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Annual Report 2021

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FULL YEAR REPORT 2021 Financial Year Ended 30 June 2021 (Previous corresponding period: financial year ended 30 June 2020) COMPANY CHAIR AND CHIEF EXECUTIVE OFFICER REPORT For the financial year ended 30 June 2021 Overview Medical Developments International Limited (ASX: MVP) announced a Net Loss after Tax for the twelve months ended 30 June 2021 (FY21) of $12.6m, down from the Net Profit after Tax of $0.4m recorded for the same period in 2020. The FY21 result included the non-cash impairments announced to the market on 16 July in relation to the Medical Devices business and CSIRO Technology Project. Gross Revenue in FY21 was $25.7m, growing 9% from the $23.6m achieved in the comparable period. As noted in our half year results release, the reduction in people movements, sporting events and ambulance call- outs reduced the number of trauma events and ambulance movements, adversely affecting Australian Penthrox® sales in the first half. Encouragingly, when restrictions eased in the second half of FY21, the company experienced a strong rebound in its local Penthrox® sales with similar trends also observed in international Penthrox® markets. Respiratory product sales, whilst slightly improved in the second half, were depressed in FY21 as a result of the milder cold and flu season as well as reduced community movement and ongoing improved community hygiene practices. Annual Financial Report 2021 Annual Financial Report 2020 1 Company Chair Update I have been pleased with the rapid progress by MVP in response to the twin challenges of COVID-19 and retooling the business for international growth. Considerable work remains, but we are seeing early signs of a positive trajectory. The successful capital raising under David Williams’ leadership brought financial stability. Following sterling service by Max Johnston as interim CEO, Brent MacGregor has taken firm command of the business and is doing the heavy lifting of a major operational reset, while simultaneously maintaining business momentum in the midst of the pandemic. After many years of fine service as a non- executive Director and chair of our Audit and Risk Committee (ARC), Philip Powell will not be seeking re-election at the October AGM. I was very pleased to welcome Richard Betts who is well qualified to succeed Philip onto the Board and as ARC chair. Our Board was also greatly strengthened by the appointment of Mary Sontrop, who is playing a key role supporting Brent and the leadership team with her international experience. CEO Update Since assuming the CEO seat in November, and then arriving in Australia in January, I focused on a deep evaluation of all facets of the organisation. The return of the Penthrox® business from Mundipharma, in Europe and in Australia, offered the opportunity for MVP to reinvent itself and realise the full potential of our lead product. The Business Transformation project evaluated all facets of the organisation to ensure we had the capabilities to deliver on our global aspirations. Project outcomes included replacement of some leadership team members and the development of critical new business processes to support an international operation. The Europe Strategy project was a foundation piece to ensure we fully understand the overall size and structure of our key European markets, including critical market access steps. It has been very gratifying to see our European team putting the plan into action and delivering early sales growth. This project also re-affirmed our views on the potential for Penthrox® in these markets. Both projects were completed in April in time for the development of the FY22 operating plan, allowing for budgeting of key actions. Looking past the important operational details, I am as confident as I was in November in the potential of MVP. Promising work has continued on our next generation product (“Selfie”) and we are beginning to think of other innovations to support strategic sales growth. Finally, I acknowledge the resilience and commitment of the (now international) MVP team who have worked extraordinarily hard in a difficult and uncertain time to maintain the supply of our important products to patients. Penthrox® European transition: moving forward Reclaiming the marketing and distribution rights in Europe from Mundipharma was completed during the second half of FY21. A smooth and successful transition of the existing sales activities across Europe left MVP poised to execute new launches. MVP has engaged Medis as our distributor in five Central European markets (Czech Republic, Slovakia, Slovenia, Austria, and Croatia). Medis will undertake a complete marketing and sales effort in Slovenia and Croatia and provide logistics support in the other three markets. In the United Kingdom and the Republic of Ireland, MVP’s partner, Galen, continues to make good progress. Despite the pandemic, in-market sales grew 41% in FY21, with the UK being the key driver. The Birmingham hospital study was published, articulating the benefits of Penthrox®. Our Galen partners engaged in a roadshow with the study investigator to highlight the study outcomes. We anticipate further penetration within the UK ambulance market to build on 2 Medical Developments International Limitedthe successful addition of the Northern Ireland Ambulance Service earlier this year. local sales – the primary reason for reported Penthrox® sales falling behind the prior year. Further evidence of Galen’s in-market success includes recent launch orders from the St. John Ambulance service in England and the Scottish Ambulance service. MVP and Galen agreed in early 2021 to renew the distribution agreement in the UK and Ireland for a further 5-years. MVP’s partnership with Galen was also extended into new markets this year with an agreement for the Nordic region (Finland, Sweden, Norway, Denmark, and Iceland). Galen is well-positioned to leverage key learnings and successes in the UK and Ireland to build the Penthrox® business across these markets. We also plan to deploy our own resources directly in other key markets, particularly in France, Belgium, and the Netherlands with Germany, Italy and Spain to follow. In France, despite a significant reduction in emergency room visits, we saw only a modest sales decline. Consistent with the Europe Strategy, MVP has deployed a key account manager and will follow with eight more in FY22. In Belgium, as one of the few markets with national reimbursement, a similar approach has commenced. Australia: return of the rights MVP also took back the Australian distribution rights for Penthrox® from Mundipharma Australia in December 2020. In the lead up to the transition, Mundipharma sold through its existing stock levels which created a gap in The transition has ultimately been seamless and the focus has been on building on the GP and hospital gains made by Mundipharma last year whilst continuing to enhance the business in the core ambulance setting. A number of new Key Account Managers have been appointed to drive further growth in the Australian market in ambulance, GP and hospital settings. Canada: finding a new partner MVP has also reclaimed the Canadian Penthrox® distribution rights from Purdue. No fee was paid for the reclamation and a strategic review for Penthrox® in Canada is underway with the expectation of securing a new partnership before the end of 2021. United States: continuing the discussion MVP held a ‘Type-C’ meeting with the FDA in January 2021 where we sought further guidance on a pathway to lifting the IND clinical hold so that we could move into Phase III. The guidance was received in early April. We convened an advisory group of highly qualified pain management experts to help us develop a clinical trial protocol based on the FDA guidance. We expect to submit a revised clinical trial protocol to the FDA in the first half of FY22. 3 Annual Financial Report 2021China: in the start blocks MVP has achieved ethics approval for its required Pharmacokinetic study, with the first patient to be enrolled in Q4 2021. The two required additional studies (in trauma and minor surgical procedures) will follow shortly after. Respiratory COVID-19 meant that FY21 was difficult for our respiratory sales. We expect sales to recover but a moderated growth outlook resulted in an FY21 impairment charge of $4.706m being raised against the Medical Devices segment goodwill on the balance sheet. MVP does anticipate an improvement in our respiratory sales in FY22 following the launch of our first private label space chamber product into Walmart in the US in FY21. MVP is also soon to launch its new collapsible spacer into the Australian market, under the Breath-A- Tech brand, which has already been accepted by Australia’s largest pharmacy chain, My Chemist Warehouse. CSIRO Continuous Flow Technology Project Research has continued with the CSIRO developing alternative manufacturing methods for generic APIs utilising the continuous flow platform technology. The technology (used by MVP for production of Methoxyflurane, the active ingredient in Penthrox®) offers lower costs and a smaller carbon and physical footprint than traditional batch processing. Lidocaine stands as the most advanced process being developed under flow conditions with new targets to follow in the coming year. Through the last year, progress on formally validating new molecules at commercial scale production levels was slower than anticipated and, to-date, no licenses have been achieved, making reliable estimation of the technology’s value-in-use difficult. As a result, MVP has booked a pre-tax impairment provision for $4.3m in relation to the capitalised development costs on the basis that future economic benefit is not assured. We remain confident in the underlying technology and are continuing to pursue the development project with CSIRO. FY21 Full Year Financial Result The impact of the impairments noted above on the FY21 result are summarised below: After Tax Impact of FY21 Impairment Pre-Impairment Loss after Tax CSIRO Project Impairment Medical Device Goodwill Impairment Reported/Statutory Loss After Tax $m (4.714) (3.145) (4.706) (12.565) These impairments arose from a comprehensive assessment of the Group’s balance sheet assets. Encouragingly, the assessment strongly supported the carrying value of MVP’s Penthrox® related assets. Sales Gross revenue was up 9%, driven by increased milestone revenue from the Mundipharma hand-back of the Penthrox® Europe distribution rights, resulting in accelerated amortisation of the previously received monies. Gross Margins on product sales remain strong and largely consistent with the prior year. Expenses Operating expenses for the year (including impairment charges) increased 128% over the comparable period primarily due to the impairment charges booked in FY21 4 Medical Developments International Limited ($8.96m) and MVP’s investment in its Penthrox® European sales and distribution infrastructure. Investment in the European business in FY21 totalled approximately $9.5m, including approximately $4.8m paid to Mundipharma for services associated with the transition activities. Impairment and Penthrox® Europe related costs aside, expenses increased by less than 5% versus the comparative period. Cash In December 2020 MVP completed a successful $24.9m capital raise via a placement supported by new and existing institutional investors in Australia and offshore. This was followed by successful completion in January 2021 of a Share Purchase Plan raising a further $11.8m. The combined raisings strengthened MVP’s balance sheet. The proceeds are being primarily used to accelerate the commercialisation of Penthrox® in Europe, to strengthen the depth