Uscom Limited
Annual Report 2013

Plain-text annual report

Uscom Ltd, Suite 1, Level 7, 10 Loftus Street, Sydney NSW 2000 Australia T +612 9247 4144 ANNUAL REPORT 2013 Chairmans Letter 2 Corporate Governance 5 Directors’ Report and Financial Statements 10 CHAIRMANS LETTER Fellow shareholders Overview: 2013 has been a landmark year for Uscom and for Uscom shareholders with the company growing significantly with the acquisition of the BP+ technology from Pulsecor Limited. The acquisition was driven by a belief in the scientific, operational and strategic synergies of combining the two operations. Both the BP+ and USCOM are premium, breakthrough, non invasive cardiovascular devices that are market approved, revenue generating products with widespread and proven clinical needs. USCOM and BP+ represent the best of cardiac output and blood pressure monitoring, and are now under the one corporate umbrella. This combination is the Holy Grail of cardiovascular medicine and Uscom now has practice leading products in both fields, with outstanding commercial opportunities. Finalising the acquisition has ensured Uscom has grown rapidly and without risk from a single product company to a two product company at minimal cash cost. The BP+ technology comes with a significant patent portfolio, and is another platform technology on which we can build future products. As the BP+ is fed into our current and new distribution channels, directly growing revenue, the commercial value of this acquisition will become evident to the market. Uscom now has two breakthrough cardiovascular devices, two revenue streams and two technologies to feed into distribution channels and this provides us with unique leverage into global distribution networks. For FY 2014 we are focused on establishing new sales, distribution and licensing opportunities and positioning Uscom so it will directly benefit as the pace of global health care recovery begins to accelerate. We have invested in the difficult times and are poised to realise the returns as the recovery gathers pace and our distribution network becomes more expansive and effective. The immediate future looks particularly exciting as the interest in our products from global distributors of scale continues to increase and these partnership discussions continue to progress. These discussions will result in new partnerships and a changed operational environment for Uscom; one that should immediately reward shareholders. It is with this optimistic background that I present to shareholders the Company results for the 2013 financial year, and update investors on the objectives, activities and early results of the current Company strategy. 2013 was a year of investment in which operations were consolidated and Pulsecor was acquired. The year ahead promises to capitalise on this success as our product sales ambitions are converted through expanded distribution networks into revenue. Milestones: At the 2012 AGM the Board committed to a three point strategy – 1. 2. 3. Restore operational soundness – Cash consumption was reduced by a further 41.3%. Focus on incremental growth opportunities – Uscom acquired Pulsecor Limited in a scrip issue deal effectively doubling the product offering of the company for the issue of 5 million shares. Realise the capital value of the technology and company – The VWAP share price for the company increased by 50% in 2013 on increased volumes to 15c. The overall increase in 20 mths has been approximately 310%. The most recent VWAP for Q1 2014 was 20c indicating a further 33% increase to date. Despite a parlous international global economy, and modest capital reserves, these objectives have been achieved. Strategy: The strategy for the 2014 financial year is simply global distribution and sales to achieve sustainable profitability. Achieving this profitability will be via addition of new sales, distribution and licensing partnerships, and enhancement of current channels to achieve deeper and wider market penetration of USCOM and the BP+ technology. Uscom is focused on rapidly delivering the BP+ device into currently approved international markets. To ensure optimal market penetration and profitability Uscom is investigating new and more cost effective, high volume manufacturing strategies for the BP+ device. Global marketing of the BP+ will be focused on hypertension, medical clinics, home care and hypertension research centres. We are also in discussions to bring the BP+ technology to market via strategic partnerships and licensing deals with specialised hypertension manufacturing and distribution groups. Uscom now owns a total of 56 cardiovascular patents and 6 registered trademarks, a significant source of unrecognised shareholder value. We will rationalise these holdings and plan a product pipeline of new patent protected devices to further generate revenue off the back of this IP. Uscom Limited - Annual Report 2013 - 2 CHAIRMANS LETTER continued Results: For 2013 cash consumption was reduced by 41.3% to $971,576. Our reduced spend was reflected in a decreased revenue of 26%. This result was the outcome of our expressed strategy to preserve resources while we sought strategic distribution partnerships of global scale. The reduction in cash consumption results in a 25% reduction in loss after tax for 2013 from $1,824,547 in 2012 to $1,371,683, and leaving cash on hand at the end of the period of $541,195. In addition we acquired the Pulsecor assets at minimal cash cost in June 2013. The acquisition imposes an annual operational cost to Uscom of approximately $200k for the acquisition of a new and complimentary product and generated $84k revenue in 2013 for Pulsecor Limited. It is expected that this revenue will grow significantly once the manufacturing and distribution details are finalised and sales channels become effective. Capital: Uscom is currently raising capital and focused on securing the funds required to support the company while the sales, distribution and licensing agreements are completed and begin to generate revenue. While Australian capital markets are difficult, the strength of the Uscom story and the likely short term turn around in operations give the Board comfort that the capital objectives are achievable. Sales: While sales were down 26% last year, mostly from poor US sales, Uscom now has two products with CE, FDA and TGA approval and so the commercial opportunities are significantly expanded. In 2013 GrupoSIM from Mexico and Vega in Italy were added to the USCOM regional distribution network to increase USCOM sales coverage to an additional 182m people. Both current distributors and new partners are excited about the opportunity that the new BP+ technology has brought to the company. Uscom is now focused on expanding both the reach and the depth of current distribution networks and identifying networks that match the features of USCOM and BP+ and adding them to our team to ensure a rapid uptick in revenue. Uscom is developing partnerships in China where the current 5 year plan includes a commitment to increase spending on medical devices by 