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1 ABN Annual Report For the Year Ended 30 June 2015

2 ABN Annual Report - 30 June 2015 CONTENTS Page Corporate Directory 1 Directors Report 2 Auditors Independence Declaration 12 Financial Report 13 Directors Declaration 33 Independent Auditor s Report to the Members 34 ASX Additional Information 36

3 Corporate Directory 30 June 2015 Corporate Directory Directors Company Secretary Registered Office Share Register Auditor Stock Exchange Listing Website Michael Billing Chairman Nerida Schmidt Non-Executive Director Michelle Afflick Non-Executive Director Nerida Schmidt Level 2, Colin Street West Perth, Western Australia 6005 Telephone: +61 (0) Fax: +61 (0) Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth Western Australia 6000 Telephone: Overseas: Facsimile: +61 (0) Stielow & Associates Suite 1 / 100 Hay Street Subiaco Western Australia 6008 shares are listed on the Australian Securities Exchange, home branch, Perth Code: SCY (currently suspended) 1

4 Directors Report 30 June 2015 DIRECTORS REPORT Your directors present their consolidated financial report on the consolidated entity consisting of (Sirocco or the Company) and the entities it controlled at the end of, or during the year ended 30 June 2015 (the Group). Directors The names of each person who has been a director during the year and continues in office at the date of this report are: Michael Billing appointed 23 December 2013; Nerida Schmidt appointed 25 May 2015; and Michelle Afflick appointed 25 May The names of each person who were directors during the year and resigned prior to the date of this report are: Greg Channon appointed 1 December 2011; resigned 25 May 2015; Ray Ridge appointed 19 September 2014; resigned 25 May 2015; and Chris Whiteman appointed 23 December 2013, resigned 25 May Company Secretary The current company secretary, Ms Nerida Schmidt, was appointed on 25 May At the beginning of this financial year Mr James Church was the company secretary. He resigned on 25 May 2015 with the appointment of Ms Schmidt. Principal Activities The principal activities of the Group and Company are in the energy and resources sector. The Group continues to consider new projects in this sector and others by way of acquisition or investment. Significant Changes in the State of Affairs and Review of Operations On 5 May 2015 the Company received a Court Summons from the Australian Securities and Investment Commission ( ASIC ) for failure to comply with the Corporations Act 2001 by failing to: hold an Annual General Meeting for the 2013 financial year; lodge Half Year reports for the half years ended 31 December 2012 and 2013; and lodge Annual Reports for the financial years ended 30 June 2013 and 2014 The Company is working towards the rectification of these outstanding compliance requirements and settlement of the ASIC proceedings by the end of September On 25 May 2015 Mr Greg Channon and Mr Ray Ridge resigned as non-executive directors and Ms Nerida Schmidt and Mrs Michelle Afflick were appointed non-executive directors. Going Concern The Group s current cash flow forecast supports the Directors opinion that the Group s working capital position will remain positive for at least the next twelve months from the date of these financial statements based on certain assumptions, including: raising additional working capital from the issue of shares to both new and existing shareholders, as approved in a general meeting of shareholders 6 July 2015; and outstanding creditors are extinguished in accordance with agreements currently in place, including shares issued as approved by shareholders in a general meeting 6 July Upon identifying a suitable transaction, the Board intends to issue a prospectus in order to raise an appropriate amount of working capital to fund the business going forward. It is expected that a transaction of scale or which changes the nature of the business will require the Company to comply with Chapters 1 and 2 of the ASX Listing Rules. 2

