Advancing Tissue Repair and Regeneration
ANNUAL REPORT 2014
Othocell Limited - Prospectus
page 1
Orthocell Limited
Contents
30 June 2014
Corporate directory
Directors report
Auditor’s independence declaration
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members of Orthocell Limited
Corporate Governance Statement
Additional ASX Information
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Orthocell Limited
Corporate directory
30 June 2014
Directors
Dr Stewart Washer, Executive Chairman
Mr Paul Anderson, Managing Director
Professor Lars Lidgren, Non-Executive Director
Mr Matthew Callahan, Non-Executive Director
Mr Qi Xiao Zhou, Non-Executive Director
Company secretary
Mr Simon Robertson
Registered office
Share register
Auditor
Solicitors
Building 191
Murdoch University
South Street
Murdoch WA 6150
Automic Registry Services
Suite 1a, Level 1
7 Ventnor Avenue
West Perth WA 6005
PKF Mack & Co
4th Floor
35 Havelock Street
West Perth WA 6005
Gilbert + Tobin
1202 Hay Street
West Perth WA 6005
Bankers
Westpac Banking Corporation
Securities exchange listing
Australian Securities Exchange (ASX code: OCC)
Website
www.orthocell.com.au
1
Orthocell Limited
Directors’ report
30 June 2014
The directors present their report, together with the consolidated financial statements, on the consolidated entity
(referred to hereafter as the 'consolidated entity') consisting of Orthocell Limited (referred to hereafter as the
'Company' or 'parent entity') and the entity it controlled at the end of, or during, the year ended 30 June 2014.
Directors
The following persons were directors of Orthocell Limited during the financial year and up to the date of this report,
unless otherwise stated:
Dr Stewart Washer, Executive Chairman (appointed 7 April 2014)
Mr Paul Anderson, Managing Director (appointed 21 March 2006)
Professor Lars Lidgren, Independent Non-Executive Director (appointed 17 December 2007)
Mr Matthew Callahan, Non-Executive Director (appointed 30 May 2006)
Mr Qi Xiao Zhou, Non-Executive Director (appointed 2 November 2012)
Mrs Fiona Melanie Wood, Independent Non-Executive Director (appointed 16 August 2006, resigned 8 April 2014)
Principal activities
During the financial year the principal continuing activities of the consolidated entity consisted of the development
and commercialisation of cell therapies and related technologies.
Review and results of operations
The loss for the consolidated entity after income tax amounted to $2,182,185 (30 June 2013: $1,323,330).
During the financial year the Company continued to develop its data evidence base and marketing tools that has
seen an increase in its market presence and share.
The Company progressed the clinical delivery of its lead products for tendon and cartilage regeneration and
continued development towards the clinical phase of its collagen scaffold based medical devices.
During the year the Company also undertook preparation for its listing on the Australian Securities Exchange (ASX)
which occurred on 12 August 2014.
Dividends
No dividends were paid during the current or previous financial years and no dividends have been declared
subsequent to the financial year end and up to the date of this report.
Significant changes in the state of affairs
During the year the Company raised $2,164,440 through the issue of 400,516 preference shares for working capital
purposes and to progress its listing on the Australian Securities Exchange (ASX) and the issue of 27,500 ordinary
shares on the exercise of options.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Likely developments and expected results of operations
Having completed
the development and
commercialisation of cell therapies and related technologies. The Company expects to complete and publish
clinical trials currently being conducted and progress regulatory approvals. The use of the Company’s cash for
these activities is consistent with the Company’s business objectives.
the Company will continue
IPO, raising $8m,
its successful
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth
or State law.
Therapeutic Goods Administration regulation
Orthocell Limited is subject to Australian federal legislation administered by the Therapeutic Goods Administration
(TGA). Orthocell hold a manufacturing license (MI-19052008-LI-002420-11) provided by the TGA for tissue
processing, on site storage and release for supply of autologous tenocytes and chondrocytes.
2
Orthocell Limited
Directors’ report
30 June 2014
Information on directors
Name:
Title:
Dr Stewart Washer
Executive Chairman
Experience and expertise:
Dr Washer has 20 years of CEO and Board experience in medical technology,
biotech and agrifood companies. He is currently the Chairman of Cynata
Therapeutics Ltd (ASX:CYP), a company developing stem cell therapies and
Chairman of Minomic International Ltd who have an accurate non-invasive test for
prostate cancer.
Dr Washer was previously the CEO of Calzada Ltd (ASX:CZD), the founding CEO
of Phylogica Ltd (ASX:PYC) and before this, he was CEO of Celentis and
managed the commercialisation of intellectual property from AgResearch in New
Zealand with 650 Scientists and $130 million revenues. He was also a founder of
a NZ$120m New Zealand based life science fund and Venture Partner with the
Swiss based Inventages Nestlé Fund.
Directorships (last 3 years):
Dr Washer is currently a director of Cynata Therapeutics Ltd (ASX: CYP). In the
past 3 years Dr Washer has been a director of the following listed entities: iSonea
Ltd (ASX:ISN, from 2012 to 2014), Immuron Ltd (ASX: IMC, from 2012 to 2013)
and AusBiotech Ltd. He was also a Senator with Murdoch University.
Interest in shares:
369,267
Interests in options:
1,250,000
Name:
Title:
Paul Anderson
Managing Director
Experience and expertise:
Mr Anderson has over 15 years’ experience in the medical device and cellular
therapeutic fields with expertise in bridging the gap between research and clinical
practice in the development of emerging medical technologies.
Mr Anderson has a strong track record in his previous board position as Managing
Director with Verigen Australia Pty Ltd a human cell therapies company. Mr
Anderson has extensive experience in the establishment of GMP manufacturing
facilities for cell therapies, sales of orthopaedic and other medical devices and
therapies and associated regulatory filings.
Directorships (last 3 years):
Nil
Interest in shares:
6,963,608
Interests in options:
1,250,000
Name:
Title:
Matthew Callahan
Non-Executive Director
Experience and expertise:
Mr Callahan is a founding director of Orthocell. He is also the founding CEO of
iCeutica and a co-inventor of some of the technologies that comprise the
SoluMatrix Fine Particle Technology™ for improving the bioavailability of
pharmaceuticals. iCeutica and its partner Iroka Pharmaceuticals have successfully
secured the approval of two drugs by US FDA and has 6 separate clinical
programs underway using the technology. He has more than 20 years legal,
licensing and investment management experience and was also the founding
CEO of Dimerix Bioscience Pty Ltd and is a director of Glycan Bioscience LLC.
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Orthocell Limited
Directors’ report
30 June 2014
Mr Callahan has worked as investment director for two venture capital firms
investing in life sciences and other sectors. He was General Manager and General
Counsel with an ASX listed patent licensing company where he was responsible
for licensing programs that have generated over $100 million in revenue.
Directorships (last 3 years):
Nil
Interest in shares:
10,179,559
Interests in options:
1,250,000
Name:
Title:
Professor Lars Lidgren
Independent Non-Executive Director
Experience and expertise:
Professor Lidgren has authored and co-authored over 250 original publications,
and has more than 150 patents/applications. He was spokesman for Biomaterials
in the Nordic Orthopaedic Society, Chairman for the Swedish National Knee
Register, Director of the National Board of Health and Welfare, Musculoskeletal
Competence Centre and member of several editorial boards. Professor Lidgren
initiated and has led the UN ratified Bone and Joint Decade He founded
Scandimed, a global leading company in bone cements and delivery, acquired by
Biomet. He is the inventor, founder and board member of Bone Support, an
emerging leader in bone therapeutics. In 2014 a successful oversubscribed IPO
was undertaken
in a privately held health/security/mobile communication
company, GWS (Nasdaq: OMX, expected listing date 15 October 2014), where he
is chairman and majority shareholder.
Directorships (last 3 years):
Nil
Interest in shares:
923,523
Interests in options:
Nil
Name:
Title:
Qi Xiao Zhou
Non-Executive Director
Experience and expertise:
Mr Zhou has 15 years’ experience within China as a senior business manager and
executive. Mr Zhou is the founding CEO of Shenzhen Lightning Digital Technology
Co Ltd, a company focused on the manufacture and distribution of electronic
semiconductor since 2001. Mr Zhou has experience within the public markets in
Hong Kong, China and Taiwan and brings to the Board a wealth of business
management and development experience. In particular Mr Zhou has broad
connections and experience in the licensing of technologies into the Asian region.
Directorships (last 3 years):
Nil
Interest in shares:
5,955,673
Interests in options:
Nil
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Orthocell Limited
Directors’ report
30 June 2014
Company secretary
Simon Robertson has held the role of Company Secretary since 8 November 2012. Mr Robertson gained a
Bachelor of Business from Curtin University in Western Australia and Master of Applied Finance from Macquarie
University in New South Wales. He is a member of the Institute of Chartered Accountants and the Governance
Institute of Australia. Mr Robertson currently holds the position of Company Secretary for a number of publically
listed companies and has experience in corporate finance, accounting and administration, capital raisings and ASX
compliance and regulatory requirements.
Meetings of directors
The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 30 June
2014, and the number of meetings attended by each director was:
Full Board
Held(1)
Stewart Washer
Paul Anderson
Matthew Callahan
Lars Lidgren(2)
Qi Xiao Zhou
Fiona Wood
Attended
1
2
2
0
2
0
1
2
2
2
2
1
(1) Held: represents the number of meetings held during the time the director held office.
(2) Due to Lars Lidgren being based overseas he was unable to attend the two directors’ meetings however he
was given a full brief of all meeting matters prior to the meetings being held.
Remuneration report (audited)
This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the
consolidated entity in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the
purposes of this report Key Management Personnel (KMP) of the consolidated entity are defined as those persons
having the authority and responsibility for planning, directing and controlling the major activities of the Company
and the consolidated entity, directly or indirectly, including any director (whether executive or otherwise) of the
parent Company, and includes the Chief Financial Officer.
Remuneration Philosophy
The performance of the Company depends upon the quality of its directors and executives. To prosper, the
Company must attract, motivate and retain highly skilled directors and executives.
To this end, the Company embodies the following principles in its remuneration framework:
•
•
•
Provide competitive rewards to attract high calibre executives.
Link executive rewards to shareholder value.
A portion of executive remuneration may be put ‘at risk’, dependent on meeting pre-determined performance
benchmarks.
• Where appropriate, establish performance hurdles in relation to variable executive remuneration.
Due to the early stage of development which the Company is in, shareholder wealth is directly affected by the
Company share price, as the Company is not in a position to pay dividends. By remunerating directors and
Executives in part by options, the Company aims to align the interests of directors and executives with shareholder
wealth, thus providing individual incentive to perform and thereby improving overall Company performance and
associated value.
Remuneration structure
Non-executive director remuneration
Objective
The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract
and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
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Orthocell Limited
Directors’ report
30 June 2014
Structure
The maximum aggregate amount of fees that can be paid to non-executive Directors is subject to approval by
shareholders at General Meetings and is currently set at $450,000.