and breadth of the MVP team and to complete clinical and other key studies. Outlook MVP anticipates strong sales growth in FY22 driven by rapid development of our European commercial footprint and renewed vigour and focus locally to build on our strong profile in the Australian market. This is despite the ongoing challenges of COVID-19 in our key markets. We believe the changes in recent months have positioned MVP well for a period of strong international growth. We look forward to reporting further progress at our AGM scheduled for late October 2021. BRENT MACGREGOR CHIEF EXECUTIVE OFFICER GORDON NAYLOR COMPANY CHAIR Further Information: MARK EDWARDS COMPANY SECRETARY 03 9547 1888 5 Annual Financial Report 20216 Medical Developments International LimitedMr Brent MacGregor Chief Executive Officer Brent joined Medical Developments International Limited as Chief Executive Officer of the Company from 1 November 2020. Previously Brent was Senior Vice President for Commercial Operations at Seqirus having joined in 2015. Seqirus was formed that year from CSL’s acquisition of the Novartis influenza vaccines business and combining it with their own bioCSL operation. Seqirus had a turnover of circa $700m and was loss making. Seqirus by 2019 had a turnover of $1.2b and EBIT of circa $150m. Brent was at the forefront of the company’s globalisation, focused R&D and rigorous cost management. Prior to Seqirus, Brent held a number of senior executive roles at Novartis, including CEO of the Novartis influenza vaccine business, President of Novartis Vaccines (U.S.) and Head of North America. Brent joined Novartis in 2012 from Sanofi Pasteur, where he had a 16-year career. He also held a number of senior leadership roles, including Managing Director, Japan; Managing Director of Australia and New Zealand; Vice President of the Influenza/Pneumococcal Franchise and Executive Director of Global Strategic Planning. Brent graduated in 1986 with a Bachelors degree from Carleton University in Canada, a Masters degree in International Relations from the University of Reading in the UK (1987), and an MBA from the Kellogg Business School at Northwestern University in U.S. (1995). Board of Directors Mr Gordon Naylor BE (Hons), DipCompSc, MBA, CPA, GAICD, FTSE Non-Executive Chair Mr David Williams B.Ec (Hons), M.Ec, FAI Non-Executive Director Mr Max Johnston Non-Executive Director Mr Leon Hoare AssocDipAppSc(Orth), GradDipBus, GAICD Non-Executive Director Mr Philip Powell B.Com (Hons) ACA, MAICD Non-Executive Director Ms Christine Emmanuel B.Sci (Hons), M. ENT, FICPI, MAICD Non-Executive Director Ms Mary Sontrop B.AppSci, Grad Dip Quality Mgt, Grad Dip Management (Health), MBA, FAICD Non-Executive Director Mr Richard Betts B.Ec, ACA Non-Executive Director The above-named directors held office during and since the end of the financial year. Annual Financial Report 2021 7 7 Annual Financial Report 2021Innovative solutions for being pioneers in design 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-A-Tech® Peak Flow Meter • 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 pioneers in design Innovative solutions for being able to offer relief able to offer relief 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 (across numerous specialties) domestically and globally with the assistance of Penthrox® distribution partners in specific markets. 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 Innovative solutions for being independent independent Medical devices Building our product range MVP’s focus in FY22 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 • Silicone 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 now manufactures spacers for Walmart under their ‘equate’ private label brand. 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 Innovative solutions for being prepared care givers prepared care givers 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 These products are all custom assembled and tested at MVP’s TGA approved manufacturing facilities in Melbourne, Australia. The market MVP’s oxygen equipment is purchased and used by: • Ambulance services • Fire brigades • Lifesaving clubs • Military 15 Innovative solutions for being carers of all creatures 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 MVP’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. carers of all creatures 17 Innovative solutions for being masters in their field FULL YEAR REPORT Financial year ended 30 June 2021 (Previous corresponding period: financial year ended 30 June 2020) 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 33 34 39 40 41 Consolidated Statement of Changes in Equity 42 Consolidated Statement of Cash Flows Notes to the Financial Statements 43 45 19 masters in their field Directors’ Report The directors of Medical Developments International Limited (“MVP”) herewith submit the annual financial report of the company and the entities it controlled (“Group”) for the financial year ended 30 June 2021. 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 G Naylor BE (Hons), DipCompSc, MBA, CPA, GAICD, FTSE Non-Executive Chair (since 18 December 2020) Mr Naylor has enjoyed a long and successful international business career. For over 30 years he was a key part of the internationalisation of CSL, holding a range of business and functional leadership roles including Chief Financial Officer. At the time of his retirement from CSL, he was the President of Seqirus where he led the 3-year turnaround of that business into one of the most successful vaccine companies in the world. Mr Naylor joined the MVP Board on 14 October 2020, becoming Company Chair on 18 December and is also Chair of the MVP Human Resources Committee. Mr D J Williams B.Ec (Hons), M.Ec, FAICD Non-Executive Director (since 16 September 2003) Managing Director of Kidder Williams Ltd, with over 35 years experience in the investment banking sector. He is also Chairman of PolyNovo Ltd and RMA Global Limited. Mr Williams was Non-Executive Chairman of MVP since its listing until 17 December 2020. Mr R M Johnston Non-Executive Director (since 5 November 2012), Interim Executive role during the current year Mr Johnston is Chairman of Auscann Group Holdings Ltd and a former non-executive director and Chairman of Probiotec Limited. He is also a former non-executive director of Enero Group Limited and Polynovo Limited. Mr Johnston is also a Director of Prolife Foods Ltd and BARD1 Life Sciences Limited. 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 was acting CEO of MVP from 5 June 2020 until 31 October 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 (all divisions) until 2015, one of the Smith & Nephew’s largest global subsidiaries outside the USA. He served as President of Smith & Nephew’s Asia Pacific Advanced Wound Management (AWM) business for 5 years and was 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. His career has also included a senior role at Bristol-Myers Squibb (medical devices), and as Vice-Chair of Australia’s peak medical device industry body, Medical Technology Association of Australia. Mr Hoare is a member of the MVP Remuneration and Nominations Committee. He is also a non-executive director of PolyNovo Limited. 20 Medical Developments International LimitedMr P J Powell B.Com (Hons) ACA, 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 RMA Global Limited and BARD1 Life Sciences Limited and a former non-executive director of PolyNovo Limited. Philip is Chairman of MVP’s Audit and Risk Committee. 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 team 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, IP & Commercialisation manager at RMIT University, Vice President of the Council of Patent & Trademarks Attorneys of Australia and on the Life Sciences Council of SPE Australia. Ms M Sontrop B.AppSci, Grad Dip Quality Mgt, Grad Dip Management (Health), MBA, FAICD Non-Executive Director (since 5 March 2021) Ms Sontrop has extensive international experience in the biopharmaceutical sector across manufacturing operations, quality, and business integration. During her 28 years with CSL Limited, Ms Sontrop was an integral part of CSL’s globalisation through a series of major acquisitions. This included primary responsibility for the turnaround of unprofitable manufacturing operations. Subsequently as head of global plasma manufacturing, Ms Sontrop delivered a globally integrated manufacturing network spanning four countries. As head of CSL’s Australia and New Zealand pharmaceutical business, Ms Sontrop and her team delivered Australia’s most successful adolescent/adult immunisation program and achieved USFDA (US Food & Drug Administration) approval to manufacture and export CSL’s seasonal and pandemic influenza vaccines. Ms Sontrop also has significant international governance experience is currently a non-executive director of IDT Australia Limited. Mr R Betts B.Ec, ACA Non-Executive Director (since 11 May 2021) Mr Betts is an experienced executive who has held senior roles with ASX listed entities over 20 years. Mr Betts is currently CFO at Ridley Corporation Limited and was previously CFO at Pact Group Holdings Ltd for 6 years. Prior to that he held divisional finance and other executive roles at Orica Limited, these roles provided a deep understanding of working in various jurisdictions, including North America, Europe and Asia. Mr Betts has extensive financial and governance experience within international manufacturing environments. 21 Annual Financial Report 2021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 Polynovo Limited (Chairman) Since 13 March 2014 RMA Global Limited (Chairman) Since November 2014 Polynovo Limited 13 May 2014 - 13 November 2020 CannPal Animal Therapeutics Limited Since 21 April 2017 AusCann Group Holdings Ltd Since 20 December 2019 BARD1 Life Sciences Limited Polynovo Limited Philip Powell RMA Global Limited Since 17 June 2019 13 May 2014 - 13 November 2020 Since 5 April 2018 BARD1 Life Sciences Limited Since 17 June 2019 Polynovo Limited Since 27 January 2016 Polynovo Limited Since 13 May 2020 Leon Hoare Christine Emmanuel Mary Sontrop IDT Australia Limited Since 21 February 2018 Company Secretary Mr Mark Edwards, B.Acc, ACA. 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. 