5 Directors Report 30 June 2015 There is, however, an inherent uncertainty about the achievement of future funding on which the assessment of going concern is based. Despite this, the Directors have reviewed the operating outlook for the Group and are of the opinion that the use of the going concern basis of accounting is appropriate as they believe the Group will achieve the matters set out above. Operating Result The consolidated loss for the financial year was 45,239 (2013: Loss 18,231). The major expense items contributing to the loss were compliance expenses. The loss reported in 2014 was primarily as a result of compliance expenses which were offset by the forgiveness of prior year director fees. Additional information on the operations and financial position of the Group and its business strategies and prospects are set out in this directors report and the consolidated financial report. Dividends No dividends were paid or are proposed to be paid to members during the financial year. Future Developments, Prospects and Business Strategies Other than as stated in this report, the Group s business strategies and prospects for growth in future financial years have not been included in this report, as the inclusion of this information is likely to result in an unreasonable prejudice to the Group. Financial Position The Group has undertaken activities that will enable it to move forward with achieving recompliance with ASIC and the ASX. The Group has also obtained agreement from creditors to either forgive outstanding debts or extinguish such debt via the issue of shares in the Company. The Group has sufficient funds to meet its commitments as and when they fall due on the basis of the matters referred to below and in Note 2(c) to the consolidated financial statements. Events After the Reporting Period A General Meeting of shareholders held on 6 July 2015 approved the following: the consolidation of shares on a 5:1 basis resulting in 7,508,520 shares being on issue; the issue of 24,000,000 shares (post consolidation) at an issue price of 0.005, together with one free attaching Option for every share subscribed to raise up to 120,000. These funds will be used to prepare and audit the outstanding financial statements of the Company for the 2013 and 2014 financial years, and to provide general working capital; the issue of 1,223,337 shares (post consolidation) in settlement of 270,223 of major creditors of the Group; removal of KPMG and the appointment of Stielow & Associates as auditors of the Group; and the issue of 1,000,000 unlisted options each to Mr Michael Billing, Ms Nerida Schmidt and Mrs Michelle Afflick. The options were granted for nil cash consideration and are exercisable at 0.02 three years from the date of grant. All changes in equity approved at the General Meeting are to be completed after the date of this report. On 6 July 2015, the Company cancelled 434,784 options previously issued to former directors. The options had an exercise price of 0.69 and were to expire on 23 December The Company has been advised by the ASX that re-compliance with the Listing Rules, and therefore re-quotation, must be achieved prior to 31 January 2016 otherwise the Company will be officially de-listed. 3

6 Directors Report 30 June 2015 Environmental Issues The Group s operations are subject to the environmental regulation under the laws of the Commonwealth of Australia and the states in which it operates. The Board is of the view that all requirements have been met. Information on Current Directors Michael Billing (Chairman) Experience and Expertise Mr Billing has over 35 years of mining and agri-business experience and a background in finance, specialising in recent years in assisting in the establishment and management of junior companies to the position where they can be sustainable businesses. His career includes experience in company secretarial, senior commercial, and CFO roles including lengthy periods with Bougainville Copper Ltd and WMC Resources Ltd. He has worked extensively with junior resource companies over the past 15 years. Other Current Directorships Southern Gold Limited Thor Mining PLC (ASX & AIM listed) Former Directorships in the Last Three Years Black Fire Minerals Limited Emperor Range Group Limited Interests in Shares and Options at the date of signing of this report 543,479 ordinary shares Nerida Schmidt Experience and Expertise Ms. Schmidt holds a Bachelor of Commerce from the University of Western Australia, and is a Certified Practising Accountant and a Fellow of Finsia. She is also a Chartered Secretary and holds a Graduate Diploma in Company Secretarial Practice. Ms Schmidt has 25 years professional experience as a company secretary with a number of ASX and AIM listed companies. Other Current Directorships Nil Former Directorships in the Last Three Years Nil Interests in Shares and Options at the date of signing of this report 1,044,783 ordinary shares Michelle Afflick Experience and Expertise Mrs Afflick holds a Bachelor of Commerce from the University of Western Australia and is a member of the Chartered Accountants Australia and New Zealand. Mrs Afflick has over 25 years professional experience as a financial reporting accountant with both ASX and dual listed companies (AIM and TSX). Other Current Directorships Nil Former Directorships in the Last Three Years Nil Interests in Shares and Options at the date of signing of this report 1,040,000 ordinary shares 4

