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1 STRATOS RESOURCES LIMITED ABN HALF-YEAR FINANCIAL REPORT 31 DECEMBER

2 CORPORATE DIRECTORY DIRECTORS Neil Hackett James Thompson Piers Lewis SECRETARY Neil Hackett Piers Lewis REGISTERED AND PRINCIPAL OFFICE Level 1, 981 Wellington Street West Perth WA 6005 Postal address: Level 1, 981 Wellington Street West Perth WA 6005 Telephone: (08) SHARE REGISTRY Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 Telephone: (08) Facsimile: (08) AUDITORS PKF Mack & Co 4 th Floor 35 Havelock Street West Perth WA 6005 AUSTRALIAN SECURITIES EXCHANGE Stratos Resources Limited shares (SAT) are listed on the Australian Securities Exchange. Stratos Resources Limited 1

3 STRATOS RESOURCES LIMITED DIRECTORS REPORT Your Directors present their report for Stratos Resources Limited (the Company) and controlled entities (the consolidated entity) for the half-year ended In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: DIRECTORS The names of the Directors of the Company in office during the financial year and up to the date of this report are as follows: Neil Hackett James Thompson Piers Lewis Directors were in office from the beginning of the financial year until the date of this report unless otherwise stated. CORPORATE INFORMATION Corporate Structure Stratos Resources Limited is a limited liability company that is incorporated and domiciled in Australia. Stratos Resources Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year as follows: Stratos Resources Limited - parent entity Knights Landing Limited - 100% owned controlled entity Billiton Island Pte Ltd - 100% owned controlled entity Nature of Operations and Principal Activities The principal continuing activities during the period within the consolidated entity were exploration for and evaluation of mineral resources. OPERATING AND FINANCIAL REVIEW Review of Operations Corporate During the period, the Company raised capital and issued securities as follows: 18 September 150,000,000 options were issued to consultants as approved at the last AGM with exercise price expiring 30 November 2015, From late September to early November the company issued 110,000,000 convertible notes at to raise 110,000 and 110,000,000 free attaching options with an exercise price of expiring 30 November Operating Results Consolidated loss after income tax for the financial period was 584,460 (2012: 675,299). Project Review The Company has taken further steps in the half year to progress its activities in the tin exploration and development market, including extensive due diligence activities on the Company s Yinchen and Sambas Projects. The Company expects that tin as a commodity will continue to remain well supported in the near and medium terms due to tightening global supply and continued demand from the electronics industry. Yinchen Tin Project During the half year the Company continued to progress the acquisition of the Yinchen Tin Project and has performed extensive due diligence on the Project. Operationally, Stratos is undertaking a review of existing data, immediately followed by its own testing of prospective areas. Future work undertaken by Stratos will be focused on identifying areas suitable for near term production and cash flows, and to delineate a resource and reserve suitable for reporting under the JORC 2012 Code. Initial exploration is to be focused on the most prospective alluvial tin areas. Hard rock tin potential in close proximity to the alluvials will also be examined. Stratos Resources Limited 2

4 STRATOS RESOURCES LIMITED DIRECTORS REPORT The 60% interest in the 11 Production IUPs (equivalent to mining licenses) will be held by a Singapore based vehicle owned on an equal basis by Stratos and Metalcorp Group, the European based global commodities trader. A subsidiary of the Metalcorp Group, Tennant Metals, has been involved in the marketing and sales of tin product from Belitung Island for many years and is a major participant in the Asian market for tin. The remaining 40% shareholding is currently held by a local partner with long mining and processing experience on the island. The Metalcorp Group has agreed to provide an off-take agreement for 100% of the tin produced from the eleven (11) tenements and up to US5.00 million of trade finance. These arrangements are to be at market rates and are subject to final terms and conditions and definitive documentation. Consideration to be paid by Stratos is to be all scrip, with shares to the value of US400,000 at prevailing VWAP to be issued to the vendor. These shares will be subject to a voluntary one (1) year escrow. The transaction is subject to ASX and shareholder approvals (if required). Sambas Project During the half year the Company acquired an exclusive option over the Sambas Tin Project. Since acquiring this exclusive option, the Company has appointed an offshore alluvial tin geological consultant to perform due diligence activities, including review of historical information and two site visits to re-sample prospective areas. The Sambas exploration IUP (Indonesian exploration license) covers 49,270 hectares of prospective offshore areas from the mouth of the Paloh River to north of Tanjung Dato, West Kalimantan, Indonesia. The license area extends from the shore line to 8km offshore and in waters generally between 5 and 20m in depth which is considered ideal for offshore alluvial tin extraction. Both the Sambas Tin Project and the Yinchen Tin Project are prospective for tin and are located in close proximity to the South East Asian Tin belt New Projects The Board continues to review investment opportunities in both the tin sector and other commodity sectors that have the potential to significantly add value for shareholders. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during the financial year under review not otherwise disclosed in this report or in the financial report. EVENTS SUBSEQUENT TO REPORTING DATE There are no matters or circumstances that have arisen since that have or may significantly affect the operations, results, or state of affairs of the consolidated entity in future financial years except for: As at 7 March 2014 there has been a decline in value of the financial assets of the Company. Based on current share prices the total value of the Financial Asset would be 43,940 which represents a decline in value from of 87,879. AUDITOR INDEPENDENCE We have received the independence declaration from the auditor of Stratos Resources Limited, PKF Mack and Co, a copy of which is attached to the Directors Report on page 4 of the financial report. This report is made in accordance with a resolution of the Directors. Piers Lewis DIRECTOR 12 March 2014 Stratos Resources Limited 3

