $’000 2,030 1,319 53 4 5,001 3,406 16. Borrowings Secured - at amortised cost Other (i) Current Non-current 2020 $’000 2019 $’000 91 91 91 - 91 181 181 91 90 181 Summary of borrowing arrangements (i) On 29 June 2012, the group entered into an agreement with the Commonwealth Scientific and Industrial Research Organisation (‘CSIRO’) to fund the development of a new production process for the pain-relieving ingredient used in Penthrox®. Funding is receivable at the commencement of each of three stages of development and is payable over a three- year term upon the completion of the relevant stage. As at 30 June 2020, Stage 1a, 1b and Stage 2 are complete. Should MVP default on the loan, CSIRO has the option to convert the debt into shares in MVP at fair market value. This funding was interest-free until the first anniversary of the completion of Stages 1a and 2 and is then calculated at the Westpac Bank Lending Rate at the date the relevant note was issued, plus 2%. (ii) The Group has an overdraft facility of $200,000. As at 30 June 2020, this remains unused. 17. Current provisions 2020 $’000 2019 $’000 (i) The average credit period on purchase of Employee benefits 401 357 goods is 30 days. No interest is charged on trade payables. The company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 63 Annual Financial Report 202018. Non-current provisions Employee benefits 269 302 2020 $’000 2019 $’000 The company has 65 full time equivalent employees at 30 June 2020 (2019: 58) 19. Other liabilities 2020 $’000 2019 $’000 Revenue received in advance 31,640 33,281 Unearned government grant income 754 665 When MVP receives upfront payments in relation to licensing and distribution agreements for Penthrox®, for accounting purposes these non-refundable payments are deferred and amortised into the income statement over the term of the agreement to which the payments relate. As at 30 June 2020 $31.640m (2019: $33.281m) remains unamortised. Unearned government grant income represents funds received through the Commercial Ready Programme from the Federal Government and Futures Industries Manufacturing Program of the Victorian State Government. 20. Lease liabilities Current Non-current 32,394 33,946 Lease liability 2,394 2,521 30,000 31,425 32,394 33,946 Current Non-current 21. Issued capital 21(a) Fully paid ordinary shares 2020 $’000 2019 $’000 3,265 3,265 326 2,939 3,265 - - - - - 2020 2019 No. $’000 No. $’000 Fully paid ordinary shares Balance at beginning of financial year 65,516,746 40,410 59,172,092 Shares Issued - Dividends Reinvestment Plan 106,745 557 225,951 Share issue - Placement Share issue - Share Purchase Plan Capital raising costs - - - - - (13) 4,250,000 1,868,703 - Balance at end of financial year 65,623,491 40,954 65,516,746 16,121 860 17,000 7,475 (1,046) 40,410 Fully paid ordinary shares carry one vote per share and carry the right to dividends. 64 Medical Developments International Limited22. Reserves 23. Retained earnings (a) Foreign currency translation reserve Balance at beginning of financial year 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2,670 4,209 Balance at beginning of year (3) (20) Dividends paid (2,622) (2,576) Exchange differences arising on translating the foreign operations (42) 17 Net profit attributable to members 379 1,038 Balance at end of financial year 427 2,670 Balance at end of year (45) (3) Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations (UK based) from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. 2020 $’000 2019 $’000 (b) Employee equity-settled benefits reserve Balance at beginning of year Share-based payments recognised Balance at end of year 711 91 802 331 380 711 The above equity settled employee benefits reserve related to share options granted by the company to its Senior Management team under its employee share option plan. (c) CSIRO Option Reserve Balance at beginning of year Option issues for services provided 2020 $’000 2019 $’000 800 400 400 400 Balance at end of year 1,200 800 The above CSIRO option reserve at 30 June 2020, relates to 243,706 options (2019: 178,756) over ordinary shares of the Company. These options are in relation to the MVP/ CSIRO Manufacturing Technologies Project announced on 5 June 2017. Options are exercisable for no consideration when a developed technology has been proven to be commercially viable. The share options granted to the CSIRO carry no rights to dividends and no voting rights. 