Brain Resource Ltd · Agreed licence terms with Keas to include MyBrainSolutions exercises and brain health content as part of their corporate Wellness product. Keas was founded by

Brain Resource Ltd ABN 24 094 069 682

Consolidated Financial Report And Appendix 4D

Half-Year Ended 31 December 2011

This Financial Report on the consolidated Group constitutes the Appendix 4D required by the Australian Stock Exchange. It should be read in conjunction with the Annual Report for the Year Ended 30 June 2011 and any recent public announcements and is lodged with the Australian Stock Exchange under listing rule 4.2A

Brain Resource Ltd

Level 12, 235 Jones Street, Ultimo, Sydney, NSW 2007 Australia, Phone: +61 2 9211 7120 Fax: +61 2 9211 2710

Email: [email protected] URL: brainresource.com

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Financial Report for the 6 months ended 31 December 2011 2

Operational Review for the 6 months to 31 December 2011

1. Highlights

New ADHD joint venture with Och-Ziff, $4m funding (that is also an external validation of our database value)

New US distribution agreements, most notably Aetna (36m under coverage)

Consolidation of US Brain Resource, Inc. Team

Increasing usage of Brain Training platform (usage up 40% and games used more than 3 million times), new revenues starting to impact (up 350%)

2 conference presentations and 8 publications showcasing iSPOT outcomes

Result reflects the transition to non exclusive distribution and early momentum in these new arrangements

Issuance of the second $5m tranche of Convertible Bonds to Och-Ziff managed funds resourcing growth

Reported profit of $1.5m (170% increase), $13.5m closing cash balance

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Growth

Current Corporate users High likelihood of contracting Total

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Jun 08 Jun 09 Jun 10 Jun 11 Dec 11

Cumulative Clinical Reports

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Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

Total datasets in Database

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3,000

3,500

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4,500

Dec 09 Jun 10 Dec10 Jun11 Dec11

iSPOT Acquisitions

(Depression & ADHD)

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2. Brain Resource Focus and Goals

Brain Resource’s 3 goals in 2012

1,000,000 users of Brain Resource products

5x increase in revenues from our web products

Submit 1 Depression and 1 ADHD Test for FDA regulatory approval Momentum towards achieving these goals is already evident. The timely and impactful $14m of funding from Och-Ziff, one of the largest global hedge funds, accelerates our ability to capitalise on 30 years of innovative science and $35m spent on product and Brain Database development to date.

3. Progress towards achieving our Sales Goals

3.1 Brain Resource, Inc. US Team based in San Francisco

The recent appointment of Dr. Gregory Bayer as our U.S. CEO has consolidated our U.S. Business. Dr Bayer recently served as the Chief Executive Officer of OptumHealth Behavioral Solutions, a division of United Health Group, serving 43 million members. Under his leadership, the behavioral health business doubled revenues to over $2 billion, entered new markets and achieved a leading market position both domestically and internationally. His presence at Brain Resource has already resulted in increased outcomes and prospects from the health care industry.

3.2 New US distribution agreements

We have made strong progress since the expiry of our exclusive licence agreement with OptumHealth in 2010. The short term cost in transitioning to non exclusive relationships in now showing broad benefits.

Finalized contract to supply Aetna Life Insurance Company in December 2011, which provides very significant new reach for our products. Aetna is one of the leading health care benefits companies in the US, serving 36 million people. Key terms include payment on usage basis (per member or employee per month) at agreed rates and it is non-exclusive. We are currently working together on plans for the Employer „selling season‟, which commences in March 2012, and training Aetna‟s sales force (around 100 people) over the coming month.

Agreed licence terms with Keas to include MyBrainSolutions exercises and brain health content as part of their corporate Wellness product. Keas was founded by Adam Bosworth, previous leader of Google Health and they provide Wellness services to US employers and have a current base of 100,000 users.

Agreed terms with St. Gregory‟s Addiction and Recovery Center to deploy both WebNeuro and MyBrainSolutions in their treatment program. St. Gregory will use WebNeuro to assess patients‟ cognitive and emotional capacities and MyBrainSolutions to address cognitive training needs during recovery. We are starting to see increasing interest from clients that want to use our two products in combination.

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A convergence of activity from the PR agency we have engaged (Edelman) and the U.S. Teams sales presence, including at the Health 2.0 Conference in San Francisco, has resulted in 4 highly qualified opportunities with other major US Health benefits companies and over 45 major U.S. corporates.

3.3 MyBrainSolutions® and MyCalmBeatTM Sales

Brain Resource products are now established in the U.S. marketplace and have marquee lead clients (including Aetna, NationWide, Cisco).

