ASX APPENDIX 4D AND INTERIM FINANCIAL REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2006.

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1 23 February 2007 Australian Stock Exchange Limited Company Announcements Office Exchange Centre 20 Bridge Street SYDNEY NSW 2001 BY ELECTRONIC LODGEMENT Dear Sirs ASX APPENDIX 4D AND INTERIM FINANCIAL REPORT FOR THE HALF YEAR ENDED 31 DECEMBER Please find attached Imdex Limited s Appendix 4D and Interim Financial Report for the Half Year Ended 31 December Yours faithfully Imdex Limited Paul Evans Company Secretary About Imdex: Imdex is a Perth-based public company listed on the Australian Stock Exchange, whose core business is the supply of drilling products and services in Australia and internationally to the oil and gas, mining, water well, horizontal directional drilling and civil industries For further information, please contact: Bernie Ridgeway, Managing Director; Paul Evans, Company Secretary Imdex Limited ACN ABN Level 1 15 Rheola Street, West Perth Western Australia 6005 PO Box 1325 West Perth WA 6872 Phone Fax imdex@imdex.com.au K:\Board Packs\2007\7 - January 2007\Audit Committee Papers\4b3 Half-Year Financial Report (including 4D).doc Quality Endorsed Company ISO 9002 LIC: QEC 2807 Standards Australia

2 ABN ASX Appendix 4D Half Year Report and Interim Directors Report & Financial Report for the Half Year ended 31 December 2006 The ASX Appendix 4D Half Year Report is provided to ASX in accordance with Listing Rule 4.2A for announcement to the market. Current Reporting Period: 31 December 2006 Previous Corresponding Reporting Period: 31 December 2005 The Financial Report had been subject to audit review and is not subject to dispute or qualification. The auditors review report is included herein. The interim Financial Report has been prepared in accordance with Australian Equivalents to International Financial Reporting Standards ( AIFRS ). The interim Financial Report does not include all the notes of the type normally included in an annual Financial Report and hence should be read in conjunction with the latest annual report of Imdex Limited, being for the financial year ended 30 June In addition, reference should be made to any public announcements made by Imdex Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 (Cth).

3 APPENDIX 4D HALF YEAR REPORT 31 DECEMBER 2006 Imdex Limited Results for Announcement to the Market Consolidated % Change Half Year Ended Half Year Ended Notes up / (down) 31 Dec Dec 05 Revenue from ordinary activities (i) 76% 53,141 30,191 Profit/(loss) from ordinary activities after tax attributable to members (i) 88% 5,986 3,176 Net profit/(loss) for the period attributable to members (i) 88% 5,986 3,176 Interim dividend (cents) (ii) Final dividend (cents) (iii) Net tangible assets per ordinary security (cents) (6.80) (i) The announcement made to ASX on 23 February 2007 by the Chairman of Imdex Limited provides an explanation of the Group's financial results and operating performance for the Half Year ended 31 December (ii) The interim, fully franked dividend will be paid on 26 March 2007 (2005: 30 March 2006). The record date for determining the entitlement of the interim dividend will be 12 March 2007 (2005: 23 March 2006). There are no dividend reinvestment plans in operation in the current or prior period. (iii) The final, fully franked dividend was paid on 13 October The record date for determining the entitlement of the final dividend was 10 October There were no dividend reinvestment plans in operation.

4 DIRECTORS REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2006 In accordance with a resolution of the Directors of Imdex Limited, the Directors submit the balance sheet as at 31 December 2006, the statement of changes in equity, the income statement and the cash flow statement of Imdex Limited (together the Consolidated Entity ) for the Half Year ended on that date ( the period ) and report as follows: Directors The Directors of the Company during or since the end of the Half Year are: Name Period of Directorship Mr Ian Burston, Non Executive Chairman Appointed 6 October 2000 Mr Bernie Ridgeway, Managing Director Appointed 1 May 2000 Mr Magnus Lemmel, Non Executive Director Appointed 19 October 2006 Mr Ross Kelly, Non Executive Director Appointed 14 January 2004 Mr Kevin Dundo, Non Executive Director Appointed 14 January 2004 Mr Ivan Freeman, Non Executive Director Appointed 23 August 2005 Mr Hadi Hammed Al-Merry, Non Executive Director Appointed 12 April 2002; Office vacated 18 August 2006 Review of Operations Half Year Ended Half Year Ended 31 Dec Dec 2005 $ 000 $ 000 Revenue 53,141 30,191 Net Profit after tax 5,986 3,176 Basic earnings per share (cents) The Consolidated Entity s net profit after tax during the Half Year ended 31 December 2006 was $6.0 million. This was 88% higher than the $3.2 million outcome during the comparable period of 2005 and was achieved on operating revenue of $53.1 million ($30.2 million during the comparable period of 2005), a 76% increase. Earnings increased from 2.59 cents per share to 4.26 cents per share over the same period, a rise of 64%. Imdex has achieved strong revenue and profit growth in the First Half. It continues to generate strong operating cash flow on a monthly basis. Further details on the operations and overall results are contained in the Financial Report and the announcement made to ASX on 23 February 2007 by the Chairman of Imdex Limited regarding the Group s financial results and operating performance for the Half Year ended 31 December Page 1 of 26

