Proteomics International Annual Report 2019

Plain-text annual report

P I L L Proteomics International L A B O R AT O R I E S LT D Annual Report 2019 ACN 169 979 971 ASX: PIQ 2 0 1 9 P I L L Corporate Directory Directors Mr Terry Sweet - Non-Executive Chairman Dr Richard Lipscombe - Managing Director Mr Roger Moore - Non-Executive Director Mr Paul House - Non-Executive Director Company Secretary Ms Karen Logan Principal Place of Business QEII Medical Centre, QQ Block 6 Verdun Street Nedlands WA 6009 T: +61 8 9389 1992 F: +61 8 6151 1038 E: enquiries@proteomicsinternational.com W: www.proteomicsinternational.com Registered Ofﬁce Suite 13, The Atrium 123A Colin Street West Perth WA 60058765432 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd Auditors BDO Audit (WA) Pty Ltd 38 Station Street Subiaco, WA 6008 Accountants S Pugliese Suite 13, Level 1 123A Colin Street West Perth, WA 6005 Share Registry Security Transfer Registrars 770 Canning Highway Applecross WA 6153 T: + 61 8 9315 2333 F: + 61 8 9315 2233 Stock Exchange ASX Level 40, Central Park 152-158 St George’s Terrace Perth WA 6000 ASX Code: PIQ Corporate Advisor & Investor Relations Adelaide Equity Partners Dirk Van Dissel T: +61 8232 8800 E: dvandissel@adelaideequity.com.au Contents FROM THE CHAIR KEY ACHIEVEMENTS WINDOW ON THE SCIENCE - Diabetes on the Rise TECHNOLOGY SNAPSHOT - PromarkerD Technology DIRECTORS’ REPORT REVIEW OF OPERATIONS BOARD OF DIRECTORS AND OPERATIONAL TEAM MATERIAL BUSINESS RISKS REMUNERATION REPORT AUDITOR’S INDEPENDENCE DECLARATION FINANCIAL STATEMENTS 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 Flow Notes to the Consolidated Financial Statements DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT SHAREHOLDER INFORMATION 2 3 4 6 7 8 23 26 28 37 38 39 40 41 42 71 72 75 1 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L P I L L From the Chair Dear Fellow Shareholder, The 2018-19 ﬁnancial year has been one of consolidation and realignment for Proteomics International Laboratories Ltd, in which the Company has moved signiﬁcantly further towards broadscale commercialisation of its ﬂagship diagnostic product, the pioneering PromarkerD test for diabetic kidney disease. Having clearly established the science behind PromarkerD through peer reviewed clinical studies we are all aware that the next steps in the commercialisation process are adoption of the test by pathology laboratories around the world. The protein biomarkers applicable to PromarkerD were discovered and developed using a technique called Mass Spectrometry, which requires sophisticated equipment and a high degree of expertise, only available in specialist pathology laboratories. Consequently, enormous effort has been spent this year in developing a so-called Immunoassay In Vitro Diagnostic (IVD) method, which can be readily used by the majority of laboratories worldwide. This process is now in its ﬁnal stages and described in detail in our 2019 Annual Report Review of Operations. The PromarkerD test is now more versatile and marketable, with the different technology platforms offering more opportunities for future licensing deals. We continue our commercialisation efforts, and dialogue with potential licensees in the huge markets of Europe, Japan, India and US. The execution of transformational licensing agreements with tier-1 diagnostics and pharmaceutical companies remains the key focus for Proteomics International in FY2020. It is important to note too, that Janssen Pharmaceuticals, a division of Johnson and Johnson, have now demonstrated there is a class of drug (gliﬂozins) able to treat diabetic kidney disease once diagnosed. It is this drug which we are testing in collaboration with our strategic partner Janssen Research and Development. The results from this exciting collaborative study are due late this calendar year. If a successful correlation can be established, PromarkerD may become a Complementary Diagnostic (CDx) for such drugs, potentially being utilised every time a prescription is issued. Part of our ongoing strategy is to develop further tests where we see there is a signiﬁcant unmet medical need - we have discovered new potential biomarkers to test for endometriosis, a painful condition that affects one in ten women in their reproductive years, and for the Giardia parasite, which is the leading cause of gastroenteritis worldwide, both of which are currently difﬁcult to diagnose. These two indications each present a signiﬁcant opportunity for Proteomics International and further developments will take place during the next few months. Proteomics International has also experienced signiﬁcant growth in analytical services revenue, led by continued volume in biosimilars and pharmacokinetic testing, as well as specialist analytical work. This includes some of our largest-ever contracts. We recognise that the pathway to PromarkerD’s commercial success has been longer than estimated, but we are conﬁdent that all the elements are now in place and progressing well. We thank our shareholders for their patience - with PromarkerD being evaluated by global pharmaceutical and diagnostics companies, biomarker studies for new diseases in the pipeline, and an increasing revenue base, we look forward to a transformative year ahead. Terry Sweet Chair, Proteomics International Key Achievements PromarkerD • Executed a collaboration agreement with Janssen Research & Development to accelerate diabetic kidney disease and heart disease drug discovery using PromarkerD. If successful, the PromarkerD test could become a Companion Diagnostic test (CDx) and potentially be used every time this new type of drug for diabetic kidney disease is prescribed. • Secured TGA regulatory approval for the PromarkerD software as an in vitro diagnostic (IVD) for export use. The web-based patient reporting system, incorporating the PromarkerD algorithm, has been developed (in English and Spanish), tested, and approved by the Australian Therapeutic Goods Administration, allowing laboratories anywhere in the world to upload raw test results, and receive the PromarkerD report. • Exclusive licence agreement with Patia Europe for Spain - licence agreement executed from which Proteomics International will receive a royalty on each test sold. • PromarkerD featured at the American Diabetes Association 79th Scientiﬁc Sessions - being showcased at the convention attracted further interest in PromarkerD from Key Opinion Leaders and tier 1 diagnostics and pharmaceutical companies. • Patent granted in the US for a core PromarkerD biomarker, CD5L, as a potential drug target - provides additional licensing/partnering opportunities for Proteomics International if a pharma company probes CD5L as a novel drug target for kidney disease. Diagnostics • Development of Endometriosis diagnostic test - discovered several biomarkers with the potential to test for a disease that is currently difﬁcult to diagnose, but affects one in ten women in their reproductive years and costs $12,000 per year for every person diagnosed. • Development of Giardia diagnostic test - identiﬁed strain speciﬁc biomarkers for the Giardia parasite which is the leading cause of infectious gastroenteritis worldwide, with an estimated 280 million people being infected each year. The risk for human health is that some Giardia strains that affect pets can cross into humans. Analysis remains on-going for both indications, each of which present a signiﬁcant commercial opportunity. • Executed a collaboration with Irish clinical diagnostics company Atturos to develop novel diagnostic tests to improve patient well-being. Atturos possess an advanced proﬁciency in mass spectrometry, making them an attractive European partner. Analytical Services & Corporate • Achieved record analytical services revenue with receipts from customers nearing $1.5 million and maintaining its growth trend with a year on year increase of 25%. and continued volume in: - specialist analytical work (e.g. food product quality control on A2 milk), and - provision of external biomarker analysis services, • Revenue driven by record contracts in biosimilars including companion diagnostics (CDx). and pharmacokinetic (PK) testing: - biosimilars - with Biosana Pharma being a major client - PK testing - with Linear Clinical Research being a major client • Named Western Australia’s top health and biotechnology exporter at the 2018 WA Industry and Export Awards, exemplifying the global breadth of Proteomics International's client base. 2 3 P I L L Window on the Science Diabetes is on the rise There are almost four times as many people living with diabetes today as there were in the 1980s. Rates of diabetes have been fuelled by obesity, poor diet and inactivity, and are increasing the fastest in low and middle-income countries. Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L 2017 7.5 years Average life expectancy once dialysis has commenced, however, 20% of patients die within one year. Source: US Centers for Disease Control and Prevention; US Renal Data System 108 million Adults with diabetes in 1980. 425 million Adults with diabetes in 2017. 4.7% Global prevalence of diabetes among adults in 1980. Source: International Diabetes Federation Diabetes Atlas (8th edition) 2017 9.9% Global prevalence of diabetes among adults in 2017. 1980 n o i l l i m 8 0 1 n o i l l i m 5 2 4 $327 billion Cost of diagnosed diabetes every year in the US alone. $1 in $7 Proportion of US healthcare budget spent treating diabetes and its complications. 2.3x Healthcare costs for Americans with diabetes compared to Americans without diabetes. Source: American Diabetes Association A growing global health emergency As diabetes cases increase, the costs associated with managing the condition threaten to overwhelm health systems around the world. Kidney disease is one of the major complications of diabetes Diabetic kidney disease can lead to kidney failure requiring either a transplant or a lifetime of dialysis. 1 in 3 Adults with newly diagnosed type 2 diabetes already have chronic kidney disease. US$89,000 Cost of dialysis per person per year. PromarkerD changing lives PromarkerD is the world’s ﬁrst predictive diagnostic test for diabetic kidney disease. The test searches for biomarkers in the blood - or protein ‘ﬁngerprints’ - associated with the onset of the disease. PromarkerD offers patients a choice. 3 Biomarkers in the blood the PromarkerD test searches for. Up to four Years in advance that PromarkerD can predict the onset of clinical symptoms of diabetic kidney disease. 86% Proportion of otherwise healthy diabetics who go on to develop chronic kidney disease within four years correctly predicted by PromarkerD. 21 Drugs for the treatment of diabetic kidney disease currently in clinical trials. 1 In April 2019 Janssen Pharmaceutical's drug canagliﬂozin was shown in clinical trials to successfully provide renal (kidney) protection - the ﬁrst new kidney disease drug for nearly 20 years. Emerging treatments further boost PromarkerD potential The PromarkerD test is poised to become even more powerful in the coming years as drugs to treat diabetic kidney disease come to market. PromarkerD can be used as a complementary diagnostic test as these drugs become available. 4 5 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L P I L L Technology Snapshot PromarkerD Technology The PromarkerD Laboratory Developed Test and the In Vitro Diagnostic Test are two versions of Proteomics International’s world-leading PromarkerD test for diabetic kidney disease. These two tests utilise mass spectrometry and immunoassay technology to diagnose and prognose kidney function by measuring the concentration of the novel panel of protein biomarkers associated with kidney decline identiﬁed by Proteomics International. The Tests: Key Terms: Mass Spectrometry Mass spectrometry is an analytical technique that is concerned with the separation of matter according to atomic and molecular mass. Immunoassay Immunoassay is a quantitative technique that involves the binding reaction between a speciﬁc antibody targeted to a protein of interest. Laboratory Developed Test (LDT) In Vitro Diagnostic Test (IVD) Type of technology Either Immunoassay or Mass Spectrometry Type of technology Immunoassay How it works The PromarkerD LDT analyses the protein ﬁngerprint of a patient’s blood to help diagnose and prognose kidney function. Utilising either mass spectrometry or immunoassay technology for analysis, Proteomics International’s partners can run the LDT within their own specialist laboratories. Blood results from these analyses are then sent to the PromarkerD Hub to determine the patient’s risk of developing diabetic kidney disease in the next 4 years. Pros - Permits fast adoption of a new test in advanced markets - Does not require regulatory preapproval - Can be used to build market demand prior to wider release of a kit format Cons - Test must be performed in a certiﬁed laboratory - Every laboratory must set up their own version of the test How it works The PromarkerD IVD uses immunoassay technology to diagnose and prognose kidney function. It can be manufactured as either an immunoassay kit or can be conﬁgured to run on an automated machine platform, allowing the analysis of hundreds of blood samples at a time. Pros - Can be used in pathology laboratories around the world, subject to regulatory approval - Easier for laboratories to implement - Can be supplied through existing distribution channels of diagnostic companies - Has the potential to open up new markets, including those in China, India and Japan. Cons - Takes longer to reach the market because of manufacture and regulatory approval processes Directors’ Report The Directors present their report on Proteomics International Laboratories Ltd (ASX:PIQ; Proteomics International or the Company) and the consolidated entity (referred to hereafter as the Group) for the year ended 30 June 2019. DIRECTORS The Directors of the Company in ofﬁce during the ﬁnancial year and until the date of this report are as follows: Mr Terry Sweet Dr Richard Lipscombe Dr John Dunlop Mr Roger Moore Mr Paul House (Appointed 9 June 2014) (Appointed 9 June 2014) (Retired 22 November 2018)) (Appointed 14 October 2016) (Appointed 22 November 2017) (Non-Executive Chairman) (Managing Director) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) OPERATING RESULT To be read in conjunction with the attached Consolidated Financial Report (see page 38). The operating result for the year was: Loss before income tax 44% $2,080,275 $1,440,108 Loss for the year 44% $2,080,275 $1,440,108 Change 2019 2018 CONSOLIDATED Comprising Revenue and Other income Expenses 27% 34% $2,736,312 $4,816,587 $2,150,923 $3,591,031 The Group's ﬁnancial report for the year ended 30 June 2019 includes: • Operating revenue from customer services continued its upward trend reaching $1,468,076, a 25% increase compared to the previous year. • Combined income from all sources rose 27% to $2.74 million. Revenue from ordinary activities encapsulates income from analytical services, licensing fees, and grant income including the R&D Tax Incentive. • Operational expenditure focused on the commercialisation of PromarkerD totalled $4.82 million, an increase • of 34% taking advantage of the Company's strong cash position which includes a net cash inﬂow from investing activities of $890,408. The loss from ordinary activities is $2.08 million, which reﬂects normal operational costs and non-cash items of $472,311 (comprising the share based payment expense and accounting loss on the investment sale), and represents a year on year increase of 44%. The net cash outﬂow from operating activities was $1.67 million, an increase of 54%. • • At 30 June 2019 the Company had cash reserves of $1.51 million, and trade and other receivables of $0.68 million. On the back of the Company's research and development focus it anticipates an R&D Tax Incentive cash rebate of $1.14 million, to be received in the December quarter 2019. DIVIDENDS No dividend was paid during the year and the Board has not recommended the payment of a dividend. ISSUED CAPITAL 80,686,965 fully paid ordinary shares (ASX: PIQ) and 3,075,000 unlisted options were on issue as at 30 June 2019. ANNUAL GENERAL MEETING In accordance with ASX Listing Rules 3.13.1 and 14.3, Proteomics International advises that its 2019 annual general meeting (AGM) is scheduled to be held on 28 November 2019. The Company encourages shareholders to attend the AGM and receive an update on the strategy and initiatives of the Group. 6 7 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Review of Operations A growth cycle based on the Company’s strengths Principal activities Proteomics International is a pioneering medical technology company operating at the forefront of predictive diagnostics and bio-analytical services. The company specialises in the area of proteomics - the industrial scale study of the structure and function of proteins. Proteomics International's business model is centred on the commercialisation of the Company's world-leading test for diabetic kidney disease, PromarkerD. The Company offsets the cash burn from R&D and product development through provision of specialist analytical services, whilst using its proprietary PromarkerTM technology platform to create a pipeline of novel diagnostic tests. Proteomics International is a wholly owned subsidiary and trading name of Proteomics International Laboratories Ltd (PILL; ASX: PIQ), and operates from state-of-the-art facilities located on the QEII Medical Campus, Perth, Western Australia. 