24. Earnings per share 2020 cents per share 2019 cents per share 0.58 0.58 1.61 1.60 Basic earnings per share Diluted earnings per share Basic earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: Earnings 2020 $’000 2019 $’000 379 1,038 2020 No. 2019 No. Weighted average number of ordinary shares 65,586,805 64,615,720 Diluted earnings per share Earnings used in the basic earnings per share calculation are identical to those used for the diluted earnings per share calculation. Dilutive options outstanding as at 30 June 2020 related to options to employees and also to the CSIRO. Weighted average number of ordinary shares used in the calculation of basic EPS 2020 No. 2019 No. 65,586,805 64,615,720 Shares deemed to be issued for no consideration in respect of: - Dilutive Options 321,957 344,166 Weighted average number of ordinary shares for diluted EPS 65,908,762 64,959,886 65 Annual Financial Report 202025. Dividends Recognised amounts Fully paid ordinary shares Interim dividend - fully franked Full year dividend paid during the year - fully franked Unrecognised amounts Fully paid ordinary shares Final dividend - fully franked 2020 2019 cents per share $’000 cents per share $’000 2.0 2.0 4.0 1,312 1,310 2,622 - - 2.0 2.0 4.0 2.0 1,308 1,268 2,576 1,310 1,310 An interim dividend of 2 cents per share was declared and paid in the current year. No final dividend was declared for the full year ended 30 June 2020. The interim dividend paid during the 30 June 2020 year resulted in the company paying dividends of $1,170,000 and the balance of $142,000 issued as shares under the Dividend Reinvestment Plan. The 2019 full year dividend paid during the 30 June 2020 year resulted in the company paying dividends of $895,000 and the balance of $415,000 issued as shares under the Dividend Reinvestment Plan. 27. Commitments for expenditure (a) Capital expenditure commitments There were no capital expenditure commitments at 30 June 2020. 28. Related party disclosures 2020 $’000 2019 $’000 There were no related party transactions during the 2020 financial year. Adjusted franking account balance 1,469 490 26. Short term leases 2020 $’000 2019 $’000 Non cancellable operating lease payments: Not longer than 1 year Longer than 1 year and not longer than 5 years Greater than 5 years 59 25 - 84 76 84 - 160 Balances and transactions between the Company and its subsidiaries which are related parties of the company have been eliminated on consolidation and are not disclosed in this note. Please also refer to note 6 for details of Key Management Personnel compensation. 29. Subsequent events On 19 August 2020 the company announced that it had reached an in-principle agreement to take back the distribution rights for Penthrox® in Europe from Mundipharma. This transition is to take place over a 6-month period from 1 September 2020 to 28 February 2021. 66 Medical Developments International LimitedAs the Group is a pharmaceutical and medical device business, it has been considered an essential business in Victoria and has not been subject to COVID-19 Stage 4 related business shutdown restrictions and has therefore been able to continue with critical production and selling activities from its Victorian based locations. There has not been any other matter or circumstance that has arisen that has significantly affected, or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future years. 30. Notes to the Consolidated Statement of Cash Flows (a) Reconciliation of cash and cash equivalents For the purposes of the Consolidated Statement of Cash Flows, cash includes cash on hand and in banks. Cash at the end of the financial year as shown in the Consolidated Statement of Cash Flows is reconciled to the related item in the Statement of Financial Position as follows: 2020 $’000 2019 $’000 Cash and cash equivalents (b) Reconciliation of profit for the period to net cash flows from operating activities Profit for the period Interest received Depreciation and amortisation of non-current assets Net unrealised foreign exchange (gain)/loss Share based payments Increase/(decrease) in tax payable Decrease/(increase) in deferred tax asset Movements in working capital Decrease/(increase) in assets: Receivables Inventories Other assets Increase/(decrease) in liabilities: Payables Provisions Other liabilities Non-current provisions Net cash from operating activities (c) Financing facilities Unsecured bank overdraft facility, reviewed annually and payable at call: Amount unused 15,544 15,544 379 (429) 2,597 (222) 91 (2,053) 23 2,302 (2,833) (115) 1,974 44 (1,552) (33) 172 25,620 25,620 1,038 (330) 2,266 (53) 380 2,116 (1,047) (2,097) 148 72 202 1 18,480 96 21,271 200 200 200 200 67 Annual Financial Report 202031. Financial instruments (a) Capital risk management The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The Group does not enter into or trade financial instruments, including derivatives, for speculative purposes. The capital structure of the Group consists of net debt (borrowings as detailed in note 16) and equity of the Group (comprising issued capital, reserves, retained earnings, and cash