RegeneRating mobility
2016 AnnuAl RepoRt
Orthocell Limited
Contents
30 June 2016
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 statement
Additional ASX information
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Orthocell Limited
Corporate directory
30 June 2016
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 2016
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 2016.
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 $3,784,864 (30 June 2015: $3,742,715).
Overview
Orthocell Ltd is a regenerative medicine company dedicated to the development of an important new class of tissue
regeneration medical devices, cellular therapies and growth factors for the repair and regeneration of human tendons,
ligaments, cartilage and soft tissue defects. Development to date has focused on two main products:
•
•
‘CelGro®’ a naturally derived collagen medical device for soft tissue repair currently in use as an augment to
rotator cuff repair, guided bone regeneration and repair of articular cartilage; and
Autologous Tenocyte Implantation (“Ortho-ATI®”) for chronic, treatment resistant tendon regeneration.
CelGro® is targeted to a variety of orthopaedic, reconstructive and surgical applications and is being readied for first
regulatory approval in Europe in 2016. Orthocell’s CelGro® scaffold represents a paradigm shift in soft tissue
reconstruction and exhibits a number of qualities that make it ideal for use as a guided tissue reconstruction and soft
tissue repair device.
Orthocell’s Ortho-ATI® is a unique regenerative treatment that uses a minimally invasive, non-surgical approach that
uses each patient’s own tendon derived stem cells to stimulate tendon regeneration and is delivered via ultrasound
guided injection under local anaesthetic. Published data demonstrates that Ortho-ATI® is a durable disruptive
technology facilitating the healing of tendons which are resistant to existing therapies.
Summary of key events
The Company has achieved significant progress in the clinical development of CelGro® in 2015/16 by demonstrating
that this novel medical device has unique characteristics and competitive advantages over existing tissue repair
scaffolds, particularly in the areas of cell compatibility, tensile strength and promotion of quality tissue in-growth and
scar-less repair:
•
•
•
In November 2015, the Company announced initial positive safety and tolerability results for CelGro® in a
pilot clinical study examining the safety and effectiveness of CelGro® for the treatment of bone defects around
dental implants.
In December 2015, the Company received approval for a human clinical study examining the safety and
effectiveness of its CelGro® scaffold, to be used as an augment to the surgical repair of the rotator cuff tendon
in the shoulder (The Rotator Cuff Tendon Study or RCTS). In June 2016, the Company released initial
positive safety and tolerability results for the RCTS demonstrating that the scaffold is safe and has been well
tolerated with no inflammatory reactions or complications.
In May 2016, Orthocell received human ethics approval to conduct a clinical trial for the use of CelGro® in
the treatment and augmentation of articular cartilages surgeries (CelGro® Hip Study). The study involves 25
patients and aims to demonstrate that CelGro® can be used as an augment to hip cartilage surgery and is a
safe and tolerable treatment.
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Orthocell Limited
Directors’ report
30 June 2016
During the year the Company received numerous national and international patents for its world leading
regenerative medicine technologies. The patents provide important protection of its technologies as Orthocell
prepares for registration and commercialisation in global markets. Australian and Chinese patents were granted for
CelGro® relating to the method of manufacture of novel bio-scaffolds to aid in the surgical repair of soft tissue
injuries. US and Canadian CelGro® patents were granted for the process of combining tendon stem cells seeded
onto collagen based scaffolds for the repair of soft tissue injuries. A Hong Kong patent was awarded for method to
manufacture Ortho-ATI® for the regeneration of damaged tendons. In January 2016, Orthocell announced
issuance of a US patent for cell-factory derived bioactive molecules for the generation of tissue specific growth
factors to enhance tissue regeneration.
In November 2015, the Company raised $4.4m via a placement to selected institutional investors in the US,
Australia and, following shareholder approval received on 27 January 2016, from various directors and officers of
the Company. The Company also issued investors who participated in the placement free attaching unlisted
warrants on the basis of 1.35 warrants for each share issued in the placement.
In May 2016, Orthocell received an R&D tax incentive cash refund of $1,507,774 for the financial year 2014/2015.
The R&D refund strengthened the Company’s balance sheet and increased the operational runway during a very
active clinical trial program for its collagen platform technology, CelGro® and cellular therapy for tendon
regeneration, Ortho-ATI®.
The effectiveness of Ortho-ATI®, the world leading tendon regeneration technology was further validated during the
year with the release of new positive results from a study of its tendon cell treatment for tennis elbow in 25 workers
compensation patients. The data shows Ortho-ATI® significantly improved the clinical outcomes of patients with
long-term tennis elbow degeneration, showing reduced pain and increased functionality enabling 88% of patients to
return to work and more than 50% of these returned at full capacity following Ortho-ATI® treatment. The Company
also held its inaugural user group meeting in Sydney. Attendees included 40 leading orthopaedic surgeons, sports
physicians, radiologists, physiotherapists and pain clinicians from Australia and New Zealand. The meeting brought
together some of Australia’s leading doctors to discuss their positive experiences and clinical outcomes which
further demonstrated that Ortho-ATI® technology is a safe and effective treatment for degenerate tendons.
