PART
I
Item
1. Identity of Directors, Senior Management and Advisers
Not
applicable
Item
2. Offer Statistics and Expected Timetable
Not
applicable.
Item
3. Key Information
Item
3.A Selected Financial Data
The
following selected financial data for the five years ended June 30, 2020 is derived from the audited consolidated financial statements
of Genetic Technologies Limited, prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board, which became effective for our Company as of our fiscal year ended
June 30, 2006.
The
balance sheet data as of June 30, 2020 and 2019 and the statement of comprehensive income/(loss) data for the 2020, 2019 and 2018
fiscal years are derived from our audited consolidated financial statements which are included in this Annual Report. Balance
sheet data as of June 30, 2018, 2017 and 2016 and statements of comprehensive income/ (loss) data for the 2017 and 2016 financial
years are derived from our audited consolidated financial statements which are not included in this Annual Report. The data should
be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
All
amounts are stated in Australian dollars as of June 30, 2020 as noted.
CONSOLIDATED
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME/ (LOSS)
FOR
2020, 2019, 2018, 2017 AND 2016
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
|
(in
A$, except loss per share and number of shares)
|
|
Revenue
from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genetic
testing services
|
|
|
9,864
|
|
|
|
25,444
|
|
|
|
189,254
|
|
|
|
518,506
|
|
|
|
824,586
|
|
Less:
cost of sales
|
|
|
(251,511
|
)
|
|
|
(276,267
|
)
|
|
|
(300,088
|
)
|
|
|
(492,417
|
)
|
|
|
(743,060
|
)
|
Gross
profit/(loss) from operations
|
|
|
(241,647
|
)
|
|
|
(250,823
|
)
|
|
|
(110,834
|
)
|
|
|
26,089
|
|
|
|
81,526
|
|
Other
revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300,548
|
|
Selling
and marketing expenses
|
|
|
(637,295
|
)
|
|
|
(576,077
|
)
|
|
|
(1,066,404
|
)
|
|
|
(2,721,474
|
)
|
|
|
(3,186,497
|
)
|
General
and administrative expenses
|
|
|
(4,058,557
|
)
|
|
|
(3,830,198
|
)
|
|
|
(3,015,818
|
)
|
|
|
(3,109,530
|
)
|
|
|
(3,429,357
|
)
|
Licensing,
patent and legal costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(103,581
|
)
|
Laboratory,
research and development costs
|
|
|
(2,477,578
|
)
|
|
|
(2,360,762
|
)
|
|
|
(2,210,498
|
)
|
|
|
(2,366,334
|
)
|
|
|
(2,584,752
|
)
|
Finance
costs
|
|
|
(14,823
|
)
|
|
|
(20,031
|
)
|
|
|
(28,843
|
)
|
|
|
(31,995
|
)
|
|
|
(28,889
|
)
|
Foreign
exchange gains reclassified on liquidation of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
527,049
|
|
|
|
—
|
|
|
|
—
|
|
Other
gains/(losses)
|
|
|
(5,522
|
)
|
|
|
(407,482
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain
on disposal of business
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment
of intangible asset expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(544,694
|
)
|
|
|
—
|
|
Fair
value gain on financial liabilities at fair value through profit or loss
|
|
|
195,845
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-operating
income and expenses
|
|
|
1,140,647
|
|
|
|
1,019,769
|
|
|
|
441,476
|
|
|
|
344,112
|
|
|
|
492,037
|
|
Loss
from continuing operations before income tax
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
(8,403,826
|
)
|
|
|
(8,458,965
|
)
|
Net
profit from discontinued operation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
before income tax
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
(8,403,826
|
)
|
|
|
(8,458,965
|
)
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loss
for the year
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
(8,403,826
|
)
|
|
|
(8,458,965
|
)
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
(losses)/gains on translation of controlled foreign operations
|
|
|
(33,175
|
)
|
|
|
23,668
|
|
|
|
(522,966
|
)
|
|
|
(130,655
|
)
|
|
|
1,307,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss)/income for the year, net of tax
|
|
|
(33,175
|
)
|
|
|
23,668
|
|
|
|
(522,966
|
)
|
|
|
(130,655
|
)
|
|
|
1,307,219
|
|
Total
comprehensive loss for the year
|
|
|
(6,132,105
|
)
|
|
|
(6,401,936
|
)
|
|
|
(5,986,481
|
)
|
|
|
(8,534,481
|
)
|
|
|
(7,151,746
|
)
|
Loss
for the year is attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners
of Genetic Technologies Limited
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
(8,403,826
|
)
|
|
|
(8,458,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loss for the year
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
(8,403,826
|
)
|
|
|
(8,458,965
|
)
|
Total
comprehensive income/(loss) for the year is attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners
of Genetic Technologies Limited
|
|
|
(6,132,105
|
)
|
|
|
(6,401,936
|
)
|
|
|
(5,986,838
|
)
|
|
|
(8,534,481
|
)
|
|
|
(7,151,746
|
)
|
Non-controlling
interests
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
comprehensive loss for the year
|
|
|
(6,132,105
|
)
|
|
|
(6,401,936
|
)
|
|
|
(5,986,838
|
)
|
|
|
(8,534,481
|
)
|
|
|
(7,151,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share (cents per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per ordinary share
|
|
|
(0.15
|
)
|
|
|
(0.24
|
)
|
|
|
(0.22
|
)
|
|
|
(0.40
|
)
|
|
|
(0.49
|
)
|
Weighted-average
shares outstanding
|
|
|
4,155,017,525
|
|
|
|
2,635,454,870
|
|
|
|
2,435,282,724
|
|
|
|
2,121,638,888
|
|
|
|
1,715,214,158
|
|
CONSOLIDATED
BALANCE SHEET DATA
FOR
2020, 2019, 2018, 2017 AND 2016
|
|
As
of
June
30,
|
|
|
As
of
June
30,
|
|
|
As
of
June
30,
|
|
|
As
of
June
30,
|
|
|
As
of
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
AUD
|
|
|
|
|
|
|
|
|
|
(in
A$)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
15,192,749
|
|
|
|
3,195,672
|
|
|
|
5,990,697
|
|
|
|
11,631,649
|
|
|
|
12,131,070
|
|
Non-current
assets
|
|
|
440,230
|
|
|
|
69,333
|
|
|
|
175,284
|
|
|
|
476,648
|
|
|
|
1,158,616
|
|
Total
assets
|
|
|
15,632,979
|
|
|
|
3,265,005
|
|
|
|
6,165,981
|
|
|
|
12,108,297
|
|
|
|
13,289,686
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(1,397,572
|
)
|
|
|
(1,492,990
|
)
|
|
|
(1,450,713
|
)
|
|
|
(1,465,293
|
)
|
|
|
(1,332,189
|
)
|
Non-current
liabilities
|
|
|
(1,220,037
|
)
|
|
|
(809
|
)
|
|
|
(3,390
|
)
|
|
|
(63,960
|
)
|
|
|
(74,308
|
)
|
Total
liabilities
|
|
|
(2,617,609
|
)
|
|
|
(1,493,799
|
)
|
|
|
(1,454,103
|
)
|
|
|
(1,529,253
|
)
|
|
|
(1,406,497
|
)
|
Net
assets
|
|
|
13,015,370
|
|
|
|
1,771,206
|
|
|
|
4,711,878
|
|
|
|
10,579,044
|
|
|
|
11,883,189
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
equity
|
|
|
140,111,073
|
|
|
|
125,498,824
|
|
|
|
122,372,662
|
|
|
|
122,382,625
|
|
|
|
115,272,576
|
|
Reserves
|
|
|
8,755,489
|
|
|
|
6,009,932
|
|
|
|
5,651,162
|
|
|
|
6,044,493
|
|
|
|
6,054,861
|
|
Accumulated
losses
|
|
|
(135,851,192
|
)
|
|
|
(129,737,550
|
)
|
|
|
(123,311,946
|
)
|
|
|
(117,848,074
|
)
|
|
|
(109,444,248
|
)
|
Non-controlling
interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
equity
|
|
|
13,015,370
|
|
|
|
1,771,206
|
|
|
|
4,711,878
|
|
|
|
10,579,044
|
|
|
|
11,883,189
|
|
Exchange
rates
The
following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate in New York
City for Australian dollars expressed in U.S. dollars per $1.00 as certified for customs purposes by the Federal Reserve Bank
of New York.
|
|
At
period end
|
|
|
Average
rate
|
|
|
High
|
|
|
Low
|
|
Period
ended
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yearly
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2016
|
|
|
0.7432
|
|
|
|
0.7289
|
|
|
|
0.7817
|
|
|
|
0.6855
|
|
June
2017
|
|
|
0.7676
|
|
|
|
0.7562
|
|
|
|
0.7680
|
|
|
|
0.7387
|
|
June
2018
|
|
|
0.7399
|
|
|
|
0.7753
|
|
|
|
0.8105
|
|
|
|
0.7355
|
|
June
2019
|
|
|
0.7009
|
|
|
|
0.7153
|
|
|
|
0.7466
|
|
|
|
0.686
|
|
June
2020
|
|
|
0.6893
|
|
|
|
0.6711
|
|
|
|
0.7043
|
|
|
|
0.5755
|
|
Item
3.B Capitalization and Indebtedness
Not
applicable.
Item
3.C Reasons for the Offer and Use of Proceeds
Not
applicable.
Item
3.D Risk Factors
Before
you purchase our ADSs, you should be aware that there are risks, including those described below. You should consider carefully
these risk factors together with all of the other information contained elsewhere in this Annual Report before you decide to purchase
our ADSs.
Risks
Related to our Business
Our
Company has a history of incurring losses.
We
have incurred operating losses in every year since the year ended June 30, 2011. As at June 30, 2020, the Company had accumulated
losses of A$135,851,192 and the extent of any future losses and whether or not the Company can generate profits in future years
remains uncertain. The Company currently does not generate sufficient revenue to cover its operating expenses. We expect our capital
outlays and operating expenditures to remain constant for the foreseeable future as we continue to focus on R&D and new product
development, IP creation and the introduction of predictive genetic testing products. If we fail to generate sufficient revenue
and eventually become profitable, or if we are unable to fund our continuing losses by raising additional financing when required,
our shareholders could lose all or part of their investments.
We
may not be successful in transitioning from our existing product portfolio to our next generation of risk assessment tests, and
our newly developed approach to marketing and distribution of such products may not generate revenues.
Although
we developed and marketed our BREVAGen™ and BREVAGenplus products in the recent past, and had internally developed
product distribution teams in both Australia and the U.S., we believe that our future success is dependent upon our ability to
successfully introduce and sell our newly developed products, “GeneType for Breast Cancer”, and ‘GeneType for
Colorectal Cancer’. Although we believe that we now have world class products that are poised to be an important part of
making predictive genetic testing a mainstream healthcare activity, we may not be successful in transitioning from our existing
products to these products, and there can be no assurance that the demand for these new products will develop. Furthermore, we
plan to introduce our new products to healthcare providers through a global network of distribution partners instead of through
our own sales force. Although we believe that we are building worthwhile sales and distribution relationships with experienced
United States and Chinese medical product distribution firms, there can be no assurance that we will be able to enter into distribution
arrangements on terms satisfactory to us, and that our marketing strategy will be successful and result in significant revenues.
Item
3.D Risk Factors (cont.)
Our
products may never achieve significant market acceptance.
We
may expend substantial funds and management effort on the development and marketing of our predictive genetic testing products
with no assurance that we will be successful in selling our products or services. Our ability to enter into distribution arrangements
to successfully sell our molecular risk assessment and predictive genetic testing products and services will depend significantly
on the perception that our products and services can reduce patient risk and improve medical outcomes, and that our products and
services are superior to existing tests. Our business could also be adversely affected if we expend money without any return.
Failure
to demonstrate the clinical utility of our products could have a material adverse effect on our financial condition and results
of operations.
The
Company believes that its GeneType for Breast Cancer and GeneType for Colorectal Cancer tests, along with the pipeline of new
tests under development have the capacity to transform health outcomes for entire populations. However, it is critical for the
Company to demonstrate the clinical utility of its new products. Clinical utility is the usefulness of a test for clinical practice.
If the Company is unable to demonstrate clinical utility, or if the data is deemed insufficient to validate utility, there may
be insufficient demand for the Company’s products.
If
our competitors develop superior products, our operations and financial condition could be affected.
We
are currently subject to increased competition from biotechnology and diagnostic companies, academic and research institutions
and government or other publicly-funded agencies that are pursuing products and services which are substantially similar to our
molecular risk assessment testing products, or which otherwise address the needs of our customers and potential customers.
Our
competitors in the predictive genetic testing and assessment market include private and public sector enterprises located in Australia,
the U.S. and elsewhere. Many of the organizations competing with us are much larger and have more ready access to needed resources.
In particular, they would have greater experience in the areas of finance, research and development, manufacturing, marketing,
sales, distribution, technical and regulatory matters than we do. In addition, many of the larger current and potential competitors
have already established name / brand recognition and more extensive collaborative relationships.
Our
competitive position in the molecular risk assessment and predictive testing area is based upon, amongst other things, our ability
to:
|
●
|
continue
to strengthen and maintain scientific credibility through the process of obtaining scientific validation through clinical
trials supported by peer-reviewed publication in medical journals;
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create
and maintain scientifically advanced technology and offer proprietary products and services;
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continue
to strengthen and improve the messaging regarding the importance and value that our cancer risk assessment tests provides
to patients and physicians;
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diversify
our product offerings in disease types other than breast cancer;
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obtain
and maintain patent or other protection for our products and services;
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obtain
and maintain required government approvals and other accreditations on a timely basis; and
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successfully
market our products and services.
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If
we are not successful in meeting these goals, our business could be adversely affected. Similarly, our competitors may succeed
in developing technologies, products or services that are more effective than any that we are developing or that would render
our technology, products and services obsolete, noncompetitive or uneconomical.
We
have important relationships with external parties over whom we have limited control.
We
have relationships with academic consultants, research collaborators at other institutions and other advisers who are not employed
by us. Accordingly, we have limited control over their activities and can expect only limited amounts of their time to be dedicated
to our activities. These persons may have consulting, employment or advisory arrangements with other entities that may conflict
with or compete with their obligations to us. Our consultants typically sign agreements that provide for confidentiality of our
proprietary information and results of studies. However, we may not be able to maintain the confidentiality of our technology,
the dissemination of which could hurt our competitive position and results from operations. To the extent that our scientific
consultants, collaborator or advisors develop inventions or processes that may be applicable to our proposed products, disputes
may arise as to the ownership of the proprietary rights to such information, and we may not be successful with any dispute outcomes.
Item
3.D Risk Factors (cont.)
We
may be subject to liability and our insurance may not be sufficient to cover damages.
Our
business exposes us to potential liability risks that are inherent in the testing, manufacturing, marketing and sale of molecular
risk assessment and predictive tests. The use of our products and product candidates, whether for clinical trials or commercial
sale, may expose us to professional and product liability claims and possible adverse publicity. We may be subject to claims resulting
from incorrect results of analysis of genetic variations or other screening tests performed using our products.Litigation of such
claims could be costly. Further, if a court were to require us to pay damages to a plaintiff, the amount of such damages could
be significant and severely damage our financial condition. Although we have public and product liability insurance coverage under
broad form liability and professional indemnity policies, the level or breadth of our coverage may not be adequate to fully cover
any potential liability claims. In addition, we may not be able to obtain additional liability coverage in the future at an acceptable
cost. A successful claim or series of claims brought against us in excess of our insurance coverage and the effect of professional
and/or product liability litigation upon the reputation and marketability of our technology and products, together with the diversion
of the attention of key personnel, could negatively affect our business.
We
use potentially hazardous materials, chemicals and patient samples in our business and any disputes relating to improper handling,
storage or disposal of these materials could be time consuming and costly.
Our
research and development, production and service activities involve the controlled use of hazardous laboratory materials and chemicals,
including small quantities of acid and alcohol, and patient tissue samples. We do not knowingly deal with infectious samples.
We, our collaborators and service providers are subject to stringent Australian federal, state and local laws and regulations
governing occupational health and safety standards, including those governing the use, storage, handling and disposal of these
materials and certain waste products. However, we could be liable for accidental contamination or discharge or any resultant injury
from hazardous materials, and conveyance, processing, and storage of and data on patient samples. If we, our collaborators or
service providers fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable
for any damages that result and this liability could exceed our financial resources. Further, future changes to environmental
health and safety laws could cause us to incur additional expense or restrict our operations.
In
addition, our collaborators and service providers may be working with these same types of hazardous materials, including hazardous
chemicals, in connection with our collaborations. In the event of a lawsuit or investigation, we could be held responsible for
any injury caused to persons or property by exposure to, or release of, these hazardous materials or patient samples that may
contain infectious materials. The cost of this liability could exceed our resources. While we maintain broad form liability insurance
coverage for these risks, the level or breadth of our coverage may not be adequate to fully cover potential liability claims.
We
depend on the collaborative efforts of our academic and corporate partners for research, development and commercialization of
our products. A breach by our partners of their obligations, or the termination of the relationship, could deprive us of valuable
resources and require additional investment of time and money.
Our
strategy for research, development and commercialization of our products has historically involved entering into various arrangements
with academic, corporate partners and others. As a result, the success of our strategy depends, in part, upon the strength of
those relationships and these outside parties undertaking their responsibilities and performing their tasks to the best of their
ability and responding in a timely manner. Our collaborators may also be our competitors. We cannot necessarily control the amount
and timing of resources that our collaborators devote to performing their contractual obligations and we have no certainty that
these parties will perform their obligations as expected or that any revenue will be derived from these arrangements.
If
our collaborators breach or terminate their agreement with us or otherwise fail to conduct their collaborative activities in a
timely manner, the development or commercialization of the product candidate or research program under such collaborative arrangement
may be delayed. If that is the case, we may be required to undertake unforeseen additional responsibilities or to devote unforeseen
additional funds or other resources to such development or commercialization, or such development or commercialization could be
terminated. The termination or cancellation of collaborative arrangements could adversely affect our financial condition, intellectual
property position and general operations. In addition, disagreements between collaborators and us could lead to delays in the
collaborative research, development, or commercialization of certain products or could require or result in formal legal process
or arbitration for resolution. These consequences could be time-consuming and expensive and could have material adverse effects
on the Company.
Item
3.D Risk Factors (cont.)
We
rely upon scientific, technical and clinical data supplied by academic and corporate collaborators, licensors, licensees, independent
contractors and others in the evaluation and development of potential therapeutic methods. There may be errors or omissions in
this data that would materially adversely affect the development of these methods.
If
our sole laboratory facility becomes inoperable, we will be unable to perform our tests and our business will be harmed.
We
rely on our sole laboratory facilities in Melbourne, Australia, which has been certified under the U.S. Clinical Laboratory Improvements
Amendments (“CLIA”). Our current lease of laboratory premises expires August 31, 2021. The facility and the equipment
we use to perform our tests would be costly to replace and could require substantial lead time to repair or replace. If we were
to lose our CLIA certification or other required certifications or licenses, or if the facility is harmed or rendered inoperable
by natural or man-made disasters, including flooding and power outages, it will be difficult or impossible for us to perform our
tests for some period of time. The inability to perform our tests or the backlog of tests that could develop if our facility is
inoperable for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to
regain those customers in the future.
If
we no longer had our own facility and needed to rely on a third party to perform our tests, we could only use another facility
with established state licensure and CLIA accreditation. We cannot assure you that we would be able to find another CLIA- certified
facility willing to comply with the required procedures, that this laboratory would be willing to perform the tests on commercially
reasonable terms, or that it would be able to meet our quality standards. In order to establish a redundant clinical reference
laboratory facility, we would have to spend considerable time and money securing adequate space, constructing the facility, recruiting
and training employees, and establishing the additional operational and administrative infrastructure necessary to support a second
facility. We may not be able, or it may take considerable time, to replicate our testing processes or results in a new facility.
Additionally, any new clinical reference laboratory facility would be subject to certification under CLIA and licensing by several
states, including California and New York, which could take a significant amount of time and result in delays in our ability to
begin operations.
The
loss of key members of our senior management team or our inability to attract and retain highly skilled scientists, clinicians
and salespeople could adversely affect our business.
Our
success depends largely on the skills, experience and performance of key members of our executive management team and others in
key management positions. The efforts of each of these persons together will be critical as we continue to develop our technologies
and testing processes, continue our international expansion and transition to a company with multiple commercialized products.
If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our
technologies and implementing our business strategies.
During
the year, we experienced significant changes in our executive officers, including the appointment of Jerzy Muchnicki as our Interim
Chief Executive Officer on September 24, 2019 following the resignation of Paul Kasian, our former Chief Executive Officer; appointment
of Philip Hains as our Chief Financial Officer on July 15, 2019, and the appointment of Mr. Nicholas Burrows on 2 September, 2019
as a non-executive director. While we believe our current executive officers have the skills and experience to enable us to execute
our business plan, these changes may nevertheless result in a transition phase that could adversely affect our operations in the
short-term.
Our
research and development programs and commercial laboratory operations depend on our ability to attract and retain highly skilled
scientists and technicians, including licensed laboratory technicians, chemists, biostatisticians and engineers. We may not be
able to attract or retain qualified scientists and technicians in the future due to the competition for qualified personnel among
life science businesses. In addition, if there were to be a shortage of clinical laboratory scientists in coming years, this would
make it more difficult to hire sufficient numbers of qualified personnel. We also face competition from universities and public
and private research institutions in recruiting and retaining highly qualified scientific personnel. In addition, our success
depends on our ability to attract and retain salespeople with extensive experience in oncology and close relationships with medical
oncologists, pathologists and other hospital personnel. We may have difficulties sourcing, recruiting or retaining qualified salespeople,
which could cause delays or a decline in the rate of adoption of our tests. If we are not able to attract and retain the necessary
personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to support
our research and development and sales programs.
Item
3.D Risk Factors (cont.)
Changes
in the way that the FDA regulates our tests could result in the delay or additional expense in offering our tests and tests that
we may develop in the future.
Historically,
the U.S. Food and Drug Administration (“FDA”) has exercised enforcement discretion with respect to most laboratory-developed
tests (“LDTs”) and has not required laboratories that furnish LDTs to comply with the agency’s requirements
for medical devices (e.g., establishment registration, device listing, quality systems regulations, premarket clearance or premarket
approval, and post-market controls). In recent years, however, the FDA publicly announced its intention to regulate certain LDTs
and issued two draft guidance documents that set forth a proposed phased-in risk-based regulatory framework that would apply varying
levels of FDA oversight to LDTs. However, these guidance documents were withdrawn at the end of the Obama administration and replaced
by an informal discussion paper reflecting some of the feedback that FDA had received on LDT regulation. The FDA acknowledged
that the discussion paper in January 2017 does not represent the formal position of the FDA and is not enforceable. Nevertheless,
the FDA wanted to share its synthesis of the feedback that it had received in the hope that it might advance public discussion
on future LDT oversight. Notwithstanding the discussion paper, the FDA continues to exercise enforcement discretion and may decide
to regulate certain LDTs on a case-by-case basis at any time, which could result in delay or additional expense in offering our
tests and tests that we may develop in the future.
Our
business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes
in, or changing interpretations of, CLIA or state laboratory licensing laws to which we are subject.
The
clinical laboratory testing industry is subject to extensive federal and state regulation, and many of these statutes and regulations
have not been interpreted by the courts. The regulations implementing CLIA set out federal regulatory standards that apply to
virtually all clinical laboratories (regardless of the location, size or type of laboratory), including those operated by physicians
in their offices, by requiring that they be certified by the federal government or by a federally approved accreditation agency.
CLIA does not preempt state law, which in some cases may be more stringent than federal law and require additional personnel qualifications,
quality control, record maintenance and proficiency testing. The sanction for failure to comply with CLIA and state requirements
may be suspension, revocation or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business,
as well as significant fines and/or criminal penalties. Several states have similar laws and we may be subject to similar penalties.
If the certification of one laboratory owned by the Company is suspended or revoked that may preclude the Company from owning
or operating any other laboratory in the Country for two years.
We
cannot assure you that applicable statutes and regulations and more specifically, the Food, Drug, and Cosmetic Act, will not be
interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect our business.
Potential sanctions for violation of these statutes and regulations include significant fines and the suspension or loss of various
licenses, certificates and authorizations, which could have a material adverse effect on our business. In addition, compliance
with future legislation could impose additional requirements on us, which may be costly.
Failure
to establish and comply with appropriate quality standards to assure that the highest level of quality is observed in the performance
of our testing services and in the design, manufacture and marketing of our products could adversely affect the results of our
operations and adversely impact our reputation.
The
provision of clinical testing services, and the design, manufacture and marketing of diagnostic products involve certain inherent
risks. The services that we provide and the products that we design, manufacture and market are intended to provide information
for healthcare providers in providing patient care. Therefore, users of our services and products may have a greater sensitivity
to errors than the users of services or products that are intended for other purposes. Similarly, negligence in performing our
services can lead to injury or other adverse events. We may be sued under common law, physician liability or other liability law
for acts or omissions by our laboratory personnel. We are subject to the attendant risk of substantial damages awards and risk
to our reputation.
Item
3.D Risk Factors (cont.)
If
we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report
our financial results or prevent fraud.
Effective
internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate
disclosure controls and procedures, are designed to prevent fraud. Any failure to design and implement an effective system of
internal control may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.
Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of the ADSs and our Ordinary Shares.
As
of June 30, 2020, our Interim Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal
control over financial reporting. In connection with this assessment, we identified the material weakness in internal control
over financial reporting as of June 30, 2020 in relation to segregation of duties: Refer to Item 15.B for the description of
the material weakness and Item 15.D for the efforts currently being undertaken to remediate the material weakness identified.
In
an effort to remediate the previously identified material weakness and to enhance our overall control environment, we continued
to implement policies and procedures to ensure segregation of duties are appropriate and continuous training for the finance team
is in place. However, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will
be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial
reporting or that they will prevent potential future material weaknesses.
Failure
to comply with complex federal and state laws and regulations related to submission of claims for clinical laboratory services
could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs.
We
are subject to extensive federal and state laws and regulations relating to the submission of claims for payment for clinical
laboratory services, including those that relate to coverage of our services under Medicare, Medicaid and other governmental health
care programs, the amounts that may be billed for our services and to whom claims for services may be submitted. In addition,
we are subject to various laws regulating our interactions with other healthcare providers and with patients, such as the Anti-Kickback
Statute, the Anti-Inducement Statute, and the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark law.
These laws are complicated.
Our
failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or result
in attempts by third-party payers, such as Medicare and Medicaid, to recover payments from us that have already been made. Submission
of claims in violation of certain statutory or regulatory requirements can result in penalties, including substantial civil penalties
for each item or service billed to Medicare in violation of the legal requirement, and exclusion from participation in Medicare,
Medicaid and other federal health care programs. Government authorities or whistleblowers may also assert that violations of laws
and regulations related to submission or causing the submission of claims violate the federal False Claims Act, or FCA, or other
laws related to fraud and abuse, including submission of claims for services that were not medically necessary. Violations of
the FCA could result in significant economic liability. For example, we could be subject to FCA liability if it were determined
that the services we provided were not medically necessary and not reimbursable or if it were determined that we improperly paid
physicians who referred patients to our laboratory. It is also possible that the government could attempt to hold us liable under
fraud and abuse laws for improper claims submitted by an entity for services that we performed if we were found to have knowingly
participated in the arrangement that resulted in submission of the improper claims.
Failure
to comply with HIPAA, including regarding the use of new “standard transactions,” may negatively impact our business.
Pursuant
to the Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, we must comply with comprehensive privacy
and security standards with respect to the use and disclosure of protected health information, as well as standards for electronic
transactions, including specified transaction and code set rules. Under the 2009 HITECH amendments to HIPAA, the law was expanded,
including requirements to provide notification of certain identified data breaches, direct patient access to laboratory records,
the extension of certain HIPAA privacy and security standards directly to business associates, and heightened penalties for noncompliance,
and enforcement efforts.
Item
3.D Risk Factors (cont.)
If
we fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business, we could
suffer severe consequences that could materially and adversely affect our operating results and financial condition.
Our
operations are subject to extensive federal, state, local and foreign laws and regulations, all of which are subject to change.
These laws and regulations currently include, among other things:
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CLIA,
which requires that laboratories obtain certification from the federal government, and state licensure laws;
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FDA
laws and regulations;
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HIPAA,
which imposes comprehensive federal standards with respect to the privacy and security of protected health information and
requirements for the use Of certain standardized electronic transactions; amendments to HIPAA under HITECH, which strengthen
and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority
to state attorneys general and impose requirements for breach notification;
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state
laws regulating genetic testing and protecting the privacy of genetic test results, as well as state laws protecting the privacy
and security of health information and personal data and mandating reporting of breaches to affected individuals and state
regulators;
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the
federal anti-kickback law, or the Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting,
receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual,
or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal
health care program;
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other
federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts,
which may extend to services reimbursable by any third-party payor, including private insurers;
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the
federal Physician Payments Sunshine Act, which requires medical device manufactures to track and report to the federal government
certain payments and other transfers of value made to physicians and teaching hospitals and ownership or investment interests
held by physicians and their immediate family members;
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Section
216 of the federal Protecting Access to Medicare Act of 2014 (“PAMA”), which requires applicable laboratories
to report private payor data in a timely and accurate manner beginning in 2017 and every three years thereafter (and in some
cases annually);
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state
laws that impose reporting and other compliance-related requirements; and
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similar
foreign laws and regulations that apply to us in the countries in which we operate.
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These
laws and regulations are complex and are subject to interpretation by the courts and by government agencies. Our failure to comply
could lead to civil or criminal penalties, exclusion from participation in state and federal health care programs, or prohibitions
or restrictions on our laboratory’s ability to provide or receive payment for our services. We believe that we are in material
compliance with all statutory and regulatory requirements, but there is a risk that one or more government agencies could take
a contrary position, or that a private, party could file suit under the qui tam provisions of the federal False Claims Act or
a similar state law. Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important
business relationships with third parties, including managed care organizations, and other private third-party payors.
A
failure to comply with any of federal or state laws applicable to our business, particularly laws related to the elimination of
healthcare fraud, may adversely impact our business.
Federal
officials responsible for administering and enforcing the healthcare laws and regulations have made a priority of eliminating
healthcare fraud. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation
Act of 2010, jointly the “Affordable Care Act,” includes significant fraud and abuse measures, including required
disclosures of financial arrangements between drug and device manufacturers, on the one hand, and physicians and teaching hospitals,
on the other hand. Federal funding available for combating health care fraud and abuse generally has increased. While we seek
to conduct our business in compliance with all applicable laws and regulations, many of the laws and regulations applicable to
our business, particularly those relating to billing and reimbursement of tests and those relating to relationships with physicians,
hospitals and patients contain language that has not been interpreted by courts. We must rely on our interpretation of these laws
and regulations based on the advice of our counsel and regulatory or law enforcement authorities may not agree with our interpretation
of these laws and regulations and may seek to enforce legal remedies or penalties against us for violations. From time to time
we may need to change our operations, particularly pricing or billing practices, in response to changing interpretations of these
laws and regulations or regulatory or judicial determinations with respect to these laws and regulations. These occurrences, regardless
of their outcome, could damage our reputation and harm important business relationships that we have with healthcare providers,
payers and others.
Item
3.D Risk Factors (cont.)
Healthcare
plans have taken steps to control the utilization and reimbursement of healthcare services, including clinical test services.
We
also face efforts by non-governmental third-party payers, including healthcare plans, to reduce utilization and reimbursement
for clinical testing services. The healthcare industry has experienced a trend of consolidation among healthcare insurance plans,
resulting in fewer but larger insurance plans with significant bargaining power to negotiate fee arrangements with healthcare
providers, including clinical testing providers. Some healthcare plans have been willing to limit the PPO or POS laboratory network
to only a single national laboratory to obtain improved fee-for-service pricing. There are also an increasing number of patients
enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing.
The
increased consolidation among healthcare plans also has increased the potential adverse impact of ceasing to be a contracted provider
with any such insurer. Sales volumes and prices of our products depend in large part on the availability of coverage and reimbursement
from third-party payers. Third-party payers include governmental programs such as U.S. Medicare and Medicaid, private insurance
plans, and workers’ compensation plans. These third-party payers may deny coverage or reimbursement for a product or procedure
if they determine that the product or procedure was not medically appropriate or necessary. Even though a new product may have
been cleared for commercial distribution by relevant regulatory authorities, we may find limited demand for the product until
reimbursement approval is assured from multiple governmental and private third-party payers. In the United States, a uniform policy
of coverage does not exist across all third-party payers relative to payment of claims for all products. Therefore, coverage and
payment can be quite different from payor to payor, and from one region of the country to another. This is also true for foreign
countries in that coverage and payment systems vary from country to country.
Third-party
payers are developing increasingly sophisticated methods of controlling healthcare costs through more cost- effective methods
of delivering healthcare. All of these types of programs can potentially impact market access for, and pricing structures of our
products, which in turn, can impact our future sales. There can be no assurance that third-party reimbursement will be available
or adequate, or that current and future legislation, regulation or reimbursement policies of third-party payers will not adversely
affect the demand for our products or our ability to sell our products on a profitable basis. The unavailability or inadequacy
of third-party payor reimbursement could have a material adverse effect on our business, operating results, and financial condition.
Outside
the United States, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted
price ceilings on specific product lines and procedures. There can be no assurances that procedures using our products will be
considered medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by
third-party payers, that an adequate level of reimbursement will be available, or that the third-party payers’ reimbursement
policies will not adversely affect our ability to sell our products profitably.
We
expect continuing efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical
test services. These efforts may have a material adverse effect on our business.
Changes
in health care policy could increase our costs, decrease our revenues and impact sales of and reimbursement for our tests.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, or the ACA became law. This law substantially changed the way health care is financed by both governmental and private insurers,
and significantly impacts our industry. The ACA contains a number of provisions that are expected to impact our business and operations,
some of which in ways we cannot currently predict, including those governing enrollments in state and federal health care programs,
reimbursement changes and fraud and abuse, which will impact existing state and federal health care programs and will result in
the development of new programs. Since its enactment, there have been judicial and Congressional challenges to certain aspects
of the ACA. Both Congress and President Trump have expressed their intention to repeal or repeal and replace the ACA, and as a
result, certain sections of the ACA have not been fully implemented or were effectively repealed. The uncertainty around the future
of the ACA, and in particular the impact to reimbursement levels and the number of insured individuals, may lead to delay in the
purchasing decisions of our customers, which may in turn negatively impact our product sales. Further, if reimbursement levels
are inadequate, our business and results of operations could be adversely affected.
Item
3.D Risk Factors (cont.)
In
addition to the ACA, there will continue to be proposals by legislators at both the federal and state levels, regulators and private
third-party payors to reduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional
limitations on the prices we will be able to charge for our tests or the amounts of reimbursement available for our tests from
governmental agencies or private third-party payors.
We
face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.
We
receive a portion of our revenues and pay a portion of our expenses in currencies other than the United States dollar, such as
the Australian dollar, the Euro and the British pound. As a result, we are at risk for exchange rate fluctuations between such
foreign currencies and the United States dollar, which could affect the results of our operations. If the U.S. dollar strengthens
against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenues
and operating expenses. We may not be able to offset adverse foreign currency impact with increased revenues. We do not currently
utilize hedging strategies to mitigate foreign currency risk and even if we were to implement hedging strategies to mitigate foreign
currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs
and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential
accounting implications.
Government
regulation of genetic research or testing may adversely affect the demand for our services and impair our business and operations.
In
addition to the regulatory framework governing healthcare, genetic research and testing has been the focus of public attention
and regulatory scrutiny. From time to time, federal, state and/or local governments adopt regulations relating to the conduct
of genetic research and genetic testing. In the future, these regulations could limit or restrict genetic research activities
as well as genetic testing for research or clinical purposes. In addition, if such regulations are adopted, these regulations
may be inconsistent with, or in conflict with, regulations adopted by other government bodies. Regulations relating to genetic
research activities could adversely affect our ability to conduct our research and development activities. Regulations restricting
genetic testing could adversely affect our ability to market and sell our products and services. Accordingly, any regulations
of this nature could increase the costs of our operations or restrict our ability to conduct our testing business.
Failure
in our information technology systems could significantly increase testing turn-around times or impact on the billing processes
or otherwise disrupt our operations.
Our
laboratory operations depend, in part, on the continued performance of our information technology systems. Our information technology
systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. Sustained system
failures or interruption of our systems in our laboratory operations could disrupt our ability to process laboratory requisitions,
perform testing, and provide test results in a timely manner and/or billing process. Failure of our information technology systems
could adversely affect our business and financial condition.
Breaches
of network or information technology, natural disasters or terrorist attacks could have an adverse impact on our business.
Cyber-attacks
or other breaches of information technology security, natural disasters, or acts of terrorism or war may result in hardware failure
or disrupt our product testing or research and development activities. There has been a substantial increase in frequency of successful
and unsuccessful cyber-attacks on companies in recent years. Such an event may result in our inability, or the inability of our
collaborative partners, to operate the facilities to conduct and complete the necessary activities, which even if the event is
for a limited period of time, may result in significant expenses and/ or significant damage or delay to our commercial or research
activities. While we maintain insurance cover for some of these events, the potential liabilities associated with these events
could exceeded the cover we maintain.
Item
3.D Risk Factors (cont.)
Ethical
and other concerns surrounding the use of genetic information may reduce the demand for our services.
Public
opinion regarding ethical issues related to the confidentiality and appropriate use of genetic testing may influence government
authorities to call for limits on, or regulation of the use of, genetic testing. In addition, such authorities could prohibit
testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Furthermore, adverse
publicity or public opinion relating to genetic research and testing, even in the absence of any governmental regulation, could
reduce the potential markets for our products and services.
Risks
associated with our intellectual property.
The
patenting of genes and issues surrounding access to genetic knowledge are the subjects of extensive and ongoing public debate
in many countries. By way of example, the Australian Law Reform Commission has previously conducted two inquiries into the social
uses of genetic information. The patents we hold overuses of “non-coding” DNA have broad scope and have also been
the subject of debate and some criticism in the media. Individuals or organizations, in any one of the countries in which these
patents have issued, could take legal action to seek their amendment, revocation or invalidation, something which has happened
previously, on several occasions in various jurisdictions, though we have prevailed in all such cases. Furthermore, any time that
we initiate legal action against parties that infringe our patents we face a risk that the infringer will defend itself through
a counterclaim of patent invalidity or other such claims. Subsequent legal action could potentially overturn, invalidate or limit
the scope of our patents.
We
rely heavily upon patents and proprietary technology that may fail to protect our business.
We
rely upon our portfolio of patent rights, patent applications and exclusive licenses to patents and patent applications relating
to genetic technologies. We expect to aggressively patent and protect our proprietary technologies. However, we cannot be certain
that any additional patents will be issued to us because of our domestic or foreign patent applications or that any of our patents
will withstand challenges by others. Patents issued to, or licensed by us may be infringed or third parties may independently
develop the same or similar technologies. Similarly, our patents may not provide us with meaningful protection from competitors,
including those who may pursue patents which may prevent, limit or interfere with our products or which may require licensing
and the payment of significant fees or royalties by us to such third parties in order to enable us to conduct our business. We
may sue or be sued by third parties regarding our patents and other intellectual property rights. These suits are often costly
and would divert valuable funds, time and technical resources from our operations and cause a distraction to management.
We
also rely upon unpatented proprietary technologies and databases. Although we require employees, consultants and collaborators
to sign confidentiality agreements, we may not be able to adequately protect our rights in such unpatented proprietary technologies
and databases, which could have a material adverse effect on our business. For example, others may independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to our proprietary technologies or disclose our technologies
to our competitors.
