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1 Arturus Capital Limited and its Controlled Entities ABN Annual Financial Statements For the year ended 30 June

2 Annual Report for the year ended 30 June CONTENTS Page Corporate Directory 1 Directors Report 2 Auditors Independence Declaration 9 Corporate Governance Statement 10 Financial Report 15 Directors Declaration 55 Independent Auditor s Report 56 Shareholder Information 59 CORPORATE DIRECTORY Directors Andrew Waller Paul Blackman Richard Griffin Chairman Non-executive Director Non-executive Director Group Secretary Jay Stephenson Principal registered office Unit 6, 34 York Street North Perth WA 6006 Telephone Facsimile Website: Share Registry Computershare Investor Services Limited Level 2, 45 St Georges Terrace Perth WA 6000 Auditor Bentleys Audit and Corporate (WA) Pty Ltd Level 1, 12 Kings Park Road WEST PERTH WA 6005 Solicitor Steinepreis Paganin Level 4, 16 Milligan Street Perth WA 6000 Australian Securities Exchange ASX Code - AKW 1

3 DIRECTORS REPORT Your Directors present their report on the consolidated entity consisting of Arturus Capital Limited and the entities it controlled ( the Group or AKW ) for the year ended 30 June. The annual report is presented in United States dollars (). Directors The following persons were directors of Arturus Capital Limited during the year and up to the date of this report. Mr Andrew Waller Mr Paul Blackman Mr Douglas Jendry (resigned 24 June ) Mr George Woodcock (resigned 15 December ) Mr Paul Benson (appointed on 3 August and resigned on 6 September ) Mr Richard Griffin (appointed on 7 September ) Information on Directors Director Experience Special Responsibilities Interest in Shares and Options Andrew Waller Chairman appointed 26 May. Previously held position of non executive director from 28 November 2008 until 20 April Mr Waller has extensive public Group experience, particularly in capital raising and business development. With a background in technology development/manufacturing, property development and resources. Mr Waller is also a director of ASX listed Pacific Niugini Ltd, Modena Resources Limited, and AIM listed Pantheon Resources plc. Mr Waller has no formal qualifications. Non executive Director appointed 26 May. Mr Blackman is a commercial lawyer who has practiced for more than 30 years. He has considerable experience in acting for and advising public companies in relation to corporate governance and compliance issues. Mr Blackman is a qualified solicitor. Non executive Director appointed 6 September. Mr Griffin has over 28 years of International project experience in mining, petroleum, and engineering environments within Australia, Asia, United States, Europe and New Zealand with specialist skills in project evaluation, management and development. Currently advising several exploration and resource listed companies, providing strategic and operational management from the early stages of project appraisal through to ongoing production management. Richard has considerable experience in developing risk management strategies for listed and unlisted companies and the implementation of operational controls and systems. Nil 583,000 Shares Nil Options Paul Blackman Richard Griffin Nil Nil Nil Shares Nil Options Nil Shares Nil Options He holds comprehensive knowledge of Exploration, Production, Engineering, SC Management, and possesses internationally recognised qualifications in Business and Management combined with extensive hands on experience. Mr Griffin has no formal qualifications Douglas Jendry Non executive Director first appointed 23 September 2009, resigned 11 December 2009, re-appointed on 27 May and then resigned again on 24 June. Nil 2,000,000 Shares 2,000,000 Options George Woodcock Non-executive Director appointed 27 May and resigned 15 December. Mr Woodcock is a geophysicist with more than 40 years experience. *The Directors ordinary share and option holdings are as at the date of this report. Company Secretary Nil Nil Shares Nil Options The Company Secretary, Mr Jay Stephenson, was appointed on 3 June. Mr Stephenson is a Fellow of Certified Practicing Accountants; Certified Management Accountant; Member of Australian Institute of Company Directors; Master of Business Administration; Fellow of Institute of Chartered Secretaries Australia. Mr Stephenson is also the Company Secretary of Modena Resource Limited, a related party of the Group. 2

4 DIRECTORS REPORT Meetings of Directors The following table sets out the numbers of meetings of the Group s Board of Directors and meetings of each Board committee held during the year ended 30 June and the number of meetings attended by each Director. Director Director Meetings A B Andrew Waller 1 1 Paul Blackman 1 1 Douglas Jendry (resigned 24 June ) 1 1 George Woodcock (resigned 15 December ) - 1 Paul Benson (appointed 3 August, resigned 6 September ) - - Mr Richard Griffin (appointed on 7 September ) - - A = Number of meetings attended B = Number of meetings held during the time the Director held office or was a member of the committee during the year CORPORATE INFORMATION Corporate Structure Arturus Capital Limited is a Company limited by shares, incorporated and domiciled in Australia. It has prepared a consolidated financial report incorporating the entities it controlled during the financial year. Refer to note 22 for the list of entities it controlled during the financial year Principal Activities Arturus Capital Limited is a general purpose investment company. Employees The Group had no employees as at 30 June (: 1 employee). The Board of Directors form part of the executive management and the Group engages consultants who perform managerial functions and assist in the operations. Dividends No dividends were paid during the year and no dividend is recommended. OPERATING RESULTS The consolidated loss for the year amounted to 15,168,398 ( loss of 10,888,000) Financial Position The consolidated net asset deficiency as at 30 June amounted to 6,373,762 (: 3,374,032 net assets), representing a decrease of 9,747,794 REVIEW OF OPERATIONS During the year the Group had a numerous challenging issues to resolve including the reduction in debt and the disposal of various assets in an effort to restructure the balance sheet and financial position of the Group. This included various potential investment opportunities which did not result in any further investments being undertaken and elimination of significant portions of the previous incumbents debt structure from the Group. The Directors are currently working in the best interests of the Group to resolve the remaining outstanding matters referred to in this report with a view to looking at further investment opportunities and raising additional working capital to provide the Group with a platform to make future investments which may provide a return to its shareholders. The Directors will continue to work on securing the future of the Group and are now looking forward to further progress with the recently announced underwritten rights issue and subsequent capital raising which will provide the impetus going forward for your Group. The current market and status of the Group will continue to provide many challenges for the Board who will continue to work towards securing the future of the Group. 3

