2004 Annual Report. Performance technology. Legend Corporation Limited ACN and Controlled Entities

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1 Annual Report Performance technology Legend Corporation Limited ACN and Controlled Entities

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3 Contents 1 Corporate directory 2 2 Chairman s letter 3 3 Review of operations 5 4 Corporate governance 7 5 Directors report 11 6 Statement of financial performance 17 7 Statement of financial position 18 8 Statement of cash flow 19 9 Notes to and forming part of the financial statements Directors declaration Independent audit report Shareholders information 55 1 Annual Report

4 1 Corporate directory Directors Paul D Teisseire Bradley R Dowe Timothy J King Simon C Forth Company Secretary Timothy J King Solicitors Pullinger Readhead Lucas Level 1, 50 Kings Park Road West Perth Western Australia 6005 Phone: Fax: Share Registry Security Transfer Registrars Pty Ltd Suite 1 / 770 Canning Highway Applecross Western Australia 6153 Phone: Fax: Legend Corporation Limited Registered Office Conmurra Avenue Edwardstown South Australia 5039 Phone: Fax: Bankers Commonwealth Bank of Australia Level 8, 100 King William Street Adelaide South Australia 5000 Auditors MGI Caulfield & Co 212 Greenhill Road Eastwood South Australia 5063 Phone: Fax: Stock Exchange Australian Stock Exchange Limited 2 The Esplanade Perth Western Australia 6000 Phone

5 Letter from the Chairman 2 Dear Shareholder Overview The -4 financial year results were underpinned by the continued strong performance from Legend s domestic and international operations, with strong demand from new markets recently opened and above budgeted results from our consumer memory product range. Pleasingly, Legend exceeded its prospectus forecast. The key drivers behind Legend s record result were: The increase in working capital afforded by the March IPO has enabled Legend to accelerate growth in existing and new markets. Existing markets of Australia, New Zealand and South Africa are showing strong growth as a major IT hardware replacement cycle gets under way. This cycle has been largely delayed from the expected 2002 replacement of equipment installed due to the Y2K bug. The opening of new sales offices in Hong Kong and Thailand has resulted in strong initial sales into the Asian region. Improving global economic conditions have increased the demand for personal computers and other computer related products in Legend s existing markets and emerging markets pan Asia. Financial In its first year as a listed company on the Australian Stock Exchange, Legend enjoyed a record result with operating profit (after income tax) of $2.6 million up nearly 40%*. Revenue of $124.3 million was up 44%* and although Legend has only had utilization of the proceeds of the IPO capital raising for 3 months, the result is better than forecast and highlights Legend s capability to execute rapid and profitable growth. Dividend The Legend Board has declared a dividend of.75 cents per share fully franked payable in October. The Board expects to declare a further dividend of.75 cents payable in April Legend s dividend reinvestment plan allows shareholders to reinvest dividends received into new shares. * - on the previous year s figures included in the IPO Prospectus dated 17 February. 3 Annual Report

6 Outlook for /2005 Legend s outlook for the coming financial year is positive, with the global demand for computer products forecast to continue to show strong growth. Legend has sufficient manufacturing capacity to meet the continued increasing demand for its memory module products. Legend will continue to expand its sales and distribution network with new offices planned in the Asian region. Legend s expansion plan remains unchanged, focusing on replication of the company s proven strategy of installing its own channel infrastructure to promote sales of both manufactured goods and complementary distributed goods. Legend has forecast a net profit after tax for the -5 financial year of $4.3m and earnings per share of 6.3 cents per share. It is the current intention of the Board to increase the dividend to 3.0 cents per share in relation to the -5 financial year. Finally, in my first year as Chairman I would like to thank my fellow Directors and all staff for their support and hard work during the year. Paul D Teisseire Chairman of Directors 4

7 Review of operations 3 Legend has made a smooth transition from private to public company. This new corporate structure, has allowed Legend to commence the realisation of it s potential in both domestic and foreign markets. Legend exceeded the financial forecast for the 12 months ended 30 June with a net profit of $2.6 million. This was achieved with only 3 months to utilise the proceeds of the funds raised in the IPO, the better than forecast results demonstrates the company s capability to execute rapid and profitable growth. The expansion coincides with the $2.1 million better than forecast revenue, and $300,000 better than forecast net profit. Major achievements The company has illustrated the competent utilisation of the IPO proceeds with the application into working capital needs without any cash burn. Legend has executed this growth in a controlled manner due to the solid enterprise management systems and qualified internal procedures. The other major achievements of the Financial Year include: The expansion of geographic sales regions, particularly the development into Asia with the establishment of new operations in Hong Kong and Thailand, export sales to this region totalled in excess of $29 million. We derived growth in the relatively new product area of non-volatile memory products (flash) with annualised revenues of more than $18 million. Today, flash memory products can be found in a range of consumer products, ranging from digital camera s, through to MP3 music players and mobile telephones. The key drivers behind the company s record results were: The efficient utilisation of the IPO proceeds. Existing markets in Australia, New Zealand and South Africa are showing strong growth with major IT hardware replacement cycles. This cycle is principally due to the existing computer products end of life cycle following commissioning in 1998 and 1999 due to the Y2K bug. Improving global economic conditions have increased demand for personal computers and other computer related products in the company s existing markets and emerging markets of Asia. 5 Annual Report

8 Future Legend is well positioned to take advantage of the convergence of the traditional I.T. computer market segment and the established consumer home electronics fields. Legend is now leveraging the long established relations with major electrical department stores and supplying a wider range of products ranging from TV set top boxes and digital recorders through to MP3 music players. Legend s principal client base in Information, Communications and Technology forecast continued significant growth in both mature and emerging economies. The current utilisation of production plant remains within the required scope and no unplanned capital investment is required. The launch of several Legend branded products in both existing retail and emerging consumer electronics markets are proceeding very well. The company expect to continue a period of significant growth realising the benefits of many years of development of distributed operational management systems, a very strong supply based and well founded client group. I would like to thank the shareholders for your support as we have already moved into a new financial year and another period of higher achievements for the company. Bradley R. Dowe Chief Executive Officer 6

9 Corporate governance 4 The Board of Directors of Legend Corporation Limited ( Legend or Company ) is responsible for the corporate governance of the economic entity. The Board guides and monitors the business and affairs of Legend on behalf of the shareholders by whom they are elected and to whom they are accountable. In March the ASX Corporate Governance Council (the Council) published 10 principals and 28 recommendations for best practice in corporate governance. The Council recognised that not all recommendations are appropriate for all companies, and that companies should only adopt those recommendations that are suitable in each individual case. Subsequent to listing on ASX in March, the Company conducted a detailed review of its corporate governance practices as against the principles and recommendations published by the Council. The review was completed on 25 June, when the Company adopted a number of corporate governance initiatives. Due to the current size and activities of the Company, the Board resolved not to adopt some of the Council s recommendations at this stage. The ASX requires that the Company disclose the extent to which it has followed best practice recommendations, identify which recommendations have not been followed, and the reason for not adopting the recommendations. For further information on the corporate governance practices adopted by the Company, refer to the website: Board and management roles and responsibilities The Company has formalised and disclosed the roles and responsibilities of the Board and those delegated to senior management. The responsibilities of the Board include determining and monitoring the objectives and strategic direction of Legend, monitoring the performance of the Company and its senior executives, approving business plans and budgets, and developing and ensuring adherence to company policies. The Board is also responsible for compliance with the codes of conduct, overseeing risk management and internal controls, and the assessment, appointment and removal of the Chief Executive Officer, Company Secretary and other senior executives. The senior management are responsible for the efficient and effective operation of the Company in accordance with the objectives, strategies and policies determined by the Board. The Board has established an Audit and Risk Management Committee and a Remuneration Committee. Further details in relation to these committees are set out below. The Council recommends that companies establish a Nomination Committee to assess the necessary competencies of Board members, review Board succession plans, evaluate Board performance, and make recommendations for the appointment and removal of Board members. Having regard to the Company s size and composition of the Board, the Board considers that this role is more efficiently undertaken within the auspices of the full Board. Composition of the Board The Board of the Company currently consists of 2 independent non-executive directors - the Chairman, Mr Paul Teisseire, and Mr Timothy King, and 2 executive directors - the Chief Executive Officer, Mr Bradley Dowe, and Mr Simon Forth. Mr Teisseire and Mr King have been Directors of the Company for 8 months. Mr Dowe and Mr Forth have each been directors of the Company for 1.5 years. 7 Annual Report