5 DIRECTORS REPORT FOR THE HALF YEAR ENDED 31 DECEMBER 2006 Interim Dividend The Directors have declared a fully franked interim dividend of 1.0 cent per ordinary share (31 Dec 2005: 1.0 cent), to be paid on 26 March 2007 for which the record date will be 12 March Auditors Independence Declaration Section 307C of the Corporations Act 2001 requires the auditor, Deloitte Touche Tohmatsu, to provide the Directors of Imdex Limited with an Independence Declaration in relation to the review of the Half Year Financial Report. The Independence Declaration is on page 3. Rounding of Amounts The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the Financial Report and Directors Report have been rounded off to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the Directors. Dated at Perth, 22 February 2007 Ian F Burston Chairman Page 2 of 26

6 Deloitte Touche Tohmatsu Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia DX 206 Tel: +61 (0) Fax: +61 (0) The Directors Imdex Limited Level 1, 15 Rheola Street WEST PERTH WA February 2007 Dear Directors AUDITOR S INDEPENDENCE DECLARATION TO In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Imdex Limited. As lead audit partner for the review of the financial statements of Imdex Limited for the half year ended 31 December 2006, I declare that to the best of my knowledge and belief, there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the review; and any applicable code of professional conduct in relation to the review. Yours faithfully DELOITTE TOUCHE TOHMATSU KEITH JONES Partner Liability limited by a scheme approved under Professional Standards Legislation. Page 3 of 26

7 Deloitte Touche Tohmatsu Woodside Plaza Level St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Independent Auditor s Review Report to the members of Imdex Ltd DX 206 Tel: +61 (0) Fax: +61 (0) We have reviewed the accompanying half-year financial report of Imdex Ltd ( Imdex ), which comprises the balance sheet as at 31 December 2006, and the income statement, cash flow statement, statement of changes in equity for the half-year ended on that date, selected explanatory notes and the directors declaration of the consolidated entity, comprising the company and the entities it controlled at the end of the half-year or from time to time during the half-year as set out on pages 6 to 26. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation and fair presentation of the half-year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2006 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Imdex, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Liability limited by a scheme approved under Professional Standards Legislation. Page 4 of 26

8 22 February 2007 Auditor s Independence Declaration In conducting our review, we have complied with the independence requirements of the Corporations Act Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Imdex is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2006 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations DELOITTE TOUCHE TOHMATSU KEITH JONES Partner Chartered Accountants Perth, 22 February 2007 Page 5 of 26

9 DIRECTORS DECLARATION The Directors declare that: (a) in the Directors opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (b) in the Directors opinion, the attached Financial Report and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Consolidated Entity. Signed in accordance with a resolution of the Directors made pursuant to s. 303(5) for the Corporations Act Dated at Perth, 22 February 2007 Ian F Burston Chairman Page 6 of 26

10 CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE HALF YEAR ENDED 31 DECEMBER 2006 Consolidated Half Year Ended Half Year Ended 31 Dec Dec 2005 Notes $ 000 $ 000 Revenue from sale of goods, rendering of services and operating lease 52,524 30,128 rental Other revenue from operations Total revenue 2 53,141 30,191 Other income (8) Share of losses of associates accounted for using the equity method - (35) Raw materials and consumables used 2 (23,832) (14,483) Employee benefit expense (7,676) (5,054) Depreciation and amortisation expense 2 (3,101) (1,043) Finance costs 2 (1,378) (173) Other expenses (8,724) (5,192) Profit before income tax expense 8,625 4,203 Income tax expense relating to ordinary activities (2,639) (1,027) Profit attributable to ordinary equity holders of Imdex Limited 5,986 3,176 Earnings per share: Basic earnings per share (cents) Diluted earnings per share (cents) Dividends per ordinary share: Interim dividend paid (cents) Final dividend declared (cents) The Condensed Consolidated Income Statement should be read in conjunction with the accompanying notes. Page 7 of 26

11 CONDENSED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 Consolidated 31 Dec Jun 2006 Notes $ 000 $ 000 Current Assets Cash and Cash Equivalents 6,737 6,421 Trade and Other Receivables 22,040 18,810 Inventories 12,889 9,707 Other Financial Assets 4 9,534 4,500 Total Current Assets 51,200 39,438 Non Current Assets Other Financial Assets Property, Plant and Equipment 11,706 9,967 Goodwill 5 24,871 1,906 Other Intangible Assets 5 22,267 1,313 Total Non Current Assets 58,844 13,310 Total Assets 110,044 52,748 Current Liabilities Trade and Other Payables 12,977 13,629 Borrowings 6 17,481 1,391 Current Tax Payables 5,134 2,058 Provisions 1, Total Current Liabilities 36,627 17,908 Non Current Liabilities Borrowings 6 29,045 1,503 Deferred Tax Liabilities 6, Provisions Total Non Current Liabilities 35,942 2,187 Total Liabilities 72,569 20,095 Net Assets 37,475 32,653 Equity Issued Capital 7 27,142 26,490 Foreign Currency Translation Reserve (892) (494) Employee Equity-Settled Benefits Reserve Retained Profits 11,127 6,552 Total Equity 37,475 32,653 The Condensed Consolidated Balance Sheet should be read in conjunction with the accompanying notes. Page 8 of 26

