Results for the Half Year Ended 31 December Review of Operations PolyNovo Biomaterials

Transcription

1 ACN February 2010 Results for the Half Year Ended 31 December 2009 Financial Results Calzada reported a net loss after tax and minority interests of 810,672 for the six months to 31 December This was a slight improvement on the 878,892 loss reported in the previous corresponding period. The previous period only included two weeks ownership of the loss making PolyNovo Biomaterials Pty Ltd (PolyNovo) whereas the most recent period included a full six months of ownership. Revenue for the period was down 54.5% to 296,724 reflecting a reduced cash balance and lower interest rates. Operating costs declined 3.6% to 1,494,800. Consolidated group cash declined from million as at 30 June 2009 to million at 31 December Review of Operations PolyNovo Biomaterials During the period Calzada increased its shareholding in PolyNovo from 60% to 65.85% via the exercise of the first of five 1 million options held. Subsequent to period end Calzada increased its shareholding to 100% after acquiring minority shareholders interests. PolyNovo owns and develops a suite of highly prospective biodegradable polymers (NovoSorb TM ) with potential applications across numerous medical fields. The group has licence agreements and alliances with a number of the world s leading medical device companies targeting large end markets and also has joint ventures and commercial arrangements with local experts in more specialist areas. Major Licence Partners PolyNovo has development programs with the US based medical device company Smith & Nephew covering fracture fixation and bone void fillers. Fracture fixation involves developing a new and innovative way of treating fractures in non load bearing bones utilizing the Novosorb TM technology. Bench testing of various formulations is progressing with the key objective being to reach design freeze and then complete an animal trial by the end of calendar Bone void filler is an injectable putty used to treat a bone void created by trauma or disease, such as cancer. Unit 2, Level 1, 320 Lorimer St, Port Melbourne, Victoria 3207 Phone:

2 Smith & Nephew have been successful in securing a US government grant to create and develop a fracture putty aimed at revolutionizing the treatment of battlefield injuries. This project utilizes PolyNovo s Novosorb TM technology to repair load bearing fractures caused by war injury. The other licence agreement is with the US based Biomet Inc. which covers the areas of Cranio Maxillo Facial (CMF) and cartilage. Little progress has been made over the past six months and we are now focused on either reshaping the agreement on areas that have greater potential or else will seek to terminate the relationship and target alternative partners in these areas. Joint Ventures and Commercial Agreements NovoSkin is making good progress on developing a Burn Temporizing Matrix (BTM) to aid in the healing process of severe burns patients. The clinical team has successfully completed an animal trial to demonstrate efficacy and are now preparing to commence a comprehensive six month animal study and complete the relevant safety testing (ISO 10993) in order to gather the necessary data for a pilot human trial. NovoCosmetica is seeking to develop a step change dermal filler product for the facial soft tissue augmentation market. Small scale pilot manufacturing studies have been encouraging with the next step being to invest in required capital equipment to determine scalability to commercial quantities. The target is to have this work completed by the 4th quarter of calendar Successful scale up would allow the joint venture to investigate partnering opportunities with major industry players. Other Collaborations Interest in NovoSorb TM technology remains high, with PolyNovo receiving regular contact from overseas and domestic groups seeking to evaluate the technology. Perhaps the most exciting of these is a joint feasibility study with a major US based medical device company, which is a leader in its field. The first phase of this study has been successfully completed with the second phase underway and due for completion in the last quarter of calendar The feasibility study allows for the parties to move to a licence agreement should the study be completed successfully. PolyNovo is also actively pursuing tissue engineering opportunities and is currently in early discussions with a number of potential partners. Intellectual property PolyNovo continues to strengthen its patent portfolio. As previously reported, the patent over the in-situ cure NovoSorb TM technology has been granted in Australia, allowed in Malaysia and subsequent to period end was also allowed in China. The NovoSkin TM patent was also allowed over the period. PolyNovo submitted its application for reinstatement of the in-situ cure patent application for Novosorb TM in the European market in December 2009 after it was inadvertently allowed to lapse due to external patent attorney error. This application is now under review by the European Patent Office (EPO) with a response expected in early calendar Unit 2, Level 1, 320 Lorimer St, Port Melbourne, Victoria 3207 Phone:

3 Review of Operations Metabolic Pharmaceuticals Calzada has established Metabolic Pharmaceuticals Pty Ltd to own and commercialise the company s legacy drug development assets. These primarily reside in the AOD9604 intellectual property. It is intended that a range of applications aimed at the treatment of obesity related disorders and the prevention and treatment of osteoporosis will be investigated. The Board believes that an out-licencing strategy provides the best prospects for deriving value from the company s large past investment in the drug compounds, without the requirement for a significant allocation of further capital. This strategy has already resulted in a collaborative research and option agreement being signed with the ASX listed Phosphagenics Ltd in August Under the terms of this agreement Phosphagenics can elect to licence Metabolic s patented compound AOD9604 for use as a cosmaceutical product aimed at reducing cellulite and the size of fat cells localized under the skin. If Phosphagenics exercises its option to licence the compound, it will pay Metabolic a royalty on future sales of product. Metabolic is in early stage discussions regarding another out-licencing opportunity which if completed offers significant commercial potential for the group with limited capital outlay. Subsequent to year end Mr David Kenley was appointed to the role of Chief Executive Officer of this business. Events Subsequent to Reporting Period Calzada moves to 100% ownership of PolyNovo Since the end of the period Calzada has increased its shareholding in PolyNovo from 65.85% to 100% via a scrip offer to minority shareholders. This resulted in the number of ordinary shares on issue increasing from million to million shares. Commensurate with the move to full ownership of PolyNovo the Directors of Calzada announced a number of board and management changes aimed at strengthening the group and positioning if for future growth. Key initiatives included: the appointment of David Franklyn as Executive Chairman; the Acting Chief Executive Officer of PolyNovo, Mr Laurent Fossaert, being appointed permanently to this role; David Kenley retiring from the board to assume the role of Chief Executive Officer of Metabolic Pharmaceuticals Pty Ltd; and Bruce Rathie being appointed to the Board. Unit 2, Level 1, 320 Lorimer St, Port Melbourne, Victoria 3207 Phone:

4 Outlook PolyNovo has been in existence for approximately six years and has had over 14 million invested in its highly prospective technology portfolio. While the interest it has attracted from major medical device companies globally is a testament to its potential, it is time that the company made the transition from a portfolio of interesting research projects to a commercial enterprise. In order to facilitate this evolution Calzada has moved to 100% ownership, committed required funding, installed new management and is implementing a more rigorous reporting regime. The next year is all about being focused and delivering outcomes. The key targets by which PolyNovo should be measured are: Finalising design freeze on the fracture fixation product and completing a fracture fixation animal trial by the end of calendar 2010; Redefining or terminating the Biomet licence by mid calendar 2010; Successful completion of the joint feasibility study with the US medical device company by the end of calendar 2010 and translating this to a licence agreement; Demonstrating that NovoCosmetica can deliver a dermal filler product, capable of being injected through a sufficiently narrow gauge needle, in commercial quantities by the 4 th quarter of calendar 2010; NovoSkin completing the comprehensive animal trials for the BTM product by the end of calendar This is clearly an ambitious plan, but one that if delivered upon will translate to significantly improved shareholder value. The Metabolic assets, being primarily AOD 9604 have had approximately 75 million spent on them over the past 11 years. At the moment the market applies no value to this intellectual portfolio. The Board will attempt to extract value from these assets with the minimum capital outlay. The key operational targets for Metabolic are: Negotiate the conversion of the Phosphagenic s Research and Collaboration Agreement into a full licence by end of the 1st quarter calendar 2011; Successfully complete a second licence agreement for the AOD9604 by the 3rd quarter For further information please contact: David Franklyn Executive Chairman Calzada Limited Unit 2, Level 1, 320 Lorimer St, Port Melbourne, Victoria 3207 Phone:

5 ACN APPENDIX 4D Name of Company: Calzada Limited (Formerly Metabolic Pharmaceuticals Ltd) Details of reporting period Current period: 31 December 2009 Prior corresponding period: 31 December 2008 This financial report should be read in conjunction with the financial report ended 31 December 2009 and the 30 June 2009 annual report. It is recommended that the financial report be considered with all public announcements made by the Company in respect to its continuous disclosure obligations under the Corporations Act Results for announcement to the market Revenues and results from ordinary activities: Change compared to 31/12/09 31/12/08 Total revenue: decreased 54.51% to 296,724 Total expenses: decreased 3.60% to 1,494,800 Loss attributable to non controlling interest: increased 1,891% to 387,404 Loss from ordinary activities after tax attributable to members: decreased 7.76% to 810,672 Loss for the period attributable to members: decreased 7.76% to 810,672 Dividends No dividends have been paid or declared by Calzada for the current half year. No dividends were paid or proposed for the corresponding period. Explanation of results Calzada reported a net loss after tax and minority interests of 810,672 for the six months to 31 December This was a slight improvement on the 878,892 loss reported in the previous corresponding period. The previous period only included two weeks ownership of the loss making PolyNovo Biomaterials Pty Ltd (PolyNovo) whereas the

6 most recent period included a full six months of ownership. Revenue for the period was down 54.51% to 296,724 reflecting a reduced cash balance and lower interest rates. Operating costs declined 3.6% to 1,494,800. Consolidated group cash declined from million as at 30 June 2009 to million at 31 December Further commentary and analysis of the half year result can be found in the attached ASX announcement dated 25 February This announcement forms part of the Appendix 4D. Net tangible assets 31/12/09 31/12/08 Net tangible assets 12,118,744 14,694,359 Shares on issue 301,466, ,466,445 Net tangible assets per share 4.02 cents 4.87cents Status of review The financial report for the period ending 31 December 2009 has been reviewed by the Company s auditors. A copy of the auditors review report is included in the financial report.

7 Calzada Limited (Formerly Metabolic Pharmaceuticals Ltd) ABN Half-Year Financial Report For the half-year ended 31 December 2009

8 Table of Contents Page No: Half-Year Financial Report: Directors Report 1 Auditor s Independence Declaration 5 Statement of Comprehensive Income for the halfyear ended 31 December Consolidated Statement of Financial Position as at 31 December Consolidated Statement of Changes in Equity for the half-year ended 31 December Consolidated Cash Flow Statement for the halfyear ended 31 December Notes to the Financial Statements for the halfyear ended 31 December Directors Declaration 14 Independent Review Report 15 This half-year financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2009 and any public announcements made by Calzada Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

9 DIRECTORS REPORT FOR THE HALF-YEAR ENDED 31 DECEMBER 2009 The Board of Directors of Calzada Limited ( Calzada ) present their report in respect of the financial half-year ended 31 December DIRECTORS The Company s Directors in office during or since the half-year are as detailed below. Directors were in office for the entire reporting period unless otherwise stated. Mr David Franklyn, Executive Chairman Mr Don Clarke, Non-Executive Director, LLB (Hons) (resigned 23 November 2009) Mr Oliver Stevens, Non-Executive Director Mr George Cameron-Dow, Non-Executive Director Mr David Kenley, Non-Executive Director (resigned 18 February 2010) Mr Bruce Rathie, Non-Executive Director (appointed 18 February 2010) FINANCIAL RESULT The net loss of the consolidated entity attributable to members for the half-year ended 31 December 2009, after provision for income tax of nil, was 810,672 (2008: 878,892). The net loss of the consolidated entity for the half-year ended 31 December 2009, after the provision for income tax of nil, was 1,198,076 (2008: 898,349). Revenue and income for the period totalled 296,724, (2008: 652,350) including interest revenue of 251,728 (2008: 592,467) and sale of materials of 44,996, (2008: nil). Calzada has no borrowings. PRINCIPAL ACTIVITIES During the six months ended 31 December 2009, Calzada held a controlling shareholding in PolyNovo Biomaterials Ltd and total ownership of a portfolio of drug delivery assets primary relating to the AOD9604 compound. PolyNovo owns and develops a suite of highly prospective biodegradeable polymers (NovoSorbTM) with potential applications across numerous medical fields. The group has licence agreements and alliances with a number of the world s leading medical device companies targeting large end markets and also has joint ventures and commercial arrangements with local experts in more specialist areas. The company s legacy drug development assets primarily reside in the AOD9604 intellectual property. A range of applications aimed at the treatment of obesity related disorders and the prevention and treatment of osteoporosis are under investigation. REVIEW AND RESULTS OF OPERATIONS PolyNovo Biomaterials During the period Calzada increased its shareholding in PolyNovo from 60% to 65.85% via the exercise of the first of five 1 million options held. Subsequent to period end Calzada increased its shareholding to 100% after acquiring minority shareholders interests. PolyNovo owns and develops a suite of highly prospective biodegradeable polymers (NovoSorbTM) with potential applications across numerous medical fields. The group has licence agreements and alliances with a number of the world s leading medical device companies targeting large end markets and also has joint ventures and commercial arrangements with local experts in more specialist areas. 1