10 The Council recommends that a Board of Directors should comprise a majority of independent Directors. Legend s position is that, to be considered independent, a director must be a nonexecutive, and: a) not be a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company. b) within the last 3 years, not have been employed in an executive capacity by the Company or another group member, or been a director after ceasing to hold any such employment. c) within the last 3 years, not have been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provider. d) not be a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer. e) have no material contractual relationship with the Company or another group member other than as a director of the Company. f) not have served on the board for a period which could, or could reasonably be perceived to, materially interfere with the director s ability to act in the best interests of the Company. Materiality for these purposes is determined on both quantitative and qualitative bases. An amount of over 10% of the appropriate base amount is considered to be quantitatively material for these purposes, whilst an amount of less than 5% is considered to be quantitatively immaterial. Qualitative factors considered include the nature of the relationship and its strategic importance, the competitive landscape, the contractual arrangements, and other factors indicating the ability of the director to exercise unfettered and independent judgement. Legend s Board composition does not follow the ASX recommendations, in that a majority of directors are not independent. However, the Company has an independent Chairman who has a casting vote at directors meetings, and the roles of Chairman and Chief Executive Officer are not exercised by the same person. The Board considers that the Company therefore has sufficient representation by independent directors taking into account its size and the nature of its activities. The composition of the Board is determined using the following principals: The Board is to comprise of directors with a blend of skills, experience and attributes appropriate for the Company and its business; and The principal criterion for the appointment of new directors is their ability to add value to the Company and its business. Details of the skills, experience and expertise of each director is included in the Directors Report. Subject to the Chairman s approval, which is not to be unreasonably withheld, directors have the right, at the Company s expense, to obtain independent professional advice on issues arising in the course of their duties. 8

11 4 Audit and risk management The Board is responsible for ensuring there are adequate policies in relation to risk management and oversight, and that appropriate internal control systems and procedures are in place and functioning effectively. This risk management approach is designed to ensure that strategic, operational, legal, business, and financial risks are identified, assessed, addressed and monitored to assist the economic entity to achieve its business objectives. Legend has established an Audit and Risk Management Committee. The Committee s current purpose is to provide assistance to the Board in fulfilling its corporate governance and monitoring responsibility in relation to the risks associated with the integrity of financial reporting, internal control systems and external audit functions. The Committee is also assisting the Board on risk management strategies. Legend listed on ASX in March. Whilst management considers adequate risk management policies and procedures were followed throughout the financial year, the Committee is overseeing the process of formalising these policies and procedures. This process is expected to be completed during the current financial year. The structure of the Committee does not follow the Council s recommendations, in that it comprises 2 rather than 3 members. However, the Board considers this to be an acceptable position, having regard to the size of the Company, and taking into account the attendance of an executive director and the Chief Financial Officer by invitation to most Committee meetings. Further details on the qualifications for and attendance at Audit and Risk Management Committee meetings, are set out in the Directors Report. Performance and remuneration The performance of the Board and key executives is reviewed against both quantitative and qualitative indicators. The performance criteria against which directors and executives are assessed are aligned with the financial and non-financial objectives of Legend. Due to the recent ASX listing process which Legend completed in March, it has not conducted a performance evaluation of the Board and its members in relation to the financial year, however this process will be undertaken in relation to performance for the 2005 financial year. Legend has established a Remuneration Committee to advise the Board on remuneration policies and procedures generally, and to make specific recommendations on remuneration packages for executive directors, non-executive directors, and senior executives. The remuneration of executive directors and other senior executives is reviewed annually by the Committee having regard to personal and corporate performance on a short term and long term basis, and to relative industry remuneration levels. Where appropriate, the Committee seeks independent advice to ensure appropriate remuneration levels are in place. The remuneration of non-executive Directors is determined by the Board within the maximum approved amount. Non-executive directors are not entitled to retirement benefits other that statutory superannuation, and do not participate in share or bonus schemes tailored for executives and other employees. In order to provide a level of performance incentive to nonexecutive directors that is aligned with shareholder returns, options vesting in 12 months were issued to non-executive directors. 9 Annual Report

12 Where the Company has a requirement for additional services within the skill set of nonexecutive directors, and it is efficient and effective to do so, the Board may seek consulting services from non-executive Directors at a market rate approved by the Board. Further details on directors and executives remuneration, and qualifications for and attendance at Remuneration Committee meetings, are set out in the Directors Report. Code of conduct The Board is responsible for developing the culture of the organisation, including the performance focus and the legal, ethical and moral conduct, to preserve and enhance Legend s reputation in the technology industry, business generally and the broader community. Legend s Code of Conduct adopted requires that all employees are aware of, and comply with, legislation and policies applicable to their position. The Code also requires employees to avoid or ensure proper management of conflicts of interest, to not use confidential information for personal gain, and to generally operate in a fair, honest and open manner. The Company s policy is to make reasonable endeavours to ensure that it gives proper consideration to the impact on the environment of its activities, and that the Company observes its obligations in respect of environmental practices, and the health, safety and general well being of its employees. Continuous disclosure and shareholder communication In order to ensure that Legend meets its obligations with regard to the continuous disclosure requirements, the Company has adopted a continuous disclosure policy. The policy sets out the Company s obligations and its policies and procedures to ensure timely and accurate disclosure of price sensitive information to the market. Legend endeavours to provide shareholders with important information on the Company in a timely and efficient manner. The Company promotes direct communication with shareholders, and encourages them to direct appropriate questions and information requests to the Chief Executive Officer, Company Secretary or the Board. In addition to the direct mailing of information, Legend posts pertinent information, including details of its corporate governance practices, on its website. The Company has adopted a shareholder communications policy to formalise the above practises. 10

13 Directors report 5 The directors present their report together with the accounts of Legend Corporation Limited ( the parent entity ) and the consolidated accounts of the economic entity, being the parent entity and its controlled entities, for the year ended 30 June. Directors The names and details of the directors in office during the financial year and up to the date of this report are: Paul D. Teisseire (appointed 16th February ) Bradley R. Dowe Timothy J. King (appointed 16th February ) Simon C. Forth Louise Dowe (retired 16th February ) Principle activities The principal activities of the economic entity during the financial year comprised: Manufacturing and distribution of computer memory modules and related computer components. The following significant changes in the nature of the principal activities occurred during the financial year: With the purchase of Legend Australasia Pty Ltd, the economic entity commenced operating. There were no other significant changes in the nature of the economic entity s principal activities during the financial year. Results The consolidated profit and extraordinary items of the economic entity after providing for income tax and eliminating outside equity interests amounted to $2,602,000. Dividends An interim ordinary dividend of 0.75 cents per share (total amount $508,643) was declared by the Directors, payable on 15 October. Review of operations and significant changes in state of affairs The following significant changes in the state of affairs of the parent entity occurred during the financial year: a) On 16th January the parent entity issued 49,632,000 ordinary shares to acquire all the shares of Legend Australasia Pty Ltd. b) On 16th March the parent entity issued 16,000,000 ordinary shares at 50 cents each to the public on a cash basis. The key drivers behind the consolidated result were: The increase in working capital afforded by the March IPO has enabled Legend to accelerate growth in existing and new markets. The opening of new sales offices in Hong Kong and Thailand has resulted in strong initial sales into the Asian region. Improving global economic conditions increased the demand for personal computers and other computer related products in the economic entity s existing markets and emerging Asian markets. 11 Annual Report

