ANNUAL REPORT 2006 MOBILEACTIVE LIMITED MOBILEACTIVE LIMITED

Transcription

1 ANNUAL REPORT

2 LETTER FROM THE CHAIRMAN 2

3 CEO REPORT CONTENTS LETTER FROM THE CHAIRMAN CEO REPORT CORPORATE GOVERNANCE STATEMENT DIRECTORS REPORT AUDITOR S INDEPENDENCE DECLARATION FINANCIAL REPORT DIRECTORS DECLARATION AUDIT REPORT ADDITIONAL INVESTOR INFORMATION

4 LETTER FROM THE CHAIRMAN Dear fellow shareholder The Board of MobileActive Limited (MobileActive) is pleased to present to shareholders the annual report of the company covering the 2006 financial year. The year ended 30 June 2006 was one of considerable achievement and progress for MobileActive starting with the sale of its adult assets in November 2005 and following on with the successful repositioning to a pure mobile phone content and entertainment company. MobileActive has been significantly restructured including senior management, staff and infrastructure, the results of which are clearly evident in the CEO s report that follows. MobileActive has continued to build all facets of its business including its retail brands, marketing channels and technology infrastructure, its content library both wholly owned and licensed as well as its customer base locally and internationally. Combined this has resulted in significant strengthening of the company s already strong market position. An exciting development has been the low cost launch into the US and New Zealand. Both of these markets are showing huge potential for major growth in the 2007 financial year and beyond. In addition to a growing global footprint, a first for MobileActive has been the licensing of our wholly owned content to Nazarra technologies in India opening up a whole new territory and revenue stream to the group and the associated volume potential. The Board firmly believes, in line with industry forecasts, that the mobile phone content market in Australia and globally has many years of strong growth ahead. With this in mind the Board sees attractive revenue growth prospects for MobileActive and is confident that the company is well positioned to capitalise on this. The Board would like to take this opportunity to thank shareholders for your continued support and also senior management and staff for their considerable dedication and efforts in achieving MobileActive s targets. David Haines Chairman 2

5 CEO REPORT CEO Report The operations report that follows includes important information from the company s recent market update (released to the ASX 26th September 2006) and also includes estimates to the end of December MobileActive is forecasting exciting growth as shown by the key performance indicators in the following graphs. These results are being achieved by the marketing of new products, further development of its infrastructure, the opening of new marketing channels and strong growth in overall activity levels. MobileActive Limited Premium Rate SMS Revenues We estimate that Premium rate SMS billed revenue will have grown 61.4% from January 06 to December 06. MobileActive Limited Premium Rate Billed SMS Volumes Premium rate billed SMS volumes are estimated to increase by 79.5% from January 06 to December 06. 3

6 CEO REPORT MobileActive Limited Unique Customers to Mobile Content Milestones Unique Customers represents the approximate number of individual customers that have financially transacted with MobileActive services during each financial year. November 2005 December 2005 December 2005 February 2006 March 2006 April 2006 April 2006 May 2006 July 2006 August 2006 September 2006 September 2006 October 2006 October 2006 October 2006 Company announces sale of adult assets and mobile focus Board restructure and reposition of company to MobileActive Limited Signs agreement with Channel 7 s Eclipse Music TV Launched web and WAP sites with Vodafone Australia Exclusive agreement with Allphones announced Appoints senior management team (MD & CFO) Rollout to the US announced Content agreement with Austral Press announced Content agreement with EMI Music and V2 Music announced Agreement to acquire MapShed Mobile Real Estate Technology Content agreement with Liberation Music announced Launches in New Zealand Licenses wholly owned mobile content to India Signs content agreement with Universal Music Signs content agreement for Mobile Auctions! for ebay with Moonlight Mobile Europe Gameloft. All rights reserved. Gameloft and the Gameloft logo are trademarks of Gameloft in the US and/or other countries. All other trademarks are the property of their respective owners.

7 Business Summary MobileActive sources, adapts, sells and delivers mobile phone content from a library of approximately 100,000 items including full-track music, videos, applications, games, ringtones and alerts, wallpapers and screensavers. Content is produced by the company s team of creatives and sourced via outright purchase or under license from a network of leading suppliers locally and internationally. Content is distributed to customers directly from MobileActive s Web and Mobile Internet (WAP) sites via its own brands, telecommunications carriers and partners utilising its proprietary mobile content platform. The company also leverages its mobile content platform to mobilise and distribute the content and brands of third parties, not traditionally in the mobile content space, to generate incremental revenue and expand consumer reach for mutual benefit. MobileActive currently operates in Australia, New Zealand and the US and has set up technical operations in the UK. Australian Operations MobileActive s offering is defined by its stable of brands including Games on Mobile, Music on Mobile, Movies on Mobile, Babes on Mobile, Best Mobile Tones and the leading MobileActive brand. The company is building its revenue through its focus on three key business pillars: 1. Retail via MobileActive brands through multiple channels Marketing through Television, Print, Online, Mobile Daily analysis of system data including CPA (cost per acquisition), Churn, CLV (customer lifetime value) and PRSMS billing rates Rapid response to analysis and trends Marketing and creative activity ramping up 2. Mobilising third party content Entertainment, Personalisation & Information Offering premium content through MobileActive portals Offering premium content through third party channels Building strong relationships with key content providers Continued pursuit of multiple, top-quality partners e.g. EMI Music, Marvel, Deborah Gray, Austral Press Content acquisition and licensing activity increasing: - 18 new in-bound acquisition and licensing agreements signed since Jan 06. Nine additional agreements in advanced stages of negotiation. 5

8 CEO REPORT 3. Relationships with key channels to market Carriers, Media, Retailers Offering content services to and via key channels expanding consumer reach Mobilising third party brands Continued pursuit of leading partners in their channels e.g. Allphones, Optus, Vodafone, Channel 7 s Eclipse Music TV United States Operations MobileActive s current operations are concentrated on retail marketing, principally online, and are through a commission-based revenue-sharing agreement with an Australian PRSMS traffic aggregator with US operations. This enables MobileActive to increase its revenue in this market with minimal capital and operating expenditure. Our US operations commenced in June However due to technical and operational delays encountered, the marketing and advertising spend to date has been limited and soft launch status has been maintained. The information now available in relation to customer acquisition and customer lifetime value shows a viable market for MobileActive and supports ramping up activities. In line with this the company is implementing additional relationships with marketing partners that will further enhance and fast track the opportunity. New Zealand MobileActive s business in New Zealand is initially focused on providing a content platform for third parties, supplying content and delivery through a strategic alliance with a leading New Zealand based partner. New Zealand adds a target market of approximately two million Java-enabled handsets. The relative immaturity of the market for off portal mobile content and the opening up of walled gardens presents a strong opportunity. Proprietary Mobile Content Platform The company s current proprietary mobile content platform, G1MP, enables MobileActive to monitor performance across the business and to adapt its portals and offering quickly to respond to trends in activity. The company is in the process of developing a new generation mobile content business platform, G1MP2 that will give greater commercial robustness and scalability as it grows. G1MP2 will provide a tighter marketing structure, improved content management and advanced licensing, allowing a higher-quality offering and service. Several functions will be shifted from a technical to an administrative function, making them faster and more efficient enabling the company to realise significant monthly savings. The mobile phone content market is characterised as extremely fast moving. G1MP2 will enhance MobileActive s ability to deliver the maximum revenue from any individual customer, to extend a customer s lifespan and overall to improve the company s service offering increasing revenue, profitability and competitive advantage. 6

9 The first phase of G1MP2 is due for completion in February 2007, with the phase two rollout due by April Management and Operational Structure MobileActive s management has strengthened significantly since the November 2005 restructure of the company with the appointment of Neil Wiles as Managing Director and Peter Slater as Chief Financial Officer. In addition Gavin Whyte has been appointed to the Board of Directors. Outlook The total mobile content market in Australia is forecast to achieve a compound annual growth rate of 22.5% ( ), growing from $576 Million in 06 to $1.3billion in 2010*. The board is confident that the company is well positioned to continue its growth and deliver profitability in the financial year. I would like to thank the entire team at MobileActive, as the growth in the business over the course of the year is a direct reflection of their commitment. Chris Thorpe Chief Executive Officer * Frost & Sullivan s Australia Mobile Content Market ( ) report released October 06 DISCLAIMER Forecasts and estimates may be materially different and may be affected by many factors such as the timely release of services, dependencies on carriers, the overall global economy, competition in the industry and other events beyond the control of or unforeseen by MobileActive Limited 7

10 CORPORATE GOVERNANCE STATEMENT Corporate Governance Statement In March 2003, the ASX published the ASXBPR for listed companies to adhere. These recommendations are guidelines designed to produce an efficiency, quality or integrity outcome. The recommendations are not prescriptive so that if a company considers that a recommendation is inappropriate having regard to its particular circumstances, the company has the flexibility not to follow it. When a company has not followed all the recommendations, the annual report must identify which recommendation has not been followed and give reasons for not following them. In this respect, the Directors have evaluated with due care the situation of MBA and have strived to comply, to the best possible extent, the guidelines laid down. The Directors recognise the need for a high standard of behaviour and accountability and accordingly support good corporate governance practices. In general, the Board considers that adequate measures have been taken in the areas of board structure and responsibility definition, timely and adequate disclosure for the best interest of shareholders, minimising risk by reinforcing internal controls as well as overall compliance with the ASX Listing Rules. On self-evaluation of the extent to which MBA has followed the ASXBPR, the Board is of the opinion that, subject to certain departures which are not justified for adoption due to the particular circumstances of MBA, our policies and practices are in compliance with the ASXBPR. Details have been included at the end of this statement setting out the ASXBPR with which MBA has not complied in this reporting period. The Board To comply with the ASXBPR, MBA has established clear guidelines to distinguish between the roles of the Board and that of management. In essence, the Board is responsible for the overall strategic planning and decision making of the Company as a whole and answerable to the shareholders for the business performance of MobileActive Limited and its controlled entities. Management on the other hand is delegated with all the functions in relation to the day-to-day operations of MBA and is accountable to the Board in this respect. The Board of Directors is responsible for protecting the rights and interests of members and is accountable to them for the overall management of MBA. The Board has the overall responsibility for the governance of MBA, including: - Setting strategies, directions and establishing goals for the Group; - The monitoring of performance against these goals and objectives; - Oversight of MBA including control and accountability systems; - Ensuring there are adequate internal controls and ethical standards of behaviour; - The review of the Chief Executive Officer and Key Management personnel performance, conduct and reward; - The monitoring of the major risks of MBA's business and ensuring there are appropriate policies and procedures to satisfy its legal and ethical responsibilities; - The approval and monitoring of financial and other reporting; - Approving all mergers and acquisitions; - Reviewing the annual progress and performance of MBA in meeting the objectives of the group, including reporting the outcome of such reviews; - Establishing and determining the powers and functions of the committees of the Board; - The review and approval of the major operational and capital expenditure plans established by the management team; and - The monitoring of performance against those plans. Board Structure MobileActive recognises the need to have a Board of an appropriate composition, size and commitment with an appropriate range of expertise, skill, knowledge and vision to enable it to operate the Company's business with excellence. With this objective in mind, our Board is structured to consist of three Directors of which two are independent Non-Executive Directors including the Chairman. 8-2-

11 Board Structure (Cont'd) The composition of the Board is determined by MobileActive using the following principles: - The Board should comprise at least three Directors. This number may be increased where it is felt that additional expertise is required in specific areas. - The Chairman of the Board is an independent Non-Executive Director. - The Board comprises a majority of Non-Executive Directors with at least 50% of the Board being independent Non-Executive Directors. - The Board has enough Directors to serve on various committees of the Board without overburdening the Directors or making it difficult for them to fully discharge their duties. - The Board comprises of Directors with a broad range of expertise both nationally and internationally. Details of the Directors are found in the Directors' Report. The Board has significant experience in various fields, including listed entities, mobile content, regulation, media, telecommunications, and financial markets. During FY2006, the Board met nine times. The Board's composition of three Directors is considered an appropriate size for the Company at its present stage of development and given the breadth of its membership, most issues can be decided at board level without the need for separate committees such as a nomination committee. The full Board incorporates the responsibilities of the Nomination Committee. It has the responsibility for reviewing the composition of the Board and recommending new nominees for membership of the Board, should the need arise. The selection of Directors must be approved by the majority of shareholders at the next AGM. At each annual general meeting one third of the Board of Directors (apart from the Chief Executive Officer) retires and each retiring Director, if he or she so chooses, can offer himself or herself for re-election. Non-Executive Directors have the right to seek independent professional advice in the furtherance of their duties as Directors at the Company s expense subject to the Chairman's prior approval. The Board assesses the independence of Directors as appropriate. In considering whether a Director is independent, the Board has regard to the independent criteria in ASXBPR Principle 2 and other facts, circumstances and information the Board considers relevant. Performance Evaluation The Board has adopted a self-evaluation process to measure its own performance. The performance evaluation of each Director and senior executive are performed independently to the respective Director or senior executive. The performance evaluation is measured against budgets and any set goals for the year. The Board undertakes a review of the consolidated entities performance against goals set at the start of the year. In addition, the Board measures performance during the year. All Directors of the Board have access to the Company Secretary who is appointed by the Board. The Company Secretary reports to the Chairman. At Board meetings members are presented with an information package on the Company s performance for review and to assist in decision making. Director Education Directors have the opportunity to (and are encouraged to) visit the business offices and meet with management to gain a better understanding of MBA business practices. Committees to the Board To assist in the execution of its corporate governance responsibilities, the Board has established three committees; the Audit Committee, the Remuneration Committee and the Corporate Governance Committee. Requirements for Board committees are reviewed regularly. All committees operate principally in a review or advisory capacity, except in cases where powers are expressly conferred on or delegated to a committee by the Board