5 AUDITOR S INDEPENDENCE DECLARATION TO THE DIRECTORS OF STRATOS RESOURCES LIMITED In relation to our review of the financial report of Stratos Resources Limited for the half year ended 31 December, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. PKF MACK & CO SIMON FERMANIS PARTNER 12 MARCH 2014 WEST PERTH, WESTERN AUSTRALIA 4

6 CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF-YEAR ENDED 31 DECEMBER Notes Consolidated 2012 Interest revenue 3,783 1,748 Other income 2-153,856 Exploration and evaluation expenditure (81,473) (104,176) Directors fees and benefits expense (103,500) (90,000) Administration, consulting and other expenses (78,458) (225,795) Share based payments (56,805) (224,334) FV loss on investments (217,539) (166,987) Loss on sale of investments (28,825) (19,611) Borrowing costs (21,643) - Loss before income tax expense (584,460) (675,299) Income tax expense - - Net Loss for the year (584,460) (675,299) Other comprehensive income - - Total comprehensive loss for the year (584,460) (675,299) Earnings/(Loss) per Share: Basic and diluted earnings/(loss) per share (cents per share) (0.012) (0.015) The accompanying condensed notes form part of these financial statements. Stratos Resources Limited 5

7 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER Notes Consolidated 30 June ASSETS Current Assets Cash and cash equivalents 221, ,041 Trade and other receivables 14,155 4,247 Financial asset 3 131, ,359 Total Current Assets 367, ,647 Non-Current Assets Other receivables - 50,000 Exploration and evaluation expenditure 4 591,131 - Total Non-Current Assets 591,131 50,000 Total Assets 958, ,647 LIABILITIES Current Liabilities Trade and other payables 101, ,567 Equity liability for project acquisition 5 450,720 - Provisions 6 155, ,560 Financial liabilties 67,420 - Total Current Liabilities 775, ,127 Total Liabilities 775, ,127 Net Assets 183, ,520 EQUITY Issued capital 7(a) 29,622,024 29,622,024 Reserves 7(c) 1,458,694 1,337,666 Accumulated losses (30,897,630) (30,313,170) Total Equity 183, ,520 The accompanying condensed notes form part of these financial statements. Stratos Resources Limited 6

8 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31 DECEMBER Consolidated Issued Accumulated Options Total Capital Losses Reserve Balance at 30 June ,997,647 (28,815,762) 1,113,332 1,295,217 Loss for the year - (675,299) - (675,299) Other comprehensive income Total comprehensive loss for the year - (675,299) - (675,299) Transactions with owners, recorded directly in equity: Securities issued during the year 650, , ,334 Capital raising costs (25,623) - - (25,623) Total equity transactions 624, , ,711 Balance at ,622,024 (29,491,061) 1,337,666 1,468,629 Balance at 30 June 29,622,024 (30,313,170) 1,337, ,520 Loss for the year - (584,460) - (584,460) Other comprehensive income Total comprehensive loss for the year - (584,460) - (584,460) Transactions with owners, recorded directly in equity: Securities issued during the year , ,028 Capital raising costs Total equity transactions , ,028 Balance at 29,622,024 (30,897,630) 1,458, ,088 The accompanying condensed notes form part of these financial statements. Stratos Resources Limited 7

