Reliq Health Technologies
Annual Report 2012

Plain-text annual report

A n n u a l R e p o r t 2 0 1 2 Corporate information ABN 96 006 762 492 Directors Dr Martin Blake Non-executive Chairman Ms Liza Dunne Managing Director Mr Simon Panton Non-executive Director Dr Timothy St Pierre Executive Director Chief Financial Officer/ Company Secretary Mrs Naomi Haydari Stock exchange listing Resonance Health Limited shares are listed on the Australian Securities Exchange ASX Code: RHT Registered office and Principal place of business Ground Floor 278 Stirling Highway Claremont WA 6010 Telephone: +61 8 9286 5300 Facsimile: +61 8 9286 1179 Postal address PO Box 1135 Nedlands WA 6909 Website and e-mail address www.resonancehealth.com Email: info@ferriscan.com Auditors HLB Mann Judd Level 4 130 Stirling Street Perth WA 6000 Share registry Advanced Share Registry Ltd 150 Stirling Highway Nedlands WA 6009 Telephone: +61 8 9389 8033 Facsimile: +61 8 9389 7871 Bankers National Australia Bank Limited Solicitors Cole Legal Unit 9 569 Wellington Street Perth WA 6000 Resonance Health Limited Annual Report 2012 OUR BUSINESS. Resonance Health specialises in the provision of medical imaging diagnostic tools and services to aid in the diagnosis and management of human disease. Resonance Health’s expertise in the liver was established with FerriScan®, now the recognised gold standard for the assessment of body iron overload. The Company is developing new products for the measurement of fatty liver disease and liver fibrosis using magnetic resonance imaging. Resonance Health additionally provides comprehensive imaging and data management services to pharmaceutical companies using imaging end points in their clinical trials. Contents Chairman and Managing Director’s Report Year In Review Directors’ Report Corporate Governance Statement Auditor’s Independence Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional ASX Information 1 2 4 7 14 19 20 21 22 23 24 47 48 50 CHAIRMAN AND MANAGING DIRECTOR’S REPORT FDA clearance was achieved for the The activities to develop an MRI method Company’s Cardiac T2* test for assessing to accurately measure liver fibrosis are cardiac iron overload and has enabled continuing with a clinical study in progress us to expand our offering to our existing at the liver transplant unit at the Austin customer base. The strong Australian dollar negatively impacted the reported revenues, which are predominantly received in US dollars. The 2011-12 financial year saw growth in Staff numbers remained flat and expenses the availability and use of FerriScan® and were reduced compared to the previous progress in the development of pipeline year as we remain focused on continually Hospital in Melbourne, in collaboration with Pfizer. The study will compare the level of fibrosis assessed from liver biopsy with the degree of fibrosis assessed by MRI. Once the results of the study are known, a decision regarding the next phase of development can be made. products to expand the product and improving the efficiency of our operations. The management and staff remain focused revenue base of the Company. The overall image analysis time has on realising the full potential of FerriScan® The increased availability of FerriScan® enabled revenue associated with its use in clinical practice to grow. This supports our strategy to reduce the Company’s reliance on the use of FerriScan® in clinical trials of new pharmaceuticals. We were pleased to sign the first contract with a pharmaceutical company for the supply of FerriScan® to their patients outside of a clinical trial. Several new contracts were decreased by approximately 50% over the and expanding the Company’s product last 3 years. A new version of our customer portfolio, differentiating ourselves as interface platform was introduced making leaders in the quantitative measurement it easier for our customers to do business of liver disease for the clinical and with us and reduce the error rate on data pharmaceutical communities. we receive. Our customer satisfaction survey confirmed that our customers are delighted with the service we provide and that it makes an important contribution to the effective treatment of their patients. also signed for the use of FerriScan® in Research and development activities clinical trials of iron chelation medicines. culminated in the completion of We continue to take steps towards gaining reimbursement for FerriScan®, and the expanded availability of FerriScan® within the US is supporting this strategy. Insurance payers within the US are currently reviewing the FerriScan® technology for potential coverage. The growing number of peer reviewed publications and clinical guidelines that support the use of FerriScan® is encouraging and adds weight to the arguments for government and private insurance funding. the HepaFat-Scan™ product for the measurement of fatty liver disease. A patent has been lodged to protect the HepaFat-Scan™ IP and an FDA submission has been made for clearance to market the product. The performance results of HepaFat-Scan™ are very positive when compared with other published methods for assessing fatty liver. Given the significant and growing problem of obesity, a non-invasive test for assessing fatty liver disease presents a promising opportunity for the Company. Liza Dunne Managing Director Dr Martin Blake Chairman 2 Resonance Health Limited Annual Report 2012 FerriScan® is making a difference to the lives of patients with iron overload FerriScan® provides a safe and reliable Patients can accumulate excess iron due measurement of iron overload for to two primary causes: patients around the world. It is provided to the international medical community as an image analysis service, providing customers a high quality, standardised and consistent measurement. • Iron overload from repeat blood transfusions. Some patients require regular blood transfusions to help manage their underlying disease, such as thalassemia, sickle cell anaemia, FerriScan® is now the recognised gold myelodysplastic syndrome and some standard for the assessment of liver iron cancers. concentration providing an effective Preparing for a FerriScan alternative to a liver biopsy. Based on Map of liver iron Patient results are now tracked on the FerriScan® Report peer reviewed publications, FerriScan® is demonstrated to be the most accurate method for measuring liver iron concentration. An accurate measure of a patient’s iron overload enables the doctor to determine the correct therapy for that patient, such as the appropriate dose of an iron chelation drug to remove the excess iron. The FerriScan® Report shows how the patient’s iron levels are trending over time. • Excess absorption of iron from the gut caused by hereditary conditions such as hereditary haemochromatosis, which causes the slow accumulation of excess iron over the life of the patient. FerriScan® involves a 10 minute MRI scan of the patient followed by the image analysis performed by Resonance Health at our facility in Perth, Western Australia. A fee is charged for each image analysis performed. Over 16,000 patient FerriScans have been performed to date from image data sent to us from all over the world. The FerriScan® Report of the patient’s liver iron The liver stores approximately 80% of the concentration is usually completed within body’s excess iron. When iron overload 24 hours. develops it can cause liver damage, including fibrosis and ultimately cirrhosis. Excess iron can also damage other organs, such as the pancreas where the accumulation of iron can lead to diabetes. Quantitative MRI is a specialist field and the Company’s international standards accreditation to ISO 13485 provides doctors with confidence in the results they are receiving. 3 Resonance Health Limited Annual Report 2012 YEAR IN REVIEW Sales volumes increased 14% over the financial year compared to it faster and easier for customers to interface with us, with less the previous year. The results were buoyed by the take-up of the opportunity for error. Company’s cardiac T2* image analysis service which provides a surrogate measure of cardiac iron overload. Revenue for the year was $1,562,242. Sales volumes in the UK increased by 36% over the previous year further consolidating FerriScan’s position as the test-of-choice for clinicians managing iron overload. FerriScan® is also expanding into the wider European market with new FerriScan® facilities in Switzerland, Italy and Germany. Sales volumes in the US increased by 28% over the previous year and the Cardiac T2* service was successfully launched in the US following FDA clearance. Image Analysis Sales Volumes A customer satisfaction survey of MRI facilities using FerriScan® indicated that our customers are very happy with the service we provide. 100% of customers rated the day-to-day support and communication received from the Company as ‘good’ or ‘excellent’. “The service that your group offers is first rate and the turnaround of analysis results is fantastic, your team is to be congratulated.” Customer comment June 2012. The Company remains focused on a range of growth initiatives aimed at increasing the demand for our products and services and delivering improved financial results. Education and Awareness Programs We continue to educate the market on the benefits of FerriScan® and its differentiation from other techniques for measuring iron overload. FerriScan® was presented at a range of events during the year. These included trade exhibits and presentations by key opinion leaders on the benefits of using FerriScan® in the management of patients with iron overload conditions. • FerriScan® Awareness Day, St Mary’s and Hammersmith Hospitals, London, UK FerriScan® has now become firmly established as the gold standard test to measure liver iron concentration (LIC). It is • Hereditary Haemochromatosis Conference, Royal Free gaining support in clinical guidelines and continues to be used Hospital, London, UK by major pharmaceutical companies in their clinical trials of chelation therapies. FerriScan® is the only MRI-based method • Management of Sickle Cell and Anaemia Conference, London, for measuring liver iron concentration that has the extensive UK scientific validation and international regulatory clearance demanded by clinicians. • Haematology Society of Australia and New Zealand joint scientific meeting (HAA), Sydney, Australia Pharmaceutical companies have also expanded their use of FerriScan® to new projects outside of clinical trials to assist • ASH (American Society of Hematology) Conference, San clinicians in managing their patients on iron chelation therapies. Diego, USA The Company remains focused on continuous improvement to its service model to reduce costs and deliver a better service to customers. Over the last three years we have reduced the time taken to perform a FerriScan® image analysis by 50%. During the year we introduced a significant upgrade to our customer interface, called FAST (FerriScan® Analysis Service • Global Iron Summit, Berlin, Germany • British Society of Haematology Conference, Glasgow, Scotland • American Society of Pediatric Hematology / Oncology (ASPHO) Meeting, New Orleans, USA Tracking system). This internet based software platform allows • Sickle Cell in Focus, London, UK our customers to submit patient image data for analysis from anywhere in the world and to access results. The upgrade makes • Scottish Haemoglobinopathy Meeting, Edinburgh, Scotland 4 Resonance Health Limited Annual Report 2012 CANADA UNITED STATES OF AMERICA MEXICO VENEZUELA COLOMBIA UK GERMANY IRELAND POLAND SWITZERLAND ITALY TURKEY GREECE LEBANON EGYPT UAE BRAZIL ARGENTINA CHINA JAPAN BANGLADESH TAIWAN THAILAND SRI LANKA MALAYSIA AUSTRALIA NEW ZEALAND Global availability of FerriScan® FerriScan® Countries Expanded Availability of FerriScan® cardiac iron overload is a leading cause of death in some medical conditions. The Dual Analysis Service measuring both a patient’s We have expanded the availability of FerriScan® with fifteen new liver and cardiac iron loading enables clinicians to fully assess facilities established during the year. There are now 44 facilities their patients’ risks and adjust their treatment accordingly. in North America providing FerriScan® and 35 facilities in Europe. FerriScan® became available at MRI facilities in Scotland, Ireland, Clinical Guidelines and Supporting Evidence Italy and Switzerland during the year. FerriScan has also become available to patients in South FerriScan®, to regularly assess iron overload have added America at 10 new MRI facilities in Brazil, Argentina, Colombia weight to our efforts to gain reimbursement for FerriScan® and Clinical guidelines recommending the use of MRI, and specifically and Mexico. Distributors have been appointed for United Arab Emirates and Saudi Arabia, where there is a high prevalence of iron overload conditions. Growing Referrer Base In addition to engaging with new facilities, we have also focused our educational and awareness campaigns on existing FerriScan® facilities. As a result of these initiatives, the referrer base for FerriScan® continues to grow with a 28% increase in the number of clinicians who have referred patients for FerriScan® over the year. Dual Analysis Service In addition to FerriScan®, Resonance Health also provides a Cardiac T2* measurement to assess the level of cardiac iron overload. While excess body iron is primarily stored in the liver, broadened its use. FerriScan® is now recommended in patient management guidelines developed for the clinical management of thalassaemia, sickle cell disease and other transfusion- dependent anaemias by respected medical institutions and patient advocacy organisations. • Data presented by clinicians from Kings College London at the 2012 British Society of Haematology conference concluded that “Monitoring LIC (liver iron concentration) with FerriScan® and appropriate adjustment of therapy will result in improved clinical outcomes in patients with iron overload.” • University Health Network, Toronto General Hospital, Canada - 2012 Guidelines for the Care of Patients in the UHN Red Blood Cells Disorders Program commented: “R2-MRI (FerriScan®) appears to be the most accurate non-invasive measure of hepatic iron loading.”