INTERIM FINANCIAL REPORT for the half-year ended 31 December 2014 The information contained in this condensed report is to be read in conjunction with Pharmanet Group Limited s 30 June 2014 annual report and announcements to the market made by Pharmanet Group Limited
CONTENTS Corporate Directory 1 Deed Administrator s Report 2 Auditor s Independence Declaration 5 Financial Report 6 Deed Administrator s Declaration 15 Independent Auditor s Review Report 16 CORPORATE DIRECTORY Directors Christopher Quirk John James Found Registered office Level 1 284 Oxford Street LEEDERVILLE,WESTERN AUSTRALIA 6007 Auditor RSM Australia Partners 8 St Georges Terrace PERTH, WESTERN AUSTRALIA 6000 Bankers National Australia Bank 1232 Hay Street West Perth WA 6005 Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS,WESTERN AUSTRALIA 6153 Securities Exchange Listing ASX Limited Level 40, Central Park 152-158 St Georges Terrace Perth, WA, 6000 ASX Code PNO 1
DEED ADMINISTRATOR S REPORT The Deed Administrator presents this report for Pharmanet Group Limited ( the Company ) and its subsidiaries ( the Group ) for the half year ended 31 December 2014. Directors The names and the particulars of the Directors who held office during or since the end of the half year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated. Unless otherwise stated, the powers of the directors were suspended from 15 April 2015, being the date of the appointment of the voluntary administrator and remain so during the term of the deed of company arrangement. Name Status John Palermo Executive Director & Company Secretary Christopher John Quirk John James Found Non-Executive Director Non-Executive Director State of affairs and major activities of the half-year On 15 April 2015, the then Board resolved to place the Company into voluntary administration and appointed Mr Jack James of Palisade Business Consulting as voluntary administrator of the Company including the following related entities: - Cambridge Scientific Pty Ltd; - Thermalife International Pharmaceuticals Pty Ltd; and - Pharmasolv Laboratories Pty Ltd Following appointment of the administrator, the powers of the Company s officers (including Directors) were suspended and the administrator assumed control of the Company s business, property and affairs. At a meeting of creditors held on 30 May 2016, it was resolved that the Company enter into a Deed of Company Arrangement ( DOCA ). The DOCA was executed on 21 June 2016 and Jack James was appointed Deed Administrator. At a meeting of creditors held on 3 July 2015, it was resolved that Pharmasolv Laboratories Pty Ltd be wound up and Jack James was appointed liquidator. At a meeting of creditors held on 27 May 2016, it was resolved that Cambridge Scientific Pty Ltd be wound up and Jack James was appointed liquidator. At a meeting of creditors held on 27 May 2016, it was resolved that Cambridge Scientific Pty Ltd be wound up and Jack James was appointed liquidator Incomplete records To prepare the half year financial report, the Deed Administrator has reconstructed the financial records of the Group using data extracted from the Group s accounting system for the year. However, there may be information that the Deed Administrator has not been able to obtain, the impact of which may or may not be material on the accounts. These financial statements do not contain all the required information or disclosures in relation to transactions undertaken by the Company as this information is unascertainable due to the administration process and/or the change in directorships and key management personnel. 2
DEED ADMINISTRATOR S REPORT Consequently, although the Deed Administrator has prepared this financial report to the best of his knowledge based on the information made available to him, he is of the opinion that it is not possible to state that this financial report has been prepared in accordance with Australian Accounting Standards including Australian interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001, nor is it possible to state this financial report gives a true and fair view of the Group s financial position as at 31 December 2014 and for the period then ended. Financial performance The loss for the six months ended 31 December 2014 was $501,962 (2013: loss $810,994). Principal activities Refer to state of affairs and major activities of the half year. Events after the end of the reporting period On the 17 March 2015 the board advised of the passing of Mr John Palermo. On 15 April 2015 PNO s then board comprising Mr Christopher Quirk and Mr John Found resolved to appoint Jack James of Palisade Business Consulting as voluntary administrator to the Company including the following related entities: - Cambridge Scientific Pty Ltd; - Thermalife International Pharmaceuticals Pty Ltd; and - Pharmasolv Laboratories Pty Ltd At a meeting of creditors held on 30 May 2016, it was resolved that the Company enter into a Deed