BPH Energy : Cortical Dynamics Limited June 2023 Annual Report

Cortical Dynamics Limited

ACN 107 557 620

Financial Report 30 June 2023

Contents
Cortical Dynamics Limited
	Page Number
Directors' Report	1
Auditor's Independence Declaration	8
Statement of Profit or Loss and Other Comprehensive Income	9
Statement of Financial Position	10
Statement of Changes in Equity	11
Statement of Cash Flows	12
Notes to the Financial Statements	13-34
Directors' Declaration	35
Independent Auditor's Report	36

Directors

David Breeze

Charles Chang

Ashley Zimpel

Registered Office

Unit 12, Level 1

114 Cedric Street

STIRLING WA 6021

Principal Business Address

Unit 12, Level 1

114 Cedric Street

STIRLING WA 6021

Telephone: [phone]

Facsimile: [phone]

Website:www.corticaldynamics.com

Email:[e-mail]

Auditor

HLB Mann Judd (WA Partnership)

Level 4

130 Stirling Street

PERTH WA 6000

Australian Business Number

88 107 557 620

Share Registry

Advanced Share Registry Limited

110 Stirling Highway

NEDLANDS WA 6009

Directors' Report

Cortical Dynamics Limited

The directors of Cortical Dynamics Limited ("Cortical Dynamics" or the "Company") present their report on the company for the financial year ended 30 June 2023.

Directors

The names of directors in office at any time during or since the end of the year are:

Name	Date Appointed	Date Resigned
David Breeze	9 November 2004	Current
Charles Chang	4 March 2020	Current
Ashley Zimpel	4 March 2020	Current

Company Secretary

Mr David Breeze was appointed Company Secretary on 23 November 2016 until his resignation on 17 December 2019. He was re-appointed Company Secretary on 26 February 2020. He has many years' experience in the management of listed and unlisted entities.

Principal Activities

The principal activity of the Company during the financial year was the development of the Brain Anaesthesia Response Monitor (BARM) which is based on an algorithm able to measure patient brain activity during surgery to assist in maintaining optimal drug dosage.

Operating Results

The operating loss for the Company after tax for the year was $2,074,350 (2022: loss of $706,061).

Dividends

The directors recommend that no dividend be paid in respect of the current period and no dividends have been paid or declared since the commencement of the period.

Indemnifying Officers or Auditors

During or since the end of the financial year the Company has given an indemnity or entered an agreement to indemnify or paid or agreed to pay insurance premiums as follows. The Company has paid premiums to insure directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The Company has not indemnified the current or former auditors of the Company.

Financial Position

The Company has a working capital deficit of $485,713 as at 30 June 2023 (2022: surplus of $87,931)

and net liabilities of $454,084 as at 30 June 2023 (2022: net assets of $90,607). Subsequent to year end the Company has raised a further $630,000 from the issue of share capital.

Significant Changes in State Of Affairs

There were no other significant changes in the state of affairs of the Company other than that referred to in the Review of Operations, financial statements or notes thereto.

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Directors' Report

Cortical Dynamics Limited

Review of Operations

Cortical Dynamics Limited is an Australian based medical device neurotechnology company that is developing BARM™, an industry leading EEG (electrical activity) brain function monitor. BARM™ is being developed to better detect the effect of anaesthetic agents on brain activity under a general operation, aiding anaesthetists in keeping patients optimally anaesthetised. The Australian manufactured and designed, electroencephalographically based (EEG-based), BARM™ system is configured to efficiently image and display complex information related to the clinically relevant state of the brain. When commercialized the BARM™ system will be offered on a stand-alone basis or integrated into leading brand operating room monitors as "plug and play" option.

BARM™ has received TGA approval, FDA 510(k) clearance in the USA (subsequent to year end), Korean MFDS approval, the CE mark and the company has now made application for its FDA approval in the USA. The BARM™ system is protected by five patent families in multiple jurisdictions worldwide consisting of 36 granted patents. Cortical will continue to drive the development of BARM™ and maintain its intellectual property.

