RegeneRating mobility
20 15 Annu Al Re poR t
Orthocell Limited
Contents
30 June 2015
Corporate directory
Directors’ report
Auditor’s independence declaration
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report to the members of Orthocell Limited
Corporate governance statements
Additional ASX information
1
2
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15
16
17
18
19
43
44
46
54
Orthocell Limited
Corporate directory
30 June 2015
Directors
Dr Stewart Washer
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
Executive Chairman
Managing Director
Non-Executive Director
Independent Non-Executive Director
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
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 2015
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 2015.
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
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
Executive Chairman
Managing Director
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
appointed 7 April 2014
appointed 21 March 2006
appointed 30 May 2006
appointed 17 December 2007
appointed 2 November 2012
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 $3,742,715 (30 June 2014: $2,182,185).
On 18 July 2014 the Company closed its $8 million oversubscribed initial public offering after receiving strong support
from domestic and international institutions, funds and Australian retail investors. The Company shares commenced
trading on ASX on 12 August 2014.
During the year Orthocell’s positive 3-5 year clinical trial data from a study of its tendon cell treatment for tennis elbow
were presented at the 15th European Federation of National Associations of Orthopaedics and Traumatology
(EFORT) held in London and the International Cartilage Repair Society Annual Scientific Meeting held in Chicago.
In May 2015, Orthocell announced it had presented as invited speakers a paper entitled Cells, Scaffolds and
Bioreactors for the Regeneration of Human Tendons at the World Stem Cells and Regenerative Medicine Congress,
a leading international regenerative medicine conference in London. Orthocell’s current and future approaches to the
regeneration of tendon tissue were presented with particular focus on the recent breakthrough by the Company in
demonstrating its new technology to grow human tendons outside of the body.
Regional conferences included the Australian Orthopaedic Association’s Annual Scientific Meeting, Sports Medicine
Australia’s ‘Be Active’ Annual Scientific Conference and the Hong Kong Orthopaedic Association Annual Scientific
Meeting.
In April 2015 the Company announced its long-term study into its Ortho-ATITM treatment for chronic tennis elbow was
published in the prestigious American Journal of Sports Medicine (AJSM).
Orthocell’s long-term study shows the effectiveness of Ortho-ATI™ as a disease modifying treatment providing
sustained pain relief and significant functional improvements for tennis elbow sufferers.
Orthocell continues to grow with the announcement of first human tendons grown in laboratory and its exciting cell
factory concept. Orthocell’s success in growing human tendons in a laboratory for the first time was believed to be a
world first breakthrough involving the growing human tendons in the laboratory. Orthocell collaborated with
researchers at University of Western Australia, Curtin University, Griffith University and University of Auckland with
the research being sponsored by Orthocell through a Federal ARC Linkage Grant.
Further to this, Orthocell also published and announced the pipeline development of its cell factory concept for the
concentration of tissue specific growth factors for the repair and regeneration of articular cartilage. This was published
in the journal ‘Tissue Engineering and Regenerative Medicine’.
In February 2015 Orthocell announced it has expanded its presence into Asia with the first patients treated with its
world-leading tendon repair therapy in Hong Kong. The two patients underwent the Ortho-ATITM therapy by respected
Hong Kong Orthopaedic Surgeon Dr Jason Brockwell from leading sports orthopaedic group Asia Medical
Specialists.
2
Orthocell Limited
Directors’ report
30 June 2015
Asia is a key growth region for Orthocell and its innovative regenerative medicine therapies. The global regenerative
medicine market has been forecast to reach $US67.6 billion in 2020, from $US16.4 billion in 2014, with the Asia-
Pacific region expected to be the fastest growing region.
In December 2014 Orthocell announced its new partnership with BONESUPPORT, an emerging leader of injectable
bone substitutes, to develop a suite of unique bone substitute products for the bone repair market. These products
will utilise the unique eluting bone remodelling capabilities of CERAMENTTM and the important collagen properties of
CelgroTM to create a novel bone repair product that will not only support the damaged bone, but induce the superior
growth of new bone matrix.
During the year the Company was granted both Chinese and US patents for its Celgro™ technology covering the
manufacture of biological materials to repair damaged soft tissue. The patents provide important protection to the
Celgro™ product range as Orthocell prepares for registrations and commercialisation in global markets.
On 9 March 2015 Orthocell announced that the company had been granted ethical approval for a clinical study using
CelgroTM collagen membrane for the treatment of bone defects around dental implants. With more than 3 million
dental implant procedures carried out in US every year and that number growing by 500,000 a year this represents
a significant potential market opportunity for Celgro™.
The pilot study is an important step in the development of Celgro™ and further demonstrates that Celgro™ is a very
valuable product in the large and growing regenerative medicine market.
In March 2015 Orthocell conducted an investor roadshow in Melbourne and Sydney. The accompanying company
presentation was released to the market outlining the positive steps forward that the company has made since its
IPO in August of last year.
In May 2015 Orthocell received an R&D tax incentive cash refund of $1,157,821 for the financial year 2013/14. The
R&D Tax Incentive is an Australian Government program supporting Australian companies undertaking research and
development in Australia. Orthocell anticipates that it will also be eligible to receive an R&D tax rebate for its R&D
programs being undertaken for the 2014/15 financial year.
During the year the Company completed the transfer of its Ortho-ACITM technology to Chinese partner GrandHope
Biotech Co Ltd, triggering the final tranche payment of a license fee, and generated royalties from the first sales of
the Ortho-ACITM in China.
Following the acquisition of Biomet Australia Pty Ltd (Biomet) by Zimmer Ltd (Zimmer), the Company and Biomet
mutually agreed to the termination of a distributorship agreement between the parties under which the Company
distributed Biomet products. As part of the termination of the agreement, Orthocell will receive a total of $268,652.
The Company does not consider the termination of the agreement will impact materially on the company’s operations
or results.
Over the year the Company continued to progress the development of its lead products for tendon and cartilage
regeneration and pipeline opportunities. Activities included pre-clinical and clinical studies and marketing activities to
support the sale of its approved cell therapies as well as development and commercialisation of related collagen
based medical device technologies.
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
There were no significant changes in the state of affairs of the consolidated entity during the financial year.
Likely developments and expected results of operations
Having completed its successful IPO, raising $8m, the Company will continue 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.
Environmental regulation
The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or
State law.
3
Orthocell Limited
Directors’ report
30 June 2015
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.
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:
1,650,000
Name:
Title:
Mr Paul Anderson
Managing Director
Experience and expertise:
Mr Anderson has over 16 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 proven 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:
2,750,000
4
Orthocell Limited
Directors’ report
30 June 2015
Name:
Title:
Mr 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.
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:
1,650,000
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 and founded Scandimed, a global leading
company in bone cements and delivery, acquired by Biomet. Professor Lidgren 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 Professor Lidgren is chairman
and majority shareholder.
