PainChek Limited
Annual Report 2019

Plain-text annual report

PainChek Limited ABN 21 146 035 127 Annual Report for the year ended 30 June 2019 PainChek Limited (formerly ePAT Technologies Limited) Corporate directory Board of Directors Mr John Murray Mr Philip Daffas Mr Adam Davey Mr Ross Harricks Company Secretary Mr Ian Hobson Non-Executive Chairman Managing Director Non-Executive Director Non-Executive Director Principal Place of Business Suite 401, 35 Lime Street Sydney NSW 2000 Registered Office Suite 5, 95 Hay Street Subiaco, Western Australia 6008 +61 8 9388 8290 Tel: +61 8 9388 8256 Fax: Postal Address PO Box 226 Subiaco, Western Australia 6904 Website Website: www.PainChek.com Auditor BDO Audit Pty Ltd Share Registry Boardroom Pty Ltd Grosvenor Place Level 12, 225 George Street Sydney, NSW 2000 Tel: Fax: +61 2 9290 9600 +61 2 9290 9655 Stock Exchange Australian Securities Exchange 20 Bridge Street Sydney, NSW 2000 ASX Code PCK September 2019 Dear Shareholders, PainChek Limited (ASX: PCK) ABN 21 146 035 127 Suite 401, 35 Lime Street, Sydney, NSW, 2000 Registered Office: Suite 5, 95 Hay Street Subiaco WA 6008 info@paincheck.com During the 2019 Financial Year, PainChek has made considerable progress on commercialisation of the PainChek® Adult “Dementia” App for operators in the Residential Aged Care (“RAC”) sector within Australia. We have clearly established PainChek as a novel and effective way of assessing and monitoring pain at a time when institutional care of the elderly is coming under increasing scrutiny. This is reflected in over 10,500 RAC beds being contracted to implement our solution as at 30 June 2019, and the announcement of Australian Government funding of $5 million to support the roll out of the technology in the RAC sector. We have also commenced international expansion including announcing a distribution partnership with the leading aged care systems provider, Person Centred Software, in the UK. We have made progress with the FDA in establishing a path to regulatory approval of our Dementia App in the US market. In parallel we continue to develop our technology with the assistance of our partners, and signed a research agreement with Murdoch Children’s Research Institute in Melbourne, for a clinical trial of our new Infant App. We believe the market opportunity for assessment of pain in young children is very significant. We have achieved all of the above with a small, hardworking team of people, and with a tight control of expenditures as we established market validity for our technology. Our achievements have been positively reflected in our share price which rose from 5.6 cents at prior year end to 20 cents at 30 June 2019. To support our plans for FY2020 we raised additional capital of $4.15m in June 2019 at a price of 14.5 cents. The Managing Directors report which follows provides more detail on the initiatives undertaken during the year and the exciting plans we have going forward. On behalf of the Board of Directors, I would like to thank all of our shareholders for continuing to support the Company. Yours sincerely, John Murray Chairman Managing Director’s Report Review of Operations Our Mission is to give a voice to people who cannot verbalise their pain The PainChek® App uses cameras in smartphones and tablets to capture a brief video of the person, which is analysed in real time using facial recognition software to detect the presence of facial micro- expressions that are indicative of the presence of pain. These objective measures are combined with a behavioral checklist to assess pain severity scores for adults who cannot verbalise their pain or a child who has not yet learnt to speak. The PainChek® Adult App has been TGA and CE mark cleared for use as a Class I medical device. During the past 12 months the PainChek® Adult App has been successfully commercialized in Australia and launched into international markets including UK and Singapore. In April 2019 the Morrison Federal Government announced $5M of funding to accelerate the adoption of PainChek across the 100,000 people living with Dementia in Residential Aged Care facilities in Australia. The Company is currently going through an FDA De Novo application for approval of the PainChek® Adult App in the US market. An Infant version of the App is currently undergoing clinical trials with the Murdoch Research Institute at the Murdoch Children’s Research Institute in Melbourne. Initial market Opportunity: At a global level there are 50 Million people living with dementia with projections estimated to grow to 75 Million by 2025. It is estimated there are on average three carers for each person with dementia and it is the carers who are the primary users of the PainChek® App. Dementia is currently the second major cause of death globally (after cardiovascular disease) and is projected to become the leading cause of death during this period. In addition, it is documented that between 10% to 30% of hospital beds are occupied by people living with dementia. Global government initiatives are being put in place to manage this healthcare challenge and provide better care for people living with dementia across the Residential Aged Care and Homecare settings (Consumer Directive Care). The Company has initially entered the Aged Care market as this is where the need for better pain assessment is at its greatest and we plan to expand into the other healthcare market segments in the coming year. Australian market Sales Development: PainChek has enjoyed a very positive year during which we have established the fundamentals of a sustainable Software as a Service (SaaS) global business model. In the FY18/19 reporting period the Company has increased the number of Australian Residential Aged Care (RAC) contracted beds from 338 to 10,590 and the number of contracted Aged Care facilities from 5 to 142. In addition, the cumulative number of PainChek® clinical assessments has grown from 2,000 to more than 36,000 in the same period reflecting continued strong take up and clinical utility of the App. Major new clients acquired during the year included; • • • 1,000 bed license agreement with Churches of Christ in Queensland who own and operate 28 Queensland RAC homes. 750 bed license agreement with The Baptist Union of Queensland - Carinity across their 11 RAC facilities 2,000 bed license agreement with IRT Aged Care Centres across 20 RAC facilities In addition, existing customer Allity Pty Ltd committed to a full rollout of PainChek® across all of their 34 facilities during this coming year. These following charts are a summary of progress during the year. These figures exclude the direct impact of the Federal Government funded trial announced on 29 April 2019. The trial and grant paperwork are currently being finalized with the Department of Health Government, and we are scheduling an October 2019 start for a one-year funding period. Summary of Agreements For the 3 months ended 30 Sept 2018 For the 3 months ended 31 Dec 2018 For the 3 months ended 31 Mar 2019 For the 3 months ended 30 June 2019 Cumulative No. of Contracted RAC Customers Cumulative No. of Contracted RAC's Cumulative No. of Contracted Beds Cumulative No. of Assessments (Active Clients) Monthly Recurring Revenue (MRR)* as at quarter end Annual Recurring Revenue (ARR)* as at quarter end 15 18 23 30 21 26 34 142 1,485 1,789 2,542 10,590 6,789 11,312 22,118 36,669 10,582 11,982 15,384 48,897 126,990 143,790 184,607 586,767 * Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) includes subscription revenue on contracts of a minimum of 12 months and excludes any on-off fees for support and training. MRR and ARR are based on contracts signed as of quarter end assuming contracts are fully implemented and include two non-RAC contracts (Dementia Support Australia and Southern Cross WA). The PainChek® monthly Revenue per Licensed Bed (RLB) across the RAC customers based on the agreements signed to date is in the range of $5 per month, and the Revenue per Active Resident (RAR) is in the range of $10 per month based on actual resident usage. See ASX release dated 31 July 2018. Revenue recognized in the Company’s financial statements is based on contracted beds that have been implemented and are active using the PainChek® App. This is consistent with the accounting standard for recognition of such revenue. At 30th June 2019 there were 3,564 active licensed beds with an ARR of $234k. Detailed project plans for implementation are agreed with clients who have a significant number of facilities (such as Allity), and therefore there can be a delay before the beds are activated and revenue is then recognized. Due to the surge in newly signed contracts during June 2019 we carried over more than 7,000 contracted new beds to be implemented during FY 2020 which will significantly increase the recognized revenue results in the following reporting periods. Australian Government Funding: On 29th April 2019 (see ASX release of same date) the Morrison Federal Government announced that it will invest $5M to fund the implementation of the company’s PainCheck® App in Australian residential aged care. The funding makes provision for a universal PainChek® access license for the more than 1,000 Residential Aged Care Providers in Australia and their 100,000 residents living with dementia for a one-year period. The funded program is scheduled to commence in October 2019 and will continue for a one-year period from the commencement date. “Better pain identification and better medication management means a better quality of life for people receiving aged care. This trial will complement the reforms already announced by the Morrison Government to improve medication management and provide a record boost to dementia prevention, treatment and support” said Minister Ken Wyatt. This significant investment is expected to trigger widespread and long-term use of the PainChek® app within Australian Residential Aged Care and is positively impacting our international expansion program. As a business we have been making good progress by approaching aged care providers individually, but this endorsement and funding assistance is expected to accelerate the penetration into Australian Residential Aged Care to a whole new level. PainChek® is also working closely with the Department of Health to collect resident outcome data including demographic and clinical outcomes during the trial as part of the government’s strategic analysis of the Aged Care sector. This is an additional benefit that will come out of the funded trial. We are well positioned to roll out PainChek ®rapidly through a range of training programs and partners and on-line training capabilities and we will be working to implement PainChek® as quickly as possible across nominated aged care homes. This program will also help refine how the app gets integrated into every day clinical care in the aged residential setting working with our current and future care management system partners in Australia. Integration Partners: The Company now has integration agreements finalized with the six major RAC care management systems in Australia and with Person Centred Software in the UK. These agreements facilitate the automated documentation of PainChek® for more than 80% of the 220,000 Australian aged care beds and more than 40,000 beds in the UK. The benefit is rapid, point of care pain assessments that eliminate duplication of effort for carers giving them more time to focus on resident care. PainChek® Client Feedback and Clinical Outcomes: The Company has reached the stage where our growing base of RAC clients are now able to share the clinical benefits of the use of PainChek® App and the impact to their residents’ care. We have released the first of a number of PainChek® case studies in Residential Aged Care that were developed in collaboration with our clients. These are available for review on the Company’s website. The following is an example of the clinical benefits seen by the McLean Care Residential Home in Inverell, Queensland from the case study report. Use of PainChek® at the McLean Care Residential Home in Inverell commenced in April 2018. The benefits identified at this location