Cortical has been granted a key patent relating to its Brain Anaesthesia Response Monitor (BARM) technology in the United States. Cortical has developed an extensive patent portfolio encapsulating the BARM monitoring unit, providing patent protection across a number of key brain monitoring markets. Currently, Cortical has patents awarded in France, Belgium, Germany, Great Britain, Netherlands, Switzerland, Italy, Ireland, Australia, New Zealand, the United States, Japan and the People's Republic of China. The new Patent is titled "Apparatus and process for measuring brain activity" was made under United States Patent Application No. 17/614701.

During the year Cortical issued 9,619,700 shares at $0.125 per share, together with 340,000 shares at $0.20 cents per share in June 2023.

About BARM™

The BARM™ technical approach is different from other medical brain monitoring devices currently available in the market in that its underlying algorithm produces EEG indexes which are directly related to the physiological state of the patient's brain. Such monitoring is gaining significant use during surgery, however even with the use of EEG monitors, it is not uncommon for there to be a critical imbalance between the patient's anaesthetic requirements and the anaesthetic drugs given. To date, existing EEG based depth of anaesthesia ("D o A") monitors operate in the context of a number of well documented limitations: (i) inability to monitor the analgesic effects; and (ii) reliably measure certain hypnotic agents.

The above limitations highlight the inadequacies in current EEG based depth of anaesthesia monitors, particularly given surgical anaesthesia requires both hypnotic and analgesic agents (and muscle relaxants).

BARM™ Technology and Addressable Market

BARM™ is focussed not only on monitoring the inhalation methodology of anaesthesia delivery, but importantly has a very strong focus on Total Intravenous Anaesthesia (TIVA) monitoring. TIVA is a method of inducing and maintaining general anaesthesia without the use of any inhalation agents and is growing in popularity not least because its use eliminates greenhouse gases that are a direct consequence of gaseous anaesthesia. TIVA is also a cheaper option. TIVA is becoming more widely accepted, particularly in Europe and approximately 29 million major general surgeries are conducted in the European Union each year, of which 55% (circa 16 million) are balanced anaesthesia (using a combination of intravenous agents such as propofol and volatile gases) and 20% are total intravenous anaesthesia using propofol. This creates a growing market opportunity for BARM™ of between US$83m to $229m in the European Union alone.

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Directors' Report

Cortical Dynamics Limited

Additionally, there is growing recognition amongst health governing bodies to recommend the use of brain monitors during operations involving general anaesthesia such as in the UK; "The use of EEG-based depth of anaesthesia monitors has been recommended in patients receiving total intravenous anaesthesia because it is cost effective and because it is not possible to measure end-tidal anaesthetic concentration in this group" (source: nice.org.uk).

Additional Potential applications for BARM™ in helping mitigate or reduce Cognitive decline in the elderly after surgery and anaesthesia as a result of brain monitoring.

A recent editorial in International Psychogeriatrics concluded that 'anaesthesia and surgery induce cognitive dysfunction in susceptible individuals. Susceptible people are thought to include the elderly. This is a serious problem. It was recently estimated that there are annually over 230 million procedures with general anaesthesia worldwide. There are over 880 million people > 60 years old in the world today. The latter figure is predicted to grow rapidly as life expectancy increases, particularly in developing countries.

The consensus statement of the First International Workshop on Anaesthetics and Alzheimer's Disease concluded that 'there is sufficient evidence at multiple levels to warrant further and more definitive investigations of the onset and progression of Alzheimer's disease and neurodegeneration after anaesthesia and surgery'.

Statistics- Summary USA

1. There are 17.8 million annual cases of anaesthesia in the over 65 age group in the USA alone
2. 14% of these experience POCD- 2.5million (post-operative cognitive decline)
3. 10% of these patients experience acceleration of cognitive decline and are admitted to aged care facilities 2 years earlier than would otherwise be the case.
4. This equates to 250,000 people at a cost/year of USD $40,000 per individual and an overall increased cost of USD$ 20 billion to society

The Neurotechnology Market

The global brain monitoring market is on a high growth trajectory as a recent KPMG (July 2022) report outlines with Neurotechnology being recognised as a top 20 emerging "giant" growth industry in the Asia Pacific Region alone. Around 312 million major surgical procedures requiring anaesthesia are undertaken every year worldwide (WHO 2012.) The pain monitoring market is valued at over US$8.6 billion per annum by 2022. (www.grandviewresearch.com/industry-analysis/pain-management-devices- market- April 2016).