51,000 users have logged into MyBrainSolutions.com to date, approximately 300,000 times and using the brain training games over 3,000,000 times.

MyBrainSolutions user growth for the 6 months increased 18% and usage increased 40% - this traction has occurred with minimal marketing spend (which escalates from April 2012).

Brain Resource Mobile apps (MyCalmBeat and MyBrainSolutions games) have been downloaded more than 200,000 times to date.

More than 500 MyCalmBeats sold during the quarter bringing the year to date total over 700.

Reseller Agreement concluded with Amen Clinics to feature MCB in their branded “Mindworks” marketplace.

MyBrainSolutions product development to bolster our competitive position - examples include increased engagement such as badges for achievement and allowing consumers to purchase gift memberships.

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3.4 WebNeuro® reports

WebNeuro Reports grew to 3,000 for the period, a growth rate of above 200% compared to previous corresponding period. Importantly, for the first time, the report sales of WebNeuro (the on line version of our assessment) overtook IntegNeuro (our touchscreen based version).

3.5 Learning & Development (L & D)

The L & D budgets within large employers are something quite distinct from the health benefit budget. Phil Dixon, the former head of Apple IT and then of Leadership Development at Apple heads Brain Resource‟s L & D offering. BRC‟s differentiator in this space is the infusion of Brain Resource‟s brain insights and Brain Training Platforms (www.MyBrainSolutions.com) into traditional L & D programs.

Trainingmag.com estimates the value of spending on training products and services as supplied by external vendors to be approximately $10 billion. The L & D component we are targeting is likely to be a significant portion of that. There are already 4 major U.S. corporates whose Executives have done the Brain-based L+D Program or will start doing so in Q1 2012.

3.6 Brand recognition

Brand is now being built through consistent „taglines‟ of each product‟s key benefit; systematic promotional campaigns. Public relations efforts are starting to gain traction. Awareness of the company and its products is growing. Results from our campaign included:

51 media placements

100 new sales leads and distributors, including several international inquiries. Google-based SEM campaigns are driving 300-500 new site visits/day and there are several hundred people now following us on Twitter and Facebook, demonstrating early signs of consumer interest in our products. There is also the continued monthly Newsletter publication being distribution to 30,000 MyBrainSolutions subscribers. These publications have started to drive sales pipeline development with new prospects being added via that channel.

With all the infrastructure now in place, market research has begun to be explored. Our first significant Marketing and Media (mainstream and digital) Campaign begins in April.

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3.7 Strong pipeline of clients

Strong growth in the Corporate Wellness market is predicted by IBISWorld, with the expectation of 10% p.a. growth in next five years to around $3bn. Our current market penetration and pipeline is characterized by:

13 Corporates using Brain Training platforms, covering 400,000 lives;

A further 52 Corporates are reviewing Brain Resource products, 13 estimated to have at least a 50% likelihood of contracting and covering 900,000 lives, and 39 at an earlier stage of engagement; and

350% revenue growth for the current period.

4. New ADHD Product and Joint Venture

A new Attention Deficit Hyperactivity Disorder (“ADHD”) joint venture company (BRC Focus Pty Ltd) was established with investment vehicle controlled by Och-Ziff Capital Management Group LLC to develop an online ADHD portal that brings together information, objective assessment and solutions (including Brain Training) for the key issues facing children with ADHD and parents. This initiative is capitalizing on a large-scale opportunity: ADHD is the most commonly diagnosed disorder of childhood, impacting more than 5 million children (or 9%) in the US. It is further estimated an additional 4-5 million adults suffer with ADHD symptoms, many of whom have children bearing the disorder.

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Current Corporate users High likelihood of contracting Total

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Development of the ADHD product progressed throughout the period achieving an Alpha release mid-December, 2011. A product roadmap of remaining functionality has been determined with an anticipated Beta release date of late May, 2012. Site development continues in parallel to marketing research and consumer focus group activities to optimize development of an attractive, engaging product offering with advanced assessment, training and case management features

4.1 New Joint Venture opportunities

The Brain Resource methodology and content is creating spin-off opportunities. The ADHD joint venture has created a precedent for the model, including structure, valuation parameters and funding. Under the current terms, Brain Resource granted the ADHD joint venture a perpetual licence allowing it to access to relevant BRC platform content for developing and launching the ADHD portal for the parent market. There are analogous further opportunities that are best exploited with partners. This includes several under current review including: (i) a portal like that for ADHD but specifically catering to the needs of the Aging market; (ii) a biometrics joint venture exploiting hardware (with associated software) that has been developed by Brain Resource; and (iii) a drug+companion diagnostic discussed further in the following section. The common feature is that all lever our existing content to create a new source of value.