include: • PainChek® became the standard tool for assessing pain and evaluating pain management strategies in • residents with dementia. Significant improvement in pain management and residents’ behaviours, together with significant reduction in psychotropic prescription and administration as a result of PainChek® assessments. • An increase in staff awareness of pain management, and increased staff confidence when dealing with pain in residents with cognitive impairment or dementia. • Ease of access and administration - with easier access to stored assessments and electronic charts, there has been increased and more effective input from GPs. Situated in the NSW Northern Tablelands, the McLean Care® Residential Care facility is a 160-bed home located in Inverell. The facilities at Inverell offer many options to suit the individual needs of those seeking aged care help. Specifically, the Hector Wing at Inverell provides a 17-bed state-of-the-art, purpose-driven facility for seniors who are living with dementia. This is strongly supported by their 24-hour dedicated dementia care team. Eight residents living in the Hector Wing were all on a course of regular psychotropic medication for their behaviours. PainChek® was subsequently introduced with the aim of more accurately assessing and recording residents’ pain levels, so that pain relief is adjusted, and psychotropic medications are reduced, which would also result in improvement in their behaviours. Thorough education and training in pain assessment facilitated the widespread use of PainChek® by staff across the facility, which has now become the standard tool for evaluating pain management strategies in residents with dementia. Regular, scheduled use of PainChek® supported effective pain management for residents. Residents’ behaviours have been recognised as a response to pain as a result of using PainChek®. Significant reductions in psychotropic medications were evident among all residents, as a result of effective pain relief. This has also produced significant improvement in residents’ behaviours. PainChek® assessments and reporting enabled the staff to more accurately treat each resident. The usage, accuracy and positive outcomes of PainChek® assessments have increased staff awareness about pain and pain signs (for example, agitation and aggression) in residents with dementia, and enhanced their confidence in dealing with residents’ pain. These benefits have also improved communication with registered nurses and GPs. PainChek® functionalities (such as, the pain assessment log and pain chart) allow better tracking of residents’ pain over time. The ease of administration and electronic reporting of PainChek® (for example, access to stored assessments) enabled greater and quicker accessibility of pain scores to GPs to allow timely and more accurate medication adjustments. Other local market segments: Having established a solid based within Australian RAC market, we are continuing to explore partnerships and distribution channels – locally and internationally to broaden the PainChek® Adult App use into other market segments. We will be focusing on hospitals, GP, home care operators and home carer services during the FY19/20. International Expansion: The Company reached a key milestone in its international expansion through the signing of a distribution agreement with Person Centred Software in the UK. Under the agreement Person Centred Software are distributing the PainChek® App to their UK client base through their sales, marketing and service organisation. PainChek® integration into Person Centred Software’s Mobile Care Monitoring system will provide carers with seamless pain assessment and monitoring of their residents living within Aged Care. Person Centred Software is based in the UK and supplies Care Management systems to more than 1,200 aged care providers, servicing over 40,000 residents. PainChek® integration into Person Centred Software’s industry leading product range has been completed. To support the UK market development, we have registered PainChek® UK Ltd as a wholly owned subsidiary of PainChek® Ltd and recruited Peter Shergill as the Head of the UK Business Development. Peter starts with PainChek® UK Ltd on 30th September 2019 and he will support the PCS UK sales drive and our direct sales into the UK market including the hospital sector. The UK base will also provide a platform for broader European market expansion in the future. We completed our first direct sales into Singapore with Allium Healthcare in July 2019 and have made positive progress with our integration partners for new sales opportunities in New Zealand. We continue to receive strong interest from other international markets, further expanding our commercial progress and global market reach. Federal Drug Administration: We had a positive face to face meeting with FDA in Washington DC in June 2019 as part of the De Novo regulatory process including the demonstration of the PainChek® App and the AI capability. PainChek® was confirmed as a De Novo classification as there is no other similar regulated medical device in the US market. The existing PainChek® Australian based research data was positively received and we obtained guidance from the FDA in terms of additional validation requirements to complete the De Novo regulatory classification. We are currently finalizing the additional validation work for review with FDA. This work is budgeted and we continue to project FDA clearance for the PainChek® Adult App during 2020. Patents: In July 2019 PainChek® was granted a US patent by the United States Patent Office (Patent number US10398372) allowing PainChek® to protect the intellectual property of its invention in the United States. The US patent gives PainCheck® exclusive rights to exclude others from making, using, selling or importing the invention for 20 years from the filing date in the US (17 February 2017). Our ongoing De Novo regulatory application confirms PainChek® as a first in kind from a regulatory standpoint in the US. The granting of the US patent confirms that PainChek® is also first in kind from an intellectual property standpoint. From a business perspective, the US is the largest medical device market in the world and there are more than six million people living with dementia. Establishing our intellectual property in the US is a crucial step forward as part of protecting and growing the PainChek® brand internationally. We continue to make positive progress with our national patent filings for the PainChek® App in all other jurisdictions including UK, Europe, Japan, China and Australia. PainChek® Children’s App: The PainChek® Children’s App serves a potentially even larger market than the Adult App. Globally there are more than 400 million children at any one time between the age of 0-3 years. Due to the rapid changes and development in children’s faces, the PainChek® Children’s App is scheduled to be delivered in 3 age group versions with the youngest Infant App (infants 0-1 years of age) being the first developed and now undergoing clinical research. A research agreement with Melbourne’s Murdoch Children’s Research Institute (MCRI) was signed in June 2019 and the PainChek® infants PainFaces™ clinical trial has officially commenced. MCRI are the largest child health research institute in Australia, and one of top three worldwide and their campus partners include Royal Children’s Hospital in Melbourne and University of Melbourne’s Department of Pediatrics. The PainFaces™ study is being led by Professor Franz Babl (MCRI) and Associate Professor Di Crellin (MCRI) in the Emergency Department (ED) of the Royal Children’s Hospital. In this new study the pain scores derived using the PainChek® Infant App will be compared to those obtained using observational children’s pain assessment tools by two independent assessors in 100 infants undergoing painful procedures within the ED. The clinical study completion is dependent on the recruitment of the 100 children and is currently projected to be Q3 FY 2020. The results and learnings from the research will support applications for regulatory approval of PainChek® Infant’s App with the Therapeutics Goods Administration (TGA), CE Mark, Europe, and the Food and Drug Administration (FDA) in the USA. Shareholder Support: The Company raised new capital during the past year to fund the growth plans. We thank our shareholders for their continued support and those option holders who elected to exercise their options during the year which has provided additional capital. Summary The fundamentals for the PainChek® business have been put in place in two short years. The PainChek® Adult App has been clinically proven, regulatory cleared and successfully launched into multiple markets and is now Federal Government funded in Australia. More than 40,000 pain assessments (as of July 2019) have been conducted within Australian aged care, with an increasing number of case study reports confirming the clinical and cost benefit. The Company has developed the basis of a sustainable, profitable business model that can be leveraged across global markets. Likely Developments and Overview of Group Strategy The Company will continue with the commercialization of the PainChek® Adult App in Australia. The Australian federal government funded roll out in the next 12 months will be a key focus along with building strong outcomes data to support long term Aged Care funding. This will rapidly accelerate the business through the next year. We will continue to broaden the use of the PainChek® Adult App into new market sectors in Australia including the hospital market, GP primary care and home care market sectors. From an international perspective, we will focus on further penetrating our existing presence in the UK, Singaporean and New Zealand markets and extending our geographic reach into selected mainland Europe and other targeted Asian markets during the next year. We continue to receive strong overseas interest from potential distribution partners which can support and fast track our international market strategy. We continue with the clinical work required by the FDA to complete the PainChek® De Novo submission for regulatory clearance with FDA in the United States. We will complete the PainChek® Infants clinical study with Melbourne Children’s hospital during this next period and prepare for the regulatory clearances and initial market introduction. Given the recent patent grant by the US Patent Office, and the ongoing feedback from the other national patent offices, we are in a good position to receive similar patent grants in Australia, UK, Europe, Japan and China. We will continue to build the PainChek® team’s capabilities to deliver on these strategies in an effective and efficient manner during the next period. The PainChek® management team and board are highly committed to achieving the company’s Mission, and delivering on the future commercial milestones and, in doing so, consolidate our position as the new gold standard for pain assessment in multiple healthcare markets. Philip Daffas CEO – PainChek Limited September 2019 Annual Financial Report for the year ended 30 June 2019 Contents 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 review report PainChek Limited 1 14 15 16 17 18 19 42 43 PainChek Limited Directors’ report The directors of PainChek Limited (“PainChek” or “the Company”) submit herewith the financial report of the Company and its subsidiary (“Group” or “Consolidated Entity”) for the year ended 30 June 2019. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Names of Directors The names of the directors of the Company during or since the end of the year are noted below. Directors were in office for the entire period unless otherwise stated: Mr John Murray (appointed 30 September 2016) LLB (Hons), CA, MAICD – Non-executive Chairman Mr Murray has 25 years’ experience in private equity and venture capital and was a co-founder and Managing Partner of Technology Venture Partners; one of the original and leading venture capital firms in Australia. Mr Murray is a past chairman of the Australian Venture Capital Association. Mr Murray has considerable experience as an investor and a non-executive director of high growth, technology- based companies. He possesses a broad understanding of global trends in technology and its impact on a variety of industries. He was until recently Chairman of a private, residential aged care business in Australia. Mr Murray also brings 12 years’ experience in executive roles in corporate banking, accounting and IT services industries. Mr Murray has been on the Board of a number of successful technology rollouts and exits including online travel play Viator, which was acquired by TripAdvisor for approximately US$200 million in 2014. He is a chartered accountant with an Honour degree in Law and is a member of the Australian Institute of Company Directors. Mr Murray is a director of ASX listed company Flamingo AI Limited, but otherwise has not been a director of an ASX listed company in the past 3 years. Mr Philip Daffas (appointed 30 September 2016) BSc, Dip EENG, MBA, GAICD – Managing Director Philip is a highly accomplished global business leader and people manager with an international career spanning more than 25 years with leading blue-chip healthcare corporates and novel technology start-up companies. Philip has held senior global business leader positions in Europe, US and Australia. He has been instrumental in building businesses, growing market share and developing extensive high-level customer and industry relationships in each sector on a global basis. Philip’s earlier experience was gained in Europe with market leaders such as IVAC infusion systems and Shiley cardiopulmonary products. He subsequently joined Boehringer Mannheim, initially in the UK managing their diagnostics business and subsequently was promoted to a Global Marketing role in the Diabetes Care business cased in Mannheim, Germany. In 1997 Philip joined Cochlear in the UK as the European Sales and Marketing Manager and subsequently was promoted in 2000 to the VP Global Marketing role based in Sydney, Australia Other roles in Australia have included General Manager with Roche Diagnostics, Managing Director at Bio-Rad Laboratories and CEO of Applied Physiology, an Australian software start up company in the intensive care monitoring sector. Graduated in the UK with a BSc and Diploma in Electronic Engineering, Philip also has an MBA and is a Graduate of the Australian Institute of Company Directors (GAICD). Mr Daffas has not been a director of an ASX listed company in the past 3 years. Mr Ross Harricks (appointed 30 September 2016) BE, MBA – Non-executive Director Mr Harricks’ experience in the commercialisation of medical products spans over forty years and over three continents. His experience includes the marketing and commercialising of the computed technology scanner (CT or CAT scanner) in Australia, where he headed up the EMI Electronics Group as General Manager. His remit included developing EMI’s medical business in this region. 1 PainChek Limited In 1983, Mr Harricks joined the Nucleus Group and became President the Nucleus Group subsidiaries in United States in marketing medical equipment and scientific and engineering computing products. In 1989, Mr Harricks was the CEO of a venture capital-backed start-up company developing specialist scientific and medical lasers. Mr Harricks has been a director of ResMed Limited and cofounder of AtCor Medical where he completed an Australian initial public offering in 2005 leading the company until 2007. Otherwise, Mr Harricks has not been a director of an ASX listed company in the past 3 years. Mr Harricks works with Australian medical and technology companies assisting in commercialisation of their products into the US and EU markets. His unique expertise and experience includes strategic advising on the best path to early international market endorsement and adoption, and on providing hands-on help with implementation in the American and European markets. Mr Adam Davey (appointed 30 September 2014) – Non-executive Director Mr Davey’s expertise spans over 25 years and includes capital raising (both private and public), mergers and acquisition, ASX listings, asset sales and purchases, transaction due diligence and director duties. Mr Davey is a Director of Wealth Management at Patersons Securities. Mr Davey has been involved in significantly growing businesses in both the industrial and mining sector. This has been achieved through holding various roles within different organisations, including chairman, managing director, non- executive director, major shareholder and corporate adviser to the board. Mr Davey is a non-executive director of Ensurance Limited and Ausnet Financial Services Ltd. Otherwise, Mr Davey has not been a director of an ASX listed company in the past 3 years. Company Secretary (appointed 30 September 2016) B.BUS FCA ACIS MAICD Mr Ian Hobson was appointed to the positions of Company Secretary and Chief Financial Officer on 30 September 2016. A Fellow Chartered Accountant and Chartered Secretary, Mr Hobson has more than 30 years’ experience in the areas of corporate finance, governance, corporate accounting, company secretarial and restructuring advice. Mr Hobson was a director of PricewaterhouseCoopers and Ferrier Hodgson Chartered Accountants before specializing in providing company secretarial and corporate accounting services to listed entities. OPERATIONS REPORT Principal Activities The principal activity of the Company is the development and commercialisation of mobile medical device applications, that automate intelligent pain assessment of individuals who are unable to communicate their pain with carers. Financial and operational review The loss of the Group for the year ended 30 June 2019, after accounting for income tax benefit, amounted to $3,262,418 (2018: $4,810,532). The year ended 30 June 2019 operating results are attributed to the following:  Research & Development expense of $1,894,536 (30 June 2018: $1,699,292);  Share based payments in respect of options issued to Directors and employees of $112,911 (non- cash) (30 June 2018: $345,172 (non-cash));  Corporate and administration expenses of $1,486,446 (30 June 2018: $1,198,311); and  Expensing license acquisition and fees of $Nil (30 June 2018: $1,709,510 (non-cash $1,312,500)). 2 PainChek Limited In addition, the statement of financial position as at 30 June 2019 was impacted by:  A share placement of 21,724,138 shares to raise $3,150,000; and  Proceeds from the exercise of 47,300,000 options which raised $1,059,500. Review of operations The PainChek® technology uses cameras in smartphones and tablets to capture a brief video of the person, which is analysed in real time using facial recognition software to detect the presence of facial micro-expressions that are indicative of the presence of pain. The PainChek® technology has been TGA and CE Mark cleared for use as a class 1 medical device to assess pain in people who are unable to verbalise, such people with dementia. The PainChek® Adult App has been clinically proven and regulatory cleared, and in April 2019 the Federal Government announced it would invest $5M to facilitate the implementation of the PainChek® app in Australian residential aged care centers (RAC’s). More than 40,000 pain assessments have been conducted in Australian aged care, with an increasing number of case study reports confirming the clinical and cost benefit. There are now more than 10,500 beds in 140 RAC facilities that have been contracted with annual subscription agreements in Australia and annual recurring revenue (ARR) exceeding $0.5 million when implemented. These numbers are projected to accelerate with the government funding initiative and international expansion. Revenue recognized in the Company’s financial statements is based on contracted beds that have been implemented and are active using the PainChek App. At 30 June 2019 there were 3,564 active licensed beds in RACs with an ARR of $234k, up from 338 beds at 30 June 2018. There was a backlog of over 7,000 contracted beds at 30 June 2019 planned to be implemented after the year end. The PainChek monthly Revenue per Licensed Bed (RLB) across the RAC customers based on the agreements signed to date is in the range of $5 per month, and the Revenue per Active Resident (RAR) is in the range of $10 per month based on actual resident usage. We have entered international markets through a distribution partnership in the UK with PCS UK and through finalizing other international agreements to address the large market opportunities and the 50 million people living with dementia globally. We have commenced the Children’s App clinical trial with the Murdoch Children’s Research Institute, one of the top three leading children’s research centres globally. The Children’s App serves an even larger market, where globally there are more than 400 million children between the aged of 0-2 years. These achievements are a reflection of the transformational impact PainChek App has on pain management and the provision of better medication treatment for residents living with dementia and other communication difficulties. Likely Developments and Overview of Group Strategy The Company will continue with the commercialisation of the PainChek® technology in Australia and globally. We are receiving overseas interest including UK, Germany and US and Asia, which will support our international market expansion strategy. We are currently finalizing the agreed additional clinical validation work required for de novo review with FDA. This work is budgeted, and we continue to project FDA clearance for the PainChek® Adult App during 2020. 3 PainChek Limited The market segments being pursued by the Company include RAC Operators, Health Care Professionals, Home Care Operators and Direct to Home Carers. In parallel, development of the next phase of the Painchek App remains on track. This will be commercialised initially through a “shared care” model that allows healthcare professionals to provide access to PainChek® for home dementia patient carers to use. Good progress continues with the Kidds App . The PainFaces clinical study completion is dependent on the recruitment of the 100 children and is currently projected to be completed in Q3 FY 2020. The Results and learnings from the research will support applications for regulatory approval of PainChek® Infant’s App with the Therapeutics Goods Administration (TGA), CE Mark, Europe, and the Food and Drug Administration (FDA) in the USA. Subsequent events The 2nd tranche of $1,000,000 of the placement totalling $4,150,000 announced to ASX on June 2019 settled on 29 July 2019 with issue of 6,896,552 ordinary shares and 3,448,276 options exercisable at $0.25 per share, expiring 30 June 2022. Otherwise, no matters or circumstances have arisen since the end of the year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. REMUNERATION REPORT (AUDITED) Remuneration Policy The remuneration policy of the Group has been designed to align director objectives with shareholder and business objectives by providing a fixed remuneration component which is assessed on an annual basis in line with market rates. The Board of the Company believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best Directors to run and manage the Company, as well as create goal congruence between Directors and shareholders. The Board’s policy for determining the nature and amount of remuneration for board members is as follows:  The remuneration policy, setting the terms and conditions for the executive Directors and other senior staff members, was developed and approved by the Board.  In determining competitive remuneration rates, the Board considers local and international trends among comparative companies and the industry generally so that executive remuneration is in line with market practice and is reasonable in the context of Australian executive reward practices.  