We
may face difficulties in certain jurisdictions in protecting our intellectual property rights, which may diminish the value of
our intellectual property rights in those jurisdictions.
The
laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and
the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such
other jurisdictions. If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from
effectively protecting, the intellectual property rights for our business in such jurisdictions, the value of those rights may
be diminished and we may face additional competition from others in those jurisdictions. In addition, many countries limit the
enforceability of patents against governments agencies or government contractors. In those countries, the patent owner may have
limited remedies, which could materially diminish the value of such patent.
Item
3.D Risk Factors (cont.)
Our
operations may be adversely affected by the effects of extreme weather conditions or other interruptions in the timely transportation
of specimens.
We
may be required to transport specimens from the U.S. or other distant locations to our laboratory located in Melbourne, Australia.
Our operations may be adversely impacted by extreme weather conditions or other interruptions in the timely transportation of
such specimens or otherwise to provide our services, from time to time. The occurrence of any such event and/or a disruption to
our operations as a result may harm our reputation and adversely impact our results of operations.
Our
CIT Platform will expose us to various risks.
Our
Consumer Initiated Testing platform (CIT), which once implemented will allow for consumers to directly request any of our tests
online with a practitioner involved in the process via telemedicine, will be subject to various risks, including but not limited
to:
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The
risk of failure to protect personal medical information;
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The
risk of breach of cyber security for the platform; and
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The
risk that the platform will fail to perform as expected.
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Our
ability to conduct telehealth services in a particular U.S. state or non-U.S. jurisdiction is dependent upon the applicable laws
governing remote healthcare, the practice of medicine and healthcare delivery in general in such location which are subject to
changing political, regulatory and other influences. Some state medical boards have established new rules or interpreted existing
rules in a manner that limits or restricts the practice of telemedicine. The extent to which a U.S. state or non-U.S. jurisdiction
considers particular actions or relationships to constitute practicing medicine is subject to change and to evolving interpretations
by (in the case of U.S. states) medical boards and state attorneys general, among others, and (in the case of non-U.S. jurisdictions)
the relevant regulatory and legal authorities, each with broad discretion. Accordingly, we must monitor our compliance with law
in every jurisdiction in which we operate, on an ongoing basis, and we cannot provide assurance that our activities and arrangements,
if challenged, will be found to be in compliance with the law. If a successful legal challenge or an adverse change in the relevant
laws were to occur, and we were unable to adapt our business model accordingly, our operations in the affected jurisdictions would
be disrupted, which could have a material adverse effect on our business, financial condition and results of operations.
Discontinuation
or recalls of existing testing products or our customers using new technologies to perform their own tests could adversely affect
our business.
Discontinuation
or recalls of existing testing products or our customers using new technologies to perform their own tests could adversely affect
the Company’s business. Manufacturers may discontinue or recall reagents, test kits or instruments used by us to perform
laboratory testing. Such discontinuations or recalls could adversely affect our costs, testing volume and revenue. In addition,
advances in technology may lead to the development of more cost-effective technologies such as point-of-care testing equipment
that can be operated by physicians or other healthcare providers in their offices or by patients themselves without requiring
the services of freestanding clinical laboratories. Development of such technology and its use by our customers could reduce the
demand for our laboratory testing services and the utilization of certain tests offered by us and negatively impact our revenues.
There
can be no assurances that we will be able to successfully transition our current lab facilities into a COVID-19 testing facility.
Although
we believe we will be able to do so, there can be no assurances that we will be able to make available our existing lab facilities
for conducting of COVID-19 testing. If we are unable to successfully transition our current lab facilities into a COVID-19 testing
facility, we will not be able to move forward our planned short-term business transition of performing COVID-19 testing. Additionally,
time spent attempting to transition our facilities would affect our ability to perform testing for our other products and could
have an adverse impact on business operations.
Even
if we are able to successfully transition our current lab facilities into a COVID-19 testing facility, there can be no assurances
that we will generate revenue from COVID-19 testing.
The
Company has not had any material conversations or entered into any agreements with a third party regarding the performance of
COVID-19 testing and there is no guarantee that we will ever enter into any such agreements. As a result, despite our potential
ability to conduct COVID-19 testing, there can be no assurances that we will be to commercialize such ability to generate any
revenue.
We
may not be able to produce a PRS test that successfully allows for the assessment of risk in a timely manner, if at all.
In
response to the global COVID-19 pandemic, we have completed the development of our COVID-19 risk test, which we believe may allow
for the assessment of risk of an individual contracting a serious disease as a result of the contracting the COVID-19 virus (see
“Recent Developments”). We may be unable to produce a test that successfully allows for the assessment of risk in
a timely manner, if at all. Additionally, our ability to develop an effective test depends upon our ability to rapidly produce
the test, which we have not previously done, and which may require funding or assistance from third parties in order to enable
us to prepare the test in a timely manner. If the outbreak is effectively contained or the risk of infection is diminished or
eliminated before we can successfully develop and manufacture a PRS test, we may be unable to successfully generate revenue from
the development of the PRS test. Our business could be negatively impacted by our allocation of significant resources to a global
health threat that is unpredictable and could rapidly dissipate or against which our PRS test, if developed, may not be deemed
useful or effective enough by the market.
Furthermore,
the testing market is highly competitive, is subject to rapid technological change and is significantly affected by existing or
new products. Our competitors may develop products more rapidly or more effectively than us. If our competitors are more successful
in commercializing their products than us, their success could adversely affect our competitive position and harm our business
prospectus.
Item
3.D Risk Factors (cont.)
Because
the PRS test may not be able to obtain necessary regulatory clearance, we may not generate any revenue.
All
of our existing products are subject to regulation in Australia by CLIA, the U.S. by the FDA and/or other domestic and international
governmental, public health agencies, regulatory bodies or non-governmental organizations. The process of obtaining required approvals
or clearances for a potential new product varies according to the nature of and uses for a specific product. These processes can
involve lengthy and detailed laboratory testing, human clinical trials, sampling activities, and other costly, time-consuming
procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval
or clearance for the product. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance,
even though a product has been approved in another country. The time taken to obtain approval or clearance varies depending on
the nature of the application and may result in the passage of a significant period of time from the date of submission of the
application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling
the subject products, and we may be required to abandon the PRS after devoting substantial time and resources to its development.
If
our PRS test receives necessary CLIA and FDA approvals, it will be subject to continuing governmental regulations and additional
foreign regulations.
If
the FDA determines that enforcement discretion is not appropriate or that LDTs are generally subject to FDA regulation and that
premarket review, including clearance or approval, is required for our PRS tests or any of our future tests, diagnostic test kits
that we may develop, or other products that would be classified as medical devices, the process of obtaining regulatory clearances
or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or
approvals on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new medical device only after
the device has received clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or is the subject of an approved
premarket approval application, or PMA unless the device is specifically exempt from those requirements. The FDA will clear marketing
of a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is substantially
equivalent to other 510(k)-cleared products. High risk devices deemed to pose the greatest risk, such as life-sustaining, life-supporting,
or implantable devices, or devices not deemed substantially equivalent to a previously cleared device, require the approval of
a PMA. The PMA process is more costly, lengthy and uncertain than the 510(k)-clearance process. A PMA application must be supported
by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to
demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use. Our currently commercialized
products have not received FDA clearance or approval, as they are marketed under the FDA’s enforcement discretion for LDTs.
Even if regulatory clearance or approval of a product is required and granted, such clearance or approval may be subject to limitations
on the intended uses for which the product may be marketed and reduce our potential to successfully commercialize the product
and generate revenue from the product. If the FDA determines that our promotional materials, labeling, training or other marketing
or educational activities constitute promotion of an unapproved use, it could request that we cease or modify our training or
promotional materials or subject us to regulatory enforcement actions.
We
are also subject to other federal, state, and foreign regulation concerning the manufacture and sale of our products. Our failure
to comply with U.S. federal, state and foreign governmental regulations could lead to the issuance of warning letters or untitled
letters, the imposition of injunctions, suspensions or loss of regulatory clearance or approvals, product recalls, termination
of distribution, product seizures or civil penalties. In the most extreme cases, criminal sanctions or closure of our manufacturing
facility are possible, any of which could adversely affect our business, operating results and prospects.
The
FDA and similar foreign governmental authorities have the authority to require the recall of regulated products in the event of
material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based
on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. In addition, foreign
governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects
in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device
is found. A government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors,
design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial
resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications
of recalls be reported to FDA within 10 working days after the recall is initiated. Companies are required to maintain certain
records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls involving our products in the
future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, they could require
us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect
our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted.
We
may be subject to liability for our current products or for our planned COVID-19 testing and our insurance may not be sufficient
to cover damages.
Our
current business and potential COVID-19 testing exposes us to potential liability risks that are inherent in the testing, manufacturing,
marketing and sale of molecular risk assessment and predictive tests. The use of our products and product candidates, whether
for clinical trials or commercial sale, may expose us to professional and product liability claims and possible adverse publicity.
We may be subject to claims resulting from incorrect results of analysis of genetic variation or other screening tests performed
using our products or from any future COVID-19 testing. Litigation of such claims could be costly. Further, if a court were to
require us to pay damages to a plaintiff, the amount of such damages could be significant and severely damage our financial condition.
Although we have public and product liability insurance coverage under broad form liability and professional indemnity policies,
the level or breadth of our coverage may not be adequate to fully cover any potential liability claims. In addition, we may not
be able to obtain additional liability coverage in the future at an acceptable cost. A successful claim or series of claims brought
against us in excess of our insurance coverage and the effect of professional and/or product liability litigation upon the reputation
and marketability of our technology and products, together with the diversion of the attention of key personnel, could negatively
affect our business.
Item
3.D Risk Factors (cont.)
Declining
general economic or business conditions, including as a result of the recent COVID-19 outbreak, may have a negative impact on
our business.
Continuing
concerns over economic and business prospects in the United States and other countries have contributed to increased volatility
and diminished expectations for the global economy. These factors, coupled with the prospect of decreased business and consumer
confidence and increased unemployment resulting from the recent COVID-19 outbreak, may precipitate an economic slowdown and recession.
If the economic climate deteriorates, our business, including our access to patient samples and the addressable market for diagnostic
tests that we may successfully develop, as well as the financial condition of our suppliers and our third-party payors, could
be adversely affected, resulting in a negative impact on our business, financial condition, results of operations and cash flows.
The
COVID-19 pandemic is having a negative impact on global markets and business activity, which has had an effect on the operations
of the Company, including but not limited to that sales of our products have been impacted not only by the inability for consumers
to visit their practitioners but also the difficulty our sales team is having in arranging face to face meetings with practitioners.
Our sales team has found it very difficult to reach practitioners to build on the sales momentum created prior to the pandemic,
thus, sales have effectively ceased for the short term. Additionally, in response to the COVID-19 pandemic, the Company has done
the following:
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Moved
forward with its Consumer Initiated Testing platform (CIT), as previously announced on April 1, which allows for consumers
to directly request any of the Company’s tests online with a practitioner involved in the process via telemedicine.
Once the CIT platform goes live, which is anticipated to be within the next sixty days, we believe it will ensure that sales
will be able to recommence in the event a lockdown is maintained and it opens up another significant sales channel.
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Began
the process of attempting to make available our existing lab facilities for the conducting of COVID-19 testing via existing
Polymerase Chain Reaction (or PCR) (a method of amplifying DNA prior to analysis) PCR equipment and personnel.
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We
have also commenced work on a Polygenic Risk Score (or PRS) test for COVID-19, which may allow for the assessment of risk
of an individual contracting a serious disease as a result of the contracting the COVID-19 virus. The proposed test will be
designed using the same strategies used to build our existing GeneType for breast and colorectal cancer tests. Our objective
will be to produce a test that can predict “disease severity” using either genetic information alone (PRS) or
a combination of genetic and clinical information. Biobank data will be interrogated to discover any informative genetic and
phenotypic associations. At this time, we are not certain whether an association exists between genetic or phenotypic variants
and risk of an individual contracting a serious disease as a result of the contracting the COVID-19 virus. If such associations
are identified, they will be incorporated into a proprietary algorithm to potentially predict future disease severity.
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These
new COVID-19 related activities may provide some revenue opportunities for us in the short term and will assist in the development
of additional tests the company is currently working on. We have not made significant progress to date that would lead to orders
or requests to increase capacity and there is no guarantee we will ever receive orders or requests.
Item
3.D Risk Factors (cont.)
Risks
Related to our Securities
Our
ADSs may be delisted from the Nasdaq Capital Market.
In
2019, we were subject to Nasdaq delisting proceedings as a result of our failure to maintain the bid price of the ADSs above the
minimum $1.00 per share requirement and because our reported stockholders’ equity was less than the minimum specified amount
of $2,500,000 as of December 31, 2018. We regained compliance with Nasdaq’s Listing Rules with respect to our bid price
as a result of the adjustment to the ratio of the ADSs that took effect on August 15, 2019, and we regained compliance with the
minimum stockholders’ equity requirement by raising gross proceeds of approximately $3,043,000 in a rights offering completed
on October 29, 2019. On November 6, 2019, we received a letter from Nasdaq notifying us that we had regained compliance with the
equity rule (the “Compliance Letter”).
On
March 13, 2020, we received a determination letter (the “Letter”) from Nasdaq indicating that we did not comply with
the stockholders’ equity rule. The Letter indicates that Listing Rule 5815(d)(4)(B) does not permit an issuer that is deficient
in stockholders’ equity to present a plan of compliance to the Nasdaq Staff if such issuer has failed to comply with that
provision within one year of a Hearing Panel (the “Panel”) determination of compliance. The Letter states that since
we are out of compliance with the equity rule within one year of the Compliance Letter, the Staff cannot allow us to submit a
plan of compliance. We requested an appeal hearing with the Panel to review the delisting determination. Upon Nasdaq’s receipt
of the hearing request by the Company, Nasdaq stayed the suspension of our securities and the filing of the Form 25-NSE pending
the Panel’s decision. An oral hearing took place on April 30, 2020 and in a letter dated May 12, 2020, the Panel granted
the Company the full 180 day extension until September 9, 2020, to publicly disclose full compliance with the minimum shareholder
equity requirement under Nasdaq rules. Subsequent to this, the Company has regained compliance with Nasdaq Listing Rule 5550(b)(1)
as of August 25, 2020 (refer to sequence of events below).
On
April 2, 2020, we closed a registered direct offering of 1,028,574 ADSs, at a purchase price of $1.75 per ADS (the “First
April Offering”). H.C. Wainwright & Co., LLC acted as the placement agent for this offering. We intend to use the net
proceeds from this offering to support the introduction and distribution of our new products in the United States, for general
product research and development, including the development of polygenic risk tests with TGen in the United States, for implementation
of our consumer initiated testing platform, and for working capital. The Company issued 40,114,200 warrants to H.C.
Wainright & Co on April 3, 2020, exercisable at US$0.00365 each, expiring in 5 years from issue date. The warrants
are exercisable for fully paid ordinary shares.
On
April 17, 2020, we announced that we have developed a detailed implementation plan to enable a temporary transition of our genetic
testing laboratory to a high-throughput COVID-19 testing laboratory, should it be required by government agencies to assist with
demand (we have not received any such requests to date and there is no guarantee that we will ever receive such requests). Initial
work to identify laboratory workflows, instrument modification, laboratory compliance for biologics and contaminated materials
handling has commenced. Secure supply chain of test reagents has been confirmed. We believe we are prepared to commence testing
within 21 days of receiving a request to assist with demand, if any.
On
April 22, 2020, we closed a registered direct offering of 722,502 ADSs at a purchase price of $2.00 per ADS (the “Second
April Offering,” and together with the First April Offering, the “April Offerings”). H.C. Wainwright & Co.,
LLC acted as the placement agent for this offering. We intend to use the net proceeds of this offering to support the introduction
and distribution of our new products in the United States, for general product research and development, including the development
of polygenic risk tests with TGen in the United States, for implementation of our consumer initiated testing platform and preparation
for potential COVID-19 testing as well as for working capital. The Company issued 28,177,578 warrants to H.C. Wainright
& Co on April 22, 2020, exercisable at US$0.00417 each, expiring in 5 years from issue date. The warrants are
exercisable for fully paid ordinary shares.
On
May 26, 2020, we completed a capital raise by offering of (i) 3,500,000 American Depositary Shares (“ADSs”), for a
purchase price of United States Dollars (US$) US$2.00 per ADS (each representing six hundred (600) of the Company’s ordinary
shares) and (ii) 500,000 pre-funded warrants to purchase one ADS (the “Pre-Funded Warrants”) for a purchase price
of US$1.9999 per Pre-Funded Warrant. H.C. Wainwright & Co., LLC acted as the placement agent for this offering. In connection
with such offering, the Company agreed to issue 156,000,000 warrants exercisable at US$0.004166 each, expiring in 5 years from
issue date, to H.C. Wainwright & Co. The said warrants have not yet been issued as of the date of report as they are subject
to shareholder approval.
On
July 21, 2020, we closed a registered direct offering of 1,025,000 American Depository Shares (ADS’s), each representing
six hundred (600) of the Company’s ordinary shares, at a purchase price of United States Dollars (US$) US$5.00 per ADS -
or in Australian dollars $0.012 per ordinary share. The gross proceeds for this offering was approximately US$5.1 million. Against
the offering, the Company agreed to issue 39,975,000 warrants exercisable at US$0.0104 each, expiring in 5 years from issue date,
to H.C. Wainwright & Co which would form part of cost of raising capital. The said warrants have not been issued as of the
date of report as they are subject to shareholder approval.
As
of August 25, 2020, the Company has regained compliance with the equity requirement of NASDAQ Listing Rule 5550(b)(1), as required
by the Hearings Panel decision dated May 12, 2020.
However,
there can be no assurance that we will be successful in these in maintaining net assets compliance and our securities will remain
listed on the Nasdaq Capital Market. The delisting of our ADSs by Nasdaq would have material negative impacts on the liquidity
of our securities and our ability to raise future capital.
Item
3.D Risk Factors (cont.)
Our
stock price is volatile and can fluctuate significantly based on events not in our control and general industry conditions. As
a result, the value of your investment may decline significantly.
The
biotechnology sector can be particularly vulnerable to abrupt changes in investor sentiment. Stock prices of companies in the
biotechnology industry, including ours, can swing dramatically, with little relationship to operating performance. Our stock price
may be affected by a number of factors including, but not limited to:
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product
development events;
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the
outcome of litigation;
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decisions
relating to intellectual property rights;
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the
entrance of competitive products or technologies into our markets;
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new
medical discoveries;
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the
establishment of strategic partnerships and alliances;
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changes
in reimbursement policies or other practices related to the pharmaceutical industry; or
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other
industry and market changes or trends.
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Since
our listing on the Australian Securities Exchange in August 2000, the price of our Ordinary Shares has ranged from a low of A$0.006
to a high of A$0.039 per share. Further fluctuations are likely to occur due to events which are not within our control and general
market conditions affecting the biotechnology sector or the stock market generally.
In
addition, low trading volume may increase the volatility of the price of our ADSs. A thin trading market could cause the price
of our ADSs to fluctuate significantly more than the stock market as a whole. For example, trades involving a relatively small
number of our ADSs may have a greater impact on the trading price for our ADSs than would be the case if the trading volume were
higher.
The
fact that we do not expect to pay cash dividends may lead to decreased prices for our stock.
We
have never declared or paid a cash dividend on our Ordinary Shares and we do not anticipate doing so in the foreseeable future.
We intend to retain future cash earnings, if any, for reinvestment in the development and expansion of our business. Whether we
pay cash dividends in the future will be at the discretion of our Board of Directors and may be dependent on our financial condition,
results of operations, capital requirements and any other factors our Board of Directors decides is relevant. As a result, an
investor may only recognize an economic gain on an investment in our stock from an appreciation in the price of our stock, which
is uncertain and unpredictable. There is no guarantee that our Ordinary Shares will appreciate in value or even maintain the price
at which an investor purchased the Ordinary Shares.
You
may have difficulty in effecting service of legal process and enforcing judgments against us and our management.
We
are a public company limited by shares, registered and operating under the Australian Corporations Act 2001. The majority
of our directors and officers named in this Annual Report reside outside the U.S. Substantially all, or a substantial portion
of, the assets of those persons are also located outside the U.S. As a result, it may not be possible to affect service on such
persons in the
U.S.
or to enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated on the civil liability
provisions of the federal securities laws of the U.S. Furthermore, substantially all of our directly owned assets are located
outside the U.S., and, as such, any judgment obtained in the U.S. against us may not be collectible within the U.S. There is doubt
as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S.
courts, of civil liabilities predicated solely upon federal or state securities laws of the U.S., especially in the case of enforcement
of judgments of U.S. courts where the defendant has not been properly served in Australia.
Item
3.D Risk Factors (cont.)
Because
we are not required to provide you with the same information as an issuer of securities based in the United States, you may not
be afforded the same protection or information you would have if you had invested in a public corporation based in the United
States.
We
are exempt from certain provisions of the Securities Exchange Act of 1934, as amended, commonly referred to as the Exchange Act,
that are applicable to U.S. public companies, including (i) the rules under the Exchange Act requiring the filing with the SEC
of quarterly reports on Form 10-Q and current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and (iii) the sections of the
Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders
who profit from trades made in a short period of time. The exempt provisions would be available to you if you had invested in
a U.S. corporation.
However,
in line with the Australian Securities Exchange regulations, we disclose our reviewed financial results on a semi- annual basis
(under International Standard on Review Engagements) and our audited financial results on an annual basis (under International
Standards on Auditing). The information, which may have an effect on our stock price on the Australian Securities Exchange, will
be disclosed to the Australian Securities Exchange and also the Securities Exchange Commission. Other relevant information pertaining
to our Company will also be disclosed in line with the Australian Securities Exchange regulations and information dissemination
requirements for listed companies. We provide our semi-annual results and other material information that we make public in Australia
in the U.S. under the cover of an SEC Form 6-K. Nevertheless, you may not be afforded the same protection or information, which
would be made available to you, were you investing in a United States public corporation because the requirements of a Form 10-Q
and Form 8-K are not applicable to us.
A
lack of significant liquidity for our ADSs may negatively affect your ability to resell our securities.
Our
ADSs have traded on the Nasdaq Capital Market since June 30, 2010. An active trading market for the ADSs, however, may not be
maintained in the future. If an active trading market is not maintained, the liquidity and trading prices of the ADSs could be
negatively affected.
In
certain circumstances, holders of ADSs may have limited rights relative to holders of Ordinary Shares.
The
rights of holders of ADSs with respect to the voting of Ordinary Shares and the right to receive certain distributions may be
limited in certain respects by the deposit agreement entered into by us and The Bank of New York Mellon. For example, although
ADS holders are entitled under the deposit agreement, subject to any applicable provisions of Australian law and of our Constitution,
to instruct the depositary as to the exercise of the voting rights pertaining to the Ordinary Shares represented by the American
Depositary Shares, and the depositary has agreed that it will try, as far as practical, to vote the Ordinary Shares so represented
in accordance with such instructions, ADS holders may not receive notices sent by the depositary in time to ensure that the depositary
will vote the Ordinary Shares. This means that, from a practical point of view, the holders of ADSs may not be able to exercise
their right to vote. In addition, under the deposit agreement, the depositary has the right to restrict distributions to holders
of the ADSs in the event that it is unlawful or impractical to make such distributions. We have no obligation to take any action
to permit distributions to holders of our American Depositary Receipts, or ADSs. As a result, holders of ADSs may not receive
distributions made by us.
There
is a substantial risk that we are a passive foreign investment company, or PFIC, which subjects U.S. investors to adverse tax
rules.
Holders
of our ADSs who are U.S. residents face income tax risks. There is a substantial risk that we are a passive foreign investment
company, commonly referred to as a PFIC. Our treatment as a PFIC could result in a reduction in the after-tax return to the holders
of our ADSs. For U.S. federal income tax purposes, we are classified as a PFIC for any taxable year in which either (i) 75% or
more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year
produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive
income. As a result of our substantial cash position in relation to our other assets, we believe that we have been a PFIC in our
most recent taxable years and will continue to be a PFIC in the current tax year. Highly complex rules apply to U.S. holders owning
ADSs. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. United States residents
should carefully read “Item 10.E. Additional Information—Taxation, United States Federal Income Tax Consequences”
in this Annual Report, for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of
our ADSs.
Item
4. Information on the Company
Item
4.A History and Development of the Company
Originally
incorporated under the laws of Western Australia on January 5, 1987 as Concord Mining N.L. the Company operated
as a mining company. On August 13, 1991, the Company changed its name to Consolidated Victorian Gold Mines N.L. On December 2,
1991, the Company changed its name to Consolidated Victorian Mines N.L. On March 15, 1995, the Company changed its name to Duketon
Goldfields N.L.
On
October 15, 1999, the Company’s corporate status was changed from a No Liability Company to a company limited by shares.
On August 29, 2000, following the acquisition of Swiss company GeneType AG, the Company changed its name to Genetic Technologies
Limited, which is its current name. At that time, the mining activities were phased out to focus on becoming a biotechnology company,
following which its stock exchange listing was duly transferred from the mining board of the ASX to the industrial board and its
shares were thereafter classified under the industry Company “Health and Biotechnology”, completing its transformation
from a mining company into a biotechnology company. The Company’s current activities in biotechnology primarily concentrate
on one clearly defined area of activity which is covered under Item 4.B “Business Overview”.
In
October 2009, a new strategic direction was established to focus efforts in creating a portfolio of tests that would be aimed
at assisting medical clinicians with cancer management. This would comprise tests that were created by the Company and in-licensed
from third parties which would then be marketed by us in the Asia-Pacific region.
On
April 14, 2010, the Company announced that it had acquired certain assets from Perlegen Sciences, Inc. in California, with the
main asset being the BREVAGen™ breast cancer risk assessment test (“BREVAGen™”). In addition to the BREVAGen™
test, the Company also acquired a suite of patents valid to 2022 which augment and extend its current non-coding patent portfolio.
On June 28, 2010, the Company incorporated a wholly owned subsidiary named Phenogen Sciences Inc. in the State of Delaware which
commenced selling the BREVAGen™ test in the U.S. marketplace in June 2011. In October 2014, the Company released its next
generation breast cancer risk assessment test BREVAGenplus.
On
November 19, 2014, the Company completed the sale of its Heritage Australian Genetics business to Specialist Diagnostic Services
Ltd (SDS), the wholly owned pathology subsidiary of Primary Health Care Ltd.
In
November 2016, the Company executed an exclusive worldwide license agreement with The University of Melbourne, for the development
and commercialization of a novel colorectal cancer (CRC) risk assessment test, providing the Company with an opportunity to enhance
its pipeline of risk assessment products. Additionally, in June 2017, the Company executed an investigator-initiated Research
Agreement with The Ohio State University, reflecting the growing awareness of the Company’s expertise in SNP- based risk
assessment.
During
2018, the Company executed a further collaborative research and services agreement with The University of Melbourne, with the
research designed to broaden the applicability of BREVAGenplus, enabling its use by women with extended family history
of breast cancer as well as increase the range of factors analyzed in assessing breast cancer.
In
May 2019, the Company announced the development of two new cancer risk assessment tests branded as “GeneType for Colorectal
Cancer” and “GeneType for Breast Cancer.” The new breast cancer test provides substantial improvement over its
legacy breast cancer test BREVAGenplus, by incorporating multiple additional clinical risk factors. This test will provide
healthcare providers and their patients with a 5-year and lifetime risk assessment of the patient developing breast cancer. The
colorectal cancer test will provide healthcare providers and their patients a 5-year, 10-year, and lifetime risk assessment of
the patient developing colorectal cancer.
In
June 2020, the Company received US Patent No: US10,683,549, Methods for assessing risk of developing breast cancer. The Company
is the first company in the world to successfully commercialize a polygenic risk test for breast cancer. The granted patent covers
the Company’s proprietary panels of single nucleotide polymorphisms (SNPs) and the combination of clinical and phenotypic
risk models to create the most comprehensive risk assessment tool on the market: GeneType for Breast Cancer.
The
Company hired and trained a new internal sales employee to educate doctors on the Company’s polygenic risk score (PRS) tests
and introduce them to preventative health strategies. The Company had a very positive response from doctors. Initial test results
showed 10 per cent of subjects were high risk and 41 per cent were moderate risk. The Company believes that these results will
help create personalized strategies specifically designed for the patient risk profile. We think early indications show the tests
lead to better screening compliance and to the development of personalized screening solutions. This confirms the Company’s
objective of focusing on preventative health rather than ‘after the fact’ medicine. However, there is no guarantee
that the PRS tests will generate any substantial income for the Company in the near future or at all.
At
the same time, the Company continued to develop other risk assessment tests across a range of diseases including:
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Cardiovascular
disease
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Type
2 diabetes
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Prostate
cancer
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Melanoma
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Item
4. Information on the Company (cont.)
Item
4.A History and Development of the Company (cont.)
COVID-19
Related Testing
The
Company developed a detailed implementation plan to allow a temporary transition of the Company’s genetic testing laboratory
to a high-throughput COVID-19 test center, should government agencies need it to assist with demand. The Company has begun the
initial work to identify laboratory workflows, instrument modification, and laboratory compliance for biologics and contaminated
materials handling. The Company has also confirmed a secure supply chain of test reagents.
The
Company is developing a polygenic risk score (PRS) test for COVID-19, which may enable an assessment of the risk of people developing
a serious disease should they contract the virus. The test aims to predict disease severity using a combination of genetic and
clinical information.
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Working
prototype developed based on about 3,000 patients
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Options
for clinical risk model currently under evaluation
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Discussions
continue with several international biobanks and clinical laboratories to source an independent cross-validation dataset.
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The
Company has built strong relationships with international biobanks and health studies, including UK Biobank. They allow us to
secure additional, current COVID-19 patient data to continuously develop, refine, and validate the COVID-19 risk test.
The
Company has ordered its first single nucleotide polymorphism (SNP) array panel from US-based Thermo Fisher Scientific Inc., a
world leader in genetic testing and the Company’s manufacturing partner for GeneType products.
The
SNP array panel is a key reagent the Company needs to process the polygenic risk test portion of the COVID-19 risk test. The test
aims to categorize subjects as being at high, average, or low risk of developing life-threatening conditions due to COVID-19.
The
Company has also confirmed capacity to scale up production for a global rollout of the COVID-19 risk test (reagent and SNP array
panel) with major manufacturers, including Thermo Fisher Scientific. The product uses technical components that healthcare manufacturers
already produce for other genetic-based tests. This will support the Company’s plans to accelerate production to meet expected
global demand.
We
estimate that the Company’s Australian facilities can produce up to 250,000 tests a year. The scale-up of manufacturing
will require global distribution partnerships if the COVID-19 risk test is widely adopted. In anticipation of high demand, the
Company expects to make its data pack for the test available to global laboratories. Direct and indirect costs to date are approximately
A$375,000.
Discussions
have taken place with Centres for Medicare and Medicaid Services (CMS) and National Association of Testing Authorities, Australia
(NATA) for regulatory approval for the Company’s COVID-19 risk severity test in the U.S. and Australia.
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The
Company plans to submit a complete technical package to the Centres for Medicare and Medicaid Services (CMS) for review and
approval. Clinical Laboratory Improvement Amendments (CLIA) turn-around time for approval is expected to be approximately
45 days from submission;
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Submission
of the technical file to include scientific literature, algorithm validation, laboratory network validation, and laboratory
procedural documentation; and
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NATA
to provide an assessment after an internal review of the final independent data set for test validation.
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The
test should give risk stratification information which may help personal and population management in two ways, to:
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Guide
quarantine measures on a personal, local, and national scale; and
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Prioritize
vaccination if and when a vaccine becomes available
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The
Company has filed a provisional patent application for its COVID-19 risk test with IP Australia, an agency of Department of
Industry, Innovation and Science (Intellectual Property Australia) (2020901739 - Methods of assessing risk of
developing a severe response to Coronavirus infection). The provisional patent covers the specific single nucleotide polymorphism
(SNP) algorithm the Company designed to calculate a PRS and the testing model that combines PRS and the clinical risk factors
that together constitute the COVID-19 risk test.
Item
4. Information on the Company (cont.)
Item
4.A History and Development of the Company (cont.)
Corporate
Information
The
Company’s registered office, headquarters and laboratory is located at 60-66 Hanover Street, Fitzroy, Victoria, 3065, Australia
and its telephone number is +-61 3 8412 7000. The office of its U.S. subsidiary, Phenogen Sciences Inc., is located at 1300 Baxter
Street, Suite 157, Charlotte, North Carolina, 28269 U.S.A. The telephone number for the Phenogen Sciences office is (877) 992
7382. The Company’s website address is www.gtglabs.com. The information in its website is not incorporated by reference
into this Annual Report and should not be considered as part of this Annual Report.
The
Company’s Australian Company Number (ACN) is 009 212 328. The Company’s Australian Business Number (ABN) is 17 009
212 328. The Company operate pursuant to its constitution, the Australian Corporations Act 2001, the Listing Rules of the
Australian Securities Exchange, the Marketplace Rules of The Nasdaq Stock Market, and where applicable, local, state and federal
legislation in the countries in which the Company operates.
Item
4.B Business Overview Description of Business
Founded
in 1989, Genetic Technologies listed its Ordinary Shares on the ASX (GTG) in 2000 and its ADSs on Nasdaq’s Capital Market
(GENE) in 2005. Genetic Technologies is a molecular diagnostics company that offers predictive testing and assessment tools to
help physicians proactively manage women’s health. The Company’s legacy product, BREVAGenplus, was a clinically
validated risk assessment test for non-hereditary breast cancer and was first in its class. BREVAGenplus improved upon
the predictive power of the first generation BREVAGen test and was designed to facilitate better informed decisions about breast
cancer screening and preventive treatment plans. BREVAGenplus expanded the application of BREVAGen from Caucasian women
to include African-Americans and Hispanics and was directed towards women aged 35 years or above who have not had breast cancer
and have one or more risk factors for developing breast cancer.
The
Company successfully launched the first generation BREVAGen test across the U.S. via its U.S. subsidiary Phenogen Sciences Inc.,
and believes the addition of BREVAGenplus, launched in October 2014, significantly expanded the applicable market. The
Company marketed BREVAGenplus to healthcare professionals in comprehensive breast health care and imaging centers, as well
as to obstetricians/gynecologists (OBGYNs) and breast cancer risk assessment specialists (such as breast surgeons).
In
May 2019, the Company announced that it had developed two new cancer risk assessment tests branded as ‘GeneType for Colorectal
Cancer’ and ‘GeneType for Breast Cancer’. The new breast cancer test provides substantial improvement over the
Company’s legacy breast cancer test BREVAGenplus, by incorporating multiple additional clinical risk factors. This
test will provide healthcare providers and their patients with a 5-year and lifetime risk assessment of the patient developing
breast cancer. The colorectal cancer test will provide healthcare providers and their patients a 5-year, 10-year, and lifetime
risk assessment of the patient developing colorectal cancer.
In
June 2020, the Company received US Patent No: US 10,683,549, Methods for assessing risk of developing breast cancer. The
Company is the first company in the world to successfully commercialize a polygenic risk test for breast cancer. The granted patent
covers the Company’s proprietary panels of single nucleotide polymorphisms (SNPs) and the combination of clinical and phenotypic
risk models to create the most comprehensive risk assessment tool on the market: GeneType for Breast Cancer.
At
the same time, the Company continued to develop other risk assessment tests across a range of diseases, including:
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Cardiovascular
disease
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Type
2 diabetes
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The
Company’s Genetic Testing Business
Following
the acquisition of Genetype AG in 1999 and the subsequent renaming to Genetic Technologies Limited, the Company focused on establishing
a genetic testing business, which over the following decade saw it become the largest provider of paternity and related testing
services in Australia. The Company’s service testing laboratory in Melbourne became the leading non- Government genetic
testing service provider in Australia. The genetic testing services of the Company expanded to include at certain times:
Item
4. Information on the Company (cont.)
Item
4.B Business Overview (cont.)
The
Company’s Genetic Testing Business (cont.)
The
acquisition of GeneType AG also provided the Company with ownership rights to a potentially significant portfolio of issued patents.
During the intervening years, this portfolio has since been expanded by both organic growth and the acquisition of intellectual
property assets from third parties. The patent portfolio is constantly reviewed to ensure that the Company maintains potentially
important patents but at the same time keep costs to a minimum by no longer pursuing less commercially attractive and relevant
intellectual property.
A
strategic alliance with Myriad Genetics Inc. delivered to the Company exclusive rights in Australia and New Zealand to perform
DNA testing for susceptibility to a range of cancers. In April 2003, the Company established its cancer susceptibility testing
facility within its Australian laboratory. In June 2003, this facility was granted provisional accreditation by the National Association
of Testing Authorities, Australia (“NATA”).
In
November 2003, the Company joined the world-wide genetic testing network GENDIA as the sole reference laboratory for the network
in Australia and New Zealand. GENDIA consists of more than 50 laboratories from around the world, each contributing expertise
in their respective disciplines to create a network capable of providing more than 2,000 different genetic tests. This provided
the Company with the ability to offer comprehensive testing services to its customer base in the Asia-Pacific region as well as
increasing its exposure to other markets.
In
April 2010 the Company purchased various assets from Perlegen Sciences, Inc. of Mountain View, California, which included a breast
cancer non-familial risk assessment test, BREVAGen™. The Company then began validating the test in our Australian laboratory
and initiated the process for obtaining CLIA certification which would enable the Company to undertake the testing of samples
received from the U.S. market. By July 2010, a new U.S. subsidiary named Phenogen Sciences Inc. had been incorporated by the Company
in Delaware to market and distribute the BREVAGen™ test across the United States.
In
October 2014, the Company announced the U.S. release of BREVAGenplus, an easy-to-use predictive risk test for the millions
of women at risk of developing sporadic, or non-hereditary, breast cancer, representing a marked enhancement in accuracy and broader
patient applicability, over its first generation BREVAGen product. The Company also made a pivotal change of sales and marketing
emphasis toward large comprehensive breast treatment and imaging centers, which are more complex entities with a longer sales
cycle, but higher potential.
GeneType
for Breast Cancer; a State-of-the-Art Breast Cancer Risk Assessment Test designed to enable a more personalized breast
cancer risk assessment in a greater number of women
The
identification, in 2007, of a number of single nucleotide polymorphisms (SNPs), each with an associated small relative risk of
breast cancer, led to the development of the first commercially available genetic risk test for sporadic breast cancer, BREVAGen
TM. The Company launched the product in the U.S. in June 2011. In October 2014, the Company released its next generation breast
cancer risk assessment test, BREVAGenplus. This new version of the test incorporated a 10-fold expanded panel of genetic
markers (SNPs), known to be associated with the development of sporadic breast cancer, providing an increase in predictive power
relative to its first-generation predecessor test. In addition, the new test was clinically validated in a broader population
of women including, African American and Hispanic women. This increased the applicable market beyond the Caucasian only indication
of the first-generation test, and simplified the marketing process in medical clinics and breast health centers in the U.S.
The
expanded panel of SNPs incorporated into our breast cancer tests were identified from multiple large-scale genome-wide association
studies and subsequently tested in case-control studies utilizing specific Caucasian, African American and Hispanic patient samples.
BREVAGenplus
was a first-in-class, clinically validated, predictive risk test for sporadic breast cancer which examined a woman’s
clinical risk factors, combined with seventy seven scientifically validated genetic biomarkers (SNPs), to allow for more personalized
breast cancer risk assessment and risk management.