20% pa. China has a GDP of $8.87trillion AUD and spends approximately 5% pa of GDP on Health in 2012 ($443bn AUD). Share price: The strategic repositioning of Uscom, the improved operational strength of the company and the acquisition of the Pulsecor assets, which effectively doubled the intrinsic value of current shareholdings, has contributed to the continuing strength of the share price. The VWAP for 2013 was 15c, 50% up from 10c in 2012, while year to year records demonstrated a 160% increase. Risks: The risks for the Company remain in delivering practice changing technology to slow responding markets damaged by global lack of confidence. However the appointment of globally powerful distributors with more sales personnel and a second product may mitigate such exposure. Additionally product regulatory approvals may be slower and more costly than anticipated as we prepare BP+ for global distribution. This may slow the performance of new distributors and delay expected revenues. There are always competitive risks and patent breach risks in global markets; these risks are continuously monitored and mitigation strategies developed. There is always the risk that global revenue will be slower than expected and current capital inadequate to achieve profitability before further capital raising. Science: Both Pulsecor and USCOM are breakthrough cardiovascular technologies, representing the best of blood pressure and cardiac output monitoring technology, all under the one corporate umbrella. While the USCOM evidence has been published in over 350 papers and presentations this year saw landmark presentations in the fields of hypertension in ICU adults and pregnancy. Further presentation of Professor Brendan Smith’s research on management of sepsis and septic shock continues to impact the debate on future trends of this deadly disease, the treatment of which Uscom is becoming an accepted tool. This year saw the publication and widespread acknowledgement that central blood pressure, or pressure in the heart, a parameter best identified using BP+ supra-systolic oscillometry, is an improvement on conventional cuff based measures of arm pressure. This establishes BP+ as a standard of care technology for measurement of hypertension. The scientific highlights for this year include: • New research from two separate leading centres in London demonstrated the importance of USCOM for • • management of sepsis in children Professor Smith demonstrated a reduced mortality in management of sepsis of 90% using USCOM. The evidence was presented at the Society of Critical Care Medicine in Puerto Rico in January. Professor Brendan Smith of Charles Sturt University developed a new method for measuring cardiac function using the USCOM published in the British Journal of Anaesthesia Uscom Limited - Annual Report 2013 - 3 CHAIRMANS LETTER continued • USCOM was proven in a study published in British Journal of Anaesthesia, to be more accurate than blood pressure monitoring for evaluating changes in circulation in pregnant women with hypertension; these changes had only ever previously been demonstrated using intra-cardiac catheters. Three publications were presented at the International Society of Hypertension demonstrating the usefulness of USCOM in management of hypertension. • • USCOM was proven effective for use in management of chemotherapy in cancer. • USCOM was declared “State of the Art” for management of hypertension in pregnant women at the International Society for Hypertension in Pregnancy. 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. Partnership strategy: USCOM and BP+ are both practice leading and platform technologies with wide reaching clinical applications. Our objective is to establish a network of specialised distributors, OEM manufacturers and sales teams to cost-effectively and rapidly deliver these two outstanding technologies to the largest portion of the global market possible in the most effective and profitable way. We are looking forward to getting these systems operating. Conclusion: 2013 has been a milestone year for Uscom as we move a step closer to profitable global operations. Not only have we fulfilled the commitments we made to shareholders in 2012, but we have grown the company through acquisition of complimentary and practice leading technology. We are now poised for significant growth as new sales, distribution and licensing partnerships are positioned to shift the company to profitability and an accompanying capital revaluation. Uscom has a history of meeting corporate milestones and our focus for this year is very much on achieving the market penetration and commercial success our sector leading technology deserves. Thank you. Rob Phillips Executive Chairman Uscom Limited Uscom Limited - Annual Report 2013 - 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 2012/2013 outlines our policies and practices by reference to the Corporate Governance Principles and Recommendations with 2010 Amendments 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 2013 - 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: 36% Women within whole organisation: Women in senior executive positions: Women on the board: 4 0% 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 2013 - 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 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 2013 - 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 2013 - 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 12 to 16. 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 2013 - 9 DIRECTORS’ REPORT The Directors present their report on Uscom Ltd and its Controlled Entity for the financial year ended 30 June 2013. 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 Executive Director - Chairman Non-Executive Director Non-Executive Director 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 10 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 is a Non-Executive Director of Uscom Ltd and is also the Chairman of the Audit and Risk Committee. Sheena is currently the Chief Financial Officer of HCF and has 27 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 is a Non-Executive Director of Uscom Ltd 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, Cerno 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. Company Secretary’s qualifications and experience Ms Sarah Prince Ms Sarah Prince was appointed the Company Secretary of Uscom Ltd on 7th November 2012. Ms Prince holds a BA LLB from the University of Tasmania and is an Associate of the Chartered Institute of Secretaries. Meetings of Directors Directors Board of Directors Audit and Risk Committee R A Phillips S Jack C Bernecker Meetings held while a Director 13 13 13 No. of meetings attended 12 12 13 Meetings held while a Director - 3 3 No. of meetings attended - 3 2 Uscom Limited - Annual Report 2013 - 10 DIRECTORS’ REPORT continued 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 $1,371,683 (2012: $1,824,547) Dividends No dividends were declared or recommended for the financial year ended 30 June 2013. Significant changes in state