7 Directors Report 30 June 2015 Information on Former Directors Greg Channon (Non-Executive Director) Experience and Expertise Mr Channon holds a Bachelor of Science degree from the University of Adelaide and has over 25 years of upstream oil and gas experience. He has a background in geoscience, and has broad technical and commercial expertise. Since early 2009, Mr. Channon was based in Hong Kong as the Upstream CEO and Executive Director of Brightoil Petroleum (Holdings) Limited, a company listed on the Hong Kong Stock Exchange. Prior to 2009, Mr. Channon has held various management and technical roles in companies including Salinas Energy, Shell New Zealand, Santos and Delhi Petroleum. Other Current Directorships Statesman Resources Limited (TSX listed) Former Directorships in the Last Three Years Nil Interests in Shares and Options (as at date of resignation) 869,566 ordinary shares 217,392 options over ordinary shares exercisable at 0.69 and expiring 23 December 2015 (cancelled 6 July 2015) Ray Ridge BA(Acc), CA, GIA(cert) (Non-Executive director) Experience and Expertise Mr Ridge is a Chartered Accountant with over 20 years accounting and commercial management experience. Mr Ridge is currently the appointed CFO and Joint Company Secretary of Thor Mining PLC. His previous roles include Senior Manager with Arthur Anderson, Finanical Controller and then Divisional CFO with Elders Ltd, and more recently, General Manager Commercial & Operations at engineering and construction company Parsons Brinckerhoff. Interests in Shares and Options (as at date of resignation) Nil Other Current Directorships Nil Former Directorships in the Last Three Years Nil Christopher Paul Whiteman (Non-Executive director) Experience and Expertise Mr Whiteman is a finance and investment professional with experience as a Stock Broker and Corporate Adviser with one of Australia s largest and most successful independent broking houses. Mr Whiteman s commercial experience encompasses the resources, energy and investment market sectors gained through roles with both local and international corporations and investment banks in Australia and London. Mr Whiteman holds a Bachelor Degree of Economics from the University of Adelaide and has completed post graduate studies in applied finance and investment. Mr Whiteman has been responsible for strategic and corporate advice to both listed and unlisted companies which are active in the energy and resources market place and also provides general corporate advice to a network of clients based in and around China regarding outbound investment and fundraising in Australia. Other Current Directorships Nil Former Directorships in the Last Three Years Nil 5

8 Directors Report 30 June 2015 Interests in Shares and Options (as at date of resignation) 108,337 ordinary shares Meetings of Directors The numbers of meetings of the Company s Board of Directors held during the year ended 30 June 2015, and the numbers of meetings attended by each director were: Name of Director Number of Meetings - A Number of Meetings - B Michael Billing - - Nerida Schmidt - - Michelle Afflick - - Ray Ridge - - Gregory Channon - - A = Number of meetings attended. B = Number of meetings held during the time the Director held office during the year. The business of the Board was conducted throughout the year by the use of various circular resolutions signed by all directors. Remuneration Report - Audited The principles adopted have been approved by the board of the Group. The remuneration report is set out under the following main headings: (1) Principles used to determine the nature and amount of remuneration (2) Details of remuneration (3) Employment contracts of Directors and Senior Executives (4) Performance based remuneration The information provided under headings 1 to 4 above includes remuneration disclosures that are required under Accounting Standard AASB 124, Related Party Disclosures. These disclosures have been transferred from the financial report and have been audited. 1 Principles used to determine the nature and amount of remuneration The objective of the Group s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders by acquiring projects which increase the market capitalisation of the Group, and conforms to market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: (i) competitiveness and reasonableness; (ii) acceptability to shareholders; (iii) transparency; and (iv) capital management. The Group has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation, which is to target new acquisitions that increase the market capitalisation of the Group. Alignment to shareholders interests: (i) focuses on sustained growth in shareholder wealth; and (ii) attracts and retains high calibre executives. Alignment to program participants interests: (i) rewards capability and experience; and (ii) provides a clear structure for earning rewards. 6