All executives receive a base salary (which is based on factors such as length of service and experience), superannuation and fringe benefits. Performance Based Remuneration The Company is a technology development entity and therefore speculative in terms of performance. Consistent with attracting and retaining talented executives, Directors and senior executives are paid market rates associated with individuals in similar positions within the same industry. Options, equity-based performance incentives and cash bonus’ have been and may be further issued to provide a performance- linked incentive component in the remuneration package for the Directors and for the future performance by the Directors and key management personnel in managing the operations and strategic direction of the Company. All remuneration paid to Directors is valued at the cost to the Company and expensed. Options are valued using an appropriate valuation methodology. For details of Directors’ and executives’ interests in options and performance rights at year end, refer to section (d) of this remuneration report. Short term incentive Generally paid in cash and structured, with a focus on delivery of specific short-term objectives aligned with the company’s strategies and goals and the Executives role in meeting these targets. 4 Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration The remuneration policy has been tailored to align the strategic goals of the Company to create value for shareholders, Directors and executives. The Company believes the policy has been effective in in aligning the interests of the Company’s key management personnel with the interests of its shareholders. For details of Directors’ and executives' interests in equity securities at year end, refer to section (c) of this remuneration report. PainChek Limited 2016 (formerly MinQuest Limited) 2017 (formerly ePAT Technologies Limited) 2018 2019 Share price at 30 June $0.01 $0.025 $0.056 $0.20 Loss for the year (continuing and discontinued operations) Loss for the year (continuing operations) EPS for the year (continuing and discontinued operations) EPS for the year (continuing operations) ($5,047,449) ($8,473,802) ($4,810,532) ($3,262,418) ($1,680,796) ($8,473,802) ($4,810,532) ($3,262,418) (2.1) cents (1.63) cents (0.6) cents (0.4) cents (0.7) cents (1.63) cents (0.6) cents (0.4) cents Performance Income as a Proportion of total compensation A short term incentive performance bonus of $40,000 including superannuation was paid to Mr Daffas for the 9 months ended 30 June 2018. A further short term performance bonus of $112,500 including superannuation was agreed to be paid to Mr Daffas for the year ended 30 June 2019 based on Mr Dafas achieving certain internal KPI’s. Remuneration Policy of Key Management Personnel The objective of the Company’s executive reward framework is set to attract and retain the most qualified and experienced Directors and senior executives. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices:  Competitiveness  Acceptability to shareholders  Performance linkage  Capital management Non-executive Directors The Board’s policy is to remunerate non-executive Directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive Directors and reviews their remuneration annually based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive Directors is subject to approval by shareholders at the Annual General Meeting and is currently set at $250,000. Fees for non-executive Directors are not linked to the performance of the Company. As at 30 June 2019, Non-Executive Directors fees were payable as follows:  Non-Executive Chairman receives a fee of $80,000 per annum including superannuation.  Non-Executive Directors receive a fee of $40,000 per annum including superannuation. 5 PainChek Limited Directors’ Fees A Director may be paid fees or other amounts as the Directors determine where a Director performs special duties or otherwise performs services outside the scope of the ordinary duties of a Director. A Director may also be reimbursed for reasonable out of pocket expenses incurred as a result of their Directorship or any special duties. Service Agreements Philip Daffas, Managing Director (appointed 30 September 2016) The Company entered into an Executive Services Agreement (“Agreement”) with Mr Philip Daffas pursuant to which Mr Daffas was appointed as Managing Director of the Company as at 30 September 2016. The key terms of the Agreement are:  A salary of $225,000 per annum inclusive of superannuation plus any bonus at the boards discretion;  Options equivalent to 5% of the Company’s fully diluted securities on issue at the time of the acquisition of Electronic Pain Assessment Technologies (EPAT) Pty Ltd. The Agreement may be terminated by either party at any time on the giving of not less than three (3) months’ notice in writing. Ian Hobson, Company Secretary and Chief Financial Officer (appointed 30 September 2016) The Company entered into a Consultancy Agreement (“Agreement”) with Churchill Services Pty Ltd pursuant to which Mr Hobson was engaged to provide Company Secretarial and Chief Financial Officer services to the Company effective from 30 September 2016. Churchill Services Pty Ltd is to receive $200 per hour, exclusive of GST, for services provided by Mr Hobson. The agreement may be terminated by either party at any time with no notice period. Retirement Benefits Other retirement benefits may be provided directly by the Company if approved by shareholders. However, no retirement benefits other than statutory superannuation are currently paid. DIRECTORS’ AND EXECUTIVE OFFICERS’ EMOLUMENTS (a) Details of Key Management Personnel Directors Mr John Murray Non-Executive Chairman Mr Philip Daffas Managing Director Mr Adam Davey Non-Executive Director Mr Ross Harricks Non-Executive Director Other Key Management Personnel Ian Hobson Chief Financial Officer and Company Secretary Except as detailed in Notes (b) – (d) to the Remuneration Report, no key management personnel have received or become entitled to receive, during or since the financial year, a benefit because of a contract made by the Company or a related body corporate with key management personnel, a firm of which a member of key management personnel is a member or an entity in which a member of key management has a substantial financial interest. 6 PainChek Limited (b) Compensation of Key Management Personnel Remuneration Policy The Board of Directors, comprising a majority of Non-Executive Directors, is responsible for determining and reviewing compensation arrangements for the key management personnel. The Board will assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high-quality Board and executive team. Remuneration of Directors is set out below. The value of remuneration received, or receivable, by key management personnel for the financial year to 30 June 2019 is as follows: 2019 Primary Equity Compensation Post- employment Performance related % Base Salary and Fees $ Cash Bonus $ 73,059 205,479 36,530 40,000 355,068 122,825 477,893 - 149,030* - - 149,030 - 149,030 Directors John Murray (1) Philip Daffas(2) Ross Harricks(4) Adam Davey(3) Total Directors Ian Hobson (5) Total Value of Options (d) $ Shares (d) $ - - - - - - - - - - - - - - Superannuation Contributions $ 6,941 22,991 3,470 - 33,402 - 33,402 Total $ 80,000 377,500 40,000 40,000 537,500 122,825 660,325 - 39% - - 28% - 23% *A short term incentive performance bonus of $40,000 including superannuation was paid to Mr Daffas for the 9 months ended 30 June 2018. A further short term performance bonus of $112,500 including superannuation was agreed to be paid to Mr Daffas for the year ended 30 June 2019 based on Mr Dafas achieving certain internal KPI’s. 2018 Primary Equity Compensation Post- employment Performance related % Base Salary and Fees $ 73,059 205,479 36,530 40,000 355,068 122,006 477,074 Directors John Murray (1) Philip Daffas(2) Ross Harricks(4) Adam Davey(3) Total Directors Ian Hobson (5) Total Bonus $ - 61,530 - - 61,530 - 61,530 Value of Options (d) $ 65,695 109,492 32,848 32,848 240,883 - 240,883 Shares (d) $ - - - - - - - Superannuation Contributions $ 6,941 25,366 3,470 - 35,777 - 35,777 Total $ 145,695 401,867 72,848 72,848 693,258 122,006 815,264 45% 43% 45% 45% 44% 0% 37% Notes: 1) Appointed Non-Executive Chairman on 30 September 2016. 2) Appointed Managing Director on 30 September 2016. 3) Appointed Non-Executive Director 30 September 2014. 4) Appointed Non-Executive Director 30 September 2016. 5) Appointed Company Secretary and Chief Financial Officer 30 September 2016. 7 c) Shares Held by Key Management Personnel Balance at 2019 1 July 2018 Bought & (Sold) Share Consolidation Directors John Murray Philip Daffas Ross Harricks Adam Davey Other key management personnel Ian Hobson 2018 Directors John Murray Philip Daffas Ross Harricks Adam Davey Other key management personnel Ian Hobson - - - 3,540,764 3,540,764 - - - - - 3,540,764 Balance at 1 July 2017 - - Bought & (Sold) - - - 3,540,764 3,540,764 - 3,540,764 - - - - - - - - - - - - Share Consolidation - - - - - - PainChek Limited Shares issued in lieu of cash* Other+ Balance at 30 June 2019 - - - - - - Shares issued in lieu of cash* Other+ - - - - - - - - - - - - - - - - - - - - - 3,540,764 3,540,764 - 3,540,764 Balance at 30 June 2018 - - - 3,540,764 3,540,764 - 3,540,764 8 PainChek Limited d) Options Held by Key Management Personnel 2019 Balance at 1 July 2018 Received as Remuneration Exercise of Options Other + Balance at 30 June 2019 Total Vested Total Exercisable Directors John Murray Philip Daffas Ross Harricks Adam Davey Other key management personnel Ian Hobson 24,599,497 40,999,162 12,299,748 12,299,748 90,198,155 - 90,198,155 - - - - - - - - - - - - - - - - - - - - - 24,599,497 40,999,162 12,299,748 12,299,748 90,198,155 16,399,665 16,399,665 27,332,775 27,332,775 8,199,832 8,199,832 60,132,104 60,132,104 8,199,832 8,199,832 - - - 2018 Balance at 1 July 2017 Received as Remuneration Exercise of Options Other + Balance at 30 June 2018 Total Vested Total Exercisable Directors John Murray Philip Daffas Ross Harricks Adam Davey Other key management personnel Ian Hobson 24,599,497 40,999,162 12,299,748 12,299,748 90,198,155 - 90,198,155 - - - - - - - - - - - - - - - - - - - - - 24,599,497 40,999,162 12,299,748 12,299,748 90,198,155 16,399,665 16,399,665 27,332,775 27,332,775 8,199,832 8,199,832 60,132,104 60,132,104 8,199,832 8,199,832 - 90,198,155 - 60,132,104 60,132,104 - Share and Option Holdings All equity dealings with Directors have been entered into with terms and conditions no more favourable than those that the entity would have adopted if dealing at arm’s length. (e) Compensation Options During and since the financial year ended 30 June 2019, Nil options were granted by the Company to Directors or Key Management Personnel (2018: Nil) and Nil options (2018: Nil) were exercised by Directors or Key Management Personnell. (f) Short term employee benefits These amounts include director and consulting fees paid to non-executive directors as well as salary and paid leave benefits awarded to executive directors. (g) Post-employment benefits These amounts are superannuation contributions made during the year. 9 On 30 September 2016, the following personnel were appointed directors of the Company (excluding Mr Davey who remained a director) and entered into letters of appointment on the following key terms: PainChek Limited Name Position Cash Remuneration inclusive of superannuation Notice period / termination provisions Options equivalent to % of fully diluted shares on issue Mr John Murray Mr Adam Davey Mr Ross Harricks Non- Executive Chairman Non-Executive Director Non-Executive Director $80,000 $40,000 $40,000 Nil Nil Nil 3% 1.5% 1.5% Mr Philip Daffas Managing Director $225,000 3 months 5% At the annual general meeting held on 23 November 2016, shareholders approved the issue of the following options exercisable at 2 cents per share and expiring on 24 November 2019 and vesting on certain conditions: Name Position Unlisted options allotted 19 December 2016 Mr John Murray Non- Executive Chairman Mr Adam Davey Non-Executive Director Mr Ross Harricks Non-Executive Director Mr Philip Daffas Managing Director Total 24,599,497 12,299,748 12,299,748 40,999,162 90,198,155 The options issued to directors are to vest as follows: i. One third after one year of service (as approved at the 2016 Annual General Meeting, no performance condition is attached to this tranche of options). ii. One third after the Company makes an announcement that Regulatory Approval to enable commercial use of the PainChek App in Australia, the United States or Europe is received, or the Company has announced the execution of a binding licence agreement to licence the PainChek App to: a. one or more residential aged care facilities facility owners managing in total in excess of 150 beds; or b. one or more medical clinics which service in total in excess of 2,000 patients per year; or c. a metropolitan hospital with in excess of 200 beds; (each an “End User”); d. or a global distribution partner with multiple End Users as existing customers. iii. One third upon the Company generating cumulative revenue of $1,000,000. 