Uscom Limited
Annual Report 2012

Plain-text annual report

Uscom Ltd, Suite 1, Level 7, 10 Loftus Street, Sydney NSW 2000 Australia T +612 9247 4144 L i v e s g v i n S a ANNUAL REPORT 2012 Chairmans Letter 2 Corporate Governance 5 Directors’ Report and Financial Statements 10 CHAIRMANS LETTER To fellow shareholders Change: This year saw a significant change in direction of the Company with a fundamental re-organisation of the management at the direction of shareholders at the 2011 AGM. I am pleased to report the Company results of the 2012 financial year, and to update investors of the objectives, activities and early results of the new Company strategy. While much of this 6 months has been review and re-orientation, we are confident in the new Uscom direction and early signs are promising. Strategy: Immediately following the 2011 AGM we reviewed operations and devised a new strategy with consideration to the then state of operations, the uncertain global economy, and the evolving unprecedented scientific recognition of the USCOM technology. The strategy focused on three points; 1. 2. 3. Restore operational soundness - increase sales and decrease spend and preserve cash. Focus on incremental growth opportunities – licensing, product co-developments and transactions. Realise the true capital value of the technology and company – the current capitalised value of the company is a fraction of similar entities despite the world leading and increasingly recognised technology. Results: The FY 2012 results are weighed down by the poor Q1 and Q2 results of last year. However Q3 and Q4 have responded positively as new management has revived sales and reduced costs. Total revenue for the 2012 FY was $864k, down 2% on last year from $881k in 2011. The new cost containment strategy introduced in Q3 and Q4 has reduced the aggregate loss for FY 2012 by 32% from a $2.869m loss in 2011 to $1.825m in FY 2012. Capital: To restore capital adequacy to the Company we have undertaken a successful private placement raising approximately $1m at 12c a share from sophisticated investors including both current and new investors. The offer was over subscribed, with some shares offered conditional to shareholder approval and will be voted on at the AGM. We will also receive a research and development tax rebate of approximately $400k. This, combined with our tightly managed spend, will ensure capital certainty in the year ahead as our current strategy is implemented. We have always valued capital and respect shareholder’s investments, and while creating life saving technology is a mission of our company, we believe this good should be converted to significant shareholder rewards. Last year the Auditor’s review of the Uscom accounts included an emphasis of matter and comments regarding matters of going concern. This year, after the private placement and introduction of new budget measures the current financial position is much improved and recognised by an unmodified audit opinion. This reflects the new emphasis on controlled management and validates shareholders actions at last year’s AGM. Sales: It is taking time to re-motivate the previously alienated distributors, but we are seeing some up swing in both opportunities and sales, and we are optimistic this trend will continue as new international research promotes new markets, and current markets begin to grow again. While sales are unlikely to be spectacular, the cash needs of the Company are now tightly managed and increased revenue combined with a decreased cost will positively effect operations and we are optimistic for the year ahead. Share price: The share price has more than doubled from 6c to 15c in the last 6 months on relatively high volume as the new management and strategy have been recognised by investors, and this has resulted in a more balanced shareholder register. Uscom Limited is currently capital valued at a fraction of that of our competitors and we are looking forward to new investor demand driving the retail market and restoring the share price to reasonable levels. Additionally the Company is well poised to achieve a significant value re-alignment as the implications of the world leading USCOM science is recognised and new partnerships are completed. The bioscience sector continues to gain investor attention and USCOM science is unequalled and represents an outstanding commercial opportunity, and we are now poised to realise the commercial value of the technology for shareholders. Risks: The risks for the Company remain in sales and marketing in a particularly difficult market with limited resources. Resistance to change in clinical practice, despite outstanding clinical evidence, also remains an impediment to adoption; change is always difficult in the conservative field of medicine. The strategy of establishing partnerships, although promising, depends on the willingness and vision of prospective partners. Science: This year the non-invasive USCOM was confirmed as the clinical gold standard cardiac monitor and a true platform technology across multiple applications, an objective on which the Company was founded. USCOM now has clinical proof in over 21 fields including paediatrics, sepsis, heart failure and hypertension, and the list is expanding. Each of these applications supports a potential licensing partnership and a unique and expansive business opportunity. The USCOM now has over 250 peer reviewed publications researching its clinical utility, and clinical adoption of Uscom technology continues with over 600 USCOM’s in clinical sites throughout the world. Uscom Limited - Annual Report 2012 - 2 CHAIRMANS LETTER continued The scientific highlights for this year include: • Professor Smith at Bathurst has demonstrated a reduced mortality in management of sepsis of 90% using USCOM. This evidence will influence clinical practice worldwide. • USCOM was proven in a study at The Howard Florey Institute in Melbourne to be 6 to 8 times as sensitive as the pulmonary artery catheter which requires a catheter inserted directly into the heart. USCOM was founded to replace invasive and ineffective technologies with accurate and non-invasive alternatives; this study validates that objective and separates USCOM from its competitors. With the increasing scientific validation, the pressure for adoption of USCOM as a global standard of care is increasing. The USCOM science is now unequalled, with lives being saved weekly, if not daily, worldwide. Partnerships strategy: USCOM is a genuine gold standard, platform cardiac monitoring technology on the cusp of commercial recognition and our new strategy is to work with major medical device companies, which are known to USCOM, with specific market expertise and distribution channels to establish selective partnerships. It is envisaged that these partnerships will be based on co-development and distribution relationships and the partners multi-national organisations with sales and marketing scale and reach with sector specific focus. These partnerships are expected to add cost effectively to revenue and add incremental capital value to the Company. The increasing scientific recognition will drive USCOM into many new markets, all of which will require strategic partnerships to adequately capitalise. A single strong partnership has the potential to make the company profitable immediately. Current partnership opportunities include licensing USCOM technology into ultrasound devices, cardiac monitoring modules, ventilators, pacemakers and artificial hearts, pharmaceutical companies for guidance and optimisation of drugs for heart failure, hypertension and chemotherapy, and home care management. This will result in specialised USCOM devices for paediatrics, sepsis, heart failure, hypertension, electrophysiology, cardiac monitoring, and include our new cardioCARE management guidance software. Conclusion: Uscom is doing genuinely important work; changing clinical practice and saving lives. Uscom remains a great Company with great technology and great people, poised to transition to a powerful multi-product and profitable global bio-device Company. I am proud of what we have done, excited about what we hope to do and delighted to have you as investors in Uscom Limited to share in the success as we improve global medical care and refine operations with a new strategy and company vision. I believe we can look forward to the coming year with optimism as we pursue the milestones which will incrementally grow the value of Uscom and reward investors. Thank you. Rob Phillips Executive Chairman Uscom Limited Uscom Limited - Annual Report 2012 - 3 USCOM - SAVING LIVES Uscom Limited - Annual Report 2012 - 4 CORPORATE GOVERNANCE STATEMENT As outlined in previous annual reports, Uscom is committed to continuing its high standards of corporate governance. Effective corporate governance aids the Company to set and achieve its objectives. Our Governance Statement for 2011/2012 outlines our policies and practices by reference to the Corporate Governance Principles and Recommendations with 2010 Amendment published by the ASX Corporate Governance Council (“ASX Principles”). Principle 1: Lay solid foundations for management and oversight Recommendation 1.1: Establish the functions reserved to the board and those delegated to senior executives and disclose those functions. The Board has adopted a charter that sets out the responsibilities reserved by the Board, those delegated to the Executive Chairman. For a copy of the Board Charter refer to Uscom Corporate Governance Documentation on the Company website. Recommendation 1.2: Disclose the process for evaluating the performance of senior executives. The Chief Executive Officer and General Manager attend the scheduled board meetings and present to the Board regarding the Company’s performance against its goals and objectives. The Board assesses the performance of the Senior Executives against their individual goals and objectives and those of the Company on a regular basis at these meetings. The Company conducts annual performance appraisals of all employees. Recommendation 1.3: Provide the information indicated in the Guide to reporting on Principle 1. A performance evaluation of Senior Executives has taken place during the reporting period in accordance with the process disclosed above. A copy of the Board Charter is included with the Uscom Corporate Governance Documentation on the Company website. Principle 2: Structure the board to add value Uscom Ltd has the services of a Board with a wide range of professional experience in fields such as science, medicine, marketing and international business. Further information regarding the Directors is provided in the Directors’ Report (refer to page 10). Recommendation 2.1: A majority of the board should be independent directors. The Board consists of three members, two of whom are Non-Executive Directors. The Company takes the view that the two Non-Executive Directors are also Independent Directors. In the interests of transparency, the Company discloses relationships or business associations which may impact a person’s own interpretation of the definition of independent. The Board believes that the composition is appropriate for the Company due to its small size and the nature of the business. The Board will continue to review this on an ongoing basis. Recommendation 2.2: The chairperson should be an independent director. The Chairman of Uscom Ltd, Mr Rob Phillips, is an executive director and is therefore not an independent director. The Board believes that an Executive Chairman is appropriate given the size of the Company and the nature of the business. Recommendation 2.3: The roles of chairperson and chief executive officer should not be exercised by the same individual. Mr Rob Phillips is the Executive Chairman and Chief Executive Officer. The Board believes this is appropriate given the size of the Company and the nature of the business. Recommendation 2.4: Establish a nomination committee. The Company believes that a nomination committee is not necessary at this stage of the Company’s development. Issues relating to board membership will continue to be overseen by the full Board. The Company believes this to be justified given the relatively small size of the board and that significant growth in the number of Directors is not envisaged in the medium term. Recommendation 2.5: Disclose the process for evaluating the performance of the board, its committees and individual directors. A director’s performance is evaluated informally by assessing their contribution and attendance at all Board meetings. Uscom Limited - Annual Report 2012 - 5 CORPORATE GOVERNANCE STATEMENT continued Recommendation 2.6: Provide the information indicated in the Guide to reporting on principle 2. • The skills, experience and expertise relevant to the position of Director held by each director in office can be found in the Directors’ Report. The names of the Directors considered by the Board to constitute Independent Directors and the Company’s materiality threshold can be found in the Directors’ Report. • • All Company Non-Executive Directors are considered independent, notwithstanding the existence of relationships stated in the Guide. The term of office held by each Director in office can be found in the Directors’ Report. • • As set out above, the Company believes that a nomination committee is not necessary at this stage of the Company’s development therefore does not hold nomination meetings. • A statement detailing the procedure agreed by the Board for Directors to take independent professional • advice at the expense of the Company can be found in the Remuneration Report. The Board’s membership and structure is selected for optimum efficiency while