5. Progress towards achieving our Brain Test Goals

iSPOT, the world‟s largest Personalised Treatment Prediction studies in Depression (iSPOT-D) and in ADHD (iSPOT-A), has now enrolled over 1,700 and close to 500 patients respectively. The study aim is to identify accurate Biomarkers for the prediction of treatment response. The analysis phase underway is extracting Biomarkers from the first 1,000 Depression and 250 ADHD patients. The results are currently being prepared for our submission to the FDA seeking clearance for the emergent Biomarker based diagnostic tests.

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Our most recent update was to expect that the FDA will provide feedback on our (Pre IDE) meeting request within weeks. Conferences and Journal publications help establish the credibility of the outcomes and are vital to commercialisation. In that regard:

The first two iSPOT papers have been published, two are in submission and a further four are currently in preparation. The initial plan contemplates 33 publications and topics and authors have been assigned for the balance.

iSPOT-D was presented at 2 major U.S. conferences attended by FDA and Major Pharmaceutical Company representatives:

a. The American Conference of Neuropsychopharmacology (ACNP) on

Dec 5, 2011 – notably, this is a prestigious by-invitation only meeting and the presentation was the opening panel session that included David Kupfer (Chair of the DSM-V Taskforce that is launching the new diagnostic manual used by all clinicians, industry and academics), Bruce Cuthbert (Director of the US National Institute of Mental Health‟s Division of Adult Translational Research and Treatment Development) and Alan Schatzberg (Kenneth T Norris Jr Professor of Psychiatry at Stanford University (and former Chair of ACNP and the American Psychiatry Association, APA).

b. The Personalized Medicine World Conference (PMWC) at Stanford University ), on January 23rd.

These conferences represented the first opportunities to demonstrate the „Brain Resource Biomarker Platform and Database‟ to the major stakeholders (Pharmaceutical, Health Care Insurance, Major Pharmacy Distributors, Medicare) – who are targets for Brain Resource to commercialise outcomes from iSPOT.

6. Research Solutions

Research Solutions, our academic research support division, has been active securing product placement in critical research areas including Depression, Post Traumatic Stress Disorder and Addiction among other high interest research areas.

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• Secured 8 new research agreements-three with Stanford University. These studies anticipate enrolling over 840 subjects with the potential for future/continuation studies. Projected quarter over quarter revenue increase of 3.5% associated with increased demand for our research protocols and investigative tools.

• Our current research portfolio includes 53 separate studies with 7420 enrolled subjects totaling over $450,000 in revenues.

7. Monetization opportunities

We have begun to pursue initiatives with the goal of monetizing iSPOT. The following opportunities are being discussed with Pharmaceutical Companies and Insurance/Payer Groups:

Co-marketing the iSPOT „Companion Diagnostics‟ with the three drugs used in iSPOT (40% market share of antidepressants in the U.S);

Using the Brain Resource Platform for new drug discovery;

Insurance Companies to use the Biomarkers as a mechanism to ensure better patient outcomes and lower medication costs.

Using Brain Resource platforms and Biomarkers for Phase I-IV studies and also for new drug development.

8. Valuation

While our share price performance has been tracking the market, our market capitalization continues to lag our outcomes. We continue to strive to find new ways to better communicate our progress, the impact of our growth potential with Och-Ziff funding and the timeliness of what we are doing so as to close this gap. We are generating investor interest in the US. We have selected an Investor Relations Company to help and are planning on an investor road show in April. We are increasingly optimistic that interest will increase given the US awareness of web product scalability and that Personalized Medicine has come of age. For example, two FDA approvals are being seen as landmark turning points:

Pfizer's Xalkori drug and Abbott's companion diagnostic for treating lung cancer in patients with a particular genotype

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Roche's Zelboraf drug and companion diagnostic for treating melanoma in patients with a particular genotype.

As a further example, the PWC report, Diagnostics 2011, highlights that M&A deal values have „jumped to exceptional levels during 2011….The surge and diversity of bidders reflected a widespread belief in the growth prospects of selected IVD market segments….The pharmaceuticals industry would have little choice but to invest in companion diagnostics if regulators, payers, and markets were to signal the importance of doing so. Companion diagnostics complement targeted therapeutics to reduce side effects, improve efficacy, and help control healthcare costs.” This trend was further emphasized by the recent $6bn hostile bid for Illumina by Roche. The initial bid price represented a 60% premium to the Illumina share price before transaction impacted the market.