12 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 31 DECEMBER 2006 Ordinary Shares Foreign Currency Translation Reserve Employee Equity-Settled Benefits Reserve Retained Earnings / (Accumulated Losses) Total Attributable to Equity Holders of the Entity Notes $'000 $'000 $'000 $'000 $'000 Balance at 1 July , (36) 19,020 Exchange differences on translation of foreign operations after taxation Net income recognised directly in equity Profit for the period ,176 3,176 Total recognised income and expense for the period ,176 3,176 Share based payments Issue of shares as part consideration for the acquisition of Samchem 7 3, ,592 Issue of equity securities for working capital 7 3, ,990 Share issue costs (net of tax) 7 (111) (111) Options expired Balance at 31 December , ,140 30,071 Balance at 1 July ,490 (494) 105 6,552 32,653 Exchange differences on translation of foreign operations after taxation - (398) - - (398) Net income recognised directly in equity - (398) - - (398) Profit for the period ,986 5,986 Total recognised income and expense for the period ,986 5,986 Dividend paid (1,411) (1,411) Share based payments Issue of shares under staff option plan (55) Balance at 31 December ,142 (892) 98 11,127 37,475 The Condensed Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Page 9 of 26

13 CONDENSED CONSOLIDATED CASH FLOW STATEMENT FOR THE HALF YEAR ENDED 31 DECEMBER 2006 Consolidated Half Year Ended Half Year Ended 31 Dec Dec 2005 Notes $ 000 $ 000 Cash Flows From Operating Activities Receipts from customers 61,386 31,723 Payments to suppliers and employees (52,526) (27,506) Interest and other costs of finance paid (564) (65) Income tax paid (864) (892) Net cash provided by Operating Activities 7,432 3,260 Cash Flows From Investing Activities Interest and bill discounts received Payment for property, plant and equipment (1,821) (3,013) Proceeds from sale of property, plant and equipment Payments for intangible assets - (11) Proceeds from receivable - RTE/Imdex Joint Venture Proceeds from sale of Imdex Minerals 10-6,271 Payment for the acquisition of the shares of Reflex 8(a)(iv) (13,001) - Payment for the acquisition of the shares of Chardec 8(b)(iv) (6,293) - Payment for the acquisition of the business of Samchem 8(c)(iv) - (2,940) Amounts advanced to third parties (5,034) (463) Proceeds from amounts repaid by third parties Net cash (used in)/provided by Investing Activities (25,864) 1,182 Cash Flows From Financing Activities Proceeds from issue of equity securities - 3,993 Payment for share issue costs - (160) Cash received on exercise of options Dividend paid (1,411) - Hire purchase and lease payments (891) (678) Proceeds from hire purchase financing 395 1,082 Proceeds from borrowings 20,955 - Repayment of borrowings (900) (3,625) Net cash provided by Financing Activities 18, Net Increase in Cash and Cash Equivalents Held 313 5,054 Cash and Cash Equivalents At The Beginning Of The Financial Year 6,421 (364) Effects of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies 3 4 Cash and Cash Equivalents At The End Of The Period 6,737 4,694 The Condensed Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes. Page 10 of 26

14 1. Summary of Significant Accounting Policies Statement of Compliance The half year report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB134 Interim Financial Reporting. Compliance with AASB134 ensures compliance with International Financial Reporting Standard IAS34 Interim Financial Reporting. The half year financial report does not include notes of the type normally included in an annual financial report and shall be read in conjunction with the most recent annual financial report and any public announcements made by Imdex Limited during the period in accordance with the continuous disclosure requirements of the Corporations Act 2001 (Cth). Basis of Preparation The condensed financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. This financial report comprises the consolidated financial report of Imdex Limited ( Company ) and the entities it controlled at the end of, or during, the period (together, the Consolidated Entity ). The Company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors report and the half year financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. The accounting policies and methods of computation adopted in the preparation of the half year financial report are consistent with those adopted and disclosed in the Company s 2006 annual financial report for the financial year ended 30 June 2006, other than as detailed below. Adoption of new and revised Accounting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board ( AASB ) that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July The adoption of these new and revised Standards and Interpretations has resulted in changes to the Group s accounting policies in the following area: investments at fair value through profit or loss (AASB Amendments to Australian Accounting Standards ) Limitation of ability to designate financial assets and financial liabilities through profit or loss The Australian Accounting Standards Board released AASB Amendments to Australian Accounting Standards in June AASB amends AASB139 Financial Instruments: Recognition and Measurement by limiting the ability of entities to designate any financial asset or financial liability as at fair value through profit or loss. Financial assets that can no longer be designated as at fair value through profit or loss shall be classified into either loans and receivables, held-to-maturity investments or available-for-sale investments, as appropriate, and measured at amortised cost or at fair value with changes in fair value recognised in equity, depending on classification. Financial liabilities that can no longer be designated as at fair value through profit or loss shall be classified as other financial liabilities and measured at amortised cost. The changes introduced by AASB are applied by the Group with effect from the beginning of the comparative reporting period presented in this financial report (i.e. with effect from 1 July 2005). Financial assets and financial liabilities designated by the Group as at fair value through profit or loss continue to meet the revised designation rules and accordingly, the application of these amendments has no impact on the financial statements. Page 11 of 26