5 DIRECTORS REPORT SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS The following significant changes in the state of affairs of the Group occurred during the financial year: a) On 22 July the Group held its Annual General Meeting where it approved the ratification of prior issue of 5,924,414 shares (Tranche 1), placement of up to 5,924,414 attaching options (Tranche 1), 15,000,000 placement shares (Tranche 2), placement of up to 15,000,000 attaching options (Tranche 2) and the amendment to and conversation of redeemable convertible notes; b) On 30 July the Group announced the proposed sale of their Caledonian assets which was confirmed on 13 October ; c) On 13 October the Group confirmed that the Blackgate transaction with Modena Resources Limited had been completed. d) On 20 October the Group confirmed that an agreement had been reached to complete the proposed sale of the Caledonian Assets with Golden Gate Petroleum (GGP) and to settle the proposed sale of its 100% working interest in those assets. The transaction was the issue of 196,000,000 fully paid ordinary shares in GGP along with a payment of 2,000,000; e) On 22 October the Group announced that it had completed the placement of 16,200,000 Shares at 10 cents per Share, together with 1 free attaching option for every 1 share applied for to raise $1,620,000; f) On 15 December the Group announced that Mr George Woodcock had resigned as a director of the Group; g) On 4 March, the Group gave an update on the sale of the Caledonian Assets advising that it had received an initial refundable deposit of $500,000 with the balance of USD $1,700,000 cash at settlement. The Group also received 196,000,000 shares in GGP. The Group also advised that it had concluded the completion of the Blackgate transaction with Modena Resources Limited and had retained certain assets for further investment or alternatively sale of those interests; h) On 2 June the Group advised that the Supreme Court of New South Wales had delivered its judgement in the action by Dr Nair against the Group which found that Dr Nair was entitlement to be paid a termination benefit upon his resignation as Chief Executive Officer of the Group on 28 August The amount of the benefit was $900,000. DIVIDEND PAID OR RECOMMENDED There were no dividends paid or recommended during the financial year ended 30 June. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Matters subsequent to the end of the financial year include the following: On 5 August, Mr Paul Benson was appointed a Director of the Group. On 24 August, the Group announced that it had acquired an option to purchase a Mineral Sands project in the Eucla Basin in Western Australia. The Group subsequently allowed the option to lapse. On 6 September, the Group advised the following: a) that it had made a partial payment of $200,000 on the Nair settlement. b) that it was undertaking a fully underwritten non-renounceable rights issue to raise approximately $2,790,155 before costs on the basis that shareholders will be offered 1 new share for every 1 share held at a price of 2 cents per Share, together with 1 attaching option for every 3 shares subscribed for (exercisable at $0.06 each expiring on 31 December c) Mr Paul Benson resigned as a Director of the Group and Mr Richard Griffin was appointed a Director of the Group. There were no other matters subsequent to the end of the financial year. LIKELY DEVELOPMENTS Other than matters disclosed elsewhere in this report, other likely developments, future prospects and business strategies of the operations of the Group and the expected results of those operations have not been included in this report as the directors believe, on reasonable grounds, that the inclusion of such information would be likely to result in unreasonable prejudice to the Group. ENVIRONMENTAL REGULATION AND PERFORMANCE The Group has assessed whether there are any particular or significant environmental regulations which apply. Currently there are not matters affecting the Group. SHARE OPTIONS Unissued Shares As at the date of the report there were 59,836,500 unissued ordinary shares under option. Refer to note 18(d) for details of options outstanding. 4

6 DIRECTORS REPORT Option holders do not have any right, by virtue of the option, to participate in any share issues of the Group or any related body corporate. INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the Company paid a premium of $28,850 to insure the Directors and Officers of the Company and its controlled entities. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. The Group through its insurance coverage has agreed to indemnify all the directors and the executive officers for any breach of environmental or discrimination laws by the Group for which they may be held personally liable. PROCEEDINGS AGAINST OR ON BEHALF OF THE GROUP No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Group, or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act On 5 August, the Group announced that it had agreed on a compromise agreement with former director, Dr Nair for an amount of $900,000 AUD. This has been provided in the financial report. The Group has received a claim from Caerleon Advisory Pty Ltd for $499,693 for unpaid invoices. The Directors believe that no liability exists based on the legal advice received and have lodged a counter claim against Caerleon Advisory Pty Ltd. The Group s subsidiary, Arturus Energy LLC has received claims against it from two parties. At the date of this report, the total of the claims amounts to $1,000,000 for one claim and an unspecified amount in the second claim. The Group denies the claims, however, a provision of $250,000 for legal defense has been made. REMUNERATION REPORT (AUDITED) The Remuneration Report outlines the director and executive remuneration arrangements of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group and includes the KMP in the Parent and the Group receiving the highest remuneration. For the purpose of this report, the term executive encompasses the Managing Director, Senior Executives, general managers and secretaries of the Parent and the Group. There have been significant changes throughout the year with respect to the executive group of the Group. The remuneration policies listed in this section were in effect and applicable to certain executives during the year however the business structure has changed significantly and there were no executives employed by the Group during the year that were employed under a remuneration plan. Instead they were employed as contractors. As at the date of this report, the Group does not have a Remuneration Committee, rather the Board performs the function of the Remuneration Committee. It is the intention of the Board of the Group to review the following Remuneration Policy during the 2012 financial year to reflect the current state of the Group. Principles used to determine the nature and amount of remuneration The objective of the Group s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and confirms with market best practice for delivery of reward. The Board Remuneration Committee evaluates the executive directors and the CEO reviews the senior executive team. In general the Board and specifically the Remuneration Committee ensures that executive reward satisfies the following key criteria for good reward governance practices: Competitiveness and reasonableness Acceptability to shareholders Performance linkage/alignment of executive compensation Transparency 5

7 DIRECTORS REPORT Capital management The Group has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation. Alignment to shareholders interest: Has economic profit as a core component of plan design Focuses on sustained growth in share price and delivering constant return on assets as well as focusing the executive on key non financial drivers of value Attracts and retains high calibre executives Alignment to program participants interest: Rewards capability and experience Reflects competitive reward for contribution to shareholder growth Provides a clear structure for earning rewards Provides recognition for contribution The framework provides a mix of fixed and variable pay, and a blend of short and long term incentives. As executives gain seniority with the group, the balance of this mix shifts to a higher proportion of at risk rewards. Director Remuneration additional points The Group has agreements with one Director for Consultancy and an agreed monthly remuneration for the provision of Non Executive Directors fees as approved by the Board.There are no other employment agreements or consultancy agreements between non-executive Directors and the Group. The Board has also removed termination payments, other than statutory entitlements for retiring non-executive Directors. Non-Executive Directors Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non- Executive Directors fees and payments are reviewed annually by the Board. The Chairman is not present at any discussions relating to determination of his remuneration. Directors Fees The current base remuneration was last reviewed effective 22 nd July. Non-Executive Directors fees are determined within an aggregate fee pool limit, which is periodically recommended for approval by shareholders. The maximum non-executive Directors fee pool limit is AU$1,000,000 per year. Currently, the non-executive Directors of the Group do not receive any additional yearly fees for chairing committees. Executive Pay The executive pay and reward framework has four components: Base pay and benefits Short term performance incentives Long term incentives Other remuneration such as superannuation. The combination of these comprises the executive s total remuneration. Base Pay Executive base pay is structured as a total employment cost package which may be delivered as a mix of cash and prescribed non financial benefits at the executive s discretion. Benefits Executives in the prior financial year received benefits including health insurance, car allowances, relocation allowance and tax advisory services. Retirement Benefits Retirement benefits are delivered under the Group s employee superannuation fund for Australian employees and for 401K Pension plan for employees in the USA in the prior year. 6

8 DIRECTORS REPORT Short Term Incentives No formal structure for short term incentives were in place for employees during the financial year. Short term incentives for senior management were established on a per employee contractual basis. Long Term Incentives The objective of long term incentives for the Group is to reward senior management in a manner which aligns elements of remuneration with the creation of shareholder wealth. The long term incentive grants to executives are delivered in the form of options. Details of Remuneration (Audited) Details of the nature and amount of each element of the emoluments of each Director of Arturus Capital Limited and specified executives of the Group and the consolidated entity with the highest authority levels for the year ended 30 June are set out in the following tables. Directors of Arturus Capital Limited (1) Short-term Post-Employment Share Based Payments Name Cash salary & Bonus Non-monetary Superannuation Retirement Options fees benefits & Benefit Total % Performance Related allowances A Waller 327, ,672 - P Blackman 49, ,445 - D Jendry 44, ,500 - G Woodcock Company Secretary J Stephenson 36, ,750 - TOTAL 458, ,367 - (1) Short-term Post-Employment Share Based Payments Total Name Cash salary & fees Bonus Non-monetary benefits & allowances Superannuation Retirement Benefit Options % Performance Related W Belman 525, , ,090 - T Izelaar 56, ,258 - J Story 43, , ,008 - M Bertuccio 44, ,090 - S Myers 84, ,090 - D Telford 43, ,367 - D Jendry 19, , ,731 - A Waller 229, , ,821 - G Woodcock 3, ,265 P Blackman 3, ,265 - TOTAL 1,053, , ,069,985 - (1) No remuneration was paid for or in respect to Other Short-term Employee Benefits, Other Long-term Employee Benefits, Termination Benefits, or Other Equity-based Benefits. Senior Executive Employment Agreements The Group currently does not have any long term employment contracts in place. Loans to Key Management Personnel Nil Share options granted to Key Management Personnel No options over unissued ordinary shares of the Group were granted during the year or since the end of the financial year to any of the Key Management Personnel. 7