9 Directors Report 30 June 2015 Remuneration Report Audited (continued) Executive and Non-Executive Directors Directors fees and payments are reviewed annually by the Board. Fees and payments to directors reflect the demands which are made on, and the responsibilities of, the directors and are based on the nature and stage of the Group s business. They are not linked to the Group s performance. This is consistent with the Group s strategic objective of increasing shareholder value via acquisition and development of new projects. The Board also ensures that directors fees and payments are appropriate and in line with the market and, specifically, comparable with other Companies with similar strategic objectives. The Board reviews comparable Executive salaries internally and does not use the services of an external remuneration consultant. The Chairman s fees are determined together with those of the directors. Executive directors received share based payments as part of their compensation package. Retirement allowances and benefits for directors There are no retirement allowances or other benefits paid to directors. Consequences of performance on shareholder wealth In considering the Group s performance and benefits for shareholder wealth, the board of directors have regard to the following indices in respect of the current financial year and the previous four financial years. Profit/(Loss) attributable to owners of the company (45,239) (18,231) (1,793,079) (1,201,919) (810,486) Dividends paid nil nil nil nil nil Change in share price Suspended Suspended Suspended (0.004) (0.003) Return on capital employed n/a n/a n/a (98.4%) (43.9%) Profit/(Loss) amounts for 2011 to 2015 have been calculated in accordance with Australian Accounting Standards (AASBs). 7

10 Directors Report 30 June Details of Remuneration The amount of remuneration of the directors and key management personnel (as defined in AASB 124 Related Party Disclosures) is set out below: Post employ Short-term benefits ment benefits Share-based Payment Name Cash Salary and Fees (8) Superannuation Total KMP compensation Equity Options Other Total Non-Executive Directors Michael Billing Nerida Schmidt (1) Michelle Afflick(1) Ray Ridge (2) Chris Whiteman (3) Greg Channon (4) Total Post employ Short-term benefits ment benefits Share-based Payment Name Cash Salary and Fees (8) Superannuation Total KMP compensation Equity Options Other Total Non-Executive Directors Michael Billing Chris Whiteman (3) Greg Channon (4) Patrick Burke (5) (15,000) - (15,000) (15,000) Dougal Ferguson (6) Total Note: (15,000) - (15,000) (15,000) (1) Nerida Schmidt and Michelle Afflick were appointed 25 May (2) Ray Ridge was appointed 19 September 2014 and resigned 25 May (3) Chris Whiteman appointed 23 December 2013, resigned 25 May 2014 (4) Greg Channon resigned 25 May (5) Patrick Burke resigned on 23 December (6) Dougal Ferguson appointed 1 December 2011 and resigned 23 December

11 Directors Report 30 June Employment Contracts of Directors and Senior Executives There are no employment contracts in place for the executive directors and as at the date of this report there are no key management personnel, other than the directors engaged by the Company. Non-executive directors serve on a month to month basis and there are no termination payments payable. Non-executive directors are paid on a fee for service basis and payments are made with reference to market rates for similar services provided to similar sized companies. No directors have received any fees in their capacity as a non-executive director during the current financial year and up to the date of their resignations. 4 Performance-based Remuneration No performance based remuneration was paid or performance based securities issued during the years ended 30 June 2015 and 30 June Equity instruments held by key management personnel Options Details of options held directly, indirectly or beneficially by key management personnel and their related parties are as follows: 2015 Name Held at 1/7/2014 Options exercised Other * Held at 30/6/2015 Vested & exercisable 30/6/2015 Greg Channon 434,784 - (434,784) - - Total 434,784 - (434,784) Name Greg Channon resigned as a director 25 May 2015 Held at 1/7/2013 Options exercised Other * Held at 30/6/2014 Vested & exercisable 30/6/2014 Greg Channon 434, , ,784 Dougal Ferguson 434,784 - (434,784) - - Total 869,568 - (434,784) 434, ,784 Dougal Ferguson resigned as a director 23 December