14 Matters subsequent to the end of the financial year No matters or circumstances have arisen since the end of the financial year which significantly affected or may significant affect the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years. Likely developments The economic entity will continue to focus on the expansion of its business to grow the revenue base and increase profitability. Environmental issues The economic entity s operations are not subject to significant environmental regulation under the law of the Commonwealth and State. Directors qualifications and experience Paul D. Teisseire (aged 49) Notary Public, Certificate in Law (Adelaide) Non Executive Chairman As a professional independent director, Paul is a director of a number of public and large private companies, in particular, Tower Trust Ltd (as Chairman) and Auspine Ltd (where he chairs the Audit and Risk Committee). With a background spanning 20 years in corporate law and international trade, Paul specialises in all aspects of corporate governance and board best practice. Paul is a member of the Legend Audit and Risk Management Committee and Chairman of the Remuneration Committee. Bradley R. Dowe (aged 43) BSc (Computer Science), MAICD Chief Executive Officer Bradley is the founder and Chief Executive Officer of Legend and has been working in the field of computing and engineering for over 20 years. His experience covers all facets of electronics engineering, electronics manufacturing processes, software development and international business operations. Bradley oversees the strategic management of the organisation. In particular, Bradley drives the expansion of global business operations. Bradley is a member of the Legend Remuneration Committee. Simon C. Forth (aged 36) MBA (University of WA), MAICD Executive Director Simon joined Legend in 1989 and has over 15 years experience in the IT industry covering areas from software and hardware development through to computer electronics manufacturing encompassing surface mount and through-hole production. He has extensive experience in areas of sales, marketing and company administration. Simon is a member of the Legend Remuneration Committee. 12 Timothy J. King (aged 43) B.Com, G Dip App Fin (Sec Inst) Non Executive Director Tim is a Chartered Accountant with over 20 years experience in corporate finance, accounting, management and taxation. Formerly a partner with a Perth accounting firm, Tim is a consultant to several listed and large unlisted companies. He is a director of the listed public companies Western Areas NL, Sphere Investments Limited, and is Chairman of Tantalum Australia NL and Reclaim Industries Ltd, as well as being a director of the unlisted company Bali Hai Cruises Pty Ltd. In addition, Tim is President of SIDS and Kids Western Australia, a director of the National SIDS Council of Australia Ltd, and is Chairman of The Rehabilitation Foundation. Tim is Chairman of the Legend Audit and Risk Management Committee, a member of the Remuneration Committee and is Company Secretary.

15 5 Directors interests Relevant interests of the directors in the shares, options or other instruments of the parent entity and related bodies corporate are: Director Shares Options Options Options $ $ $ Mr Paul Teisseire 20,000 66,667 66,667 66,666 Mr Bradley Dowe 49,632,002 Mr Timothy King 42,000 66,667 66,667 66,666 Mr Simon Forth 522, , , ,666 1 Options are exercisable at 60 cents on or before 31 March Options are exercisable at 70 cents on or before 31 March Options are exercisable at 80 cents on or before 31 March ,000 shares are subject to buy back rights by the parent entity for $0.01 until at least 30 days after the release of the Share options 30 June 2005 financial results. At the date of this report there were 900,000 options over unissued ordinary shares in the parent entity, of which 300,001 are exercisable at 60 cents on or before 31 March 2006, 300,001 are exercisable at 70 cents on or before 31 March 2007 and 299,998 are exercisable at 80 cents on or before 31 March These options vest in March Directors meetings The following table details the number of directors meetings and committee meetings held and number of meetings attended by each of the directors of the parent entity during the financial year ended 30 June. Committee Meetings Remuneration Directors meetings Audit & risk committee committee Number Number Number Director eligible to attend Number attended eligible to attend Number attended eligible to attend Number attended Paul Teisseire Bradley Dowe Timothy King Simon Forth Louise Dowe Retirement, election and continuation in office of directors Paul Teisseire and Timothy King being additional appointments by the Board during the year, and Simon Forth by virtue of rotation, retire at the parent entity s Annual General Meeting and being eligible, offer themselves for re-election. 13 Annual Report

16 Directors and Executives emoluments The remuneration of Executive Director s and Executives of the economic entity is determined by the Directors following a review of the requirements and the market rates for the specific position. Remuneration packages and policies are set by the Board in accordance with industry standards and are designed to attract and retain suitably qualified directors and executives and reward them for performance that results in long term growth in shareholder value. Non-Executive Directors are remunerated on a fixed fee for the performance of services as a Director. The maximum remuneration of non-executive Directors is the subject of a shareholder resolution in accordance with the parent entity s constitution, the Corporations Act and ASX Listing Rules, as applicable. The Board will determine remuneration with regard to inputs and the value of contribution to the economic entity by each non-executive Director. The current limit, which may only be varied by shareholders at a General Meeting, is an aggregate amount of $200,000 per annum. The Board may award additional remuneration to non-executive Directors called upon to perform extra services or make special exertions on behalf of the economic entity. Details of the nature and amount of each element of the emoluments of each director of the parent entity and each of the other executive officers of the parent entity and the consolidated entity receiving the highest emoluments are set out in the following tables. Note that the Parent Entity did not commence operating until January. Annual emoluments Long term emoluments Number Value of Number Value of Total value Salary & of shares shares at of options options at of shares & Superannuation fees Bonus granted grant date granted grant date options Paul Teisseire $8, ,000 $7,938 $7,938 $1,000 Bradley Dowe $61, $5,000 Timothy King $12, ,000 $7,938 $7,938 - Simon Forth $45,000 $10, ,000 $250, ,000 $19,845 $269,845 $3,000 Louise Dowe $12, $1,000 Annual emoluments Long term emoluments Number Value of Number Value of Total value Salary & of shares shares at of options options at of shares & Superannuation fees Bonus granted grant date granted grant date options Andrew Muller $27, ,000 $50, $50,000 $2,000 Lea Fox $38, ,000 $275, $275,000 $3,000 Mike Sack $90, ,000 $125, $125,000 $8,000 Andrew Trzesniowski $27,000-50,000 $25, $25,000 $2,000 Louise Dowe $55, $5,000 Note that the Parent Entity did not commence operating until January. 14

17 5 Indemnification of Directors and Officers During or since the end of the financial year the parent entity has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums to insure each of the directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity as director of the parent entity, other than conduct involving a wilful breach of duty in relation to the parent entity. The amount of the premium was $ 1,554 for each director, totalling $6,216. No liability has arisen under this indemnity as at the date of this report. Proceedings on behalf of parent entity No person has applied for leave of the Court to bring proceedings on behalf of the parent entity or intervene in any proceedings to which the parent entity is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The parent entity was not a party to any such proceedings during the year. This report is made in accordance with a resolution of the directors. P D Teisseire Chairman of Directors 30 September 15 Annual Report

