brain resource ltd · brain resource ltd financial report for the 6 months ended 31 december 2012 3...
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Brain Resource Ltd ABN 24 094 069 682
Consolidated Financial Report And Appendix 4D
Half-Year Ended 31 December 2012
This Financial Report on the consolidated Group constitutes the Appendix 4D required by the Australian Stock Exchange. It should be read in conjunction with the Annual Report for the Year Ended 30 June 2012 and any recent public announcements and is lodged with the Australian Stock Exchange under listing rule 4.2A
Brain Resource Ltd
Level 12, 235 Jones Street, Ultimo, Sydney, NSW 2007 Australia, Phone: +61 2 9211 7120 Fax: +61 2 9211 2710
Email: [email protected] URL: brainresource.com
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 2
Operational Review for the 6 months to 31 December 2012
Highlights
Personalised Medicine: completion of the analysis of first 1000 patients for ‘Depression Treatment Test’ – a culmination of our 6 year iSPOT study.
Our next FDA filing is currently being finalized together with our Consultants - recent regulatory changes have substantially speeded up review times.
4 Depression Treatment Test related patent applications filed.
MyBrainSolutions: 10 new U.S. employer and large customer distribution client contracts signed. The games have been played more than 4 million times and proof points of engagement, retention and benefits are accumulating.
MyBrainSolutions acknowledged as a Market Leader in an independent review (by SharpBrains) of the sector.
Launch of unique ADHD portal and presentation of the product at the main U.S consumer ADHD conference.
Obama Government $3Billion “Brain Activity Map Project” initiative is likely to consolidate interest in this sector.
Personalised Medicine and MyBrainSolutions strategic value continues to build at an encouraging pace in the world’s largest market, albeit that the value of Depression Test and MyBrainSolutions is still to flow through to financial performance.
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Total datasets in Database
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Cumulative Clinical Reports
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iSPOT Acquisitions (Depression & ADHD)
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Financial Report for the 6 months ended 31 December 2012 3
Summary context
Personalized Medicine: completion of the analysis of first 1000 patients for ‘Depression Treatment Test’, this allowing us to shift focus from development to marketing.
Our Personalised Medicine Diagnostics business has involved completing acquisition and analysis of more than 1000 patients with Depression before and after treatment with the three medications most used in the U.S.
The analysis of the first 1000 patients for the Depression Treatment Test was completed this month and the prediction accuracy is clinically meaningful. This development is the culmination of the iSPOT Depression study that started in 2007 and involved a collaboration with leading researchers around the world at 20 sites.
We are on a path towards filing a De Novo submission with the FDA for our Depression Treatment Test. Recent regulatory changes to this pathway have substantially speeded up review times, with clearances now being granted in 60-90 day timeframes.
MyBrainSolutions: We are the first company to penetrate the US Employer sector with on-line Brain Health Solutions.
Repeat business with large corporates is in the third year and this model of ongoing annual revenues points to the potential escalating growth of this part of the business. Moreover, 10 new employers and distributors have been recently procured, further indicating the growth in sales momentum.
The games have been played more than 4 million times. This adoption and proof points of engagement, retention and benefits are accumulating.
A broader context of the growth cycle is that in some cases conversion of large client growth into substantial revenues is taking longer than we anticipated. A normally 12 to 18 month sales cycle was disrupted this year by the US election and uncertainties around health reform. Feedback from our clients is that momentum in revenue growth should increase in 2013.
1. Diagnostics Solutions
Highlights to date:
Completion of the analysis of first 1000 patients for ‘Depression Treatment Test’.
Our next FDA filing (with potentially shortened review pathway) is currently being finalized with additional details and structure proposed by our Consultants.
4 Depression Treatment Test related patent applications recently filed.
Work on marketing plans and product delivery platforms, to readily interface the new diagnostic and treatment tests into clinician workflows, is well progressed.
Strong pipeline of tests being developed from the global iSPOT study that commenced in 2007, with ADHD diagnostics currently in development.
All based on the world’s largest standardized integrated brain database of more than 140,000 datasets and proprietary methodology.