of affairs There were no significant changes in state of affairs during the financial year apart from the acquisition of the assets of Pulsecor Limited, a New Zealand company which has developed novel non-invasive central blood pressure measurement methods. Operating and financial review The operating and financial review is stated on pages 2 to 4 of this report. Events after the reporting date Apart from the items disclosed in note 30 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, there were no non-audit services provided to the Consolidated Entity. Uscom Limited - Annual Report 2013 - 11 DIRECTORS’ REPORT continued The Directors are of the opinion that the provision of non-audit services as disclosed in note 27 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 27 of the financial statements on page 42 for details of auditors’ remuneration. The auditor’s independence declaration as required under section 307C of the Corporation Act is set out on page 17 and forms part of the Directors’ Report. BDO East Coast Partnership continues in office in accordance with section 327 of the Corporations Act 2001. 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 Christian Bernecker, Non-Executive Director Executive Directors Rob Phillips, Executive Director, Chairman, Chief Executive Officer Senior Executives Tom Rowe, Company Secretary (ceased on 7th November 2012) Sarah Prince, Company Secretary (from 7th November 2012 to 18th July 2013) Nick Schicht, General Manager 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. Uscom Limited - Annual Report 2013 - 12 DIRECTORS’ REPORT continued 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. 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 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, 3,000,000 options were issued to Mr Rob Phillips under the Executive Share Option Plan at an exercise price of 5.95 cents per option with the approval at the AGM held in November 2012. Uscom Limited - Annual Report 2013 - 13 DIRECTORS’ REPORT continued Service agreements The Consolidated Entity has entered into an employment agreement with the Chairman that • Outlines the components of remuneration payable; and • Specifies termination conditions. Details of the employment agreement are as follows: 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. 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 2013. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive T Rowe (to 7 Nov 2012) S Prince (from 7 Nov 2012) N Schicht Short term benefits Directors’ Base Fee $ 55,417 60,404 Base salary $ - - - - - - 170,000 - - 166,000 Total 115,821 336,000 Post employment benefits Superannuation $ 4,987 - Equity Total remuneration Share-based payment $ % of total $ - - - - 60,404 60,404 15,300 91,538 33.1% 276,838 - - 14,940 35,227 - - 12,665 104,203 - - 6.5% - 9,501 8,149 193,605 608,901 Other payments $ - - - 9,501(1) 8,149(2) - 17,650 (1) (2) Payments were made to Company Matters Pty Ltd for the services provided by Mr Rowe. Payments were made to Company Matters Pty Ltd for the services provided by Ms Prince. Uscom Limited - Annual Report 2013 - 14 DIRECTORS’ REPORT continued 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. 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 Total unexercisable 1 July 2012 No. During FY2013 No. During FY2013 No. During FY2013 30 June 2013 30 June 2013 30 June 2013 No. No. No. No. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive T Rowe (to 7 Nov 2012) S Prince (from 7 Nov 2012) N Schicht - - - - - 3,000,000 - - 400,000 - - - Total 400,000 3,000,000 - - - - - - - - - - - - 3,000,000 - - - - - (100,000) - - 300,000 - - 150,000 - - 3,000,000 - - 150,000 (100,000) 3,300,000 150,000 3,150,000 Uscom Limited - Annual Report 2013 - 15 DIREC CTORS’ ’ REPOR RT conti nued Details of options s outstandin ng as at en nd of year Holders N No. Grant d date or) 1 (Investo 10 (Emplo oyees & e) Executive or) 1 (Directo 17 7 December 2 2008 29 March 2 2012 7 November 2 7 2012 Exerc at 30 cisable 0 June 2013 % 100% 50% 0% Total Further details of the options are disc closed in note 19 of the e financial statements. e Expiry date 17 December 20 13 30 June 2 Outstand Op 2013 ding ption No. 0,000 2,000 cise Exerc rice Pr $ 375 0.3 Issue date fa valu ed air ue $ 12 0.1 29 March 20 16 1,287 7,500 0.05 595 7 November 20 16 3,000 0,000 0.05 595 6,287 7,500 0.0 06 0.0 07 Numbe er of shares s held by D irectors an Balance July 2012 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 13 30 June 20 No. N 1 J cutive Direct ker e Director Non-Exe S Jack C Bernec Executive R Phillips Senior Ex xecutive o 7 Nov 2012) T Rowe (to S Prince (f from 7 Nov 2012) t N Schicht Total or 80,000 - 6,996,733 16 - - 18,200 17 ,094,933 - - - - - - - - - - - - - - - - - - - - - 550,000 - 630,000 0(1) - 50,000 17,046,733 3(2) - - - - - 0(3) 18,200 600,000 17,694,93 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) 6,432,924 of f these ordinary shares are held by Australian Cardiac Sonography P Pty Ltd as trustee for th he Phillips Superannua tion. (3) 10,000 of the ese ordinary shares are e held by family associa ate. This Direc 298(2)(a) o ctor’s report is of the Corpora s signed in acc ations Act 200 cordance with 01. h a resolution o of the Board o of Directors, p pursuant to sec ction Rob Philli ips Sheena J ack Executive e Director - Ch hairman Non-Exe cutive Directo or Sydney, 3 30 August 201 3 Uscom Limited - Annual Repor rt 2013 - 16 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 2013, 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 period. Tim Sydenham Partner BDO East Coast Partnership Sydney, 30 August 2013 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 2013 - 17 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2013 Continuing operations Revenue and other income Raw materials and consumables used Expenses from continuing activities Loss before income tax credit from continuing operations Income tax credit Loss after income tax credit from continuing operations Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation difference for foreign operations Other comprehensive income for the year Consolidated 2013 $ 2012 $ 638,734 (140,644) (2,241,981) 864,099 (212,924) (2,881,975) (1,743,891) (2,230,800) 372,208 406,253 (1,371,683) (1,824,547) Note 3 4 5 6 4,246 4,246 2,830 2,830 Total comprehensive income for the year (1,367,437) (1,821,717) Attributable to: Owners of the Company (1,367,437) (1,821,717) Total comprehensive income for the year (1,367,437) (1,821,717) Earnings per share from continuing operations attributable to the owners of the Company Earnings per share (EPS) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 7 7 (2.2) (2.2) (3.5) (3.5) This Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2013 - 18 STATEMENT OF FINANCIAL POSITION As at 30 June 2013 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 2013 $ 2012 $ Note 8 9 10 11 14 12 13 15 16 16 541,195 98,436 190,654 372,208 54,472 544,463 140,936 191,030 406,253 41,946 1,256,965 1,324,628 51,589 1,506,634 1,558,223 68,258 435,472 503,730 2,815,188 