Reliq Health Technologies Annual Report 2014

Plain-text annual report

AnnuAl RepoRt 2014 Directors Dr Martin Blake Non-executive Chairman Ms Liza Dunne Managing Director Mr Simon Panton Non-executive Director Dr Timothy St Pierre Executive Director Dr Jason Loveridge Non-executive Director company secretary Mr Adrian Bowers securities 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 110 Stirling Highway NEDLANDS WA 6009 Tel: +61 8 9389 8033 Fax: +61 8 9389 7871 bankers National Australia Bank Limited solicitors Steinepreis Paganin Level 4, The Reed Building 16 Milligan Street PERTH WA 6000 ResonAnce heAlth limited Corporate InformatIon Chairman and Managing Director’s Report Snap Shot 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 Shareholders page 2 3 4 7 16 22 23 24 25 26 27 54 55 57 our business Resonance Health specialises in the development and delivery of medical imaging software and services. The Company’s products are used by clinicians in the diagnosis and management of human disease and by pharmaceutical companies in their clinical trials. Resonance Health has demonstrated its expertise in liver imaging technologies with FerriScan®, now globally recognised as the gold standard in the measurement of liver iron overload. Our most recent product HepaFat-Scan® has gained regulatory clearance for the measurement of liver fat in the US, Europe and Australia and a pipeline product for the measurement of liver fibrosis is in development. AnnuAl RepoRt 2014 1 ContentsFinancial year 2014 saw strong growth in FerriScan® sales and the regulatory clearance of our new product HepaFat-Scan®. Our focus on the coming year is to explore a range of commercialisation initiatives for HepaFat-Scan® and continue with our development of an MRI liver fibrosis test. Following the capital raise completed mid-year, we have the funds to invest in these two key initiatives. We plan to invest funds into the automation of HepaFat-Scan® with the longer term objective of enabling radiology facilities anywhere in the world to use the HepaFat-Scan® technology in a cloud based solution. This provides the opportunity to deliver the HepaFat-Scan® technology in a very cost effective way whilst protecting the key aspects of the underlying IP. Work has commenced to investigate this solution. In the meantime, we are providing HepaFat-Scan® through the Company’s traditional business model whereby image data is uploaded to the Company’s secure web facility and Resonance Health provides the result back to the radiology facility. This central lab for image analysis is ideally suited to the provision of services for clinical trials where a centralised and quality controlled analysis facility is required. With a large number of therapies now in development for fatty liver disease, clinical trials provide a significant target market for the Company. Some of our existing customers are now piloting HepaFat-Scan® and providing us with feedback on the service. We are also engaging with medical practitioners across several disciplines that have an interest in the health consequences of fatty liver disease. We engaged a consulting firm to canvas a range of medical specialist groups regarding the potential utility of HepaFat-Scan® in their specific fields of medicine. Apart from damage that may be caused to the liver tissue there are other serious consequences for fatty liver disease. Fatty liver disease is closely associated with diabetes and recent studies have shown a direct link to liver cancer without progressing through liver fibrosis. Fatty liver disease is also the number one risk factor for cardiovascular disease. The regulatory clearances gained during the year for HepaFat-Scan® are an important first step in the commercialisation path. Our pilot site customers are providing us invaluable feedback and a validation study is being planned to provide further peer reviewed data to support the product. Clinical studies and publications regarding the value of HepaFat-Scan® in specific clinical applications will be important as we seek to have HepaFat- Scan® included in clinical guidelines in the future. Resonance Health is delighted to be invited to join the Forum on Facilitating Drug Development for the Treatment of Liver Disease. The US based Forum provides the opportunity for key opinion leaders and stakeholders to work together in the development of safe and effective therapies and diagnostic tools to treat liver disease. Stakeholders include the US National Institutes of Health (NIH), the US Food and Drug Administration (FDA), specialist physicians, academics, patient communities and major pharmaceutical companies. Investment will also continue into the development of an MRI diagnostic test for liver fibrosis. This continues to be a key pillar of our liver diagnostic portfolio and we have been buoyed by the results we have achieved. Patients with liver disease require a non-invasive test to accurately grade the liver fibrosis so appropriate treatment decisions can be made. The earlier the diagnosis, the better the outcome for the patient. A liver biopsy is still the gold standard test for diagnosing liver fibrosis. Due to the risks involved in this procedure, it is often delayed until liver damage has become extensive. The Company has conducted two clinical studies in recent years that have provided a complex and very large amount of imaging data for the liver fibrosis project. The work that has been performed to date has provided some promising results. We are committing additional funds to this project as we believe it has the potential to deliver an exciting new technology to address a large unmet clinical need. We are also actively seeking partnerships with research groups, universities and government agencies to partner with the development of the technology. Operationally, the 2014 financial year delivered strong growth in the Services Business Unit. Sales volumes were up 32% on the prior year and revenue was $2.28 million, up 50%. A profit of $662k was reported in the Services Business Segment compared to a profit of $71k in the prior year. The growth in the number of radiology facilities providing FerriScan® and increase in the number of referring doctors provides a solid base for growth. A net loss after tax of $72k was reported compared to a net loss in the prior year of $204k. The company increased its cash holdings from $1.1 to $2.1m at the end of the reporting period. This included funds received of $1.277m in the 2014 financial year from the rights issue and placement of shares. A further $650k was received after 30 June 2014, making the total cash contributed from the capital raise of $1.927m. The outlook for the company is good. The FerriScan® business unit is cash flow positive, profitable and growing. HepaFat-Scan® for the diagnosis of fatty liver disease has gained regulatory clearance and is ideally suited for the clinical trial sector for pharmaceutical therapies in development for fatty liver disease. The capital raised will enable the company to continue its progress towards the development of an MRI test to accurately diagnosis the presence and degree of liver fibrosis, with the goal of replacing the need for an invasive liver biopsy. Liza Dunne Managing Director Dr Martin Blake Chairman 2 ResonAnce heAlth limited Chairman and managing direCtor’s report23 consecutive months of year on year sales volume growth 50% increase in sales revenue from the previous year 50+ new radiology centres using FerriScan® 33% increase in referring clinicians from the previous year FDA, TGA and CE Mark clearance for HepaFat-Scan® Commercial roll out for HepaFat-Scan® commenced 10% 2011 14% 2012 2010 11% 2013 32% 2014 Annual Sales Volume Growth 32% increase in sales volumes from 2012 AnnuAl RepoRt 2014 3 Snap Shotferriscan® Key Features of HepaFat-Scan® HepaFat-Scan® provides an accurate volume percentage of fat in liver tissue. HepaFat-Scan® has been clinically validated against independent biopsy measurements of liver fat. HepaFat-Scan® imaging can be performed on standard 1.5 Tesla MRI scanners. HepaFat-Scan® is a very quick 1 minute MRI scan. HepaFat-Scan® is provided as an image analysis service with a fee charged for each analysis performed. There is no requirement for radiology customers to purchase new software or hardware. HepaFat-Scan® results are reliable and reproducible between MRI centres and models of scanners. Large liver region is included in the analysis, 300 times larger than a liver biopsy sample providing a more accurate result. FerriScan® continues to be the global gold standard method-of-choice for the measurement of liver iron concentration. In addition to clinicians utilising FerriScan® for the management of patients with iron overload conditions, major pharmaceutical companies choose FerriScan® for the assessment of iron chelators in clinical trials. The regulated and quality-assured service model provided by Resonance Health provides clinicians, pharmaceutical companies and patients with accurate and reliable results with which to make informed treatment decisions. In addition to FerriScan®, an increasing number of our customers are also utilising our Cardiac T2* measurement service to assess the cardiac iron of their patients. In some medical conditions cardiac iron overload can occur once a certain liver iron threshold is reached. A Cardiac T2* measurement can provide important information for assessing the risk of cardiac failure and arrhythmia in patients with iron overload. FerriScan® and Cardiac T2* Sales Growth Partnerships with Pharmaceutical Companies Resonance Health has been working with pharmaceutical companies developing iron chelation drugs for over ten years. FerriScan® provides a definitive measurement of a patient’s liver iron concentration and is used to assess the efficacy of iron chelation drugs under development in clinical trials. Resonance Health has also been working in partnership with major pharmaceutical companies to improve the health outcomes of patients suffering from iron overload conditions. The program involve pharmaceutical companies purchasing FerriScans® so patients can be accurately assessed for iron overload. hepafat-scan® Resonance Health is delighted to have achieved 23 consecutive months of sales volume growth. The 2013-2014 financial year had a sales volume growth of 32% compared to the previous year which delivered a 50% growth in revenue year on year. FerriScan® availability continues to spread globally FerriScan® is now available in more than 200 radiology centres in over 30 countries. The 2013-2014 financial year saw a substantial increase in the number of new FerriScan® centres with over 60 new facilities set up for FerriScan® during the year. FerriScan® also became available in 6 new countries during the year: Algeria, Bulgaria, Israel, Kuwait, Morocco and South Africa. 