Mach7 Technologies Limited

ABN 26 007 817 192

and Controlled Entities (Mach7 Technologies Group)

ASX Appendix 4E Preliminary Final Report & Directors’ Report and Audited Financial Statements For the year ended 30 June 2017 (Previous corresponding period: Year ended 30 June 2016)

Provided to the ASX in accordance with listing rule 4.3A

Mach7 Technologies Limited (ACN 007 817 192 ABN 26 007 817 192) Level 1 | 61 Spring Street | Melbourne VIC 3000 Australia

Mach7 Technologies Limited

ASX Appendix 4E Preliminary Final Report

YEAR ENDED 30 JUNE 2017

Results for announcement to the market

Current reporting period 1 July 2016 to 30 June 2017 Previous corresponding period 1 July 2015 to 30 June 2016

Current reporting period 1 July 2016 to 30 June 2017 Previous corresponding period 1 July 2015 to 30 June 2016
		% Change		$’000
Revenue from continuing operations	increase	452%	to	10,269
Net loss for the year	increase	40%	to	17,659
Net loss for the year attributable to members	increase	40%	to	17,659

Dividends
Interim dividend		-		-
Final dividend		-		-

Dividends Interim dividend Final dividend	- -	- -
Consolidated accumulated losses	Current period $’000	Previous Corresponding period $’000
Accumulated losses at the beginning of the financial period	(22,153)	(9,523)
Net loss attributable to equity holders	(17,659)	(12,629)
Accumulated losses at the end of the financial period	(39,812)	(22,153)

Earnings per share (EPS)
Basic EPS	Loss 16.3 cents	Loss 24.1 cents
Diluted EPS	Loss 16.3 cents	Loss 24.1 cents
Weighted average number of ordinary shares outstanding during the period used in the calculation of the Basic EPS	108,482,657	52,431,582

Net tangible asset (NTA) backing
Net tangible asset backing per ordinary share	0.3 cents	(0.3) cents

Comments by directors

Please refer to the “Operating and Financial Review” in the directors’ report for a detailed explanation and analysis of the Group’s performance for the 12 months ended 30 June 2017.

Audit

This report is based on accounts which have been audited. A copy of the directors’ report and audited financial statements, together with the audit report, is attached.

Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Your directors submit their report for the year ended 30 June 2017.

Directors and Company Secretary

The following persons were Directors or Company Secretary of the Company at any time during the current financial year, or since 30 June 2017 up to the date of this report:

Mr Damien Lim Non-Executive Chairman Mr Albert Liong Managing Director and CEO (up until 31 May 2017) Dr Nigel Finch Non-Executive Director Mr Nobuhiko Ito Non-Executive Director Mr A. Wayne Spittle Non-Executive Director Ms Alyn Tai Company Secretary

Information of directors

Directors’ and the Company Secretary qualifications, experience, special responsibilities and period in office are set out in the section of this document entitled “Board of Directors and Company Secretary” on page 88.

Directors’ relevant interest in Mach7 Technologies Limited securities

The directors’ interests in the shares and options of Mach7 Technologies Limited at 30 June 2017 were:

Director	Ordinary Shares	Options
	No.	No.
Dr Nigel Finch	682,598	125,000
Mr Nobuhiko Ito	902,419	125,000
Mr Damien Lim#	250,000	125,000
Mr A. Wayne Spittle	250,000	125,000
Mr Albert Liong	2,954,689	-

In addition to the shareholding of Mr Lim, 11,372,898 held by BV Healthcare II Pte Ltd, an investment fund of which Mr Lim is a Principal.

Directors’ meetings

The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director are as follows:

	Board	Board	Audit & Risk Management Committee	Audit & Risk Management Committee	Remuneration & Nomination Committee	Remuneration & Nomination Committee
	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended
Damien Lim	13	13	-	-	3	3
Albert Liong	11	10	-	-	-	-
Dr Nigel Finch	13	13	3	3	3	3
Nobuhiko Ito	13	8	3	-	-	-
Wayne Spittle	13	13	3	3	3	3

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Committee membership

As at the date of this Report, the Group had an Audit & Risk Management Committee and a Remuneration & Nomination Committee. Members acting on the committees of the Board during the year were:

	Audit & Risk Management	Remuneration & Nomination
Damien Lim	-	Chairman
Albert Liong	-	-
Dr Nigel Finch	Chairman	Member
Nobuhiko Ito	Member	-
Wayne Spittle	Member	Member

Dividends

Mach7 Technologies Limited did not declare or pay any dividends during the financial year (2016: nil).

Principal activities

The principal activity of the Group during the year was the provision of enterprise imaging data sharing, storage and interoperability for healthcare enterprises globally.

Operating and financial review

The operating and financial review section of the directors’ report is outlined in the following sections:

Financial position
Review and results of operations
Business strategies and prospects for future years
Business risks to achieving corporate strategy
Going concern

The Directors' comments form an integral part of this Directors' Report.

Financial position

The following table provides a snapshot of important balances from the Group’s statement of financial position as at 30 June:

	As at	As at		Move-
CONSOLIDATED			Movement
	30 June 2017	30 June 2016		ment
	$	$	$	%
Cash (including all cash deposits)	2,784,225	1,929,738	854,487	44%
Deferred revenue - yet to be recognised	(2,855,480)	(2,367,797)	(487,683)	21%
Net current assets / (liabilities)	3,253,092	(2,159,334)	5,412,426	251%
Net tangible assets	3,424,995	(1,582,582)	5,007,577	316%
Intangible assets	17,843,215	35,568,869	(17,725,654)	(50%)
Deferred tax liability arising on intangible assets	(5,329,432)	(10,524,728)	5,195,296	(49%)
Net assets	15,938,778	23,461,559	(7,522,781)	(32%)

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Cash & cashflows

The Group’s cash balances increased by $0.9 million (44%) to $2.8 million from 30 June 2016 to 30 June 2017. During the year the Company raised capital (net of capital raising costs) of $9 million, retired debt of $2.9 million, and spent (net of receipts) $5.2 million in the course of normal operations. As the Group continues to grow its revenues, Directors anticipate it will begin to generate positive net cash flows during the ordinary course of operations.

Deferred revenue

The Group’s deferred revenue balance increased by $0.5 million (21%) to $2.9 million from 30 June 2016 to 30 June 2017. Deferred revenue represents contracts that have been executed prior to 30 June 2017, where the customer has made certain payments, but the Group has yet to recognise revenue as the services have not yet been performed. The Group would expect to fully convert this balance to revenue during the next financial year.

Net current assets

The Group has a positive net current asset balance at 30 June 2017 of $3.3 million, an increase of $5.4 million (251%) compared to 30 June 2016. The increase in current assets is largely as a result of the net cash generated from the capital raise (after debt repayments) of $6.1 million. After allowing for this additional cash injection, the Group’s net current asset position fell by $0.7 million (32%) for the year.

Net tangible assets (NTA)

The Group has a positive net tangible assets balance at 30 June 2017 of $3.4 million, an increase of $5.0 million (316%) compared to 30 June 2016. The positive increase in NTA is a result of factors mentioned in the above section (net current assets).

Intangible assets

During the previous financial year, the Group acquired intangible assets (including goodwill) with a fair value of $43.7 million by way of acquisition of Mach7 Technologies Pte Ltd and its subsidiaries (Mach7 Group). Also during the previous year, this balance was written down by way of an amortisation charge of $1.6 million and an impairment charge of $6.5 million, to a carrying value at 30 June 2016 of $35.6 million. During the current year, this carrying value was written down a further $17.7 million to a carrying value at 30 June 2017 of $17.9 million. The Directors’ are of the opinion this carrying value reflects the fair value of the net intangible assets acquired during the acquisition of the Mach7 Group. The carrying value will continue to be amortised over a remaining 4-6 years. Further details of the intangible assets acquired can be found in Note 14 to the financial statements.

Deferred tax liability

As part of the acquisition of the Mach7 Group mentioned above (refer intangible assets), the Group recognised a deferred tax liability of 30% of its intangible assets acquired in accordance with accounting standards. Like the intangible assets, this liability was reduced for an equivalent impairment credit, and is also amortised over a remaining period of 4-6 years.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Net assets

The Group’s net assets decreased by 32%, or $7.5 million, from 30 June 2016 to 30 June 2017. This fall in net assets was largely as a result of the write down and amortisation of intangible asset and associated deferred tax liability balances of $12.5 million. Partially offsetting this was an increase in net assets due to the cash raised and retirement of debt made during the year of $6 million (net).

Review and results of operations

Revenue from continuing operations

Total revenue reported for the current year is $10.3 million, an increase of $4.4 million (76%) from the previous pro-forma period (2016 pro-forma: $5.8 million). A breakdown of revenues by category is shown in table 1 below:

Table 1. Sales revenues

Table 1. Sales revenues
CONSOLIDATED	2017 2016 (pro-forma*) Movement Movement
Salesrevenues	$ $ $ %
Software licence fees Professional service fees Support maintenance fees Subscriptions (pay-per-use) 3D printed models Other revenue TOTAL	5,724,889 2,921,459 2,803,430 96% 1,050,472 873,979 176,493 20% 2,962,661 1,486,860 1,475,801 99% 502,993 348,585 154,408 44% 27,916 110,267 (82,351) (75%) - 93,089 (93,089) (100%)
	10,268,931 5,834,239 4,434,692 76%

*2016 is a pro-forma, unaudited result, which includes the Mach7 Group for the full financial year, and not just from the date of acquisition (8 April 2016) by

3D Medical Limited as is the case with the amounts reported in the accompanying financial statements.

Every revenue category related to Mach7 software has produced strong double-digit growth which is also shown in the chart below:

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

==> picture [503 x 262] intentionally omitted <==

----- Start of picture text -----

Revenue growth by category
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Software licence fees Professional service Annual maintenance Subscriptions (pay-per- 3D printed models &
fees Revenue source fees use) other
2017 2016
$m
----- End of picture text -----

The charts below depict the % of each component of revenue for the current and prior financial years:

==> picture [496 x 196] intentionally omitted <==

----- Start of picture text -----

Revenue mix - FY2017 Revenue mix - FY2016
Software licence Software licence
fees fees
0% 2%
Professional Professional
5% 6%
service fees service fees
29% Annual 26% Annual
51%
56% maintenance fees maintenance fees
10% Subscriptions 15% Subscriptions
(pay-per-use) (pay-per-use)
3D printed 3D printed models
models
----- End of picture text -----

Each component of revenue is discussed in the following sections of this report.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Software license fees

Revenues from software licenses is still the largest component of the Group’s revenue stream (56%), and currently has the second highest rate of growth at 96% for the year. During the current year, the Group generated revenue from software licenses to its enterprise imaging platform from five large hospital enterprise customers, averaging at licenses of > $1 million per customer. Four of these customers are located in the U.S. and one in the Middle East.

In addition, the Group generated software license fees from customer-specific software enhancements, from 16 customers, at an average fee of $27,000 per license. Management are actively focussing on growing revenues from this area of the business going forward, as it believes there is much more revenue potential from smaller sales.

All software license fees are recognised as revenue at the time the contract is signed, or the purchase order is given, and the software is delivered to the customer and available for use.

Professional service fees

Revenues from professional service fees comprised 10% of the Group’s revenues for the current year (2016: 15%). This revenue is made up of installation services, end-user training services, workflow consulting services and other services that the customer may require as a result of using our software. Service fee revenue is recognised as the services are performed - using a % complete method. The timing of the provision of services is often dictated by the customer and therefore the timing of the recognition of revenue from these services can often be outside the Groups control. This is usually because our software is part of a much larger investment in healthcare technology being made by the customer and these other components may be required to be implemented beforehand.

Support maintenance fees

Revenues from support maintenance fees comprised 29% of the Group’s revenues for the current year (2016: 26%) and are an important growing annuity revenue stream for the Group. With each software license fee that is sold, there is usually a support and maintenance contract locked in for a period of time (usually five years). These fees commence once the software has achieved go-live i.e. when it is in a live-production environment. Support and maintenance fees are usually billed annually in advance, and the revenue is recognised evenly throughout the year. Any support fees that are paid for, but unrecognised, are recorded as deferred revenue on the Group’s balance sheet. The balance of deferred revenue as at 30 June 2017 from support and maintenance fees was $1.4 million (2016: $1.0 million).

During the current year, the Group recognised $2.9 million of support maintenance revenue from 29 customers, at an average of approximately $0.1 million per customer. The Group still has contracted customers which have yet to reach go-live status and hence are not yet paying support and maintenance fees. Once these customers commence support, and provided there is no attrition, the annual revenue able to be recognised from all current customers is $4.0 million per annum. This revenue stream will continue to grow as new software licenses are sold.

Subscriptions (pay-per-use)

Revenues from subscription-based licenses are a relatively small revenue stream for the Group currently, being 5% of the Group’s revenues for the current year (2016: 6%). The Group still plans to grow this product line, however this growth did not occur as expected in the current year. Subscription fees are where the customer is billed monthly according to actual usage of the software. Revenue is recognised in line with the billing.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

3D printed models & other revenue

Revenues from 3D model sales were a very small component of the Group’s revenue – 0.3% (2016: 2.3%). As such the Directors made the decision to divest this business line during the current year. Consequently, there will be no revenues from 3D model sales in the next financial year and beyond. In 2016, the Group earned an additional $93k from a one-off sale, which is not expected to be repeated.

Operating expenses from continuing operations

Operating expenditure for the year was $13.7 million, and broadly equivalent to the previous corresponding period (2016 pro-forma: $13.7 million). Operating expenditure by category is shown table 2 below:

Table 2. Operating expenses

Table 2. Operating expenses
CONSOLIDATED	2017 2016 (pro-forma*) Movement Movement
Operating expenses	$ $ $ %
Employee salaries, benefits & staff-related expenses Professional fees and consultancy expenses Marketing expenses Travel and related expenses Rent and occupancy expenses General administration expenses Total	10,307,258 8,363,257 1,944,001 23% 1,071,180 1,963,143 (891,963) (45%) 847,724 1,358,190 (510,466) (38%) 679,156 843,976 (164,820) (20%) 380,847 333,997 46,850 (14%) 439,856 836,877 (397,021) (47%)
	13,726,021 13,699,440 26,581 -

*2016 is a pro-forma, unaudited, result, which includes all of the Mach7 Group for the full financial year, and not just from the date of acquisition by 3D Medical Limited, being 8 April 2016, as is the case with the amounts reported in the accompanying financial statements.

Every operating expenditure category has been reduced significantly compared to the prior year with the exception of labour. This is as a result of a concerted effort to reduce overheads, and increase labour resources to fuel revenue growth and service our growing customer base. The reduction in expenditure categories can also be seen from the chart below:

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Expenditure movements by category

==> picture [468 x 218] intentionally omitted <==

----- Start of picture text -----

12.0
10.0
8.0
6.0
4.0
2.0
0.0
Employee salaries, Professional fees Marketing Travel and related Rent and General
benefits & staff and consultancy expenses expenses occupancy administration
related expenses expenses expenses expenses
Expenditure category
2017 2016
$m
----- End of picture text -----

The charts below depict the % of each component of operating expenditure for the current and prior financial years:

==> picture [500 x 179] intentionally omitted <==

----- Start of picture text -----

Operating Expenses FY2017 Operating Expenses FY2016
Employee salaries, Employee salaries,
benefits & staff related 9% benefits & staff related
5% 6% expensesProfessional fees and 6% expensesProfessional fees and
consultancy expenses consultancy expenses
6%
8% Marketing expenses 10% Marketing expenses
14% 61%
75% Travel and related Travel and related
expenses expenses
Rent, G&A Rent, G&A
----- End of picture text -----

Each component of operating expenditure is discussed in the following sections of this report.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Employee salaries and benefits & other staff related expenditure

The Group’s expenses from operations is largely made up by labour and related costs. During the current year, labour related expenses comprised 75% of the Group’s operating expenditure (2016: 61%). Importantly, the Group’s software is internally developed by its own internal resources, and as such its labour costs are relatively high compared to other components of operating expenditure. The Group does not capitalise any of this development related expenditure, and as such, all expenses are recognised immediately in the profit and loss when they arise. This means that the Group’s expenditure will be higher during its development phase, but lower in its commercial phase which will maximise profits in future years.

During the current financial year, the Group employed (on average) 58 employees’ throughout the year (2016: 47), as shown in the chart below:

==> picture [365 x 179] intentionally omitted <==

----- Start of picture text -----

Number of employees
20
15
10
5
-
Sales & Services R&D Admin 3DM
marketing
Department
2017 2016
No. of employee's
----- End of picture text -----

The majority (74%) of the Groups staff are employed in sales & marketing, services and R&D. Due to the closure of 3D Medical (3DM) operations, the Group no longer employs any staff related to its 3D Medical operations. The following charts show the composition of employee’s by department and by territory for the current financial year:

==> picture [495 x 159] intentionally omitted <==

----- Start of picture text -----

2017 2017
Sales & marketing
7% 11%
20%
Services 8% US
19%
R&D Asia
26% Admin Australia
28% 81%
3DM
----- End of picture text -----

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

During the current financial year, the Group embarked on a restructuring initiative. This initiative was important to ensure the Group had the right calibre of people performing the right roles. As a result of this initiative the Group’s employee numbers have fallen from an average of 58 through-out the current year to 47 as at 1 August 2017. The Group spent $0.9 million on restructuring related expenditure, for example, legal costs, severance payments and recruitment fees. Included in the restructuring was the closure of the 3D Medical operations. The restructuring initiative is now complete, and as a result, the Directors do not expect this cost will be repeated in the next financial year.