of Company Arrangement ( DOCA ). The DOCA was executed on 21 June 2016 and Jack James was appointed Deed Administrator. The DOCA proposes for the compromise of creditors claims, recapitalisation of the Company and (subject to regulatory approval) re-quotation of its securities on the ASX. The material terms of the DOCA are as follows: The DOCA is intended to satisfy creditors debts through the provision of a creditor payment of $120,000 and issue a total of 15,000,000 shares at a deemed value of $0.02 or a market value equivalent of $300,000 to secured Creditors Finebase Pty Ltd and Celtic Capital Pty Ltd (creditor payments). the creditor payment is to be made without any setoff, counterclaim or deduction whatsoever; the creditor payment will be used in full and final satisfaction of all creditors claims (including those of an administrator); and the creditor payment will be raised through one or more capital raisings by the Company (which will be subject to the receipt of shareholder approval) As announced on the 13 December 2016 the Deed Administrator and the Proponent agreed to extend the Due Date of the DOCA to 30 May 2017. 3
AUDITOR S INDEPENDENCE DECLARATION As lead auditor for the review of the financial report of Pharmanet Group Limited for the half year ended 31 December 2014, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) (ii) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and any applicable code of professional conduct in relation to the review. RSM AUSTRALIA PARTNERS Perth, WA Dated: 15 December 2016 J A KOMNINOS Partner
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER 2014 31 December 2014 31 December 2013 $ $ Revenue 71,227 127,971 Other income 278,171 400,476 349,398 528,447 Changes in inventories 41,567 (25,839) Manufacturing and distribution costs (95,323) (231,608) Borrowing costs (168,189) (76,164) Depreciation expense (11,542) (15,221) Administration fees and administration benefits expenses (107,273) (131,109) Analysis and product testing - (13,650) Auditor s remuneration (21,174) (14,874) Company secretarial expenses (15,000) (15,000) Consulting and consultant s benefits expenses (334,421) (253,167) Directors and employees benefits expense - (269,393) Legal expenses (53,138) (64,400) Patent expenses (6,107) (65,613) Product samples and consumables - (2,519) Rent premises (33,777) (32,317) Travel and accommodation expenses - (10,473) Other expenses (46,983) (116,987) Loss before income tax (501,962) (809,887) Income tax expense - - Loss for the period (501,962) (809,887) Other comprehensive income: Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations - (1,107) Total comprehensive loss for the year (501,962) (810,994) Total comprehensive loss attributable to: Members of the parent entity (501,962) (796,980) Non-controlling interest - (14,014) (501,962) (810,994) Basic loss per share (cents per share) (0.025) (0.04) The accompanying notes form part of these financial statements. 6
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014 Note 31 December 2014 30 June 2014 $ $ CURRENT ASSETS Cash and cash equivalents 12,417 56,849 Trade and other receivables 133,136 108,854 Other assets 117,259 70,870 TOTAL CURRENT ASSETS 262,812 236,573 TOTAL ASSETS 262,812 236,573 CURRENT LIABILITIES Trade and other payables 1,255,267 1,190,352 Borrowings 3 2,919,785 2,456,499 TOTAL CURRENT LIABILITIES 4,175,052 3,646,851 TOTAL LIABILITIES 4,175,052 3,646,851 NET LIABILITIES (3,912,240) (3,410,278) SHAREHOLDERS DEFICIT Issued capital 4 26,782,036 26,782,036 Reserves 5 1,653,814 1,653,814 Accumulated losses (32,195,312) (31,693,350) Total parent equity interest (3,759,462) (3,257,500) Non-controlling interest (152,778) (152,778) TOTAL DEFICIENCY (3,912,240) (3,410,278) The accompanying notes form part of these financial statements. 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 31 DECEMBER 2014 Issued Capital Foreign Currency Reserve Share based payment Reserve Accumulated Losses Non- Controlling Interest $ $ $ $ $ $ Balance at 1 July 2013 26,781,895 (7,527) 1,658,303 (29,559,986) (127,245) (1,254,560) Loss for the period - - - (795,873) (14,014) (809,887) Other comprehensive loss - (1,107) - - - (1,107) Total comprehensive loss for the period - (1,107) - (795,873) (14,014) (810,994) Transactions with owners, recognised directly in equity Equity issued during the period 141-3,247 - - 3,388 Balance at 31 December 2013 26,782,036 (8,634) 1,661,550 (30,355,859) (141,259) (2,062,166) Total Balance at 1 July 2014 26,782,036 (7,736) 1,661,550 (31,693,350) (152,778) (3,410,278) Loss for the period - - - (501,962) - (501,962) Other comprehensive income - - - - - - Total comprehensive loss for the period - - - (501,962) - (501,962) Balance at 31 December 2014 26,782,036 (7,736) 1,661,550 (32,195,312) (152,778) (3,912,240) The accompanying notes form part of these financial statements. 8
