Uscom Limited
Annual Report 2014

Plain-text annual report

Uscom Ltd, Suite 1, Level 7, 10 Loftus Street, Sydney NSW 2000 Australia T +612 9247 4144 ASX:UCM ANNUAL REPORT 2014 The measure of life. “Uscom is a de-risked medical device company, with two validated and approved products, growing global revenues, with a clear focus on building a real business with global impact, in real markets, doing global good, and making real profits.” Chairmans Letter 2 Corporate Governance 5 Directors’ Report and Financial Statements 10 CHAIRMAN’S LETTER Fellow shareholders, it gives me great pleasure to present the Company results for the 2014 financial year; a year in which we consolidated the foundations for commercial success and corporate profitability by growth and acquisition. The year ahead is focused on completing this commercialisation by growing sales, distribution and revenue by feeding the Uscom products into our growing distribution channels, growing revenues, generating new revenues and growing shareholder value. 2014 Headlines: 1. Operations - Revenues from activities up 67%, and cash on hand up 192% 2. Outcomes - Shareholder equity up 41%, and Uscom capitalised value up 55% 3. Growth - Successful integration of Pulsecor IP, systems and assets 4. Milestones - Manufacture and sale of the first Uscom BP+, new USA BP+ patent, and CE approval 5. Distribution - Increased Uscom BP+ and USCOM 1A distributors by 12 to 27 6. Science - 36 new publications for USCOM 1A and BP+ Overview 2014: This year has been a year of consolidation and positioning for Uscom with the Company completing the acquisition of the BP+ technology, integrating the Pulsecor operations and IP into Uscom, manufacturing the first BP+ devices, receiving a new USA BP+ patent, and CE Mark for BP+, and significantly growing the number of global distributors while increasing revenues by 67%. As part of the Uscom strategy distribution partnerships have been significantly increased by 12 to 27, with a number awaiting execution. These distributors have been brought on to both distribute the newly manufactured Uscom BP+ and expand the current USCOM 1A distribution. The new distributors are from China, Germany, the UK, Europe and the USA, and the accompanying revenue growth is expected as their market activities accelerate over the coming 12 to 18 months. We have also strengthened user and distributor support processes in anticipation of this increased demand allowing us to cost-effectively support these incoming partners and an expanded user installation base. Results: Revenue for 2014 increased by 67% from 2013 as a result of increased demand for USCOM 1A devices. There was a small increase in cost of operations associated with the costs of integrating BP+ assets including IP transfers, regulatory re-registrations and preparation for BP+ manufacture leading to a 5% increased loss before income tax. Importantly cash on hand at the end of the period increased by 192% from 2013 as a result of the capital raising. This cash will be used to fund operations as the sales distribution networks for USCOM 1A and the Uscom BP+ become effective and operations profitable. Total assets of the Company increased in 2014 by 34% to $3.77m, while total shareholder equity increased by 41% in the period. It is envisaged that with many of the one off BP+ acquisition costs behind us, combined with increasing USCOM 1A revenues from a significantly expanded distribution network, and early BP+ sales, the financial position for Uscom in 2015 should significantly improve on the current reported results. Capital: Uscom had $1,582,834 cash on hand at the end of the period and intends to manage expenditure cautiously as the expected revenue pick up continues. Sales: This year saw the appointment of a global sales manager based in the UK and this was associated with a significant increase in distribution partners. Sales were up 67% for the year, and this was from the USCOM 1A as the Uscom BP+ was being prepared for manufacture and market. It is anticipated that with the increased sales and distribution channels there will be a significant increases in revenues as their activities are reflected in customer sales. This increase in revenue will be further impacted as the Uscom BP+ is fed into global sales channels and new distributors are activated. Share price: The capitalised value of the Company increased by 55% during the reporting period to $17.9m. The three year VWAP has increased by an average 50% pa over the last three years from the lows of 2012. Lodge partners have a buy recommendation and a 45c target price on the Company for 2015. As the newly manufactured BP+ devices are fed into our new and expanded distribution channels over the next 12-18mths, directly growing revenue, it is anticipated that the commercial value of the BP+ acquisition will be recognised by the market. Science: The Uscom BP+ and the USCOM 1A are breakthrough cardiovascular technologies, representing the best of blood pressure and cardiac output monitoring technology, and this year saw further evidence supporting Uscom Limited - Annual Report 2014 - 2 CHAIRMAN’S LETTER continued the expanded clinical utility of these technologies. There were 36 new publications supporting the utility of USCOM 1A and the BP+ in 2014, taking the USCOM evidence to greater than 450 papers in the fields of hypertension, heart failure and sepsis in adults, children and neonates. New evidence supporting the adoption of central blood pressure, or pressure at the heart has become wide spread. This heart pressure is measured by the supra-systolic Uscom BP+, and is gaining recognition as superior to sub-systolic cuff based blood pressure measured in the arm or pressure pulse measures in the wrist, These studies establish the Uscom BP+ as a cost effective standard of care technology for measurement in hypertension and a viable new technology compared to more expensive alternatives. The scientific highlights for this year include: • Independent global hypertension experts from Cambridge University, Cambridge, UK, Wales Heart Institute, Cardiff, UK, Weill Cornell Medical College, New York, USA and the University of California, Irvine, USA, review 10 central blood pressure devices and found BP+ the most clinically applicable technology. • Central blood pressure was found to better predict cardiovascular risk, achieving lower blood pressures using fewer drugs and was proposed as the possible new gold standard method for hypertension management. BP+ was found to be an improved method for measuring central blood pressure in children when compared to current gold standard which was found to be difficult to use. • • New research from two separate leading centres in London demonstrated the importance of USCOM 1A for management of sepsis in children. With the increasing scientific validation, the pressure for adoption of USCOM and BP+ is increasing and will support current increased sales and marketing programmes. Uscom is a company founded on sound and clinically useful science, and this year confirms the success of this founding mission. Partnerships: A cornerstone of the expanded Uscom distribution was the execution of the partnership with Pioneer Medical, Shanghai in a 5 year $7m deal. The deal will yield revenue upon the CFDA approval of BP+ expected in 2015. The partnership is a fast-track to the rapidly growing Chinese medical device market (25.3% annual growth rate). Pioneer is a Hong Kong listed, Shanghai based medical distribution company with excellent channels to the Chinese medical device market. This year saw Uscom partner with UK Doppler company Deltex Medical to access their capable and well connected distribution, particularly in the UK. The partnership sets a platform for ongoing relationships to better grow global Doppler markets under the banner of “to Doppler or not to Doppler”. Deltex and Uscom have complimentary technologies with common science in complimentary