MACH7 TECHNOLOGIES LIMITED — Interim / Quarterly Report 2017

Feb 26, 2017

Mach7 Technologies Limited ACN 007 817 192 and controlled entities (Mach7 Technologies Group)

Appendix 4D and Half Year Report For the half year ended 31 December 2016

Provided to the ASX in accordance with listing rule 4.2A

Melbourne Office Mach7 Technologies Limited (ACN 007 817 192 ABN 26 007 817 192) UNIT 4, 435 Williamstown Road, Port Melbourne VIC 3207 Australia PO Box 216 Port Melbourne, VIC 3207 T: 61 3 9646 2222

Page | 1

31 December 2016 ASX Appendix 4D Half Year Report

Results for announcement to the market

Current reporting period is 1 July 2016 to 31 December 2016

Previous corresponding period is 1 July 2015 to 31 December 2015

		% Change		Current
		from previous		reporting
		corresponding		period
		period		$’000
Revenues from sales	increase	1594%	to	4,786
Other income	increase	859%	to	634
Revenue from ordinary activities	increase	1455%	to	5,420
Net loss for the period from ordinary activities after tax	increase	205%	to	(3,945)
attributable to members
Net loss for the period attributable to members	increase	205%	to	(3,945)
Dividends
Interim dividend		-		-
Final dividend		-		-
Net Tangible Asset Backing
	31	December 2016		30 June 2016
Net tangible asset backing per ordinary share*		0.5 cents		(0.4) cents
*before share consolidation, January 2017

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 six months ended 31 December 2016.

Review opinion

This report is based on accounts which have been independently reviewed by the Company’s external auditors. A copy of the directors’ report and financial statements, together with the auditors’ review report, is attached.

Page | 2

Directors’ Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Your directors submit their report for the half year ended 31 December 2016.

Directors

The following persons were Directors or Company Secretary of Mach7 Technologies Limited (Company) during the whole of the half year ended 31 December 2016 and up to the date of this report, unless otherwise stated:

Director Damien Lim Non-Executive Chairman Albert Liong Managing Director and CEO Dr Nigel Finch Non-Executive Director Nobuhiko Ito Non-Executive Director A. Wayne Spittle Non-Executive Director Alyn Tai Company Secretary

Principal activities

The principal activity of the Company is the commercialisation of an enterprise imaging platform solution for healthcare enterprises. The Mach7 enterprise imaging platform enables the sharing, storage and workflows of medical imaging data across any and all modalities thus enabling interoperability for the healthcare enterprise. In addition to the enterprise imaging platform, the Company provides 3D printing solutions for the healthcare industry.

Operating and financial review

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

• Financial position

• Review of operations

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

Financial position

The Group has substantially strengthened its financial position during the current reporting period. The Group raised $9.0 million (before costs) from a capital raise completed in three tranches across November and December 2016. From the proceeds of this capital raising, the Group extinguished substantially all of its unsecured debt, valued at $2.8 million. This debt was due to mature at various dates through 2017, and carried interest rates of 10%-12%.

As a result of the recent capital raising and debt retirement, the Group ended the half year with net tangible assets of $5.9 million, compared with net tangible liabilities of $2.2 million at 30 June 2016. Net tangible assets includes cash on hand and deposits at 31 December 2016 of $5.8 million, compared to $1.9 million at 30 June 2016.

Review of operations

The Company reported a net loss of $3.9 million for the half year ended 31 December 2016 (“HY2016”). This was an increase in net loss of $2.6 million over the previous corresponding period (half year ended 31 December 2015, or “HY2015”). The net loss for HY2016 included a full six months’ of Mach7 operations as a result of the acquisition of Mach7 Technologies Pte. Ltd and its subsidiaries (Mach7 Group) which was completed on 8 April 2016. HY2015, in contrast, includes the result from the 3D medical business only.

Page | 3

Directors’ Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

The following sections provide a comparison to a pro-forma result, as if the Mach7 Group had been included in HY2015.

Revenue from continuing operations and Gross Profit

Revenue for the half-year increased by 40% or $1.4 million from the previous corresponding period on a proforma basis. Importantly, the main driver for this increase in revenues was an increase of 160% or $1.1 million from recurring annual revenues (annual maintenance fees, subscriptions and pay-per-use fees). The recurring annual revenues continue to grow as the Group secures long-term contracts with new customers.