…”MRI is the primary tool used to monitor and make decisions regarding change in chelator dose or strategy.” 5 YEAR IN REVIEW (CONT) • The Northern California Comprehensive Thalassemia Network and Children’s Hospital, Oakland - 2012 Thalassemia Standards of Care Guideline states: “While liver biopsy determination of LIC has been recommended for years, recent progress with MRI This application follows the successful completion of a clinical trial to assess the technology and the development of the HepaFat- Scan™ product. The outcomes of the study will be presented at the American Association for the Study of Liver Diseases (AASLD) imaging provides an expedient and non- invasive way to directly meeting in November and have been submitted for publication in measure LIC, as well as iron concentration in multiple organs. A a peer-reviewed journal. The Company has lodged a provisional FerriScan® is a commercially available and validated system for patent application for HepaFat-Scan™ in Australia. quantitative MRI measurements of iron.” Reimbursement The incidence of fatty liver disease is increasing throughout the world, aff ecting up to one third of the worldwide population and is now the primary form of liver disease amongst children. Gaining reimbursement for FerriScan® remains a key objective Common risk factors include obesity, a high fat diet, lack of of the Company to ensure access to FerriScan® for all patients. exercise, high alcohol intake, diabetes and insulin resistance. Within the US we have held numerous meetings with large insurance payers within our target markets and have received positive feedback. The increasing availability of FerriScan® and published data supporting the use of FerriScan® to improve the outcome for patients are important steps towards achieving this milestone. Changes to the Australian Medical Services Advisory Committee (MSAC) framework has meant that we have put on hold further submissions for reimbursement of FerriScan® in Australia until we can gain more certainty as to the process for evaluation and decision making. We continue to gain increasing support from the Australian clinical community, evidenced by the recent release of the Australian Guidelines for the assessment of iron overload and iron chelation in transfusion-dependent thalassaemia major, sickle cell disease and other congenital anaemias, which stated ‘The quantitation of liver iron by MRI is one of the most signifi cant recent advances in iron monitoring. The most widely adopted method is based on the measurement of tissue proton transverse relaxation rates (R2) (FerriScan®), showing excellent correlation with liver iron concentration (LIC) measured by biopsy.’ Pipeline Products We continue to invest in research and development activities within our core strength of quantitative MRI with a specifi c focus on the liver. HepaFat Scan™ and the measurement of liver fi brosis represent signifi cant opportunities as valuable diagnostic tools in the management of patients with conditions that are growing rapidly in prevalence. HepaFat-Scan™ An application has been made to the US Food and Drug Administration (FDA) for HepaFat-Scan™ which provides an accurate measurement of the amount of fat in the patient’s liver. Commercialisation of HepaFat-Scan™ off ers an exciting these patients. opportunity to assist clinicians treating Pharmaceutical companies are also developing therapies to meet the needs of this expanding market and require access to an accurate non-invasive diagnostic tool for their clinical trials. Liver Fibrosis Resonance Health is conducting a liver fi brosis study in collaboration with Pfi zer and the Austin Hospital in Melbourne. The aim of this study is to develop an MRI-based assessment for measuring and staging liver fi brosis. Liver fi brosis is the scarring process that represents the liver’s response to injury. The liver repairs injury through the deposition of collagen. This injury may be caused by a number of factors such as excess fatty deposits, viral hepatitis, iron overload or excess alcohol consumption. Over time the build-up of fi brotic tissue can result in liver cirrhosis. Liver disease is now one of the top fi ve causes of death in middle-age. The progression of liver fi brosis can however be slowed and the condition potentially even reversed if detected and treated early. The recruitment of patients for the liver fi brosis study was completed in December 2011. The liver biopsy tissue samples are assessed for fi brosis using two methods; the visual assessment of fi brosis by a histopathologist and the computer- assisted assessment using the digitised pathology slides. These assessments will be compared to the MRI measurements so an assessment of the MRI technology for measuring liver fi brosis can be made. 6 Resonance Health Limited Annual Report 2012 DIRECTORS’ REPORT The Directors present their report on the consolidated entity, consisting of Resonance Health Limited and the entities it controlled, together with the annual fi nancial report for the fi nancial year ended 30 June 2012. In order to comply with the provisions of the Corporations Act, the directors report as follows: Directors The names, qualifi cations and experience of directors in offi ce during the fi nancial year and until the date of this report are as follows. Directors were in offi ce for this entire period unless otherwise stated. Dr Martin Blake MBBS, FRANZCR, MBA, GAICD Position: Chairman — Independent and Non-Executive (appointed as Director 4 October 2007 and as Chairman 16 December 2010) Experience: Dr Blake is a Radiologist and Nuclear Physician and brings signifi cant technical and industry experience to Resonance Health. He has been a Partner of Perth Radiological Clinic since Ms Liza Dunne B.Bus, GDipAppFin, GAICD Position: Managing Director — Executive (appointed 23 October 2008) Experience: Ms Dunne joined Resonance Health in October 2003 and has been actively involved in all aspects of the business including business development, commercialisation of FerriScan, developing alliances with pharmaceutical industry partners and obtaining regulatory approval in various countries. 1997 and is currently the Chairman of that Company. Ms Dunne has in depth experience in senior positions across Dr Blake has an MBA from Melbourne University, is a Graduate of the Australian Institute of Company Directors and holds directorships on a number of private Company boards. Other current directorships: None Former directorships in last 3 years: None Special responsibilities: Chairman of the Audit Committee industry. She worked for IBM for eleven years in fi nancial, marketing and management positions and spent fi ve years with KPMG Consulting working across a broad spectrum of industry and project areas that focused on improved business processes and implementation of new technology. Ms Dunne holds a Business Degree, a Graduate Diploma in Applied Finance and is a Graduate of the Australian Institute of Company Directors. Other current directorships: None Chairman of the Remuneration Committee (from 16 December 2010) Former directorships in last 3 years: None 7 DIRECTORS’ REPORT (CONT) Mr Simon Panton Position: Director — Non-Executive (appointed 5 October 2009) Experience: Mr Panton has been a strong supporter of the Company and the FerriScan technology over a number Dr Timothy St Pierre B.Sc(Hons), PhD Position: Director — Executive (appointed 21 August 2006) Experience: Dr St Pierre is widely published in the fi eld of iron in medicine and biology of years and is a major shareholder of Resonance Health. Mr and has built a reputation as a physicist with an outstanding Panton brings skills in business and marketing having run his understanding of the fundamental properties of the iron own successful business. Other current directorships: None Former directorships in last 3 years: None Special responsibilities: Member of the Audit Committee Member of the Remuneration Committee deposits that occur in iron overload diseases. Dr St Pierre, a Professor at The University of Western Australia, led the team which developed the FerriScan technology. Dr St Pierre has strong links with international key opinion leaders in the fi eld of iron overload diseases and regularly participates in international research collaborations. Dr St Pierre won a Clunies Ross Award from the Australian Academy of Technological Sciences and Engineering for his work on non-invasive measurement of tissue iron deposits. Other current directorships: None Former directorships in last 3 years: None Special responsibilities: None Chief Financial Offi cer/ Company Secretary Mrs Naomi Haydari B.Bus, B SSc, CPA Position: Chief Financial Offi cer/ Company Secretary (appointed 19 March 2012) Experience: Mrs Haydari has experience in managing the fi nancial obligations of ASX listed corporations across a diverse range of industries. Mrs Haydari holds a Business Degree (Accounting), a Social Science Degree, is a qualifi ed CPA and is currently completing her MBA at Deakin University. 8 88 Resonance Health Limited Annual Report 2012 Interests in the Shares of the Company large clinical need for patients with fatty liver disease and viral The following relevant interests in shares of the Company were hepatitis. held by the directors during the period. There has been no Financial Summary: change in directors’ and executives shareholdings to the date of Number of fully paid ordinary shares result of $1,745,864. Revenue was negatively impacted by the this report. Directors Dr M Blake Ms L Dunne Mr S Panton Dr T St Pierre Total Executives Mrs N Haydari Total 6,224,677 3,153,385 65,960,972 9,078,750 84,417,784 - - Incentive Shares and Options The Company does not have an option plan. Accordingly, no options were issued as part of remuneration to directors or specifi ed executives during the current or previous fi nancial year. Dividends Paid or Recommended Revenue for the year ended 30 June 2012 was $1,562,242 representing a decrease of 11% from the previous year’s strengthening of the Australian dollar with approximately 80% of the Company’s revenue received in US dollars. Revenue associated with the clinical use of FerriScan® continues to increase and now represents over 40% of sales revenue, reducing the Company’s reliance on sales contracts with pharmaceutical companies. Total sales volumes for FerriScan® and Cardiac T2* image analysis increased by 14% over the previous year. Volumes in the UK and USA grew by 36% and 28% respectively and in Canada by 6%. The Company’s Cardiac T2* test to assess iron overload in the heart was launched in the US following marketing clearance from the US Food and Drug Administration (FDA). Growth in volumes and revenues were also attributable to contracts signed with fi fteen new customers during the year. A net loss was recorded for the year of $268,601 compared to a net loss of $316,829 in the previous fi nancial year. Overall No dividend was paid or declared for the fi nancial year. expenditure decreased 9% to $2,222,314 from $2,436,740 in the Principal Activities previous year. The Company’s business involves the development and commercialisation of technologies and services for the quantitative analysis of radiological images in a regulated and quality controlled environment. The Company’s core product is FerriScan®, a non-invasive liver diagnostic technology used for the measurement of iron in the liver. Review of Operations Resonance Health Limited is an Australian healthcare listed Company located in Perth, Western Australia, specialising in Resonance Health has cash at bank of $1,180,174 at the end of the fi nancial year, compared to $1,503,479 in the previous fi nancial year and has no debt. Net cash provided by operating activities was $83,211. Research and development expenditure during the year totalled $508,649. This comprised capitalised development costs of $334,144 that are recognised as an intangible asset on the Statement of Financial Position and expenditure of $80,408 recognised in Research and Development in the Statement of Comprehensive Income and $94,097 recognised in Employee Benefi ts. the provision of image analysis services and the development Research and development expenditure was primarily associated of quantitative MRI diagnostic technology, with a sub-specialty with the development of an MRI-based liver fi brosis test and an in the liver. All services are provided under an ISO 13485:2003 MRI-based liver fat test. The Company’s HepaFat-Scan™ software certifi ed quality management system. Resonance Health’s FerriScan® technology for accurately measuring liver iron concentration has FDA, CE Mark and TGA certifi cation and is being used in over 20 countries. FerriScan® is provided to the market through the Company’s central image analysis facility which also off ers a range of services for clinical trials in the pharmaceutical and biotechnology industries. product to measure liver fat has been submitted to the FDA for marketing clearance. This follows the successful completion of a clinical study to assess the performance of HepaFat-Scan™ compared to the results obtained from a liver biopsy and the development of a software tool to perform the quantifi cation of liver fat from magnetic resonance images. A patent has been submitted for the HepaFat-Scan™ IP which has produced very positive results compared to other imaging techniques for The Company is also developing imaging tools for the non- invasive assessment of liver fat and liver fi brosis to address a assessing liver fat. 9 DIRECTORS’ REPORT (CONT) The development of a magnetic resonance imaging test to the Corporations Act 2001. It is not possible to apportion the assess liver fi brosis is continuing and represents a signifi cant premium between amounts relating to the insurance against commercial opportunity for the Company. Resonance Health has legal costs and those relating to other liabilities. collaborated with Pfi zer on a clinical trial to assess the Company’s imaging technology for the staging of liver fi brosis. Patient recruitment has been completed for the study together with all MRI measurements. The project has experienced some delays in gaining the liver fi brosis measurements from liver biopsy. Once these