critical care markets. The potential and rationale for developing the partnership with Deltex to better access the increasing recognition of Doppler monitoring remains strong. Discussions are on going with a number of major distribution partners for various territories world wide for both USCOM and BP+, and we look forward to consolidating these partners and improving our path to market, building revenue and establishing profitability. For Uscom these distribution partners hold the key to our future, and the growing number and quality of these partners will be reflected in future financial results. Strategy 2015: Uscom now owns and manufactures two practice leading premium cardiovascular devices with validation and global approvals. The strategy for Uscom is now to complete the commercialisation of these world leading technologies by increasing sales and distribution, and thus revenue to achieve enduring profitability. In FY 2015 we are planning to further grow both reach and depth of distribution by appointing more and larger distributors. We also intend to deliver the BP+ device into currently approved international markets via direct sales, distribution and licensing partnerships. To ensure optimal market penetration and profitability, Uscom is investigating new and more cost effective, high volume manufacturing strategies for the BP+ and USCOM 1A device to meet potential rapid growth in demand. 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 and licensing partnerships. For the future Uscom will develop and acquire new products that can be fed into the rapidly growing Uscom distribution channels, to fulfil the Uscom vision of providing increased shareholder value off the back of improved cardiovascular care. Uscom Limited - Annual Report 2014 - 3 CHAIRMAN’S LETTER continued Incremental growth by acquisition is always a strategic opportunity and valuable partnership targets are continually being assessed. The potential to acquire additional premium non-invasive cardiovascular devices is clearly part of the Uscom future. We believe the business is well prepared to accelerate growth in the coming year, and the Company management are committed to a strategy of increased distribution and growth to meet the anticipated demand. These developments will result in a changed operational environment for Uscom; one that should immediately reward shareholders. Risks: While commercial success is anticipated for the year ahead, Uscom is exposed to risks which may impair operations and impact predicted outcomes. Global markets, while showing signs of early recovery may not continue to recover as anticipated and as such predicted revenues may not be achieved. Partnering risks relates to the under performance of distribution partners, particularly where best endeavours contracts are in place, may also impact forecast revenues. The appointment of Mr Steven Haken as global sales manager reduces this risk by providing hands on distributor management and continual monitoring of results. Regulatory risks relevant to medical devices are associated with delayed or declined approvals to specific jurisdictions. While both USCOM 1A and BP+ are non-invasive and already have major approvals, it is possible that new approvals, and re-approvals associated with changed and inefficient regulatory systems may delay approvals and subsequently revenue. Key personnel risk; currently there is a small and vital team working on the Uscom project to ensure and manage growth and commercial success. Development of an executive remuneration plan to ensure adequate compensation for executives for extra-ordinary contributions may mitigate the risk of untimely resignations that have the potential to damage operations and impede commercial momentum, and is an important task going forward. Other risks include competitive risks and patent breach risks in global markets, and the risk associated with impending rapid growth which may become significant if predicted anticipated sales are achieved. Substantial unpredicted product demand and growth may generates scale up stress on the business, thus challenging cash flow management and equity adequacy may need focused management. Conclusion: 2014 has been a great year for Uscom as we consolidated the foundations of an influential and profitable global medical device business. We have now acquired and integrated a new technology, new IP and operations, and manufactured our second ground breaking cardiovascular product, while increasing overall sales revenues by 67% and significantly expanding global distribution. This year has seen us position ourselves for approaching commercial success; success that will create significant shareholder value and provide us with the momentum to develop and acquire additional technologies to deliver into our growing distribution channels. Achieving profitability from this enhanced distribution will drive strategic and operational changes that ensure Uscom transitions to a global leader in medical device development, manufacture and distribution. Uscom has a history of meeting corporate milestones and the Uscom focus for 2015 is marketing, sales and revenue, and we are grateful for the on going support of shareholders as we execute this strategy. Uscom is a real company, with real products, in real markets, earning real revenue, for real investors, and preparing for real growth and we can all look forward to the year ahead. Thank you. Rob Phillips PhD(med), MPhil(med), FASE, DMU(cardiol) Executive Chairman Uscom Limited Uscom Limited - Annual Report 2014 - 4 CORPORATE GOVERNANCE STATEMENT Uscom is committed to maintaining high standards of corporate governance. Effective corporate governance aids the Company to set and achieve its objectives. Our Governance Statement for 2013/2014 outlines our policies and practices by reference to the ASX Corporate Governance Principles and Recommendations (2nd Edition) (ASX Principles). Uscom will report against the 3rd Edition of the Principles in the next financial year. 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, and those delegated to the Executive Chairman. The Board Charter is available in the Uscom Corporate Governance section of the Company website. Recommendation 1.2: Disclose the process for evaluating the performance of senior executives. The Chief Executive Officer presents to the Board at each Board Meeting regarding the Company’s performance against its goals and objectives, including the contribution of senior management to that performance. The Board assesses the performance of senior management 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, including senior management. Recommendation 1.3: Provide the information indicated in the Guide to reporting on Principle 1. A performance evaluation of Executives and senior management has taken place during the reporting period in accordance with the process disclosed above. A copy of the Board Charter is available in the Corporate Governance section of the Uscom website. Principle 2: Structure the board to add value Uscom Ltd has the services of a Board with an experience at senior levels encompassing fields such as science, medicine, marketing and international business. Further information regarding the Directors is provided in the Directors’ Report at 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, taking into account its , stage of development and nature of its operations. 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, Dr Rob Phillips, is an executive director and is therefore not an independent director. The Board believes that an Executive Chairman is appropriate taking into account the size of the Company, its stage of development and the nature of its operations. Recommendation 2.3: The roles of chairperson and chief executive officer should not be exercised by the same individual. Dr 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 its business, and taking into account Mr Phillips’ qualifications, knowledge and experience in the field of the Company’s operations, and his exceptional knowledge of the Company. 