22 Review of Operations Penthrox® Developments European transition; moving forward Reclaiming the marketing and distribution rights in Europe from Mundipharma was completed during the second half of FY21. A smooth and successful transition of the existing sales activities across Europe left MVP poised to execute new launches. MVP engaged Medis as our distributor in five Central European markets (Czech Republic, Slovakia, Slovenia, Austria, and Croatia). Medis will undertake a complete marketing and sales effort in Slovenia and Croatia and provide logistics support in the other three markets. In the United Kingdom and the Republic of Ireland, MVP’s partner, Galen, continues to make good progress. Despite the pandemic, in-market sales grew 41% in FY21, with the UK being the key driver. The Birmingham hospital study was published, articulating the benefits of Penthrox®. Our Galen partners engaged in a roadshow with the study investigator to highlight the study outcomes. We anticipate further penetration within the UK ambulance market to build on the successful addition of the Northern Ireland Ambulance Service earlier this year. Further evidence of Galen’s in-market success includes recent launch orders from the St. John Ambulance service in England and the Scottish Ambulance service. MVP and Galen agreed in early 2021 to renew the distribution agreement in the UK and Ireland for a further 5 years. MVP’s partnership with Galen was also extended into new markets this year with an agreement for the Nordic region (Finland, Sweden, Norway, Denmark, and Iceland). Galen is well-positioned to leverage key learnings and successes in the UK and Ireland to build the Penthrox® business across these markets. We also plan to deploy our own resources directly in other key markets, particularly in France, Belgium, and the Netherlands with Medical Developments International LimitedGermany, Italy and Spain to follow. In France, despite a significant reduction in emergency room visits, we saw only a modest sales decline. Consistent with the Europe Strategy, MVP has deployed a key account manager and will follow with eight more in FY22. In Belgium, as one of the few markets with national reimbursement, a similar approach has commenced. Australia: return of the rights MVP also took back the Australian distribution rights for Penthrox® from Mundipharma Australia in December 2020. In the lead up to the transition, Mundipharma sold through its existing stock levels which created a gap in local sales – the primary reason for reported Penthrox® sales falling behind the prior year. The transition has ultimately been seamless and the focus has been on building on the GP and hospital gains made by Mundipharma last year whilst continuing to enhance the business in the core ambulance setting. A number of new Key Account Managers have been appointed to drive further growth in the Australian market in ambulance, GP and hospital settings. Canada: finding a new partner MVP has also reclaimed the Canadian Penthrox® distribution rights from Purdue. No fee was paid for the reclamation and a strategic review for Penthrox® in Canada is underway with the expectation of securing a new partnership before the end of 2021. United States: continuing the discussion MVP held a ‘Type-C’ meeting with the FDA in January 2021 where we sought further guidance on a pathway to lifting the IND clinical hold so that we could move into Phase III. The guidance was received in early April. We convened an advisory group of highly qualified pain management experts to help us develop a clinical trial protocol based on the FDA guidance. We expect to submit a revised clinical trial protocol to the FDA in the first half of FY22. China: in the starting blocks MVP has achieved ethics approval for its required Pharmacokinetic study, with the first patient to be enrolled in Q4 2021. The two required additional studies (in trauma and minor surgical procedures) will follow shortly after. Respiratory Portfolio Developments COVID-19 meant that FY21 was difficult for our respiratory sales. We expect sales to recover but a moderated growth outlook resulted in an FY21 impairment charge of $4.7m being raised against the Medical Devices segment goodwill on the balance sheet. MVP does anticipate an improvement in our respiratory sales in FY22 following the launch of our first private label space chamber product into Walmart in the US in FY21. MVP is also soon to launch its new collapsible spacer into the Australian market, under the Breath-A- Tech brand, which has already been accepted by Australia’s largest pharmacy chain, My Chemist Warehouse. CSIRO Continuous Flow Technology Project Research has continued with the CSIRO developing alternative manufacturing methods for generic APIs utilising the continuous flow platform technology. The technology (used by MVP for production of Methoxyflurane, the active ingredient in Penthrox®) offers lower costs and a smaller carbon and physical footprint than traditional batch processing. Lidocaine stands as the most advanced process being developed under flow conditions with several new targets to follow in the coming year. Through the last year, progress on formally validating new molecules at commercial scale production levels was slower than anticipated and, to-date, no licenses have been achieved, making reliable estimation of the technology’s value-in-use difficult. As a result, MVP has booked a pre-tax impairment loss of $4.3m in relation to the capitalised development costs on the basis that future economic benefit is not assured. We remain confident in the underlying technology and are continuing to pursue the development project with CSIRO. 23 Annual Financial Report 2021FY21 Full Year Financial Result Revenue was a record $25.7m, growing by 9% as a result of the increase in contract income during the current year. This income was associated with MVP taking back the EU and Canadian Penthrox® distribution rights, which accelerated the recognition in the Profit and Loss Statement of the previously deferred contract income amounts associated with the partnerships in those regions. As a result, gross margins were also higher. Expenses increased significantly during the period due to: • $9.5m of cost associated with the Penthrox® EU transition, including a once off transition services payment to Mundipharma of $4.8m; and • $9.0m of impairments recognised during the current year related to Medical Devices segment goodwill and the CSIRO Technology project. Cash flow At 30 June 2021, the group had $36.3m in cash reserves. The company completed a capital raise during the year as outlined in note 21 which raised $36.7m. During the year MVP invested: • $9.5m in taking back the Penthrox® EU distribution rights and establishing the required operational infrastructure; • $3.7 million in clinical trials and registrations for Penthrox®; • $1.1 million in our manufacturing development program with the CSIRO; and • $1.2 million in various manufacturing and office equipment. MVP will continue to invest in its regulatory program, particularly the USA and China Penthrox® registrations in FY22 and beyond. 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 Group’s respective segments. Financial position Other than the capital raising referred to in note 21, the capital structure of the group remained stable during the period and the Group has no bank debt. The FY21 result included the impact of the $9.0m of non-cash impairments announced to the market on 16 July in relation to the Medical Devices business and CSIRO Technology Project as outlined further in notes 13 and 14. Changes in state of affairs Other than as discussed in the “Review of Operations” section above, there was no significant change in the state of affairs of the company during the year. Subsequent events There has not been any 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 2021. An interim dividend was declared in the prior year. 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. 24 Medical Developments International LimitedG. Naylor* D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel M. Sontrop† R. Betts‡ Board of Directors Audit & Risk Committee Held Attended Held Attended 8 10 10 10 10 10 4 2 8 10 10 10 10 10 4 2 - - 3 - 3 3 - 1 - - 3 - 3 2 - 1 *Gordon Naylor joined the Board on 14 October 2020 and was therefore only eligible to attend 8 Board meetings in the current year. †Mary Sontrop joined the Board on 5 March 2021 and was therefore only eligible to attend 4 Board meetings in the current year. ‡Richard Betts joined the Board on 11 May 2021 and was therefore only eligible to attend 2 Board meetings in the current year. Richard has also joined the MVP Audit and Risk Committee The sole Human Resources Committee held during the year was attended by D Williams & L Hoare. Directors’ meetings The above 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, ten Board meetings, three Audit and Risk Committee meetings and one Human Resources Committee (previously Remuneration and Nominations Committee) meeting were held. Directors’ shareholdings The following table sets out each director’s relevant interest in shares at the date of this report. management personnel for the financial year ended 30 June 2021. 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 Fully paid shares • Key terms of employment contracts. G. Naylor D.J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel M. Sontrop R. Betts 266,615 9,515,242 54,300 31,244 269,180 - 18,630 3,300 Directors hold no options over shares as at 30 June 2021 (2020: Nil). 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 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: • G. Naylor (Chairman from 18 December 2020, non-executive) • D.J. Williams (Chairman until 17 December 2020, non-executive) • R.M. Johnston (Executive as outlined further below) • L. Hoare (non-executive) • P. Powell (non-executive) • C. Emmanuel (non-executive) 25 Annual Financial Report 2021 • M. Sontrop (non-executive since 5 March 2021) • R. Betts (non-executive since 11 May 2021) The company executives during or since the end of the financial year were: • B. MacGregor (Chief Executive Officer since 1 November 2020) • R.M. Johnston (Acting Chief Executive Officer until 31 October 2020) • M. Edwards (Chief Financial Officer/ Company Secretary) Max Johnston served as acting CEO for the Group between 5 June 2020 and 31 October 2020 as the Board was undertaking the search for the Group’s new CEO. Once Brent MacGregor joined as CEO on 1 November 2020, Max conducted a handover of responsibilities to Brent after which he returned to his previous role of non-executive director. 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 2021 Balance at 30 June 2020 No. Balance held upon joining No. Issued during the year via SPP No. Disposals No. Acquired No. Net Other Change No. G. Naylor - 8,000 4,615 - 254,000 D.J. Williams 9,650,782 M. Johnston L. Hoare P.J. Powell C. Emmanuel* M. Sontrop R. Betts B. MacGregor M. Edwards 39,868 14,129 264,565 - - - - - - - - - - - 3,300 - - 18,460 (154,000) 4,615 4,615 4,615 - - - - - - - - - - - - - - 9,817 12,500 - - 18,630 - - - 9,969,344 11,300 36,920 (154,000) 294,947 - - - - - - - - - - - Balance at 30 June 2021 No. 266,615 9,515,242 54,300 31,244 269,180 - 18,630 3,300 - - 10,158,511 *In December 2020 during the capital raising, it was announced that Christine Emmanuel, was allocated approximately $100,000 (15,385 of Placement Shares) through participating in the Placement. The issue of Placement Shares allocated to Christine Emmanuel is subject to MVP shareholder approval at the Group’s next AGM scheduled to be held in October 2021. Accordingly, this portion of the placement will not settle until that time. 