ResApp Health Limited
Annual Report 2018

Plain-text annual report

ResApp Health Limited ABN 51 094 468 318 CONSOLIDATED ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2018 1 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Contents to the Consolidated Financial Report Corporate Information ........................................................................................................................................... 3 Directors’ Report ................................................................................................................................................... 4 Auditor’s Independence Declaration ................................................................................................................... 16 Consolidated Statement of Profit and Loss and Other Comprehensive Income ................................................. 17 Consolidated Statement of Financial Position ..................................................................................................... 18 Consolidated Statement of Changes in Equity ..................................................................................................... 19 Consolidated Statement of Cash Flows ............................................................................................................... 20 Notes to the Consolidated Financial Statements .................................................................................................. 21 Directors’ Declaration .......................................................................................................................................... 42 Independent Auditor’s Report .............................................................................................................................. 43 ASX Additional Information ............................................................................................................................... 47 2 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Corporate Information This annual report is for ResApp Health Limited and its controlled entity (“the Group”). Unless otherwise stated, all amounts are presented in Australian Dollars. A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the directors’ report on pages 7-11. The directors’ report is not part of the financial statements. Directors Dr Roger Aston (appointed 2 July 2015) Dr Tony Keating (appointed 2 July 2015) Mr Chris Ntoumenopoulos (appointed 21 January 2015) Mr Nathan Buzza (appointed 28 December 2017) Company Secretary Ms Nicki Farley Principal Office Level 8, 127 Creek St Brisbane QLD 4000 Registered Office Level 24 44 St Georges Tce, PERTH WA 6000 Share Registry & Register Link Market Services Ltd Level 12, 250 St Georges Tce PERTH WA 6000 Bankers National Australia Bank 100 St Georges Tce PERTH WA 6000 Contact Information Ph: 08 6211 5099 Fax: 08 9218 8875 Auditors Grant Thornton Audit Pty Ltd Level 43, 152-158 St Georges Terrace PERTH WA 6000 Solicitors Price Sierakowski Corporate Level 24, 44 St Georges Tce PERTH WA 6000 Stock Exchange Listing ResApp Health Limited ASX Code: RAP Web Site www.resapphealth.com.au 3 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report The Directors of ResApp Health Limited (“the Company”) and its controlled entity (“the Group”) submit herewith the annual financial statements of the Group for the financial year ended 30 June 2018. These financial statements cover the period from 1 July 2017 to 30 June 2018. In order to comply with the provision of the Corporations Act 2001, the Directors’ report is as follows: The names and particulars of the Directors of the Company during or since the end of the financial year are: Dr Roger Aston Interest in Shares and Options Directorships held in other listed entities Dr Tony Keating Non-Executive Chairman (appointed 2 July 2015) Dr Aston is a scientist and seasoned biotechnology entrepreneur. He has been closely involved in start-up companies and major pharmaceutical companies. Aspects of his experience include US Food and Drug ('FDA') and European Union ('EU') product registration, clinical trials, global licensing agreements, fundraising through private placements, and a network of contacts within the pharmaceutical, banking and stock broking sectors. Dr Aston has also held Directorships/Chairmanships with Clinuvel Ltd, HalcyGen Ltd, and Ascent Pharma Ltd, was a member of the AusIndustry Biological Committee advising the Industry Research and Development Brand. More recently, Dr Aston was Executive Chairman of Mayne Pharma Group from 2009 to 2011 and later, CEO of Mayne Pharma Group. Dr Aston holds 8,437,500 ordinary shares and 8,437,500 performance shares indirectly in the Company. Dr Aston holds 3,600,000 options in the Company. During the past three years Dr Aston has served as a Director for the following other listed companies: (a) Immuron Limited – appointed 25 May 2012; (b) Regeneus Limited – appointed 21 September 2012; (c) PharmAust Limited – appointed 12 August 2013; (d) Oncosil Medical Limited – appointed 28 March 2013. Chief Executive Officer and Managing Director (appointed 2 July 2015) Dr Keating has over 10 years’ experience in commercialising technology. Dr Keating created the initial business strategy for ResApp and has led the commercialization of ResApp’s technology to date. Previously, Dr Keating was Director, Commercial Engagement at UniQuest Pty Ltd, one of the global leaders in commercialisation of university technology. While at UniQuest, Dr Keating held roles as interim Chief Executive Officer and Non-Executive Director for a number of privately-held, venture-capital funded start-up companies. Prior to joining UniQuest Dr Keating held business development and engineering management roles at Exa Corporation, a US-based software company that is now listed on the NASDAQ. Dr Keating holds a Bachelor of Engineering, a Master of Engineering Science and a Doctor of Philosophy (Mechanical Engineering) from The University of Queensland. Dr Keating also has an Executive Certificate of Management and 4 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Leadership from the MIT Sloan School of Management, and is a Graduate Member of the Australian Institute of Company Directors. Interest in Shares and Options Dr Keating holds nil shares in the Company. Dr Keating holds 23,800,000 options in the Company. Directorships held in other listed entities During the past three years Dr Keating has not held directorship of any other ASX listed companies. Mr Chris Ntoumenopoulos Non-Executive Director (appointed 21 January 2015) Mr Ntoumenopoulos is the Managing Director of Twenty 1 Corporate. He has worked in financial markets for the past 14 years, focusing on Capital Raisings, Portfolio Management and Corporate Advisory. Mr Ntoumenopoulos has advised and funded numerous ASX companies from early stage venture capital, through to IPO. He is an executive director of various private companies which span across finance, technology and medical sectors. Mr Ntoumenopoulos has a Bachelor of Commerce degree from the University of WA, majoring in Money and Banking, Investment Finance and Electronic Commerce. Interest in Shares and Options Mr Ntoumenopoulos holds 3,109,375 shares indirectly in the Company. Mr Ntoumenopoulos holds 3,600,000 options in the Company. Directorships held in other listed entities Mr Nathan Buzza During the past three years Mr Ntoumenopoulos has served as a Director for the following other listed companies: (a) Race Oncology Ltd – appointed 27 April 2016. Non-Executive Director (appointed 28 December 2017) Mr Buzza is recognised as a technology pioneer in the evolution and implementation of specialised medical technology. Having founded Clinical Middleware provider CommtechWireless in 1992, Mr Buzza grew this business into a successful multinational with offices in the USA, Australia, Europe & Asia, deploying the technology across 8,000 locations worldwide. In 2008, Mr Buzza negotiated the sale of CommtechWireless to Amcom Software and continued as GM for 18 months post acquisition. In 2010, Amcom Software was acquired by USA Mobility (now Spok) for $163.8m. Nathan’s accomplishments were recognized by Ernst & Young, where Nathan was awarded the “Entrepreneur of the Year” and by Business News as the “First Amongst Equals” as well as the WAITTA Life Time Achievement Award for his contributions to the Australian IT community. Mr Buzza is presently the Chief Executive of Allure Capital, a boutique Venture Capital firm specialising in investing in medical technologies. Mr Buzza studied a Bachelor of Commerce at Curtin University, majoring in Information Systems 5 Directors’ Report Interest in Shares and Options Directorships held in other listed entities Mr Brian Leedman Interest in Shares and Options Directorships held in other listed entities Ms Nicki Farley ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Mr Buzza holds no shares in the Company. Mr Buzza holds no options in the Company. During the past three years Mr Buzza has served as a Director for the following listed companies: (a) Alcidion Group Limited – appointed 22 February 2016, resigned 31 July 2017. Executive Director and Vice President, Corporate Affairs (retired as Executive Director 28 December 2017) Mr Leedman is a marketing and investor relations professional with over 15 years’ experience in the biotechnology industry. Mr Leedman was co-founder of ResApp Diagnostics Pty Ltd which was acquired by Narhex Life Sciences Ltd to form ResApp Health. Prior to ResApp, Mr Leedman co-founded Oncosil Medical Limited and Biolife Science Limited (acquired by Imugene Limited). Mr Leedman previously served for 10 years as Vice President, Investor Relations for pSivida Corp which is listed on the ASX and NASDAQ. He is formerly the WA chairman of AusBiotech, the association of biotechnology companies in Australia. Mr Leedman holds a Bachelor of Economics and a Master of Business Administration from the University of Western Australia. At the time of his resignation from the Board, Mr Leedman held 26,000,885 ordinary shares and 23,250,000 performance shares indirectly in the Company. At the time of his resignation from the Board, Mr Leedman held 3,600,000 options in the Company. During the past three years Mr Leedman has served as a Director for the following other listed companies: (a) Alcidion Group Limited – appointed 28 July 2016, resigned 31 July 2017. Company Secretary (appointed 7 November 2012) Ms Farley has over 10 years’ experience working within the legal and corporate advisory sector providing advice in relation to capital raisings, corporate and securities laws, mergers and acquisitions and general commercial transactions. Ms Farley also holds a number of company secretarial roles for ASX listed companies. Ms Farley holds a Bachelor of Laws and Arts from the University of Western Australia. 