12 CORPORATE GOVERNANCE STATEMENT Audit Committee At the date of this report MobileActive Limited had an Audit Committee consisting of the following members: David Andrew Haines Chris Thorpe Non-Executive Chairman Chief Executive Officer The Company's external auditors and CFO also attend the Audit Committee meetings by invitation. The Company conducts Audit Committee meetings both in conjunction with and separately from monthly board meetings. The principle functions of the committee include: To oversee the existence and maintenance of internal controls and accounting systems; To oversee the financial reporting process; To nominate external auditors; and To review the existing external audit arrangements. Remuneration Committee At the date of this report MobileActive Limited had a Remuneration Committee consisting of the following members: Chris Thorpe David Andrew Haines Gavin Whyte Chief Executive Officer Non-Executive Chairman Non-Executive Director The Company conducts Remuneration Committee meetings separately from monthly board meetings. The principle function of the committee is to review recommendations by the Executive Director on remuneration for staff. The basis for the recommendation includes performance of staff, performance of the Company and comparable market value of staff in the market place. The maximum total remuneration for all Non-Executive Directors, as approved by shareholders, is $150,000 per annum. Executive remuneration is reviewed annually by the Remuneration Committee having regard to each executive's contribution to the operation of the Company during the year and relevant comparative information. Details of the amount of remuneration, and all non-monetary components, for each of the three highest paid (non-director) executives and all Directors during the year ending 30 June 2006 are contained in the Remuneration Report. Termination entitlements for Key Management personnel, if any, are also contained in the Remuneration Report. Corporate Governance Committee At the date of this report MobileActive Limited had a Corporate Governance Committee consisting of the following members: David Andrew Haines Gavin Whyte Chris Thorpe Non-Executive Chairman Non-Executive Director Chief Executive Officer The Committee did not meet during the year but corporate governance matters were discussed at full Board meetings on a number of occasions. Attendance at the meetings is set out in the Directors' report. Share Trading Guidelines The Company's policy regarding Directors and employees trading in its securities is set by the Board. The policy restricts Directors and employees from acting on material information until it has been released to the market and adequate time has been given for this to be reflected in the security prices. In addition the Company has a trading prohibition applying to major announcements of half yearly and full yearly results. The Directors must advise the company which in turn advises the Australian Stock Exchange of any transactions conducted by them in the Company's securities within five business days after the transaction occurs

13 Code of Conduct The Board aims to ensure that all Directors and senior executives act with the utmost integrity and objectivity and endeavour to enhance the reputation of the Company. Continuous Disclosure and Shareholder Communication It is the responsibility of the Board, the Company's legal consultants and senior executives to identify matters which are likely to have a material impact on its share price. In addition it is the Company's policy to ensure that shareholders and the market have sufficient information to make informed investment decisions on the operations and results of the Company. The information is communicated via: The Australian Stock Exchange Full compliance with continuous disclosure and the posting of half yearly and full year results; Distribution of Annual Reports; Annual General Meeting of Shareholders; and Information posted to the Corporate Website. Risk Assessment and Management The Board is the vehicle to facilitate the identification of significant areas of business risk, to implement procedures to manage such risks and to develop policies regarding the establishment and maintenance of appropriate ethical standards. In relation to these matters, the Board specifically: Ensures compliance with legal requirements and ethical principles; Monitors the business environment; Identifies business opportunities; and Monitors systems established to ensure prompt and appropriate responses to shareholder complaints. Due to its size of operation and the size of the Board there is no formal board committee to identify, assess and monitor and manage risk. Responsibility for day to day control and risk management lies with the Executive Director with reporting responsibility to the Board. The Board participates and monitors risks including, but not limited to, compliance with regulatory bodies, strategic issues, financial risk, accounting risk and insurance. Any significant changes to the risk profile of the Company are communicated to the market via an announcement to the Australian Stock Exchange. Interests of Stakeholders MBA acknowledges the obligation it has towards stakeholders such as shareholders, customers, employees, suppliers and the community it serves. To fulfill its obligations, MBA strives to observe laws, act in the best interests of shareholders, manage the Company's assets properly, act in a highly professional way and promote a good corporate image among the industry and potential users. Privacy MBA has developed and introduced a privacy policy following the implementation of the Privacy Act in December 2001 which deals with: collection of information disclosure of information storage of information security access to and correction of information ASX Best Practice Recommendations Pursuant to the ASX Listing Rules, MBA advises that it does not comply with the following ASXBPR. Reasons for MBA's noncompliance are as detailed below. Recommendation 2.4 The Board should establish a Nomination Committee The functions to be performed by a nomination committee under the ASXBPR are currently performed by the full Board. Having regard to the number of members currently comprising the Board, the Board does not consider it necessary to delegate these responsibilities to a sub-committee. These arrangements will be reviewed periodically by the Board to ensure that they continue to be appropriate to MBA's circumstances

14 CORPORATE GOVERNANCE STATEMENT ASX Best Practice Recommendations (Cont'd) Recommendation 4.3 Structure the Audit Committee so that it consists of only Non-Executive Directors The Audit Committee currently comprises of one Non-Executive Director and the Chief Executive Officer. Having regard to the number and the expertise of members currently comprising the Board, the Board does not consider it appropriate to exclude the Chief Executive Officer. However, the Non-Executive member of the Audit Committee is provided with an opportunity to meet with the external auditors without the CEO and management. These arrangements will be reviewed periodically by the Board to ensure that they continue to be appropriate to MBA's circumstances

15 Remuneration Report The Remuneration Report forms part of the Directors' Report and outlines the remuneration arrangements for executives and employees of MobileActive Limited, including Key Management personnel in accordance with relevant accounting standards and Section 300A of the Corporations Act. Remuneration Committee The membership, responsibilities, authority and activities of the Remuneration Committee are set out below. The responsibilities of the Remuneration Committee are to: monitor, review and recommend to the Board, as necessary and appropriate: - the remuneration, superannuation and incentive policies and arrangements for the Chief Executive Officer and for Key Management personnel (i.e. those executives who report directly to the CEO); the remuneration arrangements for Non-Executive Directors on the Board (as listed below); the recruitment, retention and termination policies and procedures for Key Management personnel; key appointments and executive succession planning (including one or more reports and presentations to the Board each year). oversee the Group's general remuneration strategy; and monitor the Group's culture and reputation and review behavioural standards on a regular basis, and report and submit recommendations to the Board. The Remuneration Committee has delegated authority from the Board to consider and recommend to the Board: changes to the factors regarding the measurement of short-term performance, which impact incentives and the general employee share offer; incentive pool amounts; offers under existing share, performance option and performance rights plans, including setting the terms of issue and approving the issue of securities in the Company in connection with such offers (within the total number of securities approved by the Board); and fees payable to Non-Executive Directors of controlled entity boards. Membership and Meetings The following outlines the member composition of the Remuneration Committee during the year: David Andrew Haines (Chairman) Gavin Whyte Chris Thorpe The Remuneration Committee met twice during the year. The number of meetings attended by each member during the year is set out in the report of the Directors. Key Management attend the Remuneration Committee meetings by invitation and have assisted the Remuneration Committee in its deliberations, except on matters associated with their own remuneration. Advisors External specialists remuneration advice is sought in respect of remuneration arrangements for Non-Executive Directors of the Board and Key Management personnel of the Group. General reward advice is sought on an ad hoc basis. Reward Policy The Company has an established policy for determining the nature and amount of emoluments of Board Members and Key Management personnel of the Company to align remuneration with the creation of shareholder value. The remuneration structure for the Key Management personnel, including the Managing Director, seeks to emphasise payments for results

16 CORPORATE GOVERNANCE STATEMENT Reward Philosophy The Company's overall philosophy is to manage the remuneration to: create an environment that will attract top talent, and where people can be motivated with energy and passion to deliver superior performance; recognise capabilities and promote opportunities for career and professional development; provide rewards, benefits and conditions that are competitive within the markets in which the Group operates; and provide fair and consistent rewards across the Group, which support corporate principles. In accordance with the ASXBPR, the structure of Non-Executive Directors and Key Management personnel remuneration is separate and distinct. Executive Remuneration Policy Principles used to determine the nature and amount of remuneration: the Remuneration Committee, consisting of the Chairman and the Chief Executive Officer, advise the Board on remuneration policies and practices generally, and make specific recommendations on remuneration packages and other terms of employment for senior executives and Non-Executive Directors; executive remuneration is reviewed annually by the Remuneration Committee having regard to each executive's contribution to the operation of the company during the year and relevant comparative information; and, the remuneration packages are designed to retain senior executives and to encourage superior performance and long-term commitment. Executive Remuneration The executive remuneration and reward framework has four components: - base pay and benefits; - short-term performance incentives; - long-term incentives; and - other remuneration such as superannuation. The combination of these comprises the executive's total remuneration. Base Salary and Benefits Base salary and benefits are structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial benefits at the executive's discretion. Executives are offered a competitive base salary that comprises the fixed component of pay and rewards. Base pay for senior executives is reviewed annually to ensure the executive's salary is competitive with the market. There are no guaranteed base salary increases fixed in any senior executive's arrangements. Executives may receive benefits including life insurance and car allowances. Short-Term Performance Incentives Short-term incentives are used to differentiate rewards based on performance on a year by year basis. The principle performance indicator of the short-term incentive plan is based on the company's financial performance and individual achievement of specified goals, for example for achieving progress with growth initiatives. Long-Term Incentives In February 2006, MBA established an employee share option plan called the MobileActive Limited Employee Share Option Plan ("Plan"). The Plan requires Shareholder approval which will be sought at the Company's AGM in November The Plan is designed to provide a long-term incentive for employees and Directors of MBA, to reward sustained superior performance and to align all interests more closely with those of MobileActive Limited Shareholders. It will allow them to participate in MBA's future growth and give them an incentive to increase profitability and returns to Shareholders. Full-time employees, part-time employees, Executive Directors and contractors are eligible to participate in the scheme. The Committee acknowledges that an issue of options to any Director of the Company (and/or their associates) requires the approval of Shareholders and agrees that such issues should ideally be made outside of the Plan. The entitlement of eligible participants under the scheme is at the absolute discretion of the Directors. The exercise price of each option is as per the rules of the scheme