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19 Statement of financial performance For the year ended 30 June 6 Note Economic Entity Parent Entity Sales 2 124, Cost of sales (111,148) Gross profit 13, Other revenues from ordinary activities Distribution expense (595) Marketing expense (223) Occupancy expense (424) Administration expense (7,285) Borrowing costs expense (799) Other expenses (1,297) Share of net profits of associates accounted for using the equity method Profit from ordinary activities before income tax expense 3 3, Income tax expense relating to ordinary activities (216) - Profit from ordinary activities after related income tax expense 2, Net profit 2, Net loss attributable to outside equity interests Net profit attributable to members of the parent entity 2, Net exchange difference on translation of financial report of self-sustaining foreign 25(a) operations Total revenues, expenses and valuation adjustments attributable to members of the parent entity and recognised directly in equity Total changes in equity other than those resulting from transactions with owners as 2, owners Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements 17 Annual Report

20 7 Statement of financial position As at 30 June Current assets Note Economic Entity Parent Entity Cash assets 9 7, Receivables 10 14,850-7,279 - Inventories 11 16, Other Total current assets 39,489-7,279 - Non-current assets Investments accounted for using the equity method Other financial assets ,700 - Property, plant and equipment 16 3, Deferred tax assets Intangible assets 18 3, Other 19 2, Total non-current assets 9,414-9,916 - Total assets 48,903-17,195 - Current liabilities Payables 20 14, Interest-bearing liabilities 21 8, Current tax liabilities Provisions Total current liabilities 23, Non-current liabilities Interest-bearing liabilities 21 5, Provisions Total non-current liabilities 5, Total liabilities 29, Net assets 19,840-17,195 - Equity Contributed equity 24 16,979-16,979 - Reserves Retained profits 26 2, Parent entity interest 19,840-17,195 - Outside equity interest Total equity 19,840-17,195 - The accompanying notes form part of these financial statements 18

21 Statement of cash flows For the year ended 30 June 8 Economic Entity Parent Entity Note Cash flows from operating activities Receipts from customers 109,458 Payments to suppliers and employees (115,979) Interest received Borrowing costs (799) Income tax paid (456) Net cash provided by (used in) operating activities 31a (7,605) Cash flows from investing activities Purchase of property, plant and equipment (375) Employee loan advanced (62) Purchase of other non-current assets (388) Net cash provided by (used in) investing activities (825) Cash flows from financing activities Proceeds from issue of shares 7, Proceeds from borrowings 2, Repayment of borrowings (217) Net cash provided by (used in) financing activities 9, Net increase (decrease) in cash held 1, Cash at 1 July Net cash acquired through acquisition of controlled entity (1,282) Cash at 30 June 9 (75) The accompanying notes form part of these financial statements 19 Annual Report

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23 Notes to and forming part of the Financial Statements For the year ended 30 June 9 Note 1: Statement of significant accounting policies The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act The financial report covers the economic entity of Legend Corporation Limited and controlled entities, and Legend Corporation Limited as an individual parent entity. Legend Corporation Limited is a listed public company, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. 1a 1b Principles of consolidation A controlled entity is any entity controlled by Legend Corporation Limited. Control exists where Legend Corporation Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Legend Corporation Limited to achieve the objectives of Legend Corporation Limited. A list of controlled entities is contained in Note 15 to the financial statements. All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Where controlled entities have entered or left the economic entity during the year, their operating results have been included from the date control was obtained or until the date control ceased. Outside interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report. Income tax The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences. Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Legend Corporation Limited and its wholly-owned Australian subsidiaries have not formed an income tax consolidated group under the Tax Consolidation System. 21 Annual Report

24 Note 1: Statement of significant accounting policies (continued) 1c 1d Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. Property, plant and equipment Each class of property, plant and equipment are carried at cost or fair value less, where applicable, any accumulated depreciation. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Depreciation The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Properties held for investment purposes are not subject to depreciation. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Depreciation Rate Leasehold improvements 2.5 % Plant and equipment % 1e 1f Investments Non-current investments are measured on the cost basis. The carrying amount of noncurrent investments is reviewed annually by directors to ensure it is not in excess of the recoverable amount of these investments. The recoverable amount is assessed from the quoted market value for listed investments or the underlying net assets for other non-listed investments. The expected net cash flows from investments have not been discounted to their present value in determining the recoverable amounts. Investments in associates Investments in associate companies are recognised in the financial statements by applying the equity method of accounting. 22

25 9 Note 1: Statement of significant accounting policies (continued) 1g 1h 1i Research and development expenditure Research and Development costs are charged to profit from ordinary activities before income tax as incurred or deferred where it is expected beyond any reasonable doubt that sufficient future benefits will be derived so as to recover those deferred costs. Deferred research and development expenditure is amortised on a straight line basis over the period during which the related benefits are expected to be realised, once commercial production has commenced. Intangibles Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Both purchased goodwill and goodwill on consolidation are amortised on a straight line basis over the period of 20 years. The balances are reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer probable are written off. Foreign currency transactions and balances Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date. The gains and losses from conversion of assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise. The assets and liabilities of the overseas controlled entities, which are self-sustaining, are translated at year-end rates and operating results are translated at the rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve. Exchange differences arising on hedged transactions undertaken to hedge foreign currency exposures, other than those for the purchase and sale of goods and services, are brought to account in the profit from ordinary activities when the exchange rates change. Any material gain or loss arising at the time of entering into hedge transactions is deferred and brought to account in the profit from ordinary activities over the lives of the hedges. Costs or gains arising at the time of entering hedged transactions for the purchase and sale of goods and services, and exchange differences that occur up to the date of purchase or sale, are deferred and included in the measurement of the purchase or sale. Gains and losses from speculative foreign currency transactions are brought to account in the profit from ordinary activities when the exchange rate changes. 23 Annual Report

26 Note 1: Statement of significant accounting policies (continued) 1j 1k 1l 1m Employee benefits Provision is made for the company s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Contributions are made by the economic entity to employee superannuation funds and are charged as expenses when incurred. The company operates an ownership-based remuneration scheme through the employee option plan and the employee share scheme, details of which are provided in Note 33 to the financial statements. Profits or losses incurred by employees being the difference between the market value and the issue price of the shares acquired are recognised as an employee benefit expense at the time the employees are entitled to the shares. In the statement of financial position, the shares are recognised at the market value at the time they are issued Provision for warranties Provision is made in respect of the economic entity s estimated liability on all products and services under warranty at balance date. The provision is measured as the present value of future cash flows estimated to be required to settle the warranty obligation. The future cash flows estimated by reference to the economic entity s history of warranty claims. Cash For the purpose of the statement of cash flows, cash includes: cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts; and investments in money market instruments with less than 14 days to maturity. Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). 24

27 9 Note 1: Statement of significant accounting policies (continued) 1n 1o 1p 1q Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Comparative figures Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. Rounding of amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors report have been rounded off to the nearest $1,000. Adoption of Australian Equivalents to International Financial Reporting Standards Australia is currently preparing for the introduction of International Financial Reporting Standards (IFRS) effective for financial years commencing 1 January This requires the production of accounting data for future comparative purposes at the beginning of the next financial year. The economic entity s management, along with its auditors, are assessing the significance of these changes and preparing for their implementation. An IFRS committee has been established to oversee and manage the economic entity s transition to IFRS. We will seek to keep stakeholders informed as to the impact of these new standards as they are finalised. The directors are of the opinion that the key differences in the economic entity s accounting policies which will arise from the adoption of IFRS are: Research and development expenditure Pending standard AASB 138: Intangible Assets further requires that costs associated with research be expensed in the period in which they are incurred. In terms of current policy, research costs are capitalised to the statement of financial position where it is expected beyond any reasonable doubt that sufficient future benefits will be derived so as to recover these deferred costs. Impairment of assets The economic entity currently determines the recoverable amount of an asset on the basis of undiscounted net cash flows that will be received from the assets use and subsequent disposal. In terms of pending AASB 136: Impairment of Assets, the recoverable amount of an asset will be determined as the higher of fair value less costs to sell and value in use. It is likely that this change in accounting policy will lead to impairments being recognised more often than under the existing policy. Goodwill on consolidation Under the proposed changes to the IAS 22: Business Combinations, goodwill is to be capitalised to the statement of financial position and subjected to an annual impairment test. Amortisation of goodwill is to be prohibited. Current accounting policy of the entity is to amortise goodwill on a straight line basis over the period of 20 years. 25 Annual Report