Directorships (last 3 years):
Nil
Interest in shares:
923,523
Interests in options:
150,000
5
Orthocell Limited
Directors’ report
30 June 2015
Name:
Title:
Mr 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:
150,000
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 2015,
and the number of meetings attended by each director was:
Full Board
Remuneration Committee
Attended
Held(1)
Attended
Held(1)
Dr Stewart Washer
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
4
5
5
5
2
5
5
5
5
5
1
1
1
-
-
1
1
1
-
-
(1) Held: represents the number of meetings held during the time the director held office.
6
Orthocell Limited
Directors’ report
30 June 2015
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.
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, 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.
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 2015 the Company granted options to Non-Executive Directors as detailed
in the tables on page 10 of this report.
The remuneration of non-executive directors for the years ended 30 June 2014 and 30 June 2015 are detailed in the
tables on page 9 of this report.
7
Orthocell Limited
Directors’ report
30 June 2015
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.
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 2015 the Company did not grant any options to Executives.
The remuneration of executives for the years ended 30 June 2014 and 30 June 2015 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
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
Professor Fiona Wood
Executive Chairman
Managing Director
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Non-Executive Director
8
Orthocell Limited
Directors’ report
30 June 2015
Year ended
30/06/2015
Non-Executive
Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou(4)
Executive Directors:
Mr P Anderson
Dr S Washer(3)
Short-term benefits
Cash salary
and fees
$
Bonus(1)
$
Post-
employment
benefits
Super-
annuation
$
Long-term
benefits
Long service
leave
$
Share-
based
payments
$
Total
$
Performance
related
%
113,331
40,000
36,530
-
-
-
-
-
3,470
-
-
-
142,756
11,349
11,349
256,087
51,349
51,349
55.75%
22.10%
22.10%
280,000
120,000
30,000
-
29,462
-
17,152
-
169,236
142,756
525,850
262,756
37.89%
54.33%
Total
589,861
30,000
32,932
17,152
477,446
1,147,391
44.23%
Year ended
30/06/2014
Non-Executive
Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou(4)
Prof F Wood(2)
Executive Directors:
Mr P Anderson
Dr S Washer(3)
37,500
-
-
31,800
-
-
-
-
-
-
-
-
-
-
-
-
235,887
60,000
50,000
-
26,445
-
12,026
-
Total
365,187
50,000
26,445
12,026
-
-
-
-
-
-
-
37,500
-
-
31,800
-
-
-
-
324,358
60,000
15.42%
-
453,658
11.02%
(1) Discretionary bonus as approved by the board.
(2) Resigned on 8 April 2014
(3) Appointed on 7 April 2014
(4) Appointed on 2 November 2012.
Share-based compensation
During the year ended 30 June 2015 the following share-based payments of options were made to key management
personnel for nil consideration:
Grant date
Exercise Price
Expiry date
No. issued
Fair value per option Total fair value
3 Aug 2014
24 Nov 2014
$0.50
$0.62
3 Aug 2017
23 Nov 2017
4,250,000
2,100,000
$0.09
$0.08
$382,476
$158,880
There were no share-based compensation payments to key management personnel during the previous year ended
30 June 2014.
9
Orthocell Limited
Directors’ report
30 June 2015
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:
Conversion(1)
Division(1)
Additions
Disposals/
Other
Balance
30/06/15
Ordinary shares
Mr Paul Anderson
Mr Matthew Callahan(2)
Prof Lars Lidgren
Dr Stewart Washer
Mr Qi Xiao Zhou
Series A pref shares(1)
Dr Stewart Washer
Mr Matthew Callahan(2)
Series A2 pref shares(1)
Mr Paul Anderson
Mr Matthew Callahan(2)
Mr Qi Xiao Zhou
Balance
01/07/14
426,248
92,593
45,000
-
319,677
4,477
521,587
-
9,542
33,240
6,532,883
9,315,379
682,523
144,725
5,352,756
-
250,000
196,000
215,000
250,000
883,518
568,846
22,028,266
911,000
9,542
465,154
(9,542)
(465,154)
474,696
(474,696)
4,477
56,433
33,240
(4,477)
(56,433)
(33,240)
94,150
(94,150)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,963,608
10,179,559
923,523
369,267
5,955,673
24,391,630
-
-
-
-
-
-
-
There were no shares issued as part of directors’ remuneration during the financial year.
(1)
On 1 August 2014 all Series A and Series A2 Preference Shares were converted to Ordinary Shares. All Ordinary shares were then 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:
Mr Paul Anderson
Dr Stewart Washer
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
Balance at
the start of
the year
Granted
Exercised
-
-
-
-
-
2,750,000
1,650,000
1,650,000
150,000
150,000
-
-
-
-
-
Expired/
forfeited/
other
Balance at
the end of
the year
-
-
-
-
-
2,750,000
1,650,000
1,650,000
150,000
150,000
Other transactions with key management personnel and their related parties
There were no transactions with key management personnel.
10
Orthocell Limited
Directors’ report
30 June 2015
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
$326,000 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, and 750,000
options on 24 November 2014.
Notice
period
6 months
Position Salary Short term incentive
Under the employment agreement:
(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 Mr
Matthew Callahan and Dr 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.
$150,000 per annum 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.
11
Orthocell Limited
Directors’ report
30 June 2015
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 Dr Washer 1,250,000 options each on 4 August 2014 and 400,000
options each on 24 November 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.
This concludes the remuneration report, which has been audited.
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).
Shares under option
At the date of this report the following options are on issue:
Grant date
Expiry date
Exercise price
Number of options
3 August 2014
24 November 2014
3 August 2017
24 November 2014
$0.50
$0.62
5,912,500
3,520,000
Shares issued on the exercise of options
There were no shares of the Company issued during the year ended 30 June 2015 and up to the date of this report
on the exercise of options granted:
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 $17,841 in respect of this policy.
12
Orthocell Limited
Directors’ report
30 June 2015
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
No matter or circumstance has arisen since 30 June 2015 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.
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
There are no officers of the Company who are former audit partners of PKF Mack.
