NANOSONICS LIMITED — Annual Report 2012

Aug 26, 2012

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27 August 2012

Company Announcements Office Australian Securities Exchange

Nanosonics revenue up 295% as Trophon[®] EPR sales gain momentum – 2012 Full Year Results

• Revenue up 295% to $13.0 million in first full year of sales of ultrasound probe disinfection device, Trophon EPR, in key markets of US, Canada, Australia and New Zealand

• Net losses down 58% from $11.2 million to $4.7 million

• Operating expenses reduced from $14.2 million to $13.5 million

Nanosonics Limited (ASX:NAN) has today announced its full year financial results for the year ended June 30, 2012 reporting a revenue increase of 295% to $13.0 million as sales of Trophon EPR, its lead product for infection control, gain momentum in key markets.

The company reported a gross profit of $7.5 million and the net loss for the year was down 58%, from $11.2 million to $4.7 million.

The strong financial performance comes as the company increased market penetration of Trophon EPR, a unique device which provides rapid, safe and fully automated high level disinfection of ultrasound probes.

Throughout the year sales continued to grow in Australia and New Zealand, where there are now over 600 Trophon EPR units installed. The company also made a successful entry into the United States and Canada with its exclusive North American distribution partner, GE Healthcare, placing its first orders to respond to anticipated demand in this region.

Dr Ron Weinberger, Chief Executive of Nanosonics said: “This is an excellent result which demonstrates the potential of Trophon EPR. We now have commercial sales in the US and Canada and are well positioned for growth through our distribution agreement with GE Healthcare, a leading supplier of ultrasound equipment globally.”

“Although we are still in the early stages of commercialisation, the positive customer feedback and word of mouth referral is particularly pleasing. Over 90% of sites which trial Trophon EPR go on to purchase the equipment. We expect demand to increase as we expand our sales and marketing efforts and as pressure mounts on healthcare providers to better manage infection control.”

Nanosonics Limited ABN 11095076896 Unit 24, 566 Gardeners Road, Alexandria NSW 2015 P: +61 2 9313 4399 F: +61 2 9317 5010 W: www.nanosonics.com.au

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The company strengthened its cash position with a placement of 29.25 million shares, raising $15.5 million from institutional and sophisticated investors, including a cornerstone investment from Allan Gray (formerly Orbis Investment Management Australia).

The company also secured a strategic investment from GE Healthcare’s healthymagination fund of $7.5 million via a convertible note at $0.75, affirming GE’s commitment to the infection control market and recognising Nanosonics’ international leadership in this sector.

Operating expenses were down from $14.2 million to $13.5 million.

“The most significant expenditure relates to staffing costs, which increased to $7.7 million (from $6.7 million) reflecting our investment in key personnel to drive our expansion” said Dr Weinberger.

Investor Conference Call

An investor conference call will be held today, Monday August 27 at 11.00am AEST with Dr Ron Weinberger, CEO and Mr McGregor Grant, CFO.

Audio Access Code: 313698#

Australia: 1800 153 721 New Zealand: 0800 442 709 Hong Kong: 800 933 733 Singapore: 800 616 2259 United Kingdom: 0808 238 9067 United States: 1866 307 0659

All other international locations: +61 2 8212 8333

The conference call will also be webcast at: http://www.brrmedia.com/event/101935

An archived replay of the webcast will also be available at this link for one month following the call.

Dr Ron Weinberger CEO

For more information please contact:

Ron Weinberger, CEO or McGregor Grant, CFO, on 02 8063 1600 Tom Donovan, Media Relations, Buchan Consulting on (03) 9866 4722

About Nanosonics

Nanosonics Limited is developing a portfolio of decontamination products designed to reduce the spread of infection. The Company owns intellectual property relating to a unique disinfection and sterilisation technology which can be suited to a variety of markets.

Initial market applications are designed for the reprocessing of reusable medical instruments. The Company’s first product is designed to disinfect Ultrasound Transducers. In parallel with the commercialisation of this product, Nanosonics is also developing other medical applications and exploring opportunities for its proprietary technology in other industries.

For more information about Nanosonics please visit www.nanosonics.com.au

Nanosonics Limited ABN 11095076896 Unit 24, 566 Gardeners Road, Alexandria NSW 2015 P: +61 2 9313 4399 F: +61 2 9317 5010 W: www.nanosonics.com.au

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Appendix 4E

Preliminary Final Report – Results for Announcement to the Market

Name of entity:

NANOSONICS LIMITED

ABN 11 095 076 896

Year ended:

30 June 2012

Nanosonics Limited (the Company) gives the following information to ASX under listing rule 4.3A and Appendix 4E.