10 PainChek Limited The options issued to directors were expensed as follows: Number of options Value per option at grant date % Vested Vesting Date Value $ Expensed 30 June 2017 Expensed 30 June 2018 Expensed 30 June 2019 Tranche 1 30,066,052 $0.037 100% 30 Sept 2017 814,286 573,404 240,882 Trance 2 30,066,052 Tranche 3 30,066,052 $0.037 $0.037 100% 19 July 2017 814,286 814,286 0% Performance based 814,286 814,286 - - Total 90,198,155 2,442,857 2,201,975 240,882 - - - - Transactions with Directors and Director related entities There were no transactions with Directors or Director related entities during the year. Loans to Key Management Personnel There was no loans to KMP during the year. End of Remuneration Report 11 ENVIRONMENTAL REGULATIONS AND PROCEEDINGS The Group’s operations are not subject to any significant environmental regulations where it operates. MEETINGS OF DIRECTORS The number of Directors’ meetings held during the financial year each director held office and the number of meetings attended by each director are: PainChek Limited Director John Murray Philip Daffas Ross Harricks Adam Davey Directors Meetings Meetings Attended 12 12 12 12 Number Eligible to Attend 12 12 12 12 The full Board currently fulfils the duties of the Remuneration Committee and the Audit Committee. OPTIONS At the date of this report, the following options over new ordinary shares in the Company were on issue. Type Date of Expiry Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options 7 October 2019 7 October 2019 24 November 2019 3 October 2021 22 July 2022 9 November 2023 30 June 2022 Exercise Price $0.025 $0.02 $0.02 $0.36 $0.726 $0.032 $0.25 Number under Option 20,700,000 10,400,000 90,198,155 5,000,000 3,000,000 4,000,000 14,310,345 47,300,000 ordinary shares were issued as a result of the exercise of options during or since the financial year ended 30 June 2019. EQUITY HOLDINGS The relevant interests of each director in the Company’s share capital, options and performance rights at the date of this report are as follows: Directors John Murray Adam Davey Philip Daffas Ross Harricks Total Number of Shares - 3,540,764 - - 3,540,764 Number of Options 24,599,497 12,299,748 40,999,162 12,299,748 90,198,155 INSURANCE OF OFFICERS To the extent permitted by law, the Company has indemnified (fully insured) each director and the secretary of the Company. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the officers in their capacity as officers of the Company or a related body, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It 12 PainChek Limited is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. The company has not insured against or indemnified its auditor. PROCEEDINGS ON BEHALF OF THE GROUP The Group is not aware that any person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings in which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the court under section 237 of the Corporations Act 2001. NON-AUDIT SERVICES The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group and/or the Group are important. The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:  all non-audit services have been reviewed to ensure they do not impact the impartiality and objectivity of the auditor; none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.  Details of the amounts paid or payable to the auditor, BDO Audit Pty Ltd for audit services provided during the year are set out in note 20 to the financial report. Non-audit services BDO Audit Pty Ltd Tax advice services Tax compliance services Investigating Accountant Report for Prospectus Total remuneration for non-audit services 2019 $ 2018 $ - - - - - - - - Auditor’s independence declaration The auditor’s independence declaration is included on page 18 of this report. Signed in accordance with a resolution of directors. John Murray Chairman 28 August 2019, Sydney, NSW 13 PainChek Limited Auditor’s independence declaration Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY C R JENKINS TO THE DIRECTORS OF PAINCHEK LIMITED As lead auditor of PainChek Limited for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of PainChek Limited and the entities it controlled during the period. C R Jenkins Director BDO Audit Pty Ltd Brisbane, 28 August 2019 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 14 Consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2019 PainChek Limited Revenue Other income Research and development expenses Marketing and business development expenses Corporate administration expenses License expenses Share based payment expenses Loss before income tax Income tax benefit Loss for the period attributable to Owners of PainChek Limited Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss Items that may be reclassified subsequently to profit or loss Other comprehensive income for the period, net of income tax Total comprehensive loss for the period Loss and total comprehensive loss attributable to: Owners of PainChek Limited Consolidated Consolidated 30 June 2019 $ 30 June 2018 $ Note 3 4 5 5 14 6 215,464 745,258 (1,894,536) (729,247) (1,486,446) - (112,911) (3,262,418) 50,647 410,014 (1,699,292) (318,907) (1,198,311) (1,709,510) (345,172) (4,810,532) - (3,262,418) - (4,810,532) - - - (3,262,418) - - - (4,810,532) (3,262,418) (4,810,532) Loss per share: Basic and diluted (cents per share) 7 (0.4) (0.6) Notes to the financial statements are included on pages 19 to 41. 15 Consolidated statement of financial position as at 30 June 2019 PainChek Limited Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets Current liabilities Trade and other payables Provisions Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Consolidated 30 June 2019 $ Consolidated 30 June 2018 $ Note 18 8 9 10 11 13 14 4,562,476 171,169 4,733,645 3,606,115 62,098 3,668,213 15,716 15,716 4,749,361 4,384 4,384 3,672,597 565,192 63,247 628,439 628,439 4,120,922 415,914 31,980 447,894 447,894 3,224,703 17,755,759 3,200,925 (16,835,762) 4,120,922 13,710,033 3,088,014 (13,573,344) 3,224,703 Notes to the financial statements are included on pages 19 to 41. 16 Consolidated statement of changes in equity for the year ended 30 June 2019 PainChek Limited Company Note Issued capital $ Reserves $ Accumulated losses $ Total $ Consolidated Balance at 1 July 2017 Loss for the year Other comprehensive income Total comprehensive loss for the period Issue of ordinary shares (refer to note 13) Issue of ordinary shares on conversion of options (refer to note 13) Share issue costs (refer to note 13) Recognition of share based payments (refer to note 13) Balance at 30 June 2018 Consolidated Balance at 1 July 2018 Loss for the year Other comprehensive income Total comprehensive loss for the period Issue of ordinary shares (refer to note 13) Issue of ordinary shares on conversion of options (refer to note 13) Share issue costs (refer to note 13) Recognition of share based payments (refer to note 14) Balance at 30 June 2019 13 13 13 13 13 13 13 13 8,502,533 - - 2,742,842 - - 3,750,000 370,000 (225,000) - - - (8,762,812) (4,810,532) - (4,810,532) - - - 1,312,500 13,710,033 345,172 3,088,014 - (13,573,344) 13,710,033 - - - 3,150,000 1,064,500 (168,774) 3,088,014 - - - - - - (13,573,344) (3,262,418) - (3,262,418) - - - - 17,755,759 112,911 3,200,925 - (16,835,762) 2,482,563 (4,810,532) - (4,810,532) 3,750,000 370,000 (225,000) 1,657,672 3,224,703 3,224,703 (3,262,418) - (3,262,418) 3,150,000 1,064,500 (168,774) 112,911 4,120,922 Notes to the financial statements are included on pages 19 to 41. 17 Consolidated statement of cash flows for the year ended 30 June 2019 PainChek Limited Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Rebates and grants received Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares (Payment) of share issue costs Net cash (used in)/provided by financing activities Consolidated Consolidated Year ended Note 30 June 2019 $ 30 June 2018 $ 98,546 (4,005,322) 86,622 745,258 (3,074,896) 32,842 (3,382,079) 26,191 410,014 (2,913,032) 18.1 (14,501) (14,501) (5,872) (5,872) 4,214,500 (168,774) 4,045,726 4,120,000 (225,000) 4,114,543 Net increase / (decrease) in cash and cash equivalents 956,327 976,096 Cash and cash equivalents at the beginning of the period 3,606,115 2,630,019 Cash and cash equivalents at the end of the period 18 4,562,442 3,606,115 Notes to the financial statements are included on pages 19 to 41. 18 PainChek Limited Notes to the financial statements for the year ended 30 June 2019 1. Significant accounting policies Basis of preparation PainChek Ltd (the “Group”) is a listed public company, incorporated and domiciled in Australia. The group’s principal activities are development and commercialization of mobile medical device applications that provide pain assessment for individuals that are unable to communicate with their carers. The financial report is presented in Australian dollars. The financial report is a general purpose financial report, which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements of the law. The financial information has been prepared on the accruals basis and is based on historical costs and does not take into account changing money values. Cost is based on the fair values of the consideration given in exchange for assets. Statement of Compliance The financial report was authorised for issue on 18 August 2019. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (“IFRS”). Standards and Interpretations on issue not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. Title of standard AASB 16 Leases Nature of change Impact AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has no non-cancellable operating lease commitments. It is therefore not yet possible to estimate the amount of right-of-use assets and lease liabilities that will have to be recognised on adoption of the new standard and how this may affect the Group’s profit or loss and classification of cash flows going forward. 