14 additional FerriScan® facilities came on line in the UK during the year, 11 in Australia, 8 in Italy and 7 in the USA. The referrer base for FerriScan® and Cardiac T2* continues to grow with a 33% increase in the number of referring clinicians from the previous year. This demonstrates the growing level of trust and acceptance of the technology in the medical industry. 4 ResonAnce heAlth limited HepaFat-Scan® gained international regulatory clearance in the US (Food and Drug Administration), Europe (CE Mark) and Australia (Therapeutic Goods Administration) during the year. The 2013-2014 financial year welcomed some exciting milestones for Resonance Health with the launch of our new HepaFat-Scan® technology. HepaFat-Scan® is a software solution that enables the accurate measurement of liver fat using MRI scanners. HepaFat-Scan® can be used for the screening, diagnosis, treatment planning and monitoring of patients in a variety of clinical conditions that involve elevated liver fat. Year in review 2014Key Features of HepaFat-Scan® Fatty Liver Disease Fatty liver disease is a build-up of excess fat in the liver cells. In some cases, fatty liver disease damages the organ and leads to serious complications such as liver cirrhosis and cancer. Risk factors for fatty liver disease include overweight and obesity, diabetes and elevated triglyceride levels. The damage caused by fatty liver disease can often be halted or reversed if diagnosed before damage to the liver has occurred. HepaFat-Scan® enables patients to be accurately diagnosed for fatty liver disease utilising MRI scanners. Fatty liver disease is a major healthcare burden in developed countries. The prevalence of the disease is expected to increase with the global obesity epidemic and the trend in developing countries towards the Western lifestyles. Fatty liver disease is projected to be the leading cause of liver transplants in the US by 2020. An estimated one in five people in the United Kingdom have Non-Alcoholic Fatty Liver Disease (NAFLD). The cost to the National Health Service is estimated to be £4.2 billion and will be double that by 2050. An estimated 20%-30% of the US population has fatty liver disease The prevalence of NAFLD in urban India is 20-30% and accounted for almost 50% of the cases of liver cirrhosis The prevalence of fatty liver disease in China has doubled in the last 10 years 5.5 million Australians have fatty liver disease including 40% of all adults over 50. In the United States, liver biopsies performed on potential liver donors revealed that 20% of donors were ineligible for organ donation based on the degree of the steatosis (>30%). Diagnostic Advantage of HepaFat-Scan® A liver biopsy is the gold stand test to diagnose fatty liver disease. Due to the risks involved in the procedure, imaging alternatives are preferred. An ultrasound is often used to detect the presence of fat in the liver. However, ultrasound can only detect very high levels of fat (>30%) yet liver fat levels over 5% are considered abnormal. HepaFat-Scan® provides the medical community with a safe, non-invasive accurate measurement of the percentage of the liver that is fat. Small changes can be detected so improvements can be assessed over time. AnnuAl RepoRt 2014 5 Year in review 2014Clinical Applications for HepaFat-Scan® HepaFat-Scan® may be used in both adults and paediatrics in a variety of clinical setting where a definitive measurement of liver fat is required. These may include the following: A definitive fatty liver disease diagnosis and for patient education and counselling. Screening for the suitability To monitor a patient of living donors for liver transplants. HepaFat-Scan® may assist in determining the viability of the liver without using liver biopsy. undergoing an intervention program (e.g. weight loss program). Liver fat analysis on patients already being screened or monitored for liver fibrosis or cirrhosis. Monitoring intervention programs such as pre and post-operative bariatric surgery. Monitor patients at risk of developing diabetes as improvements in NAFLD have been found to directly reduce the development of diabetes. Liver surgery planning To screen patients as high levels of liver fat can have a detrimental outcome on surgery. prior to prescribing known hepatotoxic medications. Monitor patients at risk of cardiovascular disease. NAFLD is the leading risk factor for CVD. Pharmaceutical Therapies for NAFLD Whilst there are currently no FDA approved drugs for NAFLD there are several drug candidates being studied to address this growing epidemic. HepaFat-Scan® provides a safe, accurate, readily available alternative to diagnose patients with fatty liver disease and to assess the outcome of patients in clinical trials. Resonance Health has extensive experience in providing image services in multicentre clinical trials and is ISO 13485 quality certified. Once new therapies come to market to treat fatty liver disease, HepaFat-Scan® will provide a non- invasive, safe alternative to diagnose patients and monitor their outcomes. in the pipeline – liver fibrosis Diagnostic tool The development of an MRI based method to assess liver fibrosis continues to be part of the company’s strategic focus on developing diagnostic products to address liver disease. The current gold standard diagnostic tool for liver fibrosis is a liver biopsy. Our goal is to develop an accurate non-invasive solution to diagnose and grade liver fibrosis that would provide patients with a significantly better option for their disease management that is currently available. Positive progress was made towards the development of a liver fibrosis diagnostic tool and collaborations with research partners are providing further advances towards this goal. How the HepaFat-Scan® Service Works Following a 2-3 minute scan, patient image data are transmitted electronically to Resonance Health’s central image analysis facility over a secure network. The HepaFat-Scan® analysis process is applied to provide the volume % of fat in tissue. MRI images transmitted securely to Resonance Health Analysis Centre HepaFat-Scan® liver fat concentration report available for secure download within target time of 48 hours Patient scanned at MRI Centre HepaFat-Scan® analysis process applied to images received 6 ResonAnce heAlth limited HepaFat-ScanTM Report Report #: 1400001 Patient ID: C123456 Patient name: C123456 (de-identified) Birth date: 20 Jan 1998 Scan date: 07 August 2014 Analysis date: 20 August 2014 Referrer: MRI Centre: Dr Doctor MRI Central Volume fraction of fat in liver: 9.6% The outline represents the liver region used for the HepaFat-Scan analysis. Authorised by: Service Centre Manager Resonance Health Analysis Services Pty Ltd www.resonancehealth.com 0805 ARTG : 223853 510(k): K122035 Year in review 2014 The Directors present their report on the consolidated entity, consisting of Resonance Health Limited and the entities it controlled, together with the annual financial report for the financial year ended 30 June 2014. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Directors The names, qualifications and experience of directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Dr Martin Blake MBBS,FRANZCR, FAANMS, MBA, GAICD Ms Liza Dunne B.Bus, GDipAppFin, GAICD Mr Simon Panton 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 significant technical and industry experience to Resonance Health. Dr Blake received FAANMS as a post nominal in recognition of his Nuclear Medicine Specialist training undertaken in 1994 & 1995. He has been a Partner of Perth Radiological Clinic since 1997 and is currently the Chairman of that Company. 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 Chairman of the Remuneration Committee Position: Managing Director — Executive (appointed 23 October 2008) 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 of years and is a major shareholder of Resonance Health. Mr Panton brings skills in business and marketing having run his 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 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. Ms Dunne has in depth experience in senior positions across industry. She worked for IBM for eleven years in financial, marketing and management positions and spent five 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 Former directorships in last 3 years: None AnnuAl RepoRt 2014 7 DIRECTORS’ REPORT Dr Timothy St Pierre B.Sc(Hons), PhD Dr Jason Loveridge B.Sc, PhD, FRSM Mrs Naomi Haydari B.Bus, B SSc, CPA Position: Director — Executive (appointed 21 August 2006) Position: Director — Non-Executive (appointed 7 February 2013) Experience: Dr St Pierre is widely published in the field of iron in medicine and biology and has a reputation as a key opinion leader in the understanding of the fundamental properties of the iron 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 field 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. Experience: Dr. Loveridge FRSM has a Ph.D. in Biochemistry, a B.Sc. in Biochemistry and Microbiology (Class II/I Honours) and is a Fellow Royal Society of Medicine. Dr. Loveridge has been working with young, growth orientated businesses in the biotech and medtech industries for over 20 years. As an active venture investor he established a lengthy track record of successful participation in European, US and Israeli based healthcare companies. Based in Europe he also has considerable international experience at board level and a particular interest in business development, mergers & acquisitions. Other current directorships: None Other current directorships: None Former directorships in last 3 years: None Former directorships in last 3 years: None Special responsibilities: None Special responsibilities: Member of the Audit Committee Member of the Remuneration Committee Position: Company Secretary (on maternity leave) Experience: Mrs Haydari has experience in managing the financial obligations of ASX listed corporations across a diverse range of industries. Mrs Haydari holds a Business Degree (Accounting), a Social Science Degree and is a qualified CPA. Mrs Haydari commenced maternity leave effective 28th November 2013. Mr Adrian Bowers B.Bus, CPA, Chartered Secretary Position: Company Secretary acting while Mrs Haydari is on maternity leave. Experience: Mr Bowers has experience in managing the financial affairs of public corporations across a diverse range of industries. Mr Bowers holds a Bachelor of Business, is a CPA and qualified Chartered Secretary. 