Due to the restructuring initiative described above, and an increase in staff numbers of 27% compared to the prior year, employee related expenses for the current year increased by $1.9 million (23%) to $10.3 million compared to the prior year (2016: $8.4 million).

Professional fees and consultancy

During the current year, professional fees and consultancy expenses comprised 8% of the Group’s operating expenses (2016: 14%). Professional fees and consultancy expenses includes legal fees, audit fees, tax compliance fees, accounting support fees, ASX listing fees, ASIC fees, ISO certification firms, and other corporate finance advisors.

During the current year, the Group has significantly reduced the number of consultants and advisors it retains, and therefore associated expenditure has fallen compared to the previous year. The current year also has includes expenditure for ISO certification costs relating to 3D Medical operations which will not be repeated. During the prior financial year, the parent entity completed the acquisition of Mach7 Technologies Pte Ltd (and its subsidiaries) and consequently this expenditure category included legal and corporate advisory costs related to this transaction, which were not repeated during the current year. Consequently, the 2017 professional fees and consulting fees have decreased by $0.9 million (45%) to $1.0 million (2016: $1.9 million).

Marketing expenses

During the current year, marketing expenses comprised 6% of the Group’s operating expenses (2016: 10%). Marketing expenses includes attendance at major U.S. trade shows and other marketing campaigns. During the current year, the Group ceased using an external marketing agency and instead utilised internal resources. Therefore marketing expenses for the current year decreased by $0.5 million (38%) to $0.8 million (2016: $1.4 million).

Travel expenses

During the current year, travel expenses comprised 5% of the Group’s operating expenses (2016: 6%). Travel expenses have decreased by $0.16 million (20%) to $0.68 million (2016: $0.84 million). This is a result of a concerted effort to reduce expenditure across the Group during the current financial year. Travel expenditure will always be necessary for our sales representatives, particularly those covering the U.S. and Asia, and also for certain executives, given the global nature of the Group.

Rent, occupancy & general administration expenses

During the current year, rent, occupancy and general administration expenses comprised 6% of the Group’s operating expenses (2016: 9%).

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Rent & occupancy expenses have decreased by $0.05 million (14%) to $0.38 million (2016: $0.33 million). During the current financial year the Group had offices in Burlington U.S, Singapore, and Melbourne Australia. Since the current financial year, the Group has assigned its lease for its Melbourne premises to a third party as part of the divestiture of its 3D Medical operations. Consequently, the rent and occupancy expenses are expected to fall for the next financial year. Other general & administration expenses have decreased by $0.4 million (47%) to $0.4 million (2016: $0.8 million). This reduction was made as part of a concerted effort to reduce overhead expenditure across all areas of the Group.

Adjusted EBITDA and net loss after tax

Table 3. Adjusted EBITDA and net loss after tax

CONSOLIDATED	2017 2016 (pro-forma*) Movement Movement
Adjusted EBITDA and Net loss after tax	$ $ $ %
Revenues Reseller and distributor expenses Operating expenses Other income / (expenses) net EBITDA loss (adjusted) Depreciation & amortisation Impairment charges Share-based payments expense Interest expense Income tax benefit Netloss aftertax	10,268,931 5,847,031 4,421,900 76% (856,564) (670,404) (186,160) 28% (13,726,021) (13,699,440) (26,581) 0% 91,163 (114,090) 205,253 (180%)
	(4,222,491) (8,636,903) 4,414,412 (51%) (6,262,660) (6,801,288) 538,628 (8%) (11,675,171) (6,504,960) (5,170,211) 79% (454,495) (30,267) (424,228) 1402% (239,578) (493,717) 254,139 (51%) 5,195,297 1,994,140 3,201,157 161%
	(17,659,098) (20,472,995) 2,813,897 (14%)

Adjusted EBITDA

The Group reported an adjusted earnings before interest expense, tax, depreciation and amortisation (adjusted EBITDA) loss of $4.2 million for the current financial year ending 30 June 2017. This represented an increase in profitability of $4.4 million, or 51%, compared to the previous financial year pro-forma net adjusted EBITDA loss of $8.6 million. The increase in profitability of $4.3 million was directly related to the increase in revenues for the year of a similar amount, whilst the Group was able to hold operating expenses at a consistent level to the prior year.

Capitalised expenditure

It is important to note that the Group does not capitalise any of its software development costs, and carries no capitalised expenditure of any kind on its balance sheet. This has resulted in the Group taking longer to reach break-even or profitability than it otherwise might have (had it capitalised expenditure), however it will also mean that future profits will be maximised and will not be impacted by costs that have been incurred in prior years.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

Net loss after tax

The Group reported a net loss after tax of $17.7 million for the current financial year ending 30 June 2017. This represented an increase in profitability of $2.8 million, or 14%, compared to the previous financial year pro-forma net loss of $16.7 million. The main reason for the increase in net profit after tax (i.e. decrease in net loss after tax), is the increase of $4.4 million of adjusted EBITDA as explained in the above section. Offsetting this increase, is a net increase of $1.5 million for amortisation and impairment charges (net of income tax benefit) relating to the acquisition of Mach7 Technologies Pte Ltd. In addition, share-based payments expenses have increased by $0.4 million reflecting the issue of options to employees during the previous year, and a decrease to interest expenses of $0.3 million as a result of the Group retiring all of its external debt during the current financial year. Further detail on the acquisition of Mach7 Technologies can be found at note 31 to the financial statements.

Business strategies and prospects for future years

From 1 August 2017, Mike Jackman, the Group’s recently appointed CEO, joined the Group and is in the process of developing and implementing a commercial strategy to ensure the Group is maximising its potential in all available markets given its available resources. These commercial strategic initiatives are outlined below.

Management are actively pursuing business opportunities on multiple fronts. While the Company continues to build momentum and traction among the top-tier hospital and health systems, leadership have devised a new strategy to deliver the same leading edge technology and high-quality service to the mid-tier hospitals and radiology reading networks. The Company continues to focus the majority of its resources on the US market as it is the largest in the world, whilst increasing its presence and activity in elsewhere in the world through indirect channel partners. Initial markets under development outside USA include Latin America, South East Asia, Netherlands and UK. Demand continues to grow for Mach7 solutions to address imaging challenges worldwide.

The Company has launched strategic initiatives to productise components of its current technology and turn these into commercially attractive solutions. This “land and expand” approach will increase its footprint in the existing customer install base and increase the adoption of Mach7 solutions within these large enterprises. For example, the Mach7 image sharing/exchange solution. Previously this solution was part of Mach7 enterprise imaging platform which is now being marketed and offered as a stand-alone product which is addressing an industry need.

Mach7 continues to work diligently to strengthen its market reach through a combination of Application Partners and Channel partners complemented by direct sales organisation. Mach7 has the reputation and brand recognition as the leading solution and technology provider in the industry.

Key business risks

The Group’s operations are subject to a number of risks. The Board, which as a whole performs the function of an Audit and Risk Management Committee, regularly reviews the possible impact of these risks and seek to minimise this impact through a commitment to its corporate governance principles and its various risk management functions. A number of specific risk factors that may impact the future performance of the Company are described below. Shareholders should note that this list is not exhaustive, and only includes risks that could affect the Group’s financial prospects, taking into account the nature and business of the Group and its business strategy.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Operating and financial review (continued)

(a) Commercialisation and new technology risk

The two principal activities of the Group are the provision of enterprise imaging data storage sharing, storage and interoperability for healthcare enterprises and the 3D printing of customised medical products based on data captured by diagnostic imaging tools. There is a risk that the Group will not be able to successfully sell its 3D printed products and/ or its image management platform and therefore be unable to attract sufficient customers to be sufficiently profitable to fund future operations. In addition, commercial success of new technology is subject to inherent uncertainty due to unknown variables such as cost of materials and servicing.

(b) Competition and new technologies

The industry in which the Group is involved is subject to increasing domestic and global competition which is fast-paced and fast-changing. Whilst the Group will undertake all reasonable due diligence in its business decisions and operations, it will have no influence or control over the activities or actions of its competitors, whose activities or actions may positively, or negatively affect the operating and financial performance of its business. For instance, the image management platform may be superseded by new and cheaper technology creating competitive pressures, in which case, the Group’s revenues and profitability could be adversely affected.

(c) Risks associated with the regulatory environment

The Group operates in a highly regulated market both in Australia and internationally. Success can be impacted by changes to the regulatory environment. Mach7 continues to monitor changes and proposed changes to the regulatory environment to which it is exposed.

Risk management

The Board takes a proactive approach to risk management. The Board, which as a whole performs the function of an Audit and Risk Management Committee, is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group’s objectives and activities are aligned with the risks and opportunities identified by the Board.

Going concern

The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and discharge of liabilities in the normal course of business.

The Directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, subject to the Group being successful in:

converting its trade and other receivables balance ($4.8 million) to cash in the coming year;
securing projected new revenue contracts as per its budget and cash forecast for the next financial year; and
managing its operating expenditures prudently and in line with its budget for the next financial year.

Accordingly, the Directors believe that the consolidated entity will be able to continue as a going concern and that it is appropriate to adopt the going concern basis in the preparation of the financial report.

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Directors’ Report

YEAR ENDED 30 JUNE 2017

Significant changes in the state of affairs

There have been no significant changes in the state of affairs of the Group, however the Group has divested of its 3D Medical operations in the last quarter of the current financial year. This operation was not a material component of the Group’s financial result.

Events occurring after balance date

The Group recently announced the appointment of a new CEO, Mike Jackman, who commenced employment on 1 August 2017.

Likely developments and expected results from operation

The Group will continue to announce material contract wins as and when they occur. In addition, it will aim to grow its revenues from smaller product sales which the Group will endeavour to keep the market updated. The Group will continue its product development strategy to ensure its product is at the forefront of medical imaging software to meet the customers’ needs.

Environmental regulation

The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory.

Remuneration Report (Audited)

This Remuneration Report forms part of the Directors’ Report and outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group.

This report has been divided into the following sections:

Details of key management personnel during the year
Service (employment) agreements
Principles used to determine remuneration
Frameworks for setting director and executive compensation
Short-term incentive program (STIP) details
Long-term Incentive program (LTIP) details
Remuneration granted to key management personnel
Shares issued upon options being exercised by KMPs
Other transactions with KMPs
Shareholder voting of the Remuneration Report

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Key Management Personnel (KMP) covered in this report:

Directors	Role	Period covered
Damien Lim	Non-Executive Chairman	Full Year
Albert Liong	Managing Director and Global CEO	1 July 2016 to 26 May 2017
Dr Nigel Finch	Non-ExecutiveDirector	Full Year
Nobuhiko Ito	Non-Executive Director	Full Year
A. Wayne Spittle	Non-Executive Director	Full Year
Executives
Ravi Krishnan	Founder and Chief Strategy Officer	Full Year
Mike Lampron	- VP Global Services - ChiefOperating Officer	- 27 March 2017 to 31 May 2017 - From 1June2017
Jenni Pilcher	Global Chief Financial Officer & CEO Australian Operations	Full Year
J. Eric Rice	Chief Technology Officer	Full Year

Changes since the end of the reporting period:

On 1 August 2017, Mike Jackman was appointed to the role of Chief Executive Officer (CEO).

Service agreements

Remuneration and other terms of employment for executive key management personnel are formalised in service agreements. Details of these agreements are as follows:

Component	Requirement	Applicable to
Fixed remuneration	Range $250k to $500k	Executives
Contract duration	Ongoing	All executives, with exception on one whose contracthas expired andis beingrenegotiated
Termination of employment (without cause) by Company or by individual	3 months’ notice	All executives
Termination of employment (for cause)	Terminated immediately	All executives
Change of control*	At least (30) days’ notice, and one year’s base salary	CEO and COO
Other	Sign-on bonus US$30k	CEO

*Change of Control is defined as a sale of more than 50% of the voting shares in the Company, or a sale of substantially all the assets of the Company.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Principles used to determine the nature and amount of remuneration

The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and conforms to the market best practice for the delivery of reward.

The Board of Directors ('the Board ') ensures that executive reward satisfies the following key criteria for good reward governance practices:

competitiveness and reasonableness
acceptability to shareholders
performance linkage / alignment of executive compensation
transparency

The Board, through its Nomination and Remuneration Committee, is responsible for determining and reviewing remuneration arrangements for the Group’s directors and executives. The performance of the Group depends on the quality of its directors and executives. The Group’s remuneration philosophy is to attract, motivate and retain high performance and high quality personnel.

The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Company. The framework is designed to:

(a) ensure that coherent remuneration policies and practices are observed which enable the attraction and retention of directors and management who will create value for shareholders;
(b) fairly and responsibly reward directors and senior management having regard to the Group’s performance, the performance of the senior management and the general pay environment; and
(c) comply with all relevant legal and regulatory provisions

In accordance with best practice corporate governance, the structure of Non-Executive Directors and executive remunerations are separate.

Non-executive directors’ remuneration framework

All non-executive directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the board policies and terms, including remuneration, relevant to the office of director.

Fees and payments to Non-Executive Directors reflect the demands and responsibilities of their role. Non-Executive Directors' fees and payments are reviewed annually by the Board. The Board may, from time to time, seek advice from independent remuneration consultants to ensure Non-Executive Directors' fees and payments are appropriate and in line with market standards. Remuneration for Non-Executive Directors (NEDs) may contain any or all of the following:

Annual fees, reflecting the value of the individual’s personal performance, time commitment and responsibilities of the role;
Equity based remuneration, issues of shares or securities, reflecting the contribution of the Director toward the Group’s medium and long term performance objectives (each award is subject to shareholder approval);
Other benefits required by law, for example, superannuation payments.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically by a general meeting. Following the adoption of a new Company Constitution on 31 March 2016, the aggregate remuneration for all non-executive directors has been set at a maximum amount of $500,000 per annum under clause 50 (a) of the Company’s Constitution.

The fees awarded to Directors are as follows:

	From 1 May2017	From 1 April 2016
Base fee
Chair	$80,000	$100,000
Director	$40,000	$50,000
Additional fees
Chairofa committee	Nil	$5,000

Executive remuneration framework and link to performance

The Consolidated Entity aims to reward executives with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. The executive remuneration and reward framework has six main components all of which constitute the executive’s total remuneration:

Fixed remuneration:

1) Annual base salary
2) Benefits in compliance with local laws including annual leave, sick leave, long service leave, medical insurance, and superannuation payments
3) Sign on bonuses
4) Termination payments reflecting contractual and legal obligations

Performance-based remuneration:

5) Bonuses to reward individuals following an outstanding business contribution having regard to clearly specified performance targets
6) Sales commission (sales executives only)
7) Equity based remuneration, reflecting the Group’s medium and long term performance objectives.

Fixed remuneration

Fixed remuneration for key management personnel is reviewed annually by the Board (via its Nomination and Remuneration Committee). Fixed remuneration is set with reference to the skills, experience and performance of the individual performing the role, comparable market remunerations for the role being performed, and the overall size and financial position of the Group as a whole.

Performance-based remuneration

The short-term incentive program ( STIP ) is designed to align the targets of the both the Group as a whole, and individual business units, with the targets of those executives responsible for meeting those targets. STI payments are granted to executives based on the achievement of specific annual targets and key performance indicators ( KPI's ). KPI's can include (but are not necessarily limited to the following elements:

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Achievement of revenue targets;
Growth measured with reference to the Group’s market capitalisation;
Adherence to budgeted expenditure levels and authority procedures;
Excellence in customer service and satisfaction;
Leadership contribution;
Product development;
Corporate transactions

The STIP was most recently approved by the Board in April 2016.

The long-term incentives program ( LTIP ) includes both long service leave and issues of equity instruments such as shares and options. Option awards typically vest over a period of between one and three years, expire within five years and have an exercise price that includes a premium to the market price as at the date of issue. The most recent LTI program was approved by shareholders on 31 March 2016.

Further information on the STIP and LTIP is the following sections of this report.

Statutory performance indicators

We aim to align our executive remuneration to our strategic and business objectives, which will ultimately lead to the creation of shareholder wealth. The table below shows the measures of the group’s financial performance over the last five years as required by the Corporations Act 2001. However, this Group has undergone two mergers/acquisitions during this period and therefore the prior year data is not necessarily relevant. In addition, basic earnings per share and share price data has been adjusted for stock splits at 1/10 in December 2014 and January 2017:

January 2017:
	30June 2017	30June 2016	30June 2015	30June 2014	30June 2013
Profit for theyear	(17,659,098)	(12,629,483)	(6,909,809)	(302,272)	(938,813)
Basic earnings per share (cents)	(16.3)	(24.1)	(36.0)	(5.0)	(20.0)
Dividend payments	-	-	-	-	-
Dividend payout ratio (%)	-	-	-	-	-
Share price (cents)	16	34	94	70	30
Increase/(decrease) in share price (%)	(53%)	(64%)	34%	133%	(57%)
Parent entity name at balance date	Mach7 Technologies Limited	Mach7 Technologies Limited	3D Medical Limited	Safety Medical Products Limited	Safety Medical Products Limited
ASX symbol	M7T	M7T	3DM	SFP	SFP

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Short-Term Incentive Program (STIP)

Description of the plan

The STIP is an annual incentive plan under which senior executives are eligible to receive an annual award if they satisfy challenging strategic, operational and individual performance targets. Senior executives will be entitled to a STIP award up to a maximum fixed percentage of their annual fixed remuneration. The maximum amount will differ between individuals, but does not exceed 50% of annual fixed remuneration.