9 DIRECTORS REPORT Compensation options Directors No options were issued to Key Management Personnel during the years ended 30 June. End of audited remuneration report In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Arturus Capital Limited support and have adhered to the principles of corporate governance. The Group s corporate governance statement is contained in the next section of the annual report. AUDITOR INDEPENDENCE We have received the independence declaration from the auditor of Arturus Capital Limited, Bentleys Audit and Corporate (WA) Pty Ltd, a copy of which is attached to the Directors Report on page 9 of the financial report. NON- AUDIT SERVICES There were no fees paid for non-audit services during the year ended 30 June. Refer to note 20 of the financial statement for details of the remuneration that Bentleys Audit and Corporate (WA) Pty Ltd received or are due to receive for the provision of audit or other services. This report is made in accordance with a resolution of the Directors. Andrew Waller CHAIRMAN 6 October 8

10 To The Board of Directors This declaration is made in connection with our audit of the financial report of Arturus Capital Limited and Controlled Entities for the year ended 30 June and in accordance with the provisions of the Corporations Act We declare that, to the best of our knowledge and belief, there have been: no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; no contraventions of the Code of Professional Conduct of the Institute of Chartered Accountants in Australia in relation to the audit. Yours faithfully BENTLEYS Chartered Accountants RICHARD JOUGHIN CA Director DATED at PERTH this 6 th day of October

11 CORPORATE GOVERNANCE STATEMENT As the framework of how the Board of Directors of Arturus Capital Limited ( Group ) carries out its duties and obligations, the Board has considered the eight principles of corporate governance as set out in the ASX Good Corporate Governance and Best Practice Recommendations. The essential corporate governance principles are: 1 Lay solid foundations for management and oversight; 2 Structure the Board to add value; 3 Promote ethical and responsible decision-making; 4 Safeguard integrity in financial reporting; 5 Make timely and balanced disclosure; 6 Respect the rights of shareholders; 7 Recognise and manage risk; 8 Remunerate fairly and responsibly. 1. Lay solid foundations for management and oversight. Recommendation 1.1: Management should establish and disclose functions reserved to the Board and delegated to management. Roles and Responsibilities: The roles and responsibilities carried out by the Board are to: Oversee control and accountability of the Group; Set the broad targets, objectives, and strategies; Monitor financial performance; Assess and review risk exposure and management; Oversee compliance, corporate governance, and legal obligations; Approve all major purchases, disposals, acquisitions, and issue of new shares; Approve the annual and half-year financial statements; Appoint and remove the Group s Auditor; Appoint and assess the performance of the Managing Director and members of the senior management team; Report to shareholders. Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives. The Board regularly reviews the performance of senior executives. Recommendation 1.3: Provide the information indicated in the ASX Corporate Governance Council s Guide to Reporting on Principle 1. The evaluation of performance of senior executives has taken place throughout the period. 2. Structure the Board to add value. Recommendation 2.1: A majority of the Board should be independent Directors. - All Directors are independent. Refer general comment below. Recommendation 2.2: The Chairperson should be an independent Director. The Chairman is independent. Refer general comment below. Recommendation 2.3: The roles of the Chairperson and Chief Executive should not be exercised by the same individual. Recommendation 2.4: Establishment of a nominations committee. Recommendation 2.5: Disclose the process for performance evaluation of the Board, its committees and individual directors, and key executives. Recommendation 2.6: Provide the information indicated in the ASX Corporate Governance Council s Guide to Reporting on Principle 2. 10

12 CORPORATE GOVERNANCE STATEMENT General Comments: Membership The Board s membership and structure is selected to provide the Group with the most appropriate direction in the areas of business controlled by the Group. The Board currently consists of three non-executive Directors. Refer to the Directors Report for details of each Director s profile. The majority of the Board is independent. Chairman and Managing Director The Group does not have a Managing Director. The Chairman is responsible for leading the Board in its duties, and facilitating effective discussions at Board level. Nomination Committee The Board as a whole deals with areas that would normally fall under the charter of the Nomination Committee. These include matters relating to the renewal of Board members and Board performance. Skills The Directors bring a range of skills and background to the Board including Legal, and Finance. Experience The Directors have experience in business at both operational and corporate levels. Meetings The Board does not have regularly meets however board members meet informally. Independent professional advice Each Director has the right to seek independent professional advice at the Group s expense for which the prior approval of the Chairman is required, and is not unreasonably withheld. 3. Promote ethical and responsible decision-making. Recommendation 3.1: Establish a code of conduct to guide the Directors, the Chief Executive Officer (or equivalent) and any other key executives as to: The practices necessary to maintain confidence in the Group s integrity; The practices necessary to take into account legal obligations and the reasonable expectations of shareholders; The responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Recommendation 3.2: Establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. The Group has a diversity policy included in its Corporate Governance Policy. Recommendation 3.3: Disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. The Group believes that the promotion of diversity on boards, in senior management and within the organisation generally broadens the pool for recruitment of high quality directors and employees; is likely to support employee retention; through the inclusion of different perspectives, is likely to encourage greater innovation; and is socially and economically responsible governance practice. The Group is in compliance with the ASX Corporate Governance Council s Principles & Recommendations on Diversity. The Board of Directors is responsible for adopting and monitoring the Group s diversity policy. The policy sets out the beliefs and goals and strategies of the Group with respect to diversity within the Group. Diversity within the Group means all the things that make individuals different to one another including gender, ethnicity, religion, culture, language, sexual orientation, disability and age. It involves a commitment to equality and to treating of one another with respect. The Group is dedicated to promoting a corporate culture that embraces diversity. The Group believes that diversity begins with the recruitment and selection practices of its board and its staff. Hiring of new employees and promotion of current employees are made on the bases of performance, ability and attitude. 11

13 CORPORATE GOVERNANCE STATEMENT Recommendation 3.4: Disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. Currently there are no women employees in the whole organisation, in senior executive positions, or on the board. Given the present size of the Group, there are no plans to establish measurable objectives for achieving gender diversity at this time. The need for establishing and assessing measurable objectives for achieving gender diversity will be re-assessed as the size of the Group increases. Recommendation 3.5: Provide the information indicated in the ASX Corporate Governance Council s Guide to Reporting on Principle 3. A summary of both the Group s Code of Conduct and its Share Trading Policy will be included on the Group s website. 4. Safeguard integrity in financial reporting. Recommendation 4.1: The Board should establish an audit committee. Recommendation 4.2: Structure the audit committee so that it consists of: Only non-executive Directors; A majority of independent Directors; An independent Chairperson, who is not Chairperson of the Board; At least three members. Recommendation 4.3: The Audit Committee should have a formal charter. Refer to Recommendation 4.1. General Comments: Integrity of Group s Financial Condition The Group s Financial Controller and Group Secretary report in writing to the Board that the financial statements of the Group for the half and full financial year present a true and fair view, in all material respects, of the Group s financial condition and operational results in accordance with relevant accounting standards. Audit Committee The Group does not have an Audit Committee. The board as a whole performs the role of the Audit Committee. 5. Make timely and balanced disclosure. Recommendation 5.1: Establish written policies and procedures designed to ensure compliance with ASX Listing rules disclosure requirements and to ensure accountability at a senior management level for that compliance. Being a listed entity on the ASX, the Group has an obligation under the ASX Listing Rules to maintain an informed market with respect to its securities. Accordingly, the Group advises the market of all information required to be disclosed under the Rules that the Board believes would have a material affect on the price of the Group's securities. The Group Secretary has been appointed as the person responsible for communication with the Australian Securities Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirements of the ASX Listing Rules, and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media, and the public. All shareholders who elect to receive a hard copy of the Group's annual report. Recommendation 5.2: Provide the information indicated in the ASX Corporate Governance Councils Guide to Reporting on Principle 5. Disclosure is reviewed as a routine agenda item at each Board meeting. 6. Respect the rights of shareholders. Recommendation 6.1: Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings. Recommendation 6.2: Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit, and the preparation and content of the auditor's report. General Comments: The Group keeps shareholders fully informed of significant developments at the Group by way of ASX announcements. The Group's auditor, Bentleys, will be in attendance at the annual general meeting and will also be available to answer questions from shareholders about the conduct of the audit and the preparation and content of the auditor's report. 12