The amount of aggregate directors’ fees sought to be approved by shareholders and the manner in which it is
apportioned amongst directors will be reviewed annually. The Board may consider advice from external
consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the
annual review process.
Each non-executive director receives a fee for being a director of the Company. In addition, if a director performs
extra or special services beyond their role as a director, the Board may resolve to provide additional remuneration
for such services.
Fees for directors are not linked to the performance of the consolidated entity however, to align all directors’
interests with shareholder interests, directors are encouraged to hold shares in the Company and may receive
options. This effectively links directors’ performance to the share price performance and therefore to the interests of
shareholders. For this reason there are no performance conditions prior to grant, but instead an incentive to
increase the value to all shareholders.
During the financial year ended 30 June 2014 the Company did not grant any options to Non-Executive Directors.
The remuneration of non-executive directors for the years ended 30 June 2014 and 30 June 2013 are detailed in
the tables on page 7 of this report.
Executive remuneration
Objective
The Company aims to reward executives (both directors and Company executives) with a level and mix of
remuneration commensurate with their position and responsibilities within the Company so as to:
•
Attract and retain high quality individuals.
• Reward executives for Company performance.
•
•
•
Align the interest of executives with those of shareholders.
Link reward with the strategic goals and performance of the Company.
Ensure total remuneration is competitive by market standards.
Structure
Executive remuneration consists of both fixed and variable (at risk) elements.
Fixed Remuneration
Objective
The level of fixed remuneration is set so as to provide a base level of remuneration which is both appropriate to the
position and is competitive in the market.
Fixed remuneration is reviewed annually or upon renewal of fixed term contracts by the Board and the process
consists of a review of Company and individual performance, relevant comparative remuneration in the market and
internal policies and practices.
Structure
Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and
fringe benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating
undue cost for the Company.
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Orthocell Limited
Directors’ report
30 June 2014
Variable Remuneration
Objective
The objective of variable remuneration provided is to reward executives in a manner which aligns this element of
remuneration with the creation of shareholder wealth.
Structure
Variable remuneration may be delivered in the form of a cash bonuses, or share options. During the financial year
ended 30 June 2014 the Company did not grant any options to Executives.
The remuneration of executives for the years ended 30 June 2014 and 30 June 2013 are detailed in the tables
below.
Details of remuneration
Amounts of remuneration
Details of the remuneration of the key management personnel of the consolidated entity are set out in the following
tables.
The key management personnel of the consolidated entity consisted of the following directors of Orthocell Limited:
• Dr Stewart Washer - Executive Chairman
• Paul Anderson - Managing Director
• Matthew Callahan - Non-Executive Director
• Professor Lars Lidgren - Non-Executive Director
• Qi Xiao Zhou - Non-Executive Director
• Dr Fiona Melanie Wood - Non-Executive Director
Short-term benefits
Cash salary
and fees(4)
$
Bonus(1)
$
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long service
leave
$
Share-
based
payments
$
37,500
-
-
31,800
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
37,500
-
-
31,800
60,000
235,887
-
50,000
-
26,445
-
12,026
-
60,000
- 324,358
2014
Non-Executive Directors:
Matthew Callahan
Lars Lidgren
Qi Xiao Zhou
Fiona Melanie Wood(2)
Executive Directors:
Stewart Washer(3)
Paul Anderson
Total
365,187
50,000
26,445
12,026
- 453,658
2013
Non-Executive Directors:
Matthew Callahan
Lars Lidgren
Qi Xiao Zhou(5)
Fiona Melanie Wood
Executive Directors:
Paul Anderson
Total
15,000
-
-
-
192,779
207,779
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000
-
-
-
17,350
24,838
18,048 253,015
17,350
24,838
18,048 268,015
(1) Discretionary bonus as approved by the board.
(2) Resigned on 8 April 2014
(3) Appointed on 7 April 2014
(4) During the year ended 30 June 2013 there was no remuneration linked to performance.
(5) Appointed on 2 November 2012.
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Orthocell Limited
Directors’ report
30 June 2014
Share-based compensation
There were no share-based compensation payments to key management personnel during the year ended 30 June
2014.
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the Company held during the financial year by each director and other members of key
management personnel of the consolidated entity, including their personally related parties, is set out below:
Ordinary shares
Paul Anderson
Matthew Callahan(2)
Lars Lidgren
Qi Xiao Zhou
Series A preference shares(1)
Stewart Washer
Matthew Callahan(2)
Series A2 preference shares(1)
Paul Anderson
Matthew Callahan(2)
Qi Xiao Zhou
Balance at
the start of
the year
Received as
part of
remuneration
Additions
Disposals/
Other
Balance at
the end of
the year
414,590
92,593
45,000
319,677
871,860
-
465,154
465,154
4,477
56,433
33,240
94,150
-
-
-
-
-
-
-
-
-
-
-
-
11,658
-
-
-
11,658
9,542
-
9,542
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
426,248
92,593
45,000
319,677
883,518
9,542
465,154
474,696
4,477
56,433
33,240
94,150
(1)
Subsequent to year end all Series A and Series A2 Preference Shares were converted to Ordinary Shares and split on the basis of
16.16718 per share.
(2) Mr Callahan is a founder and director of Stone Ridge Ventures Pty Ltd which is the manager of the SRV Tech Trust, a venture capital
fund. Mr Callahan’s interest in shares is held indirectly through:
•
•
SRV Custodians Pty Ltd as trustee for the SRV Tech Trust which is the venture capital fund (574,026 shares) in respect of which
AustralianSuper Investments Pty Ltd, as trustee of the AustralianSuper Private Equity Trust is the sole unit holder; and
SRV Nominees Pty Ltd as trustee for the SRV Trust which is the carry trust for the SRV Tech Trust (40,154 shares).
Mr Callahan is considered to have a relevant interest in these shares due to his position as a director or shareholder of the respective
trustee companies and holds a beneficial interest in the SRV Trust.
Option holding
The number options over ordinary shares in the Company held during the financial year by each director and other
members of key management personnel of the consolidated entity, including their personally related parties, is set
out below:
Options over ordinary shares:
Paul Anderson
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
11,658
-
(11,658)
-
-
Other transactions with key management personnel and their related parties
There were no transactions with key management personnel.
8
Orthocell Limited
Directors’ report
30 June 2014
Employment Contracts
The Company has entered into employment agreements with the following key employees (each an Executive) on
the following material terms and conditions.
Name
Position
Salary
Short term incentive
Mr Paul Anderson Managing
Director
$280,000 per
annum plus
superannuation
A bonus of a maximum of 25% of Base
Salary may be payable each year subject
to achievement of key performance
indicators to be agreed by the Board.
Mr Anderson was also granted 1,250,000
options on 4 August 2014
Position Salary Short term incentive
Under the employment agreement:
Notice
period
6 months
(i) either party may terminate the employment agreement by providing the amount of notice set out in the table
above. The Company may terminate the agreement without notice (and without having to pay the Executive
an amount in lieu of notice) if the Executive engages in serious or wilful misconduct;
(ii)
the Executive is entitled to 20 days annual leave and 10 days personal leave per annum, and to long service
leave and other paid and unpaid leave in accordance with applicable legislation;
(iii) the Executive acknowledges that intellectual property created by the Executive will be owned by the Company;
(iv) the Executive agrees to keep confidential information secret and confidential except to the extent required by
law; and
(v) during the employment and for a period of 12 months post-employment (or less if a court finds 12 months to
be invalid), the Executive agrees not to carry on any business that competes with the business of the
Company, solicit, employ or engage any director, employee or contractor of the Company, or entice, provide
services to, or accept services from any customer, contractor or supplier of the Company to discontinue their
relationship with the Company or otherwise reduce the amount of business they do with the Company. This
restraint applies in Australia and New Zealand (or if a court finds this invalid, across, Australia, or if a court
finds this invalid, across Western Australia.
Consulting arrangements
The Company has entered into the consulting agreements with the parties set out below under which directors
Matthew Callahan and Stewart Washer are to provide services to the Company. The key terms of the consulting
agreements are as follows:
Contractor /
Key Employee
Bocca Consulting Pty
Ltd /
Mr Matthew Callahan
Biologica Ventures
Pty Ltd /
Dr Stewart Washer
Consulting fee
Consulting services
$1,500 per day
Advisory services to the Company on general matters
relating to the Company’s business, identifying,
evaluating and developing new opportunities, performing
duties as a non-executive director and any other duties
as may be delegated by the Board from time to time.
$120,000 per annum plus
annual bonus of 20% of the
consultancy fee dependent
upon achieve of key
performance indicators
agreed to by the Board
Services to the Company in relation to acting as
Chairman of the Company. The Company and Dr
Washer acknowledge that Dr Washer will be the
Executive Chairman of the Company pursuant to this
consultancy agreement.
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Orthocell Limited
Directors’ report
30 June 2014
The Company can terminate a consulting agreement on 3 months’ notice. The Company may terminate the
agreement without notice (and without having to pay the Consultant an amount in lieu of notice) if the Consultant or
the Key Employee is guilty of gross misconduct, the Key Employee dies, or becomes permanently incapacitated or
incapacitated for a period of 2 months in any 6 month period, the Consultant or the Key Employee breaches the
agreement and does not rectify the breach, the Key Employee ceases to be a Director, the Consultant or the Key
Employee fails to provide the services under the agreement or breaches the covenants under the agreement. The
Consultant may terminate the agreement by 6 months’ notice or by notice if the Company breaches the agreement
or fails to observe any provision and has not adequately responded to the breach or non-observance within 15
days.
The consultants and the key employees acknowledges that intellectual property created by them in providing
services under the agreements will be owned by the Company, and undertakes not to divulge any confidential
information except so far as may be necessary in connection with the proper performance of their obligations to the
Company under the agreement or with the consent of the Company.
The Company also granted Mr Callahan and Mr Washer 1,250,000 options each on 4 August 2014.
Non-Executive Directors letters of appointment
Pursuant to letters of continuing appointment Mr Callahan, Professor Lars Lidgren and Mr Qi Xiao Zhou are
continuing their appointments to the Board as a Non-Executive Directors following listing. Mr Callahan, Professor
Lars Lidgren and Mr Qi Xiao Zhou will each be paid a directors fee of $45,000 per annum. Mr Callahan, Professor
Lars Lidgren and Mr Qi Xiao Zhou are also entitled to fees or other amounts as the Board determines where they
perform special duties or otherwise perform special duties or otherwise perform services outside the scope of the
ordinary duties of a director. They may also be reimbursed for all reasonable and properly documented expenses
incurred in performing their duties.