In addition to the increase in recurring revenues, software licence fees and service fees also grew at a rate of 12% and 40% respectively. Software license fees include fees from two big contract wins announced in the period, MaineHealth (Maine, U.S.), minimum contract value A$3.8 million, and Sidra Medical and Research Centre (Doha, Qatar), minimum contract value A$2 million. Service fee revenue was earned from software installations and training across eight (8) customers. Revenue from 3D printed models fell during the current period due to a oneoff project in 2015 which was not repeated. Cost of goods also fell for the same reason. The Group continues to derive gross profit margins of at least 85%.

The table below provides a breakdown of revenue by component on a pro-forma basis:

Statutory to Pro-Forma Revenue	& Other Income	Reconciliation (Table 1)
Revenue from continuing	Mach7 Group*	3D Medical Group	Pro-forma Group	Mach7 Group
operations and Other	HY 2015	HY 2015	HY 2015	HY 2016
income
	6 months to	6 months	6 months	6 months
	31 December	to 31 December	to 31 December	to 31 December
	2015	2015	2015	2016
	$	$	$	$
Software licence fees	2,196,665	-	2,196,665	2,475,713
Professional service fees	332,298	-	332,298	464,974
Annual maintenance fees	601,515	-	601,515	1,563,104
Subscription, Pay-per-use	-	94,439	94,439	246,843
3D printed models	-	108,095	108,095	8,716
Other revenue	79	80,000	80,079	26,674
Revenue from continuing operations	3,130,557	282,534	3,413,091	4,786,024
Cost of sales	152,907	229,993	382,900	278,872
Gross profit	2,977,650	52,541	3,030,191	4,507,152

• Mach7 Technologies Group results prior to its acquisition by 3D Medical in April 2016.

Page | 4

Directors’ Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Expenses

The table below presents the pro-forma expenses from operations (excluding share-based payments expense, depreciation & amortisation, impairment charges and other expenses) that would have been incurred if the acquisition had been effective from 1 July 2015:

Statutory to Pro-Forma Expense Reconciliation (Table 2)

Operating expenses**	Mach7 Group*	3D Medical	Pro-forma	Mach7 Group
	HY 2015	Group	Group	HY 2016
		HY 2015	HY 2015
	6 months	6 months	6 months	6 months
	to 31 December	to 31 December	to 31 December	to 31 December
	2015	2015	2015	2016
	$	$	$	$
Employee benefits expenses	3,332,307	596,447	3,928,754	4,684,536
Corporate and professional fees	336,529	461,267	797,796	480,899
Marketing expenses	537,835	93,712	631,547	478,386
Travel and related expenses	337,883	66,844	404,727	405,611
Administration, insurance and other	507,808	164,102	671,910	384,786
TOTAL	5,052,362	1,382,372	6,434,734	6,434,218

• Mach7 Technologies Group results prior to its acquisition by 3D Medical in April 2016.

• ** excluding interest, depreciation and amortisation and share based payments expenses

Earnings before interest, tax, depreciation and amortisation (EBITDA)

When including the Mach7 operations for the previous corresponding period on a pro-forma basis, the Group improved its earnings before interest, tax, depreciation and amortisation (EBITDA) by $1.9 million, from a loss of $3.3 million for HY2015 to $1.4 million for HY2016.

The table below presents the pro-forma EBITDA from operations (excluding share-based payments expense) that would have been incurred if the acquisition had been effective from 1 July 2015:

Statutory to Pro-Forma EBITDA Reconciliation (Table 3)

EBITDA	Mach7 Group	3D Medical	Pro-forma	Mach7 Group
	HY 2015	Group	Group	HY 2016
		HY 2015	HY 2015
	6 months	6 months	6 months	6 months
	to 31 December	to 31 December	to 31 December	to 31 December
	2015	2015	2015	2016
	$	$	$	$
Gross profit	2,977,650	52,541	3,030,191	4,507,152
Other income (excluding interest)	1,765	53,342	55,107	621,262
Operating expenditure	(5,052,362)	(1,382,372)	(6,434,734)	(6,434,218)
Share-based payments (non-cash)	-	-	-	(67,097)
EBITDA	(2,072,947)	(1,276,489)	(3,349,436)	(1,372,901)

• Mach7 Technologies Group results prior to its acquisition by 3D Medical in April 2016.

