ASX:! OSP Company For personal use only · 3/24/2015 · OSP)(the#Company) ... We are a company...

US OFFICE & HEADQUARTERS: Suite 250, 5600 Rowland Road, | Minnetonka MN 55345 | Tel: +1 952.955.8230 | Fax: +1 952.955.8171 | AUSTRALIAN OFFICE: Level 13, 41 Exhibition Street | Melbourne VIC 3000 | Tel: +61 410 442 393 | Fax: +61 3 9663 6609 |

Osprey Medical Inc. (ARBN 152 854 923) is a foreign company incorporated in Delaware, USA, whose stockholders have limited liability.

www.ospreymed.com

ASX ANNOUNCEMENT: 2014 Annual Report

Minnesota, United States and Melbourne, Australia – 24 March 2015 – Osprey Medical Inc. (ASX: OSP) (the Company) is pleased to present the attached 2014 Annual Report. The Annual Report includes the Company’s audited financial statements for the year ended 31 December 2014 and other required disclosures. The financial statements included in the Annual Report were prepared in accordance with US generally accepted accounting principles (US GAAP) and are denominated in US dollars. Brendan Case Australian Secretary

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2014 ANNUAL REPORT

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Letter from the Chairman ...........................................................................................................................3

Letter from the President and CEO .................................................................................................4

Independent Auditors’ Report ...............................................................................................................6

Consolidated Financial Statements

Consolidated Balance Sheets ............................................................................................................7

Consolidated Statements of Operations ..............................................................................8

Consolidated Statements of Shareholders’ Equity ..................................................9

Consolidated Statements of Cash Flows ......................................................................... 10

Notes to Consolidated Financial Statements ................................................... 11–19

Shareholder Information ...............................................................................................................20–22

Corporate Governance ....................................................................................................................23–30

Corporate Directory ....................................................................................................................................... 31

TABLE OF CONTENTS

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Dear Shareholders,

On behalf of the Company’s Board of Directors and Management, I am pleased to present the 2014 Annual Report for Osprey Medical.

Osprey continues its efforts directed at reducing the harmful effects of dye used in at-risk patients undergoing heart and vascular imaging procedures.

We are a company committed to meeting the needs of patients, doctors and hospitals. It is a characteristic of Osprey for which I am especially proud.

Key to our success will be driving broad awareness among doctors of our AVERT System and the benefits it offers to the health of patients, along with the cost savings it provides to the healthcare system. Our commercialisation comes at a time when there is increasing focus by the medical community on the risk, consequences and cost of CIN (contrast induced nephropathy). For example, a major study published in the prestigious Journal of the American College of Cardiology – Cardiovascular Interventions emphasizes that CIN is associated with a significant increase in serious adverse events and longer hospital stays. If patients have to stay in the hospital for longer than they might otherwise because of complications, the cost of caring for them is increased. These are issues we are aiming to address.

As we progress along our commercialisation path, we are increasingly being recognized for our work at leading industry conferences, in the media and through our commercialisation activity. This recognition is important validation for our efforts and will reinforce our drive to see the AVERT System become the standard of care for patients at risk for CIN.

A clear focus ensures we deliver the latest advancements in our AVERT System to those it will most benefit. This commitment saw us release in 2014 an upgrade to our second generation AVERT system – called AVERT Plus – which offers new features to improve medical outcomes. We added to the system an LCD display which shows the doctor’s calculation of contrast dye to be used in a patient, monitoring in real time the amount of dye being used, and accurate recording of the doses delivered.

The new display also assists doctors and hospitals to comply with new angioplasty and stenting procedural performance standards including dye dose documentation that have recently been introduced in the US.

Our commitment to innovative products resulted in the selection of the AVERT as part of the Emerging Innovative Cardiovascular Technologies session at Transcatheter Cardiovascular Therapeutics Meeting in Washington, D.C., one of world’s largest gatherings of heart specialists. It was significant and welcome recognition for our work from the very specialists we are helping, and further enhanced the profile and awareness of AVERT in the lead up to our planned full US launch late 2015/early 2016.

We are broadening the potential markets for AVERT. In 2014, doctors in Texas started using the System when treating peripheral artery disease. Expanding the use of the System opens up the benefits of reducing the amount of dye used during procedures to a wider group of patients. The peripheral artery disease use is a significant additional market opportunity, with an addressable market totaling nearly 500,000 procedures worth approximately $US200 million.

The year ahead promises to be a significant and exciting time for Osprey.

We now have 39 hospitals taking part in our post market trial and another 12 sites are in the process of being activated. The high quality data we achieve from this trial will provide a solid foundation to support our marketing claims. We expect to complete this trial in the middle of this year and to submit our expanded marketing claims to the FDA for approval by the end of the year.

We will also continue to receive data on our study to examine the economic benefits of AVERT for patients, hospitals and health insurers. This information is expected to show the economic benefits of AVERT and will help us to drive market adoption of our system.

Commercialisation activities will be ramped up in Texas where we have been successful this year in establishing our first sales and gaining valuable information on adoption and implementation processes in preparation for our full US launch. As we get closer to full clearance of expanded marketing claims, we will begin the planning process for establishing a sales team to cover the entire US.

On behalf of the board, I would like to thank you, our shareholders, for your commitment and continued support of Osprey.

We look forward to sharing with you what promises to be an exciting 2015.

Yours sincerely,

John Erb Chairman

LETTER FROM THE CHAIRMAN

JOHN ERB

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LETTER FROM THE PRESIDENT AND CEO

MIKE MCCORMICK

Dear Shareholders,

In 2014, we made strong progress in further advancing our AVERT™ product platform, a new medical device for use by cardiovascular physicians in lowering the risk of kidney damage that can be caused from contrast (dye) injections commonly used in angiographic procedures.

The Osprey team performed extremely well this past year and the Company benefitted from many significant accomplishments. Our key achievements included:

• Rapid Scale-up of our AVERT Post Market Randomized Clinical Trial to Support Expansion of Marketing Claims

The post market trial is focused on expanding our current FDA approved claims (controlled delivery of dye) to include lowering patients dye dose while demonstrating reduced reflux and adequate image quality, along with CIN reduction and hospital cost savings. There are 39 hospitals actively recruiting patients in which enrolments averaged 50 patients per month in the last quarter of 2014. The trial is well on track to complete in mid-2015. This is a commendable achievement for our clinical team as, in our industry, enrolment rate is the key to successful and timely completion of any clinical trial.

• First Revenues for AVERT in Texas

Osprey generated its first revenues in the United States in the fourth quarter of fiscal year 2014 following a controlled launch of AVERT at a multi-hospital health care system and a university-based health care facility in San Antonio, Texas. Fourth quarter sales of US$7,720 represent 17 procedures and units. The purpose of this targeted Texas launch is to establish best practice for adoption, ordering and usage in a single US state, in preparation for the full US launch of AVERT targeted for late 2015/early 2016. Osprey’s sales approach over the initial 6-12 month period is to ensure that practices and systems are developed to enable adoption of the AVERT System.

• New Market Expansion Opportunity in Peripheral Artery Disease (PAD)

Osprey announced in August that physicians involved in its early commercialisation in Texas, helped to identify peripheral artery disease (PAD) as a potential new market expansion opportunity for the AVERT System. Experience gained by those physicians with the use of the AVERT for this application gives us confidence that we will be able to exploit this new market opportunity. We believe this represents an additional addressable market opportunity of over 475,000 procedures annually in the US and Western Europe.