Appropriate STIP incentive

The STI plan is designed to motivate and reward high performance. It puts a significant proportion of the executive’s remuneration at-risk against targets linked to the Group’s performance objectives, thereby aligning executive’s interests with shareholders.

Performance period

Mach7 Technologies, prior to its acquisition by 3D Medical Limited, had a financial year end of 31 December, and consequently the performance period for Mach7 personnel was from 1 January to 31 December.

From 1 July 2017, the performance period has been realigned to the Group’s financial year end, and will run from 1 July to 30 June.

Performance conditions

For the period 1 January 2016 to 31 December 2016, one executive received a bonus payment that was subject to the following performance criteria:

Capital raising and refinancing of the Group
Investor relations targets
Other role specific targets

There were no other performance conditions, or bonuses paid, during the current financial year.

The Group is in the process of setting performance conditions/KPIs for KMPs for the next financial year 1 July 2017 to 30 June 2018. These KPIs will be set in conjunction with the CEOs, who was recently appointed on 1 August 2017, strategy and operational plans. The KPIs will include a mixture of the Group’s performance, such as targets related to revenues, adjusted EBITDA and cash, and individual performance relevant to each person’s role and responsibilities.

Choice of performance conditions

The choice of performance conditions for the STIP will be relevant to the Group in its current phase of growth as it embarks towards achieving profitability and becoming cash flow positive. The Directors believe these targets are most closely aligned with growing shareholder value. In addition, the performance conditions will be set with relevance to the individuals’ role, such that the person is appropriately incentivised and motivated to achieve the best they can.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Assessment of performance conditions

For non-financial and individual targets, the Board assesses the personal performance of the Executive against the non-financial and personal performance of other Executives and makes recommendations to the Remuneration and Nomination Committee in relation to the payment of any STI. The Remuneration and Nomination Committee review these recommendations and endorse the level of the STI to be paid for Board approval.

Delivery of the STIP

For the performance condition which existed for the period 1 January 2016 to 31 December 2016, the delivery condition was 100% of the STI award will be paid in cash 7 days after the later of 28 February in the next calendar year and 14 days after the receipt of the Group’s consolidated audited (or audit reviewed) financial reports for the half year ended 31 December in the performance calendar year. 90% of the STIP was paid in cash and 10% in fully paid ordinary shares of the Company.

Two executives have the following delivery conditions for STI payments:

The amount of the bonus payable in cash shall be equal to at least 50% of the bonus awarded (or such greater amount approved by the Board) and the remainder shall be payable in stock of Mach7 Technologies Ltd, the price of which shall be determined with reference to the 30 day volume weighted average stock price up to and including the date of Board approval. The bonus under the STIP shall be payable only if certain agreed key performance indicators are met and approved by Board. Any bonus under the STIP shall be payable during the two month period following the end of the applicable performance period and only if executive remains employed by the Group through the date of such payment.

It is envisaged that the above policy will be applied to all other executives.

Cessation of employment

Two executives in the Group have the following STIP clause within their service contract: - if the Group terminates the executive’s employment without cause, the Company's obligation to the executive pertaining to any bonus payment under the STIP for the year in which the termination occurs is based on actual performance and prorated based on the number of days in the performance period in which the executive is employed. The bonus is paid during the two month period following the end of the applicable performance period, less such deductions as the Group is required to make under applicable law and regulations.

All other senior executives must remain employed with the Group in a full-time or permanent part-time position for the duration of the performance period to be eligible to receive the STI Payment. The Board reserves the right to determine the treatment of any award that is granted to an Executive under the STI Plan rules.

STI outcomes in the current year

One executive achieved 100% of their performance targets and related STI. No other STI payments were made during the current financial year.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Long-Term Incentive Program (LTIP)

Description of the plan

An incentive plan under which senior executives are eligible to receive an award of performance rights, equity options or shares that are linked to the achievement of targets related to the Group’s medium to long-term performance.

Performance period

The performance conditions must be satisfied in order for performance rights or equity options to vest. Performance conditions can include time-based conditions, whereby the holder must remain employed by the Group through to vesting date. Each performance right or equity option entitles the holder to acquire one share in the Company for a stated exercise price, subject to meeting specific performance conditions.

The performance rights and equity options do not carry rights to dividends or voting.

Cessation of employment

If a senior executive or non-executive director ceases to be employed or engaged by the Group for any reason other than as a result of a Qualifying Event, any performance rights and equity options held by the participant, whether vested or not, will lapse immediately on the participant ceasing to be employed.

A Qualifying Event means:

Death;
Serious injury, disability or illness which prohibits continued employment;
Retirement or retrenchment; or
Such other circumstances which the Board determines to be a Qualifying Event.

Where a participant in the LTIP scheme ceases to be employed by the Group as a result of a Qualifying Event, the Board may, in its absolute discretion, make a determination as to whether some or all of those performance rights or equity options become vested at the time of the cessation of employment of the participant or another date determined by the Board.

Restrictions on dealing in company securities

A senior executive or non-executive director in receipt of equity options must not sell, transfer, encumber, hedge or otherwise deal in equity options. A senior executive or non-executive director in receipt of LTI equity options will be free to deal with the shares allocated on vesting of those options, subject to the requirements of the Group’s policy for dealing in securities. In the event of a change of control, the Board has discretion to determine that the vesting of some or all of a non-vested performance rights and equity options should be accelerated. Any remaining unvested performance rights or options will immediately lapse.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Amounts of remuneration

Table 1: Remuneration for KMP for the years ended 30 June 2017 and 30 June 2016

	Short term	Short term	Short term		Post-employment	Post-employment	Equity-based	Equity-based	Total	Performance
	Salary & Fees	Cash Bonus	Non- monetary Benefits	Other^	Super- annuation Contributions	Retirement Benefits	Options	Shares
	$	$	$	$	$	$	$	$	$	%
Directors
Damien Lim –Chairman
2017	102,917	-	-	-	-	-	21,438	-	124,354	-
2016*	25,000	-	-	-	-	-	4,875	-	29,875	-
Albert Liong–Former Managing			Director and	CEO
2017	391,994	-	25,278	395,903	4,605	-	-	-	817,779	-
2016*	96,820	-	8,058	-	-	1,087	-	-	105966	-
Dr Nigel Finch
2017	53,750	-	-	-	-	-	21,438		75,188	-
2016	219,224	-	-	-	-	-	4,875	-	224,099	-
Nobuhiko Ito
2017	49,167	-	-	-	-	-	21,438	-	70,604	-
2016*	12,500	-	-	-	-	-	4,875	-	17,375	-
Wayne Spittle
2017	49,167	-	-	-	1,979	-	7,508	-	58,654	-
2016 **	12,500	-	-	-	-	-	-	-	12500	-
Sub-total	Directors
2017	646,994	-	25,278	395,903	6,584	-	71,821	-	1,146,579	-
2016	428,005	-	8,058	-	-	1,087	19,499	-	456,650	-

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Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

		Short	term		Post-employment	Post-employment	Equity-based payments	Equity-based payments	Total	Perform- ance related
	Salary & Fees	Cash Bonus	Non- monetary Benefits	Other	Superannu- ation Contributions	Retirement Benefits	Options	Shares
	$	$	$	$	$	$	$	$	$	%
Executives
Ravi Krishnan(i)
2017	300,495	-	-	-	15,534	-	20,671	-	336,701	-
2016	71,515	-	-	-	-	3,097	-	-	74,612	-
Mike Lampron(iI)
2017	60,686	-	5,442	-	-	-	-	-	66,128	-
2016	-	-	-	-	-	-	-	-	-	-
Jenni Pilcher
2017	300,000	135,000	-	-	41,325	-	61,154	15,000	552,479	27
2016	125,000	-	-	-	11,875	-	10,767	-	147,642	-
J. Eric Rice(i)
2017	265,182	-	22,139	-	5,304	-	20,671	-	313,296	-
2016	65,936	-	5,622	-	-	1,319	-	-	72,877	-
Sub-total Executives
2017	926,363	135,000	27,581	-	62,163	-	102,497	15,000	1,268,604	-
2016	262,451	-	5,622	-	11,875	4,416	10,767	-	295,131	-
Grand totals
2017	1,573,357	135,000	52,859	395,903	68,747	-	174,318	15,000	2,415,183	6
2016	690,456	-	13,680	-	11,875	5,503	30,266	-	751,781	-

(i) 1 April 2016 to 30 June 2016 reflecting period from acquisition of Mach7 to financial year end
(ii) From 27 March 2017 (commencement date)
from 8 April 2016 to 30 June 2016
** from 15 June 2016 to 30 June 2016
^ Termination benefits, including unused annual leave

The amounts included in Table 1 above in respect of options under the share based payments component of remuneration, represents the amortisation over the expected life of the option of the fair value of the option at date of grant. The fair value of the cash settled options is measured at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted.

Options provided as compensation

Table 2 below discloses the number of share options granted to executives during the current and prior financial years. Share options are options over ordinary shares in Mach7 Technologies Limited, do not carry any voting or dividend rights, and only can be exercised once the vesting conditions have been met until their expiry date.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Table 2: Compensation options: granted and vested during the year

			Fair value per
			option at	Exercise			Vested	Vested
2017	Granted (No.)	Grant date	grant date*	price*	Expiry date	Vesting date	(No.)	(%)
Directors
A. Wayne Spittle	125,000	9-Dec-16	24.6c	$1.00	9-Dec-21	9-Dec-18	-	-
Executives
Ravi Krishnan	340,000	27-Jan-17	23.6c	41c	27-Jan-22	27-Jan-18-20	-	-
Jenni Pilcher	340,000	27-Jan-17	23.6c	41c	27-Jan-22	27-Jan-18-20	-	-
J. Eric Rice	340,000	27-Jan-17	23.6c	41c	27-Jan-22	27-Jan-18-20	-	-
Total	1,145,000
2016
Directors
Damien Lim	125,000	8-Apr-16	34.3c	$1.00	8-Apr-21	8-Apr-18	-	-
Nobuhiko Ito	125,000	8-Apr-16	34.3c	$1.00	8-Apr-21	8-Apr-18	-	-
Dr Nigel Finch	125,000	8-Apr-16	34.3c	$1.00	8-Apr-21	8-Apr-18	-	-
Executives
Jenni Pilcher	100,000	8-Apr-16	30.2c	$1.00	8-Apr-20	8-Apr-17	100,000	100
Jenni Pilcher	100,000	8-Apr-16	34.3c	$1.00	8-Apr-21	8-Apr-18	-	-
Total	525,000						100,000

*In January 2017, the Company completed a reduction of its share capital on issue by a factor of 10. 2016 grants have been restated to reflect the holdings post the share capital consolidation. This means the options granted have been reduced by a factor of 10, and the fair value and exercise price have been increased by a multiple of 10.

Table 3 below provides information on the total value of options granted, exercised and forfeited by KMPs during the current financial year.

Table 3: Options granted as part of remuneration during the year

	Value of options granted	Value of options	Value of options forfeited
	duringtheyear	exercised duringtheyear	duringtheyear
	$	$	$
Directors
A. Wayne Spittle	27,000	-	-
Executives
Ravi Krishnan	80,172	-	-
Jenni Pilcher	80,172	-	-
J. Eric Rice	80,172	-	-
Total	267,516	-	-

Table 4 below provides information on relative proportion of the components of remuneration for KMPs for the both the current and prior financial years.

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Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Remuneration mix

The following table outlines the components of remuneration for each KMP:

Table 4: Relative percentages of remuneration and performance awards

	% Fixed	% Fixed	% Short-term	% Short-term	% Options/Shares	% Options/Shares	% STI	% STI
			Incentive (STI)				Awarded	Forfeited
	2017	2016	2017	2016	2017	2016	2017	2017
Directors
Damien Lim	83	84	-	-	17	16	-	-
Albert Liong	100	100	-	-	-	-	-	-
Dr Nigel Finch	71	98	-	-	29	2	-	-
Nobuhiko Ito	70	72	-	-	30	28	-	-
A. Wayne Spittle	87	100	-	-	13	-	-	-
Executives
Ravi Krishnan	94	100	-	-	6	-	-	-
Mike Lampron	100	na	-	na	-	na	-	-
Jenni Pilcher	62	93	27	-	11	7	100	-
J. Eric Rice	93	100	-	-	7	-	-	-

Equity holdings of KMP

Options over ordinary shares held in Mach7 Technologies Limited (number) by KMP as at 30 June 2017 are as follows:

Table 5: Option holdings of Key Management Personnel

	Balance at beginning of period	Granted as remuneration	Options exercised	Options forfeited	Balance at end of period	Vested at 30 June 2017
	No.	No.	No.	No.	No.	No.
2017	01-Jul-16				30-Jun-17
Directors
Damien Lim	125,000	-	-	-	125,000		-
Dr Nigel Finch	238,592	-	(71,166)	(42,426)	125,000		-
Nobuhiko Ito	125,000	-	-	-	125,000		-
A. Wayne Spittle	-	125,000	-	-	125,000		-
Executives
Ravi Krishnan	-	340,000	-	-	340,000		-
Jenni Pilcher	200,000	340,000	-	-	540,000	100,000
J. Eric Rice	-	340,000	-	-	340,000		-

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Directors’ Report

YEAR ENDED 30 JUNE 2017

Remuneration report (continued)

Ordinary shares held in Mach7 Technologies Limited (number) by KMP as at 30 June 2017 are as follows:

Table 6: Shareholding of Key Management Personnel

	Balance at beginning ofperiod*	Granted as remuneration	Issued on exercise of options	Issued as part of debt restructuring	Purchased at market value	Balance at end of period
	No.	No.	No.	No.	No.	No.
2017	01-Jul-16					30-Jun-17
Directors
Damien Lim#	-	-	-	-	250,000	250,000
Albert Liong	2,704,689	-	-	-	250,000	2,954,689
Dr Nigel Finch	361,432	-	71,166	-	250,000	682,598
Nobuhiko Ito	652,419	-	-	-	250,000	902,419
A. Wayne Spittle	-	-	-	-	250,000	250,000
Executives
Ravi Krishnan	5,780,561	-	-	-	-	5,780,561
Jenni Pilcher	-	41,668	-	-	250,000	291,668
J. Eric Rice	913,382	-	-	-	-	913,382

In addition to the shareholding of Mr Lim, 11,372,898 held by BV Healthcare II Pte Ltd, an investment fund of which Mr Lim is a Principal.

Shares issued on exercise of compensation options

There were no shares issued on exercise of options granted as compensation during the period (2016: Nil).

Other transactions with key management personnel and their related parties The Group entered into a consulting contract with Saki Partners for the period 10 June 2016 to 31 December 2016. Dr Nigel Finch, non-executive director of the Group, is a principal of Saki Partners. The contract covered the provision of the following services by Dr Nigel Finch:

Management of the Group’s media and investor relations in Australia
Recruitment and management of a medical advisory committee
Assisting the Group in obtaining funding from government grants; and
Identifying and engaging with the Group’s potential collaborative partners.

During the current financial year, the Group made payments totalling $30,000 to Saki Partners pursuant to the above consulting agreement. In addition, the Group made payments totalling $20,235 for accounting support services which were provided by an employee of Saki Partners.

Voting and comments made at the most recent Annual General Meeting ('AGM')

At the most recent AGM held by the Company in December 2016, the remuneration report for the year ended 30 June 2016 was adopted by shareholders on a unanimous show of hands. The company did not receive any specific feedback at the AGM regarding its remuneration practices.

This concludes the remuneration report which has been audited.

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Directors’ Report

YEAR ENDED 30 JUNE 2017

Shares under option

Unissued ordinary shares of Mach7 Technologies Limited under option at the date of this report, together with shares issued upon exercise of options, can be found in note 21 to the financial statements. There has been no change in options outstanding since 30 June 2017 and the date of this report.

Details of equity options granted to key management personnel and exercised during the year are set out in the Remuneration Report section of this report.

Insurance and indemnification of directors and officers

The Group has indemnified its directors and executives for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith.

During the financial year, the Group paid a premium in respect of a contract to insure the directors and executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

Indemnification of auditors

To the extent permitted by law the Group has agreed to indemnify it auditors, RSM Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify RSM Australia during or since the financial year.

Non-audit services

Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in Note 29 to the financial statements.

The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in note 29 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons:

All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and
None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 29.

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Mach7 Technologies Limited

Directors’ Report

YEAR ENDED 30 JUNE 2017

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001.

Directors Report signed in accordance with a resolution of the directors.

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Damien Lim Chairman

Signed at Singapore on 25 August 2017

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AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of Mach 7 Technologies Limited (“the Company”) and its controlled entities (“the Group”) for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.