1,828,358 196,107 241,797 437,904 108,357 122,983 231,340 22,617 22,617 126,952 126,952 460,521 358,292 2,354,667 1,470,066 17 18 19 6 20 23,638,157 - 1,520,474 (22,882,437) 78,473 21,376,920 150,000 1,379,673 (21,510,754) 74,227 2,354,667 1,470,066 This Statement of Financial Position is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2013 - 19 STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2013 Issued Capital Options Reserve Accumulated Losses Consolidated $ $ $ Foreign Currency Translation Reserve $ Total $ Balance at 1 July 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 Loss for the year Other Comprehensive Income Total Comprehensive Income for the year Transactions with Owners in their capacity as owners: Shares Issued Unissued share capital Transaction costs on Shares Issued Share-based payments - - - 2,284,944 (150,000) (23,707) - - - - - - - 140,801 (1,371,683) - (1,371,683) - 4,246 4,246 (1,371,683) 4,246 (1,367,437) - - - - - - - - 2,284,944 (150,000) (23,707) 140,801 Balance at 30 June 2013 23,638,157 1,520,474 (22,882,437) 78,473 2,354,667 This Statement of Changes in Equity is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2013 - 20 STATEMENT OF CASH FLOWS For the financial year ended 30 June 2013 Cash flows from operating activities Receipts from customers Interest received Payments to suppliers and employees Grant and other income received Income tax receipt Consolidated 2013 $ 2012 $ Note 621,253 11,741 (2,015,036) 4,213 406,253 817,190 61,400 (2,888,232) 8,564 344,896 Net cash used in operating activities 21(b) (971,576) (1,656,182) Cash flows from investing activities Purchase of patents and trademarks Purchase of plant and equipment Net cash used in investing activities (92,929) - (74,148) (363) (92,929) (74,511) Cash flows from financing activities Issue of shares Share application monies received from private placement 17 18 1,061,237 - - 150,000 Net cash provided by financing activities 1,061,237 150,000 Net decrease 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 (3,268) 548,238 (3,775) 541,195 (1,580,693) 2,127,265 (2,109) 544,463 21 (a) This Statement of Cash Flows is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2013 - 21 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) Dec 2010 1 Jan 2013* 9 10 11 12 13 Financial Instruments * amended to 1 Jan 2015 by AASB 2012–6 (refer below) Consolidated Financial Statements 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 119 Employee Benefits (September 2011) 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 2010 – 10 2011 – 2 2011 – 4 2011 – 6 2011 – 7 2011 – 8 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] 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 arising from the Trans-Tasman Convergence Project – Reduced Disclosure Requirements [AASB 101 & AASB 1054] Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method and Proportionate Consolidation – Reduced Disclosure Requirements [AASB 127, AASB 128 & AASB 131] Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17] Amendments to Australian Accounting Standards arising from AASB 13 [AASB 1, 2, 3, 4, 5, 7, 101, 102, 108, 110, 116, 117, 118, 119, 120, 121, 128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 and Interpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132] Sep 2012 1 Jan 2015 Dec 2010 1 Jan 2013 May 2011 1 Jul 2013 Jul 2011 1 Jul 2013 Jul 2011 1 Jul 2013 Sep 2012 1 Jan 2013 Sep 2012 1 Jan 2013 Uscom Limited - Annual Report 2013 - 22 NOTES TO FINANCIAL STATEMENTS continued Note 1: Adoption of new and revised accounting standards (continued) Australian Accounting Standards AASB No. Title 2011 – 10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, AASB 8, AASB 101, AASB 124, AASB 134, AASB 1049 & AASB 2011–8 and Interpretation 14] Issue Date Operative Date (Annual reporting periods beginning on or after) Sep 2011 1 Jan 2013 2011 – 11 Amendments to AASB 119 (September 2011) arising from Reduced Disclosure Requirements Sep 2011 1 Jul 2013 2011 – 12 Amendments to Australian Accounting Standards arising from Interpretation 20 [AASB 1] Nov 2011 1 Jan 2013 2012 – 1 2012 – 2 2012 – 3 2012 – 4 2012 – 5 2012 – 6 2012 – 7 2012 – 9 2012 – 10 2012 – 11 Amendments to AASB 119 (September 2011) – Fair Value Measurement – Reduced Disclosure Requirements [AASB 3, AASB 7, AASB 13, AASB 140 & AASB 141] Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities [AASB 7 & AASB 132] Mar 2012 1 Jul 2013 Jun 2012 1 Jan 2013 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities [AASB 132] Jun 2012 1 Jan 2014 Amendments to Australian Accounting Standards – Government Loans [AASB 1] Amendments to Australian Accounting Standards arising from Annual Improvements 2009–2011 Cycle [AASB 1, AASB 101, AASB 116, AASB 132 & AASB 134 and Interpretation 2] Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures [AASB 9, AASB 2009–11, AASB 2010–7, AASB 2011– 7 & AASB 2011–8] Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 7, AASB 12, AASB 101 & AASB 127] Amendment to AASB 1048 arising from the Withdrawal of Australian Interpretation 1039 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments [AASB 1, 5, 7, 8, 10, 11, 12, 13, 101, 102, 108, 112, 118, 119, 127, 128, 132, 133, 134, 137, 1023, 1038, 1039, 1049 & 2011–7 and Interpretation 12] Amendments to Australian Accounting Standards – Reduced Disclosure Requirements and Other Amendments [AASB 1, AASB 2, AASB 8, AASB 10, AASB 107, AASB 128, AASB 133, AASB 134 & AASB 2011–4] Jun 2012 1 Jan 2013 Jun 2012 1 Jan 2013 Sep 2012 1 Jan 2013 Sep 2012 1 Jul 2013 Dec 2012 1 Jan 2013 Dec 2012 1 Jan 2013 Dec 2012 1 Jul 2013 2013 – 1 Amendments to AASB 1049 – Relocation of Budgetary Reporting Requirements Mar 2013 1 Jul 2014 2013 – 2 Amendments to AASB 1038 – Regulatory Capital Mar 2013 Ending on or after 31 Mar 2013 IFRS Investment Entities – Amendments to IFRS 10, IFRS 12 and IAS 27 Oct 2012 1 Jan 2014 Uscom Limited - Annual Report 2013 - 23 NOTES TO FINANCIAL STATEMENTS continued Note 1: Adoption of new and revised accounting standards (continued) Australian Interpretations INT 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. 