• Contrast Monitoring Technology Added to AVERT

Osprey reported last September that it was featuring its new Contrast Monitoring Technology at the world-leading international cardiovascular conference, the Transcatheter Cardiovascular Therapeutics (TCT) Meeting held in Washington, D.C. This was followed by a December announcement of receiving FDA clearance for the AVERT System with Contrast Monitoring Technology (called the AVERT Plus System). The enhanced system features a disposable smart syringe and LCD monitor which automatically keeps track of the amount of contrast dye used in angiographic imaging procedures. The AVERT Plus has been incorporated into Osprey’s Texas commercialisation plan with efforts underway to upgrade existing customers.

Looking forward, we anticipate 2015 will be another important year as we focus on the following key initiatives:

• Complete AVERT Trial and Submit for Expanded Marketing Claims

We anticipate completing patient enrolment and submitting for FDA clearance for expanded marketing claims by calendar year end. We anticipate gaining clearance for these claim expansions during late 2015/early 2016 in which we will be in position to rapidly scale our commercial sales force across the entire US.

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• Drive Further Physician Adoption in Our Initial Customer Sites in Texas

We are in a solid position to gain strong market adoption in Texas by leveraging market knowledge gained from last year’s sales efforts in San Antonio combined with the introduction of our AVERT Plus System. In addition, we have expanded our commercial efforts to include Houston, with the recent hiring of a seasoned sales representative. Our goal is to gain further market adoption at the hospital level in our initial commercial sites in San Antonio and Houston. Physician adoption and repeat usage will be key sales metrics to measure our progress throughout this year.

• Prepare for Full US Launch of Avert

Towards year end, as we get closer to clearance of the expanded marketing claims for our AVERT System, we will begin the planning process to hire and manage a sales team to support broad scale commercialisation throughout the US beginning in late 2015/early 2016.

• Demonstrate AVERT Hospital Cost Savings

In the US, a rapidly changing healthcare landscape represents an opportunity for our AVERT System. Key hospital level economic drivers include reduced in-hospital mortality, reduced length of stay, improved quality of care, reduced complications, and reduced 30-day readmissions. We intend to educate our physician and hospital customers regarding the role of AVERT in assisting them to meet professional society guidelines that have been issued in support of minimizing contrast dye usage and the accurate documentation of the contrast volume used for quality improvement measures. Furthermore, we plan to complete our on-going health economic sub-study demonstrating significant savings for the hospital in using the AVERT system and anticipate publishing the results in mid-2016.

• New Product Enhancements and Developments

We continue making R&D investments in our AVERT product platform franchise. These efforts include new complementary technology making current products easier to use for physicians and cath lab staff and expanding our current products addressing unmet market needs and offering new market expansion opportunities.

I would like to thank all of our employees, Board of Directors, and Shareholders for your continued support. It is this support that allows us to continue advancing our mission of protecting the kidneys of at-risk patients from the toxic effects of dye used in angiographic imaging procedures.

Mike McCormick Osprey Medical President & CEO

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6 FINANCIAL REPORT

INDEPENDENT AUDITORS’ REPORT

Board of Directors, Audit Committee and Shareholders Osprey Medical, Inc. and Subsidiary Minnetonka, Minnesota and Professional Chambers Level 2, 120 Collins Street Melbourne, Victoria 3000, Australia ARBN: 152 854 923

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Osprey Medical, Inc. and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Osprey Medical, Inc. and Subsidiary as of December 31, 2014 and 2013 and the results of their operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Minneapolis, Minnesota

February 16, 2015

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OSPREY MEDICAL, INC. AND SUBSIDIARY

FINANCIAL REPORT

CONSOLIDATED BALANCE SHEETS

As of December 31, 2014 and 2013ASSETS

2014 2013CURRENT ASSETS

Cash and cash equivalents $ 4,142,808 $ 12,985,166

Restricted cash 253,063 247,349

Accounts receivable 4,931

Prepaid expenses 49,176 115,681

Inventory 232,454 130,028

Held-to-maturity investments 7,181,260 3,207,587

Other current assets 72,571 54,914

Total Current Assets 11,936,263 16,740,725

PROPERTY AND EQUIPMENTOffice and computer equipment 281,319 270,979

Laboratory equipment 237,153 112,896

Furniture and fixtures 46,103 46,103

Less: Accumulated depreciation (311,447) (198,290)

Net Property and Equipment 253,128 231,688

OTHER ASSETSIntangible assets, net of accumulated amortization of $93,731 and $81,224 as of December 31, 2014 and 2013, respectively 133,291 145,787

Security deposit 12,250 27,250

Held-to-maturity investments - 4,169,156

Total Other Assets 145,541 4,342,193

TOTAL ASSETS $ 12,334,932 $ 21,314,606

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIESAccounts payable $ 244,851 $ 548,290

Accrued expenses 558,372 305,018

Accrued vacation 115,719 92,879

Deferred grant 258,861 244,185

Total Current Liabilities 1,177,803 1,190,372

LONG TERM LIABILITIESAccrued rent 49,057 61,531

Total Liabilities 1,226,860 1,251,903

SHAREHOLDERS’ EQUITYPreferred stock, $0.0001 par value; 32,500,000 authorized shares; none issued and outstanding - -

Common stock, $0.0001 par value; 80,000,000 authorized shares; 61,608,412 shares issued and outstanding as of both December 31, 2014 and 2013 6,161 6,161

Additional paid-in capital 52,102,859 51,334,345

Deficit (41,000,948) (31,277,803)

Total Shareholders’ Equity 11,108,072 20,062,703

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) $ 12,334,932 $ 21,314,606

See accompanying notes to consolidated financial statements and independent accountants’ review report.

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FINANCIAL REPORT

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2014 and 2013

2014 2013

SALES $ 7,720 $ -

COST OF SALES 202,890 -Gross Loss (195,170)

OPERATING EXPENSESSales and marketing 1,152,783 754,749

General and administrative 2,612,811 2,806,027

Clinical and regulatory 2,775,045 2,366,429

Research and development 3,014,660 2,717,414

Total Operating Expenses 9,555,299 8,644,619

Operating Loss (9,750,469) (8,644,619)

OTHER INCOME (EXPENSE)Other income (expense) 27,894 36,345

Net Other Income (expense) 27,894 36,345

Loss Before Income Taxes (9,722,575) (8,608,274)

Income tax provision (benefit) 570 300

NET LOSS $ (9,723,145) $ (8,608,574)

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FINANCIAL REPORT

See accompanying notes to consolidated financial statements and independent accountants’ review report.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


Common Stock

Shares AmountAdditional

Paid-in CapitalAccumulated

Deficit

Total Shareholders’

EquityBALANCES, December 31, 2012 50,465,227 $ 5,047 $ 37,821,727 $ (22,669,229) $ 15,157,545Exercise of stock options 373,954 37 87,940 - 87,977Stock-based compensation expense - - 610,630 - 610,630Issuance of common stock at $1.25 per share, net of issuance costs 10,769,231 1,077 12,814,048 - 12,815,1252013 net loss - - - (8,608,574) (8,608,574)BALANCES, December 31, 2013 61,608,412 6,161 51,334,345 (31,277,803) 20,062,703Stock-based compensation expense - - 768,514 - 768,5142014 net loss - - - (9,723,145) (9,723,145)BALANCES, December 31, 2014 61,608,412 $ 6,161 $ 52,102,859 $ (41,000,948) $ 11,108,072

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FINANCIAL REPORTSee accompanying notes to consolidated financial statements and independent accountants’ review report.