8 ResonAnce heAlth limited DIRECTORS’ REPORTinterests in the shares of the company The following relevant interests in shares of the Company were held by the directors during the period. There has been no change in directors’ and executives’ shareholdings to the date of this report. Number of fully paid ordinary shares 6,464,677 3,253,385 65,960,972 - 9,078,750 84,757,784 Directors Dr M Blake Ms L Dunne Mr S Panton Dr J Loveridge Dr T St Pierre Total Executives Mrs N Haydari Total incentive shares and options review of operations FerriScan®: FerriScan® is a patent protected software medical device used to assess the amount of iron in the liver through the analysis of MRI images. The FerriScan® software is used at the Company’s ISO 13485 certified central facility to provide an image analysis and reporting service to hospitals and pharmaceutical companies around the world. We are currently providing FerriScan® analysis and reporting services to clients in over 20 countries and in the last 12 months we have seen considerable growth in the number of FerriScan® clients. - - During the year sales volumes increased 32% over the previous financial year and over 50 new radiology facilities were set up for FerriScan® imaging. Collaborative programs with pharmaceutical companies have expanded the availability of the FerriScan® services to new markets. The Company does not have an option plan. Accordingly, no options were issued as part of remuneration to directors or specified executives during the current or previous financial year. Dividends paid or recommended No dividend was paid or declared for the financial year. principal activities 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. Sales revenue for the year ended 30 June 2014 was $2,284,565 representing an increase of 50% from the previous year’s sales revenue of $1,527,188. The Company completed a record number of 5,596 FerriScan® images up 32% from prior year’s 4,247 images. Pre-paid revenue received in the prior year of $313,805 was earned for accounting purposes and recognised as revenue during the current year. Receipts from customers were $2,179,241 up 17% from the previous year’s receipts. Variations in volume growth and revenue growth are the result of changes in the mix of services provided. Contracts with pharmaceutical companies include project management and data management services in addition to the FerriScan® analysis and reporting services. Growth in the routine use of FerriScan® by hospitals does not include these additional project related services. HepaFat-Scan®: HepaFat-Scan® is a software medical device for the measurement of fat in the liver addressing the rapidly growing fatty liver market. HepaFat-Scan® was cleared for marketing by the US Food and Drug Administration (FDA) in December 2013 and was listed on the Australian Register of Therapeutic Goods (ARTG) and gained the CE Mark(European Community approval) in May 2014 for marketing approval in Europe. Commercialisation activities have focused on the following activities: Completion of a US market access report which has expanded the potential markets for HepaFat-Scan® and is directing our initial target marketing activities. Engaging with the Company’s existing customer base to use HepaFat-Scan® for patients with fatty liver related disorders. Several customers are now piloting HepaFat-Scan® in the US and Australia. Engaging with pharmaceutical companies developing therapies to address fatty liver disease. The Company’s ISO 13485 certified core lab is ideally suited to provide services for pharmaceutical companies conducting clinical trials where a determination of the amount of fat in the liver is required. Resonance Health has been providing services to clinical trials for over 10 years. An agreement has been reached in principal with a leading US hospital regarding an independent validation study of HepaFat-Scan®. Work has commenced to further automate the use of the HepaFat- Scan® software, enabling scale up for large volume use. Many countries in Asia are now experiencing a rapidly growing prevalence of fatty liver disease and the Company is developing a solution to provide a low cost option to these markets. Liver Fibrosis: Resonance Health is also developing imaging tools for the quantification of AnnuAl RepoRt 2014 9 DIRECTORS’ REPORTliver fibrosis using MRI technology. A noninvasive alternative to a liver biopsy to assess the degree of liver fibrosis is a large unmet need. The Company has conducted a number of studies which have shown some promising results. The most recent work has focused on the assessment of contrast- enhanced images to detect subtle features within the images which distinguish fibrosis. Whilst this work has not been finalised, to date it has not provided results which are better than those previously obtained. Using non-contrast enhanced images, the Company’s technology accurately scored the level of liver fibrosis in 90% of the 29 cases. However, when tested with a separate set of images, the same results could not be achieved. The Company is undertaking further investigation into understanding the less than satisfactory results on the second measurements. While the Company’s liver fibrosis product is not currently at a position to be commercialised, the results are encouraging and the Company is still pursuing its objectives in regard to the development of a unique and novel MRI test to accurately assess the degree of liver fibrosis. financial summary A net loss was recorded for the year of $72,415 compared to a net loss of $204,481 in the previous financial year. Sales revenue was $2,284,565, an increase of 50% over the prior year due to an increase in the volume of work. Total income was 35% higher than the prior year. The Company received no Export Market Development Grant (EMDG) in the FY 2013/14 compared to $146,051 received in the previous year. The FerriScan® and Services Business Segment reported a profit of $661,665 compared to a profit of $70,641 in the previous financial year, an increase of 836%. Normal operating expenses (excluding depreciation, amortisation, foreign exchange expense and due diligence onetime costs) were 3% lower than the prior year. Total expenditure for the year was $2,384,818 compared to the prior year total expenditure of $2,070,539 for the following reasons: Year on Year difference the Statement of Financial Position and expenditure of $89,326 (2013: $34,677) and amortisation expense, $70,874 (2013: $56,212) recognised in Research and Development in the Statement of Comprehensive Income and $25,804 (2013: $46,821) recognised in Employee Benefits. ($54,649) Operating Results Amortisation charges are higher $89,326 (2013: $34,677) Foreign exchange expense of $53,879 compared to prior year foreign exchange gain of $156,584 Onetime charge for due diligence cost of $119,573 Other Items Total ($210,463) ($119,573) $70,406 ($314,279) The loss for the year also reflects a reduced income tax benefit of $3,367 compared to $156,911 in the previous financial year as the Group moves into a tax paying position. Resonance Health has cash at bank of $2,097,607 at the end of the financial year compared to $1,092,943 in the previous financial year and has no debt. Cash flows from operating activities generated positive cash of $64,239. This excludes cash expenditure of $94,629 associated with the due diligence of a potential acquisition target. No Research and Development Tax Rebate was received in the FY 2013/14 year compared to $188,645 received in the FY 2012/13. A rebate of $115,949 has been recorded as part of other receivables at balance date. The Company raised $1,277,521 (less costs) via the issue of 25,550,419 million shares at 5 cents per share. Research and development expenditure focused on the Company’s HepaFat-Scan® and fibrosis products totalled $376,409 during the year (2013: $343,047). This comprised capitalised development costs of $190,404 (2013: $205,337) that are recognised as an intangible asset in The net loss of the consolidated entity for the financial year after tax was $72,415 (2013: $204,481). Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Company during the financial year, other than as set out in this report. Significant Events After Balance Date On 12 September 2014 as part of the Shortfall Entitlement, the Company placed 13 million shares at $0.05 per share. This raised a further cash amount of $650,000. Likely Developments and Expected Results of Operations Comments on expected results of the operations of the consolidated entity are included in this report under the review of operations. Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the Company. Accordingly, this information has not been disclosed in this report. Environmental Legislation The consolidated entity’s operations are not subject to any significant environmental legislation. Indemnification and Insurance of Directors and Officers The Company has agreed to indemnify all the directors and secretaries of the Company for any liabilities to another 10 ResonAnce heAlth limited DIRECTORS’ REPORTperson (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 financial year the Company paid a premium of $13,000 (2013: $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 the Corporations Act 2001. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. remuneration report (auDiteD) This report outlines the remuneration arrangements in place for the key management personnel of Resonance Health Limited for the financial year ended 30 June 2014. The information provided in this remuneration report has been audited as required by Section 308 (3C) of the Corporations Act 2001. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent Company and the Company Secretary. Key Management Personnel (i) Directors Dr Martin Blake – Chairman Ms Liza Dunne – Managing Director Mr Simon Panton Dr Timothy St Pierre Dr Jason Loveridge (ii) executives Mrs Naomi Haydari - Company Secretary (on Maternity Leave) Remuneration Policy The Board’s policy for determining the nature and amount of remuneration for Board members and senior executives of the consolidated entity is as follows: • set competitive remuneration packages to attract the highest calibre of employees in the context of prevai ling 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 benefit 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 effective 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. Remuneration Committee 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. 