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 consolidated entity incurred an operating cash outflow of $971,576 during the year ended 30 June 2013 (2012: $1,656,182). The total comprehensive loss for the year ended 30 June 2013 was $1,367,437 (2012: $1,821,717) and the cash on hand as at 30 June 2013 was $541,195. These conditions indicate the existence of a material uncertainty which may cast significant doubt over the consolidated entity’s continuance as a going concern. The consolidated entity’s forecasts and projections for the next twelve months take into account the current status, operational changes and projected future trading performance, and indicate that, in the directors’ opinion, the consolidated entity will be able to operate as a going concern. Uscom Limited - Annual Report 2013 - 24 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) As noted in the review of operations in the directors’ report the consolidated entity acquired an additional product and revenue stream in 2013, and existing sales channels are currently being activated to distribute this product. In addition a number of new sales channels are currently being appointed so that revenue will be generated rapidly. An increase in USCOM sales combined with sales of BP+ is projected for FY 2014. Discussions are in progress with new distributors which if completed favourably would significantly change the profitability of the business. Further the current operating costs have been reduced over the 2013 financial year, so that any increase in revenue will positively impact the profit and loss accounts. The Company is currently in the process of raising capital and it is anticipated that sufficient cash will be raised to meet any unexpected cash shortfall in the current operating period. Global markets remain subdued, however early signs of recovery are emerging from the US, and China, our main market which, remains strong. The timing and sales volumes may vary from those forecast by management as the time from appointment to effective operation of new distributors is unpredictable. As such the timing of operating cash flows may differ to those forecast by management. Should the timing of operating cash flows be significantly different to those forecast the consolidated entity may need to seek alternative financing options to enable it to settle its liabilities as they fall due. The Directors are satisfied that adequate plans and strategies have been formulated and will be adopted as required to allow the company to have sufficient cash to meet its obligations as they fall due in the foreseeable future. On this basis the financial report has been prepared on the going concern basis. Should the company be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and at amounts different to those stated in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of liabilities that might result should the company be unable to continue as a going concern and meet its debts as and when they fall due. 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 2013. The comparative reporting period was for the year ended 30 June 2012. 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 2013 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 2013 - 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 statement of profit and loss and other comprehensive income. 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 2013 - 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 statement of profit or loss and other comprehensive income 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 statement of profit or loss and other comprehensive income. 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 2013 - 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 statement of profit or loss and other comprehensive income. 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 statement of profit or loss and other comprehensive income as incurred, or deferred where it is probable that sufficient future benefits will be derived so as to recover those deferred costs. Income tax (p) 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. 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. Uscom Limited - Annual Report 2013 - 28 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) 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. (q) Short term employee benefits 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 (r) 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 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 (s) 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. (t) 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. (u) 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. Uscom Limited - Annual Report 2013 - 29 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) (v) 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. (w) 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. (x) 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 30 to the financial statements. Note 3: Revenue and other income Operating revenue Sale of goods Other revenue Interest received Other income Grants received - VAT return Exchange gain Miscellaneous income Total other income Consolidated 2013 $ 2012 $ 578,753 794,135 11,741 61,400 684 44,027 3,529 48,240 4,928 - 3,636 8,564 Total revenues and other income from continuing operations 638,734 864,099 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 $135,677 in 2013 (2012: $139,544) are included in occupancy expenses above 79,022 15,161 866,313 531,395 216,769 149,733 46,000 18,500 70,817 248,271 - 2,241,981 103,465 80,497 944,173 509,858 544,746 152,531 39,000 18,000 55,577 427,832 6,296 2,881,975 Uscom Limited - Annual Report 2013 - 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 2013 $ 2012 $ 372,208 372,208 406,253 406,253 Reconciliation between income tax credit and prima facie tax on accounting loss Accounting loss before income tax 1,743,891 2,230,800 Tax benefit at 30% in Australia, 15% in USA (2012: 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 524,782 (279,507) (10,015) (235,260) 372,208 372,208 678,128 (289,844) (37,077) (351,207) 406,253 406,253 As at 30 June 2013, the Consolidated Entity had estimated unrecouped operating income tax losses of $15,821,412 (2012: $14,923,319). The benefit of these losses of $4,570,418 (2012: $4,300,155) 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 (21,510,754) (1,371,683) (19,686,207) (1,824,547) (22,882,437) (21,510,754) (1,371,683) Number (1,824,547) 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 (3.5) Basic earnings per share (cents per share) (3.5) 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, 25,000 ordinary shares were issued on 30 July 2013 and 150,000 ordinary shares were issued on 6 August 2013 which have not been included in the calculations of basic and dilutive EPS. 66,402,185 61,174,959 54,719,283 52,124,488 (2.2) (2.2) 2,594,795 5,227,226 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 177 438,960 33,749 35,230 33,079 541,195 185 463,633 28,758 35,230 16,657 544,463 Uscom Limited - Annual Report 2013 - 31 NOTES TO FINANCIAL STATEMENTS continued Note 9: Trade and other receivables Current Trade receivables Total current receivables Consolidated 2013 $ 2012 $ 98,436 98,436 140,936 140,936 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 163,029 27,625 190,654 372,208 372,208 113,367 77,663 191,030 406,253 406,253 562,158 (514,028) 48,130 556,216 (492,603) 63,613 59,166 (56,752) 2,414 22,120 (21,819) 301 32,089 (31,345) 744 59,166 (56,326) 2,840 22,120 (21,505) 615 32,089 (30,899) 1,190 Total plant and equipment 51,589 68,258 Movements in carrying amounts Useful life Plant and equipment Office furniture and equipment Computer software Low value asset pool 2-7 years $ 2-7 years $ 3 years $ 3 years $ Consolidated Entity Carrying amount at 1 July 2012 Additions Disposals Depreciation expense Effects of foreign currency exchange differences Carrying amount at 30 June 2013 63,613 5,741 - (21,231) 7 48,130 2,840 - - (426) - 2,414 615 - - (314) - 301 1,190 - - (446) - 744 Uscom Limited - Annual Report 2013 - 32 NOTES TO FINANCIAL STATEMENTS continued Note 13: Intangible assets Non-current Patents at cost Additions Impairment Accumulated amortisation, net of impairment Carrying amount at 30 June Movements in carrying amounts Carrying amount at 1 July Additions Amortisation Impairment Carrying amount at 30 June Consolidated 2013 $ 2012 $ 762,330 1,142,928 (15,894) (382,730) 1,506,634 435,472 1,142,928 (56,605) (15,161) 1,506,634 839,505 74,147 (151,322) (326,858) 435,472 510,487 74,147 (68,665) (80,497) 435,472 (i) 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 Statement of Profit or Loss and Other Comprehensive Income. An impairment charge of $15,161 has been recognised in the current year (2012: $80,497) in relation to Patents carried in Australia and Japan where there have been no sales for several years. The impairment charge is recorded under Expenses from Continuing Activities (refer to note 4). (i) $1,106,497 of additions related to the acquisition of Pulsecor Limited’s assets – refer to note 25 for more details. Note 14: Other assets Current GST receivable Deposit paid 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 Provision for long service leave Long term Provision for long service leave Provision for warranties 20,547 17,331 16,594 54,472 107,976 55,652 32,479 196,107 115,819 125,978 241,797 14,936 7,681 22,617 11,067 - 30,879 41,946 37,584 41,019 29,754 108,357 122,983 - 122,983 119,734 7,218 126,952 (a) Aggregate employee benefits 256,733 242,717 Uscom Limited - Annual Report 2013 - 33 NOTES TO FINANCIAL STATEMENTS continued Note 16: Provisions (continued) (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 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 2,000,000 ordinary shares issued at 7.5 cents 9,034,997 ordinary shares issued at 12 cents 12,500 ordinary shares issued at 5.95 cents 5,000,000 ordinary shares issued at 21 cents Share issue costs Ordinary shares at the end of the year (i) Cash received in prior year (refer to note 18). (ii) Cash received / (paid) in current year totalling $1,061,237. Fully paid ordinary shares Ordinary shares at the beginning of the year 2,000,000 ordinary shares issued by private placement 9,034,997 ordinary shares issued by private placement 12,500 ordinary shares issued by exercise of options 5,000,000 ordinary shares issued for acquisition of assets Total ordinary shares at the end of the year Consolidated 2013 $ 2012 $ 242,717 95,383 (81,367) 256,733 233,517 129,767 (120,567) 242,717 Number Number 11 11 Consolidated 2013 $ 2012 $ 23,638,157 21,376,920 23,638,157 21,376,920 (i) (ii) (ii) (ii) 21,376,920 150,000 1,084,200 744 1,050,000 (23,707) 21,376,920 - - - - - 23,638,157 21,376,920 Number 52,124,488 2,000,000 9,034,997 12,500 5,000,000 Number 52,124,488 - - - - 68,171,985 52,124,488 11,034,997 ordinary shares were issued by private placement during July to November 2012. 12,500 ordinary shares were issued by exercise of options on 25 January 2013. 5,000,000 ordinary shares were issued as consideration for acquisition of assets of Pulsecor Limited on 17 June 2013. The Company’s authorised share capital amounted to 68,171,985 ordinary shares of no par value at 30 June 2013. 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, a total of 175,000 ordinary shares were issued in July and August 2013. Uscom Limited - Annual Report 2013 - 34 NOTES TO FINANCIAL STATEMENTS continued Consolidated 2013 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 Shares issued Unissued capital at the end of the year $ - - 150,000 - (150,000) - 2012 $ 150,000 150,000 - 150,000 - 150,000 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, 3,000,000 options were granted to a director under the Executive Share Option Plan. 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 1,379,672 140,801 1,520,473 1,373,494 6,178 1,379,672 1 1 1,520,474 1,379,673 OSI Systems Right to participate in options Option reserve at the end of the year Movement during the financial year Opening number of options Granted during the financial year – Director Granted during the financial year – Employees & Executives Lapsed during the financial year Exercised during the financial year Closing number of options Number of Options 2013 3,560,000 3,000,000 Weighted average exercise price 0.25 0.06 Number of Options 2012 7,710,000 - Weighted average exercise price 1.10 - - - 1,300,000 (260,000) (12,500) 6,287,500 0.29 0.06 0.16 (5,450,000) - 3,560,000 Details of options outstanding as at end of the year Holders No. Grant date Exercisable at 30 June 2013 % 100% Expiry date 17 December 2013 30 June 2013 Outstanding Option No. 2,000,000 Exercise Price $ 0.375 17 December 2008 1 (Investor) 10 (Employees & Executives) 1 (Director) Total 29 March 2012 50% 29 March 2016 1,287,500 0.0595 7 November 2012 0% 7 November 2016 3,000,000 0.0595 6,287,500 0.06 1.40 - 0.25 Issued date fair value $ 0.12 0.06 0.07 Uscom Limited - Annual Report 2013 - 35 NOTES TO FINANCIAL STATEMENTS continued Note 19: Options reserve (continued) 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 $0.25 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. 2,000,000 at $0.375; 4,287,500 at $0.0595 4-5 years Range from 3.15% to 4.6% 0 Range from 62% to 76% Note 20: Translation reserve Opening balance Translation of financial statements of foreign Controlled Entity Closing balance 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 Consolidated 2013 $ 74,227 4,246 78,473 2012 $ 71,397 2,830 74,227 541,195 541,195 544,463 544,463 (1,371,683) (1,824,547) 22,417 56,605 15,161 140,801 4,246 42,500 (5,365) (3,046) 34,045 (9,480) 70,392 14,633 2,725 14,016 457 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 (971,576) (1,656,182) Significant accounting policies Note 22: Financial instruments (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 Entity, comprising issued capital (note 17 on page 34), and accumulated losses (note 6 on page 31). Uscom Limited - Annual Report 2013 - 36 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) Financial instruments (c) At 30 June 2013, 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. (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 2013 and is exposed to foreign currency risk on sales and purchases dominated in a currency other than Australian dollars. The currencies giving 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 2013 US$ 304,132 70,525 17,400 € 17,252 - - £ 13,600 2012 US$ 211,041 136,890 20,385 € 63,323 5,350 2,052 £ - 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 profit 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 2013 $ (54,055) 54,055 2012 $ (73,584) 73,584 Uscom Limited - Annual Report 2013 - 37 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) Interest rate risk management (g) The Consolidated Entity does not have any external loans or borrowings as at 30 June 2013 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 monitors its cash requirements through forecasts and cash flow projections and moves 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. 