Orthocell’s regenerative cell therapy for cartilage repair, Ortho-ACI® was applied to its first patient in Singapore in
November 2015. Singapore is the latest international market Orthocell has expanded Ortho-ACI® into, following its
successful entry to Hong Kong earlier this year where the therapy was used on patients with articular cartilage
damage within the knee joint.
The Company progressed its exciting pipeline regenerative medicine technologies in lab grown tendons and cell
factory derive growth factors for the repair of tendon, ligament and bone defects. Orthocell has made yet another
step towards the potential for an off the shelf product for doctors and patients seeking out cost effective treatments
to alleviate symptoms that affect their mobility and quality of life.
The Company partnered in the receipt of an Australian Research Council (ARC) grant of $430,000 to
further investigate tendon tissue and develop novel therapies such as the laboratory fabricated tendon
project announced by Orthocell in November 2014.
The presentation by Orthocell’s collaborators of its successful ‘cell factory’ data at the European Bone and
Joint Infection Society in Estoril Portugal September 2015. The data has supported the role of growth
factors and extracellular matrix proteins which were derived by the researchers from bone cells cultivated
in a cell factory, to be combined with scaffolds, to regenerate serious bone defects.
In April 2016, the Company announced the publication of a study undertaken by leading researchers in the
respected Journal ACS Applied Materials and Interfaces verifying that cell factory derived bioactive
molecules in combination with a scaffold promotes bone healing.
During the year the company presented at numerous leading national and international congresses further
supporting the international interest, safety and effectiveness of its tendon regeneration product (Ortho-ATI®) and
cartilage regeneration (Ortho-ACI®) products, as well as its pipeline products. Presentations included:
Previously released positive follow up data for the treatment of recalcitrant tendon injuries in the hip (2 year
data) and the elbow (4.5 year data) at the 16th Biennial Congress of the South African Sports Medicine
Association;
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Orthocell Limited
Directors’ report
30 June 2016
Positive two year follow up data for Ortho-ACI® treatment for articular cartilage defects of the knee and
ankle at two leading regional orthopaedic association annual scientific meetings in Brisbane (Australian
Orthopaedic Association) and Singapore (Singapore Orthopaedic Association);
Previously announced “tendon outside the body” tendon bioreactor work at the Australian Orthopaedic
Association;
Previously released positive data around its Ortho-ATI® treatment for degenerate tendon and pipeline
opportunities at the international stem cell meeting in the US and Barcelona.
Previously released positive two year follow up data for the treatment of recalcitrant tendon injuries in the
hip at the 3rd Melbourne International Hip Arthroscopy meeting.
In March 2016, Paul Anderson (CEO, Orthocell) presented at the 28th Annual Roth Capital Partners conference in
California highlighting the Company’s progress and confirming that the Company is deal ready and positioned for
growth. Mr Anderson also presented during extensive promotional roadshows in Perth (December 2015) and
Melbourne and Sydney (April 2016).
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 capital raise in November 2015, 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.
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.
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Orthocell Limited
Directors’ report
30 June 2016
Information on directors
Name:
Title:
Dr Stewart Washer
Executive Chairman
Experience and expertise:
Dr Washer has over 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
test for prostate cancer. He is also a founder of Zelda Therapeutics and
AusCann which operate in the medicinal therapies space, and Firefly
Health, developing a digital health device for diabetes.
Dr Washer was previously the CEO of Calzada Ltd (ASX:CZD), the
founding CEO of Phylogica Ltd (ASX:PYC) and before this, the CEO of
Celentis managing the commercialisation of intellectual property from
AgResearch in New Zealand with 650 Scientists and $130 million
revenues. Dr Washer was a founder of a NZ$120m New Zealand based life
science fund and Venture Partner with the Swiss based Inventages Nestlé
Fund. He was also a Senator with Murdoch University
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 iSonea Ltd (ASX:ISN,
from 2012 to 2014).
Interest in shares:
Interests in options:
475,261
1,745,842
Name:
Title:
Mr Paul Anderson
Managing Director
Experience and expertise:
Mr Anderson has over 20 years’ experience in the medical device and
regenerative medicine fields with expertise in bridging the gap between
research and clinical practice in the development of emerging medical
technologies. He also has extensive expertise in the establishment of GMP
manufacturing facilities and scale-up activities for cell therapies and
biological medical devices, and the associated regulatory filings.
Mr Anderson has a proven track record with over 15 years’ experience in
CEO and board roles. His intimate knowledge of the regenerative medicine
fields compliments his insight and know-how in taking biological therapies
from research to clinical applications and market introduction.