have been received a determination of the success of the project can be made. Operating Results The net loss of the consolidated entity for the fi nancial year after tax was $268,601 (2011: $316,829). REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for the key management personnel of Resonance Health Limited for the fi nancial year ended 30 June 2012. The information provided in this remuneration report has been audited as required by Section 308 (3C) of the Corporations Act 2001. The remuneration report details the remuneration arrangements for key management personnel who are defi ned as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, Signifi cant Changes in State of Aff airs directly or indirectly, including any director (whether executive or There were no signifi cant changes in the state of aff airs of the otherwise) of the parent Company and the Company Secretary. Company during the fi nancial year. Key Management Personnel Signifi cant Events After Balance Date (i) Directors No other matters or circumstances have arisen since the end of Dr Martin Blake – Chairman the fi nancial year which signifi cantly aff ected or may signifi cantly aff ect the operations of the Company and the consolidated Ms Liza Dunne – Managing Director entity, the results of those operations, or the state of aff airs in Mr Simon Panton future fi nancial years. Likely Developments and Expected Results of Operations Dr Timothy St Pierre (ii) Executives Comments on expected results of the operations of the Mrs Naomi Haydari - Company Secretary (appointed 19 March consolidated entity are included in this report under the review 2012) of operations. Mr Colin McDonald – Company Secretary (resigned 19 March Disclosure of information regarding likely developments in the 2012) operations of the consolidated entity in future fi nancial years and the expected results of those operations is likely to result Remuneration Policy in unreasonable prejudice to the Company. Accordingly, this The Board’s policy for determining the nature and amount of information has not been disclosed in this report. remuneration for Board members and senior executives of the Environmental Legislation consolidated entity is as follows: The consolidated entity’s operations are not subject to any signifi cant environmental legislation. Indemnifi cation and Insurance of Directors and Offi cers The Company has agreed to indemnify all the directors and secretaries of the Company for any liabilities to another person (other than the Company or related body corporate) that may arise from their position as directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. During the fi nancial year the Company paid a premium of $13,000 (2011: $13,000) to insure the directors and secretaries of the Company and its controlled entities against any liability incurred in the course of their duties to the extent permitted by • set competitive remuneration packages to attract the highest calibre of employees in the context of prevailing market conditions, particular experience of the individual concerned and the overall performance of the Company; and • reward employees for performance that results in long-term growth in shareholder wealth, with the objective of ensuring maximum stakeholder benefi t from the retention of a high quality board and executive team. The Board of Resonance Health Limited believes the remuneration policy to be appropriate and eff ective in its ability to attract and retain the best executives and directors to run and manage the consolidated entity, as well as create goal congruence between directors, executives and shareholders. 10 Resonance Health Limited Annual Report 2012 Remuneration Committee The Remuneration Committee of the Board of Directors of the Company is responsible for determining and reviewing All executives (except Dr St Pierre) receive a base salary (which is based on factors such as length of service and experience), superannuation and fringe benefi ts. compensation arrangements for directors and the executive Executives receive a superannuation guarantee contribution team. The remuneration policy, setting the terms and conditions for the required by the government, which is currently 9%, and do not receive any other retirement benefi ts. executive directors and other senior executives, was developed (ii) Variable Remuneration by the remuneration committee and approved by the Board. All bonuses and incentives are linked to predetermined The remuneration committee reviews executive packages performance criteria. The Board may, however, exercise its annually by reference to the consolidated entity’s performance, discretion in relation to approving incentives and bonuses, and executive performance and comparable information from can recommend changes to the committee’s recommendations. industry sectors and other listed companies in similar industries. Any changes must be justifi ed by reference to measurable The assistance of an external consultant or remuneration surveys performance criteria. are used where necessary. Remuneration Structure In accordance with best practice Corporate Governance, the structure of non-executive director and executive remuneration is separate and distinct. Non-executive Director Remuneration The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Non-executive directors’ fees not exceeding an aggregate of $250,000 per annum have been approved by the Company in a general meeting. All remuneration paid to directors and executives is valued at the cost to the Company and expensed or capitalised. Securities given to directors and executives are valued as the diff erence between the market price of those shares and the amount paid by the director or executive. There are currently no securities on issue. Executive Offi cer’s Employment Agreements Ms Dunne was appointed to the role of Managing Director of Resonance Health Ltd on 23 October 2008. Her employment agreement provides for a salary of $272,500 pa inclusive of superannuation and the provision of one months notice for termination or resignation without cause. The amount listed on Page 8 of $234,770 is due to a reduction in working hours for a period throughout the current fi nancial year. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The Board considers fees paid to non-executive directors of comparable companies when undertaking the annual review process. Mrs Haydari was appointed to the role of Company Secretary of Resonance Health Ltd on 19 March 2012. Her employment agreement provides for an equivalent full time salary of $136,250 pa inclusive of superannuation for 22.5 hours per week and the provision of one months notice for termination or resignation Each of the non-executive directors receives a fi xed fee for their without cause. services as directors. There is no direct link between remuneration Consultancy Services Agreement for Executive Director Dr paid to any of the directors and corporate performance. Tim St Pierre Executive Remuneration Remuneration consists of fi xed remuneration and variable remuneration. (i) Fixed Remuneration The Company has an agreement with The University of Western Australia (UWA) for consulting services provided by Dr St Pierre. Under this agreement consulting services provided for duties of Chief Scientifi c Offi cer totalling $108,844 (2011: $127,407) and a fi xed fee for his services as a director of $10,000 (2011: Fixed remuneration is reviewed annually. The process consists of $40,000) were incurred during the fi nancial year. These amounts a review of relevant comparative remuneration in the market and are included in Dr Tim St Pierre’s remuneration disclosed in the internally, and where appropriate, external advice on policies and following table. practices. The Committee has access to external, independent advice where necessary. 11 DIRECTORS’ REPORT (CONT) Details of Remuneration for Year Ended 30 June 2012 The remuneration for each key management personnel of the consolidated entity during the year was as follows: Remuneration of directors and executives Short-term employee benefi ts Salary & Fees $ Post employment benefi ts Superannuation Contributions $ Non-Executive Directors’ remuneration Dr M Blake Mr S Panton 55,046 21,407 Total 76,453 Executive Directors’ remuneration 215,385 Ms L Dunne Dr T St Pierre 1 118,844 Total 334,229 Other Executives’ remuneration Mrs N Haydari 2 Mr C McDonald 3 20,962 61,455 Total 82,417 4,954 1,927 6,881 19,385 - 19,385 1,887 5,507 7,394 Equity Total Shares $ - - - - - - - - - $ 60,000 23,334 83,334 234,770 118,844 353,614 22,849 66,962 89,811 Performance Related % - - - - - - - - 1 Dr St Pierre’s remuneration represents directors’ fees earned during the fi nancial year and consulting fees for duties as Chief Scientifi c Offi cer paid to The University of Western Australia in full. 2 Mrs Naomi Haydari was appointed Company Secretary on 19 March 2012. 3 Mr Colin McDonald resigned as Company Secretary on 19 March 2012. Details of Remuneration for Year Ended 30 June 2011 The remuneration for each key management personnel of the consolidated entity during the year was as follows: Remuneration of directors and executives Short-term employee benefi ts Salary & Fees $ Post employment benefi ts Superannuation Contributions $ Non-Executive Directors’ remuneration Dr S Washer 1 Dr M Blake Mr S Panton 28,361 46,636 36,697 Total 111,694 Executive Directors’ remuneration Ms L Dunne 2 217,396 Dr T St Pierre 3 167,407 Total 384,803 Other Executives’ remuneration Ms E O’Malley 4 Mr C McDonald 5 45,802 50,667 Total 96,469 2,552 4,197 3,303 10,052 19,566 - 19,566 3,187 4,560 7,747 Equity Total Shares $ - - - - 10,000 - - - - - $ 30,913 50,833 40,000 121,746 246,962 167,407 414,369 48,989 55,227 104,216 Performance Related % - - - - 4.0 - - - - 1 Dr Washer resigned on 16 December 2010. 2 Ms Dunne was given fully vested shares to the value of $10,000 in recognition of her performance to the Company. 3 Dr St Pierre’s remuneration represents directors’ fees earned during the fi nancial year and consulting fees for duties as Chief Scientifi c Offi cer. 4 Ms O’Malley resigned as Company Secretary on 16 December 2010. 5 Mr McDonald was appointed Company Secretary on 16 December 2010. 12 Resonance Health Limited Annual Report 2012 Meetings of Directors The number of meetings of the Company’s Board of directors and each Board committee held during the year ended 30 June 2012, and the numbers of meetings attended by each director were: Director Meetings Audit Committee Meetings Remuneration Committee Meetings Number eligible Number Number eligible Number Number eligible Number To attend attended To attend attended To attend attended Dr M Blake Ms L Dunne Mr S Panton Dr T St Pierre 7 7 7 7 Corporate Governance 7 7 7 6 2 - 2 - 2 2 2 1 - - - - - - - - In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Resonance Health Limited support and adhere to the principles of corporate governance. The Company’s corporate governance statement is contained in the following section of this annual report. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditor Independence and Non-audit Services Section 307C of the Corporations Act 2001 requires our auditors, HLB Mann Judd, to provide the directors of the Company with an Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out on page 19 and forms part of this directors’ report for the year ended 30 June 2012. Non-audit Services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 22 to the fi nancial statements. The directors are satisfi ed that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services do not compromise the auditor’s independence as all non-audit services have been reviewed to ensure that they do not impact the integrity and objectivity of the auditor and none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board. This report is made in accordance with a resolution of the Board of Directors. Dr Martin Blake Chairman Perth, Western Australia Dated this 28 September 2012 13 Resonance Health Limited Annual Report 2012 CORPORATE GOVERNANCE STATEMENT Resonance Health Limited is committed to protecting and enhancing shareholder value and adopting best practice governance policies and practices. This Corporate Governance Statement outlines the main Corporate Governance practices that were in place throughout the fi nancial year, which comply with the Australian Securities Exchange (‘ASX’) Corporate Governance Council published guidelines as well as its corporate governance principles and recommendations unless otherwise stated. Where a recommendation has not been followed, this is clearly stated along with an explanation for the departure. Principle 1 Lay solid foundations for management and oversight The Board is the governing body of the Company. The Board and the Company act within a statutory framework – principally the Corporations Act and also the Constitution of the Company. Subject to this statutory framework, the Board has the authority and the responsibility to perform the functions, determine the policies and control the aff airs of Resonance Health Limited. The Board must ensure that Resonance Health Limited acts in accordance with prudent commercial principles, and satisfi es shareholders – consistent with maximising the Company’s long term value. The Company has established the functions reserved to the Board. The Board Charter summarises the role, responsibilities, policies and processes of the Board of Resonance Health Limited and comments on the Board’s approach to corporate governance. The primary responsibilities of the Board include: • Charting the direction, strategies and fi nancial objectives of the Company and ensuring appropriate resources are available • Monitoring the implementation of those policies and strategies and the achievement of those fi nancial objectives • Monitoring compliance with control and accountability systems, regulatory requirements and ethical standards • Ensuring the preparation of accurate fi nancial reports and statements • Reporting to shareholders and the investment community on the performance and state of the Company • Appoint and monitor the performance of senior executives • Establish proper succession plans for management of the Company The Company has established the functions delegated to senior executives. The Board Charter summarises the role and responsibilities of the Managing Director and the Company Secretary. The Board delegates responsibility for day to day management of the Company to the Managing Director. However, the Managing Director must consult the Board on matters that are sensitive, extraordinary or of a strategic nature. The Company Secretary supports the eff ectiveness of the Board. Separate functions of the Board and management existed and were practised throughout the year. ASX Corporate Governance Council Principle 1 recommendation 1.2 requires companies to disclose the process for evaluating the performance of senior executives. The performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the achievement of agreed milestones. Details of matters reserved to the Board and delegated to senior executives are outlined in the Board Charter. A copy of the Board Charter is publically available on the Company’s website. The Board complied with the ASX Corporate Governance Council Principle 1 at all times during the year except as noted above. Principle 2 Structure the Board to add value The composition of the Board has been determined on the basis of providing the Company with the benefi t of a broad range of technical, commercial and fi nancial skills, combined with an appropriate level of experience at a senior corporate level. Details of each Director’s skills and experience are set out in the Directors’ report. 