In
May 2019, the Company announced the development of its next generation breast cancer risk assessment test, ‘GeneType for
Breast Cancer’. The new breast cancer test provides substantial improvement over its legacy breast cancer test BREVAGenplus
by incorporating multiple additional clinical risk factors. This test will provide healthcare providers and their patients
with a 5-year and lifetime risk assessment of the patient developing breast cancer.
Germline
genetic testing for mutations in BRCA1 and BRCA2 allows for the identification of individuals at significantly increased risk
for breast and other cancers. However, such mutations are relatively rare in the general population and account for less than
10% of all breast cancer cases. The remaining 90% of non-familial or sporadic breast cancer have to be defined by other genetic/clinical
markers common to the population at large and this is where the Company has focused its attention.
Item
4. Information on the Company (cont.)
The
newly developed ‘GeneType for Breast Cancer’ test is aimed at risk detection of non-BRCA related sporadic breast cancer
(that is, for those women who do not have an identified family history of breast cancer). Importantly, this means that the Company’s
new test covers 95% of women.
In
June 2020, the Company received the approval for its U.S. patent, patent number US 10,683,549, “Methods for Assessing Risk
of Developing Breast Cancer.” The granted patent covers the Company’s proprietary panels of single nucleotide polymorphisms
(SNPs) and the combination of clinical and phenotypic risk models to create the most comprehensive risk assessment tool on the
market: GeneType for Breast Cancer.
GeneType
for Colorectal; a State-of-the-Art Risk Assessment Test for Colorectal Cancer.
Next
generation risk assessments combine multiple clinical and genetic risk factors to better stratify individuals at increased risk
of developing disease. ‘GeneType for Colorectal Cancer’ incorporates the most impactful risk factors in order to define
an individual’s risk of developing colorectal cancer, so the healthcare provider can make screening and preventative care
recommendations that are tailored to their patient’s personalized risk.
Colorectal
cancer is the third most commonly diagnosed cancer in the U.S., yet 1 in 3 adults are not receiving the appropriate colorectal
cancer screening for their age. In addition, rates of colorectal cancer among 20-49-year olds is steadily increasing.
Identifying
patients who are most at risk for colorectal cancer can lead to enhanced screening protocols and better outcomes. Most individuals
diagnosed with colorectal cancer do not have a significant family history of the disease. ‘GeneType for Colorectal Cancer’
evaluates the genometric risk of developing colorectal cancer for men and women over age 30 who do not have a known pathogenic
gene variant.
In
sporadic colorectal cancer, no single gene mutation is causal of disease. Rather, common DNA variations or SNPs, each contribute
a small but measurable risk of developing disease. ‘GeneType for Colorectal Cancer’ analyses a patient’s DNA
for more than 40 SNPs that have been clinically validated in their association with colorectal cancer. By combining the effects
of all of these SNPs into a single polygenic risk score (PRS), ‘GeneType for Colorectal Cancer’ will provide a superior
risk stratification over standard risk assessments that incorporate only clinical factors.
‘GeneType
for Colorectal Cancer’ is clinically validated for men and women of 30 years of age or older and for individuals of Caucasian
descent. The Company intend to provide updates as it continuously improves its tests and add fully validated models for additional
ethnicities.
Government
Regulations
CLIA
AND FDA Regulations
In
April 2011, the Company obtained certification of its Australian laboratory under the U.S. Clinical Laboratories Improvements
Amendments of 1988 (“CLIA”), as regulated by the Centers for Medicare and Medicaid in Baltimore, Maryland. This certification
enables the Company to accept and test samples from U.S. residents, and was the culmination of preparations required for the U.S.
launch of the Company’s BREVAGen™ test which occurred in June 2011.
In
July 2013, the Company was inspected by a representative of the New York State Department of Health, Clinical Laboratory Evaluation
Program (“CLEP”). The Company’s laboratory received an inspection result with no deficiencies reported and,
on August 30, 2013, the Company announced that it had received its Clinical Laboratory Permit (CLEP) from the New York State Department
of Health. This permit, which allows the Company to offer its risk assessment tests to residents of New York State, completed
the final out-of-state licensure allowing the Company to provide testing services to all 50 U.S. states.
From
its headquarters in Melbourne, Victoria, the Company’s laboratory holds a number of accreditations including:
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The
CLIA license required for all laboratories offering testing the U.S.;
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The
CLEP license, an additional certification required to offer tests in New York State;
and
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A
Medical Device Establishment License (MDEL) required for Canada.
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Physicians
who order clinical tests for their patients have historically represented the primary source of its testing volume. Fees invoiced
to patients and third parties are based on its fee schedule, which may be subject to limitations imposed by third-party payers.
The clinical laboratory industry is highly regulated and subject to significant and changing Federal and state laws and regulations.
These laws and regulations affect key aspects of
Item
4. Information on the Company (cont.)
The
Company’s business, including licensure and operations, billing and payment for laboratory services, sales and marketing
interactions with ordering physicians, security and confidentiality of health information, and environmental and occupational
safety. Oversight by government officials includes regular inspections and audits. The Company seek to and believe that it conducts
business in compliance with all applicable laws and regulations.
CLIA,
extends Federal licensing requirements to all clinical laboratories (regardless of the location, size or type of laboratory),
including those operated by physicians in their offices, based on the complexity of the tests they perform. CLIA also establishes
a stringent proficiency testing program for laboratories and includes substantial sanctions, such as suspension, revocation or
limitation of a laboratory’s CLIA certificate (which is necessary to conduct business), and significant fines and/or criminal
penalties.
The
tests on samples provided through the Company’s products are processed at its laboratory in Melbourne, Australia. The Company’s
laboratory completed its first CLIA inspection under CLIA guidelines and received its certificate of compliance effective November
17, 2011. A re-certification from CMS i.e. paper survey, was performed in November 2013 and another on-site re-certification followed
up in February 2016. Paper surveys were conducted in November 2017 and November 2019. Furthermore, the Company’s laboratory
completed its first CLEP inspection under the NYS DOH CLEP guidelines and received its certificate of compliance effective August
30, 2013. Since the initial survey, the laboratory has been successful in submitting documents via the NYS eCLEP Health Commerce
System for each subsequent year to date. Although no firm date has been provided, the laboratory is expecting an on-site visit
in the near future.
The
Company believes that it is in compliance with all applicable federal and state laboratory requirements. Under CLIA, the Company
remain subject to state and local laboratory regulations. CLIA provides that a state may adopt laboratory regulations that are
more stringent than those under federal law, and some states require additional personnel qualifications, quality control, record
maintenance and other requirements.
Following
a successful Q3 CLIA audit, the Company renewed its status as a fully NATA and CLIA –accredited laboratory. It places the
Company in a unique position to service both the Australian and US markets subject to regulatory approvals.
Although
the U.S. Food and Drug Administration (“FDA”) has consistently claimed that it has the authority to regulate laboratory-developed
tests (“LDTs”) that are developed, validated and performed only by a CLIA certified laboratory, it has historically
exercised enforcement discretion in not otherwise regulating most LDTs and has not required laboratories that furnish LDTs to
comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, quality systems
regulations, premarket clearance or premarket approval, and post-market controls). More recently, the FDA has indicated that it
will apply a risk-based approach to determine the regulatory pathway for all in-vitro diagnostics, which includes LDTs, as it
does with all medical devices. Accordingly, the regulatory pathway for the Company’s LDTs will depend on the level of risk
to patients, based on the intended use of the LDT and the controls necessary to provide a reasonable assurance of the LDTs safety
and effectiveness. The two primary types of marketing pathways for medical devices are clearance of a premarket notification under
Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or 510(k), and approval of a premarket approval application, or PMA.
HIPAA
and other privacy laws
The
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), established comprehensive federal standards
for the privacy and security of health information. The HIPAA standards apply to three types of organizations: health plans, healthcare
clearing houses, and healthcare providers that conduct certain healthcare transactions electronically (“Covered Entities”).
Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security
of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare
transactions. The privacy regulations protect medical records and other protected health information by limiting their use and
release, giving patients the right to access their medical records and limiting most disclosures of health information to the
minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption of administrative,
physical, and technical safeguards and the adoption of written security policies and procedures.
On
February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH,
provisions of the American Recovery and Reinvestment Act of 2009. HITECH expanded and strengthened HIPAA, created new targets
for enforcement, imposed new penalties for noncompliance and established new breach notification requirements for Covered Entities.
Regulations implementing major provisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus
Rule (the “Omnibus Rule”).
Item
4. Information on the Company (cont.)
Under
HITECH’s breach notification requirements, Covered Entities must report breaches of protected health information that has
not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S. Department of Health and Human
Services (the “Secretary”). Required breach notices must be made as soon as is reasonably practicable, but no later
than 60 days following discovery of the breach. Reports must be made to affected individuals and to the Secretary and, in some
cases depending on the size of the breach; they must be reported through local and national media. Breach reports can lead to
investigation, enforcement and civil litigation, including class action lawsuits.
In
addition to the federal privacy and security regulations, there are a number of state laws regarding the privacy and security
of health information and personal data that are applicable to clinical laboratories. Many states have also implemented genetic
testing and privacy laws imposing specific patient consent requirements and protecting test results by strictly limiting the disclosure
of those results. State requirements are particularly stringent regarding predictive genetic tests, due to the risk of genetic
discrimination against healthy patients identified through testing as being at a high risk for disease. The Company believes that
it has taken the steps required to comply with health information privacy and security statutes and regulations, including genetic
testing and genetic information privacy laws in all jurisdictions, both state and federal. However, these laws constantly change,
and the Company may not be able to maintain compliance in all jurisdictions where it does business. Failure to maintain compliance,
or changes in state or federal laws regarding privacy or security could result in civil and/or criminal penalties, significant
reputational damage and could have a material adverse effect on the Company’s business.
Environmental
and Safety Laws and Regulations
The
Company is subject to laws and regulations related to the protection of the environment, the health and safety of employees and
the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials. For
example, the U.S. Occupational Safety and Health Administration (“OSHA”) has established extensive requirements relating
specifically to workplace safety for healthcare employers in the U.S. This includes requirements to develop and implement multi-
faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any exposure through
needle stick injuries. For purposes of transportation, some biological materials and laboratory supplies are classified as hazardous
materials and are subject to regulation by one or more of the following agencies: the U.S. Department of Transportation, the U.S.
Public Health Service, the U.S. Postal Service and the International Air Transport Association. The Company generally use third-
party vendors to dispose of regulated medical waste, hazardous waste and radioactive materials and contractually require them
to comply with applicable laws and regulations.
The
Company’s operations are also subject to environmental regulations under Australian State legislation. In particular, the
Company is subject to the requirements of the Environment Protection Act 1993. A license has been obtained under this Act
to produce listed waste.
Transparency
Laws and Regulations
A
federal law known as the Physician Payments Sunshine Act (the “Sunshine Act”) requires medical device manufacturers
to track and report to the federal government certain payments and other transfers of value made to physicians and teaching hospitals
and ownership or investment interests held by physicians and their immediate family members. There are also state “sunshine”
laws that require manufacturers to provide reports to state governments on pricing and marketing information. Several states have
enacted legislation requiring medical device manufacturers to, among other things, establish marketing compliance programs, file
periodic reports with the state, make periodic public disclosures on sales and marketing activities, and such laws may also prohibit
or limit certain other sales and marketing practices. These laws may adversely affect our sales, marketing, and other activities
by imposing administrative and compliance burdens on us. If the Company fail to track and report as required by these laws or
to otherwise comply with these laws, it could be subject to the penalty provisions of the pertinent state and federal authorities.
Product
Distribution
Despite
significant resource allocation and efforts by a dedicated sales team, sales of BREVAGenplus were insufficient to defray
the costs of the sales team. By late 2017, management decided that its sales strategy was not working and disbanded much of the
sales infrastructure in the U.S. and transitioned to an ecommerce-based solution that allowed consumers to initiate testing online.
Management then designed a “pivot plan” in an effort to reposition the Company, refine and improve products and reload
with a newly developed approach to market.
Item
4. Information on the Company (cont.)
With
COVID-19 social distancing impacting on the Company’s ability to fully engage with physicians, the Company has brought forward
its plans to introduce a consumer-initiated testing (CIT) platform. This sales pipeline deviates from a traditional sales approach
that targets clinicians. Instead it allows patients to request a test directly, with clinician oversight of the testing process
through an independent provider network and telemedicine. The Company has started negotiations with its preferred independent
provider network which will oversee patient ordering of the CIT pipeline. The Company has entered into binding agreements and
planned to launch its CIT platforms in the third calendar quarter of 2020.
The
Company presented its latest technology and world-leading tests at the 2020 JP Morgan Healthcare Conference in January. The presentation
coincided with the successful launch of the Company’s new tests and the introduction of the Company’s new management
to the U.S. market.
The
Company is finalizing verification of the diabetes test in its Australian laboratory. The Company has completed its marketing
collateral, and plan to launch once more normal conditions return post COVID-19.
Reimbursement
and Clinical Studies
Prior
to April 2017, the Company’s payment model relied on a traditional reimbursement system by Preferred Provider Organizations
(“PPOs”) and other third-party payers, which required credentialing its products with those payers. With effect from
April 1, 2017, the Company transitioned to a direct patient self-pay program. Converting to a direct pay relationship with patients
was aimed at providing economic and process certainty to the transaction for the healthcare provider and the patient. The change
eliminated reimbursement issues from PPO and other third-party payors, including low levels of reimbursement, prolonged payment
time, patient confusion around eligibility and financial responsibility and poor coverage.
This
shift also has reduced the Company’s reliance on clinical utility studies that had been designed as a means to achieve reimbursement
coverage through the private insurers. The Company recognize however that scientific papers are an essential marketing tool, and
that scientific and clinical data are key drivers to help strengthen our commercial position. The Company intends to explore opportunities
to engage in further research collaborations to support clinical utility. Physicians and the major breast health centers seek
multiple points of confirmation that the medical device works as intended and leads to a meaningful improvement in women’s
health. Therefore, the more papers that are published regarding the Company’s genetic tests, profiling product performance
characteristics including clinical validity and utility, the more likely physicians will be to use the tests.
The
Company had previously conducted multiple scientific studies to develop and validate the first generation BREVAGen test and also
created two health economic models to demonstrate potential cost savings and health benefits associated with the BREVAGen test.
Importantly, the research undertaken and published based on the original version of the Company’s test remains applicable
to its new GeneType for Breast Cancer and GeneType for Colorectal Cancer tests.
Research
& Development Projects
During
the year ended June 30, 2020, the Company supported the following research and development programs, details of which are provided
below:
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●
|
Breast
Cancer Risk Assessment Test (GeneType for Breast Cancer)
|
|
●
|
Colorectal
Cancer Risk Assessment Test (GeneType for Colorectal Cancer)
|
|
●
|
Research
collaboration with Translational Genomics Research Institute (“TGen”)
|
|
●
|
Research
Agreement executed with Memorial Sloan Kettering New York Cambridge University
|
|
●
|
Research
collaboration with The Ohio State University
|
|
●
|
Expanded
range of other cancer and disease target predictive risk assessment tests
|
In
previous years, other projects, which have since been terminated or otherwise commercialized, have also been supported by the
Company. The Company is constantly seeking new opportunities and plans to focus more on research and development activities in
the future. In addition, the Company plans on having its science and management team engage with the world’s leading scientific
experts working on predictive genetic testing and its role within world health systems. Historically, some projects have arisen
from new inventions made by the Company while some have been made by others who have approached the Company seeking collaboration
and support for their activities.
Item
4. Information on the Company (cont.)
Collaboration
with the University of Melbourne
On
November 29, 2016, the Company announced the signing of an exclusive worldwide license agreement with The University of Melbourne
for the development and commercialization of a novel colorectal cancer (CRC) risk assessment test. The core technology behind
this test was developed by a research team at the University’s Centre for Epidemiology and Biostatistics, with results from
preliminary modelling studies first published online in Future Oncology on 1 February 2016, in a Paper entitled “Quantifying
the utility of single nucleotide polymorphisms to guide colorectal cancer screening,” 2016 Feb: 12(4), 503-13. This simulated
case-control study of 1 million patients indicated that a panel of 45 known susceptibility SNPs can stratify the population into
clinically useful CRC risk categories. In practice, the technology could be used to identify people at high risk for CRC who should
be subjected to intensive screening, ultimately reducing the risk of occurrence and death from the disease. Those identified as
low risk of CRC can be spared expensive and invasive screening, thereby preventing adverse events and unjustified expenses.
A
scientific validation study supporting this work has been completed, and a report of the research program progress has been delivered
to the Company. Whilst the terms of the Agreement are confidential, these events represent an important first milestone in the
development of a new test as the Company seeks to diversify its product pipeline and become a key player in the SNP-based cancer
risk assessment landscape.
TGen
Collaboration
In
September 2019, the Company signed a three-year collaboration agreement with Translational Genomics Research Institute (TGen).
The agreement includes cooperation in the design feasibility analysis of clinical research studies. The analysis is designed to
support the Company’s polygenic risk tests, by specifically identifying clinical applications or workflows, which would
directly benefit by the addition of a polygenic risk test. For example, some of the Company’s patients may be ineligible
for routine screening based on their age, but if identified as having an elevated risk by the Company’s polygenic tests,
they may become eligible for such screening. The studies are designed to identify areas of such need to enable successful implementation
of the Company’s polygenic tests in the clinical arena. TGen is an Arizona-based world leading non-profit biomedical research
institute dedicated to conducting ground-breaking genetic research. TGen is affiliated with Duarte, a world-renowned independent
research and treatment center for cancer, diabetes, and other life-threatening.
The
collaboration with TGen will focus on a clinical utility as the first stage, working with TGen’s extensive network of cancer
center clinicians. The wide-ranging collaboration will cover distribution channels, reimbursement strategy, further research,
and potential for the establishment of a new laboratory facility. The Company and TGen plan to develop a commercialization strategy
and infrastructure for a suite of polygenic risk tests for the U.S. market, and set up the necessary fund-raising diseases.
Research
Collaboration Memorial Sloan Kettering New York Cambridge University
In
early 2019, the Company’s U.S. subsidiary entered into a Research Agreement with Memorial Sloan Kettering Cancer Center
of New York and the University of Cambridge. This collaborative research study is to be led by Mark Robson, MD, Chief of the Breast
Medicine Service at Sloan Kettering. The study is intended to assess whether the provision of individual risk information informed
by a polygenic risk score reduces decisional conflict among BRCA mutation carriers considering preventive surgery.
The
Company believes this collaboration will benefit its engagement and collaboration with high profile cancer genetics researchers
who are at the forefront of risk assessment research, and by providing us with data that may potentially be beneficial in developing
additional risk assessment products.
Research
Collaboration with The Ohio State University
On
June 15, 2017 the Company executed a Clinical Study Agreement with The Ohio State University, Technology Commercialization Office
and Division of Human Genetics. This is an “investigator-initiated” study in which the Company was approached to be
the collaborating partner, reflecting the growing awareness of the Company’s expertise in SNP-based risk assessment.
Item
4. Information on the Company (cont.)
Under
this Agreement, the Company will supply novel SNP-based genotyping for a clinical research study, through its CLIA laboratory
facility, on a fee for service basis. The Company will be responsible for the development and validation of the new assay, although
the fundamental technology is similar to the BREVAGenplus test and will fit synergistically into the Company’s existing
laboratory infrastructure and processes. Importantly, if the first phase of the study is successful, several other major genetics
centers in the U.S. have expressed an interest in joining the study.
This
collaborative study provides two tangible benefits for the Company:
(i) engagement
and collaboration with high profile cancer genetics researchers in the U.S. who are at the forefront of risk assessment research;
and
(ii) the
resulting data can be used to inform the design of future pipeline products
Whilst
sample collection by the University has been slower than expected during the current year, the Company remains committed to delivering
a high standard of service as envisaged under the terms of the agreement.
Collaboration
with Shivom
The
Company entered into an agreement with Shivom in March 2018. Shivom is a biotechnology data and analysis company that optimizes
the way DNA is shared, secured and analyzed. Under the agreement, Shivom would provide genetic population data for the development
of an Indian market polygenic predictive diabetes test to be developed by the Company, as well as future genetic tests it develops,
and its CLIA laboratory facilities would be used develop a regulatory approval strategy for the distribution of completed products.
To date, the parties have not commenced development activities under this agreement.
Competition
The
medical diagnostics and biotechnology industries are subject to intense competition. As more information regarding cancer genomics
and personalized medicine becomes available to the public, the Company anticipates that more products aimed at identifying cancer
risk will be developed and that these may compete with its products. However, the use of Single Nucleotide Polymorphisms (SNPs),
for disease risk prediction is still a relatively new field of medicine.
Until
recently, there have been no active direct competitors marketing an assay similar to that of the Company’s breast cancer
risk assessment products in the sporadic breast cancer risk assessment space. However, in March 2019, Genomics PLC announced that
it was developing polygenic risk tests for several common diseases including breast cancer. In addition, Myriad Genetic Laboratories
Inc. announced in December 2017 that it will market a new breast cancer risk-prediction tool, which the Company believes will
compete with its GeneType for Breast Cancer test. Similarly, Ambry Genetics Corporation sells a precision risk tool that
provides lifetime breast cancer risk information. Other organizations such as 23andMe and Color Genomics in the U.S. have
also over the past few years developed SNP based risk tests that whilst not currently direct competitors to the Company’s
products, are attracting significant consumer interest.
In
recent years, a number of other organizations, including deCODE (Iceland), 23andMe, Intergenetics, and Navigenics (subsequently
acquired by Life Technologies — now ThermoFisher) have attempted to commercialize SNP-based genetic tests, to both physicians
and consumers, to assess sporadic breast cancer risk in relevant patient populations. But either due to a lack of adequate and
compelling scientific validation, and/or sufficient commercial impetus and capability, these efforts have led to lackluster market
adoption, resulting in either the dissolution of these businesses or a marked change in their strategy. New entrants that the
Company are aware of that are in early stages of product development include Counsyl Inc. and Invitae Corporation in the U.S.
There
are also a number of academic centers and affiliated research and development bodies, in the U.S. and in Europe, that are reportedly
exploring the validity and clinical viability of SNP-based commercial tests in the clinical setting, but it is unclear to what
extent these entities currently represent a direct or indirect potential competitive liability to the Company. A number of established,
mature laboratory services companies, such as Ambry Genetics, and Laboratory Corporation of America, among others, have the demonstrable
product development, marketing skill and resources to enter into this market for sporadic breast cancer risk assessment. Many
of these larger potential competitors have already established name and brand recognition and more extensive collaborative relationships,
but again, it is unclear to what extent these potential competitive threats could manifest in the near-to-long term.
Item
4. Information on the Company (cont.)
The
Company’s competitive position in the genetic testing area is based upon, amongst other things, its ability to:
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continue
to strengthen and maintain scientific credibility through the process of obtaining scientific
validation through clinical trials supported by peer-reviewed publication in medical
journals;
|
|
●
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create
and maintain scientifically advanced technology and offer proprietary products and services;
|
|
●
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continue
to strengthen and improve the messaging regarding the importance and value that the Company’s
cancer risk assessment tests provides to patients and physicians;
|
|
●
|
diversify
the Company’s product offerings in disease types other than breast and
colorectal cancer;
|
|
●
|
obtain
and maintain patent or other protection for the Company’s products and services;
|
|
●
|
obtain
and maintain required government approvals and other accreditations on a timely basis;
and
|
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●
|
successfully
market the Company’s products and services.
|
If
the Company is not successful in meeting these goals, its business could be adversely affected. Similarly, the Company’s
competitors may succeed in developing technologies, products or services that are more effective than any that it is developing
or that would render the Company’s technology and services obsolete, noncompetitive or uneconomical.
Item
4. Information on the Company (cont.)
Item
4.C Organizational Structure
The
diagram below shows the Company’s corporate structure as of the date of this Annual Report. All of the Company’s subsidiaries
in the chart below are wholly owned.
Item
4.D Property, Plant and Equipment
As
at date of this Report, the Company has executed two leases in respect of premises occupied by the Company.
Fitzroy,
Victoria
The
Company rents offices and laboratory premises located at 60-66 Hanover Street, Fitzroy, Victoria, Australia (an inner suburb of
Melbourne) from Crude Pty. Ltd. The three-year lease is due to expire on August 31, 2021. The total rental charge in respect of
the year ended June 30, 2020 was approximately A$221,282.
Item
4. Information on the Company (cont.)
Charlotte,
North Carolina
Phenogen
Sciences Inc., the Company’s U.S. subsidiary, rents office premises which are located at 1300 Baxter Street, Suite 157,
Charlotte, North Carolina, U.S. from Midtown Area Partners LLC. The original lease expired on October 31, 2017. It was then followed
by a month to month lease. The total rental expense towards the premise for the year ended June 30, 2020 was A$24,548.
Subsequently,
a lease agreement was signed on July 10, 2020 for a three-year term, commencing on August 1, 2020 and expiring July 31, 2023 .
Total lease payable per annum are as follow:
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●
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US$
16,280 for financial year ending June 30, 2021
|
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●
|
US$
18,248 for financial year ending June 30, 2022
|
|
●
|
US$
18,795 for financial year ending June 30, 2023
|
Item
5. Operating and Financial Review and Prospects
The
following discussion and analysis should be read in conjunction with Item 3.A “Selected Financial Data” and the Company’s
financial statements, the notes to the financial statements and other financial information appearing elsewhere in this Annual
Report. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking
statements that reflect the Company’s plans, estimates, intentions, expectations and beliefs. The Company’s actual
results could differ materially from those discussed in the forward-looking statements. See the “Risk Factors” section
of Item 3 and other forward-looking statements in this Annual Report for a discussion of some, but not all, factors that could
cause or contribute to such differences.
Item
5.A Operating Results
Overview
Founded
in 1989, Genetic Technologies is an established Australian-based molecular diagnostics company that offers predictive genetic
testing and risk assessment tools, with a current focus on women’s health. During the year ended June 30, 2015 the Company
divested its interest in other genetic testing services, which up until then, together with licensing of non-coding technology,
had provided the main source of income to fund operations, to concentrate on the principal activity of the provision of molecular
risk assessment tests for cancer.
The
Company’s revenues during its years ended June 30, 2020, 2019 and 2018 were generated principally by sales of its BREVAGenplus
breast cancer risk assessment test. However, during 2017, management determined that sales of this product were insufficient
to defray the costs of the sales team. By late 2017, management decided that its sales strategy was not working and disbanded
much of the sales infrastructure in the U.S. and transitioned to an ecommerce-based sales solution. Management then designed a
“pivot plan” in an effort to reposition the Company and refine and improve products and reload with a newly developed
approach to market. To that end, the Company intends to introduce its new ‘GeneType for Colorectal Cancer’ and ‘GeneType
for Breast Cancer’ genetic tests to healthcare providers through a global network of distribution partners.
With
COVID-19 social distancing impacting on the Company’s ability to fully engage with physicians, the Company has brought forward
its plans to introduce a consumer-initiated testing (CIT) platform. This sales pipeline deviates from a traditional sales approach
that targets clinicians. Instead it allows patients to request a test directly, with clinician oversight of the testing process
through an independent provider network and telemedicine. The Company has started negotiations with its preferred independent
provider network which will oversee patient ordering of the CIT pipeline. The Company has entered into binding agreements and
will launch its CIT platforms in the third calendar quarter of 2020.
Since
inception up to June 30, 2020, the Company has incurred A$135,851,192 in accumulated losses. The Company’s losses have resulted
principally from costs incurred in research and development, general and administrative and sales and marketing costs associated
with its operations. Further losses are anticipated as the Company continues to invest in new genetic testing product research
and development, and explore optimal distribution methodologies to commercialize its product offering. Refer to the Financial
Statements section in Item 18.
Fiscal
year
As
an Australian company, the Company’s fiscal, or financial, year ends on June 30 each year. The Company produces audited
consolidated accounts at the end of June each year and furnish half-yearly accounts for the periods ending on December 31 each
year, both of which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board.
Item
5. Operating and Financial Review and Prospects (cont.)
Recent
Accounting Pronouncements
The
Company has adopted IFRS 16 Leases during the year ended June 30, 2020 using the modified retrospective approach. The modified
approach does not require restatement of comparative periods. Instead the cumulative impact of applying IFRS 16 is accounted for
as an adjustment to equity at the start of the current accounting period in which it is first applied, known as the ‘date
of initial application’.
IFRS
16 will result in almost all leases being recognized on the balance sheet, as the distinction between operating and finance leases
is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized.
The only exceptions are short-term and low-value leases.
On
adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as of July 1, 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on July 1, 2019 was 5.37%.
The
associated right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognized in the balance sheet as at July 1, 2019. There were no onerous lease
contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
In
applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
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the
use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
|
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●
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the
accounting for operating leases with a lease term of less than 12 months as short-term
leases.
|
The
Company has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead,
for contracts entered into before the transition date the Company relied on its assessment made applying IAS 17 and interpretation
4 determining whether an arrangement contains a Lease.
|
|
A$
|
|
Operating
lease commitments disclosed as at June 30, 2019
|
|
487,837
|
|
Discounted
using the lessee’s incremental borrowing rate of at the date of initial application
|
|
461,358
|
|
Lease
liability recognized as at July 1, 2019
|
|
461,358
|
|
Of which are:
|
|
|
|
Current
lease liabilities
|
|
209,887
|
|
Non-current
lease liabilities
|
|
251,471
|
|
Right
of use of assets increased by
|
|
446,645
|
|
Lease
liabilities increased by
|
|
461,358
|
|
The
net impact on retained earnings on July 1, 2019 was a decrease of
|
|
14,712
|
|
Critical
Accounting Policies
The
accounting policies which are applicable to the Company are set out in Notes 2 of the attached financial statements.
Comparison
of the year ended June 30, 2020 to the year ended June 30, 2019 Revenues from operations
During
the 2020 financial year, the Company’s consolidated gross revenues from continuing operations, excluding other revenue,
decreased by A$15,580 (61%) from A$25,444 to A$9,864 when compared to previous year. The decrease in revenues was due to sales
for the GeneType for Breast Cancer and GeneType for Colorectal cancer which commenced in January 2020 being impacted by the COVID-19
pandemic. This has had an effect on the operations of the Company, including but not limited to impacting sales of the Company’s
products through consumers’ inability to visit their practitioners and also by the difficulty its sales team is having in
arranging face to face meetings with practitioners. The Company’s sales team has found it very difficult to reach practitioners
to build on the sales momentum created prior to the pandemic, with the launch into the Australian market being halted after less
than 60 days of operations thus, sales have effectively ceased for the short term.
Item
5. Operating and Financial Review and Prospects (cont.)
Cost
of sales
The
Company’s cost of sales from continuing operations decreased by A$24,756 (9%) from A$276,267 in the previous financial year
to A$251,511 in the current financial year. BREVAGenplus direct materials utilized increased by A$26,521 (47%) from A$55,995
to A$82,516 because of the increase in number of revenue free sample tests conducted along with the limited revenue generating
tests during the year. Depreciation expense attributable to the laboratory testing equipment decreased by $12,992 (23%) whilst
direct labor costs increased by A$3,989 because of a continued streamlining of the laboratory team to match the increase in number
of tests (revenue generating and non-revenue generating). There was a decrease in inventories written-off by A$42,274 to A$18,917
in the current financial year when compared to A$61,191 in the previous financial year. The Australian segment of the cost
of sales contributed A$243,506 and whereas the US segment contributed A$8,005 of the total cost of sales in the current year.
The Australian segment had incurred majority of the costs since the Company operates its testing activities through its own laboratory
in Australia.
Selling
and marketing expenses
Selling
and marketing expenses increased by A$61,218 (11%) from A$576,077 to A$637,295 when compared to previous year. Major movements
during the year related to personnel costs which increased by A$20,505 (6%) to A$375,832 in the current financial year from A$355,327
in the previous financial year as we still maintained the minimum sales activities with our customers. Additionally, other marketing
costs increased to A$27,750 (100%) in the current financial year against nil in the prior year, in addition to the general insurance
costs allocated to selling and marketing category of expenses which increased by A$22,291 (164%) to A$35,861 in the current financial
year when compared to A$13,570 in the previous financial year. These costs increased due to the commencement of new products or
kits in the financial year. There were other small expenses within the category during the financial period which had a net impact
on the overall movement value when compared to prior year expense.
General
and administrative expenses
General
and administrative expenses (excluding net foreign currency losses) decreased by A$362,975 (9%) to A$3,467,223 during the financial
year when compared to A$3,830,198 in the previous financial year. The decrease is mainly due to the Company’s conscious
effort to reduce administration costs such as decrease in employee expenses which reduced by A$942,410 (76%) to A$300,339 in the
current financial year when compared to A$1,242,749 in the previous financial year, decrease in stock compensation expense by
A$341,393 (104%) to A$(14,441) in the current financial year when compared to A$228,626 in the previous financial year due to
the net impact of reversal of performance rights held by prior directors and the usual expense of share based payment,
increase in accounting costs by A$506,872 (565%) to A$596,510 in the current financial year when compared to A$89,638 in the
previous financial year which is due to support provided by outsourced accounting teams for ad-hoc services and out of scope activities
hired by the Company, increase in the legal fees by A$97,893 (27%) from A$356,750 to A$454,643 in the current year when compared
to prior year and an increase in consulting fees by A$442,450 (329%) to A$577,058 in the current financial year when compared
to A$134,608 in the previous financial year.
Laboratory,
research and development costs
Laboratory,
research and development costs increased by A$116,816 (5%) from A$2,360,762 to A$2,477,578 when compared to previous year. Laboratory,
research and development costs increased as the Company started to develop a polygenic risk score (PRS) test for COVID-19. The
Company is also continuing research and development activities on the following genetic tests:
Finance
costs
Finance
costs decreased by A$5,208 (26%) from A$20,031 to A$14,823 when compared to previous year. Finance costs incurred in 2020 and
2019 were primarily bank charges.
Non-operating
income
Other
income mainly consists of research and development tax incentive income received from Australian Taxation Office. Research
and development tax incentive income has decreased by 12% from A$856,707 to A$750,000 when compared to previous year. The research
tax credit is recognized on an accrual basis when realizable. The lower research and development tax credit is due to completion
of the development of GeneType for Breast Cancer and GeneType for Colorectal Cancer.
Other
gains/losses
|
●
|
No
impairment expense was recognized in the current year ended June 30, 2020 (2019: A$500,000).
|
Item
5. Operating and Financial Review and Prospects (cont.)
Comparison
of the year ended June 30, 2019 to the year ended June 30, 2018
Revenues
from operations
During
the 2019 financial year, the Company’s consolidated gross revenues from continuing operations, excluding other revenue,
was A$25,444 compared to A$189,254 in the preceding year. Revenues decreased as a result of management’s determination to
discontinue sales of its legacy BREVAGenplus product and develop its new products. The Company expects sales to increase
once distribution of its GeneType for Breast Cancer and GeneType for Colorectal Cancer commences later in the 2020 financial year.
Cost
of sales
Our
cost of sales from continuing operations decreased by 7.93% from A$300,088 to A$276,267. BREVAGenplus direct materials
utilized decreased by 40% from A$93,869 to A$55,995 as a result of the reduced number of samples received. Depreciation expense
attributable to the laboratory testing equipment decreased by A$10,373 whilst direct labour costs increased by A$14,911 as a result
of a continued streamlining of the laboratory team to match the reduced samples received. There was a decrease in inventories
written-off of A$9,515 in 2019.
Selling
and marketing expenses
Selling
and marketing expenses decreased by A$490,327 (46%) to A$576,077 during the 2019 financial year. Personnel related costs decreased
by A$185,807 (38%) following the wind-down of direct to customer sales activity in the U.S. associated with the legacy BREVAGenplus
product. Other decreases relate to lower rental costs, airfares, conference costs during the year.
General
and administrative expenses
General
and administrative expenses (excluding net foreign currency losses) increased by A$814,380 (27%) to A$3,830,198 during the financial
year. The increase is mainly due to increase in spending on legal (73%) pertaining to placement in Blockshine Health Limited
and Swisstec Health Analytic Ltd, legal expenses related to the annual general meeting and due diligence analysis of a potential
acquisition and compliance costs (32%) which pertains to increased investor relations activities, insurance (25%),
printing (135%) and accounting, tax and audit related costs (21%) due to higher compliance and legal activities affecting the
company in the current period.
Item
5. Operating and Financial Review and Prospects (cont.)
Laboratory,
research and development costs
Laboratory,
research and development costs increased by A$150,264 (7%) to A$2,360,762 during the 2019 financial year. Laboratory, research
and development costs increased due to the intensive research and development effort to develop the GeneType for Breast Cancer
and GeneType for Colorectal Cancer genetic tests, which concluded in May 2019. The Company is continuing research and development
activities on the following genetic tests:
Finance
costs
Finance
costs decreased by A$8,812 (30%) to A$20,031 during the 2019 year. Finance costs incurred in 2019 and 2018 were primarily bank
charges.
Non-Operating
income and expenses
Other
income and expenses included the following movements:
Research
and development tax credit of A$856,706 in the current financial year increased by A$557,356. The research tax credit is recognized
on an accrual basis when realizable. The higher research and development tax credit is due to higher eligible research expenditure
during the period ended June 30, 2020 as the Company has progressed development of its two new cancer risk assessment tests, and
the proportion of costs associated with sales activities has declined.
Other
gains/losses
●
A net foreign currency gain of A$92,518 (2018: gain of A$128,360) was recorded for the year. The profit is primarily driven by
the translation of US dollar cash reserves to Australian dollars at June 30, 2020.
●
An impairment expense of A$500,000 was recognized in the current year ending June 30, 2020 (2018: $ Nil) relating to the impairment
of investments in Swisstec and Blockshine Health Pty Ltd.
Item
5. Operating and Financial Review and Prospects (cont.)
Item
5.B Liquidity and Capital Resources
Summary
Since
inception, the Company’s operations have been financed primarily from capital contributions by our stockholders, proceeds
from our licensing activities and revenues from operations, grants, and interest earned on the Company’s cash and cash equivalents.
Currently
the Company’s overall cash position depends on completion of its research and development activities, overall market acceptance
of and revenue generated by its new genetic testing products. The Company’s cash and cash equivalents were A$14,214,160
as of June 30, 2020.
During
the year ended June 30, 2020, 2019 and 2018 the Company incurred total comprehensive losses of A$6,132,105, A$6,401,936 and A$5,986,838
During
the year ended June 30, 2020, 2019 and 2018 the Company’s net cash flows used in continuing operations were A$5,712,098,
A$6,073,182 and A$5,636,533.
The
additional capital raised during and since the end of the financial year puts the Company in its best financial position for approximately
2 years. The Company can expand and bring its comprehensive suite of risk assessment tests to market across both Australia and
the US. The Company can also expand and upgrade the laboratory to incorporate next generation sequencing and high-density SNP
arrays. These will allow-for the first time-risk assessments for 100 per cent of a person’s genomic risk, including monogenic,
polygenic, clinical risk factors, and family history.
Going
Concern. The longer-term viability of the Company and its ability to continue as a going concern and meet its debts and
commitments as they fall due is dependent on the satisfactory completion of planned equity raisings which are not guaranteed.
The
Company expects to continue to incur losses and cash outflows for the foreseeable future as it continues to invest resources in
expanding the research and development activities in support of the distribution of existing and new products. Following successful
capital raises in the last three months of the financial year, the Company has A$14,214,160 cash and cash equivalents as at June
30, 2020. In the Director’s opinion this, together with further gross proceeds of $5.1 million before transaction costs
raised in July 2020, will underpin the Company’s funding requirements for approximately two years. As a result, the financial
statements have been prepared on a going concern basis.