and cash equivalents as detailed in notes 21, 22, 23, and 30(a), respectively). The Group’s Audit and Risk Committee reviews the capital structure of the Group on a semi-annual basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. The gearing ratio at 30 June 2020 is outlined below: Debt (i) Cash and bank balances Net debt / (cash) Equity (ii) 2020 $’000 2019 $’000 91 182 (91) (182) - - 43,338 44,588 Net debt to equity ratio 0% 0% (i) Debt is defined as long-term and short- term borrowings as described in note 16. (ii) Equity includes all capital and reserves of the group that are managed as capital. Cash has been included to the extent it reduced the outstanding debt to nil. (b) Significant accounting policies Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements. These policies were consistent throughout the current year and the prior year. 68 (c) Financial risk management objectives The Group’s finance function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages financial risks relating to the operations of the Group. These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. (d) Credit risk management Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group’s exposure is continually monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers. Ongoing credit evaluation is performed on the financial condition of these accounts receivable and advance payments are requested where deemed appropriate. The carrying amount of financial assets recorded in the financial statements, net of any allowance for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. Apart from the largest customer of the Group (refer to Note 3), the Group does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk to any other counterparty did not exceed 10% of gross monetary assets at any time during the year. (e) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: Medical Developments International LimitedLiabilities Assets 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2,705 903 2,012 5,841 139 15 69 2 59 25 - - 1,282 415 125 533 733 343 - 6 2,930 987 4,367 6,923 USD GBP NZD EUR CND Amounts of exposure (assets of $4.3m) are not currently significant and as such forward contracts and currency swap agreements are not used. Foreign currency sensitivity analysis The Group predominantly trades in Australian dollars (AUD), but has exposure to the US dollar (USD) and Great Britain Pound (GBP) based on a portion of its overseas sales and purchases. The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian Dollar against the USD and GBP. 10% is the sensitivity rate used when assessing foreign currency risk internally by key management and represents management’s assessment of the possible change in foreign currency rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number indicates an increase in profit or loss where the Australian Dollar strengthens against the respective currency. For a weakening of Variable interest rate maturity the Australian Dollar against the respective currency there would be an equal and opposite impact on the profit. Profit or loss 2020 $’000 69 (114) 2019 $’000 (494) (67) USD Impact GBP Impact This is attributable to the exposure outstanding on USD and GBP receivables and payables at year end in the Group. The exposure to movement in NZD, EUR, and CAD is not deemed to be significant. (f) Fair value of financial instruments The Directors consider that the carrying amount of financial assets and liabilities recorded at amortised cost in the financial statements approximates their respective net fair values, determined in accordance with the accounting policies disclosed in note 1 to the financial statements. The Group does not recognise any financial instruments that are measured subsequent to initial recognition at fair value. (g) Interest rate risk management The Group is exposed to interest rate risk as it holds cash at floating interest rates. The following table details the Group’s global exposure to interest rate risk as at 30 June 2020 and 30 June 2019. 2020 Financial assets Cash Receivables Financial liabilities Payables Lease liability Borrowings Average interest rate % Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 Non- interest bearing $’000 Total $’000 1.58% 15,544 - - 3.55% 3.89% - 15,544 - 215 91 - - - - - - - - 1,056 1,994 - - - 15,544 4,082 4,082 5,001 - - 4,082 19,626 5,001 3,265 91 306 1,056 1,994 5,001 8,357 69 Annual Financial Report 20202019 Financial assets Cash Receivables Financial liabilities Payables Borrowings Average interest rate % Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 Non- interest bearing $’000 Total $’000 1.99% 25,620 - - 4.72% - 25,620 - 91 91 - - - - 91 91 - - - - - - - 25,620 6,384 6,384 6,384 32,004 3,406 3,406 - 182 3,406 3,588 The following