Other expenditure

In addition to operating expenses, expenditure for the current period includes depreciation and amortisation expense of $2.3 million (2015: $0.03 million).

Page | 5

Directors’ Report FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Cash and cash-flow

The consolidated cash & cash equivalents (excluding restricted cash and deposits) as at 31 December 2016 are $5.5 million and have increased by $3.8 million since the previous corresponding period (30 June 2016: $1.7 million). This is mainly due to the capital raising undertaken in November and December.

Operating cash outflows increased by $0.9 million from $1.5 million to $2.4 million due the current period including the Mach7 operations which were not part of the previous period. The Group reported cash receipts from investing activities of $0.01 million, compared to payments for investing activities of $2.7 million in the prior period. Investing activities in the prior period included advances to the Mach7 Group, prior to acquisition, of $2.2 million. Offsetting these cash outflows, the Group received $6.2 million (HY2015: $4.1 million), after costs and debt retirement from capital raising activities.

Significant events occurring after balance date

The Company completed a 10 for 1 consolidation of its outstanding share capital (share consolidation) in January 2017. The share consolidation was approved by shareholders at the Company’s general meeting held 28 December 2016.

Outlook

The Group is in a strong financial position with approximately $6 million in free cash and no debt on its balance sheet. Approaching its tenth year of operations, Mach7 has developed a technologically sound, highly competitive product. It’s technology and its financial position provides Mach7 with the perfect platform to take advantage of a buoyant global enterprise imaging market. The superior, award-winning platform technology is generating a significant number of new sales leads that are expected to result in a significant increase in revenues. These sales leads, together with the Group’s recent contract wins, support Mach7’s position as a leader in this market and validates our growing footprint across the globe. The Group expects to reach profitability in the near term.

Significant changes in the state of affairs

There were no significant changes in the state of affairs of the Group during the financial half-year.

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 the following page.

This report is made in accordance with a resolution of directors, pursuant to section 306(3)(a) of the Corporations Act 2001.

On behalf of the directors

Damien Lim, Chairman 27 February 2017 Singapore

Page | 6

==> picture [118 x 62] intentionally omitted <==

RSM Australia Partners

Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007 T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199

www.rsm.com.au

AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the review of the financial report of Mach7 Technologies Limited and its controlled entities for the half year ended 31 December 2016, 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 review; and

• (ii) any applicable code of professional conduct in relation to the review.

==> picture [41 x 41] intentionally omitted <==

RSM AUSTRALIA PARTNERS

==> picture [56 x 40] intentionally omitted <==

R MIANO

Partner

27 February 2017 Melbourne, Victoria

==> picture [42 x 65] intentionally omitted <==

Page | 7 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING

RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036

Liability limited by a scheme approved under Professional Standards Legislation

Statement of Financial Position

AS AT 31 DECEMBER 2016

	CONSOLIDATED
Note	31 Dec16 30 Jun 16
	$ $
ASSETS CURRENT ASSETS Cash and cash equivalents 5a Financial assets 5b Trade and other receivables Prepayments TOTAL CURRENT ASSETS NON-CURRENT ASSETS Plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables Deferred revenue 6 Interest bearing liabilities 7 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance leases Funds held on deposit Deferred tax liability TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity 8 Reserves Accumulated losses TOTAL EQUITY	5,511,315 1,718,511 276,590 211,227 2,973,976 2,066,735 457,607 436,082
	9,219,488 4,432,555 688,448 799,569 32,330,368 35,568,869
	33,018,816 36,367,438
	42,238,304 40,800,993
	1,083,529 1,231,290 2,545,953 2,367,797 198,059 2,992,802
	3,827,541 6,591,889 199,028 222,817 20,000 - 9,574,680 10,524,728
	9,793,708 10,747,545
	13,621,249 17,339,434
	28,617,055 23,461,559
	53,113,182 43,856,377 1,601,782 1,757,862 (26,097,909) (22,152,680)
	28,617,055 23,461,559