Directors’ and Officers’ deeds of indemnity, access and insurance
The Company has entered into a deed of indemnity, access and insurance with each of its Directors and the
Company Secretary. Under these deeds, the Company agrees to indemnify each officer to the extent permitted by
law against any loss which the officer may incur, or be liable for, arising from or in connection with the officer acting
as an officer of the Company. Under the deeds, the Company is also required to enter into an insurance policy for
the benefit of the officer that insures the officer for all liability to which the officer is exposed in providing services in
the capacity of an officer of the Company for which insurance may be legally obtained. When the policy expires, the
Company must ensure that it maintains an insurance policy for the officer during the officer’s term of appointment
that is on terms no less favourable to the officer (subject to the ability of the Company to reduce the scope of the
insurance to the extent it considers reasonable if it is determined that the cost of maintaining it is such that it is not
in the interests of the Company to maintain it, or the Company is unable to obtain the insurance on reasonable
terms).
This concludes the remuneration report, which has been audited.
10
Orthocell Limited
Directors’ report
30 June 2014
Shares under option
At the date of this report there are 5,912,500 options exercisable at $0.50 on or before 3 August 2017 on issue.
Shares issued on the exercise of options
The following ordinary shares of the Company were issued during the year ended 30 June 2014 and up to the date
of this report on the exercise of options granted:
Date options granted
Exercise price
Number of
shares issued
15 August 2010
$2.39
27,500
Indemnity and insurance of officers
The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as
a director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the Company paid a premium in respect of a contract to insure the directors and
executives of the Company against a liability to the extent permitted by the Corporations Act 2001. The Company
paid a premium of $5,001 in respect of this policy.
Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor
of the Company or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the
Company or any related entity.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings
on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of
taking responsibility on behalf of the Company for all or part of those proceedings.
Matters subsequent to the end of the financial year
On 2 May 2014 meetings of shareholders approved, subject to the ASX providing official quotation of the
Company’s shares:
1) The conversion of the Series A and Series A2 preference shares into ordinary shares; and
2) The division of each ordinary share into 16.16718 ordinary shares.
On 28 May 2014 the Company lodged a prospectus with the Australian Securities and Investments Commission to
raise a maximum of $8,000,000 and list on the ASX.
The offer closed oversubscribed on 18 July 2014.
On 1 August 2014 the ASX provided conditional approval for official quotation of the Company’s shares.
Accordingly the effective date for the conversion and division approved by shareholders was 1 August 2014.
On 4 August 2014 the following securities were issued;
• 20,000,000 ordinary shares each at an issue price of $0.40 raising $8,000,000 (before costs) pursuant to the
prospectus; and
• 5,912,500 options with an exercise price of $0.50 exercisable on or before 3 August 2017 for nil consideration.
The Company shares commenced trading on ASX on 12 August 2014.
No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly
affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of
affairs in future financial years.
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Orthocell Limited
Directors’ report
30 June 2014
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by
the auditor are outlined in note 21 to the consolidated financial statements.
The directors are satisfied that the provision of non-audit services during the financial 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 directors are of the opinion that the services as disclosed in note 21 to the consolidated financial statements
do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following
reasons:
• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and
objectivity of the auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards
Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making
capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.
Officers of the Company who are former audit partners of PKF Mack & Co
There are no officers of the Company who are former audit partners of PKF Mack & Co.
Auditor's independence declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is
set out on the following page.
Auditor
PKF Mack & Co continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations
Act 2001.
On behalf of the directors
Paul Anderson
Managing Director
19 September 2014
Perth
12
AUDITOR’S INDEPENDENCE DECLARATION
TO THE DIRECTORS OF ORTHOCELL LIMITED
In relation to our audit of the financial report of Orthocell Limited for the year ended 30 June 2014, to
the best of my knowledge and belief, there have been no contraventions of the auditor independence
requirements of the Corporations Act 2001 or any applicable code of professional conduct.
PKF MACK & CO
SIMON FERMANIS
PARTNER
19 SEPTEMBER 2014
WEST PERTH,
WESTERN AUSTRALIA
13
Orthocell Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2014
Revenue
Sales revenue
Cost of goods sold
Gross profit
Other revenue
Expenses
Administrative & general expenses
Sales & marketing expenses
Orthopaedic distributor costs
Employment expenses
Laboratory / research & development costs
Other expenses
Loss before income tax expense
Income tax benefit/(expense)
Loss after income tax expense
Other comprehensive income
Note
Consolidated
2014
$
2013
$
3
3
4
5
691,405
524,281
(597,151)
(482,169)
94,254
42,112
1,123,434
1,253,544
498,372
200,646
371,314
1,643,418
686,123
-
3,399,873
415,860
132,076
392,567
1,208,548
450,751
19,184
2,618,986
(2,182,185)
(1,323,330)
-
-
(2,182,185)
(1,323,330)
Other comprehensive income for the year, net of tax
-
-
Total comprehensive loss
(2,182,185)
(1,323,330)
Loss per share
Basic earnings per share
Diluted earnings per share
Cents
(0.61)
(0.61)
Cents
(0.40)
(0.40)
28
28
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
14
Orthocell Limited
Statement of financial position
As at 30 June 2014
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Total current assets
Non-current assets
Property, plant and equipment
Intangibles
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Other
Total current liabilities
Non-current liabilities
Other
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Total equity
Consolidated
Note
2014
$
2013
$
6
7
8
9
10
11
12
13
14
3,467,352
126,716
151,871
305,335
591,144
91,208
185,024
57,077
4,051,274
924,453
286,893
799,714
302,815
537,706
1,086,607
840,521
5,137,881
1,764,974
3,855,443
232,010
218,540
303,241
158,869
225,130
4,305,993
687,240
15
755,700
863,650
755,700
863,650
5,061,693
1,550,890
76,188
214,084
16
17
18
8,050,570
-
(7,974,382)
5,921,133
85,148
(5,792,197)
76,188
214,084
The above statement of financial position should be read in conjunction with the accompanying notes
15
Orthocell Limited
Statement of changes in equity
For the year ended 30 June 2014
Consolidated
Issued
capital
$
Option
reserve
$
Accumulated
losses
$
Total
equity
$
Balance at 1 July 2012
4,414,833
70,294
(4,468,867)
16,260
Loss after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Contributions of equity
Share equity costs
Vested options
-
-
-
1,500,000
(66,420)
-
-
-
-
-
-
42,574
Exercised options share value
45,000
-
Exercised options reserves transfer
27,720
(27,720)
(1,323,330)
(1,323,330)
-
-
(1,323,330)
(1,323,330)
-
-
-
-
-
1,500,000
(66,420)
42,574
45,000
-
Balance at 30 June 2013
5,921,133
85,148
(5,792,197)
214,084
Consolidated
Issued
capital
$
Option
reserve
$
Accumulated
losses
$
Total
equity
$
Balance at 1 July 2013
5,921,133
85,148
(5,792,197)
214,084
Loss after income tax expense for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as
owners:
Contributions of equity
Share equity costs
Exercised options share value
-
-
-
2,098,714
(120,151)
65,726
-
-
-
-
-
-
Exercised options reserves transfer
85,148
(85,148)
(2,182,185)
(2,182,185)
-
-
(2,182,185)
(2,182,185)
-
-
-
-
2,098,714
(120,151)
65,726
-
Balance at 30 June 2014
8,050,570
-
(7,974,382)
76,188
The above statement of changes in equity should be read in conjunction with the accompanying notes
16
Orthocell Limited
Statement of cash flows
For the year ended 30 June 2014
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments from suppliers and employees (inclusive of GST)
Receipt from license fee
Grants received
R&D tax concession received
Interest received
Note
Consolidated
2014
$
2013
$
1,099,848
(3,477,304)
-
78,894
530,426
15,110
1,046,332
(3,021,088)
1,079,550
44,686
535,390
24,558
Net cash used in operating activities
27
(1,753,026)
(290,572)
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share equity costs
Proceeds from IPO – held in trust
Share equity costs – IPO
Net cash from/(used in) financing activities
Net increase /(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
6
6
(4,872)
(268,381)
(17,223)
(82,834)
(273,253)
(100,057)
2,164,440
(120,151)
2,985,100
(126,902)
-
(66,420)
-
-
4,902,487
(66,420)
2,876,208
591,144
(457,051)
1,048,195
3,467,352
591,144
The above statement of cash flows should be read in conjunction with the accompanying notes
17
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.
New, revised or amending Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been
early adopted.
Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting
Standards and Interpretations are disclosed below. The adoption of these Accounting Standards and Interpretations
did not have any significant impact on the financial performance or position of the consolidated entity.
The following Accounting Standards and Interpretations are most relevant to the consolidated entity:
AASB 10 Consolidated Financial Statements
The consolidated entity has applied AASB 10 from 1 July 2013, which has a new definition of 'control'. Control exists
when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity
and has the ability to affect those returns through its 'power' over that other entity. A reporting entity has power when
it has rights that give it the current ability to direct the activities that significantly affect the investee's returns. The
consolidated entity not only has to consider its holdings and rights but also the holdings and rights of other
shareholders in order to determine whether it has the necessary power for consolidation purposes.
AASB 11 Joint Arrangements
The consolidated entity has applied AASB 11 from 1 July 2013. The standard defines which entities qualify as joint
arrangements and removes the option to account for joint ventures using proportional consolidation. Joint ventures,
where the parties to the agreement have the rights to the net assets are accounted for using the equity method. Joint
operations, where the parties to the agreements have the rights to the assets and obligations for the liabilities, will
account for its share of the assets, liabilities, revenues and expenses separately under the appropriate
classifications.
AASB 12 Disclosure of Interests in Other Entities
The consolidated entity has applied AASB 12 from 1 July 2013. The standard contains the entire disclosure
requirement associated with other entities, being subsidiaries, associates, joint arrangements (joint operations and
joint ventures) and unconsolidated structured entities. The disclosure requirements have been significantly enhanced
when compared to the disclosures previously located in AASB 127 'Consolidated and Separate Financial
Statements', AASB 128 'Investments in Associates', AASB 131 'Interests in Joint Ventures' and Interpretation 112
'Consolidation - Special Purpose Entities'.
AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from
AASB 13
The consolidated entity has applied AASB 13 and its consequential amendments from 1 July 2013. The standard
provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using
the 'exit price' and provides guidance on measuring fair value when a market becomes less active. The 'highest and
best use' approach is used to measure non-financial assets whereas liabilities are based on transfer value. The
standard requires increased disclosures where fair value is used.
AASB 119 Employee Benefits (September 2011) and AASB 2011-10 Amendments to Australian Accounting
Standards arising from AASB 119 (September 2011)
The consolidated entity has applied AASB 119 and its consequential amendments from 1 July 2013. The standard
eliminates the corridor approach for the deferral of gains and losses; streamlines the presentation of changes in
assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other
comprehensive income; and enhances the disclosure requirements for defined benefit plans. The standard also
changed the definition of short-term employee benefits, from 'due to' to 'expected to' be settled within 12 months.
Annual leave that is not expected to be wholly settled within 12 months is now discounted allowing for expected
salary levels in the future period when the leave is expected to be taken.