CONSOLIDATED STATEMENTS OF CASH FLOWS


Year ended December 31,

2014


2013CASH FLOWS FROM OPERATING ACTIVITIESNet Loss $ (9,723,145) $ (8,608,574)Adjustments to reconcile net loss to net cash flows from operating activities

Depreciation 113,157 82,991Amortization 12,496 12,496Stock-based compensation expense 768,514 610,630Amortization of discount on held-to-maturity investments 59,875 10,035Changes in operating assets and liabilities

Accounts receivable (4,931) -Prepaid expenses 66,505 95,398Inventory (102,426) 43,427Other current assets (17,657) (302,263)Accounts payable (303,439) 255,380Accrued expenses 253,354 299,609Accrued rent (12,474) 53,540Accrued vacation 22,840 16,978Deferred grant 14,676 6,018

Net Cash Flows from Operating Activities (8,852,655) (7,424,335)

CASH FLOWS FROM INVESTING ACTIVITIESPurchases of held-to-maturity investments (5,024,392) (7,386,778)Proceeds from held-to-maturity investments 5,160,000 -Purchases of property and equipment (134,597) (250,906)Security deposit 15,000 (12,250)Change in restricted cash (5,714) -

Net Cash Flows from Investing Activities 10,297 (7,649,934)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock, net of issuance costs - 12,815,125Proceeds from exercise of stock options - 87,977

Net Cash Flows from Financing Activities - 12,903,102

Net Change in Cash and Cash Equivalents (8,842,358) (2,171,167)

CASH AND CASH EQUIVALENTS - Beginning of Year 12,985,166 15,156,333

CASH AND CASH EQUIVALENTS - END OF YEAR $ 4,142,808 $ 12,985,166

SUPPLEMENTAL CASH FLOW DISCLOSURESCash paid for income taxes $ 570 $ 300

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FINANCIAL REPORT

NOTE 1 - Summary of Significant Accounting Policies

Nature of Operations

Osprey Medical Inc. (“Osprey Medical” or the “Company”) is a US based company focused on the development and commercialization of its proprietary products for the prevention of Contrast Induced Nephropathy (CIN).

Osprey Medical’s lead product the AVERT™ System is designed to reduce the amount of dye (contrast) injected into patients during standard cardiovascular procedures. Reducing the amount of dye injected may be beneficial to patients with pre-existing chronic kidney disease as it is designed to protect them from additional kidney damage known as Contrast Induced Nephropathy (CIN). Dye is routinely used to x-ray the heart during angioplasty and stenting procedures. Patients at high risk of CIN often have pre-existing chronic kidney disease. Prevention of CIN in high-risk patients may lead to shorter hospital stays, improved patient outcomes, and may ultimately save patients’ lives.

Approximately 25% of patients undergoing angioplasty or stenting are at high risk of CIN due to chronic kidney disease. The AVERT™ System incorporates technology developed in collaboration with Melbourne’s Baker Heart and Diabetes Institute.

Following successful clinical trials in Australia, the Company has obtained European Regulatory approval (CE Mark), TGA approval, and US FDA clearance for the AVERT™ System and commenced a controlled market launch in the US in 2014. The Company has also obtained approval from the FDA in the US, to conduct an IDE clinical trial so as to expand claims. The trial has commenced with an expectation that the completion of the trial and receipt of marketing clearance for the additional claim may be obtained in 2015.

CIN is a form of kidney damage caused by the toxic and reduced blood flow effects of dyes used in common heart procedures such as angioplasty and stenting. Osprey Medical’s AVERT™ System is a simple and easy-to-use device designed to significantly reduce the quantity of these dyes used in these procedures while providing sufficient radio-graphical imaging. Reduced dye may prevent further kidney damage in these “at risk” patients.

CIN is costly to both hospitals (bearing the cost of longer hospitalizations arising from CIN) and health payers (paying the costs of chronic health deterioration due to CIN). Osprey Medical believes that hospitals and health payers have clear economic incentive to pay for effective systems that reduce the risk and cost of CIN.

Osprey Medical’s patent portfolio comprises 6 issued US patents, 7 issued international patents; 11 pending US patent applications, and PCT filings resulting in 7 National Stage Applications and National Stage Patents in the European Union, Japan and Australia.

On October 30, 2007, the Company formed a wholly-owned Australian subsidiary with the name Osprey Medical Pty. Ltd. (OM Pty) for the purpose of conducting research on future products. The subsidiary began operations in early 2008.

Principles of Presentation

The consolidated financial statements include the accounts of the Company’s wholly-owned Australian subsidiary, OM Pty. All intercompany accounts and transactions have been eliminated in consolidation.

The US dollar is the functional currency of OM Pty, and as a result, all currency gains and losses are reflected in operations. Currency gains and losses include realized amounts on transactions, and unrealized amounts related to translating accounts from local currency to the functional currency, with translation accomplished using the current rate method.

In its consolidated statement of operations, the Company segregates its operating expenses into four categories that provide useful information to both management and Company shareholders.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Years Ended December 31, 2014 and 2013

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FINANCIAL REPORT

NOTE 1 - Summary of Significant Accounting Policies (cont.)

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments with maturities of three months or less from their date of purchase. The Company maintains cash balances that exceed federally insured limits; however, it has not incurred losses on such amounts.

Restricted Cash

Restricted cash consists of deposits on hand for use under a grant program.

Accounts Receivable

The Company grants credit to customers in the normal course of business and generally does not require collateral or any other security to support amounts due. Customer accounts with balances outstanding longer than the contractual terms are considered past due. The Company records accounts receivable at the original invoice amount less an estimate made for doubtful receivables based on periodic reviews of all outstanding amounts. The Company determines the need for an allowance for doubtful accounts by considering a number of factors, including length of time accounts receivables are past due, customer financial condition and ability to pay the obligation, historical and expected credit loss experience, and the condition of the general economy and the industry as a whole. It is the Company’s policy to write off accounts receivable when deemed uncollectible. There was no allowance for doubtful accounts as of December 31, 2014 and 2013.

Investments

Short-term investments in debt securities which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income, using the interest method, over the period to maturity. At each reporting date, the Company performs evaluations of impaired debt securities to determine if the unrealized losses are other-than-temporary. Unrealized losses on held-to-maturity securities reflecting a decline in value determined to be other-than-temporary are charged to income.

Inventories

Inventories are stated at lower of cost (using the first in, first out (FIFO) method) or market, and are as follows as of December 31:

2014 2013

Raw Materials $ 226,617 $ 111,464Work in Progress - 18,564Finished Goods 5,837 -Total $ 232,454 $ 130,028

The Company has invested in its manufacturing operations to support future sales. Because of this investment in the future, the Company is not currently operating at normal capacity. Charges related to excess capacity are included as current period charges to cost of sales, and are not capitalized into inventory.

Property and Equipment

Property and equipment are recorded at cost, and depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets:

Years Computer equipment 3

Furniture and fixtures 7

Lab equipment 5

Maintenance and repairs are charged to expense as incurred. Depreciation expense on property and equipment was $113,157 and $82,991 for the years ended December 31, 2014 and 2013, respectively.

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FINANCIAL REPORT


Intangible Assets

Intellectual property acquired for consideration is recorded either as research and development expense or as intangible assets, as appropriate to the use of the property. Intellectual property that has multiple future uses is capitalized when acquired, and single-use property is expensed as research and development. The Company’s recorded intangible assets are comprised entirely of patent applications acquired from V Kardia Pty. (VK Pty) for which there were multiple future uses. At acquisition of these assets there was a difference between the value of the asset acquired and its tax basis, and the Company increased the assigned value of the asset acquired by the amount of the related deferred tax liability. The Company amortizes intangible assets on a straight-line basis over their expected economic lives, which is equivalent to the time from acquisition through expiration of the patents expected to be issued from the acquired patent applications. The intangible assets acquired in June, 2007 are expected to have a life of approximately 18 years from the date of acquisition. Intangible assets are reviewed for impairment whenever events or changes in business circumstances indicate carrying value of the assets may not be recoverable. Impairment losses are recognized if expected future cash flows from related assets are less than their carrying values.