14 Resonance Health Limited Annual Report 2012 The ASX guidelines recommend that a listed Company should have a majority of Directors who are independent. The Board did not comply with the ASX Corporate Governance Council Principle 2 Recommendation 2.1 throughout the year. The Board did not have a majority of independent Directors at all times during the fi nancial year. A Director is considered independent when the Director does not have any relationship with the Company that would be considered to aff ect the independent status as outlined in the ASX Corporate Governance Council Principle 2 Recommendation 2.1. In the context of director independence, ‘materiality’ is considered from both the Company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal or less than 5% of the appropriate base amount. It is presumed to be material (unless there is evidence to the contrary) if it is equal or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point at the actual ability in question to shape the direction of the Company’s loyalty. Directors during the fi nancial year were: • Dr Martin Blake – Independent – Chairman • Ms Liza Dunne – Executive – Not independent – Managing Director • Mr Simon Panton – Not independent – substantial shareholder • Dr Tim St Pierre – Executive – Not independent – Chief Scientifi c Offi cer A description of the skills and experience of each director and their period of offi ce is disclosed in the Directors’ Report. The ASX Corporate Governance Council Principle 2 Recommendation 2.2 recommends that the Chairman should be an independent director. The role of Chairman was performed by an independent director at all times during the fi nancial year. The ASX Corporate Governance Council Principle 2 Recommendation 2.3 recommends that the roles of Chairman and Managing Director be exercised by diff erent individuals. The Company complied with this recommendation at all times during the fi nancial year. The roles of Chairman and Managing Director are exercised by diff erent individuals, providing for clear division of responsibility at the head of the Company. Their roles and responsibilities, and the division of responsibilities between them, are clearly understood and there is regular communication between them. Directors are subject to re-election by rotation at annual general meetings as stipulated in the Corporations Act and the Company’s Constitution. There is no maximum term for non-executive director appointments. Newly elected Directors must seek re-election at the fi rst general meeting of shareholders following their appointment. The remuneration of the Directors is determined by the Nomination and Remuneration Committee. Further information and the components of remuneration for Directors are set out in the Directors’ Report. ASX Corporate Governance Council Principle 2.4 recommends that the Nomination Committee should consist of a majority of independent Directors, be chaired by an independent Director and have at least three members. The members of the Nomination and Remuneration Committee during the fi nancial year were: • Dr Martin Blake – (Chairman) – Independent • Mr Simon Panton – Not Independent Due to having only two Non-executive Directors, the two are members of the Nomination and Remuneration Committee. The number of meetings attended by each member of the Nomination and Remuneration Committee are detailed in the Directors’ Report. ASX Corporate Governance Council Principle 2.5 recommends that the performance of the Board should be reviewed regularly against appropriate measures. The Company does not have a formal process for evaluating the performance of the Board, its Committees or individual Directors. Accordingly, there was no formal evaluation of the Board, its Committees or individuals Directors during the reporting period. The Company has a procedure in place for Directors to take independent professional advice at the expense of the Company. 15 Resonance Health Limited Annual Report 2012 CORPORATE GOVERNANCE STATEMENT (CONT) Prior to the appointment of a new director, the Nomination and Remuneration Committee assesses the skills represented on the Board by the non-executive Directors and determines whether those skills meet the skills identifi ed as required. The Committee will then implement a process to identify suitable candidates for appointment. The Committee makes recommendations to the Board on candidates it considers appropriate for appointment. Induction procedures are in place to ensure new Directors are able to participate fully and actively in Board decision-making at the earliest opportunity. Directors are encouraged to engage in continuing education and are encouraged to update and enhance their skills and knowledge. Directors meet regularly to discuss the performance of the Company and to attend to regulatory requirements. The Company Secretary distributes information before each Board meeting to enable Directors to discharge their duties eff ectively. The Company’s Constitution requires a director of the Company to not hold offi ce without re-election past the third annual general meeting following the director’s appointment or three years, whichever is longer. The Company discloses its Nomination and Remuneration Committee Charter on the Company’s website. The Board complied with the ASX Corporate Governance Council Principle 2 at all times during the year except as noted above. Principle 3 Promote ethical and responsible decision-making The Board places great emphasis on ethics and integrity in all its business dealings. In regards to Principle 3.1 the Board considers the business practices and ethics exercised by individual Board members and key executives to be of the highest standards. The Company has a code of conduct as to the: • practices necessary to maintain confi dence in the Company’s integrity; • practices necessary to take into account their legal obligations and the expectations of shareholders; and • responsibility and accountability of individuals for reporting and investigating reports of unethical practices. These practices are outlined in the Company’s Board Charter, Communication Policy, Continuous Disclosure Charter, Share Trading Policy, Audit and Risk Charter and Nomination and Remuneration Charter. These documents are disclosed on the Company’s website. Trading in the Company’s shares The Company’s policy restricts Directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be refl ected in the securities’ prices. Statutory provisions of the Corporations Act dealing with insider trading have been strictly complied with. The Company’s Share Trading Policy is disclosed on the Company’s website. Diversity Policy The Board currently does not have a Diversity Policy. Gender Diversity is demonstrated within the Company as follows: Resonance Health currently has one female member of a four member board. The Managing Director, CFO/Company Secretary and three Managers of the Company are women. Currently, Resonance Health has women hold 25% of total Board membership. Additionally 38.5% of the all current employees are women and 38.5% of all Management/Executive roles are fi lled by women. The Board currently has no measurable objectives on achieving greater gender diversity within the Company. The Board complied with the ASX Corporate Governance Council Principle 3 Recommendations at all times during the year. 16 Resonance Health Limited Annual Report 2012 Principle 4 Safeguard integrity in fi nancial reporting The Board has established an Audit and Risk Committee that operates in accordance with the Company’s Audit and Risk Charter. It is the Board’s responsibility to ensure that an eff ective internal control framework exists within the entity. This includes internal controls to deal with both the eff ectiveness and effi ciency of signifi cant business processes, including the safeguarding of assets, the maintenance of proper accounting records, and the reliability of fi nancial information. The Board has delegated responsibility for the establishment and framework of internal controls and ethical standards for the management of the consolidated entity to the Audit Committee. The Committee also provides the Board with additional assurance regarding the reliability of fi nancial information for inclusion in the fi nancial reports. All members of the Audit Committee are non-executive Directors. ASX Corporate Governance Council Principle 4.2 recommends that the Audit Committee should consist only of non-executive with a majority of independent Directors, be chaired by an independent director who is not chair of the Board and have at least three members. The members of the Audit and Risk Committee during the fi nancial year were: • Dr Martin Blake (Chairman) - Independent • Mr Simon Panton – Not independent The qualifi cations of each member of the Audit and Risk Committee and the number of meetings attended are detailed in the Directors’ Report. The Audit and Risk Committee generally invites the Managing Director, Company Secretary, and external auditors to attend meetings. The Company discloses its Audit and Risk Committee Charter on the Company’s website. The Company’s external auditors have a policy for the rotation of audit engagement partners. A new Audit Partner was assigned to the Company with eff ect for the 2009 fi nancial year in line with this policy. The Board has not complied with the ASX Corporate Governance Council Principle 4 Recommendations at all times during the year. Due to there being only two non-executive directors on the Board from 16 December 2010, it was not possible to have three members on the committees at all times. The Chairman of the Board is also Chairman of the committee which is not in accordance with Principle 4.2, and this is also a result of having only two non-executive directors. Principle 5 Make timely and balanced disclosure The Company complies with all disclosure requirements to ensure that Resonance Health manages the disclosure of price sensitive information eff ectively and in accordance with the requirements as set out by regulatory bodies. The Managing Director and Company Secretary are authorised to communicate with shareholders and the market in relation to Board approved disclosures. The Company has a written policy designed to ensure compliance with ASX Listing Rule disclosures and accountability at a senior executive level for that compliance. The details of this policy are outlined in the Company’s Continuous Disclosure Charter which is displayed on the Company’s website. All announcements made to the ASX are placed on the Company’s web site immediately after public release. The Board complied with the ASX Corporate Governance Council Principle 5 Recommendations at all times during the year. Principle 6 Respect the rights of shareholders The Company has a Communications Policy that details the Company’s strategy to communicate with shareholders and actively promote shareholder involvement in the Company. It aims to continue to increase and improve the information available to shareholders on its website. All Company announcements, presentations to analysts and other signifi cant briefi ngs are posted on the Company’s website after release to the Australian Securities Exchange. The Board complied with the ASX Corporate Governance Council Principle 6 Recommendations at all times during the year. 17 Resonance Health Limited Annual Report 2012 Principle 7 Recognise and manage risk The Board oversees the establishment, implementation and ongoing review of the Company’s risk management and internal control system. Recommendation 7.1 requires that the Company has a formal risk management policy and internal compliance and control system. Resonance Health Limited, through its operating subsidiary Resonance Health Analysis Services Pty Ltd, maintained a Quality Management System (QMS) to international standards ISO13485:2003 for the whole fi nancial year which encompass formal risk analysis processes. Recommendation 7.2 requires implementation and review of the Company’s risk management and internal control system. The Company did not have a separately established risk committee. However, the duties and responsibilities typically delegated to such a committee are expressly included in the role of the Audit and Risk Committee and the main Board. The Board does not believe that any marked effi ciencies or enhancements would be achieved by the creation of a separate risk committee. In addition, the QMS requires the appointment of a Management Representative that reports directly to the Board of Directors. The Company also has in place classes of insurance at levels which, in the reasonable opinion of the Directors, are appropriate for its size and operations. Management has reported