18
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
AASB 127 Separate Financial Statements (Revised), AASB 128 Investments in Associates and Joint Ventures
(Reissued) and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and
Joint Arrangements Standards
The consolidated entity has applied AASB 127, AASB 128 and AASB 2011-7 from 1 July 2013. AASB 127 and
AASB 128 have been modified to remove specific guidance that is now contained in AASB 10, AASB 11 and AASB
12 and AASB 2011-7 makes numerous consequential changes to a range of Australian Accounting Standards and
Interpretations. AASB 128 has also been amended to include the application of the equity method to investments in
joint ventures.
AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and
Financial Liabilities
The consolidated entity has applied AASB 2012-2 from 1 July 2013. The amendments enhance AASB 7 'Financial
Instruments: Disclosures' and requires disclosure of information about rights of set-off and related arrangements,
such as collateral agreements. The amendments apply to recognised financial instruments that are subject to an
enforceable master netting arrangement or similar agreement.
AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle
The consolidated entity has applied AASB 2012-5 from 1 July 2013. The amendments affect five Australian
Accounting Standards as follows: Confirmation that repeat application of AASB 1 'First-time Adoption of Australian
Accounting Standards' is permitted; Clarification of borrowing cost exemption in AASB 1; Clarification of the
comparative information requirements when an entity provides an optional third column or is required to present a
third statement of financial position in accordance with AASB 101 'Presentation of Financial Statements'; Clarification
that servicing of equipment is covered by AASB 116 'Property, Plant and Equipment', if such equipment is used for
more than one period; clarification that the tax effect of distributions to holders of equity instruments and equity
transaction costs in AASB 132 'Financial Instruments: Presentation' should be accounted for in accordance with
AASB 112 'Income Taxes'; and clarification of the financial reporting requirements in AASB 134 'Interim Financial
Reporting' and the disclosure requirements of segment assets and liabilities.
AASB 2012-10 Amendments to Australian Accounting Standards - Transition Guidance and Other Amendments
The consolidated entity has applied AASB 2012-10 amendments from 1 July 2013, which amends AASB 10 and
related standards for the transition guidance relevant to the initial application of those standards. The amendments
clarify the circumstances in which adjustments to an entity's previous accounting for its involvement with other
entities are required and the timing of such adjustments.
AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel
Disclosure Requirement
The consolidated entity has applied 2011-4 from 1 July 2013, which amends AASB 124 'Related Party Disclosures'
by removing the disclosure requirements for individual key management personnel ('KMP'). Corporations and
Related Legislation Amendment Regulations 2013 and Corporations and Australian Securities and Investments
Commission Amendment Regulation 2013 (No.1) now specify the KMP disclosure requirements to be included within
the directors' report.
Basis of preparation
These general purpose consolidated financial statements have been prepared in accordance with Australian
Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') and the
Corporations Act 2001, as appropriate for for-profit oriented entities. These consolidated financial statements also
comply with International Financial Reporting Standards as issued by the International Accounting Standards Board
('IASB').
The financial statements cover Orthocell Limited as a consolidated entity consisting of Orthocell Limited and its
subsidiary. Orthocell Limited is a listed public company limited by shares, incorporated and domiciled in Australia. A
description of the nature of the consolidated entity’s operations and its principal activities are included in the
directors’ report, which is not part of the financial statements. The financial statements were authorised for issue in
accordance with a resolution of directors on 19 September 2014. The directors have the power to amend and
reissue the financial statements.
19
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Historical cost convention
The consolidated financial statements have been prepared under the historical cost convention, except for, where
applicable, the revaluation of available-for-sale financial assets, financial assets and liabilities at fair value through
profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial
instruments.
Critical accounting estimates
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the consolidated entity's accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the consolidated financial statements are disclosed in note 2.
Parent entity information
In accordance with the Corporations Act 2001, these consolidated financial statements present the results of the
consolidated entity only. Supplementary information about the parent entity is disclosed in note 25.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities and results of Orthocell Limited
('Company' or 'parent entity') and its subsidiary Ausbiomedical Pty Ltd as at 30 June 2014 and the year then ended.
Orthocell Limited and its subsidiary together are referred to in these consolidated financial statements as the
'consolidated entity'.
Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an
entity when the consolidated entity is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the consolidated entity. They are de-consolidated from
the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the consolidated entity.
The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership
interest, without the loss of control, is accounted for as an equity transaction, where the difference between the
consideration transferred and the book value of the share of the non-controlling interest acquired is recognised
directly in equity attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or
loss and other comprehensive income, statement of financial position and statement of changes in equity of the
consolidated entity. Losses incurred by the consolidated entity are attributed to the non-controlling interest in full,
even if that results in a deficit balance.
Where the consolidated entity loses control over a subsidiary, it derecognises the assets including goodwill, liabilities
and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in
equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any
investment retained together with any gain or loss in profit or loss.
Operating segments
Operating segments are presented using the 'management approach', where the information presented is on the
same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is
responsible for the allocation of resources to operating segments and assessing their performance.
Foreign currency translation
The consolidated financial statements are presented in Australian dollars, which is Orthocell Limited's functional and
presentation currency.
20
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognised in profit or loss.
Revenue recognition
Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the
revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or
receivable.
Sale of goods
Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the
goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Amounts disclosed
as revenue are net of sales returns and trade discounts.
Research and development tax incentive
The research and development tax incentives are recognised at their fair value where there is reasonable assurance
that the incentive will be received and all attached conditions will be complied with.
Interest
Interest revenue is recognised when it is received or due to be received.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Income tax
The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the
applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable
to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable..
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when
the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted,
except for:
• When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or
liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither
the accounting nor taxable profits; or
• When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures,
and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date.
Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will
be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to
the extent that it is probable that there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets
against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same
taxable authority on either the same taxable entity or different taxable entity's which intend to settle simultaneously.
21
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is current when: it is expected to be realised or intended to be sold or consumed in normal operating cycle;
it is held primarily for the purpose of trading; it is expected to be realised within twelve months after the reporting
period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least twelve months after the reporting period. All other assets are classified as non-current.
A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of
trading; it is due to be settled within twelve months after the reporting period; or there is no unconditional right to
defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are
classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term,
highly liquid investments with original maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment. Trade receivables are generally due for settlement
within 30 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are
written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when
there is objective evidence that the consolidated entity will not be able to collect all amounts due according to the
original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are
considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the
difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at
the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of
discounting is immaterial.
Other receivables are recognised at amortised cost, less any provision for impairment.
Inventories
Inventory relates to work in progress which consists of the costs of patients’ cells being held in the laboratory
awaiting delivery and implantation into the patient. Inventory items are stated at the lower of cost and net realisable
value. Inventory comprises direct materials, direct labour and an appropriate proportion of variable and fixed
overhead expenditure based on normal operating capacity.
As indicated in Note 2, when making the decision whether inventory items should be carried forward in the statement
of financial position, or written off, management must consider the likelihood of whether each particular patient will
proceed to implantation. This requires a degree of estimation and judgement based on historical sales experience,
the ageing of the inventories and other demographic and market factors. At present management consider that 2
years is a reasonable period of time to hold inventory in the statement of financial position for each patient unless
there is further particular information that would indicate otherwise. This policy is reviewed annually.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
22
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of
the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently
measured at either amortised cost or fair value depending on their classification. Classification is determined based
on the purpose of the acquisition and subsequent reclassification to other categories is restricted.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or
have been transferred and the consolidated entity has transferred substantially all the risks and rewards of
ownership.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are either: i) held for trading, where they are acquired for the
purpose of selling in the short-term with an intention of making a profit; or ii) designated as such upon initial
recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting
mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit or
loss. Fair value movements are recognised in profit or loss.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets, principally equity securities, which are either
designated as available-for-sale or not classified as any other category. After initial recognition, fair value
movements are recognised in other comprehensive income through the available-for-sale reserve in equity.
Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the
asset is derecognised or impaired.
Impairment of financial assets
The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a
financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of
the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a
borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable
that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for
the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.
The amount of the impairment allowance for financial assets carried at cost is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return
for similar financial assets.
Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in
value below initial cost. Subsequent increments in value are recognised in other comprehensive income through the
available-for-sale reserve.
Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.
Depreciation is calculated on a straight-line basis to write off the net cost of each item of property, plant and
equipment (excluding land) over their expected useful lives as follows:
Leasehold improvements
Plant and equipment
Computer software
Furniture and fittings
Straight line
Diminishing value
Straight line
Diminishing value
40 years
3-7 years
2-3 years
10-15 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each
reporting date.
Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the
lease or the estimated useful life of the assets, whichever is shorter.
23
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit
to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to
profit or loss. Any revaluation surplus reserve relating to the item disposed of is transferred directly to retained
profits.
Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement
and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the asset.
A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all
the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor
effectively retains substantially all such risks and benefits.
Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if
lower, the present value of minimum lease payments. Lease payments are allocated between the principal
component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining
balance of the liability.
Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the
asset's useful life and the lease term if there is no reasonable certainty that the consolidated entity will obtain
ownership at the end of the lease term.
Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-
line basis over the term of the lease.
Intangible assets
Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair
value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite
life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life
intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses
recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference
between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite
life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are
accounted for prospectively by changing the amortisation method or period.
Research and development
Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is
probable that the project will be a success considering its commercial and technical feasibility; the consolidated entity
is able to use or sell the asset; the consolidated entity has sufficient resources; and intent to complete the
development and its costs can be measured reliably. Capitalised development costs are amortised on a straight-line
basis over the period of their expected benefit, being their finite life of 10 years.
Patents and trademarks
Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the
period of their expected benefit, being their finite life of 20 years.
Impairment of non-financial assets
Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment or more frequently if events or changes in circumstances indicate that they might be
impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which
the asset's carrying amount exceeds its recoverable amount.
24
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is
the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the
asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are
grouped together to form a cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Employee benefits
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date
is recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The
liability is measured at current value and is not discounted if the effect of discounting is immaterial. Consideration is
given to expected future wage and salary levels, experience of employee departures and periods of service.
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to
be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees' services
up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, which are provided to employees in
exchange for the rendering of services.
The costs of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with
non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the
employees to receive payment. No account is taken of any other vesting conditions.
The costs of equity-settled transactions are recognised as an expense with a corresponding increase in equity over
the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the
award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period.
The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less
amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met provided all other
conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been
made. An additional expense is recognised, over the remaining vesting period, for any modification that increases
the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the
condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or employee
and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining
vesting period, unless the award is forfeited.
25
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining
expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled
and new award is treated as if they were a modification.
Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes,
the fair value is based on 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; and assumes that the transaction will take place
either: in the principle market; or in the absence of a principal market, in the most advantageous market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on
its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the
use of unobservable inputs.
Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date
and transfers between levels are determined based on a reassessment of the lowest level input that is significant to
the fair value measurement.
For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is
either not available or when the valuation is deemed to be significant. External valuers are selected based on market
knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to
another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation
and a comparison, where applicable, with external sources of data.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net
of tax, from the proceeds.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of the Company, excluding any
costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for no consideration in relation to
dilutive potential ordinary shares.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is
not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset
or as part of the expense.