9. Financials

9.1 Revenues

6 months to 31 December 2011 2010 Change

Brain training platforms 233,318 51,417 354%

Clinical Decision support 241,565 1,896,685 (87%)

Treatment prediction research 1,527,919 1,647,998 (7%)

Discovery research 53,320 85,234 (37%)

Equipment sales 4,433 25,577 (82%)

Gain on initial recognition of the newly established joint venture 1,925,205 - nm

Interest income 178,573 126,275 41%

Total Revenues 4,164,333 3,833,186 9%

a) Brain training platforms: The 354% increase was the highlight of overall revenue growth, these early revenues coming from our first Corporate employer contracts. This also includes the first contribution from MyCalmBeat sales and the use of these products in the Learning & Development market.

b) Clinical Decision Support: There was a total of 6,600 reports for the half year period, or a growth rate of around 50%. WebNeuro showed the strongest growth by number of reports, this increasing 220%. Overall revenues decreased due to 2010 being the last applicable year for the OptumHealth licence fee (contributing $1.7m of the 2010 revenues).

The trajectory of initially obtaining a foothold in the U.S. through an exclusive OptumHealth licence and fee (ended in January 2010) and then expanding our distribution to multiple channels, is now well underway. Given the long sales cycle of corporate distribution deals and employer purchase decisions, there has however been an inevitable short term dip as we transition to a broaden our distribution.

c) Treatment Prediction Research: iSPOT revenues are tied to the stage of completion of the contract (based off a range of factors including spend and

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recruitment levels). Recruitment levels can vary substantially between periods with factors internal (we can ramp up or slow down particular sites to ensure we maintain a balanced recruitment between sites and subject type) and also external (eg weather). This variability was well within our overall trial plan.

iSPOT explanatory note: The current Treatment Prediction Research Revenue includes around $1.5m (2010: $1.6m) from the iSPOT contract. Brain Resource‟s accounting policies (compliant with Australian equivalents to International Financial Reporting Standards) distinguish Marker development from Drug trials. In Marker development, Brain Resource retains a right to use and significantly benefit from the Intellectual Property created during the collaboration. Payments received from a collaborating partner for participating in the collaboration and undertaking the work are recognised as revenues, reflecting the relative stage of project progress. The associated costs are capitalised to the extent that the future benefits are expected to at least equal those costs with any excess expensed as incurred, this is consistent with our policy for the treatment of Intangible Assets. Capitalised amounts are reviewed periodically to ensure that there is no impairment and also to determine an appropriate sales linked amortisation point. Accordingly, iSPOT‟s impact on accounting profit is significant.

d) Discovery Research: There are 53 academic studies currently underway using our methodology covering 7,000 subjects, with a total value of above $450,000. Universities include Cornell, Stanford, Missouri, Columbia, Sydney and Adelaide.

e) Joint Venture: This gain arising from recognition of the initial value that arose from the new ADHD joint venture. Brain Resource contributed a perpetual licence for its 50% share, the value of this licence never previously recognised in the accounts. Given that this venture was created with $4m of funding, this established the value of Brain Resource‟s interest. Please refer to the Financial Report following for detail of the terms of issue and accounting treatment.

9.2 Expenses

6 months to 31 December 2011 2010 Growth %

Equipment and direct third party drug trial costs 204,685 190,823 7%

Depreciation and amortisation 124,843 96,049 30%

Insurance and professional fees 256,003 203,240 26%

Rent, supplies & office costs 104,111 124,190 -16%

Salaries and consultancy fees 1,288,364 1,411,580 -9%

Marketing and agent support 361,619 200,965 80%

Communications 63,801 56,370 13%

Travel 75,526 85,760 -12%

Foreign Exchange Losses / (Gains) (113,249) 852,924 -113%

Share based payments 26,686 19,306 38%

Finance costs 209,920 - Nm

Other 32,078 25,733 25%

Total Expenses (Gains) 2,634,387 3,266,940 (19%)

Total expenses (excluding foreign exchange, finance costs and share based payments) increased around 5%. There were 32 full time equivalent employees, of

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which 8 were in the US, as compared to 38 in the prior period. Marketing and support have increased aligned with our greater focus on sales. The depreciation and amortisation increase reflected the contribution from MyBrainSolutions. The cost of sales increase was tied to commissions payable on Learning and Development sales and also MyCalmBeat hardware costs. Prior period foreign exchange movements were significant, arising from the significant devaluation of the US$ and its impact on our US$ cash holdings. Note our policy is to hold cash deposits in currencies aligned with planned future expenditures, thereby ensuring constant purchasing power. Please refer to the June 2011 financial statements for further detail on the Finance costs. In essence, issue costs are apportioned between expense and equity accounts and an annual notional (non cash) amount of interest is required to be recognised in the accounts (even though the bonds have a zero coupon). Note that costs are net of the capitalisation of expenditures associated with iSPOT, as referred to above. The amount capitalised for iSPOT in 2011 amounted to around $1.4m (2010:$1.6m), this includes salaries (both direct and allocated), direct site expenditures and allocated overhead

9.3 Profit after tax

6 months to 31 December 2011 2010 Growth %

Profit after tax 1,529,169 566,246 170%

The increase in profit, was due primarily to the gain on initial recognition of the newly established joint venture.