17 Long-Term Incentives (Cont'd) The total number of Options which may be issued under the Scheme may not exceed 15% of the total number of issued shares in MBA as at the time of the proposed offer or issue. The Options hold no voting or dividend rights, and are not transferable. During and since the end of the financial year, 7,050,000 Options were issued under the MobileActive Limited Employee Share Option Plan. Refer to the Directors' Report for further details. Key Management Remuneration The following table and pages summarise the remuneration arrangements for Key Management and Non-Executive Directors. Position Term of employment agreement Chris Thorpe Chief Executive Officer Commenced May years and 4 months from 1 March May be extended by mutual agreement. Neil Wiles Managing Director Commenced June years and 4 months from 1 March May be extended by mutual agreement. Peter Slater CFO/Company Secretary Commenced February 2006 Appointment continues until date the employment is terminated pursuant to provisions of agreement. Notice period 6 months 6 months 3 months Total employment $250,000 $250,000 $156,950 cost (TEC)* Short term incentive Entitled to a board approved discretionary bonus at any time during course of agreement. Entitled to a board approved discretionary bonus at any time during course of agreement. On anniversary of commencement date entitled to a board approved discretionary bonus of any amount up to 16% of total employment cost. Long term incentive N/A other than options set out below N/A other than options set out below N/A other than options set out below Other benefits 30 days annual leave. Corporate parking. 30 days annual leave. Interest free loan to cover any additional taxation liabilities resulting from the executive deed dated 30 November 2005 to grant 8,000,000 shares to executive on 1 July days annual leave Termination by 6 months 6 months 3 months executive Termination by Company 6 months notice or payment in lieu 6 months notice or payment in lieu 3 months notice or payment in lieu Restraint 12 months post termination 12 months post termination 3 months post termination Interest in shares as at 30 June 2006 Options 26,676,639 4,033,000-3 million options. 50% vesting on 1 December 06 and 50% vesting on 1 June 07 with exercise price of 9.2 cents. The options expire on 1 June million options. 50% vested on 10 September 06 and 50% vesting on 10 March 07 with exercise price of 9.1 cents. The options expire on 10 March million options. 50% vested on 10 September 06 and 50% vesting on 10 March 07 with exercise price of 9.1 cents. The options expire on 10 March * A portion of TEC may be taken in the form of packaged benefits (such as a motor vehicle and parking), and is exclusive of fringe benefits tax and inclusive employer of superannuation contributions

18 CORPORATE GOVERNANCE STATEMENT Non-Executive Directors Remuneration The Board from time to time determines remuneration of Non-Executive Directors within the maximum amount approved by the Shareholders. Fees and payments to Non-Executive Directors reflect the demands that are made on, and the responsibilities of, the Directors. Non-Executive Directors' fees and payments are reviewed annually by the Board. Total remuneration for all Non-Executive Directors, as approved by shareholders, is a maximum of $150,000 per annum. Non-Executive Directors' base fees are presently $59,067 per annum and, in addition, they receive compulsory superannuation contributions if applicable. Details of Remuneration Amounts of Remuneration Details of the remuneration of each Non-Executive Director of MBA and executives of the Company who received the highest remuneration for the year ended 30 June 2006 are set out in the following tables. Non-Executive Directors of MBA Post Employment Name Position Year Primary Fees $ Superannuation $ Total $ David Haines Chairman ,697 3,303 40,000 Chairman ,697 3,303 40,000 Gavin Whyte (2) Non-Executive Director ,917-9,917 Ulrich Huelle (1) Non-Executive Director ,500-8,500 Non-Executive Director ,000-17,000 Total Remuneration ,114 3,303 58,417 Total Remuneration ,697 3,303 57,000 (1) Mr. Ulrich Huelle resigned on 6 December 2005 (2) Mr. Gavin Whyte was appointed on 6 December 2005 Chief Executive Officer and Executives of MBA 2006 Short-Term Employee Benefits Post-Employment Benefits Share-Based Payment C Thorpe 200,803 18,072 51, ,961 N Wiles 197, ,569 46,217 32, ,766 P Slater (1) 49,846 4,486 16,014 70,346 C Ellis (2) 147,565 10, , ,914 R Hill (3) 119,018 8, , ,948 Total 715, ,569-87, ,074-99,127-1,628,935 (1) Mr. Peter Slater was appointed on 26 February 2006 (2) Mr. Craig Ellis was made redundant on 10 February 2006 (3) Mr. Rick Hill was made redundant on 24 January Salary & Fees Bonus Other Other Termination Benefits Shares & Units Options Short-Term Employee Benefits Post-Employment Benefits Share-Based Payment Salary & Fees Bonus Other Superannuation Superannuation Other Termination Benefits Shares & Units Options C Thorpe 188,073 16, ,000 N Wiles 187,015 16, ,846 C Ellis 188,074 16, ,001 R Hill 151,376 13, ,000 Total 714, , ,847 Other Other Total Total

19 Share Based Compensation, Equity Holdings and Loans The movements during the reporting period in the number of ordinary shares of MobileActive Limited held directly, indirectly or beneficially, by each specific Director and specified Director and specified executive, including their personally related entities is as follows: Executives Shareholdings Number of Shares Held Specified Executives Balance Balance Name 30 June 2005 Acquisitions Disposals 30 June 2006 Chris Thorpe 26,676, ,676,639 Neil Wiles - 4,033,000-4,033,000 Craig Ellis (1) 12,025,023 Rick Hill (2) 667,059 Total 39,368,721 4,033,000-30,709,639 (1) Mr. Craig Ellis was made redundant on 10 February 2006 (2) Mr. Rick Hill was made redundant on 24 January 2006 Loans Details regarding loans outstanding at the reporting date to specified Directors and specified executives, at any time in the reporting period, are as follows: Interest Balance Interest Not Balance 30/6/2005 Charged Repaid Charged 30/6/2006 Specified Executives 11,868 - (11,868) Non-Executive Directors Shareholdings Number of Shares Held Balance Balance Name 30 June 2005 Acquisitions Disposals 30 June 2006 David Haines 30, , ,000 Gavin Whyte (1) 395, ,000 Ulrich Huelle (2) 100,000 (1) Mr. Gavin Whyte was appointed on 6 December 2005 (2) Mr. Ulrich Huelle resigned on 6 December

20 DIRECTORS REPORT Directors' Report The Directors present their report on MobileActive Limited together with the financial statements of the Group, being the Company and its controlled entities, for the year ended 30 June Directors and Officers The Board of Directors has the power to appoint persons as Directors to fill any vacancies. Other than the Chief Executive Officer and those Directors appointed during the year, one-third (or the nearest number to) are required to retire by rotation at each annual general meeting and are eligible to stand for re-election together with those Directors appointed during the year to fill any vacancy who must retire and stand for election. The names of the Company's Directors in office at any time during, or since the end of, the financial year are as follows: David Haines Gavin Whyte (1) Ulrich Huelle (2) Chris Thorpe Chairman and Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer (1) Mr. Gavin Whyte was appointed on 6 December 2005 (2) Mr. Ulrich Huelle resigned on 6 December 2005 Details of Directors of the Company in office at the date of this report and each Officer's qualifications, experience and special responsibilities are below: David Andrew Haines Chairman (Non-Executive) Qualifications MAICD, Bachelor of Education Experience Appointed - 23 May Secretary to the Standing Committee of Commonwealth, State and Territory Ministers with Censorship responsibilities Deputy Chief Censor, Australian Film Censorship Board Member of the Australian Film Censorship Board Interest in Shares 180,000 ordinary shares in MBA as at 15 September 2006 Special Responsibilities Mr. Haines is the Chairman of the Audit, Remuneration and Corporate Governance Committees. Chris Thorpe Chief Executive Officer Experience Appointed - 23 May Chris is an expert in the global mobile entertainment and telecommunications industry with over 15 years managerial experience and a proven track record gained in the United States, Europe and Australia. Chris combines this experience with a financial background that gives him a great insight and understanding of the industry, its issues and trends and the requirements needed to deliver a successful business and associated services. Chris's work has been acknowledged through the receipt of numerous business awards for milestone achievements and contributions to the telecommunications industry. Chris brings to MobileActive Limited invaluable leadership, insight, expertise and understanding along with a global network of leading industry associates and contacts. He also provides vision and drive to allow MobileActive Limited the opportunity to capitalise on its position as a leading mobile entertainment service provider. Interest in Shares 26,676,639 ordinary shares in MBA as at 15 September 2006 Special Responsibilities Mr. Thorpe is a member of the Audit, Remuneration and Corporate Governance Committees

21 Directors and Officers (Cont'd) Gavin Whyte Director (Non-Executive) Experience Appointed - 6 December Gavin is CEO of Rubberduck Consulting Ltd which provides consulting services to global Mobile Content brands and provides its own mobile auction and competition services in the UK. Prior to this, he was the CEO of Rubberduck Media Lab Ltd, a pioneer in enabling TV broadcasters and content owners to stream live TV and on demand content to 2.5G and 3G mobile phone users. Prior positions include the role of Operations Director for MonsterMob Limited which is a leading global mobile entertainment company, marketing mobile phone media and personalisation services in 18 countries. Interest in Shares 395,000 ordinary shares in MBA as at 15 September 2006 Special Responsibilities Mr. Whyte is a member of the Remuneration and Corporate Governance Committees. Company Secretary The Company Secretary of the Group in office at the date of this report is Peter Slater. His qualifications and experience are below. Peter T Slater, B.Comm (Legal) (Wits), GDA (UCT), CA (SA) Company Secretary & Chief Financial Officer CFO & Company Secretary of MobileActive Limited since 26 February Mr. Slater holds a Bachelor of Commerce degree, a Graduate Diploma in Accounting and is a member of the Institute of Chartered Accountants in South Africa. Mr. Slater has over 15 years of commercial, financial and accounting experience. Prior positions include Commercial Manager positions at Optus in their Mobile and SMB divisions, CFO of Peermont Global (Botswana) and Group Financial Director of Sasani Limited (South Africa), a publicly listed media company. Principal Activities The principal activities of the economic entity during the financial year were the marketing and sales of mobile content and entertainment products and premium rate fixed line voice services in Australia. The activities were conducted via carriers, online, and telephony (both landline and mobile / wireless). The Group disposed of its loss making adult assets on 30 November 2005 and is now a focused mobile content and entertainment company. Review of Operations The MobileActive Group has been fully integrated and operates as a single business activity currently operating throughout Australia and in the United States of America. During the 2006 financial year the Group sold off its loss making adult assets and restructured and repositioned the business to exploit the fast growing mobile content and entertainment market. The 2006 results reflect the financial impact of this restructuring and repositioning as well as other legacy issues. Revenue from on-going operations for the financial year ended 30 June 2006 was $5.607 million, up 13.2% from the previous corresponding period. The Net Loss After Tax was $3.366 million, a increase of 12.4% from the previous corresponding period. The major influence on the net loss for the period under review was $3.383 million of one off costs related to; the divestment from the adult assets, the ATO assessments received related to the year ended 30 June 2003 and other one off expenses incurred. The group also benefited from a $1.027 million tax credit raised as a result of accounting for the expected benefits of tax assessed losses on the balance sheet. The group incurred losses of $1,276,845 related to the divestment of its adult assets made up as follows: - Trading losses incurred to date of sale - $436,989 - Loss on sale of adult subsidiaries - $105,887 - Remuneration and redundancy costs of senior executives - $569,170 - Other head office costs related to the adult business - $164,799 The group incurred expenses of $1,668,535 related to the ATO assessments made up as follows: - Taxation charge - $893,498 - Penalties related to the tax charge - $446,749 - Borrowing charges related to the tax charge - $328,

22 DIRECTORS REPORT Review of Operations (Cont'd) The group also incurred the following one off expenses during the period under review: - Write off of investment in Chilean business - $84,140 - Bonus payment, and related costs, to a senior executive to allow him to purchase a stake in listed entity $353,695 The group also raised a tax credit of $1,027,068 related to assessed losses for the 2006 year. Excluding all of the above costs and credits the group made an operating loss from its on-going mobile operations of $1.010 million. The balance sheet as at 30 June 2006 reflects the impact of the above costs. The group had a cash balance of $2.52 million and a net asset value of $1.43 million as at the end of the period under review. The net loss per share of 2.33 cents compares with a net loss per share of 2.66 cents for the corresponding period. Directors Meetings The table below shows the number of Directors' meetings held (including meetings of Board Committees) and the number of meetings attended by each of the Directors of the Company during the year. Mr. D Haines Mr. G Whyte Mr. C Thorpe Mr. U Huelle Committee Meetings Directors' Meetings Audit Remuneration No. eligible to No. No. eligible to No. No. eligible No. attend attended attend attended to attend attended No Corporate Governance Committee meetings were held during the FY 2006 however, the full Board considered corporate governance matters at a number of meetings. Directors and Executives' Interests The tables below show the interests of each Director (as notified to the ASX in accordance with section 205G(l) of the Corporations Act) and executives in the issued ordinary shares of the Group as at the date of this report. Mr. D Haines Mr. G Whyte Mr. C Thorpe Mr. N Wiles Mr. P Slater Fully Paid Ordinary Shares 180, ,000 26,676,639 12,033,000 - Options - - 3,000,000 2,000,000 1,000,000 Options 7,050,000 options were granted over unissued shares by the Company during or since FY2006 as detailed below: Name of Option Holder Chris Thorpe Neil Wiles Peter Slater Management and staff Management and staff Total Grant Date Date of Expiry Exercise Price ($) 1-Jun-06 1-Jun Mar Mar Mar Mar Mar-06 9-Mar Jul-06 1-Jul No. Under Option 3,000,000 2,000,000 1,000, , ,000 7,050,