28 Note 1: Statement of significant accounting policies (continued) Non-current investments Under the pending AASB 139: Financial instruments: Recognition and measurement, financial instruments that are classified as available for sale instruments must be carried at fair value. Unrealised gains or losses may be recognised either in income or directly to equity. Current accounting policy is to measure non-current investments at cost, with an annual review by directors to ensure that the carrying amounts are not in excess of the recoverable value of the instrument. Income tax Currently, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under the Australian equivalent to IAS 12, the economic entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit. Derivative financial instruments Legend Corporation Limited does not currently recognise derivative financial instruments in the financial statements. Pending AASB 139: Financial Instruments: Recognition and measurement will require a change to the method of accounting for derivative financial instruments and hedging activities so that they are recorded in the financial statements. 26

29 9 Note 2: Revenue Operating activities Note Economic Entity Parent Entity Sale of goods 124, Interest received 2a Other revenue Total Revenue 124, a Interest revenue from: Entity Other persons Total interest revenue Note 3: Profit from ordinary activities Profit from ordinary activities before income tax has been determined after: Economic Entity Parent Entity 3a Expenses Cost of sales 111, Borrowing costs: Other persons Total borrowing costs Depreciation of non-current assets: Plant and equipment Total depreciation Amortisation of non-current assets: Leasehold improvements Research and development expenditure Goodwill on consolidation Total amortisation Foreign currency translation losses Bad and doubtful debts: Trade debtors Total bad and doubtful debts Rental expense on operating leases: Minimum lease payments Annual Report

30 Note 3: Profit from ordinary activities (continued) 3b Revenue and net gains Economic Entity Parent Entity Net gain on disposal of non-current assets: Property, plant and equipment Foreign currency translation gains Note 4: Income tax expense The prima facie tax on profit from ordinary activities Economic Entity Parent Entity before income tax is reconciled to the income tax as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30 % (: 30%): Economic entity Parent entity Add: Tax effect of: Non-deductible depreciation and amortisation Other non-allowable items Adjustment due to differentiating tax rates applicable to foreign entities Under provision for income tax in prior year , Less: Tax effect of: Incorporation costs capitalised Research and development capitalised Share of net profits of associates and joint venture entities Consolidation adjustment Income tax expense attributable to profit from ordinary activities before income tax (216) - 28

31 9 Note 5: Directors and Executive remuneration 5a 5b Names and positions held of Parent Entity Directors and Specified Executives in office at any time during the financial year are: Parent Entity Directors Mr Paul D Teisseire Chairman - Non-Executive Mr Bradley R Dowe Managing Director- Executive Mr Simon C Forth Director - Executive Mr Timothy J King Director - Non-Executive Ms Louise Dowe Director - Executive Specified Executives Mr Andrew Muller Chief Financial Officer Ms Lea Fox General Manager Ms Louise Dowe Senior Account Manager Mr Mike Sack Senior Account Manager Mr Andrew Trzesniowski Manager - European Operations Parent Entity Directors remuneration Primary Equity Total Salary, fees & commissions Superannuation contribution Cash bonus Shares Options Mr Paul D Teisseire Mr Bradley R Dowe Mr Simon C Forth Mr Timothy J King Ms Louise Dowe No comparatives are shown because the Parent Entity did not commence operating until January. The service and performance criteria set to determine remuneration are included per Note 5(h). 5c Specified Executives remuneration - Salary & Fees Superannuation Contribution Primary Cash Bonus Non-Cash Benefit Post employment Equity Other Total Superannuation Shares Andrew Muller Lea Fox Louise Dowe Mike Sack Andrew Trzesniowski No comparatives are shown because the Parent Entity did not commence operating until January. The service and performance criteria set to determine remuneration are included per Note 5(h). 29 Annual Report

32 Note 5: Directors and Executive remuneration (continued) 5d Remuneration options Options granted as remuneration Vested No. Granted Number Grant Date Value per Option at Grant Date $ Terms & Conditions for each grant First Exercise Price Second Exercise Price Third Exercise Price Last Exercise Date Parent Entity Directors Mr P Teisseire - 200,000 16/03/04 - $0.60 $0.70 $ /3/08 Mr S Forth - 500,000 16/03/04 - $0.60 $0.70 $ /3/08 Mr T King - 200,000 16/03/04 - $0.60 $0.70 $ /3/08-900,000 All grants of options vest after one year uninterrupted service in respect of all directors. 300,001 options expire on 31/3/06 and have an exercise price of $0.60, 300,001 options expire on 31/3/07 and have an exercise price of $0.70, 299,998 options expire on 31/3/08 and have an exercise price of $0.80. The service and performance criteria set to determine remuneration are included per Note 5(h). 5e Shares issued on exercise of remuneration options Options granted as remuneration No shares have been issued on Exercise of Remuneration Options. 5f Options and rights holdings Number of options held by Specified Directors & Executives Net Balance Granted as remuneration Options exercised change other* Balance Total vested Total exercisable Total unexercisable Parent Entity Directors Paul D Teisseire - 200, , ,000 Simon C Forth - 500, , ,000 Timothy J King - 200, , ,000 Total - 900, , ,000 * The net change other reflected above includes those options that have been forfeited by holders as well as options issued during the year under review. 30

33 9 Note 5: Directors and Executive remuneration (continued) 5g Shareholdings Number of shares held by Parent Entity Directors and Specified Executives Balance Received as remuneration Options exercised Net change other* Balance Parent Entity Directors Paul D Teisseire ,000 20,000 Bradley R Dowe ,816,000 24,816,001 Simon C Forth - 500,000-22, ,000 Timothy J King ,000 42,000 Specified Executives Andrew Muller - 100, ,000 Lea Fox - 550, ,000 Louise Dowe ,816,000 24,816,001 Mike Sack - 250, ,000 Andrew Trzesniowski - 50, ,000 Total 2 1,450,000-49,716,000 51,166,002 * Net change other refers to shares purchased or sold during the financial year. 5h Remuneration practices The company s policy for determining the nature and amount of emoluments of board members and senior executives of the company is as follows. The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company. The contracts for service between the company and specified directors and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Upon retirement specified directors and executives are paid employee benefit entitlements accrued to date of retirement. Any options not exercised before or on the date of termination lapse. The group seeks to emphasise payment for results through providing various cash bonus reward schemes, specifically, the incorporation of incentive payments based on the achievement of sales targets and return on equity ratios. Bonuses included per Note 5(b) and 5(c) are based on these targets. The objective of the reward schemes is to both reinforce the short and long-term goals of the company and to provide a common interest between management and shareholders. 31 Annual Report

34 Note 6: Auditors remuneration Economic Entity Parent Entity Remuneration of the auditor of the parent entity for: Auditing or reviewing the financial report Other services Note 7: Dividends Economic Entity Parent Entity 7a Proposed fully franked ordinary dividend of 0.75 (:Nil ) cents per share franked at the tax rate of 30% 7b Balance of franking account at year end adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and franking credits that may be prevented from distribution in subsequent financial years 1, Note 8: Earnings per share 8a 8b 8c Reconciliation of earnings to net profit or loss Net profit 2,600 - Net profit attributable to outside equity interest 2 - Earnings used in the calculation of basic EPS 2,602 - Earnings used in the calculation of dilutive EPS 2,602 - Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS 27,831,776 - Weighted average number of options outstanding 260,656 - Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS 28,091,432 - Classification of securities The following securities have been classified as potential ordinary shares and are included in determination of dilutive EPS: Options outstanding 32