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. Each of the non-executive directors receives a fixed fee for their services as directors. There is no direct link between remuneration paid to any of the directors and corporate performance. The Remuneration Committee of the Board of Directors of the Company is responsible for determining and reviewing compensation arrangements for directors and the executive team. Executive Remuneration Remuneration consists of fixed remuneration and variable remuneration. The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the remuneration committee and approved by the Board. The remuneration committee reviews executive packages annually by reference to the consolidated entity’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries. The assistance of an external consultant or remuneration surveys 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. (i) fixed remuneration Fixed remuneration is reviewed annually. The process consists of a review of relevant comparative remuneration in the market and internally, and where appropriate, external advice on policies and practices. The Committee has access to external, independent advice where necessary. 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 benefits. Executives receive a superannuation guarantee contribution required by the government, which for the year is 9.25%, and do not receive any other retirement benefits. AnnuAl RepoRt 2014 11 DIRECTORS’ REPORT (ii) variable remuneration All bonuses and incentives are linked to predetermined performance criteria. The Board may, however, exercise its discretion in relation to approving incentives and bonuses, and can recommend changes to the committee’s recommendations. Any changes must be justified by reference to measurable performance criteria. 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 difference between the market price of those shares and the amount paid by the director or executive. There are currently no securities on issue. Executive Officer’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 three months notice for termination or resignation without cause. Mrs Haydari was appointed to the role of Company Secretary of Resonance Health Ltd on 19 March 2012. Mrs Haydari resigned as Company Secretary on 28 November 2013 to take 12 months maternity leave. 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 without cause. Consultancy Services Agreement for Executive Director Dr Tim St Pierre 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 Scientific Officer totalling $67,119 (2013: $94,544) and no fixed fee for his services as a non-executive director (2013: $nil) were incurred during the financial year. These amounts are included in Dr Tim St Pierre’s remuneration disclosed in the following table. Details of remuneration for year enDeD 30 June 2014 The remuneration for key management personnel of the consolidated entity during the year was as follows: Short-term Employee Benefits Post Employment Benefits Equity Total Salary & Fees $ Superannuation Contributions $ Shares/ Options $ $ Performance Related % Non-Executive Directors’ remuneration Dr M Blake Mr S Panton Dr J Loveridge Total Executive Directors’ remuneration Ms L Dunne Dr T St Pierre1 Total Executive Directors’ remuneration Mrs N Haydari2 Total 54,920 27,460 45,000 127,380 250,000 67,119 317,119 59,411 59,411 5,080 2,540 - 7,620 23,125 - 23,125 4,460 4,460 - - - - - - - - - 60,000 30,000 45,000 135,000 273,125 67,119 340,244 63,871 63,871 - - - - - - - - - 1 Dr St Pierre’s remuneration represents director’s fees earned during the financial year and consulting fees for duties as Chief Scientific Officer paid to The University of Western Australia in full. 2 Mrs Naomi Haydari commenced maternity leave effective 28th November 2013. 12 ResonAnce heAlth limited DIRECTORS’ REPORT Details of remuneration for year enDeD 30 June 2013 The remuneration for key management personnel of the consolidated entity during the year was as follows: Short-term Employee Benefits Post Employment Benefits Equity Total Salary & Fees $ Superannuation Contributions $ Shares/ Options $ $ Performance Related % Non-Executive Directors’ remuneration Dr M Blake Mr S Panton Total Executive Directors’ remuneration Ms L Dunne Dr T St Pierre1 Total Executive Directors’ remuneration Mrs N Haydari Total 55,046 33,639 12,500 101,185 250,000 94,544 344,544 75,000 75,000 4,954 3,028 - 7,982 22,500 - 22,500 6,750 6,750 - - - - - - - - - 60,000 36,667 12,500 109,167 272,500 94,544 367,044 81,750 81,750 - - - - - - - - - 1 Dr St Pierre’s remuneration represents director’s fees earned during the financial year and consulting fees for duties as Chief Scientific Officer paid to The University of Western Australia in full. Shareholdings of key management personnel The numbers of ordinary shares in the Company held during the financial year by key management personnel of the consolidated Group including their personally related entities are set out below. Balance 1/7/2013 Received as Remuneration Net Change Other* Received during the year on exercise of options Balance 30/6/2014 Directors Dr M Blake Ms L Dunne Dr T St Pierre Dr J Loveridge 6,224,677 3,153,385 9,078,750 - Mr S Panton 65,960,972 Total 84,417,784 - - - 240,000 100,000 - - - 340,000 - - - - - - 6,464,677 3,253,385 9,078,750 - 65,960,972 84,757,784 AnnuAl RepoRt 2014 13 DIRECTORS’ REPORTShareholdings of key management personnel The numbers of ordinary shares in the Company held during the financial year by key management personnel of the consolidated Group including their personally related entities are set out below. Balance 1/7/2013 Received as Remuneration Net Change Other* Received during the year on exercise of options Balance 30/6/2014 Executives Mrs N Haydari Total - - - - - - - - - - Key management personnel options and rights holdings No options or rights are held by any member of KMP. There were no other transactions with KMP’s during the year. End of Remuneration Report 14 ResonAnce heAlth limited DIRECTORS’ REPORTMeetings of Directors The number of meetings of the Company’s Board of directors and each Board committee held during the year ended 30 June 2014, and the numbers of meetings attended by each director were: Directors Meetings Audit Committee Meetings Remuneration Committee Meetings Number eligible to attend Number attended Number eligible to attend Number attended Number eligible to attend Number attended Dr M Blake Ms L Dunne Mr S Panton Dr T St Pierre Dr J Loveridge 10 10 10 10 10 Corporate Governance 10 10 10 8 10 2 - 2 - 2 2 - 2 - 2 2 - 2 - 2 2 - 2 - 2 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. provided during the year by the auditor are outlined in Note 22 to the financial statements. The directors are satisfied 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. Auditor Independence and Non- audit Services This report is made in accordance with a resolution of the Board of Directors. 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 20 and forms part of this Directors’ Report for the year ended 30 June 2014. Non-audit Services Details of amounts paid or payable to the auditor for non-audit services Dr Martin Blake Chairman Perth, Western Australia Dated this 26 September 2014 AnnuAl RepoRt 2014 15 DIRECTORS’ REPORTResonance 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 financial 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 affairs of Resonance Health Limited. The Board must ensure that Resonance Health Limited acts in accordance with prudent commercial principles, and satisfies 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 financial objectives of the Company and ensuring appropriate resources are available • Monitoring the implementation of those policies and strategies and the achievement of those financial objectives • Monitoring compliance with control and accountability systems, regulatory requirements and ethical standards • Ensuring the preparation of accurate financial reports and statements • Reporting to shareholders and the investment community on the performance and state of the Company • Appointing and monitoring the performance of senior executives • Establishing 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 effectiveness 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. 16 ResonAnce heAlth limited CORPORATE GOVERNANCE STATEMENTprinciple 2 Structure the Board to add value The composition of the Board has been determined on the basis of providing the Company with the benefit of a broad range of technical, commercial and financial 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. 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 financial year. A Director is considered independent when the Director does not have any relationship with the Company that would be considered to affect 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 financial 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 Scientific Officer • Dr Jason Loveridge - Independent- Non-executive Director A description of the skills and experience of each director and their period of office 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 financial year. The ASX Corporate Governance Council Principle 2 Recommendation 2.3 recommends that the roles of Chairman and Managing Director be exercised by different individuals. The Company complied with this recommendation at all times during the financial year. The roles of Chairman and Managing Director are exercised by different 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 first 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 financial year were: • Dr Martin Blake – (Chairman) – Independent • Mr Simon Panton – Not Independent • Dr Jason Loveridge-Independent Nomination and Remuneration Committee consists of three Non-executive Directors. The number of meetings attended by each member of the Nomination and Remuneration Committee are detailed in the Directors’ Report. AnnuAl RepoRt 2014 17 CORPORATE GOVERNANCE STATEMENTASX 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. 