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 is appropriate given the relatively small size of the Board and that it is not intended to increase the size of the Board in the medium term. Uscom Limited - Annual Report 2014 - 5 CORPORATE GOVERNANCE STATEMENT continued Recommendation 2.5: Disclose the process for evaluating the performance of the board, its committees and individual directors. The performance of Directors is evaluated informally by assessing each Director’s contribution and attendance at all Board meetings. 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 [on Page 10]. 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 on page 10. • • 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 on page 10. • 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. Matters relating to Board composition and membership will continue to be overseen by the full Board. • 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 on page 12. 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. Uscom’s Securities Trading Policy applies to all Directors, officers and employees of Uscom – it sets out the prohibition against insider trading and prescribes certain requirements for dealing in the Company’s securities. The Securities Trading Policy is available in the Corporate Governance section of the Uscom website. Uscom’s Code of Conduct is available in the Corporate Governance section of the Uscom 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, which is available in the Corporate Governance section of the Uscom 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. The Company believes this is appropriate taking into account the size of the Company and its stage of development. Uscom Limited - Annual Report 2014 - 6 CORPORATE GOVERNANCE STATEMENT continued 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. Women within whole organisation: Women in senior management positions: Women on the board: 4 (36%) 0% 1 (33%) Recommendation 3.5: Companies should provide the information indicated in the Guide to reporting on Principle 3. This information can be found in the Corporate Governance section of the Company website. Principle 4: Safeguard integrity in financial reporting Recommendation 4.1: Establish an audit committee. During the reporting period, the Board determined that taking into account the size of the Company and the Board, and the nature of the Company’s operations, it was not necessary to have a separate Audit Committee, and the Audit Committee was dissolved. The functions that would be undertaken by an Audit Committee are primarily carried out by the two independent Directors. Ms Sheena Jack, an independent Director, is an experienced financial professional who has held senior positions in that capacity. 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 functions that would ordinarily be the responsibility of an Audit Committee, including issues relating to the Company’s financial information and regular review of the Company’s risk environment, are undertaken primarily by the two independent Directors. Recommendation 4.3: The audit committee should have a formal charter. Not applicable. Recommendation 4.4: Provide the information indicated in the Guide to reporting on Principle 4. The Company does not have an Audit Committee. The attendance of the Committee members at Audit Committee meetings held during the Reporting Period are set out on page 10. The Company has not established a formal procedure for the selection, appointment and rotation of the external auditor. The performance of the external auditor is reviewed on an ongoing basis by the Board and any changes implemented where the Board considers changes are required. 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 Company’s obligations under the ASX Listing Rules and Corporations Act disclosureframework, and 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. Uscom Limited - Annual Report 2014 - 7 CORPORATE GOVERNANCE STATEMENT continued Refer to the Corporate Governance section of the Uscom 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 of the Company. The Company’s primary communications tool is its website, and all announcements are posted on the Company website, immediately after they are released to the ASX. All announcements, dating back to May 2001, are 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. The Company also encourages shareholders to participate in the annual general meeting (AGM). Provision is made for shareholders to submit written questions to the Company and/or the auditor prior to the AGM. Any presentations made at a general meeting are made available immediately after the meeting, by first releasing to ASX, and then posting the presentation on the Uscom website. Ample notice of the Annual General Meeting and any other General Meetings will be provided to shareholders. All documents and presentations general meetings will be posted immediately on the Company website. The auditor attends the Annual General Meeting and is available to answer shareholders’ questions on: • • • • The conduct of the audit; The preparation and conduct of the Auditor’s Report; The accounting policies adopted by Uscom in relation to the preparation of the financial statements; and The independence of the auditor in relation to the conduct of the audit. 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 Board is charged with oversight of the Company’s risk profile. The Board 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 Board 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 Uscom Limited - Annual Report 2014 - 8 CORPORATE GOVERNANCE STATEMENT continued 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 in respect of the financial statements and notes for the financial year that the declaration provided in accordance with section 295A of the Corporations Act 2001 (Cth) 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 also received assurance from the CEO and General Manager in respect of its half-year financials that in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity, and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. 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. Principle 8: Remunerate fairly and responsibly Recommendation 8.1: Establish a Remuneration Committee. The Company does not believe that it is necessary to have a separate Remuneration Committee, taking into account the size of the Company, the stage of its development, and the nature of its operations. Issues relating to board membership will continue to be overseen by the full Board. Uscom Ltd has adopted a remuneration policy based on performance and contribution. Recommendation 8.2: The remuneration committee should be structured so that it: • Consists of a majority of independent directors • • Has at least three members. Is chaired by an independent chair Not applicable 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 2014 - 9 DIRECTORS’ REPORT The Directors present their report on Uscom Ltd and its Controlled Entity for the financial year ended 30 June 2014. 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. Dr R A Phillips Ms S Jack Mr C Bernecker Executive Director - Chairman Non-Executive Director Non-Executive Director Directors’ qualifications and experience Dr Rob Phillips Dr 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 and capital raising. The Company received the Frost and Sullivan Global Entropolis Award for the Emerging Medical Device Company of the Year in 2007. He has a Doctor of Philosophy and a Master of Philosophy in Cardiovascular Medicine from The University of Queensland. He is an Australian Post Graduate Award recipient and was a finalist in the Time-Google-CNN- Science-NYSE 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 cardiac ultrasound, cardiovascular function and circulation. Ms Sheena Jack Ms Sheena Jack is a Non-Executive Director of Uscom Ltd since November 2011 and was also the Chairman of the Audit and Risk Committee until the Audit and Risk Committee was dissolved on 21 February 2014. Sheena was until recently the Chief Financial Officer of HCF when she took up the role of HCF Chief Strategy Officer. Sheena has 25+ 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 has been a Director of Moneytime Health Pty Ltd since January 2007. 