15 2. Profit from Operations Consolidated Half Year Ended Half Year Ended 31 Dec Dec 2005 $ 000 $ 000 (a) Revenue from operations Revenue from operations consisted of the following items: Revenue from the sale of goods 36,797 21,078 Revenue from the rendering of services 7,292 6,865 Operating lease rental revenue 8,435 2,185 Interest income Other operating revenue ,141 30,191 (b) Profit before income tax Other than as disclosed on the face of the income statement, profit before income tax has been arrived at after crediting / (charging) the following gains and losses from operations: Gain/(loss) on disposal of property, plant and equipment 57 (8) Foreign exchange gain Profit before income tax has been arrived at after charging the following items of income and expense: Other income Gain/(loss) on disposal of property, plant and equipment 57 (8) Amounts received from Rashid Trading Establishment (8) Depreciation and amortisation of Non Current Assets Depreciation of property, plant and equipment 1,668 1,043 Amortisation of intangible assets 1,433-3,101 1,043 Finance costs Hire purchase liabilities Convertible note Deferred acquistion consideration Commercial bills Bank loan Overdraft 11 - Other 81-1, Page 12 of 26

16 2. Profit from Operations (Continued) Consolidated Half Year Ended Half Year Ended 31 Dec Dec 2005 $ 000 $ 000 Other expenses Commissions Communication Consultancy fees Electricity Foreign exchange (gain)/loss Freight Hire of plant and equipment Insurance Other expenses 2,148 1,438 Legal and professional fees Research and development Rent and premises costs Repairs and maintenance Travel and accommodation 1, Vehicle expenses ,724 5,192 Employee benefits expense Defined contribution superannuation costs Post-employment benefits other than superannuation Equity-settled Share Based Payments Employee benefit expense 48 9 Consultancy expenses Cost of sales 23,832 14,483 Bad debts written off - trade debtors Operating lease rental expense (minimum lease payments) 1, Page 13 of 26

17 3. Dividends Notes Cents per share Half Year Ended Half Year Ended 31 Dec Dec 2005 Total Cents per $ 000 share Total $ 000 Recognised amounts Fully paid ordinary shares - final dividend franked to 30% (i) , Unrecognised amounts Fully paid ordinary shares - interim dividend franked to 30% (ii) , ,394 (i) The final, fully franked dividend was paid on 13 October The record date for determining the entitlement to the interim dividend was 10 October There were no dividend reinvestment plans in operation. (ii) The interim, fully franked dividend was declared on 22 February 2007 with an entitlement date of 12 March The financial effect of the dividend has not been recognised in the financial statements at 31 December Adjusted franking account balance Impact on franking account of dividends not recognised Consolidated Half Year Ended Half Year Ended 31 Dec 2006 $ Dec 2005 $ 000 5,906 5,376 (698) (598) 4. Other Financial Assets Consolidated 31 Dec Jun 2006 Notes $ 000 $ 000 Other Financial Assets At fair value Held for trading: Shares (i) 4,500 4,500 At amortised cost Loan to Sino Gas & Energy Ltd (ii) 5,034-9,534 4,500 (i) The Consolidated Entity holds an investment of 15 million shares (30 June 2006: 15 million) in Sino Gas & Energy Limited (SGE), an energy company operating in China. There has been no movement in the fair value in the current period. These shares are classified as held for trading as it is the intention of the Consolidated Entity to dispose of this investment as soon as it is practicable. The fair value of this non-listed investment has been determined using the Directors' best estimate. The Directors have estimated the fair market value by having regard to share placements previously made by SGE, the results of exploration activity to date, discussions with potential investors and having regard to the fact that SGE is an unlisted entity and the shares held in SGE can not be readily traded on any share market. (ii) During the current period the Consolidated Entity advanced $5.0 million to SGE as a short term facility pending the finalisation of their capital raising initiatives. Interest of $0.1 million was charged on the balance. The funds advanced are secured by a fixed and floating charge over all the assets held by SGE. The loan bears interest at 13.5% per annum and is repayable in the March 2007 quarter. Page 14 of 26