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Financial Report for the 6 months ended 31 December 2012 4
1.1 Background and need addressed
The International Study to Predict Optimized Treatment (‘iSPOT’) is a Landmark Personalized Medicine study that is identifying objective tests to predict treatment response in Depression and Attention Deficit Hyperactivity Disorder (ADHD). Depression is the leading cause of disability in the US and is one of its most costly illnesses (18m affected, 85m clinical visits, $83bn cost and 272 million antidepressant prescriptions in the US per annum). Current medication selection relies on a trial and error approach. The iSPOT value proposition is to identify objective tests that predict treatment response and more efficiently match which antidepressant is best for a particular individual. iSPOT is a practical trial mirroring routine clinical practice and patients are randomized to Lexapro, Zoloft and Effexor XR (which represent around 30% of the antidepressants currently on sale in the US). It is being conducted at 20 sites globally and commenced in 2007.
1.2 Patent status
The first suite of 4 provisional patent applications have recently been filed in the US (January 2013) for our Depression Treatment Tests that predict treatment outcomes, that is, who is most likely to respond to one of the three most used antidepressant medications:
Cognitive test
Genomic test
Psychophysiology Test
White matter diffusion tensor imaging test
1.3 Product development status
Our focus is on finalising the product development for the first two tests: Cognition alone first, followed by Cognition and Genomics.
US Data Annual CostNumber of
Adults treated for Depression
Clinical Visits/yr
Prescriptions#/yr
Prescriptions $ /yr
Depression $83B 18M 85M 272M $11B
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2,000
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4,000
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iSPOT Acquisitions (Depression & ADHD)
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Cognition and Genomics are the ideal first line tests as they are currently the cheapest and easiest to use and deliver. The Depression Treatment Test (based on Cognition) of who is likely to respond to which treatment, is being submitted to the FDA first and then implemented via clinicians and potentially via insurance groups. It is anticipated that a Depression Treatment Test (based on selected Genomics measures) may further add complementary value to the cognition based test. Cognition is supplied via the internet. Genomics can be supplied as a Laboratory Developed Test (LDT) through a Laboratory operating under the CLIA (Clinical Laboratory Improvement Amendments) Regulations. Cognition has the advantage that it is highly scalable and delivers the most cost efficient outcomes. Importantly, we have spent many years developing the product delivery platforms to allow this to scale through allowing ease of access and product support, which will allow them to easily order the product and to track results in a seamless way.
Pipeline:
ADHD Treatment Test (Cognition)
ADHD Treatment Test (Genomics)
1.4 FDA filing status – faster review times under new FDASIA regulation
Our interactions with the FDA since the commencement of iSPOT have been on-going and we are on a path to file a De Novo submission. Our next filing is a Pre-IDE supplement (or a ‘pre submission’ filing under the new FDA guidance) which we are currently finalizing with our Consultants prior to FDA submission. This includes responses to all of the FDA’s information requests and includes all the data supporting the development of the test. There are two remaining steps: to run our validation study once we receive FDA approval to do so; and to file our De Novo submission. These two steps will occur quickly upon receipt of this approval, which is not expected to be prolongued.
Of great importance, recent changes to the De Novo filing process has seen a significant increase in efficiencies and clearances being granted under this pathway in 60-90 days. In summary, the FDASIA (Food and Drug Administration Safety and Innovation Act) streamlined the approval and regulation process covering a De Novo Pathway and has sped up overall review times for manufacturers of such devices.
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Financial Report for the 6 months ended 31 December 2012 6
1.5 Marketing plans and Reimbursement
The cost per test will be low relative to diagnostics that charge in the thousands and hence we will be relying on indirect marketing to drive demand, as opposed to funding a large sales force to directly visit clinicians. That includes press and industry conferences targeting general practitioners/primary care physicians, this group responsible for prescribing 80% of the drugs. Also, our focus will be on key opinion leaders who can present our findings and also the products clinical utility at key conferences. These will include both specialist and general practitioners / primary care physicians. Our first market is the US, to be followed by Europe where we intend to file submissions to EMA as soon as practicable. Cognition reimbursement: there are existing AMA codes that allow for reimbursement of a Neuropsychological Test, this one component of our Depression Test. Where eligible, the current average Medicare reimbursement is around $90 per test.
1.6 Recent deals of note that are relevant to iSPOT outcomes
The following sets out recent deals that highlight the values that have been achieved for diagnostics and Databases.
Transaction Value Driver Relevance to BRC
Amgen acquired deCODE $400m Genomics Database and team Database
Agilent acquired Dako $2.2Bn Cancer diagnostics Diagnostics
Quest acquired Athena $740m Neurology Brain
Takeda licenced Zinfindel $60m Alzheimer’s biomarker CNS biomarker
Illumina acquired Verinata $350m Reproductive health applications, Down’s Syndrome
Diagnostics
Myriad acquired Rules Based Medicine
$80m Schizophrenia diagnostic CNS diagnostic
Lilly acquired Avid Radiopharma
$300m Contrast agent for Alzheimer’s Dementia
CNS diagnostic
23andme capital raising $50m Funding for consumer offering and to build database
Database
2. Brain Health
Highlights to date:
85,000 users of www.mybrainsolutions.com to date with users growing 34% over the last 6 months.