Potential Future applications of the technology

Cortical's technology has a versatility that may go beyond depth of anaesthesia and may be applied to other EEG based markets, such as neuro-diagnostic, drug discovery, drug evaluation and the emerging Brain Computer Interface (BCI) market.

There are also considerable opportunities that may be offered by subsequent expansion of the company's core technology through developing the product to carry out additional functions including neuro-diagnostics of changes in brain and memory functions to provide early warning of degenerative diseases, pain response and tranquiliser monitoring for trauma patients in intensive care units.

While the current array of bedside monitoring and imaging systems in the critical care environment has led to dramatic reductions in mortality, they do not as yet involve the continuous monitoring of brain function. This is widely acknowledged to be a major problem, as the care and management of the critically ill patient is ultimately all about the brain.

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Directors' Report

Cortical Dynamics Limited

The continuous monitoring of a patients' brain state is not only necessary to diagnose and manage acute deteriorations in brain function that may have long lasting effects, but also to aid in the optimal administration of sedation and analgesia. Sedation and analgesia in the critically ill patient play a pivotal role in their care and is necessary to minimize patient distress and agitation, being essential to facilitate the utility of a wide variety of life support equipment and procedures, the most important of which is mechanical ventilation.

Study after study has shown that too deep sedation increases the time on mechanical ventilation, which leads to increases in mortality, the incidence of complications and treatment costs. Given these acknowledged advantages to brain function monitoring in the ICU why then is continuous monitoring of brain function not currently available.

There are two main reasons for this:

1. Firstly, the size and the complexity of configuration of most approaches to monitoring brain function are simply not capable of being adapted for use in the busy and crowded ICU environment.
2. Secondly, in those monitoring approaches that could be potentially deployed at the bedside, they depend on physiologically uncertain principles of operation that are not relevant, or meaningfully interpretable, in the context of the critically ill patient.

Cortical aims to investigate these limitations by the further development and trialling of BARM™ in this setting with a view to extending the functionality of bedside EEG monitoring to the objective monitoring of analgesia, a measure also vital to the management of the sedated mechanically ventilated critically ill patient. In Australia between 2015 and 2016 there were approximately 149,000 admissions to ICU of which 48,000 required continuous ventilatory support (CVS) and thus required sedation, pain relief and who would have potentially benefited from such monitoring as BARM™ could provide.

Recent Developments

Cortical has entered into a partnership with Austrian EEG experts ENCEVIS /AIT with a view to further enhance the BARM™ technology. The AIT Austrian Institute of Technology is Austria's largest research and technology organisation employing over 1,300 people. The Republic of Austria (through the Federal Ministry for Climate Protection, Environment, Energy, Mobility, Innovation and Technology) owns 50.46% of AIT, while the Federation of Austrian Industries owns the other 49.54%. ENCEVIS is a division of AIT that specialises in EEG.

In June 2022 Cortical won a prestigious grant from the MTPConnect BMTH program, the matched funding that will help Cortical develop an AI and machine learning capacity for BARM™. Conjunctionally Cortical has appointed a world class Head of Data Analytics who will focus on developing for the company a deep understanding of sedation level monitoring systems using Artificial Intelligence including neurophysiology (EEG), machine learning, statistical analysis, anaesthesiology. Application areas will include optimal management of anaesthesia and sedatives in the operating room and the ICU. Cortical has also appointed a full-time project manager.

On 15 May 2023 the Company announced Philips Electronics North America Corp. had confirmed that Cortical had, with successful testing and provision of documentation, met the necessary prerequisites of the Philips License and Cooperation Agreement to claim the BARM-PEC as a compatible and "supported device" for Philips Patient Monitoring Systems IntelliVue MP40-90 and MX400-850 using the Philips IntelliBridge EC10 Interface Module or IntelliBridge EC10 integral Interface Board, as well as Philips IntelliBridge System Release C.0 and Patient Information Center iX using the EC40/80 Hub with Open Interface driver (ED/BD101) and EC5 ID Module #106. Philips confirms that Cortical may now claim compatibility of the BARM-PEC with the abovementioned Philips IntelliVue Patient Monitoring Systems.