1. PromarkerD 2. Diagnostics Targeting the global diabetes epidemic, PromarkerD is a predictive diagnostic test for diabetic kidney disease, a progressive disorder found in one in three adults with diabetes. The prevalence of kidney disease is rising rapidly and many patients progress to need dialysis or a kidney transplant. In peer reviewed clinical studies PromarkerD correctly predicted 86% of otherwise healthy diabetics who went on to develop chronic kidney disease within four years1. Proteomics International's diagnostics development is made possible by the Company’s proprietary biomarker discovery platform called PromarkerTM, which searches for protein ‘ﬁngerprints’ in a sample. This disruptive technology can identify proteins that distinguish between people who have a disease and people who do not, using only a simple blood test. It is a powerful alternative to genetic testing. The technology is so versatile it can be used to identify ﬁngerprints from any biological source, from wheat seeds to human serum. The global biomarkers market is expected to exceed USD 118 billion by 20262. 1. PromarkerD The Window on the Science feature of the 2019 Annual Report highlights the burden and challenges of diabetic kidney disease, and how PromarkerD could make a difference. With this as a backdrop, FY2019 has been a signiﬁcant year in realigning PromarkerD to ensure this ground-breaking technology is ﬁt for purpose for a diverse global audience that includes diagnostic and pharmaceutical companies, clinical professionals, and of course, patients with diabetes. its own version of Proteomics International’s PromarkerD Immunoassay Diagnostic Test (IVD) Over the past 12 months, Proteomics International has developed the PromarkerD immunoassay for use in markets such as the US and Australia. This immunoassay has been designed using advanced CaptSureTM technology [TGR Biosciences (Australia)] and complements the initial PromarkerD immunoassay, which is made by partner Omics Global Solutions (Puerto Rico) under licence. Proteomics International’s PromarkerD immunoassay has been developed to be delivered via an enzyme linked immunosorbant-assay testing (ELISA) laboratory can use the PromarkerD immunoassay to measure separately the concentration of the novel panel of three protein biomarkers: Apolipoprotein A4 (ApoA4), CD5 antigen-like (CD5L) and Insulin growth factor binding protein 3 (IGFBP3). The results are then sent to the format. The The following sections explain how the intellectual property that underpins PromarkerD has been used to build test assays adaptable to the different needs of this audience, and then how the commercialisation pathway is unfolding. About PromarkerD PromarkerD is a predictive diagnostic test for diabetic kidney disease. In published clinical studies, PromarkerD correctly predicted 86% of otherwise healthy diabetics who went on to develop chronic kidney disease within four years. For further information see the PromarkerD web portal: www.PromarkerD.com PromarkerD Hub to determine the patient’s risk of developing diabetic kidney disease. Each immunoassay uses the CaptSureTM technology platform whereby chemically tagged antibodies bind to the target biomarker in solution, and are then immobilised on the surface through the peptide tag. This translates to a more efﬁcient, faster, and simpler assay protocol than standard sandwich immunoassays. This technology can also be readily converted to automated immunoassay platforms. 3. Analytical Services Specialist contract research focusing on biosimilars quality control and pharmacokinetic testing for clinical trials. Australia is a global leader in clinical trials due to its efﬁcient regulatory framework and high-quality trial sites, and all samples from each trial require specialist analytical testing. Signiﬁcantly, the fastest growing class of drugs entering clinical trials is biologics and biosimilars. The global clinical trials market is projected to reach USD 68.9 billion by 20263, whilst the market size of the global biosimilar market was valued at USD 5.95 billion in 2017, and is projected to reach USD 71.97 billion by 20274. US President signs executive order to transform kidney disease care On 10 July 2019, President Trump signed an executive order that aims to improve the lives of the 37 million Americans suffering from kidney disease, expand options for patients and reduce healthcare costs. The ﬁrst goal of the executive order is to prevent kidney failure whenever possible through better diagnosis, treatment and incentives for preventive care. The initiative also aims to reduce the number of Americans receiving dialysis in dialysis centres and make more kidneys available for transplant. In signing the order, the President said the ground-breaking action would bring new hope to the millions of Americans suffering from kidney disease. 8 1. For further information see the PromarkerD web portal: www.PromarkerD.com 2. Grand View Research 2019: Biomarkers Market Size 3. Grand View Research 2019: Clinical Trials Market Size 4. Markets and Markets 2019: Biosimilars Market by Product 9 P I L L PromarkerD - Immunoassay Development Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L The immunoassay has been used to aid clinical research for over 50 years, and whilst the principles of building these assays are well understood their development remains far from an exact science. Not all biomarkers identiﬁed as potential targets for an immunoassay will ultimately be successful, and there are many stages in the process where failures can occur. Proteomics International has worked with world leading teams in Australia and across the globe to move towards its objective of an "off-the-shelf" test for PromarkerD - the PromarkerD immunoassay kit. Antibody (Ab) Pair Production AntigenProduction Recombinant proteins of the 3 PromarkerD biomarker targets Phases: Gene production, protein expression and puriﬁcation Timeframe: ~ 15 weeks Ab Production Pool of Ab candidates that bind to the antigen Phases: Immunisation, fusion, screening, subcloning, puriﬁcation Timeframe: ~ 10-20 weeks Ab Pair Validation of complementary Ab pairs for immunoassay development Phases: Speciﬁcity testing Timeframe: ~ 2 weeks Ab Production Facilities Australia Monash University Puerto Rico CDI Laboratories China Newsummit Biopharma* Proteomics International has engaged multiple Ab production facilities as contingencies. Immunoassay Production 1 2 3 4 5 Development Establish Ab pair conﬁguration and assay parameters Optimise assay performance Validation Validate assay performance (reproducibility, automation, scale up, etc.) Cross-validation Cross-validation study on test cohort (N=100 patients) Mass spec vs immunoassay platform data analysis and validation QC & Manufacturing Immunoassay reagents stability testing and QC Tech Transfer Transfer assay know-how to testing lab 2017 OCTOBER CDI Laboratories Manufactured under license Q1 (2017) Q2 (2017) Q3 (2017) Q4 (2018) Immunoassay Key Reagent Validated Ab Pairs targeting the 3 PromarkerD biomarkers APOA4 CD5L & IGFBP3 *Manufacturing agreement concluded Q4 2018 2019 MAY TGR Biosciences 2019 MARCH Cayman Chemical May 2019 June 2019 July 2019 Immunoassay LDT Immunoassay Kit March 2019 On-hold July 2019 Automated Immunoassay October 2017 April 2018 July 2018 October 2018 January 2019 Immunoassay Kit Immunoassay Developers - CDI Laboratories (Puerto Rico); Cayman Chemical (USA); TGR Biosciences (Australia). Proteomics International has engaged multiple facilities as contingencies. Immunoassay Kit (CDI Laboratories) - Manufactured under licence for partner Omics Global Solutions. Product marketed in Dominican Republic as INNOVATIO ND2. 10 11 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L PromarkerD - Licensing & Strategic Partnerships illustrated As in the previous section and highlighted in the Technology section Snapshot of the 2019 Annual Report, Proteomics International has now developed both mass spectrometry immunoassay versions of and PromarkerD. This versatility in technology platforms offers more opportunities for future licensing deals, and is critical for the existing that discussions Proteomics International is having with diagnostics and pharmaceutical companies from around the world. Existing licences and partnerships are summarised in the table shown, with further details in the following section. Partner Janssen Research & Development Agreement Type Research Collaboration Start/Term Promarker Platform Territory Nov 2018 MS† N/A Market Size N/A Key Point Summary Current Status • Joint study to test the performance of PromarkerD in predicting decline in kidney function and drug response in patients from Janssen's completed clinical trials. • Collaboration will also evaluate PromarkerD in the new area of predicting heart disease which is a major cause of death in patients with diabetes. • First analytical phase commenced in February and is nearing completion. Samples will then be unblinded to enable the statistical analysis which is expected to be completed in late 2019. • Further sample analyses dependent on results of ﬁrst phase. Patia Biopharma Licence [Royalties] June 2018-2021 MS-LDT†† Mexico (July 2019) Immunoassay LDT††† 12m diabetics • Patia Biopharma granted licence to sell MS-LDT version of PromarkerD, with biomarker analysis to be carried out by a speciﬁed laboratory in Mexico. • Licence extended to immunoassay LDT version of PromarkerD, with biomarker analysis to be provided by an authorised laboratory. • Biomarker analysis could not be initiated by the speciﬁed laboratory due to commercial restructure. • Switched to Immunoassay LDT. • Roll out pending PromarkerD immunoassay validation by authorised laboratory. Patia Europe Licence [Royalties] Nov 2018-2020 MS-LDT†† Spain 3.6m diabetics • Patia Europe granted a licence to sell MS-LDT version of PromarkerD, with biomarker analysis to be carried out by a speciﬁed laboratory in Spain. • Roll out pending PromarkerD MS-LDT validation by authorised laboratory. Atturos Collaboration Sep 2018 MS-LDT†† Europe 58m diabetics • Collaboration to develop PromarkerD MS assay for clinical use in the region. Omics Global Solutions (Omics) Licence [Upfront + Milestone Payment + Royalties] Aug 2016-2031* Immunoassay kit Dominican Republic 0.52m diabetics • Omics granted licence to develop and manufacture an immunoassay kit version of PromarkerD. • Immunoassay kit is based on antibodies owned by Proteomics International. • Immunoassay kit was developed by CDI Laboratories (Puerto Rico). • Atturos is validating PromarkerD as an MS-LDT in its laboratory. • Completion of validation imminent. • Immunoassay kit development and manufacture completed; product marketed in Dominican Republic as INNOVATIO ND2. • Technical problems have delayed the roll out in Dominican Republic laboratories. (Mar 2018) MS-LDT†† • Omics granted licence to sell the immunoassay kits in • Roll out pending. the Dominican Republic. • Licence extended to allow Omics to provide MS-LDT version of PromarkerD, with biomarker analysis carried out by Proteomics International. • Used in 2018, prior to completion of immunoassay kit. On-hold pending use of immunoassay. PrismHealthDx (PHDx) Licence [Royalties] May 2018-2019 MS-LDT†† USA 30m diabetics • PHDx was granted a licence to provide the MS-LDT version of PromarkerD in the US. • Rescinded January 2019 due to ongoing roll out delays and commercial restructure. • Negotiations on-going with other groups to secure a new US partner(s). *Life of PromarkerD patent MS† = Mass Spectrometry MS-LDT†† = Mass Spectrometry Laboratory Developed Test LDT††† = Laboratory Developed Test Newsummit Pharmaceutical Group (NSB) Dimerix Bioscience (Dimerix) Manufacture & Commercialise Nov 2015-2018 Immunoassay kit China 114m diabetics • NSB was contracted to develop the antibodies and an immunoassay kit version of PromarkerD for the Chinese market. • Concluded. Manufacturing contract moved to other suppliers. Research Collaboration 2017- ongoing MS† N/A N/A • Joint study to evaluate the use of PromarkerD as a Companion Diagnostic test to support the use of Dimerix’s drug treatment for chronic kidney disease. • On-hold pending clinical trial samples and data. 12 13 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! P I L L PromarkerD - Licensing & Strategic Partnerships HIGHLIGHTS Drug development: Janssen Research & Development In November 2018, Proteomics International signed an agreement with US big pharma company Janssen Research & Development to accelerate diabetic kidney disease drug discovery using PromarkerD. The collaboration is also evaluating how PromarkerD performs in predicting heart disease, another major complication caused by diabetes and a new application for PromarkerD. Proteomics International began the ﬁrst stage of analysis, from a Janssen completed clinical trial of its gliﬂozin drug, in February 2019. In April, it was widely reported that Janssen's canagliﬂozin drug signiﬁcantly reduces the risk of renal failure in patients with type 2 diabetes and chronic kidney disease in a phase 3 clinical study. In announcing the results, Janssen stated that canagliﬂozin is the only medicine in nearly 20 years, and the ﬁrst diabetes medicine, to demonstrate signiﬁcant reduction in risk of renal failure, dialysis or kidney transplantation. The collaboration has the potential to establish PromarkerD as a Complementary Diagnostic (CDx) test for the therapeutic treatment of diabetes complications. If successful, the PromarkerD test could be used every time drugs in the gliﬂozin class, are prescribed. The collaboration also seeks to use PromarkerD to identify speciﬁc "at risk" target populations that will respond to these diabetes therapies. Assay development (MS-LDT): Atturos Proteomics International signed an agreement with Irish clinical diagnostics company Atturos in September 2018 that will see the two companies expand the use of mass spectrometry for new diagnostic tests. Atturos is a University College Dublin spin out company founded to commercialise the OCProDx test, a pioneering blood test that can determine whether diagnosed prostate cancer is conﬁned to the prostate. Assay development (Immunoassay): Omics Global Solutions The ﬁrst PromarkerD immunoassay kit was developed by CDI Laboratories (Puerto Rico) in partnership with licence partner Omics Global Solutions. Results verifying the performance of the PromarkerD immunoassay were presented at the 18th Annual Diabetes Technology Meeting in North Bethesda, Maryland, USA on 9 November 2018. The porting of the PromarkerD assay from a mass spectrometry platform to an immunoassay platform represented a signiﬁcant advance in the commercialisation of the test, and underpinned the development of Proteomics International's advanced immunoassay (see also Technology Snapshot and Figure - PromarkerD Immunoassay Development). New application of PromarkerD: US patent granted In February 2019, Proteomics International was granted a US patent for the use of one of the core PromarkerD biomarkers—CD5 antigen-like (CD5L)—as a potential drug target. CD5L could be a novel therapeutic target to treat kidney disease, and the new patent covers methods for identifying such drugs. Further research is required to conﬁrm the role played by CD5L and conﬁrm its viability as a drug target. This patent for potential drug discovery adds to Proteomics International's existing suite of patents which centre on the use of PromarkerD as a diagnostic test both for diabetic kidney disease and all cause kidney disease. CANADA UNITED STATES BRITAIN GERMANY FRANCE RUSSIA SPAIN ITALY TURKEY CHINA JAPAN INDIA HONG KONG SINGAPORE INDONESIA AUSTRALIA BRAZIL Countries with PromarkerD patents Countries with PromarkerD patents pending Scientiﬁc publications describing PromarkerD Davis TME, Peters KE, Lipscombe R: Apoptosis inhibitor of macrophage (AIM/CD5L) and diabetic kidney disease. Cellular & molecular immunology 2019 May;16(5):521. Peters KE, Davis WA, Ito J, Winﬁeld K, Stoll T, Bringans SD, Lipscombe RJ, and Davis TME (2017). Identiﬁcation of Novel Circulating Biomarkers Predicting Rapid Decline in Renal Function in Type 2 Diabetes: The Fremantle Diabetes Study Phase II. Diabetes Care 40, 1548-1555. Peters KE, Davis WA, Ito J, Winﬁeld K, Stoll T, Bringans SD, Lipscombe RJ, Davis TME (2017). Novel circulating biomarkers predict rapidly declining renal function in type 2 diabetes: The Fremantle Diabetes Study. Diabetes, 66 (Supplement 1). Bringans SD, Ito J, Stoll T, Winﬁeld K, Phillips M, Peters KE, Davis WA, Davis TME, Lipscombe RJ (2017). Comprehensive mass spectrometry based biomarker discovery and validation platform as applied to diabetic kidney disease. EuPA Open Proteomics 14, 1-10. PromarkerD - Intellectual Property ! !/$’’&#)(-.0(,0/$,1(2&,)&! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 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K#-,%&2! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! 