providing high levels of expertise in science, medicine and business. The Board as a whole considers nomination issues, including the mix of skills and diversity of the Board, in an ongoing, informal manner. As stated above the Board is not looking to significantly expand its membership in the medium term. • A formal performance evaluation for the Board, its committees and Directors has not taken place in the reporting period however performance is measured as described in 2.5 above. Principle 3: Promoting ethical and responsible decision-making Recommendation 3.1: Establish a code of conduct to guide the Directors, the Chief Executive Officer and other key Executives as to: • • The practices necessary to maintain confidence in the Company’s integrity. The practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders. The responsibility and accountability of individuals for reporting and investigating reports of unethical practice. • The Company has developed a Code of Conduct for Directors, management and staff, underlining the Company’s commitment to high ethical standards in the conduct of the Company’s business. The Board is responsible for ensuring the Company’s compliance with the Code and the good and fair management of reports of any breaches. For detailed Code of Conduct refer to Uscom Corporate Governance Documentation on the Company website. Recommendation 3.2: Establish a policy concerning diversity and disclose the policy or a summary of that policy. The Company has adopted a policy in relation to diversity. For details refer to Uscom Corporate Governance Documentation on the Company website. Recommendation 3.3: Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. The Company has not established measurable objectives for achieving gender diversity at this time. Recommendation 3.4: Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. The proportion of women within the organisation is: 42% Women within whole organisation: Women in senior executive positions: Women on the board: 5 8% 1 Recommendation 3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3. Information can be found in the Uscom Corporate Governance Documentation on the Company website. Uscom Limited - Annual Report 2012 - 6 CORPORATE GOVERNANCE STATEMENT continued Principle 4: Safeguard integrity in financial reporting Recommendation 4.1: Establish an audit committee. The Board has established an Audit and Risk Committee. Recommendation 4.2: Structure the audit committee so that it consists of only non-executive directors; a majority of independent directors; an independent chairperson, who is not chairperson of the board; at least three members. The Company has appointed an Audit and Risk Committee (“Committee”), responsible for reporting to the full Board on issues relating to the Company’s financial information and a regular review of the Company’s risk environment. The Committee is made up of two members, both independent Directors. The Chairman of the Committee is an independent director. The size of the Committee, although not in compliance with the ASX Principles, is considered appropriate for the size of the Company. The Committee will meet at least three times per year. Recommendation 4.3: The audit committee should have a formal charter. The Committee operates according to a formal charter. Recommendation 4.4: Provide the information indicated in the Guide to reporting on Principle 4. The qualifications of the Committee members are set out in the Directors’ Report together with their attendance at Committee meetings. The Committee charter, which includes information regarding the external auditor’s engagement, is included in the Uscom Corporate Governance Documentation on the Company website. Principle 5: Make timely and balanced disclosure Recommendation 5.1: Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. The Company has produced and adopted a disclosure policy, which has been communicated to all Directors, managers and employees. The Board, Company Secretary and senior executives are aware of the ASX Listing Rules and Corporations Act disclosure requirements, and take steps to actively monitor and ensure ongoing compliance. The Executive Chairman in consultation with the Company Secretary, continually monitors developments in the Company and its business and reports any developments immediately to the Board for consideration. Recommendation 5.2: Provide information indicated in the Guide to reporting on Principle 5. Refer to the Uscom Corporate Governance documentation on the Company website. Principle 6: Respect the rights of shareholders Recommendation 6.1: Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Uscom Ltd is committed to keeping shareholders fully informed of significant developments and activities at the Company. The Company’s primary communications tool is its website, and all announcements are posted on the site, immediately after they are released to the ASX through the appropriate electronic publication procedure. Where information may be provided to market analysts or the media which is materially incremental to the announcements already published, this information would be treated as an announcement and published accordingly. All announcements, dating back to May 2001, remain available on the website. In addition, the website provides an “Investors” section, where more detailed information is available, including access to all of the Company’s financial statements and the delayed share trading data produced by ASX. Shareholders are encouraged to actively communicate with the Company through contact details provided on the website. Uscom Limited - Annual Report 2012 - 7 CORPORATE GOVERNANCE STATEMENT continued The Company also encourages shareholders to participate in the annual general meeting. Ample notice of this meeting will be provided. All documents and presentations delivered to the annual general meeting will be posted immediately on the Company website. Recommendation 6.2: Provide the information indicated in the Guide to reporting on Principle 6. Refer to the Uscom Corporate Governance documentation on the Company website. Principle 7: Recognise and manage risk Recommendation 7.1: Establish policies for the oversight and management of material business risks and disclose a summary of those policies. The Company has appointed an Audit and Risk Committee, which is charged with oversight of the Company’s risk profile. The Committee assesses the adequacy of the Company’s control and risk environment, including accounting, financial and operating controls and the appropriateness of its accounting policies and practices. The committee manages a dynamic checklist of potential risk components and reviews each component during the course of a year. Recommendation 7.2: Require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. The Board has required Management to design and implement the risk management and internal control system to manage the company's material business risks and report to it on whether those risks are being managed effectively. Management has reported to the Board as to the effectiveness of the Company’s management of its material business risk. Recommendation 7.3: Disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board has received assurance from the Chief Executive Officer and the General Manager that the declaration provided in accordance with section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Recommendation 7.4: Provide the information indicated in the Guide to reporting on Principle 7. The Board has received the report from management under recommendation 7.2 and the assurance from the Chief Executive Officer and the General Manager under recommendation 7.3. Refer to the Audit and Risk Committee Charter included in Uscom Corporate Governance on the Company website for further information regarding the Company’s policies on risk oversight and management of material business risks. Principle 8: Remunerate fairly and responsibly Recommendation 8.1: Establish a Remuneration Committee. Given the relatively small size of the Uscom board, the Company does not currently see the need for a separate remuneration committee. Uscom Ltd has adopted a remuneration policy based on performance and contribution. Is chaired by an independent chair Recommendation 8.2: The remuneration committee should be structured so that it: • Consists of a majority of independent directors • • Has at least three members. As set out above, given the relatively small size of the Uscom board, the Company does not currently see the need for a separate remuneration committee. Uscom Limited - Annual Report 2012 - 8 CORPORATE GOVERNANCE STATEMENT continued Recommendation 8.3: Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Information regarding the remuneration of non-executive Directors, executive Directors and Senior Executives is provided in the Company’s Remuneration Report from pages 13 to 17. Recommendation 8.4: Companies should provide the information indicated in the guide to reporting on Principle 8. There are no schemes for retirement benefits, other than superannuation, for non-executive directors. Non- executive directors do not receive options or bonus payments. The Company’s departure from Recommendations 8.1 and 8.2 are explained above. Uscom Limited - Annual Report 2012 - 9 DIRECTORS’ REPORT The Directors present their report on Uscom Ltd and its Controlled Entity for the financial year ended 30 June 2012. Directors The following persons were Directors of Uscom Ltd during the whole of the financial year and up to the date of this report, unless otherwise stated. Mr R A Phillips Ms S Jack Mr C Bernecker Mr P Kiely Mr B Rathie Mr J Bonitz Executive Director - Chairman Non-Executive Director (Appointed on 25th November 2011) Non-Executive Director (Appointed on 25th November 2011) Executive Chairman (Ceased on 22nd November 2011) Non-Executive Director (Resigned on 30th August 2011) Non-Executive Director (Ceased on 22nd November 2011) Directors’ qualifications and experience Mr Rob Phillips Rob Phillips is the founder of Uscom Ltd, the Chief Executive Officer, Executive Director and Chief Scientist of the Company. Rob has 9 years experience as Executive Chairman of the Company, having taken the Company to IPO in 2003, and has over 20 years in executive corporate management. The Company received the Frost and Sullivan Global Entropolis Award for the Emerging Medical Device Company of the Year in 2007. He has a Master of Philosophy in Medicine from The University of Queensland and is currently completing his PhD. He is an Australian Post Graduate Award recipient and was a finalist in the Time-CNN World Health and Medicine Technology Awards in 2004. Rob has pioneered novel clinical approaches to cardiovascular assessment having authored over 30 patents and patent applications and is an internationally recognised teacher and examiner in the field of echocardiography. Ms Sheena Jack Ms Sheena Jack was appointed Non-Executive Director of Uscom Ltd on 25th November 2011 and is also the Chairman of the Audit and Risk Committee. Sheena is currently the Chief Financial Officer of HCF and has 26 years experience as a finance professional and corporate executive. She has had experience across a range of corporate organisations including ASX listed companies, government and not for profit in both mature and start-up businesses. Sheena has significant experience in mergers and acquisitions, business integration, strategy development and implementation, capital markets and organisational transformation. She is a Director of Moneytime Health Pty Ltd and Treytell Pty Ltd. Sheena is a Chartered Accountant and a graduate member of the Australian Institute of Company Directors. Mr Christian Bernecker Mr Christian Bernecker was appointed Non-Executive Director of Uscom Ltd on 25th November 2011 and is also a member of the Audit & Risk Committee. Christian is Managing Director of Nightingale Partners Pty Limited, an active investment company which provides expansion capital to small cap companies. He is currently a Non-Executive Director of LongReach Group Limited, DSQ Holdings Limited, Australis Music Group Pty Limited, Creditorwatch Pty Limited, Mayfield Industries Pty Limited, Stream Group Holdings Pty Limited and a number of other private companies. Christian is a member of the Institute of Chartered Accountants in Australia and holds a Bachelor of Commerce from Ballarat University. Mr Phil Kiely (Ceased on 22nd November 2011) Mr Kiely was the Executive Chairman for Uscom Ltd until 22nd November 2011. Mr Kiely holds a Bachelor of Commerce/Law degree from the University of NSW. Phil Kiely has over 25 years in the ICT sector working in leading global companies most recently establishing an investment company, Matrix Capital Corporation, which has developed and commercialised innovative product & services organisations. Prior to Matrix Phil spent seven years at Oracle Corporation, the world’s largest database company. His last role at Oracle was as Vice President Oracle Online, Asia Pacific. Prior to joining Oracle, Phil was one of the pioneers of IT outsourcing in Australia. He held positions as General Manager, Continuum Australia later acquired by CSC and General Manager, Computations. Mr Bruce Rathie (Resigned on 30th August 2011) Mr Rathie was a Non-Executive Director of Uscom Ltd until 30th August 2011. He holds degrees in law, commerce and business and has considerable experience as a lawyer having practiced as a solicitor and partner in a major Brisbane based legal firm and then as Senior in-house Counsel to Bell Resources Limited from 1980 to 1985 in aggregate. He studied for his MBA in Geneva and then went into investment banking in 1986 which subsequently