35 9 Note 9 : Cash assets Note Economic Entity Parent Entity Cash at bank 6, Deposits at call 1, , Reconciliation of Cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows: Cash 7, Bank overdrafts 21 (8,045) (75) Note 10: Receivables Current Trade debtors 14, Provision for doubtful debts (117) , Other debtors Amounts receivable from: Wholly owned subsidiaries - - 7,279 - Other related parties ,850-7,279 - Note 11: inventories Current At cost Finished goods 16, Note 12: investments accounted for using the equity method Associated companies Annual Report

36 Note 13: Associated companies Interests are held in the following associated companies Name Unlisted: Memory Performance (Proprietary) Limited Principal activities Ownership interest % % Carrying amount of investment Memory manufacture & distribution Ord Economic Entity Parent Entity 13a Movements during the year in equity accounted investment in associated companies Balance at beginning of the financial year Add: New investments during the year Share of associated company s profit from ordinary activities and extraordinary items after income tax (net of carry forward losses) Balance at end of the financial year b Retained earnings attributable to associate Share of associate s profit from ordinary activities before income tax expense Share of associate s income tax expense Share of associate s profit from ordinary activities after income tax Share of accumulated losses at beginning of the financial year (36) Share of retained profits at end of the financial year c Summarised Presentation of Aggregate Assets, Liabilities and Performance of Associates Current Assets 605 Non-current Assets 2,644 Total Assets 3,249 Current Liabilities 918 Non-current Liabilities 2,248 Total Liabilities 3,166 Net Assets 83 Net profit from ordinary activities after income tax of associates d Ownership interest in Memory Performance (Pty) Ltd at that company s balance date was 50% of ordinary shares. The reporting date of Memory Performance (Pty) Ltd is 29 February.

37 9 Note 14: Other financial assets Unlisted investments, at cost Note Economic Entity Parent Entity Shares in controlled entities , ,700 - Note 15: Controlled entities 15a Controlled Entities Country of Incorporation Percentage Owned Parent Entity: Legend Corporation Limited Australia - - Subsidiaries of Legend Corporation Limited: Legend (Australasia) Pty Ltd Australia Subsidiaries of Legend (Australasia) Pty Ltd Legend Tech International Ltd Hong Kong Legend Logistics Ltd Hong Kong Legend Performance Technology (Thailand) Company Ltd Thailand 90 - Legend Pacific Pty Ltd Australia b Controlled entities acquired On 16th January the parent entity acquired 100% of Legend (Australasia) Pty Ltd, with Legend Corporation Limited entitled to all profits earned from 1st January, for a purchase consideration of $9,700,000. Note 16: Property, plant and equipment Economic Entity Parent Entity Plant and equipment At Cost 5, Directors valuation Accumulated depreciation (2,850) , Leasehold improvements At cost Accumulated amortisation (238) Total leasehold improvements Total property, plant and equipment 3, Annual Report

38 Note 16: Property, plant and equipment (continued) 16a Movements in carrying amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year Leasehold Improvements Plant and Equipment Total Economic Entity: Balance at the beginning of year Additions Disposals - (1) (1) Additions through acquisition of entity 500 2,340 2,840 Depreciation expense (37) (360) (397) Carrying amount at the end of year 505 2,629 3,134 Note 17: Deferred tax assets Economic Entity Parent Entity Note Future income tax benefit a The future income tax benefit is made up of the following estimated tax benefits: Tax losses Timing differences Note 18: Intangible assets Goodwill at cost 3, Accumulated amortisation (76) , Note 19: Other assets Current Prepayments Non-current Research and development at cost 19a 4, Accumulated amortisation (1,700) , a Research and development costs incurred during the year and deferred to future years 1,

39 9 Note 20: Payables Current Note Economic Entity Parent Entity Unsecured liabilities Trade creditors 12, Sundry creditors and accrued expenses 1, , Note 21: Interest bearing liabilities Current Secured liabilities Bank overdrafts 21a 8, Hire purchase liability , Non-current Secured liabilities Bank bills 21a 4, Hire purchase liability 21a 1, , a Total current and non-current secured liabilities: Bank overdraft 8, Bank bills 4, Hire Purchase Liability 1, , b The bank overdraft and bill facilities are secured by: i.) First registered mortgages over the whole of the assets and undertakings including uncalled capital of the following companies; Legend Corporation Ltd, Legend (Australasia) Pty Ltd and Legend (Pacific) Pty Ltd. ii.) A letter of Acknowledgement by: Legend (Australasia) Pty Ltd over USD Term Deposit and Cash Call Accounts matching amount of ISLCs issued under USD$3M Cash Secured Revolving OSLC Facility. iii.) Assignment by: Legend (Australasia) Pty Ltd over QBE Trade Indemnity Insurance 21c Secured hire purchase liabilities are secured by a charge over the assets subject to hire purchase. 37 Annual Report

40 Note 22: Tax liabilities Current Note Economic Entity Parent Entity Income tax Note 23: Provisions Current Employee entitlements 23a Warranties 23c Non-current Employee entitlements 23a a Aggregate employee benefits liability b Number of employees at year-end c Provisions for warranties A provision of $566,000 has been recognised for estimated warranty claims in respect of products and services sold which are still under warranty at balance date. The provision for warranties has been based upon total sales for the last five years and the historical percentage of claims made in relation to total sales. Provision for warranty claims at 1 July Addition through acquisition of entity Reduction in anticipated claims during the period (16) Provision for warranty claims at 30 June

41 9 Note 24: Contributed equity 67,819,002 (: 2 fully paid ordinary shares) Note Economic Entity Parent Entity 24a 16,979-16,979-24a Ordinary shares At the beginning of the reporting period Shares issued during the year: 2 on 25 October ,632,000 on 16 January 9,700-9,700-2,187,000 on 16 March ,000,000 on 16 March 8,000-8,000 - Transaction costs relating to share issues (721) - (721) - At reporting date 16,979-16,979 - Note Economic Entity No. No. Parent Entity At the beginning of reporting period Shares issued during year: No. No. 25 October January 49,632,000-49,632, March 33 2,187,000-2,187, March 16,000,000-16,000,000 - At reporting date 67,819, ,819,002 2 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 24d Options i. For information relating to the Legend Corporation Limited employee option plan, including details of options issued, exercised and lapsed during the fi nancial year and the options outstanding at year-end, refer to Note 33. ii. For information relating to share options issued to directors during the fi nancial year, refer to Note 33. At 30 June, there were 900,000 unissued ordinary shares for which options were outstanding. 24e Employee share scheme For information relating to the Legend Corporation Limited Employee Share Scheme, including details of shares issued during the fi nancial year, refer to Note Annual Report

42 Note 25: Reserves Note Economic Entity Parent Entity Foreign currency translation 25a a Foreign currency translation reserve Movements during the year Opening balance Adjustment arising from the translation of foreign controlled entities financial statements Closing balance The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary Note 26: Retained profits Economic Entity Parent Entity Note Retained profits at the beginning of the financial year Net profit attributable to the members of the parent entity 2, Dividends provided for or paid Retained profits at the end of the financial year 2, Note 27: Outside equity interests in controlled entities Outside equity interest comprises: Share capital Accumulated losses (2)