10 Major Licence Partners PolyNovo has development programs with the US based medical device company Smith & Nephew covering fracture fixation and bone void fillers. Fracture fixation involves developing a new and innovative way of treating fractures in non load bearing bones utilizing the NovosorbTM technology. Bench testing of various formulations is progressing with the key objective being to reach design freeze and then complete an animal trial by the end of calendar Bone void filler is an injectable putty used to treat a bone void created by trauma or disease, such as cancer. Smith & Nephew have been successful in securing a US government grant to create and develop a fracture putty aimed at revolutionizing the treatment of battlefield injuries. This project utilizes PolyNovo s NovosorbTM technology to repair load bearing fractures caused by war injury. The other licence agreement is with the US based Biomet Inc. which covers the areas of Cranio Maxillo Facial (CMF) and cartilage. Little progress has been made over the past six months and we are now focused on either reshaping the agreement on areas that have greater potential or else will seek to terminate the relationship and target alternative partners in these areas. Joint Ventures and Commercial Agreements NovoSkin is making good progress on developing a Burn Temporizing Matrix (BTM) to aid in the healing process of severe burns patients. The clinical team has successfully completed an animal trial to demonstrate efficacy and are now preparing to commence a comprehensive six month animal study and complete the relevant safety testing (ISO 10993) in order to gather the necessary data for a pilot human trial. NovoCosmetica is seeking to develop a step change dermal filler product for the facial soft tissue augmentation market. Small scale pilot manufacturing studies have been encouraging with the next step being to invest in required capital equipment to determine scaleability to commercial quantities. The target is to have this work completed by the 4th quarter of calendar Successful scale up would allow the joint venture to investigate partnering opportunities with major industry players. Other Collaborations Interest in NovoSorbTM technology remains high, with PolyNovo receiving regular contact from overseas and domestic groups seeking to evaluate the technology. Perhaps the most exciting of these is a joint feasibility study with a major US based medical device company, which is a leader in its field. The first phase of this study has been successfully completed with the second phase underway and due for completion in the last quarter of calendar The feasibility study allows for the parties to move to a licence agreement should the study be completed successfully. PolyNovo is also actively pursuing tissue engineering opportunities and is currently in early discussions with a number of potential partners. Intellectual property PolyNovo continues to strengthen its patent portfolio. As previously reported, the patent over the in-situ cure NovoSorbTM technology has been granted in Australia, allowed in Malaysia and subsequent to period end was also allowed in China. The NovoSkin TM patent was also allowed over the period. PolyNovo submitted its application for reinstatement of the in-situ cure patent application for NovosorbTM in the European market in December 2009 after it was inadvertently allowed to lapse due to external patent attorney error. This application is now under review by the European Patent Office (EPO) with a response expected in early calendar

