ANNUAL REPORT 2010 FYE 31/03/2010

Transcription

1 RESCUE ANNUAL REPORT 2010 FYE 31/03/2010

2 2 SEALEGS IS T FOR WATERF David McKee Wright CEO DEAR SHAREHOLDERS Sealegs announced an operating profit of $642,000 for the year ended 31 March 2010, representing a 174% improvement when compared to the $869,000 loss in the previous year. It is a financial result we can all be happy with and particularly when considering the difficult global economic conditions the company had to work in and the severe downturn in the worldwide marine market. This result was the outcome of: 1. A focus on growing rescue and military sales 2. Reduction in expenses and break even point 3. Improved per unit sale price

3 Revenue for the year of $11.4m boats shipped HE PERFECT BOAT RONT PROPERTIES 76% of boats exported Average unit price per boat increased by 3% Net Operating Profit of $642K for the year Cash reserves of $2.7m at 31 March 2010 Net Assets $5.6m Operating & Cash expenses Reduced by 50% Rescue and Military Sales During the year, Sealegs delivered the first fleet of amphibious boats to the Malaysian Fire Department. The order came after two years of testing and analysis and resulted in eight Sealegs amphibious marine craft being purchased for national flood rescue operations. This positions the company very well for future orders from other government departments within Malaysia and South East Asia. In an effort to maximise the exposure of this sale, the company embarked on a circumnavigation of Malaysia with the Malaysian defence force. The trip was undertaken in a custom built military class 7.1 metre Sealegs amphibious RIB that was equipped and tailored to suit the specifications of the Malaysian defence force. The amphibious boat completed a 1620 kilometre circumnavigation of the Malaysian Peninsula in a record time of 31 hours and 57 minutes. The trip concluded at the Langkawi International Maritime & Aerospace Show where Sealegs was recommended for purchase evaluation by Datuk Seri Dr. Ahmad Zahid Hamidi, the Malaysian Defence Minister. Other government evaluations were successfully initiated during the year, including Sealegs amphibious boats purchased by the Indian Police Department for counter terrorism. In addition to this the Thai Navy currently have two Sealegs amphibious boats under evaluation.

4 4 Reduced Expenses Operating and cash expenses were reduced 50% or $3.4 million from $6.7 million to $3.4 million and non cash expenses were down 94% from $3.6 million to $235,000. The operation expense reduction was the result of reduced spending on staff, marketing, research and development. Whilst the cost reduction program achieved the desired result, international expansion and product development were cut back and put on hold. Strategic production efficiency projects were also deferred in order to minimise spending. The non cash expense reduction was a result of last year s abnormal option expense. The company expensed $235,000 this year, compared to last year where a non-cash accounting expense of $3.1 million was incurred as a result of the cancellation of the original employee option scheme. The cumulative effect of both cash and non-cash reductions saw expenses reduced by $6.7 million and a positive net profit result of $407,000 compared to a prior year loss of $5.8 million. Sales and Margin Even though the year suffered from the global financial crisis, total revenue for the period of $11.4 million was comparable to the $11.6 million recorded the previous year. Comparable annual sales resulted in a considerably better profit in the most part due to an improvement in the average unit sale price. The average unit selling price of the boats improved 3% as a result of government sales and new options targeted at the commercial sector. Greater in-house manufacturing capability and consolidation of resources also contributed to the result and, with investment in the short term for future benefit, there are many more initiatives the company can employ to generate sales and reduce costs. Strategy 2010 marks the end of a significant strategic milestone. Looking back to 2003 when the product was merely a proof of concept, Sealegs has achieved many things in the last seven years. The concept was backed by some enthusiastic shareholders and management, but the Geographical Analysis of 2010 Sales New Zealand Alaska Australia Canada Denmark France Greece India Malaysia Norfolk Island Panama Sweden Thailand UK USA

5 fact is the company did not know if it could produce production quantities of amphibious boats, did not know whether there was a market for amphibious boating and whilst it was hopeful it would one day make a profit there were only best guess projections and no guarantees. Sealegs now finds itself approaching the delivery of its 500th boat and a customer base stretching around the world to 25 countries. This proves without a doubt the company has pioneered and begun to establish a new sector in the marine market for amphibious boating. The fact that the boats are working in hundreds of different environments, with happy customers, proves the product, as do the awards and many product editorials from all around the world. The fact that the company holds many issued and pending patents for the design of amphibious boats also means Sealegs has a great future opportunity. In 2010 the company declared its maiden profit which proved the company had a business model that worked. Fundamentally, over the last few years Sealegs has pioneered a market for amphibious boating whilst developing a unique concept into a product, and a start-up into a profitable business. This is a major achievement in itself; however the mission is far from over. The vision of Sealegs management is to build the company into a global brand. Whilst we have reached 25 countries, sales have barely scraped the surface of the potential of many places, in particular North America and Europe. Establishing a global brand requires an intellectual view to the timing of investment. Given that the initial high start-up risks around concept, product, market potential and profitability have been largely addressed, the management of Sealegs see now as the time to invest in global expansion. SEALEGS CENTRE CONSOLE 5 A SEALEGS CUSTOMERS BOAT IN SWEDEN

6 6 MALAYSIAN CIRCUMNAVIGATION By LIMA is an event held every second year in Malaysia with a series of exhibitions that has proven to be an excellent platform for manufacturers in the aerospace and marine sectors to display and promote their products. The target audience are senior Government officials and the leaders of industry from the Asia Pacific region. The timing of the operation was particularly pleasing as the Malaysian Fire and Rescue department has just taken delivery of its first amphibious rescue fleet and the fact one government department had already purchased our technology made the sales process for other departments easier. David McKee Wright Our Sealegs Dealer in Malaysia, Ibrahim Ali Wahab, created a plan to promote Sealegs to government departments in Malaysia that involved the first circumnavigation of Malaysia by an amphibious marine craft. The military code designated for the late November operation was Sealegs Le Tour 1 Malaysia 2009 and the purpose of the trip is to assess the capability and functionality of the Sealegs amphibious craft prior to the Langkawi International Maritime & Aerospace show Ahipara Cape Reinga

7 7 On the 09 December 2009 the following press release was made: Sealegs Completes Circumnavigation of Malaysia One of New Zealand s unique Sealegs (NZX:SLG) amphibious boats has completed a 1620 kilometre circumnavigation of the Malaysian Peninsula in a record time of 31 hours and 57 minutes. The circumnavigation had the support of Datuk Seri Dr. Ahmad Zahid Hamidi, the Defence Minister of Malaysia, who approved his elite military force, including Commandos, to trial the boat throughout the circumnavigation with the objective of getting a product report on its completion. The report is to assess the capability and functionality of Sealegs amphibious craft for military purposes and was timed in conjunction with the Langkawi International Maritime & Aerospace Show The trip was undertaken in a specially built military class 7.1 metre Sealegs amphibious RIB that was equipped and customised to suit the specifications of the Malaysian defence force. Sealegs International Ltd Chief Executive David McKee Wright was part of the team that completed the historic journey which began from Pengkalan in North Eastern Malaysia and finished at the Langkawi Yacht Club, on the North West Coast. He said I am very proud of the boat s performance, particularly in light of the fact the vessel encountered large seas and was carrying up to ten soldiers at a time. He added that he was looking forward to a positive report. The Malaysian Defence Minister Datuk Seri Dr. Ahmad Zahid Hamidi said he was equally impressed with the boat. He said the Defence Ministry would assess the boat s performance and make its recommendation to him. I ll then need to talk to the Finance Ministry about procurement. The event was a huge success and has positioned Sealegs in the minds of many decision makers. Government purchasing cycles are long and process orientated but the positive publicity surrounding the performance of the boat makes our job easier. Given the success of this event we plan to incorporate similar trips into our international public relations plan.