took him to New York for over 2 years returning to Sydney in 1990. He spent the 90's in investment banking in Uscom Limited - Annual Report 2012 - 10 DIRECTORS’ REPORT continued Sydney, the last 5 years as a Director of Investment Banking at Salomon Brothers/ Salomon Smith Barney where he was responsible for the firm's activities/ roles in the industrial sector and the Federal Government's privatisation of Qantas, Commonwealth Bank (CBA3) and Telstra (T1). Mr Rathie currently holds board positions with a number of Australian companies. During the past three years Mr Rathie held senior positions of the following listed companies: • DataDot Technology Limited Non-Executive & Chairman • Anteo Diagnostics Limited • Calzada Limited • Mungana Goldmines Limited Mr Rathie was a member of the Audit and Risk Committee until 30th August 2011. Chairman and Non-Executive Director Non- Executive Director Non- Executive Director December 2006 – January 2009 & October 2009 - present July 2006 – August 2009 April 2010 - present October 2010 - present Mr Jochen Bonitz (Ceased on 22nd November 2011) Mr Bonitz was a Non-Executive Director of Uscom Ltd until 22nd November 2011. He holds a Bachelor of Science degree from the University of NSW and a MBA from the Australian Graduate School of Management. Mr Bonitz was a former Director at KPMG Corporate Finance with over 20 years experience in the technology sector spanning a career in programming, consulting and Mergers & Acquisitions advisory. Having focused initially in the technical field and consulting at Logica and IBM, Mr Bonitz started and developed a communication company which he merged into Pacnet where he was then the CEO for the Australian subsidiary. He later worked with the Commonwealth Bank and at KPMG as a corporate M&A adviser with a specific focus on the ICT and telecoms sectors. Most recently he has been on the direction panel for the Federal Government’s National Broadband Network (NBN). Mr Bonitz was a member of the Audit and Risk Committee until 22nd November 2011. Company Secretary’s qualifications and experience Mr Tom Rowe Mr Rowe was appointed the Company Secretary of Uscom Ltd on 7th December 2011. He is a Corporate and Commercial Lawyer with a specialty in listed company secretarial practice. Mr Rowe holds a BA LLB (Hons) from the University of Adelaide and is an Associate of the Chartered Institute of Secretaries. He is the current Principal of Company Matters, a specialist provider of legal, governance and company secretarial services. Previously, he held the position of Legal Counsel and Company Secretary at CSR Ltd. Meetings of Directors Directors Board of Directors Audit and Risk Committee R A Phillips S Jack ** C Bernecker ** P Kiely * B Rathie *** J Bontiz * Meetings held while a Director 13 8 8 4 2 4 No. of meetings attended 12 8 6 4 2 4 Meetings held while a Director - 1 1 - 1 1 No. of meetings attended - 1 1 - 1 1 * Ceased on 22nd November 2011 ** Appointed on 25th November 2011 *** Resigned on 30th August 2011 Principal activities Uscom Ltd is engaged in the development, design, manufacture and marketing of non-invasive cardiac monitoring devices. Uscom Ltd owns a portfolio of intellectual property relating to the technology and techniques associated with these devices and manages a worldwide network of distribution partners for the sale of its equipment to hospitals and other medical care locations. Uscom Ltd owns 100% of Uscom, Inc. a company engaged in the sale and promotion of USCOM devices primarily in the United States. Operating result The loss of the Consolidated Entity after providing for income tax amounted to $1,824,547 (2011: $2,685,913) Dividends No dividends were declared or recommended for the financial year ended 30 June 2012. Uscom Limited - Annual Report 2012 - 11 DIRECTORS’ REPORT continued Significant changes in state of affairs There were no significant changes in state of affairs during the financial year apart from the change of Board of Directors and Management following the AGM in November 2011. Operating and financial review The operating and financial review is stated on pages 2 to 3 of this report. Events after the reporting date Apart from the items disclosed in note 29 to the financial statements, no other matters or circumstances have arisen since the end of the financial year to the date of this report, that has significantly affected or may significantly affect the activities of the Consolidated Entity, the results of those activities or the state of affairs of the Consolidated Entity in the ensuing or any subsequent financial year. Future developments Other than the business activities described in the annual report and, in particular, those matters discussed in the Review of Operations, the Board is not aware of any likely developments in the foreseeable future which may materially impact on the financial outlook of the Consolidated Entity. Environmental issues The Consolidated Entity’s operations are not subject to significant environmental regulation under the law of the Commonwealth and State. Indemnifying officers The Consolidated Entity has paid premiums to insure all Directors and Executives against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director of the Company, other than conduct involving a wilful breach of duty in relation to the Company. Proceedings on behalf of the Consolidated Entity No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Consolidated Entity, or to intervene in any proceedings to which the Consolidated Entity is a party, for the purpose of taking responsibility on behalf of the Consolidated Entity for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Consolidated Entity with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services The Consolidated Entity may decide to employ the auditor on assignments additional to their audit duties where the auditor’s expertise and experience with the Consolidated Entity are important. During the year, $2,956 was paid to PKF California for tax consulting services provided to the Consolidated Entity. The Directors are of the opinion that the provision of non-audit services as disclosed in note 26 in the financial report does not compromise the external auditor’s independence as outlined in the Corporations Act 2001 for the following reasons: • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and • None of the services undermine the general principles relating to auditor independence as set out in the Code of Conduct APES110 Code of Ethics of Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in management decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Refer to note 26 of the financial statements on page 42 for details of auditors’ remuneration. The auditor’s independence declaration under section 307C of the Corporation Act is set out on page 18 and forms part of the Directors’ Report. Uscom Limited - Annual Report 2012 - 12 DIRECTORS’ REPORT continued Remuneration report This remuneration report has been prepared by the Directors of Uscom Ltd to comply with the Corporations Act 2001 and the key management personnel (KMP) disclosures required under Australian Accounting Standards AASB 124 – Related Party Disclosures. Key management personnel The following were key management personnel of the Entity at the start of the financial year to the date of this report unless otherwise stated: Non-Executive Directors Sheena Jack, Non-Executive Director (commenced on 25th November 2011) Christian Bernecker, Non-Executive Director (commenced on 25th November 2011) Bruce Rathie, Non-Executive Director (ceased on 30th August 2011) Jochen Bonitz, Non-Executive Director (ceased on 22nd November 2011) Executive Directors Rob Phillips, Executive Director, Chairman, Chief Executive Officer Phil Kiely, Executive Chairman (ceased on 22nd November 2011) Senior Executives Tom Rowe, Company Secretary (commenced on 7th December 2011) Nick Schicht, General Manager Daniel Fah, Chief Financial Officer, Company Secretary (ceased on 30th November 2011) Deb Johnson, VP Sales and Marketing (ceased on 8th June 2012) Joe Trygar, Chief Executive Officer (from 16th September 2011 to 2nd December 2011) In the Directors’ opinion, there are no other Executives of the Entity. Remuneration policies The Board is responsible for reviewing the remuneration policies and practices of the Consolidated Entity, including the compensation arrangements of Executive Directors, Non-Executive Directors and Senior Executives. The Consolidated Entity has adopted remuneration policies based on performance and contribution for determining the nature and amount of emoluments of Board Member and Senior Executives. The objective of these policies is to: • Make Uscom Ltd and its Controlled Entity an employer of choice • Attract and retain the highest calibre personnel • Encourage a culture of reward for effort and contribution • Set incentives that reward short and medium term performance for the Consolidated Entity • Encourage professional and personal development In the case of Senior Executives, a recommendation for compensation review will be made by the Chairman to the Board, which will conduct a performance review. Non-Executive Directors The Board determines the Non-Executive Director remuneration by independent market data for comparative Companies. As at the date of this report the maximum aggregate remuneration payable out of the funds of the Entity to Non- Executive Directors of the Consolidated Entity for their services as Directors including their service on a committee of Directors is $165,000 per annum. Non-Executive Directors do not receive any performance related remuneration, therefore they do not receive bonuses or non-cash benefits. Non-Executive Directors’ retirement payments are limited to compulsory employer superannuation. Executive Directors and Senior Executives remuneration The Consolidated Entity’s remuneration policy directs that the remuneration package appropriately reflects the Executives’ duties and responsibilities and that remuneration levels attract and retain high calibre Executives with the skills necessary to successfully manage the Consolidated Entity’s operations and achieve its strategic and financial objectives. Uscom Limited - Annual Report 2012 - 13 DIRECTORS’ REPORT continued The total remuneration packages of Executive Directors and Senior Executives are on a salary basis. In addition to base salary, the Company has a policy of rewarding extraordinary contribution to the growth of the Company with the grant of an annual discretionary cash bonus and options under the Consolidated Entity’s Employee Share Option Plan. Executives are also entitled to be paid for their reasonable travel, accommodation and other expenses incurred in consequence in the execution of duties. Other than the Uscom Ltd Employee Share Option Plan, the Consolidated Entity does not provide any other non- cash benefits in lieu of base salary to Executives. Remuneration packages for Executive Directors and Senior Executives generally consist of three components: • Fixed remuneration which is made up of cash salary, salary sacrifice components and superannuation • Short term incentives • Long term incentives which include issuing options pursuant to the Uscom Ltd Employee Share Option Plan. Fixed remuneration Senior Executives who possess a high level of skill and experience are offered a competitive base salary. The performance of each Executive will be reviewed annually. Following the review, the Consolidated Entity may in its sole discretion increase the salary based on that Executive’s performance, productivity and such other matters as the Board considers relevant. Superannuation contribution by the Consolidated Entity is limited to the statutory level at 9% of wages and salaries. Short-term incentives The remuneration of Uscom Ltd Senior Executives does not include any short-term incentive bonuses as part of their employment conditions. The Board may however approve discretionary bonuses to Executives in relation to certain milestones being achieved. Long-term incentives The Consolidated Entity has adopted a Share Option Plan for the benefit of Executive Directors, full-time and part-time staff members employed by the Consolidated Entity. In accordance with the employee option plan, options issued under the employee option plan, have an exercise price based on 85% of the average ASX closing price for the 5 days prior to offer/acceptance of the options. Each option is issued for a period of 4 years, which vest 25% in tranches throughout the period. An Executive Share Option Plan has also been developed for approved participants. The Board, at its discretion, may approve the issue of options under the Employee Share Option Plan and the Executive Share Option Plan to Senior Executives. The vesting of options issued may be conditional upon the achievement of performance hurdles determined by the Board from time to time. The Board may propose the issue of options to Directors, however this will be subject to shareholder approval at the Annual General Meeting. Independent data from applicable sources may be requested by the Board to assess whether the performance hurdles have been met. During the year, 400,000 options were issued to employees under the Employee Share Option Plan at an exercise price of 5.95 cents per option and 400,000 options were issued to executives under the Executive Share Option Plan at an exercise price of 5.95 cents per option. Service agreements The Consolidated Entity has entered into a service agreement with the Chairman that • Outlines the components of remuneration payable; and • Specifies term and termination conditions. Details of the service agreement are as follows: Term The Executive Employment Agreements