Revenue Recognition

The Company recognizes revenue when the customer takes ownership, primarily upon implant, and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Shipping and handling costs charged to customers have been included in net sales. Shipping and handling costs incurred by the Company have been included in cost of sales. The Company presents taxes imposed on revenue-producing transactions on a net basis.

Medical Device Excise Taxes

Sales of certain Company products are subject to the Medical Device Excise Tax levied on registered medical device sales under the Patient Protection and Affordable Care Act (“ACA”) enacted in 2010. The ACA requires the Company to pay 2.3% of the taxable sales value of devices sold. Qualifying sales are recorded on a gross basis. Taxes levied are included in general and administrative expenses.

Lease Expense

The Company recognizes rental expense for an operating lease on a straight-line basis over the term of the lease.

Research and Development Costs

Research and development costs are charged to expense as incurred. The Company has acquired licenses to intellectual property that do not have multiple uses, and records such acquisition costs as research and development as incurred. Consideration for such intellectual property includes current and future payments of cash, issuance of common stock and warrants to acquire common stock.

Certain activities of OM Pty are eligible for local research grants. The Company has applied for and received portions of amounts related to such grants. All amounts recognized are offset against research and development expenses for reporting purposes. Total amounts offsetting research and development expenses were $81,392 and $41,236 for the years ended December 31, 2014 and 2013, respectively.

The Company accrues proceeds received under such grants when not earned and offsets research and development expenses over the timelines associated with completion of the contracts’ specific objectives and milestones. As of December 31, 2014 and 2013, the Company had deferred grant proceeds of $258,861 and $244,185, respectively.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of the assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce net deferred tax assets when it believes it is more likely than not that all or part of its deferred tax assets will not be realized.

Stock-Based Compensation

The Company accounts for stock-based payment transactions when it receives employee or supplier goods and services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments using a fair value-based method. The Company uses the Black-Scholes-Merton (BSM) option pricing model to determine the fair value of stock-based awards.

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FINANCIAL REPORT


Issuance of Stock

The Company issues new shares of stock upon the exercise of stock options, warrants and converted instruments.

Fair Value

The carrying value of cash and cash equivalents, accounts receivable, held-to-maturity investments, accounts payable and deferred grant approximate fair value because of the short-term maturity of those instruments.

Reclassification

For comparability, certain 2013 amounts have been reclassified to conform with classifications adopted in 2014. The reclassification had no impact on net loss or shareholders’ equity.

Subsequent Events

For the year ended December 31, 2014, the Company has evaluated, for potential recognition and disclosure, events that occurred prior to the issuance of the consolidated financial statements for the years ended December 31, 2014 on February 16, 2015.

NOTE 2 - Liquidity

The consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company expects that its expenses will exceed its revenues at least up to, and likely beyond, the point at which the Company is able to generate significant revenues from its approved products. The Company intends to raise additional capital to finance its operations and expects to have enough cash to operate for at least the next twelve months.

NOTE 3 - New Accounting Pronouncement

In 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-10, related to the elimination of certain financial reporting requirements for development stage entities. The amendments, among other items, eliminate the requirements for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. The amendments are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. These provisions can be adopted earlier at the election of the Company. The Company has adopted these provisions during the year ended December 31, 2014.

NOTE 4 - Fair Value Measurements

Generally, fair value is determined on the exchange price, which would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company discloses each major asset and liability category measured at fair value on either a recurring or nonrecurring basis and establishes a three tier fair value hierarchy, which prioritizes the inputs used in fair value measurements. The three tier hierarchy for inputs used in measuring fair value is as follows:

> Level 1 Observable inputs such as quoted prices in active markets

> Level 2 Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly

> Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis:

Total Level 1 Level 2 Level 3As of December 31, 2014:

Cash and cash equivalents – money market securities $ 3,307,593 $ 3,307,593 $ - $ -

As of December 31, 2013:Cash and cash equivalents – money market securities $ 11,082,670 $ 11,082,670 $ - $ -

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FINANCIAL REPORT

NOTE 5 - Investments

The following is a summary of held-to-maturity investments:

Amortized cost (net carrying

amount)

Gross unrealized

gains

Gross unrealized

losses Fair valueAs of December 31, 2014:

US corporate securities $ 4,091,976 $ 5,193 $ (5,252) $ 4,091,917Other debt securities 3,089,284 1,631 (2,249) 3,088,666Total $ 7,181,260 $ 6,824 $ (7,501) $ 7,180,583

Amortized cost (net carrying

amount)

Gross unrealized

gains

Gross unrealized

losses Fair valueAs of December 31, 2013:

US corporate securities $ 5,252,988 $ 2,324 $ (3,614) $ 5,251,698Other debt securities 2,123,755 - (1,723) 2,122,032Total $ 7,376,743 $ 2,324 $ (5,337) $ 7,373,730

The following are contractual maturities of held-to-maturity investments:

Total Under 1 year Under 2 yearsAs of December 31, 2014:

US corporate securities $ 4,091,976 $ 4,091,976 $ -Other debt securities 3,089,284 3,089,284 -Total $ 7,181,260 $ 7,181,260 $ -

For debt securities, management determines whether it intends to sell or if it is more likely than not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. For all impaired debt securities for which there was no intent or expected requirements to sell, the evaluation considers all available evidence to assess whether it is likely the amortized cost value will be recovered. The Company conducts a regular assessment of its debt securities with unrealized losses to determine whether securities have other-than-temporary impairment considering, among other factors, the nature of the securities, credit rating or financial condition of the issue, the extent and duration of the unrealized loss, expected cash flows of underlying collateral, market conditions and whether the Company intends to sell or it is more likely than not the Company will be required to sell the debt securities. The Company did not identify any impairment in its debt securities for the years ended December 31, 2014 and 2013.

The Company does not consider unrealized losses on its other debt securities to be credit-related. The losses relate to change in interest rates and market spreads subsequent to purchase. The Company does not believe that unrealized losses are material to the overall investment balance. The Company has not made a decision to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of its amortized cost.

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FINANCIAL REPORT

NOTE 6 - Leases

In March 2013, the Company signed a new lease for an office space in Minnetonka, Minnesota. The lease term expires in March 2018, and contains no extensions or renewal options. The monthly payments ranged from $7,532 to $8,153 for the lease.

Rent expense was $31,864 and $87,825 for the years ended December 31, 2014 and 2013, respectively. Rent is recorded on a straight-line recognition basis and the difference is recorded as an accrued long-term liability.

The Company also has an operating lease agreement for certain office equipment that expired in 2013.

Under the terms of the leases including the lease for office space, the Company paid monthly base rent and was additionally responsible for its pro rata share of estimated operating expenses, which include utilities, taxes, maintenance, repair, and insurance costs. The minimum remaining lease commitments under the terms of the noncancelable building and equipment lease for the years ending December 31:

2015 $ 94,0002016 95,5002017 97,0002018 24,000Total $ 310,500

NOTE 7 - Employee Benefits

The Company provides a 401k plan as a benefit to its employees. The Company did not provide any matching contributions under the plan during the years ended December 31, 2014 and 2013.

NOTE 8 - Intangible Assets

The Company received a license at inception from its then parent company, VK Pty, to certain intellectual property. That license became inoperative when VK Pty assigned its intellectual property to the Company on June 21, 2007, in advance of preferred stock financing from CM Capital Investments (CMCI). The assignment was done in exchange for issuing 348,098 shares of the Company’s common stock to VK Pty, valued at $.50 per share. As a result of these transactions, during 2007, the Company expensed as research and development the full $14,600 of the original intangible asset value and an additional $4,443 of value related to the deferred tax liability assigned to the initial license. The Company capitalized $174,049 of purchased value and an additional $52,962 related to the corresponding deferred tax liability as an intangible asset, reflecting the value of the acquired intellectual property.