14 CORPORATE GOVERNANCE STATEMENT 7. Recognise and manage risk Recommendation 7.1: The Board or appropriate Board committee should establish policies on risk oversight and management. Recommendation 7.2: The chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the Board that: The statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board The Group's risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a system of risk management and internal control and that the system is operating effectively in all material respects in relation to the financial reporting risks. Recommendation 7.4: Provide the information indicated in the ASX Corporate Governance Council s Guide to reporting on Principle 7. General Comments: The Board oversees the Group's risk profile. The financial position of the Group and matters of risk are considered by the Board. The Board is responsible for ensuring that controls and procedures to identify, analyse, assess, prioritise, monitor and manage risk are in place, being maintained and adhered to. The Chief Financial Officer/Group Secretary state in writing to the Board that: The statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control, which implements the policies adopted by the Board. The Group's risk management and internal compliance and control system is operating efficiently and effectively in all material respects. 8. Remunerate fairly and responsibly Recommendation 8.1: The Board should establish a Remuneration Committee. Recommendation 8.2: Clearly distinguish the structure of non-executive Directors' remuneration from that of executives. Recommendation 8.3: Provide the information indicated in the ASX Corporate Governance Council s Guide to Reporting on Principle 8. General Comments: Principles used to determine the nature and amount of remuneration The objective of the Group's remuneration framework is to ensure reward for performance is competitive and appropriate to the results delivered. The framework aligns executive reward with the creation of value for shareholders, and conforms to market best practice. The Remuneration Committee ensures that executive rewards satisfy the following key criteria for good reward governance practices: Competitiveness and reasonableness; Acceptability to the shareholders; Performance linked; Transparency; Capital management. 13

15 CORPORATE GOVERNANCE STATEMENT The Group has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation. Remuneration Committee Members of the Remuneration Committee are the Board members. Directors' Remuneration Further information on Directors' and executives' remuneration is set out in the Directors' Report and Note 20 to the financial statements. Departure from Best Practice Recommendations From 1 July 2009 to 30 June, the Group complied with each of the Eight Essential Corporate Governance Principles and Best Practice Recommendations published by the ASX Corporate Governance Council, other than those items in the departure table below: Recommendation Reference Notification Departure of Explanation for Departure ASX Guidelines 2.3 The role of Chairman and Chief executive are being performed by the same person 2.4 A separate Nomination Committee has not been formed. The Board did appoint a Managing Director post 30 June, however, that appointee resigned. The Board will continue to search for an appropriate Managing Director. The Board considers that the Group is not currently of a size to justify the formation of a nomination committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in Directors. 4.1 A separate Audit Committee has not been formed The Board considers that the Group is not currently of a size to justify the formation of an audit committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in Directors. 8.1 A separate Remuneration Committee has not been formed The Board considers that the Group is not currently of a size to justify the formation of an audit committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in Directors. 14

16 Consolidated Statement of Comprehensive Income For the year ended 30 June Notes Investment Income - 90,000 Interest Income 83, ,000 Other Income 8, ,000 Revenue 4(a) 91,837 1,082,000 General & Administration Expenses 4(b) (5,014,720) (7,624,000) Financial Cost 4(c) (2,201,296) (705,000) Asset Impairment Charge 4(d) (6,588,296) (2,247,000) Foreign Currency Loss - (434,000) Share of Loss of an Associate 4(e) - (960,000) Loss on Disposal of Investment in an Associate 4(e) (2,684,754) - Over-provisions / over-accruals 4(f) 1,228,831 - Loss before income tax (15,168,398) (10,888,000) Income tax expense Net (loss)/profit for the period (15,168,398) (10,888,000) Other comprehensive income Foreign Currency translation 1,832,595 (427,000) Other comprehensive income for the period, net of tax 1,832,595 (427,000) Total comprehensive income for the period (13,335,803) (11,315,000) Loss /(profit) for the year is attributed to - non controlling interests - 40,000 - owners of the parent (15,168,398) (10,928,000) Loss for the year/period (15,168,398) (10,888,000) Total comprehensive income for the year is attributed to - non controlling interests - 40,000 - owners of the parent (13,335,803) (11,355,000) Loss for the year/period (13,335,803) (11,315,000) Profit/(loss) per share Total Group - basic profit/(loss) per share for the year 6 (0.22) (0.23) The above Statement of Comprehensive Income should be read with the accompanying notes. 15

17 Consolidated Statement of Financial Position AS AT 30 JUNE Notes $ CURRENT ASSETS Cash and cash equivalents 7 22, ,000 Other receivables 9 226, ,000 Financial Assets ,775 4,250,032 Other Assets ,883 27,000 TOTAL CURRENT ASSETS 894,165 4,863,032 NON-CURRENT ASSETS Investment in associates 12-3,002,000 Financial assets 13-2,244,000 Interests in Gas fields 14-3,216,000 Property, plant and equipment ,000 TOTAL NON-CURRENT ASSETS - 8,636,000 TOTAL ASSETS 894,165 13,499,032 CURRENT LIABILITIES Trade and other payables 16 3,307,501 2,409,000 Interest bearing loans and borrowings 17 3,960,426 7,716,000 TOTAL CURRENT LIABILITIES 7,267,927 10,125,000 TOTAL LIABILITIES 7,267,927 10,125,000 NET ASSETS / (DEFICENCY) (6,373,762) 3,374,032 EQUITY Issued capital ,255, ,092,261 Unissued Shares reserve 19(a) - 575,000 Share option reserve 19(a) 1,537,000 1,537,000 Foreign currency translation reserve 19(a) 3,340,595 1,508,000 Accumulated losses 19(b) (127,586,627) (112,418,229) Parent interest (6,453,762) 3,294,032 Non-controlling interest 80,000 80,000 TOTAL EQUITY (6,373,762) 3,374,032 The above Statement of Financial Position should be read with the accompanying notes. 16

18 Statement of Cash Flows For the year ended 30 June Notes Cash Flows from operating Activities Receipt from customers - 577,000 Payments to suppliers and employees (3,982,914) (7,449,000) Interest Received 83, ,000 Interest Paid (175,039) (92,000) Net cash flows (used in) operating activities 8(a) (4,074,424) (6,747,000) Cash Flows from Investing Activities Proceeds from disposal of financial assets - 455,000 Purchase of Interest in Gas Fields - (3,216,000) Sale of Interest in Gas Fields 2,301,150 - Advances in Related Parties - (428,000) Advances to other entities (714,168) - Advances from other entities 934,638 - Payment for purchase of property, plant & equipment - (15,000) Net cash flows used in investing activities 2,521,620 (3,204,000) Cash flows from financing activities Proceeds from issue of shares 1,600,197 1,686,000 Shares issue costs (83,105) (355,000) Cash received prior to share issue (70,884) 575,000 Gross proceeds from issue of Convertible Redeemable Notes - 6,798,000 Refund of Convertible and Redeemable Notes (68,868) (2,272,000) Gross proceeds from issue of Promissory Note - 2,400,000 Net cash flows from/(used in) financial activities 1,377,340 8,832,000 Net (decrease) in cash and cash equivalents (175,464) (1,119,000) Cash and cash equivalents at beginning of year 198,000 1,317,000 Cash and cash equivalents at end of year 7 22, ,000 The above Statement of Cash Flows should be read with the accompanying notes. 17