Operating
Activities. The Company’s net cash used in operating activities was A$5,712,098, A$6,073,182 and A$5,636,533 for
the years ended June 30, 2020, 2019 and 2018, respectively. Cash used in operating activities for each period consisted primarily
of losses incurred in operations reduced by non-cash items such as impairment expenses, depreciation and amortization expenses,
share based payments expenses, foreign exchange movements and unrealized profits and losses relating to investments. In approximate
order of magnitude, cash outflows typically consist of staff-related costs, marketing expenses, service testing expenses, general
and administrative expenses, legal/patent fees and research and development costs.
Item
5. Operating and Financial Review and Prospects (cont.)
Investing
Activities. The Company’s net cash from/(used in) investing activities was A$64,787, A$(524,460) and A$12,833 for
the years ended June 30, 2020, 2019 and 2018, respectively. During the year ended June 30, 2020 the Company spent A$38,100 towards
purchase of computer equipment, furniture and fittings and A$37,000 was received from the sale of unutilized laboratory equipment.
Apart from the purchase of plant and equipment of A$38,100 in 2020, A$50,309 in 2019 and A$2,385 in 2018, the Company had no other
significant capital expenditures for the years ended June 30, 2020, 2019 and 2018.
Financing
Activities. Our net cash from/(used in) financing activities was A$18,360,346, A$3,126,162 and A$(9,963) for the years
ended June 30, 2020, 2019 and 2018, respectively. During the year ended June 30, 2020, the Company generated cash flows of A$21,793,678
from the issue of Ordinary Shares less costs associated with the transactions of A$3,215,174. For the year ended June 30, 2019,
the Company generated cash flows of A$3,557,509 from the issue of Ordinary Shares less costs associated with the transactions
of A$431,347 and during 2018 no proceeds from share issues were received.
Operating
leases
We
are obligated under two operating leases that were in place at June 30, 2020. These leases relate to the premises occupied by
the Company in Fitzroy, Victoria, Australia and by its U.S. subsidiary, Phenogen Sciences Inc., in Charlotte, North Carolina,
U.S.A. The total rental charge in respect of the year ended June 30, 2020 was approximately A$221,282 and A$24,548, respectively.
The
future minimum lease payments in respect of the two operating leases that were in place and had remaining non- cancellable lease
terms as of June 30, 2020 were A$429,536.
Item
5.C Research and Development, Patents and Licenses, etc.
Our
principal business is biotechnology, with a historical emphasis on genomics and genetics, the licensing of our non- coding patents,
reduction to practice of our fetal cell patents and expansion of the related service testing business. Research and development
expenditure as below is reflective of the intense focus by the scientific and laboratory team to develop and market a suite of
world-leading predictive genetic tests.
The
following table details historic R&D expenditure by project.
|
|
2020$
|
|
|
2019$
|
|
|
2018$
|
|
|
|
|
|
|
(in
A$)
|
|
|
|
|
RareCellect (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
12,555
|
|
BREVAGenplus
|
|
|
—
|
|
|
|
228,643
|
|
|
|
266,723
|
|
Colorectal Cancer Risk Assessment Test
|
|
|
—
|
|
|
|
14,286
|
|
|
|
114,315
|
|
Ohio State University
|
|
|
—
|
|
|
|
—
|
|
|
|
48,377
|
|
Other general R&D
|
|
|
—
|
|
|
|
67,774
|
|
|
|
18,544
|
|
Polygenic Risk
Testing
|
|
|
380,667
|
|
|
|
—
|
|
|
|
—
|
|
Total R&D expense
|
|
|
380,667
|
|
|
|
310,703
|
|
|
|
460,514
|
|
Other expenditure
|
|
|
7,044,274
|
|
|
|
7,160,114
|
|
|
|
5,634,088
|
|
Total expenditure
|
|
|
7,424,941
|
|
|
|
7,470,817
|
|
|
|
6,094,602
|
|
R&D as a % of total expenditure
|
|
|
5.13
|
%
|
|
|
4.17
|
%
|
|
|
8
|
%
|
(1)
|
The
RareCellect project ceased during 2014. The costs incurred since then relate to legal
fees associated with the patent portfolio.
|
Item
5.D Trend Information
See
Item 5.A. “Operating Results” and Item 5.B. “Liquidity and Capital Resources” above.
Item
5. Operating and Financial Review and Prospects (cont.)
Item
5E. Off-balance sheet arrangements
We
are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing
or partnership entities that are likely to create any material contingent obligations.
Item
5F. Information about contractual obligations
The
table below shows the contractual obligations and commercial commitments as of June 30, 2020:
|
|
0-1
year
|
|
|
>1-<3
years
|
|
|
>3-<5
years
|
|
|
>5
years
|
|
Operating lease commitments
(A$)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the adoption of IFRS 16 effective July 1, 2019, the Company no longer has any non-cancellable operating lease to be recognized
under commitments for the year ended June 30, 2020.
The
Company rents offices and laboratory premises located at 60-66 Hanover Street, Fitzroy, Victoria, Australia (an inner suburb of
Melbourne) from Crude Pty. Ltd. The three-year lease is due to expire on August 31, 2021. The total rental charge in respect of
the year ended June 30, 2020 was approximately A$221,282.
Phenogen
Sciences Inc., the Company’s U.S. subsidiary, rents office premises which are located at 1300 Baxter Street, Suite 157,
Charlotte, North Carolina, U.S. from Midtown Area Partners LLC. The original lease expired on October 31, 2017. It was then followed
by a month to month lease. The total rental expense towards the premise for the year ended June 30, 2020 was A$24,548.
Subsequently,
a lease agreement was signed on July 10, 2020, for a three-year term, commencing on August 1, 2020 and expiring July 31, 2023.
Total lease payable per annum are as follow:
|
●
|
US$
16,279.56 for financial year ending June 30, 2021
|
|
●
|
US$
18,247.92 for financial year ending June 30, 2022
|
|
●
|
US$
18,795.35 for financial year ending June 30, 2023
|
Apart
from the operating lease commitment, the Company has a capital commitment entered as of June 30, 2020:
|
|
2020
|
|
|
2019
|
|
|
|
A$
|
|
|
A$
|
|
Property,
plant and equipment
|
|
|
466,560
|
|
|
|
-
|
|
The
above commitment relates to the purchase of laboratory equipment which will assist the Company to conduct more tests in the future.
Item
6. Directors, Senior Management and Employees
Item
6.A Directors and Senior Management
The
Directors of the Company as of the date of this Annual Report are:
Mr.
Peter Rubinstein (Independent Non-Executive and Chairman)
Mr.
Peter Rubinstein was appointed to the Board on January 31, 2018. He has over 20 years’ experience in early stage technology
commercialisation through to public listings on the ASX. He is a lawyer, having worked at one of the large national firms prior
to moving in house at Montech, the commercial arm of Monash University. Mr. Rubinstein has had significant exposure to the creation,
launch and management of a diverse range of technology companies including in biotech, digital payments and renewable energy.
Mr. Rubinstein is also a Director of DigitalX Limited (DCC).
Dr.
Jerzy (George) Muchnicki (Executive Director and Interim Chief Executive Officer)
Dr.
Muchnicki was appointed to the Board on January 31, 2018 and was appointed Interim Chief Executive Officer on September 24, 2019.
Prior to his appointment as Interim Chief Executive Officer, he was a part time Business Development Director for the Company.
Dr. Muchnicki graduated from Monash University having held positions in private practice for some 25 years to head of student
health at Melbourne University. For the past 14 years he has been mostly involved in commercialization and funding R&D in
the biotechnology sector from gene silencing to regenerative medicine.
Dr.
Muchnicki brings with him strong commercial and medical skills, including broad interests in software development, blockchain
and sustainable building materials. He is a co-founder and Non-Executive Director of Speed Panel Holdings a world leader in fire
rated and acoustic wall solutions. He is also the co-founder of Candlebets, a software development company that is creating blockchain
enabled platforms for the gaming industry.
Dr.
Lindsay Wakefield, MBBS (Independent Non-Executive)
Dr.
Wakefield was appointed to the Board on September 24, 2014. He started Safetech in 1985 and over the next 25 years Safetech became
a force in the Australian material handling and lifting equipment market, designing and manufacturing a wide range of industrial
products. In 1993, he left medicine to become the fulltime CEO of Safetech. In 2006 Safetech was awarded the Telstra Australian
National Business of the Year. In 2013 Safetech merged and ultimately acquired Tieman Materials Handling. Dr. Wakefield continues
as the CEO of Safetech. It is Australia’s largest manufacturer and supplier of dock equipment, freight hoists and custom
lifting solutions. Safetech employs approximately 120 people. Dr. Wakefield has been a biotech investor for more than 20 years.
Mr.
Nicholas Burrows (Independent Non-Executive)
Mr.
Burrows was appointed to the Board on September 2, 2019. He is a contemporary independent Non-Executive Director across the listed,
government and private sectors with significant expertise in corporate governance, and strategic, commercial, financial and risk
management oversight. His current diverse multi-sector portfolio includes Non-Executive Directorships of Clean Seas Seafood Limited,
TasWater, and a number of private companies. Mr. Burrows also provides board, governance, audit and risk advisory services to
entities within the IT, tourism and hospitality, debt recovery, agribusiness, forestry, and Local/State Government sectors. Mr.
Burrows was Chief Financial Officer and Company Secretary of Tassal Group Limited for 21 years from 1988 to 2009 and accordingly
brings to the Board strong independent c-suite commercial experience and the benefits of an extensive and contemporary senior
executive ASX200 listed entity background. Mr. Burrows is a respective Fellow of the Australian Institute of Company Directors,
Institute of Chartered Accountants Australia, Governance Institute of Australia Ltd and the Financial Services Institute of Australasia
and is also a Chartered Accountant and Registered Company Auditor. Mr. Burrows also served as National President of the Governance
Institute of Australia in 2002 and served on their National Board for 6 years.
Item
6. Directors, Senior Management and Employees (cont.)
Senior
Management
The
Company has a professional team of qualified and experienced personnel, including a number of research and development scientists
and technicians. The Company currently has 13 full-time-equivalent employees in addition to the three Non-Executive Directors
listed above.
Mr.
Phillip Hains, MBA, CA (Chief Financial Officer)
Phillip
Hains was appointed as the Company’s Chief Financial Officer on July 15, 2019. Mr. Phillip Hains is a Chartered Accountant
operating a specialist public practice, ‘The CFO Solution’. The CFO Solution focuses on providing back office support,
financial reporting and compliance systems for listed public companies. A specialist in the public company environment, Mr. Hains
has served the needs of a number of company boards and their related committees. He has over 25 years’ experience in providing
businesses with accounting, administration, compliance and general management services. He holds a Master of Business Administration
from RMIT and a Public Practice Certificate from the Institute of Chartered Accountants.
Mr.
Justyn Stedwell (Company Secretary)
Justyn
Stedwell was appointed as the Company Secretary on July 15, 2019. Mr. Stedwell is a professional Company Secretary consultant
with over 12 years’ experience acting as a Company Secretary of ASX listed companies across a wide range of industries.
He is currently the Company Secretary of several ASX listed companies.
Dr.
Richard Allman, PhD (Chief Scientific Officer)
Dr.
Allman joined the Company in 2004 and was appointed as Chief Scientific Officer in December 2012. He has over 20 years of scientific
and research experience in both the academic arena in the UK and the commercial sector in Australia. He has wide experience in
research leadership, innovation management, and intellectual property strategy, covering oncology, diagnostics, and product development.
Prior to entering the biotech sector, Dr Allman’s academic career encompassed oncology research, drug development, and assay
design.
Item
6.B Compensation
Details
of the nature and amount of each major element of the compensation of each director of the Company and each of the named officers
of the Company and its subsidiaries, for services in all capacities during the financial year ended June 30, 2020 are listed below.
All figures are stated in Australian dollars (A$).
|
|
|
|
Short-term
benefits
|
|
|
Post-employment
|
|
|
Other
long-term
|
|
|
Share-based
payments
|
|
|
|
|
Name
and title of
|
|
Year
|
|
Salary/fees
|
|
|
Other
|
|
|
Superannuation*
|
|
|
benefits **
|
|
|
Equity
***
|
|
|
Totals
|
|
Non-Executive Directors
|
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
Dr. Lindsay Wakefield
|
|
2020
|
|
|
66,295
|
|
|
|
—
|
|
|
|
6,298
|
|
|
|
—
|
|
|
|
9,625
|
|
|
|
82,218
|
|
Mr. Peter Rubinstein
|
|
2020
|
|
|
106,946
|
|
|
|
—
|
|
|
|
6,835
|
|
|
|
—
|
|
|
|
12,833
|
|
|
|
126,614
|
|
Mr. Xue Lee (1)
|
|
2020
|
|
|
1,570
|
|
|
|
—
|
|
|
|
149
|
|
|
|
—
|
|
|
|
(5,616
|
)
|
|
|
(3,897
|
)
|
Mr. Nicholas Burrows (2)
|
|
2020
|
|
|
53,775
|
|
|
|
—
|
|
|
|
5,109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executives Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul Kasian (3)
|
|
2020
|
|
|
62,789
|
|
|
|
—
|
|
|
|
5,923
|
|
|
|
—
|
|
|
|
(76,368
|
)
|
|
|
(7,656
|
)
|
Dr. Jerzy Muchnicki
|
|
2020
|
|
|
139,824
|
|
|
|
—
|
|
|
|
13,283
|
|
|
|
—
|
|
|
|
16,042
|
|
|
|
169,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Richard Allman
|
|
2020
|
|
|
168,600
|
|
|
|
360
|
|
|
|
16,017
|
|
|
|
3,231
|
|
|
|
10,986
|
|
|
|
199,194
|
|
Mr. Stanley Sack
(4)
|
|
2020
|
|
|
38,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,500
|
|
Totals
|
|
2020
|
|
|
638,299
|
|
|
|
360
|
|
|
|
53,614
|
|
|
|
3,231
|
|
|
|
(32,498
|
)
|
|
|
663,006
|
|
Mr
Phillip Hains was appointed on July 15, 2019 as the Company’s Chief Financial Officer. During the year ended June 30, 2020,
he does not earn any remuneration apart from the provision of advice on the capacity as the CFO, accounting and other finance
related activities through his firm, The CFO Solution. During the reporting period, the total service fees of A$527,724
(2019: A$45,459) were paid.
During
the financial year ended June 30, 2020, the board approved to obtain consulting services in relation to capital raises, compliance,
NASDAQ hearings and investor relations from its Non-executive director and current Chairman, Mr. Peter Rubinstein. The services
procured were through Mr. Peter Rubinstein’s associate entity, ValueAdmin.com Pty Ltd, and amounted to A$35,000 which remains
payable and is included as part of the cash salary and fees above as at June 30, 2020.
During
the financial year ended June 30, 2020, the board members sacrificed 20% of their fees for a certain period in order to support
the staff costs during the COVID-19 cutback on working hours. Due to this there is a variance between the above disclosed and
the contractual arrangement disclosures.
(1)
Mr. Lee resigned as a Non-Executive Director on July 9, 2019.
(2)
Mr. Burrows was appointed as Non-Executive Director on September 2, 2019.
(3)
Dr. Kasian resigned on September 24, 2019.
(4)
Mr. Sack was appointed as Chief Operating Officer on May 18, 2020.
Item
6. Directors, Senior Management and Employees (cont,)
|
|
|
|
Short-term
|
|
|
Post-employment
|
|
|
Other
long-term
|
|
|
Share-based
Payments
|
|
|
|
|
Name
and title of
|
|
Year
|
|
Salary/fees
|
|
|
Other
|
|
|
Superannuation*
|
|
|
benefits**
|
|
|
Equity ***
|
|
|
Totals
|
|
Non-Executives Directors
|
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
$A
|
|
Dr. Lindsay Wakefield
|
|
2019
|
|
|
67,462
|
|
|
|
-
|
|
|
|
6,409
|
|
|
|
-
|
|
|
|
5,615
|
|
|
|
79,486
|
|
Mr. Peter Rubinstein
|
|
2019
|
|
|
67,462
|
|
|
|
-
|
|
|
|
6,409
|
|
|
|
-
|
|
|
|
7,486
|
|
|
|
81,357
|
|
Mr. Xue Lee(6)
|
|
2019
|
|
|
58,330
|
|
|
|
-
|
|
|
|
5,541
|
|
|
|
-
|
|
|
|
28,849
|
|
|
|
92,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executives Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul Kasian(1)
|
|
2019
|
|
|
192,410
|
|
|
|
8,745
|
|
|
|
18,279
|
|
|
|
—
|
|
|
|
76,368
|
|
|
|
295,802
|
|
Dr. Jerzy Muchnicki (2)
|
|
2019
|
|
|
82,995
|
|
|
|
(1,200
|
)
|
|
|
7,884
|
|
|
|
—
|
|
|
|
9,358
|
|
|
|
99,037
|
|
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Richard Allman (3)
|
|
2019
|
|
|
168,600
|
|
|
|
72,865
|
|
|
|
20,319
|
|
|
|
4,124
|
|
|
|
36,486
|
|
|
|
302,394
|
|
Kevin Fischer (4)
|
|
2019
|
|
|
101,644
|
|
|
|
48,364
|
|
|
|
12,785
|
|
|
|
(3,390
|
)
|
|
|
(6,276
|
)
|
|
|
153,127
|
|
Paul Viney (5)
|
|
2019
|
|
|
89,519
|
|
|
|
6,965
|
|
|
|
8,504
|
|
|
|
—
|
|
|
|
—
|
|
|
|
104,989
|
|
Sub-totals for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executives
|
|
|
|
|
635,168
|
|
|
|
128,194
|
|
|
|
67,772
|
|
|
|
734
|
|
|
|
115,936
|
|
|
|
955,349
|
|
Total
|
|
2019
|
|
|
828,422
|
|
|
|
135,739
|
|
|
|
86,130
|
|
|
|
734
|
|
|
|
157,886
|
|
|
|
1,208,911
|
|
Notes
pertaining to changes during the year:
(1)
Dr Kasian was appointed as the Chairman on January
31, 2018 and interim CEO on February 6, 2018, having previously served as a Non-Executive Director since his appointment in December
2013. Of the total remuneration, A$94,536.78 relates to Director Fees. Dr Kasian resigned on September 24, 2019 from all of his
positions with the Company.
(2)
Dr Muchnicki was engaged to do business development
work on January 31, 2018. During 2018/19, Dr Muchnicki performed these duties as Additional Director Duties, rather than as an
Executive role. Dr Muchnicki was appointed Interim Chief Executive Officer on September 24, 2019.
(3)
“Other” includes a bonus paid or
payable to Dr Allman in the amount of A$45,286 under a retention bonus scheme awarded to key management personnel (“KMP”).
(4)
“Other” includes a bonus paid or
payable to Mr Fischer in the amount of A$47,032 under a retention bonus scheme awarded to KMP. Mr. Kevin Fischer resigned on December
31, 2018.
(5)
Mr Paul Viney was appointed as the Chief Financial
Officer, Chief Operating Officer and Company Secretary on December 15, 2018 and subsequently resigned from the positions on July
15, 2019.
Item
6. Directors, Senior Management and Employees (cont.)
Referencing
the previous two tables:
*Post-employment
benefits as per Corporations Regulation 2M.3.03 (1) Item 7
**
Other long-term benefits as per Corporations Regulation 2M.3.03 (1) Item 8
***
Equity settled share-based payments as per Corporations Regulation 2M.3.03 (1) Item 11
The
details of those Executives nominated as Key Management Personnel under section 300A of the Corporations Act 2001 have
been disclosed in this Report. No other employees of the Company meet the definition of “Key Management Personnel”
as defined in IAS 24 Related Party Disclosures, or “senior manager” as defined in the Corporations Act
Executive
officers are those officers who were involved during the year in the strategic direction, general management or control of the
business at a company or operating division level. The remuneration paid to Executives is set with reference to prevailing market
levels and comprises a fixed salary, various short-term incentives (which are linked to agreed key performance indicators), and
an option component. Options are granted to Executives in line with their respective levels of experience and responsibility.
Options
exercised, granted, and forfeited as part of remuneration during the year ended 30 June 2020
Details
of the options held by the Executives nominated as Key Management Personnel during the year ended June 30, 2020 are set out below.
As at June 30, 2020, there was one executive and twelve employees who held options that had been granted under the Company’s
respective option plans.
During
the year ended June 30, 2020, there were no options issued under Employee Option Plan (2019: 16,000,000 unlisted options were
granted at no cost). The Company, however issued various unlisted options to underwriters and sub-underwriters as a part of capital
raising costs.
The
options mentioned below lapsed during financial year 2019, however they were not shown as lapsed in the prior year’s remuneration
report. Hence, in the current year, the movement in options held by Dr. Jerzy Muchnicki has been reflected by taking into account
these lapsed options.
Name
of Executive
|
|
Options
Lapsed
|
|
|
Options
forfeited
|
|
|
Exercise
price
|
|
|
Fair
value
per option
|
|
|
Final
vesting date
|
|
Dr.
Jerzy Muchnicki
|
|
|
6,666,667
|
|
|
|
-
|
|
|
A$
|
0.015
|
|
|
A$
|
0.0017
|
|
|
December 2, 2014
|
|
TOTAL
|
|
|
6,666,667
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
6. Directors, Senior Management and Employees (cont.)
Option
holdings of Key Management Personnel 30 June 2020
Options
|
|
Balance
at
start of the
year
|
|
|
Granted
as
remuneration
|
|
|
Granted
as
part of cost
of capital
|
|
|
Exercised
|
|
|
Other
Changes1
|
|
|
Balance
at
end of the
year
|
|
|
Vested
and
exercisable
|
|
Dr. Lindsay Wakefield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mr. Peter
Rubinstein3
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000,000
|
|
|
|
125,000,000
|
|
Mr. Xue Lee (resigned on July 9, 2019)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mr. Nicholas Burrows (appointed on September
2, 2019)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul Kasian (resigned on September
24, 2019)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dr. Jerzy Muchnicki2
|
|
|
6,666,667
|
|
|
|
-
|
|
|
|
125,000,000
|
|
|
|
-
|
|
|
|
(6,666,667
|
)
|
|
|
125,000,000
|
|
|
|
125,000,000
|
|
Dr. Richard Allman
|
|
|
15,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000,000
|
|
|
|
15,000,000
|
|
Mr. Stanley Sack (appointed on May 18,
2020)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mr. Phillip Hains
(appointed on July 15, 2019)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
|
|
|
21,666,667
|
|
|
|
-
|
|
|
|
250,000,000
|
|
|
|
-
|
|
|
|
(6,666,667
|
)
|
|
|
265,000,000
|
|
|
|
265,000,000
|
|
Notes
1.
Other changes incorporates changes resulting from the expiration/forfeiture of options.
2.Dr.
Jerzy Muchnicki currently holds 125,000,000 unlisted options issued as the sub-underwriter during the capital raise process in
October 2019. Hence, the unlisted options have been accounted for as part of transactions costs to equity and are not issued as
a part of his remuneration.
3.Mr.
Peter Rubinstein currently holds 125,000,000 unlisted options issued as the sub-underwriter during the capital raise process in
October 2019. Hence, the unlisted options have been accounted for as part of transactions costs to equity and are not issued as
a part of his remuneration.
Options
The
Company introduced a Staff Share Plan on November 30, 2001. On November 19, 2008, the shareholders of the Company approved the
introduction of a new Employee Option Plan. Collectively, these Plans establish the eligibility of our employees and those of
any subsidiaries, and of consultants and independent contractors to a participating company who are declared by the Board to be
eligible, to participate. Broadly speaking, the respective Plans permits us, at the discretion of the Board, to issue traditional
options (with an exercise price). The Plans conform to the IFSA Executive Share and Option Scheme Guidelines and, where participation
is to be made available to staff who reside outside Australia, there may have to be modifications to the terms of grant to meet
or better comply with local laws or practice.
As
of June 30, 2020, there was 1 executive and 12 employees who held options that had been granted under the Company’s respective
option plans. Options issued under the Plan carry no rights to dividends and no voting rights.
As
of the date of this Annual Report, there was a total of 20,500,000 unlisted employee options outstanding.
Options
granted under the Employee Option Plan carry no rights to dividends and no voting rights and generally have an expiry date of
nearly five years from the date of grant.
During
the year ended June 30, 2020, the Company recorded a share-based payments expense in respect of the options granted of A$67,542.
Item
6. Directors, Senior Management and Employees (cont.)
Unlisted
Performance Rights
During
the year ended June 30, 2019, the Company also issued 76,250,000 long term unlisted performance right s as incentives to the Directors
which were approved by the shareholders on November 29, 2018.
The
following are the details of the unlisted performance rights:
|
●
|
26,250,000
Class A Performance rights with an exercise price of $ nil each. Vesting per resolution
passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set out
below.
|
|
|
|
|
●
|
25,000,000
Class B Performance rights with an exercise price of $ nil each. Vesting per resolution
passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set below.
|
|
|
|
|
●
|
25,000,000
Class C Performance rights with an exercise price of $ nil each. Vesting per resolution
passed at 2018 Annual General Meeting (AGM) and per the terms and conditions as set out
below.
|
During
the year ended June 30, 2020, 3,750,000 Performance Rights previously issued to Mr. Xue Lee in the year ended June 30, 2019 were
forfeited. Additionally, 57,500,000 Performance Rights previously issued to Dr. Paul Kasian in the year ended June 30,
2019 were forfeited in the year ended June 30, 2020. Due to the forfeiture of Performance Rights, a reversal amounting to A$81,984
relating to previously expensed amounts was accounted for during the current reporting period.
The
Company has accounted for these Performance Rights in accordance with its accounting policy for share-based payment transactions
and has recorded net reversal of A$43,484 of associated expense in the current year end (2019: A$104,441).
Based
on the independent valuation of the performance rights, the company agrees that the total value of the performance rights to be
issued to each director (depending on the share price at issue) is as follows:
Valuation
of Class A Performance Rights
Performance
rights vested during the year
|
|
Number
of Performance Rights issued
|
|
|
Valuation
per Class A (cents)
|
|
|
Total
fair value of Class A Performance Rights
|
|
|
Expense
accounted for during the year
|
|
Dr. Lindsay
Wakefield
|
|
|
3,750,000
|
|
|
|
0.77
|
|
|
A$
|
28,875
|
|
|
A$
|
9,625
|
|
Dr. Jerzy Muchnicki
|
|
|
6,250,000
|
|
|
|
0.77
|
|
|
A$
|
48,125
|
|
|
A$
|
16,042
|
|
Mr.
Peter Rubinstein
|
|
|
5,000,000
|
|
|
|
0.77
|
|
|
A$
|
38,500
|
|
|
A$
|
12,833
|
|
Total
|
|
|
15,000,000
|
|
|
|
|
|
|
A$
|
115,500
|
|
|
A$
|
38,500
|
|
Performance
rights cancelled/forfeited during the year
Mr.
Xue Lee2
|
|
|
3,750,000
|
|
|
|
0.77
|
|
|
A$
|
28,875
|
|
|
A$
|
(5,616)
|
|
Dr.
Paul Kasian
|
|
|
7,500,000
|
|
|
|
0.77
|
|
|
A$
|
57,750
|
|
|
A$
|
(11,229)
|
|
Total
|
|
|
11,250,000
|
|
|
|
|
|
|
A$
|
86,625
|
|
|
A$
|
(16,845)
|
|
Valuation
of Class B Performance Rights
|
|
Number
of Performance Rights issued
|
|
Valuation
per Class B (cents)
|
|
Total
fair value of Class B Performance Rights
|
|
Expense
accounted for during the year
|
Dr
Paul Kasian1
|
|
|
25,000,000
|
|
|
|
0.57
|
|
|
A$
|
142,500
|
|
|
A$
|
(37,431)
|
|
Valuation
of Class C Performance Rights
|
|
Number
of Performance Rights issued
|
|
Valuation
per Class C (cents)
|
|
Total
fair value of Class C Performance Rights
|
|
Expense
accounted for during the year
|
Dr
Paul Kasian1
|
|
|
25,000,000
|
|
|
|
0.57
|
|
|
A$
|
142,500
|
|
|
A$
|
(37,431)
|
|
Notes:
1
Dr. Paul Kasian resigned on September 24, 2019.
2
Mr. Xue Lee resigned on July 9, 2019
Item
6. Directors, Senior Management and Employees (cont.)
The
following is the reconciliation of Performance Rights for the year ended June 30, 2020 held by Key Management Personnel:
Performance
Rights
|
|
Balance
at start of the year
|
|
|
Granted
as remuneration
|
|
|
Exercised
|
|
|
Other
Changes1
|
|
|
Balance
at the end of year
|
|
Dr Lindsay Wakefield
|
|
|
3,750,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,750,000
|
|
Mr Peter Rubinstein
|
|
|
5,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
Mr Xue Lee
(resigned on July 9,
2019)
|
|
|
3,750,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,750,000
|
)
|
|
|
-
|
|
Mr Nicholas Burrows
(appointed September
2, 2019)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Dr Paul Kasian
(resigned on September
24, 2019)
|
|
|
57,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,500,000
|
)
|
|
|
-
|
|
Dr Jerzy Muchnicki
|
|
|
6,250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,250,000
|
|
Dr Richard Allman
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mr Stanley Sack
(appointed May 18,
2020)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mr Phillip Hains
(appointed July 15, 2019)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
76,250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61,250,000
|
)
|
|
|
15,000,000
|
|
Notes
1.
Performance rights issued to Dr Paul Kasian and Mr Xue Lee have forfeited since they resigned from the posts in the
current financial year.
The
Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant
the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration.
Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value
of Performance Rights including:
●
|
the
period outstanding before the expiry date of the Performance Rights;
|
|
|
●
|
the
underlying price or value of the securities into which they may be converted;
|
|
|
●
|
the
proportion of the issued capital as expanded consequent upon conversion of the Performance
Rights into Shares (i.e. whether or not the shares that might be acquired upon exercise
of the options represent a controlling or other significant interest); and
|
|
|
●
|
the
value of the shares into which the Performance Rights may be converted.
|
There
are various formulae which can be applied to determining the theoretical value of options (including the formula known as the
Black-Scholes Model valuation formula and the Monte Carlo simulation).
The
Company has commissioned an independent valuation of the Performance Rights. The independent valuer has applied the Monte Carlo
simulation in providing the valuation of the Performance Rights.
Inherent
in the application of the Monte Carlo simulation are a number of inputs, some of which must be assumed. The data relied upon in
applying the Monte Carlo simulation was:
a)
|
exercise
price being 0.0 cents per Performance Right for all classes;
|
|
|
b)
|
VWAP
hurdle (10 days consecutive share price hurdle) equaling A$0.02 for Class A and Class B and A$0.033 for Class C Performance
Rights;
|
|
|
c)
|
the
continuously compounded risk free rate being 2.02% for all classes of Performance Rights (calculated with reference to the
RBA quoted Commonwealth Government bonds as at October 8, 2018 of similar duration to that of the expected life of each class
of Performance Right);
|
|
|
d)
|
the
expected option life of 2.8 years for all classes of Performance Rights; and
|
|
|
e)
|
a
volatility measure of 80%.
|
Item
6. Directors, Senior Management and Employees (cont.)
Performance
hurdles
The
Class A Performance Rights vest and are exercisable upon the Share price reaching $0.02 or greater for more than 10-day consecutive
ASX trading days.
The
Directors, being the recipients of the Performance Rights, must remained engaged by the Company at the time of satisfaction of
the performance hurdle in order for the relevant Performance Right to vest.
The
unlisted performance rights granted and outstanding as of June 30, 2020 under the Plans are as follows:
|
|
2019
|
|
|
Fair
Value
|
|
|
Expiration
Date
|
Director
|
|
|
|
|
|
|
|
|
|
|
Mr. Peter Rubinstein (Class
A)
|
|
|
5,000,000
|
|
|
A$
|
38,500
|
|
|
11-Dec-2021
|
Dr. Jerzy Muchnicki (Class A)
|
|
|
6,250,000
|
|
|
A$
|
48,125
|
|
|
11-Dec-2021
|
Mr. Lindsay Wakefield (Class A)
|
|
|
3,750,000
|
|
|
A$
|
28,875
|
|
|
11-Dec-2021
|
Balance at the end of the financial
year
|
|
|
15,000,000
|
|
|
A$
|
115,500
|
|
|
|
The
Company has accounted for these Performance Rights in accordance with its accounting policy for share-based payment transactions
and has recorded net reversal of A$43,484 of associated expense in the current year end (2019: A$104,441).
Item
6. Directors, Senior Management and Employees (cont.)
This
share-based payment expense is included within general and administrative costs in the statement of comprehensive income/ (loss).
The following is additional information relating to the options granted under the respective Plans and as of June 30, 2020:
|
|
|
|
|
Options
outstanding
|
|
|
Options
exercisable
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
Number
of
|
|
|
exercise
|
|
|
contractual
|
|
|
Number
of
|
|
|
exercise
|
|
Range
of exercise prices
|
|
options
|
|
|
price
|
|
|
life
(years)
|
|
|
options
|
|
|
price
|
|
$0.011
- $0.020
|
|
|
20,500,000
|
|
|
$
|
0.015
|
|
|
|
0.03
|
|
|
|
20,500,000
|
|
|
$
|
0.015
|
|
|
|
|
20,500,000
|
|
|
$
|
0.015
|
|
|
|
0.03
|
|
|
|
20,500,000
|
|
|
$
|
0.015
|
|
|
|
Performance
rights outstanding
|
|
|
Performance
rights exercisable
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average
|
|
|
Weighted
average
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of
|
|
|
exercise
|
|
|
contractual
|
|
|
Number
of
|
|
|
average
|
|
Range
of exercise prices
|
|
options
|
|
|
price
|
|
|
life (years)
|
|
|
Perf.
rights
|
|
|
exercise price
|
|
$0.00
- $0.00
|
|
|
15,000,000
|
|
|
$
|
0.000
|
|
|
|
1.58
|
|
|
|
15,000,000
|
|
|
$
|
0.00
|
|
|
|
|
15,000,000
|
|
|
$
|
0.000
|
|
|
|
1.58
|
|
|
|
15,000,000
|
|
|
$
|
0.00
|
|
Item
6. Directors, Senior Management and Employees (cont.)
Indemnification
and Insurance with respect to Directors
We
are obligated pursuant to an indemnity agreement, to indemnify the current Directors and executive officers and former Directors
against all liabilities to third parties that may arise from their position as Directors or officers of the Company and our controlled
entities, except where to do so would be prohibited by law. In addition, the Company does currently carry insurance in respect
of Directors’ and officers’ liabilities for current and former Directors, Company Secretary and executive officers
or employees under certain circumstances as specified in the insurance policy.
Item
6.C Board Practices
The
Board of Directors
Under
the Company’s Constitution, its Board of Directors is required to comprise at least three Directors. As of the date of this
Annual Report, our Board comprised four Directors.
The
role of the Board includes:
|
(a)
|
Reviewing
and making recommendations in remuneration packages and policies applicable to directors, senior executives and consultants.
|
|
|
|
|
(b)
|
Nomination
of external auditors and reviewing the adequacy of external audit arrangements.
|
|
|
|
|
(c)
|
Establishing
the overall internal control framework over financial reporting, quality and integrity of personnel and investment appraisal.
In establishing an appropriate framework, the board recognized that no cost-effective internal control systems will preclude
all errors and irregularities.
|
|
|
|
|
(d)
|
Establishing
and maintaining appropriate ethical standards in dealings with business associates, suppliers, advisers and regulators, competitors,
the community and other employees.
|
|
|
|
|
(e)
|
Identifying
areas of significant business risk and implementing corrective action as soon as practicable after a risk is identified.
|
|
|
|
|
(f)
|
Nominating
audit and remuneration committee members.
|
The
Board meets to discuss business regularly throughout the year, with additional meetings being held when circumstances warrant.
Included in the table below are details of the meetings of the Board and the sub-committees of the Board that were held during
the 2020 financial year.
|
|
Directors’
meetings
|
|
Audit
Committee meetings
|
|
Remuneration
Committee meetings
|
|
|
Attended
|
|
Eligible
|
|
Attended
|
|
Eligible
|
|
Attended
|
|
Eligible
|
Dr. Lindsay Wakefield
|
|
12
|
|
12
|
|
7
|
|
7
|
|
1
|
|
1
|
Dr. Paul Kasian1
|
|
2
|
|
2
|
|
2
|
|
-
|
|
1
|
|
-
|
Dr. Jerzy Muchnicki
|
|
12
|
|
12
|
|
7
|
|
-
|
|
1
|
|
-
|
Mr. Peter Rubinstein
|
|
12
|
|
12
|
|
7
|
|
7
|
|
1
|
|
1
|
Mr. Nicholas Burrows2
|
|
9
|
|
9
|
|
4
|
|
4
|
|
1
|
|
1
|
Mr. Xue Lee³
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
1
|
Dr.
Paul Kasian - resigned September 24, 2019
|
2
|
Mr.
Nicholas Burrows - appointed on September 2, 2019
|
3
|
Mr.
Xue Lee - resigned on July 9, 2019
|
Item
6. Directors, Senior Management and Employees (cont.)
Committees
of the Board
The
Board has established an Audit Committee which operates under a specific Charter approved by the Board. It is the Board’s
responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls
to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance
of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the
benchmarking of operational key performance indicators.
The
Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards
for the management of the Company to the Audit Committee. The Audit Committee also provides the Board with assurance regarding
the reliability of financial information for inclusion in the financial reports. As at date of this report, one of the members
of the Audit Committee is an independent Non-Executive Directors.
The
Remuneration Committee is, amongst other things, responsible for determining and reviewing remuneration arrangements for the Directors,
the Interim Chief Executive Officer and the Senior Leadership Team. The Chairman of the Committee is an independent non-executive
director.
The
Remuneration Committee assesses the appropriateness of the nature and amount of remuneration paid to Directors and Executives
on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum shareholder
benefit from the retention of a high quality Board and senior leadership team.
Committee
membership
As
at the date of this Report, the composition of these two Sub-Committees are:
Audit
Committee:
|
|
Mr.
Nicholas Burrows — Chairman of the
Committee
(appointed October 2019)
|
|
|
Mr.
Peter Rubinstein
|
|
|
Dr.
Lindsay Wakefield
|
|
|
|
Remuneration
Committee:
|
|
Dr
Lindsay Wakefield — Chairman of the Committee
|
|
|
Mr.
Peter Rubinstein
|
|
|
Mr.
Nicholas Burrows
|
Item
6. Directors, Senior Management and Employees (cont.)
Compliance
with Nasdaq Rules
Nasdaq
listing rules require that the Company disclose the home country practices that we will follow in lieu of compliance with Nasdaq
corporate governance rules. The following describes the home country practices and the related Nasdaq rule:
Majority
of Independent Directors: The Company follows home country practice rather than Nasdaq’s requirement in Marketplace
Rule 4350(c) (1) that the majority of the Board of each issuer be comprised of independent directors as defined in Marketplace
Rule 4200. As of the date of this Annual Report, with there were three independent Directors namely Mr. Nick Burrows, Mr. Peter
Rubinstein and Dr. Lindsay Wakefield which led to our Board of Directors being comprised of a majority of independent directors.
Compensation
of Officers: The Company follows home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(c)
(3) that chief executive compensation be determined or recommended to the Board by the majority of independent directors or a
compensation committee of independent directors. Similarly, compensation of other officers is not determined or recommended to
the Board by a majority of the independent directors or a compensation committee comprised solely of independent directors. These
decisions are made by the Company’s remuneration committee.
Nomination:
The Company follow home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(c)(4) that director nominees
be selected or recommended by a majority of the independent directors or by a nominations committee comprised of independent directors.
These decisions are made by the Company’s full Board which is comprised of a majority of independent directors which constitute
Mr. Nick Burrows, Mr. Peter Rubinstein and Dr. Lindsay Wakefield.