19 Title of standard AASB 16 Leases Mandatory application date/Date of adoption by Group Mandatory for financial years commencing on or after 1 July 2019. At this stage, the Group does not intend to adopt the standard before its effective date. The Group intends to apply the simplified transition approach and will likely not restate comparative amounts for the year prior to first adoption. PainChek Limited Going concern basis The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the normal course of business. As disclosed in the financial statements, the consolidated entity has net operating cash outflows for the year of $3,074,896 ( 2018: $2,913,032) and as at 30 June 2019 has cash and cash equivalents of $4,562,476 (30 June 2018: $3,606,115). The consolidated entity also generated a loss after tax of $3,262,418 (2018: $4,810,532). The ability of the consolidated entity to continue as a going concern is principally dependent upon one or more of the following conditions:    receipt of research and development grants; the ability of the consolidated entity to raise sufficient capital and when necessary; and the successful commercialisation of its intellectual property in a manner that generates sufficient operating cash inflows. These conditions give rise to material uncertainty which may cast significant doubt over the consolidated entity’s ability to continue as a going concern. The directors believe that the going concern basis of preparation is appropriate due to its recent history of raising capital and the significant progress made on exploiting its intellectual property. Should the consolidated entity be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial report. This financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities and appropriate disclosures that may be necessary should the consolidated entity be unable to continue as a going concern. Adoption of New and Revised Standards A number of new or amended standards became applicable for the current reporting period and the group had to change its accounting policies as a result of adopting AASB 15 Revenue AASB 9 Financial Instruments. The impact of the adoption of this standard and the new accounting policies are disclosed below. The other standards did not have any impact on the group’s accounting policies and did not require retrospective adjustments. Significant accounting policies of the Company Set out below are the significant accounting policies that have been applied in the preparation of the consolidated financial statements: 20 PainChek Limited AABS 15 Contracts with Customers The Company has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018 which resulted in changes in accounting policies. In accordance with the transition provisions in AASB 15, the Company has adopted the new rules retrospectively however there was no material impact on the amounts disclosed previously and as a result there has been no restatement required as a result of reclassification or remeasurement. The Company’s updated accounting policies are shown below. i) Software subscriptions Revenue from the sale of term (subscription) licences is recognised on a straight line basis over the subscription term. ii) Training Revenue from the provision of training services is recognised typically at a point in time when the Company has provided training and has an enforceable right to payment for its performance completed to date. iii) Software support (maintenance) Revenue for software support is recognised on a straight line basis over the service period as performance obligations require the company to respond to requests made by customers to provide technical product support and unspecified updates, upgrades and enhancements on a when- available and if-available basis. iv) Incremental Costs of obtaining Customer Contracts Commissions on software subscriptions are capitalised and amortised over the term, where the term is greater than 12 months. v) Contract Assets (Trade Receivables and Work in progress) Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Work in progress represents costs incurred and profit recognised for services that are in progress at balance date and the Company has an enforceable right to payment for its performance completed to date. vi) Unsatisfied performance obligations The Company continues to recognise its contract liabilities under AASB 15 in respect of any unsatisfied performance obligations, which are disclosed as Unearned revenue in the Statement of Financial Performance. vii) Financing components The Company does not recognise adjustments to transition prices or Contract balances where the period between the transfer of promised goods or services to the customer and payment by customer does not exceed one year. The Company reviewed its prior year contracts and did not identify material adjustments in timing and amounts recognised as revenue in prior years. 21 PainChek Limited Revenue recognition – AASB118 Revenue is recognised when it is probable that the economic benefit will flow to the company and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. 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. Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Grants and other revenue is recognised when it is received or when the right to receive payment is established. AASB 9 Financial Instruments – Impact of adoption AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of AASB 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies. The new accounting policies are set out in note below. In accordance with the transitional provisions in AASB 9(7.2.15) and (7.2.26), comparative figures have not been restated. (i) Classification and Measurement On 1 January 2018 (the date of initial application of AASB 9), the Group’s management has assessed which business models apply to the financial assets held by the group and has classified its financial instruments into the appropriate AASB 9 categories. There were no changes to the classification and measurement of financial assets. (ii) Impairment of financial assets The Group has one type of financial asset that is subject to AASB 9’s new expected credit loss model, being trade and other receivables. The group was required to revise its impairment methodology under AASB. There was no material impact of the change in impairment methodology on the group’s retained earnings and equity. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, there was no material impairment loss identified. AASB 9 Financial Instruments – Accounting policies applied from 1 January 2018 (i) Investments and other financial assets Classification From 1 January 2018, the group classifies its financial assets in the following measurement categories:   those to be measured subsequently at fair value (either through OCI, or through profit or loss); and those to be measured at amortised cost. 22 PainChek Limited The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The Group reclassifies debt investments when and only when its business model for managing those assets changes. Measurement At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the group classifies its debt instruments:  Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.  FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of profit or loss.  FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit or loss and presented net within other gains/(losses) in the period in which it arises. Impairment From 1 July 2018, the group assesses on a forward-looking basis the expected credit loss associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables the group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Management has determined that assessment of expected credit loss associated with trade receivables is immaterial. 23 PainChek Limited Fair Values The fair values of Consolidated Entity’s financial assets and financial liabilities approximate their carrying values due to short –term in nature. No financial assets or financial liabilities are readily traded on organised markets in standardised form. (a) Principles of Consolidation The consolidated financial statements comprise the financial statements of all subsidiaries of the Company and the results of all subsidiaries from the date that control was obtained. The Company controls another entity when the Company is exposed to, or has the 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 fully transferred. They are deconsolidated from the date control ceases. The financial statement of the subsidiary is prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest without a loss of control is accounted for as an equity transaction. Non-controlling interests in the results and equity of subsidiaries are shown separately in the financial statements. Losses incurred by the consolidated entity are attributed to the non- controlling interests 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 in equity. The consolidated entity recognises the fair value of the consideration received and the fair value of any investment retained together with any gains or losses in profit or loss. (b) Income Tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:  when the deferred income tax liability arises from the initial recognition of goodwill or of 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 profit nor taxable profit or loss; or  when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 24 PainChek Limited Deferred income tax assets are recognised for all deductible temporary differences, carry- forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:  when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (c) Impairment of non – financial Assets The Group assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss 25 PainChek Limited is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (d) Share-based Payment Transactions The cost of equity-settled transactions with employees is measured 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 a suitable option pricing model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant recipient of the equity becomes fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Company’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. (e) Cash and cash equivalents Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. For the purpose of the Statement of Cash Flows, cash includes on hand and other funds held at call net of bank overdrafts. 26 PainChek Limited (f) Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the company 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. (g) 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 plant and equipment over their expected useful lives as follows: Plant and equipment Less than 5 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to theGroup. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. (h) Trade and other payables These amounts represent liabilities for goods and services provided to the Group 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. (i) Employee benefits 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. 27 PainChek Limited 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 are recognised in non-current liabilities, provided there is an unconditional right to defer settlement of the liability. The liability is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.. Consideration is given to expect future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporatebonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. (j) 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. (k) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the Group, adjusted to exclude any costs of servicing equity, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the Group, adjusted for:   costs of servicing equity; the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and   other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (l) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Where the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements, an additional (third) statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements is presented. (m) Significant accounting judgements and key estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing these statements, the key estimates made by management in applying the Company’s accounting policies have been applied to the valuation of share-based payments, refer to note 14. 28 PainChek Limited In preparing these financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty have been applied to the reverse acquisition, refer to note 19. 2. Segment information Operating segments are presented using the ‘management approach’, where 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. The Group operates predominantly in one segment, being the sale of its pain assessment solutions. The primary financial statements reflects this segment. 