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

Page | 8

Statement of Profit and Loss and Other Comprehensive Income

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

	CONSOLIDATED
Note	31 Dec 2016 31 Dec 2015
	$ $
Revenue from continuing operations Revenue from sales 4a Cost of sales Gross Profit Other income 4b Employee benefits & staff related expenses 4c Professional, consultancy, and corporate expenses Marketing expenses Travel and related expenses General administration expenses Finance costs Share based payment expense Depreciation and amortisation 4d Loss from continuing operations before income tax Income tax benefit Loss for the year Other comprehensive income 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) - Diluted earnings/(loss) per share (cents) Dividends per share (cents)	4,786,024 282,534 (278,872) (229,993)
	4,507,152 52,541 634,176 66,105 (4,684,536) (596,447) (480,899) (461,267) (478,386) (93,712) (405,611) (66,844) (384,783) (163,082) (239,533) (1,020) (67,097) - (2,345,712) (28,089)
	(3,945,229) (1,291,815) - -
	(3,945,229) (1,291,815) (223,177) - (4,168,406) (1,291,815)
	(0.4) (0.3) (0.4) (0.3) - -

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

Page | 9

Statement of Changes in Equity

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Consolidated	Share Capital Share Based Payments Reserve Foreign Exchange Translation Reserve Accumulated losses Total Equity $ $ $ $ $
At 1 July 2015 Loss for the half-year Total comprehensive loss for the half-year Issue of share capital Capital raising costs At 31 December 2015 At 1 July 2016 Loss for the half-year Other comprehensive income/(loss) for the year Total comprehensive loss for the half-year Issue of share capital Capital raising costs Share based payments At 31 December 2016	11,078,442 1,541,442 - (9,523,196) 3,096,688 - - - (1,291,815) (1,291,815)
	- - - (1,291,815) (1,291,815) 4,309,333 - - - 4,309,333 (213,098) - - - (213,098)
	15,174,677 1,541,442 - (10,815,011) 5,901,107 43,856,377 1,897,267 (139,405) (22,152,680) 23,461,559 - - - (3,945,229) (3,945,229) - - (223,177) - (223,177)
	- - (223,177) (3,945,229) (4,168,406) 9,772,844 - - - 9,772,844 (516,039) - - - (516,039) - 67,097 - - 67,097
	53,113,182 1,964,364 (362,582) (26,097,909) 28,617,055

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

Page | 10

Statement of Cash Flows

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

	CONSOLIDATED
Note	31 Dec2016 31 Dec2015
	$ $
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 and tax incentives received Other receipts (rental and reimbursements) Net cash used in operating activities Cash flows from investing activities Other investing receipts Payment for plant and equipment Loan to Mach7 Technologies Pte Ltd (pre-acquisition) Net cash flows provided by / (used in) investing activities Cash flows from financing activities Proceeds from issues of shares, options etc Repayment of borrowings 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 period Cash and cash equivalents at end of period 5a	4,343,349 231,136 (6,948,121) (1,790,670) 2,597 12,763 (134,967) (1,031) (7,700) - 6,135 - 342,087 -
	(2,396,620) (1,547,802)
	9,260 - - (526,027) - (2,193,382)
	9,260 (2,719,409)
	7,400,370 4,309,333 (670,000) - (494,700) (213,098)
	6,235,670 4,096,235
	3,848,310 (170,976) (55,506) - 1,718,511 2,751,420
	5,511,315 2,580,444

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

Page | 11

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

Notes to the Financial Statements

1. CORPORATE INFORMATION

The financial report of Mach7 Technologies Limited (the “Company” or the “Parent”) for the half year ended 31 December 2016 was authorised for issue in accordance with a resolution of the directors on 27 February 2017.

Mach7 Technologies Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities 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

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.

As disclosed in the financial statements, the Group incurred losses of $3.9 million and had net cash outflows from operating activities of $2.4 million for the period ended 31 December 2016. During the period, the Group successfully raised $9.0 million and repaid $2.8 million of external debt. As a result of the capital raising, the Group had net current assets of $5.4 million, including $5.8 million of cash on hand (both free and restricted) at 31 December 2016. Restricted cash comprises a bank guarantee which is due to be returned to the G during January 2017.

Due to the solid financial position at 31 December 2016, the Directors believe that there are reasonable grounds to believe that the Group will be able to continue as a going concern, provided the Group continues to be successful in securing projected new revenue contracts and manages its operating cash flows effectively.

Accordingly, the Directors believe that the Group 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.