23 Options (Cont'd) At the date of this report, the unissued ordinary shares of MBA under option are: Grant Date Date of Expiry Exercise Price ($) Number Under Option 1-Jul-03 1-Jul ,500,000 9-Mar-06 9-Mar , Mar Mar ,000,000 1-Jun-06 1-Jun ,000,000 1-Jul-06 1-Jul ,000 9,550,000 Valuation Method of Options The Economic and Parent Entity have in respect of the equity based Options component of Directors' and Officers' emoluments, valued those Options using the Binomial Option Pricing Model, which takes account of factors including the options exercise price, the current level and volatility of the underlying share price, the risk free interest rate, expected dividends on the underlying share, current market price on the underlying share and expected life of the option. Directors Relevant Interests No Director has or has had any interest in a contract entered into since the last Directors Report or any contract or proposed contract with the Company or any controlled entity or any related entity other than as disclosed in Note 26 to the financial statements. Significant Changes in State of Affairs There were no significant changes in the state of affairs of the Company or consolidated entity during the past year other than as disclosed in this Directors' Report and the Financial Statements. Dividends Paid or Recommended No dividends were paid or declared since the start of the financial year. The Directors do not recommend the payment of a dividend for the year ended 30 June Events Subsequent to Reporting Date Since the end of the financial year, a contract valued at $365,000 has been signed with a leading software services company to build a new mobile delivery platform. The Group has also signed a heads of agreement to purchase a mobile real estate application from MapShed for $2.067 million. $0.7 million ($0.2m in cash and $0.5m in MobileActive Limited shares) is payable on signing of the purchase agreement and the balance of consideration is payable in six monthly instalments based on 40% of the net revenues generated by the application (25% in cash and 75% in MobileActive Limited shares). The acquisition is subject to due diligence and Board approval. Future Developments, Prospects and Business Strategies Information on the Group's business strategies and its prospects for future financial years can be found on the ASX. In the opinion of the Directors, further information on the Group's business strategies and its prospects for future financial years would, if included in this report, be likely to result in unreasonable prejudice to the Group and has accordingly been omitted. Environmental Issues The economic entity's operations are not affected by any significant environmental regulation under the law of the Commonwealth or the State. Remuneration Report The Remuneration Report is set out before this Directors' Report and is incorporated by reference to and forms part of this Directors Report. Certain disclosures required by AASB 124 have been made in the Remuneration Report

24 DIRECTORS REPORT Remuneration Report (Cont'd) The Remuneration Report covers a discussion on the broad policy for determining the nature and amount of remuneration of Directors and Key Management personnel of the Group, a discussion of the relationship between that policy and the consolidated Entity's performance, and other related matters required to be disclosed in accordance with section 300A of the Corporations Act Indemnifying Officers and Auditor Other than detailed below, the Company has not during or since the end of the financial year, in respect of any person who is or has been an officer or auditor of the Company or a related body corporate: Indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings, or Paid or agreed to pay a premium in respect of a contract insuring against a liability incurred as an officer for the costs or expenses to defend legal proceedings. The Company has paid premiums to insure each of the following Directors and Officers against loss arising from any claim made against them jointly or severally by reason of any wrongful act committed or alleged to have been committed in their capacity as a Director or Officer of the Company. David Andrew Haines Gavin Whyte Ulrich Huelle Chris Thorpe Neil Wiles Peter Slater The amount of the premium paid for the financial year was $24,580 Non-Audit Services No non-audit services have been performed by the Group's auditors for the year ended 30 June Audit Services The statement by the Economic Entity's external auditors to the members of MobileActive Limited in relation to the auditors compliance with the independence requirements of the Corporations Act 2001 and the professional code of conduct for external auditors, forms part of this Directors' Report, and is set out on the following pages. No person who was an Officer of the Company during the financial year was a Director or partner of the Group's external auditor at a time when the Group's external auditors conducted an audit of the Group. Proceedings on Behalf of Company Other than set out below no person has applied for leave of a 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 has lodged an objection to income tax assessments and related penalties imposed by the ATO for the year ended 30 June Should the objections prove unsuccessful the Company intends to have the matter heard at the AAT

25 Adoption of Australian equivalent to International Financial Reporting Standards ("AIFRS") The financial report has been prepared under AIFRS. A reconciliation of differences between previous AGAAP and AIFRS has been included in Note 2 of the financial report. This report is made in accordance with a resolution of the Directors and is signed for and on behalf of the Directors. Dated at Sydney this 28th day of September Chris Thorpe Director

26 LETTER FROM THE CHAIRMAN Auditor's Independence Declaration under section 307C of the Corporations Act 2001 to the Directors of MobileActive Limited and Controlled Entities I declare that, to the best of my knowledge and belief, during the year ended 30 June 2006 there have been: (i) (ii) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grosvenor Schiliro Mark Schiliro Partner Sydney 28 September

27 FINANCIAL REPORT INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2006 Economic Entity Parent Entity Notes $ $ $ $ Revenue from services rendered 5,607,320 4,890, Revenue from sale of goods - 61, Cost of sales (549,131) (346,225) - - 5,058,189 4,606, Interest revenue 155, , , ,591 Trust distribution received ,070,662 Other revenue from ordinary activities ,348, ,818 Service providers and commissions (551,655) (703,566) - - Administration expenses (372,157) (463,000) (196,798) (271,429) Advertising and marketing expenses (2,586,730) (2,642,891) - (63,127) Borrowing expenses (330,368) (11,429) (263,531) (11,323) Depreciation, amortisation and impairment (255,637) (2,192,961) (138,620) (48,246) Employment and staff expenses (2,714,507) (2,006,331) (1,404,361) (1,112,819) Occupancy expenses (120,886) (175,978) (109,023) (66,698) Operational expenses (155,232) (74,464) (29,011) (13,839) Claims on telephone services - (18,000) - - Website and software development expenses (15,608) (114,330) (875) (64,155) Diminution on investment (6,359,089) Other expenses from ordinary activities (1,067,624) (641,596) (787,520) (739,991) Loss from ordinary activities before income tax expense (2,956,627) (1,879,618) (2,782,271) (6,459,645) Income tax benefit / (expense) 5 133,571 82,670 (11,967) 82,670 Loss from continuing operations (2,823,056) (1,796,948) (2,794,238) (6,376,975) Loss from discontinued operations 6 (542,876) (2,045,701) (114,420) - Loss for the year (3,365,932) (3,842,649) (2,908,658) (6,376,975) Loss attributable to members of the parent entity (3,365,932) (3,842,649) (2,908,658) (6,376,975) Overall Operations Basic earnings per share (cents per share) 9 (2.33) (2.66) Diluted earnings per share (cents per share) 9 (2.33) (2.66) Continuing Operations Basic earnings per share (cents per share) 9 (1.95) (1.24) Diluted earnings per share (cents per share) 9 (1.95) (1.24) Discontinued Operations Basic earnings/(loss) per share (cents per share) 9 (0.38) (1.42) Dividends per share (cents) - - The accompanying notes form part of these financial statements. 25

28 FINANCIAL REPORT BALANCE SHEET AS AT 30 JUNE 2006 Economic Entity Parent Entity Notes $ $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 10 2,518,837 2,518,312 2,391,850 2,264,948 Trade and other receivables 11a 1,125,864 1,573,346 83, ,610 Inventories - 1,699, Other current assets 14a 54, ,331 40,532 87,031 TOTAL CURRENT ASSETS 3,699,544 6,295,044 2,516,235 2,501,589 NON-CURRENT ASSETS Trade and other receivables 11b - - 2,698,376 3,382,101 Financial assets - 60,938 1,161,097 1,159,206 Property, plant and equipment 15 64, ,398 64,476 41,002 Deferred tax assets 17b 1,109,738 82, ,550 82,670 Intangible assets ,823 1,517,104 53, ,186 Other non-current assets 14b 3,940 5, TOTAL NON-CURRENT ASSETS 1,582,977 1,775,270 4,885,454 4,815,165 TOTAL ASSETS 5,282,521 8,070,314 7,401,689 7,316,754 CURRENT LIABILITIES Trade and other payables 16a 2,231,475 2,613,068 1,062, ,733 Short-term borrowings 28,435 51,639 28,435 46,566 Current tax liabilities 17a 893, ,847 - Short-term provisions , ,319 38,917 - TOTAL CURRENT LIABILITIES 3,850,394 3,388,026 1,966, ,299 NON-CURRENT LIABILITIES Other financial liabilities 16b - - 3,815,798 2,338,921 TOTAL NON-CURRENT LIABILITIES - - 3,815,798 2,338,921 TOTAL LIABILITIES 3,850,394 3,388,026 5,782,166 2,905,220 NET ASSETS 1,432,127 4,682,288 1,619,523 4,411,534 EQUITY Issued capital 19 15,027,580 15,027,580 15,027,580 15,027,580 Reserves , ,647 - Retained earnings / (Accumulated Losses) (13,711,224) (10,345,292) (13,524,704) (10,616,046) TOTAL EQUITY 1,432,127 4,682,288 1,619,523 4,411,534 The accompanying notes form part of these financial statements. 26

29 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006 Economic Entity Notes Accumulated Issued Capital Losses Reserves Total Equity $ $ $ $ At 1 July ,027,580 (6,502,643) - 8,524,937 Loss for period - (3,842,649) - (3,842,649) At 30 June ,027,580 (10,345,292) - 4,682,288 Loss for period - (3,365,932) - (3,365,932) Movement in reserves , ,771 At 30 June ,027,580 (13,711,224) 115,771 1,432,127 Parent Entity At 1 July ,027,580 (4,239,071) - 10,788,509 Loss for period - (6,376,975) - (6,376,975) At 30 June ,027,580 (10,616,046) - 4,411,534 Loss for period - (2,908,658) - (2,908,658) Movement in reserves , ,647 At 30 June ,027,580 (13,524,704) 116,647 1,619,523 The accompanying notes form part of these financial statements

30 FINANCIAL REPORT CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2006 Economic Entity Parent Entity Notes $ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 4,749,318 15,980, ,022 2,895,897 Payments to suppliers and employees (6,520,787) (19,347,621) (2,210,630) (2,477,805) Interest received 155, , , ,591 Finance costs - (38,091) - (11,322) Net cash provided by (used in) operating activities 22 (1,615,922) (3,194,370) (1,267,181) 609,361 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment - 110, ,000 Purchase of property, plant and equipment (515,768) (199,000) (58,843) - Proceeds from disposal of investments 55,939 - (5,819) - Purchase of other non-current assets - (518,926) - (150,581) Proceeds from disposal of subsidiary 22b 2,099, Net cash provided by (used in) investing activities 1,639,651 (607,926) (64,662) (40,581) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings - - 1,458,745 - Repayment of borrowings (23,204) (103,200) - (4,203,765) Net cash provided by (used in) financing activities (23,204) (103,200) 1,458,745 (4,203,765) Net increase / (decrease) in cash held 525 (3,905,496) 126,902 (3,634,985) Cash at beginning of financial year 2,518,312 6,423,808 2,264,948 5,899,933 Cash at end of financial year 2,518,837 2,518,312 2,391,850 2,264,948 The accompanying notes form part of these financial statements

31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 1: Statement of Significant Accounting Policies This financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Urgent Issues Group Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act The financial report covers the economic entity of MobileActive Limited and controlled entities, and MobileActive Limited as an individual parent entity. MobileActive Limited is a listed public company, incorporated and domiciled in Australia. The financial report of MobileActive Limited and controlled entities, and MobileActive Limited as an individual parent entity comply with all Australian equivalents to International Financial Reporting Standards (AIFRS) in their entirety. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Basis of Preparation First-time Adoption of Australian Equivalents to International Financial Reporting Standards MobileActive Limited and controlled entities, and MobileActive Limited as an individual parent entity have prepared financial statements in accordance with the Australian equivalents to International Financial Reporting Standards (AIFRS) from 1 July In accordance with the requirements of AASB 1: First-time Adoption of Australian Equivalents to International Financial Reporting Standards, adjustments to the parent entity and consolidated entity accounts resulting from the introduction of AIFRS have been applied retrospectively to 2005 comparative figures. These consolidated accounts are the first financial statements of MobileActive Limited to be prepared in accordance with Australian equivalents to IFRS. The accounting policies set out below have been consistently applied to all years presented. Reconciliations of the transition from previous Australian GAAP to AIFRS have been included in Note 2 to this report. Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Accounting Policies a. Principles of Consolidation A controlled entity is any entity MobileActive Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 12 to the financial statements. All controlled entities have a June financial year-end except Gallery Global Networks BV which has a December financial year end. All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Where controlled entities have entered or left the economic entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased

32 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 1: Statement of Significant Accounting Policies (Cont'd) b. Income Tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. MobileActive Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The Group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July c. Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset s employment and subsequent disposal. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets is depreciated on a straight-line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: 30 Class of Fixed Asset Leasehold Improvements Furniture and fittings Computer equipment Internet website Software Depreciation Rate 20% 20% 33% 33% - 50% 33%

33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 1: Statement of Significant Accounting Policies (Cont'd) The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. d. Impairment of Assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, is compared to the asset s carrying value. Any excess of the asset s carrying value over its recoverable amount is expensed to the income statement. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. e. Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary/associate at date of acquisition. Goodwill acquired in business combination is not amortised. Instead goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generated units for the purpose of impairment testing. Research and development Expenditure on research activities, undertaken with the prospect of obtaining new scientific or technical knowledge and understanding, is recognised in the income statement as an expense when it is incurred. Expenditure on development activities, being the application of research findings or other knowledge to a plan or design for the production of new or substantially improved products, systems or services before the start of commercial production or use, is capitalised if the product, system or service is technically and commercially feasible and adequate resources are available to complete development. f. Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge

34 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 1: Statement of Significant Accounting Policies (Cont'd) Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement. Group companies The financial results and position of foreign operations whose functional currency is different from the Group s presentation currency are translated as follows: assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; income and expenses are translated at year-end exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. Exchange differences arising on translation of foreign operations are transferred directly to the Group s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed. g. Employee Benefits Provision is made for the Company s liability for employee benefits arising from services rendered by employees to balance sheet date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Equity-settled compensation The Group operates a share-based compensation plan. The bonus element over the exercise price of the employee services rendered in exchange for the grant of options is recognised as an expense in the income statement. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. h. Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. i. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within shortterm borrowings in current liabilities on the balance sheet. j. Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST)

35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 1: Statement of Significant Accounting Policies (Cont'd) k. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred. l. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. m. Comparative Figures Where required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year

36 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) a. RReconciliation of total equity presented under AGAAP to that under AIFRS Economic Entity Parent Entity $ $ $ $ Total equity under AGAAP 4,589,660 8,524,937 4,318,906 10,788,509 Reversal of amortisation - License Agreement 9,958-9,958 - Deferred tax benefit 82,670-82,670 - Total AIFRS impact 92,628-92,628 - Total equity under AIFRS 4,682,288 8,524,937 4,411,534 10,788,509 b. Reconciliation of retained earnings presented under AGAAP to that under AIFRS Economic Entity Parent Entity $ $ $ $ Accumulated losses under AGAAP (10,437,920) (6,502,643) (10,708,674) (4,239,072) Reversal of amortisation - License Agreement 9,958-9,958 - Deferred tax benefit 82,670-82,670 - Accumulated losses under AIFRS (10,345,292) (6,502,643) (10,616,046) (4,239,072) c. Reconciliation of profit after tax presented under AGAAP to that under AIFRS Economic Entity Parent Entity $ $ $ $ Losses after tax as previously reported (3,935,277) (1,173,833) (6,469,603) 94,424 Reversal of amortisation - License Agreement 9,958-9,958 - Deferred tax benefit 82,670-82,670 - Losses after tax under AIFRS (3,842,649) (1,173,833) (6,376,975) 94,424 d. Cashflow statement There are no material differences between the cashflow statements presented under AIFRS and those presented under previous AGAAP

37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) e. Reconciliation of Equity at 1 July 2004 Previous Effect of Economic Entity GAAP at 1 July Transition to AIFRS at 1 July 2004 AIFRS 2004 $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 6,423,808-6,423,808 Trade and other receivables 1,422,699-1,422,699 Inventories 1,198,043-1,198,043 Other current assets 402, ,740 TOTAL CURRENT ASSETS 9,447,290-9,447,290 NON-CURRENT ASSETS Trade and other receivables Financial assets 60,113-60,113 Property, plant and equipment 615, ,403 Intangible assets 4,915,966-4,915,966 Other non-current assets 5,160-5,160 TOTAL NON-CURRENT ASSETS 5,596,642-5,596,642 TOTAL ASSETS 15,043,932-15,043,932 CURRENT LIABILITIES Trade and other payables 5,074,357-5,074,357 Short-term borrowings 76,773-76,773 Short-term provisions 1,283,865-1,283,865 TOTAL CURRENT LIABILITIES 6,434,995-6,434,995 NON-CURRENT LIABILITIES Long-term borrowings 84,000-84,000 TOTAL NON-CURRENT LIABILITIES 84,000-84,000 TOTAL LIABILITIES 6,518,995-6,518,995 NET ASSETS 8,524,937-8,524,937 EQUITY Issued capital 15,027,580-15,027,580 Retained earnings / Accumulated losses (6,502,643) - (6,502,643) TOTAL EQUITY 8,524,937-8,524,

38 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) f. Reconciliation of Equity at 1 July 2004 Previous Effect of Parent Entity GAAP at 1 July Transition to AIFRS at 1 July 2004 AIFRS 2004 $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 5,899,933-5,899,933 Trade and other receivables 951, ,359 Other current assets 87,700-87,700 TOTAL CURRENT ASSETS 6,938,992-6,938,992 NON-CURRENT ASSETS Trade and other receivables 1,789,503-1,789,503 Financial assets 7,520,953-7,520,953 Property, plant and equipment 161, ,336 TOTAL NON-CURRENT ASSETS 9,471,792-9,471,792 TOTAL ASSETS 16,410,784-16,410,784 CURRENT LIABILITIES Trade and other payables 470, ,520 Short-term borrowings 72,051-72,051 Short-term provisions 148, ,712 TOTAL CURRENT LIABILITIES 691, ,283 NON-CURRENT LIABILITIES Long-term borrowings 79,086-79,086 Other financial liabilities 4,851,906-4,851,906 TOTAL NON-CURRENT LIABILITIES 4,930,992-4,930,992 TOTAL LIABILITIES 5,622,275-5,622,275 NET ASSETS 10,788,509-10,788,509 EQUITY Issued capital 15,027,580-15,027,580 Retained earnings / Accumulated losses (4,239,071) - (4,239,071) TOTAL EQUITY 10,788,509-10,788,

39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) g. Reconciliation of Equity at 1 July 2005 Previous Effect of Economic Entity GAAP at Transition to AIFRS at 30 June 2005 AIFRS 30 June 2005 $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 2,518,312-2,518,312 Trade and other receivables 1,573,346-1,573,346 Inventories 1,699,055-1,699,055 Other current assets 504, ,331 TOTAL CURRENT ASSETS 6,295,044-6,295,044 NON-CURRENT ASSETS Trade and other receivables Financial assets 60,938-60,938 Property, plant and equipment 109, ,398 Deferred tax assets - 82,670 82,670 Intangible assets 1,507,146 9,958 1,517,104 Other non-current assets 5,160-5,160 TOTAL NON-CURRENT ASSETS 1,682,642 92,628 1,775,270 TOTAL ASSETS 7,977,686 92,628 8,070,314 CURRENT LIABILITIES Trade and other payables 2,613,068-2,613,068 Short-term borrowings 51,639-51,639 Short-term provisions 723, ,319 TOTAL CURRENT LIABILITIES 3,388,026-3,388,026 NON-CURRENT LIABILITIES TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES 3,388,026-3,388,026 NET ASSETS 4,589,660 92,628 4,682,288 EQUITY Issued capital 15,027,580-15,027,580 Retained earnings / Accumulated losses (10,437,920) 92,628 (10,345,292) TOTAL EQUITY 4,589,660 92,628 4,682,

40 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) h. Reconciliation of Equity at 1 July 2005 Previous Effect of Parent Entity GAAP at Transition to AIFRS at 30 June 2005 AIFRS 30 June 2005 $ $ $ ASSETS CURRENT ASSETS Cash and cash equivalents 2,264,948-2,264,948 Trade and other receivables 149, ,610 Other current assets 87,031-87,031 TOTAL CURRENT ASSETS 2,501,589-2,501,589 NON-CURRENT ASSETS Trade and other receivables 3,382,101-3,382,101 Financial assets 1,159,206-1,159,206 Property, plant and equipment 41,002-41,002 Deferred tax assets - 82,670 82,670 Intangible assets 140,228 9, ,186 TOTAL NON-CURRENT ASSETS 4,722,537 92,628 4,815,165 TOTAL ASSETS 7,224,126 92,628 7,316,754 CURRENT LIABILITIES Trade and other payables 519, ,733 Short-term borrowings 46,566-46,566 Short-term provisions TOTAL CURRENT LIABILITIES 566, ,299 NON-CURRENT LIABILITIES Other financial liabilities 2,338,921-2,338,921 TOTAL NON-CURRENT LIABILITIES 2,338,921-2,338,921 TOTAL LIABILITIES 2,905,220-2,905,220 NET ASSETS 4,318,906 92,628 4,411,534 EQUITY Issued capital 15,027,580-15,027,580 Retained earnings / Accumulated losses (10,708,674) 92,628 (10,616,046) TOTAL EQUITY 4,318,906 92,628 4,411,

41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) i. Reconciliation of Profit or Loss for the full year to 30 June 2005 Economic Entity Previous Effect of GAAP at Transition to AIFRS at 30 June 2005 AIFRS 30 June 2005 $ $ $ Revenue from services rendered 4,890,745-4,890,745 Revenue from sale of goods 61,945-61,945 Cost of sales (346,225) - (346,225) 4,606,465-4,606,465 Interest revenue 209, ,923 Other revenue from ordinary activities 2,348,540-2,348,540 Service providers and commissions (703,566) - (703,566) Administration expenses (463,000) - (463,000) Advertising and marketing expenses (2,642,891) - (2,642,891) Borrowing expenses (11,429) - (11,429) Depreciation and amortisation (3,922,592) 9,958 (3,912,634) Employment and staff expenses (2,006,331) - (2,006,331) Occupancy expenses (175,978) - (175,978) Operational expenses (74,464) - (74,464) Claims on telephone services (18,000) - (18,000) Website and software development expenses (114,330) - (114,330) Other expenses from ordinary activities (641,597) - (641,597) Loss from ordinary activities before income tax expenses (3,609,250) 9,958 (3,599,292) Income tax expense - 82,670 82,670 Loss from continuing operations (3,609,250) 92,628 (3,516,622) Loss from discontinued operations (326,027) - (326,027) Loss for the year (3,935,277) 92,628 (3,842,649) Loss attributable to the members (3,935,277) 92,628 (3,842,649)

42 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 2: First-time Adoption of Australian Equivalents to International Financial Reporting Standards ( AIFRS ) (Cont'd) j. Reconciliation of Profit or Loss for the full year to 30 June 2005 Parent Entity Previous Effect of GAAP at Transition to AIFRS at 30 June 2005 AIFRS 30 June 2005 $ $ $ Revenue from services rendered Revenue from sale of goods Cost of sales Interest revenue 202, ,591 Trust distribution received 2,070,662-2,070,662 Other revenue from ordinary activities 17,818-17,818 Administration expenses (271,429) - (271,429) Advertising and marketing expenses (63,127) - (63,127) Borrowing expenses (11,323) - (11,323) Depreciation and amortisation (58,204) 9,958 (48,246) Employment and staff expenses (1,112,819) - (1,112,819) Occupancy expenses (66,698) - (66,698) Operational expenses (13,839) - (13,839) Website and software development expenses (64,155) - (64,155) Diminution on investment (6,359,089) - (6,359,089) Other expenses from ordinary activities (739,991) - (739,991) Loss from ordinary activities before income tax expenses (6,469,603) 9,958 (6,459,645) Income tax expense - 82,670 82,670 Loss for the year (6,469,603) 92,628 (6,376,975) Note 3: Revenue Other revenues from ordinary activities: Write back of amounts payable to service providers Profit on sale of fixed assets Unrealised foreign currency transaction gains/(losses) Other Economic Entity Parent Entity $ $ $ $ - 2,307, , ,737 - (3,112) - (24,919) ,348, ,