3. Revenue Subscription revenue – recognised over time Interest income Total Revenue 4. Other income Research & Development Rebates Total Other Income 5. Loss for the year Loss for the year has been arrived at after charging the following items of expenses: Corporate administration expenses Company secretary fees Directors remuneration Legal and professional fees Share registry fees Insurance expenses Occupancy costs Computer expenses Other administration expenses 6. Income taxes relating to continuing operations 6.1 Income tax recognised in profit or loss Current tax expense/(income) Deferred tax expense/(income) Tax losses not recognised Total Tax expense/(income) Consolidated 2019 $ 135,017 80,444 215,461 Consolidated 2018 $ 24,420 26,227 50,647 Consolidated 2019 $ 745,258 745,258 Consolidated 2019 $ 410,014 410,014 Consolidated Consolidated 2019 $ 122,825 425,000 79,832 23,990 38,775 32,162 12,365 751,497 1,486,446 2018 $ 122,006 411,757 81,247 27,897 30,555 14,017 59,430 451,402 1,198,311 Consolidated Consolidated 2019 $ (1,067,948) 40,523 1,027,425 - 2018 $ (1,336,159) 478,110 858,049 - 29 The income tax expense for the year can be reconciled to the accounting loss as follows: PainChek Limited Loss before tax from continuing operations Income tax expense/(revenue) calculated at 27.5% (2018: 27.5%) Effect of items that are not assessable/deductible in determining taxable loss: Non-deductible expenses Non-assessable income Effect of unused tax losses not recognised as deferred tax assets Consolidated 2019 $ (3,262,418) Consolidated 2018 $ (4,810,532) (897,165) (1,322,896) 74,686 (204,946) 1,027,425 - 577,601 (112,754) 858,049 - The tax rate used for the 2019 was 27.5% and 2018 was 27.5% to calculate the reconciliations above being the corporate tax rate payable by Australian corporate entities on taxable profits under Australian tax law in those years. The Company has no franking credits available for recovery in future years. 6.2 Income tax recognised directly in equity Current tax Share issue costs Deferred tax Share issue costs deductible over 5 years 6.3 Unrecognised deferred tax assets Unused tax losses (revenue) for which no deferred tax assets have been recognised Temporary differences All unused tax losses were incurred by Australian entities. Consolidated 2019 $ Consolidated 2018 $ (168,774) (225,000) - (168,774) - (225,000) Consolidated 2019 $ Consolidated 2018 $ 2,963,360 191,662 2,410,949 104,569 This benefit for tax losses will only be obtained if the specific entity carrying forward the tax losses derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, and the Group complies with continuity of business / same business test and the conditions for deductibility imposed by tax legislation. 7. Loss per share Basic and diluted loss per share (cents per share) Consolidated 2019 $ (0.4) Consolidated 2018 $ (0.6) 30 PainChek Limited The loss and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: Consolidated 2019 $ Consolidated 2018 $ Loss for the year attributable to the owners of the Company (3,262,418) (4,810,532) Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 838,403,530 800,935,009 Options on issue are considered to be anti-dilutive while the entity is making losses. Consolidated 2019 No. Consolidated 2018 No. 8. Trade and other receivables Other receivables Prepayments At the reporting date, none of the receivables are past due. 9. Property, plant and equipment Carrying amounts of Computer Equipment – at cost Cost Balance at 1 July 2018 Additions Disposals Balance at 30 June 2019 Accumulated depreciation Balance at 1 July 2018 Depreciation expense Disposals Balance at 30 June 2019 Net book value Consolidated 2019 $ 161,337 9,832 171,169 Consolidated 2018 $ 56,086 6,012 62,098 Consolidated 2019 $ 15,716 Consolidated 2018 $ 4,384 Consolidated 2019 $ Consolidated 2018 $ 5,974 14,501 - 20,475 2,694 3,280 - 5,974 Consolidated 2019 $ Consolidated 2018 $ 1,590 3,169 - 4,759 15,716 150 1,440 - 1,590 4,384 31 10. Trade and other payables Trade creditors Contract liability Accruals and other payables Trade creditor payment terms are 30 days from end of month. 11. Provisions Provision for employee entitlements 12. Subsidiaries PainChek Limited Consolidated 2019 $ 202,054 20,000 343,138 565,192 Consolidated 2018 $ 286,969 7,410 121,535 415,914 Consolidated 2019 $ 63,247 Company 2018 $ 31,980 The consolidated financial statements include the financial statements of PainChek Limited and its subsidiary company Electronic Pain Assessment Technologies (EPAT) Pty Ltd. 13. Issued capital Fully paid Ordinary shares Consolidated 2019 $ Consolidated 2018 $ 17,755,759 13,710,033 Balance at beginning of the reporting period Issue of PainChek Ltd milestone shares from the acquisition Issued pursuant to capital raising Issued for part consideration of nViso licence Issued on conversion of options Capital raising costs Balance at end of period Consolidated 2019 Consolidated 2018 No. 837,634,587 $ 13,710,033 No. 674,423,049 $ 8,502,533 - 21,724,138 - 3,150,000 38,461,538 75,000,000 - 3,750,000 - 47,300,000 - 906,658,727 - 1,059,500 (168,774) 17,750,759 31,250,000 18,500,000 - 837,634,587 1,312,500 370,000 (225,000) 13,710,033 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Ordinary shares participate in the proceeds on winding up of the Company in proportion to the number of shares held. 32 14. Reserves Option reserve: Balance at beginning of the reporting period Issue of 45,000,000 Underwriter options Issue of 90,198,155 Director options Issue of 5,000,000 Employee options Issue of 3,000,000 Employee options Issue of 4,000,000 Employee options Total reserves at end of period PainChek Limited Consolidated 2019 $ Consolidated 2018 $ 3,088,014 - - 30,466 59,478 22,967 3,200,925 2,742,842 - 240,882 71,658 32,632 - 3,088,014 The purpose of this reserve is to recognise share-based payments. Options issued during the period: Options Consolidated 2019 Consolidated 2018 No. $ No. $ Balance at beginning of the reporting period Issue of director options Issue of options to employees Exercise of options 178,167,730 - 4,000,000 (47,300,000) 3,088,014 197,096,302 - 3,000,000 (18,500,000) - 112,911 - 2,742,842 240,882 104,290 - Balance at end of period 134,867,730 3,200,925 178,167,730 3,088,014 14.1 Share-based payments Options on Issue At the date of this report, the following options over new ordinary shares in the Company were on issue. Option series 1 2 3 4 5 6 7 Type Date of Expiry Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options Unlisted Options 7 October 2019 7 October 2019 24 November 2019 3 October 2021 22 July 2022 9 November 2023 30 June 2023 Exercise Price $0.025 $0.02 $0.02 $0.36 $0.726 $0.032 $0.25 Number under Option 20,700,000 10,400,000 90,198,155 5,000,000 3,000,000 4,000,000 14,310,345 The following share-based payment arrangements were in existence during and prior reporting periods: 33 PainChek Limited Option series Number Grant date Total Value at Grant Date Recognised as expense to 30 June 2018 Exercise Price Expiry date Vesting date 45,000,000 90,198,155 7 October 2016 23 November 2016 5,000,000 5 April 2017 3,000,000 22 January 2018 $ $ $ 522,000 - 0.025 2,442,857 240,882 0.02 138,925 130,361 71,658 0.036 32,632 0.0726 4,000,000 9 May 2019 225,712 0.032 1 2 3 4 5 7 October 2019 24 November 2019 3 October 2021 22 July 2022 9 November 2023 7 October 2016 Various Various Various Various There has been no alteration of the terms and conditions of the above share-based payment arrangements since the grant date. 1) Underwriter options 45,000,000 options were granted to the Underwriter pursuant to the Prospectus dated 25 August 2016. The fair value of the options at grant date are determined using a Black Scholes pricing method that takes into account the exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used for valuation of the unlisted options: Item Volatility (%) Risk free interest rate (%) Expected life of option (years) Expected dividend yield Exercise price per terms and conditions Underlying security price at grant date Expiry date Value per option Inputs 100% 1.54% 3.03 nil $0.025 $0.020 7 October 2019 $0.0116 2) Director options 90,198,155 options were granted to the Directors as approved by shareholders at the annual general meeting on 23 November 2016. The fair value of the options at grant date are determined using a Black Scholes pricing method that takes into account the exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected 34 dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used for valuation of the unlisted options: PainChek Limited Item Volatility (%) Risk free interest rate (%) Expected life of option (years) Expected dividend yield Exercise price per terms and conditions Underlying security price at grant date Expiry date Value per option Inputs 100% 1.54% 3.003 Nil $0.020 $0.037 24 November 2019 $0.0271 The options issued to directors are to vest as follows: 1. One third after one year of service. 2. One third after the Company makes an announcement that Regulatory Approval to enable commercial use of the PainChek App in Australia, the United States or Europe is received, or the Company has announced the execution of a binding licence agreement to licence the PainChek App to: a. one or more residential aged care facilities facility owners managing in total in excess of 150 beds; or b. one or more medical clinics which service in total in excess of 2,000 patients per year; or c. a metropolitan hospital with in excess of 200 beds; (each an “End User”); d. or a global distribution partner with multiple End Users as existing customers. 3. One third upon the Company generating cumulative revenue of $1,000,000. 3) Employee options 5,000,000 options were granted to an employee on 5 April 2017. The fair value of the options at grant date are determined using a Black Scholes pricing method that takes into account the exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used for valuation of the unlisted options: Item Volatility (%) Risk free interest rate (%) Expected life of option (years) Expected dividend yield Exercise price per terms and conditions Underlying security price at grant date Expiry date Value per option Inputs 100% 1.95% 4.5 Nil $0.036 $0.038 3 October 2021 $0.0278 4) Employee options 3,000,000 options were granted to an employee on 22 January 2018. The fair value of the options at grant date are determined using a Black Scholes pricing method that takes into account the exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used for valuation of the unlisted options: 35 Item Volatility (%) Risk free interest rate (%) Expected life of option (years) Expected dividend yield Exercise price per terms and conditions Underlying security price at grant date Expiry date Value per option PainChek Limited Inputs 100% 1.95% 4.5 Nil $0.0726 $0.062 22 July 2022 $0.0434 25 % of the options issued to the employees vest after 12 months employment and balance in quarterly instalments over the next 3 years, subject to continued full time employment (i.e. Fully vested after 4.5 years employment). 5) Employee options 4,000,000 options were granted to employees on 9 May 2019. The fair value of the options at grant date are determined using a Black Scholes pricing method that takes into account the exercise price, the term of the option, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The following table lists the inputs to the model used for valuation of the unlisted options: Item Volatility (%) Risk free interest rate (%) Expected life of option (years) Expected dividend yield Exercise price per terms and conditions Underlying security price at grant date Expiry date Value per option Inputs 100% 1.48% 4.5 Nil $0.032 $0.069 9 November 2023 $0.0564 25 % of the options issued to the employees vest after 12 months employment and balance in quarterly instalments over the next 3 years, subject to continued full time employment (i.e. Fully vested after 4.5 years employment). 36 14.2 Movements in share options during the year The following reconciles the share options outstanding at the beginning and end of the year: PainChek Limited 2019 2018 Number of options Weighted average exercise price Number of options Weighted average exercise price No. $ No. $ 178,167,730 0.0225 197,096,302 0.022 Balance at beginning of the year Existing PainChek Limited shares on acquisition Granted during the year 14,862,069 0.1913 3,000,000 Forfeited during the year - - - Exercised during the year (47,300,000) 0.225 (18,500,000) 0.0726 - 0.020 Expired during the year (969,575) 0.175 (3,428,572) 0.07875 Balance at end of year 144,760,224 0.04 178,167,730 Exercisable at end of year 106,131,672 0.0454 141,351,678 0.0225 0.0217 Share options exercised during the year 47,300,000 share options were exercised during the year (2018: 18,5000,000). Share options outstanding at the end of the year The share options outstanding at the end of the year had a weighted average exercise price of $0.04 and a weighted average remaining contractual life of 291 days (2018: 523) 15. Financial instruments 15.1 Capital management The Group manages its capital to ensure entities in the Group will be able to continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2018. The Group is not subject to any externally imposed capital requirements. Given the nature of the business, the Group monitors capital on the basis of current business operations and cash flow requirements. 