12 Directors Report 30 June 2015 Shareholdings Details of equity instruments (other than options and rights) held directly, indirectly, or beneficially by key management personnel and their related parties are as follows: 2015 Name 1/7/2014 Acquisitions Other changes * Balance 30/6/2015 Michael Billing 543, ,479 Nerida Schmidt - 1,044,783-1,044,783 Michelle Afflick - 1,040,000 1,040,000 Ray Ridge Greg Channon 869,566 - (869,566) - 1,413,045 1,084,783 (869,566) 2,628,262 Nerida Schmidt and Michelle Afflick were appointed non-executive directors on 25 May Name 1/7/2013 Acquisitions Other changes * Balance 30/6/2014 Michael Billing , ,479 Chris Whiteman Greg Channon 869, ,566 Dougal Ferguson 869,566 - (869,566) - Patrick Burke 673,914 - (673,914) - 2,413,043 (1,000,001) 1,413,045 Michael Billing held 543,479 shares on his appointment date as a non-executive director of 23 December Chris Whiteman held 108,337 shares in the company at the time of his appointment as a nonexecutive director on 23 December and at his resignation date of 14 May Dougal Ferguson and Patrick Burke resigned as non-executive directors on 23 December Loans to key management personnel No loans were provided to the key management personnel or to any of the associates 7 Other transactions with key management personnel An amount of 20,000 (2014: 16,000) has been accrued for corporate and financial services provided by Edge Corporate services, a director related entity of Ms Nerida Schmidt and Mrs Michelle Afflick on commercial terms. The amount is payable on 31 July No other transactions have been identified with key management personnel. End of the audited remuneration report. Indemnification and Insurance of Officers and Auditor The Company does not currently have directors and / or officers or auditor insurance. 10

13 Directors Report 30 June 2015 OPTIONS At the date of this report, there were no share options on issue to take up fully paid Ordinary Shares in the capital of the Company. At a general meeting of shareholders on 6 July 2015, approval was granted for the issue of 24,000,000 options to sophisticated investors, and 3,000,000 options to current directors, at an exercise price of 0.02, expiring three years from the grant date. The issue of the options had not been completed at the date of this report. A summary of the status of the share options on issue during the year and up to the date of this report is as follows: No. of Options Grant Expiry Exercise Status Outstanding Date Date Price 434,784 23/12/ /12/ Expired 434,784 23/12/ /12/ Cancelled 6 July 2015 TOTAL 869,568 The company does not have a policy that prohibits those that are granted share-based payments as part of their remuneration from entering into other arrangements that limit their exposure to losses that would result from share price decreases. It is however aware that entering into such arrangements has been prohibited by law since 1 July The company required all executives and directors to sign annual declarations of compliance with this policy throughout the period. Proceedings on Behalf of the Company No person has applied to the court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to 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 part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the court under section 237 of the Corporations Act Auditor On 6 July 2015 a resolution at a general meeting of shareholders approved the removal of KPMG as auditor of the Company and the appointment of Stielow & Associates, in accordance with section 329 of the Corporations Act There were no non-audit services provided during the year by either KPMG or Stielow & Associates. Auditor s Independence Declaration A copy of the auditors independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 12 of the annual report. Corporate Governance The directors of the Group support and adhere to the principles of corporate governance, recognising the need for the highest standard of corporate behaviour and accountability. Please refer to the corporate governance statement date 8 July 2015 released to ASX and posted on the Company website. Signed in accordance with a resolution of the Board of Directors. Michael Billing Chairman Perth 8 July

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15 Consolidated Statement of Profit and Loss and other Comprehensive Income Note Revenue 6-21,525 Expenses 7 (45,451) (40,481) Profit/(Loss) for the year (45,451) (18,956) Finance income Interest Loss before tax for the year (45,239) (18,231) Income tax expense Loss after tax for the year (45,239) (18,231) Loss and total comprehensive loss attributable to the members of (45,239) (18,231) Loss per share: Cents Cents Basic loss per share Diluted loss per share The above consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes. 13