The games have been played more than 4 million times (an average of 54 times per user).
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Financial Report for the 6 months ended 31 December 2012 7
First company to penetrate US employers, includes contracts with three of the largest companies in the US: Cisco Systems; Nationwide Mutual Insurance; and Cerner Corporation (Cisco and Nationwide have been clients for more than 2 years and after a successful pilot Cerner Corporation recently contracted).
Distribution agreements with: Aetna (26m lives under coverage), MHNet / Coventry (3m lives), Marsh Insurance.
A total of 15 contracted paying relationships covering 91,000 employees directly and a further 80,000 people have access to our solutions indirectly through content licencees.
Discussions with two key industry consultants (these are the effective gatekeepers to many client accounts).
Recognised as a Market Leader by SharpBrains in their State of the Digital Brain Health Market 2012-2020. This report estimated that the global market for brain health applications will triple from the current $1bn level to $3 billion in 2015.
300,000 App and Facebook game downloads.
Launch of ADHD portal.
Launch of combined WebNeuro/MyBrainSolutions product being used by addiction clinics.
A pipeline of around 70 companies where there is an on-going dialogue.
ISO 27001 certified.
2.1 Value proposition to Employer / Employee
Our confidence in future growth is predicated on our demonstration of positive employee uptake, usage and benefit together with benefits to employer whether direct or indirect.
Employer Total employees offered solution
Employees registered
% takeup
Nationwide 45,000 9,887 30%
Cisco 37,000 8,544 27%
Cerner 9,500 2,531 26%
The following data is based on select data from our three large employer clients:
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Financial Report for the 6 months ended 31 December 2012 8
The standard industry uptakes for programs offered to employees is sub 5%.
There has been a 30% increase in retention over the last 2 years.
One survey showed that 94% of the users rated the site as good, very good or excellent and 71% would recommend it to others.
(a) Cost/Benefit
The cost per employee that actually uses site (as opposed to the PEPM rate that covers all employees whether they use the site or not) works out to be around $12 per annum, a fraction of an average hourly wage. The benefit is that MyBrainSolutions builds skills in 4 key brain health domains: thinking, feeling, self regulation and emotion. From the Employers perspective, given they are the payer, improvements directly translate into employee productivity and reduced absenteeism (with overall employee wellbeing also translating into lower health care claims). Analysis of users have shown an across the board improvement in measures, with an even more significant improvements in those considered 'at risk'. This is further supported by employees’ self rating of productivity gains (29.1% gain) and reduction in absenteeism (17% reduction) Further, an article to be published in the February 2013 "Technology and Innovation - Proceedings of the National Academy of Inventors” journal shows further evidence for the benefits of MyBrainSolutions based on a study of more than 2,700 users of MyBrainSolutions over a 2.5 year period. Games within each of the 4 MyBrainSolutions core domains of Thinking (cognition), Emotion, Feeling and Self regulation were found to have beneficial effects in improving measured capacity scores on the assessment within these same domains.
(b) Employer growth strategy and costs
Our primary focus is Employers, a complex direct sale which relies on a direct sales force and distribution deals. A typical large employer sale is worth around $80,000 pa before any distributor margin. We also rely on media placements and conferences to build brand awareness.
Invited addresses
**
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**
**
0%
5%
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25%
30%
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45%
50%
Self-Regulation Feeling Thinking Emotion
% Improvement in 4 main processes
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Financial Report for the 6 months ended 31 December 2012 9
Media placements
2.2 Consumer growth strategies
Consumer growth is currently being driven by the same media and conference initiative but with specific campaigns to direct customers to our site:
Google ad words Facebook games and Apps
2.3 ADHD portal
Launch of the new online ADHD management tool, MyBrainSolutions for Parents and the companion brain-training site for children, PoweringUp.com in October at the Health 2.0 conference in San Francisco and also presented at CHADD (the leading non-profit organization serving individuals with ADHD and their families in the US).