2&%,-K# ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Trademark - PromarkerTM 14 15 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L 2. Diagnostics DIAGNOSTICS RESEARCH AND DEVELOPMENT - THE PROMARKERTM PIPELINE The second target area for company growth is applying the PromarkerTM technology platform to create new diagnostic tests for chronic diseases with unmet medical need. Proteomics International continued to invest in research and development to create this new intellectual property. The Company’s protein biomarker discovery program is investigating protein ‘ﬁngerprints’ associated with the following diseases: Endometriosis Status update: Discovery study completed. Proof-of-concept study on-going. Proteomics International announced in August 2018 that it had discovered several potential biomarkers in the blood that could be used to test for endometriosis. This gynaecological condition causes chronic pain and infertility but is often difﬁcult to diagnose. The condition affects one in ten women in their reproductive years and costs $12,000 per year for every person diagnosed. Following the discovery of the biomarkers, the research progressed to a proof-of-concept study to identify candidates with greater statistical conﬁdence. The proof- of-concept study experienced signiﬁcant delays due to extended instrument breakdowns but is now nearing completion. If successful the study may lead to patentable intellectual property for a disease that, on average, takes 8.5 years for women to be diagnosed from their ﬁrst symptoms, and currently does not have a diagnostic tool beyond invasive surgery. Parasite infection Giardia Status update: Discovery study completed. Proof-of-concept study being ﬁnalised. Giardia is a leading cause of infectious gastroenteritis worldwide. Proteomics International continues its development of an improved diagnostic test for the parasite Giardia in collaboration with the Murdoch University Veterinary School and a leading US veterinary company. The gastro causing parasite Giardia is one of the most common parasitic human diseases globally. Surveillance data suggests there are 280 million people worldwide being infected each year. The risk for human health is that some Giardia strains that affect pets can cross into humans (zoonotic), whilst others do not (host speciﬁc). Current tests have low accuracy and cannot easily differentiate these host speciﬁc and zoonotic strains. Proteomics International has identiﬁed strain speciﬁc Giardia targets using a combination of its PromarkerTM platform and bioinformatics techniques. Synthetic mimics of these targets have been manufactured using synthetic peptide chemistry, and these peptides have been used for antibody generation. The resulting antibodies are being assessed for performance in a paired immunoassay format. Prototype assays will then be tested against control samples in order to prove the technical viability of the assay. The commercial viability of the immunoassay will not be known until completion of this last phase, which is expected later this year. The market opportunity for Proteomics International is that current tests have low accuracy and cannot easily be used to test if pets infected with Giardia present a risk to their owners. A strain speciﬁc test could readily beneﬁt the US market where according to the Centers for Disease Control and Prevention, the prevalence is an estimated 1.2 million people within the population of the United States. Asthma and Chronic Obstructive Pulmonary Disease (COPD) Status update: Discovery study pending. Proteomics International continues to collaborate with the Busselton Population Medical Research Institute to target the diagnosis and treatment of lung conditions such as asthma and chronic obstructive pulmonary disease, which cost healthcare systems tens of billions of dollars a year. The globally-recognised Busselton Health Study is one of the longest running epidemiological research programs in the world and an important resource for accessing patient samples. The discovery program remains pending whilst the Company focuses its resources on PromarkerD clinical studies and its existing diagnostics programs. P I L L JAPAN Japanese Korean INDIA Hindi Punjabi Tamil Mandarin Cantonese HONG KONG/CHINA Vietnamese MALAYSIA SINGAPORE Mandarin, Bahasa Melayu INDONESIA UNITED STATES AUSTRALIA English PILL corporate ofﬁce PILL representative PILL agent/distributor Language spoken by PILL staff 3. Analytical Services Revenue from analytical services continued to be strong driven by volume in two core areas, biosimilars (generic protein drugs) and pharmacokinetic testing for clinical trials. Additional revenue is derived from provision of external biomarker including analysis complementary diagnostics (CDx), and from specialist analytical work, such as quality control testing of A2 milk products. services, The increase in revenue is exempliﬁed by Proteomics International securing its largest biosimilars contract to date in July 2018. The contract with Dutch/Australian company BiosanaPharma, worth more than $300,000, was to conduct quality control testing and an analytical comparability study on a drug treatment for allergic asthma. The second and growing driver for revenue is the ongoing partnership with Linear Clinical Research (Australia). Since 2016, Proteomics International has worked in collaboration with Linear to develop pharmacokinetic (PK) testing services to enable end-to-end clinical trial services in Western Australia. Proteomics International recently announced two PK testing contracts with Linear, with a combined value of approximately $400,000, to conduct phase I clinical studies of novel autoimmune disease drugs [26 July 2019]. Export Award win Proteomics International took out the Health and Biotechnology category of the WA Industry and Export Awards in October 2018. The export award reﬂected the Company's doubling of export derived revenue to $795,000 for the 2018 ﬁnancial year, coupled with growth in long- term markets such as India, and expansion into new markets with the ﬁrst sales to China and the Netherlands. World’s most accredited protein testing laboratory Proteomics International was the ﬁrst laboratory in the world to receive ISO/IEC accreditation for proteomics services in 2009 (Accreditation number: 16838). Proteomics International now holds multiple levels of internationally recognised accreditation: • ISO 17025: 2015 – R&D with Good Laboratory Practice (GLP) overlay • ISO 17025: 2015 – Chemical Testing Accreditation recognises Proteomics International's ability to consistently achieve technically valid, traceable and reproducible results. In Australia, accreditation is assessed by NATA (the National Association of Testing Authorities). ISO/IEC 17025 is recognised worldwide as the main ISO standard used by testing and calibration laboratories, and is the most widely used laboratory standard for US Federal testing laboratories. Accreditation means that clients and regulatory authorities can have conﬁdence in test results and helps companies identify reliable service providers. 16 17 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Company Operations DRUG DISCOVERY Proteomics International has had a long-standing interest in innovative drug discovery, with the Company's ﬁrst substantial external funding received to develop a novel therapeutic pipeline in 2008. This pipeline became the basis for the PromarkerTM technology platform. The drug discovery program is on hold whilst the Company focuses its resources on the commercialisation of PromarkerD, diagnostics, and the provision of analytical services. CORPORATE ACTIVITY Proteomics International appointed new corporate advisors Adelaide Equity Partners and Scintilla Capital to help unlock investor value and establish the foundation for further corporate growth [ASX: 14 Nov 2018]. Adelaide Equity is an independent investment bank, specialising in the provision of corporate advisory services for small-mid ASX listed companies in the healthcare, natural resource, industrial and technology sectors, whilst Scintilla Capital is a specialist fund manager focused on high-growth microcap ASX-listed companies that target the disruptive technologies of tomorrow. Adelaide Equity Partners will continue to act as corporate advisors into FY 2020. Proteomics International received $928,399 from the sale of its shareholding in CPR Pharma Services (CPR) after a binding takeover offer for the company was accepted by CPR's majority shareholder [ASX: 10 September 2018]. In 2018 Proteomics International acquired a 10% stake in the clinical services specialist in return for 3,868,305 ordinary PIQ shares. The sale resulted in an accounting loss of $249,499 (see Financial Statements Notes 4 and 8), but provided a signiﬁcant boost to Proteomics International's balance sheet which enabled an increase in expenditure during FY 2019 for the commercialisation of PromarkerD. Non-executive director Dr John Dunlop retired at the close of the Company's 2018 Annual General Meeting held on 22nd November 2018. Dr Dunlop has been a non-executive director since the company was incorporated in 2014, and prior to that served as Chairman of Proteomics International Pty Ltd from its formation in 2001. STRATEGIC COLLABORATIONS Proteomics International continues to work closely with the biotechnology and life sciences community across Australia. the development of scientiﬁc knowledge and help Proteomics International realise its scientiﬁc and business objectives. collaborations promote Strategic Highlights of the Company’s collaborations include: Harry Perkins Institute of Medical Research (Perkins) The Perkins is the premier adult medical research institute in Western Australia. Proteomics is headquartered there and has held close ties with the Perkins since 2006. The Company is currently in discussions with the Perkins to expand the relationship. International Bioplatforms Australia (BPA) BPA is a federal body instigated as part of the National Collaborative Research Infrastructure Scheme (NCRIS) to facilitate a national capability in the 'omics sciences (genomics, proteomics, metabolomics and bioinformatics). Proteomics International manages the Western Australian node of Proteomics Australia and is currently in discussions with BPA to expand the scope of the node. Australian Research Council Training Centre for Personalised Therapeutics Technologies This recently funded national $3.1 million Industrial Transformation Training Centre (ITTC) sees Proteomics International work with university-based researchers to provide industry training through the application of the PromarkerTM technology to Complementary Diagnostics. The centre is hosted by the University of Western Australia, Monash University and the University of Melbourne. The Centre commenced activities this year. Accelerating Australia This national consortium covering academia, industry and health care providers, received $1m in October 2017 from MTP Connect (the Medtech and Pharma Growth Centre) to build a cohesive and collaborative early stage biomedical translation ecosystem. As a commercial partner, Proteomics International enjoys early access to new ideas and products. Accelerating Australia is led by the Centre for Entrepreneurial Research and Innovation based in Western Australia. The Centre's activities are on-going. Dr Bill Parker Memorial Industrial Scholarship In 2017, the Company launched the Dr Bill Parker Memorial Industrial Scholarship in memory of its cofounder. The inaugural winner, Imogen Sorby from Perth Modern School, completed her one-year placement with the Company in 2018, and is currently undertaking an undergraduate degree at the University of New South Wales. In 2019, Breanna Fernandes from Perth Modern School won the scholarship. Breanna is currently undertaking work experience with Proteomics International prior to undertaking her undergraduate degree. 18 19 P I L L Trade and industry events Proteomics International attended a number of targeted industry and scientiﬁc events over the year including: • American Diabetes Association conference, San Francisco (Jun 2019) • BIO International Convention, Philadelphia (Jun 2019) • 121 Tech Investment Hong Kong (Jun 2019) • BioPlatforms Australia (May 2019) • Australia’s Medtech Conference, Melbourne (May 2019) • Lorne Proteomics, Victoria, Australia (Feb 2019) • Ausbiotech, Brisbane (Nov 2018) • Western Australia Industry & Export Awards (Oct 2018) • Proteomics International India Trade Visit (Sep 2018) Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd Publications resulting from Proteomics International’s strategic collaborations Moodley YP, Corte TJ, Oliver BG, Glaspole IN, Livk A, Ito J, Peters K, Lipscombe R, Casey T, Tan DBA: Analysis by proteomics reveals unique circulatory proteins in idiopathic pulmonary ﬁbrosis. Respirology (Carlton, Vic) 2019; accepted for publication 8th August 2019 Nolan AN, Mead RJ, Maker G, Bringans S, Chapman B, Speers SJ: Examination of the temporal variation of in decomposition ﬂuid under peptide content controlled conditions using pigs as human substitutes. Forensic science international 2019;298:161-168 Peters K, Casey T, Bringans S, Davis W, Button E, Lipscombe R, Davis T. PromarkerD: A Novel Test for Predicting Rapid Decline in Renal Function in Type 2 Diabetes. Journal of Diabetes Science and Technology, vol. 13, 2: pp. 293-409. First Published March 1, 2019. Diabetes Technology Society Meeting 8-10 Nov 2018, Maryland, USA. Perth Biotech goes global with pioneering kidney disease test. Export case study. Austrade 2019. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors, there were no signiﬁcant changes in the state of affairs of the Group that occurred during the ﬁnancial year not otherwise disclosed in this report and the ﬁnancial statements. EVENTS SINCE THE END OF THE FINANCIAL YEAR On 26 July 2019, Proteomics International announced it had secured two major contracts to conduct pharmacokinetic analyses. The contracts, with a combined value of approximately $400,000, form part of Proteomics International’s ongoing partnership with Linear Clinical Research for pharmacokinetic testing for clinical trials. The phase I clinical studies will examine the safety performance of novel autoimmune disease drugs for two pharmaceutical companies in China, with the studies to be undertaken over the next 3-10 months. Proteomics International secured TGA regulatory approval for the PromarkerD software as an in vitro diagnostic (IVD) for export use. The PromarkerD software hub enables the delivery of results of the proprietary PromarkerD algorithm to Proteomics International's partners around the world [ASX: 28 July 2019]. The Company was also granted a patent for PromarkerD in Indonesia, where there are 10.3 million adults with diabetes [ASX: 28 July 2019]. LIKELY DEVELOPMENTS Proteomics International will continue to pursue the commercialisation of its lead diagnostic test, PromarkerD in global markets. Potential licence partners are global and regional diagnostic companies, diagnostic service providers, and drug developers. In jurisdictions where licences have already been granted, the focus will be on increasing the adoption of the test by engaging with Key Opinion Leaders and the broader network of clinical service providers. As for any novel test, market penetration cannot be predicted accurately, hence for each licence it is not possible to quantify the ﬁnancial impact on Proteomics International in any given timeframe. Nonetheless, PromarkerD has the potential to spare millions of people from the cost of dialysis, saving each health care system P I L L billions of dollars. Consequently, the Company believes that ultimately the ﬁnancial impact of each licence will be signiﬁcant. The development pipeline for new diagnostic tests will progress using the PromarkerTM technology platform, with the intention of creating new intellectual property that can be licensed in future years. These R&D and commercialisation activities will continue to be underpinned by the analytical services operations. Fee-for-service revenue continues to grow and Proteomics International anticipates further growth. ENVIRONMENTAL REGULATIONS The Company is subject to environmental regulation and other licences in connection with its research and development activities utilising the facilities at the Harry Perkins Institute of Medical Research. The Company complies with all relevant Federal, State and Local environmental regulations. The Board is not aware of any breach of applicable environmental regulations by the Company. GREENHOUSE GAS AND ENERGY DATA REPORTING The Company has assessed the reporting requirements of both the Energy Efﬁciency Opportunities Act 2006 and the National Greenhouse and Energy Reporting Act 2007 and the Group is not currently subject to any reporting obligations. GOVERNANCE The Board of Directors is responsible for the operational and ﬁnancial performance of the Company, including its corporate governance. The Company believes that the adoption of good corporate governance adds value to stakeholders and enhances investor conﬁdence. Proteomics International’s corporate governance statement is available on the Company’s website, in a section titled ‘Corporate Governance’. 