9 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF-YEAR ENDED 31 DECEMBER Consolidated 2012 Cash flows from operating activities Receipts from operations - - Payments to suppliers and employees (194,719) (315,429) Interest received 3,783 1,749 Net cash used in operating activities (190,936) (313,680) Cash flows from investing activities Payments for exploration expenditure (241,591) (230,191) Loan to other entity - - Loans repaid by other entities - 100,000 Proceeds from sale of Financial assets 20, ,188 Purchase of Financial assets - (120,000) Net cash used in investing activities (220,765) (62,003) Cash flows from financing activities Proceeds from issue of securities and securities subscriptions - 650,000 Cost of capital raisings - (33,413) Proceeds from Financial liabilities 110,000 - Net cash provided by financing activities 110, ,587 Net increase/(decrease) in cash and cash equivalents held (301,701) 240,904 Cash and cash equivalents at beginning of the financial year 523, ,978 Cash and cash equivalents at end of the period 221, ,882 The accompanying condensed notes form part of these financial statements. Stratos Resources Limited 8

10 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of Compliance The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS34 Interim Financial Reporting. The half-year report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report. Basis of preparation The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts presented in Australian dollars, unless otherwise noted. The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Company s annual financial report for the financial year ended 30 June, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards. Adoption of new or revised accounting standards and interpretations The Group has adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current half-year. The Group has not early adopted any accounting standards or interpretations. The adoption of all new and revised standards and interpretations has not resulted in any changes to the Group s accounting policies and has no effect on the amounts reported for the current or prior half-years. The financial report has been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the consolidated entity s assets and the discharge of its liabilities in the normal course of business. Going concern As disclosed in the financial report, the consolidated entity recorded an operating loss of 584,460 (31 Dec 2012: 675,299), has a working capital deficiency position of (408,043) however the board notes that 450,720 of the trade and other payables balance relates to an accrual for the acquisition of the Yinchin asset which will be settled via an equity issue in the following period and would return the Company to a positive working capital position (30 June working capital: 596,520) and a cash outflow from operating activities of (190,936) (31 Dec 2012: 313,680) for the half-year ended. The Board considers that the consolidated entity is a going concern and recognises that additional funding is required to ensure that the consolidated entity can continue to fund the Group s operations for the 12 month period from the date of this financial report. The Directors believe after consideration of the above matters, there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable and is a going concern because of the following factors: The ability to issue additional capital under the Corporations Act 2001 and ASX Listing Rule 7.1 or otherwise; and, The consolidated entity s commitment to exploration expenditure is discretionary and expenditure requirements are minimal. Accordingly, the Directors believe that subject to prevailing equity market conditions, the Company will obtain sufficient funding to enable the consolidated entity to continue as going concerns and that it is appropriate to adopt that basis of accounting in the preparation of the financial report. Should the Company be unable to obtain sufficient funding as outlined above, there is material uncertainty which may cast significant doubt over the consolidated entity s ability to continue as a going concern. Stratos Resources Limited 9

11 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Should the company be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the normal course of business and an amount different to those stated in the financial statements. The financial statements do not include any adjustments related to the recoverability and classification of asset carrying amounts or the amount of liabilities that might resolve should the company be unable to continue as a going concern and meet its debts as and when they fall due. Exploration and Evaluation Costs Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward in respect of an area that has not at reporting date reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relating to, the area of interest are continuing. Impairment of Exploration and Evaluation Assets and Investments in and Loans to Subsidiaries The ultimate recoupment of the value of exploration and evaluation assets, is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets. Impairment tests are carried out on a regular basis to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts. The key areas of judgement and estimation include: Recent exploration and evaluation results and resource estimates; Environmental issues that may impact on the underlying tenements; Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company. Stratos Resources Limited 10

12 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 2. OTHER INCOME Consolidated 2012 Gain on disposal - 81,613 Collection of previously provided for receivable - 72, , FINANCIAL ASSET Consolidated 30 June Financial assets at fair value through the profit and loss 131, , , ,359 The Stratos board of directors continually reviews the ability to realise its available for sale investments depending on market conditions, outlook and liquidity. Consolidated 30 June Reconciliation Reconciliation of the fair values at the beginning and end of the current and previous financial year are set out below: Opening fair value 349, ,268 Additions 1-1,009,904 Disposals (50,000) (1,122,404) Revaluation increments (217,540) (481,409) Conversion of other noncurrent asset to financial asset at cost 2 50,000 - Closing fair value 131, , Additions relate to the Predictive Discovery Limited shares Stratos Resources Limited received in the sale of Stratos Resource s share of the Joint Venture with Predictive Discovery Limited. 2 - On 13/12/13 Stratos Resource Limited s convertible note in Sprint Energy Limited was converted into 14,003,814 Sprint shares. Stratos Resources Limited 11