Receivables and payables are stated inclusive of the GST receivable or payable. The net amount of GST
recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement
of financial position.
26
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 1. Significant accounting policies (continued)
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of GST recoverable from, or payable to, the tax authority.
New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June
2014. The consolidated entity has not assessed of the impact of these new or amended Accounting Standards and
Interpretations.
AASB No.
AASB 9
Financial Instruments
1 January 2018
December 2010
Title
Application date
of standard
Issue date
AASB 2012-3
Amendments to Australian Accounting Standards – Offsetting
Financial Assets and Financial Liabilities
1 January 2014
June 2012
AASB 2013-3
AASB 2013-4
Amendments to AASB 136 – Recoverable amount disclosures for non-
financial assets
1 January 2014
June 2013
Amendments to Australian Accounting Standards – notation of
derivatives and continuation of hedge accounting
1 January 2014
July 2013
AASB 2013-5
Amendments to Australian Accounting Standards – Investment entities
1 January 2014
August 2013
AASB 2013-9
AASB 2014-1
Amendments to Australian Accounting Standards - Conceptual
Framework, Materiality and Financial Instruments
Part A - Conceptual Framework
Part B - Materiality
Part C - Financial Instruments
Amendments to Australian Accounting Standards
Part A - Annual Improvements 2010 - 2012 and 2011 - 2013 Cycles
Part B - Defined Benefit Plans: Employee Contributions (Amendments
to AASB 119)
Part C - Materiality
Part D - Consequential Amendments arising from AASB 14 Regulatory
Deferral Accounts
Part E - Financial Instruments
Part A - 20 December
2013
Part B - 1 January 2014
Part C - 1 January 2015
Part A - 1 July 2014
Part B - 1 July 2014
Part C - 1 July 2014
Part D - 1 January 2016
Part E - 1 January 2015
December 2013
June 2014
AASB 1031
Materiality (Revised)
1 January 2014
December 2013
AASB 14
Regulatory Deferral Account
1 January 2016
June 2014
Interpretation 21
Levies
Amendments to
IAS 16 PP&E and
IAS 38 Intangible
Assets
Clarification of Acceptable Methods of Depreciation and Amortisation
(Amendments to IAS 16 and IAS 38)
1 January 2014
1 January 2016
May 2013
May 2014
IFRS 15
Revenues from Contracts with Customers
1 January 2017
May 2014
27
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 2. Critical accounting judgements, estimates and assumptions
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the consolidated financial statements. Management continually
evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements,
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities (refer to the respective notes) within the next financial year are discussed below.
Share-based payment transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair
value of the equity instruments at the date at which they are granted. The fair value is determined by using either the
Binomial or Black-Scholes model taking into account the terms and conditions upon which the instruments were
granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit
or loss and equity.
Provision for impairment of receivables
The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of
provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical
collection rates and specific knowledge of the individual debtor’s financial position.
Provision for impairment of inventories
The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of
the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other
factors that affect inventory obsolescence.
Estimation of useful lives of assets
The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for
its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a
result of technical innovations or some other event. The depreciation and amortisation charge will increase where the
useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been
abandoned or sold will be written off or written down.
Impairment of non-financial assets other than goodwill and other indefinite life intangible assets
The consolidated entity assesses impairment of non-financial assets other than goodwill and other indefinite life
intangible assets at each reporting date by evaluating conditions specific to the consolidated entity and to the
particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is
determined. This involves fair value less costs of disposal or value-in-use calculations, which incorporate a number
of key estimates and assumptions.
Employee benefits provision
As discussed in note 1, the liability for employee benefits expected to be settled more than 12 months from the
reporting date is recognised and measured at current value and is not discounted if the effect of discounting is
immaterial. In determining the present value of the liability, estimates of attrition rates and pay increases through
promotion and inflation have been taken into account.
28
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 3. Revenue
Sales revenue
Sale of goods
Other revenue
Interest
Commissions
Export market development grant
License fee
R&D tax rebate
Other
Total revenue
Note 4. Expenses
Loss before income tax includes the following specific expenses:
Cost of sales
Cost of sales
Depreciation and amortisation
Depreciation - plant and equipment
Amortisation - patents and trademarks
Total depreciation and amortisation
Net foreign exchange loss
Net foreign exchange loss
Rental expense relating to operating leases
Minimum lease payments
Employment expenses
Salaries and wages
Employee benefits
Superannuation expense
Consultants’ fees
Directors’ fees
Payroll & other taxes
Other employment costs
Share-based payments expense
Allocated to cost centres
Consolidated
2014
$
2013
$
691,405
691,405
524,281
524,281
15,110
381,321
78,894
107,950
530,426
9,733
1,123,434
24,558
507,280
44,686
107,950
535,390
33,680
1,253,544
1,814,839
1,777,825
597,151
482,169
29,132
8,698
37,830
37,178
7,223
44,401
3,929
4,843
89,532
51,320
1,445,771
73,141
127,366
315,326
129,300
49,160
5,035
-
(501,681)
1,211,425
54,932
102,885
274,650
15,000
-
7,448
42,574
(500,366)
Total employment expenses
1,643,418
1,208,548
Loss on disposal of assets
Plant and equipment
Write off of assets
Inventories
-
792
51,198
63,376
29
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 5. Income tax expense
Income tax expense
Current tax benefit/(expense) relating to ordinary activities
Deferred tax – origination and reversal of temporary differences
Adjustment recognised for prior periods
Aggregate income tax expense
Income tax expense is attributable to:
Profit from continuing operations
Profit from discontinued operations
Aggregate income tax expense at statutory rate of 30%
Deferred tax included in income tax expense comprises:
Increase in deferred tax assets
Increase/(decrease) in deferred tax liabilities
Deferred tax – origination and reversal of temporary differences
Numerical reconciliation of income tax expense and tax at the statutory rate
Loss before income tax expense from continuing operations
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating
taxable income:
Non-deductible items
Research and development expenditure
Research and development rebate received
Share-based payments
Sundry items
Income tax benefit not brought to account
Adjustment recognised for prior periods
Income tax benefit/(expense)
The following deferred tax balances have not been recognised:
Deferred tax assets at 30%:
Provisions and accruals
Capital raising costs
Carried forward revenue losses
Consolidated
2014
$
2013
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,181,949)
(1,323,330)
(654,585)
(396,999)
4,541
129,027
(159,128)
-
-
680,145
-
-
2,850
353,618
(160,617)
12,772
12,717
175,659
-
-
82,652
44,867
1,043,918
47,661
-
407,585
1,171,436
455,246
The tax benefits of the above deferred tax assets will only be obtained if:
(i)
The company derives future assessable income of a nature and an amount sufficient to enable the benefits to
be utilised;
(ii)
The company continues to comply with the conditions for deductibility imposed by law; and
(iii) No changes in income tax legislation adversely affects the company in utilising the benefits.
30
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 6. Cash and cash equivalents
Cash at bank
Cash at bank held in trust
Reconciliation to cash and cash equivalents at the end of the financial year
The above figures are reconciled to cash and cash equivalents at the end of
the financial year as shown in the statement of cash flows as follows:
Balance as above
Cash and cash equivalents
Balance as per statement of cash flows
Note 7. Trade and other receivables
Trade receivables
Other receivables:
Sundry debtors
GST refund due
Impairment of receivables
Consolidated
2014
$
2013
$
482,303
2,985,049
591,144
-
3,467,352
591,144
3,467,352
591,144
3,467,352
591,144
54,797
200
71,719
71,919
126,716
73,582
290
17,336
17,626
91,208
There has been no impairment of receivables in the year ended 30 June 2014 (2013: $0).
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $12,200 as at 30
June 2014 ($14,570 as at 30 June 2013)
The consolidated entity did not consider a credit risk on the aggregate balances after reviewing credit terms of
customers based on recent collection practices.
The ageing of the past due but not impaired receivables are as follows:
0 to 3 months overdue
3 to 6 months overdue
Note 8. Inventories
Consumables – at cost
Work in progress – at cost
12,200
-
12,200
7,420
7,150
14,570
-
151,871
37,227
147,797
151,871
185,024
31
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 9. Other
Accrued revenue
Capitalised IPO costs
Prepayments
Note 10. Property, plant and equipment
Leasehold improvements – at cost
Less: Accumulated depreciation
Plant and equipment – at cost
Less: Accumulated depreciation
Furniture and fittings – at cost
Less: Accumulated depreciation
Consolidated
2014
$
2013
$
58,562
244,228
2,545
305,335
57,077
-
-
57,077
272,502
(50,008)
222,494
325,283
(274,050)
51,233
31,184
(18,018)
13,166
272,501
(43,195)
229,306
317,709
(257,392)
60,317
29,115
(15,923)
13,192
286,893
302,815
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial years are
set out below:
Consolidated
Balance at 1 July 2012
Additions
Disposals
Depreciation expense
Balance at 30 June 2013
Additions
Disposals
Depreciation expense
Balance at 30 June 2014
Leasehold
improvements
$
Plant and
equipment
$
Furniture
and fittings
$
Total
$
236,119
-
-
(6,813)
229,306
-
-
(6,812)
75,882
13,542
(792)
(28,315)
60,317
11,140
-
(20,224)
11,560
3,682
-
(2,050)
13,192
2,070
-
(2,096)
323,561
17,224
(792)
(37,718)
302,815
13,210
-
(29,132)
222,494
51,233
13,166
286,893
32
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 11. Intangibles
Patents and trademarks – at cost
Less: Accumulated amortisation
Consolidated
2014
$
2013
$
815,635
(15,921)
544,929
(7,223)
799,714
537,706
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year are set
out below:
Balance at 1 July 2012
Additions
Amortisation expense
Balance at 30 June 2013
Additions
Amortisation expense
Balance at 30 June 2014
Note 12. Trade and other payables
Trade payables
Share applications – held on trust
Other payables
Patents and
trademarks
$
384,393
160,536
(7,223)
Total
$
384,393
160,536
(7,223)
537,706
537,706
270,706
(8,698)
268,361
(8,698)
799,714
799,714
Consolidated
2014
$
2013
$
710,770
2,985,100
159,573
278,312
-
24,929
3,855,443
303,241
33
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 13. Employee benefits
Annual leave entitlements
Long service leave entitlements
Consolidated
2014
$
162,310
69,700
2013
$
114,693
44,176
232,010
158,869
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes all unconditional entitlements where employees have
completed the required period of service and also those where employees are entitled to pro-rata payments in
certain circumstances. The entire amount is presented as current, since the consolidated entity does not have an
unconditional right to defer settlement. However, based on past experience, the consolidated entity does not expect
all employees to take the full amount of accrued leave or require payment within the next 12 months.