The intellectual property is expected to have a useful life equal to the life of the underlying patent applications. Such life will extend, on average, 18 years from 2007 to 2025. Amortization is recorded on a straight-line basis beginning at acquisition date, resulting in amortization expense of $12,496 for both years ended December 31, 2014 and 2013. Amortization expense will approximate $12,496 in each of the next five years.

NOTE 9 - Income Taxes

Osprey Medical is a C corporation under the U.S. Internal Revenue Code.

The Company incurred income tax expense (benefit) of $570 and $300 for the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, the Company has recorded a valuation allowance to offset its net deferred tax assets due to uncertainty surrounding realization of the net deferred tax assets.

The Company has accumulated net operating losses to be carried forward to future years in the amount of $38,075,600 applicable to income subject to federal income tax and $38,384,820 applicable to income subject to state (Minnesota) income tax as of December 31, 2014. Utilization of these net operating losses to offset future taxable income may be limited and begin to expire in the year ended December 31, 2027.

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FINANCIAL REPORT

NOTE 9 - Income Taxes (cont.)

Income tax expense (benefit) consists of the following:


2014


2013

Current:

Federal $ - $ -State 570 300Foreign - -

570 300Deferred:

Federal (3,134,700) (1,256,031)State (1,641,070) (404,962)Foreign - -

(4,775,770) (1,660,993)Deferred tax asset valuation allowance 4,775,770 1,660,993

Total provision (benefit) $ 570 $ 300

Income tax expense differs from the amount computed at the statutory federal income tax rate of 34% due principally to nondeductible expenses, different rates for foreign jurisdictions and the recognition of a valuation allowance against the net deferred tax asset.

Significant components of deferred tax assets and liabilities as of December 31 are as follows:2014 2013

Deferred tax assets:Net operating loss carry forwards $ 15,345,160 $ 10,618,678Organization costs 3,924 4,979Accrued vacation 36,917 31,688Deferred rent 19,732 25,969Stock-based compensation expense 89,169 48,930

15,494,902 10,730,244

Deferred tax liability:Intangible assets (53,613) (59,528)Property and equipment depreciation 64,474 59,277

10,861 (251)

Net deferred tax asset 15,505,763 10,729,993Valuation allowance (15,505,763) $ (10,729,993)

$ - $ -

The valuation allowance for deferred tax assets increased by $4,775,770 and $1,660,993 for the years ended December 31, 2014 and 2013, respectively.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The adoption of the standard did not have a material effect on the Company.

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2011. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income taxes and any related interest and penalties as income tax expense on the Company’s statement of operations.

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FINANCIAL REPORT

NOTE 10 - Warrants to Purchase Common Stock

The Company has licensed technology from TriCardia in connection with its MVO™ product. That license was executed on December 26, 2006, in exchange for warrants to purchase 160,000 shares of Company common stock at $0.10 per share. The TriCardia warrants expire on December 26, 2016, and vest on the achievement of specific business and development milestones. The fair value of the warrants were estimated using the BSM option pricing model and determined to be $.05 per share of common stock. On June 21, 2007, 8,000 of the warrants vested as the result of achieving the first milestone and the Company expensed $400 as research and development expense. On December 31, 2008, an additional 8,000 warrants vested as a result of the achievement of another milestone in the technology license, resulting in an additional $400 research and development expense. As of December 31, 2014, 144,000 warrants remain unvested, and any future vesting will result in additional research and development expenses.

NOTE 11 - Common Stock

On October 23, 2013, the Company completed a private offering with international and domestic investors of 10,769,231 shares of common stock. As a result of the financing, the Company raised approximately $13,500,000 in gross proceeds, before issuance costs of approximately $700,000.

During the year ended December 31, 2013, options exercised resulted in the Company issuing 373,954 shares common stock for proceeds of $87,977. Intrinsic value of options exercised during the year ended December 31, 2013 was $307,400.

NOTE 12 - Stock-Based Compensation

The Company has a stock incentive plan (the Plan) that provides for the issuance of incentive and non-qualified stock options to employees and directors, for the purpose of encouraging key officers, directors, employees, and consultants of the Company to remain with the Company and devote their best efforts to the business of the Company. Under the Plan, incentive stock options must be granted at exercise prices not less than 100% of the fair value of the Company’s stock as of the grant date. If incentive options are granted to persons owning more than 10% of the voting stock of the Company, the Plan provides that the exercise price shall not be less than 110% of the fair value of the Company’s stock as of the grant date. These options have exercise and vesting terms established by the Option Committee of the Company’s Board of Directors at the time of each grant, but in no event are the options exercisable more than ten years after the date of grant. The options granted are subject to time based vesting ranging from immediate vesting to vesting 48 months after the date of grant. The Company has reserved 8,000,000 shares of common stock for issuance under the Plan, as of both December 31, 2014 and 2013.

The following table presents the weighted average assumptions used to estimate the fair values of the stock options granted to employees and non-employees in the periods presented, using the BSM option pricing formula: The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life and expected volatility are based on the average reported lives and volatilities of a representative sample of four comparable companies in our industry sector.

Year ended December 31, 2014

Year ended December 31, 2013

Risk-free interest rate 1.65% 1.18%Expected volatility 78.00% 78.00%Expected life (in years) 4.0 4.0Dividend yield 0.00% 0.00%Weighted-average estimated fair value of options granted $ 0.68 $ 0.54

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FINANCIAL REPORT

NOTE 12 - Stock-Based Compensation (cont.)

The following table summarizes the activity for outstanding employee and non employee stock options:

Number of Shares

Weighted-Average

Exercise Price

Weighted-Average

Remaining Contractual Term (Years)

Aggregate Intrinsic Value

Balance as of December 31, 2012 6,233,911 0.60 8.3Granted 795,000 0.93Exercised (373,954) 0.13Expired (441,046) 0.72

Balance as of December 31, 2013 6,213,911 0.66 6.5Granted 1,320,000 1.18Exercised - -Expired - -

Balance as of December 31, 2014 7,533,911 $ 0.75 7.0 $ 2,597,394Exercisable as of December 31, 2014 4,816,115 $ 0.60 6.1 $ 2,157,485

The aggregate intrinsic value is calculated as approximately the difference between the weighted average exercise price of the underlying awards and the Company’s estimated current fair value as of December 31, 2014.

The Company recognized stock-based compensation expense related to stock options of $768,514 and $610,630 for the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014, $1,496,516 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 1.7 years. To the extent the forfeiture rate is different than anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.

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SHAREHOLDER INFORMATION


Overview

The Company’s securities are listed for quotation in the form of CHESS Depositary Interests (CDIs) on the Australian Securities Exchange (ASX) and trade under the symbol “OSP”. Each share of common stock is equivalent to 2 CDIs.

The shareholder information below was applicable as at 12 February 2015.

The Company’s share capital was as follows:

Type of Security Number of Securities

Equivalent Number of CDIs

Common stock 61,608,412 123,216,826

CDIs 123,216,826 123,216,826

Options 7,533,911 15,067,822

Warrants 160,000 320,000

Substantial holders

Names of Holders Number of CDIs Held

% of Total CDIs

CM Capital VT4A Pty Limited as trustee for CM Capital Venture Trust 4A (holding of 17,020,450 CDIs) and its associated entity CM Capital VT4B Pty Limited as trustee for CM Capital Venture Trust 4B (holding of 17,020,449 CDIs) 34,040,899 27.63%

Brandon Capital Partners and each of its associated entities BBF1 IIF Partnership, LP (holding of 10,842,156 CDIs), MRCF Trust (holding of 9,134,673 CDIs) and Brandon Biosciences Fund No. 1 Trust (holding of 4,814,443 CDIs) 24,791,272 20.12%

Kinetic Investment Partners Pty Ltd 8,776,216 7.12%

The follow table shows all securities held by our directors and executive officers, including CDIs and exercisable and unexercisable options to purchase common stock.