1 Reporting period: Year ended 30 June 2012

Previous corresponding period: Year ended 30 June 2011

2 Results for announcement to the market

Results for announcement to the market	Results for announcement to the market	Results for announcement to the market
% change $000’s Revenue from ordinary activities up 295% to 13,037 Loss from ordinary activities after tax attributable to members down 58% to (4,679) Net loss for the period attributable to members down 58% to (4,679)
Dividends	Amountper security	Franked amount per security
Interim dividend paid per share - - Final dividend paid per share - - Dividends proposed per share - - Record date for entitlement to dividend proposed n/a n/a
Net Tangible Asset Backing	30 June 2012	30 June 2011
Net tangible asset backing per ordinary security on issue at period end:	9.8 cents	6.1 cents
Explanatory note on results Revenue from ordinary activities includes revenue from sale of goods and services, government grants received and interest income. For further explanation of any of the figures reported above, see the Company's announcement made to the ASX on the same date as this Appendix 4E.

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Nanosonics Limited Appendix 4E - Preliminary Full Year Report Year ended 30 June 2012

Where applicable, the Preliminary Full Year Report includes information per items 3 to 17 below:

• 3 Consolidated statement of comprehensive income together with notes to the statement prepared in compliance with AASB 101 Presentation of Financial Statements.

• 4 Consolidated statement of financial position together with notes to the statement.

• 5 Consolidated statement of cash flows together with the notes to the statement, prepared in compliance with AASB 107 Statement of Cash Flows.

• 6 Consolidated statement of changes in equity showing retained earnings / (accumulated losses) and movements during the year.

• 7 No dividends were proposed, declared or paid because the immediate purpose of the Company is to complete development and commercialisation of its existing products.

• 8 No dividend or distribution reinvestment plans operated during the reporting period and the previous corresponding period.

• 9 Net tangible assets per security with the comparative figure for the previous corresponding period is noted in the table in item 2 above.

• 10 There were no entities over which control has been gained or lost during the period or the previous corresponding period.

• 11 The entity had no associates or joint venture entities during the period or the previous corresponding period.

• 12 Other significant information is available in Nanosonics Limited’s announcement made to ASX on the same date as this Appendix 4E.

• 13 Nanosonics Limited is an Australian company which applies Australian Accounting Standards.

• 14 A commentary on the results for the period is available in the next page and is contained in Nanosonics Limited’s announcement made to ASX on the same date as this Appendix 4E. Other relevant information is as follows:

	relevant information is as follows:
		2012	2011
14.1	Loss per share	cents	cents
	Basic (loss) per share	(2.0)	(4.9)
	Diluted (loss) per share	(2.0)	(4.9)

• 14.2 There were no returns to shareholders during the period or the previous corresponding period. 14.3 Significant features of operating performance are contained in Nanosonics Limited’s announcement made to ASX on the same date as this Appendix 4E.

• 14.4 The entity has one business segment, being healthcare equipment and operates in three geographical segments – North America, Australia and NZ, Europe and other countries. Segment information is included in the notes to the financial statements.

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Nanosonics Limited Appendix 4E - Preliminary Full Year Report

Commentary on results

Revenue from sales for the year amounted to $12,301,000 (2011: $2,247,000) and other income amounted to $736,000 (2011: 1,052,000). The net operating loss after income tax amounted to $4,679,000 (2011: $11,214,000). Cash and cash equivalents at 30 June 2012 amounted to $29,310,000 (2011: $12,356,000) which include the net proceeds from the issuance of shares of $15,394,000 (2011:$1,413,000) and the net proceeds from the issuance of convertible notes of $7,400,000 (2011: Nil).

Further commentary on the results is contained in Nanosonics Limited’s announcement made to the ASX on the same date as this Appendix 4E.

Significant changes in the state of affairs

During the year, the Company increased its funding as follows:

• The Company issued 29,245,283 shares through a placement to sophisticated and professional investors at a price of $0.53 per share completed on 4 May 2012 to raise $15,500,000 less the issue expenses of $188,000.

• The Company issued convertible notes which raised $7,500,000 less the issue expenses of $100,000.

With the increased funding, the Company is strongly positioned to drive the commercialisation of the Trophon EPR in each of the key markets globally and continue developing its valuable new product pipeline.