Directorships (last 3 years):
Nil
Interest in shares:
Interests in options:
6,973,750
2,763,692
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Orthocell Limited
Directors’ report
30 June 2016
Information on directors (continued)
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.
Iroko
Pharmaceuticals have successfully secured the approval of three drugs by
US FDA . 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.
iCeutica and
its partner
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):
Botanix Pharmaceuticals Limited (ASX:BOT)
Interest in shares:
Interests in options:
10,204,559
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.
Directorships (last 3 years):
Professor Lidgren is currently Chairman of GWS Production AB (Nasdaq:
OMX).
Interest in shares:
Interests in options:
964,091
204,767
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Orthocell Limited
Directors’ report
30 June 2016
Name:
Title:
Mr Qi Xiao Zhou
Non-Executive Director
Experience and expertise:
Mr Zhou has 16 years’ experience within China as a senior business
manager and executive. Mr Zhou is the founding CEO of Shenzhen
the
Lightning Digital Technology Co Ltd, a company
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.
focused on
Directorships (last 3 years):
Nil
Interest in shares:
Interests in options:
5,996,241
204,767
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
2016, and the number of meetings attended by each director was:
Full Board
Attended
Held(1)
Dr Stewart Washer
Mr Paul Anderson
Mr Matthew Callahan
Professor Lars Lidgren
Mr Qi Xiao Zhou
5
5
4
5
4
5
5
5
5
5
Remuneration Committee
Held(1)
Attended
1
-
1
1
-
1
-
1
1
-
(1) Held: represents the number of meetings held during the time the director held office.
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Orthocell Limited
Directors’ report
30 June 2016
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.
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Orthocell Limited
Directors’ report
30 June 2016
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 2016 the Company did not grant any options to Executives.
The remuneration of executives for the years ended 30 June 2015 and 30 June 2016 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
Executive Chairman
Managing Director
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
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Orthocell Limited
Directors’ report
30 June 2016
Year ended
30/06/2015
Non-Executive
Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou
Executive
Directors:
Mr P Anderson
Dr S Washer
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
55.7%
22.1%
22.1%
280,000
120,000
30,000
-
29,462
-
17,152
-
169,236
142,756
525,850
262,756
37.9%
54.3%
Total
589,861
30,000
32,932
17,152
477,446
1,147,391
44.2%
Year ended
30/06/2016
Non-Executive
Directors:
Mr M Callahan
Prof L Lidgren
Mr QX Zhou
Executive
Directors:
120,000
45,000
41,097
-
-
-
-
-
3,903
-
-
-
Mr P Anderson
Dr S Washer
326,000
150,000
75,000
-
30,970
-
5,962
-
Total
682,097
75,000
34,873
5,962
(1) Discretionary bonus as approved by the board.
Share-based compensation
-
-
-
-
-
-
120,000
45,000
45,000
0.0%
0.0%
0.0%
437,932
150,000
17.1%
0.0%
797,932
9.4%
There were no share-based compensation payments to key management personnel during the year ended 30 June
2016.
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
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Orthocell Limited
Directors’ report
30 June 2016
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the Company held during the financial year by each director and other members of key
management personnel of the consolidated entity, including their personally related parties, is set out below:
Ordinary shares
Mr Paul Anderson
Mr Matthew Callahan(1)
Professor Lars Lidgren
Dr Stewart Washer
Mr Qi Xiao Zhou
Balance
01/07/2015
6,963,608
10,204,559
923,523
369,267
5,955,673
10,142
-
40,568
105,994
40,568
24,416,630
197,272
-
-
-
-
-
-
6,973,750
10,204,559
964,091
475,261
5,996,241
24,613,902
Additions
Disposals/
Other
Balance
30/06/2016
There were no shares issued as part of directors’ remuneration during the financial year.
(1) 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.
Options / warrants holdings
The number options/warrants 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 / warrants 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
Warrants
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
2,750,000
1,650,000
1,650,000
150,000
150,000
13,692
95,842
-
54,767
54,767
-
-
-
-
-
-
-
-
-
-
2,763,692
1,745,842
1,650,000
204,767
204,767
Other transactions with key management personnel and their related parties
There were no transactions with key management personnel.
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Orthocell Limited
Directors’ report
30 June 2016
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
$350,000 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.
Position Salary Short term incentive
Under the employment agreement:
Notice
period
6 months
(i) either party may terminate the employment agreement by providing the amount of notice set out in the table
above. The Company may terminate the agreement without notice (and without having to pay the Executive
an amount in lieu of notice) if the Executive engages in serious or wilful misconduct;
(ii)
the Executive is entitled to 20 days annual leave and 10 days personal leave per annum, and to long service
leave and other paid and unpaid leave in accordance with applicable legislation;
(iii) the Executive acknowledges that intellectual property created by the Executive will be owned by the Company;
(iv) the Executive agrees to keep confidential information secret and confidential except to the extent required by
law; and
(v) during the employment and for a period of 12 months post-employment (or less if a court finds 12 months to
be invalid), the Executive agrees not to carry on any business that competes with the business of the
Company, solicit, employ or engage any director, employee or contractor of the Company, or entice, provide
services to, or accept services from any customer, contractor or supplier of the Company to discontinue their
relationship with the Company or otherwise reduce the amount of business they do with the Company. This
restraint applies in Australia and New Zealand (or if a court finds this invalid, across, Australia, or if a court
finds this invalid, across Western Australia.