6 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Directors’ Meetings The following table sets out the number of directors’ meetings held during the financial year and the number of meetings attended by each director (while they were a director). Board of Directors Eligible to Attend Attended Dr Roger Aston Dr Tony Keating Mr Chris Ntoumenopoulos Mr Nathan Buzza Mr Brian Leedman 8 8 8 5 3 8 8 8 5 3 The Board of Directors also approved six (6) circular resolution during the year ended 30 June 2018 which were signed by all Directors of the Company. PRINCIPAL ACTIVITIES During the year, the Company continued the development and commercialisation of the ResApp technology for the purpose of providing health care solutions for respiratory disease. OPERATING RESULTS AND FINANCIAL POSITION The net loss for the year ended 30 June 2018 was $6,533,435 compared with a net loss of $10,032,750 for the previous year. The Company had a net asset position as at 30 June 2018 of $5,542,516 (2017: $11,349,067). During the year ended 30 June 2018, the Company was principally engaged in research and development activities. A large portion of the total expenses (49%) for the current year is made up of costs associated with R&D. The loss for the prior year is attributable to operating activities, research and development costs and the valuation of options issued during that year. REVIEW OF OPERATIONS Operational Review US SMARTCOUGH-C Study On 9 August 2017, the Company announced top-line data from its multi-site, double blind, prospective clinical study to investigate ResAppDx for the diagnosis of respiratory disease in infants and children using cough sounds. The study endpoints were based on the diagnosis of pneumonia, croup, bronchiolitis, asthma/reactive airways disease, lower respiratory tract disease and upper respiratory tract infection. In the final data review, prior to the un-blinding of the study data, the Company identified at least two issues with the clinical data. Contrary to instructions and training, a high number of patients were treated before clinical research staff recorded their cough sounds. A high number of recordings were also found to contain a second person’s cough sounds or an unacceptable amount of background noise and interference. These issues are known to affect cough sound analysis and their presence skewed the results. In addition, the Company subsequently found material variances in clinical adjudication that further skewed the results. 7 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report A preliminary analysis indicated that the study was unlikely to meet its predefined endpoints for diagnosis of childhood respiratory disease. US SMARTCOUGH-C-2 Study During the period, the Company announced it proposed completing a second US paediatric pivotal clinical study over the US winter. SMARTCOUGH-C-2 is a prospective, multi-site, double-blind study designed as a follow- on from ResApp’s SMARTCOUGH-C study, which was found to not be a representative evaluation of ResAppDx due to a range of issues during execution and clinical adjudication. SMARTCOUGH-C-2 was a refined study with an array of enhanced procedures and features developed in collaboration with the participating hospitals. The SMARTCOUGH-C-2 study enrolled patients aged 29 days to 12 years of age who present to a participating site with signs or symptoms of respiratory disease. The co-primary endpoints for SMARTCOUGH-C-2 are positive and negative percent agreement with clinical diagnosis for pneumonia, lower respiratory tract disease, viral lower respiratory tract infection, bronchiolitis, asthma/reactive airways disease, upper respiratory tract disease and croup. The clinical diagnosis will be made by an independent, centralised clinical adjudication committee using all available clinical data, including radiology and microbiology. On 8 January 2018, the Company announced it had enrolled the first patient in its SMARTCOUGH-C-2 study in the United States. Subsequent to the end of the period, on 1 August 2018 the Company announced the completion of enrolment in its SMARTCOUGH-C-2 study with a total of 1,470 patients having been enrolled at three hospital sites in the United States. With enrolment complete, the study entered the data verification phase in which final quality assurance, clinical and radiologic adjudication were conducted for the remaining patients, and final source data verification site visits performed. On 27 September 2018, the Company announced that its contracted Clinical Research Organisation and the site Principal Investigators had notified the Company that adjudication was progressing well and that based on the projected availability of adjudicators it will be approximately two weeks before the data is un-blinded and preliminary top-line results are delivered. Australian Paediatric Clinical Study During the period, the Company continued to enrol children in its Australian paediatric clinical study, Breathe Easy. On 4 September 2017, the Company announced it would broaden its paediatric clinical strategy by reconfiguring its Australian study to directly support European (CE) and Australian (TGA) regulatory filings. Since early 2017, the Australian paediatric study at Joondalup Health Campus had recruited patients for double- blind prospective analysis with 230 patients recruited as at September 2017. Subsequent to the end of the period, on 2 August 2018 the Company announced the completion of paediatric enrolment in the prospective, double-blind stage of its Breathe Easy study. A total of 681 paediatric patients had been recruited at Joondalup Health Campus and Princess Margaret Hospital in Perth. On 3 September 2018, the Company announced positive top-line results from the Breathe Easy study. Independent analysis of the study showed ResApp’s algorithms achieved a positive percent agreement between 79% and 97% and a negative percent agreement between 80% and 91% when compared to a clinical diagnosis for lower respiratory tract disease, asthma/reactive airway disease, croup, pneumonia, primary upper respiratory tract disease and bronchiolitis. Australian Adult Clinical Study During the period, adult patients continued to be recruited in the Breathe Easy Australian clinical study. On 18 December 2017 the Company announced further positive results from its Australian adult clinical study. These results demonstrated, for the first time, accurate differential diagnosis of pneumonia and acute asthma in a real-world intended use population of adult patients with a board range of respiratory illnesses. The results also 8 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report demonstrated accurate identification of chronic obstructive pulmonary disease (COPD) and chronic asthma in patients referred for lung function testing (the gold standard for chronic respiratory disease diagnosis), as well as the ability to identify infective exacerbations in COPD patients. All results were obtained using leave-one-out cross-validation. On 28 June 2018 the Company advised that recruitment in its Australian double-blind, prospective adult study is progressing well with 567 adults enrolled as of 27 June 2018. Obstructive Sleep Apnoea Study On 10 April 2018 the Company announced that it is conducting clinical proof-of-concept studies in obstructive sleep apnoea (OSA) and had received excellent preliminary results. ResApp had developed new machine-learning algorithms to measure the severity of OSA from a patient’s overnight breathing and snoring sounds recorded using a smartphone placed on a bedside table. The Company is working with Dr Philip Currie and Dr Ivan Ling of Cardio Respiratory Sleep (CRS) to recruit patients at Hollywood Private Hospital and The Park Private Hospital in Perth, Australia. Preliminary results from ResApp’s study achieved 86% sensitivity and 83% specificity for identifying patients with an apnoea hypopnea index (AHI) greater than or equal to 15 (patients with moderate and severe sleep apnoea) compared with simultaneous in-laboratory polysomnography scored using the current 2012 AASM scoring criteria. These results were obtained using ten-fold cross-validation on a large cohort of 731 patients. ResApp is now looking to confirm these findings in a double-blind prospective study. Subsequent to the end of the period, the Company confirmed that recruitment in its double-blind prospective study had progressed well, with 312 patients recruited as of 11 July. The Company is targeting a minimum of 500 patients and expected to reach this target in the third quarter of the 2018 calendar year. Letter of Intent with German Private Hospital Network for Pilot Project On 24 April 2018 the Company announced that it has signed a letter of intent (LOI) with a German private hospital network to run a pilot project to test the applicability and integration of ResAppDx, ResApp’s smartphone application for diagnosing acute respiratory disease, within a German hospital structure. The partners will work together to design and run a six-month pilot project at one or more of the network’s hospitals in Germany at no- cost to ResApp. At the completion of the project ResApp has agreed to grant the network an exclusive, no-cost license to use ResAppDx in their hospitals in Germany for six months and a non-exclusive, no-cost license for an additional six months. Successful completion of the pilot may lead to the network negotiating a commercial licensing agreement for use in their hospitals. DARPA Warfighter Analytics using Smartphones for Health Research Program with Lockheed Martin Subsequent to the end of the quarter, on 16 August 2018, the Company announced that it had entered into a partnership with Lockheed Martin in the Defense Advanced Research Projects Agency (DARPA) Warfighter Analytics using Smartphones for Health (WASH) program. The WASH program will build a software suite to predict warfighter readiness and potential chronic and acute illness in a variety of contexts using only a standard cell phone instead of other specialized, expensive medical devices. Doctors Without Borders / Médecins San Frontières (MSF) On 14 September 2017 the Company provided an update on the planned field evaluation of ResAppDx by Médecins Sans Frontières/Doctors Without Borders (MSF). Key staff at MSF have reaffirmed their belief in the potential of ResApp’s core technology, however after reviewing the issues identified by ResApp in its 9 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report SMARTCOUGH-C study, and the high cost of keeping the project open, MSF will not proceed with its planned field evaluation of ResAppDx at this point in time. ResApp and MSF will maintain their collaborative relationship and seek opportunities for field testing the technology once issues identified in the SMARTCOUGH-C study have been resolved Patents On 6 June 2018, the Company announced that it had received a Notice of Allowance from the United States Patent and Trademark Office for its patent application 14/389,291 titled “Method and Apparatus for Processing Patient Sounds” covering the use of a cough sound based audio processing pipeline for diagnosing respiratory disease. Subsequent to the end of the quarter, the Company announced it had received a Notice of Acceptance from IP Australia for its patent application 2013239327 titled “Method and Apparatus