The
ASX does not have a requirement that each listed issuer have a nominations committee or otherwise follow the procedures embodied
in Nasdaq’s Marketplace Rule. Furthermore, no law, rule or regulation of the ASIC has such a requirement nor does the applicable
corporate law legislation. Accordingly, selections or recommendations of director nominees by a committee that is not comprised
of a majority of directors that are not independent is not prohibited by the laws of Australia.
Quorum:
The Company follows home country practice rather than Nasdaq’s requirement in Marketplace Rule 4350(f) that each issuer
provides for a quorum of at least 33 1/3 percent of the outstanding shares of the issuer’s ordinary stock (voting stock).
Pursuant to the Company’s Constitution it is currently required to have a quorum for a general meeting of three persons.
The practice followed by the Company is not prohibited by Australian law.
Shareholder
Approval for Capital Issuance: The Company has elected to follow certain home country practices in lieu of Nasdaq Marketplace
Rule 5635. For example, the Company is entitled to an annual 15% of capital placement capacity under ASX Listing Rule 7.1 without
shareholder approval. If this amount of annual entitlement is aggregated with an additional placement of Ordinary Shares, including
through the grant of options over Ordinary Shares, that exceeds 20% of the outstanding share capital, only the excess over the
15% annual allowance requires shareholder approval under Australian law. Such home country practice is not prohibited by the laws
of Australia.
Item
6.D Employees
As
of the date of this Annual Report, the Company comprising the Company and its subsidiaries, employed 13 full-time equivalent
employees. The number of full-time equivalent employees as of the end of each respective financial year ended June 30 are as follows:
Item
6. Directors, Senior Management and Employees (cont.)
Item
6.E Share Ownership
The
relevant interest of the directors in the share capital of the Company as notified by them to the Australian Securities Exchange
in accordance with section 205G(1) of the Corporations Act 2001 as of the date of this Annual Report is as
follows:
Director
|
|
Ordinary
shares
|
|
|
Percentage
of
Capital held
|
|
Dr.
Lindsay Wakefield
|
|
|
9,418,104
|
|
|
|
0.11
|
%
|
Dr.
Jerzy Muchnicki
|
|
|
263,085,885
|
|
|
|
3.18
|
%
|
Mr.
Peter Rubinstein
|
|
|
308,132,009
|
|
|
|
3.73
|
%
|
Mr.
Nicholas Burrows
|
|
|
1,670,000
|
|
|
|
0.02
|
%
|
Item
7. Major Shareholders and Related Party Transactions
Item
7.A Major Shareholders
As
at the date of this Annual Report, there were no shareholders who is the beneficial owner of 5% or more of our voting securities.
The
number of Ordinary Shares on issue in Genetic Technologies as of the date of this Annual Report was 8,261,726,743. The number
of holders of Ordinary Shares in Genetic Technologies as of the date of this Annual Report was approximately 4,564 (October 7,
2020).
The
Company is not aware of any direct or indirect ownership or control of it by another corporation(s), by any foreign government
or by any other natural or legal person(s) severally or jointly. Principal shareholders do not enjoy any special or different
voting rights from those to which other holders of Ordinary Shares are entitled. The Company does not know of any arrangements,
the operation of which may at a subsequent date result in a change in control of the Company.
Record
Holders
As
of October 7, 2020, there were 4,564 holders of record of our ordinary shares, of which 33 record holders, holding approximately
0.072% of our ordinary shares, had registered addresses in the United States. These numbers are not representative of the number
of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these ordinary
shares were held of record by brokers or other nominees. The majority of trading by our U.S. investors is done by means of ADSs
that are held of record by HSBC Custody Nominees Ltd., which held 72.07% of our ordinary shares as of such date.
Item
7.B Related Party Transactions
During
the year ended June 30, 2020, the only transactions between entities within the Company and other related parties occurred, are
as listed below. Except where noted, all amounts were charged on similar to market terms and at commercial rates.
Transactions
within the Company and with other related parties
During
the year ended June 30, 2020, the only transactions between entities within the Company and other related parties occurred, are
as listed below. Except where noted, all amounts were charged on similar to market terms and at commercial rates.
Item
7. Major Shareholders and Related Party Transactions (Cont.)
Blockchain
Global Limited
As
announced by the Company on February 15, 2018, a non-binding terms sheet with Blockchain Global Limited(BCG) was entered to provide
a framework for continuing discussions between the two companies, with the proposed transaction being subject to shareholder approval
(by non-associated Shareholders); and as announced by the Company on August 2, 2018, a framework agreement with BCG was entered
formalizing the non-binding terms sheet and providing a framework for a strategic alliance between the Company and BCG, with the
agreement became binding on November 29, 2018 upon receiving the requisite shareholder approval. The agreement proposed the issue
of 486 million shares to BCG in 3 tranches subject to the achievement of certain milestones. No shares have been issued under
the framework agreements and no milestones have been achieved. Any rights to the 486 million milestone shares lapsed between December
27, 2019 and June 27, 2020.
The
Company has accounted for these share issuances in accordance with its accounting policy for share-based payment transactions
and has not recorded any associated expense in the current year given performance conditions have not been met and are not currently
considering any Blockchain related projects.
A
number of Directors of the Company presently or previously have had involvement with BCG. Mr. Xue Lee has a direct and indirect
equity interest and was a CEO and managing director of BCG. Mr. Peter Rubinstein held a minority shareholding in the entity and
was also a director in BCG. Dr. Jerzy Muchnicki has a direct and indirect interest in BCG. Dr. Paul Kasian was previously a director
of BCG until July 2018.
Item
7. Major Shareholders and Related Party Transactions (Cont.)
Performance
Rights Issuance
After
receiving requisite shareholder approval on November 29, 2018, the Company has issued 76,250,000 performance rights to Directors
of the Company as follows:
●
7,500,000 Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C Performance Rights to Dr. Paul
Kasian
●
3,750,000 Class A Performance Rights to Dr Lindsay Wakefield
●
6,250,000 Class A Performance Rights to Dr Jerzy Muchnicki
●
5,000,000 Class A Performance Rights to Mr Peter Rubinstein
●
3,750,000 Class A Performance Rights to Mr Xue Lee
During
the year, 3,750,000 Performance Rights previously issued to Mr. Xue Lee in the year ended June 30, 2019 were forfeited
during the year ended June 30, 2020. Additionally, 57,500,000 Performance Rights previously issued to Dr. Paul Kasian in the year
ended June 30, 2019 were forfeited in the year ended June 30, 2020. Due to the forfeiture of Performance Rights, a reversal amounting
to A$81,984 relating to previously expensed amounts was accounted for during the current reporting period.
The
Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions
and has recorded net reversal of A$43,484 of associated expense in the current year end
Item
7. Major Shareholders and Related Party Transactions (Cont.)
Blockshine
Health Joint Venture
The
Company, via its subsidiary Gene Ventures Pty Ltd, entered into a joint venture with Blockshine Technology Corporation (BTC).
The joint venture company, called Blockshine Health, was to pursue and develop blockchain opportunities in the biomedical sector.
Blockshine Health was to have full access to BTC’s technology (royalty free) as well as all of its opportunities in the
biomedical sector. The Company invested $250,000 into the joint venture in the year ended June 30, 2019 and held 49% equity stake.
The Joint Venture agreement was subsequently cancelled and the investment of $250,000 was impaired in the year ended June 30,
2019.
During
the year ended June 30, 2020, the Company managed to transfer $43,380 back to its account from Blockshine Health and as a result
partially recovered its investment in Blockshine Health, its joint venture investment, which was previously fully impaired in
the year ended June 30, 2019.
Genetic
Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd - Joint Venture
In
August 2018, the Company announced a Heads of Agreement had been reached with Representatives of the Hainan Government - Hainan
Ecological Smart City Company (“HESCG”), a Chinese industrial park development & operations company have formally
invited Genetic Technologies Limited (“GTG”) to visit the Hainan Medical Pilot Zone to conduct a formal review and
discuss opportunities for market entry into China via the Hainan Free Trade Zone initiative. The invitation was extended to GTG
via Beijing Zishan Health Consultancy Limited (“Zishan”), demonstrating the potential for growth presented by the
proposed Joint Venture between the parties (as announced to the market on August 14, 2018).
Item
7. Major Shareholders and Related Party Transactions (Cont.)
Subsequently,
the Company announced the official formation of Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd in Hong
Kong to the market on March 27, 2019.
The
Company’s previous Chairman, Dr. Paul Kasian was named in the formation Heads of Agreement document to be the Chairman of
the Joint Venture entity. At June 30, 2020, Genetic Technologies HK Limited has 100% ownership of Hainan Aocheng Genetic Technologies
Co. Limited. At this time, no Directors fees or emoluments have been paid to Dr. Kasian, nor have agreements regarding fees been
reached.
Issuance
of options to directors towards sub-underwriting the capital raise
As
announced on October 4, 2019, the Company undertook an underwritten non-renounceable pro-rata entitlement offer at an Issue Price
of 0.4 cents per new share.
On
October 11, 2019, the Company updated the market to advise that the offer was from that time agreed to be underwritten by Lodge
Corporate Pty Ltd and that two of the Company’s directors (Mr. Peter Rubinstein and Dr. Jerzy Muchnicki), had agreed to
sub-underwrite the offer. Both directors, in conjunction with the underwriter Lodge Corporate Pty Ltd, subsequently agreed amongst
themselves to alter the respective sub-underwritten amounts, but the total to be sub-written between them (A$2 million) remained
same, as did the total underwritten amount (of A$4 million).
Accordingly,
the underwritten offer subsequently was sub-underwritten by Peter Rubinstein and Dr. Jerzy Muchnicki (each as up to A$1 million)
in conjunction with a consortium of non-associated wholesale investors (also as sub-underwriters) who in aggregate equate to the
underwritten amount of A$4 million, each in accordance with the terms of their separate sub-underwriting agreements with Lodge
Corporate Pty Ltd (each a Sub-Underwriting Agreement).
Dr.
Muchnicki and Mr. Rubinstein reflecting the amount of their sub-writing commitment were to be granted on the same terms as all
options to be granted to the relevant sub-underwriters. The number of options issued to both directors was calculated as 1 Option
for every 2 Shares being sub-underwritten and were issued a total of 125,000,000 unlisted options to each of the directors.
As
announced on October 11, 2019, within the rights issue offer document, upon exercise each such option converts into 1 fully paid
share on terms consistent with the ASX Listing Rules; with a 3-year expiry date from grant and with an exercise price per underwriter
and sub-underwriter option equal to the lower of:
●
A$0.008 ; and
●
The implicit price per share at which any raise done by Aegis capital within 3 months from the company’s shareholder meeting.
but
in any event with a floor exercise price equal to A$0.004.
Mr.
Phillip Hains (Chief Financial Officer)
On
July 15, 2019, the Company announced that it had appointed Mr. Phillip Hains (MBA, CA) as the Chief Financial Officer who has
over 30 years of extensive experience in roles with a portfolio of ASX and NASDAQ listed companies and provides CFO services through
his firm The CFO Solution. Prior to this point the Company had a similar arrangement with The CFO Solution, where it would engage
and provided services of overall CFO, accounting and other finance related activities.
During
the reporting period, the company had transactions valued at A$527,724 (2019: A$45,459) with The CFO Solution towards provision
of overall CFO, accounting and other finance related activities.
Mr.
Stanley Sack (Chief Operating Officer)
On
May 18, 2020, the Company appointed Mr. Stanley Sack who provides consulting in the capacity of Chief Operating Officer. Mr. Sack
has spent 15 years in large listed entities in executive positions managing large business divisions. He has worked with a high
net worth family managing all their operating businesses and private equity activities. Mr. Sack built an Allied Health Business
in the aged care and community care space which became the biggest Mobile Allied Health Business in Australia and was recently
sold to a large medical insurance company.
During
the reporting period, the Company had transactions valued at A$38,500 (2019: Nil) with Mr. Stanley Sack’s entity, Cobben
Investments, towards provision of consulting services in relation to provision of duties related to Chief Operating Officer of
the Company.
Mr.
Peter Rubinstein (Non-Executive Director and Chairman)
During
the financial year ended June 30, 2020, the board approved to obtain consulting services in relation to capital raises, compliance,
Nasdaq hearings and investor relations from its Non-Executive Director and current Chairman, Mr. Peter Rubinstein. The services
procured were through Mr. Peter Rubinstein’s associate entity ValueAdmin.com Pty Ltd and amounted to A$35,000 which remains
payable and is included as part of the cash salary and fees in the remuneration report as at June 30, 2020.
Lodge
Corporate
Dr.
Kasian was a director of corporate finance and corporate advisor from December 2017 to February 2019 with Lodge Corporate. During
the year ended, the Company engaged in corporate advisory services with Lodge Corporate and had transactions worth $154,224 which
also included A$88,000 that related to 2% of the underwriting of the capital raise during the year ended June 30, 2020. Additionally,
during the year, On March 6, 2020 the Company issued 5,000,000 options to Lodge Corporate Pty Ltd valued at A$29,340 which were
in relation to capital raising costs.
There
were no transactions with parties related to Key Management Personnel during the year other than that disclosed above.
Item
7.C Interests of Experts and Counsel
Not
applicable.
Item
8. Financial Information
Item
8.A Consolidated Statements and Other Financial Information
The
information included in Item 18 of this Annual Report is referred to and referenced into this Item 8.A.
Item
8. Financial Information (Cont.)
Legal
Proceedings
We
are not currently a party to any material legal proceedings. From time to time, we may be a party to litigation or subject to
claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty,
we currently believe that the final outcome of these ordinary course matters will not have a significant effect on our financial
position or profitability. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement
costs, diversion of management resources and other factors.
Dividends
Until
our businesses are profitable beyond our expected research and development needs, our Directors are unlikely to be able to recommend
that any dividend be paid to our shareholders. Our Directors will not resolve a formal dividend policy until we generate profits.
Our current intention is to reinvest our income in the continued development and expansion of our businesses.
Item
8.B Significant Changes
There
have been no significant changes in the operation or financial condition of the Company since June 30, 2020.
Item
9. The Offer and Listing
Item
9.A Offer and Listing Details
The
Company’s Ordinary Shares have been listed on the Australian Securities Exchange (the “ASX”) since July 1987
and trade there under the symbol GTG. The Company’s securities are also listed on Nasdaq’s Capital Market (under the
ticker GENE) in the form of American Depositary Shares, each of which represents 600 Ordinary Shares.
Item
9.B Plan of Distribution
Not
applicable.
Item
9.C Markets
See
“Item 9.A Offer and Listing Details.”
Item
9.D Selling Shareholders
Not
applicable.
Item
9.E Dilution
Not
applicable.
Item
9.F Expenses of the Issue
Not
applicable.
Item
10. Additional Information
Item
10.A Share Capital
Not
applicable.
Item
10.B Our Constitution
Our
registration number is 009 212 328. Our Constitution has been posted on the Company’s website and has been filed with the
SEC.
Purposes
and Objects
Our
Constitution does not specify any purposes or objects of the Company.
The
Powers of the Directors
Under
the provisions of our Constitution our directors may exercise all of the powers of our company, other than those that are required
by our Constitution or the Corporations Act of Australia to be exercised at a general meeting of shareholders. A director may
participate in a meeting and vote on a proposal, arrangement or contract in which he or she is materially interested, so long
as the director’s interest is declared in accordance with the Corporations Act. The authority of our directors to enter
into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.
Rights
Attached to Our Ordinary Shares
The
concept of authorized share capital no longer exists in Australia and as a result, our authorized share capital is unlimited.
All our outstanding Ordinary Shares are validly issued, fully paid and non-assessable. The rights attached to our Ordinary Shares
are as follows:
Dividend
rights. If our board of directors recommends a dividend, registered holders of our Ordinary Shares may declare a dividend
by ordinary resolution in a general meeting. The dividend, however, cannot exceed the amount recommended by our board of directors.
Our board of directors may declare an interim dividend.
Voting
rights. Holders of Ordinary Shares have one vote for each Ordinary Share held on all matters submitted to a vote of shareholders.
Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential
rights that may be authorized in the future.
The
quorum required for an ordinary meeting of shareholders consists of at least two shareholders represented in person or by proxy
who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned
for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place
as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two
members present in person or by proxy.
An
ordinary resolution, such as a resolution for the declaration of dividends, requires approval by the holders of a majority of
the voting rights represented at the meeting, in person, by proxy or by written ballot and voting thereon. Under our Constitution,
a special resolution, such as amending our Constitution, approving any change in capitalization, winding-up, authorization of
a class of shares with special rights, or other changes as specified in our Constitution, requires approval of a special majority,
representing the holders of no less than 75% of the voting rights represented at the meeting in person, by proxy or by written
ballot, and voting thereon.
Item
10. Additional Information (Cont.)
Pursuant
to our Constitution, our directors are elected at our annual general meeting of shareholders by a vote of the holders of a majority
of the voting power represented and voting at such meeting.
Rights
in our profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted
distribution.
Rights
in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will
be distributed to the holders of Ordinary Shares in proportion to the nominal value of their holdings. This right may be affected
by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that
may be authorized in the future.
Changing
Rights Attached to Shares
According
to our Constitution, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of
the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders
of the affected class with a majority of 75% of the voting power participating in such meeting.
Annual
and Extraordinary Meetings
Our
Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within five months of our
last fiscal year-end balance sheet date. Notice of at least 28 days prior to the date of the meeting is required. An extraordinary
meeting may be convened by the board of directors, it decides or upon a demand of any directors, or of one or more shareholders
holding in the aggregate at least five percent of our issued capital. An extraordinary meeting must be called not more than 21
days after the request is made. The meeting must be held not later than two months after the request is given.
Limitations
on the Rights to Own Securities in Our Company
Neither
our Constitution nor the laws of the Commonwealth of Australia restrict in any way the ownership or voting of our shares. However,
acquisitions and proposed acquisitions of securities in Australian companies may be subject to review and approval by the Australian
Federal Treasurer under the Takeovers Act as described under Item 10.D below.
Changes
in Our Capital
Pursuant
to the Listing Rules of the ASX, without shareholder approval, we may not issue more than 25% of our outstanding Ordinary Shares
in any twelve month period other than by a pro rata rights offering or a share purchase plan offer (of shares with a value at
the issue price of up to A$15,000 per shareholder to a maximum of 30% of our outstanding shares) in each case to the then existing
shareholders.
Item
10.C Material Contracts
During
the year, the Company entered into agreement with Lodge Corporate, Aegis Corporation and H.C. Wainright & Co, to act as the
placement agent to the offering made through which on multiple occasions the Company managed to raise
a total of A$21,793,678 before costs of the transactions. Towards the cost of the transactions, the Company issued the following
securities:
|
●
|
250,000,000
unlisted options issued on October 30, 2019, exercisable at A$0.008 each and expiring on October 29, 2022, amounting to A$817,666.
Each option is exercisable for one fully paid ordinary share.
|
|
●
|
125,000,000
unlisted options issued on December 20, 2019, exercisable at A$0.008 each and expiring on December 20,2022, amounting to A$528,027.
Each option is exercisable for one fully paid ordinary share.
|
|
●
|
125,000,000
unlisted options issued on December 20, 2019, exercisable at A$0.008 each and expiring on December 20,2022, amounting to A$528,027.
Each option is exercisable for one fully paid ordinary share.
|
|
●
|
166,066,050
warrants issued at no cash consideration on July 16, 2019, exercisable at US$0.00533 each and expiring on July 16, 2024, amounting
to A$890,113. The warrants are exercisable for fully paid ordinary shares.
|
|
●
|
5,000,000
unlisted options issued to Lodge Corporate on March 6, 2020, exercisable at A$0.008 each and expiring on March 6, 2023, amounting
to A$29,340. Each option is exercisable for one fully paid ordinary share.
|
|
●
|
40,114,200
warrants issued to H.C. Wainright & Co on April 3, 2020, exercisable at US$0.00365 each and expiring on April 1, 2025,
amounting to A$175,137. The warrants are exercisable for fully paid ordinary shares.
|
|
●
|
28,177,578
warrants issued to H.C. Wainright & Co on April 22, 2020, exercisable at US$0.00417 each and expiring on April 19, 2025,
amounting to A$149,693. The warrants are exercisable for fully paid ordinary shares.
|
|
●
|
156,000,000
warrants to be issued to H.C. Wainright & Co at, subject to shareholder approval, exercisable at US$0.004166 expiring
on 5 years after date of issue, amounting to A$848,252. The warrants are exercisable for fully paid ordinary shares.
|
In
the prior period, On August 8, 2018, the Company executed an Equity Placement Facility with Kentgrove Capital Pty Ltd. Under the
Facility, Kentgrove Capital may provide the Company with up to A$20 million of equity capital in a series of individual placements
of up to A$1 million (or a higher amount by mutual agreement) until April 7, 2020. The Company raised A$1.6 million during
2018 and 2019 and has approximately A$400,000 of remaining availability thereunder. This agreement was expired on April 7, 2020.
There
were no other material contracts entered into during the two years preceding the date of this Annual Report which were outside
the ordinary course of business.
Item
10. Additional Information (Cont.)
Item
10.D Exchange Controls
Under
existing Australian legislation, the Reserve Bank of Australia does not inhibit the import and export of funds, and, generally,
no permission is required to be given to the Company for the movement of funds in and out of Australia. However, payments to or
from (or relating to) Iraq, its agencies or nationals, the government or a public authority of Libya, or certain Libyan undertakings,
the authorities in the Federal Republic of Yugoslavia (Serbia and Montenegro) or their agencies, the Taliban (also referred to
as the Islamic Emirate of Afghanistan), or the National Union for the Total Independence of Angola (also known as UNITA), its
senior officials or the adult members of their immediate families, may not be made without the specific approval of the Reserve
Bank of Australia.
Accordingly,
at the present time, remittances of any dividends, interest or other payment by the Company to non-resident holders of our securities
in the U.S. are not, subject to the above, restricted by exchange controls or other limitations.
Takeovers
Act
There
are no limitations, either under the laws of Australia or under the Company’s Constitution, to the right of non-residents
to hold or vote our Technologies Ordinary Shares other than the Commonwealth Foreign Acquisitions and Takeovers Act 1975 (the
“Takeovers Act”). The Takeovers Act may affect the right of non-Australian residents, including U.S. residents, to
hold Ordinary Shares but does not affect the right to vote, or any other rights associated with, any Ordinary Shares held in compliance
with its provisions. Acquisitions of shares in Australian companies by foreign interests are subject to review and approval by
the Treasurer of the Commonwealth of Australia under the Takeovers Act. The Takeovers Act applies to any acquisition of outstanding
shares of an Australian company that exceeds, or results in a foreign person or persons controlling the voting power of more than
a certain percentage of those shares. The thresholds are 15% where the shares are acquired by a foreign person, or Company of
associated foreign persons, or 40% in aggregate in the case of foreign persons who are not associated. Any proposed acquisition
that would result in an individual foreign person (with associates) holding more than 15% must be notified to the Treasurer in
advance of the acquisition. There are statutory limitations in Australia on foreign ownership of certain businesses, such as banks
and airlines, not relevant to the Company. However, there are no other statutory or regulatory provisions of Australian law or
Australian Securities Exchange requirements that restrict foreign ownership or control of the Company.
Corporations
Act 2001
As
applied to the Company, the Corporations Act 2001 (the “Corporations Act 2001”) prohibits any legal
person (including a corporation) from acquiring a relevant interest in Ordinary Shares if after the acquisition that person or
any other person’s voting power in the Company increases from 20% or below to more than 20%, or from a starting point that
is above 20% and below 90%.
This
prohibition is subject to a number of specific exceptions set out in section 611 of the Corporations Act 2001 which must
be strictly complied with to be applicable.
In
general terms, a person is considered to have a “relevant interest” in a share in the Company if that person is the
holder of that share, has the power to exercise, or control the exercise of, a right to vote attached to that share, or has the
power to dispose of, or to control the exercise of a power to dispose of that share.
It
does not matter how remote the relevant interest is or how it arises. The concepts of “power” and “control”
are given wide and extended meanings in this context in order to deem certain persons to hold a relevant interest. For example,
each person who has voting power above 20% in a company or a managed investment scheme which in turn holds shares in the Company
is deemed to have a relevant interest in those shares. Certain situations (set out in section 609 of the Corporations Act 2001)
which would otherwise constitute the holding of a relevant interest are excluded from the definition.
A
person’s voting power in the Company is that percentage of the total votes attached to Ordinary Shares in which that person
and its associates (as defined in the Corporations Act 2001) holds a relevant interest.
Item
10. Additional Information (Cont.)
Item
10.E Taxation
This
summary of material tax consequences is based on the tax laws of the United States (including the Internal Revenue Code of 1986,
as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions) and
on the Australian tax law and practice as in effect on the date hereof. In addition, this summary is based on the income tax convention
between the United States and Australia (the “Treaty”). The foregoing laws and legal authorities as well as the Treaty
are subject to change (or changes in interpretation), possibly with retroactive effect. Finally, this summary is based in part
upon the representations of our ADR Depositary and the assumption that each obligation in the Deposit Agreement and any related
agreement will be performed in accordance with its terms.
The
discussion does not address any aspects of U.S. taxation other than federal income taxation or any aspects of Australian taxation
other than federal income taxation, stamp duty and goods and services tax. This discussion does not necessarily address all aspects
of U.S. or Australian federal tax considerations that may be important to particular investors in light of their individual investment
circumstances or investors subject to special tax regimes, like broker-dealers, insurance companies, banks or other financial
institutions, tax-exempt organizations, regulated investment companies, real estate investment trusts or financial asset securitization
investment trusts, persons who actually or constructively own 10% or more of our ADRs or Ordinary Shares, persons who hold ADRs
or Ordinary Shares as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction,
persons who have elected mark-to-market accounting, U.S. holders whose functional currency is not the U.S. dollar, U.S. expatriates,
investors liable for the alternative minimum tax, partnerships and other pass-through entities, or persons who acquired their
ADRs or Ordinary Shares through the exercise of options or similar derivative securities or otherwise as compensation.
Prospective
investors are urged to consult their tax advisers regarding the U.S. and Australian federal, state and local tax consequences
and any other tax consequences of owning and disposing of ADRs and shares.
Australian
Tax Consequences
In
this section, we discuss Australian tax considerations that apply to non-Australian tax residents who are residents of the United
States with respect to the ownership and disposal by the absolute beneficial owners of ADRs. This summary does not discuss any
foreign or state tax considerations, other than stamp duty.
Nature
of ADRs for Australian Taxation Purposes
ADRs
held by a U.S. holder will be treated for Australian taxation purposes as being held under a “bare trust” for that
holder. Consequently, the underlying Ordinary Shares will be regarded as owned by the ADR holder for Australian income tax and
capital gains tax purposes. Dividends paid on the underlying Ordinary Shares will also be treated as dividends paid to the ADR
holder, as the person beneficially entitled to those dividends. Therefore, in the following analysis, we discuss the tax consequences
to non-Australian resident holders of Ordinary Shares which, for Australian taxation purposes, will be the same as to U.S. holders
of ADRs.
Taxation
of Dividends
Australia
operates a dividend imputation system under which dividends may be declared to be “franked” to the extent of tax paid
on company profits. Fully franked dividends are not subject to dividend withholding tax. Dividends payable by our company to non-Australian
resident stockholders will be subject to dividend withholding tax, to the extent the dividends are unfranked. Dividend withholding
tax will be imposed at 30%, unless a stockholder is a resident of a country with which Australia has a double taxation agreement.
Under the provisions of the Treaty, the Australian tax withheld on unfranked dividends paid by us to which a resident of the United
States is beneficially entitled is generally limited to 15% if the U.S. resident holds less than 10% of the voting rights of our
company, unless the shares are effectively connected to a permanent establishment or fixed base in Australia through which the
stockholder carries on business or provides independent personal services, respectively. Where a U.S. corporate resident holds
10% or more of the voting rights of our company, the withholding tax rate is reduced to 5%.
Item
10. Additional Information (Cont.)
Tax
on Sales or other Dispositions of Shares - Capital Gains Tax
Non-Australian
resident stockholders who hold their shares in us on capital account will not be subject to Australian capital gains tax on any
gain made on a sale or other disposal of our shares, unless they hold 10% or more of our issued capital and the Company holds
real property situated in Australia, the market value of which is 50% or more of the market value of the Company. The Australian
Taxation Office maintains the view that the Treaty does not limit Australian capital gains tax. Australian capital gains tax applies
to net capital gains charged at a taxpayer’s marginal tax rate but, for certain stockholders, a discount of the capital
gain may apply if the shares have been held for 12 months or more. For individuals, this discount is 50%. For superannuation funds,
the discount is 33%. There is no discount for a company that derives a net capital gain. Net capital gains are calculated after
deducting capital losses, which may only be offset against such gains.
Tax
on Sales or other Dispositions of Shares - Stockholders Holding Shares on Revenue Account
Some
non-Australian resident stockholders may hold shares on revenue rather than on capital account, for example, share traders. These
stockholders may have the gains made on the sale or other disposal of the shares included in their assessable income under the
ordinary income provisions of the income tax law, if the gains are sourced in Australia. Non-Australian resident stockholders
assessable under these ordinary income provisions in respect of gains made on shares held on revenue account would be assessed
for those gains at the Australian tax rates for non-Australian residents, which start at a marginal rate of 32.5%. Some relief
from the Australian income tax may be available to non-Australian resident stockholders under the Treaty, for example, because
the stockholder derives business profits not through a permanent establishment in Australia. To the extent an amount would be
included in a non-Australian resident stockholder’s assessable income under both the capital gains tax provisions and the
ordinary income provisions, the capital gain amount would generally be reduced, so that the stockholder would not be subject to
double tax on any part of the income gain or capital gain.
Dual
Residency
If
a stockholder were a resident of both Australia and the United States under the respective domestic taxation laws of those countries,
that stockholder may be subject to tax as an Australian resident. If, however, the stockholder is determined to be a U.S. resident
for the purposes of the Treaty, the Australian tax would be subject to limitation by the Treaty. Stockholders should obtain specialist
taxation advice in these circumstances.
Stamp
Duty
Any
transfer of shares through trading on the Australian Securities Exchange, whether by Australian residents or foreign residents,
is not subject to stamp duty within Australia.
Australian
Death Duty
Australia
does not have estate or death duties. Further, no capital gains tax liability is realized upon the inheritance of a deceased person’s
shares. However, the subsequent disposal of the shares by beneficiaries may give rise to a capital gains tax liability.
Goods
and Services Tax
The
issue or transfer of shares will not incur Australian goods and services tax and does not require a stockholder to register for
Australian goods and services tax purposes.
Item
10. Additional Information (Cont.)
United
States Federal Income Taxation
As
used below, a “U.S. holder” is a beneficial owner of an ADR that is, for U.S. federal income tax purposes, (i) a citizen
or resident alien individual of the United States, (ii) a corporation (or an entity treated as a corporation) created or organized
under the law of the United States, any State thereof or the District of Columbia, (iii) an estate the income of which is subject
to U.S. federal income tax without regard to its source or (iv) a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust, and one or more United States persons have the authority to control
all substantial decisions of the trust, or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations
to be treated as a United States person. For purposes of this discussion, a “non-U.S. holder” is a beneficial owner
of an ADR that is (i) a nonresident alien individual, (ii) a corporation (or an entity treated as a corporation) created or organized
in or under the law of a country other than the United States or a political subdivision thereof or (iii) an estate or trust that
is not a U.S. Holder. If a partnership (including for this purpose any entity treated as a partnership for U.S. federal tax purposes)
is a beneficial owner of an ADR, the U.S. federal tax treatment of a partner in the partnership generally will depend on the status
of the partner and the activities of the partnership. A holder of an ADR that is a partnership and partners in that partnership
should consult their own tax advisers regarding the U.S. federal income tax consequences of holding and disposing of ADRs. We
have not sought a ruling from the Internal Revenue Service (“IRS”) or an opinion of counsel as to any U.S. federal
income tax consequence described herein. The IRS may disagree with the description herein, and its determination may be upheld
by a court.
GIVEN
THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF ADRs, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS,
AS WELL AS U.S. FEDERAL TAX LAWS.
Nature
of ADRs for U.S. Federal Income Tax Purposes
In
general, for U.S. federal income tax purposes, a holder of an ADR will be treated as the owner of the underlying shares. Accordingly,
except as specifically noted below, the tax consequences discussed below with respect to ADRs will be the same as for shares in
the Company, and exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to U.S. federal income tax.
Taxation
of Dividends
U.S.
Holders. In general, subject to the passive foreign investment company rules discussed below, a distribution on an ADR will constitute
a dividend for U.S. federal income tax purposes to the extent that it is made from our current or accumulated earnings and profits
as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits,
it is generally treated as a non-taxable reduction of basis to the extent of the U.S. holder’s tax basis in the ADR on which
it is paid, and to the extent it exceeds that basis it will be treated as capital gain. For purposes of this discussion, the term
“dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes. The Company has
not maintained and does not plan to maintain calculations of earnings and profits under U.S. federal income tax principles. Accordingly,
it is unlikely that U.S. Holders will be able to establish that a distribution by the Company is in excess of its current and
accumulated earnings and profits (as computed under U.S. federal income tax principles). Therefore, a U.S. Holder should expect
that a distribution by the Company will generally be treated as taxable in its entirety as a dividend to U.S. Holders for U.S.
federal income tax purposes even though the distribution may be treated in whole or in part as a non-taxable distribution for
Australian tax purposes.
The
gross amount of any dividend on an ADR (which will include the amount of any Australian taxes withheld) generally will be subject
to U.S. federal income tax as foreign source dividend income, and will not be eligible for the corporate dividends received deduction.
The amount of a dividend paid in Australian dollars will be its value in U.S. dollars based on the prevailing spot market exchange
rate in effect on the day the U.S. holder receives the dividend or, in the case of a dividend received in respect of an ADR, on
the date the Depositary receives it, whether or not the dividend is converted into U.S. dollars. A U.S. holder will have a tax
basis in any distributed Australian dollars equal to its U.S. dollar amount on the date of receipt, and any gain or loss realized
on a subsequent conversion or other disposition of Australian dollars generally will be treated as U.S. source ordinary income
or loss. If dividends paid in Australian dollars are converted into U.S. dollars on the date they are received by a U.S. holder,
the U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income
Item
10. Additional Information (Cont.)
Subject
to certain exceptions for short-term and hedged positions, a dividend that a non-corporate holder receives on an ADR will be subject
to a maximum federal income tax rate of 20% if the dividend is a “qualified dividend”. A dividend on an ADR will be
a qualified dividend if (i) either (a) the ADRs are readily tradable on an established market in the United States or (b) we are
eligible for the benefits of a comprehensive income tax treaty with the United States that the Secretary of the Treasury determines
is satisfactory for purposes of these rules and that includes an exchange of information program, and (ii) we were not, in the
year prior to the year the dividend was paid, and are not, in the year the dividend is paid, a passive foreign investment company
(“PFIC”). The ADRs are listed on the Nasdaq Capital Market, which should qualify them as readily tradable on an established
securities market in the United States. In any event, the Treaty satisfies the requirements of clause (i) (b), and we are a resident
of Australia entitled to the benefits of the Treaty. However, based on our audited financial statements and relevant market and
shareholder data, we believe we were a PFIC for U.S. federal income tax purposes for our taxable years ended June 30, 2018 and
June 30, 2020, and expect to be classified as a PFIC in the current taxable year. Given that the determination of PFIC status
involves the application of complex tax rules, and that it is based on the nature of our income and assets from time to time,
no assurances can be provided that we will or will not be considered a PFIC for any past or future taxable years. In addition,
as described in the section below entitled “Passive Foreign Investment Company Rules,” if we were a PFIC in a year
while a U.S. holder held an ADR, and if the U.S. holder has not made a qualified electing fund election effective for the first
year the U.S. holder held the ADR, the Ordinary Share underlying the ADR remains an interest in a PFIC for all future years or
until such an election is made. The IRS takes the position that such rule will apply for purposes of determining whether an ADR
is an interest in a PFIC in the year a dividend is paid or in the prior year, even if we do not satisfy the tests to be a PFIC
in either of those years. Even if dividends on the ADRs would otherwise be eligible for qualified dividend treatment, in order
to qualify for the reduced qualified dividend tax rates, a non-corporate holder must hold the Ordinary Share on which a dividend
is paid for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date, disregarding for this purpose
any period during which the non-corporate holder has an option to sell, is under a contractual obligation to sell or has made
(and not closed) a short sale of substantially identical stock or securities, is the grantor of an option to buy substantially
identical stock or securities or, pursuant to Treasury regulations, has diminished such holder’s risk of loss by holding
one or more other positions with respect to substantially similar or related property. In addition, to qualify for the reduced
qualified dividend tax rates, the non-corporate holder must not be obligated to make related payments with respect to positions
in substantially similar or related property. Payments in lieu of dividends from short sales or other similar transactions will
not qualify for the reduced qualified dividend tax rates.
A
non-corporate holder that receives an extraordinary dividend eligible for the reduced qualified dividend rates must treat any
loss on the sale of the stock as a long-term capital loss to the extent of the dividend. For purposes of determining the amount
of a non-corporate holder’s deductible investment interest expense, a dividend is treated as investment income only if the
non-corporate holder elects to treat the dividend as not eligible for the reduced qualified dividend tax rates. Special limitations
on foreign tax credits with respect to dividends subject to the reduced qualified dividend tax rates apply to reflect the reduced
rates of tax.
The
U.S. Treasury has announced its intention to promulgate rules pursuant to which non-corporate holders of stock of non- U.S. corporations,
and intermediaries through whom the stock is held, will be permitted to rely on certifications from issuers to establish that
dividends are treated as qualified dividends. Because those procedures have not yet been issued, it is not clear whether we will
be able to comply with them.
Non-corporate
holders of Ordinary Shares are urged to consult their own tax advisers regarding the availability of the reduced qualified dividend
tax rates with respect to dividends received on the ADRs in the light of their own particular circumstances.
Item
10. Additional Information (Cont.)
Any
Australian withholding tax imposed on dividends received with respect to the ADRs will be treated as a foreign income tax eligible
for credit against a U.S. holder’s U.S. federal income tax liability, subject to generally applicable limitations under
U.S. federal income tax law. For purposes of computing those limitations separately under current law for specific categories
of income, a dividend generally will constitute foreign source “passive category income” or, in the case of certain
holders, “general category income.” A U.S. holder will be denied a foreign tax credit with respect to Australian income
tax withheld from dividends received with respect to the ADRs to the extent the U.S. holder has not held the ADRs for at least
16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent the U.S. holder
is under an obligation to make related payments with respect to substantially similar or related property. Any days during which
a U.S. holder has substantially diminished its risk of loss on the ADRs are not counted toward meeting the 16-day holding period
required by the statute. The rules relating to the determination of the foreign tax credit are complex, and U.S. holders are urged
to consult with their own tax advisers to determine whether and to what extent they will be entitled to foreign tax credits as
well as with respect to the determination of the foreign tax credit limitation. Alternatively, any Australian withholding tax
may be taken as a deduction against taxable income, provided the U.S. holder takes a deduction and not a credit for all foreign
income taxes paid or accrued in the same taxable year. In general, special rules will apply to the calculation of foreign tax
credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax.
Non-U.S.
holders. A dividend paid to a non-U.S. holder of an ADR will not be subject to U.S. federal income tax unless the dividend is
effectively connected with the conduct of trade or business by the non-U.S. holder within the United States (and is attributable
to a permanent establishment or fixed base the non-U.S. holder maintains in the United States if an applicable income tax treaty
so requires as a condition for the non-U.S. holder to be subject to U.S. taxation on a net income basis on income from the ADR).