43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 4: Loss from Ordinary Activities Loss from ordinary activities before income tax has been determined after: Borrowing expenses Interest expense and finance lease charges Total interest Amortisation of intangible assets Software and website development costs Total Amortisation Depreciation of non-current assets Computer equipment Furniture and fixtures Leasehold improvements Motor Vehicles Total depreciation Rental expense on operating leases Economic Entity Parent Entity $ $ $ $ 330,368 11, ,531 11, ,368 11, ,531 11, , , , , , ,752 31,298 34,594 31,298 29,866 2,203 2,317 2,203 2,317 1,428 6,582 1,428 1,411 3, ,429 43,493 34,929 33, , , ,527 66,698 Note 5: Income Tax Expense a. The components of tax credit comprise: Current tax Deferred tax Under provision from prior years Economic Entity Parent Entity $ $ $ $ ,027,068 82, ,880 82,670 (893,498) - (836,847) - b. The prima facie tax on losses from ordinary activities before income tax is reconciled to the income tax expense as follows: Loss before income tax Prima facie tax on losses before income tax at 30% (2005: 30%) (3,499,503) (3,925,319) (2,896,691) (6,459,645) (1,049,851) (1,177,595) (869,007) (1,937,894) Tax effect of: - discontinued operations other income 62,332-62, other non-allowable items 1,122,039 1,182, ,548 1,942,832 - temporary differences (268,091) (87,608) (129,906) (87,608) Income tax benefit attributable to losses as reported (133,571) (82,670) 11,967 (82,670)

44 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 6: Discontinued Operations On 29 March 2005, the economic entity announced its decision to dispose of its adult industry assets. The division was sold on 30 November 2005, thereby discontinuing its operations in this business segment. Financial information relating to the discontinued operation to the date of disposal is set out below. The financial performance of the discontinued operation to the date of sale which is included in profit/(loss) from discontinued operations per the income statement is as follows: Revenue from ordinary activities Expenses from ordinary activities Profit(loss) before income tax Income tax expense Profit(loss) attributable to members of the parent Profit(loss) on sale before income tax Income tax expense $ $ 1,732,626 3,960,712 2,169,615 6,006,413 (436,989) (2,045,701) - - (436,989) (2,045,701) (436,989) (2,045,701) - - Cost to sell the subsidiary 105,887 - Profit(loss) on sale after income tax (542,876) (2,045,701) The net cash flows of the discontinuing division which have been incorporated into the statement of cash flows are as follows: Net cash inflow/(outflow) from operating activities Net cash inflow/(outflow) from investing activities Net cash inflow/(outflow) from financing activities Net cash increase (decrease) in cash generated by the discontinuing division 39,771 (1,314,619) 1,717,340 (251,858) (1,790,259) 1,344,238 (33,148) (222,239) Note 7: Key Management Personnel Compensation a. Names and positions held of economic and parent entity Key Management personnel in office at any time during the financial year are: Directors Mr. D A Haines Mr. C Thorpe Mr. G Whyte Mr. U Huelle Chairman - Non-Executive Chief Executive Officer Director - Non-Executive (appointed 6 December 2005) Director - Non-Executive (resigned 6 December 2005) Key Management Mr. N Wiles Mr. P Slater Mr. C Ellis Mr. R Hill Managing Director Company Secretary / Chief Financial Officer (appointed on 26 February 2006) Chief Operating Officer (made redundant on 10 February 2006) Company Secretary / Chief Financial Officer (made redundant on 24 January 2006)

45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 7: Key Management Personnel Compensation (Cont'd) b. Compensation Practices Reward policy The Company has an established policy for determining the nature and amount of emoluments of Board Members and Key Management personnel of the Company to align remuneration with the creation of shareholder value. The remuneration structure for the Key Management personnel, including the Managing Director, seeks to emphasise payments for results. Reward philosophy The Company's overall philosophy is to manage the remuneration to: create an environment that will attract top talent, and where people can be motivated with energy and passion to deliver superior performance; recognise capabilities and promote opportunities for career and professional development; provide rewards, benefits and conditions that are competitive within the markets in which the Group operates; and provide fair and consistent rewards across the Group, which support corporate principles. In accordance with the ASXBPR, the structure of Non-Executive Directors and Key Management personnel remuneration is separate and distinct. Executive remuneration policy Principles used to determine the nature and amount of remuneration: the Remuneration Committee, consisting of the Non Executive Director's and the Chief Executive Officer, advise the Board on remuneration policies and practices generally, and make specific recommendations on remuneration packages and other terms of employment for senior executives and Non-Executive Directors; executive remuneration is reviewed annually by the Remuneration Committee having regard to each executive's contribution to the operation of the Company during the year and relevant comparative information; and, the remuneration packages are designed to retain senior executives and to encourage superior performance and long-term commitment. Executive remuneration The executive remuneration and reward framework has four components: - base pay and benefits; - short-term performance incentives; - long-term incentives; and - other remuneration such as superannuation. The combination of these comprises the executive's total remuneration. Base salary and benefits Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non-financial benefits at the executive's discretion. Executives are offered a competitive base salary that comprises the fixed component of pay and rewards. Base pay for senior executives is reviewed annually to ensure the executive's salary is competitive with the market. There are no guaranteed base salary increases fixed in any senior executive's arrangements. Executives may receive benefits including life insurance and car allowances. Short-term performance incentives Short-term incentives are used to differentiate rewards based on performance on a year by year basis. The principle performance indicator of the short-term incentive plan is based on the Company's financial performance and individual achievement of specified goals, for example for achieving progress with growth initiatives

46 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 7: Key Management Personnel Compensation (Cont'd) Long-term incentives In February 2006, MBA established an employee share option plan called the MobileActive Limited Employee Share Option Plan ("Plan"). The Plan requires Shareholder approval which will be sought at the Company's AGM in November The Plan is designed to provide a long-term incentive for employees and Directors of MBA and to reward sustained superior performance to align all interests more closely with those of MobileActive Limited shareholders. It will allow them to participate in MBA's future growth and give them an incentive to increase profitability and returns to shareholders. Fulltime employees, part-time employees, Executive Directors and contractors are eligible to participate in the scheme. The Committee acknowledges that an issue of options to any Director of the Company (and/or their associates) requires the approval of shareholders and agrees that such issues should ideally be made outside of the employee share option plan. The entitlement of eligible participants under the scheme is at the absolute discretion of the Directors. The exercise price of each option is as per the rules of the scheme. The total number of options which may be issued under the Scheme may not exceed 15% of the total number of issued shares in MBA as at the time of the proposed offer or issue. The Options hold no voting or dividend rights, and are not transferable. During the financial year 6,850,000 Options were issued under the MobileActive Employee Share Option Plan. Refer to Note 23 for further details. c. Key Management Personnel Compensation The following table summarises the remuneration arrangements for Key Management. Arrangements for key management personnel and arrangements for Non-Executive Directors are shown on the following pages of this report. Position Term of employment agreement Notice period Total employment cost (TEC)* Short term incentive Long term incentive Other benefits Chris Thorpe Neil Wiles Peter Slater Chief Executive Officer Commenced May 2001 Managing Director Commenced June 2003 CFO/Company Secretary Commenced February years and 4 months from 1 March May be extended by mutual agreement. 3 years and 4 months from 1 March May be extended by mutual agreement. Appointment continues until date the employment is terminated pursuant to provisions of agreement. 6 months 6 months 3 months $250,000 $250,000 $156,950 Entitled to a board approved discretionary bonus at any time during course of agreement. N/A other than options set out below 30 days annual leave. Corporate parking Entitled to a board approved discretionary bonus at any time during course of agreement. N/A other than options set out below 30 days annual leave. Interest free loan to cover any additional taxation liabilities resulting from the executive deed dated 30 November 2005 to grant 8,000,000 shares to executive on 1 July On anniversary of commencement date entitled to a board approved discretionary bonus of any amount up to 16% of total employment cost. N/A other than options set out below 20 days annual leave Termination by executive Termination by Company 6 months 6 months 3 months 6 months notice or payment in lieu 6 months notice or payment in lieu 3 months notice or payment in lieu

47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 7: Key Management Personnel Compensation (Cont'd) Restraint Interest in shares as at 30 June 2006 Options Non-Executive Directors remuneration Details of remuneration Amounts of remuneration Chris Thorpe Neil Wiles Peter Slater 12 months post 12 months post termination 3 months post termination termination 26,676,639 4,033,000-3 million options. 50% vesting on 1 December 06 and 50% vesting on 1 June 07 with exercise price of 9.2 cents. The options expire on 1 June Non-Executive Directors of MBA Post Employment Name Position Year Primary Fees Superannuation Total $ $ $ David Haines Chairman ,697 3,303 40,000 Chairman ,697 3,303 40,000 Gavin Whyte (2) Non-Executive Director ,917-9,917 Ulrich Huelle (1) Non-Executive Director ,500-8,500 Non-Executive Director ,000-17,000 Total Remuneration ,114 3,303 58,417 Total Remuneration ,697 3,303 57,000 (1) Mr. Ulrich Huelle resigned on 6 December 2005 (2) Mr. Gavin Whyte was appointed on 6 December million options. 50% vested on 10 September 06 and 50% vesting on 10 March 07 with exercise price of 9.1 cents. The options expire on 10 March million options. 50% vested on 10 September 06 and 50% vesting on 10 March 07 with exercise price of 9.1 cents. The options expire on 10 March * A portion of TEC may be taken in the form of packaged benefits (such as a motor vehicle and parking), and is exclusive of fringe benefits tax and inclusive of employer superannuation contributions. The Board from time to time determines remuneration of Non-Executive Directors within the maximum amount approved by the shareholders. Non-Executive Directors are also entitled to retirement benefits in accordance with a shareholder approved scheme. Fees and payments to Non-Executive Directors reflect the demands that are made on, and the responsibilities of, the Directors. Non-Executive Directors' fees and payments are reviewed annually by the Board. Total remuneration for all Non-Executive Directors, as approved by shareholders, is a maximum of $150,000 per annum. Non-Executive Directors' base fees are presently $59,067 per annum and, in addition, they receive compulsory superannuation contributions if applicable. Details of the remuneration of each Non-Executive Director of MBA and executives of the company who received the highest remuneration for the year ended 30 June 2006 are set out in the following tables

48 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 7: Key Management Personnel Compensation (Cont'd) Chief executive officer and executives of MBA 2006 Short-term Employee Benefits Post-employment Benefits Share-based Payment Salary & Fees Bonus Other Other Termination Benefits* Shares & Units Options C Thorpe 200,803 18,072 51, ,961 N Wiles 197, ,569 46,217 32, ,766 P Slater (1) 49,846 4,486 16,014 70,346 C Ellis (2) 147,565 10, , ,914 R Hill (3) 119,018 8, , ,948 Total 715, ,569-87, ,074-99,127-1,628,935 Other Total (1) Mr. Peter Slater was appointed on 26 February 2006 (2) Mr. Craig Ellis was made redundant on 10 February 2006 (3) Mr. Rick Hill was made redundant on 24 January 2006 Chief executive officer and executives of MBA 2005 Short-term Employee Benefits Post-employment Benefits Share-based Payment Salary & Fees Bonus Other Superannuation Superannuation Other Termination Benefits* Shares & Units Options C Thorpe 188,073 16, ,000 N Wiles 187,015 16, ,846 C Ellis 188,074 16, ,001 R Hill 151,376 13, ,000 Total 714, , ,847 Other Total d. Compensation Options Options Granted as Compensation Key Management Personnel Chris Thorpe Neil Wiles Peter Slater Total Vested No. Grant No. Grant Date Exercise Price $ Last Exercise Date - 3,000,000 1-Jun Jun-09-2,000, Mar Mar-09-1,000, Mar Mar-09 6,000,000 e. Shares Issued on Exercise of Compensation Options No shares were issued under this category. f. Options and Rights Holdings Number of options held by Key Management Personnel Balance Granted as Balance Total Compensation Exercisable Chris Thorpe - 3,000,000 3,000,000 3,000,000 Neil Wiles - 2,000,000 2,000,000 2,000,000 Peter Slater - 1,000,000 1,000,000 1,000,000 Total - 6,000,000 6,000,000 6,000,

49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 7: Key Management Personnel Compensation (Cont'd) g. Shareholdings Number of Shares held by Directors and Key Management personnel Directors Mr. D A Haines Mr. C Thorpe Mr. G Whyte (2) Mr. U Huelle (1) Balance Net Change Balance Other * , , ,000 26,676,639-26,676, , , ,000 (1) Mr. Ulrich Huelle resigned on 6 December 2005 (2) Mr. Gavin Whyte was appointed on 6 December 2005 Key Management Personnel Mr. N Wiles Mr. P Slater (1) Mr. C Ellis (2) Mr. R Hill (3) - 4,033,000 4,033, ,025, ,059 (1) Mr. Peter Slater was appointed on 26 February 2006 (2) Mr. Craig Ellis was made redundant on 10 February 2006 (3) Mr. Rick Hill was made redundant on the 24 January 2006 * Net Change Other refers to shares purchased or sold during the financial year. The compensation of the Key Management personnel of the consolidated entity, is set out below: Short-term employee benefits Share based payments Post-employment benefits Other long term employee benefits Termination benefits Total Compensation $ $ 1,030, ,538 99,127-87,980 64, ,074-1,628, ,847 Note 8: Auditors' Remuneration Remuneration of the auditor of the parent entity for: Economic Entity Parent Entity $ $ $ $ - auditing or reviewing the financial report 59,940 64,000 59,940 64,000 - tax advice - 3,850-3,850 - tax compliance - 33,510-33,510 - other services - 12,787-12,787 59, ,147 59, ,