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Directors' Report

Cortical Dynamics Limited

Philips will include Cortical's BARM-PEC in the list of Open Interface supported medical devices that is communicated to the Philips sales force and published on related Philips webpages.

Subsequent Events

The Company has issued 3,150,000 fully paid ordinary shares at $0.20 each for $630,000 cash.

In September 2023 it was announced Cortical had secured FDA 510(k) clearance in the USA for its flagship technology, the Brain Anaesthesia Response Monitor or BARM™ system version 1, a major milestone in the development of the Company and lays the foundation for the commercialisation of the BARM™ system in the USA. The Food and Drug Administration ("FDA") is the federal agency of the United States Department of Health and Human Services which regulates the sale of medical device products (including diagnostic tests) in the U.S. and monitors the safety of all regulated medical products.

The clearance is a result of two years' work post submission with the US Food and Drug Administration (FDA) in 2021, Cortical being ably assisted by MCRA, a leading Washington based medical global full- service medical device, diagnostics, and biologics CRO and consulting advisory firm. The 510(k) clearance for BARM™ version 1 in the USA is complemented by existing regulatory approvals in Australia (TGA), Europe (CE) and South Korea (KMFDS). The BARM™ Pec "plug and play "version 1 was approved compatible by Philips with its IntelliView operating room monitors earlier this year. Cortical is working on an enhanced version of BARM™ with its partner AIT (the Austrian Institute of Technology) based in Vienna which will include upgrades to the software, hardware and firmware.

Additionally, building on the technical and regulatory developments in the Company Cortical has recently appointed Dr Sunil Nagaraj PhD as its new Chief Scientist. Dr. Sunil Belur Nagaraj obtained his Master's Degree from the University of Victoria in Canada in 2010; and Doctoral Degree from University College Cork, Ireland in 2015. His doctoral research centered around the development of AI-based real- time brain monitoring, utilising EEG recordings to monitor brain activity. After a role as a postdoctoral fellow at the Harvard Medical School/Massachusetts General Hospital in the USA. Dr Nagaraj assumed the position of an Assistant Professor of medicine at the University Medical Centre Groningen in The Netherlands for two years. Concurrently, he dedicated three years to working as a scientist at Royal Philips, where he specialised in sleep disorders at the Innovation Forum, highlighting its potential to provide future insights into heart-brain connectivity. Throughout his career, Dr. Nagaraj has demonstrated exceptional research acumen, with a patent and 21 high-impact journal articles to his name, amassing over 650 pioneering research papers and has been recognised through several national and international grants, enabling him to conduct cutting-edge studies that contribute significantly to the advancement of medical technology.

Other than the above, there have not been any matters or circumstance that have arisen since the end of the financial year that have significantly affected, or may significantly affect, the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

Meetings of Directors

During the financial year no meetings of directors were held. The Board meets regularly by telephone to make day-to-day decisions with respect to the business of the Company.

Non-audit Services

$2,040 was paid for non-audit services to the external auditors for the audit of a grant acquittal during the year ended 30 June 2023 (2022: $Nil).

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Directors' Report

Cortical Dynamics Limited

Options

At the date of this report, the unissued ordinary shares of the Company under option are as follows:

Grant Date	Date of Expiry	Exercise Price	Number Under Option
4/10/2019	24/8/2024	$0.20	7,000,000
14/5/2020	15/5/2025	$0.15	10,500,0001
21/6/2020	21/6/2025	$0.20	250,000
18/11/2020	18/11/2025	$0.25	7,500,000
19/1/2021	22/11/2025	$0.25	250,000

1 These options originally expired on 15 May 2023 but their term was extended to 15 May 2025 during the year

During the year ended 30 June 2023 no ordinary shares of the Company were issued on the exercise of options (2022: Nil). No person entitled to exercise an option had or has any right by virtue of the option to participate in any share issue of any other body corporate. No shares have been issued during or since the end of the financial year as a result of exercise of an option. 250,000 options with an expiry date of 15/5/2023 and an exercise price of $0.15 per share expired unexercised during the period, and 100,000 options with an expiry date of 18/11/2025 and an exercise price of $0.25 per share were cancelled on cessation of employment.