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RSM AUSTRALIA PARTNERS

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R B MIANO

Partner

25 August 2017 Melbourne, Victoria

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Statement of Financial Position

AS AT 30 JUNE 2017

	CONSOLIDATED
Note	2017 2016
	$ $
ASSETS CURRENT ASSETS Cash and cash equivalents 9 Financial assets 10 Trade and other receivables 11 Other current assets 12 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Plant and equipment 13 Intangible assets 14 TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables 15 Deferred revenue 16 Financial liabilities 17 Interest bearing liabilities 18 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance leases 19 Deferred tax liability 20 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity 21 Reserves 22 Accumulated losses TOTAL EQUITY	2,684,225 1,718,511 100,000 211,227 4,814,753 2,066,735 297,399 436,082
	7,896,377 4,432,555 184,912 799,569 17,843,215 35,568,869
	18,028,127 36,368,438
	25,924,504 40,800,993
	1,755,447 964,016 2,855,480 2,367,797 20,000 267,274 12,358 2,992,802
	4,643,285 6,591,889 13,009 222,817 5,329,432 10,524,728
	5,342,441 10,747,545
	9,985,726 17,339,434
	15,938,778 23,461,559
	53,090,510 43,856,376 2,660,045 1,757,862 (39,811,777) (22,152,679)
	15,938,778 23,461,559

The above statement of financial position should be read in conjunction with the accompanying notes.

Page | 30

Mach7 Technologies Limited

Statement of Profit and Loss and Other Comprehensive Income

FOR THE YEAR ENDED 30 JUNE 2017

	CONSOLIDATED
Note	2017 2016
	$ $
Continuing operations Revenue from sales 5 Other income 6a Expenses Employee salaries, benefits & staff related expenses 6b Professional fees and consultancy expenses Referral & distributor fees & royalties Marketing expenses Travel and related expenses Rent and occupancy expenses General administration expenses Other expenses 6b Share based payment expense Impairment charge Depreciation and amortisation 6b Finance costs Loss from continuing operations before income tax Income tax benefit 7 Loss for the year Other comprehensive income 22 Total comprehensive loss for the year, net of tax, attributable to equity holders of the parent Earnings per share (cents per share) - Basic earnings/(loss) per share (cents) 8 - Diluted earnings/(loss) per share (cents) 8 Dividends per share (cents)	10,268,931 1,858,855 441,212 130,998 (10,307,258) (3,330,779) (1,071,180) (1,437,325) (856,564) (472,603) (847,724) (499,386) (679,156) (350,417) (380,847) (175,763) (439,856) (91,416) (350,049) (244,359) (454,495) (30,267) (11,675,171) (6,504,960) (6,262,660) (1,815,939) (239,578) (164,657)
	(22,854,395) (13,128,018) 5,195,297 498,535
	(17,659,098) (12,629,483) 447,688 (139,425)
	(17,211,410) (12,768,908)
	(16.3) (24.1) (16.3) (24.1) - -

The above statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes.

Page | 31

Mach7 Technologies Limited

FOR THE YEAR ENDED 30 JUNE 2017

Statement of Changes in Equity

	Share Capital Share Based Payments Reserve Foreign Exchange Translation Reserve Accumulated Losses Total Equity
CONSOLIDATED	$ $ $ $ $
At 1 July 2015 Loss for the year Other comprehensive income for the year Total comprehensive income for the year Capital raising costs Share based payments Issue of shares pursuant to exercise of options (non-employee) Issue of shares to employee Issue of shares in accordance with debt refinancing terms Issue of shares pursuant to capital raisings Issue of shares on acquisition of business Total as at 30 June 2016 Loss for the year Other comprehensive income for the year Total comprehensive income for the year Capital raising costs Share based payments Issue of shares for exercise of options (non-employee) Issue of shares pursuant to employee share plan Issue of shares in accordance with debt refinancing terms Issue of shares to repay debt Issue of shares pursuant to capital raisings Total as at 30 June 2017	11,078,442 1,541,442 - (9,523,196) 3,096,688 - - - (12,629,483) (12,629,483) - (20) (139,405) - (139,425)
	- (20) (139,405) (12,629,483) (12,768,908) (486,053) - - - (486,053) - 30,267 - - 30,267 79,514 - - - 79,514 166,774 325,578 - - 492,352 92,736 - - - 92,736 6,829,331 - - - 6,829,331 26,095,633 - - - 26,095,632
	43,856,376 1,897,267 (139,405) (22,152,679) 23,461,559 - - - (17,659,098) (17,659,098) - - 447,688 - 447,688
	- - 447,688 (17,659,098) (17,211,410) (553,710) - - (553,710) - 454,495 - - 454,495 480,370 - - - 480,370 15,000 - - - 15,000 284,082 - - - 284,082 2,088,392 - - - 2,088,392 6,920,000 - - - 6,920,000
	53,090,510 2,351,762 308,283 (39,811,777) 15,938,778

The above statement of changes in equity should be read in conjunction with the accompanying notes.

Page | 32

Mach7 Technologies Limited

Statement of Cash Flows

FOR THE YEAR ENDED 30 JUNE 2017

	CONSOLIDATED
Note	2017 2016
	$ $
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of finance paid Taxes paid Government grants Other receipts Net cash (used in) operating activities 24 Cash flows from investing activities Payment for plant and equipment Payment for other non-current assets Proceeds from sale of equipment Return of bank guarantee/funds held on deposit Loans made to other entities Cash disbursements for business acquisition costs Cash acquired through business acquisitions Cash transferred to deposits (maturity dates > 3 months) Net cash flows provided by / (used in) investing activities Cash flows from financing activities Borrowings repaid Payment for finance leases Proceeds from issues of shares, options etc Capital raising cost Net cash flows provided by financing activities Net increase/decrease) in cash and cash equivalents Net foreign exchange difference relating to cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 9	8,407,627 2,688,133 (13,837,427) (5,976,042) 37,551 21,976 (146,040) (99,644) - (2,929) 102,637 - 274,844 -
	(5,160,808) (3,368,506)
	(33,902) (479,960) (18,081) (88,000) 168,602 385,000 209,803 - - (3,422,130) - (986,416) - 236,622 (100,000) -
	226,422 (4,354,884)
	(737,087) - (118,807) - 7,400,370 6,942,278 (550,877) (193,560)
	5,993,599 6,748,718
	1,059,213 (974,672) (93,499) (58,237) 1,718,511 2,751,420
	2,684,225 1,718,511

The above statement of cash flows should be read in conjunction with the accompanying notes

Page | 33

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

Note	Title	Page
1	Corporate information	35
2	Summary of significant accounting policies	35
3	Financial risk management objectives and policies	52
4	Significant accounting judgements, estimates and assumptions	55
5	Segment information	57
6	Other income and expenses	60
7	Income tax	61
8	Earnings per share	61
9	Cash and cash equivalents	62
10	Financial Assets	62
11	Trade and other receivables	63
12	Other current assets	64
13	Property, plant and equipment	64
14	Intangible assets and goodwill	65
15	Trade and other payables	67
16	Deferred revenue	68
17	Financial liabilities	68
18	Interest bearing liabilities	68
19	Finance leases	69
20	Deferred tax liability	70
21	Contributed equity	70
22	Reserves	73
23	Related party disclosure	73
24	Cash flow statement reconciliation	74
25	Key management personnel	75
26	Share-based payment plan	77
27	Expenditure commitments	78
28	Contingent assets and liabilities	79
29	Auditors remuneration	79
30	Parent entity disclosure	80
31	Business Combinations	80
32	Subsequent events	82

Page | 34

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

1. CORPORATE INFORMATION

The financial report of Mach7 Technologies Limited (the “Company” or the “Parent”) for the year ended 30 June 2017 was authorised for issue in accordance with a resolution of the directors on 25 August 2017.

Mach7 Technologies Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange (ASX:M7T).

The nature of the operations and principal activities of Mach7 Technologies Limited and its consolidated entities (the “Group”) are described in the Directors’ Report.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has also been prepared on a historical cost basis.

For the purposes of preparing financial statements, Mach7 Technologies Limited is a for-profit entity.

The financial report is presented in Australian dollars unless otherwise stated.

Going Concern

As disclosed in the financial statements, the Group incurred a net loss after tax of $17.7 million, and adjusted earnings before interest and tax (adjusted EBITDA) loss of $4.2 million (refer note 5). The Group reported net cash outflows from operating activities of $5.2 million for the year ended 30 June 2017. As at 30 June 2017 the Group had net current assets of $3.3 million, which includes cash on hand of $2.7 million.

The positive net current asset balance as at 30 June 2017 is an important indicator that the Group will be able to continue as going concern. However, the adjusted EBITDA loss for the year and negative outflows from operations are also important factors which indicate material uncertainty as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

The Directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, subject to the Group being successful in:

converting its trade and other receivables balance ($4.8 million) to cash in the coming year;
securing projected new revenue contracts as per its budget and cash forecast for the next financial year; and
managing its operating expenditures prudently and in line with its budget for the next financial year.

Accordingly, the Directors believe it is appropriate to adopt the going concern basis in the preparation of the financial report. As such, the financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the group does not continue as a going concern.

Page | 35

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The financial report does not include any adjustments relating to the amounts or classification of recorded assets or liabilities that might be necessary if the consolidated entity does not continue as a going concern.

(a) Compliance with IFRS

The financial report complies with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

Changes in accounting policy and disclosures

The group has applied AASB 2014-1 Amendments to Australian Accounting Standards for the first time for their annual reporting period commencing 1 July 2016. The adoption of AASB 2014-1 has required additional disclosures in the segment note. Other than that, the adoption of this standard did not have any impact on the current period or any prior period and is not likely to affect future periods.

(b) New accounting standards and interpretations

Changes in Accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year except as follows:

The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations as of 1 July 2016. Adoption of these standards did not have any material effect on the financial position or performance of the Group. The necessary disclosures have been updated to reflect amended accounting standards.

accounting standards.
Standard & Title	Application date of standard	Application date for Group
AASB 1057 Application of Australian Accounting Standards	1 January 2016	1 July 2016
This Standard lists the application paragraphs for each other Standard (and Interpretation), grouped where they are the same. Accordingly, paragraphs 5 and 22 respectively specify the application paragraphs for Standards and Interpretations in general. Differing application paragraphs are set out for individual Standards and Interpretations or grouped where possible. The application paragraphs do not affect requirements in other Standards that specify that certain paragraphs apply only to certain types of entities.

Standard & Title	Application date of standard	Application date for Group
AASB 2015-9 Amendments to Australian Accounting Standards – Scope and Application Paragraphs [AASB 8, AASB 133 & AASB 1057]	1 January 2016	1 July 2016
This Standard inserts scope paragraphs into AASB 8 and AASB 133 in place of application paragraph text in AASB 1057. This is to correct inadvertent removal of these paragraphs during editorial changes made in August 2015. There is no change to the requirements or the applicability of AASB 8 and AASB 133.

Page | 36

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Standard & Title	Application date of standard	Application date for Group
AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle	1 January 2016	1 July 2016
The subjects of the principal amendments to the Standards are set out below: AASB 7 Financial Instruments: Disclosures: • Servicing contracts – clarifies how an entity should apply the guidance in paragraph 42C of AASB 7 to a servicing contract to decide whether a servicing contract is ‘continuing involvement’ for the purposes of applying the disclosure requirements in paragraphs 42E–42H of AASB 7. Applicability of the amendments to AASB 7 to condensed interim financial statements – clarify that the additional disclosure required by the amendments to AASB 7 Disclosure–Offsetting Financial Assets and Financial Liabilities is not specifically required for all interim periods. However, the additional disclosure is required to be given in condensed interim financial statements that are prepared in accordance with AASB 134 Interim Financial Reporting when its inclusion would be required by the requirements of AASB 134. AASB 119 Employee Benefits: • Discount rate: regional market issue – clarifies that the high quality corporate bonds used to estimate the discount rate for post- employment benefit obligations should be denominated in the same currency as the liability. Further it clarifies that the depth of the market for high quality corporate bonds should be assessed at the currency level.

Standard & Title	Application date of standard	Application date for Group
AASB 2015-2 Amendments to Australian Accounting	1 January 2016	1 July 2016
Standards – Disclosure Initiative: Amendments to AASB
101

The Standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB’s Disclosure Initiative project. The amendments are designed to further encourage companies to apply professional judgment in determining what information to disclose in the financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. The amendments also clarify that companies should use professional judgment in determining where and in what order information is presented in the financial disclosures.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Standard & Title	Application date of standard	Application date for Group
AASB 2014-4 Clarification of Acceptable Methods of	1 January 2016	1 July 2016
Depreciation and Amortisation (Amendments to AASB 116
and AASB 138)

AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset.

The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.

(ii) Accounting Standards and interpretations issued but not yet effective

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2017. These are outlined in the tables below.

outlined in the tables below.
Standard & Title	Application date of	Impact on Group	Application date for
	standard	financial report	Group
AASB 9 Financial Instruments	1 January 2018	No impact	1 July 2018

The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income (‘OCI’). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity’s own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an ‘expected credit loss’ (‘ECL’) model to recognise an allowance. Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The Group will adopt this standard from 1 July 2018.

Page | 38

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Standard & Title	Application date of	Impact on Group financial report	Application date for
	standard		Group
AASB 15 Revenue from Contracts with	1 January 2018	The Group will continue to assess	1 July 2018
Customers		the impact on the change in
		standard, if any

AASB 15 specifies the accounting treatment for revenue arising from contracts with customers (except for contracts within the scope of other accounting standards such as leases or financial instruments). The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps:

Identify the contract(s)
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognise revenue when (or as) the entity satisfies a performance obligation

AASB 2015-8 amended the AASB 15 effective date so it is now effective for annual reporting periods commencing on or after 1 January 2018. Early application is permitted.

AASB 2014-5 incorporates the consequential amendments to a number Australian Accounting Standards (including Interpretations) arising from the issuance of AASB 15.

AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15 amends AASB 15 to clarify the requirements on identifying performance obligations, principal versus agent considerations and the timing of recognising revenue from granting a licence and provides further practical expedients on transition to AASB 15.

Standard & Title	Application date of standard	Impact on Group financial report	Application date for Group
2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses[AASB 112]	1 January 2017	The Group will amend the future financial reports to comply with AASB 2016-1	1 July 2017
This Standard amends AASB 112 Income Taxes (July 2004) and AASB 112 Income Taxes (August 2015) to clarify the requirements on recognition of deferred tax assets for unrealised losses on debt instruments measured at fair value.

Page | 39

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Standard & Title	Application date of	Impact on Group	Application date for
	standard	financial report	Group
AASB 16 Leases	1 January 2019	No material impact	1 July 2019

The key features of AASB 16 are as follows:

Lessee accounting
Lessees are required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.
A lessee measures right-of- use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities.
Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease.
AASB 16 contains disclosure requirements for lessees.
Lessor accounting
AASB 16 substantially carries forward the lessor accounting requirements in AASB 117. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
AASB 16 also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk.
AASB 16 supersedes:
a) AASB 117 Leases
b) Interpretation 4 Determining whether an Arrangement contains a Lease
c) SIC-15 Operating Leases — Incentives

Standard & Title	Application date of standard	Impact on Group financial report	Application date for Group
IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions [Amendments to IFRS 2]	1 January 2018	The Group will amend the future financial reports to comply with IFRS 2	1 July 2018
This standard amends IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: • The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments • Share-based payment transactions with a net settlement feature for withholding tax obligations A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

Page | 40

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

c) Basis of consolidation

The consolidated financial statements comprise the financial statements of Mach7 Technologies Limited and its subsidiaries (the Group) as at 30 June each year.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of profit and loss and other comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies.

The financial statements of the subsidiaries are prepared using consistent accounting policies as that of the parent company, Mach7 Technologies Limited. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

Investments in subsidiaries held by Mach7 Technologies Limited are accounted for at cost in the parent entity less any impairment charges.

d) Business combinations

Business combinations are accounted for using the acquisition method. The acquisition method of accounting involves recognising at acquisition date, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

Page | 41

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured.

The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any noncontrolling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the preexisting fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisitiondate, but only after a reassessment of the identification and measurement of the net assets acquired, the noncontrolling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer.

e) Segment reporting

An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team.

The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects:

Nature of the products and services;
Nature of the production processes;
Type or class of customer for the products and services;
Methods used to distribute the products or provide the services; and if applicable
Nature of the regulatory environment;

Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”.

Page | 42

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Foreign currency translation

Functional and presentation currency

The Group’s consolidated financial statements are presented in Australian dollars, which is also the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities are denominated in foreign currencies are retranslated at the rate of exchange ruling at the statement of financial position date. All differences arising on settlement or translation of monetary items are taken to the income statement.

Translation of group companies’ functional currency to presentation currency

As at the reporting date, the assets and liabilities of Mach7 Technologies Inc. and Mach7 Technologies Pte. Ltd are translated into the presentation currency of Mach7 Technologies Limited at the rate of exchange ruling at the reporting date and its statement of profit and loss and other comprehensive income is translated at the weighted average exchange rate for the year. The exchange differences arising on translation for consolidation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement.

(g) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and shortterm deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(h) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

Collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable.

i) Investments and other financial assets

Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. They are subsequently measured at either amortised cost or fair value depending on their classification. Classification is determined based on the purpose of the acquisition and subsequent reclassification to other categories is restricted.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are either: i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit; or ii) designated as such upon initial recognition, where they are managed on a fair value basis or to eliminate or significantly reduce an accounting mismatch. Except for effective hedging instruments, derivatives are also categorised as fair value through profit or loss. Fair value movements are recognised in profit or loss.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets (principally equity securities) that are either designated as available-for-sale or not classified as any other category. After initial recognition, fair value movements are recognised in other comprehensive income through the available-for-sale reserve in equity. Cumulative gain or loss previously reported in the available-for-sale reserve is recognised in profit or loss when the asset is derecognised or impaired.