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) - *John Sharman resigned on 5 June 2020 9,931,108 43,438 (5,202) 26 Disposals No. Acquired No. Net Other Change No. Balance at 30 June 2020 No. 9,650,782 39,868 14,129 264,565 - - - 9,969,344 - - - - - - - - - - - - - - - - Medical Developments International Limited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 Human Resources Committee, was reconfigured late in the current financial year and now comprises of G. Naylor, M. Johnston and L. Hoare. This committee determines the salary package of the company CEO 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, Free Cash Flow 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. Net Profit/(Loss) After Tax 2014-2021 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 -12,000 -14,000 0 0 0 $ ' 2014 2015 2016 2017 2018 2019 2020 2021 NPAT 875 1,529 1,569 1,820 243 1,038 379 -12,565 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) 2014 2015 2016 2017 2018 2019 2020 2021 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 - 6.98 4.50 - - 0.58 (18.35) 0.58 (18.35) 27 Annual Financial Report 2021Dividends No dividend has been declared for the full year (2020: Nil). An interim dividend was declared in the prior 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 2021: Short-Term Employee Benefits Post Employment Bonus $ Superannuation $ Long- Term Employee Benefits Share- Based Payments Long Service Leave $ Options & Rights $ Total $ 2021 Directors Gordon Naylor D. J. Williams M. Johnston L. Hoare P.J. Powell C. Emmanuel M. Sontrop R. Betts Salary & Fees $ 58,409 69,444 54,795 54,795 54,795 54,795 18,265 9,132 374,430 - - - - - - - - - 5,549 6,597 5,205 5,205 5,205 5,205 1,735 868 35,569 - - - - - - - - - - - - - - - - - - 63,958 76,041 60,000 60,000 60,000 60,000 20,000 10,000 409,999 Max Johnston served as acting CEO for the Group between 5 June 2020 and 31 October 2020 as the Board was undertaking the search for its new CEO. Max received additional remuneration for this additional work and effort as outlined in the table below. The following table discloses the remuneration of the key executives of the company in 2021: 2021 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 $ $ Executives B. MacGregor 350,537 M Johnston (Interim Chief Executive Officer) M. Edwards (CFO/ Company Secretary) 181,126 216,819 748,482 - - - - 28 14,463 266 784,608 1,149,874 17,207 - - 198,333 68% 0% 20,598 8,909 55,269 301,595 18% 52,268 9,175 839,877 1,649,802 Medical Developments International Limited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: 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% 2020 Executives J. Sharman (Chief Executive Officer) M. Edwards (CFO/ Company Secretary) 611,997 69,132 50,987 (2,046) (178,674) 551,396 (i) The fair value of the options granted to Mr Edwards as part of his remuneration were calculated at grant date using a Black Scholes Option Pricing Model. (ii) The fair value of options granted to Mr MacGregor as part of his remuneration were calculated at grant date using a Monte Carlo Simulation Model that factors in the vesting triggers that include both stock price and other factors (i.e. service tenure). Additional details in relation to the valuation methodologies applied are outlined below and also within note 33 of the Annual Report. Elements of remuneration related to performance Fees paid to non-executive directors are not directly tied to performance. Salaries paid to the key executives (including executive directors) 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 2021 financial year, no discretionary bonuses were paid or deemed 29 Annual Financial Report 2021payable based on business performance (2020: $69,132 were determined and approved by the Human Resources Committee 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, typically including market based performance hurdles and non-market based performance hurdles, including service period targets and also the approval of Penthrox® in the USA. The fair value of share options granted is estimated at the date of grant using either a Black Scholes Option Pricing Model or a Monte Carlo Simulation, 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 typically have 3 months to exercise the relevant options, after which the relevant options will lapse. 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 option plans The following share-based payment arrangements were in existence during the current reporting period: CEO option plan MVP’s CEO, Brent MacGregor commenced with MVP on 1 November 2020 at which point in time it was announced that a long-term incentive plan had been agreed to, to encourage his long-term commitment to the business. 1,968,704 options over ordinary shares were issued to the CEO under the Company’s Employee Share Option Plan. All options have a nil exercise price and no entitlement to dividends over the vesting period. The option issue is divided into four equal tranches, with the vesting criteria for each tranche as follows: • 25% vest on the achievement of a $8 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 4-year service period from the date of achieving the share price hurdle); • 25% vest on the achievement of a $9 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 3-year service period from the date of achieving the share price hurdle); • 25% vest on the achievement of a $10 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 2-year service period from the date of achieving the share price hurdle); and • 25% vest on the achievement of a $11 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 1-year service period from the date of achieving the share price hurdle). The options are subject to a share price target which commences at the grant date of the option and ceases 7 years from grant date. Following achievement of the share price target, MVP’s CEO must complete a service period (as specified above). Each tranche vests at the end of the relevant service period. The service period condition is waived if the share price hurdle is achieved by the 5th anniversary of the options grant e.g. if the share price hurdle is met 4.5 years after grant, the options will vest at the 5th anniversary. Following vesting and exercise, 50% of the shares will be subject to escrow for 24 months. If employment ceases for any reason prior to vesting, the unvested options are forfeited. Senior management option plan In September 2018 the company announced it had agreed to a LTIP with key Senior Management team members. Under the plan certain Senior Management team members were granted options with 30 Medical Developments International Limited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 option plans granted during the year and outstanding as at 30 June 2021 are outlined below: 2021 Balance at 30 June 2020 No. Granted as remuneration No. Exercised No. Lapsed/ forfeited No. B. MacGregor - 1,968,704 M. Edwards (CFO) Senior Management 100,000 - 300,000 245,000 400,000 2,213,704 - - - - - - - - Balance vested at 30 June 2021 but not exercised No. - - - Balance not vested at 30 June 2021 No. 1,968,704 100,000 545,000 Balance at 30 June 2021 No. 1,968,704 100,000 545,000 2,613,704 - 2,613,704 Options vested during the year No. - - - - A summary of option plans outstanding in relation to the Group’s key management personnel are outlined below: Issuing Entity Personnel Number of shares under option Class of shares Exercise price of option Expiry date of options Medical Developments International Ltd B. MacGregor 1,968,704 Ordinary $0.00 No expiry Medical Developments International Ltd M. Edwards 100,000 Ordinary $0.01 No expiry No options vested, lapsed, were forfeited or exercised during the year. Fair value of share options granted during the year The only grant of options to Key Management Personnel in the current year was the grant of options to the incoming CEO as outlined above. The fair value of the related options was measured at grant date using a Monte Carlo Simulation Model that factors in the vesting triggers that include both stock price and other factors (i.e. service tenure). The prior year grant of options contained non-market performance hurdles. The fair value of the related options was measured at grant date using a ‘Black-Scholes’ Option Pricing Model. Expected volatility was based on the historical share price volatility over the past 2 years prior to grant date. For valuation purposes a probability of 75% has been applied to the likelihood of achieving FDA approval for Penthrox® in the USA. Inputs into the option pricing models were as follows: CEO CFO Grant date 1-Nov-20 7-Sep-18 Grant date share price Exercise price $5.32 $0.00 Option Fair Value $4.47-$4.52 Expected volatility 52% $3.90 $0.01 $3.69 45% Expected option life 9 years 5 years Dividend (Bi-annually) Risk-free interest rate Nil 0.50% 2c 2.17% Option Valuation Model Monte Carlo Black Scholes Contracts for services Mr MacGregor is employed under an open- ended contract with a notice period of 6 months. The contract provides for a termination payment of up to 12 months’ salary if termination occurs without proper cause. Mr Edwards is employed under an open-ended contract with a notice period of four weeks. 31 Annual Financial Report 2021 The contract does not provide for any termination payments beyond payment for the notice period and any accrued employee benefit entitlements. 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 taxation services ($28,000). 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 33 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. Gordon Naylor Company Chair Melbourne, 25 August 2021 32 Medical Developments International Limited33 Annual Financial Report 202134 Medical Developments International Limited35 Annual Financial Report 202136 Medical Developments International Limited37 Annual Financial Report 202138 Medical Developments International Limited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. Gordon Naylor Company Chair Melbourne, 25 August 2021 39 Annual Financial Report 2021Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Financial Year Ended 30 June 2021 Gross revenue from sale of goods and contracts Less discounts and claims Note 2021 $’000 2020 $’000 25,672 23,640 (400) (1,105) Net revenue from sale of goods and contracts 4(a) 25,272 22,535 Cost of sales Gross profit Other income Distribution expenses Marketing expenses Occupancy expenses Administration expenses Regulatory expenses Impairment charges Finance expenses Other expenses Profit/(loss) before income tax expense Income tax benefit/(expense) Profit/(loss) for the year Other Comprehensive Income (6,173) (7,543) 19,099 14,992 4(a) 71 336 (1,573) (3,177) (1,256) (13,974) (1,299) (4,083) (1,266) (4,321) (4,354) (2,342) 4(b) (8,956) (121) (738) (14,978) 5(a) 2,413 (12,565) - (114) (1,582) 321 58 379 (42) 337 Items that may be reclassified subsequently to profit or loss, net of income tax Exchange differences on translating foreign operations 22 15 Total comprehensive income/(loss) for the year (12,550) Profit/(loss) for the year attributable to: Owners of the parent Total comprehensive income/(loss) for the year attributable to: Owners of the parent Earnings/(loss) per share: Basic (cents per share) Diluted (cents per share) (12,565) 379 (12,550) 337 24 24 (18.35) (18.35) 0.58 0.58 Notes to the financial statements are included on pages 45-75 40 Medical Developments International LimitedConsolidated Statement of Financial Position as at 30 June 2021 Note 30 June 2021 $’000 30 June 2020 $’000 30(a) 36,277 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 Other Lease liability Total Current Liabilities Non-Current Liabilities Provisions Other Lease liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings/(losses) Total Equity Notes to the financial statements are included on pages 45-75 8 9 5(c) 10 12 5(d) 13 14 15 16 17 19 20 18 19 20 21 22 23 2,648 5,728 2,337 397 15,544 4,082 5,882 33 416 47,387 25,957 11,704 2,237 4,389 34,458 52,788 100,175 6,002 - 553 68 337 6,960 294 21,907 2,712 24,913 31,873 68,302 76,895 3,545 (12,138) 68,302 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 41 Annual Financial Report 2021Consolidated Statement of Changes in Equity 2021 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 Shares issued - placement Shares issued - share purchase plan Options issued as part of CSIRO agreement Equity raising costs Closing balance 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 Issued capital $’000 Retained earnings $’000 Employee equity settled benefits reserve $’000 CSIRO option reserve $’000 Foreign currency translation reserve $’000 Total $’000 40,954 427 802 1,200 (45) 43,338 - - - - 24,900 11,768 - (727) (12,565) - (12,565) - - - - - - - - 1,167 - - - - - - - - - - 406 - - (12,565) 15 15 15 (12,550) - - - - - 1,167 24,900 11,768 406 (727) 76,895 (12,138) 1,969 1,606 (30) 68,302 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 Notes to the financial statements are included on pages 45-75 42 Medical Developments International Limited2020 $’000 22,822 (20,896) 158 200 (119) (20) (1,973) 172 429 (1,492) (7,409) (8,472) Consolidated Statement of Cash Flows for the Financial Year Ended 30 June 2021 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) Note 2021 $’000 15,937 (24,775) 44 - (66) (9) (21) Net cash generated by/(used in) operating activities 30(b) (8,890) 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 Dividends paid (net of DRP) Proceeds from the issue of shares/options Share issue transaction costs Repayment of lease liability Repayment of borrowings Net cash generated by/(used in) financing activities Net decrease in cash and cash equivalents 82 (1,247) (5,313) (6,478) 25 16 - (2,065) 37,074 (727) (141) (91) 36,115 20,747 400 (13) (197) (91) (1,966) (10,266) Cash and cash equivalents at the beginning of the financial year 15,544 25,620 Effects of exchange rate changes on the balance of cash held in foreign currencies (14) 190 Cash and cash equivalents at the end of the financial year 30(a) 36,277 15,544 Notes to the financial statements are included on pages 45-75 43 Annual Financial Report 2021Innovative solutions for being there when it happens Notes to the Financial Statements For the financial year ended 30 June 2021 there when it happens 45 1. Significant accounting policies Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and other authoritative pronouncements issued by the Australian Accounting Standards Board (AASB), and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the company and the entities it controlled for the financial year ended 30 June 2021 (“Group”). For the purposes of preparing the consolidated financial statements, the Group is a for-profit entity. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. Basis of preparation The consolidated financial statements have been prepared on the basis of historical cost, 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, 46 except for share-based payment transactions 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 Trade and other receivables Trade and other receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method, less a loss allowance. Impairment of trade and other receivables The Group assesses the expected credit losses associated with its trade and other receivables on a forward-looking basis. The Group applies the simplified approach to measuring expected credit losses, which requires expected lifetime losses to be recognised from initial recognition of the receivables. To measure the expected credit losses, trade and other receivables that share similar credit risk characteristics and days past due are grouped and then assessed for collectability as a whole. 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 previous years. There has been no observed increase in credit risk to date associated with COVID-19. (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 47 Annual Financial Report 2021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. (g) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: 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 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. 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). • 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. 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 48 Medical Developments International Limited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 post-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. (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 49 Annual Financial Report 2021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 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. The carrying value of patents, trademarks and licenses is reviewed at each reporting date for indicators of impairment. Any impairment loss is recognised as an expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. 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. 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. The carrying value of internally-generated intangible assets is reviewed at each reporting date for indicators of impairment. Any impairment loss is recognised as an expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. 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 carrying value of registration costs is reviewed at each reporting date for indicators of impairment. Any impairment loss is recognised 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 50 Medical Developments International Limitedtesting, brandnames are allocated to the relevant cash generating unit to which they relate. Any impairment loss is recognised as an expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. (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 (all 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 The Group recognises a right-of-use asset and corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases and leases of low value assets. Payments associated with short- term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Lease liabilities Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The Group’s weighted average incremental borrowing rate used during the year ended 30 June 2021 was 3.55% (2020: 3.55%). Each lease payment is allocated between the lease liability and finance costs. The finance cost is charged to profit or loss over the period of the lease to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The carrying amount of a lease liability is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g. inflation-linked payments or market rate rent reviews). A corresponding adjustment is made to the right of use asset. Right-of-use assets Right-of-use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives; • any initial direct costs; and • estimated restoration costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses, with depreciation recognised on a straight-line basis over the shorter of the asset’s useful life and the lease term. The Group applies AASB 136 Impairment of Assets to determine whether a right-of-use asset is impaired. (o) Financial liabilities Trade and other payables 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. 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 51 Annual Financial Report 2021Upfront and milestone income Revenue from upfront and milestone payments is recognised as deferred revenue (revenue received in advance) and amortised to profit or loss over the underlying contract term. As the performance obligation represents the provision of a time-based right for the Groups’ partners to exclusively sell product in a specific market, 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. (s) Share based payments Equity-settled share-based payments granted are measured at fair value at the date of grant. 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 Profit or Loss and Other Comprehensive Income. 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 (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. 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 sole performance obligation relates to the delivery of the product related to the order with no after sales service embedded or attached to the underlying sale. Settlement and volume discounts granted to customers are accounted for as offsets against sales. 52 Medical Developments International Limited(u) Application of new and revised accounting standards The Group has adopted all new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for the current reporting period, as summarised below: • 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 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform. • AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19-Related Rent Concessions. The adoption of these new and revised Standards and Interpretations did not impact the disclosures or amounts recognised in the Group’s consolidated financial statements. 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 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2 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 AASB 2021-2 Amendments to Australian Accounts Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 June 2021 30 June 2022 1 January 2022 30 June 2023 1 January 2022 30 June 2023 1 January 2023 30 June 2024 1 January 2023 30 June 2024 The adoption of the above Accounting Standards and Interpretations is not expected to impact the disclosures or amounts recognised in the Group’s consolidated financial statements. 2. Critical accounting judgements and key sources of estimation uncertainty 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 recoverable amount of the cash-generating units to which goodwill has been allocated. The recoverable amount 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 of those cash flows. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance date, that could cause a material adjustment to 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 53 Annual Financial Report 2021 the European Union, following the Group’s decision to terminate its distribution arrangement with Mundipharma in Europe. Whilst the Group’s manufacturing operations have been largely unaffected by COVID-19 related lockdown restrictions (as they are considered an ‘essential service’), its trading performance has been impacted as a result of the effect that movement restrictions have had on the demand for Penthrox® and the Group’s Medical Device products, which ultimately contributed to the Group’s decision to impair the goodwill related to its Medical Devices business. The Group is confident that demand for its products, in particular Penthrox®, will rebound as movement restrictions are eased and market conditions stabilise in the short to medium term. The Group generated net cash inflows for the year of $20.747m, comprising: • Operating cash outflows of $8.890m (principally arising due to the establishment of operations within the European Union and the effects of COVID-19 restrictions on trading performance); • Investing cash outflows of $6.478m (principally arising from continued investment in registration costs for the US, China and other jurisdictions as well as continued investment in plant and equipment); offset by • Financing activities, which generated a net cash inflow of $36.115m (principally arising from capital raising activities completed in December 2020 and January 2021). The directors are satisfied that the Group’s cash position and strong net current asset position as at 30 June 2021 will enable the Group to pay its debts as and when they fall due for a period of no less than 12 months from the date these financial statements were approved by the directors. This includes investment activities forecast to occur during the course of the 2022 financial year to fund the establishment of the Group’s operations within the European Union and continued pursuit of regulatory approval in the US and China markets for Penthrox®. business activities. The Group believes that the assumptions adopted in the recoverable amount calculations reflect an appropriate balance between the Group’s experience to date, the uncertainty associated with the ongoing impacts of COVID-19 and the long- term growth expectations of its respective businesses. The carrying amount of goodwill at the balance sheet date was $4,389,000 (2020: $9,095,000). Further details are provided in note 13. 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 these costs for impairment annually or where an impairment indicator is identified. The recoverability of these costs is ultimately contingent upon achieving registration in these jurisdictions. 