the eff ectiveness of the Company’s management of its material business risks to the Board during the reporting period. In accordance with Recommendation 7.3 the Managing Director and the Chief Financial Offi cer provide written statements at each reporting period regarding the integrity of the fi nancial statements and the Company’s risk management and internal compliance and control systems. The Company’s Audit and Risk Charter is displayed on the Company’s website. The Company’s external auditor is invited to attend the annual general meeting and questions from shareholders regarding the conduct of the audit and the preparation and content of the auditor’s report are welcomed. The Company’s Communication Policy is displayed on the Company’s website. The Board complied with the ASX Corporate Governance Council Principle 7 Recommendations at all times during the year. Principle 8 Remunerate fairly and responsibly The Board has a Nomination and Remuneration Committee. Members of the Committee are outlined under Principle 2 above. ASX Corporate Governance Council Principles recommend that the Remuneration Committee should consist of a majority of independent Directors, be chaired by an Independent Director and have at least three members. Ms Dunne, an Executive Director, resigned from the Nomination and Remuneration Committee on 24 March 2010. From this date the Company has not complied with this recommendation due to the small size of the Board. The Nomination and Remuneration Committee regularly review the level and composition of remuneration of non-executive Directors, executive Directors and senior management with regards to industry best practice, Company and individual performance. During Financial year ended 30 June 2012 the Nomination and Remuneration Committee did not meet. The Company pays fees to the University of Western Australia for services provided by Dr St Pierre who is an executive Director of the Company. All executive employees receive a base salary and superannuation. The Company does not have a share or option incentive plan. Accordingly, executive employees do not receive any equity based remuneration unless specifi cally approved on a case by case basis at a general meeting. The members of the Nomination and Remuneration Committee are outlined in Principle 2. Their attendance at Nomination and Remuneration Committee meetings is detailed in the Directors’ Report. Director disclosure requirements are detailed in the notes to the fi nancial statements. The Nomination and Remuneration Committee Charter is displayed on the Company’s website. The Board complied with the ASX Corporate Governance Council Principle 8 Recommendations at all times during the year except as detailed above. 18 Resonance Health Limited Annual Report 2012 AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the fi nancial report of Resonance Health Limited for the year ended 30 June 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) any applicable code of professional conduct in relation to the audit. This declaration is in respect of Resonance Health Limited. This declaration is in respect of Resonance Health Limited. Perth, Western Australia 28 September 2012 N G NEILL Partner, HLB Mann Judd HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting fi rms and business advisers. 19 Resonance Health Limited Annual Report 2012 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012 Sales revenue Other income Revenue Employee benefi ts expense Consulting and professional services Research and development Depreciation Marketing and travel Statutory and compliance Foreign exchange gain/(loss) Other expenses (Loss) before income tax benefi t Income tax benefi t Notes 2(a) 2(b) Consolidated 2012 $ 1,562,242 226,377 2011 $ 1,745,864 187,447 1,788,619 1,933,311 (1,444,930) (1,329,333) (54,098) (80,408) (20,298) (198,952) (136,659) 57,042 (344,011) (33,022) (140,632) (21,169) (349,380) (133,900) (146,160) (283,144) (433,695) (503,429) 3 165,094 186,600 Net (loss) for the year attributable to owners of the parent (268,601) (316,829) Other comprehensive income Exchange diff erences arising on translation of foreign operations Exchange diff erences arising on translation of foreign loan Other comprehensive (loss) for the year, net of tax Total comprehensive (loss) for the year attributable to owners of the parent (91,544) 30,599 (60,945) 146,934 (153,048) (6,114) (329,546) (322,943) Basic (loss) per share (cents per share) 5 (0.1) (0.1) The accompanying notes form part of these fi nancial statements. 20 Resonance Health Limited Annual Report 2012 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 Note Consolidated 2012 $ 2011 $ 7 8 9 10 11 12 9 13 14 15 1,180,174 1,503,479 756,834 26,970 877,619 29,498 1,963,978 2,410,596 37,152 1,291,544 3,004 58,391 46,023 957,400 3,004 58,120 1,390,091 1,064,547 3,354,069 3,475,143 390,051 329,514 719,565 68,488 68,488 427,695 151,886 579,581 - - 788,053 579,581 2,566,016 2,895,562 16(a) 67,534,039 67,534,039 14,930 75,875 (64,982,953) (64,714,352) 2,566,016 2,895,562 Current Assets Cash and cash equivalents Trade and other receivables Other assets Total Current Assets Non-Current Assets Plant and equipment Intangible assets Other fi nancial assets Other assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Other liabilities Total Current Liabilities Non-Current Liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Accumulated losses Total Equity The accompanying notes form part of these fi nancial statements. 21 Resonance Health Limited Annual Report 2012 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012 Consolidated Foreign Currency Issued Capital $ Translation Option Accumulated Reserve Reserve Losses Total Equity $ $ $ $ Balance at 1 July 2010 67,524,039 15,705 66,284 (64,397,523) 3,208,505 Total comprehensive (loss) for the year - (6,114) Shares issued during the year 10,000 - - - (316,829) (322,943) - 10,000 Balance at 30 June 2011 67,534,039 9,591 66,284 (64,714,352) 2,895,562 Total comprehensive (loss) for the year Shares issued during the year - - (60,945) - - - (268,601) (329,546) - - Balance at 30 June 2012 67,534,039 (51,354) 66,284 (64,982,953) 2,566,016 The accompanying notes form part of these fi nancial statements. 22 Resonance Health Limited Annual Report 2012 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012 Cash fl ows from operating activities Receipts from customers Payments to suppliers and employees Grants received Interest received Income tax received Note Consolidated 2012 $ 2011 $ Infl ows/(Outfl ows) 1,393,151 1,795,564 (1,727,373) (2,101,537) 128,106 124,233 165,094 109,305 80,120 - Net cash provided by / (used in) operating activities 7(i) 83,211 (116,548) Cash fl ows from investing activities Payments for plant and equipment Payments for intangible assets (11,427) (414,073) (4,805) (472,880) Net cash (used in) investing activities (425,500) (477,685) Net (decrease) in cash and cash equivalents Foreign exchange diff erences on cash balances Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of the period 7 (342,289) 18,984 1,503,479 1,180,174 (594,233) (36,172) 2,133,884 1,503,479 The accompanying notes form part of these fi nancial statements. 23 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1: Statement of signifi cant accounting policies (a) Basis of preparation The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and complies with other requirements of the law. The fi nancial report has been prepared on a historical cost basis, except for available-for-sale investments, which have been measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. The fi nancial report is presented in Australian dollars. The Company is a listed public Company, incorporated and operating in Australia and the United States of America. The entity’s principal activities are the development of magnetic resonance imaging related technology, specifi cally the provision of image analysis services for use by health care professions. (b) Adoption of new and revised standards In the year ended 30 June 2012, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and eff ective for the current annual reporting period. It has been determined by the Directors that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Group accounting policies. The Group has also reviewed all new Standards and Interpretations that have been issued but are not yet eff ective for the year ended 30 June 2012. As a result of this review the Directors have determined that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change necessary to Group accounting policies. (c) Statement of compliance The fi nancial report was authorised for issue on 28 September 2012. The fi nancial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the fi nancial report, comprising the fi nancial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) Basis of consolidation The consolidated fi nancial statements comprise the separate fi nancial statements of Resonance Health Limited (“Company” or “parent entity”) and its subsidiaries as at 30 June each year (“the Group”). Control is achieved where the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. The fi nancial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. In preparing the consolidated fi nancial statements, all interCompany balances and transactions, income and expenses and profi t and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Control exists where the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. Business combinations have been accounted for using the acquisition method of accounting (refer Note 1(ab)). Non-controlling interests represent the portion of profi t or loss and net assets in subsidiaries not held by the Group and are presented separately in the statement of comprehensive income and within equity in the consolidated statement of fi nancial position. Losses are attributed to the non-controlling interest even if that results in a defi cit balance. (e) Critical accounting judgements and key sources of estimation uncertainty The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may diff er from these estimates. 24 Resonance Health Limited Annual Report 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (e) Critical accounting judgements and key sources of estimation uncertainty (cont.) The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions are recognised in the period in which the estimate is revised if it aff ects only that period, or in the period of the revision and future periods if the revision aff ects both current and future periods. Impairment of intangibles with indefi nite useful lives The Group determines whether intangibles with indefi nite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the intangibles with indefi nite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of intangibles with indefi nite useful lives are discussed in Note 11. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The Group measures the cost of cash-settled share-based payments at fair value at the grant date. (f) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identifi ed as the Board of Directors of Resonance Health Limited. (g) Foreign currency translation Both the functional and presentation currency of Resonance Health Limited and its Australian subsidiaries is Australian dollars. Each entity in the Group determines its own functional currency and items included in the fi nancial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the statement of fi nancial position date. All exchange diff erences in the consolidated fi nancial report are taken to profi t or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined. The functional currency of the foreign operation Resonance USA Inc. is United States dollars (US$). As at the reporting date the assets and liabilities of this subsidiary are translated into the presentation currency of Resonance Health Limited at the rate of exchange ruling at the statement of fi nancial position date and the statement of comprehensive income is translated at the average exchange rate for the year. The exchange diff erences arising on the translation are taken directly to a separate component recognised in the foreign currency translation reserve in equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profi t or loss. (h) Revenue recognition Revenue is recognised to the extent that it is probable that economic benefi ts will fl ow to the Group and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised: (i) Sale of Goods Revenue is recognised when the signifi cant risks and rewards of ownership of the goods have passed to the buyer and the costs 25 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (h) Revenue recognition (cont.) incurred or to be incurred in respect of the transaction can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of delivery of the goods to the customer. (ii) Rendering of services Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. (iii) Interest income Interest revenue is recognised on a time proportionate basis that takes into account the eff ective yield on the fi nancial asset. (i) Borrowing costs Borrowing costs are recognised as an expense when incurred. (j) Lease Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards if ownership to the lessee. All other leases are classifi ed as operating leases. Assets held under fi nance lease are initially recognised at their fair value or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of fi nancial position as a fi nance lease obligation. Lease payments are apportioned between fi nance charges and the reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the general policy on borrowing costs. Finance lease assets are depreciated on a straight line basis over the estimated useful life of the asset. Operating lease payments, where the lessor eff ectively retains substantially all of the risks and benefi ts of ownership of the leased items, are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefi ts from the lease asset are consumed. (k) Income tax The income tax expense or benefi t for the period is the tax payable on the current 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 diff erence and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance date. Deferred income tax is provided on all temporary diff erences at the balance date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary diff erences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, aff ects neither the accounting profi t nor taxable profi t or loss; or • when the taxable temporary diff erence is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary diff erence can be controlled and it is probable that the temporary diff erence will not reverse in the foreseeable future. 