Name of Holder Number of CDIs Held

Number of Options Held

John Erb - 388,839

Mike McCormick 16,000 2,760,392

Neville Mitchell 50,000 135,000

William Butcher - 350,000

Vic Fabano - 475,000

Melanie Hess - 125,000

Rod Houfburg 5,000 572,500

Nancy Ness 5,000 82,500

Doug Schoenberg 5,000 552,500

Michele Watrin - 350,000For

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DISTRIBUTION SCHEDULE

Number of CDIs Number of Holders

1 – 1,000 40

1,001 – 5,000 144

5,001 – 10,000 136

10,001 – 100,000 348

100,001 and over 121

Total 789

Unmarketable Parcels

Based on the market price on 12 February 2015, there were 31 shareholders holding less than a marketable parcel (i.e. a parcel of securities of less than $500).

Osprey Medical Top 20 Holders

Set out below is a schedule of the 20 largest holders of each class of securities quoted, including the number and percentage of each class of securities held by those holders.

Name of Registered Holder No. of CDIs Held % of Total CDIs

1. AUST EXECUTOR TRUSTEES LTD <CM CAPITAL VENTURE TST 4A> 17,020,450 13.81%

2. AUST EXECUTOR TRUSTEES LTD <CM CAPITAL VENTURE TST 4B> 17,020,449 13.81%

3. BBF1 IIF Partnership, LP 10,842,156 8.80%

4. NATIONAL NOMINEES LIMITED 9,983,413 8.10%

5. MRCF PTY LTD <MRCF A/C> 9,134,673 7.41%

6. BBF1 TRUSCO PTY LTD <BRANDON BIOSCIENCES FUND NO.1 A/C> 4,814,443 3.91%

7. J P MORGAN NOMINEES AUSTRALIA LIMITED 2,883,247 2.34%

8. BAKER IDI HEART AND DIABETES INSTITUTE HOLDINGS LIMITED 2,199,644 1.79%

9. MR DAVID ROBERT NEWNHAM & MS MERRYL BARBARA KATE NEWNHAM <D R N SUPERFUND NO 1 A/C>

1,508,298 1.22%

10. SANDHURST TRUSTEES LTD <AUSTRALIAN NEW HORIZONS A/C> 1,275,232 1.03%

11. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1,143,214 0.93%

12. GARSIND PTY LTD <RUTH ROSS SUPER FUND A/C> 1,056,346 0.86%

13. MOORE FAMILY NOMINEE PTY LTD 1,000,000 0.81%

14. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 992,999 0.81%

15. DIXSON TRUST PTY LIMITED 934,616 0.76%

16. UBS NOMINEES PTY LTD 919,650 0.75%

17. BASAPA PTY LTD 890,000 0.72%

18. CAPITAL BIOTECH PTY LTD 715,385 0.58%

19. BNP PARIBAS NOMS PTY LTD 656,054 0.53%

20. MRS ROSALIND LAWRENCE 652,000 0.53%

Total CDIs held by top 20 CDI Holders 85,642,269 69.51%

Total CDIs held by all other CDI Holders 37,574,557 30.49%

Options (not listed on ASX)

There were 7,533,911 options on issue to purchase shares of common stock under the Company’s Incentive Stock Option Agreement.

Warrants (not listed on ASX)

There were 160,000 Warrants (320,000 in equivalent CDIs) exercisable at US$0.10 per Share (equivalent to US$0.05 per CDI) expiring on 26/12/2016.

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Restricted Securities

The were no restricted securities or securities subject to voluntary escrow as at 12 February 2015.

Voting Rights

Holders of the Company’s common stock are entitled to one vote for each common stock held as at the Record Date. Holders of the Company’s CDIs are entitled to direct CHESS Depositary Nominees Pty Ltd (CDN) to vote one vote for every two CDIs held by such holder as at the Record Date.

If holders of CDIs wish to attend the Company’s annual meetings, they will be able to do so. Under the ASX Listing Rules, the Company, as an issuer of CDIs, must allow CDI holders to attend any meeting of the holders of the underlying securities unless relevant US law at the time of the meeting prevents CDI holders from attending those meetings.

In order to vote at such meetings, CDI holders have the following options:

(a) Instructing CDN as the legal owner, to vote the shares of common stock underlying their CDIs in a particular manner. The instruction form must be completed and returned to the Company’s share registry prior to the meeting;

(b) Informing the Company that they wish to nominate themselves or another person to be appointed as CDN’s proxy for the purposes of attending and voting at the general meeting; and

(c) Converting their CDIs into a holding of shares of common stock and voting these at the meeting (however, if thereafter the former CDI holder wishes to sell their investment on ASX, it would be necessary to convert the shares of common stock back to CDIs). This must be done prior to the record date for the meeting.

As holders of CDIs will not appear on our share register as the legal holders of shares of common stock, they will not be entitled to vote at the Company’s shareholder meetings unless of the above steps are undertaken.

Proxy forms and details of these alternatives will be included in each notice of meeting sent to CDI holders.

Holders of issued but unexercised options and warrants are not entitled to vote.

Required Statements

(a) There is no current on-market buy-back of the Company’s securities.

(b) The Company is incorporated in the state of Delaware in the United States of America.

(c) The Company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Cth) dealing with the acquisition of shares (ie, substantial holdings and takeovers).

(d) The Company’s securities are not quoted on any exchange other than the ASX.

(e) Under the Delaware General Corporation Law, shares are generally freely transferable subject to restrictions imposed by US federal or state securities laws, by the Company’s certificate of incorporation or by-laws, or by an agreement signed with the holders of the shares at issue. The Company’s amended and restated certificate of incorporation and by-laws do not impose any specific restrictions on transfer.

(f) The name of the Australian Secretary is Brendan Case.

(g) The address and telephone number of our principal registered office in Australia is: Level 13 41 Exhibition Street Melbourne, Victoria 3000 + 61 410 442 393

(h) Register of securities Link Market Services Level 1, 333 Collins Street Melbourne, Victoria 3000 Telephone: + 61 3 9615 9800 Facsimile: + 61 2 9287 0303 www.linkmarketservices.com.au

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23CORPORATE GOVERNANCE

CORPORATE GOVERNANCE STATEMENTThe board of directors of Osprey Medical is responsible for the governance of the Company and its controlled entity. Good corporate governance is a fundamental part of the culture and business practices of the Company.

The board of directors confirms that the Company’s corporate governance framework is generally consistent with the ASX’s Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations with 2010 Amendments (second edition)’, ‘the ASX Corporate Governance Recommendations’, other than as set out below. The third edition of the ASX Corporate Governance Recommendations was released on 27 March 2014. This edition will apply to the Company during the 2015 financial year and the Company will report on the extent to which it has followed the revised ASX Corporate Governance Recommendations in the annual financial report for the year ended 31 December 2015.

The Company provides below a review of the corporate governance framework using the same numbering as adopted for the principles as set out in the ASX Corporate Governance Recommendations.

Further details in relation to the Company’s governance framework are set out in a dedicated corporate governance information section on the Company’s website at www.ospreymed.com This section of the Company’s website contains copies of all the corporate governance policies, Board/Board Committee charters and summaries of other governance documents of interest to stockholders and stakeholders.

Principle 1: Lay solid foundations for management and oversight

Recommendation 1.1: Establish the functions reserved to the board and those delegated to senior executives and disclose those functions.

The board’s responsibilities are defined in the Board Charter, a copy of which is available on the Company’s website at www.ospreymed.com, and there is a clear delineation between the functions reserved to the board and those conferred upon the chief executive officer and certain other officers of the Company for the day-to-day management of operations.