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. Based on the Group’s latest forecasts, it expects to generate future taxable income, sufficient to recover the carrying value of its deferred tax asset. Going concern The FY21 Financial statements have been prepared on a going concern basis. As at 30 June 2021, the Group has significant cash holdings of $36.277m and undrawn overdraft facilities of $0.2m as set out in note 30(c). The Group has net current assets of $39.849m and net assets of $68.302m. The Group incurred a loss for the year $12.565m, including non-cash impairment charges of $8.956m (pre-tax) as set out in note 4(b) and $9.495m related to investment in the establishment of operations within 54 Medical Developments International Limited3. Segment information Products and services within each business segment The company is organised into three business units – Pharmaceuticals, Medical Devices and Veterinary products. The operating results for these business units are regularly reviewed by the Chief Executive Officer and the Board of Directors to assess their performance and make decisions about the allocation of resources. The principal products and services of each of these business units are as follows: • Pharmaceuticals – the sale of Penthrox® primarily within Australia, New Zealand, Europe the UK and some sales in 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 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Revenues: External revenue (gross) 19,536 13,138 5,756 10,151 380 351 Sales discounts and claims - - (400) (1,105) - - Total external revenue (net) 19,536 13,138 5,356 9,046 380 351 Results: Segment results 1,883 4,007 57 1,446 170 117 - - - - - - 25,672 23,640 (400) (1,105) - 25,272 22,535 - 2,110 5,570 (4,333) (2,875) (4,333) (2,875) Unallocated Profit before interest, income tax depreciation & amortisation 1,883 4,007 57 1,446 170 117 (4,333) (2,875) (2,223) 2,695 Depreciation & Amortisation (3,159) (2,132) (215) (201) (26) (24) (349) (240) (3,749) (2,597) Impairment charges (4,250) - (4,706) - - - - - (8,956) Profit before interest and tax (5,526) 1,875 (4,864) 1,245 144 93 (4,682) (3,115) (14,928) - 98 Net Interest income/(expense) Profit before income tax expense Income tax credit/(expense) Net profit/(loss) for the year Assets and Liabilities Assets Liabilities Other Segment Information Acquisition of segment assets (50) 223 (50) 223 (4,732) (2,892) (14,978) 321 2,413 58 2,413 58 (2,319) (2,834) (12,565) 379 51,193 52,856 5,688 11,480 962 977 42,332 19,446 100,175 84,759 - - - - - - 31,873 41,421 31,873 41,421 6,272 8,378 183 338 34 33 71 153 6,560 8,902 55 Annual Financial Report 2021The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. Profit before interest, income tax, depreciation, amortisation and impairment losses is the measure of profit reported to the Chief Executive Officer and Board of Directors for the purposes of resource allocation and assessment of segment performance. 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. 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. 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 2021 $’000 8,511 17,161 25,672 Revenue from external customers 2020 % 33.2% 66.8% 100.0% $’000 12,109 11,531 23,640 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 $’000 209 10,977 4,389 34,458 2,051 52,084 - 518 - - 186 704 % 51.2% 48.8% 100.0% Total $’000 209 11,495 4,389 34,458 2,237 52,788 Information about major customers The Group had no individual customers who contributed 10% or more to the Group’s total 2021 sales revenue (2020: $7.985m Mundipharma Australia). 56 Medical Developments International Limited4. Items included in profit and loss (a) Revenue and other income Gross revenue from sale of goods - at point in time Sales discounts and claims Upfront and milestone income - over time Total revenue (net) Interest income - 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 Penthrox® EU transition costs Impairment - Medical Devices Goodwill Impairment - CSIRO Development Project 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 2021 $’000 15,209 (400) 10,463 25,272 71 25,343 (1,324) (2,425) (536) (9,495) (4,706) (4,250) (1,167) (4) (112) - (9) (121) (6,478) 1,484 (737) (5,731) 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) (4,864) 57 Annual Financial Report 2021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 Deferred tax expense/(credit) relating to change in company tax rate Total tax expense 2021 $’000 2020 $’000 (453) (2,040) (15) 95 (2,413) 1,924 (1,972) (10) - (58) 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 26% (2020: 27.5%) Research & development benefit Non deductible expenses Adjustments recognised in relation to the current tax of prior year Deferred tax expense relating to change in company tax rate 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 (14,978) (3,894) (166) 1,584 (15) 95 (17) (2,413) 321 88 (163) 39 (10) - (12) (58) The tax rate used in the above reconciliation is the corporate tax rate of 26% (2020: 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 (2020: $nil) (c) Current tax assets/liabilities Income tax receivable/(payable) 2,337 33 Non-deductible expenses in FY21 primarily relates to Medical Device segment goodwill impairment charges and also share based payment expenses. The group is in a tax loss position in 2021 and intends to apply tax loss roll back provisions announced by the federal government as part of its 2020 Budget which will enable to the Group to recoup income tax paid in respect to the year ended 30 June 2019. (d) Deferred tax asset (current) Temporary differences Tax losses (e) Deferred tax liabilities Temporary differences Net Deferred Tax Asset 58 7,010 4,187 11,197 (8,960) 2,237 10,182 2,016 12,198 (10,091) 2,106 Medical Developments International LimitedTaxable/Deductible temporary differences arise from the following: 2021 Deferred tax assets/(liabilities): Accrued expenses Deferred revenue Lease liability Lease asset Other Intangibles Property, Plant & Equipment Provisions Brandnames 2020 Deferred tax assets/(liabilities): Accrued expenses Deferred revenue Lease liability Lease asset Other Intangibles Property, Plant & Equipment Provisions Brandnames Opening balance $’000 Charged to income $’000 Closing balance $’000 150 8,909 898 (770) (9,084) (16) 225 (221) 90 (34) (3,195) (105) 112 996 (6) 163 29 116 5,714 793 (658) (8,088) (22) 388 (192) (2,040) (1,950) 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 6. Key management personnel compensation 7. Remuneration of auditors 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 2021 2020 1,123 88 9 937 75 (2) Audit or review of the financial report 2021 2020 132,000 104,000 Taxation compliance services 28,000 26,300 Other assurance services - - 160,000 130,300 Share based payments 840 (179) 2,060 831 The auditor of the entity is Deloitte Touche Tohmatsu. 59 Annual Financial Report 2021 8. Current receivables Movement in the allowance for credit losses. 2021 $’000 2020 $’000 Trade receivables 2,839 3,923 Allowance for credit losses GST recoverable (294) 103 - 159 2,648 4,082 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 $340,000 (2020: $487,300) which are past due at the reporting date. The Group holds an allowance for expected credit loss of $294,000 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 Total 2021 $’000 2020 $’000 46 294 340 44 343 387 2021 $’000 2020 $’000 Balance at the beginning of the year - Impaired losses recognised on receivables Balance at the end of the year (294) (294) - - - 9. Current inventories Raw materials: At cost Work in progress: At cost Finished goods: At cost 2021 $’000 2020 $’000 1,258 1,244 1,560 1,430 3,262 3,358 Provision for obsolesence (352) (150) 5,728 5,882 The provision for obsolescence at 30 June 2021 represented predominantly obsolete materials. 10. Other current assets Prepayments 2021 $’000 2020 $’000 397 416 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 Medical Developments MD&P Limited Holder of European Penthrox® Marketing Authorisation Ireland Medical Developments USA Inc. Medical Flow Technologies Pty Ltd Distribution of medical devices United States of America Non-operating Australia 2021 100% 100% 100% 100% 2020 100% 100% 100% 100% Medical Developments NED B.V. Operating Netherlands 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 2019 Additions Balance at 30 June 2020 Additions Balance at 30 June 2021 Accumulated depreciation Balance at 30 June 2019 Depreciation expense Balance at 30 June 2020 Depreciation expense Balance at 30 June 2021 Net book value As at 30 June 2020 As at 30 June 2021 13. Goodwill 585 7 592 145 737 (419) (60) (479) (49) (528) 113 209 Gross carrying amount Balance at beginning of financial year 2021 $’000 2020 $’000 9,095 9,095 Additions - - Balance at end of financial year 9,095 9,095 - 3,074 3,074 - 3,074 4,087 8,449 13,121 - 1,485 4,566 4,087 9,934 17,687 - 1,101 1,246 4,087 11,035 18,933 - (477) (3,667) (4,563) (271) (271) (271) (542) 2,803 2,532 (341) (818) (341) (671) (1,343) (4,338) (5,906) (663) (1,324) (1,159) (5,001) (7,229) 3,269 2,929 5,596 11,782 6,034 11,704 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: 2021 $’000 2020 $’000 3,808 3,808 - 4,706 581 581 4,389 9,095 Net book value Balance at beginning of financial year 9,095 9,095 Pharmaceuticals Medical devices Veterinary Impairment loss - Medical Devices (4,706) - Balance at end of financial year 4,389 9,095 During the year, the company assessed the recoverable amount of goodwill and recognised a $4.706m impairment loss associated with the Medical Device business (2020: $nil). Refer to right for further explanation. The recoverable amount for the respective CGUs was determined as follows: Pharmaceuticals The recoverable amount was calculated using a ‘fair value less costs to dispose’ approach, which incorporates cash flow projections over five years and a terminal value, discounted to present value using a risk-adjusted post-tax discount rate. 61 Annual Financial Report 2021The recoverable amount for Pharmaceuticals represents an aggregation of: 1. an estimate of future cash flows attributable to the geographies in which the Group currently operates, allowing for further growth and expansion, assuming EBITDA growth in accordance with the business operating plan for years 2-3, an EBITDA growth rate of 20% for years 4-5 and a long-term growth rate of 2% (2020: 2%). The estimate of future cash flows was then discounted using a post-tax discount rate of 10.3% (2020: 10.3%). 2. an estimate of future cash flows expected to arise from the Chinese and US markets, allowing for expected costs to be incurred to achieve market approval, an estimate of sales volume, gross margin and operating costs and a long-term growth rate of 3% (2020: 3%). The estimate of future cash flows was then discounted using a post-tax discount rate of 20% (2020: 25%). The cash flows attributable to the geographies in which the Group currently operates (principally Australia and Europe) rely on continued growth in the short to medium term. The cash flows in these regions were subdued during the period to 30 June 2021 due to COVID-19 and related Government restrictions. The Group expect these impacts to lessen, in the short term, with demand increasing as vaccination programs improve, restrictions are eased and activity levels within respective geographies continue to increase. As announced to the ASX on 19 August 2020, the company has signed an agreement to take back the distribution rights for Penthrox® in Europe from Mundipharma. This transition was completed in FY21 and The Group expect these actions to assist in realising the Group’s market opportunity. MVP remains confident of achieving approval in the Chinese and US markets based on its 40+ years of experience, the demonstrated safety profile of Penthrox® over that time, its ongoing clinical development program and recent achievements in getting Penthrox® approved for sale in more than 40 countries around the world. Medical devices The recoverable amount was calculated using a ‘value in use’ approach, which incorporates cash flow projections over five years and a terminal value, discounted to present value using a risk-adjusted post-tax discount rate. The recoverable amount for Medical Devices is based on management forecasts for Year 1, incorporating an allowance for growth and expansion in existing markets by assuming an EBITDA growth rate in Year 2-5 of 15% (2020: 15%) per annum and a long-term growth rate of 2% (2020: 2%). The estimate of future cash flows is then discounted using a post-tax discount rate of 10.3% (2020: 10.3%). The cash flows generated by the Medical Devices business were subdued during the current year vs. FY21 forecast expectations due to COVID-19 and related Government restrictions. Whilst the Group saw an elevation in sales in Q4 FY20 arising from ‘panic buying’, demand for respiratory devices softened during FY21 as activity levels fell. The Group is cautiously optimistic that these impacts will be lessened in FY22, with demand increasing as restrictions are eased, vaccination rates improve and activity levels within respective geographies begin to increase. Nevertheless, a moderated forecast for FY22 and beyond has resulted in an impairment charge of $4.706m being recognised against the Medical Devices cash generating unit, which resulted in the full impairment of goodwill allocated to the CGU. Veterinary The recoverable amount of the Veterinary CGU is reliant upon trading performance remaining stable at current levels. 