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 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
Mr Paul Anderson
Managing Director
18 September 2015
Perth
13
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 2015, 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
SIMON FERMANIS
PARTNER
18 SEPTEMBER 2015
WEST PERTH
WESTERN AUSTRALIA
14
Orthocell Limited
Consolidated statement of profit or loss and other comprehensive income
For the year ended 30 June 2015
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
Loss after income tax expense
Other comprehensive income
Note
Consolidated
2015
$
2014
$
3
4
3
4
5
790,430
691,405
(652,856)
(597,151)
137,574
94,254
899,878
593,008
(894,737)
(575,127)
(395,540)
(3,339,507)
(733,077)
-
(5,937,988)
(498,372)
(200,646)
(371,314)
(1,643,418)
(686,123)
-
(3,399,873)
(4,900,536)
(2,712,611)
1,157,821
530,426
(3,742,715)
(2,182,185)
Other comprehensive income for the year, net of tax
-
-
Total comprehensive loss
(3,742,715)
(2,182,185)
Loss per share
Basic earnings per share
Diluted earnings per share
Cents
(0.05)
(0.05)
Cents
(0.61)
(0.61)
29
29
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
15
Orthocell Limited
Consolidated statement of financial position
As at 30 June 2015
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
2015
$
2014
$
6
7
8
9
10
11
12
13
14
4,774,108
178,377
150,665
82,052
3,467,352
126,716
151,871
305,335
5,185,202
4,051,274
306,129
1,044,802
286,893
799,714
1,350,931
1,086,607
6,536,133
5,137,881
755,863
310,395
235,849
3,855,443
232,010
218,540
1,302,107
4,305,993
15
850,236
755,700
850,236
755,700
2,152,343
5,061,693
4,383,790
76,188
16
17
18
15,302,482
798,405
(11,717,097)
8,050,570
-
(7,974,382)
4,383,790
76,188
The above statement of financial position should be read in conjunction with the accompanying notes
16
Orthocell Limited
Consolidated statement of changes in equity
For the year ended 30 June 2015
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
Issued
capital
$
Option
reserve
$
Accumulated
losses
$
Total
equity
$
Balance at 1 July 2014
8,050,570
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
Issue of options
-
-
-
8,000,000
(748,088)
-
-
-
-
-
-
(7,974,382)
76,188
(3,742,715)
(3,742,715)
-
-
(3,742,715)
(3,742,715)
-
-
-
8,000,000
(748,088)
798,405
-
798,405
Balance at 30 June 2015
15,302,482
798,405
(11,717,097)
4,383,790
The above statement of changes in equity should be read in conjunction with the accompanying notes
17
Orthocell Limited
Consolidated statement of cash flows
For the year ended 30 June 2015
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Receipt from license fee
Grants received
R&D tax concession received
Interest received
Note
Consolidated
2015
$
2014
$
1,266,115
(5,647,332)
270,356
62,058
1,157,821
123,369
1,099,848
(3,477,304)
-
78,894
530,426
15,110
Net cash used in operating activities
28
(2,767,613)
(1,753,026)
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
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
(56,111)
(263,235)
(4,872)
(268,381)
(319,346)
(273,253)
-
-
5,014,900
(621,185)
2,164,440
(120,151)
2,985,100
(126,902)
4,393,715
4,902,487
1,306,756
3,467,352
2,876,208
591,144
4,774,108
3,467,352
The above statement of cash flows should be read in conjunction with the accompanying notes
18
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
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.
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 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities
The consolidated entity has applied AASB 2012-3 from 1 July 2014. The amendments add application guidance to
address inconsistencies in the application of the offsetting criteria in AASB 132 'Financial Instruments: Presentation',
by clarifying the meaning of 'currently has a legally enforceable right of set-off'; and clarifies that some gross settlement
systems may be considered to be equivalent to net settlement.
AASB 2013-3 Amendments to AASB 136 - Recoverable Amount Disclosures for Non-Financial Assets
The consolidated entity has applied AASB 2013-3 from 1 July 2014. The disclosure requirements of AASB 136
'Impairment of Assets' have been enhanced to require additional information about the fair value measurement when
the recoverable amount of impaired assets is based on fair value less costs of disposals. Additionally, if measured
using a present value technique, the discount rate is required to be disclosed.
AASB 2014-1 Amendments to Australian Accounting Standards (Parts A to C)
The consolidated entity has applied Parts A to C of AASB 2014-1 from 1 July 2014. These amendments affect the
following standards: AASB 2 'Share-based Payment': clarifies the definition of 'vesting condition' by separately defining
a 'performance condition' and a 'service condition' and amends the definition of 'market condition'; AASB 3 'Business
Combinations': clarifies that contingent consideration in a business combination is subsequently measured at fair value
with changes in fair value recognised in profit or loss irrespective of whether the contingent consideration is within the
scope of AASB 9; AASB 8 'Operating Segments': amended to require disclosures of judgements made in applying the
aggregation criteria and clarifies that a reconciliation of the total reportable segment assets to the entity's assets is
required only if segment assets are reported regularly to the chief operating decision maker; AASB 13 'Fair Value
Measurement': clarifies that the portfolio exemption applies to the valuation of contracts within the scope of AASB 9
and AASB 139; AASB 116 'Property, Plant and Equipment' and AASB 138 'Intangible Assets': clarifies that on
revaluation, restatement of accumulated depreciation will not necessarily be in the same proportion to the change in
the gross carrying value of the asset; AASB 124 'Related Party Disclosures': extends the definition of 'related party' to
include a management entity that provides KMP services to the entity or its parent and requires disclosure of the fees
paid to the management entity; AASB 140 'Investment Property': clarifies that the acquisition of an investment property
may constitute a business combination.
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 17 September 2015. 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 2015
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 26.
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 2015. 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 2015
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 on receipt when all conditions have
been 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.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
21
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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.
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.
22
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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.
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.
23
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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. Capitalisation commences on application for the
patents or trademark. Amortisation commences once the patent or trademark has been granted over the remaining
useful life of the patent. The useful life is taken as 20 years from the date of application. Patents and trademarks are
sought globally in various jurisdictions. If a patent or trademark is unsuccessful the costs are then fully written off. All
patents and trademarks once granted have an annuity commitment over the term of their life and these are detailed in
note 24.
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.
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.
24
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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 the 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.
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.
25
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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 shareholders 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.
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.
26
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 1. Significant accounting policies (continued)
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
2015. The consolidated entity has not assessed of the impact of these new or amended Accounting Standards and
Interpretations.
Application
date of standard
*
Issue date
1 January 2018
December 2010
Part C - 1 January
2015
December 2013
AASB No.