50 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 9: Earnings Per Share a. Net Profit(Loss) used in the calculation of basic EPS Economic Entity $ $ (3,365,932) (3,842,649) b. Net Profit(Loss) used in the calculation of basic EPS from continuing operations (2,823,056) (1,796,948) c. Net Profit(Loss) used in the calculation of basic EPS from discontinued operations (542,876) (2,045,701) d. Weighted Average number of ordinary shares outstanding during the year used in calculation of basic and dilutive EPS 144,234, ,234,425 e. f. No adjustments are made to the loss from existing activities after income tax expense shown in the income statement in deriving earnings used in the calculation of basic earnings per share. Dilutive earnings per share is the same as basic earnings per share. Note 10: Cash and Cash Equivalents Economic Entity Parent Entity $ $ $ $ Cash at bank and in hand 57, ,655 (69,008) 29,291 Deposits at call 2,460,858 2,235,657 2,460,858 2,235,657 2,518,837 2,518,312 2,391,850 2,264,948 The weighted average interest rate on deposits at call is 5.54%. Note 11: Trade and Other Receivables Economic Entity Parent Entity $ $ $ $ a. Current Trade receivables 43, , Allowance for doubtful debts , , Other receivables 1,082, ,148 83, ,610 1,082, ,148 83, ,610 1,125,864 1,573,346 83, ,610 b. Non-Current Amounts receivable from wholly-owned entities - - 2,698,376 3,382,

51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 12: Controlled Entities a. Controlled Entities Country of Incorporation Percentage Owned Parent Entity: MobileActive Limited Australia - - Subsidiaries of MobileActive Limited: Global One Mobile Entertainment Pty Ltd Divolution Limited Mobilestylin' Pty Ltd Gallery Global Networks BV Sharon Austen Inc Subsidiaries of Divolution Limited: Sound Advertising Pty Ltd T.A.C.L. Internet Rights Pty Ltd b. Disposal of Controlled Entities Australia Australia Australia Netherlands USA Australia Australia On 30 November 2005, Divolution Limited disposed of its 100% interest in Gallery Entertainment Pty Ltd, Gallery Titles Pty Ltd and The DVD Company Pty Ltd. No remaining interest in the entities was held by any member of the economic entity. Note 13: Intangible Assets Software and website development costs Cost Net carrying value Global Internet Billing licence agreement Impairment Net carrying value Premium SMS Shortcode Impairment Net carrying value Video Copyright and Classification Accumulated amortisation and impairment Net carrying value Economic Entity Parent Entity $ $ $ $ 858, ,995 7,460 2,045 (520,812) (364,513) (440) (1,959) 337, ,482 7, , , , ,100 (103,165) - (103,165) - 46, ,100 46, ,100 20, , ,943, (844,937) ,098, Total Intangibles 404,823 1,517,104 53, ,

52 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 13: Intangible Assets (Cont'd) Movements in Carrying Amounts Movement in the carrying amount for each class of intangible assets between the beginning and the end of the current year. Software and website Global internet Video copyright development billing license Premium SMS and costs agreement Shortcode classification Total Economic Entity $ $ $ $ $ Balance at the beginning of year 268, ,100-1,098,522 1,517,104 Additions 228,652-20, , ,425 Disposals (276) (276) Amortisation/Impairment (126,366) (103,165) - (129,041) (358,572) Disposal on sale of subsidiaries (32,704) - - (1,238,154) (1,270,858) Carrying Amount at the end of the year 337,788 46,935 20, ,823 Parent Entity Balance at the beginning of year - 150, ,100 Additions 7, ,460 Disposals Amortisation/Impairment (440) (103,165) - - (103,605) Carrying Amount at the end of the year 7,020 46, ,955 Note 14: Other Assets a. Current Prepayments Economic Entity Parent Entity $ $ $ $ 54, ,331 40,532 87,031 54, ,331 40,532 87,031 b. Non-Current Formation Costs 3,940 5, ,940 5,

53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 15: Plant and Equipment Economic Entity Parent Entity $ $ $ $ Computer equipment At cost 153, , , ,321 Accumulated depreciation (107,731) (103,677) (107,731) (85,729) 46,112 15,894 46,112 26,592 Furniture and Fittings At cost 29, ,046 29,478 21,603 Accumulated depreciation (15,144) (56,193) (15,144) (13,705) 14,334 59,853 14,334 7,898 Leasehold Improvements At cost 6,180 57,841 6,180 7,620 Accumulated depreciation (2,150) (24,190) (2,150) (1,108) 4,030 33,651 4,030 6,512 Other At cost 3,500-3,500 - Accumulated depreciation (3,500) - (3,500) Total Plant and Equipment 64, ,398 64,476 41,002 Other - Motor Vehicles & Plant and Equipment a. Movements in carrying amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year. Economic Entity Computer Furniture and Leasehold Equipment Fittings Improvements Other Assets Total $ $ $ $ $ Balance at the beginning of 15,894 59,853 33, ,398 year Additions 63,210 9,368-93, ,526 Disposals (1,694) (358) (1,054) - (3,107) Depreciation (31,298) (8,832) (3,041) (18,694) (61,865) Disposal on sale of subsidiaries - (45,696) (25,526) (75,254) (146,476) Carrying Amount at the end of the year 46,112 14,335 4,030-64,

54 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 15: Plant and Equipment (Cont'd) Parent Entity Computer Furniture and Leasehold Equipment Fittings Improvements Other Assets Total $ $ $ $ $ Balance at the beginning of 26,592 7,898 6,512-41,002 year Additions 52,512 8,997-3,500 65,009 Disposals (1,694) (358) (1,054) - (3,106) Depreciation (31,298) (2,203) (1,428) (3,500) (38,429) Carrying Amount at the end of the year 46,112 14,334 4,030-64,476 Note 16: Trade and Other Payables a. Current Trade Payables Sundry payables and accrued expenses Economic Entity Parent Entity $ $ $ $ 297,352 1,504,630 66,749 38,472 1,934, , , ,856 2,231,475 2,309,394 1,062, ,328 b. Non-Current Amounts payable to wholly-owned subsidiaries Note 17: Tax a. Liabilities - - 3,815,798 2,338,921 Economic Entity Parent Entity $ $ $ $ CURRENT 893, ,847 - Income tax 893, ,847 - b. Deferred tax balances Deferred tax asset comprises Opening balance 82,670-82,670 - Credited to income 1,027,068 82, ,880 82,670 Closing balance 1,109,738 82, ,550 82,670 Taxable and deductible temporary differences arise from the following: Gross deferred tax assets Opening balance 82,670-82,670 - Losses carried forward 761,634 82, ,634 82,670 Temporary differences 265,434-63,246 - Closing balance 1,109,738 82, ,550 82,670 Net deferred tax asset 1,109,738 82, ,550 82,

55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 18: Provisions Current Economic Entity Parent Entity $ $ $ $ Long service leave 51,508 23,319 38,917 - Claims on telephone services 645, , , ,319 38,917 - A provision has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service being taken is based on historical data. The measurement and recognition criteria relating to employee benefits has been included in Note 1 to this report. Movement in accrued long service leave: Balance at the beginning of the year 23,319 11, Accrued during year 59,612 25,452 58,569 3,618 Transferred from disposed entity ,771 - Amounts paid during year (31,423) (13,163) (31,423) (3,618) Balance as at year end 51,508 23,319 38,917 - Movement in the carrying amount for claims on telephone services: Balance at the beginning of the year 700, , Claims incurred and anticipated claims during the year - 551,235 Claims settled during the year (54,522) (821,235) - - Carrying amount at the end of the year 645, , Note 19: Issued Capital 144,234,425 (2005:144,234,425) fully paid ordinary shares 15,027,580 15,027,580 15,027,580 15,027,580 15,027,580 15,027,580 15,027,580 15,027,580 a. Ordinary shares At the beginning of the reporting period Shares issued during the year At reporting date 15,027,580 15,027,580 15,027,580 15,027, ,027,580 15,027,580 15,027,580 15,027,580 b. Options For information relating to the MobileActive Limited employee option plan including details of options issued, exercised and lapsed during the financial year and the options outstanding at year-end, refer to note 23 Employee Benefits. For information relating to share options issued to Key Management personnel during the financial year, refer to note 7 Key Management Personnel Compensation. On 1 July 2003, a service provider was granted 2,500,000 options to take up ordinary shares at an exercise price of 15 cents each. The options are exercisable on or before 1 July At balance sheet date, no share options have been exercised

56 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 20: Reserves Economic Entity Parent Entity $ $ $ $ Employee equity settled benefits 109, ,668 - Other equity settled benefits 3,988-3,988 - Foreign currency translation 2,115-2, , ,647 - Employee equity settled benefits reserve arises on the grant of share options to employees under the MobileActive Limited Employee Share Option Plan. Amounts are transferred out of the reserve into issued capital when the options are exercised. Further information about share based payments to employees is in note 23 to the financial statements. Other equity settled benefits reserve arises from the issue of share options to a former service provider. Amounts are transferred out of the reserve into issued capital when the options are exercised. The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary. Note 21: Segment Reporting MobileActive operates predominantly in one business and geographical segment being the phone communication sector where it provides mobile content and entertainment services to the users of mobile phones in Australia. Primary reporting - Business segments Following the sale of the Group's product distribution (adult) assets the Company now operates in one business segment: - Service - the provision of phone communication services Segment Revenues from External Customers Segment Results $ $ $ $ Business segment: Telecommunications services 5,607,320 8,164,483 (2,823,056) 956,408 Product distribution - 8,487,701 - (282,365) Eliminations - (1,416,154) - 1,296,050 Unallocated revenue / (expenses) - 251,694 - (5,812,742) Total 5,607,320 15,487,724 (2,823,056) (3,842,649) Carrying Amount of Segment Acquisition of Non-current Assets Segment Assets $ $ $ $ Business segment: Telecommunications services 1,432,127 2,155, ,330 - Product distribution - (91,580) 362,621 - Eliminations - (1,691,827) - - Unallocated assets - 4,310, ,000 Total 1,432,127 4,682, , ,000 Secondary reporting - Geographical segments For the year ended 30 June 2006 the Group operated in one geographical segment - Australia

57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 22: Cash Flow Information a. Reconciliation of Cash Flow from Operations with Loss after Income Tax Economic Entity Parent Entity $ $ $ $ Loss from ordinary activities after income tax (3,365,932) (3,842,649) (2,908,658) (6,376,975) Non-cash flows in loss from ordinary activities Depreciation 152, ,357 35,355 48,246 Amortisation / Impairment loss of intangibles 103,165 4,294, ,165 - Loss on sale of plant and equipment - 65,756-13,680 Unrealised gains on investment Diminution on investments ,359,089 Unrealised foreign exchange loss - (3,112) - (24,919) Employee equity settled benefits 109, ,668 - Other equity settled benefits 3,988-3,988 - Loss on sale of subsidiary Deferred tax asset recognised on tax losses 542, ,420 - (1,027,068) (82,670) (824,880) (82,670) Changes in assets and liabilities net of the Decrease/(increase) in accrued income Decrease/(increase) in inventories Decrease/(increase) in receivables Decrease/(increase) in deposits paid Decrease/(increase) in other current assets Increase/(decrease) in trade creditors Increase/(decrease) in income tax payable Increase/(decrease) in provisions Net cash used in operations , ,981 (502,393) ,045 (58,351) 771,089 (15,763) - (66,944) - (5,972) 322,987 (34,647) 24,892 6,641 63,796 (2,575,046) 428,016 36, , ,847-66,603 (545,545) 38,917 (148,712) (1,615,922) (3,194,370) (1,267,181) 609,361 b. Disposal of Entities On 30 November 2005 the controlled entities Gallery Entertainment Pty Ltd, Gallery Titles Pty Ltd and The DVD Company Pty Ltd were sold. Aggregate details of this transaction are: Cash consideration received Costs related to sale of entities Cash assets of entities sold Net disposal price Assets and liabilities held at disposal date: Receivables Inventories Other assets Property, plant and equipment Intangible Assets Payables Other liabilities Provisions Economic Entity $ $ 2,200,000 - (96,769) - (3,751) - 2,099, ,053-1,317, , ,180-1,238,154 - (997,938) - (12,111) - (89,850) - 2,482,