11 Metabolic Pharmaceuticals Calzada has established Metabolic Pharmaceuticals Pty Ltd to own and commercialise the company s legacy drug development assets. These primarily reside in the AOD9604 intellectual property. It is intended that a range of applications aimed at the treatment of obesity related disorders and the prevention and treatment of osteoporosis will be investigated. The Board believes that an out-licencing strategy provides the best prospects for deriving value from the company s large past investment in the drug compounds, without the requirement for a significant allocation of further capital. This strategy has already resulted in a collaborative research and option agreement being signed with the ASX listed Phosphagenics Ltd in August Under the terms of this agreement Phosphagenics can elect to licence Metabolic s patented compound AOD9604 for use as a cosmaceutical product aimed at reducing cellulite and the size of fat cells localized under the skin. If Phosphagenics exercises its option to licence the compound, it will pay Metabolic a royalty on future sales of product. Metabolic is in early stage discussions regarding another out- licencing opportunity which if completed offers significant commercial potential for the group with limited capital outlay. Subsequent to year end Mr David Kenley was appointed to the role of Chief Executive Officer of this business. This Company was incorporated in December INHERENT RISKS OF INVESTMENT IN BIOTECHNOLOGY COMPANIES There are many inherent risks associated with the development of pharmaceutical and medical device products to a marketable stage. The clinical trial process is designed to assess the safety and efficacy of a drug or medical device prior to commercialisation and a significant proportion of drugs and medical devices fail one or both of these criteria. Other risks include uncertainty of patent protection and proprietary rights, whether patent applications and issued patents will offer adequate protection to enable product development, the obtaining of necessary regulatory authority approvals and difficulties caused by the rapid advancements in technology. Companies such as Calzada are in part dependent on the success of their research projects and on the ability to attract funding to support these activities. Investment in research and development projects cannot be assessed on the same fundamentals as trading and manufacturing enterprises. Thus investment in companies specialising in these, such as Calzada, must be regarded as highly speculative. Calzada strongly recommends that professional investment advice be sought prior to such investments. Forward-looking statements This report may contain forward-looking statements regarding the potential of the Company s projects and interests and the development and therapeutic potential of the Company s research and development. Any statement describing a goal, expectation, intention or belief of the Company is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercialising drugs that are safe and effective for use as human therapeutics and the financing of such activities. There is no guarantee that the Company s research and development projects and interests (where applicable) will receive regulatory approvals or prove to be commercially successful in the future. Actual results of further research could differ from those projected or detailed in this report. As a result, you are cautioned not to rely on forward-looking statements. Consideration should be given to these and other risks concerning the Company s research and development program referred to in this report. 3

12 AUDITOR S INDEPENDENCE DECLARATION The auditor s independence declaration as required by section 307C of the Corporations Act 2001 is set out on the following page. Signed in accordance with a resolution of the Directors Mr David Franklyn - Director 25 February

13 Auditor s Independence Declaration to the Directors of Calzada Limited In relation to our review of the financial report of Calzada Limited for the half-year ended 31 December 2009, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Joanne Lonergan Partner 23 February 2010 Liability limited by a scheme approved under Professional Standards Legislation

14 Consolidated Statement of Comprehensive Income FOR THE HALF-YEAR ENDED 31 DECEMBER 2009 Notes 31 December December 2008 Interest revenue 251, ,467 Government grants - 23,469 Sales of materials 44,996 - Profit on sale of plant and equipment - 36,414 Operating leases (177,387) (48,083) Employee related expenses 4 (495,038) (611,503) Research & development (170,487) (68,928) Depreciation and amortisation expense (120,552) (29,377) Corporate finance and administration expenses (374,654) (279,530) Impairment expense available-for-sale asset - (125,000) Impairment expense property, plant & equipment - (181,113) Other expenses (156,682) (207,165) Net Loss before income tax (1,198,076) (898,349) Income tax expense - - Net loss for the period (1,198,076) (898,349) Loss attributable to non controlling interest 387,404 19,457 Loss attributable to members of the parent entity (810,672) (878,892) Other comprehensive income Net fair value gains on available for sale financial assets 13,750 - Other comprehensive income for the period 13, Total Comprehensive income for the period (1,184,326) (878,892) Note: No other comprehensive income relates to the non controlling interest. Loss per share Basic loss per share (cents per share) 5 (0.27) cents (0.29) cents Diluted loss per share (cents per share) 5 (0.27) cents (0.29) cents The accompanying notes form part of these financial statements. 6