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 since November 2011 and was also a member of the Audit & Risk Committee until the Audit and Risk Committee was dissolved on 21 February 2014. Christian is Executive Chairman of Stream Group Limited since February 2014 and was Director of Stream Group Holdings Pty Limited since August 2010. He is Director of a number of other private companies. Christian has more than 10 years of broad investment experience across capital raising, merge and acquisition. 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 Catherine Officer Ms Catherine Officer was appointed the Company Secretary of Uscom Ltd on 18th July 2013. Catherine Officer is an experienced Company Secretary and Corporate Lawyer with over 20 years experience. She has previously held senior positions at ASX Limited and Macquarie Group. She has a Bachelor of Laws from the University of Melbourne. Meetings of Directors Directors Board of Directors Audit and Risk Committee R A Phillips S Jack C Bernecker Meetings held while a Director 8 8 8 No. of meetings attended 8 8 7 Meetings held while a Director - 2 2 No. of meetings attended - 2 2 Uscom Limited - Annual Report 2014 - 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 $1,520,500 (2013: $1,371,683) Dividends No dividends were declared or recommended for the financial year ended 30 June 2014 (2013: nil). Significant changes in state of affairs There were no significant changes in state of affairs during the financial year. Operating and financial review The operating and financial review is stated per the Chairman’s letter on pages 2 to 4. Events after the reporting date Apart from the items disclosed in note 29 to the financial statements, no other matters or circumstances have arisen since the end of the financial year to the date of this report, that has significantly affected or may significantly affect the activities of the Consolidated Entity, the results of those activities or the state of affairs of the Consolidated Entity in the ensuing or any subsequent financial year. Future developments Other than the business activities described in the annual report and, in particular, those matters discussed in the Operating and Financial Review, 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. The Directors are of the opinion that the provision of non-audit services as disclosed in note 26 in the financial report does not compromise the external auditor’s independence as outlined in the Corporations Act 2001 for the following reasons: Uscom Limited - Annual Report 2014 - 11 DIRECTORS’ REPORT continued • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and • None of the services undermine the general principles relating to auditor independence as set out in the Code of Conduct APES110 Code of Ethics of Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in management decision making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Refer to note 26 of the financial statements on page 40 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 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. 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. Uscom Limited - Annual Report 2014 - 12 DIRECTORS’ REPORT continued 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, 2,000,000 options owned by Dr Rob Phillips were cancelled at Dr Rob Phillips request. These options were issued to Dr Rob Phillips under the Executive Share Option Plan in November 2012. Service agreements The Consolidated Entity has entered into an employment agreement with the Executives that • Outlines the components of remuneration payable; and • Specifies termination conditions. Uscom Limited - Annual Report 2014 - 13 DIRECTORS’ REPORT continued 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. The employment terms do not prescribe the duration of employment for executives. 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 2014. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive N Schicht Short term benefits Directors’ Base Fee $ 33,000 38,238 Base salary $ - - - - 170,000 166,000 Total 71,238 336,000 Post employment benefits Superannuation $ 5,238 - Equity Total remuneration Share-based payment $ % of total $ - - - - 38,238 38,238 37,869 42,345(1) 16.9% 250,214 15,355 58,462 2,927 1.6% 184,282 45,272 - 510,972 Other payments $ - - - - - (1) In addition to the above, an expense of $70,210 resulted from the cancellation of 2,000,000 options for R Phillips in accordance with Australian Accounting Standards. No actual benefit accrued to R Phillips as a result of the cancellation. Uscom Limited - Annual Report 2014 - 14 DIRECTORS’ REPORT continued 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. 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. Exercise d During FY2014 No. Number of options over ordinary shares held by Directors and Senior Executives Total vested Lapsed / Cancelled Granted Balance Balance Total unexercisable Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive N Schicht Total 1 July 2013 No. - - 3,000,000 300,000 3,300,000 During FY2014 No. - - - - - During FY2014 30 June 2014 30 June 2014 30 June 2014 No. No. No. - - - - - - No. - - (2,000,000) 1,000,000 500,000 500,000 - 300,000 225,000 (2,000,000) 1,300,000 725,000 75,000 575,000 - - - - - Details of options outstanding as at end of year Holders No. Grant date Exercisable at 30 June 2014 % Expiry date 30 June 2014 Outstanding Option No. Exercise Price $ Issued date fair value $ 8 (Employees & Executive) 1 (Director) Total 29 March 2012 7 November 2012 75% 50% 29 March 2016 1,100,000 0.0595 7 November 2016 1,000,000 0.0595 0.06 0.07 2,100,000 Further details of the options are disclosed in note 18 of the financial statements. Uscom Limited - Annual Report 2014 - 15 DIRECTORS’ REPORT continued Number of shares held by Directors and Senior Executives (including indirect interest) Balance 1 July 2013 No. Received as Remuneration No. Options Exercised No. Net change Other* No. Balance 30 June 2014 No. Non-Executive Director S Jack C Bernecker Executive Director R Phillips Senior Executive N Schicht Total 630,000 - 17,046,733 18,200 17,694,933 - - - - - - - - - - 166,667 - 796,667(1) - - - 17,046,733(2) 18,200(3) 166,667 17,861,600 *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. This Directors’ report is signed in accordance with a resolution of the Board of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. Dr Rob Phillips Ms Sheena Jack Executive Director - Chairman Non-Executive Director Sydney, 15 August 2014 Uscom Limited - Annual Report 2014 - 16 AUDITOR’S INDEPENDENCE DECLARATION Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia DECLARATION OF INDEPENDENCE BY TIM SYDENHAM TO THE DIRECTORS OF USCOM LIMITED AND ITS CONTROLLED ENTITY As lead auditor of Uscom Limited and its controlled entity for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Uscom Limited and the entity it controlled during the period. Tim Sydenham Partner BDO East Coast Partnership Sydney, 15 August 2014 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 1 275, 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 Legislatio (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. Uscom Limited - Annual Report 2014 - 17 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the financial year ended 30 June 2014 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, net of tax Consolidated 2014 $ 2013 $ 1,064,666 (235,308) (2,662,908) 