Note 14. Other current liabilities
Accrued expenses
Revenue received in advance
Note 15. Other non-current liabilities
Revenue received in advance
Note 16. Equity – issued capital
Ordinary shares – fully paid
Preference shares series A – fully paid
Preference shares series A2 – fully paid
110,590
107,950
117,180
107,950
218,540
225,130
755,700
863,650
755,700
863,650
Consolidated
2014
Shares
2013
Shares
2014
$
2013
$
2,166,026
1,361,230
338,600
3,865,856
2,138,526
960,714
338,600
3,437,840
3,313,427
3,423,714
1,500,000
8,237,141
3,162,553
1,325,000
1,500,000
5,987,553
Share equity costs - preference shares series A2
Share equity costs - preference shares series A
-
-
-
-
(66,420)
(120,151)
(66,420)
-
3,865,856
3,437,840
8,050,570
5,921,133
34
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 16. Equity – issued capital (continued)
Movements in ordinary share capital:
Details
Balance
Issue of shares
Transfer from share options reserve
Date
1 July 2012
7 June 2013
No of
shares
Issue
price
2,093,526
45,000
$
3,089,833
45,000
27,720
3,162,553
65,726
85,148
$1.00
$2.39
Balance
Issue of shares on the exercise of options
Transfer from share options reserve on the
exercise of options
30 June 2013
23 May 2014
2,138,526
27,500
Balance
30 June 2014
2,166,026
3,313,427
Movements in redeemable preference series A share capital:
Details
Balance
Balance
Issue of shares
Issue of shares
Issue of shares
Balance
Date
1 July 2012
30 June 2013
9 February 2014
18 March 2014
23 May 2014
No of
shares
Issue
price
960,714
960,714
51,710
347,806
1,000
$
1,325,000
1,325,000
$5.24
$5.24
$5.24
270,968
1,822,506
5,240
30 June 2014
1,361,230
3,423,714
Movements in redeemable preference series A2 share capital:
Details
Balance
Date
1 July 2012
No of
shares
Issue
price
-
$
-
Issue of shares
22 September 2012
338,600
$4.43
1,500,000
Balance
Balance
30 June 2013
30 June 2014
338,600
338,600
1,500,000
1,500,000
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in
proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value
and the Company does not have a limited amount of authorised capital. The Company does not have any externally
imposed capital requirements.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll
each share shall have one vote.
35
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 16. Equity – issued capital (continued)
Redeemable preference series A and A2 shares
The rights, privileges and conditions attached to the Series A and Series A2 Preference Shares (Preference Shares)
on issue at 30 June 2014 are the same as the ordinary shares in the Company except as set out below:
(a) The Preference Shares shall rank for dividends pari passu with the ordinary shares in the company on an as
converted basis.
(b) A holder of Preference Shares is entitled at any time to convert part or the whole of their Preference Shares into
Ordinary Shares.
(c) The Preference Shares will automatically convert into fully paid Ordinary Shares on the closing of a qualifying
public offering being upon the closing of a firmly underwritten or completed public offering of Ordinary Shares in
the Company at a price per share of at least three times the original price of the Series A Preference Share
issued pursuant to the Series A Subscription Agreement of $1, and a total new raising of at least A$5,000,000
(before deduction of underwriters commissions and expenses).
(d)
If immediately prior to a conversion, the conversion ratio is not 1:1, the converting Preference Shares will be
subdivided into a greater number of Preference Shares reflected by the conversion ratio so that conversion into
Ordinary Shares is always on a 1:1 basis. Fractions of a share will be rounded up for the purposes of
conversion.
(e) The Preference Shares will confer on their holders the right to receive notices of and to attend and vote at
general meetings.
(f) Subject to Chapter 2H, Part 2.H2 of the Corporations Act 2001 (Cth) a holder of Preference Shares may
redeem its Preference Shares at their issue price if an Event of Default contained in the Shareholders
Agreement occurs.
(g)
(h)
In the event of any liquidation or winding up of the Company holders of Preference Shares shall be entitled to
receive in preference to the holders of other Shares an amount equal to the issue price of the Preference
Shares together with any declared, accrued and unpaid dividends, following which the holders of Ordinary
Shares and Preference Shares, on an as converted basis, will participate pro rata in any remaining proceeds
available for distribution.
In the event of a sale of Shares that includes a sale of Preference Shares or In the event of a sale of all or
substantially all of the assets of the Company, holders of Preference Shares shall be entitled to receive in
preference to the holders of other Shares an amount equal to the issue price of the Preference Shares together
with any declared, accrued and unpaid dividends, following which the holders of Ordinary Shares and
Preference Shares, on an as converted basis, will participate pro rata in any remaining proceeds available for
distribution.
Following shareholder approval received on 2 May 2014 and ASX providing conditional approval for Official
Quotation on 1 August 2014, all redeemable preference series A and A2 shares were converted into ordinary shares
on 4 August 2014.
Capital Management Policy
When managing capital, the Board’s objective is to ensure the entity continues as a going concern as well as to
obtain optimal returns to shareholders and benefits for other stakeholders.
36
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 17. Option reserve
Share option reserve
Consolidated
2014
Options
2013
Options
Consolidated
2014
$
2013
$
-
-
27,500
27,500
-
-
85,148
85,148
Movement in option reserve
Movement in option reserve during the current and previous financial year are set out below:
Balance
Vested options expense
Options exercised
Balance
Options exercised
Balance at 30 June 2014
Date
No of options
1 July 2012
7 June 2013
30 June 2013
23 May 2014
72,500
-
(45,000)
27,500
(27,500)
Total
$
70,294
42,574
(27,720)
85,148
(85,148)
-
-
The share based payments reserve is used to record the value of share based payments provided to employees,
including Key Management Personnel, as part of their remuneration.
Note 18. Equity – accumulated losses
Accumulated losses at the beginning of the financial year
Loss after income tax expense for the year
Consolidated
2014
$
2013
$
5,792,197
2,182,185
4,468,867
1,323,330
Accumulated losses at the end of the financial year
7,974,382
5,792,197
Note 19. Financial instruments
(a) Financial risk management
The Company’s principal financial instruments comprise cash.
The main purpose of these financial instruments is to fund expenditure on the Company’s operations. The Company
has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly
from its operations. It is, and has been throughout the period under review, the Company’s policy that no trading in
financial instruments shall be undertaken.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial
asset and financial liability are disclosed in Note 1.
37
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 19. Financial instruments (continued)
(b)
Interest rate risk
At reporting date, the Company had the following financial assets exposed to
interest rate risk:
Cash(1)
(1) The weighted average interest rate of cash is 2.40% (2013: 2.75%)
None of the consolidated entity’s financial liabilities are interest bearing.
Consolidated
2014
$
2013
$
3,467,352
591,144
(c) Credit risk
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The
consolidated entity’s maximum exposure to credit risk in relation to each class of financial asset is the carrying
amount of those assets as indicated in the Statement of Financial Position.
The consolidated entity has in place policies that aim to ensure that counterparties and cash transactions are limited
to high credit quality financial institutions and that the amount of credit exposure to one financial institution is limited
as far as is considered commercially appropriate.
Since the consolidated entity trades only with recognised third parties, there is no requirement for collateral.
(d) Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the company’s reputation.
The following are the contractual maturities of financial liabilities, including estimated interest payments and
excluding the impact of netting agreements:
Less than 6
months
6 – 12
months
1 – 2
years
2 – 5
years
Over
5 years
$
976,583
420,331
$
-
-
$
-
-
$
-
-
$
-
-
Total
contractual
cash flows
$
-
-
Total
carrying
amount
$
976,583
420,331
As at 30 June 2014:
Trade and other payables
As at 30 June 2013:
Trade and other payables
(e) Net fair values
The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their
respective net fair values, determined in accordance with the accounting policies disclosed in Note 1.
(f) Sensitivity analysis
The following tables summarise the sensitivity of the consolidated entity’s financial assets to interest rate risk. Had
the relevant variables, as illustrated in the tables, moved, with all other variables held constant, post-tax profit/(loss)
and equity would have been affected as shown. The analysis has been performed on the same basis for 2014 and
2013. None of the Company’s financial liabilities are interest bearing.
38
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 19. Financial instruments (continued)
30 June 2014
Financial assets
Cash
30 June 2013
Financial assets
Cash
Carrying
amount
$
Interest rate risk
-1%
Interest rate risk
1%
Net profit
$
Equity
$
Net profit
$
Equity
$
3,467,352
(34,673)
(34,673)
34,673
34,673
591,144
(5,911)
(5,911)
5,911
5,911
Note 20. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the
consolidated entity is set out below:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Note 21. Remuneration of auditor
Consolidated
2014
$
415,187
26,445
12,026
-
2013
$
207,779
17,350
24,838
18,048
453,658
268,015
During the financial year the following fees were paid or payable for services provided by PKF Mack & Co, the
auditor of the Company, its network firms and unrelated firms:
Audit services – PKF Mack & Co
Audit or review of the consolidated financial statements
Other services – PKF Mack & Co
Preparation of the tax return
Preparation of Investigating accountants report
Other matters
33,000
15,500
2,000
11,500
9,500
23,000
56,000
-
-
-
-
15,500
Note 22. Contingent liabilities
The consolidated entity has no contingent liabilities for the years ended 30 June 2013 or 30 June 2014.
39
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 23. Commitments
Patent annuity commitments
To maintain patent rights the following commitments will need to be met by
the Company:
Within one year
One to five years
More than five years
Lease commitments – operating
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
Total commitments
26,971
119,033
320,466
16,919
103,514
319,230
466,470
439,663
73,575
15,697
-
74,928
80,199
-
89,272
155,127
555,742
594,790
Operating lease commitments includes contracted amounts for various equipment under non-cancellable operating
leases expiring within one to ten years and the current office and lab rental lease.
Note 24. Related party transactions
Parent entity
Orthocell Limited is the parent entity.
Subsidiaries
Interests in subsidiaries are set out in note 25.
Key management personnel
Disclosures relating to key management personnel are set out in note 20 and the remuneration report in the
directors' report.
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting dates.
Terms and conditions
All transactions were made on normal commercial terms and conditions and at market rates.
Note 25. Parent entity and interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned
subsidiaries in accordance with the accounting policy described in note 1:
Name of entity
Country of incorporation
Ausbiomedical Pty Ltd
Australia
2014
%
100
2013
%
100
Ausbiomedical Pty Ltd has no assets or liabilities and does not trade in its own right.
As the Company’s only subsidiary, Ausbiomedical Pty Ltd, does not trade or have any assets and liabilities, the
consolidated entity and parent entity disclosures are the same.
40
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 26. Events after the reporting period
On 2 May 2014 meetings of shareholders approved, subject to the Australian Securities Exchange providing
official quotation of the Company’s shares:
1) The conversion of the Series A and Series A2 preference shares into ordinary shares; and
2) The division of each ordinary share into 16.16718 ordinary shares.
On 28 May 2014 the Company lodged a prospectus with the Australian Securities and Investments Commission
to raise a maximum of $8,000,000 and list on the ASX.