Title
AASB 9
Financial Instruments
AASB 2013-9
AASB 2014-1
AASB 2014-3
AASB 2014-4
AASB 2014-5
AASB 2014-6
Amendments to Australian Accounting Standards - Conceptual
Framework, Materiality and Financial Instruments
Part C - Financial Instruments
Amendments to Australian Accounting Standards
Part D - Consequential Amendments arising from AASB 14 Regulatory
Deferral Accounts, Part E - Financial Instruments
Part D - 1 January
2016, Part E - 1
January 2018
June 2014
Amendments to Australian Accounting Standard – Accounting for
Acquisition of Interest in Joint Operations [AASB 1 & AASB 11]
1 January 2016
August 2014
Amendments to Australian Accounting Standard - Clarification of
Acceptable Methods of Depreciation and Amortisation (Amendments to
AASB 116 and AASB 138)
Amendments to Australian Accounting Standard Arising From AASB 15
Amendments to Australian Accounting Standard – Agriculture: Bearer
Plants [AASB 101, AASB 116, AASB 117, AASB 123, AASB 136, AASB
140 & AASB 141]
1 January 2016
August 2014
1 January 2017
December 2014
1 January 2016
December 2014
AASB 2014-7
Amendments to Australian Accounting Standard arising from AASB 9
1 January 2018
December 2014
AASB 2014-8
Amendments to Australian Accounting Standards arising from AASB 9
1 January 2015
December 2014
AASB 2014-9
Amendments to Australian Accounting Standard - Equity Method in
Separate Financial Statements
1 January 2016
December 2014
AASB 2014-10
Amendments to Australian Accounting Standard - Sale of Contribution
of Assets Between Investors and its Associates or Joint Venture
1 January 2016
December 2014
AASB 2015-1
Amendments to Australian Accounting Standards – Annual
Improvements to Australian Accounting Standards 2012–2014 Cycle
1 January 2016
January 2015
AASB 2015-2
Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 101
1 January 2016
January 2015
AASB 2015-3
Amendments to Australian Accounting Standards arising from the
Withdrawal of AASB 1031 Materiality
I July 2015
January 2015
AASB 2015-4
Amendments to Australian Accounting Standards – Financial Reporting
Requirements for Australian Groups with a Foreign Parent **
1 July 2015
January 2015
AASB 2015-5
Amendments to Australian Accounting Standards – Investment Entities:
Applying the Consolidation Exception
1 July 2015
January 2015
AASB 2015-6
Amendments to Australian Accounting Standards – Extending Related
Party Disclosures to NFP Public Sector Entities
1 July 2016
March 2015
AASB 14
AASB 15
Regulatory Deferral Account
1 January 2016
June 2014
Revenues from Contracts with Customers
1 January 2017
December 2014
AASB 1056
Superannuation Entities
1 July 2016
June 2014
* Annual reporting periods beginning after
27
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
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 the 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.
Impairment of work in progress
Work in progress comprises patient cells taken via biopsy and cryopreserved awaiting implantation at the patients
discretion at a future date. Impairment of work in progress assessment requires a degree of estimation and judgement.
While the patient cells held can be preserved indefinitely the company has estimated that if the patient has not
proceeded with implantation within 2 years from biopsy, resulting in a sale of the product, the value of the work in
progress is impaired to nil.
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. The useful life of patents and trademarks is based on the period of the life of
the patent or trademark, which is usually 20 years.
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 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 2015
Note 3. Revenue
Sales revenue
Sale of goods
Other revenue
Interest
Commissions
Export market development grant
License fee
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
2015
$
2014
$
790,430
790,430
691,405
691,405
123,369
569,571
62,058
141,696
3,184
899,878
15,110
381,321
78,894
107,950
9,733
593,008
1,690,308
1,284,413
652,856
597,151
34,445
24,910
59,355
29,132
8,698
37,830
1,097
3,929
114,351
89,532
1,904,735
78,385
177,658
465,500
236,530
86,954
44,342
798,405
(453,002)
1,445,771
73,141
127,366
315,326
129,300
49,160
5,035
-
(501,681)
Total employment expenses
3,339,507
1,643,418
Loss on disposal of assets
Plant and equipment
Write off of assets
Inventories
-
-
43,303
51,198
29
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 5. Income tax expense
Income tax expense
Current tax benefit 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
Research and development tax benefit received
Income tax benefit
The following deferred tax balances have not been recognised:
Deferred tax assets at 30%:
Provisions and accruals
Unrealised FX loss
Capital raising costs
Carried forward revenue losses
Consolidated
2015
$
2014
$
1,157,821
-
-
530,426
-
-
1,157,821
530,426
-
-
-
-
-
-
-
-
-
-
-
-
(3,742,715)
(2,182,185)
(1,122,815)
(654,655)
13,025
184,714
(347,347)
(18,617)
239,595
1,051,445
4,541
129,027
(159,128)
-
(70)
680,145
-
-
1,157,821
530,426
1,157,821
530,426
107,026
329
229,773
1,498,615
82,652
-
44,867
1,043,918
1,835,743
1,171,436
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 2015
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
2015
$
2014
$
4,774,108
-
482,303
2,985,049
4,774,108
3,467,352
4,774,108
3,467,352
4,774,108
3,467,352
144,249
774
33,354
34,128
54,797
200
71,719
71,919
178,377
126,716
There has been no impairment of receivables in the year ended 30 June 2015 (30 June 2014: $0).
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $56,622 as at 30
June 2015 (30 June 2014: $12,200)
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
36,074
20,548
56,622
12,200
-
12,200
4,990
145,675
-
151,871
150,665
151,871
31
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 9. Other
Accrued revenue
Capitalised IPO costs
Prepayments
Other
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
2015
$
2014
$
77,590
-
4,302
160
58,562
244,228
2,545
-
82,052
305,335
272,502
(56,820)
215,682
375,838
(299,461)
76,377
34,312
(20,242)
14,070
272,502
(50,008)
222,494
325,283
(274,050)
51,233
31,184
(18,018)
13,166
306,129
286,893
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 30 June 2013
Additions
Disposals
Depreciation expense
Balance at 30 June 2014
Additions
Disposals
Depreciation expense
Balance at 30 June 2015
Leasehold
improvements
$
Plant and
equipment
$
Furniture
and fittings
$
Total
$
229,306
-
-
(6,812)
222,494
-
-
(6,812)
60,317
11,140
-
(20,224)
51,233
51,372
(817)
(25,411)
13,192
2,070
-
(2,096)
13,166
3,126
-
(2,222)
302,815
13,210
-
(29,132)
286,893
54,498
(817)
(34,445)
215,682
76,377
14,070
306,129
32
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 11. Intangibles
Patents and trademarks – at cost
Less: Accumulated amortisation
Consolidated
2015
$
2014
$
1,085,633
(40,831)
815,635
(15,921)
1,044,802
799,714
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 30 June 2013
Additions
Amortisation expense
Balance at 30 June 2014
Additions
Amortisation expense
Balance at 30 June 2015
Note 12. Trade and other payables
Trade payables
Share applications – held on trust
Other payables
Note 13. Employee benefits
Annual leave entitlements
Long service leave entitlements
Patents and
trademarks
$
Total
$
537,706
537,706
270,706
(8,698)
270,706
(8,698)
799,714
799,714
269,998
(24,910)
269,998
(24,910)
1,044,802
1,044,802
628,941
-
126,922
710,770
2,985,100
159,573
755,863
3,855,443
196,307
114,088
162,310
69,700
310,395
232,010
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.