638,734 (140,644) (2,241,981) (1,833,550) (1,743,891) 313,050 372,208 (1,520,500) (1,371,683) Note 3 4 5 6 (893) (893) 4,246 4,246 Total comprehensive income for the year (1,521,393) (1,367,437) Attributable to: Owners of the Company (1,521,393) (1,367,437) Total comprehensive income for the year (1,521,393) (1,367,437) 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 (2.0) (2.0) (2.2) (2.2) This Statement of Profit or Loss and Other Comprehensive Income is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2014 - 18 STATEMENT OF FINANCIAL POSITION As at 30 June 2014 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 Options reserve Accumulated losses Translation reserve Total equity Consolidated 2014 $ 2013 $ Note 8 9 10 11 14 12 13 15 16 16 1,582,834 325,514 216,870 313,050 70,384 2,508,652 541,195 98,436 190,654 372,208 54,472 1,256,965 38,039 1,222,518 1,260,557 51,589 1,506,634 1,558,223 3,769,209 2,815,188 255,770 172,474 428,244 196,107 241,797 437,904 21,572 21,572 22,617 22,617 449,816 460,521 3,319,393 2,354,667 17 18 6 19 26,006,168 1,638,582 (24,402,937) 77,580 23,638,157 1,520,474 (22,882,437) 78,473 3,319,393 2,354,667 This Statement of Financial Position is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2014 - 19 STATEMENT OF CHANGES IN EQUITY For the financial year ended 30 June 2014 Issued Capital Options Reserve Accumulated Losses Consolidated $ $ $ Foreign Currency Translation Reserve $ Total $ Balance at 1 July 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 Loss for the year Other Comprehensive Income Total Comprehensive Income for the year Transactions with Owners in their capacity as owners: Shares Issued Transaction costs on Shares Issued Share-based payments - - - 2,513,207 (145,196) - - - - - - 118,108 (1,520,500) - (1,520,500) - (893) (893) (1,520,500) (893) (1,521,393) - - - - - - 2,513,207 (145,196) 118,108 Balance at 30 June 2014 26,006,168 1,638,582 (24,402,937) 77,580 3,319,393 This Statement of Changes in Equity is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2014 - 20 STATEMENT OF CASH FLOWS For the financial year ended 30 June 2014 Cash flows from operating activities Receipts from customers (inclusive of GST) Interest received Payments to suppliers and employees (inclusive of GST) Grant and other income received Income tax receipt Consolidated 2014 $ 2013 $ Note 829,424 8,090 (2,445,534) 74 372,208 621,253 11,741 (2,015,036) 4,213 406,253 Net cash used in operating activities 20(b) (1,235,738) (971,576) Cash flows from investing activities Purchase of patents and trademarks Purchase of plant and equipment Net cash used in investing activities Cash flows from financing activities Issue of shares (net of share issue cost) Net cash provided by financing activities Net increase/(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 (87,726) (2,908) (92,929) - (90,634) (92,929) 17 2,368,011 1,061,237 2,368,011 1,061,237 1,041,639 540,600 595 1,582,834 (3,268) 548,238 (3,775) 541,195 20 (a) This Statement of Cash Flows is to be read in conjunction with the attached notes. Uscom Limited - Annual Report 2014 - 21 NOTES TO FINANCIAL STATEMENTS Note 1: Adoption of new and revised accounting standards New, revised or amending Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The impact of these Accounting Standards or Interpretations is not expected to have significant impact with the exception of IFRS 15 Revenue from Contracts with customers, where the impact has not yet been assessed. Any significant impact on the accounting policies of the consolidated entity from the adoption of these Accounting Interpretations are disclosed below. The adoption of these Accounting Standards and Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. The following Accounting Standards and Interpretations are most relevant to the consolidated entity: AASB 10 Consolidated Financial Statements The consolidated entity has applied AASB 10 from 1 July 2013, which has a new definition of 'control'. Control exists when the reporting entity is exposed, or has the rights, to variable returns from its involvement with another entity and has the ability to affect those returns through its 'power' over that other entity. A reporting entity has power when it has rights that give it the current ability to direct the activities that significantly affect the investee's returns. The consolidated entity not only has to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 The consolidated entity has applied AASB 13 and its consequential amendments from 1 July 2013. The standard provides a single robust measurement framework, with clear measurement objectives, for measuring fair value using the 'exit price' and provides guidance on measuring fair value when a market becomes less active. The 'highest and best use' approach is used to measure non-financial assets whereas liabilities are based on transfer value. The standard requires increased disclosures where fair value is used. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirement The consolidated entity has applied 2011-4 from 1 July 2013, which amends AASB 124 'Related Party Disclosures' by removing the disclosure requirements for individual key management personnel ('KMP'). Corporations and Related Legislation Amendment Regulations 2013 and Corporations and Australian Securities and Investments Commission Amendment Regulation 2013 (No.1) now specify the KMP disclosure requirements to be included within the directors' report. 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). Uscom Limited - Annual Report 2014 - 22 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) Going Concern The consolidated entity incurred an operating cash outflow of $1,235,738 for the year ended 30 June 2014 (2013: $971,576). The loss for the year ended 30 June 2014 was $1,520,500 (2013: $1,371,683), and the Company finished the year with $1,582,834 cash in the bank, up from $541,195 at end of FY 2013. These conditions indicate the existence of a material uncertainty which may cast doubt over the consolidated entity’s continuance as a going concern. The FY 2014 operations report reflect the costs of acquisition, integration and manufacture of the BP+ device while receipts from the first Uscom BP+ devices, which are currently being manufactured, are scheduled to begin in Q2 of FY 2015. This new manufacture is expected to impact revenues in the proceeding 12-18mths. As part of this preparation the entity has significantly increased distribution capacity during the current period. Currently executed distributor contracts are targeted to boost revenue by an average of $2.3M pa, with Pioneer to begin selling in China following CFDA approval, which may be granted in the second half of FY 2015. FY 2014 delivered a significant increase in USCOM sales, resulting in a 67% increase in revenue from ordinary activities, up from $638,734 to $1,064,666, and it is anticipated that this growth trend will continue as new distributors ramp up to target volumes. Our budget forecasts have been predicated on conservative assumptions and cautious cash management. While China, our main market, remains strong, there remains a potential for markets to perform at the lower end of expectations, and we are well poised should they improve more rapidly. If regulatory approvals are timely, current sales trends continue, new distributors achieve targets, and revenues increase over the next 12 to 18mths as anticipated, then current cash will meet requirements. However accurate forecasting of operating cash flows is difficult. Consequently should the timing of these 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 through to 31st of August 2015 (12 months from date of audit report). On this basis the financial report has been prepared on the going concern basis. Should the consolidated entity 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 consolidated entity 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 2014. The comparative reporting period was for the year ended 30 June 2013. 