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 identified 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 effectively. The Company’s Constitution requires a director of the Company to not hold office 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 confidence 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 reflected 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 five member board. The Managing Director, CFO/Company Secretary (on Maternity Leave) and two Managers of the Company are women. Currently, Resonance Health has women who hold 20% of total Board membership. Additionally 32% of all current employees are women and 26% of all Management/Executive roles are filled 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. 18 ResonAnce heAlth limited CORPORATE GOVERNANCE STATEMENTprinciple 4 Safeguard integrity in financial 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 effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, including the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial 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 financial information for inclusion in the financial 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 financial year were: • Dr Martin Blake (Chairman) - Independent • Mr Simon Panton – Not independent • Dr Jason Loveridge - Independent The qualifications 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 effect for the 2014 financial 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. The Chairman of the Board is also Chairman of the committee which is not in accordance with Principle 4.2, however given the size of the company and the Chair’s Independent status it is reasonable and acceptable. 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 effectively 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. AnnuAl RepoRt 2014 19 CORPORATE GOVERNANCE STATEMENTprinciple 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 significant briefings 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. 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 financial 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 efficiencies 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 effectiveness 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 Officer provide written statements at each reporting period regarding the integrity of the financial 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. 20 ResonAnce heAlth limited CORPORATE GOVERNANCE STATEMENTprinciple 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. 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 2014 the Nomination and Remuneration Committee met two times. 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 specifically 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 financial 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. AnnuAl RepoRt 2014 21 CORPORATE GOVERNANCE STATEMENT-20- RESONANCE HEALTH LIMITED AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the consolidated financial report of Resonance Health Limited for the year ended 30 June 2014, 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. Perth, Western Australia 26 September 2014 L Di Giallonardo Partner 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 firms and business advisers. 22 ResonAnce heAlth limited Note 2(a) 2(b) Sales revenue Other income Revenue Employee benefits expense Consulting and professional services Research and development Depreciation expense Amortisation expense Marketing and travel Statutory and compliance Foreign exchange gain Due diligence expense Other expenses Loss before income tax benefit Income tax benefit 3 Net loss for the year attributable to owners of the parent Other comprehensive income Items that may be reclassified to profit and loss Exchange differences arising on translation of foreign operations Exchange differences arising on translation of foreign loan Other comprehensive income/(loss) for the year, net of tax Total comprehensive loss for the year attributable to owners of the parent Consolidated 2014 $ 2013 $ 2,284,565 24,471 2,309,036 (1,323,033) (63,877) (70,874) (19,242) (89,326) (173,232) (139,345) (53,879) (119,573) (332,437) (75,782) 3,367 (72,415) 1,527,188 181,959 1,709,147 (1,376,376) (61,068) (56,212) (18,475) (34,677) (218,641) (146,186) 156,584 - (315,488) (361,392) 156,911 (204,481) (9,249) 9,827 578 (59,079) (61,495) (120,574) (71,837) (325,055) Basic (loss) per share (cents per share) 5 (0.02) (0.1) The accompanying notes form part of these financial statements. AnnuAl RepoRt 2014 23 STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 30 JUNE 2014Consolidated Note 2014 $ 2013 $ 7 8 9 10 11 12 9 13 3 15 14 15 2,097,607 499,399 24,602 2,621,608 29,448 1,563,284 3,004 59,099 1,092,943 388,631 24,524 1,506,098 44,302 1,462,204 3,004 59,099 1,654,835 1,568,609 4,276,443 3,074,707 460,429 144,316 48,610 244,480 897,835 40,013 40,013 407,985 31,734 - 313,805 753,524 80,222 80,222 937,848 833,746 937,848 833,746 16(a) 68,703,510 (105,066) (65,259,849) 3,338,595 67,534,039 (105,644) (65,187,434) 2,240,961 Current Assets Cash and cash equivalents Trade and other receivables Other assets Total Current Assets Non-Current Assets Plant and equipment Intangible assets Other financial assets Other assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Current tax liability Provisions 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 24 ResonAnce heAlth limited STATEMENT OF FINANCIAL POSITIONFOR THE YEAR ENDED 30 JUNE 2014 Consolidated Issued Capital $ Foreign Currency Translation Reserve $ Option Reserve $ Accumulated Losses $ Total Equity $ Balance at 1 July 2012 67,534,039 (51,354) 66,284 (64,982,953) 2,566,016 Loss for the year Other comprehensive loss Total comprehensive loss for the year Shares issued during the year - - - - - (120,574) (120,574) - - - - - (204,481) (204,481) - (120,574) (204,481) (325,055) - - Balance at 30 June 2013 67,534,039 (171,928) 66,284 (65,187,434) 2,240,961 Loss for the year Other comprehensive income Total comprehensive income/(loss) for the year - - - - 578 578 Shares issued during the yearof foreign loan 1,169,471 - - - - - (72,415) (72,415) - 578 (72,415) (71,837) - 1,169,471 Balance at 30 June 2014 68,703,510 (171,350) 66,284 (65,259,849) 3,338,595 The accompanying notes form part of these financial statements. AnnuAl RepoRt 2014 25 STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 2014Consolidated Note 2014 $ 2013 $ Inflows/(Outflows) Cash flows from operating activities Receipts from customers Payments to suppliers and employees Due diligence expense Grants received Interest received Income tax received Net cash (used in)/provided by operating activities 7(i) Cash flows from investing activities Payments for plant and equipment Payments for intangible assets Net cash (used in) investing activities Cash flows from financing activities Share issues Share issue costs Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents Foreign exchange differences on cash balances Cash and cash equivalents at the beginning of period Cash and cash equivalents at the end of the period 7 2,179,241 (2,134,816) (94,629) - 19,814 - (30,390) (4,389) (190,406) (194,795) 1,277,521 (48,672) 1,228,849 1,003,664 1,000 1,092,943 2,097,607 1,860,846 (2,096,671) - 146,051 38,157 188,645 137,028 (25,625) (205,337) (230,962) - - - (93,934) 6,703 1,180,174 1,092,943 26 ResonAnce heAlth limited STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 30 JUNE 2014 note 1: statement of significant accounting policies (a) Basis of preparation The financial report is a general purpose financial 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 financial 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 financial 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 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. (b) Adoption of new and revised standards In the year ended 30 June 2014, the Directors have reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to the Group’s operations and effective 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 the Group’s business and, therefore, no change is necessary to Group accounting policies. The Directors have also reviewed all new Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2014. 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 the Group’s business and, therefore, no change necessary to Group accounting policies. (c) Statement of compliance The financial report was authorised for issue on 26 September 2014. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (d) Basis of consolidation The consolidated financial statements comprise the separate financial 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 financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. 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 financial and operating policies of an entity so as to obtain benefits 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 profit 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 financial position. Losses are attributed to the non-controlling interest even if that results in a deficit balance. AnnuAl RepoRt 2014 27 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 1: statement of significant accounting policies (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 differ from these estimates. 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 affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Impairment of intangibles The Group determines whether intangibles with indefinite 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 indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and the carrying amount of intangibles with indefinite useful lives are discussed in Note 11. Additionally, the Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may indicate impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. With respect to cash flow projections growth rates have been factored into valuation models for the next five years on the basis of management’s expectations regarding the Group’s continued ability to increase market share based on contractual obligations already in place and historical sales growth rates. Historic Group averages have been used to reflect projected cash flow growth rates in year 1 and year 2. In subsequent periods a consistent growth rate has been attached as a conservative estimate for use in the impairment calculation. Pre-tax discount rate of 10% which includes a risk component, has been used throughout the value in use model. Development expenditure is considered to be sensitive to these assumptions as they are not ready for use. Therefore sensitivity analysis of 5% and 10% reduction in revenue and the use of a pre-tax discount rate of 15%, have been calculated and did not indicate an impairment. Share-based payment transactions 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 identified 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 financial 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 financial position date. All exchange differences in the consolidated financial report are taken to profit 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. 