120,000
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145,000
150,000
Jul12 Aug12 Sep12 Oct12 Nov12 Dec12
App Downloads
MyCalmBeat
4 Games
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Oct12 Nov12 Dec12
Facebook games
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Financial Report for the 6 months ended 31 December 2012 10
3. Financials
3.1 Revenues
6 months to 31 December 2012 2011 Change
Brain training platforms 218,460 233,318 -6%
Clinical Decision support 218,413 241,565 -10%
Treatment prediction research 1,328,969 1,527,919 -13%
Discovery research & Equipment sales 24,575 57,753 -58%
Gain on initial recognition of the newly established joint venture - 1,925,205 Nm
Interest income 59,227 178,573 -67%
Total Revenues 1,849,644 4,164,333 -56%
a) Brain training platforms: The 6% fall reflected the impact of the US election on the current year sales cycle and the deferral of the decisions by Employers around their health care spend.
b) Clinical Decision Support: While report volumes increased by 5%, to just under 7,000 reports, the average revenue per report was down 14%, mainly due to the strong A$. WebNeuro showed the strongest growth by number of reports, this increasing 18%.
c) Treatment Prediction Research: iSPOT revenues are tied to the stage of completion of the contract (based off a range of factors including spend and recruitment levels). Recruitment levels can vary substantially between periods with factors internal (we can ramp up or slow down particular sites to ensure we maintain a balanced recruitment between sites and subject type) and also external (eg weather). This variability was well within our overall trial plan.
iSPOT explanatory note: The current Treatment Prediction Research Revenue includes around $1.3m (2011: $1.5m) from the iSPOT contract. Brain Resource’s accounting policies (compliant with Australian equivalents to International Financial Reporting Standards) distinguish Marker development from Drug trials. In Marker development, Brain Resource retains a right to use and significantly benefit from the Intellectual Property created during the collaboration. Payments received from a collaborating partner for participating in the collaboration and undertaking the work are recognised as revenues, reflecting the relative stage of project progress. The associated costs are capitalised to the extent that the future benefits are expected to at least equal those costs with any excess expensed as incurred, this is consistent with our policy for the treatment of Intangible Assets. Capitalised amounts are reviewed periodically to ensure that there is no impairment and also to determine an appropriate sales linked amortisation point. Accordingly, iSPOT’s impact on accounting profit is significant.
d) Joint Venture: This gain in 2011 arose from recognition of the initial value that arose from the new ADHD joint venture in 2011. Brain Resource contributed a perpetual licence for its 50% share, the value of this licence never previously recognised in the accounts. Given that this venture was created with $4m of funding, this established the value of Brain Resource’s interest. Please refer to the June 2012 Financial Report for detail of the terms of issue and accounting treatment. As the Joint Venture was still in its infancy, it incurred operational losses for the period, shown below as an expense.
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Financial Report for the 6 months ended 31 December 2012 11
3.2 Expenses
6 months to 31 December 2012 2011 Growth %
Cost of sales 158,279 204,685 -23%
Depreciation and amortisation 131,253 124,843 5%
Insurance and professional fees 252,293 256,003 -1%
Rent, supplies & office costs 81,885 104,111 -21%
Salaries and consultancy fees 1,155,872 1,288,364 -10%
Marketing and agent support 358,237 361,619 -1%
Communications 46,265 63,801 -27%
Travel 176,759 75,526 134%
Foreign Exchange Losses / (Gains) 44,941 (113,249) -140%
Share based payments 16,000 26,686 -40%
Finance costs 314,960 209,920 50%
Share of loss of Joint Venture 216,521 - nm
Other 59,903 32,078 87%
Total Expenses (Gains) 3,013,168 2,634,387 14%
Given the above mentioned timing delay in revenue growth, we initiated a cost rationalization program late in 2012 to ensure an alignment of spend and this began to impact in the current half. Total expenses (excluding foreign exchange, national convertible bond costs, joint venture loss) fell around 4%. Salaries are our main cost. There were 29 (2011: 32) full time equivalent employees, of which 12 were in the US. Reductions in overhead are in part due to the costs being shared with the new Joint Venture company. Foreign exchange movements arose from the volatility in the A$/US$ and its impact on our US$ cash holdings. Note our policy is to hold cash deposits in currencies aligned with planned future expenditures, thereby ensuring constant purchasing power. Please refer to the June 2012 financial statements for further detail on the Finance costs that relate to the Convertible Bonds on issue. In essence, issue costs are apportioned between expense and equity accounts and an annual notional (non cash) amount of interest is required to be recognised in the accounts (even though the bonds have a zero coupon). Joint Venture costs relate to BRC’s 50% share. The major costs incurred by the Joint Venture were wages, consultants and marketing. Note that costs are net of the capitalisation of expenditures associated with iSPOT, as referred to above. The amount capitalised for iSPOT during the 6 months ended 31 December 2012 amounted to around $1.3m (2011:$1.4m), this includes salaries (both direct and allocated), direct site expenditures and allocated overhead.