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 2013 $ 1,174 (1,174) 2012 $ 6,140 (6,140) (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, as 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 deposits is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by a recognised rating agency. Debtors past due but not impaired 0 - 45 days 46 – 90 days Over 90 days Total Consolidated 2013 $ - - - - 2012 $ 17,035 - 15,821 32,856 No bad debt was written off during the year (2012: $Nil). There was no doubtful debt provision as at 30 June 2013 (2012: Nil). 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. Uscom Limited - Annual Report 2013 - 38 NOTES TO FINANCIAL STATEMENTS continued Note 22: Financial instruments (continued) 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. Consolidated Fixed interest rate maturing Weighted Average effective interest Rate % Floating interest Within 1 year 1 to 5 years Non- interest bearing Total $ $ $ $ $ 2013 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 2012 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 0.5 - 1.3 - 505,965 - - 505,965 35,230 - - 35,230 - - - - - - 505,965 35,230 509,233 - - 509,233 35,230 - - 35,230 - - - - - - 509,233 35,230 Reconciliation of net financial assets to net assets Net financial assets as above Non financial assets and liabilities Current tax receivable Inventories Deposit paid Prepayments Plant and equipment Intangible assets Accruals Provisions Net assets per Statement of Financial Position - - - - - - - - - - - - - - - - - 98,436 20,547 118,983 107,976 32,479 140,455 541,195 98,436 20,547 660,178 107,976 32,479 140,455 (21,472) 519,723 - 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 2013 $ 519,723 372,208 190,654 17,331 16,594 51,589 1,506,634 (55,652) (264,414) 2012 $ 629,128 406,253 191,030 - 30,879 68,258 435,472 (41,019) (249,935) 2,354,667 1,470,066 Uscom Limited - Annual Report 2013 - 39 NOTES TO FINANCIAL STATEMENTS continued Note 23: Related party disclosures 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% Transactions between related parties Other related parties Company Matters Pty Limited As a Company Secretary of Uscom Ltd from 7th November 2012, Ms Sarah Prince provides services to the Company through Company Matters Pty Limited. Services rendered Company Matters Pty Limited As a Company Secretary of Uscom Ltd up to 7th November 2012, Mr Tom Rowe provided services to the Company through Company Matters Pty Limited. Services rendered Consolidated 2013 $ 2012 $ 8,149 - 9,501 1,965 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 Sheena Jack, Non-Executive Director Christian Bernecker, Non-Executive Director Executive Directors Rob Phillips, Executive Director, Chairman, Chief Executive Officer Senior Executives Tom Rowe, Company Secretary (ceased on 7th November 2012) Sarah Prince, Company Secretary (from 7th November 2012 to 18th July 2013) Nick Schicht, General Manager For further remuneration information of key management personnel refer to the remuneration report in the Directors’ report on pages 12 to 16. 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 2013 $ 451,821 35,227 17,650 104,203 608,901 2012 $ 540,708 61,746 102,648 1,206 706,308 Uscom Limited - Annual Report 2013 - 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 1 July 2012 No. During FY2013 No. During FY2013 No. Lapsed / Transferred out During FY2013 No. Balance Total vested Total unexercisable 30 June 2013 30 June 2013 30 June 2013 No. No. No. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive T Rowe (to 7 Nov 2012) S Prince (from 7 Nov 2012) N Schicht - - - - - 3,000,000 - - 400,000 - - - Total 400,000 3,000,000 - - - - - - - - - - - - 3,000,000 - - - - - (100,000) - - 300,000 - - 150,000 - - 3,000,000 - - 150,000 (100,000) 3,300,000 150,000 3,150,000 Number of shares held by Key Management Personnel (including indirect interest) Balance 1 July 2012 No. Received as Remuneration No. Options Exercised No. Net change Other* No. Balance 30 June 2013 No. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive T Rowe (to 7 Nov 2012) S Prince (from 7 Nov 2012) N Schicht Total 80,000 - 16,996,733 - - 18,200 17,094,933 - - - - - - - - - - - - - - 550,000 - 630,000(1) - 50,000 17,046,733(2) - - - - - 18,200(3) 600,000 17,694,933 *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) 6,432,924 of these ordinary shares are held by Australian Cardiac Sonography Pty Ltd as trustee for the Phillips Superannuation. (3) 10,000 of these ordinary shares are held by family associate. 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 2013 $ 2012 $ (1,382,447) (1,382,447) (1,877,967) (1,877,967) 1,212,639 2,683,950 435,145 457,762 1,274,021 1,711,184 227,635 354,587 23,638,157 1,520,474 (22,932,443) 2,226,188 21,526,920 1,379,673 (21,549,996) 1,356,597 Uscom Limited - Annual Report 2013 - 41 NOTES TO FINANCIAL STATEMENTS continued Note 24: Parent entity information (continued) Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2013 and 30 June 2012. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2013 and 30 June 2012. 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: Asset acquisition On 17 June 2013, Uscom Limited acquired the assets of Pulsecor Limited, a New Zealand company which has developed novel non-invasive central blood pressure measurement methods pioneered at the Weill Cornell Medical College in New York. The acquired assets include all Pulsecor technology, products and 34 global patents and patent applications and 4 trademarks related to measurement and monitoring of blood pressure. Uscom Limited has issued 5 million fully paid ordinary Uscom shares as consideration for the acquisition. Details of the acquisition are as follows: Patents Acquisition-date fair value of the total consideration transferred Representing: Shares issued Legal fees paid There was no cash used in the acquisition apart from the legal fees paid. Note 26: Commitments Operating lease commitments Operating commitments represent payments due for office rentals and have an average term from 18 to 30 months and month to month thereafter. Less than 1 year Between 1 and 5 years Total operating commitments Note 27: Auditors’ remuneration Remuneration of BDO East Coast Partnership for Audit of financial report Review of financial report Remuneration of PKF California for Tax consulting services Total auditors’ remuneration Fair Value $ 1,106,497 1,106,497 1,050,000 56,497 1,106,497 Consolidated 2013 $ 2012 $ - - - 46,000 18,500 2,312 66,812 64,136 - 64,136 39,000 18,000 2,956 59,956 Note 28: 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 General Manager review internal management reports on at least a monthly basis. Uscom Limited - Annual Report 2013 - 42 NOTES TO FINANCIAL STATEMENTS continued Note 28: Operating segments (continued) The largest customer group operates in Asia and accounts for 55% of the total sales revenue. The second largest customer accounts for 16% 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 $ Head office Eliminated Consolidated 2013 