15 Consolidated Statement of Financial Position AS AT 31 DECEMBER 2009 Note 31 December 2009 ASSETS 30 June 2009 Current Assets Cash and cash equivalents 6 11,261,533 12,235,546 Receivables 88, ,398 Prepayments 99, ,852 Total Current Assets 11,449,002 12,703,796 Non-Current Assets Available-for-sale financial assets 43,750 30,000 Property, plant and equipment 7 1,725,544 1,834,194 Intangible assets 2,519,788 2,519,788 Other 200, ,000 Total Non-Current Assets 4,489,082 4,583,982 TOTAL ASSETS 15,938,084 17,287,778 LIABILITIES Current Liabilities Trade and other payables 449, ,362 Provisions 61,275 65,809 Total Current Liabilities 511, ,171 Non-Current Liabilities Provisions 32,396 25,813 Deferred tax liability 755, ,936 Total Non-Current Liabilities 788, ,749 TOTAL LIABILITIES 1,299,552 1,464,920 NET ASSETS 14,638,532 15,822,858 EQUITY Contributed Equity 8 89,081,446 89,081,446 Reserves 9 1,507,325 1,507,325 Gains/(losses) on available-for-sale financial assets 31,250 17,500 Acquisition of non controlling interest reserve 139,301 - Retained Earnings/(Accumulated losses) (76,828,391) (76,017,719) Parent interests 13,930,931 14,588,552 Non-controlling interest 707,601 1,234,306 TOTAL EQUITY 14,638,532 15,822,858 The accompanying notes form part of these financial statements. 7

16 Consolidated Statement of Changes in Equity FOR THE HALF-YEAR ENDED 31 DECEMBER 2009 Contributed Equity Retained Earnings/ (Accumulated Losses) Gains/ (Losses) on Available- For-Sale Financial Assets Other Reserves Non Controlling interest Acquisition of Non Controlling Interest Reserve As at 30 June ,081,446 (74,187,544) - 1,567, ,461,066 - Non controlling interest in ,711,269-1,711,269 PolyNovo Biomaterials Pty Ltd at acquisition - Cost of share-based (59,839) - - (59,839) payments - Loss for the period - (878,892) - - (19,457) - (898,349) As at 31 December ,081,446 (75,066,436) - 1,507,325 1,691,812-17,214,147 Net unrealised gain/(loss) - on available-for-sale , ,500 financial assets - Cost of share-based payments - Loss for the period - (951,283) - - (457,506) - (1,408,789) As at 30 June ,081,446 (76,017,719) 17,500 1,507,325 1,234,306-15,822,858 - Acquisition of noncontrolling (139,301) 139,301 - interest from exercise of option - Net unrealised gain/(loss) , ,750 on available-for-sale financial assets - Loss for the period - (810,672) - - (387,404) - (1,198,076) As at 31 December ,081,446 (76,828,391) 31,250 1,507, , ,301 14,638,532 Total The accompanying notes form part of these financial statements. 8

17 Consolidated Cash Flow Statement FOR THE HALF-YEAR ENDED 31 DECEMBER 2009 Note 31 December December 2008 Cash Flows from Operating Activities Payments to suppliers and employees (1,394,406) (1,661,641) Receipt of government grants - 23,469 Sundry income 44,996 14,786 Net cash outflows used in operating activities (1,349,410) (1,623,386) Cash Flows from Investing Activities Interest received 387, ,793 Proceeds from sale of plant and equipment - 70,788 Payments for plant and equipment 7 (11,903) (228,129) Acquisition of subsidiary, net of cash acquired 10 - (1,166,253) Net cash inflows/(outflows) used in investing activities 375,397 (682,801) Cash Flows from Financing Activities Net cashflows from financing activities - - Net increase/(decrease) in cash and cash equivalents (974,013) (2,306,187) Cash and cash equivalents at beginning of period 12,235,546 16,472,982 Cash and cash equivalents at the end of period 6 11,261,533 14,166,795 The accompanying notes form part of these financial statements. 9