3.3 Loss after tax
6 months to 31 December 2012 2011 Growth %
Loss after tax (1,163,524) 1,529,169 (176%)
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Financial Report for the 6 months ended 31 December 2012 12
3.4 Cash flow
6 months to 31 December 2012 2011
Net cash flows from operating activities (1,638,213) (1,703,843)
Net cash flows from investing activities (1,254,199) (2,191,044)
Net cash flows from financing activities (1,162,352) 8,949,404
Increase (decrease) in free cash flow (4,054,764) 5,054,517
Closing cash 5,106,480 13,595,400
Total net monthly operating and investing cash usage 489,526 628,029
4. Capital management and Outlook
Brain Health Solutions: MyBrainSolutions, Inc. (‘MBSI’) has been newly incorporated to become the owner of our Brain Health and Fitness business. We are currently meeting with a range of investors, including in Silicon Valley, to seek separate equity growth funding for this spinout which would result in BRC retaining a percentage of this business and benefitting from its potential scale. We expect to have something to report in the next 3 months in regards to progress. Until such time as this business has additional capital, we have minimised all spend – particularly curtailing site development. Diagnostics: We are meeting with a range of aligned diagnostics investors in regard to seeking additional funding for Brain Resource to ensure that a product launch marketing program can be implemented that is reflective of the scale of this opportunity. Gaining an FDA approval will mean that we could potentially be the first in the US market with a Depression Treatment Test, allowing us to target the 85 million visits for Depression annually. We also intend to seek regulatory approvals in other jurisdictions. We are optimistic about being able to successfully implement both of the above plans. We also, based on the above, expect that the current 6 month performance will improve. However, in the absence of any successful fund raising or such improvement, we will need to significantly review all operations as we close in on the financial year end to ensure that our funding remains adequate to support our current on-going business. In this regard, it is important to note that our largest costs are now variable, wages and marketing. Given we have working portals for brain health solutions and sufficient iSPOT patient levels to support FDA submissions and scientific journal publications, this spend can be reduced without materially impacting our prospects. In terms of our full year financial performance, we will need to secure material new business and/or strategic wins during the second half to make up for the shortfall in first half growth. If we are unable to do so, the flow through to our full year financials will result in lower revenue and cash balance than the previous year and a loss.
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Financial Report for the 6 months ended 31 December 2012 13
Appendix 4D - Half Year Report for the six months ended 31 December 2012
Results for announcement to the market
$A
(000’s)
Revenues from ordinary activities Decreased 56% to 1,850
Loss before tax Decreased (176%) to 1,164
Loss for the period attributable to members Decreased (176%) to 1,164
Dividends (distributions) Amount per security Franked amount per security
Interim dividend Nil Nil
Previous corresponding period Nil Nil
NTA backing Current period Previous corresponding 6 month period ended 31
December 2011
Net asset backing per ordinary share (cents per share) - including Databases and associated intangible assets
18.3 20.8
Net tangible asset backing per ordinary share (cents per share) – excluding Databases and associated intangible assets
(8.4) (2.8)
Commentary on results for the period: Refer to the Operational Review attached to this half-year financial report.
Accounts: The report is based on the attached half-year financial report, which has been reviewed.
Changes in control over entities: There were no entities over which control has been gained or lost during the period.
Details of dividends and dividend reinvestment plans: No dividends have been declared or proposed.
Details of associates or joint ventures: Refer to the attached half-year financial report.
Foreign Entities: wholly owned US subsidiaries Brain Resource, Inc. and MyBrainSolutions, Inc.
Details of audit disputes or audit qualification: N/A
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Financial Report for the 6 months ended 31 December 2012 14
Brain Resource Ltd ACN 094 069 682
Half-Year Financial Report
For the six months ended 31 December 2012
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 15
Directors’ Report
Your Directors present their report on the Consolidated Entity consisting of Brain Resource Ltd (BRC or the Company) and the entities it controlled at the end of, or during, the half-year ended 31 December 2012. Directors
The following persons were Directors of the Company during the whole of the half-year and up to the date of this report:
Dr Evian Gordon – Chairman and Chief Executive Officer; Dan Segal – Executive Director and Chief Operating Officer; Nestor Hinzack – Non Executive Director; Russell Jamison – Non Executive Director; and Arthur Toga – Non Executive Director.