28 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 1: statement of significant accounting policies (g) Foreign currency translation (Continued) 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 balance date and the statement of comprehensive income is translated at the average exchange rate for the year. The exchange differences 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 the Statement of Comprehensive Income. (h) Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Sale of Goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs 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 effective yield on the financial asset. (i) Borrowing costs Borrowing costs are recognised as an expense when incurred. (j) Lease Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards if ownership to the lessee. All other leases are classified as operating leases. Assets held under finance 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 financial position as a finance lease obligation. Lease payments are apportioned between finance 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 effectively retains substantially all of the risks and benefits 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 benefits from the lease asset are consumed. (k) Income tax The income tax expense or benefit 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 difference 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. AnnuAl RepoRt 2014 29 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 1: statement of significant accounting policies (k) Income tax (Continued) 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 differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or • when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit, nor taxable profit or loss; or • when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against with the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance date and are recognised to the extent that it is has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (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 financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. 30 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 1: statement of significant accounting policies (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 inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cashgenerating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and adjusted risk specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each balance date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss 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 statement of comprehensive income 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 insignificant risk of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined 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 effective 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 significant financial difficulties of the debtor, review of financial information and significant delinquency in making contractual payments to the Group. The impairment allowance is set equal to the difference between the carrying amount of the receivable and the present value of estimated future cash flows, discounted at the original effective 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 classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. Where financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end. AnnuAl RepoRt 2014 31 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 1: statement of significant accounting policies (p) Financial assets (Continued) All regular way purchases and sales of financial 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 financial 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 profit or loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified 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 profit or loss. (ii) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-tomaturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. (iii) Loans and receivables Loans and receivables are non-derivative financial assets that are not quoted in an active market. Gains and losses are recognised in the profit or loss when the loans and receivables are derecognised or impaired. (iv) Available-for-sale investments Available-for-sale investments are those non-derivative financial assets that are designated as available-for-sale or are not classified 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 profit or loss. The fair value of investments that are actively traded in organised financial 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 flow analysis and option pricing models. (q) Derecognition of financial assets and liabilities (i) Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: • • the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows 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 flows 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 flows 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 financial liability is recognised when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. 32 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 1: statement of significant accounting policies (r) Impairment of financial assets The Group assess at each balance date whether a financial asset or group of financial 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 difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective 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 profit or loss. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial 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 profit 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 difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. Such impairment loss should not be reversed in subsequent periods. (iii) Available-for-sale investments If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classified as available-for-sale are not recognised in profit. Reversals of impairment losses for debt instruments are reversed through profit 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 profit 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 financial 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 flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, 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. AnnuAl RepoRt 2014 33 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 1: statement of significant accounting policies (s) Plant and equipment (Continued) An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. 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 benefits areexpected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income 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 have 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 benefits; • The availability of adequate technical, financial 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 first meets the recognition criteria listed above. (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 financial 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. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. (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 difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (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 outflow of resources embodying economic benefits will be required to settle the obligation and a reliable 34 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 1: statement of significant accounting policies (w) Provisions (Continued) estimate can be made of the amount of the obligation. Provisions are not recognised forfuture 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 benefits Wages, salaries, annual leave, sick leave and long service leave Liabilities for wages and salaries, including non-monetary benefits, annual leave, long service leave and 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 uses 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 classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (aa) Earnings per share (“EPS”) Basic EPS is calculated as net profit/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 profit/loss attributable to members of the parent, adjusted for: • • • costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (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. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination 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 identifiable assets. AnnuAl RepoRt 2014 35 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 1: statement of significant accounting policies (ab) Business combinations (Continued) 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 identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit 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 contingent consideration is classified as either equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. (ac) Parent entity financial information The financial information for the parent entity, Resonance Health Limited, disclosed in Note 20 has been prepared on the same basis as the consolidated financial 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 financial statements. note 2: revenues anD expenses (a) Sales revenue Sales to external customers (b) Other income Grants received Interest received (c) Expenses Consolidated 2014 $ 2013 $ 2,284,565 1,527,188 - 24,471 24,471 146,051 35,908 181,959 Rental expense on operating leases 101,997 98,074 36 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 3: income tax benefit Income tax recognised in profit or loss The major components of tax benefit are: Current taxation Adjustments recognised in the current year in relation to the current tax of prior years – R&D tax offset Consolidated 2014 $ 2013 $ (112,582) (31,734) 115,949 3,367 188,645 156,911 The prima facie income tax benefit on pre-tax accounting loss from operations reconciles to the income tax benefit in the financial statements as follows: Accounting loss before income tax (75,782) (361,392) Income tax benefit calculated at 30% Effect of expenses that are not deductible in determining taxable profit Effect of unused tax losses not recognised as deferred tax assets Effect of prior year adjustments Effect of temporary differences not recognised as deferred tax assets and liabilities Effect of capital raising costs recognised