for Processing Patient Sounds” covering the use of a cough sound based audio processing pipeline for diagnosing respiratory disease. Corporate Review On 23 August 2017, the Company announced the appointment of Dr Philip Currie to its Scientific Advisory Board. Dr Currie is a cardiologist with more than 35 years in cardiology both in the United States and in Australia with extensive experience in medical research, clinical cardiology and business. On 29 December 2017, the Company announced the appointment of Mr Nathan Buzza as a Non-Executive Director, effective immediately. Mr Buzza is an experienced senior executive and director with 25 years’ experience in software, electronics and medical technology. In addition, the Company confirmed the resignation of Mr Brian Leedman who had served on the board since February 2016. Mr Leedman is a co-founder of the Company and will continue in his role as Vice President, Corporate Affairs. Subsequent Events As noted above, subsequent to the end of the period, the Company announced the completion of enrolment in its SMARTCOUGH-C-2 study with a total of 1,470 patients having been enrolled at three hospital sites in the United States. On 27 September 2018, the Company announced that based on the projected availability of adjudicators it would be approximately two weeks before the data is un-blinded and preliminary top-line results are delivered. In addition, on 2 August 2018 the Company announced the completion of paediatric enrolment in the prospective, double-blind stage of its Breathe Easy study. A total of 681 paediatric patients had been recruited at Joondalup Health Campus and Princess Margaret Hospital in Perth. On 3 September 2018, the Company announced positive top-line results from the study with ResApp’s algorithms achieving a positive percent agreement between 79% and 97% and a negative percent agreement between 80% and 91% when compared to a clinical diagnosis. On 16 August 2018 the Company announced that it has partnered with Lockheed Martin in the Defense Advanced Research Projects Agency (DARPA) Warfighter Analytics using Smartphones for Health (WASH) program. The WASH program will build a software suite to predict warfighter readiness and potential chronic and acute illness in a variety of contexts using only a standard cell phone instead of other specialized, expensive medical devices. On 19 September 2018, the Company announced that it had received firm commitments from institutional and sophisticated investors to raise $7.5 million before capital raising costs of approximately $495,000 (incl GST), issuing 34,090,910 new ordinary shares at $0.22 per share (Placement). Settlement of the Placement occurred on 24 September 2018. Funds raised under the Placement will be used to invest in sales and marketing capability to commercialise ResAppDx in Europe, Australia and Asia, deploy resources to expand our clinical programs by conducting a US-based, double-blind, prospective adult clinical study and investigate an array of new applications for our core technology. 10 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Except for the events noted above, no material events have occurred subsequent to the reporting date. Future Developments The Group will continue the development and commercialisation of the ResApp technology for the purpose of providing health care solutions to assist doctors and consumers diagnose respiratory disease. Environmental Issues The Group’s operations are not subject to significant environmental regulations under the law of the Commonwealth or of a State, or Territory. Dividends No amounts have been paid or declared by way of dividend by the Group since the end of the previous financial year and the Directors do not recommend the payment of any dividend. Indemnification of Officers and Auditors The Group has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor. Remuneration Report – Audited Directors Dr Roger Aston (appointed 2 July 2015) Dr Tony Keating (appointed 2 July 2015) Mr Chris Ntoumenopoulos (appointed 21 January 2015) Mr Nathan Buzza (appointed 28 December 2017)) Mr Brian Leedman (retired 28 December 2017) Remuneration Policy The board policy is to remunerate non-executive directors at a level which provides the company with the ability to attract and retain directors with the experience and qualification appropriate to the development strategy of the company’s Intellectual Property. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. This was set at $200,000 per annum by shareholders on 7 October 2004. Directors’ fees are reviewed annually. From 1 June 2016, Chairman and non-executive director fees increased to $90,000 and $55,000 per annum respectively. Non-executive directors’ fees are not linked to the performance of the company. However to align directors interests with shareholder interests, the directors are encouraged to hold shares in the company. The board policy is to remunerate executive directors at a level that provides the company with the ability to attract and retain executives with the experience and qualification appropriate to the development strategy of the company’s Intellectual Property. During the financial year, the Group did not employ the use of remuneration consultants. 11 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Executive Remuneration The following table discloses the contractual arrangements with the Group’s executive Key Management Personnel. CEO and Managing Director – Dr Tony Keating Fixed remuneration Contract duration $280,000 pa from 2 July 2017 2 years commencing on 2 July 2017 Termination notice by the individual/company 6 months Other entitlements Annual leave Relationship Between the Remuneration Policy and Company Performance Aside from the matters described above, no Director held or holds any contract for performance-based remuneration with the Company. Remuneration Expense Details for the Year Ended 30 June 2018 The directors incurred the following amounts as compensation for their services as directors and executives of the Group during the year: Short-term employee benefits Salary and fees $ Bonus $ Other $ Post employment benefits Super- annuation and leave $ Share- based payments Options and rights $ 90,000 55,000 27,500 255,708 93,500 521,708 - - - - - - - - - - - - - - - 56,541 - 56,541 - - - - - - % consisting of share- based payments 0% 0% 0% 0% 0% Total $ 90,000 55,000 27,500 312,249 93,500 578,249 2018 Non-Executive Directors: Dr Roger Aston1 Mr Chris Ntoumenopoulos2 Mr Nathan Buzza3 Executive Directors: Dr Tony Keating4 Mr Brian Leedman5 Total 1 Dr Aston’s director fees were paid to Newtonmore Biosciences Pty Ltd. 2 Mr Ntoumenopoulos’s director fees were paid to Twenty1 Corporate Pty Ltd. 3 Mr Buzza’s director fees were paid to Allure Capital. 4 Dr Keating’s director fees were paid to himself. 5 Mr Leedman’s director/consulting fees were paid to himself and include only those amounts paid up to resignation as a Director. 12 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report 2017 Non-Executive Directors: Dr Roger Aston1 Mr Chris Ntoumenopoulos2 Executive Directors: Dr Tony Keating3 Mr Brian Leedman4 Total Short-term employee benefits Salary and fees $ Bonus $ Other $ Post employment benefits Super- annuation $ Share- based payments Options and rights $ % consisting of share- based payments Total $ 90,000 55,000 255,708 187,000 587,708 - - - - - - - - - - - - 927,236 927,236 1,017,236 982,236 38,303 - 974,441 927,236 1,268,452 1,114,236 38,303 3,756,149 4,382,160 91% 94% 77% 83% - 1 Dr Aston’s director fees were paid to Newtonmore Biosciences Pty Ltd. 2 Mr Ntoumenopoulos’s director fees were paid to Sobol Capital Pty Ltd. 3 Dr Keating’s director fees were paid to himself. 4 Mr Leedman’s director fees were paid to himself. Securities Received That are Not Performance-Related No members of key management personnel are entitled to receive securities that are not performance-based as part of their remuneration package. Options and Rights Granted as Remuneration No options or rights were granted as remuneration to members of key management personnel as part of their remuneration package during the year ended 30 June 2018. Description of Options Issued as Remuneration Details of the options granted as remuneration to those key management personnel listed in the previous table are as follows: Grant date Issuer 10 Nov 2016 10 Nov 2016 ResApp Health Limited ResApp Health Limited Entitlement on exercise 1:1 ordinary share in ResApp Health Limited 1:1 ordinary share in ResApp Health Limited Dates exercisable by Exercise price Value per option at grant date Amount paid/payable by recipient 10 Nov 2019 10 Nov 2019 $0.45 $0.28 $0.00 $0.75 $0.24 $0.00 Option values at grant date were determined using the Black-Scholes method (note 15). 13 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Key Management Personnel Shareholdings The number of ordinary shares in ResApp Health Limited held by each key management personnel of the Group during the financial year is as follows: Balance at 1 July 2017 or on date of appointment Granted as remuneration during the year Issued on exercise of options during the year Net other changes during the year Balance at time of resignation Balance at 30 June 2018 Directors Dr Roger Aston Dr Tony Keating Mr Chris Ntoumenopoulos Mr Nathan Buzza Mr Brian Leedman Total 16,875,0001 - 2,109,375 - 48,375,0002 67,359,375 - - - - - - - - - - - - - 1,000,000 - 875,885 1,875,885 - - - 16,875,0001 - 3,109,375 - (49,250,885)2 (49,250,885)2 - - 19,984,375 1 Includes 8,437,500 performance shares. 2 Includes 23,250,000 performance shares. Shareholding at time of retirement from the Board of the Company. Each of the performance shares will convert to one (1) fully paid ordinary share upon satisfaction of the relevant Milestone. Accordingly, the performance shares will convert into fully paid ordinary shares in the capital of the Company within 7 days of the release of the audited accounts in respect of the period in which ResApp and any subsidiaries of ResApp (or if the Company or any Related Entity of the Company is licensed to use the Licensed IP, the Company and that Related Entity) achieving aggregated gross revenue of $20,000,000 in the five years commencing on the day the Company is readmitted to quotation on ASX, being 14 July 2015. No performance shares were converted or cancelled during the period. No performance milestones were met during the period. Options held by the key management personnel of the Group as at 30 June 2018 are as follows: Dr Roger Aston Dr Tony Keating Mr Chris Ntoumenopoulos Mr Nathan Buzza Number of Options 3,600,000 23,800,000 3,600,000 - Other Equity-Related Key Management Personnel Transactions There have been no other transactions involving equity instruments apart from those describe in the table above relating to options, rights and shareholdings. Other Transactions with Key Management Personnel and/for Their Related Parties There were no other transactions conducted between the Group and Key Management Personnel or their related parties, apart from those disclosed above and those disclosed in Note 19, that were conducted other than in accordance with normal employee, customer or supplier relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons. End of Audited Remuneration Report 14 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Report Voting and Comments Made at the Company’s 2017 Annual General Meeting The Company received 92.70% of votes, of those shareholders who exercised their right to vote, in favour of the remuneration report for the 2017 financial year. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Proceedings on Behalf of the 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. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the Directors support and have adhered to principles of sound corporate governance. The Company continued to follow best practice recommendations as set out by 3rd edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. Where the Company has not followed best practice for any recommendation, explanation is given in the Corporate Governance Statement which is available on the Company’s website at www.resapphealth.com.au/investor-relations/corporate-governance/. Non-Audit Services During the year $24,000 (excludes GST) was paid to Grant Thornton for the provision of non-audit services (2017: $20,650). Auditor’s Independence Declaration The auditor’s independence declaration is included on page 16 of the annual report. Signed in accordance with a resolution of the directors Tony Keating Director Brisbane 28th day of September 2018 15 Central Park, Level 43 152-158 St Georges Terrace Perth WA 6000 Correspondence to: PO Box 7757 Cloisters Square Perth WA 6850 T +61 8 9480 2000 F +61 8 9480 2050 E info.wa@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of ResApp Health Limited In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of ResApp Health Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants P W Warr Partner – Audit & Assurance Perth, 28 September 2018 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2018 Interest income Other income Administration costs Research and development costs Finance costs Amortisation Doubtful debts expense Share based payment expense Loss before income tax Note 7 8 9 6 Consolidated 2018 $ 87,007 998,579 (3,016,029) (3,730,734) (4,107) (134,914) - (733,237) (6,533,435) 2017 $ 204,317 1,143,368 (2,573,594) (3,462,380) (4,861) (269,829) - (5,069,771) (10,032,750) Income tax benefit Loss for the year 11 - - (6,533,435) (10,032,750) Other comprehensive income for the year Total comprehensive income for the year - - (6,533,435) (10,032,750) Loss per share (basic and diluted) (cents) 16 (0.99) (1.53) The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 17 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Consolidated Statement of Financial Position as at 30 June 2018 Current assets Cash and cash equivalents Trade receivables Other receivables Other assets Total current assets Non-current assets Intangibles (net) Total non-current assets Total assets Current liabilities Trade and other payables Annual leave provision Total current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Note 17 12 6 13 14 15 Consolidated 2018 $ 3,397,899 44,556 935,902 50,802 4,429,159 2017 $ 8,554,764 83,852 1,164,395 26,096 9,829,107 2,023,716 2,023,716 2,158,630 2,158,630 6,452,875 11,987,737 775,311 135,048 910,359 910,359 584,354 54,316 638,670 638,670 5,542,516 11,349,067 21,774,858 7,060,978 (23,293,320) 5,542,516 21,781,211 6,327,741 (16,759,885) 11,349,067 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 18 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Consolidated Statement of Changes in Equity for the financial year ended 30 June 2018 Consolidated Balance at 1 July 2016 Loss for the year Total comprehensive income Transactions with owners, in their capacity as owners Issue of options Issue of shares Costs directly attributable to issue of share capital Fully paid ordinary shares $ Equity-settled benefits reserve $ Accumulated losses $ Total $ 21,515,523 - 1,257,970 - (6,727,135) (10,032,750) 16,046,358 (10,032,750) - - (10,032,750) (10,032,750) - 265,688 5,069,771 - - - - - - 5,069,771 265,688 - Balance at 30 June 2017 21,781,211 6,327,741 (16,759,885) 11,349,067 Consolidated Balance at 1 July 2017 Loss for the year Total comprehensive income Transactions with owners, in their capacity as owners Issue of options Issue of shares Costs directly attributable to issue of share capital 21,781,211 - 6,327,741 - (16,759,885) (6,533,435) - (6,533,435) 11,349,067 (6,533,435) (6,533,435) 733,237 - (6,353) - - - - 733,237 - (6,353) - - - Balance at 30 June 2018 21,774,858 7,060,978 (23,293,320) 5,542,516 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 19 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Consolidated Statement of Cash Flows for the financial year ended 30 June 2018 Note Cash flows from operating activities Cash payments to suppliers and employees Interest paid Interest received Other (R&D rebate) Net cash flows used in operating activities 17 Cash flows from investing activities Cash acquired on acquisition of ResApp Diagnostics Net cash flows provided by investing activities Cash flows from financing activities Proceeds from issue of share capital Costs of capital raising Net cash flows (used in)/provided by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year Consolidated 2018 $ (6,460,268) (4,107) 108,166 1,205,697 (5,150,512) - - - (6,353) (6,353) 2017 $ (5,645,463) (4,861) 204,181 (5,446,143) - - 265,688 - 265,688 (5,156,865) (5,180,455) 8,554,764 13,735,219 3,397,899 8,554,764 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 20 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements for the financial year ended 30 June 2018 Note 1 Reporting Entity This annual financial report includes the financial statements and notes of ResApp Health Limited (“the Company”) and its controlled entity (“the Group”). The Group is a for-profit entity and is domiciled in Australia. The Group, through an exclusive license is developing smart phone applications for respiratory disease diagnostics and management. Its registered address is Level 24, 44 St George’s Terrace, Perth, Western Australia, 6000. Its principal office is Level 8, 127 Creek Street, Brisbane, Queensland, 4000. Note 2 Going Concern The financial report has been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlements of liabilities in the ordinary course of business. The entity incurred an operating loss of $6,533,435 for the year ended 30 June 2018 (2017: $10,032,750) and a net cash outflow from operating activities amounting to $5,150,512 (2017: $5,446,143). It is noted that subsequent to the end of the period, on 24 September 2018 the Company completed its Placement raising $7.5 million before capital raising costs of approximately $495,000 (incl GST), issuing 34,090,910 Shares at $0.22 per share. Based on the cash flow forecasts and other factors referred to above, the directors are satisfied that the going concern basis of preparation is appropriate. The Directors believe there are sufficient funds to meet the Company’s working capital requirements and as at the date of this report, the Company believes it can meet all liabilities as and when they fall due. Note 3 New Accounting Standards for Application in Future Periods There are a number of new Accounting standards and Interpretations issued by the AASB as follows, that are not yet mandatorily applicable to the Group and have not been applied in preparing these consolidated financial statements. The Group does not plan to adopt these standards early. AASB 2016-1 - Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Tax Losses (continued) The estimate of future taxable profits can include recovery of certain assets at amounts more than their carrying amount if there is enough evidence that it is probable that the entity will recover the asset for more than its carrying amount. Examples would include: • Property measured using cost model for which an external valuation has been conducted • Fixed rate debt instruments held to maturity. Application date - Financial years beginning on or after 1 January 2017 Expected Impact - No expected impact AASB 2016-3 - Amendments to Australian Accounting Standards – Clarifications to AASB 15 Clarifies AASB 15 application issues relating to: • Identifying performance obligations • Principal vs. agent considerations • Licensing • Practical expedients Application date - Financial years beginning on or after 1 January 2018 Expected Impact - No expected impact 21 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 AASB 2016-5 - Amendments to Australian Accounting Standards – Classification and Measurement of Share- based Payment Transactions: This Standard amends AASB 2 Share-based Payment to address: • The accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; • The classification of share-based payment transactions with a net settlement feature for withholding tax obligations; and • The accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Application date - Financial years beginning on or after 1 January 2018 Expected Impact - No expected impact AASB 9 - Financial Instruments AASB 9 (December 2014) is a new standard which Replaces AASB 139. This new version supersedes AASB issued in December 2009 (as amended) and AASB 9 (issued in December 2010) and includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially reformed approach to hedge accounting. AASB 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early adoption. The own credit changes can be early adopted in isolation without otherwise changing the accounting for financial instruments. Application date - Financial years beginning on or after 1 January 2018 Expected Impact – The Group has no financial instruments and therefore there is no expected impact. AASB 15 - Revenue from Contracts with Customers This Standard establishes principles (including disclosure requirements) for reporting useful information about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Application date - Financial years beginning on or after 1 January 2018 Expected Impact - The Group has no revenues and therefore there is no expected impact AASB 16 - Leases AASB 16 eliminates the operating and finance lease classifications for lessees currently accounted for under AASB 117 Leases. It instead requires an entity to bring most leases onto its Statement of Financial Position in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right of use asset in its Statement of Financial Position for most leases. There are some optional exemptions for leases with a period of 12 months or less and for low value leases. Lessor accounting remains largely unchanged from AASB 117. Application date - Financial years beginning on or after 1 January 2019 Expected Impact - No expected impact Note 4 Significant Accounting Policies Basis of preparation These financial statements include the financial statements of the ResApp Health Limited (the “Company”), and its controlled entity (the “Group”). These general purpose financial statements have been prepared in accordance 22 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. Australian Accounting Standards are equivalent to International Financial Reporting Standards (“IFRS”). Compliance with Australian Accounting Standards ensures that these financial statements comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. Except for the cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The functional currency of the Group is measured using the currency of the primary economic environment in which the Group operates. These financial statements are presented in Australian dollars which is the Group’s functional and presentation currency. The following significant accounting policies have been adopted in the preparation and presentation of the financial report: a) Cash and cash equivalents Cash comprises cash on hand and demand deposits. 