are for a term of 3 years. The term of employment may be extended by the Consolidated Entity after the expiration of the initial 3 year term. Each Executive may not, during the term of the employment agreement, perform work for any other person, corporation or business without the prior written consent of the Consolidated Entity. Uscom Limited - Annual Report 2012 - 14 DIRECTORS’ REPORT continued Due to the small number of Executives the remuneration committee comprises the Board of Directors which is made up of two Non-Executive Directors. Reference is made to external market information in order to retain the most suitable Executives for meeting the entity’s goals. Executive Directors are excluded from discussions on their remuneration. The remuneration of key Executives are not linked with the Consolidated Entity’s performance as the focus is on retention of key Executives to ensure growth and traction in what is a new market. The Board of Directors will consider linking executive remuneration to Consolidated Entity’s performance once the Consolidated Entity has sufficient market traction. Termination Despite anything to the contrary in the agreement, the Consolidated Entity or the Executive may terminate the employment at any time by giving the other party 3 months’ notice in writing. If either the Consolidated Entity or the Executive gives notice of termination, the Consolidated Entity may, at its discretion, choose to terminate the Executive’s employment immediately or at any time during the notice period and pay the Executive an amount equal to the salary due to them for the residual period of notice at the time of termination. Where the Executive gives less than 3 months written notice, the Consolidated Entity may withhold from the Executive’s final payment an amount equal to the shortfall in the notice period. The employment of each Executive may be terminated immediately without notice or payment in lieu in the event of any serious or persistent breach of the agreement, any serious misconduct or wilful neglect of duties, in the event of bankruptcy or any arrangement or compensation being made with creditors, on conviction of a criminal offence, permanent incapacity of the Executive or a consistent failure to carry out duties in a manner satisfactory to the Consolidated Entity. Directors and Executives remuneration Remuneration includes salaries, benefits and superannuation contributions in respect of the financial year 2012. Non-Executive Director S Jack (from 25 Nov 2011) C Bernecker (from 25 Nov 2011) B Rathie (to 30 Aug 2011) J Bonitz (to 22 Nov 2011) Executive Director R Phillips P Kiely (to 22 Nov 2011) Senior Executive T Rowe (from 7 Dec 2011) N Schicht D Fah (to 30 Nov 2011) D Johnson (to 8 Jun 2012) J Trygar (from 15 Jul to 2 Dec 2011) Equity Total remuneration Short term benefits Directors’ Base Fee $ - - 5,833 - Base salary $ - - - - Other payments $ - - - - Post employment benefits Superannuation $ - - 525 - 171,090 - - 60,000(2) 46,281(1) - Share-based payment $ % of total - - - - - - - - - - - - - - - - - - - - 166,000 - 139,640 58,145 1,965(3) - 26,360(4) 14,323 - - 14,940 - - - 61,746 - 642 - 564 - 1,206 - 0.4% - 0.4% - - $ - - 6,358 - 217,371 60,000 1,965 181,582 26,360 154,527 58,145 706,308 Total 5,833 534,875 102,648 (1) (2) (3) (4) $28,333 of Directors’ salary was sacrificed to post employment benefit during FY2012 Payments were made to Ecrucis Pty Ltd for the services provided by Mr Kiely. Payments were made to Company Matters Pty Ltd for the services provided by Mr Rowe. Payments were made to CFO Strategic Chartered Accountants for the services provided by Mr Fah. Uscom Limited - Annual Report 2012 - 15 DIRECTORS’ REPORT continued Directors and Executives remuneration Remuneration includes salaries, benefits and superannuation contributions in respect of the financial year 2011. Non-Executive Director R Zwolenski (to 22 Dec 2010) B Rathie J Bonitz (from 4 Jan 2011) Executive Director R Phillips P Kiely (from 22 Dec 2010) Senior Executive D Fah N Schicht A Hughes-Jones (to 10 Dec 2010) D Johnson Short term benefits Directors’ Base Fee $ 17,500 35,000 - Base salary $ - - - Other payments $ - - - Post employment benefits Superannuation $ 1,575 3,150 - Equity Total remuneration Share-based payment $ % of total - - 29,440 - - 100.0% $ 19,075 38,150 29,440 - - - - - - 155,000 - - 108,000(1) 13,950 - - 294,400 - 73.2% 168,950 402,400 - 157,900 43,080 143,174 65,994(2) - - 13,412 - 14,211 23,101 - 55,987 1,297 2,594 - - 1.9% 1.5% - - 67,291 174,705 66,181 156,586 327,731 - 1,122,778 Total 52,500 499,154 187,406 (1) (2) Payments were made to Ecrucis Pty Ltd for the services provided by Mr Kiely. Payments were made to CFO Strategic Chartered Accountants for the services provided by Mr Fah. Employee Share Option Plan The Consolidated Entity has adopted an Employee Share Option Plan for the benefit of Executive Directors and full-time or part-time staff members employed by the Consolidated Entity. At the date of this Report the following options had been issued pursuant to the Employee Share Option Plan. Each option was issued for a period of 4 years and vest in tranches of 25% after 9 months, 12 months, 24 months and 36 months. Exercise price is based on 85% of the average ASX closing price for the 5 days prior to offer/acceptance of the options, in accordance with the Employee Share Option Plan. An Executive Share Option Plan has also been developed to provide approved participants further incentive in their performance for the Consolidated Entity and an opportunity to acquire an ownership interest in the Consolidated Entity. Number of options over ordinary shares held by Directors and Senior Executives Balance Granted Exercised Lapsed / Transferred out Balance Total vested Non-Executive Director S Jack (from 25 Nov 2011) C Bernecker (from 25 Nov 2011) B Rathie (to 30 Aug 2011) J Bonitz (to 22 Nov 2011) Executive Director R Phillips P Kiely (to 22 Nov 2011) Senior Executive T Rowe (from 7 Dec 2011) N Schicht D Fah (to 30 Nov 2011) D Johnson (to 8 Jun 2012) J Trygar (to 2 Dec 2011) Total 1 July 2011 No. - - - 400,000 - 4,000,000 - 100,000 50,000 - - 4,550,000 During FY2012 No. During FY2012 No. During FY2012 30 June 2012 No. No. & exercisable 30 June 2012 No. - - - - - - - 300,000 - 150,000 - 450,000 - - - - - - - - - - - - - - - (400,000) - (4,000,000) - - (50,000) (150,000) - (4,600,000) - - - - - - - 400,000 - - - 400,000 - - - - - - - 100,000 - - - 100,000 Uscom Limited - Annual Report 2012 - 16 DIREC CTORS’ ’ REPOR RT conti nued Details of options s outstandin ng as at en nd of year Holders N No. Grant d date Exerc at 30 cisable 0 June 2012 % 100% 100% e Expiry date 20 17 November 20 December 20 12 13 30 June 2 Outstand Op 2012 ding ption No. 0,000 0,000 260 2,000 cise Exerc rice Pr $ 0 0.29 375 0.3 Issue date fa valu ed air ue $ 19 12 0.1 0.1 0 November 2 20 7 December 2 17 2008 2008 29 March 2 2012 0% 29 March 20 16 1,300 0,000 0.05 595 0.0 06 3,560 0,000 yees) 7 (Employ or) 1 (Investo oyees & 10 (Emplo e) Executive Total Further details of the options are disc closed in note 19 of the e financial statements. Numbe er of shares s held by D irectors an Balance July 2011 No. xecutives ( nd Senior E Op s Received as Exer Remuneration R No. indirect int (including i Net change N ptions Other* cised No. No. erest) ce Balanc 12 30 June 20 No. N 1 J cutive Direct m 25 Nov 2011) ker (from 25 Nov 2 (to 30 Aug 2011) to 22 Nov 2011) e Director Non-Exe S Jack (from C Bernec B Rathie ( J Bonitz (t Executive R Phillips P Kiely (to 22 Nov 2011) Senior Ex xecutive rom 7 Dec 2011) T Rowe (fr t N Schicht 30 Nov 2011) D Fah (to 3 on (to 8 Jun 2012) D Johnso to 2 Dec 2011) J Trygar (t or 011) - - 93,809 - 6,996,733 16 333,333 - 18,200 5,000 5,100 - Total 17 ,452,175 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 80,000 - (93,809) - 80,000 0(1) - -(2) - - (333,333) 16,996,733 3(3) -(4) - - (5,000) (5,100) - 18,200 - 0(5) -(6) -(7) - (357,242) 17,094,93 33 *Net change ot (1) All these ord ther refers to share pur dinary shares are held b rchased or sold during by family associate. the financial year, or c cessation of categorisa ation as a Director or Se enior Executive. (2) Bruce Rathie e ceased to be key man nagement personnel o on 30 August 2011. (3) 382,924 of th hese ordinary shares ar re held by Australian C Cardiac Sonography Pty y Ltd as trustee for the e Phillips Superannuatio on. (4) Phil Kiely cea ased to be key manag ement personnel on 22 2 November 2011. (5) 10,000 of the ese ordinary shares are e held by family associa ate. (6) Daniel Fah c ceased to be key mana agement personnel on 30 November 2011. (7) Deb Johnso n ceased to be key ma anagement personnel o on 8 June 2012. This Direc ctor’s report is s signed in acc cordance with h a resolution o of the Board o of Directors. Rob Philli ips Sheena J ack Executive e Director - Ch hairman Non-Exe cutive Directo or Sydney, 3 30 August 201 2 Uscom Limited - Annual Repor rt 2012 - 17 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 10, 1 Margaret St Sydney NSW 2000 Australia DECLARATION OF INDEPENDENCE BY TIM SYDENHAM TO THE DIRECTORS OF USCOM LIMITED As lead auditor of Uscom Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been no contraventions of: • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in respect of Uscom Limited and the entities it controlled during the year. Tim Sydenham Partner BDO East Coast Partnership Sydney, 30 August 2012 BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. Uscom Limited - Annual Report 2012 - 18 INCOME STATEMENT For the financial year ended 30 June 2012 Continuing operations Revenue Raw materials and consumables used Expenses from continuing activities Loss before income tax credit Income tax credit Loss after income tax credit Earnings per share (EPS) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Consolidated 2012 $ 2011 $ Note 3 4 5 6 7 7 864,099 (212,924) (2,881,975) 880,873 (251,541) (3,660,141) (2,230,800) (3,030,809) 406,253 344,896 (1,824,547) (2,685,913) (3.5) (3.5) (5.8) (5.8) This Income Statement is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2012 - 19 STATEMENT OF COMPREHENSIVE INCOME For the financial year ended 30 June 2012 Loss for the year Other comprehensive income Foreign currency translation difference for foreign operations Other comprehensive income for the year Consolidated 2012 $ 2011 $ (1,824,547) (2,685,913) 2,830 2,830 8,143 8,143 Total comprehensive loss for the year (1,821,717) (2,677,770) Attributable to: Owners of the Company (1,821,717) (2,677,770) Total comprehensive loss for the year (1,821,717) (2,677,770) This Statement of Comprehensive Income is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2012 - 20 STATEMENT OF FINANCIAL POSITION As at 30 June 2012 Current assets Cash and cash equivalents Trade and other receivables Inventories Tax asset Other assets Total current assets Non-current assets Plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Short term provisions Total current liabilities Non-current liabilities Long term provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Unissued capital Options reserve Accumulated losses Translation reserve Total equity Consolidated 2012 $ 2011 $ Note 8 9 10 11 14 12 13 15 16 16 544,463 140,936 191,030 406,253 41,946 1,324,628 2,125,156 163,991 213,882 344,896 72,589 2,920,514 68,258 435,472 503,730 93,289 510,487 603,776 1,828,358 3,524,290 108,357 122,983 231,340 148,273 142,269 290,542 126,952 126,952 98,143 98,143 358,292 388,685 1,470,066 3,135,605 17 18 19 6 20 21,376,920 150,000 1,379,673 (21,510,754) 74,227 21,376,920 - 1,373,495 (19,686,207) 71,397 1,470,066 3,135,605 This Statement of Financial Position is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2012 - 21 STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2012 Issued Capital Options Reserve Accumulated Losses Consolidated $ $ $ Foreign Currency Translation Reserve $ Total $ Balance at 1 July 2010 18,345,462 1,041,613 (17,000,294) 63,254 2,450,035 Loss for the year Other Comprehensive Income Total Comprehensive Income for the year Transactions with Owners in their capacity as owners Shares Issued Transaction costs on Shares Issued Share-based payments - - - 3,096,132 (64,674) - - - - - - 331,882 (2,685,913) - (2,685,913) - 8,143 8,143 (2,685,913) 8,143 (2,677,770) - - - - - - 3,096,132 (64,674) 331,882 Balance at 30 June 2011 21,376,920 1,373,495 (19,686,207) 71,397 3,135,605 Loss for the year Other Comprehensive Income Total Comprehensive Income for the year Transactions with Owners in their capacity as owners Unissued share capital Share-based payments - - - - - - (1,824,547) - (1,824,547) - 2,830 2,830 (1,824,547) 2,830 (1,821,717) 150,000 - - 6,178 - - - - 150,000 6,178 Balance at 30 June 2012 21,526,920 1,379,673 (21,510,754) 74,227 1,470,066 This Statement of Changes in Equity is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2012 - 22 STATEMENT OF CASH FLOWS For the financial year ended 30 June 2012 Cash flows from operating activities Receipts from customers Interest received Payments to suppliers and employees Grant and other income received Income tax receipt Consolidated 2012 $ 2011 $ Note 817,190 61,400 (2,888,232) 8,564 344,896 726,135 41,323 (3,337,048) 4,737 370,529 Net cash used in operating activities 21(b) (1,656,182) (2,194,324) Cash flows from investing activities Purchase of patents and trademarks Purchase of plant and equipment Net cash used in investing activities (74,148) (363) (65,941) (22,082) (74,511) (88,023) Cash flows from financing activities Issue of shares Share application monies received from private placement 17 18 - 150,000 3,031,459 - Net cash provided by financing activities 150,000 3,031,459 Net (decrease) / increase in cash held