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Appendix 4E – Preliminary Full Year Report

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2012

Notes Continuing operations Sale of goods and services 1 Cost of sales Gross profit Other income Government grants Interest income Total other income Operating expenses Staffing costs 2 Intellectual property Quality & regulatory management Business development Premises, plant & equipment External consultants & advisors Other operating costs Total operating expenses Operating loss before income tax Income tax benefit Net loss after income tax expense attributable to owners of the parent entity Other comprehensive income Exchange difference on foreign currency translation Income tax on items of other comprehensive income Total other comprehensive income Total comprehensive income for the period attributable to owners of the parent entity (Loss) per share for losses attributable to ordinary shareholders of the company: Basic (loss) per share 4 Diluted (loss) per share 4	2012 2011 $’000 $’000
	12,301 2,247 (4,799) (981)
	7,502 1,266
	150 - 586 1,052
	736 1,052
	7,745 6,772 382 528 124 254 684 510 1,370 2,025 1,470 1,734 1,773 2,416
	13,548 14,239
	(5,310) (11,921) 631 707
	(4,679) (11,214)
	3 (22) - -
	3 (22)
	(4,676) (11,236)
	Cents Cents (2.0) (4.9) (2.0) (4.9)

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

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Appendix 4E – Preliminary Full Year Report

Consolidated Statement of Financial Position

As at 30 June 2012

Notes Current assets Cash and cash equivalents 3 Trade and other receivables Inventories Derivative financial instruments Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Other non-current assets Total non-current assets Total assets Current Liabilities Trade and other payables Deferred revenue Employees provisions Borrowings Total current liabilities Non-current liabilities Employees provisions Borrowings Convertible Notes 6 Total non-current liabilities Total liabilities Net assets Equity Contributed equity 7 Convertible Notes 6 Reserves 6 Accumulated loss Total equity	2012 2011 $’000 $’000
	29,310 12,356 3,030 933 2,398 1,610 31 - 205 212
	34,974 15,111
	1,468 1,522 77 117 141 98
	1,686 1,737
	36,660 16,848
	2,374 1,757 91 - 989 704 6 -
	3,460 2,461
	143 81 30 - 7,024 -
	7,197 81
	10,657 2,542
	26,003 14,306
	73,532 58,138 376 - 1,764 1,158 (49,669) (44,990)
	26,003 14,306

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

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Appendix 4E – Preliminary Full Year Report

Consolidated Statement of Changes in Equity

For the year ended 30 June 2012

At 30 June 2010 Loss for the period Other comprehensive income Total comprehensive income (loss) Transactions with owners in their capacity as owners Shares issued Share-based payment At 30 June 2011 Loss for the period Other comprehensive income Total comprehensive income (loss) Transactions with owners in their capacity as owners Shares issued Convertible notes issued Transaction costs Share-based payment At 30 June 2012	Contributed Equity Convertible Notes Share- based payments reserve Foreign currency translation reserve Accumulated losses Total equity Note 7 Note 6 $’000 $’000 $’000 $’000 $’000 $’000
	56,627 - 848 8 (33,901) 23,582
	- - - - (11,214) (11,214) - - - (22) - (22)
	- - - (22) (11,214) (11,236)
	115 - - - - 115 1,396 - 324 - 125 1,845
	58,138 - 1,172 (14) (44,990) 14,306
	- - - - (4,679) (4,679) - - - 3 - 3
	- - - 3 (4,679) (4,676)
	15,500 - - - - 15,500 - 381 - - - 381 (188) (5) (193) 82 - 603 - - 685
	73,532 376 1,775 (11) (49,669) 26,003

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

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Appendix 4E – Preliminary Full Year Report

Consolidated Statement of Cash Flows

For the year ended 30 June 2012

Notes Cash flows from operating activities Receipts from customers (inclusive of GST) Receipts from government grants Receipts from ATO for R&D tax concession Payments to suppliers and employees (inclusive of GST) Interest received Income taxes paid Net cash used in operating activities 3 Cash flows from investing activities Purchase of property, plant and equipment Net cash used in investing activities Cash flow from financing activities Net proceeds from issue of shares and exercise of options Net proceeds from borrowings Net proceeds from issue of convertible notes Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of year 3	2012 2011 $’000 $’000
	10,741 1,867 150 - 678 710 (17,166) (12,611) 615 1,033 (47) -
	(5,029) (9,001)
	(844) (1,178)
	(844) (1,178)
	15,394 1,413 36 - 7,400 -
	22,830 1,413
	16,957 (8,766) 12,356 21,144 (3) (22)
	29,310 12,356

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

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Appendix 4E – Preliminary Full Year Report

Notes to the Financial Statements

For the year ended 30 June 2012

1. Segment Information

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The Group operates in a single operating segment, being the healthcare equipment segment.