9.4 Cash flow

6 months to 31 December 2011 2010

Net cash flows from operating activities (1,703,843) (1,704, 595)

Net cash flows from investing activities (2,191,044) (1,803,942)

Net cash flows from financing activities 8,949,404 -

Increase (decrease) in free cash flow 5,054,517 (3,508,537)

Closing cash 13,595,400 6,928,016

Total net monthly cash usage (excludes impact of foreign currency losses, depreciation, convertible bond costs, share based payments) 617,544 584,756

Revenues from our Web based products are still to materially impact cash flows, the increase in cash from operations consistent with this transition between revenue streams. Investing cash flows reflected iSPOT study and the continued development of MyBrainSolutions.

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9.5 Capital management

As a note regarding our capital management efficiencies, the entire business has been built off $15.5m of raised equity funding to date plus the $18m iSPOT contract, that is no funds have been raised since 2006. Brain Resource recently issued $10m of Convertible Bonds to Och-Ziff managed funds and also established a new joint venture with $4m funding provided by them through an Exchangeable Convertible Preference Share. The election price for conversion or exchange of these instruments into ordinary Brain Resource equity was struck at 40.5 cents per share.

10. Outlook

The web Brain training products and Personalised treatment prediction that constitute the business, have focused short term goals that are achievable:

MyBrainSolutions and MyCalmBeat is growing its corporate customer base and there is a new offering (ADHD Portal) to consumers to grow revenues.

Treatment Prediction test development is building off 5 years of iSPOT data and is in the process of publishing and applying for regulatory approval of the first Test for treatment prediction in Depression and ADHD.

Brain Resource currently has funding through the recent issues that place us in a strong position for focused growth over the coming year. The full year estimates however remain tied to current and expected contracts under negotiation closing as well as the expected contribution from the newly signed Aetna agreement. All our product streams are consolidating at a time that allows us to capitalise on the brain becoming mainstream. These could have a material impact on any expectations for the full year.

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Appendix 4D - Half Year Report for the six months ended 31 December 2011

Results for announcement to the market

$A

(000‟s)

Revenues from ordinary activities increased 9% to 4,164

Profit before tax increased 170% to 1,529

Profit for the period attributable to members increased 170% to 1,529

Dividends (distributions) Amount per security Franked amount per security

Interim dividend Nil Nil

Previous corresponding period Nil Nil

NTA backing Current period Previous corresponding 6 month period ended 31

December 2010

Net asset backing per ordinary share (cents per share) - including Databases and associated intangible assets

20.8 15.8

Net tangible asset backing per ordinary share (cents per share) – excluding Databases and associated intangible assets

(2.77) (3.64)

Commentary on results for the period: Refer to the Operational Review attached to this half-year financial report.

Accounts: The report is based on the attached half-year financial report, which has been reviewed.

Changes in control over entities: There were no entities over which control has been gained or lost during the period.

Details of dividends and dividend reinvestment plans: No dividends have been declared or proposed.

Details of associates or joint ventures: A new joint venture, BRC Focus Pty Ltd (Focus), was established during the period. Brain Resource Ltd holds 4 million ordinary shares. Malta Trading Platform Ltd holds 4 million exchangeable convertible preference shares (ECPS). The ECPS are a separate class of shares and rank in priority to ordinary shares in the event of a liquidation of Focus, carry the same rights to receive notices of general meetings and to attend general meetings, the same voting rights as ordinary shares and the same dividend rights as Ordinary Shares.

Foreign Entities: N/A

Details of audit disputes or audit qualification: N/A

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Brain Resource Ltd ACN 094 069 682

Half-Year Financial Report

For the six months ended 31 December 2011

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Directors’ Report

Your Directors present their report on the Consolidated Entity consisting of Brain Resource Ltd (BRC or the Company) and the entities it controlled at the end of, or during, the half-year ended 31 December 2011. Directors

The following persons were Directors of the Company during the whole of the half-year and up to the date of this report:

Dr Evian Gordon – Chairman and Chief Executive Officer; Dan Segal – Executive Director and Chief Operating Officer; Nestor Hinzack – Non Executive Director; Russell Jamison – Non Executive Director; and Arthur Toga – Non Executive Director. Paul Keating – resigned as a Non Executive Director on 6 April 2011 but remains an advisor to the Board.