18 5. Goodwill and Other Intangible Assets (a) Goodwill Consolidated Half Year Ended Year Ended 31 Dec Jun 2006 Notes $ 000 $ 000 Gross Carrying Amount Balance at beginning of the period 1,906 - Recognised on acquisition of Samchem Drilling Fluids & Chemicals (Pty) Ltd 9(c) - 2,492 Recognised on acquisition of Reflex Holding AB 9(a) 14,781 - Recognised on acquisition of Chardec Technology Ltd 9(b) 8,260 - Effect of foreign exchange movements (76) (586) Balance at end of the period 24,871 1,906 Accumulated Impairment Losses Balance at beginning of the period - - Impairment losses for the period - - Balance at end of the period - - Net Book Value At the beginning of the period 1,906 - At the end of the period 24,871 1,906 (b) Other Intangible Assets Intellectual property Balance at beginning of the period 1,313 - Recognised on acquisition of Samchem Drilling Fluids & Chemicals (Pty) Ltd 9(c) - 1,437 Amortisation for the period - - Effect of foreign exchange movements (51) (124) Balance at end of the period 1,262 1,313 Technology based intangibles Balance at beginning of the period - - Recognised on acquisition of Chardec Technology Ltd 9(b) 10,265 - Amortisation for the period (611) - Balance at end of the period 9,654 - Contract based intangibles Balance at beginning of the period - - Recognised on acquisition of Chardec Technology Ltd 9(b) Amortisation for the period (35) - Balance at end of the period Customer based intangibles Balance at beginning of the period - - Recognised on acquisition of Reflex Holding AB 9(a) 9,781 - Amortisation for the period (679) - Balance at end of the period 9,102 - Page 15 of 26

19 5. Goodwill and Other Intangible Assets (Continued) (b) Other Intangible Assets (continued) Consolidated Half Year Ended Year Ended 31 Dec Jun 2006 Notes $ 000 $ 000 Trade name based intangibles Balance at beginning of the period - - Recognised on acquisition of Reflex Holding AB 9(a) 1,554 - Amortisation for the period (108) - Balance at end of the period 1,446 - Capitalised Development Costs Balance at beginning of the period - - Capitalised during the period Balance at end of the period Accumulated Impairment Losses Balance at beginning of the period - - Impairment losses for the period - - Balance at end of the period - - Net Book Value At the beginning of the period 1,313 - At the end of the period 22,267 1,313 Intangible assets acquired in a business combination All intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their value can be measured reliably. Identifiable intangible assets comprise intellectual property, technology, contracts, customers and trade marks. These are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. Estimated useful lives are as follows: Intellectual property Technology Contracts Customers Trade Marks indefinite 7 years 5 years 6 years 6 years Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: o o o o o o the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalised development costs are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful life of 5 years, commencing on commercialisation of the underlying projects. Page 16 of 26

20 6. Borrowings Consolidated 31 Dec Jun 2006 Notes $ 000 $ 000 Current borrowings Secured At amortised cost Hire purchase liabilities (i) 1,461 1,391 Bank loan (ii) Commercial bills (iii) 6,869 - Unsecured At amortised cost Deferred acquisition payments (iv) 7,006 - Other (v) 1,379-17,481 1,391 Non-current borrowings Secured At amortised cost Hire purchase liabilities (i) 1,058 1,503 Bank loan (ii) 9,442 - Convertible note (vi) 10,400 - Commercial bills (iii) 3,769 - Unsecured At amortised cost Deferred acquisition payments (iv) 4,376-29,045 1,503 (i) Hire purchase liabilities are secured over the assets to which they relate, the current market value of which exceeds the value of the hire purchase liability. The Consolidated Entity does not hold title to the equipment under hire purchase pledged as security. (ii) Comprises a loan of SEK 55 million from Danske Bank. This loan bears interest at the 7 day Stockholm Interbank Offered Rate ('STIBOR') plus 0.3% per annum and is repayable in quarterly instalments starting on 1 December 2007 with the final instalment due on 1 September The interest rate applicable at the time of the most recent interest payment on 30 November 2006 was 3.6% per annum. (iii) Commercial bills have been raised in Australia and Sweden and bear interest at a weighted average rate of 8.41% per annum. A $3.0 million bill is repayable on 31 March 2007 with the balance of bills being repayable in quarterly instalments of approximately $1.0 million each. (iv) Deferred acquisition payments are those portions of the purchase price of Reflex and Chardec that are due in future periods. These deferred amounts have been discounted to their present values using an interest rate of 8% per annum. For further details refer to notes 8(a) and 8(b). (v) Other liabilities are due to the vendors of Reflex for profits earned by them prior to the acquisition. (vi) The convertible note carries the right to convert into 20.8 million fully paid ordinary Imdex shares at any time up to 1 August Interest at 8% per annum payable annually in arrears on 1 August each year. Conversion will be automatically triggered upon the Imdex share price reaching $1 per share. Any shares issued under this note prior to 1 August 2008 will be held in voluntary escrow until 1 August Refer note 8 for details of this Note converting into equity in the post balance sheet period. Page 17 of 26