Impairment of financial assets

The consolidated entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes significant financial difficulty of the issuer or obligor; a breach of contract such as default or delinquency in payments; the lender granting to a borrower concessions due to economic or legal reasons that the lender would not otherwise do; it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; the disappearance of an active market for the financial asset; or observable data indicating that there is a measurable decrease in estimated future cash flows.

The amount of the impairment allowance for financial assets carried at cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for similar financial assets.

Available-for-sale financial assets are considered impaired when there has been a significant or prolonged decline in value below initial cost. Subsequent increments in value are recognised in other comprehensive income through the available-for-sale reserve.

(j) Property, plant and equipment

Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if the recognition criteria are met. All other repairs and maintenance are recognised in profit or loss as incurred.

Asset class	Estimated life	Depreciation method
3D Printer	3 years	Straight line
Computer equipment	2 years	Diminishing value
Leasehold improvements	5 years	Straight line
Furniture	10 years	Diminishing value
Office equipment	5 years	Straight line
Software	2.5 years	Straight line

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

De-recognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

(k) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group as a lessee

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of profit and loss and other comprehensive income on a straight-line basis over the lease term. Operating lease incentives are recognised in the statement of profit and loss and other comprehensive income as an integral part of the total lease expense.

Conversely, leases where the lessee retains substantially all the risks and benefits of ownership of the asset are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

(l) Impairment of non-financial assets other than goodwill

Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Group conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). An impairment loss recognised in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss.

Page | 45

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(m) Goodwill and intangibles

Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cashgenerating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Impairment losses recognised for goodwill are taken to the profit or loss and are not subsequently reversed.

Intangibles

Intangible assets acquired separately are initially measured at cost. Intangible asset acquired in a business combination are initially measured at their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful life of between five and seven years and tested for impairment whenever there is an indication that the intangible asset may be impaired (see note 4 for methodology). The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cashgenerating unit level consistent with the methodology outlined for goodwill above. Such intangibles are not amortised.

Page | 46

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.

Software development costs

Software development costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related projects.

(n) Trade and other payables

Trade payables and other payables are carried at amortised cost due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. These amounts are unsecured and are usually paid within 30 days of recognition.

(o) Provisions and employee benefits

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date using a discounted cash flow methodology.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs.

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

Superannuation expense

Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.

Page | 47

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Long service leave

The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expect future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on the applicable corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

(p) Share-based payment transactions

The Company provides benefits to employees (including key management personnel) in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equitysettled transactions). Details of the executive and staff incentive plan are set out in the Remuneration Report.

The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value measured at grant date takes into account market performance conditions only, and spread over the vesting period during which the employees become unconditionally entitled to the options.

The cost of equity-settled transactions is recognised as an expense, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At each subsequent reporting date until vesting, the cumulative charge to the statement of profit and loss and other comprehensive income is the product of:

(i) the grant date fair value of the award;
(ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and
(iii) the expired portion of the vesting period.
This opinion is formed based on the best available information at balance date.

Equity-settled awards granted by Mach7 Technologies Limited to employees of subsidiaries are recognised in the parent’s separate financial statements as an additional investment in the subsidiary with a corresponding credit to equity. As a result, the expense recognised in Mach7 Technologies Limited in relation to equity-settled awards only represents the expense associated with grants to employees of the parent. The expense recognised by the Group is the total expense associated with all such awards.

Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are settled. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the sharebased payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

Page | 48

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

If an equity award is cancelled by forfeiture and the vesting conditions have not been met, any expense not yet recognised (i.e. unamortised) for that award, as at the date of forfeiture, is treated as if it had never been recognised. As a result, the expense recognised (i.e. amortised) on such cancelled equity awards are reversed from the accounts effective as at the date of forfeiture.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(q) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

r) Revenue recognition

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Software licence revenue

Software license revenue is recognised when control of the right to compensation for the license can be reliably measured, and when the software has been delivered and is available for use by the customer.

Revenue generated from pay-per-use contracts are recognised based on the number of images managed by the software at the appropriate contracted rate.

Revenue from the provision of services

Revenue recognition relating to software installation and annual support is determined with reference to the stage of completion of the transaction at reporting date and where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Software annual support revenues are recognised evenly over the term of the contract.

Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent that costs have been incurred.

Revenue from the sale of goods

Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and cessation of all involvement in those goods.

Page | 49

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Interest revenue

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

(s) Income tax and other taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except when:

The deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The taxable temporary difference is associated with investments in subsidiaries and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilised, except when:

The deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Page | 50

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except when:

The GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable
Receivables and payables are stated with the amount of GST included

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(t) Earnings per share

Basic earnings per share is calculated as net profit or loss attributable to members of the parent and divided by the weighted average number of ordinary shares outstanding during the financial year, adjusted for any bonus element.

Diluted earnings per share is calculated as net profit or loss attributable to members of the parent, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

u) Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on current and non-current classifications.

An asset is current when it is:

expected to be realised or intended to be sold or consumed in the normal operating cycle
held primarily for the purpose of trading
expected to be realised within twelve months after the reporting period, or
cash or cash equivalents, unless restricted from being exchanged or used to settle a liability for at least 12 months after the end of the current reporting period

A liability is current when:

It is expected to be settled within the normal operating cycle
It is held primarily for the purpose of trading
It is due to be settled within twelve months after the reporting period, or
There is no unconditional right to defer the settlement of the liability for at least twelve months after the end of the current reporting period

Page | 51

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Group classifies all liabilities not mentioned above as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities in accordance with accounting standards.

(v) Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.

(w) Fair value measurement

When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise receivables, payables, cash and short-term deposits.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts.

The Board, through the Audit and Risk Management Committee, reviews and agrees policies for managing each of these risks as summarised below. This includes the setting of limits of concentration risks with any one financial institutions, credit rate limits and future cash flow forecast projections.

Risk Exposure and Responses

Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the income earned on the Group’s cash and short term deposits of various deposit terms.

At 30 June 2017, the Group’s cash and cash equivalents comprised of deposits on call and foreign currency accounts.

Page | 52

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The Group’s policy to manage its interest rate risk, given its dependence on cash and cash equivalents is to keep maturities short generally using 30-90 bank bills and short term money market facilities. The Group constantly analyses its interest rate exposure with respect to renewal of existing positions, alternative investment opportunities / facilities and whether to consider a mix of fixed and variable instruments.

At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that are not designated as cash flow hedges:

interest rate risk that are not designated as cash flow hedges:
	CONSOLIDATED 2017 2016 $ $ 1,366,231 60,137 1,317,994 1,658,374 100,000 - 2,784,225 1,718,511


Financial assets Deposits at call Cash and cash equivalents Term deposit (maturity date > 3 months after 30 June 2017)
Sensitivity analysis Profitability (post-tax) higher/(lower)	Equity (excluding accumulated losses) higher/(lower)
2017 2016 2017 2016
Judgement of reasonably possible movements: $ $ $ $
Consolidated Interest rate strengthens +0.25% or 25 basis points (2016: +0.25% or 25 basis points) 6,961 4,296 - - Interest rate weakens –1% or 100 basis points (2016: -1% or 100 basis points) (27,842) (17,185) - -

The Group believes that the carrying amount approximates fair value because of their short term to maturity.

Significant assumptions used in the interest rate sensitivity analysis include:

Reasonably possible movements in interest rates were determined based on economic forecaster’s expectations.
The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date.

Foreign currency risk

The Group has transactional currency exposure. Such exposure arises from purchases by the Group in currencies other than the functional currency and through foreign currency receipts in the form of milestone, profit share or expense reimbursements under the Group’s various collaborations. Generally, the Group does not use financial instruments to hedge the foreign exchange exposure.

Page | 53

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

The Group’s exposure to foreign currency risk at the reporting date that are not designated in cash flow hedges was as follows:

was asfollows:
	CONSOLIDATED
	2017 2016
	$ $
Financial Assets Cash and cash equivalents – held in USD Cash and cash equivalents – held in SGD Cash and cash equivalents – held in INR Total cash and cash equivalents held in foreign currency Accounts receivable – denominated in USD Accounts receivable – denominated in SGD Accounts receivable – denominated in GBP Total debtors denominated in foreign currency Financial Liabilities Trade and other payables – denominated in USD Trade and other payables – denominated in SGD Trade and other payables – denominated in GBP Total trade and other payables denominated in foreign currency Loan from Directors/Shareholder – USD Net exposure – USD Net exposure – SGD Net exposure – INR Net exposure – GBP Net exposure	960,081 374,539 24,829 16,200 20,492 40,615
	1,005,402 431,354
	1,509,396 891,149 82,473 17,741 40,809 211,347
	1,632,678 1,120,237
	169,021 198,280 890 - - 14,485
	169,911 212,765

	- 2,876,135
	2,300,456 (1,808,727) 106,412 33,941 20,492 40,615 40,809 196,862
	2,468,169 (1,537,309)

Based on the financial instruments held at 30 June 2017, had the Australian dollar strengthened/weakened by 10% against the above currencies, with all other variables held constant, the Group’s post-tax loss for the year would have been (reduced)/increased by:

Sensitivity analysis	Profitability (post-tax) higher/(lower) Equity (excluding accumulated losses) higher/(lower)
Consolidated	2017 2016 2017 2016
	$ $ $ $
AUD strengthens +10% (2016: +10%) AUD weakens-10% (2016: -10%)	224,379 139,735 - - (274,241) (170,812) - -

Page | 54

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Risk Exposure and Responses (continued)

Management believes the balance date risk exposures are representative of the risk exposure inherent in those financial instruments.

Significant assumptions used in the foreign currency exposure sensitivity analysis include:

Reasonably possible movements in foreign exchange rates were determined based on a review of the historical movements and economic forecaster’s expectations.
The reasonably possible movement of 10% was calculated by taking the USD/EUR spot rate as at balance date, moving this spot rate by 10% and then re-converting the USD/EUR into AUD with the “new spotrate”.
This methodology reflects the translation methodology undertaken by the Group.

Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, short term deposits, trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

The Group does not hold any credit derivatives to offset its credit exposure.

The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trades and other receivables.

There are no significant concentrations of credit risk within the Group and financial instruments are spread amongst a number of financial institutions to minimise the risk of default of counterparties.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of project research utilising an optimal combination of equity funding, finance and operating lease commitments.

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities.

The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows and matching maturity profiles in financial assets and liabilities.

4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Page | 55

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

(i) Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated.

(ii) Impairment of intangibles with definite useful lives

The Group assesses impairment of intangibles with definite useful lives at each reporting date by evaluating conditions specific to the Group and to the particular intangibles that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves value in use calculations, which incorporate a number of key estimates and assumptions. The periodic impairment review of intangibles (both with definite and indefinite lives) and goodwill, in the first instance is based upon an assessment of market changes in technology which may have a negative impact on the Groups software technology making it potentially uncompetitive or obsolete.

(iii) Estimation of useful lives of assets

The consolidated entity determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

(iv) Share-based payment transactions

The Group measures the cost of equity-settled share-based payments at fair value at the grant date using the Black-Scholes formula taking into account the terms and conditions upon which the instruments were granted.

(v) Employee benefits provision

As discussed in note 1, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account.

(vi) Business combinations

As discussed in note 1, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

5. SEGMENT INFORMATION

The business operations of Mach7 Technologies is the commercialisation and sale of medical imaging software, predominantly throughout the United States, Asia-pacific, and the Middle East region. The operational segments of this business are determined with reference to how revenue is generated, that is, from software license fees, provision of services to customers and other segments. Services provided to customers includes customer training, software installation services, and maintenance and support services. Other segments includes 3D medical printing operations, however this business was divested in the fourth quarter of 2017.

Segment revenues

Segment revenues
	CONSOLIDATED
	2017 2016*
	$ $
Product segment revenues Software licenses Professional services & maintenance services Other segments Geographical segment revenues United States Asia/Pacific Middle East Other	6,227,882 971,379 4,013,133 684,120 27,916 203,356
	10,268,931 1,858,855
	6,781,754 1,218,349 530,499 596,014 2,658,006 44,492 298,673 -
	10,268,931 1,858,855

*includes Mach7 operations for one quarter only, since acquisition date April 2016.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

5. SEGMENT INFORMATION (continued)

Segment Adjusted Earnings before Interest, Tax, Depreciation & Amortisation (Adjusted EBITDA) Adjusted EBITDA is determined using segment revenues, less segment operating expenditures. It does not include certain other income and other expenditure items which are detailed in the reconciliation to net loss for the year, after tax.

	CONSOLIDATED
	2017 2016*
	$ $
Segment adjusted EBITDA Software licenses Professional services & maintenance services Other segments Reconciliation to net loss after tax Segment adjusted EBITDA Administration^ Net other income/(other expenses) – excluding interest income Group adjusted EBITDA Share based payments expense Amortisation expense Depreciation expense Impairment charge Finance & interest costs Income tax benefit Net loss after tax	169,646 (805,095) 1,227,907 (126,661) (426,005) (677,809)
	971,548 (1,609,565)
	971,548 (1,609,565) (5,285,202) (2,889,268) 91,163 (113,362)
	(4,222,491) (4,612,195)
	(454,495) (30,267) (6,066,261) (1,664,091) (196,399) (151,848) (11,675,171) (6,504,960) (239,578) (164,657) 5,195,297 498,535
	(17,659,098) (12,629,483)

*includes Mach7 operations for one quarter only, since acquisition date April 2016.

^Administration expenses are not allocated to a particular operating segment, but are rather reviewed by management according to the type of expense. This

category includes expenses related to corporate/head office, ASX and governance, compliance costs (audit, tax etc), certain executive management costs, and occupancy costs.

Page | 58

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

5. SEGMENT INFORMATION (continued)

	CONSOLIDATED
	2017 2016
	$ $
Segment assets – by product Software licenses Professional services & maintenance services Other segments Reconciliation to group assets Segment assets	3,565,232 1,182,747 1,123,365 746,019 1,301 12,874
	4,689,898 1,941,640
	4,689,898 1,941,640 2,684,225 1,718,511 100,000 211,227 193,689 125,095 228,565 436,082 184,912 799,569 17,843,215 35,568,869
Cash
Financial assets
Other receivables
Prepayments and deposits
Fixed assets
Intangible assets
Geographical non-current assets	25,924,504 40,800,993
	218,087 196,504 45,268 221,369
United States
Asia/Pacific
Segment liabilities – by product Software licenses Professional services & maintenance services Other segments Reconciliation to group liabilities	263,355 417,873
	(534,620) (128,027) (2,829,479) (2,351,638) - -
	(3,364,099) (2,479,665)
	(3,364,099) (2,479,665) (1,246,829) (852,149) (20,000) (267,274) (5,354,798) (13,740,346)
Segment liabilities
Trade payables & accruals*
Financial liabilities – current
Non-current liabilities
	(9,985,726) (17,339,434)

*Trade payables and accruals relate predominantly to administration items.

Page | 59

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

6a. OTHER INCOME

	CONSOLIDATED
	2017 2016
	$ $
Other income Rental income (sub-tenancy) Sale of 3D printer asset, previously subject to finance lease Interest income R&D tax refund revenue Gain on sale of fixed assets (net of losses) Other revenues Government grants	131,566 108,261 130,113 - 41,688 22,008 96,806 - 22,921 - 11,038 - 7,080 729 441,212 130,998

6b. EXPENDITURE

	CONSOLIDATED
	2017 2016
	$ $
Other expenses Foreign exchange losses Doubtful debts since collected Doubtful debts provided for Employee salaries, benefit and staff related expenses Salaries, wages & bonuses Defined contribution plan expense (superannuation) Workers compensation costs Annual leave provision Payroll and fringe benefit tax Other employee benefits expense Contractors and other employment related expenses Directors fees Depreciation and amortisation Amortisation of intangible assets Depreciation of property, plant and equipment	439,323 237,907 (323,373) - 234,099 6,453
	350,049 244,359
	7,385,990 2,184,085 765,661 78,936 15,839 3,770 30,353 77,624 487,676 121,479 701,016 426,103 683,302 - 237,421 438,782
	10,307,258 3,330,779
	6,066,261 1,664,091 196,399 151,848
	6,262,660 1,815,939

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

7. INCOME TAX

	CONSOLIDATED
	2017 2016
	$ $
(a) Income tax expense The major components of income tax expense are: Current income tax on profits (Increase) / decrease in deferred tax assets (Decrease) / increase in deferred tax liabilities Income tax benefit (b) Reconciliation of prima-facie tax payable to income tax expense Loss from continuing operations before income tax expense Tax benefit at the Australian statutory income tax rate of 30% (2016: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Impairment expense related to goodwill Amortisation expense (patents only) Foreign exchange expense Interest expense Sub-total Tax losses utilised – current year Tax losses not recognised Differences in local tax rates Income tax expense/(benefit)	- - - - (5,195,297) (498,535)
	(5,195,297) (498,535)
	(22,854,395) (13,128,018) (6,856,318) (3,938,405) 124,430 1,951,488 3,504 692 67,775 - 26,175 -
	(6,634,434) (1,986,225) (210,340) - 2,078,652 1,487,690 (429,175) -
	(5,195,297) (498,535)

(c) Unused tax losses

The Group has gross tax losses of $39,161,300 (2016: $34,951,091) arising in Australia, US, India and Singapore that are available indefinitely for offset against future taxable profits of the companies in which the losses arose, subject to satisfying the relevant income tax loss carry forward rules. The Group is investigating the potential to utilise prior year tax losses associated with all of its subsidiaries.