15.2 Categories of financial instruments Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Consolidated 2019 $ Consolidated 2018 $ 4,562,476 163,410 4,725,886 545,1932 545,193 3,606,115 56,086 3,622,201 408,504 408,504 37 PainChek Limited The fair value of the above financial instruments approximates their carrying values. 15.3 Financial risk management objectives In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of those risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Group’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the Group where such impacts may be material. The board receives monthly financial reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. 15.4 Market risk Market risk for the Group arises from the use of interest bearing financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rate (see 15.5 below). 15.5 Interest rate risk management The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end on the reporting period. Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the end on the reporting period. If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended 30 June 2019 would increase/decrease by $45,00 (2018: $36,000). 15.6 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. The credit risk on liquid funds is limited because the counterparties are banks with high credit- ratings assigned by international credit-rating agencies. 38 PainChek Limited 15.7 Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity by maintaining adequate banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Contractual cash flows Carrying Amount Less than 1 month 1-3 months 3-12 months 1 year to 5 years $ $ $ $ $ Total contractual cash flows $ 2019 Trade and other payables 2018 Trade and other payables 545,193 545,193 408,504 408,504 - - - - - - 545,193 408,504 16. Key management personnel The aggregate compensation made to directors and other members of key management personnel of the Company is set out below: Short-term employee benefits Post-employment benefits Share-based payments 17. Related party transactions 17.1 Entities under the control of the Group Consolidated 2019 $ Consolidated 2018 $ 626,923 33,402 - 660,325 538,604 35,777 240,883 815,264 On 23 September 2016 the Company completed the 100% acquisition of Electronic Pain Assessment Technology (EPAT) Pty Ltd. Parent Entity: PainChek Ltd Australia Country of Incorporation Perecentage Owned (%)* 2019 2018 Acquisitions: Electronic Pain Assessment Technology (EPAT) Pty Ltd Australia 100% 100% *Percentage of voting power is proportional to ownership 39 PainChek Limited 17.2 Key management personnel Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel. For details of disclosures relating to key management personnel, refer to the remuneration report contained in the directors’ report and note 14. 17.3 Other related party transactions All transactions between the Group and related parties are on an arms-length basis. 18. Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the statement of cash flows can be reconciled to the related items in the statement of financial position as follows: Cash and bank balances 4,562,476 3,606,115 Consolidated 2019 $ Consolidated 2018 $ 18.1 Reconciliation of loss for the year to net cash flows from operating activities Cash flow from operating activities Loss for the year Adjustments for: License – issue of securities Depreciation Share based payments Corporate restructure expense Movements in working capital (Increase)/decrease in other receivables (Increase)/decrease in prepayments Increase/(decrease) in trade and other payables Increase in provisions Net cash outflows from operating activities Consolidated 2019 $ Consolidated 2018 $ (3,262,418) (4,810,532) - 3,169 112,911 - (105,251) (3,820) 149,280 31,267 (3,074,863) 1,312,500 4,032 409,094 - (33,126) 6,260 246,411 16,251 (2,913,033) 19. Commitments and contingencies As per the Research Services Agreement with Curtin University of Technology, dated 7th March 2019, the Company has agreed to Fees, payable in equal monthly instalments in accordance with a payment schedule. The remaining commitment is $90,284 is due in less than 12 months. 40 PainChek Limited Consolidated 2019 $ 36,870 - 36,870 Consolidated 2018 $ 34,275 - 34,275 20. Remuneration of auditors Auditor of the parent entity Audit and review of the financial statements Other non-audit services The auditors of PainChek Ltd are BDO Audit Pty Ltd. 21. Events after the reporting period The 2nd tranche of $1,000,000 of the placement totalling $4,150,000 announced to ASX on June 2019 settled on 29 July 2019 with issue of 6,896,552 ordinary shares and 3,448,276 options exercisable at $0.25 per share, expiring 30 June 2022. Otherwise, no matters or circumstances have arisen since the end of the year which significantly affected or could significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 22. Parent entity information The accounting policies of the parent entity, which have been applied in determining the 2019 financial information shown below, are the same as those applied in the financial statements. Refer to note 3 for a summary of significant accounting policies relating to the Group. Financial position of PainChek Limited (Legal Parent) Assets Current assets Non-current assets Total assets Liabilities Current liabilities Provisions Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Financial performance Loss for the year 2019 $ 2018 $ 4,584,663 15,716 4,600,3779 352,059 63,247 - 415,306 4,185,073 3,615,662 4,384 3,620,046 206,307 31,980 - 238,287 3,381,759 26,510,464 3,239,937 (25,565,328) 4,185,073 22,464,739 3,127,026 (22,210,006) 3,381,759 (1,439,092) (4,698,817) 23. Approval of financial statements The financial statements were approved by the board of directors and authorised for issue on 28 August 2019. 41 PainChek Limited DIRECTORS DECLARATION 1. The Directors of the Company declare that: a. the accompanying financial statements and notes are in accordance with the Corporations Act 2001 including: i. ii. giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its performance for the year then ended; and complying with Australian Accounting Standards, the Corporations Regulations 2001, professional reporting requirements and other mandatory requirements. b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and c. the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019. This declaration is signed in accordance with a resolution of the Board of Directors. John Murray Chairman 28 August 2019 42 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT To the members of PainChek Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of PainChek Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2019, 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, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note 1 in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern and therefore the group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our opinion is not modified in respect of this matter. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 43 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition and measurement Key audit matter How the matter was addressed in our audit Refer to Note 3 of the financial report and Note 1 for the accounting policy. Revenue recognition was identified as a key audit matter because:   the assessment of revenue recognition and measurement required significant auditor effort; and the Group changed its accounting policy on revenue recognition for the initial adoption of the new revenue accounting standard AASB 15 Revenue from Contracts with Customers. Our audit procedures included, amongst others:      Assessing the revenue recognition accounting policy for compliance with AASB 15 Revenue from Contracts with Customers For a sample of contracts, reviewing the terms and conditions to ensure the revenue was recognised in accordance with the revenue recognition accounting policy Agreeing a sample of revenue transactions to supporting documentation such as invoices and receipts Performing analytical procedures to understand movements and trends in revenue against our expectations Assessing the adequacy of the Group’s disclosures within the financial statements. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2019, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 44 Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 4 to 11 of the directors’ report for the year ended 30 June 2019. In our opinion, the Remuneration Report of PainChek Limited, for the year ended 30 June 2019, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. BDO Audit Pty Ltd C R Jenkins Director Brisbane, 28 August 2019 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. 45 Additional Shareholder Information The following additional information is current as at 18 September 2019. CORPORATE GOVERNANCE: The Company’s Corporate Governance Statement is available on the company’s website at www.painchek.com/corporate-governance SUBSTANTIAL SHAREHOLDER: Holder Name PETERS INVESTMENTS PTY LTD XTREME NOMINEES PTY LTD Holding 95,500,000 77,894,666 % IC 10.44 8.51 Ordinary Shares: Holdings Ranges 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001-9,999,999,999 Totals Holders 37 390 518 1,331 718 2,994 Total Units 5,421 1,355,993 3,946,654 53,904,762 855,942,449 915,155,279 % 0.00 0.15 0.43 5.89 93.53 100.00 There are 43 shareholders with less than a marketable parcel. VOTING RIGHTS Each fully paid ordinary share carries voting rights of one vote per share. THE TOP 20 HOLDERS OF ORDINARY SHARES ARE: Name PETERS INVESTMENTS PTY LTD XTREME NOMINEES PTY LTD J & E CONSULTING PTY LTD KRESHNIK HOTI MUSTAFA ABDUL WAHED ATEE J P MORGAN NOMINEES AUSTRALIA PTY LIMITED J & TW DEKKER PTY LTD THORNBURY NOMINEES PTY LTD MR ROBERT ANTHONY HEALY G & G CHILCOTT PTY LTD PIPERLAKE PTY LTD W I G PTY LTD MR ALLAN GRAHAM JENZEN & MRS ELIZABETH JENZEN CS FOURTH NOMINEES PTY LIMITED HOLDSWORTH BROS PTY LTD GRAZIAN PTY LTD MR ROBERT ANTHONY HEALY MR JOHN LEONARD WOODWARD DEV NOMINEES PTY LTD JYL FAMILY PTY LTD Total Securities of Top 20 Holdings Total of Securities Balance as at 17-09-2019 95,500,000 77,894,666 37,003,125 37,003,125 37,003,125 19,466,430 16,253,348 15,873,903 12,857,143 12,122,811 11,694,766 10,939,575 10,608,892 10,487,882 10,000,000 9,360,000 9,000,000 6,900,000 6,450,725 6,180,377 452,599,893 915,155,279 % 10.44% 8.51% 4.04% 4.04% 4.04% 2.13% 1.78% 1.73% 1.40% 1.32% 1.28% 1.20% 1.16% 1.15% 1.09% 1.02% 0.98% 0.75% 0.70% 0.68% 49.46% UNQUOTED EQUITY SECURITIES Class Holders of more than 20% Number of Holders Number 9,750,000 19,700,000 90,198,155 5,000,000 3,000,000 4,000,000 14,310,345 12 5 6 4 1 1 3 Options exercisable at $0.02 expiring 7 October 2019 Mr Rodney Wellstead (4,500,000) Rededge Enterprises Pty Ltd (2,500,00) Options exercisable at $0.025 expiring 7 October 2019 Dawesville Nominees Pty Ltd (7,000,000) Mr Peter Russel (6,000,000) Xtreme Nominees Pty Ltd (4,000,000) Philip Daffas (40,999,162) Nanjop Pty Ltd (24,599,497) Issued pursuant to ESOP Issued pursuant to ESOP Issued pursuant to ESOP Peters Investments Pty Ltd (6,896,551) Options exercisable at $0.02 expiring 24 November 2019 Options exercisable at $0.036 expiring of 3 October 2021 Options exercisable at $0.0726 expiring of 22 July 2022 Share options with an exercise price of $0.032 and an expiry date of 23 November 2023. Share options with an exercise price of $0.25 and an expiry date of 30 June 2022 Use of Funds The entity has used the cash and assets in a form readily convertible into cash at the time of listing in a way that is consistent with its business objectives. There is no current share buy-back. 

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