table details the Group’s sensitivity to a 50-basis point increase or decrease in interest rates. continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Profit or Loss 2020 $’000 2019 $’000 77 127 (h) Liquidity risk management The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities by Liquidity risk table The following table details the Group’s remaining contractual maturity for its non- derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes the principal cash flows. Weighted average effective interest rate % Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 Total $’000 5,001 3,932 91 - 2,191 - 2,191 9,024 - - - 3,406 182 3,588 - 5,001 3.55% 3.89% 326 91 5,418 - 3,406 4.72% 91 3,497 - 1,415 - 1,415 - 91 91 2020 Payables Lease Liability Borrowings 2019 Payables Borrowings 70 Medical Developments International Limited32. Parent Entity Information 33. Employee Share Option Plans Executive Option Plans Under the Executive Option plan awards were made to executives who have an impact on the Group’s performance. Long Term Incentive awards are delivered in the form of options over shares which vest on the achievement of specific performance measures. The fair value of share options granted is estimated at the date of grant using a Black Scholes option pricing model, taking into account the terms and conditions upon which the share options were granted including the option price, the life of the option, the share price of the underlying shares on grant date and the expected share price volatility. It also takes into account historical and expected dividends. There are no cash settlement alternatives for the employees and The Group does not have a past practice of cash settlement for these awards. All outstanding options will be cancelled if the employee leaves or is no longer employed by MVP for any reason. When the Long-Term Incentive Plan ‘LTIP’ has met its vesting criteria and delivers an entitlement to an equity interest, the employee will have 3 months to exercise the relevant options, after which the relevant options will lapse. Each share option converts into one ordinarily share of Medical Developments Limited on exercise. No amounts are paid or payable by the recipient on the receipt of the option nor are they tradeable at any time. The options carry neither rights to dividends or voting rights. The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 1 for a summary of the significant accounting policies relating to the Group. Financial Position 2020 $’000 2019 $’000 Assets Current Assets 26,230 35,848 Non-Current Assets 58,749 49,375 Total Assets 84,979 85,223 Liabilities Current Liabilities 8,142 5,965 Non-Current Liabilities 33,208 34,338 Total Liabilities 41,350 40,303 Equity Issued capital Reserves 40,954 40,410 2,002 1,511 Retained earnings 673 2,999 Total Equity 43,629 44,920 Financial Performance Profit for the year Dividends paid 2020 $’000 2019 $’000 296 1,231 (2,622) (2,576) Other comprehensive income - - Total comprehesive income (2,326) (1,345) The commitments of the parent are the same as those of the overall consolidated group. 71 Annual Financial Report 2020 33.1 Executive share option plans The following share-based payment arrangements were in existence during the current reporting period: technologies project that creates revenue of at least $1m p.a. In each case, 60% of the new shares issued by exercising options will be escrowed for a period of 12 months from issue date. In the case of an unconditional takeover, the escrow conditions will not apply. CEO Option Plan On 18 July 2018 the company announced it has agreed to a LTIP with Mr. John Sharman, the CEO of Medical Developments International Limited to encourage his long-term commitment to the business. This plan was forfeited on 5 June 2020 upon resignation of the former CEO. Senior Management Option Plan – Tranche 1 In September 2018 the company announced it has agreed to a LTIP with key Senior Management Team members. Under the plan the effected Senior Management team members were granted 375,000 options with a strike price of $0.01. The options will only vest on the earlier of FDA approval of Penthrox® for sale in the USA or the company receives an unconditional takeover offer worth more than $350m. 100,000 of options within this issue contain a further vesting trigger being, the delivery of a new API from the CSIRO manufacturing Senior Management Option Plan – Tranche 2 An additional Senior Management Option Plan was granted and announced during the year effective from 1 July 2019. Under the plan the effected Senior Management team member was granted 75,000 options with a strike price of $0.01. The options will vest based upon certain milestones as follows: • 25,000 vest when the FDA approves the opening of the USA IND for