19 Consolidated Statement of Changes in Equity For the year ended 30 June Issued Capital Unissued Shares reserve Share options reserve Foreign Currency Translation Reserve Accumulated Losses Owners of the Parent Non Controlling Interest At 1 July ,752,261-1,537,000 1,935,000 (101,490,229) 12,734,032 40,000 12,774,032 - Profit/(Loss) for the - period (10,928,000) (10,928,000) 40,000 (10,888,000) Other Comprehensive - Income - - (427,000) - (427,000) - (427,000) Total comprehensive income for the half year - - (427,000) (10,928,000) (11,355,000) 40,000 (11,315,000) Transactions with owners in their capacity as owners Unissued Shares 575, , ,000 Issue of Shares 1,686, ,686,000-1,686,000 Less: Cost of Issue (355,000) (355,000) - (355,000) Issue of shares in lieu of fees 9,000 9,000 9,000 At 30 June 112,092, ,000 1,537,000 1,508,000 (112,418,229) 3,294,032 80,000 3,374,032 Total At 1 July 112,092, ,000 1,537,000 1,508,000 (112,418,229) 3,294,032 80,000 3,374,032 Profit/(Loss) for the period (15,168,398) (15,168,398) - (15,168,398) Other Comprehensive Income ,832,595-1,832,595-1,832,595 Total comprehensive - income for the year - - 1,832,595 (15,168,398) (13,335,803) - (13,335,803) Transactions with owners in their capacity as owners Unissued Shares 575,000 (575,000) Issue of Shares 3,671,001-3,671,001-3,671,001 Less: Cost of Issue (82,992) - (82,992) - (82,992) At 30 June 116,255,270-1,537,000 3,340,595 (127,586,627) (6,453,762) 80,000 (6,373,762) 18

20 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 1. CORPORATE INFORMATION These consolidated financial statements and notes represent those of Arturus Capital Limited and controlled entities (the controlled entities or group ) The separate financial statements of the parent entity Arturus Capital have not been presented within this financial report as permitted by the Corporations Act. The financial statements for the year ended 30 June was authorised for issue in accordance with a resolution of the directors on 6 October. Arturus Capital Limited is a Group limited by shares and incorporated in Australia and whose shares are publicly traded on the Australian securities exchange. The nature of the operations and principal activities of the Group are described in the directors report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements are general purpose financial statements, prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the consolidated financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial statements have been prepared on an accruals basis and is based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The financial statements are presented in United States dollars. For the financial statements, all values were rounded to the nearest thousand dollars ('000) under the option available to the Group under ASIC Class Order 98/0100. This Class Order no longer applies to the Group and accordingly the balances have been adjusted to reflect this. The stated balances have not been rounded. a) Going concern basis of preparation of the financial statements The financial statements have been prepared on the going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Group incurred a loss from ordinary activities of $15,168,398 for the year ended 30 June (: $10,888,000). The Group has a net asset deficiency of ($6,890,882) and there is a working capital deficiency of $1,913,336 (being current assets, less convertible notes, and cash settled current liabilities). The ability of the Group and the Group to continue to pay its debts as and when they fall due is dependent upon the Group successfully raising additional share capital and ultimately developing one of its assets. As at the date of this report the Board are undertaking a number of activities to inject working capital into the Group, and reduce its cash outflows in respect to its debt obligations. Included in these activities are the following: - The Group intends to undertake a fully underwritten entitlement issue to raise approximately $2,790, The Group intends to seek shareholder approval at the next General Meeting for the conversion of notes to equity in the Group, and other payables of the Group. If approval is obtained, the Group will seek to obtain note holders agreement to the conversion of notes to equity. The Group has also obtained letters of support from a number of creditors that they will not call upon their liabilities or make demand for payment from the Group to ensure the payment of outstanding amounts in due course. The Executive Chairman of the Board of Directors, and representing the significant shareholder s interests, has given an undertaking to provide all necessary support for Arturus Capital Limited ( the Company ) including ensuring sufficient funding to the Company to allow it to meet its liabilities as and when they fall due. 19

21 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE b) Functional and presentation currency The functional currency has been determined based on the primary currency in which the Group generates and expends cash. The functional currency of the Group is Australian dollars (A$). The functional currency of the US based subsidiaries is. The adopted presentation currency in. c) Statement of compliance with IFRS As noted above, the financial statements comply with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. d) New accounting standards and interpretations The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group follows: AASB 9: Financial Instruments (December ) (applicable for annual reporting periods commencing on or after 1 January 2013). This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments. The Group has not yet determined any potential impact on the financial statements. The key changes made to accounting requirements include: - simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; - simplifying the requirements for embedded derivatives; - removing the tainting rules associated with held-to-maturity assets; - removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; - allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; - requiring financial assets to be reclassified where there is a change in an entity s business model as they are initially classified based on: (a) the objective of the entity s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and - requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss. AASB 1053: Application of Tiers of Australian Accounting Standards and AASB 2: Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements [AASB 1, 2, 3, 5, 7, 8, 101, 102, 107, 108, 110, 111, 112, 116, 117, 119, 121, 123, 124, 127, 128, 131, 133, 134, 136, 137, 138, 140, 141, 1050 & 1052 and Interpretations 2, 4, 5, 15, 17, 127, 129 & 1052] (applicable for annual reporting periods commencing on or after 1 July 2013). AASB 1053 establishes a revised differential financial reporting framework consisting of two tiers of financial reporting requirements for those entities preparing general purpose financial statements: - Tier 1: Australian Accounting Standards; and - Tier 2: Australian Accounting Standards Reduced Disclosure Requirements. Tier 2 of the framework comprises the recognition, measurement and presentation requirements of Tier 1, but contains significantly fewer disclosure requirements. The following entities are required to apply Tier 1 reporting requirements (ie full IFRS): - for-profit private sector entities that have public accountability; and - the Australian Government and state, territory and local governments. 20

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Since the Group is a for-profit private sector entity that has public accountability, it does not qualify for the reduced disclosure requirements for Tier 2 entities. AASB 2 makes amendments to Australian Accounting Standards and Interpretations to give effect to the reduced disclosure requirements for Tier 2 entities. It achieves this by specifying the disclosure paragraphs that a Tier 2 entity need not comply with as well as adding specific RDR disclosures. d) New accounting standards and interpretations AASB : Amendments to Australian Accounting Standards [AASBs 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052] (applicable for annual reporting periods commencing on or after 1 January ). This Standard makes a number of editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. The Standard also amends AASB 8 to require entities to exercise judgment in assessing whether a government and entities known to be under the control of that government are considered a single customer for the purposes of certain operating segment disclosures. The amendments are not expected to impact the Group. AASB : Amendments to Australian Interpretation Prepayments of a Minimum Funding Requirement [AASB Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January ). This Standard amends Interpretation 14 to address unintended consequences that can arise from the previous accounting requirements when an entity prepays future contributions into a defined benefit pension plan. This Standard is not expected to impact the Group. AASB 4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13] (applicable for annual reporting periods commencing on or after 1 January ). This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB s annual improvements project. Key changes include: - clarifying the application of AASB 108 prior to an entity s first Australian-Accounting-Standards financial statements; - adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclosures to better enable users to evaluate an entity s exposure to risks arising from financial instruments; - amending AASB 101 to the effect that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes; - adding a number of examples to the list of events or transactions that require disclosure under AASB 134; and - making sundry editorial amendments to various Standards and Interpretations. This Standard is not expected to impact the Group. AASB 5: Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for annual reporting periods beginning on or after 1 January ). This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. However, these editorial amendments have no major impact on the requirements of the respective amended pronouncements. AASB 6: Amendments to Australian Accounting Standards Disclosures on Transfers of Financial Assets [AASB 1 & AASB 7] (applicable for annual reporting periods beginning on or after 1 July ). 21