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 | 12

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

3. SEGMENT INFORMATION

The Group is organised into two separate business units for management reporting purposes. The business activities of Mach7 Technologies Limited at the reporting date comprised the Mach7 enterprise imaging platform technology and the 3D Medical printing business.

		Mach7 Enterprise Imaging Platform 3D Medical Printing Group
Consolidated -31 Dec 2016		$ $ $
Revenue
Sales to external customers		4,777,308 8,716 4,786,024
Other revenue		336,082 23,325 359,407
Total segment revenue		5,113,389 32,041 5,145,431
Intersegment eliminations		- - -
Total revenue		5,113,389 32,041 5,145,431
Cost of sales		(255,534) (26,003) (281,537)
Operating expenses		(5,415,373) (237,006) (5,652,379)
Unallocated:
Corporate & head office overheads		(779,171)
Other income		261,852
Share basedpayments expense		(67,097)
Earnings before interest, tax, depreciation & amortisation		(557,518) (230,968) (1,372,901)
Depreciation and amortisation		(2,247,958) (97,754) (2,345,712)
Finance costs		(212,344) (27,189) (239,533)
Unallocated:
Interest revenue		- - 12,917
Profit before income tax expense		(3,017,820) (355,911) (3,945,229)
Income tax expense		- - -
Profit after income tax expense		(3,017,820) (355,911) (3,945,229)
Material items include:
Amortisation of intangible assets		(3,171,750) - (3,171,750)
Amortisation of deferred tax liability		950,048 - 950,048
Assets
Segment assets		3,290,855 641,354 3,932,210
Intersegment eliminations		- - -
Intangible assets		32,330,369 - 32,330,369
Unallocated assets:		5,632,726
Total assets		35,621,224 - 41,895,305
Liabilities
Segment liabilities		2,933,511 388,627 3,322,139
Intersegment eliminations		-
Deferred tax liability		9,574,680 - 9,574,680
Unallocated liabilities:		381,431
Total liabilities		9,574,680 - 13,278,250

Page | 13

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

3. SEGMENT INFORMATION (continued)

		Mach7 Enterprise Imaging Platform 3D Medical Printing Group $ $ $ - 335,876 335,876 - 335,876 335,876 - (229,993) (229,993) - (1,381,352) (1,381,352) - (1,275,469) (1,275,469) - (28,089) (28,089) - 12,763 12,763 - (1,020) (1,020) - (1,291,815) (1,291,815) - - - - (1,291,815) (1,291,815)
Consolidated - 31 Dec 2015
Revenue
Sales to external customers
Total segment revenue
Cost of sales
Operatingexpenses
Earnings before interest, tax, depreciation & amortisation
Depreciation and amortisation
Interest revenue
Finance costs
Profit before income tax expense
Income tax expense
Profit after income tax expense
Assets
Segment and total assets		- 6,189,986 6,189,986
Liabilities
Segment and total Liabilities		- 288,879 288,879

Geographic information

	Sales to external customers Non-current assets
	31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015
	$ $ $ $
Australia Singapore United States	144,403 335,876 429,869 772,365 1,518,863 - 9,393 - 3,122,758 - 249,185 -
	4,786,024 335,876 688,448 772,365

Page | 14

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

4. REVENUE, OTHER INCOME AND EXPENSES

4. REVENUE, OTHER INCOME AND EXPENSES
	CONSOLIDATED
	31 Dec 2016 31 Dec 2015
	$ $
(a) Revenue Software licence fees Professional service fees Annual maintenance fees Subscription (pay-per-use) revenue 3D printed models Other software technology licence fees (reseller agreements) (b) Other income Interest income Government grants Rental income (sub-tenancy) Gain on disposal of fixed asset R&D Tax refund Bad debt recovery Foreign currency exchange gain Other Revenue (c) Employee salaries, benefit and staff related expenses Salaries and wages Superannuation expenses Workers compensation costs Annual leave provision movement Payroll and Fringe Benefit Tax Other employee benefits (eg health insurance) Directors fees (d) Depreciation and amortisation Amortisation of intangible assets Amortisation of deferred tax liability Depreciation of property, plant and equipment	2,475,713 - 407,975 - 1,563,104 - 246,843 94,439 8,716 108,095 83,673 80,000
	4,786,024 282,534
	12,917 12,763 6,218 - 54,904 53,342 26,622 - 23,325 - 326,104 - 179,402 - 4,684 -
	634,176 66,105
	3,734,563 397,051 145,584 29,645 6,745 4,436 (77,519) (9,624) 202,800 9,427 559,942 26,278 112,421 139,234
	4,684,536 596,447
	3,171,750 - (950,048) - 124,010 28,089
	2,345,712 28,089