13 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 4. EXPLORATION AND EVALUATION EXPENDITURE Consolidated 30 June Expenditure brought forward - 1,265,766 Expenditure incurred 1 591,131 - Expenditure written off - - Disposal of project - (1,265,766) Expenditure carried forward 591,131-1 This includes shares to the value of 450,720 which are required to be issued as part of the Yinchen Tin project. This amount is recognised as a liability at. 5. EQUITY LIABILITY FOR PROJECT ACQUISITION Consolidated 30 June CURRENT Equity liability for project acquisition 1 450,720 - Expenditure carried forward 450, This balance relates to a payable of 400,000 USD in ordinary Stratos Resources Limited shares that is payable upon completion of the acquisition of the Yinchen Tin project. 6. PROVISIONS Current Creditors in dispute 155, , , ,560 Creditors in dispute relate to liabilities classified as trade creditors in prior financial statements that are refuted by the current board. The board has taken a conservative approach and kept the balance of these creditors as a provision which reflects the maximum amount that could potentially claimed by the creditors in Stratos Resources Limited. The board however will counterclaim all claims made by the creditors. 7. ISSUED CAPITAL Consolidated 30 June (a) Issued and paid up capital Ordinary shares fully paid 29,622,024 29,622,024 Number (b) Movement in ordinary shares on issue At 30 June ,974,545,144 28,997,647 Issue for cash 02/08/ ,000, ,000 Issue for cash 13/11/ ,000, ,000 Expenses of issue - (25,623) At ,749,545,144 29,622,024 At 30 June 4,749,545,144 29,622,024 At 4,749,545,144 29,622,024 Stratos Resources Limited 12

14 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER (c) Movement in Share Options Number At 30 June ,126,146,179 1,113,332 Free attaching options to the ordinary shares issued 2/8/ ,000,000 - Free attaching options to the ordinary shares issued 13/11/ ,000,000 - Options issued to directors 14/12/ ,000, ,334 Options lapsed 31/12/2012 (1,253,307,134) - At ,872,839,045 1,337,666 At 30 June 2,872,839,045 1,337,666 Options issued to consultants 18/9/ 150,000,000 56,805 Options lapsed 1/12/ (91,500,000) - Free attaching option per convertible note issued 5/12/ 110,000,000 64,223 At 3,041,339,045 1,458,694 (d) Fair value of options granted The fair value of options granted during the half year was calculated at the date of grant using the Black-Scholes optionpricing model. The following table gives the assumption made in determining the fair value of options on grant date: 18/9/ 5/12/ Fair value per option cents cents Grant date 18 September 5 December Number of options 150,000, ,000,000 Expiry date 30 June November 2015 Exercise price 0.3 cents 0.1 cents Price of shares on grant date 0.1 cents 0.1 cents Estimated volatility 112% 112% Risk-free interest rate 3.23% 3.25% Dividend yield 0% 0% 8. FINANCIAL REPORTING BY SEGMENTS The consolidated entity has identified its operating segments based on the internal reports that are reviewed and used by the chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance. Operating segments are identified by Management based on the mineral resource and exploration activities in Australia, Burkina Faso and Papua New Guinea. Discrete financial information about each project is reported to the chief operating decision maker on a regular basis. The reportable segments are based on aggregated operating segments determined by the similarity of the economic characteristics, the nature of the activities and the regulatory environment in which those segments operate. The consolidated entity has four reportable segments based on the geographical areas of the mineral resource and exploration activities in Australia, Burkina Faso, Indonesia and Papua New Guinea. Unallocated results, assets and liabilities represent corporate amounts that are not core to the reportable segments. Stratos Resources Limited 13