8 8 LETTER FROM THE CHAIRMAN I have particular pleasure in commenting on the year s result. We have reported our maiden profit and this comes at the end of a period marked by a serious global recession which has had a major effect on discretionary high value spending. Your board embarked on a major review of strategy when the recession hit and we reduced overhead spending in order to weather the storm. As a result of the lower cost levels and the excellent work of the executive in achieving sales, a profit was achieved. This is a major step in proving that the Sealegs concept works not just as a good idea but as a profitable business model. Forward Strategy While the cost cutting gave rise to good financial results, it was not good for a long-term growth strategy. We cut back on promotional activities and product development. The board believes that we must now change the strategy to one of international growth and major investment. This investment may include stocking boats in major markets around the world, development of new products, promotional expenditure in new markets and overseas assembly initiatives. While such a strategy may not produce improved financial results in the short term, it should produce a major uplift in shareholder value over the longer term. Funding To achieve this strategic objective we need new growth capital and we are delighted to have attracted the attention of Avenport Investment Corporation. The board made an initial share placement to Avenport of 15% and they have subsequently purchased additional shares to take them to a 19.9% holding. As part of the resolutions to be put to shareholders at the annual meeting there will be a proposal to make a further issue to Avenport. Besides this funding giving Sealegs the ability to move to a higher business model platform, the international connections of Avenport will assist us in sales promotion in many overseas markets. Appreciation Despite the pleasing financial result, the last year has been a difficult one for the executive and all the staff. Besides the cost containment projects, there has been consolidation of premises at the same time as production and deliveries were at a peak. Our people have responded well to all the challenges during the year. Your CEO has again been a super-salesman overseas as well as leading the company in NZ and the board express on behalf of the shareholders our appreciation. We congratulate him on the achievements to date. I thank the board for their excellent input and support. All our success is due to all our people; to them I convey sincere appreciation. James Hill Chairman

9 AUDITORS REPORT 9 Auditor's Report To the Shareholders of Sealegs Corporation Limited Report on the Financial Statements We have audited the financial statements of Sealegs Corporation Limited ( the company ) and its subsidiaries (together the group ) on pages 10 to 31, which comprise the statement of financial position of Sealegs Corporation Limited and the group as at 31 March 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended of the company and group, and a summary of significant accounting policies and other explanatory information. This report is made solely to the company's shareholders, as a body, in accordance with section 205(1) of the Companies Act Our audit has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Directors Responsibility for the Financial Statements The directors are responsible for the preparation of the financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). These auditing standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected, depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we have considered the internal control relevant to the company s preparation of the financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. Ernst & Young provides taxation advice to the company and group. We have no other relationship, or interest in Sealegs Corporation Limited. Partners and employees of our firm may deal with the company and group on normal terms within the ordinary course of trading activities of the business of the company and group. Opinion In our opinion, the financial statements on pages 10 to 31: comply with generally accepted accounting practice in New Zealand; comply with International Financial Reporting Standards; and give a true and fair view of the financial position of Sealegs Corporation Limited and the group as at 31 March 2010 and the financial performance and cash flows of the company and group for the year then ended. Report on Other Legal and Regulatory Requirements We have obtained all the information and explanations we have required. In our opinion proper accounting records have been kept by Sealegs Corporation Limited as far as appears from our examination of those records. Auckland

10 10 Statement of Comprehensive Income For the year ended 31 March 2010 Note Group Parent Group Parent Continuing operations Sales of goods 11,187,226-11,424,668 - Rendering of services 187, ,749 - Revenue 11,374,906-11,552,417 - Cost of sales (7,534,731) - (7,317,194) - Gross profit 3,840,175-4,235,223 - Other income 2 166, ,989 3,917 Administrative expenses 3, 4 (1,774,663) (273,581) (3,309,154) (406,860) Distribution expenses (166,008) - (187,410) - Marketing expenses (578,214) - (1,017,840) (5,426) Occupancy expenses 3 (500,520) - (574,496) (184) Research expenses (22,593) Other expenses (327,581) - (269,431) - 637,454 (273,581) (840,119) (408,553) Finance income 5 90,021 3, ,016 49,834 Finance expense 5 (85,912) (1,683) (147,781) (1,564) Net finance benefit / (cost) 4,109 1,805 (28,765) 48,270 Profit / (loss) before share options & impairment of assets 641,563 (271,776) (868,884) (360,283) Share options (non-cash) 23 (234,845) - (3,147,016) - Impairment of Development Costs (1,243,349) - Impairment of Goodwill (500,820) - Impairment of Intercompany Loan 24 (b) (9,024,435) Profit / (loss) for the period before income tax 406,718 (271,776) (5,760,069) (9,384,718) Tax expense Profit / (loss) for the period after income tax 406,718 (271,776) (5,760,069) (9,384,718) Other comprehensive income Comprehensive income for the period attributable to Company shareholders 406,718 (271,776) (5,760,069) (9,384,718) Earnings per share from continuing operations Note Group Group Cents Cents Basic earnings / (deficit) per share (7.62) Diluted earnings / (deficit) per share (7.62) The accompanying notes form part of these financial statements.

11 Balance Sheet As at 31 March Note Group Parent Group Parent ASSETS Current assets Cash and bank balances 19 2,725, ,829 3,250, ,717 Trade receivables and other receivables 13 1,136,801 4,944, ,440 4,984,994 Inventories 14 2,605,527-2,596,604 - Prepayments 28,064 3,125 42,395 3,750 Tax receivable ,026 3,917 Total current assets 6,496,348 5,059,880 6,225,537 5,103,378 Non-current assets Property, plant and equipment 16 1,204,352-1,144,766 - Patents and trademarks , ,855 - Capitalised development costs 18 70, Total non-current assets 1,456,875-1,325,621 - TOTAL ASSETS 7,953,223 5,059,880 7,551,158 5,103,378 LIABILITIES Current liabilities Trade and other payables 11 1,679,276 77, ,892 83,921 Warranty provision , ,000 - Employee entitlements 30,820 3,437 52,689 3,437 Deposits on orders 204, ,157 - Deferred revenue ,436 - Bank loan ,000 - Finance lease liabilities , ,544 - Total current liabilities 2,158,745 80,791 2,231,718 87,358 Non-current liabilities Finance lease liabilities , ,416 - Total non-current liabilities 204, ,416 - TOTAL LIABILITIES 2,363,430 80,791 2,535,134 87,358 NET ASSETS 5,589,793 4,979,089 5,016,024 5,016,020 EQUITY Equity attributable to parent company shareholders Contributed equity 10 46,285,550 46,285,550 46,285,550 46,285,550 Employee share option reserve 234, , Retained earnings (40,930,602) (41,541,306) (41,269,526) (41,269,530) TOTAL EQUITY 5,589,793 4,979,089 5,016,024 5,016,020 For and on behalf of the board who authorise the issue of these financial statements on 15 June 2010: James Hill Director David McKee Wright Director The accompanying notes form part of these financial statements.