Activities

The principal activity of the Company is developing and selling brain health products. Review and Results of Operations

See attached Operational Review. Auditors’ Independence Declaration

An independence declaration from our auditors, Ernst & Young, is included on page 27 of our financial report.

Signed in accordance with a resolution of the directors.

Dr Evian Gordon, Chairman of Directors Sydney, 27 February 2012

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Consolidated Statement of Comprehensive Income

Consolidated For half-year ended 31 December 2011 2010

Note $ $

Continuing Operations:

Revenue and other income 2 4,164,333 3,833,186

Expenses 2 (2,634,387) (3,266,940)

Profit from continuing operations before income tax expense

1,529,946 566,246

Income tax expense (777) -

Net profit from continuing operations for the period 1,529,169 566,246

Other comprehensive Income - -

Other Comprehensive Income for the period, net of tax

- -

Total Comprehensive Income for the period attributable to members of Brain Resource Ltd

1,529,169 566,246

Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the parent:

Basic earnings per share (cents per share) 1.7 0.6 Diluted earnings per share (cents per share) 1.7 0.6

Earnings per share for profit attributable to the ordinary equity holders of the parent:

Basic earnings per share (cents per share) 1.7 0.6 Diluted earnings per share (cents per share) 1.7 0.6

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Statement of Financial Position

Consolidated

As at 31 Dec 2011 30 Jun 2011

$ $

CURRENT ASSETS

Cash and cash equivalents 7 13,595,400 8,414,168

Trade and other receivables 503,638 433,418

Inventories 89,520 39,301

Other current assets 12,540 14,702

TOTAL CURRENT ASSETS 14,201,098 8,901,589

NON-CURRENT ASSETS

Plant and equipment 554,145 533,850

Intangible assets 8 21,592,426 19,748,901

Investment in joint venture 11 1,925,205 -

Other non-current assets 5,624 2,893

TOTAL NON-CURRENT ASSETS 24,077,400 20,285,644

TOTAL ASSETS 38,278,498 29,187,233

CURRENT LIABILITIES

Trade Creditors 548,144 641,810

Unearned Income 4,276,582 3,876,582

Other Creditors 718,749 594,677

Loan 12 3,799,903 -

Provisions 436,042 419,871

TOTAL CURRENT LIABILITIES 9,779,420 5,532,940

NON CURRENT LIABILITIES

Unearned Income 2,521,306 4,449,225

Convertible Bond 10 6,738,492 3,184,896

Provisions 186,875 179,945

TOTAL NON CURRENT LIABILITIES 9,446,673 7,814,066

TOTAL LIABILITIES 19,226,093 13,347,006

NET ASSETS 19,052,405 15,840,227

EQUITY

Contributed capital 3 20,143,245 18,486,922

Accumulated losses (1,429,501) (2,958,670)

Other reserves 338,661 311,975

TOTAL EQUITY 19,052,405 15,840,227

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Consolidated Statement of Cash Flows

Consolidated

Six months ended 31 December 2011 2010

$ $

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers 505,172 436,288

Payments to suppliers and employees (2,320,993) (2,343,454)

Interest received 111,978 202,571

NET CASH FLOWS USED IN OPERATING ACTIVITIES

(1,703,843) (1,704,595)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of plant and equipment (83,407) (40,488)

Development of database and analysis tools (2,107,637) (1,763,454)

NET CASH FLOWS USED IN INVESTING ACTIVITIES

(2,191,044) (1,803,942)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issue of Convertible Bonds 5,000,000 -

Proceeds from Borrowings from joint venture 3,949,404 -

NET CASH INFLOWS FROM FINANCING ACTIVITIES

8,949,404 -

Net (decrease) / increase in cash and cash equivalents held

5,054,517 (3,508,537)

Add opening cash and cash equivalents brought forward

8,414,168 11,301,862

Net Foreign Exchange Differences 126,715 (865,309)

CLOSING CASH AND CASH EQUIVALENTS CARRIED FORWARD

7 13,595,400 6,928,016

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Consolidated statement of changes in equity

Consolidated Ordinary Shares

Equity component of

Convertible Bonds

Retained Earnings

Other Reserves

Total Equity

For the half year ended 31 December 2010 $ $ $ $

At 1 July 2010 16,834,052 -

(3,228,157) 261,405 13,867,300

Profit (Loss) for the period - -

566,246 - 566,246

Other Comprehensive Income - -

- - -

Total Comprehensive Income - -

566,246 - 566,246

Share based payments - - - 19,306 19,306

Balance at 31 December 2010 16,834,052 - (2,661,911) 280,711 14,452,852

For the half year ended 31 December 2011

At 1 July 2011 16,834,052 1,652,870 (2,958,670) 311,975 15,840,227

Profit (Loss) for the period - - 1,529,169 - 1,529,169

Other Comprehensive Income - - - - -

Total Comprehensive Income - - 1,529,169 - 1,529,169

Transactions with owners in their capacity as owners:

Issue of Convertible Bond - 1,656,323 - - 1,656,323

Share based payments - - - 26,686 26,686

Balance at 31 December 2011 16,834,052 3,309,193 (1,429,501) 338,661 19,052,405

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1. BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT

(a) Corporate information

This general purpose condensed financial report for the half-year ended 31 December 2011 has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001.