(d) Deferred tax liabilities

The Group has recognised a deferred tax liability of $5,329,432 (2016: $10,524,728) as a result of the acquisition of Mach7 Technologies Pte. Ltd during the year in accordance with AASB112 Income Taxes. Refer to notes 20 and 31 for further details on this acquisition.

8. EARNINGS PER SHARE

8. EARNINGSPERSHARE
	2017	2016
Loss per share – basic (cents)	16.3c	24.1c
Lossper share – diluted(cents)	16.3c	24.1c

Basic earnings per share is calculated by dividing the net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

8. EARNINGS PER SHARE (continued)

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

share:
	2017 2016
	$ $
Net loss used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share Options Weighted average number of ordinary shares used in calculating diluted earnings per share	(17,659,098) (12,629,483)
	Number ofShares
	108,482,657 52,431,582 - -
	108,452,657 52,431,582

The options are considered non-dilutive as the Group has incurred a loss from ordinary operations for both the current and prior years. Refer note 21 for further details on the current outstanding and issued share capital.

During the current financial year, the Group executed a share consolidation program at 10 for 1. The weighted average number of ordinary shares for 2016 has been restated. The earnings per share for 2016 on a like for like basis is a loss of 24.1 cents (previously 2.4 cents).

9. CASH AND CASH EQUIVALENTS

	CONSOLIDATED
	2017 2016
	$ $
Cash at bank and on hand Cash on call deposits	1,317,994 1,658,374 1,366,231 60,137
	2,684,225 1,718,511

Cash on call deposits are for varying periods of between one day and three months, depending on the immediate cash requirement of the Group, and earn interest at the respective cash on call deposit rates.

10. FINANCIAL ASSETS

	CONSOLIDATED
	2017 2016
	$ $
Restricted cash (bank guarantee)* Cash held on term deposit at bank	- 211,227 100,000 -
	100,000 211,227

*In 2016, an amount of US$156,250 was held in a separate bank account to guarantee payment to a local distributor for successful supply and implementation of Mach7 enterprise imaging platform software solution, together with one year’s annual support. This was returned to the Company in the current financial year.

Page | 62

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

11. TRADE AND OTHER RECEIVABLES

11. TRADE AND OTHER RECEIVABLES
	CONSOLIDATED
	2017 2016
(a) Balances	$ $
Trade receivables(i) Less provision for doubtful debts Accrued revenue(ii) Goods and services tax receivable Other receivables Interest receivable	1,837,340 1,506,095 (231,188) (360,378) 2,941,796 920,912 10,575 - 253,649 - 2,579 -
	4,814,753 2,066,735

(i) Trade receivables typically have 30-45 day payment terms;
(ii) Accrued revenue represents software license fees which have been recognised as revenue which are yet to be invoiced to the customer in accordance with the payment terms pursuant to the customer contract

(b) Impaired balances

The consolidated entity has recognised a loss of $231,188 (2016: 360,378) in profit or loss in respect of impairment of receivables for the year ended 30 June 2017. The ageing of the impaired receivables provided for above are as follows:

above are as follows:
	CONSOLIDATED
	2017	2016
	$	$
Up to 3 months	231,188	-
3 to 6 months	-	-
>6months	-	360,378

(c) Movement in provision for doubtful debts

(c) Movement in provision for doubtful debts
	CONSOLIDATED
	2017 2016
	$ $
Opening balance Additional provisions recognised during the year Amounts received during the year Acquired as part of a business combination	360,378 - 231,188 - (360,378) - - 360,378
	231,188 360,378

(d) Past due but not impaired

The ageing of the past due but not impaired receivables are as follows:

Amounts received during the year Acquired as part of a business combination (d) Past due but not impaired The ageing ofthe past due butnotimpairedreceivables are asfollows:	(360,378) - - 360,378 231,188 360,378
	CONSOLIDATED
	2017 2016
	$ $
Up to 3 months 3 to 6 months > 6 months	659,355 153,369 291,298 375,095 90,118 78,885
	1,040,771 607,349

The consolidated entity did not consider a credit risk on the aggregate balances above after reviewing the credit terms of customers based on recent collection practices.

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

12. OTHER CURRENT ASSETS

	CONSOLIDATED
	2017 2016
	$ $
Security deposits Prepayments Deferred commission expense	61,501 62,513 167,065 373,569 68,833 -
	297,399 436,082

13. PROPERTY, PLANT AND EQUIPMENT

	Quality Manage ment System 3D Printers Office Equip- ment Computer Hardware & Software Leasehold Improve- ments TOTAL
CONSOLIDATED	$ $ $ $ $ $
2017 Cost Accumulated depreciation Net carrying value at 30 June 2017 Movement in carrying value At 1 July 2016 Additions Disposals Depreciation expense Foreign exchange revaluations Net carrying value at 30 June 2017 2016 Cost Accumulated depreciation Net carrying value at 30 June 2016 Movement in carrying value At 1 July 2015 Additions Acquired through business acquisition Disposals Depreciation expense Foreign exchange revaluations Net carrying value at 30 June 2016
	- - 137,670 340,145 5,847 483,662
	- - (75,534) (220,691) (2,525) (298,750)
	- - 62,136 119,454 3,322 184,912


	80,000 335,988 73,640 158,931 151,010 799,569
	- - 3,638 69,080 - 72,718
	(80,000) (262,358) - (7,155) (137,592) (487,105)
	- (73,630) (14,063) (98,755) (9,951) (196,399)
	- - (1,079) (2,647) (145) (3,871)
	- - 62,136 119,454 3,322 184,912
	80,000 402,148 138,146 476,944 237,351 1,334,589 - (66,160) (64,506) (318,013) (86,341) (535,020)
	80,000 335,988 73,640 158,931 151,010 799,569
	- 398,547 24,854 65,222 33,941 522,563 80,000 3,601 22,614 54,995 131,198 282,118 - - 33,853 97,080 5,403 136,336 - - - - - - - (66,160) (7,681) (58,366) (19,641) (151,848) - - - - 110 110
	80,000 335,988 73,640 158,931 151,010 799,569

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

14. INTANGIBLE ASSETS AND GOODWILL

	Patents Goodwill Customer Contracts Brand Names Software Intellectual Property TOTAL
CONSOLIDATED	$ $ $ $ $ $
2017 Cost Accumulated amortisation Net carrying value Movement in carrying value Balance at 1 July 2016 Impairment charges Amortisation expense Additions Foreign exchange Balance at 30 June 2017 2016 Cost Accumulated amortisation Net carrying value Movement in carrying value Balance at 1 July 2015 Additions for the year (net) Acquired as part of business combination Impairment charge Amortisation expense Balance at 30 June 2016
	963,719 0 8,824,764 1,557,975 14,465,116 25,811,634
	(286,460) 0 (2,911,515) (463,845) (4,306,599) (7,968,419)
	677,319 0 5,913,249 1,094,130 10,158,517 17,843,215


	1,276,633 414,768 8,117,070 2,504,763 23,255,635 35,568,869
	(569,007) (414,768) - (1,039,557) (9,651,839) (11,675,171)
	(46,085) - (2,203,821) (371,076) (3,445,279) (6,066,261)
	18,080 - - - - 18,080
	(2,302) - - - - (2,302)
	677,319 0 5,913,249 1,094,130 10,158,517 17,843,215
	1,529,735 414,768 8,824,764 2,597,532 24,116,955 37,483,754 (253,102) - (707,694) (92,769) (861,320) (1,914,885)
	1,276,633 414,768 8,117,070 2,504,763 23,255,635 35,568,869
	- - - - - - 13,405 - - - - 13,405 1,265,536 6,919,728 8,824,764 2,597,532 24,116,955 43,724,515 - (6,504,960) - - - (6,504,960) (2,308) - (707,694) (92,769) (861,320) (1,664,091)
	1,276,633 414,768 8,117,070 2,504,763 23,255,635 35,568,869

Impairment Testing

The Group has recognised individual intangible assets (patents, software, customer contracts and brands) and goodwill as a result of the acquisition of Mach7 Technologies Group. The recoverable amount of each individual intangible asset acquired, and the Group’s goodwill, has been determined by a value-in-use calculation using a discounted cash flow model. The goodwill has been allocated to the enterprise imaging software product cash generating unit.

Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model:

Page | 65

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

14. INTANGIBLE ASSETS AND GOODWILL (continued)

	Financial Year	FY2017	FY2016	Rationale FY2017 assumptions	Rationale FY2016 assumptions
Revenue assumptions
Revenue annual growth:	FY17	na	Per budget	na	Per internal budget
	FY18	Per budget	30%	Per Internal budget	management’s estimated growth rate
	FY19	17.6%	30%	Ramp rate towards CAGR*	management’s estimated growth rate
	FY20	37.4%	25%	Historical Mach7 CAGR	management’s estimated growth rate
	FY21	37.4%	20%	Historical Mach7 CAGR	management’s estimated growth rate
	FY22	9.0%	15%	Average global market growth rate for PACS and VNA technologies	management’s estimated growth rate
	FY23	9.0%	10%	Average global market growth rate for PACS and VNA technologies	management’s estimated growth rate
Revenue risk factordiscount	All years	20.0%	-	Inherent risk in revenue growth	none
Expenditure assumptions
Expenditure annualgrowth:	FY17	na	Per budget	na	Per internal budget
	FY18	Per budget	20% of revenue growth rate	Per internal budget	management’s estimated growth rate
	FY19	10%	20% of revenue growth rate	Increased to allow for investment in sales personnel	management’s estimated growth rate
	FY20-23	25% of revenue growth rate	20% of revenue growth rate	In line with expected margins	management’s estimated growth rate
Financial assumptions
Years forecasted – software fees & implementation services		5 years	6.5 years	5 years as per recommended length of time per AASB136	management’s estimate for reasonable time frame for revenue generation
Years forecasted – annual support fees		5 years from commencement ofsupport	5 years from commencement ofsupport	5 years is the Mach7 standard term for supportfee contracts	5 years is the Mach7 standard term for supportfee contracts
Tax Rate	All	30%	na	Australia corporate tax rate	na
Working Capital	All	30 day terms + specific phasing	30 day terms	Standard debtor terms + cash-phasing based on historical estimates	Standard debtor terms
Discount Rate	All	15% post-tax	18% pre-tax	Management’s estimate of the Group’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements	Management’s estimate of the Group’s weighted average cost of capital, the risk free rate and the volatility of the share price relative to market movements

*CAGR = Compound Annual Growth Rate

Page | 66

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

Impairment charges

Based on a discounted cash flow valuation using the assumptions above, the carrying amount of goodwill and other intangible assets exceeds the recoverable amount and therefore an impairment charge of $11,675,171 has been recognised in the current financial year (2016: $6,504,960).

The impairment charge of $11,675,171 for the current year has been allocated first to goodwill and then on a pro-rata basis between software, brands, and patents. Customer contracts were separately tested for impairment and the recoverable amount exceeds the carrying amount and therefore no impairment charge has been allocated to this asset. The impairment charge of $6,504,960 for the prior year was allocated entirely to goodwill. These allocations were made in accordance with AASB136.

Future value

As per AASB136, an entity is required to assess at the end of each reporting period whether a previously impaired asset is no longer impaired. If there are indicators present which suggest the asset is no longer impaired to the same extent, the entity shall reassess the recoverable amount. Any increase in the recoverable amount (limited to the asset’s recoverable amount prior to impairment) is recognised immediately as a gain in the profit and loss, except for goodwill. In the case of goodwill, the asset is permanently impaired.

15. TRADE AND OTHER PAYABLES

	CONSOLIDATED
Footnot e	2017 2016
	$ $
Trade creditors (i) Accrued expenses (ii) Distributor/reseller commissions payable (iii) Credit card payable (iv) GST payable Employee entitlements and related costs (v)	267,437 340,467 233,204 175,652 413,563 62,382 13,228 - - 2,163 828,015 383,352
	1,755,447 964,016

Terms and conditions relating to the above financial instruments:

(i) Trade creditors are non-interest bearing and are normally settled on 30 day terms.
(ii) Accrued expenses comprise general operating expenses where costs are incurred but have not yet been invoiced.
(iii) Distributor commission will become payable at the time the customer pays their invoice, usually within 30-45 days.
(iv) Credit cards are paid monthly, and are non-interest bearing if paid on time.
(v) Employee entitlements includes sales commissions, redundancy provisions, withholding taxes, superannuation and other employee related costs

Due to the short term nature of the above trade and other payables, their carrying value is assumed to approximate their fair value.

Page | 67

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

16. DEFERRED REVENUE

	CONSOLIDATED
Footnote	2017 2016
	$ $
Software licenses & professional service fees received in advance (i) Annual support and maintenance fees received in advance (ii)	1,500,312 1,405,733 1,355,168 962,064
	2,855,480 2,367,797

Terms and conditions relating to the above financial instruments:

(i) Software licenses & professional service fees received in advance are where amounts are invoiced on a milestone basis but where the revenue is yet to be recognised.

(ii) Support and maintenance revenue represents annual maintenance contracts where payment has been received by the customer in advance (typically customers are billed annually in advance) and revenue is yet to be recognised (revenue is recognised evenly through-out the year).

Due to the short term nature of the above deferred revenue balances, their carrying value is assumed to approximate their fair value.

17. FINANCIAL LIABILITIES

	CONSOLIDATED
Footnote	2017 2016
	$ $
Accrued interest (i) Security deposit for sub-tenancy (ii)	- 267,274 20,000 -
	20,000 267,274

Terms and conditions relating to the above financial instruments:

(i) Interest accrued on external debt. All loans were repaid in full during the current financial year. (ii) Bond received from sub-tenant.

18. CURRENT INTEREST BEARING LIABILITIES

	CONSOLIDATED
Note/footnote	2017 2016
	$ $
Interest bearing loans (i) (i) Current portion of finance lease 19	- 2,876,135 12,358 116,667
	12,358 2,992,802

Terms and conditions relating to the above financial instruments:

(i) Interest bearing loans were repaid in full during the current financial year. These loans were unsecured debt, subject to an interest rate of 12% per annum.

Page | 68

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

19. FINANCE LEASES – NON CURRENT

	CONSOLIDATED
Note/ footnote	2017 2016
	$ $
Balance as at 1 July Proceeds received from sale and lease back of assets (i), (ii) Lease payments made during the year (i), (ii) Novation of lease to third party (ii) Balance as at 30 June Less current portion 18	339,484 - 37,075 350,000 (87,662) (10,516) (263,530) -
	25,367 339,484 (12,358) (116,667)
	13,009 222,817

Terms and conditions relating to the above financial instruments:

(i) During July 2016, the Group entered into a sale and lease back for certain computer hardware equipment. The lease is a 3 year term, with an effective interest rate of 8.1%.

(ii) On 12 May 2016, the Company entered into a sale and lease back of its Trump 3D printer. It received $350,000 as proceeds from the sale. The lease is a 3 year term with quarterly lease payments of
$35,060 (excl. GST, inclusive of financing charges). On 5 January 2017, the Company novated its finance lease (and sold the corresponding Trump 3D printer) to a third party.

Implicit finance costs are shown within interest expense in the statement of profit and loss and other comprehensive income for all finance leases.

The Company’s obligations under finance leases are secured by the lessor’s title to the leased assets. Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments are as follows:

payments are asfollows:
	CONSOLIDATED
	2017 2016
	$ $
Within one year After one year but not more than five years More than five years Total minimum lease payments Less amounts representing finance charges Lease payments recognised as a liability	Minimum payments Present Value of payments Minimum payments Present Value of payments 13,360 12,358 140,242 127,557 13,360 13,009 280,483 197,511 - - - -
	26,720 25,367 420,725 325,068 (1,353) - (95,657) -
	25,367 25,367 325,068 325,068

Page | 69

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

20. DEFERRED TAX LIABILITY

	CONSOLIDATED
	2017 2016
Note	$ $
Cost Accumulated amortisation of deferred tax liability Carrying value at the beginning of the year Deferred tax recognised on acquisition of intangible assets 31 Impairment credit 7 Amortisation credit 7 Carrying value at the end of the year	7,645,142 11,023,263 (2,315,710) (498,535)
	5,329,432 10,524,728
	10,524,728 - - 11,023,263 (3,378,121) - (1,817,175) (498,535)
	5,329,432 10,524,728

21. CONTRIBUTED EQUITY

Shares on issue

Shares on issue
	CONSOLIDATED
	2017 2016
	$ $
Ordinary shares (i) Issued and fully paid Performance shares (ii) Unlisted (25,000,000) (i) Ordinary shares Unrestricted and quoted on ASX Restricted until 30 November 2017 and quoted on ASX Restricted until 18 February 2017 and unquoted on ASX Restricted until 8 April 2017 and unquoted on ASX Total ordinary shares on issue	53,090,510 43,856,376 - -
	No. No. 118,097,196 437,953,969 150,000 1,500,000 - 58,748,168 - 441,933,006
	118,247,196 940,135,143

On 23 January 2017, the Company completed a share consolidation at a ratio of 1 share for every 10 shares held. Therefore, share capital on issue reduced by a factor of 10 on this date. Fully paid ordinary shares carry one vote per share and carry the right to dividends.

(ii) Performance shares

Four classes of performance shares were issued to the vendors of Mach7 Technologies Pte Ltd as part of the Company’s merger with Mach7 on 8 April 2016. During the year, one class (class C) lapsed, and all share price hurdles and number of performance shares have been restated to take into account the share consolidation which occurred during the year.