Activities
The principal activity of the Company is developing and selling brain health products. Review and Results of Operations
See attached Operational Review. Auditors’ Independence Declaration
An independence declaration from our auditors, Ernst & Young, is included on page 27 of our financial report.
Signed in accordance with a resolution of the directors.
Dr Evian Gordon, Chairman of Directors Sydney, 28 February 2013
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 16
Consolidated Statement of Comprehensive Income
Consolidated For half-year ended 31 December 2012 2011
Note $ $
Continuing Operations:
Revenue and other income 2 1,849,644 4,164,333
Expenses 2 (3,013,168) (2,634,387)
Profit (loss) from continuing operations before income tax expense
(1,163,524) 1,529,946
Income tax expense - (777)
Net profit from continuing operations for the period (1,163,524) 1,529,169
Other comprehensive Income - -
Other Comprehensive Income for the period, net of tax
- -
Total Comprehensive Income for the period attributable to members of Brain Resource Ltd
(1,163,524) 1,529,169
Earnings (loss) per share for profit from continuing operations attributable to the ordinary equity holders of the parent:
Basic earnings (loss) per share (cents per share) (1.3) 1.7 Diluted earnings (loss) per share (cents per share) (1.3) 1.7
Earnings (loss) per share for profit attributable to the ordinary equity holders of the parent:
Basic earnings (loss) per share (cents per share) (1.3) 1.7 Diluted earnings (loss) per share (cents per share) (1.3) 1.7
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Financial Report for the 6 months ended 31 December 2012 17
Statement of Financial Position
Consolidated
As at 31 Dec 2012 30 Jun 2012
$ $
CURRENT ASSETS
Cash and Cash Equivalents 7 5,106,480 9,205,987
Trade and other receivables 569,676 614,175
Inventories 59,873 62,516
Other current assets 21,844 18,943
TOTAL CURRENT ASSETS 5,757,873 9,901,621
NON-CURRENT ASSETS
Plant and equipment 459,924 510,085
Intangible assets 8 24,481,915 23,106,134
Investment in Joint Venture 10 1,697,293 1,913,814
Other non-current assets 5,624 5,624
Deferred tax assets 437,359 437,359
TOTAL NON-CURRENT ASSETS 27,082,115 25,973,016
TOTAL ASSETS 32,839,988 35,874,637
CURRENT LIABILITIES
Trade and other creditors 1,077,985 1,266,894
Unearned Income 2,488,509 4,476,582
Interest-bearing loans 11 2,051,837 3,214,289
Provisions 554,194 555,946
TOTAL CURRENT LIABILITIES 6,172,525 9,273,860
NON CURRENT LIABILITIES
Unearned Income 1,849,623 949,622
Convertible Bond 7,350,962 7,036,002
Provisions 237,512 238,263
Deferred tax liabilities 437,359 437,359
TOTAL NON CURRENT LIABILITIES 9,875,456 8,661,246
TOTAL LIABILITIES 16,047,981 17,935,106
NET ASSETS 16,792,007 17,939,531
EQUITY
Contributed capital 3 20,150,318 20,150,318
Accumulated losses (3,733,769) (2,570,245)
Other reserves 375,458 359,458
TOTAL EQUITY 16,792,007 17,939,531
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 18
Consolidated Statement of Cash Flows
Consolidated
Six months ended 31 December 2012 2011
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 468,799 505,172
Payments to suppliers and employees (2,226,042) (2,320,993)
Interest received 119,030 111,978
NET CASH FLOWS FROM / USED IN OPERATING ACTIVITIES
(1,638,213) (1,703,843)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (6,044) (83,407)
Development of database and analysis tools (1,248,155) (2,107,637)
NET CASH FLOWS USED IN INVESTING ACTIVITIES
(1,254,199) (2,191,044)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of Convertible Bonds - 5,000,000
Proceeds from Borrowings from Joint Venture - 3,949,404
Repayment of Borrowings from Joint Venture (1,162,352) -
NET CASH FLOWS FROM / USED IN FINANCING ACTIVITIES
(1,162,352) 8,949,404
Net (decrease) / increase in cash and cash equivalents held
(4,054,764) 5,054,517
Add opening cash and cash equivalents brought forward
9,205,987 8,414,168
Net Foreign Exchange Differences (44,743) 126,715
CLOSING CASH AND CASH EQUIVALENTS CARRIED FORWARD
7 5,106,480 13,595,400
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 19
Consolidated statement of changes in equity
Consolidated Ordinary Shares
Equity component of
Convertible Bonds