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE d) New accounting standards and interpretations This Standard adds and amends disclosure requirements about transfers of financial assets, especially those in respect of the nature of the financial assets involved and the risks associated with them. Accordingly, this Standard makes amendments to AASB 1: First-time Adoption of Australian Accounting Standards, and AASB 7: Financial Instruments: Disclosures, establishing additional disclosure requirements in relation to transfers of financial assets. This Standard is not expected to impact the Group. AASB 7: Amendments to Australian Accounting Standards arising from AASB 9 (December ) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (applies to periods beginning on or after 1 January 2013). This Standard makes amendments to a range of Australian Accounting Standards and Interpretations as a consequence of the issuance of AASB 9: Financial Instruments in December. Accordingly, these amendments will only apply when the entity adopts AASB 9. As noted above, the Group has not yet determined any potential impact on the financial statements from adopting AASB 9. AASB 8: Amendments to Australian Accounting Standards Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012). This Standard makes amendments to AASB 112: Income Taxes. The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under AASB 140: Investment Property. Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112. The amendments are not expected to impact the Group. The Group does not anticipate the early adoption of any of the above Australian Accounting Standards e) Basis of consolidation The consolidated financial statements comprise the financial statements of Arturus Capital Limited and all entities controlled by Arturus Capital Limited as at 30 June and the results of all controlled entities for the period then ended. Arturus Capital Limited and its controlled entities together are referred to in this financial report as the Group. The effects of all transactions between entities in the consolidated entity are eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Interests in associated entities are equity accounted and are not part of the consolidated Group. Where control of an entity is obtained during the financial period, its results are included in the consolidated statement of comprehensive income from the date on which control commences. Where control of an entity ceases during a financial period results are included for that part of the year during which control existed. Control is determined by the power of the Group to govern the financial and operating policies of subsidiaries so as to obtain benefits from their activities. Investments in subsidiaries held by Arturus Capital are accounted for at cost in the separate financial statements of the parent entity less any impairment charges (if applicable). When assessing whether the Group has control over the investment, factors such as percentage ownership and board representation are considered. 22

24 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE The acquisition of subsidiaries is accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. The financial statements of subsidiaries are prepared for the same reporting period as the parent Group, using consistent accounting policies. f) Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. (i) Significant accounting judgments Impairment of non-financial assets other than goodwill The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectation. If an impairment trigger exists the recoverable amount of the asset is determined. This involves value in use calculations or fair value less selling costs approach, which incorporate a number of key estimates and assumptions. Interest in Gas Fields The valuation of the Interest in Gas Fields is based upon verification and measurement of the available gas reserves by independent experts. The Group uses this information to determine whether there is any impairment in the value of the interest in gas field. Refer to Note 4d for details on the impairment of the Interest in Gas Fields. Key Judgments Environmental Issues Balances disclosed in the financial statements and notes thereto are not adjusted for any pending or enacted environmental legislation, and the directors understanding thereof. At the current stage of the Group s development and its current environmental impact, the directors believe such treatment is reasonable and appropriate. (ii) Significant accounting estimates and assumptions Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and intangibles with indefinite useful lives are allocated. 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. Key Estimate Taxation Balances disclosed in the financial statements and the notes thereto, related to taxation, are based on the best estimates of directors. These estimates take into account both the financial performance and position of the Group as they pertain to current income taxation legislation, and the directors understanding thereof. No adjustment has been made for pending or future taxation legislation. The current income tax position represents that directors best estimate, pending an assessment by the relevant taxation authorities. 23

25 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE g) Revenue recognition Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and it can be reliably measured. Revenue is recognised for the major business activities as follows: Interest Income Interest income is recognised as it accrues, using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Royalties Royalties are recorded in the period in which the Group is entitled to the ownership interest on the sale of gas less appropriate operating expenses. Gain on sale of listed investments Investments in financial assets such as listed shares are recorded at fair value (marked to market) with changes in fair value recognised in the Statement of Comprehensive Income. h) Foreign currency translation (i) Functional and presentation currency The functional of Arturus Capital Limited is Australian dollars. The functional currency of US based subsidiaries is. The presentation currency is. (ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (iii) Translation of Parent Group functional currency to presentation currency The results of the Australian parent are translated into United States Dollars (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at reporting date. Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity. On consolidation, exchange differences arising from the translation of the Australian parent and of the borrowings designated as hedges of the net investment are taken to the foreign currency translation reserve. If a United States subsidiary were sold, the proportionate share of exchange differences would be transferred out of equity and recognised in the statement of comprehensive income. i) Borrowing costs Borrowing costs are expensed as incurred. Borrowing costs include interest on borrowings and finance lease charges. Fees and associated charges relating to the Promissory Note have been amortised over the expected term of the Note. 24

26 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE j) Leases A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all risks and benefits incidental to ownership of leased non-current assets; and operating leases under which the lessor effectively retains substantially all such risks and benefits. Finance leases Finance leases are capitalised. A lease asset and liability are established at the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the interest expense. The leased asset is amortised on a straight-line basis over the term of the lease. Where it is likely that the group will obtain ownership of the asset, the life of the asset. Lease assets held at the reporting dates are being amortised over the term of the lease. Operating leases Operating lease expense is recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. k) Cash and cash equivalents Cash on hand and in banks and short term deposits are stated at nominal value. For purposes of the statement of cash flows, cash includes short term deposits with maturity dates less than 90 days and deposits at call which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value. l) Trade and other receivables Trade receivables, which generally have 30 day terms, are recognised and carried at original invoice amount less an allowance for any impairment. Receivables from related parties are recognised and carried at the nominal amount due. A provision for doubtful debts is raised where there is objective evidence that related parties will not be able to pay loans. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level.. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Individual debts that are known to be uncollectible are written off when identified. 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. m) Inventories Raw materials, consumables, stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials and direct labour and an appropriate portion of variable and fixed overhead that is directly related to the production process, the latter being allocated on the basis of normal operating capacity. Where goods are considered obsolete and slow moving, a provision is recognised. 25

27 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE n) Financial Instruments Initial recognition and measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. Classification and Subsequent Measurement Financial assets at fair value through profit and loss Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realised and unrealised gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other investments are classified as current assets. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with changes in such fair value (ie. gains or losses) recognized in other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the financial asset is derecognized, the cumulative gain or loss pertaining to that asset previously recognized in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other financial assets are classified as current assets. Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. 26

28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Derivative instruments Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the statement of comprehensive income unless they are designated as hedges. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm s length transactions, reference to similar instruments and option pricing models. Impairment At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the profit or loss. Also, any cumulative decline in fair value previously recognized in other comprehensive income is reclassified to profit or loss at this point. Derecognition Financial assets are derecognised where the contractual rights to cash flow expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. o) Income Tax Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognized outside profit or loss. Deferred income tax is provided on all temporary differences at balance 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 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; and when the taxable temporary difference is associated with investments in subsidiaries or associates, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets 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 assets 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; and when the deductible temporary difference is associated with investments in subsidiaries or associates, 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. 27