20 21 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Board of Directors and Operational Team BOARD OF DIRECTORS Terry Sweet – Non-Executive Chairman (Independent) Richard Lipscombe – Managing Director Roger Moore - Non-Executive Director (Independent) Paul House - Non-Executive Director (Independent) INFORMATION ON DIRECTORS Director Experience Mr Terry Sweet FAICD Dr Richard Lipscombe PhD (London), MA (Oxford) Mr Roger Moore R (Denmark), BPharm (U. Syd) Mr Paul House GAICD, BCom (UWA) Terry has been a Director of several listed companies over the past 30 years in both executive and non-executive capacities. These companies include XRF Scientiﬁc Ltd, where he was Managing Director for 4 years, Western Biotechnology Ltd, Heartlink Ltd, and Scientiﬁc Services Ltd. Originally trained as a chemist, his interests and expertise now lie in the area of development and supervision of a culture of Board integrity, commensurate with technology commercialisation. Terry is a Fellow of the Australian Institute of Company Directors and has been involved with the Company for 5 years. Richard, a co-founder of the Company, is a highly practised business manager and protein chemist expert in analysing biomolecules using proteomics techniques. He has an extensive expertise in chemistry, immunology, mass spectrometry, peptide synthesis, high performance computing and robotics. Richard has international experience in both science and business gained over a 30-year period in Australia, USA and the UK, including work in hospital and academic laboratories and commercial organisations. He completed his chemistry degree (MA) at Oxford University, his PhD in immunology at London University and was a Post-Doctoral scientist (molecular immunology) in a large research institution in Australia (Telethon Kids Institute). After managing the Protein Analysis Facility at the University of Western Australia, he co-founded Proteomics International Pty Ltd in 2001. Richard is well published in peer review journals, and holder of several patents. Richard has been with the Company for over 18 years. Roger has 40 years’ experience in the international pharmaceutical industry, including almost 30 years as President of Novo Nordisk Japan (Novo Nordisk is the world's largest manufacturer of insulin and a global leader in diabetes care). Roger established Novo's organisation in Japan as the ﬁrst employee in 1977, and worked for the company until his retirement as Chairman at the end of 2007. From 2000, Roger was appointed Senior Vice President, Japan and Oceania Region, responsible for Novo Nordisk's business in Japan, Australia, New Zealand and the Paciﬁc. He was also appointed a member of the Senior Management Board, Novo Nordisk A/S. In 2007 Mr Moore was awarded the Knight's Cross of the Order of the Dannebrog (R) by Queen Margrethe II of Denmark. Roger joined the Board in October 2016. Paul previously served eight years as the Managing Director of SGS India, where he was responsible for a workforce of approximately 4,500 personnel across 65 locations in India, including 38 laboratories. SGS is the world’s leading Testing, Inspection and Certiﬁcation (TIC) company, and operates a network of ofﬁces and laboratories in more than 140 countries. Paul has previously held Chief Financial Ofﬁcer and Chief Operating Ofﬁcer roles, and was Senior Manager for several years at a leading global management consultancy ﬁrm. Paul has a track record for delivery of business performance targets, revenue growth, margin improvement, market share and productivity, across multiple services, markets and borders. Paul joined the Board in November 2017. Special Responsibilities Particulars of Director’s interest in securities of the Company Shares Options Chairman 2,348,000 400,000 Managing Director 19,011,204 - Nil 627,000 200,000 Nil 488,094 200,000 22 23 P I L L CURRENT AND FORMER DIRECTORSHIPS Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Directors’ Name Terry Sweet Richard Lipscombe John Dunlop Roger Moore Paul House Current Directorships Former Directorships (last 3 years) Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil COMPANY SECRETARY Ms Karen Logan BCom, Grad Dip AppCorpGov, FCIS, FGIA, F Fin, GAICD Karen Logan is a Chartered Secretary with over 15 years’ experience in assisting small to medium capitalised ASX-listed and unlisted companies with compliance, governance, ﬁnancial reporting, capital raising, merger and acquisition, and IPO matters. She is presently the principal of a consulting ﬁrm and secretary of a number of ASX-listed companies, providing corporate and accounting services to those clients. MEETINGS OF DIRECTORS The numbers of meetings of the Company’s Board of Directors held during the year ended 30 June 2019, and the numbers of meetings attended by each Director were: Directors Mr Terry Sweet Dr Richard Lipscombe Dr John Dunlop + Mr Ian Roger Moore Mr Paul House Full Meetings of Directors A B 10 11 4 11 11 11 11 4 11 11 A = Number of meetings attended B = Number of meetings held during the time the Director held ofﬁce + = Retired 22 November 2018 The Board meets regularly on an informal basis in addition to the above meetings. Directors have determined that the Company is not of sufﬁcient size to merit the establishing of separate sub-committees and all decisions are made by the full Board. OPERATIONAL TEAM Proteomics International has established and maintained a highly qualiﬁed, multi-lingual team with well-balanced commercial and scientiﬁc expertise. The senior management group comprises: Head of Business Development John C. Morrison John C. Morrison has over 35 years’ experience in life sciences, biotechnology, and diagnostic industries. John has a degree in chemistry and an MBA from Boston University. He has held several management positions while at NEN Life Sciences and DuPont before focusing his last 15 years in Business Development at Perkin Elmer. John successfully executed many licensing deals and several global acquisitions while in that role. John is based in Massachusetts, USA and joined the Company in May 2014. Chief Operating Ofﬁcer Dr Pearl Tan Pearl joined Proteomics International in 2013 to lead the commercialisation of its patented 2-tag technology (used for the measurement of oxidative stress). Pearl has a background in research and completed her PhD in Biochemistry and Molecular Biology at The University of Western Australia. Pearl is now working with the business development team to commercialise the PromarkerD test. Pearl is responsible for managing the Company’s technical operations. Research Manager Dr Scott Bringans Scott has over 20 years’ experience in protein chemistry and mass spectrometry, and leads the diagnostics program encompassing PromarkerD. Alongside this is the development of novel methodology to add to Proteomics International's technology platform and continually expanding the fee-for-service and quality testing portfolio. Scott has been with the Company for 12 years. Laboratory Manager Dr Kerryn Garrett Kerryn joined Proteomics International in 2019 as the Laboratory Manager overseeing laboratory operations and quality for all analytical services and R&D projects. Kerryn brings a key set of expert skills from her extensive experience in the diagnostic pathology industry and the regulatory elements of accreditation agency NATA. Kerryn also has over 25 years of research background in various diseases using a wide range of molecular and genetic technologies. 24 25 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Material Business Risks The Group has identiﬁed the below speciﬁc risks that could impact upon its future prospects. Commercialisation Risk The Company is relying on its ability and that of its partners to develop and commercialise its products and services in order to create revenue. Any products or services developed by the Company will require extensive clinical testing, regulatory approval and signiﬁcant marketing efforts before they can be sold and generate revenue. The Company’s efforts to generate revenue may not succeed for a number of reasons including issues or delays in the development, testing, regulatory approval or marketing of these products or services. In addition, developing direct sales, distribution and marketing capabilities will require the devotion of signiﬁcant resources and require the Company to ensure compliance with all legal and regulatory requirements for sales, marketing and distribution. A failure to successfully develop and commercialise these products and services could lead to a loss of opportunities and adversely impact on the Company’s operating results and ﬁnancial position. In addition, for those countries where the Company may commercialise its products or services through distributors or other third parties, the Company will rely heavily on the ability of its partners to effectively market and sell its products and services. Further, even if the Company does achieve market commercialisation of any of its products and services, it may not be able to sustain it or otherwise achieve commercialisation to a degree that would support the ongoing viability of its operations. Drug Market Risk The research and development process typically takes from 10 to 15 years from discovery to commercial product launch. This process is conducted in various stages in order to test, along with other features, the effectiveness and safety of a product. There can be no assurance that any of these products and services will be proven safe or effective. Accordingly, there is a risk at each stage of development that the Company will not achieve the goals of safety and/or effectiveness and that the Company will have to abandon a product. Intellectual Property The following are considered to be risks to the Company’s intellectual property: (i) General The patent protection that the Company may obtain varies from product to product and country to country and may not be sufﬁcient, including maintaining product exclusivity. Patent rights are also limited in time and do not always provide effective protection for products and services: competitors may successfully avoid patents through design innovation, the Company may not hold sufﬁcient evidence of infringement to bring suit, or the infringement claim may not result in a decision that the rights are valid, enforceable or infringed. Legislation or regulatory actions subsequent to the ﬁling date of a patent application may affect what an applicant is entitled to claim in a pending application and may also affect whether a granted patent can be enforced in certain circumstances. Laws relating to biotechnology remain the subject of ongoing political controversy in some countries. The risk of changed laws affecting patent rights is generally considered greater for the biotechnology ﬁeld than in other longer established ﬁelds. (ii) Entitlement to Priority In order for material disclosed in a patent application to be entitled to the priority date of a corresponding earlier ﬁled application (e.g. a provisional application), there must be adequate support or disclosure of such material in the in a patent provisional application. Subject matter application that is not so disclosed in the earlier application is not entitled to the claim to priority, which may affect patentability of the subject invention, or the validity of any patent that may be granted. (iii) Securing a Patent The claims in a pending application cannot be considered predictive of claims in a granted patent. Examination in certain jurisdictions such as the USA and the European Patent Ofﬁce are often more stringent than other countries and all pending claims may be subject to amendment during the pendency of an application. Thus, during pendency of any patent application, an applicant cannot reliably predict whether any claims will ultimately be granted or what the scope of any granted claims will be. Furthermore, whilst the scope of claims granted in one country may assist, it cannot be relied upon for predicting the scope of claims granted in another country. All patent searches are dependent on the accuracy and scope of the databases used for the search and, in particular, the manner in which information in the databases is indexed for searching purposes. Patent applications may have been ﬁled by third parties based on an earlier priority date and the existence of such applications may not be known for up to about 18 months after they were ﬁled. Such earlier-ﬁled applications may constitute prior art that adversely affects patentability or claim scope of a patent matter listed herein. Given the timing of and the approach taken to the examination of patent applications, if any prior art in this 18-month period does exist, it is unlikely that it will be located in searches conducted by ofﬁcial Patent Ofﬁces. Delays may occur during pendency, due to unpredictable events that the application cannot control. The net effect of such delays may be to decrease the time from the date of patent grant to the end of the patent term and thus adversely affect the effective lifetime of enforceability of the patent. Patents and pending applications can be subject to opposition or other revocation proceedings, that vary from country to country, and which cannot be predicted in advance. Reliance on Key Personnel The Company’s ability to operate successfully and manage its potential future growth depends signiﬁcantly upon its ability to attract, retain and motivate highly-skilled and qualiﬁed research, technical, clinical, regulatory, sales, marketing, managerial and ﬁnancial personnel. The competition for qualiﬁed employees in the life science industry is intense and there are a limited number of persons with the necessary skills and experience. The Company’s performance is substantially dependent on Dr Lipscombe and the other members of its senior management and key technical staff to continue to develop and manage the Company’s operations. The loss of or the inability to recruit and retain high-calibre staff could have a material adverse effect on the Company. The Company also relies on the technical and management abilities of certain key Directors and employees, consultants and scientiﬁc advisers. The loss of any of these Directors, employees, consultants or scientiﬁc advisers could have an adverse effect on the business and its prospects. Regulatory Risk The introduction of new legislation or amendments to existing legislation by governments, developments in existing common law, or the respective interpretation of the legal requirements in any of the legal jurisdictions that govern the Company’s operations or contractual obligations, could impact adversely on the assets, operations and, ultimately, the ﬁnancial performance of the Company and its shares. In addition, there is a risk that legal action may be taken against the Company in relation to commercial matters. Funding Risk While the Company believes it will have sufﬁcient funds to meet its operational requirements for the next 12 months, the Company may in the future seek to exploit opportunities of a kind that will require it to raise additional capital from equity or debt sources, joint ventures, collaborations with other life science companies, licensing arrangements, production sharing arrangements or other means. The Company’s capital requirements depend on numerous factors and, having regard to the early stage of development and the nature of its products and services, the Company is currently unable to precisely predict if, and what amount of, additional funds may be required. Factors, which may inﬂuence the Company’s possible need for further capital, include such matters as: • • • • the costs and timing of seeking and obtaining regulatory approvals; the costs of ﬁling, prosecuting, defending and enforcing any patent claims and other intellectual property rights; the effects of competing product, clinical, technological and market developments; and the terms, timing and consideration, if any, of collaborative arrangements or licensing of products and services; There can be no assurance that additional ﬁnance will be available when needed or, if available, the terms of the ﬁnancing might not be favourable to the Company and might involve substantial dilution to Shareholders. If the Company is unable to obtain additional ﬁnancing as needed, it may be required to reduce the scope of its operations and scale back development and research programmes as the case may be. Insurance Risk The Company may not be able to maintain insurance for service liability on reasonable terms in the future and, in addition, the Company's insurance may not be sufﬁcient to cover large claims, or the insurer could disclaim coverage on claims. If the Company fails to meet its clients' expectations, the Company's reputation could suffer and it could be liable for damages. The Company gives no assurance that all such risks will be adequately managed through its insurance policies to ensure that catastrophic loss does not have an adverse effect on its performance. Exchange Rate Risk The Company is exposed to movements in foreign exchange rates. The Company does not hedge against movements in the exchange rate. However, signiﬁcant changes in currencies may impact on the Company’s margins and earnings adversely. Dependence on Key Relationships The Company strategic business currently has relationships with other organisations that it relies upon for key parts of its business, such as obtaining the use of the mass spectrometers, chromatography systems and other equipment important to the Company’s activities. The loss or impairment of any of these relationships could have a material adverse effect on the Company’s results of operations, ﬁnancial condition and prospects, at least until alternative arrangements can be implemented. In some instances, however, alternative arrangements may not be available or may be less ﬁnancially advantageous than the current arrangements. 26 27 P I L L Remuneration Report REMUNERATION REPORT (Audited) The Remuneration Report is set out under the following main headings: A B C D E F G H Principles Used to Determine the Nature and Amount of Remuneration Remuneration Governance Details of Remuneration Directors' Agreements Share-Based Compensation Additional Information Additional disclosure relating to key management personnel Transactions with the key management personnel The information provided in this Remuneration Report has been audited as required by Section 308(3C) of the Corporations Act 2001. The remuneration arrangements detailed in this report are for Non-Executive and Executive Directors as follows: (cid:891) Mr Terry Sweet Non-Executive Chairman (independent) (cid:891) Dr Richard Lipscombe Managing Director (cid:891) Dr John Dunlop Non-Executive Director (retired 22 November 2018) (cid:891) Mr Ian Roger Moore Non-Executive Director (independent) (cid:891) Mr Paul House Non-Executive Director (independent) The Board members above make up the total number of key management personnel for the purpose of this report. Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L REMUNERATION REPORT (continued) A. Principles Used to Determine the Nature and Amount of Remuneration The objective of the Company's remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered and set to attract the most qualified and experienced candidates. Remuneration levels are competitively set to attract the most qualified and experienced directors in the context of prevailing market conditions. The directors recognise that at this stage of the Company's development and in a period where the Company is making losses the objectives are to align the interests of the Board with shareholders and to attract, motivate and retain high performing individuals. The Board believes that this can be achieved through the following framework: (cid:891) (cid:891) the remuneration has a mix of components through salary and share options; and the remuneration has been set in consultation with key management personnel (other than the relevant director whose remuneration is being discussed) taking into account the size of the Company and its current position in the market. The Company has not obtained independent advice on the remuneration policies and practices of the key management personnel or sought the assistance of an external consultant on the current market for similar roles, level of responsibility and performance of the Board. The Board may consider this in the future should the need arise. Non-Executive Directors Fees and payments to the Non-Executive Directors reflect the demands which are made on and the responsibilities of the Directors. The Non-Executive Directors' fees and payments are expected to be reviewed annually by the Board. The Non-Executive Chairman's fees are determined based on competitive roles in the external market. The Chairman is not present at any discussions relating to the determination of his own remuneration. The Non-Executive Directors' fees and payments have been set based on the experience of the director in the Company's field of operations, and level of activity required to be undertaken by the director in the management of the Company. The Chairman currently receives a fixed fee for his services as a Director. The Company's Non-Executive Directors' remuneration package contains the following key elements: (cid:891) (cid:891) primary benefits - monthly director's fees; and options - issued following shareholder approval at the 2018 Annual General Meeting. The Non-Executive Directors' fees are determined within an aggregate directors' fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $500,000 per annum and was approved by shareholders prior to listing on the ASX. No retirement benefits are provided other than compulsory superannuation. Non-Executive Remuneration Mix The following table sets out the non-executives' remuneration mix for the year ended 30 June 2019: Fixed $ 166,242 "At Risk" $ 179,062 Total $ 345,304 28 29 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L 30 31 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L REMUNERATION REPORT (continued) E. Share-based Compensation At the 2018 Annual General Meeting is was agreed to issue options to the non-executive directors as follows: Director Number of Options Grant Date Expiry Date Exercise Price Fair Value at grant date1 Terry Sweet Roger Moore Paul House2 Total Total Total 200,000 200,000 400,000 100,000 100,000 200,000 100,000 100,000 200,000 22 Nov 2018 22 Nov 2018 22 Nov 2021 22 Nov 2022 22 Nov 2018 22 Nov 2018 22 Nov 2021 22 Nov 2022 22 Nov 2018 22 Nov 2018 22 Nov 2021 22 Nov 2022 0.50 0.67 0.50 0.67 0.50 0.67 $44,206 $45,325 $89,531 $22,103 $22,662 $44,765 $22,103 $22,663 $44,766 1. The Options were issued as a reward and incentive and vested immediately. Refer Note 14. 2. Issue of Shares in lieu of cash. On 22 November 2018 the Group issued 113,094 fully paid ordinary shares (calculated using a rolling monthly 30 day VWAP) at $0.24 per share to Paul House in lieu of his outstanding director fees of $27,167 covering the period November 2017 to September 2018; these shares had a Fair Value of $48,630 on grant date. P I L L REMUNERATION REPORT (continued) D. Directors' Agreements On appointment the Non-Executive Directors sign a letter of appointment with the Company which outlines the Board's policies and terms regarding their appointment including the remuneration relevant to the office of director. A summary of each Director's terms is listed below: Mr Terry Sweet (Chairman) Particulars Term of the agreement Base remuneration Superannuation Bonus payable Termination of agreement None specified Terms No fixed term - subject to periodic re-election at the AGM $54,000 Statutory rate N/A Dr John Dunlop (Non-Executive Director) Particulars Term of the agreement Base remuneration Superannuation Bonus payable Termination of agreement Terms No fixed term - subject to periodic re-election at the AGM $14,285 (for the period until retirement) Statutory rate N/A Resigned 22 November 2018 Mr Ian Roger Moore (Non-Executive Director) Particulars Term of the agreement Base remuneration Superannuation Bonus payable Termination of agreement None specified Terms No fixed term - subject to periodic re-election at the AGM $36,000 Statutory rate N/A Mr Paul House (Non-Executive Director) Particulars Term of the agreement Base remuneration Superannuation Bonus payable Termination of agreement None specified Terms No fixed term - subject to periodic re-election at the AGM $36,000 Statutory rate N/A Remuneration and other terms of employment for the Executive Directors are formalised in services agreements. The major provisions relating to remuneration are set out below. Dr Richard Lipscombe (Managing Director) Particulars Term of the agreement Base remuneration Superannuation Bonus payable Leave entitlements Termination of agreement Terms No fixed term $185,000 Statutory rate At the absolute discretion of the Board 30 days annual leave and no long-service leave 1 month (incapacitated / ill / unsound mind), 1 month (serious or persistent breaches), immediate (conviction / major criminal offence) Other Long Term Benefits No other long term benefits are payable. 32 33 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L REMUNERATION REPORT (continued) H. Transactions with key management personnel The Company entered into the following transactions with key management personnel during the year: (i) Loans from directors There were no loans entered into with key management personnel during the year. (ii) Consultancy services Ian Roger Moore provided business development services in the amount of $11,286 on terms no more favourable than those reasonably expected under arm's length dealings with unrelated persons. THIS IS THE END OF THE AUDITED REMUNERATION REPORT 34 35 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L SHARES UNDER OPTION Unissued ordinary shares of PILL under option as at 30 June 2019 were as follows: Auditor’s Independence Declaration Date options granted 17/08/2017 3/11/2017 8/03/2018 22/05/2018 22/11/2018 22/11/2018 Expiry date 17/07/2019 31/10/2019 8/03/2020 31/05/2020 22/11/2021 22/11/2022 Exercise price Number under option $0.25 $0.30 $0.35 $0.30 $0.50 $0.67 25,000 650,000 500,000 1,100,000 400,000 400,000 3,075,000 No option holder has any right under the options to participate in any other share issue of the Company or any other entity. The options are exercisable at any time before the expiry date. Options that were converted into shares during the year was 475,000 (2018: 17,231,856). INSURANCE OF OFFICERS During the financial year the Company paid a premium in respect of a contract insuring the Directors and Officers of the Company and any subsidiary against a liability incurred as a Director or Officer to the extent permitted by the Corporations Act 2001. Due to a confidentiality clause in the policy, the amount of the premium has not been disclosed. The liabilities insured are legal costs 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, 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 wilful 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 is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purposes of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001 . NON-AUDIT SERVICES The Company may decide to employ the auditor on assignments additional to their statutory audit duties, where the auditors' expertise and experience with the Company are important. There were no non-audit services provided by the auditor (BDO Audit (WA) Pty Ltd) during the 2019 or 2018 financial years. AUDITOR BDO Audit (WA) Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is attached. This report is made in accordance with a resolution of the Directors. Terry Sweet Chairman Perth, Western Australia Dated 30 August 2019 36 37 P I L L Financial Statements Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Revenue from continuing operations - Services Other income - Grant income - Interest income - Other income - Research and development tax incentive Employment and labour expenses Share based payments expense Depreciation expense Intellectual property maintenance expenses Interest expense Laboratory supplies Professional fees Travel and marketing expenses Laboratory access fees Realised loss in foreign currency translation Fair Value loss on investment Other expenses (Loss) before income tax Notes 5 2 (b) 2 (a) 2 (c) 14 2 (b) 4 (b) Consolidated Entity 2019 $ Consolidated Entity 2018 $ 1,468,076 78,458 48,248 2,127 1,139,403 ( 1,932,914) ( 222,812) ( 188,293) ( 87,900) ( 27,058) ( 578,445) ( 486,877) ( 227,292) ( 144,050) ( 1,903) ( 249,499) ( 669,544) ( 2,080,275) 1,176,457 103,277 26,607 459 844,123 ( 1,596,329) ( 71,767) ( 235,690) ( 81,750) ( 61,739) ( 466,695) ( 429,652) ( 104,011) ( 126,258) ( 5,157) - ( 411,983) ( 1,440,108) Income tax (expense) / benefit 3 (a) - - (Loss) after income tax from continuing operations Total comprehensive loss for the year Total comprehensive loss attributable to equity holders of Proteomics International Laboratories Ltd ( 2,080,275) ( 2,080,275) ( 1,440,108) ( 1,440,108) ( 2,080,275) ( 1,440,108) Basic loss per share for the year attributable to the members of Proteomics International Laboratories Ltd Diluted loss per share 25 ( 0.03) N/A ( 0.02) N/A CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Other assets Investments Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Borrowings Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Consolidated Entity 2019 $ Consolidated Entity 2018 $ Notes 4 6 7 9 7 8 10 12 11 12 11 13 15 16 1,511,430 501,395 1,229,700 3,242,525 2,316,781 603,270 871,750 3,791,801 213,677 163,681 - 1,012 378,370 3,620,895 363,979 160,000 1,177,898 1,012 1,702,889 5,494,690 303,064 146,591 99,424 549,079 18,330 67,184 85,514 634,593 390,136 147,500 73,500 611,136 164,921 42,248 207,169 818,305 2,986,302 4,676,385 10,537,267 713,007 ( 8,263,972) 2,986,302 10,369,887 490,195 ( 6,183,697) 4,676,385 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 38 39 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED ENTITY 30 JUNE 2019 Notes Issued Capital Ordinary $ Reserves $ Retained Earnings (Accumulated Losses) $ Total Equity $ Balance at 1 July 2018 10,369,887 490,195 ( 6,183,697) 4,676,385 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year - - - - - - ( 2,080,275) ( 2,080,275) - - ( 2,080,275) ( 2,080,275) Transactions with Equity Holders in their capacity as Equity Holders Equity issues net of share issue costs Conversion of Options Share based payments expense 13 13 14 48,630 118,750 - 167,380 - - 222,812 222,812 - - - - 48,630 118,750 222,812 390,192 Balance as at 30 June 2019 10,537,267 713,007 ( 8,263,972) 2,986,302 CONSOLIDATED ENTITY 30 JUNE 2018 Notes Issued Capital Ordinary $ Reserves $ Retained Earnings (Accumulated Losses) $ Total Equity $ Balance at 1 July 2017 5,935,036 418,428 ( 4,743,589) 1,609,875 Consolidated Entity 2019 $ Consolidated Entity 2018 $ Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Research and development tax incentive Grant income Interest received Net cash (outflow) from operating activities Cash flows from investing activities Sale of Investment in CPR Pharma Services Payments for property, plant and equipment Net cash inflow (outflow) from investing activities Cash flows from financing activities Proceeds from the conversion of options Repayment of borrowings Net cash inflow (outflow) from financing activities 4 (a) 8 Cash and cash equivalents at the beginning of the financial year Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the end of the financial year 4 (a) 1,570,175 ( 4,171,235) ( 27,058) 834,403 78,458 48,248 ( 1,667,009) 928,399 ( 37,991) 890,408 118,750 ( 147,500) ( 28,750) 2,316,781 ( 805,351) 1,511,430 886,347 ( 2,829,120) ( 61,739) 790,751 103,277 26,607 ( 1,083,877) - ( 50,483) ( 50,483) 3,276,925 ( 600,924) 2,676,001 775,140 1,541,641 2,316,781 Loss for the year Other comprehensive income for the year Total comprehensive loss for the year - - - - - - ( 1,440,108) ( 1,440,108) - - ( 1,440,108) ( 1,440,108) Transactions with Equity Holders in their capacity as Equity Holders Equity issues net of share issue costs Conversion of Options Share based payments expense 13 13 14 1,157,926 3,276,925 - 4,434,851 - - 71,767 71,767 - - - - 1,157,926 3,276,925 71,767 4,506,618 Balance as at 30 June 2018 10,369,887 490,195 ( 6,183,697) 4,676,385 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes. 40 41 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. The financial report of Proteomics International Laboratories Ltd (the Company) for the financial year ended 30 June 2019 was authorised for issue in accordance with a resolution of directors on 30 August 2019. The Company is a public company limited by shares incorporated and domiciled in Australia, and whose shares are traded on the Australian Securities Exchange. (cid:100)(cid:346)(cid:286)(cid:3)(cid:374)(cid:258)(cid:410)(cid:437)(cid:396)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:381)(cid:393)(cid:286)(cid:396)(cid:258)(cid:410)(cid:349)(cid:381)(cid:374)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:393)(cid:396)(cid:349)(cid:374)(cid:272)(cid:349)(cid:393)(cid:258)(cid:367)(cid:3)(cid:258)(cid:272)(cid:410)(cid:349)(cid:448)(cid:349)(cid:410)(cid:349)(cid:286)(cid:400)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:18)(cid:381)(cid:373)(cid:393)(cid:258)(cid:374)(cid:455)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:282)(cid:286)(cid:400)(cid:272)(cid:396)(cid:349)(cid:271)(cid:286)(cid:282)(cid:3)(cid:349)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:24)(cid:349)(cid:396)(cid:286)(cid:272)(cid:410)(cid:381)(cid:396)(cid:859)(cid:400)(cid:3)(cid:396)(cid:286)(cid:393)(cid:381)(cid:396)(cid:410)(cid:3)(cid:258)(cid:271)(cid:381)(cid:448)(cid:286)(cid:856) Basis of preparation (a) The principle accounting policies adopted for the preparation of financial statements are set out below. These accounting policies have been applied consistently to all periods presented unless otherwise stated. Statement of compliance (i) These general purpose financial statements have been prepared in accordance with the requirements of the Corporations Act 2001 , Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 . The Company is a for profit entity for the purpose of preparing the financial statements. The financial statements of the Company also comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis of measurement (ii) These financial statements have been prepared on an accruals basis and are based on historical cost other than investments which are recorded at fair value. The financial statements are presented in Australian dollars and all values are rounded to the nearest dollar unless otherwise stated. Going Concern (iii) For the year ended 30 June 2019 the entity recorded a loss of $2,080,275 (2018: loss $1,440,108) and had net cash outflows from operating activities of $1,667,009 (2018: net cash outflows $1,083,877). The Directors believe there are sufficient funds to meet the (cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) working capital requirements as at the date of this report for the following reasons: (cid:891) (cid:891) (cid:891) (cid:891) (cid:891) The current business development prospects show an increase in activity and should lead to increasing ongoing revenue; The excess of current assets over current liabilities is $2,693,446 as at 30 June 2019; The R&D tax incentive of $1,139,403 (refer note 2(i)), which has been recorded in other receivables in the statement of financial position is expected to be received by December 2019; The Directors remain committed to the long-term business model which offsets cash burn from R&D and product development through the continuing growth in analytical services revenue; and The budgets and forecasts reviewed by the Directors for the next twelve months anticipate the business will continue to produce improved results, and shows the Group can meet its debts as and when they fall due. Segment Information (b) Operating Segments (cid:884) AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This is consistent to the approach used for the comparative period. Operating segments are reported in a uniform manner which is internally provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors. An operating segment is a component of the group that engages in business activity from which it may earn revenues or incur expenditure, including those that relate to transactions with other group components. Each operating (cid:400)(cid:286)(cid:336)(cid:373)(cid:286)(cid:374)(cid:410)(cid:859)(cid:400) results are reviewed regularly by the Board when making decisions about resources to be allocated to the segments and assess its performance, and for which discrete financial information is available. The Board monitors the operations of the Company as one single segment. The actual to budget items and a detailed profit or loss are reported to the Board to assess the performance of the Group. The Board has determined that strategic decision making is facilitated by evaluation of the operations of the legal parent and subsidiary, which represent the operational performance of the (cid:336)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) revenues and the research and development activities as well as the finance, treasury, compliance and funding elements of the Group. Estimates and judgements (c) The preparation of the financial statements requires the use of accounting estimates and judgements which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involve a degree of judgement or complexity in preparing the financial information. Facts and circumstances may come to light after the event which may have significantly varied the assessment used, and which may result in a materially different value being recorded at the time of preparing these financial statements. (i) (ii) (iii) Fair value The fair value of financial instruments that are not traded in an active market is determined using a valuation technique. The inputs and assumptions embedded in the calculation based on Company uses its judgement in selecting the method, information available at the time of the transaction. The key assumptions in this financial report are as follows: (cid:891) Fair value of options issued (cid:884) the Company has assessed the volatility within the Black Scholes model. This is considered to be a reasonable basis for assessing the potential movements in the share price over time as they represent a selected industry average. Options with market conditions have been valued using a Barrier up-and-in Trinomial Option Pricing model. Deferred taxes Deferred tax assets have not been brought to account as it is not considered probable that the Company will make taxable profits over the next 12 months. The Company will make a further assessment at the next reporting period. Impairment of assets The Company assesses the impairment of assets at each reporting date by evaluating conditions specific to the asset that may lead to impairment. The assessment of impairment is based on the best estimate of future cash flows available at the time of preparing the report. However, facts and circumstances may come to light in later periods which may change this assessment if these facts had been known at the time. (iv) R&D recognition The Company recognises income and a receivable for the R&D tax refund. The amount is estimated based on the submitted claim, which may change once assessed by the Australian Taxation Office. Principles of consolidation (d) Subsidiaries Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Intercompany Transactions Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. 