Penthrox®; • 25,000 vest on 2 July 2022; and • the balance vest in the event of NDA approval in the USA or an unconditional takeover offer for greater than $350m. For tranche 2, where any of the vesting criteria have been met and the options exercised, the first 50% of the shares will be available to sell immediately without restriction. The remaining 50% of the shares will be subject to an escrow period of 2 years. In the case of an unconditional takeover, the escrow conditions will not apply. Summary of Unvested options 2020 Balance at 30 June 2019 No. Granted as remuneration No. Exercised No. Lapsed/ forfeited No. Balance at 30 June 2020 No. Balance vested at 30 June 2020 but not exercised No. Balance not vested at 30 June 2020 No. Options vested during the year J. Sharman (CEO) M. Edwards (CFO) Senior Management 300,000 100,000 - - 225,000 75,000 - - - (300,000) - - 100,000 300,000 - - - - 100,000 300,000 - - - Issuing Entity Personnel Tranche Number of shares under option Class of shares Exercise price of option Expiry date of options Medical Developments International Ltd Medical Developments International Ltd M. Edwards 100,000 Ordinary $0.01 No expiry Senior Management 1 & 2 300,000 Ordinary $0.01 No expiry 400,000 72 Medical Developments International Limited2019 Balance at 30 June 2018 No. Granted as remuneration No. Exercised No. Lapsed/ forfeited No. J. Sharman (CEO) M. Edwards (CFO) Senior Management 300,000 300,000 100,000 100,000 275,000 275,000 - - - Balance at 30 June 2019 No. 300,000 100,000 - - Balance vested at 30 June 2019 but not exercised No. Balance not vested at 30 June 2019 No. Options vested during the year - - - 300,000 100,000 225,000 - - - (50,000) 225,000 32.2 Fair value of share options granted during the year As the options contain non-market performance hurdles, they have been valued using a ‘Black- Scholes’ Option Pricing Model. Where relevant, the expected useful life used in the model has been adjusted based on management’s best estimate for the effects of non-transferability and exercise restrictions. Expected volatility is based on the historical share price volatility over the past 2 years. Inputs into the option pricing model were as follows: Grant date share price Exercise price Option Fair Value Expected volatility Expected option life Dividend (Bi-annually) Risk-free interest rate Senior Management (Tranche 1) Senior Management (Tranche 2) $3.90 $0.01 $3.69 45% $5.30 $0.01 $5.13 - $5.24 45% CFO $3.90 $0.01 $3.69 45% 5 years 5 years 1.5 - 4.2 years 2c 2.17% 2c 2.17% 2c 0.98% For valuation purposes a probability of 75% has been applied to the likelihood of achieving FDA approval for Penthrox® in the USA. 33.3 Share Based Payments Expense Current year expense Reversal for forfeited options Share-based payments 2020 $’000 2019 $’000 325 (234) 91 380 - 380 73 Annual Financial Report 2020 34. Additional company information Medical Developments International Limited is a listed public company, incorporated and domiciled in Australia. Company Secretary Mr. Mark Edwards Registered office and principal place of business 4 Caribbean Drive Scoresby VIC 3179 Tel: (03) 9547 1888 Share registry Computershare Investor Services Pty Ltd 452 Johnston Street Abbotsford VIC 3067 Tel: 1300 850 505 74 Medical Developments International LimitedAdditional Stock Exchange Information as at 31 August 2020 Number of holders of equity securities Ordinary share capital 65,623,491 fully paid ordinary shares held by 11,118 individual shareholders. All issued ordinary shares carry one vote per share. Distribution of holders of equity securities Fully paid ordinary shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holding less than a marketable parcel Substantial Shareholders MR DAVID JOHN WILLIAMS 6,620 3,211 707 531 49 11,118 653 Twenty largest holders of equity securities MR DAVID JOHN WILLIAMS HSBC CUSTODY NOMINEES J P MORGAN NOMINEES AUSTRALIA CITICORP NOMINEES PTY LIMITED NETWEALTH INVESTMENTS LIMITED DR RUSSELL KAY HANCOCK SANDHURST TRUSTEES UBS NOMINEES NATIONAL NOMINEES LIMITED MR ALISTAIR DAVID STRONG WARBONT NOMINEES PTY LTD MRS VIRGINA CATHERINE HANCOCK CS FOURTH NOMINEES JJ OPPERMAN SUPERANNUATION PTY LIMITED PNSF PTY LTD MR MICHAEL CLIFFORD HICKLING & MRS GIOVANNA HICKLING IMAJ PTY LTD CAPRICORN INVESTMENT PARTNERS (NOMINEES) PTY LTD BNP PARIBAS NOMINEES PTY LTD HOLLYWIND PTY LTD Number 9,650,782 Number 9,650,782 6,685,759 4,249,171 3,319,510 1,620,522 1,614,214 1,053,413 874,242 712,776 630,000 532,983 518,487 507,331 300,000 264,565 255,936 253,750 250,000 215,940 200,000 % 14.71 % 14.71 10.19 6.48 5.06 2.47 2.46 1.61 1.33 1.09 0.96 0.81 0.79 0.77 0.46 0.40 0.39 0.39 0.38 0.33 0.30 75 Annual Financial Report 2020Here for you for life. 

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