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 15 August 2014 by the Directors. Uscom Limited - Annual Report 2014 - 23 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) (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. 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 reporting 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. Uscom Limited - Annual Report 2014 - 24 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) 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. (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 22 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. Uscom Limited - Annual Report 2014 - 25 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) 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% 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. Uscom Limited - Annual Report 2014 - 26 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) Deferred tax is accounted for using the Balance Sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the Consolidated Entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Where the Consolidated Entity is entitled to a research and development tax offset, this is treated as an income tax credit in the period to which the entitlement relates. (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 18 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 Uscom Limited - Annual Report 2014 - 27 NOTES TO FINANCIAL STATEMENTS continued Note 2: Statement of significant accounting policies (continued) 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. (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 29 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 2014 $ 2013 $ 1,056,502 578,753 8,090 74 - - 8,164 11,741 684 44,027 3,529 48,240 Total revenues and other income from continuing operations 1,064,666 638,734 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 210,030 178,269 793,120 396,522 494,900 134,442 41,000 19,500 83,188 287,056 24,881 2,662,908 79,022 15,161 866,313 531,395 216,769 149,733 46,000 18,500 70,817 248,271 - 2,241,981 Operating lease expenses of $120,140 in 2014 (2013: $135,677) are included in occupancy expenses above. Share based expenses of $118,108 in 2014 (2013: $140,801) are included in employee benefits expenses above. Uscom Limited - Annual Report 2014 - 28 NOTES TO FINANCIAL STATEMENTS continued Note 5: Income tax credit Major components of income tax credit Current income tax credit Income tax credit Reconciliation between income tax credit and prima facie tax on accounting loss Accounting loss before income tax Tax benefit at 30% in Australia, 15% in USA (2013: 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 Consolidated 2014 $ 2013 $ 313,050 313,050 372,208 372,208 1,833,550 1,743,891 551,615 (225,377) (8,060) (318,178) 313,050 313,050 524,782 (279,507) (10,015) (235,260) 372,208 372,208 As at 30 June 2014, the Consolidated Entity had estimated unrecouped operating income tax losses of $17,017,122 (2013: $15,821,412). The benefit of these losses of $4,910,427 (2013: $4,570,418) 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 (22,882,437) (1,520,500) (21,510,754) (1,371,683) (24,402,937) (22,882,437) (1,520,500) Number (1,371,683) 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 (2.2) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (2.2) 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. 61,174,959 66,402,185 74,712,512 79,112,580 (2.0) (2.0) 5,227,226 4,400,068 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 215 725,523 16,340 840,756 - 1,582,834 177 438,960 33,749 35,230 33,079 541,195 Uscom Limited - Annual Report 2014 - 29 NOTES TO FINANCIAL STATEMENTS continued Note 9: Trade and other receivables Current Trade receivables Total current receivables Consolidated 2014 $ 2013 $ 325,514 325,514 98,436 98,436 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 21. Note 10: Inventories Current inventories at cost Raw materials Work in Progress 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 139,933 39,912 37,025 216,870 313,050 313,050 163,029 - 27,625 190,654 372,208 372,208 564,251 (529,431) 34,820 562,158 (514,028) 48,130 59,166 (57,114) 2,052 22,120 (21,939) 181 32,871 (31,885) 986 59,166 (56,752) 2,414 22,120 (21,819) 301 32,089 (31,345) 744 Total plant and equipment 38,039 51,589 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 2013 Additions Disposals Depreciation expense Effects of foreign currency exchange differences Carrying amount at 30 June 2014 48,130 2,128 - (15,438) - 34,820 2,414 - - (362) - 2,052 301 - - (120) - 181 744 782 - (540) - 986 Uscom Limited - Annual Report 2014 - 30 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 Impairment Amortisation Carrying amount at 30 June Consolidated 2014 $ 2013 $ 1,889,364 87,726 (203,460) (551,112) 1,222,518 1,506,634 87,726 (178,269) (193,573) 1,222,518 762,330 1,142,928 (15,894) (382,730) 1,506,634 435,472 1,142,928 (15,161) (56,605) 1,506,634 (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 $178,269 has been recognised in the current year (2013: $15,161) in relation to Patents carried in Australia where there has not yet been sufficient sales generated to support the full carrying value. The remaining carrying value of Australian patents after impairment is $62,137. The impairment charge is recorded under Expenses from Continuing Activities (refer to note 4). (i) $1,106,497 of additions in the year ended 30 June 2013 related to the acquisition of Pulsecor Limited’s assets – refer to note 24 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 Current Provision for annual leave Provision for long service leave Non-current Provision for long service leave Provision for warranties 29,136 26,327 14,921 70,384 61,508 165,404 28,858 255,770 85,390 87,084 172,474 12,672 8,900 21,572 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 (a) Aggregate employee benefits 185,146 256,733 Uscom Limited - Annual Report 2014 - 31 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 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 87,500 ordinary shares issued at 5.95 cents 150,000 ordinary shares issued at 20 cents 7,266,668 ordinary shares issued at 15 cents 5,783,337 ordinary shares issued at 24 cents Share issue costs Issued Equity at the end of the year Consolidated 2014 $ 2013 $ 256,733 46,220 (117,807) 185,146 242,717 95,383 (81,367) 256,733 26,006,168 23,638,157 26,006,168 23,638,157 23,638,157 5,206 30,000 1,090,000 1,388,001 (145,196) 21,376,920 150,000 1,084,200 744 1,050,000 (23,707) 26,006,168 23,638,157 (i) (ii) (ii) (ii) (ii) (ii) (i) Cash received in prior year (refer to note 18). (ii) Cash received / (paid) in current year totalling $2,368,011 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 25,000 ordinary shares issued by exercise of options on 30 July 2013 150,000 ordinary shares issued by private placement on 6 August 2013 62,500 ordinary shares issued by exercise of options on 18 September 2013 7,100,001 ordinary shares issued by private placement on 18 September 2013 166,667 ordinary shares issued by private placement on 14 November 2013 5,783,337 ordinary shares issued at by private placement on 24 May 2014 Number 52,124,488 2,000,000 9,034,997 12,500 5,000,000 Number 68,171,985 25,000 150,000 62,500 7,100,001 166,667 5,783,337 Total ordinary shares at the end of the year 81,459,490 68,171,985 The Company’s authorised share capital amounted to 81,459,490 ordinary shares of no par value at 30 June 2014. 