Retained Earnings
Other Reserves
Total Equity
$ $ $ $
For the half year ended 31 December 2011
At 1 July 2011 16,834,052 1,652,870 (2,958,670) 311,975 15,840,227
Profit (Loss) for the period - - 1,529,169 - 1,529,169
Other Comprehensive Income - - - - -
Total Comprehensive Income - - 1,529,169 - 1,529,169
Transactions with owners in their capacity as owners:
Issue of Convertible Bond - 1,656,323 - - 1,656,323
Share based payments - - - 26,686 26,686
Balance at 31 December 2011 16,834,052 3,309,193 (1,429,501) 338,661 19,052,405
For the half year ended 31 December 2012
At 1 July 2012 16,834,052 3,316,266 (2,570,245) 359,458 17,939,531
Profit (Loss) for the period - - (1,163,524) - (1,163,524)
Other Comprehensive Income - - - -
Total Comprehensive Income - - (1,163,524) - (1,163,524)
Transactions with owners in their capacity as owners:
Issue of Convertible Bond - - - - -
Share based payments - - - 16,000 16,000
Balance at 31 December 2012 16,834,052 3,316,266 (3,733,769) 375,458 16,792,007
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 20
1. BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT
(a) Corporate information
This general purpose condensed financial report for the half-year ended 31 December 2012 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001.
The 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 financial report.
It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2012 and considered together with any public announcements made by Brain Resource Limited during the half-year ended 31 December 2012 in accordance with the continuous disclosure obligations of the ASX listing rules.
Apart from the changes in accounting policy noted below, the accounting policies and methods of computation are the same as those adopted in the most recent annual financial report.
(b) Basis of accounting
The half-year financial report has been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value. For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period.
(c) Summary of significant accounting policies
The half-year consolidated financial statements have been prepared using the same accounting policies as used in the annual financial statements for the year ended 30 June 2012.
(d) Going Concern
The Company’s financial statements have been prepared and presented on a Going Concern basis.
As disclosed in the above Statements, during the 6 months ended 31 December 2012, operating performance was below expectations and the timeline for the FDA depression test submission has inherent uncertainties regarding the approval date. Accordingly, to ensure the current business plan remains fully funded over the over the next 12 months will require an improved operational performance and/or a capital raising to supplement the Company’s cash resources.
Events expected to positively impact during this period include: an FDA approval of its product/s – a timely approval has been greatly assisted by new FDA regulation which is expediting review timelines; an acceleration of conversions of the Brain Health Solutions sales pipeline; and a successful execution of the current plans in place to raise additional equity and to sell down its interest in the Brain Health Solutions Business.
While the Company remains optimistic about these occurring, they all have risk. In the event that not one (nor any other positive development) occurs at a requisite level prior to the end of the current financial year, this will require a curtailment to the Company’s current business plan to realign with residual resources. The Company has the capacity to scale back operating expenditure at short notice, if required.
The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern, and may have to realise its assets and extinguish its liabilities other than in the normal course of business.
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 21
(e) Changes in accounting policy
New/revised standards and interpretations applicable to the year commencing 1 July 2012 have been reviewed and it has been determined that those new/revised standards and interpretations do not have a material effect on the measurements and recording of items in the balance sheet and statement of comprehensive income.