The half-year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report.

It is recommended that the half-year financial report be read in conjunction with the annual report for the year ended 30 June 2011 and considered together with any public announcements made by Brain Resource Limited during the half-year ended 31 December 2011 in accordance with the continuous disclosure obligations of the ASX listing rules.

Apart from the changes in accounting policy noted below, the accounting policies and methods of computation are the same as those adopted in the most recent annual financial report.

(b) Basis of accounting

The half-year financial report has been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value. For the purpose of preparing the half-year financial report, the half-year has been treated as a discrete reporting period.

(c) Summary of significant accounting policies

The half-year consolidated financial statements have been prepared using the same accounting policies as used in the annual financial statements for the year ended 30 June 2011.

(d) Investment in joint venture

The Company has an interest in a joint venture, which is a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entity. The agreement requires unanimous agreement for financial and operating decisions that are Fundamental Matters (defined as including new issues, borrowings, material departures from business plan, unusual transactions, guarantees, dividends, related party agreements, mergers and reconstructions, variation of securities rights and key contracts). The financial statements of the joint venture are prepared for the same reporting period as the Company. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

The Company‟s investment in the joint venture is accounted for using the equity method. Under the equity method, the investment in the joint venture is carried on the statement of financial position at cost plus post acquisition changes in the Company‟s share of net assets of the joint venture. The income statement reflects the Company‟s share of the results of operations of the joint venture.

After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on its investment in its joint venture. The Group determines at each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognises the amount in the ”share of profit of a joint venture” in the income statement.

(e) Changes in accounting policy

New/revised standards and interpretations applicable to the year commencing 1 July 2011 have been reviewed and it has been determined that those new/revised standards and interpretations do not have a material effect on the measurements and recording of items in the balance sheet and statement of comprehensive income.

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2. PROFIT / LOSS FROM ORDINARY ACTIVITIES

The profit / loss from ordinary activities before income tax expense includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the entity: Consolidated Six months ended 31 December 2011 2010

$ $

(i) Revenue and other income from operating activities: Brain training platforms 233,318 51,417

Clinical Decision support 241,565 1,896,685

Treatment prediction research 1,527,919 1,647,998

Discovery research 53,320 85,234

Equipment sales 4,433 25,577

Gain on initial recognition of the newly established joint venture 1,925,205 -

Interest received - other persons/corporations 178,573 126,275

Total revenues and other income from ordinary activities 4,164,333 3,833,186

(ii) Expenses from operating activities:

Equipment and direct third party drug trial costs 204,685 190,823

Depreciation of plant and equipment 27,459 35,373

Amortisation of intangibles 97,384 60,676

Insurance and professional fees 256,003 203,240

Rent, supplies & office costs 104,111 124,190

Salaries and consultancy fees 1,288,364 1,411,580

Marketing and agent support 361,619 200,965

Communications 63,801 56,370

Travel 75,526 85,760

Foreign Exchange Losses / (Gains) (113,249) 852,924

Share based payments 26,686 19,306

Finance costs 209,920 -

Other 32,078 25,733

Total Expenses (Gains) 2,634,387 3,266,940

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3. CONTRIBUTED EQUITY Consolidated

31 Dec 11 30 Jun 11

Share capital Number Number

Number of ordinary shares – opening balance 91,714,454 91,714,454 Additions

- -

Number of ordinary shares- closing balance 91,714,454 91,714,454

$ $

Convertible Bond – opening balance 1,652,870 -

Additions 1,656,323 1,652,870

Convertible Bond – closing balance 3,309,193 1,652,870

4. CONTINGENT ASSETS AND LIABILITIES

The Company is not aware of any contingent assets or liabilities neither at the end of the half-year nor at the date of this report.

5. FINANCIAL REPORTING BY SEGMENT

The Company operates predominantly in the one industry, namely commercialisation of brain function analysis, and is located in Australia.

6. SUBSEQUENT EVENTS

There have not been any material subsequent events that have or will affect the results of Brain Resource Ltd and its controlled entities.