33
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
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
Consolidated
2015
$
94,149
141,700
2014
$
110,590
107,950
235,849
218,540
850,236
755,700
850,236
755,700
Consolidated
2015
Shares
2014
Shares
2015
$
2014
$
82,500,000
-
-
82,500,000
2,166,026 16,237,140
-
1,361,230
-
338,600
3,865,856 16,237,140
3,313,427
3,423,714
1,500,000
8,237,141
Share equity costs – preference shares series A2
Share equity costs – preference shares series A
Share equity costs – ordinary shares
-
-
-
-
-
-
-
-
(934,658)
(66,420)
(120,151)
-
82,500,000
3,865,856 15,302,482
8,050,570
Movements in ordinary share capital:
Details
Balance
Issue of shares on the exercise of options
Transfer from share options reserve on the
exercise of options
Balance
Conversion of preference shares to ordinary
shares
Division of shares
Issue of shares at IPO
IPO share issue costs
Date
1 July 2013
23 May 2014
No of
shares
2,138,526
27,500
-
Issue price
$
$2.39
30 June 2014
2,166,026
1 August 2014
1 August 2014
4 August 2014
1,699,830
58,634,144
20,000,000
-
$0.40
3,162,553
65,726
85,148
3,313,427
4,923,713
-
8,000,000
(934,658)
Balance
30 June 2015
82,500,000
15,302,482
34
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 16. Equity – issued capital (continued)
Movements in redeemable preference series A share capital:
Details
Balance
Issue of shares
Issue of shares
Issue of shares
Balance
Date
1 July 2013
9 February 2014
18 March 2014
23 May 2014
No of
shares
Issue
price
960,714
51,710
347,806
1,000
$
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
Conversion of preference shares to ordinary
shares
1 August 2014
(1,361,230)
(3,423,714)
Balance
30 June 2015
-
-
Movements in redeemable preference series A2 share capital:
Details
Balance
Balance
Date
1 July 2013
30 June 2014
No of
shares
Issue
price
338,600
338,600
$
1,500,000
1,500,000
Conversion of preference shares to ordinary
shares
1 August 2014
(338,600)
(1,500,000)
Balance
30 June 2015
-
-
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.
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).
35
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 16. Equity – issued capital (continued)
(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
The consolidated entity's objectives when managing capital is to safeguard its ability to continue as a going concern,
so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the consolidated entity may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The consolidated entity would look to raise capital when an opportunity to invest in a business or company was seen
as value adding relative to the current company's share price at the time of the investment. The consolidated entity is
not actively pursuing additional investments in the short term as it continues to integrate and grow its existing
businesses in order to maximise synergies.
Note 17. Option reserve
Share option reserve
Consolidated
2015
Options
2014
Options
Consolidated
2015
$
2014
$
9,432,500
9,432,500
-
-
798,405
798,405
-
-
36
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 17. Option reserve (continued)
Movement in option reserve
Movement in option reserve during the current and previous financial year are set out below:
Balance
Options exercised
Balance at 30 June 2014
Options issued(1)
Options issued(2)
Balance at 30 June 2015
Date
No of options
30 June 2013
23 May 2014
3 August 2014
24 November 2014
27,500
(27,500)
-
5,912,500
3,520,000
Total
$
85,148
(85,148)
-
532,092
266,313
9,432,500
798,405
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.
For the options granted during the current half year, the valuation model inputs used to determine the fair value at the
grant date are as follows:
Grant date
Expiry date
Share price at grant date
Exercise price
Expected volatility
Dividend yield
Risk-free rate
Fair value at grant date
Set out below are summaries of options granted by the Company:
(1)
3 Aug 2014
3 Aug 2017
$0.40
$0.50
40%
0%
3.08%
$0.09
(2)
24 Nov 2014
24 Nov 2017
$0.427
$0.62
40%
0%
3.08%
$0.08
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
Grant date Expiry date Price
Exercise
2015
03/08/2014 03/08/2017
24/11/2014 24/11/2017
$0.50
$0.62
-
-
-
5,912,500
3,520,000
9,432,500
-
-
-
2014
15/08/2010 15/08/2015
$2.39
27,500
-
27,500
Note 18. Equity – accumulated losses
Accumulated losses at the beginning of the financial year
Loss after income tax expense for the year
-
-
-
-
5,912,500
3,520,000
9,432,500
-
Consolidated
2015
$
2014
$
7,974,382
3,742,715
5,792,197
2,182,185
Accumulated losses at the end of the financial year
11,717,097
7,974,382
37
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
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.
(b)
Interest rate risk
At reporting date the Company had the following financial assets exposed to interest rate risk:
Cash(1)
4,774,108
3,467,352
(1) The weighted average interest rate of cash is 2.06% (2014: 2.40%)
None of the consolidated entity’s financial liabilities are interest bearing.
(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
As at 30 June 2015:
Trade and other payables
As at 30 June 2014:
Trade and other payables
$
850,012
980,933
$
-
-
$
-
-
$
-
-
$
-
-
Total
contractual
cash flows
$
-
-
Total
carrying
amount
$
850,012
980,933
38
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 19. Financial instruments (continued)
(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 2015 and 2014.
None of the Company’s financial liabilities are interest bearing.
30 June 2015
Financial assets
Cash
30 June 2014
Financial assets
Cash
Carrying
amount
$
Interest rate risk
-1%
Interest rate risk
1%
Net profit
$
Equity
$
Net profit
$
Equity
$
4,774,108
(47,741)
(47,741)
47,741
47,741
3,467,352
(34,673)
(34,673)
34,673
34,673
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
2015
$
619,861
32,932
17,152
477,446
2014
$
415,187
26,445
12,026
-
1,147,391
453,658
During the financial year the following fees were paid or payable for services provided by PKF Mack, the auditor of the
Company, its network firms and unrelated firms:
Audit services – PKF Mack
Audit or review of the consolidated financial statements
Other services – PKF Mack
Preparation of the tax return
Preparation of Investigating accountants report
Other matters
39
31,250
33,000
2,000
-
8,250
10,250
41,500
2,000
11,500
9,500
23,000
56,000
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 22. Contingent liabilities
The consolidated entity has no contingent liabilities for the years ended 30 June 2015 or 30 June 2014.
Note 23. Contingent assets
Following the acquisition of Biomet Australia Pty Ltd by Zimmer Pty Ltd on 30 June 2015 Orthocell signed a Deed of
Termination Release and Transition (Termination Agreement) with Biomet Australia Pty Ltd and Zimmer Pty Ltd, thus
terminating Orthocell’s Distributor Agreement with Biomet Pty Ltd.
Under the terms of the Termination Agreement Orthocell are entitled to termination payments totalling $268,652 over
the 12 months ending 30 June 2016 provided the terms of the Termination Agreement are followed. Of this amount
$76,758 was received and included as revenue in the profit and loss in June 2015. The likelihood of receiving the
remaining termination payments totalling $191,894 is highly probable. No asset has been recognised within these
financial statements.
Note 24. 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
Consolidated
2015
$
2014
$
25,382
168,154
434,862
26,971
119,033
320,466
628,398
466,470
32,899
33,496
-
73,575
15,697
-
66,395
89,272
694,793
555,742
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 25. Related party transactions
Parent entity:
Subsidiaries:
Orthocell Limited is the parent entity
Interests in subsidiaries are set out in note 26.