12 12 Statement of Changes in Equity For the year ended 31 March 2010 GROUP 2010 Ordinary Shares Employee Share Retained Earnings Total Option Reserve At 1 April ,285,550 - (41,269,526) 5,016,024 Profit / (loss) for the period , ,718 Total comprehensive income for the period attributable to equity holders of the parent , ,718 Equity Transactions: Reclassification of director s current account 24(a) - - (67,794) (67,794) Share based payment for the year - 234, ,845 As at 31 March ,285, ,845 (40,930,602) 5,589,793 GROUP 2009 Ordinary Shares Employee Share Retained Earnings Total Option Reserve At 1 April ,885,981 1,462,785 (40,119,258) 4,229,508 Profit / (loss) for the period - - (5,760,069) (5,760,069) Total comprehensive income for the period attributable to equity holders of the parent - - (5,760,069) (5,760,069) Equity Transactions: Shares cancelled during the year (18,529) - - (18,529) Shares issued during the year 3,418, ,418,098 Share based payment for the year - 3,147,016-3,147,016 Cancellation of employee share option plan - (4,609,801) 4,609,801 - As at 31 March ,285,550 - (41,269,526) 5,016,024 PARENT 2010 Ordinary Shares Employee Share Retained Earnings Total Option Reserve At 1 April ,285,550 - (41,269,530) 5,016,020 Profit / (loss) for the period - - (271,776) (271,776) Total comprehensive income for the per iod attributable to equity holders of the parent - - (271,776) (271,776) Equity Transactions: Shares cancelled during the year Shares issued during the year Share based payment for the year - 234, ,845 Cancellation of employee share option plan As at 31 March ,285, ,845 (41,541,306) 4,979,089 PARENT 2009 Ordinary Shares Employee Share Retained Earnings Total Option Reserve At 1 April ,885,981 1,462,785 (36,494,613) 7,854,153 Profit / (loss) for the period - - (9,384,718) (9,384,718) Total comprehensive income for the period attributable to equity holders of the parent - - (9,384,718) (9,384,718) Equity Transactions: Shares cancelled during the year (18,529) - - (18,529) Shares issued during the year 3,418, ,418,098 Share based payment for the year - 3,147,016-3,147,016 Cancellation of employee share option plan - (4,609,801) 4,609,801 - As at 31 March ,285,550 - (41,269,530) 5,016,020 The accompanying notes form part of these financial statements.

13 Cash Flow Statement For the year ended 31 March Note Group Parent Group Parent Cash flows from operating activities Receipts from customers 10,734,263-13,150,277 - Government grants ,550 - Interest received 64,196 3, ,161 49,834 Interest paid (18,658) - (101,748) - Payments to suppliers and employees (10,261,966) (256,360) (14,373,039) (323,519) Net cash flows from / (used in) operating activities ,835 (252,872) (1,004,799) (273,685) Cash flows from investing activities Proceeds from sale of fixed assets 7,665-17,000 - Purchase of fixed assets (334,023) - (576,319) - Patents & trademarks (29,367) - (35,371) - Development costs (70,878) Loan from (to) investees - 253,984 - (3,102,389) Net cash flows from / (used in) investing activities (426,603) 253,984 (594,690) (3,102,389) Cash flows from financing activities Proceeds from finance lease ,323 - Repayment of finance lease (115,348) - (142,859) - Proceeds from bank loan ,000 - Repayment of bank loan (500,000) Proceeds from issue of shares - - 3,399,569 3,399,569 Net cash flows from financing activities (615,348) - 4,172,033 3,399,569 Net increase / (decrease) in cash held (524,116) 1,112 2,572,544 23,495 Add: opening cash bought forward 3,175,072 35, ,528 12,222 Cash at end of period 2,650,956 36,829 3,175,072 35,717 Comprising : Cash and bank balances 19 2,725, ,829 3,250, ,717 Less: New Zealand Stock Exchange Limited deposit (75,000) (75,000) (75,000) (75,000) 2,650,956 36,829 3,175,072 35,717 The accompanying notes form part of these financial statements.

14 14 Notes to and forming part of the financial statements For the year ended 31 March Summary of significant accounting policies Specific Accounting Policies Reporting Entity Sealegs Corporation Limited (the Company ) is a company incorporated and domiciled in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand Exchange Limited. Financial statements for the Company (separate financial statements) and consolidated financial statements are presented. The consolidated financial statements of Sealegs Corporation Limited as at and for the year ended 31 March 2010 comprise the Company and its subsidiaries (together referred to as the Group ). The Company is an issuer for the purposes of the Financial Reporting Act The financial statements of the Company and the Group have been prepared in accordance with the Financial Reporting Act These financial statements have been approved for issue by the board of directors on 15 June Measurement Base These financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ( NZ GAAP ), the Companies Act 1993 and the Financial Reporting Act The company has designated itself as profit-oriented. The financial statements have been prepared on a historical cost basis. The information is presented in New Zealand dollars ($), which is the Company s functional currency and rounded to the nearest dollar. New Accounting Standards and Interpretations The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended New Zealand Equivalents to International Financial Reporting Standards and interpretations as of 1 April NZ IFRS 7 Financial Instruments Disclosures effective 1 January NZ IFRS 8 Operating Segments effective 1 January NZ IAS 1 Presentation of Financial Statements (revised 2007) effective 1 January NZ IAS 23 Borrowing Costs (revised 2007) effective 1 January Amendments to NZ IFRS 2 Share-based Payment Vesting Conditions and Cancellations effective 1 January Improvements to NZ IFRSs May 2009 effective 1 January 2009 a) Statement of compliance The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ( NZ GAAP ). They comply with New Zealand equivalents to International Financial Reporting Standards ( NZ IFRS ), and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards ( IFRS ). b) Basis of consolidation The consolidated financial statements comprise the financial statements of Sealegs Corporation Limited and its subsidiaries (as outlined in note 17) as at 31 March each year (the Group). Subsidiaries are entities controlled by the Group. Control exists when the Group has the capacity to determine the financing and operating policies and from which it has an entitlement to significant ownership benefits. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. c) Goodwill and intangible assets Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets, acquired at the time of acquisition of a business. Sealegs Corporation Limited performs its impairment testing annually by comparing the carrying value of the cash generating unit with its recoverable amount. The whole group is determined to be the cash generating unit. The recoverable amount is the higher of fair value less costs to sell or value in use. Goodwill and intangibles have been allocated to the one cash generating unit. Patents and Trademarks are initially recognised at cost and amortised by the straight-line method over their useful life, not exceeding 10 years. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired (see note (t) for methodology). The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

15 15 d) Property, plant and equipment The Group has the following classes of property, plant and equipment: 1. Computer Equipment 2. Plant and Equipment 3. Computer Software 4. Furniture and Fittings 5. Leased Equipment All items of property, plant and equipment are initially recorded at cost, including costs directly attributable to bringing the asset to its working condition. Any expenditure that increases the economic benefits derived from an asset is capitalised. Expenditure on repairs and maintenance that does not increase the economic benefits is expensed in the period it occurs. When an item of property, plant and equipment is disposed of the difference between net disposal proceeds and the carrying amount is recognised as a gain, or loss, in statement of comprehensive income. Depreciation is provided for on a straight-line basis on all property, plant and equipment items, at depreciation rates calculated to allocate the asset s cost or valuation less estimated residual value, over their estimated useful lives. When an asset is revalued the depreciation charge is calculated on that revalued amount from the date of revaluation. Major depreciation rates are: 1. Computer Equipment 10% - 50% 2. Plant and Equipment 5.5% - 40% 3. Computer Software 30% 4. Furniture and Fittings 7% - 30% 5. Leased Equipment 8% - 30%. e) Trade and other receivables Trade receivables, which generally are paid before or on delivery, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Individual debts that management consider to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. f) Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the taxable temporary difference is associated with investments in subsidiaries and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except: when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