18 Notes to the Consolidated Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER CORPORATE INFORMATION The financial report of Calzada Limited and its controlled entity for the half-year ended 31 December 2009 was authorised for issue in accordance with a resolution of the Directors on 25 February Calzada Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange (ASX code: CZD). 2 BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT This half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full annual financial report. This half-year financial report should be read in conjunction with the annual financial report of Calzada Limited for the year ended 30 June 2009, which was prepared in accordance with the requirements of the Corporations Act 2001, the ASX Listing Rules, applicable Australian Accounting Standards (including International Financial Reporting Standards) and other mandatory professional reporting requirements. It is also recommended that the half-year financial report be considered together with any public announcements made by Calzada Limited during the half-year ended 31 December 2009 in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules. (a) Basis of accounting This half-year financial report for the period ended 31 December 2009 is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, AASB 134 Interim Financial Reporting and other mandatory professional reporting requirements. The half-year financial report has been prepared on an historical cost basis, except for available-for-sale financial assets that have been measured at fair value. The half-year financial report is presented in Australian dollars. For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period. (b) Significant accounting policies The accounting policies adopted in this half-year financial report are consistent with those used in the annual financial report for the year ended 30 June 2009, except as noted below. The company has adopted the revised AASB 101 Presentation of Financial Statements, revised AASB 3 Business Combinations, revised AASB 127 Consolidated and Separate Financial Statements and AASB 8 Operating Segments. The impact of this has been disclosure changes only with the exception of the accounting policy noted below. (i) Acquisition of non controlling interest The non controlling interest reserve is a result of the dilution of non controlling interest through the company exercising its options in PolyNovo. This is treated as a transaction between owners and is recorded in equity as an Acquisition of non controlling interest reserve account in the consolidated financial statements. 3 SEGMENT INFORMATION The chief operating decision maker is the Chairman of the Company. He reviews the entity as one operating unit and therefore there is only one operating segment. 4 EXPENSES Employee benefits expense 31 December December 2008 Wages and salaries (349,828) (617,654) Superannuation (31,106) (40,103) Share-based payments expense - 59,839 Directors fees (100,095) (135,000) Long service leave provision (6,584) 52,936 Annual leave provision (7,425) 68,479 (495,038) (611,503)

19 Notes to the Consolidated Financial Statements FOR THE HALF-YEAR ENDED 31 DECEMBER LOSS PER SHARE 31 December December 2008 Basic loss per share (cents) (0.27) cents (0.29) cents Diluted loss per share (cents) (0.27) cents (0.29) cents (a) Net loss used in the calculation of basic and diluted loss per share (810,672) (878,892) (b) Weighted average number of ordinary shares on issue used in the calculation of basic loss per share 301,466, ,424,783 As the Company has incurred a loss for the half-years ending 31 December 2009 and 31 December 2008, potential ordinary shares, being options and performance rights to acquire ordinary shares, are considered non-dilutive and therefore not included in the diluted loss per share calculation. 6 CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of the following: 31 December June 2009 Cash at bank and in hand 1,181,525 1,893,960 Short term deposits 10,080,008 10,341,586 11,261,533 12,235,546 The Company has no borrowings. 7 PROPERTY, PLANT AND EQUIPMENT Acquisitions and disposals During the half-year ended 31 December 2009, the consolidated entity acquired assets with a cost of 11,903 (2008: 16,846). No assets were disposed of or impaired by the consolidated entity during the half-year ended 31 December 2009 (2008: 215,782). Impairment A review of the carrying value of the remaining plant and equipment determined no impairment at the review date. 8 CONTRIBUTED EQUITY 31 December June 2009 No. of Shares No. of Shares Fully paid ordinary shares 301,466,445 89,081, ,466,445 89,081,446 During the period under review no fully paid ordinary shares were issued or cancelled by the Company. 11