Consulting arrangements
The Company has entered into the consulting agreements with the parties set out below under which directors 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.
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Orthocell Limited
Directors’ report
30 June 2016
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.
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 and warrants are on issue:
Grant date
Expiry date
Exercise price
Number of options
3 August 2014
24 November 2014
19 November 2015
26 February 2016
3 August 2017
24 November 2017
19 November 2020
26 February 2019
$0.50
$0.62
$0.58
$0.56
5,912,500
3,520,000
12,122,237
1,350,000
Shares issued on the exercise of options
There were no shares of the Company issued during the year ended 30 June 2016 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 $12,631 in respect of this policy.
13
Orthocell Limited
Directors’ report
30 June 2016
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 2016 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
12 September 2016
Perth
14
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 2016, 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
12 SEPTEMBER 2016
WEST PERTH,
WESTERN AUSTRALIA
15
Orthocell Limited
Consolidated statement of profit or loss and other comprehensive income
For the year ended 30 June 2016
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
2016
$
2015
$
3
4
3
4
5
666,499
790,430
(497,589)
(652,856)
168,910
137,574
520,713
899,878
(989,766)
(583,897)
(27,638)
(3,333,342)
(1,047,618)
-
(5,982,261)
(894,737)
(575,127)
(395,540)
(3,339,507)
(733,077)
-
(5,937,988)
(5,292,638)
(4,900,536)
1,507,774
1,157,821
(3,784,864)
(3,742,715)
Other comprehensive income for the year, net of tax
-
-
Total comprehensive loss
(3,784,864)
(3,742,715)
Loss per share
Basic earnings per share
Diluted earnings per share
$
(0.04)
(0.04)
$
(0.05)
(0.05)
29
29
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes
16
Orthocell Limited
Consolidated statement of financial position
As at 30 June 2016
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
Note
Consolidated
2016
$
2015
$
6
7
8
9
10
11
12
13
14
5,181,812
185,147
134,161
58,862
4,774,108
178,377
150,665
82,052
5,559,982
5,185,202
289,172
1,264,030
306,129
1,044,802
1,553,202
1,350,931
7,113,184
6,536,133
736,942
338,193
444,912
755,863
310,395
235,849
1,520,047
1,302,107
15
708,540
850,236
708,540
850,236
2,228,587
2,152,343
4,884,597
4,383,790
16
17
18
19,359,578
1,026,980
(15,501,961)
15,302,482
798,405
(11,717,097)
4,884,597
4,383,790
The above statement of financial position should be read in conjunction with the accompanying notes
17
Orthocell Limited
Consolidated statement of changes in equity
For the year ended 30 June 2016
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
Issued
capital
$
Option
reserve
$
Accumulated
losses
$
Total
equity
$
Balance at 1 July 2015
15,302,482
798,405
(11,717,097)
4,383,790
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
-
-
-
4,426,862
(369,766)
-
-
-
-
-
-
228,575
(3,784,864)
(3,784,864)
-
-
(3,784,864)
(3,784,864)
-
-
-
4,426,862
(369,766)
228,575
Balance at 30 June 2016
19,359,578
1,026,980
(15,501,961)
4,884,597
The above statement of changes in equity should be read in conjunction with the accompanying notes
18
Orthocell Limited
Consolidated statement of cash flows
For the year ended 30 June 2016
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
2016
$
2015
$
924,551
(5,938,693)
3,480
119,926
1,507,774
61,844
1,266,115
(5,647,332)
270,356
62,058
1,157,821
123,369
Net cash used in operating activities
28
(3,321,118)
(2,767,613)
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
Share subscription funds received
Share equity costs
Net cash from financing activities
Net increase 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
(40,958)
(287,316)
(56,111)
(263,235)
(328,274)
(319,346)
4,426,862
(369,766)
5,014,900
(621,185)
4,057,096
4,393,715
407,704
4,774,108
1,306,756
3,467,352
5,181,812
4,774,108
The above statement of cash flows should be read in conjunction with the accompanying notes
19
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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.
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 12 September 2016. The directors have the power to amend and
reissue the financial statements.
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 2016. 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.
20
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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. The research and development tax incentives are recognised as income tax benefits in the
consolidated statements of profit or loss and other comprehensive income.
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.
21
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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.
22
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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.
23
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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.
24
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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.
25
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
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.
26
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 1. Significant accounting policies (continued)
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.