43 9 Note 28: Capital and leasing commitments Note Economic Entity Parent Entity 28a Hire purchase commitments Payable: Not later than 1 year Later than 1 year but not later than 5 years 1, Minimum Hire Purchase payments 1, Less future finance charges Total Hire Purchase Liability 21 1, b Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable: Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years The property lease is a non-cancellable lease expiring on 31 October 2005, with rent payable monthly in advance. Annual rental is $147,000 per annum. An option exists to renew the lease at the end of the term for an additional 2 terms of 3 years each. The lease is otherwise on standard terms and conditions for a document of this nature. 28c 28d Capital expenditure commitments There were no capital expenditure commitments as at 30 June. Associates There were no capital expenditure commitments at 30 June Note 29: Contingent liabilities and contingent assets Estimates of the potential financial effect of contingent liabilities, that may become payable: Contingent liabilities There are no known contingent liabilities at year end Share of associates contingent liabilities: The Associate has no known contingent liabilities at year end. 41 Annual Report

44 Note 30: Segment reporting Primary reporting Business segments Manufacturing & distribution Economic Entity Revenue External sales 124, ,313 - Other segments Total sales revenue 124, ,313 - Share of net profits of equity accounted associates Total segment revenue 124, ,396 - Unallocated revenue Total revenue from ordinary activities 124,809 - Result Segment result 2,625-2,625 - Unallocated expenses net of unallocated revenue Profit from ordinary activities before income tax expense 3,038 - Income tax expense (438) - Profit from ordinary activities after income tax expense 2,600 - Net profit 2,600 - Assets Segment assets 48,517-48,517 - Unallocated assets - - Total assets 48,517 - Liabilities Segment liabilities 29,603-29,603 - Unallocated liabilities - - Total liabilities 29,603 - Other Investments accounted for using the equity method Acquisitions of non-current segment assets 1,840-1,840 - Depreciation and amortisation of segment assets Other non-cash segment expenses

45 9 Note 30: Segment reporting (continued) Secondary reporting Geographical segments Segment Revenues from External Customers Geographical location: Carrying Amount of Segment Assets Acquisitions of Non-current Segment Assets Australia 86,928-42,038-1,770 - New Zealand 5,744-2, Hong Kong 31,222-3, Thailand ,313-48,517-1,840 - Accounting Policies Segment revenues and expenses are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and property, plant and equipment, net of allowances and accumulated depreciation and amortisation. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities consist principally of accounts payable, employee entitlements, accrued expenses, provisions and borrowings. Segment assets and liabilities do not include deferred income taxes. Intersegment Transfers Segment revenues, expenses and results include transfers between segments. The prices charged on intersegment transactions are the same as those charged for similar goods to parties outside of the economic entity at an arm s length. These transfers are eliminated on consolidation. Business and Geographical Segments Business Segments The economic entity has the following business segment: Manufacturing and distribution of computer memory modules and related computer components Geographical Segments The economic entity s business segments are located in Australia, New Zealand, Hong Kong & Thailand. 43 Annual Report

46 Note 31: Cash flow information Economic Entity Parent Entity 31a Reconciliation of cash flow from operations with profit from ordinary activities after income tax Profit from ordinary activities after income tax 2, Non-cash flows in profit from ordinary activities Amortisation Depreciation Write-off of capitalised expenditure Net loss on disposal of property, plant and equipment Net movement in foreign currency translation reserve Share of associated companies net profit after income tax and dividends (83) Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries Increase/(decrease) in trade debtors (4,170) Increase in other debtors (27) Increase/(decrease) in prepayments Increase/(decrease) in inventories (11,420) (Increase)/decrease in trade creditors and accruals 4, Increase/(decrease) in income taxes assets Increase/(decrease) in deferred tax assets (272) Increase/(decrease) in provisions (541) Cash flow from operations (7,605) b Acquisition of Entities During the year 100 % of the controlled entity Legend (Australasia) Pty Ltd was acquired. Details of this transaction are: Purchase consideration 9,700-9,700 - Cash consideration Amount due under contract of sale Cash outflow/inflow

47 9 Note 31: Cash flow information (continued) Economic Entity Parent Entity 31c Assets and liabilities held at acquisition date: Cash Assets 4, Receivables 10, Intangibles 2, Inventories 5, Other Deferred Tax Assets Property, plant and equipment 2, Payables (10,323) Provisions (1,397) Interest Bearing liabilities (7,501) , Goodwill on consolidation 3, Outside equity interests in acquisitions d Non-cash financing and investing activities i. Share issue ii. 9, ,634,000 ordinary shares were issued at $ as part of the consideration for the purchase of Legend (Australasia) Pty Ltd During the year the economic entity acquired plant and equipment with an aggregate value of $317,060 by means of commercial hire purchase. These acquisitions are not reflected in the statement of cash flows 31e Credit standby arrangements with banks Economic Entity Parent Entity Credit facility 15, Amount utilised 13, Unused credit facility 1, The major facilities are summarised as follows: Legend (Australasia) Pty Limited, a wholly owned subsidiary of the Company has various financing facilities with the Commonwealth Bank of Australia ( CBA ) totalling $15.5 million. These facilities comprise an invoice discounting facility (discussed further below), a standby bill facility, a trade finance facility and an instalment credit facility. In addition, the Company also has in place arrangements with the CBA to provide a cash secured US dollar denominated letter of credit facility for a further $3 million. The facilities are reviewed annually, with the next review due in October. 45 Annual Report

48 Note 31: Cash flow information (continued) Legend (Australasia) Pty Ltd has entered into a factoring agreement with CBA for the purposes of the invoice discounting facility. This facility provides for the purchase by CBA of trade debts of Legend (Australasia) at the discretion of CBA upon an offer for such purchase being made by Legend (Australasia). Legend (Australasia) must pay to CBA a monthly servicing fee of $3,000 and a monthly discount calculated at a rate equal to CBA s Overdraft Index Rate plus a margin of 0.25% as against the debit balance of Legend (Australasia) s bank account established for the purposes of the factoring agreement. These amounts are exclusive of goods and services tax which component is required to be paid by Legend (Australasia). The agreement is otherwise on terms and conditions customary for a document of this nature. The Company considers that the terms of the facilities and associated securities are standard for arrangements of this nature. Note 32: Economic dependency The group has no significant dependence on any single or group of suppliers or customers. Note 33: Employee benefits Employee Share Option Arrangement On 16 March, 900,000 share options were granted to directors. 300,001 2 year options at an exercise price of $0.60 per share, 300,001 3 year options at an exercise price of $0.70 per share and 299,998 4 year options at an exercise price $0.80 per share. The options vest after 12 months. The options hold no voting or dividend rights and are not transferable. When a director ceases employment the options are deemed to have lapsed. Since balance date, no director has ceased their employment. At balance date, no share option has been exercised. The closing share market price of an ordinary share on the Australian Stock Exchange at 30 June, was $ a Movement in the number of share options held by directors are as follows Economic Entity No No. Parent Entity No No. Opening balance Granted during the year 900, ,000 - Exercised during the year Lapsed during the year Closing Balance 900, ,000-33b No options were exercised during the year 46

49 9 Note 33: Employee benefits (continued) 33c Details of share options outstanding as at end of year: Grant Date 16 March 16 March 16 March Expiry and Exercise Date 31 March March March 2008 Employee share arrangement Exercise Price Economic Entity Parent Entity No No No No. $ , ,001 - $ , ,001 - $ , , , ,000 - The Company has established an employee share plan ( ESP ) by which the Company s Board may issue Shares to employees of the Company or its subsidiaries, including executive directors. The ESP will be administered in accordance with the terms of the ESP rules which are summarised below. Shares may be issued under the ESP at the discretion of the Board to employees of the Company or its subsidiaries (including executive directors) upon such terms as the Board may determine including restrictions as to when Shares issued under the ESP are to be sold by participating employees. Any proposed issue of Shares to executive directors will require shareholder approval under the Listing Rules. The issue price of Shares under the ESP is dependent on the time of issue. The Company may issue up to million Shares under the ESP for no consideration. The Company issued million of these Shares contemporaneously with the Offer under the Prospectus. The balance of shares may be issued over the next 5 years. During the above period and subsequently, the Company may also issue further Shares under the ESP at a price equal to 90% of the weighted average ASX market price for Shares during the 5 trading days before the date of invitation to participate. Shares issued under the ESP will be ordinary fully paid Shares in the Company and from date of issue will rank equally with all other ordinary fully paid Shares in the Company. 30 June Fair value at issue date: per share Aggregate proceeds received Fair value at issue date: aggregate Number of Date Shares Granted shares granted 16 March 2,187,000 $0.50-1,094 Fair value of shares issued during the reporting period is estimated to be the market price of shares of the entity on the Australian Stock Exchange as at open of trading on each of the issue dates. 47 Annual Report