26 Resonance Health Limited Annual Report 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (k) Income Tax (cont.) Deferred income tax assets are recognised for all deductible temporary diff erences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profi t will be available against which the deductible temporary diff erences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary diff erence arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, aff ects neither the accounting profi t, nor taxable profi t or loss; or • when the deductible temporary diff erence is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary diff erence will reverse in the foreseeable future and taxable profi t will be available against with the temporary diff erence can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that suffi cient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it is has become probable that future taxable profi t will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profi t or loss. Deferred tax assets and deferred tax liabilities are off set only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (l) Other taxes Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (GST) except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of fi nancial position. Cash fl ows are included in the Statement of Cash Flows on a gross basis and the GST component of cash fl ows arising from investing and fi nancing activities, which is recoverable from, or payable to, the taxation authority are classifi ed as operating cash fl ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (m) Impairment of assets The Group assesses at each balance date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). 27 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (m) Impairment of assets (cont.) An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profi t or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (n) Cash and cash equivalents Cash comprises cash at bank and in hand. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the statement of fi nancial position. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defi ned above. (o) Trade and other receivables Trade receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the eff ective interest rate method, less any allowance for impairment. Trade receivables are generally due for settlement within periods ranging from 14 days to 90 days. Impairment of trade receivables is continually reviewed and those that are considered to be uncollectible are written off by reducing the carrying amount directly. An allowance account is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms. Factors considered by the Group in making this determination include known signifi cant fi nancial diffi culties of the debtor, review of fi nancial information and signifi cant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the diff erence between the carrying amount of the receivable and the present value of estimated future cash fl ows, discounted at the original eff ective interest rate. Where receivables are short-term discounting is not applied in determining the allowance. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income. (p) Financial assets Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classifi ed as either fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. Where fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly attributable transaction costs. The Group determines the classifi cation of its fi nancial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each fi nancial year-end. All regular way purchases and sales of fi nancial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales of fi nancial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the marketplace. (i) Financial assets at fair value through profi t or loss Financial assets classifi ed as held for trading are included in the category ‘fi nancial assets at fair value through profi t or loss’. Financial assets are classifi ed as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in profi t or loss. 28 Resonance Health Limited Annual Report 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (p) Financial assets (cont.) (ii) Held-to-maturity investments Non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity are classifi ed as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefi ned period are not included in this classifi cation. (iii) Loans and receivables Loans and receivables are non-derivative fi nancial assets that are not quoted in an active market. Gains and losses are recognised in the profi t or loss when the loans and receivables are derecognised or impaired. (iv) Available-for-sale investments Available-for-sale investments are those non-derivative fi nancial assets that are designated as available-for-sale or are not classifi ed as any of the three preceding categories. After initial recognition available-for-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profi t or loss. The fair value of investments that are actively traded in organised fi nancial markets is determined by reference to quoted market bid prices at the close of business on the balance date. For investments with no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash fl ow analysis and option pricing models. (q) Derecognition of fi nancial assets and liabilities (i) Financial assets A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised when: • the rights to receive cash fl ows from the asset have expired; • the Group retains the right to receive cash fl ows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or • the Group has transferred its rights to receive cash fl ows from the asset and either: (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash fl ows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. (ii) Financial liabilities A fi nancial liability is recognised when the obligation under the liability is discharged or cancelled or expires. When an existing fi nancial liability is replaced by another from the same lender on substantially diff erent terms, or the terms of an existing liability are substantially modifi ed, such an exchange or modifi cation is treated as a derecognition of the original liability and the recognition of a new liability, and the diff erence in the respective carrying amounts is recognised in profi t or loss. (r) Impairment of fi nancial assets The Group assess at each balance date whether a fi nancial asset or group of fi nancial assets is impaired. (i) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future 29 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (r) Impairment of fi nancial assets (cont.) cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original eff ective interest rate (i.e. the eff ective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profi t or loss. The group fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If it is determined that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, the asset is included in a group of fi nancial assets with similar credit risk characteristics and that group of fi nancial asset is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in profi t or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (ii) Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value (because its fair value cannot be reliably measured), the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the current market rate of return for a similar fi nancial asset. (iii) Available-for-sale investments If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the diff erence between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profi t or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classifi ed as available-for-sale are not recognised in profi t. Reversals of impairment losses for debt instruments are reversed through profi t or loss if the increase in an instrument’s fair value can be objectively related to an event occurring after the impairment loss was recognised in profi t or loss. (s) Plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Plant and equipment 3 – 5 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each fi nancial year end. (i) Impairment The carrying values of plant and equipment are reviewed for impairment at each balance date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset. For an asset that does not generate largely independent cash infl ows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value. An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. 30 Resonance Health Limited Annual Report 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (s) Plant and equipment (cont.) The asset or cash-generating unit is then written down to its recoverable amount. Impairment losses for plant and equipment are recognised in the statement of comprehensive income. (ii) Derecognition and disposal An item of plant and equipment is derecognised upon disposal or when no further future economic benefi ts are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the diff erence between the net disposal proceeds and the carrying amount of the asset) is included in profi t or loss in the year the asset is derecognised. (t) Intangible assets Internally generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development expenditure on an internal project is recognised if, and only if, all of the following has been demonstrated: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • How the intangible asset will generate probable future economic benefi ts; • The availability of adequate technical, fi nancial and other resources to complete development and to use or sell the intangible asset; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset fi rst meets the recognition criteria listed above. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. The amortisation period is the period of expected benefi ts from the related project. There is no amortisation if the useful life is indefi nite. (u) Trade and other payables Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the fi nancial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (v) Interest-bearing loans and borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any diff erence between the proceeds (net of transaction costs) and the redemption amount is recognised in profi t or loss over the period of the borrowings using the eff ective interest method. Borrowings are removed from the statement of fi nancial position when the obligation specifi ed in the contract is discharged, cancelled or expired. The diff erence between the carrying amount of a fi nancial 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 profi t or loss as other income or fi nance costs. Borrowings are classifi ed 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. 31 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (w) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. Provisions are measured at the present value or management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. (x) Employee benefi ts Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within 12 months of the balance date are recognised in sundry creditors in respect of employees’ services up to the balance date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (y) Share-based payment transactions Equity-settled transactions The Group has previously had agreements where payment for services rendered are settled by the issuance of fully paid shares or options in the Company. The cost of these equity-settled transactions is measured by reference to the fair value of the equity instruments at the date they are granted and is recognised, together with a corresponding increase in equity, over the period in which the service is provided. (z) Issued capital Ordinary shares are classifi ed 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. (aa) Earnings per share (“EPS”) Basic EPS is calculated as net profi t/loss attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profi t/loss attributable to members of the parent, adjusted for: • costs of servicing equity (other than dividends) and preference share dividends; • the after tax eff ect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (ab) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or business under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangements and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expenses as incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination 32 Resonance Health Limited Annual Report 2012 NOTE 1: Statement of signifi cant accounting policies (cont.) (ab) Business combinations (cont.) are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifi able assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identifi able assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifi able assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the diff erence is recognised directly in profi t or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions. Contingent consideration is classifi ed as either equity or a fi nancial liability. Amounts classifi ed as a fi nancial liability are subsequently remeasured to fair value with changes in fair value recognised in profi t or loss. (ac) Parent entity fi nancial information The fi nancial information for the parent entity, Resonance Health Limited, disclosed in Note 20 has been prepared on the same basis as the consolidated fi nancial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the parent entity’s fi nancial statements. Note 2: Revenues and expenses (a) Sales revenue Sales to external customers (b) Other income Grants received Interest received (c) Expenses Consolidated 2012 $ 2011 $ 1,562,242 1,745,864 128,106 98,271 226,377 109,305 78,142 187,447 Rental expense on operating leases 94,571 60,494 