7. CASH AND CASH EQUIVALENTS

Reconciliation of Cash

For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 31 December:

Consolidated

31 Dec 11 31 Dec 10

Cash at bank and in hand 1,771,934 4,086,926

Short-term deposits 11,823,466 2,841,090

13,595,400 6,928,016

8. INTANGIBLES Consolidated

31 Dec 2011 30 Jun 2010

Brain Resource International Database and associated analysis tools 21,592,426 19,748,901

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9. SHARE BASED PAYMENTS

A total of 3,150,000 options to subscribe for ordinary shares were issued on 15 December 2011 to a range of BRC employees and consultants with an exercise price of 40.5 cents and an expiry date of 15 December 2016. These options have been issued under the terms of the Company‟s Employee Share Option Plan to staff and consultants. These Options include a loyalty element and applicable performance milestones. This is also reflected in the issue having an exercise price of 40.5c, which was a significant premium to the prevailing share price and with an implied fair value of $0.017 per option. No Directors participated in this issue. A total of 5,176,500 options expired unexercised during this period.

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using a binomial model and the following assumptions: expected volatility of 20.0%, risk-free interest rate of 5.5% and an expected life of 5.0 years.

10. Convertible Bonds Consolidated

31 Dec 2011 30 Jun 2010

Non Current Convertible Bonds 6,738,492 3,184,896

(a) Terms and Risk exposures: On 14 June 2011, Brain Resource Ltd agreed to issue $10,000,000 of zero coupon unsecured Convertible bonds (100 bonds with a face value of $100,000 each), convertible at the option of the bond holder into ordinary shares at any time prior to 14 June 2016 at a conversion price of $0.405 per share. At 30 June 2011, 50 bonds had been issued. A further 50 were issued in the current period with the same terms and conditions.

(b) The fair value of the liability portion of the convertible bond is estimated using an interest rate for an instrument with similar debt terms but without the conversion option. This estimate was based on an interest rate of 8.75% and 8.38% for the respective issues. Total transaction costs of $175,000 have also been allocated between equity and liability on this same basis.

11. Investment in joint venture

The Company has an equity interest in a new joint venture company, BRC Focus Pty Ltd (Focus), established to develop a new Attention Deficit Hyperactivity Disorder product. Focus is a private entity that is not listed on any public exchange.

Focus has issued 4 million Exchangeable Convertible Preference Shares (ECPS) to Malta Trading Platform Limited (an investment vehicle controlled by Och-Ziff Capital Management Group LLC) at a subscription price of $4 million. Brain Resource owns 4 million ordinary shares in Focus and has contributed a perpetual licence to its relevant platform content for exclusive use in the ADHD parent market.

The value of this equity interest in the joint venture was effectively based on the price paid by Malta.

The ECPS issue terms included that Malta can elect to convert the ECPS into ordinary Focus shares at a conversion price of $1 per ECPS or exchange into ordinary Brain Resource Ltd shares at an exchange price of 40.5 cents. Any unconverted ECPS will automatically convert into ordinary Focus shares at $1 per ECPS after 10 years. There are no other redemption terms other than those included within default events and a range of anti-dilution adjustments as disclosed in our Cleansing Notice issued on 14 December 2011 and also the 2011 Notice of Annual General Meeting.

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Brain Resource has joint control, as defined under AASB 127, and accordingly the investment is accounted for as a joint venture using Equity Accounting.

The following table illustrates summarised financial information of the Company‟s investment:

Consolidated

31 Dec 11 30 Jun11

Share of joint venture’s statement of financial position: Current Assets 254 -

Non Current Assets 1,924,951 -

Current Liabilities - -

Non Current Liabilities - -

Equity 1,925,205 -

Share of joint venture‟s Revenue and Profit:

Revenue - -

Profit (Loss) (782) -

Carrying amount of investment 1,925,205 -

12. Loan

BRC Focus Pty Ltd funds when initially received were placed in a term deposit paying 6% interest in the Company‟s name. This term deposit expires in April 2012 and is repayable at that same 6% interest rate to the joint venture at that time.

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DIRECTORS’ DECLARATION In accordance with a resolution of the directors of Brain Resource Ltd, I state that: In the opinion of the directors:

(a) The financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the financial position as at 31 December 2011

and the performance for the half-year ended on that date of the consolidated entity; and

(ii) complying with Accounting Standard AASB 134 “Interim Financial Reporting” and the Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the company will be able to pay its

debts as and when they become due and payable. On behalf of the Board

Dr Evian Gordon, Chairman of Directors Sydney, 27 February 2012

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Documents

Brain Resource Ltd · Agreed licence terms with Keas to include MyBrainSolutions exercises and brain health content as part of their corporate Wellness product. Keas was founded by