21 7. Issued Capital Ordinary shares Consolidated 31 Dec Dec 2005 Number $'000 Number $'000 Balance at beginning of the Financial Year 139,466,037 26, ,055,368 19,008 Issue of shares as part consideration for the acquisition of Samchem ,059,002 3,592 Issue of equity securities as part of working capital raising ,300,000 3,990 Share issue costs (net of tax) (111) Issue of shares under staff option plan 2,608, ,667 3 Closing balance at end of the Half Year 142,074,337 27, ,431,037 26,482 Issuances of other equity securities In the current half year period, at the Annual General Meeting on 19 October 2006 the shareholders approved the issue of 1,000,000 options to the Chairman, Mr Ian Burston. These options have an exercise price of 75 cents each and are exercisable at any point from 2 years after issue until their expiry on 18 October The fair value of these options at grant date was $41,120. None of these options have been exercised. In the prior half year period, at the Annual General Meeting on 27 October 2005 the shareholders approved the issue of 2,000,000 options to the Managing Director, Mr Bernie Ridgeway. These options have an exercise price of 30 cents each and are exercisable at any point from 2 years after issue until their expiry on 27 October The fair value of these options at grant date was $25,760. None of these options have been exercised. The weighted average fair value of the share options granted during the half year is $0.04 (half year 2005: $0.01). Options were priced using a Black-Scholes option pricing model. Where relevant, the expected life used in the model has been adjusted based on management s best estimate for the effects of non-transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility for the preceding 3 months. Inputs into the model Grant date share price ($) Exercise price ($) Expected volatility Option life (years) Lack of marketability discount Risk-free interest rate Dividend yield Half Year Ended 31 Dec 06 Chairmans Options % % 5.75% 2.67% Half Year Ended 31 Dec 05 Managing Directors Options % % 5.50% 0.00% Page 18 of 26

22 8. Acquisitions (a) Acquisition of entity - Reflex Holdings AB With effect from 1 August 2006, Imdex Sweden AB, a newly incorporated, wholly owned subsidiary of Imdex Limited, acquired 100% of the issued share capital of Reflex Holding AB, a company incorporated in Sweden. Reflex Holding AB is the parent of a group of companies operating in South Africa, Europe, North and South America under the "Reflex Instrument" trading name. Reflex are leading developers and suppliers of borehole survey equipment to the exploration, mining and construction industries globally. At the General Meeting of Shareholders held on 8 August 2006, the shareholders of Imdex Limited approved this acquisition and the associated issue of the convertible note. The provisional numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Fair value Fair value on adjustments acquisition Notes $ 000 $ 000 $ 000 Trade and other receivables 3,818 (14) 3,804 Inventory 1,511-1,511 Deferred tax assets / (liabilities) 405 (3,401) (2,996) Property, plant and equipment 1,566-1,566 Goodwill 670 (670) - Customer based intangibles (i) - 9,781 9,781 Trade name based intangibles (ii) - 1,554 1,554 Other non-current assets 22 (19) 3 Trade and other payables (4,966) 487 (4,479) Fair value of net identifiable assets acquired 3,026 7,718 10,744 Goodwill on acquisition (iii) 14,781 Total purchase consideration 25,525 Total purchase consideration comprises Consideration in cash and cash equivalents 2,884 Less cash and cash equivalents acquired (111) Convertible note raised (v) 10,400 Bank loan raised (vi) 9,955 Deferred vendor finance (vii) 2,000 Direct costs relating to the acquisition ,525 Operating results of the Reflex consolidated group included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 August 2006 to 31 December 2006: Results since acquisition $ 000 Revenue 6,870 Total expenses (5,422) Profit for the period (viii) 1,448 Page 19 of 26