58 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 23: Employee Benefits In February 2006, MBA established an employee share option plan called the MobileActive Limited Employee Share Option Plan ("Plan"). The Plan is designed to provide a long-term incentive for employees and Directors of MBA and to reward sustained superior performance to align all interests more closely with those of MobileActive. It will allow them to participate in MBA's future growth and give them an incentive to increase profitability and returns to shareholders. Full-time employees, parttime employees, Executive Directors and contractors are eligible to participate in the scheme. Executive Director participation is subject to shareholder approval. The entitlement of eligible participants under the Scheme is at the absolute discretion of the Directors. The exercise price of each option offered pursuant to the Scheme is at the discretion of the Directors but may not be less than the higher of $0.05 cents per share or the average price of MBA shares for the five trading days prior to the issue of the options. The total number of options which may be issued under the scheme may not exceed 15% of the total number of issued shares in MobileActive Limited at the time of the proposed offer or issue. The options hold no voting or dividend rights, and are not transferable. Economic Entity Parent Entity No. No. No. No. a. Movement in the number of share options held by Executive Directors, employees, former employees and consultants are as follows: Opening balance Granted during the year Exercised during the year Lapsed during the year Closing balance ,850,000-6,850, ,850,000-6,850,000 - b. Details of share options held by Executive Directors, employees, former employees and consultants outstanding as at end of year: Grant Date Expiry and exercise date Exercise Price Economic Entity Parent Entity No. No. No. No. 9-Mar Mar-06 1-Jun-06 9-Mar Mar-09 1-Jun cents 850, , cents 3,000,000-3,000, cents 3,000,000-3,000,000-6,850,000-6,850,

59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 24: Dividends Economic Entity Parent Entity No. No. No. No. No dividends were provided for or paid (2005: Nil) Dividends franking account Balance of franking account at year end adjusted for franking credits arising from; - payment of provision for income tax - dividends recognised as receivables and franking debits arising from payment of proposed dividends, and franking credits that may be prevented from distribution in subsequent financial years 363, , , ,355 The above available amounts are based on the balance of the dividend franking account at yearend, adjusted for franking credits that will arise from the payment of the amount of the provision for income tax. The ability to utilise the franking credits is dependent upon there being sufficient available profits from which dividends may be delivered. Note 25: Events Subsequent To Reporting Date Since the end of the financial year, a contract valued at $365,000 has been signed with a leading software services company to build a new mobile delivery platform. The Group has also signed a heads of agreement to purchase a mobile real estate application from MapShed for $2.067 million. $0.7 million ($0.2m in cash and $0.5m in MobileActive Limited shares) is payable on signing of the purchase agreement and the balance of consideration is payable in six monthly instalments based on 40% of the net revenues generated by the application (25% in cash and 75% in MobileActive Limited shares). The acquisition is subject to due diligence and Board approval. The Financial Report was authorised for issue on 28 September 2006 by the Board of Directors. Note 26: Related Party Transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with related parties: i. Director Related Chris Thorpe is a director and shareholder of Global Internet Billing (Australia) Pty Limited ("GIB"). GIB supplies premium rate telephone numbers through its Australian Premium Rate licence to Sound Advertising Pty Limited. GIB held this licence prior to the merger of Divolution Limited and Sharon Austen Limited. As disclosed to the Australian Stock Exchange on 26 February 2003, Telstra gave notice that the Info Call agreement between Telstra and Sound Advertising Pty Limited was to be terminated on 24 August Since the termination of the agreement, MobileActive Limited has been using under agreement certain premium rate numbers held by GIB. The directors of MobileActive Limited approved to enter into a licence agreement with GIB for the sum of $150,000 plus GST. The value attributed to the licence was as a result of an independent valuation. The contract was completed on 2 November The value of the GIB licence has been written down to $46,935 as at 30 June Total revenue from GIB for the period 1 July 2005 to 30 June 2006 was $777,598 (2004/05 - $1,588,106). No revenue was retained by GIB in this period

60 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 26: Related Party Transactions (Cont'd) ii. Share Transactions of Directors Directors and director related entities hold directly, indirectly or beneficially as at the reporting date the following equity interests in MobileActive Limited - ordinary shares - options over ordinary shares Economic Entity Parent Entity No. No. No. No. 27,251,639 26,806,639 27,251,639 26,806,639 3,000,000-3,000,000 - Note 27: Financial Instruments The consolidated entity does not engage in any significant transactions that are speculative in nature. a) Interest Rate Risk Exposure to interest rate risks on financial assets and liabilities are summarised as follows: Economic Entity 2006 Financial Assets Cash and cash equivalents Trade and other receivables Weighted Average Interest Rate % 5.54 Non-Interest Bearing $'000 Fixed Interest Rate Maturing 1 Year or Less 1 to 5 Years Floating Interest Rate Total $'000 $'000 $'000 $' ,518,837 2,518,837 1,125, ,125,864 1,125, ,518,837 3,644,701 Financial liabilities Trade and other payables Short and long term borrowings ,231, ,231,475-28, ,435 2,231,475 28, ,259,910 Economic Entity 2005 Financial Assets Cash and cash equivalents Trade and other receivables Weighted Average Non-Interest Interest Rate Bearing % $' Fixed Interest Rate Maturing 1 Year or Less 1 to 5 Years Floating Interest Rate Total $'000 $'000 $'000 $' ,518,312 2,518,312 1,573, ,573,346 1,573, ,518,312 4,091, Financial liabilities Trade and other payables Short and long term borrowings ,309, ,309,394-51, ,639 2,309,394 51, ,361,

61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Note 27: Financial Instruments (Cont'd) b) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance sheet date for recognised financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the balance sheet and notes to the financial statements. The Group does have a material credit risk exposure to a single debtor under financial instruments entered into by the Company. The Group's exposure to Information Dialling Services Pty Ltd as at the end of the financial year was $763,782 (30 June $642,339). The Group is currently negotiating with Information Dialling Services Pty Ltd to put in place measures to substantially reduce or eliminate this risk. c) Net Fair Values The carrying amounts of financial assets and financial liabilities recorded in the financial statements approximates their respective net fair values. Fair values are determined by reference to standard terms and conditions, quoted market prices, where available, or discounting expected future cash flows. Note 28: Contingent Liabilities There are no contingent liabilities. Note 29: Leasing Commitments Operating lease commitments Non-cancellable operating lease contracted for but not capitalised in the financial statements: Payable - not later than one year -laterthan one year but not later than five years Economic Entity Parent Entity $ $ $ $ 115, , , ,672 28, ,590 28, , , , , ,262 The property lease is a non-cancellable lease with a three year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments may be increased by the lower of current market rental values or 4% per annum. An option exists to renew the lease at the end of the three year term for an additional term of three years. The lease allows subletting for all lease areas

62 DIRECTORS DECLARATION DIRECTORS' DECLARATION In the Directors' opinion a. the financial statements and notes thereto are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Acounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2006 and of its performance, as represented by the results of its operations, changes in equity and its cash flows, for the financial year ended on that date; and b. c. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and The Directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer required by s.295a of the Corporations Act 2001 This declaration is made in accordance with a resolution of the Directors On behalf of the Directors Chris Thorpe Director 28th September

63 CEO REPORT Independent audit report to the members of MobileActive Limited and Controlled Entities Scope The financial report and directors responsibility The financial report comprises the income statement, balance sheet, statement of changes in equity, cash flow statement, accompanying notes to the financial statements, and the directors declaration for MobileActive Limited and Controlled Entities, for the year ended 30 June The consolidated entity comprises both the company and the entities controlled during the year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit Approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company s and the consolidated entity s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial reports, and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. 61

64 DIRECTOR S DECLARATION Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act In accordance with ASIC Class Order 05/83, we declare to the best of our knowledge and belief that the auditor s independence declaration set out on page18 of the financial report has not changed as at the date of providing our audit opinion. Audit Opinion In our opinion, the financial report of MobileActive Limited is in accordance with: a. the Corporations Act 2001, including: i. giving a true and fair view of the company s and consolidated entity s financial position as at 30 June 2006 and of their performance for the year ended on that date; and ii. complying with Accounting Standards in Australia and the Corporations Regulations 2001; and b. other mandatory professional reporting requirements in Australia. Grosvenor Schiliro Mark Schiliro Sydney Partner 28 September

65 ADDITIONAL INVESTOR INFORMATION ADDITIONAL INVESTOR INFORMATION 1. Shareholding Distribution of Shareholders as at 31 August 2006 Category (size of holding) Ordinary 1-1,000 33,427 1,001-5, ,553 5,001-10,000 1,940,737 10, ,000 14,316, ,001 - and over 135,069,736 The number of shareholdings held in less than marketable parcels is ,234,425 The names of the substantial shareholders listed in the holding company's register as at 31 August 2006 are: Shareholder Number Ordinary Waughdoc Pty Limited 26,676,639 Communitee Pty Limited 12,033,000 Mr. Craig Ellis 9,458, Largest Shareholders - Ordinary Shares Number of % Held of Ordinary Issued Fully Paid Ordinary Name Shares Held Capital 1. Waughdoc Pty Limited 26,676, % 2. Communitee Pty Limited 12,033, % 3. Mr. Craig Ellis 9,458, % 4. Smartway Money Limited 4,548, % 5. Wavet Fund No 2 Pty Limited 4,000, % 6. Old Fletcher & Partners Pty Ltd 3,612, % 7. Equipment Company of Australia Pty Limited 3,552, % 8. Sinostar Logistics Ltd 3,461, % 9. Mrs. Sally Jones 3,250, % 10. Clapsy Pty Ltd 3,034, % 11. Mr. Stan Loucas 3,000, % 12. RFC Investment Holdings Pty Ltd 2,969, % 13. Sherene Guy 2,423, % 14. Tricom Nominees 2,006, % 15. Mr. Robert Cameron 2,000, % 16. Rexi Pty Ltd 1,901, % 17. XS Equities Pty Ltd 1,800, % 18. CTS Group Nominees Pty Ltd 1,700, % 19. Zoobaba Pty Limited 1,250, % 20. Mrs. Hutoxi Dubash 1,220, % 93,897, % 63

66 ADDITIONAL INVESTOR INFORMATION ADDITIONAL INVESTOR INFORMATION 1. Shareholding (Continued) Voting rights The voting rights attached to each class of equity security are as follows: Ordinary shares At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 2. Company Secretary The name of the Company Secretary is Mr. Peter Slater. 3. Address of Principal Registered Office The address of the principal registered office in Australia is: Suite 1004, Level William Street Westfield Towers EAST SYDNEY NSW Share Registry Registers of securities are held by Computershare Investor Services Pty Limited at the following address: Level 5, 115 Grenfell Street Adelaide SA 5000 GPO Box 1903 Adelaide SA 5001 Enquiries within Australia: Enquiries outside Australia: web.queries@computershare.com.au Website 5. Stock Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the Australian Stock Exchange Listing. 6. Distributions No distributions or dividends have been paid by MBA for the year. 7. Investor Support If you have any queries regarding your investment, please contact Computershare toll free on or visit their website at Please note there is a section of the website designed to provide shareholders with the forms necessary to initiate changes of the details held at the registry. This service is available from 8.30 to (Sydney time) on all business days. Enquiries may also be ed via Computershare's website. Requests for changes to your holding details, distribution payment details, or general enquiries can all be directed to the Computershare Shareholder Service Centre. 64

67 ADDITIONAL INVESTOR INFORMATION 8. Annual Report All shareholders are entitled to receive a copy of the Annual Report. If you do not require the Annual Report, or if you receive more copies than you require, please notify Computershare. The Annual Report and Financial Statements can also be downloaded from the Corporate area of our website at 9. Annual General Meeting MBA's last Annual General Meeting was held on 30 November Shareholders endorsed the re-appointment of Mr. David Haines as a Director, the adoption of the Remuneration Report, the change of the Company name to MobileActive Limited and the adoption of the Economic and Parent Entity's Financial Statements for the year ended 30 June The Shareholders were also given a presentation on the performance and strategy of the Group. The next Annual General Meeting will be held on 30 November 2006 at The Grace Hotel, Sydney, New South Wales. The Notice of Meeting and Proxy Form will be distributed with the Annual Report. 65

68 LETTER FROM THE CHAIRMAN 66