A non-U.S. holder generally will be subject to tax on an effectively connected dividend in the same manner as a U.S. holder. A
corporate non-U.S. holder under certain circumstances may also be subject to an additional “branch profits tax,” the
rate of which may be reduced pursuant to an applicable income tax treaty.
Taxation
of Capital Gains
U.S.
Holders. Subject to the passive foreign investment company rules discussed below, on a sale or other taxable disposition of an
ADR, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder’s adjusted
basis in the ADR and the amount realized on the sale or other disposition, each determined in U.S. dollars. Such capital gain
or loss will be long-term capital gain or loss if at the time of the sale or other taxable disposition the ADR has been held for
more than one year. In general, any adjusted net capital gain of an individual is subject to a maximum federal income tax rate
of 20%. Capital gains recognized by corporate U.S. holders generally are subject to U.S. federal income tax at the same rate as
ordinary income. The deductibility of capital losses is subject to limitations. Any gain a U.S. holder recognizes generally will
be U.S. source income for U.S. foreign tax credit purposes, and, subject to certain exceptions, any loss will generally be a U.S.
source loss. If an Australian tax is paid on a sale or other disposition of an ADR, the amount realized will include the gross
amount of the proceeds of that sale or disposition before deduction of the Australian tax.
The
generally applicable limitations under U.S. federal income tax law on crediting foreign income taxes may preclude a U.S. holder
from obtaining a foreign tax credit for any Australian tax paid on a sale or other disposition of an ADR. The rules relating to
the determination of the foreign tax credit are complex, and U.S. holders are urged to consult with their own tax advisers regarding
the application of such rules. Alternatively, any Australian tax paid on the sale or other disposition of an ADR may be taken
as a deduction against taxable income, provided the U.S. holder takes a deduction and not a credit for all foreign income taxes
paid or accrued in the same taxable year.
Non-U.S.
Holders. A non-U.S. holder will not be subject to U.S. federal income tax on gain recognized on a sale or other disposition of
an ADR unless (i) the gain is effectively connected with the conduct of trade or business by the non-U.S. holder within the United
States (and is attributable to a permanent establishment or fixed base the non-U.S. holder maintains in the United States if an
applicable income tax treaty so requires as a condition for the non-U.S. holder to be subject to U.S. taxation on a net income
basis on income from the ADR), or (ii) in the case of a non-U.S. holder who is an individual, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions apply. Any effectively
connected gain of a corporate non-U.S. holder may also be subject under certain circumstances to an additional “branch profits
tax,” the rate of which may be reduced pursuant to an applicable income tax treaty.
Item
10. Additional Information (Cont.)
Passive
Foreign Investment Company Rules
A
special set of U.S. federal income tax rules applies to a foreign corporation that is a PFIC for U.S. federal income tax purposes.
As noted above, based on our audited financial statements and relevant market and shareholder data, we believe that we were a
PFIC for U.S. federal income tax purposes for our taxable years ended June 30, 2018 and June 30, 2020, and expect to be classified
as a PFIC in our current taxable year. In addition, given that the determination of PFIC status involves the application of complex
tax rules, and that it is based on the nature of our income and assets from time to time, no assurances can be provided that we
will or will not be considered a PFIC for any past or future taxable years.
In
general, a foreign corporation is a PFIC if at least 75% of its gross income for the taxable year is passive income or if at least
50% of its assets for the taxable year produce passive income or are held for the production of passive income. In general, passive
income for this purpose means, with certain designated exceptions, dividends, interest, rents, royalties (other than certain rents
and royalties derived in the active conduct of trade or business), annuities, net gains from dispositions of certain assets, net
foreign currency gains, income equivalent to interest, income from notional principal contracts and payments in lieu of dividends.
Passive assets are those assets that are held for production of passive income or do not produce income at all. Thus cash will
be a passive asset. Interest, including interest on working capital, is treated as passive income for purposes of the income test.
The determination of whether a foreign corporation is a PFIC is a factual determination made annually and is therefore subject
to change. Subject to exceptions pursuant to certain elections that generally require the payment of tax, once stock in a foreign
corporation is stock in a PFIC in the hands of a particular shareholder that is a United States person, it remains stock in a
PFIC in the hands of that shareholder.
If
we are treated as a PFIC, contrary to the tax consequences described in “U.S. Federal Income Tax Considerations— Taxation
of Dividends” and “U.S. Federal Income Tax Considerations—Taxation of Capital Gains” above, a U.S. holder
that does not make an election described in the succeeding two paragraphs would be subject to special rules with respect to (i)
any gain realized on a sale or other disposition of an ADR (for purposes of these rules, a disposition of an ADR includes many
transactions on which gain or loss is not realized under general U.S. federal income tax rules) and (ii) any “excess distribution”
by the Company to the U.S. holder (generally, any distribution during a taxable year in which distributions to the U.S. holder
on the ADR exceed 125% of the average annual taxable distributions (whether actual or constructive and whether or not out of earnings
and profits) the U.S. holder received on the ADR during the preceding three taxable years or, if shorter, the U.S. holder’s
holding period for the ADR). Under those rules, (i) the gain or excess distribution would be allocated ratably over the U.S. holder’s
holding period for the ADR, (ii) the amount allocated to the taxable year in which the gain or excess distribution is realized
would be taxable as ordinary income in its entirety and not as capital gain, would be ineligible for the reduced qualified dividend
rates, and could not be offset by any deductions or losses, and (iii) the amount allocated to each prior year, with certain exceptions,
would be subject to tax at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments
of tax would be imposed in respect of the tax attributable to each of those years. A U.S. holder who owns an ADR during any year
we are a PFIC will generally have to file IRS Form 8621. A failure to file this return will suspend the statute of limitations
with respect to any tax return, event, or period to which such report relates (potentially including with respect to items that
do not relate to a U.S. Holder’s investment in the ADRs).
The
special PFIC rules described above will not apply to a U.S. holder if the U.S. holder makes a timely election, which remains in
effect, to treat the Company as a “qualified electing fund” (“QEF”) in the first taxable year in which
the U.S. holder owns an ADR and the Company is a PFIC and if the Company complies with certain reporting requirements. Instead,
a shareholder of a QEF generally is currently taxable on a pro rata share of the Company’s ordinary earnings and net capital
gain as ordinary income and long-term capital gain, respectively. Neither that ordinary income nor any actual dividend from the
Company would qualify for the 20% maximum tax rate on dividends described above if the Company is a PFIC in the taxable year the
ordinary income is realized or the dividend is paid or in the preceding taxable year. We have not yet determined whether we would
make the computations necessary to supply U.S. holders with the information needed to report income and gain pursuant to a QEF
election. It is, therefore, possible that U.S. holders would not be able to make or retain a QEF election in any year we are a
PFIC. Although a QEF election generally cannot be revoked, if a U.S. holder made a timely QEF election for the first taxable year
it owned an ADR and the Company is a PFIC (or is treated as having done so pursuant to any of certain elections), the QEF election
will not apply during any later taxable year in which the Company does not satisfy the tests to be a PFIC. If a QEF election is
not made in that first taxable year, an election in a later year generally will require the payment of tax and interest.
Item
10. Additional Information (Cont.)
In
lieu of a QEF election, a U.S. holder of stock in a PFIC that is considered marketable stock could elect to mark the stock to
market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable
year between the fair market value of the stock and the U.S. holder’s adjusted basis in the stock. Losses would be allowed
only to the extent of net mark-to-market gain previously included in income by the U.S. holder under the election for prior taxable
years. A U.S. holder’s adjusted basis in the ADRs will be adjusted to reflect the amounts included or deducted with respect
to the mark-to-market election. If the mark-to-market election were made, the rules set forth in the second preceding paragraph
would not apply for periods covered by the election. A mark-to-market election will not apply during any later taxable year in
which the Company does not satisfy the tests to be a PFIC. In general, the ADRs will be marketable stock if the ADRs are traded,
other than in de minimis quantities, on at least 15 days during each calendar quarter on a national securities exchange that is
registered with the SEC or on a designated national market system or on any exchange or market that the Treasury Department determines
to have rules sufficient to ensure that the market price accurately represents the fair market value of the stock. Under current
law, the mark-to-market election may be available to U.S. holders of ADRs because the ADRs are listed on the Nasdaq Capital Market,
which constitutes a qualified exchange, although there can be no assurance that the ADRs will be “regularly traded”
for purposes of the mark-to-market election or that the ADRs will continue to be listed on the Nasdaq Capital Market.
Given
the complexities of the PFIC rules and their potentially adverse tax consequences, U.S. holders of ADRs are urged to consult their
tax advisers about the PFIC rules, including the availability of, and consequences to them of making a QEF election or a mark-to-market
election with respect to the Ordinary Shares in the event that the Company is classified as a PFIC for any taxable year.
Medicare
Surtax on Net Investment Income
Non-corporate
US Holders whose income exceeds certain thresholds generally will be subject to 3.8% surtax on their “Net Investment Income”
(which generally includes, among other things, dividends on, and capital gain from the sale or other taxable disposition of, the
ADRs). Absent an election to the contrary, if a QEF election is available and made, QEF inclusions will not be included in net
investment income at the time a US Holder includes such amounts in income, but rather will be included at the time distributions
are received or gains are recognized. Non-corporate US Holders should consult their own tax advisors regarding the possible effect
of such tax on their ownership and disposition of the Common Shares, in particular the applicability of this surtax with respect
to a non-corporate US Holder that makes a QEF or mark-to-market election in respect of their Common Shares.
Information
Reporting and Backup Withholding
Dividends
paid on, and proceeds from the sale or other disposition of, an ADR to a U.S. holder generally may be subject to information reporting
requirements and may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number
or otherwise establishes an exemption. The amount of any backup withholding collected from a payment to a U.S. holder will be
allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund,
provided certain required information is furnished to the Internal Revenue Service. A non-U.S. holder generally will be exempt
from these information reporting requirements and backup withholding tax but may be required to comply with certain certification
and identification procedures in order to establish its eligibility for exemption.
Under
U.S. federal income tax law and U.S. Treasury Regulations, certain categories of U.S. holders must file information returns with
respect to their investment in, or involvement in, a foreign corporation. For example, all U.S. holders of PFIC stock are generally
required to make annual return filings reporting their PFIC ownership and certain other information that the IRS may require.
U.S. holders are urged to consult with their own tax advisors concerning such reporting requirements.
Reporting
Obligations of Individual Owners of Foreign Financial Assets
Section
6038D of the Code generally requires U.S. individuals (and possibly certain entities that have U.S. individual owners) to file
IRS Form 8938 if they hold certain “specified foreign financial assets,” the aggregate value of which exceeds $50,000.
The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions,
but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-US. person, any
financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest
in a foreign entity.
Item
10. Additional Information (Cont.)
THE
DISCUSSION ABOVE IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO AN INVESTMENT IN ADRs.
HOLDERS AND POTENTIAL HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS CONCERNING THE TAX CONSEQUENCES RELEVANT TO THEM IN
THEIR PARTICULAR SITUATION.
Item
10.F Dividends and Paying Agents
No
dividends have been paid by the Company or recommended by the directors since the end of the previous financial year.
Item
10.G Statement by Experts
Not
applicable.
Item
10.H Documents on Display
The
documents concerning the Company which are referred to in this Annual Report may be inspected at the offices of the Company at
60-66 Hanover Street, Fitzroy, Victoria 3065 Australia. As a “foreign private issuer” we are subject to the information
requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, we are required to file reports,
including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission in electronic form.
Any filings we make electronically are available to the public over the Internet at the Commission’s website at http://www.sec.gov.
We also maintain a website at www.gtglabs.com. Information on our website and websites linked to it do not constitute a part of
this Annual Report.
Item
10.I Subsidiary Information
Not
applicable.
Item
11. Quantitative and Qualitative Disclosures about Market Risk
Our
market risk relates primarily to exposure to changes in foreign currency exchange rates and interest rates. Refer Note 29 of the
attached financial statements for further analysis surrounding market risk.
Interest
Rate Risk. As of June 30, 2020, we had A$14,214,160 in cash and cash equivalents of which A$11,645,389 was subject to
interest rate risk. Interest income earned on the cash balances is affected by changes in the levels of market interest rates.
We invest excess cash in interest-bearing, investment-grade securities and time deposits in high-quality institutions. We do not
utilize derivative financial instruments, derivative commodity instruments, positions or transactions in any material matter.
Accordingly,
we believe that, while the investment-grade securities and time-deposits we hold are subject to changes in financial standing
of the issuer of such securities, the principal is not subject to any material risks arising from changes in interest rates, foreign
currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.
Since we hold cash and cash equivalents in Banks which are located outside Australia, we are subject to certain cross-border risks,
though due to the size of the holdings these risks are not generally significant.
Item
11. Quantitative and Qualitative Disclosures about Market Risk (Cont.)
Foreign
Currency Exchange Rate Risk. We operate in Australia with active operations in the U.S.A. and are accordingly subject
to certain foreign currency exposure. This includes foreign-currency denominated receivables, payables, debt, and other balance
sheet positions as well as future cash flows resulting from anticipated transactions including intra-company transactions. Historically,
currency translation gains and losses have been reflected as adjustments to stockholders’ equity, while transaction gains
and losses have been reflected as components of income and loss. Transaction gains and losses could be material depending upon
changes in the exchange rates between the Australian dollar and the U.S. dollar. A significant amount of our current revenue is
denominated in U.S. dollars which provides us with a limited natural hedge against exchange rate movements.
Item
12. Description of Securities Other Than Equity Securities
Item
12.A Debt Securities
Not
applicable.
Item
12.B Warrants and Rights
Not
applicable.
Item
12.C Other Securities
Not
applicable
Item
12. Description of Securities Other Than Equity Securities (Cont.)
Item
12.D American Depositary Shares Fees and Charges Payable by ADS Holders
The
table below summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, to our depositary,
The Bank of New York Mellon, or BNYM, pursuant to the Deposit Agreement, which was filed as Exhibit 2.1 to our Registration Statement
on Form F-6 filed with the SEC on January 14, 2002, and the types of services and the amount of the fees or charges paid for such
services. The disclosure under this heading “Fees and Charges Payable by ADS Holders” is subject to and qualified
in its entirety by reference to the full text of the Deposit Agreement. The holder of an ADS may have to pay the following fees
and charges to BNYM in connection with ownership of the ADS:
Persons
Depositing or Withdrawing Shares Must
Pay:
|
|
For:
|
|
|
|
●
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
|
●
Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
|
|
|
●
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
|
|
|
|
●
US$0.02 (or less) per ADS
|
|
●
Any cash distribution to you
|
|
|
|
●
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been
deposited for issuance of ADSs
|
|
●
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
|
|
|
|
●
US$1.50 (or less) per ADR
|
|
●
Transfers, combination and split-up of ADRs
|
|
|
|
●
Expenses of the depositary
|
|
●
Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
|
|
|
●
Converting foreign currency to U.S. dollars
|
The
depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs
for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing
investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to
provide fee-attracting services until its fees for those services are paid.
NOTES
TO THE FINANCIAL STATEMENTS
For
the year ended June 30, 2020
1.
CORPORATE INFORMATION
The
Financial Report of Genetic Technologies Limited (the “Company”) for the year ended June 30, 2020 was authorized for
issue in accordance with a resolution of the Directors dated on October 22, 2020 Genetic Technologies Limited is
incorporated in Australia and is a company limited by shares. The Directors have the power to amend and reissue the financial
statements.
The
Company’s Ordinary Shares are publicly traded on the Australian Securities Exchange under the symbol GTG and, via Level
II American Depositary Receipts, on the Nasdaq Capital Market under the ticker GENE.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of preparation
(i)
Compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board
The
Financial Report complies with the International Financial Reporting Standards as issued by the International Accounting Standards
Board.
(ii)
Historical cost convention
These
financial statements have been prepared under the historical cost convention except for financial assets and liabilities (including
derivative instruments) which are measured at fair value.
(iii)
Critical accounting estimates
The
preparation of financial statements requires the use of certain critical accounting estimates. It also requires Management to
exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are critical to the financial statements, are disclosed in
Note 3.
(iv)
Going concern
For
the year ended June 30, 2020, the Company incurred a total comprehensive loss of $6,132,105 (2019: $6,401,936) and net cash outflow
from operations of $5,712,098 (2019: $6,073,182). As at June 30, 2020 the Company held total cash and cash equivalents of $14,214,160
and total net current assets of $13,795,177.
The
Company expects to continue to incur losses and cash outflows for the foreseeable future as it continues to invest resources in
expanding the research and development activities in support of the distribution of existing and new products. Following successful
capital raises in the last three months of the financial year, the Company has $14.2 million cash and cash equivalents as at June
30, 2020. In the Director’s opinion this, together with further gross proceeds of US$5.1 million before transaction costs
raised in July 2020, will underpin the Company’s funding requirements for approximately two years. As a result, the financial
statements have been prepared on a going concern basis.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(a)
Basis of preparation (cont.)
(v)
New accounting standards and interpretations
The
Company has applied the following standards and amendments for the first time for their annual reporting period commencing July
1, 2019:
●
IFRS 16 Leases
The
impact of the adoption of this standard and the new accounting policy is disclosed below.
IFRS
16 will result in almost all leases being recognized on the balance sheet, as the distinction between operating and finance leases
is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized.
The only exceptions are short-term and low-value leases.
On
adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as of July 1, 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on July 1, 2019 was 5.37%.
The
associated right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognized in the balance sheet as at July 1, 2019. There were no onerous lease
contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
In
applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
|
●
|
the
use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
|
|
●
|
the
accounting for operating leases with a lease term of less than 12 months as short-term leases.
|
The
Company has also elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead,
for contracts entered into before the transition date the Company relied on its assessment made applying IAS 17 and interpretation
4 determining whether an arrangement contains a Lease.
|
|
Amount
|
|
Operating
lease commitments disclosed as at June 30, 2019
|
|
$
|
487,837
|
|
Discounted
using the lessee’s incremental borrowing rate of at the date of initial application
|
|
$
|
461,358
|
|
|
|
|
|
|
Lease
liability recognized as at July 1, 2019
|
|
$
|
461,358
|
|
|
|
|
|
|
Of
which are:
|
|
|
|
|
Current
lease liabilities
|
|
$
|
209,887
|
|
Non-current
lease liabilities
|
|
$
|
251,471
|
|
|
|
|
|
|
Right
of use of assets increased by
|
|
$
|
446,645
|
|
Lease
liabilities increased by
|
|
$
|
461,358
|
|
The
net impact on retained earnings on July 1, 2019 was a decrease of
|
|
$
|
14,712
|
|
(vi)
New standards and interpretations not yet adopted
There
are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current
or future reporting years and on foreseeable future transactions.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(b)
Principles of consolidation
(i)
Subsidiaries
Subsidiaries
are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company
is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Company. They are deconsolidated from the date that control ceases.
The
acquisition method of accounting is used to account for business combinations by the Company.
Intercompany
transactions, balances and unrealized gains on transactions between Company companies are eliminated. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Company.
Non-controlling
interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income,
consolidated balance sheet and consolidated statements of changes in equity, respectively.
(c)
Segment reporting
Operating
segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(d)
Foreign currency translation
(i)
Functional and presentation currency
Items
included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented
in Australian dollar ($), which is Genetic Technologies Limited’s functional and presentation currency.
(ii)
Transactions and balances
Foreign
currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss.
Foreign
exchange gains and losses that relate to borrowings are presented in the consolidated statement of profit or loss, within finance
costs. All other foreign exchange gains and losses are presented in the consolidated statement of profit or loss on a net basis
within other gains/(losses).
Non-monetary
items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair
value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair
value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair
value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences
on non-monetary assets such as equities classified as at fair value through other comprehensive income are recognized in other
comprehensive income.
(iii)
Group companies
The
results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
●
|
assets
and liabilities for each consolidated balance sheet presented are translated at the closing rate at the date of that consolidated
balance sheet
|
|
|
●
|
income
and expenses for each consolidated statement of profit or loss and consolidated statement of profit or loss and other comprehensive
income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions),
and
|
|
|
●
|
all
resulting exchange differences are recognized in other comprehensive income.
|
On
consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings
and other financial instruments designated as hedges of such investments, are recognized in other comprehensive income. When a
foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences
are reclassified to profit or loss, as part of the gain or loss on sale.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(e)
Revenue recognition
Under
IFRS 15, revenue is recognized based on contract with customers when performance obligations were satisfied. The following recognition
criteria must also be met before revenue is recognized:
(i)
Genetic testing revenues
The
Company operates facilities which provide genetic testing services. Revenue from the provision molecular risk testing for cancer
(BREVAGenplus) is recognized at a point time when the Company has provided the customer with their test results, the single performance
obligation.
(ii)
Interest income
Revenue
is recognized as the interest accrues using the effective interest method.
(iii)
Government Grants
The
Australian government replaced the research and development tax concession with research and development (R&D) tax incentive
from July 1, 2011. The R&D tax incentive applies to expenditure incurred and the use of depreciating assets in an income year
commencing on or after July 1, 2011. A refundable tax offset is available to eligible companies with an annual aggregate turnover
of less than $20 million. Management has assessed the Company’s activities and expenditure to determine which are likely
to be eligible under the incentive scheme. The Company accounts for the R&D tax incentive as a government grant. The grant
is recognized as other income over the period in which the R&D expense is recognized.
(f)
Government Grants
Revenue
from government grants is recognized in the consolidated income statement on a systematic basis over the periods in which the
Company recognizes as expense the related costs for which the grants are intended to compensate in accordance with IAS 20 Accounting
for Government Grants and Disclosure of Government Assistance.
The
receivable for reimbursable amounts that have not been collected is reflected in trade and other receivables on our consolidated
balance sheets.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(g)
Income tax
The
income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
and to unused tax losses.
The
current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the company and its subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject
to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred
income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized
if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.
Deferred
income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting
period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is
settled.
Deferred
tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences
and losses.
(h)
Leases
Please
refer to Note 17 for further information.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(i)
Impairment of assets
The
Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists,
the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its
fair value less costs of disposal or its value in use and is determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or group of assets and the asset’s value-in-use cannot
be estimated to be close to its fair value. In such cases, the asset is tested for impairment as part of the cash-generating unit
to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or
cash-generating unit is considered impaired and is written down to its recoverable amount.
In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating
to operations are recognized in those expense categories consistent with the function of the impaired asset unless the asset is
carried at its revalued amount, in which case the impairment loss is treated as a revaluation decrease.
An
assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may
no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount
since the last impairment loss was recognized. If so, the carrying amount of the asset is increased to its recoverable amount.
The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless it reverses a decrement
previously charged to equity, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation
charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic
basis over its remaining useful life.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(j)
Cash and cash equivalents
For
the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits
held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months
or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value,
and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet.
(k)
Trade and other receivables
Trade
receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method,
less loss allowance.
(l)
Inventories
(i)
Raw materials and stores, work in progress and finished goods
Raw
materials and stores, work in progress and finished goods are stated at the lower of cost and net realizable value. Cost comprises
direct materials, direct labor and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated
on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average
costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realizable value is the estimated
selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make
the sale.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(m)
Property, plant and equipment
Property,
plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.ss
Subsequent
costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
The carrying amount of any component accounted for as a separate asset is derecognized when replaced. All other repairs and maintenance
are charged to profit or loss during the reporting period in which they are incurred.
Depreciation
is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their
estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term
as follows:
Plant
and equipment
|
|
3
- 5 years
|
Furniture,
fittings and equipment
|
|
3
- 5 years
|
Leasehold
improvements
|
|
1
- 3 years (lease term)
|
Leased
plant and equipment
|
|
3
years (lease term)
|
The
assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An
asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (note 2(i)).
Gains
and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When
revalued assets are sold, it is Company policy to transfer any amounts included in other reserves in respect of those assets to
retained earnings.
(n)
Trade and other payables
Trade
payables and other payables are carried at amortized cost and represent liabilities for goods and services provided to the Company
prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect
of the purchase of these goods and services. Trade payables and other payables generally have terms of between 30 and 60 days.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
(o)
Provisions
Provisions
for legal claims, service warranties and make good obligations are recognized when the Company has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and
the amount can be reliably estimated. Provisions are not recognized for future operating losses.
Where
there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item
included in the same class of obligations may be small.
Provisions
are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation
at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the
passage of time is recognized as interest expense.
(p)
Employee benefits
(i)
Short-term obligations
Liabilities
for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled
wholly within 12 months after the end of the period in which the employees render the related service are recognized in respect
of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the
liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
(ii)
Other long-term employee benefit obligations
In
some countries, the Company also has liabilities for long service leave and annual leave that are not expected to be settled wholly
within 12 months after the end of the period in which the employees render the related service. These obligations are therefore
measured as the present value of expected future payments to be made in respect of services provided by employees up to the end
of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels,
experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end
of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated
future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognized
in profit or loss.
The
obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer
settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.
(q)
Contributed equity
Issued
and paid up capital is recognized at the fair value of the consideration received by the Company. Transaction costs arising on
the issue of Ordinary Shares are recognized directly in equity as a deduction, net of tax, of the proceeds received. The Company
has a share-based payment option plan under which options to subscribe for the Company’s shares have been granted to certain
executives and other employees.
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
|
|
|
(r)
|
Loss
per share
|
|
|
(i)
|
Basic
loss per share
|
Basic
loss per share is calculated by dividing:
●
|
the
loss attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares,
|
|
|
●
|
by
the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary
shares issued during the year and excluding treasury shares
|
|
|
(ii)
|
Diluted
loss per share
|
Diluted
loss per share adjusts the figures used in the determination of basic loss per share to take into account:
●
|
after
income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
|
|
|
●
|
the
weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive
potential ordinary shares.
|
On
the basis of the Company’s losses, the outstanding options as at June 30, 2020 are considered to be anti-dilutive and therefore
were excluded from the diluted weighted average number of ordinary shares calculation.
(s)
|
Goods
and services tax (GST)
|
Revenues
are recognized to the extent that it is probable that the economic benefits will flow to the entity and the revenues can be reliably
measured. Revenues are recognized at the fair value of the consideration received or receivable net of the amounts of Goods and
Services Tax. The following recognition criteria must also be met before revenue is recognized:
Receivables
and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable
to, the taxation authority is included with other receivables or payables in the consolidated balance sheet.
Cash
flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are
recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(t)
|
Parent
entity financial information
|
The
financial information for the parent entity, Genetic Technologies Limited, disclosed in note 32 has been prepared on the same
basis as the consolidated financial statements, except that accounted for at cost in the financial statements of Genetic Technologies
Limited. Loans to subsidiaries are written down to their recoverable value as at balance date.
3.
|
CRITICAL
ACCOUNTING ESTIMATES AND JUDGEMENTS
|
Estimates
and judgements are evaluated and based on historical experience and other factors, including expectations of future events that
may have a financial impact on the Company and that are believed to be reasonable under the circumstances.
Share-based
payments transactions
The
Company measures the cost of equity-settled transactions with employees and service providers by reference to the value of the
equity instruments at the date on which they are granted. Management has determined the fair value by engaging an independent
valuer for more complex equity instruments, such as warrants and performance rights, by using Black-Scholes, Monte-Carlo Simulation
and Binomial model, and utilized internal resources to perform fair value by straight forward equity instruments by using Black-Scholes
model.
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Inventories
used
|
|
|
82,516
|
|
|
|
55,995
|
|
|
|
93,869
|
|
Direct
labor costs
|
|
|
107,590
|
|
|
|
103,601
|
|
|
|
88,690
|
|
Depreciation
expense
|
|
|
42,488
|
|
|
|
55,480
|
|
|
|
65,853
|
|
Inventories
written-off (1)
|
|
|
18,917
|
|
|
|
61,191
|
|
|
|
51,676
|
|
Total
cost of sales
|
|
|
251,511
|
|
|
|
276,267
|
|
|
|
300,088
|
|
|
●
|
Inventories
written off include $Nil (2019: $Nil and 2018: $24,506) of items that expired during the year.
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Net
profit on disposal of plant and equipment
|
|
|
37,000
|
|
|
|
—
|
|
|
|
—
|
|
Research
and development tax incentive income (i)
|
|
|
750,000
|
|
|
|
856,707
|
|
|
|
299,351
|
|
Export
Marketing & Development Grant
|
|
|
—
|
|
|
|
—
|
|
|
|
126,907
|
|
Interest
income
|
|
|
22,507
|
|
|
|
25,794
|
|
|
|
15,218
|
|
Rental
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other
income
|
|
|
78,001
|
|
|
|
137,268
|
|
|
|
—
|
|
Government
grant income – COVID-19 relief (ii)
|
|
|
253,139
|
|
|
|
—
|
|
|
|
—
|
|
Total
non-operating income
|
|
|
1,140,647
|
|
|
|
1,019,769
|
|
|
|
441,476
|
|
The
Company’s research and development activities are eligible under an Australian government tax incentive for eligible expenditure.
Management has assessed these activities and expenditure to determine which are likely to be eligible under the incentive scheme.
Amounts are recognized when it has been established that the conditions of the tax incentive have been met and that the expected
amount can be reliably measured. For the year ended June 30, 2020, the group has included an item in other income of A$750,000
(2019: A$856,707, 2018: A$299,351) to recognize income over the period necessary to match the grant on a systematic basis with
the costs that they are intended to compensate.
On
December 5, 2019, the Treasury Laws Amendment (R&D Tax Incentive Bill 2019) was introduced into Parliament. The draft bill
contains proposed amendments to the R&D tax incentive regulations. Under the proposed amendments, the refundable tax offset
rate for companies with an aggregated turnover of less than $20 million would become 41%. As at June 30, 2020, the bill remains
under review by the Senate Committee.
In
accordance with IAS 20, government grants, including non-monetary grants at fair value, should not be recognized until there is
reasonable assurance that the Company will comply with the conditions attaching to them and the grants will be received.
Management
does not consider the rate reduction to be substantially enacted as at June 30, 2020 due to the continued legislative debate in
Parliament. The Company has therefore calculated the R&D tax incentive by applying the currently legislated R&D rate to
eligible expenditure.
|
(ii)
|
Government
Grant income – COVID-19 Relief
|
The
COVID-19 relief relate to government assistance received during the year, from the Australian Government (at both federal and
state level), in response to the economic and financial challenges in the current economy.
6.
|
FOREIGN
EXCHANGE GAIN RECLASSIFIED ON LIQUIDATION OF SUBSIDIARY
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Reclassification
of net foreign exchange gains previously recognized in other comprehensive income, reclassified to profit or loss
|
|
|
—
|
|
|
|
—
|
|
|
|
527,049
|
|
Total
gain is attributable to the liquidation of GeneType AG, a dormant subsidiary, that was completed on 13 December 2017
7.
|
OTHER
GAINS / (LOSSES)
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Net
foreign exchange gains/(losses)
|
|
|
(5,522
|
)
|
|
|
92,518
|
|
|
|
—
|
|
Fair
value gains on financial liabilities through profit or loss
|
|
|
195,845
|
|
|
|
—
|
|
|
|
—
|
|
Net
impairment losses (1)
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
|
—
|
|
Total
other gains / (losses)
|
|
|
(190,323
|
)
|
|
|
(407,482
|
)
|
|
|
—
|
|
(1)
In August 2018, the Company invested A$250,000 into Swisstec towards the proposed joint venture to enable the Company and Swisstec
to collaborate to develop a medical and health service platform using blockchain technology. The Company has recorded an impairment
against the investment during the financial year ended June 30, 2019, due to cessation of activities in relation to the joint
venture.
In
December 2018, Genetic Technologies Limited entered and invested A$250,000 into a Joint Venture agreement with Blockshine Health
Pty Ltd. with an ownership of 49%. The Company has recorded an impairment against the investment during the financial year ended
June 30, 2019, due to the cancellation of the project.
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Reconciliation
of income tax expense to prima facie tax payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax expense
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
Tax
at the Australian tax rate of 27.50% (2019: 27.50% and 2018:
27.5%)
|
|
|
(1,677,206
|
)
|
|
|
(1,767,040
|
)
|
|
|
(1,502,565
|
)
|
Tax
effect amounts which are not deductible/(taxable) in calculating taxable income
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payments expense
|
|
|
(3,971
|
)
|
|
|
92,153
|
|
|
|
35,650
|
|
Research
and development tax incentive
|
|
|
446,717
|
|
|
|
541,596
|
|
|
|
148,346
|
|
Other
non-deductible items
|
|
|
888
|
|
|
|
590
|
|
|
|
1,509
|
|
Other
assessable items
|
|
|
(26,764
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
(1,260,336
|
)
|
|
|
(1,132,701
|
)
|
|
|
(1,317,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference
in overseas tax rates
|
|
|
26,526
|
|
|
|
41,009
|
|
|
|
67,557
|
|
Under
/(over) provision
|
|
|
553,190
|
|
|
|
1,126,722
|
|
|
|
(268,092
|
)
|
Temporary
differences not recognized
|
|
|
(353,628
|
)
|
|
|
(121,965
|
)
|
|
|
—
|
|
Research
and development tax credit
|
|
|
(206,250
|
)
|
|
|
(238,084
|
)
|
|
|
(82,322
|
)
|
Tax
losses not recognized
|
|
|
1,240,498
|
|
|
|
325,020
|
|
|
|
1,599,917
|
|
Income
tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets not recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
—
|
|
|
|
863
|
|
|
|
1,381
|
|
Capital
raising costs
|
|
|
877,584
|
|
|
|
232,328
|
|
|
|
347,370
|
|
Intangible
assets
|
|
|
1,832,075
|
|
|
|
1,893,220
|
|
|
|
1,949,601
|
|
Provisions
|
|
|
306,044
|
|
|
|
187,958
|
|
|
|
201,492
|
|
Total
deferred tax assets
|
|
|
3,015,703
|
|
|
|
2,314,369
|
|
|
|
2,499,844
|
|
Deferred
tax liabilities not recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use
assets
|
|
|
(119,384
|
)
|
|
|
—
|
|
|
|
—
|
|
Total
deferred tax liabilities
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Net
deferred tax assets on temporary differences not brought to account
|
|
|
(2,896,320
|
)
|
|
|
(2,314,369
|
)
|
|
|
(2,499,844
|
)
|
Total
net deferred tax assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Tax
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused
tax losses for which no deferred tax asset has been recognized
|
|
|
97,259,045
|
|
|
|
90,254,547
|
|
|
|
87,970,140
|
|
Potential
tax benefit @ 27.5% (Australia)
|
|
|
18,727,578
|
|
|
|
17,563,730
|
|
|
|
17,441,144
|
|
Potential
tax benefit @ 21% (USA)
|
|
|
6,123,340
|
|
|
|
5,541,152
|
|
|
|
5,155,038
|
|
Subject
to the Company continuing to meet the relevant statutory tests, the tax losses are available for offset against future taxable
income.
At
June 30, 2020, the Company had a potential tax benefit related to tax losses carried forward of A$24,850,918 (2019: A$23,104,882,
2018: A$22,596,185). Such amount includes net losses of A$6,123,340 (2019: A$5,541,152, 2018: A$5,155,038) related to subsidiaries
in the United States (U.S.). The Tax Cuts and Jobs Act (TCJA) enacted by Congress in the U.S. on December 22, 2017 cut the top
corporate income tax rate from 35% to 21%. For tax years beginning after December 31, 2017, the graduated corporate tax rate structure
is eliminated and corporate taxable income will be taxed at 21-percent flat rate. Additionally, the previous 20-year limitation
on carry forward net operating losses (NOL’s) has been removed, allowing the NOL’s to be carried forward indefinitely.
The remaining tax losses carried forward of A$18,727,578 (2019: A$17,563,730, 2018: A$17,441,144) are indefinite and are attributable
to the Company’s operations in Australia. As such the total unused tax losses available to the Company, equal A$24,850,918
(2019: A$23,104,882, 2018: A$22,596,182).
As
at balance date, there are unrecognized tax losses with a benefit of approximately A$24,850,918 (2019: A$23,104,882 and 2018:
A$22,596,182)
that have not been recognized as a deferred tax asset to the Company. These unrecognized deferred tax assets will only be obtained
if:
(a)
|
The
Company companies derive future assessable income of a nature and amount sufficient to enable the benefits to be realized;
|
|
|
(b)
|
The
Company companies continue to comply with the conditions for deductibility imposed by the law; and
|
|
|
(c)
|
No
changes in tax legislation adversely affect the Company companies from realizing the benefit.
|
Tax
consolidation legislation
Genetic
Technologies Limited and its wholly owned Australian subsidiaries implemented the tax consolidation legislation as from July 1,
2003. The accounting policy in relation to this legislation is set out in Note 2(g).
The
entities in the tax consolidated Company have entered into a Tax Sharing Agreement which, in the opinion of the Directors, limits
the joint and several liabilities of the wholly-owned entities in the case of a default by the head entity, Genetic Technologies
Limited.
The
entities have also entered into a Tax Funding Agreement under which the wholly-owned entities fully compensate Genetic Technologies
Limited for any current tax payable assumed and are compensated by Genetic Technologies Limited for any current tax receivable
and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Genetic Technologies Limited
under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognized in the respective
subsidiaries’ financial statements.
The
amounts receivable or payable under the Tax Funding Agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial year.
As
at June 30, 2020, there are no unrecognized temporary differences associated with the Company’s investments in subsidiaries,
as the Company has no liability for additional taxation should unremitted earnings be remitted (2019: $Nil, 2018:$Nil).
The
following reflects the income and share data used in the calculations of basic and diluted loss per share:
|
|
2020
$
|
|
|
2019
$
|
|
|
2017
$
|
|
Loss
for the year attributable to the owners of Genetic Technologies Limited
|
|
|
(6,098,930
|
)
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
Weighted average
number of Ordinary Shares used in calculating loss per share (number of shares)
|
|
|
4,155,017,525
|
|
|
|
2,635,454,870
|
|
|
|
2,435,282,724
|
|
Note:
|
None
of the 553,000,000 (2019:114,250,000: and 2018: 55,102,778 ) options/performance rights over the Company’s Ordinary
Shares that were outstanding as at the reporting date are considered to be dilutive for the purposes of calculating diluted
earnings per share.
|
10.