42 43 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 Revenue recognition and other income (e) As a result of adoption of AASB 15 - Revenue from contracts with Customers, the Group has changed its accounting policy for revenue recognition from 1 July 2018 as detailed below. Revenue is recognised when or as the Group transfers control of goods or services to a customer, at the amount to which the Group expected to be entitled. If the consideration promised includes a variable amount, the Group estimates the amount of consideration to which it will be entitled. The following is a description of the principal activities from which the Group generates its revenue and other income: (i) Grants and Research & Development Tax Incentive Grants from the Government are recognised at their fair value where it is probable that the grant will be received and the group will comply with all attached conditions. A company within the group is eligible to claim a tax credit for its qualifying research and development activities (research & development tax incentive). An amount is recognised as a receivable in the accounting period which is designed to match the benefit of the tax credit with the costs for which it is intended to compensate. (ii) Revenue from contracts with customers - Commercialisaton of PromarkerD Revenue from commercialisation of PromarkerD is measured based on the consideration specified in a contract with a customer. The group recognises revenue when it transfers control over a product or service to a customer. (iii) Revenue from contracts with customers - Sales of Analytical and Other Services Revenue from the provisions of analytical and other services is recognised in the accounting period in which the services are rendered. For fixed price contracts, revenue is recognised based on actual service provided to the end of the reporting period as a proportion of the total services to be provided, because the customer received and uses the benefits simultaneously. This is determined based on the actual labour hours spent relative to the total expected labour hours. In the case of fixed price contracts, the customer pays the fixed amount based on a payment schedule. The services are usually billed and paid for on a monthly basis. The performance obligation is the supply of analytical and other services over the contractual term which represents a series of distinct goods and services that are substantially the same pattern of transfer such that they would be recognised over time. If services rendered by the Group exceed the payment, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised. If a contract includes an hourly fee charge out model, revenue is recognised in the amount to which the Group has a right to invoice. Customers are invoiced on a monthly basis and consideration is payable when invoiced. In some circumstances, analytical and other services are bundled together with provision of sales of services and products. The sale of products is a separate performance obligation and transaction price is allocated to the products and services on a relative stand-alone selling price basis. Borrowings (f) Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the statement of profit or loss and other comprehensive income as other income or finance costs. Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (i.e. debt for equity swap), a gain or loss is recognised in the statement of profit or loss and other comprehensive income, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Employee Benefits (g) Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, and are recognised in respect of (cid:286)(cid:373)(cid:393)(cid:367)(cid:381)(cid:455)(cid:286)(cid:286)(cid:400)(cid:859) services up to the end of the reporting period, are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current liabilities in the statement of financial position, described as other payables, and comprise provision for annual leave and provision for long service leave. The liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are therefore measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Re-measurements as a result of experience adjustments and changes in actuarial assumptions are recognised in the statement of profit or loss and other comprehensive income. Contributions to the (cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) superannuation fund and other independent superannuation funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Share based payments (h) Share-based payments compensation benefits are provided to employees, directors and consultants via the issues of shares and/or options. The fair value of the shares and options granted under the agreement are recognised as a share based payments expense in the statement of profit or loss and other comprehensive income with a corresponding increase in equity in the statement of financial position. The total amount to be expensed is determined by reference to the fair value of the rights granted, which excludes the impact of any service and non-market conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimate of the number of rights that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to the original estimates, if any, in the statement of profit or loss and other comprehensive income, with a corresponding adjustment to equity in the statement of financial position. Foreign currency translation and transactions (i) The financial statements are presented in Australian dollars, which is the Group's functional and presentation currency. Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the statement of profit or loss and other comprehensive income. 44 45 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 Income tax (j) The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: (i) When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or (ii) When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities, and they relate to the same taxable authority on either the same taxable entity or different taxable entity's which intend to settle simultaneously. Current and non-current classification (k) Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is current when: (i) (ii) (iii) it is expected to be realised within twelve months after the reporting period; or (iv) it is expected to be realised or intended to be sold or consumed in normal operating cycle; it is held primarily for the purpose of trading; the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: it is expected to be settled in normal operating cycle; it is held primarily for the purpose of trading; (i) (ii) (iii) it is due to be settled within twelve months after the reporting period; or (iv) there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. All other liabilities are classified as non-current. Cash and cash equivalents (l) Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the statement of cashflows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables (m) Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are usually 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 then recognised at fair value. The Group 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 rate method. The Group applies the AASB 9 simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. Property, plant and equipment (n) The (cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) accounting policy for plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the (cid:258)(cid:400)(cid:400)(cid:286)(cid:410)(cid:859)(cid:400) carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss and other comprehensive income during the reporting period in which they are incurred. Depreciation is calculated on a diminishing value basis to write off the net cost of each item of property, plant and equipment (excluding land) over their expected useful lives. The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under finance lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. Leases (o) The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the fair value of the leased assets, or if lower, the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the finance costs, so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets acquired under a finance lease are depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Operating lease payments, net of any incentives received from the lessor, are charged to the statement of profit or loss and other comprehensive income on a straight-line basis over the term of the lease. Management has decided not to adopt AASB 16 for the year ended 30 June 2019. Any new leases entered into after 1 July 2019 will be accounted for having regard to AASB 16 - refer Note 1(w). 46 47 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 Trade and other payables (p) 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. Provisions (q) Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Fair value measurement (r) When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either in the principle market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital (s) 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. (t) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of Proteomics International Laboratories Ltd, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax (GST) and other similar taxes (u) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in either other receivables or in other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the tax authority are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. New Accounting Standards and Interpretations (v) Adoption of new accounting standards In the year ended 30 June 2019 the Group has reviewed all the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (cid:894)(cid:858)(cid:4)(cid:4)(cid:94)(cid:17)(cid:859)(cid:895) that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2018. New standards impacting the Group that have been adopted from 1 July 2018 are: (cid:891) (cid:891) AASB 15 - Revenue from Contracts with Customers (AASB 15); and AASB 9 - Financial Instruments (AASB 9). The Group has chosen to adopt the cumulative effect method for the above new standards and as such, the comparative information throughout these financial statements has not been restated to reflect the requirements of the new standards. Other new and amended standards and Interpretations issued by the AASB have been determined by the Group to have no impact, material or otherwise, on its business and therefore no further changes, other than those mentioned above, are necessary to the Group's accounting policies. No retrospective change in accounting policy or material reclassification has occurred requiring the inclusion of a third Statement of Financial Position as at the beginning of the comparative financial period, as required under AASB 101. Impact of new accounting standards The accounting policies of the Group are consistent with those disclosed in the 30 June 2018 financial statements except for the impact of the new or amended standards and interpretations effective 1 July 2018. The effects of initially applying the new standards on the Group's financial statements are as follows: (cid:891) (cid:891) The adoption of AASB 15 has resulted in changes in accounting policies and disclosures in the financial statements but has had no significant impact on the amount of revenue recognised for the Group in the current or previous periods. Refer note 1 (e) for the new revenue recognition accounting policy The adoption of AASB 9 has resulted in changes in accounting policies but has no significant impact on the Group's trade receivables as at 1 July 2018. The investment in CPR Pharma Services Pty Ltd as held on 1 July 2018 was reclassified to fair value through profit or loss. Refer below for the new financial instruments accounting policy. Adoption of AASB 9 and new accounting policy for financial instruments The Group has adopted AASB 9 with a date of initial application of 1 July 2018 and has elected not to restate its comparatives. As a result, the Group has changed its accounting policy for financial instruments from 1 July 2018 as detailed below. Recognition and derecognition Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and initial measurement of financial assets Financial assets are classified according to their business model and the characteristics of their contractual cash flows and are initially measured at fair value adjusted for transaction costs (where applicable). Subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets, other than those designated and effective as hedging instruments, are classified into the following four categories: Financial assets at amortised cost Financial assets at fair value through profit or loss (FVTPL) Debt instruments at fair value through other comprehensive income (FVTOCI) Equity instruments at FVTOCI (cid:891) (cid:891) (cid:891) (cid:891) All income and expenses relating to financial assets that are recognised in the profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. 48 49 P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 New Accounting Standards and Interpretations (continued) (v) Financial assets at amortised cost Financial assets with contractual cash flows representing solely payments of principal and interest and held within a business model of 'hold to collect' contractual cash flows are accounted for at amortised cost using the effective interest method. The Group's trade and most other receivables fall into this category of financial instruments. Impairment The Group assess on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVTOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance at the amount equal to the expected lifetime credit losses. In using this practical expedient, the Group uses its historical experience, external indicators and forward looking information to calculate the expected credit losses (ECL) using a provision matrix. For long term trade receivables, the ECL is based on either the 12-month or lifetime ECL. The 12-month ECL is the proportion of lifetime ECL's that results from default events on a financial instrument that are possible within 12 months after the reporting date. When there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. In all cases, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. The Group considers a financial asset is in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. (w) New Accounting Standards not yet Mandatory The following Australian Accounting Standards that have recently been issued but are not yet mandatory, have not been early adopted by the Group. AASB 16 Leases - This standard eliminates the operating and financial lease classifications for leases currently accounted for under AASB 117 Leases. AASB 16 requires requires an entity to bring most leases onto its statement of financial position in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right of use in its statement of financial position for most leases. The Group will adopt AASB 16 from 1 July 2019. The impact of this adoption is currently in the process of being assessed by the Group, however the impact has yet to be quantified. Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 2. LOSS FOR THE YEAR Loss for the full year included the following: Notes Consolidated Entity 2019 $ Consolidated Entity 2018 $ (a) R&D Tax incentive income (i) 1,139,403 844,123 (b) Other expenses (income) Unrealised foreign exchange (gains) Realised foreign exchange losses Fair value loss on investment (c) Employee and labour expenses Salary and wages Other personnel costs Superannuation Increase in leave liabilities Share based payments expense ( 2,127) 1,903 249,499 1,631,377 96,743 153,934 50,860 1,932,914 222,812 2,155,726 ( 459) 5,157 - 1,273,345 176,358 120,697 26,662 1,597,062 71,767 1,668,829 (i) R&D Tax incentive income The Company undertakes a substantial amount of research in its daily activities. The Company has registered its activities and is able to claim a tax incentive (rebate) each year based on eligible research and development costs incurred during a financial year. The amount of the incentive (rebate) is included as an income item in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2019, and the corresponding receivable included in the consolidated statement of financial position. The receipt of the tax incentive will occur in the year ended 30 June 2020. 