The offer closed oversubscribed on 18 July 2014.
On 1 August 2014 the ASX provided conditional approval for official quotation of the Company’s shares.
Accordingly the effective date for the conversion and division approved by shareholders was 1 August 2014.
On 4 August 2014 the following securities were issued;
• 20,000,000 ordinary shares each at an issue price of $0.40 raising $8,000,000 (before costs) pursuant to the
prospectus; and
• 5,912,500 options with an exercise price of $0.50 exercisable on or before 3 August 2017 for nil
consideration.
The Company shares commence trading on ASX on 12 August 2014.
No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly
affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs
in future financial years.
Note 27. Reconciliation of loss after income tax to net cash from operating activities
Consolidated
2014
$
2013
$
Loss after income tax expense for the year
(2,182,185)
(1,323,330)
Adjustments for:
Depreciation and amortisation
Inventory write-off
Loss on disposal of fixed assets
Change in operating assets and liabilities:
(Increase)/decrease in debtors
(Increase)/decrease in prepayments
(Increase)/decrease in inventories
(Increase)/decrease in accrued revenue
Increase/(decrease) in creditors
Increase/(decrease) in accruals
Increase/(decrease) in employee entitlements
Increase/(decrease) in unearned income
37,830
51,198
-
(35,508)
(2,545)
(18,045)
(1,486)
439,114
(6,590)
73,141
(107,950)
44,401
63,376
792
(20,528)
2,273
(94,557)
(10,021)
49,858
(17,010)
42,574
971,600
Net cash from operating activities
(1,753,026)
(290,572)
41
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2014
Note 28. Loss per share
Loss per share
Loss after income tax
Weighted average number of shares used in calculating basic and diluted loss
per share
(2,182,185)
(1,323,330)
Number
Number
3,561,056
3,318,802
Options are considered to be potential ordinary shares and have been included in the determination of diluted loss
per share to the extent to which they are dilutive.
Following the conversion of preference shares, division of shares and issue of shares pursuant to the prospectus
dated 28 May 2014 the Company at the date of this report has 82,500,000 ordinary shares on issue.
Note 29. Share-based payments
Set out below are summaries of options granted by the Company:
Exercise
Price
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Grant date Expiry date
2014
15/08/2010 15/08/2015
$2.39
27,500
2013
15/08/2010 15/08/2015
$2.39
27,500
-
-
27,500
-
-
-
-
27,500
Note 30. Operating segments
The consolidated entity has identified its operating segments based on the internal reports that are reviewed and
used by the chief operating decision maker to make decisions about resources to be allocated to the segments and
assess their performance.
The financial information presented in the statement of profit or loss and other comprehensive income and statement
of financial position is the same as that presented to the chief operating decision makers.
The consolidated entity predominately operates in the regenerative medicine industry in Australia.
42
Orthocell Limited
Directors’ declaration
For the year ended 30 June 2014
In the directors’ opinion:
•
•
•
•
the attached consolidated financial statements and notes thereto comply with the Corporations Act 2001, the
Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements;
the attached consolidated financial statements and notes thereto comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board as described in note 1 to the
consolidated financial statements;
the attached consolidated financial statements and notes thereto give a true and fair view of the consolidated
entity's financial position as at 30 June 2014 and of its performance for the financial year ended on that date;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable; and
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
Paul Anderson
Director
19 September 2014
Perth
43
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF
ORTHOCELL LIMITED
Report on the Financial Report
We have audited the accompanying consolidated financial report of Orthocell Limited (the company), which
comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement
of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, notes comprising a summary of significant
accounting policies and other explanatory information, and the directors’ declaration of the company and
the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the
year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of
Financial Statements that the financial statements comply with International Financial Reporting
Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our
audit in accordance with Australian Auditing Standards. Those standards require that we comply with
relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of
the risks of material misstatement of the financial report, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the company’s preparation of the
financial report that gives a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.
44
Opinion
In our opinion:
(a)
the financial report of Orthocell Limited is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the company’s and consolidated entity’s financial position as at
30 June 2014 and of their performance for the year ended on that date; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 5 to 10 of the directors’ report for the year
ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of
the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Orthocell Limited for the year ended 30 June 2014, complies
with section 300A of the Corporations Act 2001.
PKF MACK & CO
SIMON FERMANIS
PARTNER
19 SEPTEMBER 2014
WEST PERTH,
WESTERN AUSTRALIA
45
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
General
The Board is responsible for establishing the Company’s corporate governance framework, the key features of
which are set out in this Section. In establishing its corporate governance framework, the Board has referred to
the 3rd edition of
the ASX Corporate Governance Councils’ Corporate Governance Principles &
Recommendations.
This corporate governance statement discloses the extent to which the Company has followed the
recommendations since the date of admission of the Company to the ASX.
The Company’s Corporate Governance Statement and any charters, codes or procedures adopted by the
Company can be found on the Company's website at www.orthocell.com.au, under the section marked
"Corporate Governance":
Roles and responsibilities of the Board, Company Secretary and Senior Executives
The Company has established the functions reserved to the Board, and those delegated to senior executives and
has set out these functions in its Board Charter.
The Board is collectively responsible for promoting the success of the Company through its key functions of
overseeing the management of the Company, providing overall corporate governance of the Company,
monitoring the financial performance of the Company, engaging appropriate management commensurate with
the Company's structure and objectives, involvement in the development of corporate strategy and performance
objectives, and reviewing, ratifying and monitoring systems of risk management and internal control, codes of
conduct and legal compliance.
The Company Secretary supports the effectiveness of the Board by monitoring that Board policy and procedures
are followed, and by coordinating the completion and dispatch of Board agendas, minutes, appropriate registers
and briefing papers. The Company Secretary is accountable to the Board via the Chairperson.
Senior executives are responsible for supporting the Managing Director and assisting the Managing Director in
implementing the running of the general operations and financial business of the Company in accordance with
the delegated authority of the Board. Senior executives are responsible for reporting all matters which fall within
the Company's materiality thresholds at first instance to the Managing Director or, if the matter concerns the
Managing Director, directly to the Chair or the lead independent Director, as appropriate.
The Company’s Board Charter is disclosed on the Company’s website.
Skills, experience, expertise and period of office of each Director
A profile of each Director setting out their skills, experience, expertise and period of office will be included in the
Company’s Annual Report.
The mix of skills and diversity for which the Board is looking to achieve in its membership is represented by the
current Board. The Board comprises directors with significant experience as directors of public companies;
marketing experience; accounting and financial expertise; experience in the management and growth of
businesses and extensive experience in the industry in which Orthocell operates. The Board considers that
these skills and experience are appropriate for Orthocell.
Director independence
The Board does not have a majority of directors who are independent.
The Board considers that the composition of the Board is adequate for the Company’s current size and
operations, and includes an appropriate mix of skills and expertise, relevant to the Company’s business. These
skills include members with significant experience as directors of public companies, relevant experience in the
management and growth of businesses together with extensive experience in the industry in which Orthocell
operates.
46
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
The Board will review its composition as the Company’s circumstances change. The Board will have regard to
the Company’s Diversity Policy and the balance of independence on the Board in identifying appropriate
candidates for any appointments for the Board.
The independent Director of the Company is Professor Lars Lidgren. Professor Lidgren is independent as he is a
non-executive Director who is not a member of management and who is free of any business or other
relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the
independent exercise of their judgment.
The Board considers the independence of directors having regard to the relationships listed in Box 2.3 of the
Principles & Recommendations and the Company's materiality thresholds.
The Executive Chair of the Board is Dr Stewart Washer. The board considers that given its stage of development
it is beneficial that Dr Washer is an Executive. The Board will consider the appointment of an independent chair
as the Company increases in size and complexity.
The Managing Director is Paul Anderson who is not Chair of the Board.
To assist Directors with independent judgement, it is the Board's policy that if a director considers it necessary to
obtain independent professional advice to properly discharge the responsibility of their office as a Director then,
provided the Director first obtains approval from the Chair for incurring such expense, the Company will pay the
reasonable expenses associated with obtaining such advice. Where it is the Chair who is seeking the
independent professional advice, the role of the Chair to consider and provide approval as set out above will be
carried out by the independent Directors.
Selection and (Re) Appointment of Directors
In determining candidates for the Board the board will evaluate the mix of skills, experience, expertise and
diversity of the existing Board. In particular, the board will seek to identify the particular skills and diversity that
will best increase the Board's effectiveness. Consideration will also be given to the balance of independent
Directors. Any appointment made by the Board will be subject to ratification by shareholders at the next general
meeting.
Prior to the appointment of a new director the Board will undertake appropriate checks to ensure that the
person’s character, experience and education is appropriate for the position which will include criminal history
and bankruptcy checks.
Each Board member will have a written letter of appointment or executive contract setting out the terms of their
appointment.
Each Director other than the Managing Director, must not hold office (without re-election) past the third annual
general meeting of the Company following the Director's appointment or three years following that Director's last
election or appointment (whichever is the longer). However, a Director appointed to fill a casual vacancy or as an
addition to the Board must not hold office (without re-election) past the next annual general meeting of the
Company. At each annual general meeting a minimum of one Director or one third of the total number of
Directors (rounded down) must resign. A Director who retires at an annual general meeting is eligible for re-
election at that meeting. Re-appointment of Directors is not automatic.
Board committees
The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify
the formation of separate or special committees at this time preferring at this stage to manage the Company
through the full board of Directors.
Matters typically dealt with by a Nomination, Audit, Remuneration and Risk committee will be dealt with by the full
Board in accordance with adopted policies and procedures.
If the Company’s activities increase in size, scope and nature, the appointment of separate or special committees
47
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
will be reviewed by the Board and implemented if appropriate.
Remuneration of Directors and Executives
Details of remuneration, including the Company’s policy on remuneration, will be contained in the “Remuneration
Report” which will form part of the Company’s Annual Report.
The Company's policy is to remunerate non-executive Directors at a fixed fee for time, commitment and
responsibilities. Remuneration for non-executive Directors is not linked to individual performance. From time to
time the Company may grant performance rights or to non-executive Directors. The grant of performance rights
or options is designed to attract and retain suitably qualified non-executive Directors. The maximum aggregate
amount of fees (including superannuation payments) that can be paid to non-executive directors is subject to
approval by shareholders at a General Meeting.
There are no termination or retirement benefits for non-executive directors (other than for superannuation).
Executive remuneration consists of a base salary and performance incentives.
Short term performance incentives may be paid in cash and may be subject to the successful completion of
performance hurdles agreed by the board.
Long term performance incentives may include options, performance rights, or other equity based products
granted at the discretion of the Board subject to obtaining the relevant approvals. The grant of equity based
products is designed to recognise and reward efforts as well as to provide additional incentive to continue those
efforts for the benefit of the Company, and may be subject to the successful completion of performance hurdles.
Executives are offered a competitive level of base pay at market rates (for comparable companies), which are
reviewed at least annually to ensure market competitiveness.