Information on Directors

David Breeze (appointed 9 November 2004)

Executive Director and Company Secretary - Age 70

Shares held - 9,998,702

Options held- 3,500,000

David is a Corporate Finance Specialist with extensive experience in the stock broking industry and capital markets. He has been a corporate consultant to Daiwa Securities; and held executive and director positions in the stock broking industry. David has a Bachelor of Economics and a Masters of Business Administration, and is a Fellow of the Financial Services Institute of Australasia, and a Fellow of the Institute of Company Directors of Australia. He has published in the Journal of Securities Institute of Australia and has also acted as an Independent Expert under the Corporations Act. He has worked on the structuring, capital raising and public listing of over 70 companies involving in excess of $250M. These capital raisings covered a diverse range of areas including oil and gas, gold, food, manufacturing and technology. David is Chairman of unlisted Grandbridge Limited, an investment and advisory company, and a director ASX listed BPH Energy Limited and MEC Resources Limited. He is also a director of unlisted Molecular Discovery Systems Limited, Diagnostic Array Systems Limited, and Advent Energy Limited and its subsidiaries.

Charles Chang (appointed 4 March 2020)

Non - Executive Director - Age 66

Shares held - 7,713,803

Options held - 3,500,000

Founder of strategy advisory firm Accolade, Inc. in 2000 and Gentium Partners, an accelerator/VC investment firm. Previously Managing Director at Deutsche Bank and Bankers Trust investment banking. US citizen. Received M.Sc. from Dartmouth Guarani School of Graduate and Advanced Studies and B.A. in Economics from UC Berkeley. Served on several boards including as representative of AXA Asset Management in their JV in Korea with the third largest domestic life insurance company. Co-chairs subcommittee on PE/VC for the AmCham in Korea and actively involved in ESG, climate change activism, and supporting a NGO for disadvantaged children.

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Directors' Report

Cortical Dynamics Limited

Ashley Zimpel (appointed 4 March 2020)

Executive Director - Age 64

Shares held - 9,084,038

Options held - 11,000,000

Mr. Zimpel is Perth based business developer, corporate financier and senior banker/investment banker with broad financial markets experience and a strong focus on innovation, client interaction, financing and business strategy. He has a 35 year track record of founding, investing in and establishing businesses in financial capital markets, Agri- business and fintech in WA and Australia wide. Adviser and mentor to Start-ups, SMEs and state government. He has a long history of interaction with Western Australian Government Sector, WA Universities, business incubators and innovation community. He has an exemplary record of capital raising in both equity, debt and structured financial products for start-ups, SMEs, ASX listed public companies and government agencies both in Australia and internationally. He has held positions of executive chairman, executive director, director, partner and financial advisor in financial institutions and ASX listed companies including Aurora Labs (ASX:A3D). His prior roles include:- Enable Funding-Co-Founder and Founding Chairman, Charter Pacific Corporation-Chairman Advisory Committee, Marine Produce Limited-Chairman, Macquarie Bank-Director, Bankers Trust Australia- Senior Vice President, Rand Merchant Bank Australia-Co Founder and Executive Director, Hattersley Maxwell Noall.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year.

Environmental Issues

The Company's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory.

Likely Developments

Likely developments other than those disclosed in this financial report which may prejudice the company by disclosure have not been disclosed.

Auditor's Independence Declaration

The lead auditor's independence declaration for the year ended 30 June 2022 has been received and can be found on page 8.

Signed in accordance with a resolution of the board of directors.

David Breeze

Director

Dated this 30th October 2023

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AUDITOR'S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of Cortical Dynamics Limited for the year ended 30 June 2023, I declare that to the best of my knowledge and belief, there have been no contraventions of:

1. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
2. any applicable code of professional conduct in relation to the audit.

Perth, Western Australia	D B Healy
30 October 2023	Partner

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