27
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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
2016. The consolidated entity has not assessed of the impact of these new or amended Accounting Standards and
Interpretations.
AASB No.
Title
Application
date of
standard *
Issue
date
AASB 9
Financial Instruments
1 Jan 2018
Dec 2014
AASB 2010-7
Amendments arising from Accounting Standards arising from AASB 9 (December 2010)
1 Jan 2018
Amendments to Australian Accounting Standards
Part D - Consequential Amendments arising from AASB 14 Regulatory Deferral Accounts
Part E - Financial Instruments
Part D - 1 Jan 2016
Part E - 1 Jan 2018
Amendments to Australian Accounting Standard – Accounting for Acquisition of Interest in Joint
Operations [AASB 1 & AASB 11]
Amendments to Australian Accounting Standard - Clarification of Acceptable Methods of
Depreciation and Amortisation (Amendments to AASB 116 and AASB 138)
AASB 2014-5
Amendments to Australian Accounting Standard Arising From AASB 15
AASB 2014-6
AASB 2014-7
Amendments to Australian Accounting Standard – Agriculture: Bearer Plants
[AASB 101, AASB 116, AASB 117, AASB 123, AASB 136, AASB 140 & AASB 141]
Amendments to Australian Accounting Standard Arising From AASB 9 (December 2014)
AASB 2014-9
Amendments to Australian Accounting Standard - Equity Method in Separate Financial Statements
Amendments to Australian Accounting Standard - Sale of Contribution of Assets Between
Investors and its Associates or Joint Venture
Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting
Standards 2012–2014 Cycle
Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101
1 Jan 2018
Dec 2014
1 Jan 2016
Jan 2015
1 Jan 2016
Jan 2015
AASB 2014-1
AASB 2014-3
AASB 2014-4
AASB 2014-10
AASB 2015-1
AASB 2015-2
AASB 2015-5
AASB 2015-6
AASB 2015-7
AASB 2015-8
Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation
Exception
Amendments to Australian Accounting Standards – Extending Related Party Disclosures to NFP
Public Sector Entities
Amendments to Australian Accounting Standards – Fair Value Disclosures of Not-for-Profit Public
Sector Entities
Amendments to Australian Accounting Standards – Effective Date of AASB 15
AASB 2015-9
Amendments to Australian Accounting Standards – Scope and Application Paragraphs
AASB 2015-10
AASB 2016-1
AASB 2016-2
Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and
AASB 128.
Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for
Unrealised Losses [AASB 112]
Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107
AASB 2016-3
Amendments to Australian Accounting Standards – Clarifications to AASB 15
AASB 2016-4
AASB 14
AASB 15
AASB 16
Amendments to Australian Accounting Standards – Recoverable Amount of a Non-Cash Generating
Specialised Assets of Not-for-Profit Entities
Regulatory Deferral Account
Revenues from Contracts with Customers
Leases
AASB 1056
Superannuation Entities
AASB 1057
Application of Australian Accounting Standards
* Annual reporting periods beginning after
28
Sep 2012
Jun 2014
1 Jan 2016
Aug 2014
1 Jan 2016
Au 2014
1 Jan 2018
1 Jan 2016
1 Jan 2018
1 Jan 2016
Dec 2014
Dec 2014
Dec 2014
Dec 2014
1 Jan 2016
Jan 2015
1 Jul 2016
Mar 2015
1 Jul 2016
Jul 2015
1 Jan 2018
1 Jan 2016
1 Jan 2018
Oct 2015
Nov 2015
Dec 2015
1 Jan 2017
Feb 2016
1 Jan 2017
Mar 2016
1 Jan 2018
1 Jan 2017
1 Jan 2016
1 Jan 2018
1 Jan 2019
1 Jul 2016
1 Jan 2016
May 2016
Jun 2016
Jun 2014
Oct 2015
Feb 2016
Jun 2014
Nov 2015
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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.
29
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 3. Revenue
Sales revenue
Sale of goods
Other revenue
Interest
Commissions
Export market development grant
License fee and royalties
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
2016
$
2015
$
666,499
666,499
790,430
790,430
61,844
191,894
119,926
146,005
1,044
520,713
123,369
569,571
62,058
141,696
3,184
899,878
1,187,212
1,690,308
497,589
652,856
47,963
52,218
100,181
34,445
24,910
59,355
4,327
1,097
115,976
114,351
2,069,277
27,798
178,528
526,219
281,097
129,067
1,502
228,575
(108,721)
1,904,735
78,385
177,658
465,500
236,530
86,954
44,342
798,405
(453,002)
Total employment expenses
3,333,342
3,339,507
Write off of assets
Inventories
59,767
43,303
30
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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 28% (2015: 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
Consolidated
2016
$
2015
$
1,507,774
-
-
1,157,821
-
-
1,507,774
1,157,821
-
-
-
-
-
-
-
-
-
-
-
-
Numerical reconciliation of income tax expense and tax at the statutory rate
Loss before income tax expense from continuing operations
(3,784,864)
(3,742,715)
Tax at the statutory tax rate of 28% (2015: 30%)
(1,078,686)
(1,122,815)
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 28% (2015: 30%):
Provisions and accruals
Unrealised FX loss
Capital raising costs
Carried forward revenue losses
12,443
258,988
(452,332)
(35,978)
68,573
1,226,992
13,025
184,714
(347,347)
(18,617)
239,595
1,051,445
-
-
1,507,774
1,157,821
1,507,774
1,157,821
107,464
-
245,651
1,939,642
107,026
329
229,773
1,498,615
2,292,757
1,835,743
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.