Cash and cash equivalents at the beginning of the year Exchange rate adjustment for opening balance Cash and cash equivalents at the end of the year (1,580,693) 2,127,265 (2,109) 544,463 749,112 1,372,843 3,201 2,125,156 21 (a) This Statement of Cash Flows is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2012 - 23 NOTES TO FINANCIAL STATEMENTS Note 1: Adoption of new and revised accounting standards As at the date of this report there are a number of new accounting standards and interpretations that have been issued but are not yet effective as detailed below: Australian Accounting Standards AASB No. Title Issue Date Operative Date (Annual reporting periods beginning on or after) 9 10 11 12 13 Financial Instruments Dec 2010 1 Jan 2013 Consolidation Aug 2011 1 Jan 2013 Joint Arrangements Aug 2011 1 Jan 2013 Disclosure of Interests in Other Entities Aug 2011 1 Jan 2013 Fair Value Measurement Sep 2011 1 Jan 2013 1053 Application of Tiers of Australian Accounting Standards Jun 2010 1 Jul 2013 2010 – 2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements Jun 2010 1 Jul 2013 2010 – 7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] Dec 2010 1 Jan 2013 2010 – 8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] Dec 2010 1 Jan 2012 2010 – 10 2011 – 4 Further Amendments to Australian Accounting Standards – Removal of Fixed Dates for First-time Adopters [AASB 2009-11 & AASB 2010-7] Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] Dec 2010 1 Jan 2013 Jul 2011 1 Jul 2013 Australian Interpretations AASB No. Title Issue Date Operative Date (Annual reporting periods beginning on or after) 20 Stripping Costs in the Production Phase of a Surface Mine Nov 2011 1 Jan 2013 The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Consolidated Entity. These Standards and Interpretations will be first applied in the financial statements of the Consolidated Entity that relates to the annual reporting period beginning after the effective date of each pronouncement. Uscom Limited - Annual Report 2012 - 24 NOTES TO FINANCIAL STATEMENTS continued Note 1: Adoption of new and revised accounting standards (continued) New Standards Adopted During the Year The Consolidated Entity has adopted all of the new, revised or amending Accounting Standards issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any impact on the financial performance or position of the consolidated entity. Any new, revised or amending Accounting Standards and Interpretations that are not yet mandatory have not been early adopted. Note 2: Statement of significant accounting policies Introduction (a) The financial report covers the Consolidated Entity of Uscom Ltd and its Controlled Entity. Uscom Ltd is a listed public company, incorporated and domiciled in Australia. Operations and principal activities Uscom Ltd is engaged in the development, design, manufacture and marketing of non-invasive cardiac monitoring devices. Uscom Ltd owns a portfolio of intellectual property relating to the technology and techniques associated with these devices and manages a worldwide network of distribution partners for the sale of its equipment to hospitals and other medical care locations. Scope of financial statements The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, the Corporations Act 2001 and complies with other requirements of the law, as appropriate for-profit oriented entities. Accounting Standards include Australian Equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the Consolidated Entity financial report conforms with International Financial Reporting Standards (IFRS). Going Concern The Directors have prepared the financial statements on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Consolidated Entity has been able to secure additional funding subsequent to the Balance Sheet date and this is commented on further in note 29. Based on anticipated levels of operational cash flow requirements, the Consolidated Entity has sufficient cash to fund current operations for more than one year. Currency The financial report is presented in Australian dollars, which is the Parent Company’s functional and presentational currency. Historical Cost Convention This financial report has been prepared under the Historical Cost Convention. Reporting period The financial report is presented for the year ended 30 June 2012. The comparative reporting period was for the year ended 30 June 2011. Comparatives Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. Registered office Level 7, 10 Loftus Street, Sydney NSW 2000. Authorisation of financial report The financial report was authorised for issue on 30 August 2012 by the Directors. (b) Overall policy The principal accounting policies adopted by the Consolidated Entity are stated in order to assist in the general understanding of the financial report. Uscom Limited - Annual Report 2012 - 25 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) Significant judgment and key assumptions (c) The Directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Entity. The Consolidated Entity assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. (d) Financial assets and financial liabilities Financial assets and financial liabilities are recognised on the Statement of Financial Position when the Consolidated Entity becomes party to the contractual provisions of the financial instrument. A financial asset is derecognised when the contractual rights to the cash flows from the financial assets expire or are transferred and no longer controlled by the Entity. A financial liability is removed from the Statement of Financial Position when the obligation specified in the contract is discharged or cancelled or expires. Upon initial recognition a financial asset or financial liability is designated as at fair value through Profit or Loss except for investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. A gain or loss arising from a change in the fair value of a financial asset or financial liability classified as at fair value through Profit or Loss is recognised in the Income Statement. Financial assets not measured at fair value comprise receivables and investment in subsidiary. These are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market and are measured at amortised cost using the effective interest method. Available-for-sale financial assets include other financial assets, comprising investments in subsidiaries, not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Financial liabilities comprise of trade and other payables, and borrowings and are measured at amortised cost using the effective interest method. Trade accounts payable represent the principal amounts outstanding at balance date plus, where applicable, any accrued interest. The amortised cost of a financial asset or a financial liability is the amount initially recognised minus principal repayments, plus or minus cumulative amortisation of any difference between the initial amount and maturity amount and minus any write-down for impairment or uncollectibility. Financial assets, other than those at fair value through profit or loss, are reassessed for indicators of impairment at each reporting 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 and loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is revered through profit and loss to the extent the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Uscom Limited - Annual Report 2012 - 26 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) (e) Principles of consolidation A Controlled Entity is any entity Uscom Ltd has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of Controlled Entities is contained in note 23 to the financial statements. All Controlled Entities have a June financial year-end. All inter-company balances and transactions between Entities in the Consolidated Group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of Subsidiaries have been changed where necessary to ensure consistencies with those polices applied by the Parent Entity. On consolidation, the assets and liabilities of the Consolidated Entity’s overseas operations are translated at exchange rates prevailing at the reporting dates. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and are recognised in income statement on disposal of the foreign operation. Foreign currency transactions and balances (f) All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. The gains and losses from conversion of assets and liabilities, whether realised or unrealised, are included in profit or loss from continuous operations as they arise. (g) Revenue recognition • Sale of goods Revenue from the sale of goods is recognised when all significant risks and rewards of ownership have been transferred to the buyer and when the other contractual obligations of the Entity are performed. • Revenue from rendering of services Rendering of services consists of training, repair and product maintenance supplied to customers. Revenue is recognised when contractual obligations are expired and services are provided. • Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. • Government grants Government grants revenue is recognised at fair value when there is reasonable assurance that the grant will be received and the grant conditions will be met. Interest revenue Inventories (h) Inventories are measured at the lower of cost or net realisable value. Costs are assigned on the basis of weighted average costs. Cost comprises all costs of purchase and conversion and an appropriate proportion of fixed and variable overheads, net of settlement discounts. Overheads are applied on the basis of normal operative capacity. The costs are recognised when materials are delivered to the Consolidated Entity. Property, plant and equipment (i) Property, plant and equipment are included at cost. Assets in plant and equipment are depreciated on diminishing value basis over their estimated useful lives covering a period of two to seven years. On disposal of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognised as a gain or loss in the Income Statement. The depreciation rates used for each class of depreciable assets are: Class Of Fixed Asset - Plant & Equipment - Office Furniture & Equipment - Computer Software - Low Value Pool Depreciation Rate 10% - 40% 15% 40% 37.5% Uscom Limited - Annual Report 2012 - 27 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) Intangibles (j) Patents and Trademarks are valued in the financial statements at cost of acquisition less accumulated amortisation and are amortised on diminishing value basis at 12.5% per annum. Impairment of assets (k) At each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. In assessing value in use, the estimated future cash flows discounted to their present value using a pre-tax discount rate. Leases (l) Lease of assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the Consolidated Entity were classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are amortised on diminishing value basis over their estimated useful lives where it is likely that the Consolidated Entity will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as an expense on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern in which benefits are diminished. Lease incentives under operating leases are recognised as liabilities. The incentives are recognised as a reduction of expenses on a straight line basis unless another systematic basis is more representative of the time pattern in which benefits are diminished. (m) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at call deposits with banks or financial institutions. Investments (n) Investments in Controlled Entities are carried at the lower of cost and recoverable amount. (o) Research & development expenditure Research & development costs are charged to the Income Statement as incurred, or deferred where it is probable that sufficient future benefits will be derived so as to recover those deferred costs. (p) Foreign currency transactions and balances Foreign currency transactions during the year are converted to Australian dollars at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance sheet date are converted at the rates of exchange ruling at that date. The gains and losses from conversion of assets and liabilities, whether realised or unrealised, are included in profit or loss from continuous operations as they arise. Income tax (q) Income taxes are accounted for using the Balance Sheet liability method whereby: • The tax consequences of recovering (settling) all assets (liabilities) are reflected in the financial statements; • Current and deferred tax is recognised as income or expenses except to the extent that the tax relates to equity items or to a business combination; • A deferred tax asset is recognised to the extent that it is probable that future taxable profit will be available to realise the asset; • Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled. The charge for current income tax expense/credit is based on the profit or loss for the year adjusted for any non assessable or disallowed items. It is credited using tax rates that have been enacted or are substantively enacted by the reporting date. Uscom Limited - Annual Report 2012 - 28 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) Deferred tax is accounted for using the Balance Sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settle. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Consolidated Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Short term employee benefits (r) Short term employee benefits are employee benefits (other than termination benefits and equity compensation benefits) which fall due wholly within 12 months after the end of the period in which employee services are rendered. They comprise wages, salaries, social security obligations, short-term compensation absences, profit sharing and bonuses payables within 12 months and non-mandatory benefits such as medical care, housing, car and service goods. The provision for employee entitlements to wages, salaries and annual leave represents the amount that the Consolidated Entity has a present obligation to pay resulting from employee services provided up to reporting date. The provision has been calculated after taking into consideration estimated future increases in wages and salaries and past experience regarding staff departures and includes related on-costs. The undiscounted amount of short-term benefits expected to be paid is recognised as an expense. Long term employee benefits (s) Long term employee benefits include long-service leave, long-term disability benefits, deferred compensation and profit sharing and bonuses payable 12 months or more after the end of the period in which employee services are rendered. Uscom Ltd has adopted an Employee Share Option Plan for the benefit of Executive and Non-Executive Directors and full-time or part-time staff members employed by the Consolidated Entity. Refer note 19 to the financial statements for details. An Executive Share Option Plan has also been developed to provide approved participants further incentive in their performance for the Consolidated Entity and an opportunity to acquire an ownership interest in the Consolidated Entity. Share-based payment arrangement (t) Goods or services received or acquired in a share-based payment transaction are recognised as an increase in equity if the goods or services were received in an equity-settled share based payment transaction or as a liability if the goods and services were acquired in a cash settled share based payment transaction. For equity-settled share based transactions, goods or services received are measured directly at the fair value of the goods or services received provided this can be estimated reliably. If a reliable estimate cannot be made the value of the goods or services is determined indirectly by reference to the fair value of the equity instrument granted. Transactions with employees and others providing similar services are measured by reference to the fair value at grant date of the equity instrument granted. (u) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. Uscom Limited - Annual Report 2012 - 29 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) (v) Receivables Trade receivables and other receivables represent the principal amounts due at reporting date plus accrued interest and less, where applicable, any unearned income and provision for doubtful accounts. An estimated doubtful debt is made when collection of the full amount is no longer probable. (w) Contingent liabilities A contingent loss is recognised as an expense and a liability if it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability incurred and, a reasonable estimate of the amount of the resulting loss can be made. (x) Warranties Provision is made in respect of the Consolidated Entity's estimated liability on all products and services under warranty at reporting date. The provision is measured at the present value of future cash flows estimated to be required to settle the warranty obligation. The future cash flows have been estimated by reference to the Consolidated Entity's history of warranty claims. (y) Events after the reporting date Assets and liabilities are adjusted for events incurring after the reporting date that provide evidence of conditions existing at the reporting date. Important after reporting date events which do not meet these criteria are disclosed in note 29 to the financial statements. Note 3: Revenue Operating revenue Sale of goods Other revenue Interest received Grants received - VAT return Miscellaneous income Total other income Total revenues from continuing operations Note 4: Expenses from continuing activities, excluding finance costs Depreciation and amortisation expenses Impairment of patents Employee benefits expense Research and development expenses Advertising and marketing expenses Occupancy expenses Auditors remuneration (audit) Auditors remuneration (audit review) Regulatory expenses Administrative expenses Exchange losses Total expenses from continuing activities, excluding finance costs Operating lease expenses of $139,544 in 2012 (2011: $131,849) are included in occupancy expenses above Consolidated 2012 $ 2011 $ 794,135 834,813 61,400 4,928 3,636 69,964 41,323 1,555 3,182 46,060 864,099 880,873 103,465 80,497 944,173 509,858 544,746 152,531 39,000 18,000 55,577 427,832 6,296 2,881,975 103,412 11,731 1,254,616 502,037 913,149 153,683 39,000 17,000 70,424 444,602 150,487 3,660,141 Uscom Limited - Annual Report 2012 - 30 NOTES TO FINANCIAL STATEMENTS continued Note 5: Income tax credit Major components of income tax credit Current income tax credit Income tax credit Consolidated 2012 $ 2011 $ 406,253 406,253 344,896 344,896 Reconciliation between income tax credit and prima facie tax on accounting loss Accounting loss before income tax 2,230,800 3,030,809 Tax benefit at 30% in Australia, 15% in USA (2011: 30% in Australia) Tax effect on non deductible expenses Temporary differences Deferred tax asset not brought to account Research and development tax offset - current year Income tax credit 678,128 (289,844) (37,077) (351,207) 406,253 406,253 902,660 (372,527) (19,611) (510,522) 344,896 344,896 As at 30 June 2012, the Consolidated Entity had estimated unrecouped operating income tax losses of $14,923,319 (2011: $13,832,400). The benefit of these losses of $4,300,155 (2011: $3,957,157) has not been brought to account as realisation is not probable. The benefit will only be obtained if: • The Consolidated Entity derives future assessable income of a nature and an amount sufficient to enable the benefits from the deductions for the losses to be realised; • The Consolidated Entity continues to comply with the conditions for deductibility imposed by the law; • No changes in tax legislation adversely affect the Consolidated Entity in realising the benefit from the deduction for the losses. Note 6: Accumulated losses Accumulated losses at the beginning of the financial year Net loss attributable to members of the Entity Accumulated losses at the end of the financial year Note 7: Earnings per share Loss after tax used in calculation of basic and diluted EPS (19,686,207) (1,824,547) (17,000,294) (2,685,913) (21,510,754) (19,686,207) (1,824,547) Number (2,685,913) Number Weighted average number of ordinary shares during the year used in calculation of basic EPS Weighted average number of options outstanding Weighted average number of ordinary shares outstanding during the year used in calculation of diluted EPS (5.8) Basic earnings per share (cents per share) (5.8) Diluted earnings per share (cents per share) The options in existence have an anti-dilutive effect on EPS, therefore there is no difference between basic earnings per share and diluted earnings per share as shown above. After the reporting date, 2,000,000 ordinary shares were issued on 2 July 2012 which have not been included in the calculations of basic and dilutive EPS. 52,124,488 54,719,283 46,103,168 50,811,524 (3.5) (3.5) 4,708,356 2,594,795 Note 8: Cash and cash equivalents Cash on hand Bank: Cheque accounts Bank: Cash management Bank: Term deposits Bank: Deposit at call Total cash and cash equivalents 185 463,633 28,758 35,230 16,657 544,463 185 747,600 34,745 1,235,230 107,396 2,125,156 Uscom Limited - Annual Report 2012 - 31 NOTES TO FINANCIAL STATEMENTS continued Note 9: Trade and other receivables Current Trade receivables Total current receivables Consolidated 2012 $ 2011 $ 140,936 140,936 163,991 163,991 Trade receivables are non-interest bearing and on an average of 45 day terms. Details of trade receivables due but not impaired are disclosed in note 22. Note 10: Inventories Current inventories at cost Raw materials Finished products Total inventories Note 11: Tax asset Income tax credit Total tax asset Note 12: Plant and equipment Plant and equipment at cost Accumulated depreciation Office furniture and equipment at cost Accumulated depreciation Computer software at cost Accumulated depreciation Low value asset pool at cost Accumulated depreciation 113,367 77,663 191,030 406,253 406,253 148,903 64,979 213,882 344,896 344,896 556,216 (492,603) 63,613 546,714 (459,480) 87,234 59,166 (56,326) 2,840 22,120 (21,505) 615 32,089 (30,899) 1,190 59,166 (55,825) 3,341 22,120 (20,981) 1,139 31,726 (30,151) 1,575 Total plant and equipment 68,258 93,289 Movements in carrying amounts Plant and equipment Office furniture Computer software Low value asset pool Useful life 2-7 years $ 2-7 years $ 3 years $ 3 years $ Consolidated Entity Carrying amount at 1 July 2011 Additions Disposals Depreciation expense Effects of foreign currency exchange differences Carrying amount at 30 June 2012 87,234 9,397 - (33,027) 9 63,613 3,341 - - (501) - 2,840 1,139 - - (524) - 615 1,575 363 - (748) - 1,190 Uscom Limited - Annual Report 2012 - 32 NOTES TO FINANCIAL STATEMENTS continued Note 13: Intangible assets Non-current Patents at cost Additions Impairment at cost Accumulated amortisation, net of impairment Carrying amount at 30 June 2012 Movements in carrying amounts Carrying amount at 1 July 2011 Additions Amortisation Impairment Carrying amount at 30 June 2012 Consolidated 2012 $ 2011 $ 839,505 74,147 (151,322) (326,858) 435,472 510,487 74,147 (68,665) (80,497) 435,472 785,795 65,941 (12,232) (329,017) 510,487 525,486 65,941 (69,209) (11,731) 510,487 Intangible Assets comprise Intellectual Property in the form of Patents. The Patents have finite useful lives. The current amortisation charge in respect of Patents is included under Expenses from Continuing Activities in the Income Statement. An impairment charge of $80,497 has been recognised in the current year (2011: $11,731) in relation to Patents carried in Australia where there have been no sales for several years. The impairment charge is recorded under Expenses from Continuing Activities. Note 14: Other assets Current GST receivable Prepayments Total other current assets Note 15: Trade and other payables Current Trade payables Sundry payables and accrued expenses Employee related payables Total payables Note 16: Provisions Short term Provision for annual leave Long term Provision for long service leave Provision for warranties 11,067 30,879 41,946 37,584 41,019 29,754 19,811 52,778 72,589 54,387 62,051 31,835 108,357 148,273 122,983 122,983 119,734 7,218 126,952 142,269 142,269 91,248 6,895 98,143 (a) Aggregate employee benefits 242,717 233,517 (b) Movement in employee benefits Balance at beginning of the year Additional provision Amounts used Balance at end of the year (c) Number of employees at year-end 233,517 129,767 (120,567) 242,717 205,132 98,264 (69,879) 233,517 Number Number 11 14 Uscom Limited - Annual Report 2012 - 33 NOTES TO FINANCIAL STATEMENTS continued Note 17: Issued capital Issued capital Fully paid ordinary shares Total contributed equity Movement in issued capital Shares on issue at the beginning of the year 9,437,835 ordinary shares issued at 30 cents 882,606 ordinary shares issued at 30 cents Share issue costs Ordinary shares at the end of the year Fully paid ordinary shares Ordinary shares at the beginning of the year 9,437,835 ordinary shares issued by private placement 882,606 ordinary shares issued by SPP Total ordinary shares at the end of the year Consolidated 2012 $ 2011 $ 21,376,920 21,376,920 21,376,920 21,376,920 21,376,920 - - - 18,345,462 2,831,350 264,782 (64,674) 21,376,920 21,376,920 Number 52,124,488 - - Number 41,804,047 9,437,835 882,606 52,124,488 52,124,488 The Company’s authorised share capital amounted to 52,124,488 ordinary shares of no par value. Fully paid ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At shareholders meetings, each ordinary share is entitled to one vote when a poll is called, or via a show of hands. After the reporting date, 2,000,000 ordinary shares were issued on 2 July 2012. Note 18: Unissued capital Unissued capital Application monies received in advance for share allotment Total contributed equity Movement in unissued capital Balance at the beginning of the year Application monies received in advance for share allotment Unissued capital at the end of the year Consolidated 2012 $ 2011 $ 150,000 150,000 - 150,000 150,000 - - - - - After the reporting date, 2,000,000 ordinary shares were issued on 2 July 2012 at 7.5 cents. Note 19: Options reserve The Consolidated Entity has adopted an Employee Share Option Plan and an Executive Share Option Plan for the benefit of Executive Directors and full-time or part-time staff members employed by the Consolidated Entity. At the date of this Report the following options had been issued pursuant to the Employee Share Option Plan. Each option was issued for a period of 4 years and vest in tranches of 25% after 9 months, 12 months, 24 months and 36 months. Exercise price is based on 85% of the average ASX closing price for the 5 days prior to offer/acceptance of the options, in accordance with the Employee Share Option Plan and the Executive Share Option Plan. The Board may impose conditions, including performance related conditions, on the right to exercise any options granted under the Executive Share Option Plan. During the year, 400,000 options were granted to employees under the Employee Share Option Plan and 900,000 options were granted to executives and consultants under the Executive Share Option Plan. Uscom Limited - Annual Report 2012 - 34 NOTES TO FINANCIAL STATEMENTS continued Note 19: Options reserve (continued) Effect of share-based payment transactions Share Option Plan Options reserve balance at the beginning of the year Expenses arising from share-based payment transactions Options reserve balance for Share Option Plan at the end of the year OSI Systems Right to participate in options Option reserve at the end of the year Consolidated 2012 $ 2011 $ 1,373,494 6,178 1,379,672 1,041,612 331,882 1,373,494 1 1 1,379,673 1,373,495 Movement during the financial year Opening number of options Granted during the financial year – Directors Option Deed Granted during the financial year – Employees & Executives Lapsed during the financial year Closing number of options Number of Options 2012 7,710,000 Weighted average exercise price 1.10 Number of options 2011 3,780,000 Weighted average exercise price 0.36 - - 4,400,000 1,300,000 (5,450,000) 3,560,000 0.06 1.40 0.25 - (470,000) 7,710,000 1.69 - 0.65 1.10 Details of options outstanding as at end of the year Holders No. Grant date 20 November 2008 17 December 2008 7 (Employees) 1 (Investor) 10 (Employees & Executives) Total Exercisable at 30 June 2012 % 100% 100% Expiry date 20 November 2012 17 December 2013 30 June 2012 Outstanding Option No. 260,000 2,000,000 Exercise Price $ 0.29 0.375 Issued date fair value $ 0.19 0.12 29 March 2012 0% 29 March 2016 1,300,000 0.0595 0.06 3,560,000 Fair value Fair value was measured using Blackscholes and the inputs to it were as follows: Weighted average share price Range from $0.06 to $1.10 Exercise price Option life Risk-free interest rate Expected dividends Expected volatility* * Historical volatility has been the basis for determining the expected share price volatility as it is assumed that it is indicative of the future trade, which may not eventuate. 