The Company's Securities Trading Policy includes a statement of the Company's policy on prohibiting
transactions in associated products which limit the risk of participating in unvested entitlements under any equity
based remuneration schemes.
Performance evaluation
The Managing Director will review the performance of the senior executives. The Managing Director will conduct
a performance evaluation of the senior executives by meeting individually with each senior executive on a yearly
basis to review performance against the senior executive’s responsibilities as outlined in his or her contract with
the Company and against key performance indicators (KPI’s) set for the senior executive set by the Managing
Director or the Board.
The performance of executive Directors, including the Managing Director, will be reviewed by the Board. The
Board (or Directors nominated by the board) will conduct a formal performance evaluation of the Executive
Directors annually to review performance against KPIs set for the previous year, and to establish KPIs for the
forthcoming year.
Board, its committees and individual directors
The Chair has the overall responsibility for evaluating the Board, any committees established and, when
appropriate, individual directors on an annual basis.
The method and scope of the performance evaluation will be set by the Chair and which may include a Board
self-assessment checklist to be completed by each Director. The Chairperson may also use an independent
adviser to assist in the review.
Code of Conduct
The Company has established a Code of Conduct as to the practices necessary to maintain confidence in the
Company’s integrity, the practices necessary to take into account its legal obligations and the reasonable
48
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
expectations of its stakeholders and the responsibility and accountability of individuals for reporting and
investigating reports of unethical practices.
Diversity
The Company has established a Diversity Policy, which provides the Board with objectives for achieving diversity
that is appropriate for the Company.
The Company presently has only a small number of full time employees. The Board considers due to the size of
the Company setting measurable diversity objectives is not appropriate with its practice currently being to hire the
most appropriate candidate for the position to be filled having regard to the activities to be undertaken in the role.
As the Company increases in size the board will consider setting measurable objectives.
At 30 June 2014 the following proportion of women hold roles in the Company:
Number % of total
Board
Senior management
Other
Total
0
1
7
8
0%
50%
54%
40%
Integrity of Financial Reporting
The Company has not established and Audit Committee. The full Board has responsibility for verifying and
safeguarding the integrity of its corporate reporting. The full Board will assess any proposal to appoint or remove
the auditor and will ensure that the engagement partner rotates in accordance with the Corporations Act.
The Managing Director and the Chief Financial Officer will to provide a declaration to the Board in accordance
with section 295A of the Corporations Act and will assure the Board that such declaration is founded on a sound
system of risk management and internal controls and that the system is operating effectively in all material
respects in relation to financial reporting risks.
A representative of the Company’s auditor will be present at the Annual General Meeting and to answer any
questions regarding the conduct of the audit and the preparation and content of the auditors’ report
Continuous Disclosure Policy
The Company has established a written policy designed to ensure compliance with ASX Listing Rules disclosure
requirements and accountability at a senior executive level for that compliance.
Shareholder Communication Policy
The Company has designed a communications policy for promoting effective communication with shareholders,
receive communities from shareholders, including by electronic means, and encouraging shareholder
participation at general meetings and at the annual general meeting.
Risk Management Policy
The Company has not established a Risk Committee or a formal internal audit function.
The Board has adopted a Risk Management, internal Compliance and Control Policy., which sets out the
Company's risk management and control framework. Under the policy, the Board is responsible for the oversight
of the Company’s risk management and control framework and satisfying itself that management has developed
and implemented a sound system of risk management and internal control.
Under the policy, the Board delegates day-to-day management of risk to the Managing Director, who is
responsible for identifying, assessing, monitoring and managing risks.
49
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
In fulfilling the duties of risk management, the Managing Director may obtain independent expert advice on any
matter they believe appropriate, with the prior approval of the Board.
The Board will receive a periodic report from management as to the effectiveness of the Company's management
of identified risks, including identified weaknesses or incidents and will review the Company’s risk framework, at
lease annually to satisfy itself that it continues to be sound and appropriate for the Company’s size and levels of
operations.
ASX Corporate Governance Council recommendations checklist
following
The
Recommendations:
table sets out
the Company’s position with regard
to adoption of
the Principles &
Principles and Recommendations
Comply
(Yes/ No)
Principle 1: Lay solid foundations for management and oversight
1.1
1.2
1.3
1.4
Companies should establish the functions reserved to the
Board and those delegated to senior executives and
disclose those functions.
Yes
Background checks and information to be given for
Yes
elections
Written contracts of engagement
Yes
Company Secretary accountable to board through
Yes
Chairperson
1.5(a)(b)(d) Diversity Policy
1.5(c)
Measurable Objectives in Diversity Policy
Yes
No
The Board considers that due to the size of the
Company setting measurable diversity
objectives is not appropriate with its practice
currently being to hire the most appropriate
candidate for the position to be filled having
regard to the activities to be undertaken in the
role
1.6
Evaluation of Board
Yes
Principle 2: Structure the Board to add value
2.1
The Board should establish a nomination committee.
No
Due to its current size the Company has not
established a nomination committee. The full
Board will undertake the activities normally
undertaken by a nomination committee
2.2
2.3
2.4
Skills Matrix
Disclose independence and length of service
Yes
Yes
A majority of the Board should be independent directors. No
The Board considers that the composition of
the Board is adequate for the Company’s
current size and operations, and includes an
appropriate mix of skills and expertise, relevant
to the Company’s business. Consideration will
be given to the appointment of further
independent directors as the Company’s level
of activities increase.
50
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
Principles and Recommendations
Comply
(Yes/ No)
2.5
The chair should be an independent director.
No
The board considers that given its stage of
development it is beneficial that Dr Washer is
an Executive. The Board will consider the
appointment of an independent chair as the
Company increases in size and complexity.
2.5
2.6
The roles of chair and chief executive officer should not
be exercised by the same individual.
Yes
Induction and professional development of directors
Yes
Principle 3: Promote ethical and responsible decision-making
3.1
Companies should establish a code of conduct
Yes
Principle 4: Safeguard integrity in financial reporting
4.1
4.2
The Board should establish an audit committee.
No
Due to its current size the Company has not
established an audit committee. The full Board
will undertake the activities normally undertaken
by an audit committee
Declaration from chief executive officer and the chief
financial officer (or equivalent) that the declaration
provided in accordance with section 295A of the
Corporations Act.
Yes
4.3
External Auditor to be available at AGM
Yes
Principle 5: Make timely and balanced disclosure
5.1
Companies should establish written policies designed to
ensure compliance with ASX Listing Rule disclosure
requirements.
Principle 6: Respect the rights of shareholders
6.1
6.2
6.3
6.4
Information of website
Investor relations program
Facilitate participation at general meetings
Facilitate electronic communications
Principle 7: Recognise and manage risk
Yes
Yes
Yes
Yes
Yes
7.1
7.2
7.3
The Board should establish a risk committee
No
Due to its current size the Company has not
established a risk committee. The full Board will
undertake the activities normally undertaken by
a risk committee
Conduct annual risk review
Yes
Internal audit function
No
Due to its current size the Company has not
established an internal audit function. The Board
has responsibility for the oversight of the
Company’s risk management and control
framework. the Board delegates day-to-day
management of risk to the Managing Director,
who is responsible for identifying, assessing,
monitoring and managing risks
51
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2014
Principles and Recommendations
Comply
(Yes/ No)
7.4
Disclose exposure to sustainability risks
Yes
Principle 8: Remunerate fairly and responsibly
8.1
The Board should establish a remuneration committee.
No
Due to its current size the Company has not
established a remuneration committee. The full
Board will undertake the activities normally
undertaken by a remuneration committee
8.2
8.3
Disclose remuneration policy
Disclose policy on hedging equity incentive schemes
Yes
Yes
52
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2014
Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set
out below. The information is effective as at 16 October 2014.
1.
20 largest shareholders
The names of the twenty largest holders of each class of listed securities are listed below:
Twenty largest shareholders
SRV Custodians Pty Ltd
Ming Hao Zheng & Ying Fan
Paul Anderson & Nicole Telford
Mr Qixiao Zhou
Mr Jia Xun Xu
Australian super Investments Pty Ltd
Citicorp Nominees Pty Limited
Veritas Securities Limited
Statewide Superannuation Pty Ltd
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Pacific Development Capital Limited
Murdoch Ventures Pty Ltd
Mr Jackie Au Yeung
Sandhurst Trustees Ltd
Diamonex Ltd
SRV Nominees Pty Ltd
The University Of Western Australia
Dixson Trust Pty Limited
Ryder Capital Pty Ltd
Total
Number held
9,530,382
6,963,608
6,963,608
5,955,673
5,168,276
4,619,190
4,472,500
2,425,077
2,309,595
1,942,131
1,796,000
1,542,672
923,841
771,336
750,000
727,523
649,177
646,687
625,000
625,000
% of issued
shares
11.55
8.44
8.44
7.22
6.26
5.60
5.42
2.94
2.80
2.35
2.18
1.87
1.12
0.93
0.91
0.88
0.79
0.78
0.76
0.76
59,407,276
72.00
2.
Substantial shareholders
The Names of substantial shareholders set out below:
Shareholder
SRV Custodians Pty Ltd
Ming Hao Zheng & Ying Fan
Paul Anderson & Nicole Telford
Mr Qixiao Zhou
Mr Jia Xun Xu
Australian Super Investments Pty Ltd
Citicorp Nominees Pty Limited
Number of
shares
9,530,382
6,963,608
6,963,608
5,955,673
5,168,276
4,619,190
4,472,500
53
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2014
3.
Voting rights
Ordinary shares:
On a show of hands, every member present at a meeting in person or by proxy shall have
one vote and upon a poll each share shall have one vote.
Options:
No voting rights
4.
Distribution of equity securities
Range
1 – 1000
1001 – 5000
5001 - 10,000
10,001 - 100,000
100,001 and above
Total
Shareholders
Holdings
Percentage
1
101
38
213
88
441
16
420,132
305,401
8,166,097
73,608,354
82,500,000
0.00
0.51
0.37
9.90
89.22
100.00
5.
6.
Less than marketable parcels
Number of shareholders: 6
Unquoted securities
Options issued under the options plans total 5,912,500.
Date of issue:
Entitlement:
Exercise price:
Expiry date:
Holders of options > 20%
4 August 2014
One ordinary share upon exercise of each option
$0.50
3 August 2017
Paul Anderson & Nicole Telford
Mal Washer Nominees Pty Ltd
Ming Hao Zheng
Shenasaby Investments Pty Ltd
1,750,000
1,250,000
1,250,000
1,250,000
7.
Restricted securities
Security
Ordinary shares
Ordinary shares
Options exercisable at of $0.50 expiring 3/8/2017
Options exercisable at of $0.50 expiring 3/8/2017
Escrow expiry
Number
23 May 2015
42,651
12 August 2016
27,185,515
4 August 2015
1,662,500
12 August 2016
4,250,000
8.
On-market buy back
There is currently no on-market buyback program for any of Orthocell Limited’s listed securities.
54