Recommendation 1.2: Disclose the process for evaluating the performance of senior executives.

In accordance with the Board Charter, the directors’ responsibilities include monitoring the performance of senior executives (including the Chief Executive Officer) and ensuring succession plans are in place. The board has established a Nomination and Remuneration Committee, which is responsible for reviewing and approving executive remuneration and incentive policies and practices, and ensuring that the policies and practices are performance based and aligned with the Company’s vision, values and overall business objectives.

The board reviews at least annually the performance of the chief executive officer.

The board has overall responsibility for fairly and responsibly rewarding executives having regard to the performance of the Company, the performance of the executives and the general external pay environment. In addition the Committee is responsible for reviewing and approving the design and total proposed payments from any executive incentive plan. The Nomination and Remuneration Committee performs this role as required.

All senior executives at the company are subject to an annual performance review. Each year the chief executive officer sets senior executive key performance targets. These targets are aligned to the overall business goals and the Company’s requirements. In the case of the chief executive officer these targets are negotiated between the CEO and the board. The Nomination and Remuneration Committee reviews the evaluation process as required. Short-term incentives are dependent on the outcome of these evaluations.

The board ensures that an evaluation of the senior management team is undertaken at least annually.

A copy of the Nomination and Remuneration Committee Charter is available on the Company’s website at www.ospreymed.com

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24 CORPORATE GOVERNANCE

Recommendation 1.3: Disclosure of information indicated in the Guide to reporting on Principle 1 of the ASX Governance Recommendations.

The Company fully complied with Recommendations 1.1 to 1.3 for the financial year ended 31 December 2014.

Principle 2: Structure the board to add value

Recommendation 2.1: A majority of the board should be independent directors.

Recommendation 2.2: The Chairman should be an independent director.

Recommendation 2.3: The roles of Chairman and Chief Executive Officer should not be exercised by the same individual.

The ASX Corporate Governance Council has recognised that the range in size and diversity of companies is significant and that smaller companies (such as Osprey Medical) may face particular issues in attaining all its recommendations at the outset.

The Company has assessed the independence of its directors regarding the requirements for independence which are set out in Principle 2 of the ASX Corporate Governance Principles and Recommendations. Mr. John Erb, the Company’s chairman, and Mr. Neville Mitchell are independent directors.

Mr. Andrew Jane and Dr. Chris Nave are not considered to be independent directors of the Company under the ASX Corporate Governance Principles due to their respective positions as fund managers of certain of the Company’s substantial shareholders (in respect of Mr. Jane, Managing Director of Talu Ventures and in respect of Dr. Nave, being a Partner of Brandon Capital Partners). (Talu Ventures on 1 January 2014 replaced CM Capital Investments as the investment manager of CM Capital Venture Trust 4A and CM Capital Venture Trust 4B which each hold substantial share holdings in Osprey Medical.)

Accordingly, the majority of the Company’s board is not comprised of independent directors, however the roles of chairman and chief executive officer are exercised by two separate individuals.

The board, having regard to the Company’s stage of development and the collective experience and expertise of the directors, considers the current composition of the board is appropriate.

The current composition of the board of directors and length of tenure of each member is as follows:

Name Position Date Appointed Independent Audit Committee

Nomination & Remuneration

Mr. John Erb Chairman (non-executive)

21 June 2007 YES YES CHAIR

Mr. Andrew Jane Director (non-executive)

13 November 2012 NO NO YES

Dr. Christopher Nave Director (non-executive)

24 October 2005 NO YES YES

Mr. Neville Mitchell Director (non-executive)

1 July 2012 YES CHAIR NO

Mr. Michael McCormick Director (executive)

1 March 2010 NO NO NO

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The number of directors’ meetings (including meetings of committees) and number of meetings attended by each of the directors during the reporting period are as follows:

Committee Meetings

Director Directors’ Meetings

Audit Committee Nomination and Remuneration Committee

A B A B A B

Mr. John Erb 7 7 2 2 1 1

Mr. Andrew Jane 7 7 - - 1 1

Dr. Christopher Nave 7 7 2 2 1 1

Mr. Neville Mitchell 7 7 2 2 - -

Mr. Michael McCormick 7 7 - - - -

A – Number of meetings attended. B – Number of meetings held during the time the director held office during the reporting period.

Recommendation 2.4: The Board should establish a nomination committee.

Osprey has established a Nomination and Remuneration Committee which meets as required.

The current members of the Nomination and Remuneration Committee are: Mr. John Erb, Dr. Chris Nave and Mr. Andrew Jane.

The responsibilities of the Nomination and Remuneration Committee include:

• identifying and recommending to the board, nominees for membership of the board;

• identifying and assessing the necessary and desirable competencies and characteristics for board membership and assessing the extent to which those competencies and characteristics are represented on the board;

• establishing processes for identifying suitable candidates for appointment to the board to ensure an appropriate mix of expertise, experience and succession.

Recommendation 2.5: Disclose the process for evaluating the performance of the board, its committees and individual directors.

A formal review of the 2014 performance of the board, its committees and individual directors was conducted, taking into each director’s assessment of areas including:

• the effectiveness of the board and each committee on which they served;

• the extent to which the responsibilities set forth in the respective charters of the board and each committee were met;

• the quality of reporting from and interaction with management; and

• the extent to which substantive issues were appropriately prioritised and considered during Board meetings.

Constructive feedback was provided to the Chairman by each director and from the Chairman to each director. Based on the assessments performed, it was determined that the board and its committees were operating effectively.

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Recommendation 2.6: Companies should provide the information indicated in the Guide to reporting on Principle 2.

Except as disclosed above, the Company has complied with Recommendations 2.1 to 2.6 for the financial year ended 31 December 2014.

Principle 3: Promote ethical and responsible decision-making

Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code as to:

• the practices necessary to maintain confidence in the company’s integrity;

• the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; and

• the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

The Company has adopted a Code of Conduct, Ethics and Insider Trading Policy, copies of which are available on the Company’s website at www.ospreymed.com.

Recommendation 3.2: Establish a policy concerning diversity and disclose it. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them.

The Company has adopted a Diversity Policy. The Diversity Policy confirms that the Company recognises that a talented and diverse workforce can be a key competitive advantage for it. The Company is committed to seeking out and retaining the best talent to develop business growth and performance, as business success is a reflection of the qualities and skills of its people. The Company is committed to promoting diversity in all areas of the Company as it recognises that each employee brings unique skills, capabilities, experiences and characteristics which benefit the organisation as a whole.

A copy of the Diversity Policy is available on the Company’s website at www.ospreymed.com.

Recommendation 3.3: Disclose the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

The measurable objectives for achieving gender diversity, which have been set by the board in accordance with the Company Diversity Policy after taking into account the company’s current size, stage of development, the industry in which it operates and the current business operating environment, are set out below.

• potential candidates for vacant positions must include at least one female candidate; and

• during the board selection process, the professional consultant or board committee assisting the board must provide at least one credible and suitably experienced female candidate.

The board will aim to meet the above objectives when it next looks to increase its composition.

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Recommendation 3.4: Disclose the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.

As at the date of the report, the proportion of women in the company as a percentage of its total employees was 6 out of 19, or 32%. The Company employs an Independent Executive, Mrs. Nancy Ness, as its Vice President of Finance. Mrs. Ness reports to the CEO and is a member of the Company’s Executive Staff. In addition, Ms. Michele Watrin is the Company’s Vice President of Clinical Affairs. Ms. Watrin reports to the CEO and is a member of the Company’s Executive Staff. Ms. Melanie Hess is the Company’s VP of Regulatory Affairs. Ms. Hess reports to the CEO and is a member of the Company’s Executive Staff.