directly in equity Tax refund receivable (research and development tax offset) Income tax benefit reported in the statement of comprehensive income 22,735 (131,726) 886 - (36,892) 32,415 115,949 3,367 108,418 (170,727) (30,229) (16,340) 77,144 - 188,645 156,911 AnnuAl RepoRt 2014 37 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 3: income tax benefit Unrecognised deferred tax balances The following deferred tax assets and liabilities have not been brought to account: Deferred tax assets: Losses available for offset against future taxable income - revenue 2,200,004 2,200,889 Consolidated 2014 $ 2013 $ Depreciation timing differences Business related costs Unrealised foreign exchange losses Accrued expenses and liabilities Deferred tax liabilities: Capitalised research and development costs Accrued income Prepayments Income tax benefits not recognised directly in equity Share issue costs Recognised balances Current tax liability Income tax payable 34,913 71,993 97,838 81,331 45,423 3,160 88,292 80,565 2,486,079 2,418,329 468,985 1,777 7,380 478,142 438,661 380 7,357 446,398 32,415 152,765 144,316 31,734 38 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 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 differences in the type of activities performed. The financial 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 profit/loss information and certain asset and liability information regarding business segments for the year ended 30 June 2014. Segment revenue Sales to external customers Interest revenue Total segment revenue Services $ Research and Development $ Corporate $ Total $ 2,284,565 - 2,284,565 - - - - 2,284,565 24,471 24,471 24,471 2,309,036 Segment profit/(loss) before tax 661,665 (96,678) (640,769) (75,782) Other segment information included in loss Income tax benefit Segment assets Segment liabilities - 3,367 - 3,367 499,399 849,225 1,563,282 2,213,762 4,276,443 - 88,623 937,848 The consolidated entity derived 38% of its external customer sales revenue from one major customer. AnnuAl RepoRt 2014 39 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 4: segment reporting The following table presents revenue and profit/loss information and certain asset and liability information regarding business segments for the year ended 30 June 2013. Segment revenue Sales to external customers Grant revenue Interest revenue Total segment revenue Services $ Research and Development $ Corporate $ Total $ 1,527,188 146,051 - 1,673,239 - - - - - - 35,908 35,908 1,527,188 146,051 35,908 1,709,147 Segment profit/(loss) 70,641 24,868 (299,990) (204,481) Other segment information included in loss Income tax benefit Segment assets Segment liabilities - 156,911 - 156,911 388,631 590,816 1,462,204 1,223,872 3,074,707 48,599 194,331 833,746 40 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 5: earnings per share Basic loss per share (cents per share) (0.02) 0.1) (a) Loss used in the calculation of basic earnings per share (72,415) (204,481) Consolidated 2014 $ 2013 $ 2014 Number 2013 Number (b) Weighted average number of ordinary shares for the purposes of basic loss per share 363,572,613 360,991,365 The calculation does not include shares under option that could potentially dilute basic earnings per share in the future as no options are on issue. note 6: DiviDenDs No dividend was paid or declared for the current or previous financial year. note 7: cash anD cash equivalents Deposits at call Term deposits Consolidated 2014 $ 497,607 1,600,000 $2,097,607 2013 $ 492,943 600,000 1,092,943 Deposits at call earn interest at floating 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. AnnuAl RepoRt 2014 41 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 7: cash anD cash equivalents (continueD) (i) Reconciliation of loss for the year to net cash flows from operating activities Loss for the year Non-cash flows in loss: Depreciation Amortisation of intangible assets Changes in net assets and liabilities: (Increase)/Decrease in receivables (Increase)/Decrease in other assets (current) (Increase) in assets (non-current) Decrease in trade creditors and other payables Increase in current tax liabilities Decrease/(increase) in other liabilities Net cash (used in)/provided by operating activities (ii) Financing facilities Unsecured credit card: Amount used Amount unused Net cash (used in)/provided by operating activities Secured credit card: Amount used Amount unused (iii) Cash balances not available for use Security deposits: Credit card Lease premises 42 ResonAnce heAlth limited Consolidated 2014 $ 2013 $ (72,415) (204,481) 19,242 89,326 (111,191) (78) - 1,469 112,582 (69,325) (30,647) 18,475 34,677 240,927 2,446 (708) 29,669 31,734 (15,711) 137,028 Consolidated 2014 $ 2013 $ 11,073 8,927 20,000 1,202 18,798 20,000 12,834 7,166 20,000 493 19,507 20,000 Consolidated 2014 $ 2013 $ 20,000 39,099 59,099 20,000 39,099 59,099 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 8: traDe anD other receivables Current Trade receivables Other receivables Consolidated 2014 $ 2013 $ 365,592 133,807 499,399 342,203 46,428 388,631 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 Net cash (used in)/provided by operating activities 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 Consolidated 2014 $ 2013 $ 84,668 23,984 33,748 - 142,400 - - - 159,789 31,751 15,281 - 206,821 - - - 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. No allowance has been made for estimated irrecoverable trade receivable amounts arising from the past rendering of services in relation to a specific debtor amount. The concentration of credit risk is significant with 33% (2013: 29%) 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 Current Prepayments Non-Current Deposits Consolidated 2014 $ 2013 $ 24,602 24,524 59,099 59,099 AnnuAl RepoRt 2014 43 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 10: plant anD equipment Fixtures and equipment At cost Less: Accumulated depreciation Total property, plant and equipment Reconciliation Consolidated 2014 $ 2013 $ 273,820 (244,372) 29,448 269,432 (342,203) 44,302 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 note 11: intangible assets Development expenditure At cost Less: Accumulated amortisation Total development expenditure Reconciliation Reconciliation of the carrying amount of intangible assets is set out below: Development expenditure Carrying amount at the beginning of the year Additions Amortisation expense Carrying amount at the end of the year 44,302 4,388 (19,242) 29,448 37,152 25,625 (18,475) 44,302 1,687,285 (124,003) 1,563,282 1,496,881 (34,677) 1,462,204 1,462,204 190,404 (89,326) 1,563,282 1,291,544 205,337 (34,677) 1,462,204 Development expenditure relates to costs incurred in developing MRI image analysis tools for the diagnosis and clinical management of human disease. During the current financial year this development has related to a new liver fat assessment tool, further refinement of FerriScan® and the next stage of development of a MRI based liver fibrosis 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 fibrosis 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. 44 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 11: intangible assets (continueD) The recoverable amount of development expenditure detailed above is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections over a five year period. The cash flows are discounted using the yield of a 10 year government bond at the beginning of the budget period. The following assumptions were used in the value-in-use calculations: Growth rate was based on contractual obligations already in place and historical sales growth rates. • • Costs are calculated taking into account historical margins and trends as well as estimated weighted average inflation rates over the period, which are consistent with inflation rates appropriate to historic company rates. • Discount rate was based on the market risk free rate of a 10 year government bond. note 12: available for sale investments Available for sale-carried at fair value Shares in listed corporations Less: impairment note 13: traDe anD other payables Current Trade payables (i) Sundry creditors and accruals Consolidated 2014 $ 2013 $ 14,337 (11,333) 3,004 136,618 323,811 460,429 14,337 (11,333) 3,004 256,494 151,491 407,985 (i) Trade payables are non-interest bearing and are normally settled on 30 day terms. Information regarding the effective interest rate and credit risk of current payables is set out in Note 17. note 14: other liabilities Current Unearned income note 15: provisions Current: Long service leave Non-current: Long service leave 244,480 313,805 48,610 40,013 88,623 - 80,222 80,222 AnnuAl RepoRt 2014 45 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 note 15: provisions (continueD) Reconciliation Balance at the beginning of the year Balance at the beginning of the year Arising during the year Carrying amount at the end of the year note 16: issueD capital Consolidated 2014 $ 2013 $ 80,222 8,401 88,623 68,488 11,734 80,222 Consolidated 2014 2013 Number $ Number $ Issued Paid Up Capital 386,541,784 68,703,510 360,991,365 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 financial year 360,991,365 67,534,039 Placement 17 April 2014 at $0.05 each Rights issue 17 June 2014 at $0.05 each Share capital issue costs Balance at the end of the financial year 10,000,000 15,550,419 - 500,000 777,521 108,050) 386,541,784 68,703,510 46 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 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 financial 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 flows are used to maintain and expand operations, as well as to make routine expenditures. (b) Categories of financial instruments Financial assets/(liabilities) Cash and cash equivalents Loans and receivables Available for sale financial assets Other financial assets Payables Consolidated 2014 $ 2013 $ 2,097,607 499,399 3,004 59,099 (460,429) 1,092,943 388,631 3,004 59,099 407,985 The net fair values of all financial 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 flow interest rate risk. The Group seeks to minimise the effects of these risks. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. (d) Market risk The Group’s activities expose it primarily to the financial 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. AnnuAl RepoRt 2014 47 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 17: financial instruments (continueD) (e) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations 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 Foreign currency sensitivity analysis Liabilities Assets 2014 $ 1,904 12,905 - 2013 $ 14,012 - 3,177 2014 $ 2013 $ 372,647 426,416 98,802 41,953 97,058 20,999 The Group is exposed to United States Dollar (USD), Great British Pound (GBP) and European Euro (EUR) currency fluctuations. 