260,000 at $0.29; 2,000,000 at $0.375; 1,300,000 at $0.0595 4-5 years Range from 4.17% to 4.6% 0 Range from 62% to 65% Note 20: Translation reserve Opening balance Translation of financial statements of foreign Controlled Entity Closing balance Consolidated 2012 $ 71,397 2,830 74,227 2011 $ 63,254 8,143 71,397 Uscom Limited - Annual Report 2012 - 35 NOTES TO FINANCIAL STATEMENTS continued Note 21: Cash flow information (a) Reconciliation of cash Cash at bank and on hand Total cash at end of year (b) Reconciliation of cash flow from operations to loss from continuing operations after income tax Loss from continuing operations after income tax Non cash flows in loss from continuing operations Depreciation Amortisation Impairment of patents Options reserve Translation reserve (Increase)/Decrease in assets Trade debtors Inventories Prepayments Income tax GST assets Increase/(Decrease) in liabilities Trade payables Sundry payables and accrued expenses Employee related payables Employee provisions Other provisions Net cash used in operating activities Note 22: Financial instruments Consolidated 2012 $ 2011 $ 544,463 544,463 2,125,156 2,125,156 (1,824,547) (2,685,913) 34,800 68,665 80,497 6,178 2,822 23,055 13,455 21,899 (61,357) 8,744 (16,803) (21,032) (2,081) 9,200 323 34,203 69,209 11,731 331,882 8,213 (108,678) 105,657 1,547 25,633 4,890 (37,854) 16,936 (1,780) 28,385 1,615 (1,656,182) (2,194,324) Significant accounting policies (a) Details of the significant accounting policies and methods adopted, including the criteria of 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 instrument are disclosed in note 2 to the financial statements. (b) Capital risk management The Consolidated Entity manages its capital to ensure that companies in the Consolidated Entity are able to continue as a going concern. The capital structure of the Entity consists of cash and cash equivalents (note 8 on page 31) and equity attributable to equity holders of the Parent, comprising issued capital (note 17 on page 34), and accumulated losses (note 6 on page 31). Financial instruments (c) At 30 June 2012, there were no outstanding contracts. (d) Financial risk management objectives The Consolidated Entity’s principal financial instruments are cash and term deposit accounts. Its financial instruments risk is with interest rate risk on its cash and term deposits and liquidity risk for its term deposits. The Consolidated Entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Board is updated monthly by management as to the amounts of funds available to the Consolidated Entity from either cash in the bank or term deposits, and continually monitors interest rate movements. Uscom Limited - Annual Report 2012 - 36 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) (e) Foreign currency risk management The Consolidated Entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The Consolidated Entity does not have any forward foreign exchange contracts as at 30 June 2012 and is exposed to foreign currency risk on sales and purchases dominated in a currency other than Australian dollars. The currencies given rise to this risk is primarily the US Dollar, Euro and British Pound. The Consolidated Entity incurs costs in US Dollars for its operations which provide a natural hedge for a portion of income denominated in US Dollars. The carrying amount of the Consolidated Entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows: Consolidated Cash Current trade debtors Current trade creditors Cash Current trade debtors Current trade creditors Current trade debtors 2012 US$ 211,041 136,890 20,385 € 63,323 5,350 2,052 £ - 2011 US$ 90,224 146,410 10,434 € 45,555 9,150 5,891 £ 10,200 Foreign currency sensitivity (f) The Consolidated Entity is mainly exposed to exchange rate risks arising from movements in the US Dollar, Euro and British Pound against the Australian Dollar, and the US Dollar from the translation of the operations of its Controlled Entity. The analysis below demonstrates the impact of a 10% movement of US Dollar and a 5% movement of Euro and British Pound rates against the Australian Dollar with all other variables held constant. 10% and 5% are the sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. Profit/Loss - increase 10% (US$) and 5% (€) & (£) - decrease 10% (US$) and 5% (€) & (£) Consolidated 2012 $ (73,584) 73,584 2011 $ (74,279) 74,279 Interest rate risk management (g) The Consolidated Entity does not have any external loans or borrowings as at 30 June 2012 and is not exposed to interest rate risks related to debt. The Consolidated Entity is exposed to interest rate risk as companies in the Consolidated Entity hold cash and term deposits at both fixed and floating interest rates. The risk is managed by the Consolidated Entity maintaining an appropriate mix between both rates. Management continually monitor its cash requirements through forecasts and cash flow projections and move funds between fixed and variable interest instruments to hold the maximum amount possible in instruments which pay the greater rate of interest. This limits the amount of risk associated with setting a policy on the mix of funds to be held in fixed or variable interest rate instruments. Uscom Limited - Annual Report 2012 - 37 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) Interest rate sensitivity (h) A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. Profit/Loss - increase 100 basis points - decrease 100 basis points Consolidated 2012 $ 6,140 (6,140) 2011 $ 4,132 (4,132) (i) Credit risk management Credit risk represents the loss that would be recognised if counterparties defaulted on its contractual obligations. The Consolidated Entity’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread among approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually. Ongoing credit evaluation is also performed on the financial condition of accounts receivable. The Consolidated Entity does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics; because the current major counterparties are alliance distributors and public hospitals with approved funds available prior to purchases under most circumstances. The credit risk on financial assets of the Consolidated Entity have been recognised on the Statement of Financial Position, is the carrying amount, net of any allowance for doubtful debts. Credit risk in respect of cash and deposit is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by a recognised rating agency. Past due but not impaired 0 - 45 days 46 – 90 days Over 90 days Total Consolidated 2012 $ 17,035 - 15,821 32,856 2011 $ 10,662 - - 10,662 No bad debt was written off during the year (2011: $Nil). There was no doubtful debt provision as at 30 June 2012 (2011: Nil). Management considers the above debts to be recoverable based on the continuing work with the parties involved and the progress they have made in the market, and the recognised long lead time associated with selling capital item, hence no impairment allowance is required. Liquidity risk management (j) The objective for managing liquidity risk is to ensure the business has sufficient working capital or access to working capital as and when required. The Consolidated Entity limits its exposure to liquidity risk by holding the majority of its assets in cash or term deposits which can be quickly converted to cash if required. The carrying amounts of financial assets and financial liabilities recorded at cost approximate their fair values. The following table details the Consolidated Entity’s remaining contractual maturity for its non-derivative financial assets and liabilities. The table has been drawn up based on the undiscounted cash flows expected to be received/paid by the Consolidated Entity. Uscom Limited - Annual Report 2012 - 38 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) Consolidated Fixed interest rate maturing Weighted Average effective interest Rate % Floating interest Within 1 year 1 to 5 years Non- interest bearing Total $ $ $ $ $ 2012 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 2011 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 1.3 - 4.9 - 509,233 - - 509,233 35,230 - - 35,230 - - - - - - 509,233 35,230 889,926 - - 1,235,230 - - 889,926 1,235,230 - - - - - - 889,926 1,235,230 Reconciliation of net financial assets to net assets Net financial assets as above Non financial assets and liabilities Current tax receivable Inventories Prepayments Plant and equipment Intangible assets Accruals Provisions Net assets per Statement of Financial Position Note 23: Related party disclosures - - - - - - - - - - - - - - - - - 140,936 11,067 152,003 37,584 29,754 67,338 544,463 140,936 11,067 696,466 37,584 29,754 67,338 84,665 629,128 - 163,991 19,811 2,125,156 163,991 19,811 183,802 2,308,958 54,387 31,835 86,222 54,387 31,835 86,222 97,580 2,222,736 2012 $ 629,128 2011 $ 2,222,736 406,253 191,030 30,879 68,258 435,472 (41,019) (249,935) 344,896 213,882 52,778 93,289 510,487 (62,051) (240,412) 1,470,066 3,135,605 Transactions between related parties are on normal commercial terms and conditions, no more favourable than those available to other parties unless otherwise stated. Parent and Controlled Entity Parent Entity Significant investments in subsidiaries: Country of subsidiary incorporation: Proportion of ownership interest: Consolidated The Parent and Ultimate Parent Entity is Uscom Ltd. Uscom, Inc. U.S.A 100% Uscom Limited - Annual Report 2012 - 39 NOTES TO FINANCIAL STATEMENTS continued Note 23: Related party disclosures (continued) Transactions between related parties Other related parties Company Matters Pty Limited As a Company Secretary of Uscom Ltd, Mr Tom Rowe provides services to the Company through Company Matters Pty Limited. Services rendered CFO Strategic Chartered Accountants As a Company Secretary and Chief Financial Officer of Uscom Ltd up to 30th November 2011, Mr Daniel Fah provided services to the Company through CFO Strategic Chartered Accountants. Services rendered Ecrucis Pty Limited As a Director of Uscom Ltd up to 22nd November 2011, Mr Phil Kiely provided services to the Company through Ecrucis Pty Limited. Services rendered 3 Pools Pty Limited Rent received from 3 Pools Pty Limited, a company owned by Mr Jochen Bonitz who was a director of Uscom Limited up to 22nd November 2011. Consolidated 2012 $ 2011 $ 1,965 - 26,360 65,994 60,000 108,000 3,636 3,182 Key management personnel The following were key management personnel of the Consolidated Entity at any time during the reporting period and unless otherwise indicated were key management personnel for the entire period: Non-Executive Directors Bruce Rathie, Non-Executive Director (ceased on 30th August 2011) Jochen Bonitz, Non-Executive Director (ceased on 22nd November 2011) Sheena Jack, Non-Executive Director (commenced on 25th November 2011) Christian Bernecker, Non-Executive Director (commenced on 25th November 2011) Executive Directors Rob Phillips, Executive Director, Chairman, Chief Executive Officer Phil Kiely, Executive Chairman (ceased on 22nd November 2011) Senior Executives Daniel Fah, Chief Financial Officer, Company Secretary (ceased on 30th November 2011) Tom Rowe, Company Secretary (commenced on 7th December 2011) Nick Schicht, General Manager Deb Johnson, VP Sales and Marketing (ceased on 8th June 2012) Joe Trygar, Chief Executive Officer (from 16th September 2011 to 2nd December 2011) For further remuneration information of key management personnel refer to the remuneration report in the Directors’ report on pages 13 to 17. The aggregate compensation made to Directors and other members of key management personnel of the Company and the Consolidated Entity is set out below: Short-term employee benefits Post-employment benefits Other payments Share-based payment Total key management personnel remuneration Consolidated 2012 $ 540,708 61,746 102,648 1,206 706,308 2011 $ 551,654 55,987 187,406 327,731 1,122,778 Uscom Limited - Annual Report 2012 - 40 NOTES TO FINANCIAL STATEMENTS continued Note 23: Related party disclosures (continued) Number of options over ordinary