31
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 6. Cash and cash equivalents
Cash at bank
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
2016
$
2015
$
5,181,812
4,774,108
5,181,812
4,774,108
5,181,812
4,774,108
5,181,812
4,774,108
125,888
144,249
4,044
55,215
59,259
774
33,354
34,128
185,147
178,377
There has been no impairment of receivables in the year ended 30 June 2016 (30 June 2015: $0).
Past due but not impaired
Customers with balances past due but without provision for impairment of receivables amount to $15,779 as at 30
June 2016 (30 June 2015: $56,622)
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
11,049
4,730
15,779
36,074
20,548
56,622
15,974
118,187
4,990
145,675
134,161
150,665
32
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 9. Other
Accrued revenue
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
2016
$
2015
$
-
58,862
-
58,862
77,590
4,302
160
82,052
272,502
(63,633)
208,869
400,981
(335,616)
65,365
37,760
(22,822)
14,938
272,502
(56,820)
215,682
375,838
(299,461)
76,377
34,312
(20,242)
14,070
289,172
306,129
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 2014
Additions
Disposals
Depreciation expense
Balance at 30 June 2015
Additions
Disposals
Depreciation expense
Leasehold
improvements
$
Plant and
equipment
$
Furniture
and fittings
$
Total
$
222,494
-
-
(6,812)
51,233
51,372
(817)
(25,411)
13,166
3,126
-
(2,222)
286,893
54,498
(817)
(34,445)
215,682
76,377
14,070
306,129
-
-
(6,813)
27,556
-
(38,568)
3,450
-
(2,582)
31,006
-
(47,963)
Balance at 30 June 2016
208,869
65,365
14,938
289,172
33
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 11. Intangibles
Patents and trademarks – at cost
Less: Accumulated amortisation
Consolidated
2016
$
2015
$
1,357,080
(93,050)
1,085,633
(40,831)
1,264,030
1,044,802
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 2014
Additions
Amortisation expense
Balance at 30 June 2015
Additions
Amortisation expense
Balance at 30 June 2016
Note 12. Trade and other payables
Trade payables
Other payables
Note 13. Employee benefits
Annual leave entitlements
Long service leave entitlements
$
799,714
269,998
(24,910)
1,044,802
271,446
(52,218)
1,264,030
648,795
88,147
628,941
126,922
736,942
755,863
196,840
141,353
196,307
114,088
338,193
310,395
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.
34
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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
Consolidated
2016
$
303,212
141,700
2015
$
94,149
141,700
444,912
235,849
708,540
850,236
708,540
850,236
Consolidated
2016
Shares
2015
Shares
2016
$
2015
$
91,479,437 82,500,000 20,664,002 16,237,140
91,479,437 82,500,000 20,664,002 16,237,140
Share equity costs – ordinary shares
-
-
(1,304,424)
(934,658)
91,479,437 82,500,000 19,359,578 15,302,482
Movements in ordinary share capital:
Details
Date
No of
shares
Issue price
$
Balance
Conversion of preference shares to ordinary
shares
Division of shares
Issue of shares at IPO
IPO share issue costs
Balance
Issue of shares
Issue of shares
Share issue costs
Balance
1 Jul 2014
2,166,026
1 Aug 2014
1 Aug 2014
4 Aug 2014
30 Jun 2015
11 Nov 2015
26 Feb 2016
1,699,830
58,634,144
20,000,000
-
82,500,000
8,776,597
202,840
-
$0.40
$0.49
$0.49
30 Jun 2016
91,479,437
3,313,427
4,923,713
-
8,000,000
(934,658)
15,302,482
4,326,862
100,000
(369,766)
19,359,578
35
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 16. Equity – issued capital (continued)
Movements in redeemable preference series A share capital:
Details
Balance
Date
No of
shares
Issue
price
$
1 July 2014
1,361,230
3,423,714
Conversion of preference shares to ordinary
shares
1 August 2014
(1,361,230)
(3,423,714)
Balance
Balance
30 June 2015
30 June 2016
-
-
-
-
Movements in redeemable preference series A2 share capital:
Details
Balance
Date
No of
shares
Issue
price
$
1 July 2014
338,600
1,500,000
Conversion of preference shares to ordinary
shares
1 August 2014
(338,600)
(1,500,000)
Balance
Balance
30 June 2015
30 June 2016
-
-
-
-
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).