29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 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. 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. 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. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Tax Consolidation legislation Arturus Capital Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation as of 1 July Arturus Capital Limited, as the head entity in the tax consolidated group, recognises current and deferred tax amounts relating to transactions, events and balances of the wholly owned Australian controlled entities in this Group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. p) Other taxes Revenues, expenses and assets are recognised net of the amount of GST amount except: where 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 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 statement of financial position. Cash flows are included in the statement of cash flows 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, are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. q) Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight-line basis (except where the assets are part of a disposal group and held for sale) over the estimated useful life of the asset as follows: Motor vehicles Plant and equipment Plant and equipment under lease Furniture and fixtures Computer equipment 5 years 5-10 years the lease term 7-10 years 3-5 years The assets residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. An item of plant and equipment is de-recognised upon disposal or when no further future economic benefits are expected from its use or disposal. Plant and equipment held for sale is not depreciated from the point in time when the plant and equipment is recognised as being held for sale. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit and loss in the period the asset is derecognised. 28

30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE r) Non-current assets held for sale and disposal group Non-current assets classified as held for sale are stated at the lower of their carrying amount and fair value less costs to sell. An impairment loss is recognised for any initial or subsequent write down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of de-recognition. Current assets are not depreciated or amortised while they are classified as held for sale, or as a disposal group. Current assets classified as held for sale and disposal group are presented separately from the other assets in the statement of financial position. s) Intangible assets Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or indefinite. Amortisation is charged on assets with finite lives in the statement of comprehensive income. Intangible assets are tested for impairment where an indicator of impairment exists and in the case of indefinite lived intangibles at least annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Interest in Gas Fields The interest in oil and gas producing assets are accounted for at cost less any impairment losses. When an oil and gas asset commences production, the investment will be amortised on a units of production basis over the life of the economically recoverable reserves. Changes in factors such as estimates of economically recoverable reserves that affect amortization calculations do not give rise to prior financial period adjustments and are dealt with on a prospective basis. Research and Development Costs Research costs are expensed as incurred. Development expenses are deferred when future recoverability can reasonably be regarded as assured. Patents and Trademarks Costs associated with Patents and Trademarks are expensed in the year in which they are incurred, unless it is probable that the expenditure will generate future economic benefits. t) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition unless extended terms are negotiated. These amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. 29

31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE u) Interest-bearing loans and borrowings Borrowing costs are classified as current liabilities and expenses in the period they are incurred. v) 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 obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, 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. 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. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs w) Employee benefits and superannuation commitments As at 30 June the Group has nil employees (: 1 employee). Wages, Salaries, Annual Leave and Bonuses Liabilities for wages, salaries, bonuses and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long Service Leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in other payables and is measured in accordance with (a) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expect future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows. Superannuation/401K Plans Contributions to Australian superannuation plans are expensed when the contributions are paid or become payable. Employer contributions to the US federally regulated 401K plans are recognised in other payables at the same date the liabilities for wages, salaries and bonuses for which they relate are recognised. These contributions are accrued up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Employee benefit on-costs Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. Share-based compensation Equity settled share based compensation benefits are provided to employees via the Group s Employee Option Plan and Directors Option Plan. The Group measures the fair value of the equity instruments granted at the grant date and expenses this amount over the vesting period with a corresponding increase in reserves. Fair value is determined by using a binomial or Black Scholes option pricing model. 30

32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The statement of comprehensive income charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of loss per share. x) Earnings per share (EPS) Basic Earnings per share Basic EPS is calculated as net profit after tax attributable to members, divided by the weighted average number of ordinary shares outstanding during the financial year. Diluted Earnings per share Diluted EPS is calculated as net profit after tax attributable to members divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. y) 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. z) Investments in Associates The Group's investment in associates is accounted for using the equity method of accounting in the consolidated financial statements. Associates are entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures. The Group generally deems it has significant influence if it has over 20% of the voting rights. Under the equity method, investments in the associates are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group's share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group's net investment in associates. The Group's share of its associates' post-acquisition profits or losses is recognised in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The reporting dates of the associates and the Group are identical and the associates' accounting policies conform to those used by the Group for like transactions and events in similar circumstances. (aa) Segment reporting 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. This includes start-up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. 31

33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Operating segments have been identified based on the information provided to the chief operating decision makers being the Board of Directors. The group aggregates two or more operating segments when they have similar economic characteristics, and the segments are similar in each of the following respects: o Nature of the products and services, o Nature of the production processes, o Type or class of customer for the products and services, o Methods used to distribute the products or provide the services, and if applicable o Nature of the regulatory environment. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category. (ab) Assets and disposal groups held for sale and discontinued operations Both current and non-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classified as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable. An impairment loss is recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the current or non-current asset (or disposal group) is recognised at the date of recognition. A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations. The results of the discontinued operations are presented separately on the face of the statement of comprehensive income and the assets and liabilities are presented separately on the face of the statement of financial position. 32

34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 3. Segment Reporting Operating segments The Group operates as an investment Group, with the Board of Directors reviewing operating results for the group s activities. Geographical segments During, the Group had divested its USA interests, however the Group still incurred expenses in relation to the USA. Accordingly, the Group presents its operating segments on a geographic basis. Revenue Assets Liabilities Net Assets / (Deficiency) USA 5, ,049 3,232, ,695 2,514,000 (103,646) 718,000 Australia 86,069 1,082, ,116 10,267,032 7,158,232 7,611,000 (6,270,116) 2,656,032 TOTAL 91,837 1,082, ,165 13,499,032 7,267,927 10,125,000 (6,373,762) 3,374,032 Australia USA TOTAL Revenue Interest Income 83,529-83,529 Other Income 2,540 5,768 8,308 Total Revenue 86,069 5,768 91,837 Expenses Professional and Legal Fees (890,362) (70,265) (960,627) Consulting Fees (1,489,953) (49,895) (1,539,848) Finance Costs (1,256,603) (944,693) (2,201,296) Other Expenses (1,218,709) (2,942) (1,221,651) Segment Result (4,769,558) (1,062,027) (5,831,585) Reconciliation of segment net loss after tax to net loss before tax Foreign currency translation 1,832,595 Other income relating to prior years 1,228,831 Impairment charge (6,588,296) Directors Fees (74,169) Legal Settlement (1,218,425) Loss on Sale of Shares (2,684,754) Net loss before tax per the statement of comprehensive income (13,335,803) 33

35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Australia Revenue USA TOTAL Concert tour promotion 361, ,000 Gain on sale of Listed investments 90,000-90,000 Interest Income 498, ,000 Other Income 133, ,000 Total Revenue 1,082,000-1,082,000 Expenses Professional and Legal Fees (974,000) (1,315,000) (2,289,000) Salaries and Wages (187,000) (156,000) (343,000) Consulting Fees (2,508,000) - (2,508,000) Interest expenses (368,000) (337,000) (705,000) Share of loss of associate (960,000) - (960,000) Other Expenses - (689,000) (689,000) Segment Result (3,915,000) (2,497,000) (6,412,000) Reconciliation of segment net loss after tax to net loss before tax Foreign currency translation (427,000) Impairment charge on Investment in Associate (2,247,000) Directors Fees (1,053,000) Foreign exchange gain/(loss) (434,000) Other Expenses (742,000) Net loss before tax per the statement of comprehensive income (11,315,000) 4. Revenue and Expenses Consolidated (a) Revenue Concert Tour Promotion - 361,000 Gain on sale of listed investments - 90,000 Interest Income 83, ,000 Other Income 8, ,000 Total Revenue from continuing operations 91,837 1,082,000 (b) General & Administration Expenses Salaries, Wages and benefits - 343,000 Depreciation - 37,000 Directors Fees 74,169 1,053,000 Management/Consultancy Fees 1,539,847 2,508,000 34