shares held by Key Management Personnel Balance Granted Exercised Lapsed / Transferred out Balance Total vested During FY2012 No. During FY2012 No. During FY2012 30 June 2012 No. No. & exercisable 30 June 2012 No. Non-Executive Director S Jack (from 25 Nov 2011) C Bernecker (from 25 Nov 2011) B Rathie (to 30 Aug 2011) J Bonitz (to 22 Nov 2011) Executive Director R Phillips P Kiely (to 22 Nov 2011) Senior Executive T Rowe (from 7 Dec 2011) N Schicht D Fah (to 30 Nov 2011) D Johnson (to 8 Jun 2012) J Trygar (to 2 Dec 2011) Total 1 July 2011 No. - - - 400,000 - 4,000,000 - - - - - - - 100,000 50,000 - - - 300,000 - 150,000 - 4,550,000 450,000 - - - - - - - - - - - - - - - (400,000) - (4,000,000) - - (50,000) (150,000) - (4,600,000) - - - - - - - - - - - - - 400,000 - - - 400,000 - 100,000 - - - 100,000 Number of shares held by Key Management Personnel (including indirect interest) Balance 1 July 2011 No. Received as Remuneration No. Options Exercised No. Net change Other* No. Balance 30 June 2012 No. Non-Executive Director S Jack (from 25 Nov 2011) C Bernecker (from 25 Nov 2011) B Rathie (to 30 Aug 2011) J Bonitz (to 22 Nov 2011) Executive Director R Phillips P Kiely (to 22 Nov 2011) Senior Executive T Rowe (from 7 Dec 2011) N Schicht D Fah (to 30 Nov 2011) D Johnson (to 8 Jun 2012) J Trygar (to 2 Dec 2011) - - 93,809 - 16,996,733 333,333 - 18,200 5,000 5,100 - Total 17,452,175 - - - - - - - - - - - - - - - - - - - - - - - - 80,000 - (93,809) - 80,000(1) - -(2) - - (333,333) 16,996,733(3) -(4) - - (5,000) (5,100) - - 18,200(5) -(6) -(7) - (357,242) 17,094,933 *Net change other refers to share purchased or sold during the financial year, or cessation of categorisation as a Director or Senior Executive. (1) All these ordinary shares are held by family associate. (2) Bruce Rathie ceased to be key management personnel on 30 August 2011. (3) 382,924 of these ordinary shares are held by Australian Cardiac Sonography Pty Ltd as trustee for the Phillips Superannuation. (4) Phil Kiely ceased to be key management personnel on 22 November 2011. (5) 10,000 of these ordinary shares are held by family associate. (6) Daniel Fah ceased to be key management personnel on 30 November 2011. (7) Deb Johnson ceased to be key management personnel on 8 June 2012. Uscom Limited - Annual Report 2012 - 41 NOTES TO FINANCIAL STATEMENTS continued Note 24: Parent entity information Set out below is the supplementary information about the parent entity. Statement of comprehensive income Loss after income tax credit Total comprehensive loss Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Contributed equity Options reserve Accumulated losses Total equity Parent 2012 $ 2011 $ (1,877,967) (1,877,967) (2,702,672) (2,702,672) 1,274,021 1,711,184 227,635 354,587 2,870,703 3,445,954 269,424 367,567 21,526,920 1,379,673 (21,549,996) 1,356,597 21,376,920 1,373,495 (19,672,028) 3,078,387 Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2012 and 30 June 2011. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2012 and 30 June 2011. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2. Note 25: Commitments Operating lease commitments Operating commitments represent payments due for office rentals and have an average term from 18 to 30 months. Less than 1 year Between 1 and 5 years Total operating commitments Note 26: Auditors’ remuneration Remuneration of BDO / PKF East Coast Practice for Audit of financial report Review of financial report Non-audit services Remuneration of PKF California for Tax consulting services Total auditors’ remuneration Consolidated 2012 $ 2011 $ 64,136 - 64,136 39,000 18,000 - 2,956 59,956 123,337 64,136 187,473 39,000 17,000 2,000 2,409 60,409 Note 27: Operating segments Segment information The Consolidated Entity operates in the global health and medical products industry. The Consolidated Entity sells a single product, the A1 monitor. Geographical segment reporting is therefore the appropriate method of reporting operating segments. Globally the Company has five geographic sales and distribution segments as shown below. For each segment, the CEO and CFO / General Manager review internal management reports on at least a monthly basis. Uscom Limited - Annual Report 2012 - 42 NOTES TO FINANCIAL STATEMENTS continued Note 27: Operating segments (continued) The largest customer group which operates in Asia accounts for 49% of the total sales revenue. The businesses 2nd largest customer accounts for over 17% of the total sales revenues and operates in Europe. Basis of accounting for purposes of reporting by operating segments Accounting policies Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 2 and accounting standard AASB 8 Operating Segments which requires a ‘Management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in no change to the reportable segments as operating segments continue to be reported in a manner consistent with the internal reporting provided to the chief operating decision maker, which is the Board of Directors. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment. Segment assets include all assets used by a segment and consist primarily of inventories, property, plant and equipment and intangible assets. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are not allocated. Segment liabilities consist primarily of trade and other creditors, employee benefits and provisions for warranties. Segment assets and liabilities do not include deferred income taxes. Australia $ Asia $ USA Europe $ $ Other region 220 65,036 392,266 - 150,990 - 235,735 4,928 14,924 - 65,256 392,266 150,990 240,663 14,924 Unallocated Eliminated Consolidated $ - - - $ - - - $ 794,135 69,964 864,099 115 65,141 406,253 134,994 257,272 - 742,031 (591,041) - 165,171 75,492 - 18,003 (3,079) - 2,665,478 (2,665,478) - (630,893) 630,893 - 3,094,899 (2,230,800) 406,253 2012 Sales to external customers Other revenues Total segment revenues Segment expenses Segment result Income tax credit Consolidated loss from ordinary activities after income tax credit Segment assets Segment liabilities 258,407 422,034 - - 307,602 199,970 3,705 - Acquisition of property, plant and equipment and intangibles Impairment of patents Depreciation and amortisation 17,403 15,199 30,011 21,294 65,706 14,791 - - 52,057 408 16,071 27,769 - - - - - (1,824,547) 1,129,826 (67,447) 1,828,358 - (67,447) 358,292 - - 7,160 - - - 83,907 80,497 103,465 Uscom Limited - Annual Report 2012 - 43 NOTES TO FINANCIAL STATEMENTS continued Note 27: Operating segments (continued) Australia $ Asia $ USA Europe $ $ Other region 715 44,505 291,963 - 444,875 - 87,026 1,555 10,234 - 45,220 291,963 444,875 88,581 10,234 Unallocated Eliminated Consolidated $ - - - $ - - - $ 834,813 46,060 880,873 326 44,894 344,896 87,133 204,830 - 1,012,180 (567,305) - 282,815 (194,234) - 6,870 3,364 - 3,220,747 (3,220,747) - (698,389) 698,389 - 3,911,682 (3,030,809) 344,896 2011 Sales to external customers Other revenues Total segment revenues Segment expenses Segment result Income tax credit Consolidated loss from ordinary activities after income tax credit Segment assets Segment liabilities 381,660 396,903 - - 254,744 206,445 21,118 - Acquisition of property, plant and equipment and intangibles Impairment of patents Depreciation and amortisation 36,595 12,231 8,961 40,153 - 11,731 - - 44,804 500 25,386 25,223 - - - - - Note 28: Contingencies There were no contingencies as at 30 June 2012. (2,685,913) 2,710,777 (29,336) 3,524,290 - (29,336) 388,685 - - 7,499 - - - 97,940 11,731 103,412 Note 29: Events after the reporting date On 2 July 2012, 2 million shares were issued at 7.5 cents each under a private placement. The issue raised an additional $150,000 in new capital and does not require shareholder approval as it is below the limit of 15% of issued capital which a company can issue within a 12 month period without shareholder approval per Listing Rule 7.1. In August 2012, the company offered to issue 5.8 million shares at 12 cents each raising $696,000 as part of a private placement to sophisticated investors. The offer was over-subscribed. 5.8 million shares which represent the balance of the company’s 15% capacity under Listing Rule 7.1 will be issued at the close of the placement and any additional shares will be issued subject to shareholder approval. Apart from that, no other matters or circumstances have arisen since the end of the financial year to the date of this report, that has significantly affected or may significantly affect the activities of the Consolidated Entity, the results of those activities or the state of affairs of the Consolidated Entity in the ensuing or any subsequent financial year. Uscom Limited - Annual Report 2012 - 44 DIREC CTORS’ ’ DECLA ARATION N Uscom Lim mited and its C Controlled Ent tity In the dire ectors' opinio n: • • • • financial state the attached f t Accounting St tandards, the A ; requirements; ments and no Corporations tes thereto co Regulations 2 omply with the 2001 and othe e Corporations r mandatory p e s Act 2001, the eporting professional re the attached f t Standards as i S financial state f financial state issued by the ments; ments and no International A tes thereto co Accounting St omply with Inte tandards Boar ernational Fin rd as describe ancial Reporti ed in note 2 to ing the t the attached f financial posit f financial state tion as at 30 Ju ments and no une 2012 and tes thereto gi of its perform ve a true and mance for the f fair view of th inancial year e e consolidate ended on that d entity's t date; t there are reas become due a b sonable groun and payable. ds to believe that the comp pany will be ab ble to pay its d debts as and w when they The direc ctors have bee en given the d eclarations req quired by sect tion 295A of t he Corporatio ons Act 2001. Signed in n accordance w with a resoluti on of director rs made pursu ant to section 295(5) of the Corporations Act 2001. On behal f of the direct tors Rob Philli ips Sheena J ack Executive e Director - Ch hairman Non-Exe cutive Directo or Sydney, 3 30 August 201 2 Uscom Limited - Annual Repor rt 2012 - 45 INDEPENDENT AUDIT REPORT Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 10, 1 Margaret St Sydney NSW 2000 Australia INDEPENDENT AUDITOR’S REPORT To the members of Uscom Limited Report on the Financial Report We have audited the accompanying financial report of Uscom Limited, which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. Uscom Limited - Annual Report 2012 - 46 INDEPENDENT AUDIT REPORT continued We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Uscom Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Uscom Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Uscom Limited for the year ended 30 June 2012 complies with section 300A of the Corporations Act 2001. BDO East Coast Partnership Tim Sydenham Partner Sydney, 30 August 2012 Uscom Limited - Annual Report 2012 - 47 SHAREHOLDER INFORMATION Additional information required by Australian Stock Exchange Listing Rules is as follows. This information is current as at 31 July 2012. (a) Distribution Schedules of Shareholder Holdings Ranges 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 99,999,999,999 Total Holders Number 112 208 76 118 44 558 Ordinary shares Number 80,749 619,718 606,082 4,268,734 48,549,205 54,124,488 % 0.149 1.145 1.120 7.887 89.699 100 There were 269 holders of less than a marketable parcel of 451,871 ordinary shares. (b) Class of shares and voting rights All shares are ordinary shares. Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Substantial shareholders (c) The names of the substantial shareholders listed in the holding company’s register as at 31 July 2012 are: Robert Allan Phillips Gary Desmond Davey Dr Stephen Frederick Woodford DRP Cartons (NSW) Pty Ltd 16,996,733 6,219,000 3,459,590 2,175,458 (d) Twenty largest registered holders – ordinary shares Balance as at 31 July 2012 Robert Allan Phillips Gary Desmond Davey Dr Stephen Frederick Woodford DRP Cartons (NSW) Pty Ltd Bell Potter Nominees Ltd Merrill Lynch (Australia) Nominees Pty Limited Stream Group Holdings Pty Ltd Invia Custodian Pty Limited Arinya Investments Pty Ltd Stream Group Aust Pty Ltd Mr Rutherford James Browne & Mrs Sheba Elizabeth Marjorie Browne Mr Alister John Forsyth Gailforce Marketing & PR Pty Ltd Apollan Pty Ltd DRP Cartons (NSW) Pty Ltd Jules Flach Ross Planning Pty Ltd Dr Russell Kay Hancock Citicorp Nominees Pty Limited Hinona Pty Ltd Ordinary shares Number 16,996,733 6,219,000 3,459,590 2,175,458 2,124,836 2,014,982 2,000,000 1,688,118 1,050,000 954,111 829,792 768,809 553,809 547,700 507,876 500,000 421,269 400,800 375,535 357,159 % 31.40% 11.49% 6.39% 4.02% 3.93% 3.72% 3.70% 3.12% 1.94% 1.76% 1.53% 1.42% 1.02% 1.01% 0.94% 0.93% 0.78% 0.74% 0.69% 0.66% Total 43,945,577 81.19% Uscom Limited - Annual Report 2012 - 48 SHAREHOLDER INFORMATION continued Registered office and principal place of office Level 7, 10 Loftus Street Sydney NSW 2000 Australia Tel: Fax: 02 9247 4144 02 9247 8157 Company Secretary Tom Rowe Registers of securities Boardroom Pty Limited Level 7, 207 Kent Street Sydney NSW 2000 Australia GPO Box 3993 Sydney NSW 2001 Australia 1300 737 760 Tel: Fax: 1300 653 459 www.boardroomlimited.com.au Stock exchange listing Quotation has been granted for 54,124,488 ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange Limited. Unquoted securities Options over unissued shares A total of 3,560,000 options over ordinary shares are on issue. 2,000,000 options are on issue to OSI System. and 1,560,000 options are on issue to ten employees and executives under the Uscom Employee Share Option Plan and Uscom Executive Share Option Plan. Uscom Limited - Annual Report 2012 - 49 Uscom Ltd, Suite 1, Level 7, 10 Loftus Street, Sydney NSW 2000 Australia T +612 9247 4144