Page | 15

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

5. CASH AND CASH EQUIVALENTS & FINANCIAL ASSETS

5. CASH AND CASH EQUIVALENTS & FINANCIAL ASSETS
	CONSOLIDATED
	31 Dec 2016 30 Jun 2016
	$ $
Cash at bank and on hand 5a Bank guarantees and security deposits 5b Total cash (including restricted deposits)	5,511,315 1,718,511
	276,590 211,227
	5,787,905 1,929,738

Cash on call deposits are made 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. A bank guarantee of $222,870 is due to be returned to the Group in January 2017. The remaining deposits are for bonds paid in respect of leases for premises.

6. DEFERRED REVENUE

6. DEFERRED REVENUE
	CONSOLIDATED
Note	31 Dec2016 30 Jun 2016
	$ $
Software support revenue (i) Advances from customers (ii)	1,776,535 962,064 769,418 1,405,733
	2,545,953 2,367,797

Terms and conditions relating to the above financial instruments:

• (i) Software support 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).

• (ii) Advances from customers represent software licence fees (typically amounts are invoiced and received as milestones are achieved) but where the revenue is yet to be recognised.

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

7. CURRENT INTEREST BEARING LIABILITIES

7. CURRENT INTEREST BEARING LIABILITIES
	CONSOLIDATED
Note	31 Dec 2016 30 Jun 2016
	$ $
Interest bearing loans (i) Current portion of finance lease 9	68,600 2,876,135 129,459 116,667
	198,059 2,992,802

(i) As part of a placement of ordinary shares to institutional and sophisticated investors during the current reporting period, the Group repaid $2.2 million of its debt by issuing ordinary shares, at a price per share of 4 cents, to the lenders (loans a. to c., and part of e. below). In addition, it repaid $0.7 million of its debt with cash (loan d.) Immediately prior to repayment, the Group had the following interest bearing loans outstanding:

• a) US$1,000,000 repayable (50%) on 1 April 2017 and (50%) on 1 July 2017, interest rate 12% per annum payable monthly in arrears;

• b) US$280,000 repayable on 1 June 2017, interest rate 12% per annum payable quarterly in arrears;

• c) US$220,000 repayable on 1 June 2017, interest rate 12% per annum payable quarterly in arrears;

• d) US$500,000 repayable on 1 January 2017, interest rate 12% per annum payable quarterly in arrears;

• e) US$127,555 no formal maturity date, interest rate of 10% per annum, accumulating.

Page | 16

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

8. CONTRIBUTED EQUITY

8. CONTRIBUTED EQUITY
	CONSOLIDATED
	31 Dec 2016 30 Jun 2016
(a) Ordinary shares Number of shares issued and fully paid Value (b) Performance shares* Number of shares issued and fully paid Value	1,182,054,402 940,135,143 $ 53,113,182 $43,856,377 300,000,000 300,000,000 $- $-

*Fully paid ordinary shares carry one vote per share and carry the right to dividends. The ordinary shares issued are subject to the following escrow conditions as at 31 December 2016:

	No. of ordinary shares
Unrestricted and quoted on ASX	681,373,228
Restricted until 18 February 2017 (unquoted on ASX)	58,748,168
Restricted until 8 April 2017 (quoted on ASX)	441,933,006
Total Ordinary Shares On Issue	1,182,054,402

**Four classes of Performance Shares were issued to the vendors of Mach7 Technologies Pte Ltd as part of the Company’s merger with Mach7 during the previous corresponding period. Refer the Groups financial statements for the year ended 30 June 2016 for more information.