16 16 Notes to and forming part of the financial statements For the year ended 31 March 2009 Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. g) Financial instruments Financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables, bank loans and finance lease liabilities. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognised if the Group s obligations specified in the contract expire or are discharged or cancelled. h) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity 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. For the purpose of the Cash Flow Statement, cash and cash equivalents includes cash on hand, deposits held at call with banks and investments in money market instruments, net of bank overdrafts. i) Employee entitlements (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employees services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. (ii) Share based payment transactions The share option programme allows certain Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a trinomial option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options expected to vest, except where forfeiture is only due to the share price not achieving the threshold for vesting. Cancellation of the scheme is treated as an acceleration of vesting and the remaining fair value is immediately recognised in the statement of comprehensive income. j) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligations. Provisions are measured at the present value of management s best estimate of the expenditure required to settle the present obligation at the balance sheet date. When the Group expects some or all of a provision to be reimbursed the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. k) Inventories Inventories including raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials purchase cost on a first-in, first-out basis. The cost of purchase comprises the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), transport, handling and other costs directly attributable to the acquisition of raw materials. Volume discounts and rebates are included in determining the cost of purchase. Finished goods and work-in-progress cost of direct materials and labour and a proportion of variable and fixed manufacturing overheads based on normal operating capacity. Costs are assigned on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. l) Research and development costs Research expenditure is recognised in the statement of comprehensive income in the period that it is incurred. Development costs are deferred where future benefits are expected to exceed those costs, otherwise they are recognised in the statement of comprehensive income in the period that they are incurred. Deferred development costs are subject to impairment testing. Unamortised costs are reviewed at each balance date to determine the amount (if any) that is no longer recoverable and any amount so identified is written off. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of

17 17 completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project. m) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group as a lessee: Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in profit or loss. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the lease term. Operating lease incentives are recognised as a liability when received and subsequently reduced by allocating lease payments between rental expense and reduction of the liability. n) Foreign currencies Both the functional and presentation currency of Sealegs Corporation Limited and its New Zealand subsidiaries is New Zealand dollars ($). Transactions in foreign currencies are converted at the New Zealand rate of exchange ruling at the date of the transaction. At balance date foreign currency monetary assets and liabilities are translated at the closing rate and exchange variations arising from these translations are recognised in the statement of comprehensive income. o) Revenue recognition policy Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Sale of goods Local sales are recorded on the day the boat is picked up by or delivered to the customer. Export sales are recorded on the day the boat is uplifted from Sealegs premises, at which time all the risks and rewards of ownership pass to the customer. Deposits on orders are held as a current liability on the balance sheet until such time that revenue from the sale is recognised in the statement of comprehensive income. (ii) Government Grants Unconditional government grants are recognised in the profit or loss when the grant becomes receivable. Other government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset. (iii) Service revenue Revenue from the servicing and repair of boats is recorded at the time of completion, which is on the day the boat is picked up by or delivered back to the customer. p) Borrowing costs Borrowings are initially recorded at fair value net of transaction costs incurred, and subsequently at amortised cost using the effective interest method. All borrowing costs are recognised as an expense in the period they are incurred, as there are no qualifying assets against which interest needs to be capitalised. q) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. r) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. s) Earnings per share Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares. Diluted earnings per share is calculated as net profit or loss attributable to members of the parent, adjusted for: costs of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and potentially dilutive ordinary shares, adjusted for any bonus element.

18 18 Notes to and forming part of the financial statements For the year ended 31 March 2010 t) Impairment of non financial assets other than goodwill Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Sealegs Corporation Limited conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. External factors, such as changes in expected future processes, technology and economic conditions, are also monitored to assess for indicators of impairment. If any indication of impairment exists, an estimate of the asset s recoverable amount is calculated. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Nonfinancial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. u) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reporting amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and judgements are continually evaluated and are based on historic experience and other factors including expectations of future events that are believed to be reasonable. Revisions to accounts estimates are recognised in the period in which the estimate is revised and in any future periods affected. (i) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using option pricing models. The accounting estimates and assumptions relating to equity-settled sharebased payments would have no significant impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. (ii) Capitalised development costs Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale. v) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Operating segments have been identified based on the information provided to the chief operating decision makers - being the executive management team. The Company and Group operating results are reviewed by the executive management team as a single operating unit; manufacturing and selling amphibious marine crafts. 2. Other income Group Parent Group Parent Government grants received ,550 - Other revenue 166,858-77,439 3,917 Total other revenue 166, ,989 3,917

19 19 3. Administrative and occupancy expenses Group Parent Group Parent The following items of expenditure are included in administrative and occupancy expenses: Operating lease expense 351, ,145 - Directors compensation 6 473, , , ,000 Bad debt provision 28, ,446 - Depreciation 77,146-72,860 - Amortisation of patents and trademarks 28,577-26,637 - Amortisation of capitalised development costs ,889 - Depreciation Depreciation included in cost of sales 129, ,344 - Depreciation included in administrative and occupancy expenses 77,146-72,860 - Total depreciation included in the statement of comprehensive income 206, ,204 - Auditor s remuneration to Ernst & Young comprises: Audit of financial statements 50,000 50,000 48,000 48,000 Tax compliance 5,640 5,640 5,250 5,250 Total auditor s remuneration 55,640 55,640 53,250 53, Personnel expenses Group Parent Group Parent Wages and salaries 2,199,154-2,159,334 - Share-based payments 234,845-3,147,016 - Total personnel expense 2,433,999-5,306, Finance costs Group Parent Group Parent Interest income 64,196 3, ,161 49,834 Foreign exchange gain 25,825-4,855 - Finance income 90,021 3, ,016 49,834 Interest expense 85,912 1, ,781 1,564 Finance expense 85,912 1, ,781 1,564 Net finance costs 4,109 1,805 (28,765) 48, Directors compensation Group Parent Group Parent Salaries 323, ,500 - Directors fees 150, , , ,000 Total directors compensation 473, , , ,000