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 recoverable amount calculations reflect an appropriate balance between the Group’s experience to date, the uncertainty associated with the ongoing impacts of COVID-19 and the long- term growth expectations of its respective businesses. 62 Medical Developments International Limited14. Other intangible assets 2021 Gross carrying amount Balance at 30 June 2019 Additions Balance at 30 June 2020 Additions Balance at 30 June 2021 Accumulated amortisation Balance at 30 June 2019 Amortisation expense Balance at 30 June 2020 Amortisation expense Balance at 30 June 2021 Accumulated impairment losses Development $’000 Patents & trademarks $’000 Capitalised registration costs $’000 Brandnames $’000 Other $’000 Total $’000 5,390 1,547 6,937 1,315 8,252 (765) (234) (999) (837) (1,836) 1,137 180 1,317 258 1,575 (479) (99) (578) (108) (686) 26,498 5,672 32,170 3,741 35,911 (3,316) (835) (4,151) (1,112) (5,263) 738 - 738 - 738 - - - - - - 767 10 777 - 777 (305) (86) (391) (369) (760) 34,530 7,409 41,939 5,313 47,252 (4,865) (1,254) (6,119) (2,425) (8,544) - (4,250) Balance at 30 June 2021 (4,250) - - Net book value As at 30 June 2019 As at 30 June 2020 5,938 2,166 739 889 28,019 30,648 738 738 386 17 35,820 34,458 The amortisation charge for the year of $2,425,000 (2020: $1,254,000) has been included in administration expenses. For an explanation of amortisation periods refer Note 1 (l). The carrying amount of Other Intangible Assets allocated to cash-generating units is as follows: Pharmaceuticals Medical devices 2021 $’000 2020 $’000 32,797 34,202 1,581 1,551 Veterinary equipment 80 67 34,458 35,820 Intangible assets are assessed for indicators of impairment each balance date, or in the case of intangible assets not yet available for use, at least annually. When impairment testing is performed, management estimate the recoverable amount of the intangible asset or the cash generating unit to which the intangible asset belongs. The impairment loss recognised in the current year relates to the CSIRO Continuous Flow Technology Project. The Group is yet to formally validate new molecules at commercial scale production levels using its flow technology. This has delayed the achievement of a commercial outcome and given the inability to accurately measure the fair value of the technology and to reliably estimate its value in use, the Group has recognised an impairment provision for the full value of these capitalised development costs as at 30 June 2021 on the basis that future economic benefit is not probable. The impairment loss has been included in administration expenses. 15. Current trade and other payables Trade payables (i) Accrued expenses Employee benefits payable PAYG witholding tax payable 2021 $’000 2020 $’000 3,302 2,634 64 2 3,841 1,102 55 3 6,002 5,001 63 Annual Financial Report 2021 (i) The average credit period on purchase of 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. 16. Borrowings 19. Other liabilities Revenue received in advance 21,245 31,640 2021 $’000 2020 $’000 Secured - at amortised cost Other (i) Current Non-current 2021 $’000 2020 $’000 - - - - - 91 91 91 - 91 Summary of borrowing arrangements (i) During the current year, The Group repaid the final component of the loan form the CSIRO. (ii) The Group has an overdraft facility of $200,000. As at 30 June 2021, this remains unused. 17. Current provisions Employee benefits 553 401 2021 $’000 2020 $’000 18. Non-current provisions Employee benefits 294 269 2021 $’000 2020 $’000 The company has 68 full time equivalent employees at 30 June 2021 (2020: 65) Unearned government grant income Current Non-current 730 754 21,975 32,394 68 2,394 21,907 30,000 21,975 32,394 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 profit or loss over the term of the agreement to which the payments relate. As at 30 June 2021, $21.245m (2020: $31.640m) remains unamortised. The significant decrease in the balance of unearned income in the current year is a result of the Penthrox® distributions rights in both the EU and Canada being taken back by MVP, resulting in the remaining unearned revenue associated with those markets, being released to the profit and loss statement as revenue. Unearned government grant income represents funds received through the Commercial Ready Programme from the Federal Government, Futures Industries Manufacturing Program of the Victorian State Government and various other government funding initiatives. 20. Lease liabilities Lease liability Current Non-current 2021 $’000 2020 $’000 3,049 3,049 337 2,712 3,265 3,265 326 2,939 3,049 3,265 64 Medical Developments International Limited21. Issued capital 2021 2020 No. $’000 No. $’000 Fully paid ordinary shares Balance at beginning of financial year 65,623,491 40,954 65,516,746 40,410 Shares Issued - Dividends Reinvestment Plan - - 106,745 Share issue - Placement 3,830,769 24,900 Share issue - Share Purchase Plan Capital raising costs 1,810,412 - 11,768 (727) - - - 557 - - (13) Balance at end of financial year 71,264,672 76,895 65,623,491 40,954 Fully paid ordinary shares carry one vote per share and carry the right to dividends. In December 2020 MVP completed a successful $24.9m capital raise via a placement supported by new and existing institutional investors in Australia and offshore. This was followed by the successful completion in January 2021 of a Share Purchase Plan raising a further $11.8m. 22. Reserves 2021 $’000 2020 $’000 2021 $’000 2020 $’000 (a) Foreign currency translation reserve Balance at beginning of year (45) (3) Exchange differences arising on translating the foreign operations 15 (42) Balance at end of year (30) (45) Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations (UK and EU 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. (c) CSIRO Option Reserve Balance at beginning of year 1,200 800 Option issues for services provided 406 400 Balance at end of year 1,606 1,200 The above CSIRO option reserve at 30 June 2021, relates to 320,410 options (2020: 243,706) 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. 2021 $’000 2020 $’000 23. Retained earnings (b) Employee equity-settled benefits reserve Balance at beginning of year 802 Share-based payments recognised 1,167 711 91 Balance at end of year 1,969 802 The above equity-settled employee benefits reserve related to share options granted by the company to its CEO and Senior Management team under its employee share option plan. 2021 $’000 2020 $’000 Balance at beginning of financial year 427 2,670 Dividends paid - (2,622) Net profit attributable to members (12,565) Balance at end of financial year (12,138) 379 427 65 Annual Financial Report 2021 24. Earnings per share 2021 cents per share 2020 cents per share Basic earnings per share Diluted earnings per share (18.35) (18.35) 0.58 0.58 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 2021 $’000 2020 $’000 (12,565) 379 2021 No. 2020 No. Weighted average number of ordinary shares 68,465,397 65,586,805 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. There is no dilution of a loss for earnings per share purpose. 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 2021 No. 2020 No. 68,465,397 65,586,805 Shares deemed to be issued for no consideration in respect of: - Dilutive Options - 321,957 Weighted average number of ordinary shares for diluted EPS 68,465,397 65,908,762 25. Dividends No interim or final dividend was paid in the current year. An interim dividend of 2 cents per share was declared and paid in the 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. 2021 2020 cents per share $’000 cents per share $’000 - - - - - 1,312 1,310 2,622 - - - 2.0 2.0 4.0 - - 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 66 Medical Developments International Limited28. Related party disclosures There were no related party transactions during the 2021 financial year. 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 There has not been any 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. 2021 $’000 2020 $’000 Adjusted franking account balance 1,706 1,469 26. Short term leases 2021 $’000 2020 $’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 25 - - 25 59 25 - 84 Short term leases not accounted for under AASB 16 primarily relate to low value short- term factory leases and office equipment with lease terms < 1.5 years. The company does not have the option to purchase the leased assets at the expiry of the lease period. 27. Commitments for expenditure (a) Capital expenditure commitments There were no material capital expenditure commitments at 30 June 2021. 67 Annual Financial Report 2021 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: 2021 $’000 2020 $’000 Cash and cash equivalents (b) Reconciliation of profit for the period to net cash flows from operating activities Profit/(loss) for the period Interest received Depreciation and amortisation of non-current assets Net unrealised foreign exchange (gain)/loss Share based payments Impairment - Goodwill Impairment - CSIRO Development Project 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 36,277 36,277 (12,565) (82) 3,749 (64) 1,167 4,706 4,250 (2,304) (131) 1,434 154 19 1,019 152 (10,419) 25 (8,890) 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 Unsecured bank overdraft facility, reviewed annually and payable at call: Amount unused 200 200 200 200 68 Medical Developments International Limited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. As at 30 June 2021 the Group had no borrowings, and was in a net cash position, hence it had a nil debt to equity gearing ratio (30 June 2020: 0.2%). (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. (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), 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 expected credit losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. The Group does not have significant credit risk exposure to any single counterparty in the current year or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. (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: Liabilities Assets 2021 $’000 2020 $’000 2021 $’000 2020 $’000 852 2,705 1,266 2,012 39 34 1,307 - 139 1,407 1,282 15 69 2 163 454 514 415 125 533 2,232 2,930 3,804 4,367 USD GBP NZD EUR CND The Group does not currently consider its exposure to foreign currency to be significant and as such forward contracts and currency 69 Annual Financial Report 2021 swap agreements are not used. The Group expects to become increasingly exposed to the Euro as it’s Penthrox® European expansion progresses in coming years and will monitor the exposure accordingly. Foreign currency sensitivity analysis The Group predominantly trades in Australian dollars (AUD) but has exposure to the US dollar (USD), Great Britain Pound (GBP) and Euro (EUR) 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, GBP and EUR. 10% 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 the Australian Dollar against the respective currency there would be an equal and opposite impact on the profit. Profit or loss 2021 $’000 (41) (137) 85 2020 $’000 69 (114) - USD Impact GBP Impact Euro Impact The exposure to movement in NZD and CAD is not deemed to be material. (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 following table details the Group’s exposure to interest rate risk as at 30 June 2021 and 30 June 2020. Average interest rate % Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 Non- interest bearing $’000 Total $’000 0.26% 36,277 - - 3.55% - - 36,277 - 233 - 233 - - - - 1,141 - 1,141 - - - - 1,675 - - 36,277 2,648 2,648 6,002 - - 2,648 38,925 6,002 3,049 - 1,675 6,002 9,051 2021 Financial assets Cash Receivables Financial liabilities Payables Lease liability Borrowings 70 Medical Developments International Limited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 The following table details the Group’s sensitivity to a 50-basis point increase or decrease in interest rates. monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Profit or Loss 2021 $’000 2020 $’000 165 77 (h) Liquidity risk management The Group manages liquidity risk by maintaining adequate cash reserves and reserve borrowing facilities by continuously 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. 