3. INCOME TAX EXPENSE / (BENEFIT) (a) Income tax expense / (benefit) Current tax / (over provision in prior year) Deferred tax (b) Numerical reconciliation of income tax to prima facie tax (Loss) from continuing operations Tax at the Australia tax rate 27.5% (2018 27.5%) Tax effect of the amounts that are not deductible / (taxable) in calculating taxable income - Share based payments - Research and development tax incentive - Withholding tax paid in overseas locations - Reduction in loss for tax incentive Consolidated Entity 2019 $ Consolidated Entity 2018 $ - - - - ( 2,080,275) ( 1,440,108) ( 572,076) ( 396,030) 61,273 ( 313,336) - 824,139 - 19,736 ( 232,134) 2,892 605,536 - 50 51 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 3. INCOME TAX EXPENSE / (BENEFIT) (continued) 5. REVENUE (c) Tax losses Unused tax losses for which no deferred tax assets have been recognised Australian losses Potential tax benefit at 27.5% (2018 27.5%) Consolidated Entity 2019 $ Consolidated Entity 2018 $ 2,081,773 572,488 1,801,493 495,411 The tax benefits of the above deferred tax assets will only be obtained if: (i) the Company derives future assessable income of a nature and of an amount sufficient to enable the benefits to be utilised; the Company continues to comply with the conditions for deductibility imposed by law; and no changes in income tax legislation adversely affects the Company in utilising the benefits. (ii) (iii) (d) Unrecognised temporary differences Provisions Accruals Tax losses 4. RECONCILIATION OF CASH Cash at bank Deposits at call Notes (a) Reconciliation of loss after income tax to net cash flows from operations activities Loss for the year Depreciation Share and option based payments expense Share issue in lieu of cash payment Sale of investment in CPR Pharma Services Pty Ltd (Increase) / decrease in trade and other debtors (Increase) / decrease in other assets Increase / (decrease) in trade and other creditors Increase / (decrease) in provisions 14 ( 4,372) 50,860 2,081,773 2,128,261 1,872 26,662 1,801,493 1,830,027 461,430 1,050,000 1,511,430 ( 2,080,275) 188,293 222,812 48,630 ( 928,399) 101,875 816,267 ( 87,072) 50,860 ( 1,667,009) 604,335 1,712,446 2,316,781 ( 1,440,108) 235,690 71,767 - - ( 285,412) 232,211 75,313 26,662 ( 1,083,877) (b) Non-cash financing and investing activities On 30 September 2018, the Company sold all of its investment in CPR Pharma Services Pty Ltd (CPR) for cash proceeds of $928,399. An accounting loss on disposal of investments of $249,499 is included in the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019. During the year ended 30 June 2018, the Company issued a total of 3,868,305 fully paid ordinary shares to CPR in exchange for transfer of 10% of the fully diluted issued share capital of CPR. The Company received 112,397 fully paid ordinary shares in CPR and the fair value was determined by the Directors to be $1,177,898. 52 The Group has disaggregated revenue into various categories which is intended to: (cid:891) Depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors; and (cid:891) Enable users to understand the relationship with revenue information in the statement of profit or loss and other comprehensive income. Product Type PromarkerD licence fees Analytical Services Timing of Transfer of Goods and Services Point in time Over Time Primary Geographic Markets Australia and NZ USA (and Territories) Europe India SE Asia 6. TRADE AND OTHER RECEIVABLES Trade receivables Other receivables Consolidated Entity 2019 175,685 1,292,391 1,468,076 - 1,468,076 1,468,076 823,825 282,614 257,768 75,393 28,476 1,468,076 Consolidated Entity 2019 $ Consolidated Entity 2018 $ 464,922 36,473 501,395 602,300 970 603,270 (a) Classification of trade and other receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. The trade receivables are generally due for settlement within 60 days and therefore are classified as current. (b) Fair value of trade and other receivables Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same as their fair value. (c) The Group has adopted the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. The expected credit loss is deemed to be $nil. 7. OTHER ASSETS Current: Research and development tax incentive (note 2(i)) Export Market Development Grant (i) Prepayments (ii) Non-current: Security Deposit - equipment leases to be paid in respect of the 2017-2018 financial year (i) (ii) comprises prepaid insurance and prepaid patent legal fees 1,139,403 54,749 35,548 1,229,700 163,681 163,681 844,123 - 27,627 871,750 160,000 160,000 53 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 8. INVESTMENTS 12. BORROWINGS Shares in CPR Pharma Services Pty Ltd Consolidated Entity 2019 $ Consolidated Entity 2018 $ - - 1,177,898 1,177,898 On 30 September 2018, the Company sold all of its investment in CPR Pharma Services Pty Ltd for cash proceeds of $928,399. 9. PROPERTY, PLANT AND EQUIPMENT Cost (i) Accumulated depreciation Closing Net Book Value Reconciliation: Opening net book value Additions Disposals Depreciation charge Closing Net Book Value (i) includes capitalised leased assets 10. TRADE AND OTHER PAYABLES Trade payables Other payables Deferred Income Contract Liability - refer Note 1(e) 844,379 ( 630,702) 213,677 363,979 37,991 - ( 188,293) 213,677 224,757 71,447 - 6,860 303,064 806,388 ( 442,409) 363,979 511,236 88,433 - ( 235,690) 363,979 125,880 162,977 101,279 - 390,136 (a) Classification of trade and other payables Trade payable are unsecured and are usually paid within 60 days or recognition and therefore are classified as current. (b) Fair value of trade and other payables The carrying amount of trade and other payables are assumed to be the same as their fair value, due to their short-term nature. Current: Finance Leases (b) Non-current Loans from Directors (a) Finance Leases (b) (a) Loans from Directors: Movement in loans from directors: Opening balance - Amounts borrowed - Amounts repaid Closing balance Terms of the Borrowings Consolidated Entity 2019 $ Consolidated Entity 2018 $ 146,591 147,500 - 18,330 18,330 - 164,921 164,921 - - - - 366,392 - ( 366,392) - The company entered into a loan agreement with three Directors of Proteomics International Laboratories Ltd during the year ended 30 June 2015 to provide the Company with funding for working capital purposes. The loan was unsecured and was provided on the followings terms: Particulars Principal Interest rate Maturity Repayment Terms $441,891 4% April 15, 2019 In cash at any time (Company) or at maturity in cash or in shares at the market price The loan was repaid in full during the year ended 30 June 2018. (b) Finance Leases: Commitments in relation to finance leases are payable as follows: Within one year Later than one year but no later than five years Minimum lease payments Future finance charges Recognised as a liability Lease Liability - current Lease Liability - non-current Recognised as a liability 155,142 18,889 174,031 ( 9,110) 164,921 146,591 18,330 164,921 174,455 174,030 348,485 ( 36,064) 312,421 147,500 164,921 312,421 11. PROVISIONS Current: Employee benefits - annual leave Non-current Employee benefits - long service leave 99,424 73,500 67,184 42,248 Terms of the Finance Leases The company leases laboratory equipment under finance lease agreements expiring within three years. 54 55 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 13. ISSUED CAPITAL Ordinary Shares Total consolidated issued capital Movement in share capital Date Details 1/07/2018 22/11/2018 3/12/2018 7/01/2019 22/01/2019 20/05/2019 20/06/2019 30/06/2019 Opening balance Issue of shares (i) Exercise of options (ii) Exercise of options (ii) Exercise of options (ii) Exercise of options (ii) Exercise of options (ii) Closing balance 2019 Shares 2018 Shares 2019 $ 2018 $ 80,686,965 80,098,871 10,537,267 10,369,887 Number of shares 2019 Amount $ 80,098,871 113,094 100,000 100,000 100,000 75,000 100,000 80,686,965 10,369,887 48,630 25,000 25,000 25,000 18,750 25,000 10,537,267 (i) (ii) issued to Director Paul House in lieu of cash payment for director's fees and pursuant to the Director Fee Plan. The issue of shares was approved by shareholders at the Annual General Meeting held on 22 November 2018. consultant Canary Capital exercised 475,000 options during the year. Date Details 1/07/2017 5/02/2018 15/02/2018 8/03/2018 23/03/2018 29/03/2018 8/03/2018 6/04/2018 16/04/2018 30/06/2018 Opening balance Exercise of options Exercise of options Exercise of options Exercise of options Exercise of options Issue of shares (i) Exercise of options Exercise of options Less: Transaction costs Closing balance (i) issued to CPR Pharma Services Pty Ltd. Ordinary shares Number of shares 2018 Amount $ 58,998,710 556,250 134,800 1,436,171 2,115,564 5,030,582 3,868,305 6,249,448 1,709,041 80,098,871 5,935,036 111,250 26,960 287,234 423,113 1,006,116 1,177,898 1,249,890 341,808 ( 189,418) 10,369,887 Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up of the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. 14. OPTIONS (a) Options - Issued Options exercisable at $0.25 each Options exercisable at $0.30 each Options exercisable at $0.35 each Options exercisable at $0.50 each Options exercisable at $0.67 each Total issued options Movement in options issued As at 1 July Exercised during the period Issued during the period (i) Issued during the period (ii) Issued during the period (i) Issued during the period (iii) Issued during the period (iv) As at 30 June 2019 Options 2018 Options 25,000 1,750,000 500,000 400,000 400,000 3,075,000 500,000 1,750,000 500,000 - - 2,750,000 2019 2018 Average exercise price $0.30 $0.25 $0.25 $0.30 $0.35 $0.50 $0.67 $0.26 Number of Options 2,750,000 ( 475,000) - - - 400,000 400,000 3,075,000 Average exercise price $0.20 $0.20 $0.25 $0.30 $0.35 - - $0.30 Number of Options 17,231,856 ( 17,231,856) 500,000 1,750,000 500,000 - - 2,750,000 Issued options outstanding at the end of the year have the following expiry date and exercise price: Grant Date 17/08/2017 (i) 3/11/2017 (ii) 8/03/2018 (i) 22/05/2018 (ii) 22/11/2018 (iii) 22/11/2018 (iv) Expiry Date Exercise Price No. Options 17/07/2019 31/10/2019 8/03/2020 31/05/2020 22/11/2021 22/11/2022 $0.25 $0.30 $0.35 $0.30 $0.50 $0.67 25,000 650,000 500,000 1,100,000 400,000 400,000 (i) (ii) (iii) (iv) Unlisted - issued to consultants, Canary Capital, for nil consideration and being for part consideration for services rendered. Unlisted - employee options issued to employees of the Company for nil consideration under an Employee Incentive Option Plan. Unlisted - Director A options issued to Directors - Terry Sweet, Ian Roger Moore and Paul House - for nil consideration and issued as a reward and incentive. Unlisted - Director B options issued to Directors - Terry Sweet, Ian Roger Moore and Paul House - for nil consideration and issued as a reward and incentive. 56 57 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 14. OPTIONS (continued) (a) Fair Value of Employee Options Particulars Number of employee options Valuation date Expiry date Underlying share price used Exercise price Risk-free rate Volatility Dividend yield Valuation per Option Input A 650,000 3 November 2017 31 October 2019 $0.175 $0.30 1.90% 100% nil $0.060 Input B 1,100,000 22 May 2018 31 May 2020 $0.18 $0.30 2.05% 100% nil $0.074 These Employee Options are valued at $120,400 and this amount was included in the share based payment expense for the year ended 30 June 2018. The Company has used the Black Scholes Model to value the Employee Options. (b) Fair Value of Director A and Director B Options Particulars Number of options Valuation date Expiry date Underlying share price used Exercise price Risk-free rate Volatility Dividend yield Valuation per Option Director A 400,000 22 November 2018 22 November 2021 $0.35 $0.50 1.50% 85% nil $0.221 Director B 400,000 22 November 2018 22 November 2022 $0.35 $0.67 1.50% 85% nil $0.227 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 14. OPTIONS (continued) (b) Options - Unissued Consultant Options - Adelaide Equity Partners Limited Consultant Options - Scintilla Funds Management Pty Ltd Total Unissued options P I L L 2019 Options 2018 Options 1,250,000 500,000 1,750,000 - - - Fair Value of Consultant Options - Adelaide Equity Partners Limited and Scintilla Funds Management Pty Ltd. The Company has agreed, pursuant to a corporate advisory mandate, the terms of which were announced to the ASX on 14 November 2018, to issue a total of 1,750,000 unlisted options exercisable at $0.50 each on or before 14 November 2021 ("Consultant Options"). 1,250,000 options are to be issued to Adelaide Equity Partners Limited while 500,000 options are to be issued to Scintilla Funds Management Pty Ltd. The issue of Consultant Options is subject to Proteomics International Laboratories Limited shares achieving a 20 day VWAP of $0.45. As at the date of this report, the Consultant Options remain unissued, but are valued as follows: Particulars Adelaide Equity Partners Scintilla Funds Management Number of consultant options Valuation date Expiry date Underlying share price used Exercise price Risk-free rate Volatility of 20-day VWAP Dividend yield Valuation per Option 1,250,000 14 November 2018 14 November 2021 $0.32 $0.50 2.13% 30% nil $0.025 500,000 14 November 2018 14 November 2021 $0.32 $0.50 2.13% 30% nil $0.025 The value placed on these Consultant Options is $43,750 and this amount is included in the share based payment expense for the year ended 30 June 2019. The Company has used the Barrier-up-and-in Trinomial Option Pricing Model to value the Consultant Options. These Director A and Director B Options are valued at $179,062 and this amount is included in the share based payment expense for the year ended 30 June 2019. The Company has used the Black Scholes Model to value the Director A and Director B Options. (c) Share based payments expense Share based payments expense comprising: Employee options Director options Consultant options Performance rights (i) Consolidated Entity 2019 $ Consolidated Entity 2018 $ - 179,062 43,750 - 222,812 120,400 - - ( 48,633) 71,767 (i) Performance rights lapsed in the year ended 30 June 2017, and were written back to the share based payment expense in the year ended 30 June 2018 58 59 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 15. RESERVES 15. RESERVES (continued) Share based payments reserve (a) comprising: (i) Payments to consultants (ii) Employee share scheme (iii) Director A & B options Option reserve (b) (a) Share based payments reserve (i) Share based payments to consultants: Consolidated Entity 2019 $ Consolidated Entity 2018 $ 203,250 120,400 179,062 210,295 713,007 159,500 120,400 - 210,295 490,195 2019 Options 2018 Options 2019 $ 2018 $ (a) Consultants - listed options - - - - (b) Consultants - unlisted options 2,275,000 1,000,000 203,250 159,500 Movements in share based payments to consultants: (b) - unlisted options Date 1/07/2018 13/11/2018 3/12/2018 7/01/2019 22/01/2019 20/05/2019 20/06/2019 30/06/2019 Date 1/07/2017 8/03/2018 30/06/2018 Details Opening balance Issue of unlisted options Exercise of options Exercise of options Exercise of options Exercise of options Exercise of options Closing balance Details Opening balance Issue of unlisted options Closing balance P I L L Number of options 1,000,000 1,750,000 ( 100,000) ( 100,000) ( 100,000) ( 75,000) ( 100,000) 2,275,000 Number of options 500,000 500,000 1,000,000 $ 159,500 43,750 - - - - - 203,250 $ 159,500 - 159,500 Movements in share based payments to consultants: (a) - listed options There were no movements during the year ended 30 June 2019. Movements for the year ended 30 June 2018 are shown in the table below. Refer to Note 14 for further information. (ii) Employee share scheme Date 1/07/2017 31/03/2018 30/06/2018 Details Opening balance Exercise of options Closing balance Number of options $ 1,500,000 ( 1,500,000) - - - - 2019 Options 2018 Options 2019 $ 2018 $ Employee unlisted options 1,750,000 1,750,000 120,400 120,400 Movements: Date 1/07/2018 30/06/2019 Date 1/07/2017 8/03/2018 8/03/2018 30/06/2018 Details Opening balance Closing balance Details Opening balance Issue of unlisted options Issue of unlisted options Closing balance Refer to Note 14 for further information. Number of options 1,750,000 1,750,000 Number of options - 650,000 1,100,000 1,750,000 $ 120,400 120,400 $ - 39,000 81,400 120,400 60 61 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 15. RESERVES (continued) (iii) Director A & B options 2019 Options 2018 Options 2019 $ 2018 $ Director A & B unlisted options 800,000 - 179,062 - Movements: Date 1/07/2018 22/11/2018 22/11/2018 30/06/2019 Details Opening balance Issue of Director A unlisted options Issue of Director B unlisted options Closing balance Refer to Note 14 for further information. (b) Option reserve Number of options - 400,000 400,000 800,000 $ - 88,412 90,650 179,062 Total consolidated issued options listed - - 210,295 210,295 2019 Option 2018 Option 2019 $ 2018 $ Movements in options reserve - listed options Date 1/07/2018 30/06/2019 Date 1/07/2017 31/03/2018 30/06/2018 16. ACCUMULATED LOSSES Opening balance Loss for the year Closing balance Details Opening balance Closing balance Details Opening balance Exercise of options Closing balance Number of options - - Number of options 17,231,856 ( 17,231,856) - $ 210,295 210,295 $ 210,295 - 210,295 Consolidated Entity 