20 20 Notes to and forming part of the financial statements For the year ended 31 March Taxation Group Parent Group Parent Profit (Loss) from continuing operations before income tax 406,718 (271,776) (5,760,069) (9,384,718) Prima facie income 30% (2009: 30%) 122,016 (81,533) (1,728,021) (2,815,415) Share based payments 70, ,105 - Goodwill ,246 - Benefit of tax losses not taken up as an asset - 81, ,670 2,815,415 Utilisation of tax losses (192,470) Income tax expense The income tax expense is represented by: Current tax Deferred tax Income tax expense reported in the income statement A deferred tax asset has not been recognised to the extent that it is not probable that taxable profit will be available against which the unused tax losses can be utilised. Sealegs Corporation Limited has tax losses of $16,701,928 (2009: $16,350,707) to carry forward. Sealegs Corporation Group has tax losses of $27,210,164 (2009: $21,754,426) to carry forward. These taxation losses are subject to Inland Revenue Department approval and continued compliance with legislation for the carry forward of tax losses. 8. Imputation credit account Group Parent Group Parent Balance at beginning of year 22,187 3,734 20,458 19,114 RWT payments ,026 3,917 Tax refunds received (21,026) (3,917) (19,297) (19,297) Balance at end of year 1,161 (183) 22,187 3,734 At balance date the imputation credits available to the shareholders of the Parent were: Through direct shareholding in the Parent - (183) - 3,734 Through indirect interests in subsidiaries 1,161-22,187-1,161 (183) 22,187 3, Earnings per share Group Group $ $ Profit/(Loss) attributable to ordinary shareholders 406,718 (5,760,069) Weighted average number of ordinary shares issued 79,090,190 75,605,656 Effect of dilution: Share options 3,428,289 - Total potential ordinary shares 82,518,479 75,605,656 Group Group Cents Cents Basic earnings / (deficit) per share 0.51 (7.62) Diluted earnings / (deficit) per share 0.49 (7.62)

21 Share capital Group and Parent Group and Parent Shares $ Shares $ Opening ordinary shares (issued and authorised) 79,090,190 46,285,550 65,942,937 42,885,981 Cancelled during the year - - (74,117) (18,529) Transfer from employee share option reserve Issued during the year ,221,370 3,418,098 Closing ordinary shares 79,090,190 46,285,550 79,090,190 46,285,550 Total share capital 79,090,190 46,285,550 79,090,190 46,285,550 79,090,190 (2009: 79,090,190) ordinary shares are fully paid and have no par value. All ordinary shares have equal voting rights and share equally in dividends and surplus on winding up. There are no uncalled shares as at 31 March 2010 (2009: nil). (a) Capital management When managing capital, management s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management consider shareholders equity as managed capital. As the market is constantly changing, management may issue new shares or rights. The Group has no externally imposed capital requirements. During 2010, no dividends were paid (2009: nil). Management do not plan to pay dividends for the foreseeable future. 11. Trade and other payables Group Parent Group Parent Current Trade payables 1,426,396 28, ,661 34,821 Sundry payables and accruals 252,880 49, ,231 49,100 Total payables 1,679,276 77, ,892 83,921 Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. For terms and conditions relating to related party payables refer to note Financial Instruments The Group s principal financial instruments comprise receivables, payables, bank loans and overdrafts, finance leases and cash and shortterm deposits. Risk exposures and responses The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group s financial risk management policy. The objective of the policy is to support the delivery of the Group s financial targets while protecting future financial security. The main risks arising from the Group s financial instruments are credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts. The board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and control of financial risks rests with management. The board reviews and agrees policies for managing each of the risks identified below, including credit allowances, and future cash flow forecast projections.

22 22 Notes to and forming part of the financial statements For the year ended 31 March 2010 (i) Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group s exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of the financial assets (as outlined in each applicable note). The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group s policy to securitise its trade and other receivables. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. This is assessed and monitored as follows: Group Parent Group Parent Cash and bank balances 2,725, ,829 3,250, ,717 Trade receivables 928, ,293 - Other receivables 208,186 4,944,926 13,147 4,984,994 Bank loan ,000 - A provision for impairment loss is recognised when there is objective evidence that an individual receivable is impaired. An impairment loss of $28,447 (2009: $226,446) has been recognised in the current year. The movements in the provision for impairment loss were as follows: Gross receivable Gross receivable Gross receivable Gross receivable Group Parent Group Parent At 1 April 226, Charge for the year 28, ,446 - Amounts written off (226,446) At 31 March 28, ,446 - The status of trade and other receivables at the reporting date are as follows: Gross receivable Gross receivable Gross receivable Gross receivable Group Parent Group Parent 0-30 days 1,056,739-49, days 2,226-24, days PDNI* 47,157-15, days CI* 28, , days PDNI* 2, days CI* ,464-1,136, ,440 - * Past due not impaired ( PDNI ) Considered impaired ( CI ) Receivables past due but not considered impaired are: Group $49,389 (2009: $15,497); Parent nil (2009:nil). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made. The Group has been in direct contact with the relevant debtor and is satisfied that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

23 23 (ii) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, finance leases, committed available credit lines and potential share issues. The Group has a $100,000 bank overdraft facility and $700,000 revolving credit facility. As at 31 March 2010 these facilities had not been used. The Group manages its liquidity risk by monitoring the total cash outflows expected on a monthly basis. The following tables set out the contractual cash flows for all financial liabilities: Trade and other payables and overdraft Group Parent Group Parent Balance sheet 1,679,276 77,354 1,459,892 83,921 Contractual cash flows 1,679,276 77,354 1,459,892 83,921 6 months or less 1,679,276 77,354 1,459,892 83, months years years More than 5 years Total 1,679,276 77,354 1,459,892 83,921 Finance lease liabilities Group Parent Group Parent Balance sheet 337, ,960 - Contractual cash flows 411, ,379-6 months or less 74,771-74, months 74,772-74, years 140, , years 122, ,291 - More than 5 years Total 411, ,379 - Total financial liabilities Group Parent Group Parent Balance sheet 2,016,888 77,354 1,912,852 83,921 Contractual cash flows 2,091,115 77,354 2,021,271 83,921 6 months or less 1,754,047 77,354 1,534,664 83, months 74,772-74, years 140, , years 122, ,291 - More than 5 years Total 2,091,115 77,354 2,021,271 83,921 (iii) Market risk The market risk for the Group is immaterial.

24 24 Notes to and forming part of the financial statements For the year ended 31 March Receivables Group Parent Group Parent Trade receivables 928, ,293 - Provision for doubtful debts (28,447) - (226,446) - Intercompany receivables - 4,994,926-4,984,994 Sundry receivables 236, ,593 - Total receivables 1,136,801 4,994, ,440 4,984, Inventories Group Parent Group Parent Raw materials 1,779,765-1,156,581 - Work in progress 557, ,665 - Finished goods 268, ,358 - Total inventories 2,605,527-2,596, Warranty Provision Group Parent Group Parent Movement in warranty provision Balance as at 1 April 114,000-5,009 - Arising during the year 100, ,000 - Utilised (103,000) Unused amounts reversed - - (5,009) - Balance as at 31 March 111, ,000 - The Group has recognised a $1,000 per boat provision for all boats sold during the last 12 months to cover any warranty claims that may be made. This provision is based on the Group s experience of warranty claims. 16. Property, plant and equipment Group Parent Group Parent Computer equipment - opening net book value 29,979-52,781 - Additions 2,338-17,286 - Disposals - - (155) - Transfer to leased equipment - - (23,017) - Depreciation (17,291) - (16,916) - Computer equipment - closing net book value 15,026-29,979 - Computer Equipment - Cost 32,317-70,067 - Accumulated depreciation and impairment losses (17,291) - (40,088) - Computer equipment - closing net book value 15,026-29,979 - Plant and equipment - opening net book value 361, ,311 - Additions 307, ,982 - Disposals (66,120) - (7,069) - Transfer to leased equipment - - (80,443) - Depreciation (69,274) - (51,780) - Plant and equipment - closing net book value 533, ,001 - Plant and equipment - Cost 668, ,293 - Accumulated depreciation and impairment losses (135,394) - (139,292) - Plant and equipment - closing net book value 533, ,001 -