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.
40
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 26. 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
Ausbiomedical Pty Ltd
Country of incorporation
Australia
2015
%
100
2014
%
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.
Note 27. Events after the reporting period
No other matter or circumstance has arisen since 30 June 2015 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 28. Reconciliation of loss after income tax to net cash from operating activities
Consolidated
2015
$
2014
$
Loss after income tax expense for the year
(3,742,715)
(2,182,185)
Adjustments for:
Depreciation and amortisation
Share-based payments
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
59,355
798,405
43,303
(75,473)
(1,917)
(42,098)
(19,028)
22,326
(16,442)
78,385
128,286
37,830
-
51,198
-
(35,508)
(2,545)
(18,045)
(1,486)
439,114
(6,590)
73,141
(107,950)
Net cash from operating activities
(2,767,613)
(1,753,026)
41
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2015
Note 29. Loss per share
Loss per share
Loss after income tax
Weighted average number of shares used in calculating basic and diluted loss
per share
Consolidated
2015
$
2014
$
(3,742,715)
(2,182,185)
Number
Number
75,657,100
3,561,056
Options are considered to be potential ordinary shares and have only been included in the determination of diluted
loss per share to the extent to which they are dilutive.
Following the conversion of preference shares to ordinary shares and division of shares on 1 August 2014 and the
issue of shares on 4 August 2014 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 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 2015
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 2015 and of its performance for the financial year ended on that date; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
The directors have been given the 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
Mr Paul Anderson
Director
18 September 2015
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 2015, 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 entity’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 entity’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 2015 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 7 to 12 of the directors’ report for the year
ended 30 June 2015. 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 2015, complies
with section 300A of the Corporations Act 2001.
PKF MACK
SIMON FERMANIS
PARTNER
18 SEPTEMBER 2015
WEST PERTH
WESTERN AUSTRALIA
45
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
General
The Board of Directors of Orthocell Limited (the “Company”) is responsible for the corporate governance of the
Company. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders
by whom they are elected and to whom they are accountable.
This statement sets out the main corporate governance practices in place throughout the financial year in
accordance with 3rd edition of the ASX Principles of Good Corporate Governance and Best Practice
Recommendations.
Further information about the Company’s corporate governance practices is set out on the Company’s website at
www.orthocell.com.au.
This Statement was approved by the Board of Directors and is current as at 26 October 2015.
PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
ASX Recommendation 1.1: a listed entity should establish the functions reserved to the board and those
delegated to senior executives and disclose those functions.
The Board has adopted a formal charter that details the respective board and management functions and
responsibilities. A copy of this board charter is available in the corporate governance section of the Company's
website at www.orthocell.com.au.
The Company has complied with this recommendation.
ASX Recommendation 1.2: a listed entity should undertake appropriate checks before appointing a person,
or putting forward to security holders a candidate for election as a director and provide security holders
with all material information relevant to a decision on whether or not to elect or re-elect a director.
The Company did not elect any new Directors during the year.
Information in relation to Directors seeking reappointment is set out in the Directors report and Notice of Annual
General Meeting.
The Company has complied with this recommendation.
ASX Recommendation 1.3: a listed entity should have a written agreement with each Director and senior
executive setting out the terms of their appointment.
The Company has in place written agreements with each Director.
The Company has complied with this recommendation.
ASX Recommendation 1.4: the company secretary of a listed company should be accountable directly to
the board, through the chair, on all matters to do with the proper functioning of the board.
The Board Charter provides for the Company Secretary to be accountable directly to the board through the Chair.
The Company has complied with this recommendation.
46
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
ASX Recommendation 1.5: a listed entity should:
•
have a diversity policy which includes the requirement for the board to set measurable objectives for
achieving gender diversity and assess annually the objectives and the entity’s progress to achieving
them;
disclose the policy or a summary of it;
disclose the measurable objectives and progress towards achieving them; and
disclose the respective proportions of men and women on the board and at each level of management
and the company as a whole.
•
•
•
The Company has adopted a Diversity Policy which is available in the corporate governance section of the
Company's website at www.orthocell.com.au.
The Board considers that, due to the size, nature and stage of development of the Company, setting measurable
objectives for the Diversity Policy at this time is not appropriate. The Board will consider setting measurable
objectives as the Company increases in size and complexity.
As at 30 June 2015, the Company does not have any female Board members (2014: nil). The Company has 1
female (50%) in senior management positions. (2014: 1, 50%). Of the balance of the Company’s employees 67%
are female (2014:54%). 50% (2014: 40%) of the Company’s employees in total, including Directors, are female.
The Company partly complies with this recommendation.
ASX Recommendation 1.6: a listed entity should disclose the process for evaluating the performance of
the board, its committees and individual directors and whether a performance evaluation was carried out
during the reporting period in accordance with that process.
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 if deemed appropriate.
A performance review was undertaken during the reporting period.
The Company has complied with this recommendation.
ASX Recommendation 1.7: a listed entity should have and disclose a process for periodically evaluating
the performance of its senior executives and disclose in relation to each reporting period where a
performance evaluation was undertaken in accordance with a process.
The Managing Director reviews the performance of the senior executives. The Managing Director conducts 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 Remuneration
Committee. The Remuneration Committee will conduct a 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.
The Company has complied with this recommendation.
47
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE
ASX Recommendation 2.1: The board of a listed entity should establish a nomination committee:
• with at least three members the majority of which are independent directors
•
•
chaired by an independent Director; and
disclose the charter of the committee, the members of the committee and the number of times the
committee met throughout the period and member attendance at those meetings.
Given the present size and complexity of the Company the Board has not constituted a Nomination Committee with
the full Board carrying out the role of a Nomination Committee.
The Company has not complied with this recommendation.
ASX Recommendation 2.2: a listed entity should have and disclose a board skills matrix setting out the
mix of skills and diversity that the board currently has or is looking to achieve in its membership.
The Board has established a skills matrix. On a collective basis the Board has the following skills:
Strategic expertise - ability to identify and critically assess strategic opportunities and threats and develop
strategies.
Specific Industry knowledge - Experience in regenerative medicine or other Biotech or related sector.
International experience – members of the Board have an understanding the complexities of operating in foreign
jurisdictions, including a basic knowledge of the general corporate, fiscal and labour laws and regulations.
Accounting and finance - members of the Board have experience in accounting and finance or the ability to read
and comprehend the company’s accounts, financial material presented to the board, financial reporting
requirements and an understanding of corporate finance.
Risk management - Identify and monitor risks to which the Company is, or has the potential to be exposed to.
Experience with financial markets - Experience in working in or raising funds from the equity or capital markets.
Investor relations - Experience in identifying and establishing relationships with Shareholders, potential investors,
institutions and equity analysts.