20 Notes to the Consolidated Financial Statements (continued) FOR THE HALF-YEAR ENDED 31 DECEMBER RESERVES 31 December June 2009 No. of Options/ Rights No. of Options/ Rights Options/Rights over fully paid ordinary shares nil 1,507,325 nil 1,507,325 During the period under review no employee options were forfeited, expired or unexercised. No employee performance rights were exercised or forfeited. At the balance date there were no employee options or employee performance rights on issue. 10 POLYNOVO BIOMATERIALS PTY LTD ACQUISITION Acquisition of PolyNovo Biomaterials Limited The fair value of the identifiable assets and liabilities of PolyNovo Biomaterials Limited as at the date of its 60% acquisition on 17 December 2008 was: Carrying Value Recognised on Acquisition Cash and cash equivalents 2,588,149 2,588,149 Trade and other receivables 184, ,681 Other current assets 255, ,927 Property, plant and equipment 1,790,622 1,790,622 Intangible Assets 5,100,000 2,519,788 Trade and other payables (979,465) (979,465) Provisions employee entitlements (138,096) (138,096) Deferred tax liability (1,530,000) (755,936) Total of identifiable net assets 7,271,818 5,465,670 Acquisition of 60% 3,279,402 Cost of the combination: - Total cash payment 3,500,000 - Value attributable to Options to subscribe for further Series A shares in PolyNovo (475,000) - Costs associated with the acquisition 254,402 Total cost of the combination 3,279,402 The cash outflow on acquisition to date is as follows: - Net cash acquired with the subsidiary 2,588,149 - Total cash payment (3,500,000) - Costs associated with the acquisition (254,402) Net cash outflow (1,166,253) Purchase of Non Controlling Interest On 16 November 2009, Calzada Limited exercised the first of 5 options to acquire a further 5.9% (5,928,571 series A shares) of PolyNovo Biomaterials Pty Ltd. The options were granted to Calzada when it acquired its initial 60% holding in PolyNovo. This transaction increased Calzada s holding in PolyNovo from 60% to 65.9%. The option exercise price was 1,000,000. There were no transaction costs. 12

21 Notes to the Consolidated Financial Statements (continued) FOR THE HALF-YEAR ENDED 31 DECEMBER CONTINGENT LIABILITIES AND CONTINGENT ASSETS The company has been issued with a copyright infringement claim in respect to the printing of the Company s 2009 annual report. The matter has been referred to legal advisers with a resolution expected shortly. The directors believe that the payment of a material amount in respect of this claim is not probable. The Directors were not aware of any other contingent liabilities or contingent assets at 31 December There has been no change since that date. 12 CORPORATE INFORMATION Calzada Limited is a company limited by shares that is incorporated and domiciled in Australia. 13 EVENTS AFTER THE BALANCE SHEET DATE On 13 January 2010 Calzada issued 28,840,832 shares to Xceed Capital Limited in exchange for its total share holding in PolyNovo. At the completion of this transaction Calzada s ownership in PolyNovo increased from 65.9% to 87.7%. Xceed Limited became a substantial shareholder in Calzada with a holding of 8.7% of the shares on issue. On 18 February 2010 Calzada announced that it had completed the acquisition of all of Commonwealth Scientific and Industrial Research Organisation s (CSIRO s) shares in PolyNovo Biomaterials Pty Ltd (PolyNovo) under the previously announced offer made to minorities. As a result, Calzada has now moved to 100% ownership of PolyNovo and CSIRO will emerge with a 4.7% shareholding in the enlarged Calzada group. 13

22 DIRECTORS' DECLARATION FOR THE PERIOD ENDED 31 DECEMBER 2009 In accordance with a resolution of the directors of Calzada Limited, we state that: In the opinion of the Directors: 1. (a) The financial statements and notes of the consolidated entity: (i) (ii) give a true and fair view of the financial position as at 31 December 2009 and the performance for the half-year ended on that date; comply with Accounting Standard AASB134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. On behalf of the Board. David Franklyn Director Melbourne 25 February,

23 Independent Review report to the members of Calzada Limited Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Calzada Limited, which comprises the statement of financial position as at 31 December 2009, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, other selected explanatory notes and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the half-year end or from time to time during the half-year. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial Reports Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2009 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Calzada Limited and the entities it controlled during the half-year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. The Auditor s Independence Declaration would have been expressed in the same terms if it had been given to the directors at the date this auditor s review report was signed. Liability limited by a scheme approved under Professional Standards Legislation

24 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Calzada Limited is not in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the consolidated entity s financial position as at 31 December 2009 and of its performance for the half-year ended on that date; and ii) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Ernst & Young Joanne Lonergan Partner Melbourne 25 February 2010