2021 Payables Lease Liability Borrowings 2020 Payables Lease Liability Borrowings Weighted average effective interest rate % Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 - 6,002 - - 3.55% - 337 - 1,461 1,807 - - Total $’000 6,002 3,605 - 6,339 1,461 1,807 9,607 - 5,001 3.55% 3.89% 326 91 5,418 - 1,415 - 1,415 - 2,191 - 5,001 3,932 91 2,191 9,024 71 Annual Financial Report 202132. Parent entity information 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 2021 $’000 2020 $’000 Assets Current Assets 49,890 26,230 Non-Current Assets 50,471 58,749 Total Assets 100,361 84,979 Liabilities Current Liabilities 6,540 8,142 Non-Current Liabilities 24,924 33,208 Total Liabilities 31,464 41,350 Equity Issued capital Reserves 76,895 40,954 3,575 2,002 Retained earnings (11,573) 673 Total Equity 68,897 43,629 Financial performance 2021 $’000 2020 $’000 Profit/(loss) for the year (12,246) 296 Dividends paid - (2,622) Total comprehesive income (12,246) (2,326) 33. Employee Option Plans Under the Executive Option Plans, awards are 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 either a Black Scholes option pricing model or Monte Carlo Simulation 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 the Group 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 ordinary share of Medical Developments International 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 following share-based payment arrangements were in existence during the current period: CEO Option Plan CEO, Brent MacGregor commenced with the Group on 1 November 2020 at which point in time it was announced that a long- term incentive plan had been agreed to, to encourage his long-term commitment to the business. 1,968,704 options over ordinary shares were issued to the CEO under the Company’s Employee Option Plan. All options have a nil exercise price and no entitlement to dividends. The option issue is divided into four tranches, with the vesting criteria for each tranche as follows: • 25% vest on the achievement of a $8 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 4-year service period from the date of achieving the share price hurdle); 72 Medical Developments International Limited• 25% vest on the achievement of a $9 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 3-year service period from the date of achieving the share price hurdle); • 25% vest on the achievement of a $10 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 2-year service period from the date of achieving the share price hurdle); and • 25% vest on the achievement of a $11 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 1-year service period from the date of achieving the share price hurdle). The options are subject to a share price target which commences at the grant date of the option and ceases 7 years from grant date. Following achievement of the share price target, MVP’s CEO must complete a service period (as specified above). Each tranche vests at the end of the relevant service period. The service period condition is waived if the share price hurdle is achieved by the 5th anniversary of the options grant e.g. if the share price hurdle is met 4.5 years after grant, the options will vest at the 5th anniversary. Following vesting and exercise, 50% of the shares will be subject to escrow for 24 months. If employment ceases for any reason prior to vesting, the unvested options are forfeited. Senior Management Option Plan – Tranche 1 In September 2018 the company announced it had agreed to a LTIP with key Senior Management team members. Under the plan certain Senior Management team members were granted 325,000 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. For valuation purposes a probability of 75% has been applied to the likelihood of achieving FDA approval for Penthrox® in the USA. 100,000 options within this issue contain a further vesting trigger being, the delivery of a new Active Pharmaceutical Ingredient (API) from the CSIRO manufacturing 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. Senior Management Option Plan – Tranche 2 An additional Senior Management Option Plan was granted effective from 1 July 2019. Under the plan a certain 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. Senior Management Option Plan – Tranche 3 An additional Senior Management Option Plan was granted effective from 1 November 2020. Under the plan certain Senior Management team members were granted a total of 245,000 options with each option having a strike price of $0.01 and no entitlement to dividends. Similar to the CEO option plan, this issue is divided into a further four equal tranches, with the vesting criteria for each tranche as follows: • 25% vest on the achievement of a $8 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 4-year service period from the date of achieving the share price hurdle); • 25% vest on the achievement of a $9 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 3-year service period from the date of achieving the share price hurdle); 73 Annual Financial Report 2021• 25% vest on the achievement of a $10 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 2-year service period from the date of achieving the share price hurdle); and • 25% vest on the achievement of a $11 daily VWAP for 30 consecutive trading days (vesting is also subject to the completion of a 1-year service period from the date of achieving the share price hurdle). The options are subject to a share price target which commences at the grant date of the option and ceases 7 years from grant date. Following achievement of the share price target, MVP’s CEO must complete a service period (as specified above). Each tranche vests at the end of the relevant service period. The service period condition is waived if the share price hurdle is achieved by the 5th anniversary of the options grant e.g. if the share price hurdle is met 4.5 years after grant, the options will vest at the 5th anniversary. Following vesting and exercise, 50% of the shares will be subject to escrow for 24 months. If employment ceases for any reason prior to vesting, the unvested options are forfeited. Summary of unvested options 2021 Balance at 30 June 2020 No. Granted as remuneration No. Exercised No. Lapsed/ forfeited No. B. MacGregor - 1,968,704 M. Edwards (CFO) 100,000 - Senior Management 300,000 245,000 400,000 2,213,704 - - - - - - - - Balance vested at 30 June 2021 but not exercised No. - - - - Balance not vested at 30 June 2021 No. 1,968,704 100,000 545,000 2,613,704 Options vested during the year No. - - - - Issuing Entity Personnel Tranche Number of shares under option Class of shares Exercise price of option Expiry date of options Medical Developments International Ltd B. MacGregor 1,968,704 Ordinary $0.00 No expiry Medical Developments International Ltd M. Edwards 100,000 Ordinary $0.01 No expiry Medical Developments International Ltd Senior Management 1-3 545,000 Ordinary $0.01 No expiry 2020 Balance at 30 June 2019 No. Granted as remuneration No. Exercised No. J. Sharman (CEO) 300,000 M. Edwards (CFO) 100,000 Senior Management 225,000 625,000 - - 75,000 75,000 - - - - 2,613,704 Balance vested at 30 June 2020 but not exercised No. Balance not vested at 30 June 2020 No. Options vested during the year - - - - - 100,000 300,000 400,000 - - - - Lapsed/ forfeited No. 300,000 - - 300,000 74 Medical Developments International Limited Fair value of share options granted during the year As the options contain non-market performance hurdles, they have been valued using either a ‘Black-Scholes’ Option Pricing Model or a ‘Monte Carlo’ Simulation 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: CEO CFO Senior Management (Tranche 1) Senior Management (Tranche 2) Senior Management (Tranche 3) Grant date 1-Nov-20 7-Sep-18 7-Sep-18 1-Jul-19 1-Nov-20 Grant date share price Exercise price $5.32 $0.00 Option Fair Value $4.47-$4.52 Expected volatility 52% $3.90 $0.01 $3.69 45% $3.90 $0.01 $3.69 45% $5.30 $0.01 $5.32 $0.01 $5.13 - $5.24 $4.47-$4.52 45% 52% Expected option life 9 years 5 years 5 years 1.5 - 4.2 years 9 years Dividend (Bi-annually) Nil Risk-free interest rate 0.50% 2c 2.17% 2c 2.17% 2c 0.98% Nil 0.50% Option Valuation Model Monte Carlo Black Scholes Black Scholes Black Scholes Monte Carlo Share Based Payments Expense Current year expense Reversal for forfeited options Share-based payments 2021 $’000 2020 $’000 1,167 325 - (234) 1,167 91 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 75 Annual Financial Report 2021Additional Stock Exchange Information as at 31 August 2021 Number of holders of equity securities Ordinary share capital 71,264,672 fully paid ordinary shares held by 11,844 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 6,928 3,522 763 583 48 11,844 1,481 FIL LIMITED (and associated entities) (reported as of 19 July 2021) M&G Plc and its subsidiaries (reported as of 21 October 2019) Twenty largest holders of equity securities HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR DAVID JOHN WILLIAMS J P MORGAN NOMINEES AUSTRALIA PTY LTD NETWEALTH INVESTMENTS LIMITED (WRAP SERVICES A/C) DR RUSSELL KAY HANCOCK SANDHURST TRUSTEES (ENDEAVOUR ASSET MGMT MDA A/C) NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD (DRP) BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM SANDHURST TRUSTEES LTD (JMFG CONSOL A/C) MR ALISTAIR DAVID STRONG BNP PARIBAS NOMINEES PTY LTD (AGENCY LENDING DRP A/C) MRS VIRGINA CATHERINE HANCOCK HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (NT-COMNWLTH SUPER CORP A/C) JJ OPPERMAN SUPERANNUATION PTY LIMITED BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD (DRP A/C) MR MICHAEL CLIFFORD HICKLING & MRS GIOVANNA HICKLING PNSF PTY LTD NAYLOR-STEWART INVESTMENTS PTY LTD (NAYLOR-STEWART FAMILY A/C) 76 Number 9,515,242 4,091,641 3,295,094 Number 10,681,935 9,515,242 3,841,527 2,123,575 1,614,214 1,319,769 875,973 857,359 732,550 707,082 673,102 630,000 542,986 518,487 486,410 422,711 340,737 285,551 269,180 266,615 % 13.35 5.74 5.02 % 14.99 13.35 5.39 2.98 2.27 1.85 1.23 1.20 1.03 0.99 0.94 0.88 0.76 0.73 0.68 0.59 0.48 0.40 0.38 0.37 Medical Developments International Limited 

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