Government relations - Experience in dealing with relevant Government authorities and regulators.
The Company has complied with this recommendation.
ASX Recommendation 2.3: a listed entity should disclose the names of the directors considered by the
board to be independent directors and provide details in relation to the length of service of each Director.
During the year ended 30 June 2015 the only independent Director of the Company was Professor Lars Lidgren.
Dr Stewart Washer and Mr Paul Anderson are Executive Directors and are not considered to be independent
Directors as they are employed in an executive capacity.
Mr Qi Xiao Zhou is a substantial shareholder and as such is not considered to be an independent Director.
The appointment date of Directors is set out in the Directors Report forming part of the Annual Financial Statements.
The Company has complied with this recommendation.
ASX Recommendation 2.4: the majority of the board of a listed entity should be independent directors.
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.
48
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
The Board will review its composition as the Company’s circumstances change.
The Company has not complied with this recommendation.
ASX Recommendation 2.5: The Chair of a listed entity should be an independent director and, in particular,
should not be the same person as the CEO of the entity.
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.
The Company has partly complied with this recommendation.
ASX Recommendation 2.6: a listed entity should have a program for inducting new directors and provide
appropriate professional development opportunities.
The Board is responsible for providing new directors with an induction to the Company and for the program for
providing adequate professional development opportunities for directors and management.
The Company has complied with this recommendation.
PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY
ASX Recommendation 3.1: a listed entity should establish a code of conduct and disclose the code or a
summary of the code.
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
expectations of its stakeholders and the responsibility and accountability of individuals for reporting and
investigating reports of unethical practices.
A copy of the Company’s code of conduct is available in the corporate governance section of the Company's
website at www.orthocell.com.au.
The Company has complied with this recommendation.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
ASX Recommendation 4.1: The Board of a listed entity should establish an audit committee:
• with at least three members, all of whom are non-executive directors and a majority of which are
•
•
independent directors
chaired by an independent Director; and
disclose the charter of the committee, the members of the committee and the number of times the
committee met throughout the period and member attendance at those meetings.
Given the present size and complexity of the Company the Board has not constituted an Audit Committee with the
full Board carrying out the role of an Audit Committee.
The qualifications of the members of the Board are set out in the Directors report forming part of the Annual
Financial Statements.
The Company has not complied with this recommendation.
49
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
ASX Recommendation 4.2: The Board of a listed entity should, before it approves the entity’s financial
statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the
financial records of the entity have been properly maintained and that the financial statements comply
with the appropriate accounting standards and give a true and fair view of the financial position and
performance of the entity and that the opinion has been formed on the basis of a sound system of risk
management and internal control which is operating effectively.
The Board has received the assurance required by ASX Recommendation 4.2 in respect of the financial statements
for the half year ended 31 December 2014 and the full year ended 30 June 2015. From the Managing Director and
the Chief Financial Officer. Given the size and nature of the Company’s operations the Board has not received the
assurance in respect of the quarterly cash flow statements believing that the provision of the assurance for the half
and full year financial statements is sufficient.
The Company partly complies with this recommendation.
ASX Recommendation 4.3: a listed entity should ensure that the external auditor attends its Annual General
Meeting and is available to answer questions from security holders relevant to the audit.
The external auditor attends the Annual General Meeting and is available to answer questions from shareholders
relevant to the audit and financial statements. The external auditor will also be allowed a reasonable opportunity to
answer written questions submitted by shareholders to the auditor as permitted under the Corporations Act.
The Company has complied with this recommendation.
PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE
ASX Recommendation 5.1: a listed entity should establish written policies designed to ensure compliance
with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for
that compliance and disclose those policies or a summary of those policies.
The Company has established a continuous disclosure policy which is designed to guide compliance with ASX
Listing Rule disclosure requirements and to ensure that all Directors, senior executives and employees of the
Company understand their responsibilities under the policy. The Chairman, Managing Director and Company
Secretary act as the Company’s Disclosure Officers who are responsible for implementing and administering this
policy. The Disclosure Officers are responsible for all communication with ASX and for making decisions on what
should be disclosed publicly under this policy.
In accordance with the Company's continuous disclosure policy, all information provided to ASX for release to the
market is posted to its website at www.orthocell.com.au after ASX confirms an announcement has been made.
A copy of the continuous disclosure policy is available in the corporate governance section of the Company's
website at www.orthocell.com.au.
The Company has complied with this recommendation.
PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS
ASX Recommendation 6.1: a listed entity should provide information about itself and its governance to
investors via its website.
The Company’s website at www.orthocell.com.au contains information about the Company’s projects, Directors
and management and the Company’s corporate governance practices, policies and charters. All ASX
announcements made to the market, including annual and half year financial results are posted on the website as
soon as they have been released by the ASX. The full text of all notices of meetings and explanatory material, the
Company’s Annual Report and copies of all investor presentations are posted on the website.
The Company has complied with this recommendation.
50
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
ASX Recommendation 6.2: a listed entity should design and implement an investor relations program to
facilitate effective two-way communication with investors.
The Company’s Managing Director and Chairman are the Company’s main contact for investors and potential
investors and make themselves available to discuss the Company’s activities when requested together with other
Directors as required. In addition to announcements made in accordance with its continuous disclosure obligations
the Company, from time to time, prepares and releases general investor updates about the Company.
Contact with the Company can be made via email addresses provided on the website.
The Company has complied with this recommendation.
ASX Recommendation 6.3: a listed entity should disclose the policies and processes it has in place to
facilitate and encourage participation at meetings of security holders.
The Company encourages participation of shareholders at any general meetings and its Annual General Meeting
each year. Shareholders are encouraged to lodge direct votes or proxies subject to the adoption of satisfactory
authentication procedures if they are unable to attend the meeting.
The full text of all notices of meetings and explanatory material are posted on the Company’s website at
www.orthocell.com.au.
The Company has complied with this recommendation.
ASX Recommendation 6.4: a listed entity should give security holders the option to receive
communications from, and send communications to, the entity and its security register electronically.
Contact with the Company can be made via email addresses provided on the website for the CEO and the Company
Secretary.
The Company’s share register provides a facility whereby investors can provide email addresses to receive
correspondence from the Company electronically and investors can contact the share register via telephone,
facsimile or email.
The Company has complied with this recommendation.
PRINCIPLE 7: RECOGNISE AND MANAGE RISK
ASX Recommendation 4.1: The Board of a listed entity should have a committee to oversee risk:
• with at least three members, all of whom are non-executive directors and a majority of which are
•
•
independent directors
chaired by an independent Director; and
disclose the charter of the committee, the members of the committee and the number of times the
committee met throughout the period and member attendance at those meetings.
Given the present size and complexity of the Company the Board has not constituted a Risk Committee with the
full Board responsible for risk management.
The Company has not complied with this recommendation.