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. Uscom Limited - Annual Report 2014 - 32 NOTES TO FINANCIAL STATEMENTS continued Consolidated 2014 $ 2013 $ Note 18: 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. Effect of share-based payment transactions Share Option Plan Options reserve balance at the beginning of the year Expenses arising from share-based payment transactions Options reserve balance for Share Option Plan at the end of the year OSI Systems Right to participate in options Option reserve at the end of the year 1,520,474 118,108 1,638,582 1,379,672 140,801 1,520,473 - 1 1,638,582 1,520,474 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 Cancelled during the financial year Exercised during the financial year Closing number of options Number of Options 2014 6,287,500 - - (2,050,000) (2,050,000) (87,500) 2,100,000 Weighted average exercise price 0.16 - - 0.37 0.06 0.06 0.06 Number of Options 2013 3,560,000 3,000,000 - (260,000) (12,500) 6,287,500 Weighted average exercise price 0.25 0.06 - 0.29 0.06 0.16 Details of options outstanding as at end of the year Exercisable at 30 June 2014 % Holders No. Grant date Expiry date 30 June 2014 Outstanding Option No. Exercise Price $ Issued date fair value $ 8 (Employees & Executives) 1 (Director) Total 29 March 2012 7 November 2012 75% 50% 29 March 2016 1,100,000 0.0595 7 November 2016 1,000,000 0.0595 0.06 0.07 2,100,000 Fair value Fair value was measured using Blackscholes and the inputs to it were as follows: Weighted average share price Range from $0.06 to $0.17 Exercise price Option life Risk-free interest rate Expected dividends Expected volatility* 2,100,000 at $0.0595 4-5 years Range from 3.15% to 4.17% 0 Range from 62% to 76% * 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. Uscom Limited - Annual Report 2014 - 33 NOTES TO FINANCIAL STATEMENTS continued Note 19: Translation reserve Opening balance Translation of financial statements of foreign Controlled Entity Closing balance Note 20: 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 2014 $ 78,473 (893) 77,580 2013 $ 74,227 4,246 78,473 1,582,834 1,582,834 541,195 541,195 (1,520,500) (1,371,683) 16,457 193,573 178,269 118,108 (893) (227,078) (26,216) (7,323) 59,158 (8,589) (46,468) 109,752 (3,621) (71,587) 1,220 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 (1,235,738) (971,576) Significant accounting policies Note 21: 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 29) and equity attributable to equity holders of the Parent Entity, comprising issued capital (note 17 on page 32), and accumulated losses (note 6 on page 29). (c) Outstanding contracts At 30 June 2014, there were no outstanding contracts. (d) Financial risk management objectives The Consolidated Entity’s principal financial instruments are cash and term deposit accounts. Its financial instruments risk is with interest rate risk on its cash and term deposits and liquidity risk for its term deposits. The Consolidated Entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Board is updated monthly by management as to the amounts of funds available to the Consolidated Entity from either cash in the bank or term deposits, and continually monitors interest rate movements. Uscom Limited - Annual Report 2014 - 34 NOTES TO FINANCIAL STATEMENTS continued Note 21: Financial instruments (continued) (e) Foreign currency risk management The Consolidated Entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The Consolidated Entity does not have any forward foreign exchange contracts as at 30 June 2014 and is exposed to foreign currency risk on sales and purchases denominated 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: Cash Current trade debtors Current trade creditors Cash Current trade debtors Current trade debtors Consolidated 2014 US$ 290,166 258,745 1,365 € 50,961 20,300 £ 11,860 2013 US$ 304,132 70,525 17,400 € 17,252 - £ 13,600 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 2014 $ (99,371) 99,371 2013 $ (54,055) 54,055 Interest rate risk management (g) The Consolidated Entity does not have any external loans or borrowings as at 30 June 2014 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. Uscom Limited - Annual Report 2014 - 35 NOTES TO FINANCIAL STATEMENTS continued Note 21: Financial instruments (continued) Interest rate sensitivity (h) A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. Profit/Loss - increase 100 basis points - decrease 100 basis points Consolidated 2014 $ 809 (809) 2013 $ 1,174 (1,174) (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 2014 $ 141,566 5,974 44,603 192,143 2013 $ - - - - No bad debt was written off during the year (2013: $Nil). There was no doubtful debt provision as at 30 June 2014 (2013: Nil). All the past due debts of $192,143 have been received (except $108) subsequent to the reporting date. Liquidity risk management (j) The objective for managing liquidity risk is to ensure the business has sufficient working capital or access to working capital as and when required. The Consolidated Entity limits its exposure to liquidity risk by holding the majority of its assets in cash or term deposits which can be quickly converted to cash if required. The carrying amounts of financial assets and financial liabilities recorded at cost approximate their fair values. The following table details the Consolidated Entity’s remaining contractual maturity for its non-derivative financial assets and liabilities. The table has been drawn up based on the undiscounted cash flows expected to be received/paid by the Consolidated Entity. Uscom Limited - Annual Report 2014 - 36 NOTES TO FINANCIAL STATEMENTS continued Note 21: Financial instruments (continued) Consolidated Fixed interest rate maturing Weighted Average effective interest Rate % Floating interest Within 1 year 1 to 5 years Non- interest bearing Total $ $ $ $ $ 2014 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 2013 Financial assets Cash Trade receivables Other receivables Total financial assets Financial liabilities Trade creditors Payables Total financial liabilities Net financial assets 2.3 - 0.5 - 742,078 - - 742,078 840,756 - - 840,756 - - - - - - 742,078 840,756 505,965 - - 505,965 35,230 - - 35,230 - - - - - - 505,965 35,230 Reconciliation of net financial assets to net assets Net financial assets as above Non financial assets and liabilities Current tax asset Inventories Deposit paid Prepayments Plant and equipment Intangible assets Accruals Provisions Net assets per Statement of Financial Position - - - - - - - - - - - - - - - - - 325,514 29,136 1,582,834 325,514 29,136 354,650 1,937,484 61,508 28,858 90,366 61,508 28,858 90,366 264,284 1,847,118 - 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 2014 $ 1,847,118 313,050 216,870 26,327 14,921 38,039 1,222,518 (165,404) (194,046) 2013 $ 519,723 372,208 190,654 17,331 16,594 51,589 1,506,634 (55,652) (264,414) 3,319,393 2,354,667 The carrying amounts of the consolidated entity’s financial assets and financial liabilities are assumed to approximate their fair values due to their short-term nature. Uscom Limited - Annual Report 2014 - 37 NOTES TO FINANCIAL STATEMENTS continued Note 22: 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 2014 $ 2013 $ - - 8,149 9,501 Company Matters Pty Limited continues to provide company secretary services to the company. The services were carried out by Sarah Prince up to 18 July 2013 and by Catherine Officer from this day onwards. The management of the Consolidated Entity no longer considers the services provided by Company Matters Pty Limited as transactions between related parties. 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 Nick Schicht, General Manager For further remuneration information of key management personnel refer to the remuneration report in the Directors’ report on pages 10 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 2014 $ 407,238 58,462 - 115,482 581,182 2013 $ 451,821 35,227 17,650 104,203 608,901 Uscom Limited - Annual Report 2014 - 38 NOTES TO FINANCIAL STATEMENTS continued Note 23: 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 income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Contributed equity Options reserve Accumulated losses Total equity Parent 2014 $ 2013 $ (1,535,874) (1,535,874) (1,382,447) (1,382,447) 2,484,085 3,622,481 424,474 446,046 1,212,639 2,683,950 435,145 457,762 26,006,168 1,638,582 (24,468,315) 3,176,435 23,638,157 1,520,474 (22,932,443) 2,226,188 Contingent liabilities The parent entity has provided a guarantee in respect of obligations under premises lease of $40,418.01 (2013: nil). No liability was recognised by the parent entity or the consolidated entity in relation to this guarantee. Other than the guarantee mentioned above, the parent entity did not have any contingent liabilities as at 30 June 2014 or 30 June 2013. Capital commitments – Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2014 and 30 June 2013. Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 2. Note 24: 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. Fair Value $ 1,106,497 1,106,497 1,050,000 56,497 1,106,497 Uscom Limited - Annual Report 2014 - 39 NOTES TO FINANCIAL STATEMENTS continued Note 25: 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 26: Auditors’ remuneration Remuneration of BDO East Coast Partnership for Audit of financial report Review of financial report Total auditors’ remuneration Consolidated 2014 $ 2013 $ 131,862 67,334 199,196 - - - 41,000 19,500 60,500 46,000 18,500 64,500 Note 27: Operating segments Segment information The Consolidated Entity operates in the global health and medical products industry. The Consolidated Entity sells two cardiovascular products, the USCOM A1 cardiac output monitor and the Uscom BP+ central blood pressure monitor. Globally the Company has five geographic sales and distribution segments Australia, Asia, the Americas, Europe and Mid East and Africa, and other regions. For each segment, the CEO and General Manager review internal management reports on at least a monthly basis. The largest customer group operates in Asia and accounts for 35% of the total sales. The second largest customer accounts for 16% of the total sales revenues and operates in Europe. For the current period BP+ comprised 5% of the total Uscom sales revenue. 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. Uscom Limited - Annual Report 2014 - 40 NOTES TO FINANCIAL STATEMENTS continued Note 27: Operating segments (continued) Australia Asia Americas Europe $ $ $ $ 2,950 8,090 11,040 2,015,246 (2,004,206) 313,050 407,150 - 407,150 140,538 266,612 - 153,916 - 153,916 455,907 (301,991) - 441,588 74 441,662 261,891 179,771 - Other regions Consolidate d $ 50,898 - 50,898 24,634 26,264 - 1,056,502 8,164 1,064,666 2,898,216 (1,833,550) 313,050 Segment assets Segment liabilities 2,508,325 446,046 156,604 - 417,815 3,770 686,466 - 19,080 178,141 6,212 - 41,516 128 23,828 - 56,327 22,288 33,728 97,687 2014 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 Acquisition of property, plant and equipment and intangibles Impairment of patents Depreciation and amortisation 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 - 59,297 59,297 1,949,598 (1,890,301) 372,208 316,186 - 316,186 99,809 216,377 - 37,298 - 37,298 199,981 (162,683) - 162,417 684 163,101 107,963 55,138 - 62,852 - 62,852 25,274 37,578 - 578,753 59,981 638,734 2,382,625 (1,743,891) 372,208 Segment assets Segment liabilities 1,487,679 457,762 172,681 - 394,504 2,759 760,324 - Acquisition of property, plant and equipment and intangibles Impairment of patents Depreciation and amortisation Note 28: Contingencies 287,409 10,631 177,454 4,530 97,459 - 586,347 - 28,114 244 24,671 25,993 Other than the guarantee mentioned at Note 23, the consolidated entity did not have any contingent liabilities as at 30 June 2014 or 30 June 2013. Note 29: Events after the reporting date No 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 2014 - 41 (1,520,500) 3,769,210 449,816 90,636 178,269 210,030 - - - - - (1,371,683) 2,815,188 460,521 1,148,669 15,161 79,022 - - - - - DIRECTORS’ DECLARATION Uscom Limited and its Controlled Entity The directors of the company declare that: 1. The financial statements, comprising the statement of comprehensive income, statement of financial position, statement of cash flows, statement of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date. 2. The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. 3. In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. 4. The directors have been given the declarations required by section 295A. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by: Dr Rob Phillips Ms Sheena Jack Executive Director - Chairman Non-Executive Director Sydney, 15 August 2014 Uscom Limited - Annual Report 2014 - 42 INDEPENDENT AUDIT REPORT continued Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au Level 11, 1 Margaret St Sydney NSW 2000 Australia INDEPENDENT AUDITOR’S REPORT To the members of Uscom Limited and its controlled entity Report on the Financial Report We have audited the accompanying financial report of Uscom Limited and its controlled entity, which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entity it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. 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 and its controlled entity, 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 2014 - 43 INDEPENDENT AUDIT REPORT continued Opinion In our opinion: (a) the financial report of Uscom Limited and its controlled entity 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 2014 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 after tax of $1,520,500 and incurred net operating cash outflows of $1,235,738 for the year ended 30 June 2014. 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 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of Uscom Limited and its controlled entity for the year ended 30 June 2014 complies with section 300A of the Corporations Act 2001. BDO East Coast Partnership Tim Sydenham Partner Sydney, 15 August 2014 Uscom Limited - Annual Report 2014 - 44 SHAREHOLDER INFORMATION Additional information required by Australian Stock Exchange Listing Rules is as follows. This information is current as at 31 July 2014. (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 107 188 74 126 61 556 Ordinary shares Number 75,460 543,920 593,645 4,931,115 75,315,350 81,459,490 % 0.09% 0.67% 0.73% 6.05% 92.46% 100% There were 182 holders of less than a marketable parcel of 208,423 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 2014 are: Dr Robert Allan Phillips Dr Stephen Frederick Woodford Hsbc Custody Nominees (Australia) Limited - A/C 2 Hsbc Custody Nominees (Australia) Limited Narodni Podnik Ltd 17,046,733 10,268,475 6,266,609 3,338,333 2,746,218 (d) Twenty largest registered holders – ordinary shares Balance as at 31 July 2014 Dr Robert Allan Phillips Dr Stephen Frederick Woodford Hsbc Custody Nominees (Australia) Limited - A/C 2 Hsbc Custody Nominees (Australia) Limited Narodni Podnik Ltd Drp Cartons (Nsw) Pty Ltd Corf Corporation Pty Limited Bell Potter Nominees Ltd Invia Custodian Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Moore Family Nominee Pty Ltd Mr Fredrik Holger Uden Link Traders (Aust) Pty Ltd Ubs Nominees Pty Ltd Big Macs Pty Ltd Mr John Lionel Gleeson Ubs Wealth Management Australia Nominees Pty Ltd Sandhurst Trustees Ltd Arinya Investments Pty Ltd Ross Planning Pty Ltd Ordinary shares Number 17,046,733 10,268,475 6,266,609 3,338,333 2,746,218 2,359,616 2,266,667 2,121,836 2,088,118 2,014,982 1,900,000 1,544,970 1,220,809 1,197,834 1,169,111 1,145,819 1,125,000 1,041,667 1,022,101 1,000,001 % 20.93% 12.61% 7.69% 4.10% 3.37% 2.90% 2.78% 2.61% 2.56% 2.47% 2.33% 1.90% 1.50% 1.47% 1.44% 1.41% 1.38% 1.28% 1.26% 1.23% Total 62,884,899 77.22% Uscom Limited - Annual Report 2014 - 45 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 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 81,459,490 ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange Limited. Unquoted securities Options over unissued shares A total of 2,100,000 options over ordinary shares are on issue. 1,000,000 options are on issue to a director and 1,100,000 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 2014 - 46