16 Consolidated Statement of Financial Position ASSETS Note Current assets Cash and cash equivalents 10,029 45,597 Other receivables 7,659 4,279 Total current assets 17,688 49,876 Non-Current assets Plant and equipment Total non-current assets Total assets 17,920 50,342 LIABILITIES Current liabilities Other payables 9 324, ,459 Total current liabilities 324, ,459 Total liabilities 324, ,459 NET ASSETS (306,356) (261,117) EQUITY Contributed equity 10(a) 4,086,973 4,086,973 Share-based payment reserve 181, ,971 Accumulated losses (4,575,300) (4,503,061) TOTAL EQUITY (306,356) (260,117) The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 14

17 Consolidated Statement of Changes in Equity 2015 Contributed Equity Share Based Payment Reserve Accumulated Losses Total Balance 1 July ,086, ,971 (4,503,061) (260,117) Net loss for the year - - (45,239) (45,239) Other comprehensive income for the year Total comprehensive loss for the year - - (45,239) (45,239) Transactions with owners recorded directly in equity: Balance 30 June ,086, ,971 (4,548,300) (306,356) 2014 Contributed Equity Share Based Payment Reserve Accumulated Losses Total Balance 1 July ,039, ,971 (4,511,830) (290,122) Net loss for the year - - (18,231) (18,231) Other comprehensive income for the year Total comprehensive loss for the year - - (18,231) (18,231) Transactions with owners recorded directly in equity: Placement 48, ,969 Transaction costs (1,733) - - (1,733) Balance 30 June ,086, ,971 (4,503,061) (260,117) The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 15

18 Consolidated Statement of Cash Flows Note Cash flows from operating activities Interest received Payments to suppliers and fees paid (35,780) (52,530) Net cash outflow from operating activities 15 (35,568) (51,805) Cash flows from financing activities Proceeds from the issue of shares and options - 48,969 Proceeds from the sale of Treasury stock - 17,391 Costs associated with capital raising - (1,733) Net cash inflow from financing activities - 64,627 Net (decrease)/increase in cash and cash equivalents (35,568) 12,823 Cash and cash equivalents at 1 July 45,597 32,774 Cash and cash equivalents at 30 June 10,029 45,597 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 16

19 Notes to the Consolidated Financial Statements 1 Reporting entity (the Company ) is a company limited by shares, incorporated and domiciled in Australia publicly traded on the Australian Securities Exchange. The address of the Company s registered office is Level 2, Colin Street, West Perth, The consolidated financial statements of the Company as at and for the year ended 30 June 2015 comprise the Company and its subsidiaries (together referred to as the Group and individually as Group s entities ). The Group is a for-profit entity involved in the oil and gas business and continues to pursue new projects in the energy sector by way of acquisition or investment. 2 Basis of preparation (a) Statement of compliance The consolidated financial report is a general purpose consolidated financial report that has been prepared in accordance with the Corporations Act 2001 and the Australian Accounting Standards and Interpretations and complies with other requirements of the law. The consolidated financial statements and notes also comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The consolidated financial statements were approved by the Board of Directors 8 July (b) Basis of measurement The consolidated financial report has been prepared on an accruals basis and the historical cost concept, modified, where applicable, by the measurement at fair value of selected non current assets, financial assets and financial liabilities. These consolidated financial statements are presented in Australian dollars, which is the Company s functional currency. (c) Going Concern Basis of Accounting The financial report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business. The Group s current cash flow forecast supports the Directors opinion that the Group s working capital position will remain positive for at least the next twelve months from the date of these financial statements based on certain assumptions, including: raising additional working capital from the issue of shares to both new and existing shareholders, as approved in a general meeting of shareholders 6 July 2015; and outstanding creditors are extinguished in accordance with agreements currently in place, including shares issued as approved by shareholders in a general meeting 6 July Upon identifying a suitable transaction, the Board intends to issue a prospectus in order to raise an appropriate amount of working capital to fund the business going forward. It is expected that a transaction of scale or which changes the nature of the business will require the Company to comply with Chapters 1 and 2 of the ASX Listing Rules. There is, however, an inherent uncertainty about the achievement of future funding on which the assessment of going concern is based. Despite this, the Directors have reviewed the operating outlook for the Group and are of the opinion that the use of the going concern basis of accounting is appropriate as they believe the Group will achieve the matters set out above. In the event that the Group is unable to continue as a going concern, it may be required to realise assets and extinguish liabilities other than in the normal course of business and at amounts different to those stated in this financial report. 17