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. b) Financial instruments Recognition and initial measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the Group becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transaction costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are then classified and measured as set out below. Classification and subsequent measurement All financial instruments of the Group are subsequently measured at amortised cost, using the effective interest rate method. Amortised cost Amortised cost is calculated as a) the amount at which the financial asset or liability is measured at initial recognition; b) less principal repayments; c) plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and d) less any reduction for impairment. Effective interest rate method The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. 23 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Derecognition Financial instruments are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the Group no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangements. c) Impairment of other tangible and intangible assets At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount 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 which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. 24 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. d) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable to or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the balance sheet liability method. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interest are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequence that would follow from the manner in which the company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authorities and the company intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the statement of profit or loss and other comprehensive income, except when it relates to items credited or debited directly to equity, in which case the 25 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Research and development tax incentives Research and development tax incentives are recognised as revenue during the financial period in which the claim for refund is made. e) Share-based payments Equity-settled share-based payments are measured at fair value of the equity instrument at the grant date. Fair value is measured by the use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. f) Trade and other payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of recognition of the liability. g) Asset acquisitions On 2 July 2015, ResApp Health Limited acquired 100% of all the rights and title to ResApp Diagnostics Pty Ltd through the issue of 93,750,000 Fully Paid Ordinary Shares and 93,750,000 Performance Shares to the Vendors as consideration for the acquisition. When an asset acquisition does not constitute a business combination, the assets and liabilities are assigned a carrying amount based on their relative fair values in an asset purchase transaction and no deferred tax will arise in relation to the acquired assets and assumed liabilities as the initial recognition exemption for the deferred tax under AASB 112 applies. No goodwill will arise on the acquisition and transaction costs of the acquisition will be included in the capitalised cost of the asset. h) Critical accounting judgements and key sources of estimation uncertainty The directors make a number of estimates and assumptions in preparing general purpose financial statements. The resulting accounting estimates, will, by definition, seldom equal the related actual results. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and future periods if relevant. The following key judgement and estimate was made in preparing these financial statements: Impairment of intangibles The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using calculations which incorporate various key assumptions. All intangible assets are accounting for using the cost model whereby costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite, if indicators the Group considers indicators are present. The Group has ascribed an estimated useful life of the intangibles of 18 years from the date of acquisition, which is based on the expected usage and 26 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 benefits derived over the patents' useful lives. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing. Share based payment expenses The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instrument at the date at which they are granted. The fair value of options granted is measured using the Black-Scholes option pricing model. The model uses assumptions and estimates as inputs. R&D tax incentive The R&D Tax Incentive is recognised when a reliable estimate of the amounts receivable can be made. For the year end 30 June 2018, the Group has estimated the rebate which will be received in early 2019 and has accrued that amount as income in the statement of profit or loss and other comprehensive income. Note 5 Investment The consolidated financial statements include financial statements of ResApp Health Limited and the following subsidiary: Name Country of Incorporation ResApp Diagnostics Pty Ltd Australia % Equity Interest 2018 100% 2017 100% ResApp Health Limited is the ultimate Australian parent entity and ultimate parent of the Group. Note 6 Intangibles Intangibles (licences held over patent) Amortisation1 Consolidated 2018 $ 2,428,459 (404,743) 2,023,716 2017 $ 2,428,459 (269,829) 2,158,630 1 The Group has ascribed an estimated useful life of the intangibles of 18 years from the date of acquisition, which is based on the expected usage and benefits derived over the patents' useful lives. The Licensed IP developed (and owned) by UQ and licensed to ResApp via UniQuest includes patents and patent applications filed in five countries as well as those countries encompassed by the European Patent Convention. The patents and patent applications all claim a priority date of 29/3/2012. The following table summarises the patent applications. Country Application Number Status Title Australia 2013239327 United States 14/389291 Granted Granted A method and apparatus for processing patient sounds A method and apparatus for processing patient sounds Europe 13768257.1 Application A method and apparatus for processing patient sounds Japan China Korea 2015-502020 Application A method and apparatus for processing patient sounds 201380028268.X Application A method and apparatus for processing patient sounds 10-2014-7030062 Application A method and apparatus for processing patient sounds 27 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 In addition to these patent applications, ResApp has an exclusive license of the know-how (and trade secrets) in the set of mathematical features and classifier technology used for the diagnosis and severity measurement of pneumonia, asthma and COPD developed by the research team at UQ. Note 7 Other Income Management applied judgement to estimate the amount of Research & Development rebate (R&D rebate) available to the Group for the financial year ended 30 June 2018 to be $998,579. In addition, the Company has applied for an overseas ruling in relation to R&D expenditure incurred overseas. If the application is successful the Company expects to be able to claim a further R&D Rebate $812,198 in relation to expenditure incurred during the 30 June 2018 financial year. In April 2018, the Group received an R&D rebate of $689,524 for the financial year ended 30 June 2017. Note 8 Administration Expenses Consulting fees Director fees and employee costs Professional fees (including legal fees) Other administration expenses Note 9 Research and Development Costs Consolidated 2018 $ (189,864) (1,980,359) (222,030) (623,776) (3,016,029) 2017 $ (187,000) (1,243,282) (237,244) (906,068) (2,573,594) During the period, the Group incurred research and development costs associated with its technology and clinical studies in both Australia and the United States. These research and development costs do not include costs of employees involved in research and development. Note 10 Remuneration of Auditors Audit and other non-audit services Grant Thornton Audit Pty Ltd: Audit and review of financial reports Other services Consolidated 2018 $ 29,310 24,000 53,310 2017 $ 23,635 20,650 44,285 28 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 11 Incomes Taxes Consolidated (a) Income tax recognised in profit or loss Tax expense/(income) comprises: Current tax expense/(income) Deferred tax expense/(income) relating to the origination and reversal of temporary differences Total tax expense/(income) (b) The prima face income tax expense on pre-tax accounting loss from operations reconciles to the income tax expense in the financial statements as follows: Loss from operations Income tax benefit calculated at 27.5% (2017: 27.5%) Tax effect of: - Other timing differences - Non-deductible items o Share based payments o Expenditure subject to R&D claim o Entertainment o Other non-deductible items - Capital raising costs - Non-assessable R&D refund - Current year deferred tax asset not recognised Income Tax Expense (c) Unrecognised deferred tax balances The following deferred tax assets (at 30%) have not been brought to account: Unrecognised deferred tax asset – tax losses Unrecognised deferred tax asset – other temporary differences Net deferred tax assets 2018 $ - - (6,533,435) (1,796,695) (15,731) 201,640 1,025,952 1,827 - - (274,525) 857,532 - 3,414,975 102,037 3,517,012 2017 $ - - (10,032,750) (2,759,006) - 1,394,187 397,919 12,088 - - (314,426) 1,269,238 - 2,557,443 67,887 2,325,330 The net deferred tax assets not brought to account will only be of a benefit to the Company if future assessable income is derived of a nature and amount sufficient to enable the benefits to be realised, the conditions for deductibility imposed by the tax legislation continue to be complied with and the Company is able to meet the continuity of ownership and/or continuity of business tests. 