2. PROFIT / LOSS FROM ORDINARY ACTIVITIES
The profit / loss from ordinary activities before income tax expense includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the entity: Consolidated Six months ended 31 December 2012 2011
$ $
(i) Revenue and other income from operating activities: Brain training platforms 218,460 233,318
Clinical Decision support 218,413 241,565
Treatment prediction research 1,328,969 1,527,919
Discovery research 24,199 53,320
Equipment sales 376 4,433
Gain on initial recognition of the newly established joint venture - 1,925,205
Interest received - other persons/corporations 59,227 178,573
Total revenues and other income from ordinary activities 1,849,644 4,164,333
(ii) Expenses from operating activities:
Cost of equipment and third party drug trial costs 158,279 204,685
Depreciation of plant and equipment 20,022 27,459
Amortisation of intangibles 111,231 97,384
Insurance and professional fees 252,293 256,003
Rent, supplies & office costs 81,885 104,111
Salaries and consultancy fees 1,155,872 1,288,364
Marketing and agent support 358,237 361,619
Communications 46,265 63,801
Travel 176,759 75,526
Foreign Exchange Losses / (Gains) 44,941 (113,249)
Share based payments 16,000 26,686
Finance costs 314,960 209,920
Share of loss of Joint Venture 216,521 -
Other 59,903 32,078
Total Expenses (Gains) (3,013,168) 2,634,387
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 22
3. CONTRIBUTED EQUITY Consolidated
31 Dec 12 30 Jun 12
(a) Share capital $ $
Ordinary share authorised and fully paid (see note b) 16,834,052 16,834,052
Convertible Bond – equity Component (see note c) 3,316,266 3,316,266
Ordinary share fully paid – closing balance 20,150,318 20,150,318
(b) Shares issued Number Number
Number of ordinary shares – opening balance 91,714,454 91,714,454 Additions
- -
Number of ordinary shares- closing balance 91,714,454 91,714,454
(c) Convertible Bond $ $
Convertible bonds issued – Face value 10,000,000 10,000,000
Less: Allocation to Debt (6,630,858) (6,630,858)
Equity component 3,369,142 3,369,142
Issue cost (52,876) (52,876)
Net Convertible Bond equity 3,316,266 3,316,266
4. CONTINGENT ASSETS AND LIABILITIES
The Company is not aware of any contingent assets or liabilities neither at the end of the half-year nor at the date of this report.
5. FINANCIAL REPORTING BY SEGMENT
The Company operates predominantly in the one industry, namely commercialisation of brain function analysis, and is located in Australia.
6. SUBSEQUENT EVENTS
There have not been any material subsequent events that have or will affect the results of Brain Resource Ltd and its controlled entities.
7. CASH AND CASH EQUIVALENTS
For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 31 December:
Consolidated
31 Dec 12 31 Dec 11
Cash at bank and in hand 747,424 1,771,934
Short-term deposits 4,359,056 11,823,466
5,106,480 13,595,400
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 23
8. INTANGIBLES Consolidated
31 Dec 2012 30 Jun 2012
Brain Resource International Database and associated analysis tools 24,481,915 23,106,134
9. SHARE BASED PAYMENTS
The company did not issue or granted any new share options during the period. A total of 1,190,000 options expired unexercised during this period. There were no options cancelled during the financial year.
10. INVESTMENT IN JOINT VENTURE
The Company has a 50% equity interest in a joint venture company, BRC Focus Pty Ltd (Focus), established to develop a new Attention Deficit Hyperactivity Disorder product. Focus is a private entity that is not listed on any public exchange.
The following table illustrates summarised financial information of the Company’s investment: Share of joint venture’s statement of financial position: 31 Dec 12 30 Jun 12
Current Assets 1,026,031 1,607,403
Non Current Assets 734,229 404,360
Current Liabilities (62,966) (97,949)
Non Current Liabilities -
Equity 1,697,293 1,913,814
Share of joint venture’s Revenue, Expenses and Profit: 31 Dec 12 31 Dec11
Revenue 17,700 -
Expenses (234,221) (39,210)
Profit (Loss) (216,521) (12,172)
The joint venture has no contingent liabilities or capital commitments as at 31 December 2012.
11. Loan Consolidated
31 Dec 12 30 Jun 12
Interest-bearing loans 2,051,937 3,214,289
The loan is repayable on demand to BRC Focus Pty Ltd, a joint venture in which the Company has a 50% interest. The interest rate is applicable to this loan equates to the interest income derived on these funds.
12. Related party disclosures
A new subsidiary MyBrainSolutions, Inc. was incorporated in Delaware USA on 1 October 2012. The value of this investment is US$100 and it is 100% owned by BRC Operations Pty Ltd which is 100% owned by Brain Resource Ltd. The financial statements of MyBrainSolutions, Inc. are included in the consolidated financial statements of Brain Resource Ltd.
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 24
DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Brain Resource Ltd, I state that: In the opinion of the directors:
(a) The financial statements and notes of the consolidated entity for the half-year ended 31 December 2012 are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position as at 31 December 2012
and the performance for the half-year ended on that date of the consolidated entity; and
(ii) complying with Accounting Standard AASB 134 “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
Dr Evian Gordon, Chairman of Directors Sydney, 28 February 2013
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 25
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 26
Brain Resource Ltd
Financial Report for the 6 months ended 31 December 2012 27