33 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Note 3: Income tax benefi t Income tax recognised in profi t or loss The major components of tax benefi t are: Consolidated 2012 $ 2011 $ Adjustments recognised in the current year in relation to the current tax of prior years – R&D tax off set 165,094 186,600 The prima facie income tax benefi t on pre-tax accounting profi t/(loss) from operations reconciles to the income tax benefi t in the fi nancial statements as follows: Accounting profi t/(loss) before income tax Income tax calculated at 30% Eff ect of income that is not deductible in determining taxable profi t Eff ect of unused tax losses not recognised as deferred tax assets Eff ect of prior year adjustments Eff ect of temporary diff erences recognised as deferred tax assets and liabilities Eff ect of concessions (research and development) Over/(under) provision for income tax in prior year Tax refund receivable (research and development tax off set) Income tax benefi t reported in the income statement (433,695) (130,108) 164,386 271,112 (161,915) (170,059) 26,584 - 165,094 165,094 (503,429) (151,028) 83,647 (340,882) 511,703 (224,769) 121,329 - 186,600 186,600 Unrecognised deferred tax balances The following deferred tax assets and liabilities have not been brought to account: Deferred tax assets: Losses available for off set against future taxable income - revenue 2,170,661 1,899,549 Temporary diff erences – impairment of investments in subsidiaries Depreciation timing diff erences Business related costs Unrealised foreign exchange losses Other temporary diff erences Accrued expenses and liabilities Deferred tax liabilities: Capitalised research and development costs Accrued income Prepayments Income tax expense not recognised directly in equity Share issue costs 34 - 56,060 11,115 112,931 - 64,687 2,415,454 387,463 1,055 8,091 - 46,045 135,002 61,996 - 70,916 2,259,422 287,220 54,410 - 396,609 341,630 152,765 152,765 Resonance Health Limited Annual Report 2012 Note 4: Segment reporting Segment information The chief operating decision maker is considered to be the Company’s Board of Directors. The Group’s operating segments are determined by diff erences in the type of activities performed. The fi nancial results of the Group’s operating segments are reviewed by the Board of Directors on a quarterly basis. Business segments The following table presents revenue and profi t/loss information and certain asset and liability information regarding business segments for the year ended 30 June 2012. Services Research and Development Corporate Total $ $ $ $ Segment revenue Sales to external customers 1,562,242 Grant revenue Interest revenue Total segment revenue - - 1,562,242 - - - - - 1,562,242 128,106 98,271 226,377 128,106 98,271 1,788,619 Segment profi t/(loss) (226,517) 85,074 (127,158) (268,601) Other segment information included in profi t/(loss) Income tax benefi t - 165,094 - 165,094 Segment assets Segment liabilities 756,834 616,759 1,291,544 1,305,691 3,354,069 - 171,294 788,053 The consolidated entity derived 51% of its external customer sales revenue from one major customer. 35 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 4: Segment reporting (cont.) The following table presents revenue and profi t/loss information and certain asset and liability information regarding business segments for the year ended 30 June 2011. Segment revenue Sales to external customers Grant revenue Interest revenue Total Segment revenue Services Research and Development Corporate $ $ $ 1,745,864 109,305 - 1,855,169 - - - - - - 78,142 78,142 Total $ 1,745,864 109,305 78,142 1,933,311 Segment profi t/(loss) 43,866 45,968 (406,663) (316,829) Other segment information included in profi t/(loss) Income tax benefi t - 186,600 - 186,600 Segment assets Segment liabilities 978,159 366,307 957,400 142,465 1,539,584 3,475,143 70,809 579,581 The consolidated entity derived 50% of its external customer sales revenue from one major customer. Note 5: Earnings per share Basic profi t / (loss) per share (cents) Consolidated 2012 $ 2011 $ (0.1) (0.1) (a) Earnings / (loss) used in the calculation of basic and dilutive earnings per share (268,601) (316,829) 2012 Number 2011 Number (b) Weighted average number of ordinary shares for the purposes of basic loss per share 360,991,365 360,769,062 The calculation does not include shares under option that could potentially dilute basic earnings per share in the future as the options on issue are out of the money and the Company has incurred a loss. Note 6: Dividends No dividend was paid or declared for the current or previous fi nancial year. 36 Resonance Health Limited Annual Report 2012 Note 7: Cash and cash equivalents Consolidated Deposits at call Term deposits 2012 $ 380,174 800,000 1,180,174 2011 $ 503,479 1,000,000 1,503,479 Deposits at call earn interest at fl oating rates based on daily bank deposit rates. Term deposits are made for varying periods depending on the immediate cash requirements of the Group and earn interest at the respective term deposit rates (i) Reconciliation of profi t / (loss) for the year to net cash fl ows from operating activities Profi t/(loss) for the year Non-cash fl ows in profi t / (loss): Depreciation Share issue Accrued consulting fees Reclassifi cation to investing activities: Research and development Changes in net assets and liabilities: Decrease/(increase) in receivables Decrease/(increase) in other assets (current) (Increase)/decrease in assets (non-current) Decrease/(increase) in trade creditors and other payables Decrease/(increase) in other liabilities Net cash provided by/(used in) operating activities (ii) Financing facilities Unsecured credit card: Amount used Amount unused Secured credit card: Amount used Amount unused (iii) Cash balances not available for use Security deposits: Credit card Lease premises 37 (268,601) (316,829) 20,298 - - - 120,785 2,528 (271) 30,844 177,628 83,211 4,362 15,638 20,000 290 19,710 20,000 20,000 38,391 58,391 21,169 10,000 47,672 140,632 (87,672) 9,393 - (66,574) 125,661 (116,548) (2,216) - (2,216) 4,582 15,418 20,000 20,000 38,120 58,120 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 NOTE 8: Trade and other receivables Consolidated Current Trade receivables Allowance for impairment Other receivables The average credit period on sales of goods and rendering of services is 14 to 90 days. Aging of past due but not impaired Up to 30 days 60-90 days 90-120 days 120+ days Movement in the allowance for impairment Balance at the beginning of the year Impairment losses recognised on receivables Balance at the end of the year 2012 $ 537,179 - 537,179 219,655 756,834 75,915 24,511 9,830 - 110,256 26,632 (26,632) - 2011 $ 346,232 (26,632) 319,600 558,019 877,619 94,548 30,027 39,709 - 164,284 33,556 (6,924) 26,632 In determining the recoverability of a trade receivable, the Group considers any changes in the credit quality of the trade receivable from the date credit was granted up to the reporting date. An allowance has been made for estimated irrecoverable trade receivable amounts arising from the past rendering of services in relation to a specifi c debtor amount. The concentration of credit risk is signifi cant with 51% (2011: 50%) of trade receivables relating to one major customer. The remaining trade receivables relate to a large and unrelated customer base. The directors believe no further increase is required in excess of the allowance for impairment. Note 9: Other assets Consolidated Current Prepayments Non-Current Deposits 2012 $ 26,970 26,970 58,391 58,391 2011 $ 29,498 29,498 58,120 58,120 38 Resonance Health Limited Annual Report 2012 Note 10: Plant and equipment Consolidated Fixtures and equipment At cost Less: Accumulated depreciation Total property, plant and equipment Reconciliation 2012 $ 243,807 (206,655) 37,152 Reconciliation of the carrying amount of each class of property, plant and equipment is set out below: Fixtures and equipment Carrying Amount at the beginning of the year Additions Depreciation expense Carrying amount at the end of the year 46,023 11,427 (20,298) 37,152 2011 $ 232,381 (186,358) 46,023 62,387 4,805 (21,169) 46,023 NOTE 11: Intangible assets Development expenditure 1,291,544 957,400 Development expenditure relates to costs incurred in developing MRI image analysis tools for the diagnosis and clinical management of human disease. During the current fi nancial year this development has related to a new version of FerriScan®, a cardiac iron assessment MRI tool and the next stage of development of a MRI based liver fi brosis tool and liver fat assessment tool. The recoupment of development expenditure is dependent on the successful development and commercialisation or sale of the technology developed. The directors are required to assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists an estimate is made of the asset’s recoverable amount. Where the asset’s carrying value exceeds the estimated recoverable amount a provision for impairment is recognised. In making this assessment the directors had regard to the size of the liver fi brosis and liver fat markets, competing products, experience gained with the FerriScan® technology, the likely period over which these revenues are expected to be generated and the likelihood of any technological obsolescence. Note 12: Available for sale investments Current – Carried at fair value Shares in listed corporations Less: Impairment 14,337 (11,333) 3,004 14,337 (11,333) 3,004 39 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Note 13: Trade and other payables Consolidated Current Trade payables (i) Sundry creditors and accruals 2012 $ 102,040 288,011 390,051 2011 $ 140,680 287,105 427,695 (i) Trade payables are non-interest bearing and are normally settled on 30 day terms. Information regarding the eff ective interest rate and credit risk of current payables is set out in Note 17. Note 14: Other liabilities Current Unearned income Note 15: Provisions Non-current Long service leave provision Reconciliation Balance at the beginning of the year Arising during the year Carrying amount at the end of the year 329,514 151,886 68,488 - 68,488 68,488 - - - - Note 16: Issued Capital 2012 2011 Number $ Number $ (a) Issued and paid up capital 360,991,365 67,534,039 360,991,365 67,534,039 Ordinary shares entitle the holder to participate in dividends and the proceeds on 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. Movements during the period Ordinary shares Number of shares Issue Price $ Balance at the beginning of the fi nancial year Balance at the end of the fi nancial year 360,991,365 360,991,365 67,534,039 67,534,039 40 Resonance Health Limited Annual Report 2012 NOTE 17: Financial instruments (a) Capital risk management The Group controls the capital of the Company in order to maintain an appropriate debt to equity ratio and to ensure that the Company can fund its operations and continue as a going concern. The Group’s overall strategy remains unchanged from the previous fi nancial year. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. None of the Group’s entities are subject to externally imposed capital requirements. Operating cash fl ows are used to maintain and expand operations, as well as to make routine expenditures. (b) Categories of fi nancial instruments Financial assets Consolidated Cash and cash equivalents Loans and receivables Available for sale fi nancial assets Other fi nancial assets Payables 2012 $ 1,180,174 756,834 3,004 58,391 390,051 2011 $ 1,503,479 877,619 3,004 58,120 346,725 The net fair values of all fi nancial assets and liabilities approximate their carrying value. (c) Financial risk management objectives The Group is exposed to market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash fl ow interest rate risk. The Group seeks to minimise the eff ects of these risks. The Group does not enter into or trade fi nancial instruments, including derivative fi nancial instruments, for speculative purposes. (d) Market risk The Group’s activities expose it primarily to the fi nancial risk of changes in foreign currency exchange rates. There has been no change in the Group’s exposure to market risks or the manner in which it manages and measures the risk from the previous period. (e) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fl uctuations arise. Exchange rate exposures are managed within approved policy parameters. The Group does not engage in forward exchange contracts. The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: United States Dollars Great British Pounds European Euros 2012 $ 18,777 - - Liabilities Assets 2012 $ 495,005 52,641 8,186 2011 $ 690,372 46,734 20,662 2011 $ 6,431 - 7,022 41 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Note 17: Financial instruments (cont.) Foreign currency sensitivity analysis The Group is exposed to United States Dollar (USD), Great British Pound (GBP) and European Euro (EUR) currency fl uctuations. The following table illustrates the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the relevant foreign currency. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A negative number indicates a decrease in profi t and other equity where the Australian dollar strengthens against the respective currency. For a weakening of the Australian dollar against the respective currency there would be an equal and opposite impact on the profi t and other equity and the balances below would be positive. Profi t or loss impact: - USD - GBP - EUR (f) Interest rate risk management 2012 $ (43,293) (4,786) (744) 2011 $ (62,176) (4,249) (1,240) All fi nancial assets and fi nancial liabilities are non-interest bearing except for cash and cash equivalent balances. The following table details the Group’s expected maturities for cash and cash equivalent fi nancial assets. Cash and cash equivalent fi nancial assets Less than one month One to three months Total 2012 Weighted average eff ective interest rate 2011 Weighted average eff ective interest rate $1,180,174 3.81% $1,503,479 4.18% $58,391 5.76% $58,120 6.14% $1,238,565 $1,561,599 The Group is exposed to fl uctuations in interest rates as it has deposited monies at fl oating and fi xed interest rates. The impact of a 10% change in interest rates will not have a material impact on the result for the year. (g) Credit risk management Credit risk is the risk that a counter party will not meet its obligations under a fi nancial instrument or customer contract, leading to a fi nancial loss. The Group is exposed to credit risk from its operating activities (primarily from customer receivables) and from its fi nancing activities, including deposits with banks, foreign exchange transactions and other fi nancial instruments. Outstanding customer receivables are regularly monitored and any credit concerns highlighted to senior management. At 30 June 2012, the Group had one customer that accounted for 68% of all trade receivables (2011: 50%). The maximum exposure to credit risk, excluding the value of any collateral or other security at balance date in relation to each class of recognised fi nancial assets is the carrying amount, net of any allowance for impairment recorded in the fi nancial statements. The Group does not hold any collateral as security for any trade receivable. (h) Equity price risk The Group is exposed to equity price risks arising from available-for-sale fi nancial assets. The Group’s investments are publicly traded. The impact of a 10% increase or decrease in the equity price will not have a material impact on the result for the year. 42 Resonance Health Limited Annual Report 2012 Note 17: Financial instruments (cont.) (i) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of directors, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves by continually monitoring forecast and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities. Included in Note 7 is a listing of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. The following table details the Group’s expected maturity for its fi nancial liabilities. Less than one month $ One month to three Three months to one months $ year $ Total $ 2012 Non-interest bearing 222,645 48,246 119,160 390,051 2011 Non-interest bearing 258,162 73,697 14,866 346,725 (j) Fair value of fi nancial instruments The net fair value of all fi nancial assets and liabilities approximate their carrying values. No fi nancial assets or fi nancial liabilities, except for listed shares are readily traded on organized markets in standardized form. The aggregate net fair values and carrying amounts of all fi nancial assets and liabilities are disclosed in the fi nancial statements. Note 18: Commitments for expenditure Consolidated Operating lease commitments Commitments for minimum lease payments in relation to non-cancellable operating leases for offi ce premises are payable as follows: Within one year Later than 1 year but no later than 5 years Total commitments not recognised in the fi nancial statements A lease over new premises was entered into eff ective 1 August 2011. Note 19: Related party disclosure 2012 $ 113,152 127,511 240,663 2011 $ 5,527 - 5,527 The consolidated fi nancial statements include the fi nancial statements of Resonance Health Limited and the subsidiaries listed in the following table. Name of entity Resonance Health Analysis Services Pty Ltd (formerly Inner Vision Biometrics Pty Ltd) Country of incorporation Class of shares Australia Ordinary WA Private Health Care Services Pty Ltd Australia Ordinary IVB Holdings Pty Ltd ResonanceUSA Inc Australia Ordinary USA Ordinary Resonance Health Limited is the ultimate Australian entity and ultimate parent of the Group. Equity holding 100% 100% 100% 100% 43 Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Note 19: Related party disclosure (cont.) Transactions with related parties Transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with key management personnel Refer to Note 23 for details of transactions with key management personnel. During the year Resonance Health Analysis Services Pty Ltd repaid interest free loans to the Company totalling $229,942. During the previous year the Company provided interest free loans to Resonance Health Analysis Services Pty Ltd totalling $388,163. During the year ResonanceUSA Inc repaid interest free loans to the Company totalling $205,005 (2011: $223,285). A cumulative impairment of these loans of $4,545,135 was recorded up to balance date (2011: $4,545,135). During the year expenses were paid by Resonance Health Analysis Services Pty Ltd totalling $118,318 (2011: $112,725) on behalf of the Company. During the year expenses were paid by the Company on behalf of ResonanceUSA Inc totalling $197,252 (2011: $214,762). Note 20: Parent entity disclosures Financial Position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Equity Issued capital Option reserve Accumulated losses Total equity Financial Performance Profi t / (loss) for the year Other comprehensive income / (loss) Total comprehensive income / (loss) 2012 $ 1,034,009 856,682 1,890,691 49,768 49,768 2011 $ 1,051,277 856,682 1,907,959 67,021 67,021 67,534,039 66,284 (65,449,616) 2,150,707 67,534,039 66,284 (65,296,505) 2,303,819 Year ended 30 June 2012 Year ended 30 June 2011 $ (153,111) - (153,111) $ (234,138) - (234,138) 44 Resonance Health Limited Annual Report 2012 Note 21: Events subsequent to reporting date No other matters or circumstances have arisen since the end of the fi nancial year which signifi cantly aff ected or may signifi cantly aff ect the operations of the Company and the consolidated entity, the results of those operations, or the state of aff airs in future fi nancial years. Note 22: Auditors’ remuneration Consolidated 2012 $ 45,500 45,250 90,750 2011 $ 38,450 47,113 85,563 During the year the following fees were paid or payable to the auditor: Remuneration of the auditor of the company for: Auditing/reviewing fi nancial report Taxation compliance services Note 23: Directors and executive disclosures Details of key management personnel (a) (i) Directors Dr Martin Blake Chairman (non-executive) Ms Liza Dunne Managing Director (executive) Mr Simon Panton Director (non-executive) Dr Tim St Pierre Director (executive) ii) Executives Mrs Naomi Haydari Chief Financial Offi cer and Company Secretary Appointed 19 March 2012 Mr Colin McDonald Chief Financial Offi cer and Company Secretary Resigned 19 March 2012 Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. (b) Shareholdings of key management personnel The numbers of ordinary shares in the Company held during the fi nancial year by key management personnel of the consolidated Group including their personally related entities are set out below. Directors Dr M Blake Ms L Dunne Dr T St Pierre Mr S Panton Total Executives Mrs N Haydari Mr C McDonald Total Balance 1.7.11 Received as Remuneration Net Change Other* Received during the year on exercise of options Balance 30.6.12 6,224,677 3,153,385 9,078,750 65,960,972 84,417,784 - - - - - - - - - 45 - - - - - - - - - - - - - 6,224,677 3,153,385 9,078,750 65,960,972 84,417,784 - - Resonance Health Limited Annual Report 2012 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 Note 23: Directors and executive disclosures (cont.) (c) Transactions and balances with directors and other key management personnel Executive Director – Dr Tim St Pierre Dr St Pierre is an employee of The University of Western Australia. The Group has an agreement with the University of Western Australia for the provision of consulting services by Dr St Pierre and others. Amounts relating to services provided by Dr St Pierre during the year can be found in the Remuneration Report forming part of the Directors’ Report. Amounts relating to consulting services provided by others under the agreement with the University of Western Australia during the fi nancial year totalled $11,583 (2011: $14,945). The amount payable at 30 June 2012 totalled $13,226 (2011: $86,293). During the year the Group provided FerriScan® services totalling $2,630 (2011: $3,575) to the University of Western Australia. Amounts receivable at 30 June 2012 totalled $2,630 (2011: $Nil). 46 DIRECTORS’ DECLARATION Resonance Health Limited Annual Report 2012 1. In the opinion of the directors: a. the accompanying fi nancial statements, notes and the additional disclosures are in accordance with the Corporations Act 2001 including: i. giving a true and fair view of the consolidated entity’s fi nancial position as at 30 June 2012 and of it’s performance for the year then ended; and ii. complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and c. the fi nancial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the fi nancial year ended 30 June 2012. This declaration is signed in accordance with a resolution of the Board of Directors. Dr Martin Blake Chairman Place: Perth, Western Australia Dated: 28 September 2012 47 Resonance Health Limited Annual Report 2012 INDEPENDENT AUDITOR’S REPORT To the members of RESONANCE HEALTH LIMITED Report on the Financial Report We have audited the accompanying fi nancial report of Resonance Health Limited (“the company”), which comprises the consolidated statement of fi nancial position as at 30 June 2012, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash fl ows for the year then ended, notes comprising a summary of signifi cant accounting policies and other explanatory information, and the directors’ declaration for the consolidated entity. The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the fi nancial year. Directors’ responsibility for the fi nancial report The directors of the company are responsible for the preparation of the fi nancial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the fi nancial report that is free from material misstatement, whether due to fraud or error. In Note 1(c), the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that the consolidated fi nancial report complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the fi nancial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. HLB Mann Judd (WA Partnership) ABN 22 193 232 714 Level 4, 130 Stirling Street Perth WA 6000. PO Box 8124 Perth BC 6849 Telephone +61 (08) 9227 7500. Fax +61 (08) 9227 7533. Email: hlb@hlbwa.com.au Website: http://www.hlb.com.au Liability limited by a scheme approved under Professional Standards Legislation HLB Mann Judd (WA Partnership) is a member of International, a worldwide organisation of accounting fi rms and business advisers. 48 Resonance Health Limited Annual Report 2012 Matters relating to the electronic presentation of the audited fi nancial report This auditor’s report relates to the fi nancial report and remuneration report of Resonance Health Limited for the fi nancial year ended 30 June 2012 published in the annual report and included on the company’s website. The company’s directors are responsible for the integrity of the company’s website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the fi nancial report and remuneration report. It does not provide an opinion on any other information which may have been hyperlinked to/from the fi nancial report and remuneration report. If users of the fi nancial report and remuneration report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited fi nancial report and remuneration report to confi rm the information contained in this website version of the fi nancial report and remuneration report. Auditor’s Opinion In our opinion: (a) the fi nancial report of Resonance Health Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s fi nancial position as at 30 June 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the fi nancial report also complies with International Financial Reporting Standards as disclosed in Note 1(c). Report on the Remuneration Report We have audited the remuneration report included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion, the Remuneration Report of Resonance Health Limited for the year ended 30 June 2012 complies with section 300A of the Corporations Act 2001. Perth, Western Australia 28 September 2012 HLB MANN JUDD Chartered Accountants N G NEILL Partner 49 Resonance Health Limited Annual Report 2012 ADDITIONAL INFORMATION FOR LISTED PUBLIC COMPANIES The following additional information is disclosed in accordance with Section 4.10 of the Australian Stock Exchange Ltd Listing rules in respect of listed public companies only. The following information is supplied as at 28 September 2012. 1. Analysis of Shareholdings Distribution of Shareholders (ASX Code: RHT) Ordinary Shares Number of Ordinary Shares Held Number of holders Number of shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over 532 182 228 725 334 2,001 121,017 576,122 1,687,083 28,813,332 329,793,811 360,991,365 The number of shareholdings holding less than a marketable parcel of shares are 1,498. 2. Voting Rights Ordinary shares Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. 3. Twenty Largest Shareholders of quoted Ordinary Shares Name Number of Ordinary Shares Percentage of Total 1. Southam Investments 2003 Pty Ltd 65,414,622 18.12 2. The University Of Western Australia 3. Timothy Guy St Pierre 4. Wanida Chau-Anusorn 5. Mr Robert Panton 6. Dr Simon Bell 7. Dr Franklyn Ives 8. Mr Sean Watkins-Saxon 9. Mr Helmut Rocker 10. Mr William Grove 11. Mr Kevin Deeves and Mrs Pauline Deeves 12. Walker Trusco Pty Ltd 13. Dr Martin Peter Blake 14. Mr Harry Basle 15. Dr Paul Clark 16. Mr Kevin Deeves 17. Mr Bruce Stevenson 18. Mr Jeremy Hussein Rishani 19. Blake Nominees Pty Ltd 20. Anahein Pty Ltd 9,078,750 9,078,750 8,070,000 7,840,824 6,307,252 6,272,934 6,250,000 6,000,000 4,838,401 4,500,000 4,494,844 3,798,590 3,671,359 3,075,388 3,000,000 2,932,755 2,638,699 2,426,087 2,408,478 162,097,733 2.52 2.52 2.24 2.17 1.75 1.74 1.73 1.66 1.34 1.25 1.24 1.05 1.02 0.85 0.83 0.81 0.73 0.67 0.67 44.91 50 Resonance Health Limited Annual Report 2012 4. Substantial shareholders The names of substantial shareholders who have notifi ed the Company in accordance with sections 709 and 710 of the Corporations Act 2001 are: Southam Investments 2003 Pty Ltd 65,414,622 ordinary shares 51 Resonance Health Limited Annual Report 2012 This page has been left bank intentionally 52 Registered office and Principal place of business Ground Floor 278 Stirling Highway Claremont WA 6010 Telephone: +61 8 9286 5300 Facsimile: +61 8 9286 1179 Postal address PO Box 1135 Nedlands WA 6909 Website and e-mail address www.resonancehealth.com Email: info@ferriscan.com 

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