The proportion of women as a total of the senior executive positions is 3 out of 8, or 38%.

There were no women on the board.

Recommendation 3.5: Provide the information indicated in the Guide to reporting on Principle 3.

The Company has fully complied with Recommendations 3.1 to 3.5 for the financial year ended 31 December 2014.

Principle 4: Safeguard integrity in financial reporting

Recommendation 4.1: The board should establish an audit committee.

The board of directors has established an audit committee to oversee the management of financial and internal risks and reporting.

Recommendation 4.2: The audit committee should be structured so that it:

• consists only of non-executive directors;

• consists of a majority of independent directors;

• is chaired by an independent chair, who is not chair of the board; and

• has at least three members.

Currently, the Audit Committee consists of three non-executive directors: Mr. Neville Mitchell, Dr. Chris Nave and Mr. John Erb. The Audit Committee is comprised of a majority of independent Directors. Mr. Mitchell was appointed Chairman of the Committee following his appointment to the board on 1 July 2012.

The Chairman of the Audit Committee, Mr. Mitchell, is an independent director; the roles of Chairman of the Board and Chairman of the Audit Committee are exercised by two separate individuals.

Recommendation 4.3: The audit committee should have a formal charter.

A copy of the Audit Committee Charter is available on the Company’s website at www.ospreymed.com.

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Recommendation 4.4: Provide the information indicated in the Guide to reporting on Principle 4.

Except as stated above, the Company has fully complied with Recommendations 4.1 to 4.4 for the financial year ended 31 December 2014.

Principle 5: Make timely and balanced disclosure

Recommendation 5.1: Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.

The Company has adopted a Continuous Disclosure Policy. This policy sets out the standards, protocols and the detailed requirements expected of all Directors, officers, senior management and employees of the Company for complying with the Listing Rules and Corporations Act relating to continuous disclosure.

The Continuous Disclosure Policy is designed to provide equal access to information and to promote quality communications between the Company and third parties such as shareholders, the investment community, the media and ASX.

A copy of the Company’s Continuous Disclosure Policy is available on the Company’s website at www.ospreymed.com.



Principle 6: Respect the rights of shareholders

Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

The Company has adopted a Shareholder Communications Policy for shareholders wishing to communicate with the board. Osprey Medical seeks to utilise numerous modes of communication, including electronic communication to ensure that its communication with shareholders is frequent, clear and accessible. All shareholders are invited to attend Osprey Medical’s annual general meeting to be held on 13 May 2015 in Melbourne, either in person or by representative, being the forum in which to discuss issues relevant to the Company. The board accordingly encourages full participation by shareholders. Shareholders will have an opportunity to submit questions to the board and auditors.

A copy of the Company’s Shareholder Communications Policy is available on the Company’s website at www.ospreymed.com.



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Principle 7: Recognise and manage risk

Recommendation 7.1: Establish policies for the oversight and management of material business risks and disclose a summary of those policies.

In conjunction with the Company’s other corporate governance policies, the Company has adopted a Risk Management Policy, which is designed to assist the Company to identify, evaluate and mitigate strategic, technological, funding, financial, economic, operational and other risks.

Recommendation 7.2: The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

The board is responsible for reviewing and ratifying the risk management structure, processes and guidelines which are developed and maintained by management.

The Risk Management Policy provides that management is responsible for designing and implementing risk management and internal compliance and control systems which identify material risks for the Company and aim to provide the company with warnings of risks before they escalate. Management must implement the processes and risk plans developed to address the material business risks of the company.

Management reported to the board during the year in relation to the key risks of the Company and as to the effectiveness of the Company’s management of its material business risks.

Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

As the Company is incorporated in the state of Delaware, United States, it is not required to provide a declaration under section 295A of the Corporations Act 2001 (Cth). However, management provides representations to the board and the independent auditors on a range of issues, including the Company’s internal controls over financial reporting.



Principle 8: Remunerate fairly and responsibly

Recommendation 8.1: The board should establish a remuneration committee.

The board has established a Nomination & Remuneration Committee. The board, and the Nomination & Remuneration Committee as required, review and assess Executive and Director compensation.

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Recommendation 8.2: The remuneration committee should be structured so that it:

• consists of a majority of independent directors;

• is chaired by an independent chair; and

• has at least three members.

Currently, the Nomination & Remuneration Committee consists of three non-executive directors: Mr. John Erb, Dr. Chris Nave and Mr. Andrew Jane. Mr. John Erb is Chairman of the Committee and as stated above, he is an independent director. However, the Nomination & Remuneration Committee is not comprised of a majority of independent directors.

The board, having regard to the Company’s stage of development and the collective experience and expertise of the members of the Nomination & Remuneration Committee, considers the current composition of the Nomination & Remuneration Committee is appropriate.

The role of the committee is to assist the board when required to fulfill its responsibilities to establish appropriate remuneration levels and incentive policies for employees. The role of the committee is also to help achieve a structured board that adds value to the Company by ensuring an appropriate mix of skills are present in Directors on the board at all times

Recommendation 8.3: Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.

In accordance with its Charter, the Nomination & Remuneration Committee, clearly distinguishes the structure of non-executive directors’ remuneration from that of executive directors and senior executives. The board has established processes that ensure this distinction is ongoing.

Disclosure in relation to the Company’s stock-based compensation plan is contained in this Annual Report.


Except as disclosed above, the Company has complied with Recommendations 8.1 to 8.4 for the financial year ended 31 December 2014.

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31CORPORATE DIRECTORY

CORPORATE DIRECTORY

Board of Directors and Australian SecretaryMr John Erb, Non-executive Chairman Mr Mike McCormick, President & CEO Mr Andy Jane, Non-executive Director Mr Neville Mitchell, Non-executive Director Dr Chris Nave, Non-executive Director Mr Brendan Case, Australian Secretary

Executive TeamMr Mike McCormick, President & CEO Mr William Butcher, VP of Sales Mr Vic Fabano, VP Operations & Quality Ms Melanie Hess, VP of Regulatory Affairs Mr Rod Houfburg, Research & Development Ms Nancy Ness, VP Finance Mr Doug Schoenberg, VP Marketing & Reimbursement Ms Michele Watrin, VP Clinical Affairs

Company – US Office & Headquarters 5600 Rowland Road, Suite 250 Minnetonka, MN 55343-9001 United States of America +1 952 955 8230

Company - Registered Office in AustraliaLevel 13 41 Exhibition Street Melbourne, Victoria 3000 + 61 410 442 393

AuditorBaker Tilly Virchow Krause, LLP 225 S Sixth Street, Ste 2300 Minneapolis, Minnesota 55402-4661 United States of America Telephone: + 1 612 876 4500 Facsimile: +1 612 238 8900 www.bakertilly.com

Share RegistryLink Market Services Level 1, 333 Collins Street Melbourne, Victoria 3000 Australia Telephone: + 61 3 9615 9800 Facsimile: + 61 2 9287 0303 www.linkmarketservices.com.au

Investor RelationsMs Rebecca Wilson Buchan Consulting T: + 61 3 9866 4722

Doug Schoenberg VP of Marketing, Education & Reimbursement T: + 1 952 955 8234 M: + 1 763 258 7537

Annual General Meeting Date & PlaceThe Annual Meeting of stockholders will be held at Johnson Winter & Slattery’s Melbourne office, Level 34, 55 Collins Street, Melbourne, Victoria, Australia on Wednesday, 13 May 2015 at 9.00am Australian Eastern Standard Time.

ASX Code OSP

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ASX:! OSP Company For personal use only · 3/24/2015 · OSP)(the#Company) ... We are a company...

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Transcript of ASX:! OSP Company For personal use only · 3/24/2015 · OSP)(the#Company) ... We are a company...