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 At 31 December 2015 Exercise of options at 5 cents per share 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 for interest and loan extensions Exercise of options at 5 cents per share Issue of shares under capital raising placement at 4 cents per share Capital raising costs At 31 December 2016	375,953,825 11,078,442 53,121,066 3,984,081 4,336,704 325,250
	433,411,595 15,387,773
	1,590,283 79,514 459,499,119 26,095,633 42,000,000 2,520,000 2,134,146 166,774 1,500,000 92,736 na (486,053)
	940,135,143 43,856,377
	4,650,600 186,024
	9,607,398 480,370
	227,661,261 9,106,450
	na (516,039)
	1,182,054,402 53,113,182

*Refer Note 9 for further information.

Page | 17

Notes to the Financial Statements

FOR THE HALF YEAR ENDED 31 DECEMBER 2016

9. BUSINESS COMBINATIONS

Acquisition of Mach7 Technologies Pte. Ltd

On 8 April 2016, 3D Medical Limited acquired all the issued share capital of Mach7 Technologies Pte. Ltd. (Mach7) 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 preliminary amounts recorded as a result of the business combination are shown in the table below.

	Preliminary Fair Values recorded on Acquisition
	$
Purchase consideration Shares issued on acquisition of Mach7 Technologies Pte. Ltd - Ordinary shares - Performance shares (300 million) issued (nil value) - Cash advanced for exercise of options on acquisition - Charge for quasi-options exchanged on acquisition Fair value of net tangible liabilities acquired - Fair value of intangible assets acquired – before goodwill - Goodwill on consolidation Fair value of intangible assets acquired Total fair value of net assets acquired
	26,095,633
	-
	1,137,542
	325,578
	27,558,753
	(5,081,923)
	25,720,947
	6,919,729
	32,640,676
	27,558,753

*The Company has 12 months from the date of acquisition to finalise fair values recorded at the date of acquisition. During the current period, the Group reviewed the fair values of the net assets acquired and consideration issued. As part of this review, the fair value of ordinary shares issued for consideration was reduced by $1,933,813. This reduction was the result of 31,701,855 shares issued to employees of Mach7 which were initially valued at 6.1 cents per share. These shares are subject to a non-recourse loan, and as such, have been separately valued in accordance with AASB2 Share Based Payments. As a result, the fair values recorded on acquisition for the ordinary shares issued and goodwill on consolidation, have been reduced by $1,933,813.

Further detail can be found in Note 18 of the Annual Report for the year ended 30 June 2016.

Page | 18

DIRECTORS’ DECLARATION

In the directors' opinion:

• the attached financial statements and notes comply with the Corporations Act 2001, Australian Accounting Standard AASB 134 'Interim Financial Reporting', the Corporations Regulations 2001 and other mandatory professional reporting requirements;

• the attached financial statements and notes give a true and fair view of the Group's financial position as at 31 December 2016 and of its performance for the financial half-year ended on that date; and

• there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of directors made pursuant to section 303(5)(a) of the Corporations Act 2001.

On behalf of the directors

Damien Lim Chairman 27 February 2017 Singapore

Page | 19

==> picture [118 x 62] intentionally omitted <==

RSM Australia Partners

Level 21, 55 Collins Street Melbourne VIC 3000 PO Box 248 Collins Street West VIC 8007

T +61 (0) 3 9286 8000 F +61 (0) 3 9286 8199

www.rsm.com.au

INDEPENDENT AUDITOR’S REVIEW REPORT

TO THE MEMBERS OF

MACH7 TECHNOLOGIES LIMITED

Report on the Half-Year Financial Report

We have reviewed the accompanying half-year financial report of Mach7 Technologies Limited and its controlled entities (“the consolidated entity”) which comprises the consolidated statement of financial position as at 31 December 2016, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration.

Directors’ Responsibility for the Half-Year Financial Report

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

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 . As the auditor of Mach7 Technologies Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Page | 20

THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING

==> picture [42 x 65] intentionally omitted <==

RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036

Liability limited by a scheme approved under Professional Standards Legislation

==> picture [118 x 62] intentionally omitted <==

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations act 2001 , which has been given to the directors of Mach7 Technologies Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Mach7 Technologies Limited and controlled entities is not in accordance with the Corporations Act 2001 including:

• (a) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its performance for the half-year ended on that date; and

• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and Corporations Regulations 2001 .

==> picture [43 x 42] intentionally omitted <==

RSM AUSTRALIA PARTNERS

==> picture [56 x 40] intentionally omitted <==

R MIANO Partner

27 February 2017 Melbourne, Victoria

Page | 21