Page | 70

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

21. CONTRIBUTED EQUITY (continued)

Each Performance Share, upon conversion, entitles its holder to receive one ordinary share in the Company. A Performance Share confers on its holder the right to receive notices of meetings, financial reports and accounts of the Company, and the right to attend general meetings of the Company. Performance Shares do not entitle their holders to any dividends.

All classes of Performance Shares have varying conversion rights which relate to Company performance milestones with respect to revenue and share price. Subject to each and every respective performance milestones being satisfied, each performance share will convert into one ordinary share in the Company. The directors have assessed the fair value of the above outstanding performance shares issued to be nil.

Performance share conversion hurdles that remain as at 30 June 2017 are as follows: Class of Performance Shares Revenue hurdle Share price hurdle* Total number outstanding as at 30 June 2017 Class A US$6.6 million $2.00 15,000,000 ClassB US$6.6million $2.50 5,000,000 Class C Lapsed Lapsed Lapsed ClassD US$20million Nohurdle 5,000,000 Total 25,000,000	Performance share conversion hurdles that remain as at 30 June 2017 are as follows: Class of Performance Shares Revenue hurdle Share price hurdle* Total number outstanding as at 30 June 2017 Class A US$6.6 million $2.00 15,000,000 ClassB US$6.6million $2.50 5,000,000 Class C Lapsed Lapsed Lapsed ClassD US$20million Nohurdle 5,000,000 Total 25,000,000	Performance share conversion hurdles that remain as at 30 June 2017 are as follows: Class of Performance Shares Revenue hurdle Share price hurdle* Total number outstanding as at 30 June 2017 Class A US$6.6 million $2.00 15,000,000 ClassB US$6.6million $2.50 5,000,000 Class C Lapsed Lapsed Lapsed ClassD US$20million Nohurdle 5,000,000 Total 25,000,000	Performance share conversion hurdles that remain as at 30 June 2017 are as follows: Class of Performance Shares Revenue hurdle Share price hurdle* Total number outstanding as at 30 June 2017 Class A US$6.6 million $2.00 15,000,000 ClassB US$6.6million $2.50 5,000,000 Class C Lapsed Lapsed Lapsed ClassD US$20million Nohurdle 5,000,000 Total 25,000,000
Class of Performance Shares	Revenue hurdle*	Share price hurdle**	Total number outstanding as at 30 June 2017
Class A	US$6.6 million	$2.00	15,000,000
ClassB	US$6.6million	$2.50	5,000,000
Class C	Lapsed	Lapsed	Lapsed
ClassD	US$20million	Nohurdle	5,000,000
Total			25,000,000

*Revenue hurdles must be met or exceeded for calendar year 2017.
**Share price hurdles are measured with reference to a volume weighted average price (VWAP) of the Company’s shares for any 20-day period during calendar year 2017.

Movements in ordinary shares on issue

Movements in ordinary shares on issue
	No. of Ordinary Shares $
At 1 July 2015 Issue of shares under capital raising placement at $0.075 per share Issue of shares under share purchase plan at $0.075 per share Issue of shares on exercise of options Shares issued on acquisition of Mach7 Technologies Pte. Ltd Issue of shares under capital raising placement at $0.06 per share Issue of shares under agreements with employees Shares issued in exchange for interest costs and variation on loan Capital raising costs At 30 June 2016 Issue of shares pursuant to capital raising, at 4 cents per share Capital raising costs Options exercised during the year Shares issued for repayment of debt Shares issued for repayment of accrued interest Shares issued for loan repayment date extension Shares issued for brokerage fees Shares issued for bonus payment Share consolidation (every 10 shares held replaced with 1 share)	375,953,835 11,078,442
	53,121,066 3,984,081 4,336,704 325,250 1,590,283 79,514 459,499,119 26,095,632 42,000,000 2,520,000 2,134,146 166,774 1,500,000 92,736 na (486,053)
	940,135,153 43,856,376
	173,000,000 6,920,000
	na (553,710)
	9,607,398 480,370
	52,209,811 2,088,392
	4,734,959 189,398
	1,379,800 55,192
	987,291 39,492
	41,667 15,000
	(1,063,848,883) na
	118,247,196 53,090,510

Page | 71

Mach7 Technologies Limited

FOR THE YEAR ENDED 30 JUNE 2017

Notes to the Consolidated Financial Statements

21. CONTRIBUTED EQUITY (continued)

Options outstanding

Options do not entitle the holders to voting rights, to participate in dividends or the proceeds on winding up of the Company. Each option entitles the holder to one ordinary share upon exercise of that option upon payment of the relevant exercise price prior to the date of expiry of the option. The following unlisted options to purchase fully paid ordinary shares in the Company were outstanding at balance date:

2017

2017
Grant Date Expiry Date Exercise Price*	Opening balance 01 July 2016 Number Granted Number Exercised Number Lapsed* Closing balance 30 June 2017
6 Feb 15 6 Aug 16 $0.50 6 Feb 15 6 Feb 17 $0.50 8 Apr 16 8 Apr 20 $1.00 8 Apr 16 8 Apr 21 $1.00 9 Dec 16 9 Dec 21 $1.00 27 Jan 17 27 Jan 22 $0.41 10 Mar 17 10 Mar 22 $0.41 Total	7,194,873 - (960,740) (6,234,133) 0
	4,289,243 - - (4,289,243) 0
	100,000 - - - 100,000
	600,000 - - (125,000) 475,000
	- 125,000 - - 125,000
	3,240,000 - (560,000) 2,680,000
	200,000 - - 200,000
	12,184,116 3,565,000 960,740 11,208,376 3,580,000

*Amounts have been restated for the share consolidation (1 share for every 10 held) that took place in the current financial year.

2016

2016
Grant Date Expiry Date Exercise Price	Opening balance 01 July 2015 Number Granted Number Exercised Number Expired Closing balance 30 June 2016
6 Feb 15 6 Aug 16 $0.05 6 Feb 15 6 Aug 16(i) $0.05 6 Feb 15 6 Feb 17 $0.05 6 Feb 15 6 Feb 17(i) $0.05 8 April 16 8 April 20 $0.10 8 April 16 8 April 21 $0.10 Total	51,239,454 na (996,323) - 50,243,131 21,705,606 na - - 21,705,606 30,546,533 na (593,960) - 29,952,573 12,939,854 na - - 12,939,854 - 1,000,000 - - 1,000,000 - 6,000,000 - - 6,000,000
	116,431,447 7,000,000 (1,590,283) 121,841,164

(i) Restricted until 18 February 2017

Options granted during the year

For the options granted during the current financial year, the valuation model inputs used to determine the fair

value at the grant date (adjusted for share consolidation), are as follows:	value at the grant date (adjusted for share consolidation), are as follows:	value at the grant date (adjusted for share consolidation), are as follows:	value at the grant date (adjusted for share consolidation), are as follows:	value at the grant date (adjusted for share consolidation), are as follows:	value at the grant date (adjusted for share consolidation), are as follows:
Grant Date	Expiry	Share price	Exercise	Expected	Dividend	Risk-free	Fair value
	Date	at grant	price	Volatility	yield	interest	at grant
		date					date
9 Dec 16	9 Dec 21	41 cents	$1.00	82.7%	-	2.2%	21.6 cents
27 Jan 17	27 Jan 22	33 cents	41 cents	79.5%	-	2.2%	23.6 cents
10 Mar 17	10 Mar 22	37.5 cents	41 cents	83.3%	-	2.4%	24.5 cents

The expected volatility for the options granted during the year was determined with reference to the historical volatility of the Company’s share price since 8 April 2016, being the date 3D Medical Limited acquired the Mach7 Technologies group of companies, up to the date of grant.

Page | 72

Mach7 Technologies Limited

FOR THE YEAR ENDED 30 JUNE 2017

Notes to the Consolidated Financial Statements

21. CONTRIBUTED EQUITY (continued)

This assumption was made on the basis it would be a more appropriate predictor of future volatility given the significant changes in the company’s operations and activities since that business acquisition was completed.

22. RESERVES

	CONSOLIDATED
	Options Reserve Foreign Exchange Translation Reserve Total
	$ $ $
At 30 June 2015 Share based payments Shares issued in exchange for options on acquisition Foreign exchange on translation of subsidiaries At 30 June 2016 Share based payments Foreign exchange on translation of subsidiaries At 30 June 2017	1,541,442 - 1,541,442 30,267 - 30,267 325,578 - 325,578 - (139,425) (139,425)
	1,897,287 (139,425) 1,757,862
	454,495 - 454,495
	- 447,668 447,668
	2,351,762 308,283 2,660,045

Nature and purpose of options reserve

The Company has a share-based payment option scheme under which options to subscribe for the Company’s shares have been granted to certain executives and other employees.

23. RELATED PARTY DISCLOSURE

Ultimate parent

Mach7 Technologies Limited is the ultimate parent of the Group.

Subsidiaries

The consolidated financial statements include the financial statements of Mach7 Technologies Limited and its

direct/indirect subsidiaries listed in the following table:

Name	Country of Incorporation	% of equity interest held by the consolidated entity	% of equity interest held by the consolidated entity
		2017	2016
Direct subsidiaries
3D Medical Pty Ltd	Australia	100	100
Mach7 Technologies International Pty Ltd	Australia	100	100
Mach7 Technologies UK Ltd	UK	100	100
Indirect subsidiaries
Mach7 Technologies Pte Ltd	Singapore	100	100
Mach7 Technologies Inc.	U.S.	100	100
Mach7 Technologies Australia Pty Ltd	Australia	100	100
Mach7 Technologies Pvt Ltd	India	100	100

Key management personnel (KMP)

Details relating to KMP, including remuneration paid, are included in note 25.

Page | 73

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

24. CASH FLOW STATEMENT RECONCILIATION

	CONSOLIDATED
	2017 2016
	$ $
Net loss after tax Adjustments for financing/investing activities included in net loss after tax Income tax benefit Depreciation & amortisation Net loss on fixed asset disposals Share-based payments expense Bonus paid with share issue Interest expense attributable to finance leases Finance expenses paid with share issue Net foreign exchange differences relating to cash & non-operating items Merger acquisition costs Impairment charge Net working capital liabilities acquired in acquisition of Mach7 Technologies Pte Ltd Changes in current assets and liabilities Decrease/(increase) in trade and other receivables Decrease/(increase) in other current assets Increase/(decrease) in trade and other payables Increase/(decrease) in deferred revenues Increase/(decrease) in financial liabilities Adjusting items Increase in trade and other receivables attributable to GST on capital raising costs (financing activity) Decrease in other current assets attributable to finance leases (investing activity) Decrease in financial liabilities attributable to shares issued (non-cash) Net cash used in operating activities	(17,659,098) (12,629,483) (5,195,297) (498,535) 6,262,660 1,815,939 57,079 - 454,495 30,267 15,000 - 30,912 - 54,621 - 499,152 200,270 - 986,416 11,675,171 6,504,960 - (486,090) (2,748,018) (1,651,760) 138,683 (647,309) 791,431 639,020 487,683 2,367,797 (247,274) - 35,972 - (3,378) - 189,398 -
	(5,160,808) (3,368,506)

Page | 74

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

25. KEY MANAGEMENT PERSONNEL

Compensation for Key Management Personnel

ompensation for KeyManagementPersonnel
	CONSOLIDATED
	2017	2016
	$	$
Short-term employee benefits	1,761,216	804,522
Post-employment benefits	68,747	25,654
Termination benefits	395,903	-
Other long-term benefits	-	60,000
Equity-based payment	189,318	164,718
	2,415,183	1,054,894

Shareholdings of key management personnel

Ordinary shares held in Mach7 Technologies Limited (number) by key management personnel during 2017 are shown in table 1:

Table 1.

Table 1.
30 June 2017	Balance 1 July 2016* Granted as remuneration On exercise of options Acquired as part of capital raising Net change other Balance 30 June 2017
Directors Executives^	11,763,681 - 71,166 2,500,000 2,077,757 16,412,604
	6,693,943 41,667 - 250,000 1 6,985,611
	18,457,624 41,667 71,166 2,750,000 2,077,758 23,398,215

^ breakdown of executives can be found in table 2 below.

*Balance at start of year has been restated for the share consolidation (1 share for every 10 held) that took place during the current financial year.

Details of the Key Management Personnel holdings of ordinary shares in the Company, including their personally related parties, are shown in table 2 below:

Table 2.	Balance 1 July 2016* Additions Disposals Balance 30 June 2017
Dr N Finch Mr N Ito Mr R Krishnan^ Mr D Lim# Mr A Liong(i) Mrs J Pilcher^ Mr J Rice^ Mr W Spittle	361,432 321,166 - 682,598
	652,419 250,000 - 902,419
	5,780,561 - - 5,780,561
	8,045,141 3,577,757 - 11,622,898
	2,704,689 250,000 - 2,954,689
	- 291,668 - 291,668
	913,382 - - 913,382
	- 250,000 - 250,000
	18,457,624 4,940,591 - 23,398,215

(i) Managing director resigned May 2017 ^ included as executives in table 1.

Shareholding includes 11,372,898 at 30 June 2017 (2016: 8,045,141) held by BV Healthcare II Pte Ltd, an investment fund of which Mr Lim is a Principal. The remaining shares are held in the name of Mr Damien Lim.

*Balance at start of year has been restated for the share consolidation (1 share for every 10 held) that took place during the current financial year.

Page | 75

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

25. KEY MANAGEMENT PERSONNEL (continued)

Option holdings of Key Management Personnel

30 June 2017	Balance 1 July 2016* Granted as remuneration Options exercised Options forfeited/ lapsed Balance at end of period Not exercisable exercisable
Directors Executives	488,592 125,000 (71,166) (42,426) 500,000 500,000 -
	200,000 1,020,000 - - 1,220,000 1,120,000 100,000
	688,592 1,145,000 (71,166) (42,426) 1,720,000 1,620,000 100,000

*Balance at start of year has been restated for the share consolidation (1 share for every 10 held) that took place during the current financial year.

Details of the key management personnel holdings of options to acquire ordinary shares in the Company, including their personally related parties, are shown in the following table:

Directors/ Executives	Balance 1 July 2016* Options granted Options forfeited/ lapsed Options exercised Balance 30 June 2017
Directors Dr N Finch Mr N Ito Mr D Lim My W Spittle Executives Mr R Krishnan Mr J Rice Ms J Pilcher
	238,592 - (42,426) (71,166) 125,000
	125,000 - - - 125,000
	125,000 - - - 125,000
	- 125,000 - - 125,000

	- 340,000 - - 340,000
	- 340,000 - - 340,000
	200,000 340,000 - - 540,000
	688,592 1,145,000 (42,426) (71,166) 1,720,000

*Balance at start of year has been restated for the share consolidation (1 share for every 10 held) that took place during the current financial year.

Share options held by key management personnel under the Long Term Incentive Plan (note 26) to purchase ordinary shares have the following expiry dates and exercise prices:

			2017	2016
Issue date	Expiry date	Exercise	Number*	Number*
		price*
6 Feb 2015	6 Aug 2016	$0.50	-	71,166
6 Feb 2015	6 Feb 2017	$0.50	-	42,426
8 Apr 2016	8 Apr 2021	$1.00	475,000	475,000
8 Apr 2016	8 Apr 2020	$1.00	100,000	100,000
9 Dec 2016	9 Dec 2021	$1.00	125,000	-
27 Jan 2017	27 Jan 2022	41c	1,020,000	-
			1,720,000	688,592

*Number outstanding for 2016, and exercise price, has been restated for the share (and option) consolidation (1 share for every 10 held) that took place during the current financial year.

Page | 76

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

26. SHARE-BASED PAYMENT PLAN

Recognised share-based payment expenses

The expense recognised from employee services received during the year is shown in the table below:

	CONSOLIDATED
	2017 2016
	$ $
Expenses arising from equity-settled share-based payment transactions	454,495 30,267

Types of share-based payment plan

Employee Share Option Plan, ‘ESOP’

A Long Term Incentive Plan has been established and approved by shareholders where Mach7 Technologies Limited may, at the discretion of the Board, grant options over the ordinary shares of Mach7 Technologies Limited to Directors, Executives, contractors and employees of the consolidated entity. The options, issued for nil consideration, are exercisable any time two to three years after the issue date and expire four to five years after the issue date.

The exercise of the options is not subject to any performance conditions other than the employee remaining in the employ of the Company at the date of exercise. The options cannot be transferred and will not be quoted on the ASX.

The following table illustrates the number and weighted average exercise price of, and movements in, share options issued during the year:

options issued during the year:
	2017 2016
	Number of options Weighted average exercise price Number of options Weighted average exercise price
Balance at beginning of year - granted - exercised - forfeited/lapsed Balance at end of year Exercisable at end of year	3,681,546 $0.60 2,981,546 $0.50 3,565,000 $0.511 700,000 $1.00 (71,166) $0.50 - - (3,595,380) $0.503 - -
	3,580,000 $0.525 3,681,546 $0.60
	100,000 $1.00 - -

*Amounts restated for the share consolidation (1 share for every 10 held) that took place during the current financial year.

Weighted average remaining contractual life

The weighted average remaining contractual life for the share options outstanding as at 30 June 2017 is 4 years 5 months (2016: 1 year 1 month)

Range of exercise price

The range of exercise prices for options outstanding at end of the year was $0.41 - $1.00 (2016: $0.50 - $1.00).