25 25 Computer software - opening net book value 82, ,410 - Additions 22,449-27,239 - Disposals Depreciation (46,487) - (48,285) - Computer software - closing net book value 58,326-82,364 - Computer software - Cost 104, ,649 - Accumulated depreciation and impairment losses (46,487) - (48,285) - Computer software - closing net book value 58,326-82,364 - Furniture and fittings - opening net book value 48,229-26,638 - Additions 1,403-29,976 - Disposals (1,334) Depreciation (6,089) - (8,385) - Furniture and fittings - closing net book value 42,209-48,229 - Furniture and fittings - Cost 49,632-56,614 - Accumulated depreciation and impairment losses (7,423) - (8,385) - Furniture and fittings - closing net book value 42,209-48,229 - Leased equipment - opening net book value 623, ,092 - Additions ,296 - Disposals - - (23,357) - Depreciation (67,843) - (59,838) - Leased equipment - closing net book value 555, ,193 - Leased equipment - Cost 623, ,388 - Accumulated depreciation and impairment losses (67,843) - (83,195) - Leased equipment - closing net book value 555, ,193 - Total cost 1,478,790-1,464,011 - Total accumulated depreciation and impairment losses (274,438) - (319,245) - Total closing net book value 1,204,352-1,144, Investments Parent Parent $ $ Investments in Sealegs International Limited - - Investments in Sealegs Australia Pty Limited - - Investments in Sealegs (US) Corporation - - Investments in Sealegs Amphibious Boats Canada Limited - - Total investments - - Percent held Significant subsidiaries: Balance date Sealegs International Limited 31st March 100% 100% Sealegs Australia Pty Limited 31st March 100% 100% Sealegs (US) Corporation 31st March 100% 100% Sealegs Amphibious Boats Canada Limited 31st March 100% 100%

26 26 Notes to and forming part of the financial statements For the year ended 31 March 2010 Sealegs International Limited Country of incorporation The Company manufactures amphibious marine craft. New Zealand Sealegs Australia Pty Limited The Company has never traded. Australia Sealegs (US) Corporation The Company has never traded. United States of America Sealegs Amphibious Boats Canada Limited The Company has never traded Canada 18. Intangible assets and goodwill (a) Reconciliation of carrying amounts at the beginning and end of the period Group Development Patents and Costs Trademarks Goodwill Total At 1 April 2009 net of accumulated amortisation and impairment - 180, ,855 Acquisitions - 29,367-29,367 Internally developed 70, ,878 Amortisation for the year - (28,577) - (28,577) Impairment At 31 March 2010 net of accumulated amortisation and impairment 70, , ,523 Cost (gross carrying amount) 70, , ,100 Accumulated amortisation and impairment - (28,577) - (28,577) Net carrying amount 70, , ,523 Group Development Patents and Costs Trademarks Goodwill Total At 1 April 2008 net of accumulated amortisation and impairment 575, , ,820 1,248,731 Acquisitions - 35,371-35,371 Internally developed 695, ,448 Amortisation for the year (27,889) (26,637) - (54,526) Impairment (1,243,349) - (500,820) (1,744,169) At 31 March 2009 net of accumulated amortisation and impairment - 180, ,855 Cost (gross carrying amount) 1,243, , ,820 1,951,661 Accumulated amortisation and impairment loss (1,243,349) (26,637) (500,820) (1,770,806) Net carrying amount - 180, ,855 The Parent has no intangible assets (2009: nil)

27 27 (b) Description of the Group s intangible assets and goodwill Impairment Sealegs is considered to be one Cash Generating Unit (CGU). The assets, including Development costs, Patents and Goodwill are tested for impairment against the recoverable amount of this CGU. The recoverable amount of the CGU is determined on a value in use basis. The key assumptions used in the determination of value in use are: Discount rate Discount rates reflect management s estimate of the time value of money and risks specific to the Group that are not already reflected in the cash flows. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. Sales of boats The number of boat sales is key to the Group s performance. The number of boat sales has been based on the current order book as well as management s best estimate of the market. Growth rate Growth rate estimates used to extrapolate cash flows beyond the budget period. These are based on managements best estimate of growth for the Group. Historical experience of growth is not necessarily reflective of the next few years due to market conditions. The cash flows have been estimated based on one year s forecasts and subsequently the cash flows have been extrapolated based on a growth rate. The growth rate used to extrapolate cash flows is 0%. (i) Development costs Development costs are carried at cost less accumulated amortisation and accumulated impairment losses. This intangible asset has been assessed as having a finite life and is amortised using the straight line method over a period not exceeding 5 years. Impairment testing is conducted periodically at a review meeting by the board of directors. (ii) Patents and licences Patents and trademarks have been acquired and are carried at cost less accumulated amortisation and impairment losses. Patents and trademarks are amortised using the straight line method over a period not exceeding 10 years. Patents and trademarks are impairment tested whenever there is an indication of impairment. (iii) Goodwill After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to impairment testing on an annual basis or whenever there is an indication of impairment. 19. Bank Group Parent Group Parent Cash at bank and on hand 2,650,956 36,829 3,175,072 35,717 Bank deposits 75,000 75,000 75,000 75,000 Total bank 2,725, ,829 3,250, ,717 The New Zealand Exchange Limited holds a $75,000 (2009: $75,000) deposit for the Group as a normal listing requirement. This amount has been included in the bank balances above, however has been excluded in the balances in the Cash Flow Statement. 20. Finance lease liabilities Group Parent Group Parent (a) Current Obligations under finance leases and hire purchase contracts (UDC loan) 132, ,544 - Total 132, ,544 - Non-current Obligations under finance leases and hire purchase contracts (UDC Loan) 204, ,416 - Total 204, ,416 -

28 28 Notes to and forming part of the financial statements For the year ended 31 March 2009 Sealegs International Limited have a secured loan (finance lease) with UDC Finance Limited for the purchase of a Mat Cam Router. The total amount borrowed is $178,633 on a 60 month term at 11.30% interest per annum, repayable monthly. The loan is secured by the router and a cross guarantee by Sealegs Corporation Limited. At balance date the carrying value of the router is $102,022 (2009: $208,624). Sealegs International Limited have a secured loan (finance lease) with UDC Finance Limited for the purchase of Welding Equipment. The total amount borrowed is $91,689 on a 48 month term at 11.64% interest per annum, repayable monthly. The loan is secured by the welding equipment and a cross guarantee by Sealegs Corporation Limited. At balance date the carrying value of the welding equipment is $45,890 (2009: $73,557). Sealegs International Limited have a secured loan (finance lease) with UDC Finance Limited for the purchase of Computer Equipment and Slip Rollers. The total amount borrowed is $33,184 on a 36 month term at 11.95% interest per annum, repayable monthly. The loan is secured by the computer equipment and slip rollers and a cross guarantee by Sealegs Corporation Limited. At balance date the carrying value of the computer equipment and slip rollers is $12,200 (2009: $29,300). Sealegs International Limited have a secured loan (finance lease) with UDC Finance for the purchase of a Pressbrake. The total amount borrowed is $289,974 on a 60 month term at 11.20% interest per annum, repayable monthly. The loan is secured by the press brake and a cross guarantee by Sealegs Corporation Limited. At balance date the carrying value of the Pressbrake is $177,500 (2009: $311,712). 21. Commitments (a) Operating lease commitments The Group has entered into a commercial lease on its premises. The lease is for 6 years with a renewal option included within the contract. There are no restrictions placed upon the lessee by entering into the lease. The Group has entered into three vehicle leases. The leases have a life of 3 years. Future minimum rentals payable under non-cancellable operating leases as at 31 March are as follows: Group Parent Group Parent Within one year 350, ,080 - One to five years 1,400,000-49,440 - Five plus years 350, Total minimum lease payments 2,100, ,520 - (b) Finance lease commitments The group has entered into four finance leases as disclosed in note 20. Group Parent Group Parent Within one year 149, ,544 - After one year but not more than five years 262, ,835 - More than five years Total minimum lease payments 411, ,379 - Less amount representing finance charges (74,227) (108,419) Present value of minimum lease payments 337, ,960 - (c) Other commitments No other commitments existed at balance date (2009: nil).