Types of products and services

The principal products and services of the healthcare equipment segment are the manufacture and commercialisation of infection control and decontamination products and related technologies.

Major customers

The group has a number of customers to which it provides products and services. The most significant customer accounts for 83% (2011: 70%) of external revenue. The next most significant customer accounts for 9.5% of external revenue.

Geographical segments

Geographically, the Group operates in the global markets. Australia is the home country of the parent entity. Operations in Europe commenced in August 2007 and in North America in March 2011.

Revenue from external customers by geographical location is detailed below.

Segment Revenue North America Australia and New Zealand Europe and other countries Total revenue	2012 2011 $’000 $’000
	10,236 344 1,651 1,569 414 334
	12,301 2,247

The analysis of the location of non-current assets other than financial instruments, deferred tax assets, pension assets is as follows.

Segment Assets US and Canada Australia and New Zealand Europe and other countries Total assets	2 - 1,676 1,719 8 18
	1,686 1,737

Segment information is prepared in conformity with the accounting policies of the Group as set out in note 3 and Accounting Standard AASB 8 Operating Segments .

Segment revenues are allocated based on the country in which the customer is located. Segment assets and capital expenditure are allocated based on where the assets are located.

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Appendix 4E – Preliminary Full Year Report

2. Loss before income tax expense

The loss from ordinary activities before income tax includes:

	2012	2011
	$’000	$’000
Expenses
Staffing costs broken into :
Salaries and wages	6,445	5,213
Superannuation contribution	648	426
Workers compensation costs	64	62
Other employee benefits	1,495	1,049
Share based payments	603	542
Less:Staffing costs included in cost of sales	(1,510)	(520)
Total staffing costs	7,745	6,772
Depreciation and amortisation	914	1,010
Research and development costs	3,135	3,627
Rental expenses relating to operating leases	472	387
Bad debts provision (reversal)	(60)	124
Inventoriesprovision/write off	294	736
Unrealised gain on forward contracts	31	-
Realised gain on forward contracts	16	-

3. Cash and cash equivalents

Cash at bank and on hand Deposits on call Short term deposits	2012 2011 $’000 $’000
	952 511 2,201 3,021 26,157 8,824
	29,310 12,356

Cash term investments which are highly liquid irrespective of their maturity dates are classified as current assets at market value as they may not necessarily be held by the Company for their full term.

For the purpose of the Statement of cash flows, cash includes cash on hand and at bank and short term deposits at call and the floating rate note, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the Statement of cash flow is reconciled to the related items in the statement of financial position as follows:

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Appendix 4E – Preliminary Full Year Report

Reconciliation of operating loss after income tax to net cash provided by operating activities

Operating loss after income tax Adjustment for: Depreciation and amortisation Share based payments expense Loss on disposal of property, plant and equipment Changes in assets and liabilities (Increase) / decrease in trade and other receivables (Increase) / decrease in inventories (Increase) / decrease in other current assets (Increase) / decrease in other non-current assets Increase /(decrease) in trade and other payables Increase /(decrease) in provisions Net cash used in operating activities	2012 2011 $’000 $’000
	(4,679) (11,214) 917 1,010 603 542 24 - (2,096) (472) (788) (39) (24) (19) (42) 15 709 753 347 423
	(5,029) (9,001)

(b) Credit standby arrangements unused

Commercial card and other credit facilities Total facility 4. Loss per share (a) Basic loss per share Loss attributable to ordinary shareholders of the Company (b) Diluted loss per share Loss attributable to ordinary shareholders of the Company (c) Losses used in calculating loss per share Net loss after income tax expense attributable to shareholders (d) Weighted average number of shares used For basic earnings per share For diluted earnings per share		Facility Limit Facility used by 30 June 2012 Facility available at 30 June 2012
		$’000 $’000 $’000
	Commercial card and other credit facilities	256 88 168
	Total facility	256 88 168
		2012 2011 Cents Cents
		(2.0) (4.9) (2.0) (4.9) (4,679) (11,214) 234,650,192 227,184,185 234,650,192 227,184,185

(e) Information concerning options granted

Options granted under the Nanosonics Employee Share Option Plan and the Nanosonics General Share Option Plan are considered to be potential ordinary shares and have been excluded from the calculation of diluted loss per share as the effect would have been anti-dilutive.