CASH AND CASH EQUIVALENTS
|
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Reconciliation
of cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at bank and on hand
|
|
|
14,214,160
|
|
|
|
2,131,741
|
|
|
|
5,487,035
|
|
Total
cash and cash equivalents
|
|
|
14,214,160
|
|
|
|
2,131,741
|
|
|
|
5,487,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of loss for the year after income tax to net cash flows used in operating activities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the year after income tax
|
|
|
6,098,930
|
|
|
|
(6,425,604
|
)
|
|
|
(5,463,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust
for non-cash items
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
and depreciation expenses
|
|
|
65,148
|
|
|
|
156,260
|
|
|
|
303,749
|
|
Other
expenses
|
|
|
2,885
|
|
|
|
—
|
|
|
|
—
|
|
Impairment
of investments
|
|
|
-
|
|
|
|
500,000
|
|
|
|
—
|
|
Share-based
payments expense
|
|
|
(14,442
|
)
|
|
|
335,102
|
|
|
|
129,635
|
|
Interest
classified as investing cash flows
|
|
|
-
|
|
|
|
(25,850
|
)
|
|
|
15,219
|
|
Net
(profit) / loss on disposal of plant and equipment
|
|
|
(37,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Net
(gains) / losses on liquidation of subsidiary
|
|
|
-
|
|
|
|
—
|
|
|
|
(527,049
|
)
|
Depreciation
of right-of-use of assets
|
|
|
200,785
|
|
|
|
-
|
|
|
|
-
|
|
Inventory
written-off
|
|
|
18,917
|
|
|
|
-
|
|
|
|
-
|
|
Gain
on investment previously written off
|
|
|
(43,380
|
)
|
|
|
-
|
|
|
|
-
|
|
Finance
costs
|
|
|
86,503
|
|
|
|
-
|
|
|
|
-
|
|
Interest
received
|
|
|
(22,507
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
foreign exchange (gains) / losses
|
|
|
(597,441
|
)
|
|
|
(92,518
|
)
|
|
|
(128,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust
for changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
/ (increase) in trade and other receivables
|
|
|
29,412
|
|
|
|
(517,383
|
)
|
|
|
124,889
|
|
(Increase)
/ decrease in other operating assets
|
|
|
115,455
|
|
|
|
(70,027
|
)
|
|
|
17,815
|
|
(Increase)
/ decrease in inventories
|
|
|
(59,525
|
)
|
|
|
27,142
|
|
|
|
(2,972
|
)
|
Increase
/ (decrease) in trade and other payables
|
|
|
695,653
|
|
|
|
60,178
|
|
|
|
47,027
|
|
Increase
/ (Decrease) in provisions
|
|
|
(53,631
|
)
|
|
|
|
|
|
|
-
|
|
Increase
/ (decrease) in operating liabilities
|
|
|
—
|
|
|
|
(20,482
|
)
|
|
|
(122,176
|
)
|
Net
cash flows from / (used in) operating activities
|
|
|
(5,712,098
|
)
|
|
|
(6,073,182
|
)
|
|
|
(5,636,533
|
)
|
Financing
facilities available
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at June 30, 2020, the following financing facilities had been negotiated and were available:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
|
193,605
|
|
|
|
95,714
|
|
|
|
183,770
|
|
Facilities
used as at reporting date
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
|
(5,332
|
)
|
|
|
(6,516
|
)
|
|
|
(12,031
|
)
|
Facilities
unused as at reporting date
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
cards
|
|
|
188,272
|
|
|
|
89,198
|
|
|
|
171,739
|
|
11.
|
TRADE
AND OTHER RECEIVABLES (CURRENT)
|
|
|
Consolidated
|
|
|
|
2020
A$
|
|
|
2019
A$
|
|
Trade
receivables
|
|
|
38,871
|
|
|
|
16,529
|
|
Less:
loss allowance
|
|
|
—
|
|
|
|
—
|
|
Net
trade receivables
|
|
|
38,871
|
|
|
|
16,529
|
|
Other
receivables*
|
|
|
750,483
|
|
|
|
802,237
|
|
Total
net current trade and other receivables
|
|
|
789,354
|
|
|
|
818,766
|
|
|
●
|
Other
receivables majorly consists of R&D income grant receivable.
|
Note:
Trade and other receivables for the Company include amounts due in US dollars of USD Nil (2019: USD Nil).
Refer
Note 29 for details of aging, interest rate and credit risks applicable to trade and other receivables for which, due to
their short-term nature, their carrying value approximates their fair value.
|
|
2020
A$
|
|
|
2019
A$
|
|
Prepayments
|
|
|
95,820
|
|
|
|
159,844
|
|
Performance
bond and deposits
|
|
|
2,025
|
|
|
|
53,456
|
|
Total
current prepayments and other assets
|
|
|
97,845
|
|
|
|
213,300
|
|
13.
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Laboratory
equipment, at cost
|
|
|
1,451,389
|
|
|
|
1,451,389
|
|
Less:
cost written-off during the year
|
|
|
(1,047,515
|
)
|
|
|
—
|
|
Add:
additions during the year
|
|
|
22,827
|
|
|
|
—
|
|
Less:
accumulated depreciation
|
|
|
(1,453,365
|
)
|
|
|
(1,410,877
|
)
|
Add:
accumulated depreciation written-off during the year
|
|
|
1,047,515
|
|
|
|
—
|
|
Net
laboratory equipment
|
|
|
20,851
|
|
|
|
40,512
|
|
Computer
equipment, at cost
|
|
|
657,265
|
|
|
|
609,551
|
|
Add:
additions during the year
|
|
|
15,273
|
|
|
|
47,714
|
|
Less:
accumulated depreciation
|
|
|
(651,104
|
)
|
|
|
(628,868
|
)
|
Net
computer equipment
|
|
|
21,434
|
|
|
|
28,397
|
|
Office
equipment, at cost
|
|
|
167,564
|
|
|
|
167,564
|
|
Less:
cost written-off during the year
|
|
|
(167,564
|
)
|
|
|
—
|
|
Less:
accumulated depreciation
|
|
|
(167,564
|
)
|
|
|
(167,564
|
)
|
Add:
accumulated depreciation written-off during the year
|
|
|
167,564
|
|
|
|
—
|
|
Net
office equipment
|
|
|
—
|
|
|
|
—
|
|
Equipment
under hire purchase, at cost
|
|
|
594,626
|
|
|
|
594,626
|
|
Less:
accumulated depreciation
|
|
|
(594,626
|
)
|
|
|
(594,626
|
)
|
Net
equipment under hire purchase
|
|
|
—
|
|
|
|
—
|
|
Leasehold
improvements, at cost
|
|
|
465,380
|
|
|
|
462,797
|
|
Less:
cost written-off during the year
|
|
|
(465,380
|
)
|
|
|
—
|
|
Add:
additions during the year
|
|
|
—
|
|
|
|
2,583
|
|
Less:
accumulated depreciation
|
|
|
(465,380
|
)
|
|
|
(464,956
|
)
|
Add:
accumulated depreciation written-off during the year
|
|
|
465,380
|
|
|
|
—
|
|
Net
leasehold improvements
|
|
|
—
|
|
|
|
424
|
|
Total
net property, plant and equipment
|
|
|
42,285
|
|
|
|
69,333
|
|
Reconciliation
of property, plant and equipment
|
|
|
|
|
|
|
|
|
Opening
gross carrying amount
|
|
|
3,336,224
|
|
|
|
3,285,927
|
|
Add:
additions purchased during the year
|
|
|
38,100
|
|
|
|
50,297
|
|
Less:
cost written-off during the year
|
|
|
(2,277,835
|
)
|
|
|
—
|
|
Closing
gross carrying amount
|
|
|
1,096,489
|
|
|
|
3,336,224
|
|
Opening
accumulated depreciation and impairment losses
|
|
|
(3,266,891
|
)
|
|
|
(3,110,643
|
)
|
Add:
accumulated depreciation written-off during the year
|
|
|
2,277,835
|
|
|
|
—
|
|
Less:
depreciation expense charged
|
|
|
(65,148
|
)
|
|
|
(156,248
|
)
|
Closing
accumulated depreciation and impairment losses
|
|
|
(1,054,204
|
)
|
|
|
(3,266,891
|
)
|
Total
net property, plant and equipment
|
|
|
42,285
|
|
|
|
69,333
|
|
Reconciliation
of movements in property, plant and equipment by asset category
|
|
Opening
net carrying
|
|
|
Additions
|
|
|
Disposals
|
|
|
Depreciation
|
|
|
Closing
net
carrying
|
|
Asset
category
|
|
amount
$
|
|
|
during
year $
|
|
|
during
year $
|
|
|
expense
$
|
|
|
amount
$
|
|
Laboratory
equipment
|
|
|
40,512
|
|
|
|
22,827
|
|
|
|
—
|
|
|
|
(42,488
|
)
|
|
|
20,851
|
|
Computer
equipment
|
|
|
28,397
|
|
|
|
15,273
|
|
|
|
—
|
|
|
|
(22,236
|
)
|
|
|
21,434
|
|
Leasehold
improvements
|
|
|
424
|
|
|
|
-
|
|
|
|
—
|
|
|
|
(424
|
)
|
|
|
-
|
|
Totals
|
|
|
69,333
|
|
|
|
38,100
|
|
|
|
—
|
|
|
|
(65,148
|
)
|
|
|
42,285
|
|
14.
|
TRADE
AND OTHER PAYABLES (CURRENT)
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Trade
payables
|
|
|
350,151
|
|
|
|
590,231
|
|
Other
payables
|
|
|
42,728
|
|
|
|
68,423
|
|
Accrued
expenses
|
|
|
330,845
|
|
|
|
346,654
|
|
Total
current trade and other payables
|
|
|
723,724
|
|
|
|
1,005,308
|
|
Note:
Trade payables for the Company include amounts due in US dollars of USD 685 (2019: USD 126,829).
Refer
Note 29 for details of management of interest rate, foreign exchange and liquidity risks applicable to trade and other
payables for which, due to their short-term nature, their carrying value approximates their fair value.
15.
|
PROVISIONS
(CURRENT AND NON-CURRENT)
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Current
provisions
|
|
|
|
|
|
|
|
|
Annual
leave
|
|
|
152,239
|
|
|
|
152,352
|
|
Long
service leave
|
|
|
189,104
|
|
|
|
243,740
|
|
Make
good *
|
|
|
91,590
|
|
|
|
91,590
|
|
Total
current provisions
|
|
|
432,933
|
|
|
|
487,682
|
|
Non-current
provisions
|
|
|
|
|
|
|
|
|
Long
service leave
|
|
|
1,927
|
|
|
|
809
|
|
Make
good *
|
|
|
—
|
|
|
|
—
|
|
Total
non-current provisions
|
|
|
1,927
|
|
|
|
809
|
|
Total
provisions
|
|
|
434,860
|
|
|
|
488,491
|
|
|
|
|
|
|
|
|
|
|
*
Make good provision
|
|
|
|
|
|
|
|
|
Genetic
Technologies Limited is required to restore the leased premises situated in Fitzroy, Melbourne to their original condition at
the end of the lease terms. A provision has been recognized for the present value of the estimated expenditure required to remove
any leasehold improvements. These costs have been capitalized as part of the cost of leasehold improvements and are amortized
over the shorter of the term of the lease or the useful life of the assets. See Note 2(o) for the Company’s other
accounting policies relevant to provisions.
15.
|
PROVISIONS
(CURRENT AND NON-CURRENT) (cont.)
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Reconciliation
of annual leave provision
|
|
|
|
|
|
|
Balance
at the beginning of the financial year
|
|
|
152,352
|
|
|
|
145,499
|
|
Add:
obligation accrued during the year
|
|
|
38,270
|
|
|
|
91,106
|
|
Less:
utilized during the year
|
|
|
(38,383
|
)
|
|
|
(84,253
|
)
|
Balance
at the end of the financial year
|
|
|
152,239
|
|
|
|
152,352
|
|
Reconciliation
of long service leave provision
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the financial year
|
|
|
244,549
|
|
|
|
271,933
|
|
Add:
obligation accrued during the year
|
|
|
3,454
|
|
|
|
10,226
|
|
Less:
utilized during the year
|
|
|
(56,972
|
)
|
|
|
(37,610
|
)
|
Balance
at the end of the financial year
|
|
|
191,031
|
|
|
|
244,549
|
|
Note:
The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service
leave where employees have completed the required period of service and also for those employees that are entitled to pro-rata
payments in certain circumstances. The entire amount of the provision of A$432,933 (2019: A$487,682) is presented as current,
since the group does not have an unconditional right to defer settlement for any of these obligations. However, based on past
experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next
12 months.
|
|
2020
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
loan
|
|
|
-
|
|
|
|
52,252
|
|
|
|
52,252
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
unsecured borrowing
|
|
|
-
|
|
|
|
52,252
|
|
|
|
52,252
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As
of June 30, 2020, borrowing relates to loan received on May 4, 2020, from the U.S. Small Business Administration as a part of
the Paycheck Protection Program (PPP) which ensures the Company can continue to pay its employees and cover certain costs for
up to 8 weeks after the loan is made available to the Company.
The
following are the terms of the loan availed:
●
|
PPP
loan has fixed interest rate of 1%.
|
|
|
●
|
Loans
issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
|
|
|
●
|
Loan
payments can be deferred for another six months.
|
|
|
●
|
No
collateral or personal guarantees are required.
|
|
|
●
|
Neither
the government nor lenders will charge small businesses any fees.
|
The
loan availed has the following conditions for the Company to seek its forgiveness:
●
|
Forgiveness
is based on the Company maintaining or quickly rehiring employees and maintaining salary levels.
|
|
|
●
|
Forgiveness
will be reduced if full-time headcount declines, or if salaries and wages decrease.
|
(a)
|
Amounts
recognized in the statement of financial position
|
The
statement of financial position shows the following amounts relating to leases:
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Right-of-use
assets
|
|
|
|
|
|
|
|
|
Right
of use-of-assets
|
|
|
397,945
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Lease
Liabilities
|
|
|
|
|
|
|
|
|
Lease
liabilities - Current
|
|
|
240,915
|
|
|
|
-
|
|
Lease
liabilities – Non-Current
|
|
|
188,621
|
|
|
|
-
|
|
Total
|
|
|
429,536
|
|
|
|
-
|
|
17.
|
LEASE
LIABILITIES (Cont.)
|
(b)
|
Amounts
recognized in the statement of profit or loss
|
The
statement of profit or loss under general and administrative expenses includes the following amounts relating to leases:
|
|
2020
|
|
|
2019
|
|
|
|
$
|
|
|
$
|
|
Depreciation
charge of right-of-use assets
|
|
|
|
|
|
|
|
|
Depreciation
Expense (for Leased Assets)
|
|
|
200,785
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Interest
expense (included in general and administrative expenses)
|
|
|
37,375
|
|
|
|
-
|
|
During
the financial year ended June 30, 2020, the total cash outflow was $221,282.
(c)
|
The
group’s leasing activities and how these leases are accounted for
|
The
Company has adopted IFRS 16 Leases during the year ended June 30, 2020 using the modified retrospective approach. The modified
approach does not require restatement of comparative periods. Instead the cumulative impact of applying IFRS 16 is accounted for
as an adjustment to equity at the start of the current accounting period in which it is first applied, known as the ‘date
of initial application’. Refer to Note 2(a)(v) for the impact on adoption.
For
any new contracts entered into on or after July 1, 2019, the Company considers whether a contract is, or contains a lease. A lease
is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period
of time in exchange for consideration’. To apply this definition the Company assesses whether the contract meets three key
evaluations which are whether:
●
|
the
contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being
identified at the time the asset is made available to the Company,
|
|
|
●
|
the
Company has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of the contract,
|
|
|
●
|
the
Company has the right to direct the use of the identified asset throughout the period of use. The Company assess whether it
has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use.
|
Leases
are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use
by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on
a straight-line basis.
Assets
and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present
value of the following lease payments:
●
|
fixed
payments (including in-substance fixed payments), less any lease incentives receivable,
|
|
|
●
|
amounts
expected to be payable by the lessee under residual value guarantees,
|
|
|
●
|
the
exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
|
|
|
●
|
payments
of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
|
The
lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Company’s
incremental borrowing rate.
Right-of-use
assets are measured at cost comprising the following:
●
|
the
amount of the initial measurement of lease liability,
|
|
|
●
|
any
lease payments made at or before the commencement date, less any lease incentives received,
|
|
|
●
|
any
initial direct costs, and
|
|
|
●
|
restoration
costs.
|
Payments
associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit
or loss. Short-term leases are leases with a lease term of 12 months or less.
17.
|
LEASE
LIABILITIES (Cont.)
|
(d)
COVID-19 Impact on Leases
On
June 25, 2020, the Company obtained a rent concession for its leased premises. The terms of the concession are as follows:
●
|
15%
waiver for the period April 1 through to September 30, 2020.
|
|
|
●
|
15%
deferral for the period April 1 through to September 30, 2020.
|
|
|
●
|
70%
due and payable on the first of each month in line with the lease.
|
|
|
●
|
No
interest on deferred payment.
|
|
|
●
|
No
increase of rent during the period April 1 through to September 30, 2020.
|
|
|
●
|
The
lease has been extended by 6 months from September 1, 2021 to February 28, 2022.
|
The
above were treated as lease modification and adjustments were made to the right-of-use assets and corresponding current and non-current
liabilities for the year ended June 30, 2020 have been according to the amendments issued by the IASB towards IFRS 16. The net
impact of the variation resulted in an increase on the right -of-use assets balance amounted to A$88,103 and non-current liabilities
increased by A$94,626.
18.
|
OTHER
FINANCIAL LIABILITIES
|
|
|
2020
|
|
|
2019
|
|
|
|
Current
|
|
|
Non-current
|
|
|
Total
|
|
|
Current
|
|
|
Non-current
|
|
|
Total
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Other
financial liabilities
|
|
|
-
|
|
|
|
977,237
|
|
|
|
977,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
977,237
|
|
|
|
977,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
financial liabilities relates to warrants issued and to be issued to H.C. Wainwright & Co during capital raises in April and
May 2020. The US warrants represent a written option to exchange a fixed number of the Company’s own equity instruments
for a fixed amount of cash that is denominated in a foreign currency (US dollars) and is classified as a derivative financial
liability in accordance with IFRS 9.The initial recognition of the warrants amounted to A$1,173,082. As of June 30, 2020, the
warrants have been revalued to A$977,237, and resulted in A$195,845 recognized in profit or loss. Since the Company is expected
to be in a loss making position, the expectation of the Company is that the warrants are unlikely to be exercised in the next
12 months and hence have been classified under non-current liabilities.
All
US warrants represent a written option to exchange a fixed number of the Company’s own equity instruments for a fixed amount
of cash that is denominated in a foreign currency (US dollars) and is classified as a derivative financial liability in accordance
with IFRS 9. The US warrants liability is initially recorded at fair value at issue date and subsequently measured at fair value
through profit and loss at each reporting date. The warrants granted are not traded in an active market and fall under the level
2 hierarchy of the requirements for disclosure of the fair value measurements. The fair value has thus been estimated by using
the Binomial pricing model based on the following assumptions based on observable market conditions that existed at the issue
date and at June 30, 2020.
|
|
2020
|
|
2020
|
Valuation
date
|
|
June
30, 2020
|
|
April
3, 2020
|
Grant
Date
|
|
April
3, 2020
|
|
April
3, 2020
|
Warrants
issued
|
|
40,114,200
|
|
40,114,200
|
Underlying
asset price
|
|
A$0.0050
|
|
A$0.0050
|
Risk
free rate
|
|
0.398%
|
|
0.411%
|
Volatility
|
|
134%
|
|
140.54%
|
Exercise
price presented in United States Dollar
|
|
US$0.00365
|
|
US$0.00365
|
Exchange
rate at valuation date
|
|
A$1
to US$0.689
|
|
A$1
to US$0.712
|
Exercise
price presented in Australian Dollar
|
|
A$0.0053
|
|
A$0.0061
|
Time
to maturity of underlying warrants (years)
|
|
5
|
|
5
|
Value
per warrant in Australian Dollar
|
|
A$0.0043
|
|
A$0.0044
|
Model
used
|
|
Binomial
|
|
Binomial
|
Valuation
amount
|
|
A$172,491
|
|
A$175,137
|
18.
|
OTHER
FINANCIAL LIABILITIES (Cont.)
|
|
|
2020
|
|
2020
|
Valuation
date
|
|
June
30, 2020
|
|
April
23, 2020
|
Grant
Date
|
|
April
23, 2020
|
|
April
23, 2020
|
Warrants
issued
|
|
28,177,578
|
|
28,177,578
|
Underlying
asset price
|
|
A$0.0050
|
|
A$0.0060
|
Risk
free rate
|
|
0.398%
|
|
0.444%
|
Volatility
|
|
134%
|
|
142.70%
|
Exercise
price presented in United States Dollar
|
|
US$0.00417
|
|
US$0.00417
|
Exchange
rate at valuation date
|
|
A$1
to US$0.689
|
|
A$1
to US$0.712
|
Exercise
price presented in Australian Dollar
|
|
A$0.0060
|
|
A$0.0065
|
Time
to maturity of underlying warrants (years)
|
|
5
|
|
5
|
Value
per warrant in Australian Dollar
|
|
A$0.0042
|
|
A$0.0053
|
Model
used
|
|
Binomial
|
|
Binomial
|
Valuation
amount
|
|
A$118,346
|
|
A$149,693
|
|
|
2020
|
|
2020
|
Valuation
date
|
|
June
30, 2020
|
|
June
1, 2020
|
Grant
Date
|
|
June
1, 2020
|
|
June
1, 2020
|
Warrants
issued
|
|
156,000,000
|
|
156,000,000
|
Underlying
asset price
|
|
A$0.0050
|
|
A$0.0060
|
Risk
free rate
|
|
0.398%
|
|
0.397%
|
Volatility
|
|
134.00%
|
|
142.94%
|
Exercise
price presented in United States Dollar
|
|
US$0.00417
|
|
US$0.00417
|
Exchange
rate at valuation date
|
|
A$1
to US$0.689
|
|
A$1
to US$0.712
|
Exercise
price presented in Australian Dollar
|
|
A$0.0060
|
|
A$0.0061
|
Time
to maturity of underlying warrants (years)
|
|
5
|
|
5
|
Value
per warrant in Australian Dollar
|
|
A$0.0044
|
|
A$0.0054
|
Model
used
|
|
Binomial
|
|
Binomial
|
Valuation
amount
|
|
A$686,400
|
|
A$848,252
|
18.
|
OTHER
FINANCIAL LIABILITIES (cont.)
|
(a)
|
Recognized
fair value measurements
|
(i)
Fair value hierarchy
Level
1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives and equity securities)
is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by
the Company is the current bid price. These instruments are included in level 1.
Level
2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives)
is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific
estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level
2.
Level
3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
This is the case for unlisted equity securities.
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Issued
and paid-up capital
|
|
|
|
|
|
|
|
|
Fully
paid Ordinary Shares
|
|
|
140,111,073
|
|
|
|
125,498,824
|
|
Total
contributed equity
|
|
|
140,111,073
|
|
|
|
125,498,824
|
|
Movements
in shares on issue
Year
ended June 30, 2019
|
|
Number
of
Shares
|
|
|
$
|
|
Balance
at the beginning of the financial year
|
|
|
2,435,282,724
|
|
|
|
122,372,662
|
|
Shares
issued during the year
|
|
|
502,851,419
|
|
|
|
3,557,509
|
|
Less:
transaction costs arising on share issue
|
|
|
-
|
|
|
|
(431,347
|
)
|
Balance
at the end of the financial year
|
|
|
2,938,134,143
|
|
|
|
125,498,824
|
|
Year
ended June 30, 2020
|
|
Number
of
Shares
|
|
|
$
|
|
Balance
at the beginning of the financial year
|
|
|
2,938,134,143
|
|
|
|
125,498,824
|
|
Shares
issued during the year
|
|
|
4,575,645,600
|
|
|
|
21,793,678
|
|
Less:
transaction costs arising on share issue (i)
|
|
|
-
|
|
|
|
(7,181,429
|
)
|
Balance
at the end of the financial year
|
|
|
7,513,779,743
|
|
|
|
140,111,073
|
|
(i)
|
The
transaction costs arising on shares issued for the year ended June 30, 2020 are as below:-
|
|
●
|
250,000,000
unlisted options issued on October 30, 2019, exercisable at $0.008 each and expiring on October 29, 2022, amounting to A$817,666.
Each option is exercisable for one fully paid ordinary share.
|
|
|
|
|
●
|
125,000,000
unlisted options issued on December 20, 2019, exercisable at $0.008 each and expiring on December 20,2022, amounting to A$528,027.
Each option is exercisable for one fully paid ordinary share.
|
|
|
|
|
●
|
125,000,000
unlisted options issued on December 20, 2019, exercisable at $0.008 each and expiring on December 20,2022, amounting to A$528,027.
Each option is exercisable for one fully paid ordinary share.
|
|
|
|
|
●
|
5,000,000
unlisted options issued on March 6, 2020, exercisable at $0.008 each and expiring on March 6, 2023, amounting to A$29,340.
Each option is exercisable for one fully paid ordinary share.
|
|
|
|
|
●
|
166,066,050
warrants issued at no cash consideration on July 16, 2019, exercisable at US$0.00533 each and expiring on July 16, 2024, amounting
to $890,113. The warrants are exercisable for fully paid ordinary shares.
|
|
|
|
|
●
|
40,114,200
warrants issued on April 3, 2020, exercisable at US$0.00365 each and expiring on April 1, 2025, amounting to A$175,137. The
warrants are exercisable for fully paid ordinary shares.
|
|
|
|
|
●
|
28,177,578
warrants issued on April 22, 2020, exercisable at US$0.00417 each and expiring on April 19, 2025, amounting to A$149,693.
The warrants are exercisable for fully paid ordinary shares.
|
|
|
|
|
●
|
156,000,000
warrants to be issued at, subject to shareholder approval, exercisable at US$0.004166 expiring on 5 years after date of issue,
amounting to A$848,252. The warrants are exercisable for fully paid ordinary shares.
|
|
|
|
|
●
|
Apart
from the above, the Company also incurred expenses paid in cash towards capital raising costs through legal, accounting and
broker related fees amounting to A$3,215,174 during the year for various capital raises.
|
Terms
and conditions of contributed equity
Ordinary
shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds
from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares, which
have no par value, entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
Foreign
currency translation
|
|
|
756,423
|
|
|
|
789,598
|
|
Share-based
payments
|
|
|
7,999,066
|
|
|
|
5,220,334
|
|
Total
reserves
|
|
|
8,755,489
|
|
|
|
6,009,932
|
|
Reconciliation
of foreign currency translation reserve
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the financial year
|
|
|
789,598
|
|
|
|
765,930
|
|
Add:
net currency translation gain / (loss)
|
|
|
(33,175
|
)
|
|
|
23,668
|
|
Balance
at the end of the financial year
|
|
|
756,423
|
|
|
|
789,598
|
|
Reconciliation
of share-based payments reserve
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the financial year
|
|
|
5,220,334
|
|
|
|
4,885,232
|
|
Add:
share-based payments expense
|
|
|
67,542
|
|
|
|
341,201
|
|
Add:
Issue of options/warrants to underwriters
|
|
|
2,793,174
|
|
|
|
-
|
|
Less:
Reversal of Performance Rights expenses in prior year*
|
|
|
(81,984
|
)
|
|
|
(6,099
|
)
|
Balance
at the end of the financial year
|
|
|
7,999,066
|
|
|
|
5,220,334
|
|
*During
the year, 3,750,000 performance rights previously issued to Mr. Xue Lee in the year ended June 30, 2019 were forfeited
during the year ended June 30, 2020. Additionally, 57,500,000 performance rights previously issued to Dr. Paul Kasian in the year
ended June 30, 2019 were forfeited in the year ended June 30, 2020. Due to the forfeiture of performance rights, a reversal amounting
to A$81,984 relating to previously expensed amounts was accounted for during the current reporting period.
During
the financial year ended 30 June 2020, the following warrants were issued to as a part of capital raising costs:
Warrants
issued to
|
|
Grant
date for warrants issued
|
|
Number
of warrants issued
|
|
Aegis
Corp
|
|
July
16, 2019
|
|
|
166,066,050
|
|
Total
|
|
|
|
|
166,066,050
|
|
|
|
2020
|
Grant
Date
|
|
July
16, 2019
|
Warrants
issued
|
|
166,066,050
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
152%
|
Option exercise
price
|
|
$0.008
|
Fair
value of warrants at grant date
|
|
$0.006
|
Weighted average
exercise price
|
|
$0.008
|
Risk
free interest rate
|
|
1.05%
|
Model
used
|
|
Black-Scholes
|
Expected
life of an warrant
|
|
5
years
|
Valuation
amount
|
|
$890,113
|
The
following information relates to options granted and issued against the capital raising costs year ended June 30, 2020;
Options
issued to
|
|
Grant
date for options issued
|
|
Number
of options issued
|
|
Mr.
Peter Rubinstein
|
|
November
28, 2019
|
|
|
125,000,000
|
|
Dr
Jerzy Muchnicki
|
|
November 28,
2019
|
|
|
125,000,000
|
|
Various
underwriters
|
|
October 30,
2019
|
|
|
250,000,000
|
|
Lodge
Corporate Pty Ltd
|
|
March 6, 2020
|
|
|
5,000,000
|
|
Total
|
|
|
|
|
505,000,000
|
|
|
|
2020
|
Grant Date
|
|
November
28, 2019
|
Options
issued
|
|
250,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
136%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.003
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.85%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
A$1,056,054
|
|
|
2020
|
Grant Date
|
|
October
30, 2019
|
Options
issued
|
|
250,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
136%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.003
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.78%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
A$817,666
|
|
|
2020
|
Grant Date
|
|
March
6, 2020
|
Options
issued
|
|
5,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
141%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.007
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.36%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
A$29,340
|
Nature
and purpose of reserves
Foreign
currency translation reserve
Exchange
differences arising on translation of the foreign controlled entities are recognized in other comprehensive income as described
in Note 2(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when
the net investment is disposed of.
Share-based
payments reserve
The
share-based payment reserve records items recognized as expenses on valuation of share options issued to key management personnel,
other employees and eligible contractors.
|
|
2020
$
|
|
Balance
at the beginning of the financial year
|
|
|
(129,737,550
|
)
|
Add:
Initial adoption of IFRS 16
|
|
|
(14,712
|
)
|
Add:
net loss attributable to owners of Genetic Technologies Limited
|
|
|
(6,098,930
|
)
|
Balance
at the end of the financial year
|
|
|
(135,851,192
|
)
|
Employee
Option Plan
The
fair value of options granted under an Employee Option Plan is recognized as an employee benefit expense with a corresponding
increase in equity. The fair value is measured at grant date and recognized over the vesting period over which all of the specified
vesting conditions are to be satisfied. The fair value at grant date is determined by management with the assistance of an independent
valuer, using a Black-Scholes option pricing model or a Monte Carlo simulation analysis. The total amount to be expensed is determined
by reference to the fair value of the options granted;
●
|
including
any market performance conditions (e.g. the entities share price)
|
●
|
excluding
the impact of any service and non-market performance vesting conditions (e.g. remaining an employee over a specified time
period)
|
The
cumulative employee benefits expense recognized at each reporting date until vesting date reflects (i) the extent to which the
vesting period has expired; and (ii) the number of awards that, in the opinion of the Directors of the Company, will ultimately
vest. This opinion is formed based on the best information available at balance date.
Where
the terms of an equity-settled award are modified, as a minimum an expense is recognized as if the terms had not been modified.
In addition, an expense is recognized for any increase in the value of the transaction as a result of the modification, as at
the date of modification. Where appropriate, the dilutive effect of outstanding options is reflected as additional share dilution
in the computation of diluted earnings per share. The Company’s policy is to treat the options of terminated employees as
forfeitures.
On
November 30, 2001, the Directors of the Company established a Staff Share Plan. On November 19, 2008, the shareholders of the
Company approved the introduction of a new Employee Option Plan. Under the terms of the respective Plans, the Directors may, at
their discretion, grant options over the ordinary shares in the Genetic Technologies Limited to executives, consultants, employees,
and former Non-Executive Directors, of the Company. The options, which are granted at nil cost, are not transferable and are not
quoted on the ASX. As at June 30, 2020, there was 1 executive and 12 employees who held options that had been granted under the
Plans. Options granted under the Plans carry no rights to dividends and no voting rights.
(i)
Fair value of options granted
During
the year ended June 30, 2020, there were no options issued under Employee Option Plan (2019: 16,000,000 unlisted options were
granted at no cost). The Company, however issued various unlisted options to underwriters and sub-underwriters as a part of capital
raising costs. For valuations on the unlisted options issued please refer to Note 20.
Set
out below are summaries of all and unlisted options, including ESOP which were issued in prior periods:
|
|
2020
|
|
|
2019
|
|
|
|
Average
exercise price per
share option
|
|
|
Number
of
options
|
|
|
Average
exercise price per
share option
|
|
|
Number
of options
|
|
Opening
balance
|
|
$
|
0.015
|
|
|
|
38,000,000
|
|
|
$
|
0.017
|
|
|
|
55,102,778
|
|
Granted
to Kentgrove Capital
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.015
|
|
|
|
12,500,000
|
|
Granted
to employees during the year
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.010
|
|
|
|
16,000,000
|
|
Granted
to directors in their capacity as sub-underwriters
|
|
$
|
0.008
|
|
|
|
250,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Options
granted to various underwriters
|
|
$
|
0.008
|
|
|
|
250,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Granted
to Lodge Corporate Pty Ltd
|
|
$
|
0.008
|
|
|
|
5,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Lapsed
during the year
|
|
$
|
0.010
|
|
|
|
(5,000,000
|
)
|
|
$
|
0.015
|
|
|
|
(19,236,111
|
)
|
Forfeited
during the year
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.020
|
|
|
|
(6,000,000
|
)
|
Lapse
of unlisted options attached to convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,366,667
|
)
|
Closing
balance
|
|
$
|
0.008
|
|
|
|
538,000,000
|
|
|
$
|
0.015
|
|
|
|
38,000,000
|
|
(i)
|
Fair
value of options granted (Cont.)
|
The
movements in the number of options granted under the Employee share plans are as follows:
|
|
2020
|
|
|
2019
|
|
|
|
Average
exercise price per
share
option
|
|
|
Number
of
options
|
|
|
Average
exercise price per
share
option
|
|
|
Number
of options
|
|
Balance
at the beginning of the financial year
|
|
$
|
0.015
|
|
|
|
25,500,000
|
|
|
$
|
0.017
|
|
|
|
34,736,111
|
|
Add:
options granted during the year
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.010
|
|
|
|
16,000,000
|
|
Less:
options lapsed during the year
|
|
$
|
0.010
|
|
|
|
(5,000,000
|
)
|
|
$
|
0.020
|
|
|
|
(19,236,111
|
)
|
Less:
options forfeited during the year
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.010
|
|
|
|
(6,000,000
|
)
|
Balance
at the end of the financial year
|
|
$
|
0.015
|
|
|
|
20,500,000
|
|
|
$
|
0.015
|
|
|
|
25,500,000
|
|
The
number of options outstanding as at June 30, 2020 by ASX code, including the respective dates of expiry and exercise prices, are
tabled below. The options tabled below are not listed on ASX.
|
|
2020
|
|
|
2019
|
|
Unlisted
options
|
|
Average
exercise price per
share
option
|
|
|
Number
of
options
|
|
|
Average
exercise price per
share
option
|
|
|
Number
of options
|
|
Options
to Kentgrove Capital (expiring August 8, 2021)
|
|
$
|
0.015
|
|
|
|
12,500,000
|
|
|
$
|
0.015
|
|
|
|
12,500,000
|
|
GTGAD (expiring
March 31, 2021)
|
|
$
|
0.020
|
|
|
|
5,000,000
|
|
|
$
|
0.020
|
|
|
|
5,000,000
|
|
GTGAD (expiring
February 16, 2022)
|
|
$
|
0.010
|
|
|
|
5,500,000
|
|
|
$
|
0.010
|
|
|
|
5,500,000
|
|
Options
to various underwriters (expiring October 30, 2022)
|
|
$
|
0.008
|
|
|
|
250,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Options
to directors (expiring December 20, 2022)
|
|
$
|
0.008
|
|
|
|
250,000,000
|
|
|
|
-
|
|
|
|
-
|
|
Options
issued Lodge Corporate Pty Ltd (expiring March 6, 2023)
|
|
$
|
0.008
|
|
|
|
5,000,000
|
|
|
|
-
|
|
|
|
-
|
|
ESOP options
(expiring December 11, 2021)
|
|
$
|
0.010
|
|
|
|
10,000,000
|
|
|
$
|
0.010
|
|
|
|
15,000,000
|
|
Total
|
|
$
|
0.008
|
|
|
|
538,000,000
|
|
|
$
|
0.015
|
|
|
|
38,000,000
|
|
Exercisable
at the end of the financial year
|
|
$
|
0.008
|
|
|
|
538,000,000
|
|
|
$
|
0.015
|
|
|
|
38,000,000
|
|
The
weighted average remaining contractual life of options outstanding as at June 30, 2020 was 2.39 years (2019: 2.16 years).
23.
SEGMENT INFORMATION
(a)
Identification of reportable segments
The
Company has identified two reportable segments as reported that is consistent with the internal reporting provided to the chief
operating decision maker.
Management
considers the business from a geographic perspective and has identified two reportable segments:
Australia:
is the home country of the parent entity and the location of the company’s genetic testing and licensing operations.
USA:
is the home of Phenogen Sciences Inc. and GeneType Corporation
(b)
Geographical segments
The
segment information for the reportable segments is as follows:
2020
|
|
Australia
|
|
|
USA
|
|
|
Total
|
|
Consolidated
entity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue & other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from contracts with customers
|
|
|
3,160
|
|
|
|
6,704
|
|
|
|
9,864
|
|
Other
income
|
|
|
1,130,881
|
|
|
|
9,766
|
|
|
|
1,140,647
|
|
Net
other gains
|
|
|
190,323
|
|
|
|
-
|
|
|
|
190,323
|
|
Cost
of goods sold
|
|
|
(243,506
|
)
|
|
|
(8,005
|
)
|
|
|
(251,511
|
)
|
Total
segment revenue & other income
|
|
|
1,080,858
|
|
|
|
8,465
|
|
|
|
1,089,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(65,148
|
)
|
|
|
-
|
|
|
|
(65,148
|
)
|
Finance
costs
|
|
|
(1,221
|
)
|
|
|
(13,602
|
)
|
|
|
(14,823
|
)
|
Share-based
payments
|
|
|
14,442
|
|
|
|
-
|
|
|
|
14,442
|
|
Laboratory
and research and development
|
|
|
(2,310,815
|
)
|
|
|
(166,763
|
)
|
|
|
(2,477,578
|
)
|
General
and administrative expenses
|
|
|
(4,046,264
|
)
|
|
|
(12,295
|
)
|
|
|
(4,058,559
|
)
|
Other
operating expenses
|
|
|
(159,009
|
)
|
|
|
(226,793
|
)
|
|
|
(385,802
|
)
|
Depreciation
for right-of-use assets
|
|
|
(200,785
|
)
|
|
|
-
|
|
|
|
(200,785
|
)
|
Total
segment expenses
|
|
|
(6,768,800
|
)
|
|
|
(419,453
|
)
|
|
|
(7,188,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
for the period
|
|
|
(5,687,942
|
)
|
|
|
(410,988
|
)
|
|
|
(6,098,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segment Assets
|
|
|
15,329,955
|
|
|
|
303,024
|
|
|
|
15,632,979
|
|
Total
Segment Liabilities
|
|
|
(2,404,288
|
)
|
|
|
(213,321
|
)
|
|
|
(2,617,609
|
)
|
23.
SEGMENT INFORMATION (Cont.)
(b)
Geographical segments (Cont.)
2019
|
|
Australia
|
|
|
USA
|
|
|
Total
|
|
Consolidated
entity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue & other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from contracts with customers
|
|
|
10,579
|
|
|
|
14,865
|
|
|
|
25,444
|
|
Other
income
|
|
|
1,019,711
|
|
|
|
58
|
|
|
|
1,019,769
|
|
Net
other gains
|
|
|
(407,482
|
)
|
|
|
-
|
|
|
|
(407,482
|
)
|
Cost
of goods sold
|
|
|
(265,492
|
)
|
|
|
(10,775
|
)
|
|
|
(276,267
|
)
|
Total
segment revenue & other income
|
|
|
357,316
|
|
|
|
4,148
|
|
|
|
361,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(156,250
|
)
|
|
|
-
|
|
|
|
(156,250
|
)
|
Finance
costs
|
|
|
(3,884
|
)
|
|
|
(16,147
|
)
|
|
|
(20,031
|
)
|
Share-based
payments
|
|
|
(326,952
|
)
|
|
|
-
|
|
|
|
(326,952
|
)
|
Laboratory
and research and development
|
|
|
(2,181,469
|
)
|
|
|
(179,293
|
)
|
|
|
(2,360,762
|
)
|
General
and administrative expenses
|
|
|
(3,816,607
|
)
|
|
|
(13,591
|
)
|
|
|
(3,830,198
|
)
|
Other
operating expenses
|
|
|
335,896
|
|
|
|
(428,771
|
)
|
|
|
(92,875
|
)
|
Total
segment expenses
|
|
|
(6,149,266
|
)
|
|
|
(637,802
|
)
|
|
|
(6,787,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss
for the period
|
|
|
(5,791,950
|
)
|
|
|
(633,654
|
)
|
|
|
(6,425,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segment Assets
|
|
|
3,190,004
|
|
|
|
75,001
|
|
|
|
3,265,005
|
|
Total
Segment Liabilities
|
|
|
(1,370,508
|
)
|
|
|
(123,291
|
)
|
|
|
(1,493,799
|
)
|
24.