(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.
36
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 16. Equity – issued capital (continued)
(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
Consolidated
2016
Options
2015
Options
Consolidated
2016
$
2015
$
Share option reserve
10,782,500
9,432,500
1,026,980
798,405
10,782,500
9,432,500
1,026,980
798,405
Movement in option reserve
Movement in option reserve during the current and previous financial year are set out below:
Balance at 30 June 2014
Options issued(1)
Options issued(2)
Balance at 30 June 2015
Options issued(3)
Balance at 30 June 2016
Date
No of options
3 August 2014
24 November 2014
-
5,912,500
3,520,000
Total
$
-
532,092
266,313
9,432,500
798,405
26 February 2016
1,350,000
228,575
10,782,500
1,026,980
37
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 17. Option reserve (continued)
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. The options issued in this financial year were to
employees.
For the options granted 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
(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
(3)
26 Feb 2016
26 Feb 2019
$0.365
$0.56
87%
0%
1.72%
$0.169
Set out below are summaries of options granted by the Company:
Grant date Expiry date Price
Exercise
2015
03/08/2014 03/08/2017
24/11/2014 24/11/2017
$0.50
$0.62
2016
03/08/2014 03/08/2017
24/11/2014 24/11/2017
19/11/2015 19/11/2020
26/02/2016 26/02/2019
$0.50
$0.62
$0.58
$0.56
Balance at
the start of
the year
Granted
Exercised
Expired/
forfeited/
other
Balance at
the end of
the year
-
-
-
5,912,500
3,520,000
9,432,500
5,912,500
3,520,000
-
-
- 12,122,237
1,350,000
-
9,432,500 13,472,237
-
-
-
-
-
-
-
-
-
-
-
5,912,500
3,520,000
9,432,500
5,912,500
-
-
3,520,000
- 12,122,237
1,350,000
-
- 22,904,737
Note 18. Equity – accumulated losses
Accumulated losses at the beginning of the financial year
Loss after income tax expense for the year
Consolidated
2016
$
2015
$
11,717,097
3,784,864
7,974,382
3,742,715
Accumulated losses at the end of the financial year
15,501,961
11,717,097
38
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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)
(1) The weighted average interest rate of cash is 1.29% (2015: 2.06%)
None of the consolidated entity’s financial liabilities are interest bearing.
(c) Credit risk
Consolidated
2016
$
2015
$
5,181,812
4,774,108
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 2016:
Trade and other payables
As at 30 June 2015:
Trade and other payables
$
952,207
850,012
$
-
-
$
-
-
$
-
-
$
-
-
39
Total
contractual
cash flows
$
-
-
Total
carrying
amount
$
952,207
850,012
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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
2015. None of the Company’s financial liabilities are interest bearing.
30 June 2016
Financial assets
Cash
30 June 2015
Financial assets
Cash
Carrying
amount
$
Interest rate risk
-1%
Interest rate risk
1%
Net profit
$
Equity
$
Net profit
$
Equity
$
5,181,812
(51,818)
(51,818)
51,818
51,818
4,774,108
(47,741)
(47,741)
47,741
47,741
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
2016
$
757,097
34,873
5,962
-
2015
$
619,861
32,932
17,152
477,446
797,932
1,147,391
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
Other matters
30,600
31,250
5,850
3,200
9,050
39,650
2,000
8,250
10,250
41,500
40
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
Note 22. Contingent liabilities
The consolidated entity has no contingent liabilities for the years ended 30 June 2016 or 30 June 2015.
Note 23. Contingent assets
For the year ended 30 June 2015, 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 were 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 remaining
termination payments totalling $191,894 were received in the year ended 30 June 2016. No asset was recognised
within the financial statements for the year ended 30 June 2015.
The consolidated entity has no contingent assets for the year ended 30 June 2016.
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
2016
$
2015
$
32,351
174,515
432,068
25,382
168,154
434,862
638,934
628,398
151,126
603,141
36,917
32,899
33,496
-
791,184
66,395
1,430,118
694,793
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 laboratory rental lease under an operating lease
expiring in five years.
Note 25. Related party transactions
Parent entity:
Subsidiaries:
Key management personnel:
Loans to/from related parties:
Terms and conditions:
Orthocell Limited is the parent entity
Interests in subsidiaries are set out in note 26.
Disclosures relating to key management personnel are set out in note 20 and
the remuneration report in the Directors' Report.
There were no loans to or from related parties at the current and previous
reporting dates
All transactions were made on normal commercial terms and conditions and
at market rates.