20 Notes to the Consolidated Financial Statements 3 Significant accounting policies (a) Basis of consolidation The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by at the end of the reporting period. A controlled entity is any entity over which has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity s activities. Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 17 to the financial statements. In preparing the consolidated financial statements, all intragroup balances and transactions between entities in the consolidated group have been eliminated in full on consolidation. Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statements showing profit or loss and other comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date. (b) Financial Instruments (i) Non-derivative financial assets The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Group has the following non-derivative financial assets: cash and cash equivalents, receivables and available-for-sale financial assets. Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost, less any impairment losses. Receivables are due for settlement no more than 30 days from the date of recognition. Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 18

21 Notes to the Consolidated Financial Statements 3 Significant accounting policies (continued) (b) Financial Instruments (continued) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for. Available-for-sale financial assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. Available-for-sale financial assets comprise equity securities. (ii) Non-derivative financial liabilities Other financial liabilities comprise other payables Other financial liabilities are recognised initially on the trade date. These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Other financial liabilities are recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using effective interest method. (c) Segment Reporting The Group determines and presents operating segments based on the information provided by the Board of directors who collectively are the Group s Chief Operating Decision Maker. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses that relate to transactions with any of the Group s other components. All operating segments operating results are regularly reviewed by the Board of directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. (d) Income Tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the temporary difference on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 19

22 3 Significant accounting policies (continued) Notes to the Consolidated Financial Statements (e) Impairment of Assets Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount, due to the Group, on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost, less any impairment losses. Receivables are due for settlement no more than 30 days from the date of recognition. Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment is recognised in the income statement. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the profit and loss. Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity, to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt assets and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. (f) Issued Capital Ordinary shares are classified as equity. Directly attributable costs associated with the issue of new shares or options are shown in equity as a deduction from the proceeds net of any tax effects. Proceeds from options issued for no consideration to shareholders under the share and option prospectus were allocated between shares and options using the Black Scholes options pricing model to value the options and allocate the balance amount to shares. Upon the exercise of the options the attributed value was has been transferred from the option reserve back to share capital. 20

23 3 Significant accounting policies (continued) Notes to the Consolidated Financial Statements (g) Earnings Per Share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit / (loss) attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. (h) Goods and Services Tax ( GST ) Expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. (i) Employee Benefits Provision is made for the Group s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. (j) Share Based Payments The Company may provide benefits to employees (including directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ( equity-settled transactions ). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of these payments is determined using a Black-Scholes option pricing model. Rights over shares (options) using a Black-Scholes option pricing model takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to, excludes the impact of any non-market and service vesting conditions. Non-market vesting and service conditions, if any, are included in assumptions about the number of options likely to be exercisable. Shares issued under the employee share acquisition plan have been valued using a modified Black-Scholes option pricing model. The model takes into account the price at which the shares are issued, the price at which the shares traded on ASX on the date of issue, the term of the agreement, the impact of any discount given, and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the agreement. Share based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instrument issued, if it is determined the fair value of the good or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share based payment reserve. 21