15 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER (i) Segment performance Burkina Faso PNG Indonesia Australia Total Half Year ended Revenue Interest revenue ,783 3,783 Other income Total segment revenue ,783 3,783 Segment net profit/(loss) before tax - - (81,473) 3,783 (77,690) Reconciliation of segment result to net loss before tax Unallocated items - Director fees and benefit expense - Administration, management, consulting and other expenses - Share based payments - FV loss on Financial assets - Loss of sale of Financial assets - Borrowing costs Net loss before tax from continuing operations (103,500) (78,458) (56,805) (217,539) (28,825) (21,643) (584,460) (ii) Segment performance Burkina Faso PNG Indonesia Australia Total Half Year ended 2012 Revenue Interest revenue ,748 1,748 Other income , ,856 Total segment revenue , ,604 Segment net profit/(loss) before tax - - (104,176) 155,604 51,428 Reconciliation of segment result to net loss before tax Unallocated items - Director fees and benefit expense - Administration, management, consulting and other expenses - Share based payments - FV loss on Financial assets - Loss of sale of Financial assets Net loss before tax from continuing operations (90,000) (225,795) (224,334) (166,987) (19,611) (675,299) Stratos Resources Limited 14

16 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER (iii) Segment assets Burkina Faso PNG Indonesia Australia Total As at Segment assets as at 1 July Segment asset increases/(decreases) for the year - Exploration and evaluation , , , ,131 Reconciliation of segment assets to total assets: Other assets 367,314 Total assets from continuing operations 958,445 As at 30 June Segment assets as at 1 July ,265, ,265,766 Segment asset increases/(decreases) for the year - Exploration and evaluation (1,265,766) (1,265,766) Reconciliation of segment assets to total assets: Other assets 926,647 Total assets from continuing operations 926,647 (iv) Segment liabilities As at Segment liabilities as at 1 July - 26, , ,127 Segment liability increases/(decreases) - (26,936) 7, , ,230 for the year - - 7, , ,357 Reconciliation of segment liabilities to total liabilities: Provisions - Total liabilities from continuing 775,357 operations Burkina Faso PNG Indonesia Australia Total As at 30 June Segment liabilities as at 1 July , ,323 1,107,089 Segment liability increases/(decreases) (655,766) 26,936 - (198,132) (826,962) for the year - 26, , ,127 Reconciliation of segment liabilities to total liabilities: Other liabilities Total liabilities from continuing operations - 280,127 Stratos Resources Limited 15

17 CONDENSED NOTES TO THE FINANCIAL STATEMENTS FOR THE HALF-YEAR ENDED 31 DECEMBER 9. EVENTS SUBSEQUENT TO REPORTING DATE There are no matters or circumstances that have arisen since that have or may significantly affect the operations, results, or state of affairs of the consolidated entity in future financial years except for: As at 7 March 2014 there has been a decline in value of the financial assets of the Company. Based on current share prices the total value of the Financial Asset would be 43,940 which represents a decline in value from of 87, COMMITMENTS There are no operating lease or exploration commitments as at the date of this report. 11. CONTINGENT LIABILITIES There has been no change in contingent liabilities since the last annual reporting period. 12. DIVIDENDS No dividends have been paid or proposed during the half year. Stratos Resources Limited 16

18 DIRECTORS' DECLARATION The Directors of the company declare that: 1) The financial statements and notes, as set out on pages 5-16 a. Comply with Accounting Standard AASB 134: Interim Financial Reporting, Corporations Act 2001 and the Corporations Regulations 2001; and b. Give a true and fair view of the consolidated entity s financial position as at and of its performance for the half year ended on that date. 2) In the Directors opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The declaration is made in accordance with resolution of the board. Piers Lewis Director Perth 12 March 2014 Stratos Resources Limited 17

19 INDEPENDENT AUDITOR S REVIEW REPORT TO THE MEMBERS OF STRATOS RESOURCES LIMITED Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Stratos Resources Limited (the Company) and controlled entities (the consolidated entity) which comprises the condensed consolidated statement of financial position as at, the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information and the directors declaration of the consolidated entity comprising the company and the entities it controlled at or during the half year. Director s Responsibility for the Half-Year Financial Report The directors of the Company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with the Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine is necessary to enable the preparation of the halfyear financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standards on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at and its performance for the half year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporation Regulations As the auditor of the Company and controlled entities, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act In accordance with the Corporations Act 2001, we have given the directors of the company a written Auditor s Independence Declaration. 18

20 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of the Company and controlled entities is not in accordance with the Corporations Act 2001 including: (a) giving a true and fair view of the consolidated entity s financial position as at and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Emphasis of Matter Without qualifying our conclusion, we draw attention to Note 1 in the financial report in which indicates that the consolidated entity incurred a net loss of (584,460) during the half year ended (31 December 2012: (675,299)) and had negative operating cashflow of (190,936) ( 2012: (313,680)). These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. PKF MACK & CO SIMON FERMANIS PARTNER 12 March 2014 West Perth, Western Australia 19