29 Reconciliation of reported surplus (deficit) after taxation with cash flows from operating activities Group Parent Group Parent Reported surplus (deficit) after taxation 406,718 (271,776) (5,760,069) (9,384,718) Add (less) non-cash items and non-operating items: Impairment of capitalised development costs ,376 - Amortisation of patents and trademarks 28,577-26,637 - Depreciation 206, ,204 - Share options - employees/directors 234,845-3,147,016 - Impairment of goodwill ,820 - Impairment of intercompany loan ,024,435 Repayment of loan to director 67, ,200-4,428,053 9,024,435 Movement in working capital Increase (decrease) in payables & accruals 415,064 - (1,422,284) 62,296 (Increase) decrease in receivables (613,175) - 1,346,896 - (Increase) decrease in other current assets (220,049) 18, ,394 24,302 (Increase) decrease in inventory (8,923) - 238,211 - Net cash flows from operating activities 517,835 (252,872) (1,004,799) (273,685) 23. Employee share options In 2010, the Group established a share option programme that entitled key management personnel and senior employees to purchase shares in the entity. The ESOP is designed to align participants interests with those of shareholders by increasing the value of the company s shares. Grant date / Employees entitled Option grant to director on 27 July 2009 commencing 30 June 2010 Option grant to director on 27 July 2009 commencing 30 June 2011 Option grant to director on 27 July 2009 commencing 30 June 2012 Option grant to director on 27 July 2009 commencing 30 June 2013 Option grant to employee on 7 August 2009 commencing 30 June 2010 Option grant to employee on 7 August 2009 commencing 30 June 2011 Option grant to employee on 7 August 2009 commencing 30 June 2012 Option grant to employee on 7 August 2009 commencing 30 June 2013 Number of instruments (000 s) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Vesting conditions Trigger price Exercise price Expiry date Continued service and share price reaching $0.12 after commencement date and before expiry date. Continued service and share price reaching $0.14 after commencement date and before expiry date. Continued service and share price reaching $0.17 after commencement date and before expiry date. Continued service and share price reaching $0.20 after commencement date and before expiry date. Continued service and share price reaching $0.12 after commencement date and before expiry date. Continued service and share price reaching $0.14 after commencement date and before expiry date. Continued service and share price reaching $0.17 after commencement date and before expiry date. Continued service and share price reaching $0.20 after commencement date and before expiry date. NZ$0.12 NZ$ June 2014 NZ$0.14 NZ$ June 2014 NZ$0.17 NZ$ June 2014 NZ$0.20 NZ$ June 2014 NZ$0.12 NZ$ June 2014 NZ$0.14 NZ$ June 2014 NZ$0.17 NZ$ June 2014 NZ$0.20 NZ$ June 2014

30 30 Notes to and forming part of the financial statements For the year ended 31 March 2009 ANNUAL REPORT FOR YEAR ENDING 31/03/2009 (a) Summaries of options granted under ESOP Weighted average Number of options Weighted average Number of options exercise price (000 s) exercise price (000 s) In thousands of options: Outstanding at 1 April $ - - $ ,040 Cancelled during the period $ - - $ 0.55 (12,000) Cancelled during the period $ - - $ 0.35 (1,000) Exercised during the period $ - - $ 0.40 (40) Expired during the period $ - - $ 0.30 (1,000) Granted during the period $0.10 9,650,000 $ - - Outstanding at 31 March $0.10 9,650,000 $ - - Exercisable at 31 March $ - - $ - - (b) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 31 March 2010 is 4.3 years (2009: nil). (c) Weighted average fair value The weighted average fair value of options granted during the year was $0.07 (2009: nil). Option pricing model: Senior Management Expected volatility (%) 70 Risk-free interest rate (%) 5.4% Expected life of option (years) 1-4 Option exercise price ($) 0.10 Weighted average share price at measurement date ($) 0.13 Options 2010 Model used Trinomial Option Pricing Model The volatility percentage is based on the observed volatility levels of movement in Sealegs Corporation Limited s store price. 24. Related parties (a) Transactions with related parties Will Burrell is a Director of Sealegs Corporation Limited, for which he is paid director fees. For the year ended 31 March 2010, the balance of directors fees owed to Will Burrell is $25,000 (2009: $25,000). Maurice Bryham is a Director of Sealegs Corporation Limited. In November 2009, he purchased a boat from Sealegs International Limited. The value of the purchase, including GST, was $73,125. A loan of $67,794 made by Maurice to the company in 2002 was used to offset part of the cost of this purchase. Maurice Bryham, a Director, had loaned Sealegs International Limited $67,794 at the inception of the Company. This amount was previously recorded as an equity contribution, however, the amount should have been considered a loan from Director. During the year, Sealegs reclassified the balance in equity to loan from director. As disclosed above, the full amount owing to Director was used by Maurice Bryham as part settlement of the purchase of a Sealegs vessel during the year. Purchases from related parties are made in arm s length transactions both at normal market prices and on normal commercial terms. Outstanding balances at year-end are unsecured, interest free, repayable on demand and settlement occurs in cash. No guarantees have been provided or received for any related party receivables or payable. (b) Loans to related parties During the year ended 31 March 2010, Sealegs Corporation Limited made no advances on the loan to its subsidiary Sealegs International Limited (2009: $6,120,897). During the year ended 31 March 2010, Sealegs International Limited made a loan advance of $275,067 (2009: nil) to its parent Sealegs Corporation Limited. The balance outstanding as at 31 March 2010 is $4,944,926 (2009: $4,984,994). The loan is interest free, repayable on demand. (c) Compensation for Key management personnel Group Parent Group Parent Short-term employee benefits 418, ,000 - Share-based payments 232,411-3,147,016 - Directors compensation 473, , , ,000 Total compensation 1,123, ,000 4,310, ,000