23 8. Acquisitions (Continued) (a) Acquisition of entity - Reflex Holdings AB (continued) (i) Customer based intangible assets of $9.8 million comprise customer lists and relationships in existance at the time of acquisition. Deferred tax of $2.9 million was raised on this balance. These intangibles have been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Customer based intangible assets are being amortised over their estimated useful life of 6 years. (ii) Trade name based intangible assets of $1.6 million represent the value to the Consolidated Entity of the Reflex trading name in the markets in which they operate. Deferred tax of $0.5 million was raised on this balance. These intangibles have been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Trade name based intangible assets are being amortised over their estimated useful life of 6 years. (iii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Reflex. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Reflex. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (iv) The Consolidated Cash Flow Statement for the half year ended 31 December 2006 records the payment for the acquisition of Reflex as $13.0 million being the total consideration of $25.5 million above less $2.0 million of deferred consideration, $10.4 million convertible note and $0.1 million of costs paid for in prior periods. (v) At the General Meeting of Shareholders held on 8 August 2006 the shareholders approved the issue of a convertible note with a face value of $10.4 million. This note carries interest at 8% per annum payable annually in arrears and it is repayable on 1 August The convertible note carries the right to convert into 20.8 million Imdex shares at 50 cents per share at any time until 1 August Under the terms of the agreement, conversion will be triggered automatically by the Imdex share price reaching $1 per share. Any Imdex shares issued under this note prior to 1 August 2008 will be held in voluantary escrow until 1 August Refer to Subsequent Events Note 12 for details of this Note converting into equity in the post balance sheet period. (vi) Comprises a loan of SEK 55 million from Danske Bank. This loan bears interest at the 7 day Stockholm Interbank Offered Rate ('STIBOR') plus 0.3% per annum and is repayable in quarterly instalments starting on 1 December 2007 with the final instalment due on 1 September The interest rate applicable at the time of the most recent interest payment on 30 November 2006 was 3.6% per annum. (vii) The final purchase price instalment of $2 million is due on 31 January Refer to Subsequent Events Note 12. (viii) Had the acquisition of Reflex been effected on 1 July 2006, the beginning of the half year, the Reflex financial results included in the Imdex consolidated results would have been revenue of approximately $8.2 million and profit of approximately $1.7 million. The results of Reflex are included in the Drilling Products & Services segment. The directors of the Group consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. Page 20 of 26

24 8. Acquisitions (Continued) (b) Acquisition of entity - Chardec Technology Ltd (previously Chardec Consultants Ltd) With effect from 1 August 2006, Imdex International Pty Ltd, a newly incorporated, wholly owned subsidiary of Imdex Limited acquired 100% of the issued share capital of Chardec Technology Ltd, a company incorporated in the United Kingdom. Chardec is a leading developer and supplier of borehole survey equipment to the exploration, mining and construction industries globally. At the General Meeting of Shareholders held on 8 August 2006, the shareholders of Imdex Limited approved this acquisition. The provisional numbers presented below have been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Fair value Fair value on adjustments acquisition Notes $ 000 $ 000 $ 000 Trade and other receivables 2,111-2,111 Inventory Deferred tax assets / (liabilities) 3 (3,207) (3,204) Technology based intangibles (i) - 10,265 10,265 Contract based intangibles (ii) Trade and other payables (2,456) - (2,456) Fair value of net identifiable assets acquired (69) 7,483 7,414 Goodwill on acquisition (iii) 8,260 Total purchase consideration 15,674 Total purchase consideration comprises Consideration in cash and cash equivalents 6,203 Less cash and cash equivalents acquired (175) Direct costs relating to the acquisition 265 Deferred vendor finance (v) 9,381 15,674 Operating results of Chardec included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 August 2006 to 31 December 2006: Results since acquisition $ 000 Revenue from the sale of goods 2,384 Total expenses (1,356) Profit for the period (vi) 1,028 Page 21 of 26

25 8. Acquisitions (Continued) (b) Acquisition of entity - Chardec Technology Ltd (previously Chardec Consultants Ltd) (i) Technology based intangible assets of $10.3 million comprise intellectual property and technical expertise contained within the business of Chardec at the time of acquisition. Deferred tax of $3.1 million was raised on this balance. These intangibles have been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Technology based intangible assets are being amortised over their estimated useful life of 7 years. (ii) Contract based intangible assets of $0.4 million represent the value to the Consolidated Entity of the 5 year employment contract signed with Richard Parfitt, the vendor and now general manager of Chardec. Deferred tax of $0.1 million was raised on this balance. This contract has been valued by independent valuation professionals using the multi period excess earnings model. Data inputs into the model were derived from internal management budgets. Contract based intangible assets are being amortised over the term of the contract which is 5 years. (iii) Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire Chardec. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Chardec. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured. There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. (iv) The Consolidated Cash Flow Statement for the half year ended 31 December 2006 records the payment for the acquisition of Chardec as $6.3 million being the total consideration of $15.7 million above less deferred consideration of $9.4 million. (v) Further purchase price instalments are due as follows: GBP 2.18 million on 31 July 2007; GBP 1.09 million on 31 July 2008 and GBP million on 31 July In addition a revenue based earn-out may also become payable. The additional revenue based earn-out payments have been estimated by management as totalling nil over the three years. All expected future payments have been discounted to their present values using a discount rate of 8% per annum. (vi) Had the acquisition of Chardec been effected on 1 July 2006, the beginning of the half year, the Chardec financial results included in the Imdex consolidated results would have been revenue of approximately $2.9 million and profit of approximately $1.2 million. The results of Chardec are included in the Drilling Products & Services segment. The directors of the Group consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. Page 22 of 26