SHARE BASED PAYMENTS
(a)
Employee option plan
During
the year ended June 30, 2020, there were no options issued under Employee Option Plan (2019: 16,000,000 unlisted options were
granted at no cost). The Company, however issued various unlisted options to underwriters and sub-underwriters as a part of capital
raising costs. Please refer to further details on options on Note 22.
(b)
Performance Rights Issuance
After
receiving requisite shareholder approval on November 29, 2018, the Company has issued 76,250,000 performance rights to Directors
of the Company as follows:
●
|
7,500,000
Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C performance Rights to Dr Paul Kasian
|
●
|
3,750,000
Class A Performance Rights to Dr Lindsay Wakefield
|
●
|
6,250,000
Class A Performance Rights to Dr Jerzy Muchnicki
|
●
|
5,000,000
Class A Performance Rights to Mr. Peter Rubinstein
|
●
|
3,750,000
Class A Performance Rights to Mr. Xue Lee
|
The
Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions
and has recorded net reversal of $43,484 of associated expense in the current year end (2019: $104,441).
During
the year, 3,750,000 performance rights previously issued to Mr. Xue Lee in the year ended June 30, 2019 were forfeited
during the year ended June 30, 2020. Additionally, 57,500,000 performance rights previously issued to Dr. Paul Kasian in the year
ended June 30, 2019 were forfeited in the year ended June 30, 2020. Due to the forfeiture of performance rights, a reversal amounting
to A$81,984 relating to previously expensed amounts was accounted for during the current reporting period.
24.
SHARE BASED PAYMENTS (Cont.)
(b)
Performance Rights Issuance (Cont.)
Valuation
of Performance Rights
The
Performance Rights are not currently quoted on the ASX and as such have no ready market value. The Performance Rights each grant
the holder a right of grant of one ordinary Share in the Company upon vesting of the Performance Rights for nil consideration.
Accordingly, the Performance Rights may have a present value at the date of their grant. Various factors impact upon the value
of Performance Rights including:
●
|
the
period outstanding before the expiry date of the Performance Rights;
|
|
|
●
|
the
underlying price or value of the securities into which they may be converted;
|
|
|
●
|
the
proportion of the issued capital as expanded consequent upon conversion of the Performance Rights into Shares (i.e. whether
or not the shares that might be acquired upon exercise of the options represent a controlling or other significant interest);
and
|
|
|
●
|
the
value of the shares into which the Performance Rights may be converted.
|
There
are various formulae which can be applied to determining the theoretical value of options (including the formula known as the
Black-Scholes Model valuation formula and the Monte Carlo simulation).
The
Company has commissioned an independent valuation of the Performance Rights. The independent valuer has applied the Monte Carlo
simulation in providing the valuation of the Performance Rights.
Inherent
in the application of the Monte Carlo simulation are a number of inputs, some of which must be assumed. The data relied upon in
applying the Monte Carlo simulation was:
|
a)
|
exercise
price being 0.0 cents per Performance Right for all classes;
|
|
|
|
|
b)
|
VWAP
hurdle (10 days consecutive share price hurdle) equaling 2.0 cents for Class A and Class B and 3.3 cents for Class C Performance
Rights;
|
|
|
|
|
c)
|
the
continuously compounded risk-free rate being 2.02% for all classes of Performance Rights (calculated with reference to the
RBA quoted Commonwealth Government bonds as at 8 October 2018 of similar duration to that of the expected life of each class
of Performance Right);
|
|
|
|
|
d)
|
the
expected option life of 2.8 years for all classes of Performance Rights; and
|
|
|
|
|
e)
|
a
volatility measure of 80%.
|
24.
SHARE BASED PAYMENTS (Cont.)
(b)
Performance Rights Issuance (Cont.)
Performance
hurdles
The
Class A Performance Rights vest and are exercisable upon the Share price reaching $0.02 or greater for more than 10 day consecutive
ASX trading days.
The
Directors, being the recipients of the Performance Rights, must remained engaged by the Company at the time of satisfaction of
the performance hurdle in order for the relevant Performance Right to vest.
Based
on the independent valuation of the performance rights, the company agrees that the total value of the performance rights to be
issued to each director (depending on the share price at issue) is as follows:
Performance
rights vested during the year
|
|
Number
of Performance Rights issued
|
|
|
Valuation
per Class A (cents)
|
|
|
|
Total
fair value of Class A Performance Rights
|
|
|
|
|
|
Expense
accounted for during the year
|
|
Dr.
Lindsay Wakefield
|
|
|
3,750,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
28,875
|
|
|
|
A
|
|
|
$
|
9,625
|
|
Dr.
Jerzy Muchnicki
|
|
|
6,250,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
48,125
|
|
|
|
A
|
|
|
$
|
16,042
|
|
Mr.
Peter Rubinstein
|
|
|
5,000,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
38,500
|
|
|
|
A
|
|
|
$
|
12,833
|
|
Total
|
|
|
15,000,000
|
|
|
|
|
|
|
|
A
|
$
|
115,500
|
|
|
|
A
|
|
|
$
|
38,500
|
|
Performance
rights cancelled/forfeited during the year
Mr.
Xue Lee2
|
|
|
3,750,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
28,875
|
|
|
|
A
|
|
|
$
|
(5,616
|
)
|
Dr.
Paul Kasian
|
|
|
7,500,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
57,750
|
|
|
|
A
|
|
|
$
|
(11,229
|
)
|
Total
|
|
|
11,250,000
|
|
|
|
|
|
|
|
A
|
$
|
86,625
|
|
|
|
A
|
|
|
$
|
(16,845
|
)
|
Valuation
of Class B Performance Rights
|
|
Number
of Performance Rights issued
|
|
|
Valuation
per Class B (cents)
|
|
|
|
Total
fair value of Class B Performance Rights
|
|
|
|
|
|
Expense
accounted for during the year
|
|
Dr
Paul Kasian1
|
|
|
25,000,000
|
|
|
|
0.77
|
|
|
|
A
|
$
|
192,500
|
|
|
|
A
|
|
|
$
|
(37,431
|
)
|
Valuation
of Class C Performance Rights
|
|
Number
of Performance Rights issued
|
|
|
Valuation
per Class B (cents)
|
|
|
|
Total
fair value of Class B Performance Rights
|
|
|
|
|
|
Expense
accounted for during the year
|
|
Dr
Paul Kasian1
|
|
|
25,000,000
|
|
|
|
0.57
|
|
|
|
A
|
$
|
142,500
|
|
|
|
A
|
|
|
$
|
(27,708
|
)
|
Notes:
1
Dr Paul Kasian resigned on September 24, 2019.
2
Mr. Xue Lee resigned on July 9, 2019
24.
SHARE BASED PAYMENTS (cont.)
(c)
Expenses arising from share-based payment transactions
Total
expenses arising from share-based payment transactions recognized during the period as part of employee benefit expense were as
follows:
|
|
Consolidated
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Kentgrove
options issued
|
|
|
16,667
|
|
|
|
15,278
|
|
|
|
—
|
|
Performance
rights issued
|
|
|
38,500
|
|
|
|
104,441
|
|
|
|
—
|
|
Reversal
of forfeited Performance Rights
|
|
|
(81,984
|
)
|
|
|
—
|
|
|
|
—
|
|
Options
issued under employee option plan
|
|
|
12,375
|
|
|
|
215,383
|
|
|
|
129,635
|
|
Total
expenses arising from share-based payments
|
|
|
(14,442
|
)
|
|
|
335,102
|
|
|
|
129,635
|
|
(d)
Securities issued during capital raise
The
following information relates to options granted and issued against the capital raising costs year ended June 30, 2020;
Director
|
|
Grant
date of issued options
|
|
Number
of options issued
|
|
Mr.
Peter Rubinstein
|
|
November
28, 2019
|
|
125,000,000
|
|
Dr
Jerzy Muchnicki
|
|
November 28,
2019
|
|
125,000,000
|
|
Total
|
|
|
|
250,000,000
|
|
|
|
2020
|
Grant
Date
|
|
November
28, 2019
|
Options
issued
|
|
250,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
136%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.003
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.85%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
$1,056,054
|
Director
|
|
Grant
date of issued options
|
|
Number
of options issued
|
|
Various
underwriters
|
|
October
30, 2019
|
|
250,000,000
|
|
Total
|
|
|
|
250,000,000
|
|
|
|
2020
|
Grant Date
|
|
October
30, 2019
|
Options
issued
|
|
250,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
136%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.003
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.78%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
$817,666
|
Director
|
|
Grant
date of issued options
|
|
Number
of options issued
|
|
Lodge
Corporate Pty Ltd
|
|
March
6, 2020
|
|
5,000,000
|
|
Total
|
|
|
|
5,000,000
|
|
|
|
2020
|
Grant
Date
|
|
March
6, 2020
|
Options
issued
|
|
5,000,000
|
Dividend
yield
|
|
-
|
Historic
volatility and expected volatility
|
|
141%
|
Option exercise
price
|
|
$0.008
|
Fair
value of options at grant date
|
|
$0.007
|
Weighted average
exercise price
|
|
$0.008
|
Risk-free
interest rate
|
|
0.36%
|
Expected
life of an option
|
|
3
years
|
Model
used
|
|
Black-Scholes
|
Valuation
amount
|
|
$29,340
|
25.
COMMITMENTS
(a)
Non-cancellable operating leases
|
|
Consolidated
|
|
Operating
lease expenditure commitments
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Minimum
operating lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
-
not later than one year
|
|
|
—
|
|
|
|
250,068
|
|
|
|
41,625
|
|
-
later than one year but not later than five years
|
|
|
—
|
|
|
|
266,560
|
|
|
|
—
|
|
-
later than five years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
minimum operating lease payments
|
|
|
—
|
|
|
|
516,628
|
|
|
|
41,625
|
|
Due
to the adoption of IFRS 16 effective July 1, 2019, the Company no longer has any non-cancellable operating lease to be recognized
under commitments for the year ended June 30, 2020.
As
at June 30, 2019, the above operating leases related to the following premises that are currently occupied by the Company:
Location
|
|
Landlord
|
|
Use
|
|
Date
of expiry of lease
|
|
|
Minimum
payments
($)
|
|
60-66
Hanover Street Fitzroy, Victoria 3065 Australia
|
|
Crude
Pty. Ltd.
|
|
Office
/ laboratory
|
|
|
August
31, 2021
|
|
|
|
487,837
|
|
1300
Baxter Street, Suite 157, Charlotte, North Carolina
|
|
Mid-Town
Partners LLC
|
|
Office
|
|
|
Month
to month
|
|
|
|
28,791
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
516,628
|
|
Apart
from the above, there were no other commitments as at June 30, 2020.
(b)
Capital commitments
Significant
capital expenditure contracted for at the end of the reporting period but not recognized as liabilities is as follows:
|
|
2020
|
|
|
2019
|
|
|
|
A$
|
|
|
A$
|
|
Property,
plant and equipment
|
|
|
466,560
|
|
|
|
-
|
|
The
above commitment relates to the purchase of laboratory equipment which will assist the Company to conduct more tests in the future.
26.
AUDITORS’ REMUNERATION
|
|
Consolidated
|
|
|
|
2020
A$
|
|
|
2019
A$
|
|
|
2018
A$
|
|
Audit
and assurance services
|
|
|
|
|
|
|
|
|
|
PricewaterhouseCoopers
in respect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
(1)
|
|
|
274,000
|
|
|
|
288,000
|
|
|
|
288,200
|
|
Other
assurance services (2)
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
Other
audit firms in respect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit
of the Financial Reports of subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
remuneration in respect of audit services
|
|
|
474,000
|
|
|
|
288,000
|
|
|
|
288,200
|
|
(1)
|
Audit
fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements,
including services that generally only the independent accountant can reasonably provide.
|
|
|
(2)
|
Other
assurance services consist of fees billed for assurance and related services that generally only the statutory auditor could
reasonably provide to a client. Included in the balance are amounts related to additional regulatory filings during the 2020
financial year. All services provided are considered audit services for the purpose of SEC classification.
|
27.
RELATED PARTY DISCLOSURES
Ultimate
parent
Genetic
Technologies Limited is the ultimate Australian parent company. As at the date of this Report, no shareholder controls more than
50% of the issued capital of the Company.
Transactions
within the Company and with other related parties
During
the year ended 30 June 2020, the only transactions between entities within the Company and other related parties occurred, are
as listed below. Except where noted, all amounts were charged on similar to market terms and at commercial rates.
27.
RELATED PARTY DISCLOSURES (Cont.)
Blockchain
Global Limited
As
announced by the Company on February 15, 2018, a non-binding terms sheet with Blockchain Global Limited(BCG) was entered to provide
a framework for continuing discussions between the two companies, with the proposed transaction being subject to shareholder approval
(by non-associated Shareholders); and as announced by the Company on August 2, 2018, a framework agreement with BCG was entered
formalizing the non-binding terms sheet and providing a framework for a strategic alliance between the Company and BCG, with the
agreement became binding on November 29, 2018 upon receiving the requisite shareholder approval. The agreement proposed the issue
of 486 million shares to BCG in 3 tranches subject to the achievement of certain milestones. No shares have been issued under
the framework agreements and no milestones have been achieved. Any rights to the 486 million milestone shares lapsed between December
27, 2019 and June 27, 2020.
The
company has accounted for these share issuances in accordance with its accounting policy for share-based payment transactions
and has not recorded any associated expense in the current year given performance conditions have not been met and are not currently
considering any Blockchain related projects.
A
number of Directors of the Company presently or previously have had involvement with BCG. Mr. Xue Lee has a direct and indirect
share interest and was a CEO and managing director of BCG. Mr. Peter Rubinstein held a minority shareholding in the entity and
was also a director in BCG. Dr Jerzy Muchnicki has a direct and indirect interest in BCG. Dr Paul Kasian was previously a director
of BCG until July 2018.
Performance
Rights Issuance
After
receiving requisite shareholder approval on 29 November 2018, the Company has issued 76,250,000 performance rights to Directors
of the Company as follows:
●
|
7,500,000
Class A Performance Rights, 25,000,000 Class B Performance Rights and 25,000,000 Class C performance Rights to Dr Paul Kasian
|
|
|
●
|
3,750,000
Class A Performance Rights to Dr Lindsay Wakefield
|
|
|
●
|
6,250,000
Class A Performance Rights to Dr George Muchnicki
|
|
|
●
|
5,000,000
Class A Performance Rights to Mr. Peter Rubinstein
|
|
|
●
|
3,750,000
Class A Performance Rights to Mr. Xue Lee
|
27.
RELATED PARTY DISCLOSURES (Cont.)
During
the year, 3,750,000 Performance Rights previously issued to Mr. Xue Lee in the year ended June 30, 2019 were forfeited
during the year ended June 30, 2020. Additionally, 57,500,000 Performance Rights previously issued to Dr Paul Kasian in the year
ended June 30, 2019 were forfeited in the year ended June 30, 2020. Due to the forfeiture of Performance Rights, a reversal amounting
to A$81,984 relating to previously expensed amounts was accounted for during the current reporting period.
The
Company has accounted for these performance rights in accordance with its accounting policy for share-based payment transactions
and has recorded net reversal of A$43,484 of associated expense in the current year end.
Blockshine
Health Joint Venture
The
Company, via its subsidiary Gene Ventures Pty Ltd, entered into a joint venture with Blockshine Technology Corporation (BTC).
The joint venture company, called Blockshine Health, was to pursue and develop blockchain opportunities in the biomedical sector.
Blockshine Health was to have full access to BTC’s technology (royalty free) as well as all of its opportunities in the
biomedical sector. The Company invested A$250,000 into the joint venture in the year ended June 30, 2019 and held 49% equity stake.
The Joint Venture agreement was subsequently cancelled and the investment of A$250,000 was impaired in the year ended June 30,
2019.
During
the year ended June 30, 2020, the Company managed to recover A$43,380 from this investment previously written-off.
Genetic
Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd - Joint Venture
In
August 2018, the Company announced a Heads of Agreement had been reached with Representatives of the Hainan Government - Hainan
Ecological Smart City Company (“HESCG”), a Chinese industrial park development & operations company have formally
invited Genetic Technologies Limited (“GTG”) to visit the Hainan Medical Pilot Zone to conduct a formal review and
discuss opportunities for market entry into China via the Hainan Free Trade Zone initiative. The invitation was extended to GTG
via Beijing Zishan Health Consultancy Limited (“Zishan”), demonstrating the potential for growth presented by the
proposed Joint Venture between the parties (as announced to the market on August 14, 2018).
Subsequently,
the Company announced the official formation of Genetic Technologies HK Limited and Aocheng Genetic Technologies Co. Ltd in Hong
Kong to the market on March 27, 2019,
The
Company’s previous Chairman, Dr Paul Kasian was named in the formation Heads of Agreement document to be the Chairman of
the Joint Venture entity. At June 30, 2020, Genetic Technologies HK Limited has 100% ownership of Hainan Aocheng Genetic Technologies
Co. Limited. At this time, no Directors fees or emoluments have been paid to Dr Kasian, nor have agreements regarding fees been
reached.
27.
RELATED PARTY DISCLOSURES (Cont.)
Issuance
of options to directors towards sub-underwriting the capital raise
As
announced on October 4, 2019, the Company undertook an underwritten non-renounceable pro-rata entitlement offer at an Issue Price
of 0.4 cents per new share.
On
October 11, 2019, the Company updated the market to advise that the offer was from that time agreed to be underwritten by Lodge
Corporate Pty Ltd and that two of the Company’s directors (Peter Rubinstein and Dr. Jerzy Muchnicki), had agreed to sub-underwrite
the offer. Both directors, in conjunction with the underwriter Lodge Corporate Pty Ltd, subsequently agreed amongst themselves
to alter the respective sub-underwritten amounts, but the total to be sub-written between them (A$2 million) remained same, as
did the total underwritten amount (of A$4 million).
Accordingly,
the underwritten offer subsequently was sub-underwritten by Mr. Peter Rubinstein and Dr. Jerzy Muchnicki (each as up to A$1 million)
in conjunction with a consortium of non-associated wholesale investors (also as sub-underwriters) who in aggregate equate to the
underwritten amount of A$4 million, each in accordance with the terms of their separate sub-underwriting agreements with Lodge
Corporate Pty Ltd (each a Sub-Underwriting Agreement).
Dr.
Muchnicki and Mr. Rubinstein reflecting the amount of their sub-writing commitment were to be granted on the same terms as all
options to be granted to the relevant sub-underwriters. The number of options issued to both directors was calculated as 1 Option
for every 2 Shares being sub-underwritten and were issued a total of 125,000,000 unlisted options to each of the directors.
As
announced on October 11, 2019, within the rights issue offer document, upon exercise each such option converts into 1 fully paid
share on terms consistent with the ASX Listing Rules; with a 3-year expiry date from grant and with an exercise price per underwriter
and sub-underwriter option equal to the lower of:
●
|
A$0.008
; and
|
●
|
The
implicit price per share at which any raise done by Aegis capital within 3 months from the company’s shareholder meeting.
|
but
in any event with a floor exercise price equal to A$0.004.
Lodge
Corporate
Dr.
Kasian was a director of corporate finance and corporate advisor from December 2017 to February 2019 with Lodge Corporate. During
the year ended, the company engaged in corporate advisory services with Lodge Corporate and had transactions worth A$154,224 which
also included A$88,000 that related to 2% of the underwriting of the capital raise during the year ended June 30, 2020. Additionally,
during the year, On March 6, 2020 the Company issued 5,000,000 options to Lodge Corporate Pty Ltd valued at A$29,340 which were
in relation to capital raising costs.
Mr.
Phillip Hains (Chief Financial Officer)
On
July 15, 2019, the Company announced that it had appointed Mr. Phillip Hains (MBA, CA) as the Chief Financial Officer who has
over 30 years of extensive experience in roles with a portfolio of ASX and NASDAQ listed companies and provides CFO services through
his firm The CFO Solution. Prior to this point the Company had a similar arrangement with The CFO Solution, where it would engage
and provided services of overall CFO, accounting and other finance related activities.
During
the reporting period, the company had transactions valued at A$527,724 (2019: A$45,459) with The CFO Solution towards provision
of overall CFO, accounting and other finance related activities.
Mr.
Stanley Sack (Chief Operating Officer)
On
May 18, 2020, the Company appointed Mr. Stanley Sack who provides consulting in the capacity of Chief Operating Officer. Mr. Sack
has spent 15 years in large listed entities in executive positions managing large business divisions. He has worked with a high
net worth family managing all their operating businesses and private equity activities. Mr. Sack built an Allied Health Business
in the aged care and community care space which became the biggest Mobile Allied Health Business in Australia, and was recently
sold to a large medical insurance company.
During
the reporting period, the company had transactions valued at A$38,500 (2019: Nil) with Mr. Stanley Sack’s entity Cobben
Investments towards provision of consulting services in relation to provision of duties related to Chief Operating Officer of
the Company.
Mr.
Peter Rubinstein (Non-Executive Director and Chairman)
During
the financial year ended June 30, 2020, the board approved to obtain consulting services in relation to capital raises, compliance,
Nasdaq hearings and investor relations from its Non-executive director and current Chairman, Mr. Peter Rubinstein. The services
procured were through Mr. Peter Rubinstein’s associate entity ValueAdmin.com Pty Ltd and amounted to A$35,000 which remains
payable and is included as part of the cash salary and fees in the remuneration report as at June 30, 2020.
There
were no transactions with parties related to Key Management Personnel during the year other than that disclosed above.
27.
RELATED PARTY DISCLOSURES (Cont.)
Details
of Directors and Key Management Personnel as at balance date
Directors
●
|
Mr
Peter Rubinstein (Independent Non-Executive & Chairman)
|
●
|
Dr
Jerzy Muchnicki (Executive Director & Interim Chief Executive Officer)
|
●
|
Dr
Lindsay Wakefield (Independent Non-Executive)
|
●
|
Mr
Nicholas Burrows (Independent Non-Executive) (appointed September 2, 2019)
|
Key
Management Personnel (KMPs)
●
|
Dr
Richard Allman (Chief Scientific Officer)
|
●
|
Mr
Phillip Hains (Chief Financial Officer) (appointed July 15, 2019)
|
●
|
Mr
Stanley Sack (Chief Operating Officer) (appointed May 18, 2020)
|
|
|
Consolidated
|
|
|
|
2020
$
|
|
|
2019
$
|
|
|
2018
$
|
|
Remuneration
of Key Management Personnel
|
|
|
|
|
|
|
|
|
|
Short-term
employee benefits
|
|
|
638,659
|
|
|
|
964,162
|
|
|
|
1,215,632
|
|
Post-employment
benefits
|
|
|
53,614
|
|
|
|
86,130
|
|
|
|
96,315
|
|
Share-based
payments
|
|
|
(32,498
|
)
|
|
|
157,886
|
|
|
|
130,385
|
|
Other
long-term benefits
|
|
|
3,231
|
|
|
|
734
|
|
|
|
2,371
|
|
Termination
benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
164,760
|
|
Total
remuneration of Key Management Personnel
|
|
|
663,006
|
|
|
|
1,208,912
|
|
|
|
1,609,463
|
|
28.
SUBSIDIARIES
The
following diagram is a depiction of the Company structure as at June 30, 2020.
28.
SUBSIDIARIES (Cont.)
|
|
|
|
Company
interest (%)
|
|
|
Net
carrying value ($)
|
|
Name
of Company
|
|
Incorporation
details
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Entities
held directly by parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GeneType
Pty. Ltd. (Dormant)
|
|
September
5, 1990 Victoria, Australia
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Genetic
Technologies Corporation Pty. Ltd. (Genetic testing)
|
|
October
11, 1996
N.S.W., Australia
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
2
|
|
|
|
2
|
|
Gene
Ventures Pty. Ltd. * (Dormant)
|
|
March
7, 2001
N.S.W., Australia
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
10
|
|
|
|
10
|
|
GeneType
Corporation (Dormant)
|
|
December
18, 1989 California, U.S.A.
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Phenogen
Sciences Inc. (BREVAGenTM)
|
|
June
28, 2010
Delaware, U.S.A.
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
11,006
|
|
|
|
11,006
|
|
Hainan
Aocheng Genetic Technologies Co Ltd
|
|
Hong
Kong, China
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Genetic
Technologies HK Ltd
|
|
March
18, 2019
Hong Kong, China
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
—
|
|
|
|
—
|
|
Total
carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
11,018
|
|
|
|
11,018
|
|
*
On 26 April 2018, the name of RareCellect Pty Ltd (ACN 096 135 9847) was changed to Gene Ventures Pty Ltd (ACN 096 135 947)
**
Liquidation of GeneType AG was completed on 13 December 2017
29.
FINANCIAL RISK MANAGEMENT
This
note explains the group’s exposure to financial risks and how these risks could affect the Company’s future financial
performance.
The
Company’s risk management is predominantly controlled by the board. The board monitors the Company’s financial risk
management policies and exposures and approves substantial financial transactions. It also reviews the effectiveness of internal
controls relating to market risk, credit risk and liquidity risk.
(i)
|
Foreign
exchange risk
|
The
Company undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign
exchange rate fluctuations.
Foreign
exchange rate risk arises from financial assets and financial liabilities denominated in a currency that is not the Company’s
functional currency. Exposure to foreign currency risk may result in the fair value of future cash flows of a financial instrument
fluctuating due to the movement in foreign exchange rates of currencies in which the group holds financial instruments which are
other than the Australian dollar (AUD) functional currency of the group. This risk is measured using sensitivity analysis and
cash flow forecasting. The cost of hedging at this time outweighs any benefits that may be obtained.
The
consolidated financial statements are presented in Australian Dollar ($), which is Genetic Technologies Limited’s functional
and presentational currency.
Exposure
The
Company’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollar, was as follows:
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
USD
|
|
|
EUR
|
|
|
USD
|
|
|
EUR
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Cash
at Bank / on hand
|
|
|
2,512,767
|
|
|
|
38,020
|
|
|
|
201,737
|
|
|
|
27,052
|
|
Trade
and other payables
|
|
|
99,637
|
|
|
|
-
|
|
|
|
117,992
|
|
|
|
1,990
|
|
Sensitivity
As
shown in the table above, the group is primarily exposed to changes in USD/AUD exchange rates. The sensitivity of profit or loss
to changes in the exchange rates arises mainly from USD denominated financial instruments.
The
Company has conducted a sensitivity analysis of its exposure to foreign currency risk. Based on the financial instruments held
as at June 30, 2020, had the Australian dollar weakened/strengthened by 6.03% (2019: 5.13%) against the USD with all other variables
held constant, the Group’s post-tax loss for the year would have been A$145,520 lower/higher (2019: A$6,466 lower/higher).
●
|
USD:
6.03% (2019: 5.13%)
|
The
Company is more sensitive to movements in the AUD/USD exchange rates in 2020 than 2019 because of the increased amount of USD
denominated cash and cash equivalents. The US warrants financial liability will be equity-based settled upon exercise of the US
warrants. However, as the exercise will be done with an exercise price in US dollars, there is a foreign exchange risk due to
the subsequent translation to Australian dollars. The Company’s exposure to other foreign exchange movements is not material.
Exposure
to credit risk relating to financial assets arises from the potential non-performance by counterparties of contract obligations
that could lead to a financial loss to the Company.
Credit
risk is managed through the maintenance of procedures (such as the utilization of systems for the approval, granting and renewal
of credit limits, regular monitoring of exposures against such limits and monitoring the financial stability of significant customers
and counterparties), ensuring to the extent possible that customers and counterparties to transactions are of sound credit worthiness.
Such monitoring is used in assessing receivables for impairment. Credit terms are normally 30 days from the invoice date.
Risk
is also minimized through investing surplus funds in financial institutions that maintain a high credit rating.
For
some trade receivables the group may obtain security in the form of guarantees, deeds of undertaking or letters of credit which
can be called upon if the counterparty is in default under the terms of the agreement.
(iii)
|
Impairment
of financial assets
|
The
Company has one type of financial asset subject to the expected credit loss model:
●
|
trade
receivables for sales of inventory
|
While
cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
29.
FINANCIAL RISK MANAGEMENT (Cont.)
(iii)
|
Impairment
of financial assets (Cont.)
|
Trade
receivables
The
Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance
for all trade receivables.
To
measure the expected credit losses, trade receivables assets have been grouped based on shared credit risk characteristics and
the days past due.
Liquidity
risk arises from the possibility that the Company might encounter difficulty in settling its debts or otherwise meeting its obligations
related to financial liabilities. The Company manages this risk through the following mechanisms:
●
|
preparing
forward looking cash flow analyses in relation to its operating, investing and financing activities;
|
●
|
obtaining
funding from a variety of sources;
|
●
|
maintaining
a reputable credit profile;
|
●
|
managing
credit risk related to financial assets;
|
●
|
investing
cash and cash equivalents and deposits at call with major financial institutions; and
|
●
|
comparing
the maturity profile of financial liabilities with the realization profile of financial assets.
|
(i)
Maturities of financial liabilities
The
tables below analyze the Company’s financial liabilities into relevant maturity groupings based on their contractual maturities.
The amounts disclosed in the table are the contractual undiscounted cash flows.
Contractual
maturities of financial liabilities
|
|
Less
than 6 months
|
|
|
6
– 12 months
|
|
|
Between
1 and 2 years
|
|
|
Between
2 and 5 years
|
|
|
Over
5 years
|
|
|
Total
contractual cash flows
|
|
|
Carrying
amount (assets)/liabilities
|
|
At
June 30, 2020
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Trade
and other payables
|
|
|
723,724
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
723,724
|
|
|
|
723,724
|
|
Lease
liabilities
|
|
|
108,924
|
|
|
|
131,991
|
|
|
|
188,621
|
|
|
|
-
|
|
|
|
-
|
|
|
|
429,536
|
|
|
|
429,536
|
|
Borrowings
|
|
|
-
|
|
|
|
-
|
|
|
|
52,252
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,252
|
|
|
|
52,252
|
|
TOTAL
|
|
|
832,648
|
|
|
|
131,991
|
|
|
|
240,873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,205,512
|
|
|
|
1,205,512
|
|
Contractual
maturities of financial liabilities
|
|
Less
than 6 months
|
|
|
6
– 12 months
|
|
|
Between
1 and 2 years
|
|
|
Between
2 and 5 years
|
|
|
Over
5 years
|
|
|
Total
contractual cash flows
|
|
|
Carrying
amount (assets)/liabilities
|
|
At
June 30, 2019
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Trade
and other payables
|
|
|
1,005,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,005,305
|
|
|
|
1,005,305
|
|
TOTAL
|
|
|
1,005,305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,005,305
|
|
|
|
1,005,305
|
|
29.
FINANCIAL RISK MANAGEMENT (Cont.)
The
Company’s main interest rate risk arises in relation to its short-term deposits with various financial institutions. If
rates were to decrease, the Company may generate less interest revenue from such deposits. However, given the relatively short
duration of such deposits, the associate risk is relatively minimal.
The
Company has a Short-Term Investment Policy which was developed to manage the Company’s surplus cash and cash equivalents.
In this context, the Company adopts a prudent approach that is tailored to cash forecasts rather than seeking high returns that
may compromise access to funds as and when they are required. Under the policy, the Company deposits its surplus cash in a range
of deposits / securities over different time frames and with different institutions in order to diversify its portfolio and minimize
risk.
On
a monthly basis, Management provides the Board with a detailed list of all cash and cash equivalents, showing the periods over
which the cash has been deposited, the name and credit rating of the institution holding the deposit and the interest rate at
which the funds have been deposited.
At
June 30, 2020, if interest rates had changed by +/- 50 basis points from the year-end rates, with all other variables held constant,
the Company’s loss for the year would have been A$55,828 lower / higher (2019: loss A$8,969 lower / higher), as a result
of higher / lower interest income from cash and cash equivalents and deposits in place.
29.
FINANCIAL RISK MANAGEMENT (Cont.)
The
exposure to interest rate risks and the effective interest rates of financial assets and liabilities, both recognized and unrealized,
for the Company is as follows:
|
|
|
|
|
Floating
rate
|
|
|
Fixed
rate
|
|
|
Carrying
amount
|
|
|
Weighted
ave.
effective rate
|
|
|
Ave.
maturity Period
|
Consolidated
|
|
Year
|
|
|
A$
|
|
|
A$
|
|
|
A$
|
|
|
%
|
|
|
Days
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at bank / on hand
|
|
|
2020
|
|
|
|
11,645,389
|
|
|
|
|
|
|
|
11,645,389
|
|
|
|
0.5
|
%
|
|
At
call
|
|
|
|
2019
|
|
|
|
2,131,741
|
|
|
|
|
|
|
|
2,131,741
|
|
|
|
1.74
|
%
|
|
At
call
|
Performance
bond / deposits
|
|
|
2020
|
|
|
|
—
|
|
|
|
2,025
|
|
|
|
2,025
|
|
|
|
—
|
|
|
At
call
|
|
|
|
2019
|
|
|
|
—
|
|
|
|
53,456
|
|
|
|
53,456
|
|
|
|
—
|
|
|
At
call
|
Totals
|
|
|
2020
|
|
|
|
11,645,389
|
|
|
|
2,025
|
|
|
|
11,647,414
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2,131,741
|
|
|
|
53,456
|
|
|
|
2,185,197
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
2020
|
|
|
|
—
|
|
|
|
52,252
|
|
|
|
52,252
|
|
|
|
1
|
%
|
|
—
|
Leases
|
|
|
2020
|
|
|
|
—
|
|
|
|
429,536
|
|
|
|
429,536
|
|
|
|
5.37
|
%
|
|
|
|
|
|
2019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
Totals
|
|
|
2020
|
|
|
|
—
|
|
|
|
481,788
|
|
|
|
481,788
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
Note
The Company holds the balance of its cash in non-interest-bearing bank accounts.
30.
SUBSEQUENT EVENTS
On
July 20, 2020, 166,066,050 warrants issued during the capital raise in May 2019 exercisable at United States Dollars (US$) US$0.00533,
each expiring May 23, 2024 were exercised and converted to 114,447,000 Ordinary Shares. These warrants have no cash consideration
upon conversion and were consistent with the cashless exercise arrangement under the terms of their issue
Furthermore,
18,500,000 options issued to an underwriter exercisable at $0.008, each expiring October 29, 2022 were exercised and converted
to 18,500,000 Ordinary Shares. These options were issued for a cash consideration of A$148,000.
On
July 21, 2020, the Company closed a registered direct offering of 1,025,000 American Depository Shares (ADS’s), each representing
six hundred (600) of the Company’s ordinary shares, at a purchase price of United States Dollars (US$) US$5.00 per ADS -
or in Australian dollars $0.012 per ordinary share. The gross proceeds for this offering was approximately US$5.1 million. Against
the offering, the Company agreed to issue 39,975,000 warrants exercisable at US$0.0104 each, expiring in 5 years from issue date,
to H.C. Wainwright & Co which would form part of cost of raising capital. The said warrants have not been issued as of the
date of report as they are subject to shareholder approval.
As
of August 25, 2020, the Company has regained compliance with the equity requirement of NASDAQ Listing Rule 5550(b)(1), as required
by the Hearings Panel decision dated May 12, 2020.
31.
CAPITAL MANAGEMENT
The
Company’s objectives when managing capital are to
●
|
safeguard
their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for
other stakeholders, and
|
●
|
maintain
an optimal capital structure to reduce the cost of capital.
|
In
order to maintain or adjust the capital structure, the group may issue new shares or reduce its capital, subject to the provisions
of the Company’s constitution. The capital structure of the Company consists of equity attributed to equity holders of the
Company, comprising contributed equity, reserves and accumulated losses. By monitoring undiscounted cash flow forecasts and actual
cash flows provided to the board by the Company’s management, the board monitors the need to raise additional equity from
the equity markets.
No
dividends were declared or paid to members for the year ended June 30, 2020 (2019: nil). The Company’s franking account
balance was nil at June 30, 2020 (2019: nil).
32.
PARENT ENTITY FINANCIAL INFORMATION
The
individual financial statements for the parent entity show the following aggregate amounts:
|
|
2020
$
|
|
|
2019
$
|
|
Balance
sheet
|
|
|
|
|
|
|
Current
assets
|
|
|
11,646,391
|
|
|
|
3,003,871
|
|
Non-current
assets
|
|
|
345,236
|
|
|
|
25,126
|
|
Total
assets
|
|
|
11,991,627
|
|
|
|
3,028,997
|
|
Current
liabilities
|
|
|
10,095,549
|
|
|
|
10,795,245
|
|
Non-current
liabilities
|
|
|
1,117,947
|
|
|
|
809
|
|
Total
liabilities
|
|
|
11,213,496
|
|
|
|
10,796,054
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Share Capital
Reserves
|
|
|
140,111,073
|
|
|
|
125,498,824
|
|
Other
reserves
|
|
|
(117,131
|
)
|
|
|
(117,131
|
)
|
Share-based
payments
|
|
|
6,184,391
|
|
|
|
3,405,659
|
|
Retained
earnings
|
|
|
(145,400,202
|
)
|
|
|
(136,554,409
|
)
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
|
778,131
|
|
|
|
(7,767,057
|
)
|
|
|
|
|
|
|
|
|
|
Loss
for the year
|
|
|
(8,816,667
|
)
|
|
|
(5,949,827
|
)
|
As
of June 30, 2020, there were A$3,782,537 (2019: A$18,456,661) impairment loss recognized for intercompany loan balances between
the parent and its subsidiaries
33.
Contingent liabilities and contingent assets
The
group had no contingent liabilities at June 30, 2020 (2019: nil).
34.
Impact of COVID-19
On
January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the
novel coronavirus disease 2019 (“COVID-19”) outbreak a public health emergency of international concern and on March
12, 2020 the WHO announced the outbreak was a pandemic.
Continuing
concerns over economic and business prospects in the United States and other countries have contributed to increased volatility
and diminished expectations for the global economy. These factors, coupled with the prospect of decreased business and consumer
confidence and increased unemployment resulting from the recent COVID-19 outbreak, may precipitate an economic slowdown and recession.
If the economic climate deteriorates, the Company’s business, including its access to patient samples and the addressable
market for diagnostic tests that it may successfully develop, as well as the financial condition of its suppliers and its
third-party
payors, could be adversely affected, resulting in a negative impact on the Company’s business, financial condition, results
of operations and cash flows.
On
a micro level, the COVID-19 pandemic is having a negative impact on global markets and business activity, which has had an effect
on the operations of the Company, including but not limited to that sales of the Company’s products have been impacted not
only by the inability for consumers to visit their practitioners but also the difficulty its sales team is having in arranging
face to face meetings with practitioners. The Company’s sales team has found it very difficult to reach practitioners to
build on the sales momentum created prior to the pandemic, with the launch into the Australian market being halted after less
than 60 days of operations thus, sales have effectively ceased for the short term.
During
the period of the pandemic commencing March 2020, the Company undertook a number of capital raises both public and private placements
managed by H.C. Wainwright & Co. in the United States of America.