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 31 December 2014 31 December 2013 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 71,227 549,033 Payments to suppliers and employees (568,830) (1,172,585) R&D rebate 277,680 - Interest received - 4,834 Net cash used in operating activities (219,923) (618,718) CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment - (3,452) Proceeds from disposal of plant and equipment 491 - Proceeds from loans - 24,963 Net cash from investing activities 491 21,511 CASH FLOWS FROM FINANCING ACTIVITIES Capital raising - 141 Proceeds from borrowings 175,000 250,000 Other - (117) Net cash from financing activities 175,000 250,024 Net decrease in cash and cash equivalents (44,432) (347,183) Effects of exchange rate changes on the balance of cash held in foreign currencies - (1,107) Cash and cash equivalents at beginning of period 56,849 381,328 Cash and cash equivalents at 31 December 2014 12,417 33,038 The accompanying notes form part of these financial statements 9
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements for the half year ended 31 December 2014 cover Pharmanet Group Limited ( the Company ) and its controlled entities as a consolidated entity (also referred to as the Group ). Pharmanet Group Limited is a company limited by shares, incorporated and domiciled in Australia. The Group is a for-profit entity. The interim financial report was issued on 15 December 2016 by the Deed Administrator of the Company. a) Statement of compliance The interim financial report is a condensed financial report prepared in accordance with the requirements of the Corporations Act 2001 and AASB 134: Interim Financial Reporting. Compliance with AASB 134 ensures compliance with IAS 34 Interim Financial Reporting where possible (refer to note 1(b)). The financial statements have been prepared on an accruals basis and are based on historical costs modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. This half-year report does not include the full disclosures of the type normally included in an annual financial report. Therefore, it cannot be expected to provide as full an understanding of the financial performance, financial position and cash flows of the Company as in the full financial report. It is recommended that this half-year financial report is read in conjunction with the annual financial report for the year ended 30 June 2014 and any public announcements made by Pharmanet Group Limited during the half-year in accordance with the continuous disclosure requirements arising under the Corporations Act 2001 and the ASX Listing Rules. The Accounting policies adopted in the preparation of this half-year financial report are consistent with those followed in preparation of the Group s annual consolidated financial statements for the year ended 30 June 2014, except for the adoption of new standards and interpretations effective as of 1 July 2014 applied retrospectively. The adoption of these Standards and Interpretations has had no material impact. New and revised accounting standards and interpretations The Company has adopted all of the new and revised Accounting Standards and Interpretations issued by the Australia Accounting Standards Board that are mandatory for the current reporting period. The adoption of these new and revised Accounting standards and Interpretations has not resulted in a significant or material change to the Company s accounting policies. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted by the Company. b) Incomplete records On 15 April 2015, the then Board resolved to place the Company into voluntary administration and appointed Mr Jack James of Palisade Business Consulting as voluntary administrator of the Company. Following appointment of the administrator, the powers of the Company s officers (including Directors) were suspended and the administrator assumed control of the Company s business, property and affairs. 10
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 b) Incomplete records To prepare the half year financial report, the Deed Administrator has reconstructed the financial records of the Group using data extracted from the Group s accounting system for the entire financial period. However, there may be information that the Deed Administrator has not been able to obtain, the impact of which may or may not be material on the half year financial statements. These half year financial statements do not contain all the required information or disclosures in relation to transactions undertaken by the Company as this information is unascertainable due to the administration process and/or the change in directorships and key management personnel. c) Going concern The financial report has been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Deed Administrator believes it is appropriate to prepare these accounts on a going concern on the basis that the DOCA will be fully effectuated. The DOCA proposes for the compromise of creditors claims, recapitalisation