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 Acquisition of property, plant and equipment and intangibles Impairment of patents Depreciation and amortisation $ - - - $ 578,753 59,981 638,734 - 15,270 316,186 - 37,298 - 162,417 684 62,852 - - 44,027 15,270 316,186 37,298 163,101 62,852 44,027 - 15,270 372,208 99,809 216,377 - 199,981 (162,683) - 107,963 55,138 - 25,274 37,578 - 2,113,165 (2,069,138) - (163,567) 163,567 - 2,382,625 (1,743,891) 372,208 511,878 172,681 394,504 760,324 545,595 - 2,759 - 287,409 177,454 97,459 586,347 10,631 4,530 - - 22,858 244 24,671 25,993 (1,371,683) 1,063,634 (87,833) 2,815,188 - (87,833) 460,521 - - 5,256 - - - 1,148,669 15,161 79,022 - - - - - Uscom Limited - Annual Report 2013 - 43 NOTES TO FINANCIAL STATEMENTS continued Note 28: Operating segments (continued) 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 Head office 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 - - - - - Note 29: Contingencies There were no contingencies as at 30 June 2013. (1,824,547) 1,129,826 (67,447) 1,828,358 - (67,447) 358,292 - - 7,160 - - - 83,907 80,497 103,465 Note 30: Events after the reporting date On 30 July 2013, 25,000 shares were issued at 5.95 cents each by exercise of options. On 6 August 2013, 150,000 shares were issued at 20 cents under share placement. The issue raised an additional $31,488 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. 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 2013 - 44 DIREC CTORS’ ’ DECLA ARATION N Uscom Lim mited and its C Controlled Ent tity The direc ctors of the co mpany declar e that: 1. The f posit with financial state tion, statemen the Corporati ments, compr nt of cash flow ons Act 2001 and: rising the state ws, statement o ement of com of changes in prehensive in equity, accom come, statem mpanying note al ent of financia rdance es, are in accor a. comply w a with Accountin g Standards a and the Corpo orations Regul ations 2001; a and b. give a tru b performa ue and fair view nce for the ye w of the conso ear ended on t olidated entity that date. y’s financial po osition as at 30 0 June 2013 an nd of its 2. The c comp company has pliance with In included in th nternational Fi e notes to the inancial Repor e financial stat rting Standard tements an ex ds. plicit and unre eserved statem ment of 3. In the debt e directors’ op ts as and when pinion, there a n they become are reasonable e due and pay e grounds to b yable. believe that th e company w will be able to p pay its 4. The d directors have e been given t he declaration ns required by A. y section 295A This decla of the dir aration is mad ectors by: de in accordan nce with a reso olution of the Board of Direc ctors and is sig gned for and on behalf Rob Philli ips Sheena J ack Executive e Director - Ch hairman Non-Exe cutive Directo or Sydney, 3 30 August 201 3 Uscom Limited - Annual Repor rt 2013 - 45 INDEPENDENT AUDIT REPORT continued Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 10, 1 Margaret St Sydney NSW 2000 Australia 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 2013, the statement of profit or loss and other 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 disclosing entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. 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. 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 2013 - 46 INDEPENDENT AUDIT REPORT continued 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 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2. Emphasis of matter Without modifying our opinion, we draw attention to Note 2 in the financial report, which indicates that the consolidated entity incurred a net loss of $1,367,437 for the year ended 30 June 2013, incurred net operating cash outflows of $971,576 for the year ended 30 June 2013, and had $541,195 cash on hand as at 30 June 2013. The ability of the consolidated entity to continue as a going concern is dependent upon a combination of future successful raisings of necessary funding through equity, successful exploitation of patents and sales of products. These conditions, along with other matters as set out in Note 2, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Report on the Remuneration Report We have audited the Remuneration Report included in pages 12 to 16 of the directors’ report for the year ended 30 June 2013. 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 2013 complies with section 300A of the Corporations Act 2001. BDO East Coast Partnership Tim Sydenham Partner Sydney, 30 August 2013 Uscom Limited - Annual Report 2013 - 47 SHAREHOLDER INFORMATION Additional information required by Australian Stock Exchange Listing Rules is as follows. This information is current as at 31 July 2013. (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 109 197 74 120 56 556 Ordinary shares Number 78,389 581,168 599,645 4,660,210 62,277,573 68,196,985 % 0.12% 0.85% 0.88% 6.83% 91.32% 100% There were 222 holders of less than a marketable parcel of 307,090 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 2013 are: Robert Allan Phillips Dr Stephen Frederick Woodford Gary Desmond Davey DRP Cartons (NSW) Pty Ltd Narodni Podnik Ltd 17,046,733 10,170,475 6,219,000 2,867,492 2,834,358 (d) Twenty largest registered holders – ordinary shares Balance as at 31 July 2013 Robert Allan Phillips Dr Stephen Frederick Woodford Gary Desmond Davey DRP Cartons (NSW) Pty Ltd Narodni Podnik Ltd Bell Potter Nominees Ltd Invia Custodian Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Link Traders (Aust) Pty Ltd Stream Management Services Pty Ltd Arinya Investments Pty Ltd Corf Corporation Pty Limited Mr Rutherford James Browne & Mrs Sheba Elizabeth Marjorie Browne Mr John Lionel Gleeson Mr Ronald George Lane & Ms Sheena Gae Jack Christopher James Were & Christopher Boys Gambrill Mr Alister John Forsyth Raewyn Jeanette Lovett & Struan Grant McOmish Apollan Pty Ltd Mr Peter Maddison Ordinary shares Number 17,046,733 10,170,475 6,219,000 2,867,492 2,834,358 2,124,836 2,088,118 2,014,982 1,220,809 1,139,111 1,050,000 1,000,000 754,134 742,750 630,000 574,775 568,809 549,763 547,700 537,054 % 25.00% 14.91% 9.12% 4.20% 4.16% 3.12% 3.06% 2.95% 1.79% 1.67% 1.54% 1.47% 1.11% 1.09% 0.92% 0.84% 0.83% 0.81% 0.80% 0.79% Total 54,680,899 80.18% Uscom Limited - Annual Report 2013 - 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 Sarah Prince (ceased on 18th July 2013) Catherine Officer (commenced on 18th July 2013) 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 68,346,985 ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange Limited. Unquoted securities Options over unissued shares A total of 6,187,500 options over ordinary shares are on issue. 2,000,000 options are on issue to OSI System. 3,000,000 options are on issue to a director and 1,187,500 options are on issue to eight employees and executives under the Uscom Employee Share Option Plan and Uscom Executive Share Option Plan. Uscom Limited - Annual Report 2013 - 49 Uscom Ltd, Suite 1, Level 7, 10 Loftus Street, Sydney NSW 2000 Australia T +612 9247 4144 

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