24 3 Significant accounting policies (continued) Notes to the Consolidated Financial Statements (j) Share Based Payments (continued) Loans provided to director s as part of the share based payment plan are recognized at their fair value, which takes the present value of cash receipts over the life of the loan into account. The loans only accrue interest over the restriction period and this will only become payable in the event the directors were to leave prior to the three year restriction period. The accrued interest is treated as a share based payment expense. Subsequent to initial recognise, the loans will be carried at amortised cost, with interest income accreted at the original effective interest rate. Once recognized, the loans will only be derecognized if the AASB 139 de-recognition criteria are met. If there is evidence that the loan or some portion of it is uncollectible, then impairments will be recognized on the balance. The grant date fair value of employee share acquisition plan shares granted under the plan is recognised as an expense in the statement of comprehensive income with a corresponding increase in equity, share based payments reserve over the vesting period that the employees unconditionally become entitled to the awards. The Company has issued shares under the plan to directors of the Company as part of their executive service agreements entered into by the relevant directors and the Company. (k) Financial income and expense Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Finance expenses comprise interest expense on borrowings, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognised on financial assets. All borrowing costs are recognised in profit or loss using the effective interest method. (l) Critical Accounting Estimates, Judgements and Assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (i) Going concern A key assumption underlying the preparation of the consolidated financial statements is that the group will continue as a going concern. A group is a going concern when it is considered to be able to pay its debts as and when they fall due, and to continue in operation without any intention or necessity to liquidate or otherwise wind up its operations. The going concern assessment regarding whether the entity is a going concern as set out in Note 2(c). (ii) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees and consultants by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black-Scholes valuation model, using the assumptions detailed in Note 11. (i) Impairment The Group assesses impairment at each reporting date by evaluation conditions specific to the Group that may lead to the impairment of assets. When an impairment trigger exists, the recoverable amount of the asset is determined. No further critical accounting estimates and/or assumptions have been made during the preparation of the financial report other than as disclosed elsewhere in this financial report. 22

25 Notes to the Consolidated Financial Statements 3 Significant accounting policies (continued) (m) Adoption of new and revised accounting standards The Group has applied the following standards and amendments for the first time for the annual reporting period commencing 1 July AASB Amendments to AASB 136 Recoverable Amount Disclosure for Non- Financial Assets AASB Amendments to Australian Accounting Standards Novation of Derivatives and Continuation of Hedge Accounting Interpretation 21 Accounting for Levies AASB Amendments to Australian Accounting Standards The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. (n) Standards and Interpretations Issued not yet Adopted Certain new accounting standards and interpretations have been published that are not yet mandatory for 30 June 2015 reporting periods and have not been early adopted by the Group. The Group s assessment of the impact of these new standards and interpretations, most relevant to the consolidated entity, are set out below. Reference Summary and Title Financial Instruments - AASB 9 (issued December 2009 and amended December 2010) Accounting for Acquisitions of Interests in Joint Operations Amendment s to IFRS 11(issued May 2014) Amends the requirements for classification and measurement of financial assets. The available-for-sale and held-to-maturity categories of financial assets in AASB 139 have been eliminated. Under AASB 9, there are three categories of financial assets: Amortised cost Fair value through profit or loss Fair value through other comprehensive income. The following requirements have generally been carried forward unchanged from AASB 139 Financial Instruments: Recognition and Measurement into AASB 9: Classification and measurement of financial liabilities; and Derecognition requirements for financial assets and liabilities. However, AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the liability s credit risk are recognised in other comprehensive income. When an entity acquires an interest in a joint operation whose activities meet the definition of a business in IFRS 3 Business Combinations, to the extent of its share of assets, liabilities, revenues and expenses as specified in the contractual arrangement, the entity must apply all of the principles for business combination accounting in IFRS 3, and other IFRSs, to the extent that they do not conflict with IFRS 11 Joint Arrangements. This means that it will expense all acquisition-related costs and recognise its share, according to the contractual arrangements, of: Fair value of identifiable assets and liabilities, unless fair value exceptions included in IFRS 3 or other IFRSs, and Deferred tax assets and liabilities that arise from the initial recognition of an asset or liability as required by IFRS 3 and IAS 12 Income Taxes. Goodwill will then be recognised as the excess consideration over the fair value of net identifiable assets acquired. Application date of standard Periods beginning on or after 1 January 2017 Annual reporting periods commencing on or after 1 January 2016 Impact on Sirocco Energy Ltd financial statements When this standard is first adopted from 1 July 2017, there will be no impact on transactions and balances recognised in the financial statements. There will be no impact on the financial statements when these amendments are first adopted because they apply prospectively to acquisitions of interests in joint operations. 23