41
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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
2016
%
100
2015
%
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 2016 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
2016
$
2015
$
Loss after income tax expense for the year
(3,784,864)
(3,742,715)
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
100,181
228,575
59,767
59,355
798,405
43,303
15,090
(54,399)
(43,262)
77,590
(14,961)
209,063
27,798
(141,696)
(75,473)
(1,917)
(42,098)
(19,028)
22,326
(16,442)
78,385
128,286
Net cash used in operating activities
(3,321,118)
(2,767,613)
42
Orthocell Limited
Notes to the consolidated financial statements
For the year ended 30 June 2016
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
2016
$
2015
$
(3,784,864)
(3,742,715)
Number
Number
87,965,279
75,657,100
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.
At the date of this report has 91,479,437 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.
43
Orthocell Limited
Directors’ declaration
For the year ended 30 June 2016
In the directors’ opinion:
the attached consolidated financial statements and notes thereto and the remuneration report contained in the
directors’ report 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 2016 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
12 September 2016
Perth
44
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 2016, 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.
45
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act
2001.
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 2016 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 8 to 13 of the directors’ report for the year
ended 30 June 2016. 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 2016, complies
with section 300A of the Corporations Act 2001.
PKF MACK
SIMON FERMANIS
PARTNER
12 SEPTEMBER 2016
WEST PERTH,
WESTERN AUSTRALIA
46
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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 24 October 2016.
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.
47
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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 2016, the Company does not have any female Board members (2015: nil). The Company has 1
female (33%) in senior management positions, (2015: 1, 50%). Of the balance of the Company’s employees 73%
are female (2015:67%). 52% (2015: 50%) 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.
48
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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 2016 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.
Mr Matthew Callahan is a founder and director of 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.
49
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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.
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
50
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
•
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.
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 2015 and the full year ended 30 June 2016. 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.
51
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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.
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.
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.
52
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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.
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 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.
53
Orthocell Limited
Corporate Governance Statement
For the year ended 30 June 2016
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.
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.
54
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2016
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 18 October 2016.
1.
20 largest shareholders
The names of the twenty largest holders of each class of listed securities are listed below:
Twenty largest shareholders
SRV Custodians Pty Ltd
Ming Hao Zheng & Ying Fan
Paul Anderson & Nicole Telford
Mr Qixiao Zhou
J P Morgan Nominees Australia Limited
Mr Jia Xun Xu
Veritas Securities Limited
National Nominees Limited
Murdoch Ventures Pty Ltd
Citicorp Nominees Pty Limited
ABN Amro Clearing Sydney Nominees Pty Ltd
Diamonex Ltd
HSBC Custody Nominees (Australia) Limited
SRV Nominees Pty Ltd
The University Of Western Australia
Mr Paul Frederick Anderson & Mrs Nicole Jane Telford
Enerview Pty Ltd
Raymond Crowe Pty Ltd
Dr Gregory Clayton Janes
Meredith Scott
CS Fourth Nominees Pty Limited
Gerard Hardisty & Gabrielle Hardisty
Number held
9,530,382
6,795,415
6,403,335
5,996,241
5,575,010
5,168,276
2,425,077
2,309,595
923,841
823,292
802,737
768,091
698,629
649,177
646,687
570,399
500,000
461,912
461,912
461,912
411,063
409,282
% of issued
shares
10.42%
7.43%
7.00%
6.55%
6.09%
5.65%
2.65%
2.52%
1.01%
0.90%
0.88%
0.84%
0.76%
0.71%
0.71%
0.62%
0.55%
0.50%
0.50%
0.50%
0.45%
0.45%
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
Mr Qixiao Zhou
J P Morgan Nominees Australia Limited
Mr Jia Xun Xu
Number of
shares
9,530,382
6,795,415
6,403,335
5,996,241
5,575,010
5,168,276
55
Orthocell Limited
Additional ASX Information
For the year ended 30 June 2016
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
277
1,532
595
781
63
3,248
Holdings
204,964
4,360,612
4,857,142
22,056,009
60,000,710
91,479,437
Percentage
0.22%
4.77%
5.31%
24.11%
65.59%
100.00%
Number of holders with less than marketable parcels: 344.
5.
Unquoted securities
Options issued under the options plans total 23,304,737.
Issue date
Entitlement
3 Aug 2014 One ordinary share upon
Exercise price Expiry date
3 Aug 2017
$0.50
Number
5,912,500
exercise of each option
24 Nov 2014 One ordinary share upon
$0.62
23 Nov 2017
3,520,000
exercise of each option
26 Feb 2016 One ordinary share upon
$0.56
26 Feb 2019
1,350,000
exercise of each option
19 Nov 2015 One ordinary share upon
$0.58
19 Nov 2020
12,122,237
exercise of each option
13 Oct 2016 One ordinary share upon
$0.624
12 Oct 2019
400,000
exercise of each option
23,304,737
All options are held by directors or by employees granted following shareholder approval or under the
Orthocell Limited Employee Option Acquisition Plan.
Restricted securities
Nil.
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.
6.
7.
8.
56