of the Company and (subject to regulatory approval) re-quotation of its securities on the ASX. The material terms of the DOCA are as follows: the syndicate (or its nominees) will provide $120,000 cash to the creditors pool (creditor payment) and issue a total of 15,000,000 shares at a deemed value of $0.02 or a market value equivalent of $300,000 to secured creditors Finebase Pty Ltd and Celtic Capital Pty Ltd (Secured Creditor Payment), collectively referred to as the creditor payments); the creditor payment is to be made without any setoff, counterclaim or deduction whatsoever; the creditor payment will be used in full and final satisfaction of all creditor claims (including those of an administrator); and the creditor payment will be raised through one or more capital raisings by the Company (which will be subject to the receipt of shareholder approval). The Company expects to recapitalise following completion of the DOCA with sufficient funds to continue as a going concern. It is proposed that the capital raising will be as follows: up to 50,000,000 shares at not less than $0.02 to raise $1,000,000; and up to 50,000,000 options to acquire shares with an exercise price of not less than $0.02 each with an expiry date of 4 years from the date of issue; The proposed capital structure and reconstruction (including consolidation, share/option issues and share/option prices) may be varied at the syndicates sole discretion, but subject to both ASX and shareholder approval. It is for these reasons that the Administrator consider the Group to be a going concern. Notwithstanding the material uncertainties of future events inherent in the above, the Administrator consider it is appropriate to prepare financial information on a going concern basis and hence no adjustments have been made to the financial information relating to the recoverability and classification of the asset carrying amounts or the amounts and classifications of liabilities that might be necessary if the entity does not continue as a going concern. 11
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 NOTE 2: OPERATING SEGMENTS Segment Information Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The operation and assets of Pharmanet Limited and its controlled entities operate in one business segment, being the research, development, manufacture and distribution of pharmaceutical products. NOTE 3: BORROWINGS 31 December 2014 30 June 2014 $ $ Current Loans secured 225,000 225,000 Loans unsecured 175,000 - Convertible notes - secured (a) 250,000 250,000 Convertible notes - unsecured (a) 1,360,000 1,360,000 Interest on borrowings 909,785 621,499 2,919,785 2,456,499 (a) Terms and conditions Convertible notes issued: Issue Date Amount Interest Rate Convertible On or Before 1 April 2004 200,000 12% per annum 15 June 2014 (i) 31 March 2008 200,000 12% per annum 30 April 2014 (ii) 1 June 2008 410,000 12% per annum 1 June 2013 (iii) 31 December 2008 250,000 12% per annum 31 December 2013 (iv) 5 February 2010 300,000 12% per annum 5 February 2014 (v) 27 September 2013 250,000 10% per annum 27 September 2014 1,610,000 The notes are convertible into shares at any time on or before the conversion date at the option of either the Company or the lender. The notes issued in April 2004 are convertible to shares and options at the option of the holder at the lower of $0.02 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. The notes issued in March 2008 and June 2008 are convertible to shares and options at the option of the holder at the lower of $0.005 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. 12
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 NOTE 3: BORROWINGS The notes issued in December 2008 are convertible to shares and options at the option of the holder at the lower of $0.0015 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. The notes issued in February 2010 are convertible to shares and options at the option of the holder at the lower of $0.0107 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. The secured notes issued in September 2013 are convertible to shares at the election of the noteholder, up to an aggregate amount of $125,000 at $0.0005 per share. If the lender has not been repaid and has not converted 30 days prior to the end of the term of the notice, the Company, by issuing a notice to the holder, may convert the notes to shares and options as per the conversion terms and conditions. If the lender has not converted by the end of the term of the note, the Company must arrange repayment terms with the lender. (i) The convertible notes issued on 1 April 2004 were not converted on 15 June 2014. (ii) The convertible notes issued on 31 March 2008 were not converted on 30 April 2014. (iii) The convertible notes issued on 1 June 2008 were not converted on 1 June 2013. (iv) The convertible notes issued on 31 December 2008 were not converted on 31 December 2013. (v) The convertible notes issued on 5 February 2010 were not converted on 5 February 2014. NOTE 4: ISSUED CAPITAL Issued Capital : 31 December 2014 30 June 2014 $ $ 2,002,565,241 (30 June 2014: 2,002,565,241) ordinary shares fully paid 26,782,036 26,782,036 Movement in ordinary share capital of the Company during the year was as follows: Date Number $ Opening balance 1 July 2013 1,997,540,088 26,781,895 Exercise of options 2 July 2013 2,066 26 Exercise of options 12 August 2013 4,618 23 Exercise of options 15 August 2013 18,469 92 Exercise of performance rights 1 October 2013 5,000,000 - Less: transaction costs arising on share issues - Closing balance 31 December 2014 2,002,565,241 26,782,036 13
CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED 31 DECEMBER 2014 NOTE 5: RESERVES Share options At the date of this report, the unissued ordinary shares of Pharmanet Group Limited under option are as follows: Expiry date Exercise Price Number under option 31 December 2015 $0.005 448,409,848 448,409,848 NOTE 6 : CONTINGENT LIABILITIES AND COMMITMENTS Contingent Liabilities Pharmanet Group Limited and its controlled entities have no known contingent liabilities as at 31 December 2014. Commitments Pharmanet Group Limited and its controlled entities have no known commitments as at 31 December 2014. NOTE 7: EVENTS SUBSEQUENT TO REPORTING DATE On the 17 March 2015 the board advised of the passing of Mr John Palermo. On 15 April 2015 PNO s then board comprising Mr Christopher Quirk and Mr John Found resolved to appoint Jack James of Palisade Business Consulting as voluntary administrator to the Company including the following related entities: - Cambridge Scientific Pty Ltd; - Thermalife International Pharmaceuticals Pty Ltd; and - Pharmasolv Laboratories Pty Ltd At a meeting of creditors held on 30 May 2016, it was resolved that the Company enter into a Deed of Company Arrangement ( DOCA ). The DOCA was executed on 21 June 2016 and Jack James was appointed Deed Administrator. The DOCA proposes for the compromise of creditors claims, recapitalisation of the Company and (subject to regulatory approval) re-quotation of its securities on the ASX. The material terms of the DOCA are as follows: The DOCA is intended to satisfy creditors debts through the provision of a creditor payment of $120,000 and issue a total of 15,000,000 shares at a deemed value of $0.02 or a market value equivalent of $300,000 to secured Creditors Finebase Pty Ltd and Celtic Capital Pty Ltd (creditor payments). the creditor payment is to be made without any setoff, counterclaim or deduction whatsoever; the creditor payment will be used in full and final satisfaction of all creditors claims (including those of an administrator); and the creditor payment will be raised through one or more capital raisings by the Company (which will be subject to the receipt of shareholder approval) As announced on the 13 December 2016 the Deed Administrator and the Proponent agreed to extend the Due Date of the DOCA to 30 May 2017. 14
INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) We were engaged to review the accompanying half-year financial report of Pharmanet Group Limited (subject to a Deed of Company Arrangement), which comprises the consolidated statement of financial position as at 31 December 2014, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the halfyear 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 of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. Because of the matter described in the Basis for Disclaimer of Conclusion paragraph, however, we were not able to complete our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Pharmanet Group Limited (subject to a Deed of Company Arrangement), would be in the same terms if given to the directors as at the time of this auditor's review report.
Basis for Disclaimer Conclusion Pharmanet Group Limited (subject to a Deed of Company Arrangement) and its Australian controlled entities, were placed into voluntary administration on 15 April 2015. We were unable to obtain sufficient appropriate evidence to verify the amounts disclosed in the consolidated statement of financial position as at 31 December 2014, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date. As a result, we were unable to determine whether any adjustments to these amounts were necessary. Disclaimer Conclusion Because of the significance of the matter described in the Basis for Disclaimer of Conclusion paragraph, we were unable to, and do not express a conclusion as to whether the half-year financial report of Pharmanet Group Limited (subject to a Deed of Company Arrangement) is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2014 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. Emphasis of Matter We draw attention to Note 1 in the financial report. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business. RSM AUSTRALIA PARTNERS Perth, WA Dated: 16 December 2016 J A KOMNINOS Partner