ASX Recommendation 7.2: The Board or a committee of the Board, of a listed entity should review the
entity’s risk management framework at least annually to satisfy itself that it continues to be sound and
disclose in relation to each reporting period whether such a review was undertaken.
The Board is responsible for the oversight of the Company’s risk management and control framework.
Responsibility for control and design of risk management is delegated to the appropriate level of
management within the Company with the Managing Director being responsible to the Board for the risk
management and control framework.
The Board conducted a review during the reporting period.
51
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
The Company has complied with this recommendation.
ASX Recommendation 7.3: a listed entity should disclose if it has an internal audit function and if it does
not have an internal audit function that fact and the processes it employs for evaluating and continually
improving the effectiveness of risk management and internal control processes.
Given the Company’s current size and level of operations it does not have an internal audit function.
The Board is responsible for the oversight of the Company’s risk management and control framework.
Responsibility for control and design of risk management is delegated to the appropriate level of
management within the Company with the Managing Director being responsible to the Board for the risk
management and control framework.
The Company has complied with this recommendation.
ASX Recommendation 7.4: a listed entity should disclose whether it has any material exposure to
economic, environmental and social sustainability risks and if it does how it manages or intends to manage
those risks.
The Company has exposure to economic risks, including general economy wide economic risks and risks
associated with the economic cycle.
There will be a requirement in the future for the Company to raise additional funding to pursue its business
objectives. The Company’s ability to raise capital may be effected by these economic risks.
The Company has in place risk management procedures and processes to identify, manage and minimise its
exposure to these economic risks where appropriate
The Board currently considers that the Company does not have any material exposure to environmental risk.
The Board currently considers that the Company does not have any material exposure to social sustainability risk.
The Company’s Corporate Code of Conduct outlines the Company’s commitment to integrity and fair dealing in its
business affairs. The code sets out the principles covering appropriate conduct in a variety of contexts and outlines
the minimum standard of behavior expected from employees when dealing with stakeholders.
The Company has complied with this recommendation.
PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY
ASX Recommendation 8.1: The board of a listed entity should establish a remuneration committee:
• with at least three members the majority of which are independent directors
•
•
chaired by an independent Director; and
disclose the charter of the committee, the members of the committee and the number of times the
committee met throughout the period and member attendance at those meetings.
The Board has established a Remuneration Committee and adopted a charter that sets out the Remuneration
Committee’s role and responsibilities, composition and membership requirements. Currently, Mr. Matthew Callahan
(chair), Dr Stewart Washer and Dr Lars Lidgren serve on the Remuneration Committee.
A copy of the committee’s charter is available in the corporate governance section of the Company's website at
www.orthocell.com.au.
Details of the number of meetings of the committee and attendance at those meetings is set out in the Directors
Report.
The Company has not complied with this recommendation.
52
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2015
ASX Recommendation 8.2: a listed entity should separately disclose its policies and practices regarding
the remuneration of non-executive directors and the remuneration of executive directors and other senior
executives.
The Company remunerates non-executive Directors at a fixed fee for time, commitment and responsibilities. In
addition non-executive Directors may be paid fees under consulting arrangements. Remuneration for non-
executive Directors is not linked to individual performance. From time to time the Company may, subject to
shareholder approval) grant options to 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 following recommendations from the Remuneration Committee.
Long term performance incentives may include options or other equity based products granted at the discretion of
the Board subject to obtaining the relevant shareholder 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.
The Company has complied with this recommendation.
ASX Recommendation 8.3: a listed entity which has an equity based remuneration scheme should have a
policy on whether participants are permitted to enter into transactions which limit the economic risk of
participating in the scheme and disclose the policy or a summary of that policy.
A participant in an equity based remuneration plan operated by the Company must not enter into a transaction
(whether through the use of derivatives or otherwise) which limit the economic risk of participating in the equity
based remuneration plan.
The Company has complied with this recommendation.
53
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2015
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 26 October 2015.
1.
20 largest shareholders
The names of the twenty largest holders of each class of listed securities are listed below:
Twenty largest shareholders
Number held
SRV Custodians Pty Ltd
Ming Hao Zheng & Ying Fan
Paul Anderson & Nicole Telford
J P Morgan Nominees Australia Limited
Qi Xiao Zhou
Jia Xun Xu
Veritas Securities Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Murdoch Ventures Pty Ltd
HSBC Custody Nominees (Australia) Limited
Diamonex Ltd
SRV Nominees Pty Ltd
The University of Western Australia
ABN Amro Clearing Sydney Nominees Pty Ltd
Sandhurst Trustees Ltd
Dr Gregory Clayton Janes
Raymond Crowe Pty Ltd
Gerard Hardisty & Gabrielle Hardisty
Meredith Scott
9,530,382
6,775,131
6,403,335
6,111,090
5,955,673
5,168,276
2,425,077
2,309,595
1,331,500
923,841
802,703
727,523
649,177
646,687
636,896
481,379
461,912
461,912
461,912
461,912
% of issued
shares
11.55
8.21
7.76
7.41
7.22
6.26
2.94
2.80
1.61
1.12
0.97
0.88
0.79
0.78
0.77
0.58
0.56
0.56
0.56
0.56
2.
Substantial shareholders
The number of substantial shareholders and their associates are set out below:
Shareholder
SRV Custodians Pty Ltd
Ming Hao Zheng & Ying Fan
Paul Anderson & Nicole Telford
J P Morgan Nominees Australia Limited
Qi Xiao Zhou
Jia Xun Xu
Number of
shares
9,530,382
6,775,131
6,403,335
6,111,090
5,955,673
5,168,276
54
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2015
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
309
1,374
503
544
61
2,783
245,204
3,889,407
4,062,915
14,221,556
60,080,918
82,500,000
0.30
4.71
4.92
17.24
72.83
100.00
Number of holders with less than marketable parcels: 19.
5.
Unquoted securities
Options issued under the options plans total 9,432,500.
Issue date
3 Aug 2014 One ordinary share
Entitlement
Exercise price Expiry date
3 Aug 2017
$0.50
Number
5,912,500
upon exercise of
each option
24 Nov 2014 One ordinary share
$0.62
23 Nov 2017
3,520,000
upon exercise of
each option
9,432,500
All options are held by directors or by employees granted following shareholder approval or under the
Orthocell Limited Employee Option Acquisition Plan.
6.
Restricted securities
Security
Ordinary shares
Escrow expiry
Number
12 Aug 2016
27,185,515
Options exercisable at $0.50 expiring 3/08/2017
12 Aug 2016
4,250,000
7.
8.
On-market buy back
There is currently no on-market buyback program for any of Orthocell Limited’s listed securities.
Listing Rule 4.10.19 confirmation
The Company has used the cash and assets readily convertible to cash that it had at the time of admission
to ASX (12 August 2014) in a way consistent with the business objectives set out in the prospectus.
55