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 profit 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 profit and other equity and the balances below would be positive. Profit or loss impact: USD GBP EUR 2014 $ 2013 $ (33,704) (7,809) (3,814) (37,491) (8,823) (1,620) 48 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 17: financial instruments (continueD) (f) Interest rate risk management All financial assets and financial 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 financial assets. Cash and cash equivalent financial assets 2014 Less than one month One to three months Total $2,097,607 $59,099 $2,156,706 Weighted average effective interest rate 2.65% 3.42% 2013 $1,092,943 $59,099 $1,152,042 Weighted average effective interest rate 2.16% 4.57% The Group is exposed to fluctuations in interest rates as it has deposited monies at floating and fixed 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 financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily from customer receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments. Outstanding customer receivables are regularly monitored and any credit concerns highlighted to senior management. At 30 June 2014, the Group had one customer that accounted for 33% of all trade receivables (2013: 29%). 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 financial assets is the carrying amount, net of any allowance for impairment recorded in the financial statements. The Group does not hold any collateral as security for any trade receivable. (h) Equity price risk TT he Group is exposed to equity price risks arising from available-for-sale financial 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. AnnuAl RepoRt 2014 49 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 17: financial instruments (continueD) (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 flows and matching the maturity profiles of financial 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 financial liabilities. 2014 Non-interest bearing 2013 Non-interest bearing (i) Liquidity risk management Less than one month One to three months Three months to one year Total 227,613 127,509 105,306 460,429 236,412 42,960 128,613 407,985 The net fair value of all financial assets and liabilities approximate their carrying values. No financial assets or financial liabilities, except for listed shares are readily traded on organized markets in standardised form. The aggregate net fair values and carrying amounts of all financial assets and liabilities are disclosed in the financial statements. note 18: commitments for expenDiture Operating lease commitments Commitments for minimum lease payments in relation to non- cancellable operating leases for office premises are payable as follows: Within one year Later than 1 year but no later than 5 years Total commitments not recognised in the financial statements 2014 $ 2013 $ 106,173 255,386 361,559 113,922 9,501 123,423 A lease over premises was entered into effective 1 August 2011 and has been extended from 1 August 2014 for a further 3 years to July 2017. 50 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 19: relateD party Disclosure The consolidated financial statements include the financial statements of Resonance Health Limited and the subsidiaries listed in the following table. Name of entity Country of incorporation Class of shares Equity holding Resonance Health Analysis Services Pty Ltd WA Private Health Care Services Pty Ltd IVB Holdings Pty Ltd Resonance USA Inc Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% Resonance Health Limited is the ultimate Australian entity and ultimate parent of the Group. 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 $356,000. During the year the Company provided additional interest free loans to Resonance Health Analysis Services Pty Ltd totalling $200,000. During the year the Company provided additional interest free loans to Resonance USA Inc. totalling US$90,500 (2013: $200,000). A cumulative impairment of these loans of $4,176,719 was recorded up to balance date (2013: $4,545,135). During the year expenses were paid by Resonance Health Analysis Services Pty Ltd totalling $243,495 (2013: $145,848) on behalf of the Company. During the year expenses were paid by the Company on behalf of Resonance Health Analysis Services Pty Ltd totalling $43,146 (2013: $193,789). AnnuAl RepoRt 2014 51 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 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 Loss for the year Other comprehensive income Total comprehensive loss 2014 $ 2013 $ 1,718,326 1,048,591 2,766,917 238,486 238,486 645,467 1,015,346 1,660,813 94,122 94,122 68,703,510 66,284 67,534,039 66,284 (66,241,363) (66,033,632) 2,528,431 1,566,691 Year ended 30 June 2014 $ Year ended 30 June 2013 $ (207,731) - (207,731) (584,016) - (584,016) note 21: events subsequent to reporting Date On 12 September 2014 as part of the Shortfall Entitlement, the Company placed 13 million shares at $0.05 per share which raised a further cash amount of $650,000. note 22: auDitors’ remuneration During the year the following fees were paid or payable to the auditor: Remuneration of the auditor of the Company for: Auditing/reviewing financial report Taxation compliance services Consolidated 2014 $ 2013 $ 49,950 37,750 87,700 48,895 45,400 94,295 52 ResonAnce heAlth limited NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014note 23: key management personnel Disclosures (a) Details of key management personnel (i) Directors Dr Martin Blake Chairman (non-executive) Ms Liza Dunne Managing Director (executive) Mr Simon Panton Director (non-executive) Dr Jason Loveridge Director (non-executive) Dr Tim St Pierre Director (executive) (ii) Executives Mrs Naomi Haydari Chief Financial Officer and Company Secretary on maternity leave effective 28th November 2013. Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. (b) Key Management Personnel Compensation Refer to the Remuneration Report contained in the Directors’ Report for details of the remuneration paid or payable to each member of the Group’s key management personnel (KMP) for the year ended 30 June 2014. The totals paid to KMP of the Company and the Group during the year are as follows: Short term employee benefits Post employment benefits Share based payments Total KMP compensation 2014 $ 2013 $ 503,910 35,205 - 539,115 520,729 37,232 - 557,961 AnnuAl RepoRt 2014 53 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2014 1. In the opinion of the directors: a. the accompanying financial statements, notes and the additional disclosures are in accordance with the Corporations Act 2001 including: i. giving a true and fair view of the Group’s financial position as at 30 June 2014 and of its 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 financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2014. This declaration is signed in accordance with a resolution of the Board of Directors. Dr Martin Blake Chairman Place: Perth, Western Australia Dated: 26 September 2014 54 ResonAnce heAlth limited DIRECTORS’ DECLARATION -53- RESONANCE HEALTH LIMITED INDEPENDENT AUDITOR’S REPORT To the members of Resonance Health Limited Report on the Financial Report We have audited the accompanying financial report of Resonance Health Limited (“the company”), which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for the Group. The Group comprises the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that 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 financial report complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. 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 sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. 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 firms and business advisers. AnnuAl RepoRt 2014 55 -54- RESONANCE HEALTH LIMITED Auditor’s opinion In our opinion: (a) (b) the financial report of Resonance Health Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and (ii) the financial 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 2014. 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 2014 complies with section 300A of the Corporations Act 2001. HLB Mann Judd Chartered Accountants L Di Giallonardo Partner Perth, Western Australia 26 September 2014 56 ResonAnce heAlth limited 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 additional information is supplied as at October 2014. 1. Analysis of Shareholdings Distribution of Shareholders (ASX Code: RHT) Number of Ordinary Shares Held Ordinary Shares 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 536 180 241 847 397 2,201 115,926 554,231 1,796,766 34,034,376 364,701,268 401,202,567 The number of shareholdings holding less than a marketable parcel of shares are 893. 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. AnnuAl RepoRt 2014 57 ShareholderS 3. Twenty Largest Shareholders of quoted Ordinary Shares Name Southam Investments 2003 Pty Ltd HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED Number of Ordinary Shares 65,414,622 16,557,577 Mr Kevin Deeves and Mrs Pauline Deeves 10,650,000 1 2 3 4 5 6 7 Mr Sean Watkins-Saxon Timothy Guy St Pierre The University Of Western Australia Mr Gregory Peter Wilson 8 Wanida Chau-Anusorn 9 Mr Helmut Rocker 10 Mr Harry Basle 11 Mr Robert Panton 12 Walker Trusco Pty Ltd 13 MC Manangement Group Pty Ltd 14 Mr William Grove 15 Dr Martin Peter Blake 16 Mr Maximino Amoedo 17 ABN Amro Clearing Sydney Nominees Pty Ltd 18 Marcolongo Nominees Pty Ltd 19 Anahein Pty Ltd 20 Mr Bruce Stevenson 4. Substantial shareholders Percentage of Total 16.30 4.12 2.66 2.36 2.28 2.26 2.00 1.68 1.54 1.25 1.16 1.12 1.04 1.01 0.95 0.82 0.81 0.78 0.75 0.74 9,488,636 9,146,250 9,078,750 8,055,000 6,730,000 6,200,000 5,022,422 4,640,824 4,494,844 4,159,203 4,068,401 3,798,590 3,300,000 3,242,803 3,126,000 3,010,598 2,960,404 183,144,924 45.63 The names of substantial shareholders who have notified 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 58 ResonAnce heAlth limited ShareholderS AnnuAl RepoRt 2014 59 Principal Place of Business Ground Floor 278 Stirling Highway, Claremont WA 6010 Telephone: +61 8 9286 5300 | Facsimile: +61 9286 1179 Postal Address PO Box 1135, Nedlands WA 6909 www.resonancehealth.com info@ferriscan.com

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