50 Note 34: Events subsequent to reporting date There has been no material event or circumstance between 30 June and the date of this report that would require disclosure or adjustment to these financial statements. Note 35: Related party transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Economic Entity Parent Entity Transactions with related parties: i. Associated Companies Sales of memory modules. 3, ii. Director-related Entities Legend (Australasia) Pty Ltd leases a number of properties from the Vicsa Computercraft Property Trust and The Shortstop Trust. Both entities are controlled and owned by Bradley and Louise Dowe Note 36: Financial instruments 36a Financial Instruments Forward exchange contracts The economic entity enters into forward exchange contracts to buy and sell specified amounts of foreign currencies in the future at stipulated exchange rates. The objective in entering the forward exchange contracts is to protect the economic entity against unfavourable exchange rate movements for both the contracted and anticipated future sales and purchases undertaken in foreign currencies. The accounting policy in regard to forward exchange contracts is detailed in Note 1i. At balance date, the details of outstanding forward exchange contracts are: Buy Australian Dollars Sell United States Dollars Average Exchange Rate Settlement $ $ Less than 6 months 5, months to 1 year

51 9 Note 36: Financial instruments (continued) Gains or losses, deferred or unrecognised, from forward exchange contracts Deferred Unrealised losses and contract costs - - Realised and unrealised gains 8 - Unrecognised (8) - Unrealised losses - - Unrealised gains Net gains and losses (8) - Deferred, realised and unrealised gains are brought to account in Other Current Payables, Note b Interest rate risk The economic entity s exposure to interest rate risk, which is the risk that a financial instrument s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: Weighted average effective interest rate Floating interest rate Fixed interest rate maturing Within 1 year 1 to 5 years Over 5 years Non-interest bearing Total Financial Assets: Cash 5.0-6, ,304-7,970 - Receivables ,850-14,850 - Total Financial Assets 6, ,154-22,820 - Financial Liabilities: Bank loans and overdrafts 9.7-8, ,045 - Bills of exchange , ,075 - Trade and sundry creditors ,166-14,166 - Parties Hire purchase liabilities , ,525 - Forward exchange contracts - 5, ,716 - Total Financial Liabilities 13,761-4,555-1, ,166-33, Annual Report

52 Note 36: Financial instruments (Continued) 36c credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts and interest rate swaps is the net fair value of these contracts as disclosed in note d. Except for the following concentrations of credit risks, the economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity. 36d Net fair values The aggregate carrying amount of recognised financial assets and financial liabilities approximates net fair value. The following methods and assumptions are used to determine the net fair values of financial assets and liabilities Cash, cash equivalent and short-term investments; The carrying amount approximates fair value because of their short-term to maturity. Trade receivables and payables; The carrying amount approximates fair value. Other loans: The carrying amount approximates fair value. Borrowings: The carrying amount approximates fair value. The net fair values of fixed interest securities are determined by discounting the cash flows, at the market interest rates of similar securities, to their present value. For forward exchange contracts the net fair value is the recognised unrealised gain or loss at balance date determined from the current forward exchange rates for contracts with similar maturities. For other assets and other liabilities the net fair value approximates their carrying value.no financial assets and financial liabilities are readily traded on organised markets in standardised form other than forward exchange contracts. Financial assets where the carrying amount exceeds net fair values have not been written down as the economic entity intends to hold these assets to maturity. Carrying Amount Net Fair Value Carrying Amount Net Fair Value Financial Assets Fixed interest securities 1,527 1, ,527 1, Financial Liabilities Bills of exchange 4,075 4, Other loans and amounts due 8,045 8, Other liabilities 1,525 1, Forward exchange contracts - 5, ,645 19,

53 9 Note 37: Company details The registered office of the company is: Legend Corporation Limited Conmurra Avenue, Edwardstown, SA 5039 The principal places of business are: Legend Corporation Limited Conmurra Avenue, Edwardstown SA Annual Report

54 10 Directors Declaration The directors of the company declare that: 1. the financial statements and notes, as set out on pages 17 to 51 are in accordance with the Corporations Act 2001: a. comply with Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the financial position as at 30 June and of the performance for the year ended on that date of the company and economic entity; 2. in the directors opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The company and wholly-owned subsidiaries, Legend (Australasia) Pty Ltd and Legend (Pacific) Pty Ltd have entered into a deed of cross guarantee under which the company and its Australian subsidiaries guarantee the debts of each other. At the date of this declaration, there are reasonable grounds to believe that the companies which are party to this deed of cross guarantee will be able to meet any obligations or liabilities to which they are, or may become subject to, by virtue of the deed. This declaration is made in accordance with a resolution of the Board of Directors. Director Paul D Teisseire Director Dated this 31st day of August 52

55 Independent audit report 11 Scope The financial report and directors responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors declaration for Legend Corporation Limited (the company) and Legend Corporation Limited (the consolidated entity), for the year ended 30 June. The consolidated entity comprises both the company and the entities it controlled during that year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company s and the consolidated entity s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. 53 Annual Report

56 Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act Audit opinion In our opinion, the financial report of Legend Corporation Limited is in accordance with: a. the Corporations Act 2001, including: i. giving a true and fair view of the company s and consolidated entity s financial position as at 30 June and of their performance for the year ended on that date; and ii. complying with Accounting Standards in Australia and the Corporations Regulations 2001; and b. other mandatory professional reporting requirements in Australia. MGI Caulfield & Co Chartered Accountants P K Whitehead Partner 31st August 54

57 Shareholders information 12 The shareholder information set out below shows the position as at 19 October. Shareholding Distribution of shareholders number Category (size of Holding) Ordinary ,000-1, ,001-5, ,001-10, , , ,001 - and over The number of shareholdings held in less than marketable parcels is 22. The names of the substantial shareholders listed in the holding company s register as at 31 August are: Shareholder Number Ordinary % held Ordinary Dowe, Bradley R 24,816, % Dowe, Louise 24,816, % Voting rights The voting rights attached to each class of equity security are as follows: Ordinary shares Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. 55 Annual Report

58 20 Largest shareholders Ordinary shares Name Number of ordinary fully paid shares held % held of issued ordinary capital 1 Mr Bradley R Dowe 24,816, Ms Louise Dowe 24,816, Invia Custodian Pty Limited 2,413, National Nominees Limited 1,713, Tower Trust Fund 681, Ms Lea Fox 550, Mr Simon Forth 500, Invia Custodian Pty Limited 463, Invia Custodian Pty Limited 274, Mr Mike Sack 253, Altinova Nominees Pty Ltd 200, Mrs Maria Katalin Varoli 200, Mr Nicholas Guy Taylor 190, Mr Raymond Stern 184, Mr Brian John Faithfull 180, Mr Robert Ian Kester 152, Mr Keith Knowles 150, Mrs Margaret Mary Martin 140, Mr Andrew Muller 100, Boutique Venues Pty Ltd 100, ,077,

59