Weighted average fair value

The weighted average fair value of options granted during the year was $0.236 (2016: $0.18).

Page | 77

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

26. SHARE-BASED PAYMENT PLAN (continued)

Options held as at the end of the reporting period

The following table summarises information about options held as at 30 June 2017:

Number Issued	Grant date	Vesting date	Exercise Price	Expiry Date
475,000	08-Apr-16	08-Apr-18	$1.00	08-Apr-21
100,000	08-Apr-16	08-Apr-17	$1.00	08-Apr-20
125,000	09-Dec-16	09-Dec-18	$1.00	09-Dec-21
893,348	27-Jan-17	27-Jan-18	$0.41	27-Jan-22
893,335	27-Jan-17	27-Jan-19	$0.41	27-Jan-22
893,317	27-Jan-17	27-Jan-20	$0.41	27-Jan-22
66,667	10-Mar-17	10-Mar-18	$0.41	10-Mar-22
66,667	10-Mar-17	10-Mar-19	$0.41	10-Mar-22
66,666	10-Mar-17	10-Mar-20	$0.41	10-Mar-22
3,580,000

Option pricing model

Equity-settled transactions

The fair value of the equity-settled share options granted under the ESOP is estimated as at the date of grant using a Black-Scholes option pricing model taking into account the terms and conditions upon which the option were granted. The model takes into account the share price volatilities and co-variances of the Company, and excludes the impact of any estimated forfeitures related to the service-based vesting conditions on the basis that management has assessed the forfeiture rate to be zero.

27. EXPENDITURE COMMITMENTS

	CONSOLIDATED
	2017 2016
	$ $
Lease expenditure commitments Operating leases (non-cancellable): Minimum lease payments – not later than one year – later than one year and not later than five years Aggregate lease expenditure contracted for at reporting date	177,670 292,976 173,970 511,172
	351,640 804,148

The operating leases for the current financial year are in respect of the lease of the premises in the U.S. and office equipment in Singapore & Australia. The prior financial year lease expenditure commitments includes the lease of premises in Australia. Effective 1 July 2017, this lease was assigned to a third party and consequently the Group has no further lease expenditure commitments in respect of this lease (refer note 28 for further detail).

Capital expenditure commitments

There are no capital expenditure commitments, other than finance leases disclosed in note 19, as at 30 June 2017 (2016: nil).

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Mach7 Technologies Limited

FOR THE YEAR ENDED 30 JUNE 2017

Notes to the Consolidated Financial Statements

28. CONTINGENT ASSETS AND LIABILITIES

During the year the Company novated its finance lease to a third party. The Company continues to act as guarantor for this lease through to the expiry of 30 June 2019. If the third party were to default on all lease payments since 30 June 2017, the Company’s maximum exposure is $280,480.

Effective 1 July 2017, the Group assigned its lease of premises in Australia to a third party (assignee). Under the terms of the lease, the Group remains liable for any terms and conditions in the lease agreement in the event the assignee defaults or is in breach of the lease agreement. This obligation expires on 7 September 2018.

The Company has no contingent assets at 30 June 2017.

29. AUDITORS’ REMUNERATION

During the financial year the following fees were paid or payable for services provided by RSM Australia Partners, the auditor of the company and unrelated firms:

	CONSOLIDATED
	2017 2016
	$ $
The auditor of the Parent Company is – RSM Australia Partners Amounts received or due and receivable by the auditor of the company for: Audit services – RSM Australia Partners Audit or review of the financial statements Other services – RSM Australia Partners Taxation services Audit services – unrelated firms Audit or review of the financial statements	74,270 60,000 20,000 11,350
	94,270 71,350
	58,478 60,106

Page | 79

Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

30. PARENT ENTITY DISCLOSURE

	PARENT
	2017 2016
	$ $
Current assets Non-current assets TOTAL ASSETS Current liabilities Non-current liabilities TOTAL LIABILITIES Contributed equity Issued capital Reserves Retained earnings TOTAL EQUITY Total comprehensive income/(loss) attributable to equity	10,747,296 4,349,742 29,488,159 30,872,262
	40,235,455 35,222,004 316,505 307,858 217,083 556,566
	(533,588) 864,424 53,090,510 45,757,867 2,351,762 1,557,635 (15,740,405) (12,957,922)
	39,701,867 34,357,580

	(2,635,375) (3,218,117)

31. BUSINESS COMBINATIONS

There were no business combinations during the current financial year.

During the previous financial year, on 8 April 2016, 3D Medical Limited acquired all the issued share capital of Mach7 Technologies Pte. Ltd, a business specialising in enterprise imaging software for the healthcare industry. 3D Medical Limited is the exclusive reseller for Mach7 Enterprise Imaging Platform software in Australia and New Zealand.

The consideration for the purchase of Mach7 Technologies Pte. Ltd was comprised of the issue of 459,499,119 3D Medical Limited (now called Mach7 Technologies Limited) fully paid ordinary shares at a deemed issue price of $0.061 per share, being the closing price on 7 April 2016 (pre-share consolidation). In addition, contingent consideration of 300 million performance shares were issued which have been given a fair value of nil at the date of acquisition for the purposes of acquisition accounting. A nil value has been ascribed due to the improbability of achieving the milestones attached to the performance shares as at the date of this report. Further details on the performance shares are contained in note 21.

There was no cash consideration issued to the vendors of Mach7 Technologies Pte. Ltd. The Company acquired a total cash balance of $236,622 as part of the acquisition. Consequently, the net cash impact of this acquisition is an inflow of $236,622.

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Mach7 Technologies Limited

FOR THE YEAR ENDED 30 JUNE 2017

Notes to the Consolidated Financial Statements

31. BUSINESS COMBINATIONS (continued)

During the current financial year, the Group finalised its amounts recorded as a result of the business combination. The final values, together with the preliminary values recorded on acquisition date, are shown in the table below. In accordance with accounting standards (AASB3), the Group has 12 months from the date of acquisition to finalise these amounts. Any differences between the preliminary values and final values have been recorded as at the date of acquisition in accordance with AASB3, and consequently amounts may have changed in the corresponding period compared to what has been previously reported.

	CONSOLIDATED
Note	Final Values Preliminary Values
	$ $
Purchase consideration Shares issued on acquisition of Mach7 Technologies Pte. Ltd - Ordinary shares (459.5 million) 21 - Performance shares (300 million) issued (nil value) 21 - Cash advanced for exercise of options on acquisition - Charge for options exchanged on acquisition Fair value and carrying value of net assets acquired Cash and cash equivalents Trade and other receivables (i) Deposits and prepayments Bank guarantee (restricted cash balance) (ii) Total current assets Property, plant & equipment Patents Total non-current assets Trade payables Deferred revenue (iii) Other payables (iv) Interest bearing liabilities Loan from related party (3D Medical Limited, the acquirer) (v) Total current liabilities Net liabilities acquired Customer contracts (vi) 14 Software intellectual property (vi) 14 Patents (vi) 14 Brand (vi) 14 Deferred tax liability on intangible assets acquired (vii) 20 Goodwill on consolidation 14 Total intangible assets acquired due to business combination Net assets acquired (fair value)	26,095,633 28,029,446 - - 1,137,542 1,137,542 325,578 325,578
	27,558,753 29,492,566
	236,622 236,622 1,685,894 1,685,894 231,180 231,180 208,737 208,737
	2,362,433 2,362,433 136,336 136,336 60,577 60,577
	196,913 196,913 632,478 632,478 1,438,142 1,438,142 728,516 728,516 2,863,658 2,863,658 1,978,475 1,978,475
	7,641,269 7,641,269
	(5,081,923) (5,081,923)
	8,824,764 8,824,764 24,116,95524,116,955 1,204,9591,204,959 2,597,5322,597,532 (11,023,262) (11,023,263) 6,919,728 8,853,542
	32,640,676 34,574,489
	27,558,753 29,492,566

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Mach7 Technologies Limited

Notes to the Consolidated Financial Statements

FOR THE YEAR ENDED 30 JUNE 2017

31. BUSINESS COMBINATIONS (continued)

(i) Trade and other receivables comprises $986,251 of trade receivables less $503,677 for provision of doubtful debts. A further $1,203,321 of unbilled trade receivables is included in this balance, representing revenue previously recognised but not yet billable to the customer in accordance with the contract terms.
(ii) Bank guarantee expired 31 December 2016 and was returned to the Group in the current financial year. (iii) Deferred revenue comprises annual maintenance contracts of $731,680 where the customers have been billed annually in advance, and the revenue is recognised evenly through-out the year. A further $706,462 represents advances from customers, where customers have been billed in accordance with the terms of the contract but the revenue will be recognised as the services are performed, for example, software implementation, training and data migration services.
(iv) Other payables includes $227,493 of accrued interest payable on the loans. The remainder of the balance are accruals for expenses not yet invoiced or paid in the normal course of business.
(v) An amount of USD1.5 million was lent to Mach7 as part of the acquisition by 3D Medical.
(vi) Intangible assets have been fair valued using net present value techniques. Refer note 14 for further information.
(vii) A deferred tax liability has been recorded in accordance with AASB 112 representing the future tax payable on the future revenues the intangible assets may generate.

32. SUBSEQUENT EVENTS

The Company is not aware of any subsequent events that have occurred since 30 June 2017 that may materially affect the financial information in this report.

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Mach7 Technologies Limited

DIRECTORS’ DECLARATION

In accordance with a resolution of the directors of Mach7 Technologies Limited, I state that:

1) In the opinion of the Directors:
(a) The financial statements, notes, and the additional disclosures included in the directors report and designated as audited, of the Company are in accordance with the Corporations Act 2001, including:
- I. Giving a true and fair view of the Company’s financial position as at 30 June 2017 and of their performance for the year ended on that date; and
- II. Complying with Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; and
(b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; and
(c) There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 30 June 2017.

On behalf of the Board

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Damien Lim Chairman Signed at Singapore on 25 August 2017

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Mach7 Technologies Limited

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INDEPENDENT AUDITOR’S REPORT To the Members of Mach7 Technologies Limited

Opinion

We have audited the financial report of Mach7 Technologies Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration.

In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:

giving a true and fair view of the Group's financial position as at 30 June 2017 and of its financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.

Basis for Opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor's report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the financial report, which indicates that the Group incurred a net loss after tax of $17,659,098 and net cash outflows from operating activities of $5,160,808 for the year ended 30 June 2017. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

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Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key Audit Matter

How our audit addressed this matter

Impairment of Intangible Assets
Refer to Note 14 in the financial statements

The Group determined goodwill and separately
identifiable intangible assets of $44m relating to its
acquisition of its Singapore subsidiary Mach7
Technologies Pte. Ltd. in 2016.
The recoverable amount of the intangibles have
been determined by a value-in-use calculation using
a discounted cash flow model.
We identified this area as a Key Audit Matter due to
the size of the intangible assets balance and
because the directors’ assessment of the ‘value in
use’
of
this
cash
generating
unit
(“CGU”)
incorporated significant judgment in respect of
factors such as discount rate and assumptions
underlying the cash flows of the business.

Our audit procedures in relation to management’s
impairment assessment included:

Assessing management’s determination of the
CGU based on the nature of the Group’s
business and the manner in which results are
monitored and reported;

Checking the mathematical accuracy of the
cash flow model, and reconciling input data to
supporting
evidence,
such
as
approved
budgets and considering the reasonableness of
these budgets; and

Challenging
the
reasonableness
of
key
assumptions used, including those relating to
forecasted revenue, cost, working capital,
projected cash flow years, and discount rates.

Other Information

The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2017, but does not include the financial report and the auditor's report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf.

This description forms part of our auditor's report.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 14 to 26 of the directors' report for the year ended 30 June 2017.

In our opinion, the Remuneration Report of Mach7 Technologies Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

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RSM AUSTRALIA PARTNERS

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R B MIANO

Partner

28 August 2017 Melbourne, Victoria

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Shareholder Information

MACH7 TECHNOLOGIES LIMITED ABN 26 007 817 192

Website: www.mach7t.com

Directors and Company Secretary Mr Damien Lim (Non-Executive Chairman) Dr Nigel Finch (Non-Executive Director) Mr Nobuhiko Ito (Non-Executive Director) Mr Wayne Spittle (Non-Executive Director) Ms Alyn Tai (Company Secretary)

Registered Office

Level 1, 61 Spring Street, Melbourne, VIC 3000 Telephone: +61 (0) 3 9286 7500

Principal Place of Business 120 Kimball Avenue, Suite 210 South Burlington, VT 05403, United States T: +1 802.861.7745

Share Registrar

Link Market Services Limited Tower 4, 727 Collins Street, Melbourne, VIC 3008 Telephone: 1300 554 474 Website: www.linkmarketservices.com.au

Stock Exchange Listing Australian Securities Exchange (ASX) Issuer Code: M7T

Solicitors Gadens Lawyers Level 25, Bourke Place, 600 Bourke Street, Melbourne, VIC 3000

Bankers

Westpac Banking Corporation 150 Collins Street, Melbourne, VIC 3000

Auditors

RSM Australia Partners

Level 21, 55 Collins Street, Melbourne, VIC 3000

Page | 87

Mach7 Technologies Limited

Board of Directors and Company Secretary

Damien Lim

Non-Executive Chairman

Mr. Lim is the co-founder and principal of Singapore-based BioVeda Capital. He has more than 21 years of experience in equity and investment banking with Director level roles at Prime Partners, Vickers Ballas and Morgan Greenfell Asia. Mr. Lim serves on a number of boards as well as grant and advisory committees.

Dr Nigel Finch

Non-Executive Director

Dr. Finch is a Non-Executive Director of Mach7 Technologies Ltd. and the former Chairman of 3D Medical. Dr. Finch is also a Principal at Saki Partners Transaction Advisers. He has held director and senior management roles focused on strategy execution and managing financial performance in both early-stage and mature firms and has significant experience in economic development throughout Asian markets. Previously, Dr. Finch was Associate Dean at the University of Sydney Business School. His successful academic career was preceded by a 20-year career as a CFO, investment manager and executive director. During the past three years he has served as a director of the following ASX listed entities: Panorama Synergy Limited, Skydive The Beach Group Limited, KNeoMedia Limited and Animoca Brands Corporation Limited.

Nobuhiko Ito

Non-Executive Director

Mr. Ito is a Non-Executive Director of Mach7 Technologies Ltd. and an adviser to TPG Capital Japan, Director of Konica Minolta Business Solutions and Tadano Ltd. He is also the former President and CEO of GE Japan and was an executive with Exxon Chemical Japan for 16 years. Mr. Ito holds a B.Sc. degree from the University of Tokyo and an M.B.A. from Cornell University.

Wayne Spittle

Non-Executive Chairman

Mr. Spittle is a Non-Executive Director of Mach7 Technologies Ltd. and brings extensive industry experience in the global healthcare sector including all imaging modalities, IT solutions and patient monitoring. He has served as Executive VP with Samsung Medison and Health and Medical Equipment division of Samsung. Previously, he was Senior VP at Philips Healthcare for Asia Pacific and CEO for Philips Electronics for ASEAN Pacific. He has extensive experience in acquisitions, product development, marketing and sales. Currently Mr. Spittle remains as a consultant at Samsung Medison and Advisor at Novum Waves.

Alyn Tai

Company Secretary

Ms Tai is a corporate and commercial lawyer, and practices at Corporate Counsel, a boutique corporate law firm with a focus on the provision of company secretarial, corporate governance and legal counsel services to entities listed on the Australian Securities Exchange. She holds a Bachelor of Laws from the University of Exeter, and was called to the Bar of England and Wales before being admitted to the Supreme Court of Victoria as an Australian lawyer. Ms Tai is a member of Law Institute of Victoria and the Honourable Society of Inner Temple (UK).

Page | 88

Mach7 Technologies Limited

AI assistant

MACH7 TECHNOLOGIES LIMITED — Annual Report 2017

65285_rns_2017-08-27_f562636e-e660-4c41-b5e6-5814498023a5.pdf

Mach7 Technologies Limited

Mach7 Technologies Limited

ASX Appendix 4E Preliminary Final Report

Results for announcement to the market

Comments by directors

Audit

Mach7 Technologies Limited

Directors’ Report

Directors and Company Secretary

Information of directors

Directors’ relevant interest in Mach7 Technologies Limited securities

In addition to the shareholding of Mr Lim, 11,372,898 held by BV Healthcare II Pte Ltd, an investment fund of which Mr Lim is a Principal.

Directors’ meetings

Mach7 Technologies Limited

Directors’ Report

Committee membership

Dividends

Principal activities

Operating and financial review

Financial position

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Cash & cashflows

Deferred revenue

Net current assets

Net tangible assets (NTA)

Intangible assets

Deferred tax liability

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Net assets

Revenue from continuing operations

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Software license fees

Professional service fees

Support maintenance fees

Subscriptions (pay-per-use)

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

3D printed models & other revenue

Operating expenses from continuing operations

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Expenditure movements by category

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Professional fees and consultancy

Marketing expenses

Travel expenses

Rent, occupancy & general administration expenses

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Adjusted EBITDA and net loss after tax

Adjusted EBITDA

Capitalised expenditure

Mach7 Technologies Limited

Directors’ Report

Operating and financial review (continued)

Net loss after tax

Business strategies and prospects for future years

Key business risks

Mach7 Technologies Limited

Directors’ Report

MACH7 TECHNOLOGIES LIMITED Annual Report 2017