31 Section heading Subheading Government grants Group Parent Group Parent Assets Current Grants for research and development Grants for market development , ,000 - The accounting policies adopted and the description of government grants received by the Group, including the conditions attached to the grants, have been disclosed in note 1(o) (ii). There are no deferred government grants at balance date (2009: nil). 26. Contingent liabilities There are no contingent liabilities at balance date (2009: nil). 27. Segment information (a) Revenues from external customers Group Parent Group Parent New Zealand 2,976,956-5,237,650 - Australia 1,812,997-2,468,321 - United Kingdom 1,268,320-1,881,257 - USA 1,536, Malaysia 1,201,010-88,154 - Thailand 644, Canada 532, India 574, ,618 - Kuwait ,451 Other foreign countries 640, ,217-11,187,226-11,424,668 - (b) Non current assets Non current assets are located in New Zealand. (c) Major customers The Group has a number of customers to which it provides services. The Group supplies a number of government agencies that combined account for 15.9% of external revenue (2009: 0%). (d) Segment net profit after tax reconciliation to the statement of comprehensive income A segment s net operating profit after tax excludes non operating income and expenses such as impairment and share based payments. Group Parent Group Parent Segment net operating profit after tax 641,563 (271,776) (868,884) (360,283) Impairment of goodwill - - (500,820) - Impairment of development costs - - (1,243,349) - Share based payment (234,845) - (3,147,016) - Total net profit after tax per the statement of comprehensive income 406,718 (271,776) (5,760,069) (360,283) 28. Post balance date events On 24 May 2010 Sealegs Corporation Limited issued, for cash, 14,000,000 new ordinary shares at $0.20 per share to Avenport Investment Corporation, an overseas private equity investment company. 29. New standards and interpretation The following issued Standards, Interpretations and Amendments have not been applied by the Group: Standard/Interpretation Effective Date Impact on Group Applicable Date NZ IFRS 9 - Financial Instruments 1 January 2013 The standard is not expected to have an impact on management s current classification of financial assets of the Group. 1 April 2013

32 SHAREHOLDER INFORMATION 32 Substantial Shareholders as at 31 March 2010 Number of Shares Held Percentage Held Kenneth McKee Wright & Christina Carol McKee Wright 7,320, Furzefield Pty Limited 6,169, Trustee Services Limited & Maurice John Bryham 5,600, Raphael Chaikin 4,801, Brian Ernest Taylor 4,610, Statement of Directors Interests Present directors held an interest in the following equity securities in the Company: David McKee Wright Ordinary 7,320,000 7,320,000 Options $0.10 4,000,000 - Maurice Bryham Ordinary 5,600,000 5,600,000 Options $0.10 4,000,000 - William Burrell Ordinary 6,169,269 6,169,269 Twenty Largest Shareholders as at 31 March 2010 Number of Shares Held Percentage Held Kenneth McKee Wright & Christina Carol McKee Wright 7,320, Furzefield Pty Limited 6,169, Trustee Services Limited & Maurice John Bryham 5,600, Raphael Chaikin 4,801, Brian Ernest Taylor 4,610, Izard Investments Ltd 3,153, Hubbard Churcher Trust Management Limited 2,349, Accident Compensation Corporation 1,858, Marco Erwin Kleyn 1,290, Brendon John Hodge & John Neville Hodge & Shayne Patrick Hodge 1,200, The Co Investment 2000 Fund LP 937, Nessock Custodians Limited 830, Leslie James Harpley 783, Glen James Robinson 700, Forty Traders Limited 650, Golden Horseshoe Limited 554, Robert Warner Seddon Walker & Bridget Georgina Johnson 510, Tracy Ann Bryham 479, FNZ Custodians Limited 457, Somsmith Nominees Limited 451, ,706, Total number of shares on issue 79,090, Spread of Shareholders as at 31 March 2010 Size of Shareholding Number of Holders Percentage Number of Shares Held 1 to , to ,270 1,000 to 1, ,943 2,000 to 4, ,296,335 5,000 to 9, ,971,765 10,000 to 49, ,327,632 50,000 to 99, ,665, ,000 to 499, ,553, ,000 to 999, ,965,598 1,000,000 to 9,999,999,999, ,353, ,090,190 Principal Activities The principal activities of the Company and Group is the manufacture of amphibious marine craft.

33 Directors Holding Office During the Year Parent: Sealegs Corporation Limited Christopher Dickson Appointed 19/12/2007 David McKee Wright Appointed 25/9/2003 James Hill Appointed 19/12/2007 Maurice Bryham Appointed 21/11/2007 William Burrell Appointed 31/3/2007 Remuneration of Directors Group Parent NZ$ NZ$ Christopher Dickson 25,000 25,000 David McKee Wright 225,000 25,000 James Hill 50,000 50,000 Maurice Bryham 148,000 25,000 William Burrell 25,000 25,000 Entries in the Interests Register Subsidiary: Sealegs International Limited David McKee Wright Appointed 1/9/2003 Sealegs Australia Pty Limited David McKee Wright Appointed 13/8/2005 William Burrell Appointed 31/3/2007 Remuneration of Employees The number of employees, who are not directors, whose remuneration and benefits exceeded $100,000 in the financial year was: Group Parent $100,001 - $110, $110,001 - $120, The Company has entered into deeds of indemnity with each director pursuant to which it has agreed to indemnify them against liability incurred by them arising out of their acts or omissions in their capacity as a director of the Company, subject to certain exceptions which are normal in such indemnities. The Company has in place directors and officers liability insurance to cover risks normally covered by such policies arising out of acts or omissions of directors or employees of the Company in that capacity. No other entries were made in the interests registers of the company or its subsidiaries during the period. Share Dealings 33 There were no share dealings by directors during the period. Independent Directors The Board has determined the following Directors to be Independent Directors: Christopher Dickson James Hill The remaining directors are not independent, due to their shareholding interests. Annual General Meeting The 2010 Annual General Meeting of Sealegs Corporation Limited is to be held on Friday 30th July at 11am at Sealegs International Limited, 5 Unity Drive South, Albany, Auckland. For and on behalf of the Board: James Hill David McKee Wright Director Director 15 June June 2010

34 CORPORATE GOVERNANCE 34 The Company and Group are committed to a high standard of corporate behaviour and ethics and has adopted a code of ethics and board and audit committee charters. These principles differ from NZX s Corporate Governance Best Practice Code only in that: a) the Company has not established a nominations or remuneration committee; and b) given the size of the board, the company s audit committee has a majority of non-executive directors. Audit Committee James Hill (Chairman) Chris Dickson David McKee Wright The function of this audit committee is to assist the Board in carrying out its responsibilities regarding management s accounting practices, policies and controls relative to the Company and Groups financial results and to review and make appropriate inquiry into the audits of the Company and Groups accounts.

35 Directory 35 Company Number HN/ Date of Incorporation 16 July 1987 Directors James Hill (Chairman) Christopher Dickson David McKee Wright Maurice Bryham William Burrell Registered Office 5 Unity Drive South Albany, Auckland 0632 New Zealand Ph: (+64 9) Fax: (+64 9) info@sealegs.com Web: Auditor Ernst & Young, Auckland, New Zealand Lawyers Buddle Findlay, Auckland, New Zealand Bankers ASB Bank Limited, Auckland, New Zealand ANZ Banking Group (New Zealand) Limited, Auckland, New Zealand Share Registry Computershare Investor Services Limited Private Bag Auckland 1020 Ph: (+64 9) Fax: (+64 9) enquiry@computershare.co.nz

36 Convenience Safety Performance Sealegs International is the world s leading manufacturer of amphibious boats. Proudly designed and made in New Zealand, Sealegs amphibious marine craft are built tough for demanding all-terrain and rough offshore conditions with Beaufort 3 and Sea State 4 ratings. Sealegs are accredited with U.S. Coastguard, Canadian TP1332 and European CE compliance. Sealegs amphibious boats have unique patented technology, which utilise durable hydraulic and marinised componentry for reliability in harsh environments worldwide. pate nte d am ph i b ious tech nology