29 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 12 Other Receivables Interest receivable R&D rebate receivable Note 13 Trade and Other Payables Note 7 Trade and other payables – related parties Trade and other payables – non-related parties Accruals – related parties Accruals – non-related parties Note 14 Issued Capital Fully paid ordinary shares and authorised capital Balance as at 1 July 2016 Shares issued 15 July 2016 for conversion of unlisted options(i) Shares issued 22 July 2016 for conversion of unlisted options(ii) Shares issued 16 September 2016 for conversion of unlisted options(iii) Shares issued 7 October 2016 for conversion of unlisted options(iv) Shares issued 26 October 2016 for conversion of unlisted options(v) Shares issued 16 December 2016 for conversion of unlisted options(vi) Balance as at 30 June 2016 Balance as at 1 July 2017 No shares issued during the period Costs directly attributable to issue of share capital Balance as at 30 June 2018 Consolidated 2018 $ - 935,902 935,902 Consolidated 2018 $ 17,808 506,706 74,697 176,100 775,311 2017 $ 21,027 1,143,368 1,164,395 2017 $ 18,186 384,086 43,505 138,577 584,354 No $ 648,820,852 375,000 21,515,523 9,750 750,000 187,500 2,437,500 1,218,750 5,250,000 19,500 4,875 63,375 31,688 136,500 659,039,602 21,781,211 659,039,602 21,781,211 - - - (6,353) 659,039,602 21,774,858 (i) On 15 July 2016, 375,000 shares were issued on the conversion of unlisted options at $0.026 per share. (ii) On 22 July 2016, 750,000 shares were issued on the conversion of unlisted options at $0.026 per share. (iii) On 16 September 2016, 187,500 shares were issued on the conversion of unlisted options at $0.026 per share. (iv) On 7 October 2016, 2,437,500 shares were issued on the conversion of unlisted options at $0.026 per share. (v) On 26 October 2016, 1,218,750 shares were issued on the conversion of unlisted options at $0.026 per share. (vi) On 16 December 2016, 5,250,000 shares were issued on the conversion of unlisted options at $0.026 per share. Fully paid ordinary shares carry one vote per share and carry the right to dividends. Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At the 30 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Note 15 Equity-Settled Benefits Reserve Balance at 1 July 2017 Issued during the year Exercised during the year Balance at 30 June 2018 Unlisted options (including ESOP options) 53,466,667 4,350,000 - 57,816,667 Balance as at 1 July 2016 Fair value of options issued1 Balance as at 30 June 2017 Balance as at 1 July 2017 Fair value of options issued2 Balance as at 30 June 2018 $ 1,257,970 5,069,771 6,327,741 $ 6,327,741 733,237 7,060,978 1 During the financial year ended 30 June 2017, ResApp Health Limited issued the following options which were expensed as share based payments: • • • • • • • 2,000,000 Employee Incentive Options were issued to Employees on 16 September 2016 pursuant to the terms of the Company’s Employee Incentive Plan. The Options are exercisable at $0.45 and expire on 16 September 2019. One third of the Employee Incentive Options vest immediately with the remaining two thirds vesting in equal quarterly instalments over 2 years from the date of issue if the employee remains employed by the Company. 2,000,000 Consultancy Incentive Options were issued to consultants on 16 September 2016, being exercisable at $0.45 and expiring on 16 September 2019. 2,000,000 Consultancy Incentive Options were issued to consultants on 16 September 2016, being exercisable at $0.75 and expiring on 16 September 2019. 7,200,000 Director Incentive Options were issued to Directors on 10 November 2016, being exercisable at $0.45 and expiring on 10 November 2019, as approved by Shareholders at the Company’s Annual General Meeting on 2 November 2016. 7,400,000 Director Incentive Options were issued to Directors on 10 November 2016, being exercisable at $0.75 and expiring on 10 November 2019, as approved by Shareholders at the Company’s Annual General Meeting on 2 November 2016. 750,000 Employee Incentive Options were issued to Employees on 14 February 2017, being exercisable at $0.45. 250,000 Options are expiring on 31 October 2020 with one third of the Options vesting on 31 October 2017 with the remaining two thirds vesting in equal quarterly instalments over 2 years from 31 October 2017 if the employee remains employed by the Company. 500,000 Options are expiring on 12 December 2020 with one third of the Options vesting on 12 December 2017 with the remaining two thirds vesting in equal quarterly instalments over 2 years from 12 December 2017, if the employee remains employed by the Company. 500,000 Employee Incentive Options were issued to Employees on 13 March 2017, being exercisable at $0.45 and expiring on 13 March 2021 with one third of the Options vesting on 13 March 2018 with the remaining two thirds vesting in equal quarterly instalments over 2 years from 13 March 2018, if the employee remains employed by the Company. 31 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 • 250,000 Employee Incentive Options were issued to Employees on 1 May 2017, being exercisable at $0.45 and expiring on 1 May 2021 with one third of the Options vesting on 1 May 2018 with the remaining two thirds vesting in equal quarterly instalments over 2 years from 1 May 2018, if the employee remains employed by the Company. 2 During the year ended 30 June 2018, ResApp Health Limited issued the following options which were expensed as share based payments: • 1,000,000 Employee Incentive Options were issued to an Employee on 21 July 2017 pursuant to the terms of the Company’s Employee Incentive Plan. The Options are exercisable at $0.45 and expire on 1 June 2020. One half of the Employee Incentive Options vest on 1 December 2017, and the remaining half vesting on 1 June 2018 if the employee remains employed by the Company. The options are valued at the date of issue and recognised for the vesting period to 30 December 2017. • 1,500,000 Employee Incentive Options were issued to an Employee on 21 July 2017 pursuant to the terms of the Company’s Employee Incentive Plan. The Options are exercisable at $0.75 and expire on 1 June 2020. One half of the Employee Incentive Options vest on 1 December 2017, and the remaining half vesting on 1 June 2018 if the employee remains employed by the Company. The options are valued at the date of issue and recognised for the vesting period to 30 December 2017. • 100,000 Employee Incentive Options were issued to an Employee on 18 December 2017, being exercisable at $0.085 and expiring on 18 December 2020. • 900,000 Employee Incentive Options were issued to Employees on 18 December 2017 pursuant to the terms of the Company’s Employee Incentive Plan. The Options are exercisable at $0.085 and expire on 18 December 2020. The Employee Incentive Options vest in equal quarterly instalments over 2 years from the date of issue if the employee remains employed by the Company. The options are valued at the date of issue and recognised for the vesting period to 30 December 2017. • 350,000 Consultancy Incentive Options were issued to consultants on 18 December 2017, being exercisable at $0.085 and expiring on 18 December 2020. • 500,000 Consultancy Incentive Options were issued to a consultant on 18 December 2017, being exercisable at $0.14 and expiring on 18 December 2020. The fair value of the options issued was estimated at the date of grant using the Black-Scholes option pricing model. The following table sets out the assumptions made in determining the fair value of the options granted during the years ended 30 June 2017 and 2018. Options expiring Options expiring Options expiring Options expiring Options expiring Options expiring 16-Sep-19 16-Sep-19 16-Sep-19 10-Nov-19 10-Nov-19 31-Oct-20 Grant date 16-Sep-16 16-Sep-16 16-Sep-16 10-Nov-16 10-Nov-16 14-Feb-17 Dividend yield Expected volatility Risk-free interest rate 0% 100% 1.48% 0% 100% 1.48% 0% 100% 1.48% 0% 104% 1.48% 0% 104% 1.48% 0% 100% 1.48% Option exercise price $0.45 $0.45 $0.75 $0.45 $0.75 $0.45 Expected life (years) Share price on date of grant Value attributable to the options in the equity settled benefits reserve at 30 June 2018 3 3 3 3 3 3.7 $ 0.430 $ 0.430 $0.430 $0.440 $0.440 $0.370 $489,882* $527,454 $439,545 $2,009,593 $1,746,558 $30,020* 32 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Options expiring Options expiring Options expiring Options expiring Options expiring Options expiring 12-Dec-20 13-Mar-21 1-May-21 1-Jun-20 18-Dec-20 18-Dec-20 Grant date 14-Feb-17 13-Mar-17 1-May-17 21-Jul-17 18-Dec-17 18-Dec-17 Dividend yield Expected volatility Risk-free interest rate 0% 100% 1.48% 0% 100% 1.48% 0% 100% 1.48% 0% 100% 1.95% 0% 100% 2.00% Option exercise price $0.45 $0.45 $0.45 $0.75 $0.085 0% 100% 2.00% $0.085 Expected life (years) Share price on date of grant Value attributable to the options in the equity settled benefits reserve at 30 June 2018 3.8 4 4 2.8 3 3 $0.370 $0.315 $0.320 $0.310 $0.091 $0.091 68,712* $43,194* $19,754* $166,878 $200,749 $5,808 Options expiring Options expiring Options expiring 18-Dec-20 18-Dec-20 18-Dec-20 Grant date 18-Dec-17 18-Dec-17 18-Dec-17 Dividend yield Expected volatility Risk-free interest rate Option exercise price Expected life (years) Share price on date of grant Value attributable to the options in the equity settled benefits reserve at 30 June 2018 0% 100% 2.00% $0.085 3 0% 100% 2.00% $0.085 3 0% 100% 2.00% $0.140 3 $0.091 $0.091 $0.091 $13,891 $18,602 $22,366 * subject to vesting conditions as disclosed in the narrative of this note 15. 33 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 The following table sets out the assumptions made in determining the fair value of the options granted prior to the years ended 30 June 2017 and 2018. Options expiring Options expiring Options expiring Options expiring Options expiring Options expiring Options expiring 02-Jul-20 02-Jul-20 02-Jul-20 22-Sep-20 22-Sep-20 29-Apr-19 29-Apr-19 Grant date 02-Jul-15 02-Jul-15 02-Jul-15 22-Sep-15 22-Sep-15 29-Apr-16 29-Apr-16 Dividend yield 0% 0% 0% 0% 0% 0% 0% Expected volatility Risk-free interest rate Option exercise price Expected life (years) Share price on date of grant Value attributable to the options in the equity settled benefits reserve at 30 June 2018 110% 110% 110% 110% 110% 110% 110% 1.92% 1.92% 1.92% 1.92% 1.92% 2.00% 2.00% $0.025 $0.05 $0.10 $0.05 $0.10 $0.28 $0.30 5 5 5 5 5 3 3 $0.021 $0.021 $0.021 $0.018 $0.018 $0.210 $0.210 $95,000 $85,000 $150,000 $66,006 $38,512 $585,445 $238,007 Note 16 Loss Per Share The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: Attributable to ordinary equity holders (used in calculating basic and diluted EPS) – continuing operations. Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share adjusted for share consolidation1 Loss per share (basic and diluted) (cents) Consolidated 2018 $ 2017 $ (6,533,435) (10,032,750) 659,039,602 655,480,955 (0.99) (1.53) 1 55,966,667 options excluded from the calculation will have no impact due to the Group’s loss-making position. 