26 8. Acquisitions (Continued) (c) Acquisition of business - Samchem Drilling Fluids and Chemicals (Pty) Ltd With effect from 1 August 2005, Samchem Drilling Fluids & Chemicals (Pty) Ltd ("Samchem"), Imdex s 100% owned South African subsidiary, acquired the business of SA Mud Services (Pty) Ltd and a range of clay and cement chemical additive inventory items. SA Mud Services (Pty) Ltd was the largest supplier of drilling fluids and chemicals to the mining industry in Africa. Samchem operates a manufacturing facility in Johannesburg, South Africa from which it manufactures and markets a wide range of chemicals primarily for the drilling industry. At the General Meeting held on 5 August 2005, the shareholders of Imdex Limited approved this acquisition and the associated share issue. This transaction has been accounted for using the acquisition method of accounting. Details of the assets, liabilities and goodwill are as follows: Book value Fair value Fair value on adjustments acquisition Notes $ 000 $ 000 $ 000 Trade and other receivables 1,735-1,735 Inventory 1,507-1,507 Property, plant and equipment Intellectual property associated with clay chemical and mud brick manufacture (i) - 1,437 1,437 Trade and other payables (523) - (523) Provision for employee entitlements (44) - (44) Deferred tax liabilities - (417) (417) Fair value of net identifiable assets acquired 3,048 1,063 4,111 Goodwill on acquisition (i) 2,492 Total purchase consideration 6,603 Total purchase consideration comprises Consideration in cash and cash equivalents (iv) 2,901 Less cash and cash equivalents acquired - Direct costs relating to the acquisition (iv) 110 Shares issued: 16,059,002 ordinary shares of Imdex Limited (ii) 3,592 6,603 Operating results of the business of Samchem included in the Consolidated Income Statement of Imdex Limited from acquisition on 1 August 2005 to 31 December 2005: Results since acquisition $ 000 Revenue from the sale of goods 4,493 Total expenses (4,253) Profit for the period (iii) 240 (i) Imdex acquired the business of Samchem, and paid the premium (goodwill) over identifiable assets, due to the fact that Samchem is expected to complement the business of the Australian Mud Company (AMC) (Imdex's wholly owned drilling fluids subsidiary). There were no acquisition provisions created, nor were there any contingent liabilities assumed in the acquisition. The balances of goodwill and intellectual property, noted above, do not tie to the Balance Sheet. This is due to the fact that these balances are translated at the exchange rates prevailing at the reporting date, rather than the acquisition date as above. In determining the value attributed to identifiable intangibles and goodwill, the following additional possible intangible assets were identified: customer relationships, brands and unpatented technology. In all cases these intangibles did not meet the identifiability criteria and therefore were not recognised. The intellectual property associated with the clay chemical and mud brick manufacture has been assessed as having an indefinite useful life and therefore has not been amortised. This estimated useful life of these assets will be reviewed annually. Page 23 of 26

27 8. Acquisitions (Continued) (c) Acquisition of business - Samchem Drilling Fluids and Chemicals (Pty) Ltd (continued) (ii) The fair value of the ordinary shares issued were cents each which was based on the weighted average share price of Imdex's ordinary shares in the 10 trading days prior to the completion of the acquisition. (iii) Had the acquisition of Samchem been effected on 1 July 2005, the beginning of the prior half year, the revenue of Samchem included in the consolidated Imdex results would have been approximately $5.4 million and the profit would have been approximately $0.3 million. The results of Samchem are included in the Drilling Fluids & Chemicals segment. The directors of the Group consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group on an annualised basis and to provide a reference point for comparison in future periods. (iv) The Consolidated Cash Flow Statement for the half year ended 31 December 2005 records the payment for the acquisition of the business of Samchem as $2.9 million. $0.1 million of direct cash costs were incurred in the full year ending 30 June 2005 and are shown in the Consolidated Statement of Cash Flows, in that year, in Investing Acitivities. 9. Segment Information Segment revenues and results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Primary Segments - Business The Consolidated Entity comprises the following main business segments, based on the Consolidated Entity's management reporting system: Drilling fluids and chemicals: Manufacture and supply of drilling fluids and chemicals to the mining, mineral exploration, oil and gas and water well drilling industries; and Drilling products and services: Down hole surveying, geophysical logging and directional drilling; down hole motors, cameras and drilling products. (a) Segment Revenues External revenue Inter-segment Other Total Half Year 31 Dec 06 Half Year 31 Dec 05 Half Year 31 Dec 06 Half Year 31 Dec 05 Half Year 31 Dec 06 Half Year 31 Dec 05 Half Year 31 Dec 06 Half Year 31 Dec 05 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Drilling fluids and chemicals 29,073 18, ,114 18,351 Drilling products and services 23,451 11, ,457 11,625 Total of all segments 52,524 29, ,571 29,976 Eliminations - - Unallocated Total revenue - continuing operations 53,141 30,191 (b) Segment Results Drilling fluids and chemicals 4,497 2,432 Drilling products and services 6,072 2,514 Total of all segments 10,569 4,946 Eliminations - - Unallocated (1,944) (743) Profit before income tax expense 8,625 4,203 Income tax expense (2,639) (1,027) Profit for the year 5,986 3,176 Page 24 of 26