5. Dividends

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Appendix 4E – Preliminary Full Year Report

No dividends were proposed, declared or paid during the financial year and to the date of this report (2011: Nil).

6. Convertible notes

Convertible notes(Face value) Less : Issue cost Total (Net of issue cost) Broken down as follows : Convertible notes - Non- current liabilities Convertible notes -Equity		2012 2011 $’000 $’000
		7,500 - (100)
		7,400 -
		7,024 376 7,400

On 28 June 2012, the Company issued unsecured Tranche A Convertible note of $4,000,0000 and Tranche B Convertible note of $3,500,000 which matures 4 years after the issue date. The convertible notes bear 6% interest per annum on a simple interest basis payable on each anniversary of issue date, redemption date and conversion date except that no interest repayment will be made to the noteholder on the 1st 2 years but the interest will accrue and form part of the face value of the note but will not bear any further interest. After that period, the noteholder may elect whether to receive interest in cash or to have such interest accrue and form part of the Face Value (but this will not bear further interest).

The Tranche A Convertible Note may be converted at any time up until the Maturity Date at $0.75 per share, subject to certain adjustments.

Tranche B Convertible Note will not be convertible until:

(a) Shareholders approve the conversion rights under the Tranche B Convertible Note or

(b) the Company has sufficient placement capacity for such a Conversion Right to be effected and the ASX has confirmed in writing that this does not result in the Tranche B Convertible Note being regarded as "equity securities" under the ASX Listing Rules or that such Conversion Right otherwise will be exercisable for the purposes of ASX Listing Rule 7.1. The conversion price of Tranche B Convertible note is $0.75 per Share, subject to certain adjustments.

Further details regarding the issue of convertible note are included in the announcement to the ASX on 28 June 2012.

7. Contributed equity

Share capital

259,982,918 ordinary fully paid shares (2011: 230,490,585 )

Movements in ordinary shares on issue At 30 June 2010 Share options exercised Shares issued At 30 June 2011 Share options exercised Shares issued under share placement (net of issue cost) At 30 June 2012	Number of shares $’000
	225,753,032 56,627
	4,635,150 1,396 102,403 115
	230,490,585 58,138
	247,050 82 29,245,283 15,312
	259,982,918 73,532

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Appendix 4E – Preliminary Full Year Report

All ordinary shares are fully paid. Ordinary shares carry one vote per share and entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands, every ordinary shareholder present at a meeting in person or by proxy is entitled to one vote and upon a poll each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

At 30 June 2012 there were 3,758,269 (2011: 3,386,200) options to acquire one ordinary share each outstanding, of which 1,236,484 (2011: 655,700) had vested and were exercisable.

8. Contingent liabilities

Government grants received

The Company received two Federal Government grants in respect of specified development projects and in terms of which payments of grant income have been included in the Group’s operating income in previous years. Certain details of the grants are shown below.

which payments of grant income have been included in the Group’s operating income in of the grants are shown below.	previous years. Certain details
Project completion date Interest rates applicable to repayments	Total grant income received over the project life
	$’000
R&D Start Grant 30 June 2007 5.395% Commercial Ready Grant 30 September 2007 5.665%	1,889 3,191

If certain circumstances occur, relating mainly to cessation by the Company of the activities subject to a grant and/or loss to the Commonwealth of Australia of intellectual property so created within a period of five years after completion of the project, the government may recover some or all of the payments made under the grant, plus interest.

The Directors consider that none of the circumstances required for grant income to be refundable has occurred to the date of this report or is foreseeable. However, due to uncertainty inherent in the activities subject to the grants, the amounts stated above, together with applicable interest, represent contingent liabilities as at 30 June 2012.

9. Events subsequent to reporting date

On 4 May 2012, The Company announced the Share Purchase Plan offering up to 9,433,962 shares at the issue price of $0.53 per share. The Share Purchase Plan closed on 16 July 2012 from which the Company issued 718,496 shares and raised $381,000 less share issue cost of $39,000.

No other matter or circumstance has arisen since 30 June 2012 that has significantly affected, or may significantly affect:

• a) the Group’s operations in future financial years;

• b) the results of those operations in future financial years; or

• c) the Group’s state of affairs in future financial years.

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Appendix 4E – Additional Information

Audit

The Preliminary Full Year Report is based on accounts which are in the process of being audited. It is not considered likely any audit qualification will arise.

Date: 27 August 2012

McGregor Grant CFO & Company Secretary

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