34 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 17 Notes to the Cash Flow Statement (a) Reconciliation of cash and cash equivalents For the purpose of the cash flow statement, cash includes cash on hand and in banks and deposits at call, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the Cash Flow Statement is reconciled to the related items in the balance sheet as follows: Cash at bank Consolidated 2018 $ 3,397,899 3,397,899 2017 $ 8,554,764 8,554,764 (b) Reconciliation of loss for the period to net cash flows from operating activities Consolidated 2018 $ 2017 $ (6,533,435) (10,032,750) - 733,237 - - 134,914 - - 203,787 - 188,215 122,770 (21,027) 5,069,771 - - 269,829 31,003 (16,643) (1,166,841) 19,865 528,139 (121,045) (5,446,143) Loss after income tax Non-cash flows in loss: Interest accrued Share based payments Bad debt Bank fees Amortisation Foreign exchange movements Changes in assets and liabilities relating to operating activities (Increase) in trade receivables Decrease/(Increase) in other receivables Decrease/(increase) in other assets (Decrease)/increase in trade and other payables Increase/(decrease) in provisions Net cash flows from operating activities (5,150,512) 35 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 18 Financial Instruments The Company’s financial instruments consist mainly of deposits with banks and accounts receivable and payable. Financial assets Cash and cash equivalents Trade receivables Other receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities (a) Financial risk management policies Consolidated 2018 $ 3,397,899 44,556 - 3,442,455 775,311 775,311 2017 $ 8,554,764 83,852 - 8,638,616 584,354 584,354 The Group’s principal financial instruments comprise cash and short-term deposits and trade and other payables as disclosed in the financial statements. The main purpose of these financial instruments is to manage the working capital needs of the Group’s operations. It is the Group’s policy that no trading in financial instruments shall be undertaken. The board reviews and agrees policies for managing this risk is summarised below. i. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in Note 4 to the financial statements. ii. Credit risk management The Company is not currently exposed to credit risk other than in the normal course of business. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Credit risk related to balances with banks and other financial institutions is managed by the Board in accordance with approved board policy. Such policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA-. The following table provides information regarding the credit risk relating to cash and money market securities based on Standard & Poor’s counterparty credit ratings. Cash and cash equivalents AA- rated Consolidated 2018 $ 3,397,899 3,397,899 2017 $ 8,554,764 8,554,764 36 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 iii. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long- term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Financial liabilities due for payment Trade and other payables Total expected outflows Financial assets – cash flow realisable Cash and cash equivalents Trade receivables Other receivables Total anticipated inflows Consolidated 2018 $ 775,311 775,311 3,397,899 44,556 3,442,455 2017 $ 584,354 584,354 8,554,764 83,852 - 8,638,616 Net inflow on financial instruments 2,667,144 8,054,262 iv. Interest rate risk The financial instruments which primarily expose the Company to interest rate risk are cash and cash equivalents. The Company’s exposure to interest rate risk and the effective interest rate for classes of financial assets and financial liabilities is set out below: Effective interest rate Floating interest rate $ 1 year or less $ 1 to 5 years $ Non- interest bearing $ Total $ Consolidated 30 June 2018 Financial assets Cash assets Trade receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities 1.11% - - - - 3,397,899 - 3,397,899 - - - - - - - 37 - - - - - - 3,397,899 44,556 44,556 44,556 3,442,455 775,311 775,311 775,311 775,311 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Effective interest rate Floating interest rate $ 1 year or less $ 1 to 5 years $ Non- interest bearing $ Total $ 1.00% - - - - - - - - - - - 8,554,764 - 8,554,764 - - - - - - - - - - 8,554,764 83,852 83,852 83,852 8,638,616 584,354 584,354 584,354 584,354 - - Consolidated 30 June 2017 Financial assets Cash assets Trade receivables Total financial assets Financial liabilities Trade and other payables Total financial liabilities v. Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and • The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analyses. The directors consider that the carrying amounts of financial assets and financial liabilities which are all recorded at amortised cost less accumulated impairment charges in these financial statements, approximate their fair values. Consolidated 2018 Consolidated 2017 Carrying Amount $ Fair Value $ Carrying Amount $ Fair Value $ Financial assets Cash and cash equivalents 3,397,899 3,397,899 8,554,764 8,554,764 Trade receivables Other receivables 44,556 44,556 83,852 83,852 - - - - Total financial assets 3,442,455 3,442,455 8,638,616 8,638,616 Financial liabilities Trade and other payables Total financial liabilities 775,311 775,311 775,311 775,311 584,354 584,354 584,354 584,354 38 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 19 Related Party Transactions (a) Transactions with key management personnel i. Key management personnel compensation The aggregate compensation made to key management personnel of the company and the Company is set out below: Short term employee benefits Post-employment benefits Termination benefits Other benefits Share-based payments Consolidated 2018 $ 521,708 56,541 - - - 578,249 2017 $ 587,708 38,303 - - 3,756,149 4,382,160 ii. Transactions with key management personnel and related parties A number of key management personnel, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. There were no related party transactions that occurred in the reporting period. Note 20 Contingent Liabilities The Directors of the Group are not aware of any contingent liabilities which require disclosure in the financial year ended 30 June 2018. Note 21 Commitments Consolidated Operating lease commitments Not later than 1 year Later than 1 year but not later than 5 years Total operating lease commitments Company secretary commitments Not later than 1 year Total company secretarial commitments Research expenditure commitments Not later than 1 year Later than 1 year but not later than 5 years Net cash flows from operating activities 39 2018 $ 93,086 19,549 112,635 28,000 28,000 - - - 2017 $ 26,649 193,846 220,495 32,000 32,000 341,138 - 341,138 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Clinical study commitments Not later than 1 year Later than 1 year but not later than 5 years Total operating lease commitments Note 22 Subsequent Events Consolidated 2018 USD 1,166,395 - 1,166,395 2017 USD 880,087 - 880,087 As noted in the Directors' Report, subsequent to the end of the period, the Company announced the completion of enrolment in its SMARTCOUGH-C-2 study with a total of 1,470 patients having been enrolled at three hospital sites in the United States. On 27 September 2018, the Company announced that based on the projected availability of adjudicators it would be approximately two weeks before the data is un-blinded and preliminary top-line results are delivered. In addition, on 2 August 2018 the Company announced the completion of paediatric enrolment in the prospective, double-blind stage of its Breathe Easy study. A total of 681 paediatric patients had been recruited at Joondalup Health Campus and Princess Margaret Hospital in Perth. On 3 September 2018, the Company announced positive top-line results from the study with ResApp’s algorithms achieving a positive percent agreement between 79% and 97% and a negative percent agreement between 80% and 91% when compared to a clinical diagnosis. On 16 August 2018 the Company announced that it has partnered with Lockheed Martin in the Defense Advanced Research Projects Agency (DARPA) Warfighter Analytics using Smartphones for Health (WASH) program. The WASH program will build a software suite to predict warfighter readiness and potential chronic and acute illness in a variety of contexts using only a standard cell phone instead of other specialized, expensive medical devices. On 19 September 2018, the Company announced that it had received firm commitments from institutional and sophisticated investors to raise $7.5 million before capital raising costs of approximately $495,000, issuing 34,090,910 new ordinary shares at $0.22 per share (Placement). Settlement of the Placement occurred on 24 September 2018. Funds raised under the Placement will be used to invest in sales and marketing capability to commercialise ResAppDx in Europe, Australia and Asia, deploy resources to expand our clinical programs by conducting a US-based, double-blind, prospective adult clinical study and investigate an array of new applications for our core technology. Except for the events noted above, no material events have occurred subsequent to the reporting date. Note 23 Segment Note The Group has identified its operating segment as medical technology. The reportable segment is represented by the primary consolidated statements forming the financial report for the year ended 30 June 2018. These are the figures that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources. 40 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Notes to the Consolidated Financial Statements (continued) for the financial year ended 30 June 2018 Note 24 Parent Entity Information The following detailed information is related to the parent entity, ResApp Health Limited, as at 30 June 2017 and 30 June 2018. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Reserves Accumulated Losses Total equity Loss for the year Other comprehensive income for the year Total comprehensive loss for the year 2018 $ 4,202,875 2,250,000 6,452,875 910,359 - 910,359 21,774,858 7,060,978 (23,293,320) 5,542,516 (6,533,435) - (6,533,435) 2017 $ 9,515,506 1,980,171 11,495,677 638,670 - 638,670 21,781,211 6,426,350 (17,350,554) 10,857,007 (10,645,042) - (10,645,042) 41 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 Directors’ Declaration The Directors’ of the Group declare that: 1. in the Directors’ opinion, the financial statements and accompanying notes set out on pages 17 to 41 are in accordance with the Corporations Act 2001 and: (a) comply with Accounting Standards and the Corporations Regulations 2001; and (b) give a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the year ended on that date; note 4 confirms that the financial statements also comply with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; the remuneration disclosures included in pages 10 to 14 of the directors’ report (as part of the audited Remuneration Report), for the year ended 30 June 2018, comply with section 300A of the Corporations Act 2001; and 2. 3. 4. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Tony Keating Director Brisbane 28th day of September 2018 42 Central Park, Level 43 152-158 St Georges Terrace Perth WA 6000 Correspondence to: PO Box 7757 Cloisters Square Perth WA 6850 T +61 8 9480 2000 F +61 8 9480 2050 E info.wa@au.gt.com W www.grantthornton.com.au Independent Auditor’s Report To the Members of ResApp Health Limited Report on the audit of the financial report Opinion We have audited the financial report of ResApp Health Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Intangible assets – licenses held over patent – refer to Note 4 (c), 4 (h) and 6 At 30 June 2018, the carrying value of intangible assets was $2,023,716. In accordance with AASB 138 Intangible Assets, the entity is required to assess at each reporting period the amortisation period and amortisation method for intangible assets. In accordance with AASB 136 Impairment of Assets, the entity must also assess if there are any triggers for impairment which may suggest the carrying value of the intangible assets is in excess of the recoverable value. The intellectual property assets are licenses held over patents and the entity is currently in the research stage. The process to assess the related amortisation period, method, and potential impairment triggers involves significant management judgement and subjectivity. This area is a key audit matter due to the degree of subjectivity involved in the estimates and assumptions used by management in the impairment analysis. Measurement of research and development tax incentive rebate accrual – refer to Note 4 (h), 7 and 12. The Company receives a 43.5% refundable tax offset (2017:43.5%) of eligible expenditure under the research and development (R&D) tax incentive scheme. An R&D plan is filed with AusIndustry in the following financial year and, based on this filing, the Company receives the incentive in cash. Management performs a detailed review of the Company’s total research and development expenditure to determine the potential claim under the R&D tax incentive legislation. The Company recognises the R&D tax incentive rebate income on an accruals basis, meaning that a receivable is recorded at the balance date based on the estimated claim that is yet to be received from the Australian Taxation Office. The receivable at year-end for the incentive was $935,902. Our procedures included, amongst others:  assessing the reasonableness of management's assessment of the annual review of the amortisation period and amortisation method of intangible assets, pursuant to AASB 138;  making enquiries of management to gain an understanding of their judgements and assumptions and critically evaluating those inputs and assumptions;  analysing the management impairment memorandum to assess the relevance of impairment indicators under AASB 136;  consideration of the application of requirements under AASB 136 for identifying an asset that may be impaired; and  assessing the appropriateness of the related financial statement disclosures. Our procedures included, amongst others:  obtaining the FY18 R&D incentive calculations prepared by management and engaging an internal R&D Tax Expert to assist the engagement team in assessing the accuracy of the estimate;  considering the nature of the expenses against the eligibility criteria of the R&D tax incentive scheme to form a view about whether the expenses included in the estimate were likely to meet the eligibility criteria;  assessing the eligible expenditure used to calculate the estimate to ensure it is in accordance with expenditure recorded in the general ledger;  agreeing a sample of individual expenditure items included in the estimate to underlying supporting documentation to ensure that they have been appropriately recognised in the accounting records and that they are eligible expenditures;  comparing the accrual accounted for in prior year to the monies received during the period; This represents an estimated claim for the period 1 July 2017 to 30 June 2018. The R&D tax incentive scheme represents a material amount of income and asset reported in the 2018 financial report. This area is a key audit matter due to the size of the accrual and because there is a degree of judgement and interpretation of the R&D tax legislation required by management to assess the eligibility of the R&D expenditure under the scheme.  inspecting copies of relevant correspondence with AusIndustry and the ATO related to the claims; and  reviewing the appropriateness of the relevant disclosures in the financial statements. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2018, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the remuneration report Opinion on the remuneration report We have audited the Remuneration Report included in pages 11 to 14 of the Directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of ResApp Health Limited, for the year ended 30 June 2018 complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants P W Warr Partner – Audit & Assurance Perth, 28 September 2018 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 ASX Additional Information Pursuant to the Listing Rules of the Australian Securities Exchange, the shareholder information set out below was applicable as at 24 September 2018. a) Distribution of Equity Securities Analysis of numbers of shareholders by size of holding: Distribution 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Number of Shares 261,880 3,880,706 8,214,800 103,012,423 577,760,703 693,130,512 % 0.04 0.56 1.19 14.86 83.36 100.00 Number of Shareholders 588 1,295 1,016 2,751 943 6,593 There were 1,082 shareholders holding less than a marketable parcel of ordinary shares. b) Substantial Shareholders An extract of the Company’s Register of Substantial Shareholders (who hold 5% or more of the issued capital) is set out below: Shareholder Name FIL Limited Freeman Road Pty Ltd Ian Francis Reynolds Issued Ordinary Shares Number 60,848,856 43,500,000 36,930,633 % 10.52 6.28 5.60 Note that this information is based on the Substantial Shareholder Notices lodged by the respective holders. c) Twenty Largest Shareholders The names of the twenty largest holders of quoted shares are listed below: Shareholder 1 HSBC Custody Nominees (Australia) Limited 2 Freeman Road Pty Ltd 3 Narhex Life Sciences Developments Pty Ltd 4 J P Morgan Nominees Australia Limited 5 CEM International (Asia) Pty Ltd 6 BNP Paribas Nominees Pty Ltd 7 Mr Frank Weng Thong Chew 8 Newtonmore Biosciences Pty Ltd 9 Citicorp Nominees Pty Limited 10 Tittel Pty Ltd 47 Number of Shares % 69,696,910 10.06 43,500,000 15,000,000 14,930,667 14,852,883 13,869,908 12,863,000 8,437,500 8,384,629 5,800,000 6.28 2.16 2.15 2.14 2.00 1.86 1.22 1.21 0.84 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 ASX Additional Information 11 Wilk Holdings Pty Ltd 12 Let Superannuation Pty Ltd 13 Mr Trent Antony Goodrick 14 Mr Victor John Wilk 15 Mr Jason Dennis Roberts 16 Gardmac Pty Ltd 17 Dr Nathan Goodrick 18 Benoni Pty Ltd 19 Sobol Capital Pty Ltd 20 CS Third Nominees Pty Limited TOTAL d) Listed Options As at the date of this report there were nil listed options on issue in the Company. e) Voting Rights 5,200,000 5,194,103 4,600,000 4,500,000 4,225,976 3,590,069 3,363,000 3,250,000 3,109,375 3,105,027 0.75 0.75 0.66 0.65 0.61 0.52 0.49 0.47 0.45 0.45 247,473,047 35.70 In accordance with the Company’s Constitution, voting rights in respect of ordinary shares are on a show of hands whereby each member present in person or by proxy shall have one vote and upon a poll, each share will have one vote. f) Unquoted Securities Performance Shares Number of Performance Shares Number of Holders Holders with more than 20% 93,750,000 8 UniQuest Pty Ltd – 45% Brian Leedman & Natasha Leedman – 20% Unlisted Options - $0.28; 29 April 2019 Number of Options Number of Holders 4,500,000 3 Holders with more than 20% Jay-V Inc. – 61.11% Mr Robert Hamilton – 31.11% Unlisted Options - $0.30; 29 April 2019 Number of Options Number of Holders 1,866,667 1 Holders with more than 20% Jett Capital Advisors Pty Ltd - 100% 48 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 ASX Additional Information Incentive Options - $0.025; 2 July 2020 Number of Performance Shares Number of Holders Holders with more than 20% Incentive Options - $0.05; 2 July 2020 Number of Performance Shares Number of Holders Holders with more than 20% Incentive Options - $0.10; 2 July 2020 Number of Incentive Options Number of Holders Holders with more than 20% 5,000,000 1 Dr Tony Keating – 100% 5,000,000 1 Dr Tony Keating – 100% 10,000,000 1 Dr Tony Keating – 100% Incentive Options - $0.05; 22 September 2020 Number of Incentive Options Number of Holders Holders with more than 20% 3,000,000 1 Dr Udantha Abeyratne – 100% Incentive Options - $0.10; 22 September 2020 Number of Incentive Options Number of Holders Holders with more than 20% 2,000,000 1 Dr Udantha Abeyratne – 100% Consultancy Incentive Options- $0.45; 16 September 2019 Number of Incentive Options Number of Holders Holders with more than 20% 2,000,000 2 Dr Udantha Abeyratne – 50% Dr Paul Porter – 50% Consultancy Incentive Options- $0.75; 16 September 2019 Number of Incentive Options Number of Holders Holders with more than 20% 2,000,000 2 Dr Udantha Abeyratne – 50% Dr Paul Porter – 50% Consultancy Incentive Options- $0.14; 18 December 2020 Number of Incentive Options Number of Holders Holders with more than 20% 500,000 1 Dr Philip Currie – 100% 49 ResApp Health Limited – Consolidated Annual Report ABN 51 094 468 318 ASX Additional Information Consultancy Incentive Options- $0.085; 18 December 2020 Number of Incentive Options Number of Holders Holders with more than 20% Employee Incentive Options 350,000 2 Dr Paul Porter – 28.6% Dr Philip Currie – 71.4% ESOP Options - $0.45; 16 September 2019 2,000,000 Options – 4 holders ESOP Options - $0.45; 10 November 2019 7,200,000 Options – 4 holders ESOP Options - $0.75; 10 November 2019 7,400,000 Options – 4 holders ESOP Options - $0.45; 31 October 2020 250,000 Options – 1 holder ESOP Options - $0.45; 12 December 2020 500,000 Options – 1 holder ESOP Options - $0.45; 13 March 2021 ESOP Options - $0.45; 1 May 2021 ESOP Options - $0.45; 1 June 2020 ESOP Options - $0.75; 1 June 2020 500,000 Options – 1 holder 250,000 Options – 1 holder 1,000,000 Options – 1 holder 1,500,000 Options – 1 holder ESOP Options - $0.085; 18 December 2020 1,000,000 Options – 10 holders g) Details Performance Shares Each of the 93,750,000 performance shares will convert to one (1) fully paid ordinary share upon satisfaction of the relevant Milestone. Accordingly, the performance shares will convert into fully paid ordinary shares in the capital of the Company within 7 days of the release of the audited accounts in respect of the period in which ResApp and any subsidiaries of ResApp (or if the Company or any Related Entity of the Company is licensed to use the Licensed IP, the Company and that Related Entity) achieving aggregated gross revenue of $20,000,000 in the five years commencing on the day the Company is readmitted to quotation on ASX, being 14 July 2015. No performance shares were converted or cancelled during the period. No performance milestones were met during the period. h) On Market Buy-Back There is no current on market buy-back for any of the Company’s securities. i) Restricted Securities There are currently no restricted securities on issue. 50 

Continue reading text version or see original annual report in PDF format above