2019 $ Consolidated Entity 2018 $ ( 6,183,697) ( 2,080,275) ( 8,263,972) ( 4,743,589) ( 1,440,108) ( 6,183,697) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 17. FINANCIAL RISK MANAGEMENT The activities of the Company and its subsidiary (the Group) expose the Group to a variety of financial risks (including interest rate risk, credit risk and liquidity risk). The (cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) overall risk management program focuses on the unpredictability of the financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. However, the Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk, aging analysis for credit risk and at present are not exposed to price risk. Risk management is carried out by the Board of Directors with assistance from suitably qualified external advisors where necessary. The Board provides written principles for overall risk management and further policies will evolve commensurate with the evolution and growth of the Company. The Group holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables (a) R&D tax incentive (b) Investments Financial liabilities Trade and other payables (c) Borrowings Consolidated Entity 2019 $ Consolidated Entity 2018 $ 1,511,430 683,352 1,139,403 - 3,334,185 2,316,781 602,300 844,123 1,177,898 4,941,102 ( 303,064) ( 164,921) ( 467,985) ( 312,209) ( 312,421) ( 624,630) (a) excludes GST receivables and prepayments (b) the receipt of the 2019 R&D tax incentive will occur in the year ended 30 June 2020 (c) excludes GST payable and employee benefits The main purpose of the financial instruments is to fund the Group's operations. (cid:47)(cid:410)(cid:3)(cid:349)(cid:400)(cid:853)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:346)(cid:258)(cid:400)(cid:3)(cid:271)(cid:286)(cid:286)(cid:374)(cid:3)(cid:410)(cid:346)(cid:396)(cid:381)(cid:437)(cid:336)(cid:346)(cid:381)(cid:437)(cid:410)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:393)(cid:286)(cid:396)(cid:349)(cid:381)(cid:282)(cid:3)(cid:437)(cid:374)(cid:282)(cid:286)(cid:396)(cid:3)(cid:396)(cid:286)(cid:448)(cid:349)(cid:286)(cid:449)(cid:853)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400)(cid:3)(cid:393)(cid:381)(cid:367)(cid:349)(cid:272)(cid:455)(cid:3)(cid:410)(cid:346)(cid:258)(cid:410)(cid:3)(cid:374)(cid:381)(cid:3)(cid:410)(cid:396)(cid:258)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:349)(cid:374)(cid:3)(cid:296)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:349)(cid:374)(cid:400)(cid:410)(cid:396)(cid:437)(cid:373)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:393)(cid:437)(cid:396)(cid:393)(cid:381)(cid:400)(cid:286)(cid:3)(cid:381)(cid:296)(cid:3) limiting exposure to operational risk shall be undertaken. The main risks arising from the Group are cash flow (interest rate risk, liquidity risk and credit risk). The Board reviews and agrees policies for managing each of these risks and they are summarised below: (a) Market Risk (i) Cash flow and interest rate risk (cid:100)(cid:346)(cid:286)(cid:3)(cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400)(cid:3)(cid:381)(cid:374)(cid:367)(cid:455)(cid:3)(cid:349)(cid:374)(cid:410)(cid:286)(cid:396)(cid:286)(cid:400)(cid:410)(cid:3)(cid:396)(cid:258)(cid:410)(cid:286)(cid:3)(cid:396)(cid:349)(cid:400)(cid:364)(cid:3)(cid:258)(cid:396)(cid:349)(cid:400)(cid:286)(cid:400)(cid:3)(cid:296)(cid:396)(cid:381)(cid:373)(cid:3)(cid:272)(cid:258)(cid:400)(cid:346)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:272)(cid:258)(cid:400)(cid:346)(cid:3)(cid:286)(cid:395)(cid:437)(cid:349)(cid:448)(cid:258)(cid:367)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:346)(cid:286)(cid:367)(cid:282)(cid:856)(cid:3)(cid:100)(cid:286)(cid:396)(cid:373)(cid:3)(cid:282)(cid:286)(cid:393)(cid:381)(cid:400)(cid:349)(cid:410)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:272)(cid:437)(cid:396)(cid:396)(cid:286)(cid:374)(cid:410)(cid:3)(cid:258)(cid:272)(cid:272)(cid:381)(cid:437)(cid:374)(cid:410)(cid:400)(cid:3)(cid:346)(cid:286)(cid:367)(cid:282)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:448)(cid:258)(cid:396)(cid:349)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3) interest rates expose the group to cash flow interest rate risk. The Company does not consider this to be material to the Group and has therefore not undertaken any further analysis of risk exposure. 62 63 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 17. FINANCIAL RISK MANAGEMENT (continued) The following sets out the Group's exposure to interest rate risk, including the effective weighted average interest rate by maturity periods. Details 30 June 2019 Consolidated Financial assets Cash and cash equivalents 30 June 2018 Consolidated Financial assets Cash and cash equivalents Weighted Average Interest Rate Total $ Note 3.19% 1,511,430 1.15% 2,316,781 All other financial instruments have either a zero coupon rate or a fixed interest rate. Sensitivity At 30 June 2019, if interest rates had increased by 0.25% or decreased by 0.25% from the year end rates with all other variables held constant, post-tax loss for the year would have been $6,636 lower / ($6,636) higher (2018 changes of 0.25% / 0.25%: $3,600 lower/ ($3,600) higher), mainly as a result of higher / lower interest income from cash and cash equivalents. (ii) Foreign currency risk The Group is exposed to movements in foreign exchange due to the number of clients that the Group currently works with overseas. Exposure Trade receivables Sensitivity 30 June 2019 30 June 2018 USD 182,620 JPY USD JPY 240 160,027 14 The sensitivity of the profit or loss to changes in exchange rates arising in mainly USD/AUD denominated financial instruments and USD/AUD exchange rate - increase 5% USD/AUD exchange rate - decrease 15% Impact on post tax profits 2019 2018 $ $ ( 11,571) 42,915 ( 9,400) 29,580 Impact on equity 2019 $ 2018 $ 11,571 ( 42,915) 9,400 ( 29,580) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 17. FINANCIAL RISK MANAGEMENT (continued) (b) Credit risk Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted. Otherwise, if there is no independent rating, the board assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The compliance with credit limits by customers is regularly monitored by the managing director. Sales to retail customers are required to be settled in cash (in part, in advance) or using major financial institutional payment processes, to mitigate credit risk. Financial assets Cash and cash equivalents The Group's financier has an A2 Moody's rating. (c) Liquidity Risk Consolidated Entity 2019 $ Consolidated Entity 2018 $ 1,511,430 2,316,781 Prudent liquidity risk management implies maintaining sufficient cash balances and access to equity funding. The Group's exposure to the risk of changes in market interest rates relates primarily to cash assets and floating interest rates. The Group does not have significant interest-bearing assets (other than cash) and is not materially exposed to changes in market interest rates due to the unprecedented low interest rates. The Directors monitor the cash-burn rate of the Group on an ongoing basis against budget. As at reporting date the Group had sufficient cash reserves to meet its requirements. The Group has no access to credit standby facilities or arrangements for further funding or additional capacity in its borrowing arrangements. The financial liabilities the Group had at reporting date were trade payables incurred in the normal course of the business. These were non-interest bearing and were due within the normal 30-60 days terms of creditor payments. Maturitie The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. 64 65 P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 17. FINANCIAL RISK MANAGEMENT (continued) (i) Assessment of contractual cash flows Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 18. CONSOLIDATED ENTITIES Name of entity Class of share Country of Incorporation % Equity Holding 2019 2018 % Cost of Company 2019 $ 2018 $ Less than 6 Months $ 6 - 12 Months $ Between Between 1 and 2 years $ 2 and 5 years $ Total Contractual Cash Flows $ Carrying Amount $ Accounting Parent Proteomics International P/L Legal Parent Proteomics International P/L Australia 100 100 5,250,000 5,250,000 Ordinary Australia - - - - 224,757 87,228 311,985 - 67,914 67,914 - 18,889 18,889 - - - 224,757 174,031 398,788 224,757 164,921 389,678 Less than 6 Months $ 6 - 12 Months $ Between Between 1 and 2 years $ 2 and 5 years $ Total Contractual Cash Flows $ Carrying Amount $ 125,880 87,228 213,108 - 87,228 87,228 - 155,130 155,130 - 18,889 18,889 125,880 348,475 474,355 125,880 312,421 438,301 19. REMUNERATION OF AUDITORS (a) Audit services - BDO Audit (WA) Pty Ltd (b) Non-audit services - BDO Corporate Finance - BDO Audit (WA) Pty Ltd No non-audit services have been provided by BDO during the year ended 30 June 2019. Contractual maturities of financial liabilities As at 30 June 2019 Non-derivatives Trade payables Borrowings Total non-derivative Contractual maturities of financial liabilities As at 30 June 2018 Non-derivatives Trade payables Borrowings Total non-derivative (ii) Financing arrangements The Group has a $50,000 overdraft facility with its financial institution in place as at 30 June 2019. 20. COMMITMENTS (d) Fair Value Estimation The fair value of financial assets and liabilities must be estimated for recognition and measurement and for disclosure purposes. The carrying value less impairment provision of receivables and trade payables are assumed to approximate their fair values due to their short-term nature. Laboratory access fees Within one year Later than one year but no later than five years Later than five years (e) Capital management The Company pays fees to access strategic locations to use laboratories and specialised equipment to undertake its operations. When managing capital, the Board's objective is to ensure the Group continues as a going concern was well as to maintain optimal returns to shareholders and benefits for other stakeholders. The Board also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Board is constantly adjusting the capital structure to take advantage of favourable costs of capital or high return on assets. As the market is constantly changing, the board may issue new shares, sell assets to reduce debt or consider payment of dividends to shareholders. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position although there is no formal policy regarding gearing levels. The Group has no formal financing and gearing policy or criteria having regard to the early status of its development and low level of activity. There were no changes in the Group's approach to the capital management during the year ended 30 June 2019. The Group is not subject to any externally imposed capital requirements. 21. RELATED PARTIES (a) Key management personnel (KMP) compensation Short-term employee benefits Post-employment benefits Director A and B Options Share based payments (credit) The directors of the group comprise the key management personnel. Compensation is paid to the directors individually. 337,915 35,471 179,062 - 552,448 285,663 48,930 - ( 48,633) 285,960 66 67 Consolidated Entity 2019 $ Consolidated Entity 2018 $ 43,848 36,637 - - - - 48,700 - - 48,700 74,700 74,700 - 149,400 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 21. RELATED PARTIES 25. EARNINGS PER SHARE (b) Options disclosure to KMP's The disclosure that relates to options terms and conditions and the valuation inputs can be found at Note 14. (c) Transactions with KMP's During the year ended 30 June 2019, consultancy services were provided by Ian Roger Moore for business development in the amount of $11,286 (2018 $2,715) on terms no more favourable than those reasonably expected under (cid:258)(cid:396)(cid:373)(cid:859)(cid:400) length dealings with unrelated persons. No loans were provided by Key Management Personnel during the year ended 30 June 2019. Loans provided by Key Management Personnel during the year ended 30 June 2018 are set out below: (loss) attributable to ordinary shareholders Weighted average number of ordinary shares* Earnings per share P I L L Consolidated Entity 2019 $ Consolidated Entity 2018 $ ( 2,080,275) ( 1,440,108) 80,326,284 60,692,192 ( $0.03) ( $0.02) Consolidated Entity 2019 $ Consolidated Entity 2018 $ - - - - - - 366,392 - ( 366,392) - 12,446 ( 7,328) Beginning of the year Loans advanced Loans repaid (ii) Interest charges (i) Interest paid (i) Interest has been accrued and is in trade and other payables. (ii) Loans were repaid to R. Lipscombe and the LUK Trust. 22. DIVIDENDS The directors have not paid or declared a dividend during the financial year ended 30 June 2019. 23. CONTINGENT LIABILITIES The Company is not aware of any material contingent liabilities for the year ended 30 June 2019. 24. SEGMENT REPORTING The Board monitors the operations of the Company as one single segment. The actual to budget items and a detailed profit or loss are reported to the board to assess the performance of the Group. The Board has determined that strategic decision making is facilitated by evaluation of the operations of the legal parent and subsidiary which represent the operational performance of the (cid:39)(cid:396)(cid:381)(cid:437)(cid:393)(cid:859)(cid:400) revenues and the research and development activities as well as the finance, treasury, compliance and funding elements of the Group. *Includes the effect of the transactions (under continuation accounting) for the purpose of the comparative earnings per share calculation. 26. EVENTS OCCURRING AFTER THE REPORTING PERIOD On 26 July 2019, Proteomics International announced it had secured two major contracts to conduct pharmacokinetic analyses. The contracts, with a combined value of approximately $400,000, form part of Proteomics (cid:47)(cid:374)(cid:410)(cid:286)(cid:396)(cid:374)(cid:258)(cid:410)(cid:349)(cid:381)(cid:374)(cid:258)(cid:367)(cid:859)(cid:400) ongoing partnership with Linear Clinical Research for pharmacokinetic testing for clinical trials. The phase I clinical studies will examine the safety performance of novel autoimmune disease drugs for two pharmaceutical companies in China, with the studies to be undertaken over the next 3-10 months. Proteomics International secured TGA regulatory approval for the PromarkerD software as an in vitro diagnostic (IVD) for export use. The PromarkerD software hub enables the delivery of results of the proprietary PromarkerD algorithm to Proteomics International's partners around the world [ASX: 28 July 2019]. The Company was also granted a patent for PromarkerD in Indonesia, where there are 10.3 million adults with diabetes [ASX: 28 July 2019]. Other than the above, there have been no subsequent events whick would have a material effect on the Group's operations. Other than the above, there have been no subsequent events which would have a material effect on the Group's operations. 68 69 Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L P I L L NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 30 June 2019 27. PARENT ENTITY INFORMATION The following details information related to the legal parent entity, Proteomics International Laboratories Ltd, as at 30 June 2019. The information presented here has been prepared using consistent accounting policies as presented in Note 1. Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Total Liabilities Total Equity (Loss) for the year Other comprehensive income / (loss) for the year Total other comprehensive (loss) for the year 2019 $ 2,893,557 163,681 3,057,238 70,936 - 70,936 2018 $ 3,411,253 1,337,898 4,749,151 72,766 - 72,766 2,986,302 4,676,385 ( 561,941) ( 441,103) - - ( 561,941) ( 441,103) Contingent liabilities of the parent entity The Company is not aware of any material contingent liabilities for the year ended 30 June 2019. Commitments of the parent entity The Company does not have any on-going commitments. 28. INTERESTS IN OTHER ENTITIES The Group does not currently have any interests in other entities. 29. DEED OF CROSS GUARANTEE The Group has not currently entered into a deed of cross guarantee. 30. ASSETS PLEDGED AS SECURITY Other than the cash Security Deposits for the finance leases (refer Note 7), the Group has no assets that have been pledged as security. Directors’ Declaration The Directors of the Company declare that: 1. The ﬁnancial statements, comprising the consolidated statement of proﬁt or loss and other comprehensive income, consolidated statement of ﬁnancial position, consolidated statement of cash ﬂow, consolidated statements of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 and: (a) (b) comply with Accounting Standards, the Corporations Regulations 2001, other mandatory professional reporting requirements; and give a true and fair view of the ﬁnancial position as at 30 June 2019 and of the performance for the year ended on that date of the consolidated entity; (c) comply with International Financial Reporting Standards as disclosed in Note 1. 2. 3. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The remuneration disclosures included in the Director’s Report (as part of the Remuneration Report) for the year ended 30 June 2019, comply with section 300A of the Corporations Act 2001. 4. The Directors have been given the declarations by the Managing Director required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Terry Sweet Chairman Perth, Western Australia Dated: 30 August 2019 70 71 P I L L Proteomics International Laboratories Ltd Independent Auditor’s Report 72 73 P I L L Proteomics International Laboratories Ltd Proteomics International Laboratories Ltd P I L L Shareholder Information ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ./ ( ( 32.#’,10, !"#$%&’()*(’"+,-%#%"’($’($#(./(0,1,’#(.2345( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( 45 #$’$’" ( ( "%#%-,+"’*))*’&&’%$#!" 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