36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Note Consolidated Professional and Legal fees 960,627 2,289,000 Travel and Entertainment 332, ,000 Legal Settlement 1,218,425 - General Expenses 888,688 1,012,000 Total General & Administration 5,014,720 7,624,000 (c) Finance Costs Interest pay and payable Convertible Notes 458, ,000 Interest pay and payable Promissory Notes 237, ,000 Amortised Finance Charges Promissory Note - 337,000 Extension Fees Promissory Note 60,000 Finance costs on Gas Fields 1,444,693 - Total Finance Costs 2,201, ,000 (d) Asset Impairment Impairment charge on Investment in Associate - 1,938,000 Royalty income impairment - 309,000 Impairment on Scottish Rite Caledonian Gas Fields 2,065,998 - Impairment on Blackgate Sale Receivable 4,348,298 - Write-off of Plant and Equipment 174,000 - Impairment charge on Investment in Associate 6,588,296 2,247,000 (e) Share of Loss of an Associate Net Loss of Modena Resources Limited at 30 June e i - 7,094,000 Share of Net Loss of an Associate e i - 960,000 Loss on Sale of Shares held in Modena Resources Limited e ii 2,684,754 - Impairment charge on Investment in Associate 2,684, ,000 e i ) 30 June, the Group s owned a significant share of Modena Resources Limited. The value of the investment as at 30 June reflects the number of shares the Group owns in Modena being 106,720,000 owned at 30 June a at the market value as at 30 June of 3 cents per share. An impairment charge has been recorded to reflect the market value as at 30 June. e ii ) On 4 March, the Group announced that it had completed the sale of the its Caledonian Assets. A condition of settlement was that the Group discharged all liabilities against the Caledonian Assets. Part of the discharge of liabilities was through the transfer of 106,720,000 Shares the Group held in Modena. The Shares were transferred to Merchant Striker Limited for a loss. Refer to note 8(b) for details of the settlement with Merchant Striker Limited. 35

37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE (f) Over-provisions/over accruals Consolidated Over provided for withholding tax in prior years f i 564,186 - Over accrual of US related expenses from prior years 664,645 - Impairment charge on Investment in Associate 1,228,831 - f i ) The Group previously provided for withholding tax for a sale of assets that did not eventuate. 5. Income Tax The major components of income tax expense are: Consolidated (a) Revenue The major components of income tax are: Current income tax expense - - Deferred income tax expense - - Income tax benefit reported in the income statement - - (b) A reconciliation between income tax expense and the product of accounting profit before tax multiplied by the Group s applicable income tax rate is as follows: Accounting gain/(loss) before income tax (15,168,398) (10,888,000) At the Group s applicable statutory income tax rate of 30% ( 30%) 4,550,519 3,266,400 Tax assets not recognised (4,550,519) (3,266,400) Aggregate income tax expense - - Deferred income tax The Group is a tax consolidated group in Australia (including all Australian based subsidiaries) with the former United States group subsidiaries forming a separate tax consolidated group. Both tax consolidated jurisdictions have tax losses which are not recognised. The tax losses are available indefinitely for offset against future taxable profits of the companies in which losses arose within each tax consolidated jurisdiction. At 30 June, the available tax losses have not been quantified. The Group has recorded the value of the tax losses as $Nil due to the uncertainty of the losses being utilised in the future. At 30 June, the Group did not recognise any deferred tax assets. No deferred tax assets were recognised on the basis that realisation is not probable. Tax consolidation Arturus Capital Limited and its 100% wholly-owned Australian resident subsidiaries have formed a tax consolidation group with effect from 1 July Arturus Capital Limited is the head entity of the tax consolidated group and recognises current and deferred tax amounts relating to transactions, events and balances of the wholly owned Australian controlled entities in this group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. 36

38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Tax effect accounting by members of the tax consolidated group Members of the Australian tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group using a group allocation method based on stand-alone tax computations that recognise members of the tax consolidated group, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Recognition principles are applied on a tax consolidated basis and funding is based on recognition. 6. Earnings per share The following reflects the income and share data used in the basic and diluted earnings per share computation: Consolidated Loss after tax from continuing operations (15,168,398) (10,888,000) Net gain/(loss) for the period (15,168,398) (10,888,000) Profit/(loss) per share continuing operations - basic for gain/(loss) for the year (0.22) (0.23) Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating basic earnings per share 70,076,311 46,753,839 70,076,311 46,753,839 Information concerning the classification of securities Options Options granted under the Group s Option Plans are considered to be potential ordinary shares and have not been included in the determination of diluted earnings per share as they are considered anti-dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 18(d). 7. Current Assets Cash and cash equivalents Consolidated Cash at bank (AA rated institutions) 22, ,000 Total cash at bank 22, ,000 Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amount of cash and cash equivalents represents fair value. 37

39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 8 Cash Flow Information (a) Reconciliation of Operating Loss to Net Cash Used by Operating Activities Consolidated Loss from continuing activities after income tax expense (15,168,398) (10,888,000) Adjustment for non-cash items: Non cash transactions: Depreciation and amortisation - 37,000 Asset impairment charge 6,588,296 2,247,000 Loss on disposal of shares 2,684,754 - Financial Costs 2,201,296 Legal Settlement accrued 1,218,425 - Payment of expenses via issue of shares (see note 12) 1,421,916 1,062,000 Over-provisions / over accruals (see note 4f) (1,228,831) Foreign exchange gain/(loss) (1,042,000) Movement in working capital: (Increase)/decrease in trade debtors (692,462) 615,000 Increase/(decrease) in creditors & accruals (1,099,420) 1,222,000 Total cash at bank from continuing operations (4,074,424) (6,747,000) (b) Non-cash Financing and Investing Activities On 4 March, the Group completed the sale of its Caledonian Assets. A condition of the completion of the sale was the discharge of all liabilities against the Caledonian Assets which included a promissory note and an ongoing 3% royalty both in favour of Merchant Striker Limited. The ongoing 3% royalty did not have any value attributed to it in the accounts of the Group which resulted in an impairment as outlined in note 4(d). Repayment of Debt payable to Merchant Striker 4,016,693 - Satisfied by: Convertible Notes and Accrued Interest Assigned (2,927,413) - Bridging Loan Assigned (1,249,826) - Value of Modena Shares Assigned (2,922,572) - Impairments and write-downs 3,083, At Completion of the sale of the Caledonian Assets, the Group received 196,000,000 Shares in Golden Gate Petroleum. Of these, 116,785,714 Shares were used to settle $1,856,016 worth of convertible notes. 38

40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 9. Current assets - Other receivables Consolidated Accrued Interest (a) - 388,000 GST Receivable 226,971 - TOTAL 226, ,000 (a) Accrued interest represents unpaid interest on the Convertible Note (see Note 17). 10. Financial Assets Current Consolidated Financial Assets Listed Shares at Market Value 1,399 - Rental Bond 125,376 - Loans interest bearing - 1,285,000 Loans at call interest bearing - 690,000 Blackgate Resources transaction - final cash settlement - 2,274,000 TOTAL 126,775 4,249, Other Assets Current Consolidated Other Assets Short term loans to listed entities (a) 517,883 - Other - 27,000 TOTAL 517,883 27,000 (a) The Short term loans have interest payable at normal commercial rates. 12. Investment in Associates Consolidated Modena Resources Limited Shares at cost - issued - 5,617,000 Shares at cost to be issued - 283,000 Share of equity accounted loss current year - (960,000) Impairment - (1,938,000) TOTAL - 3,002,000 As at 30 June, the Group s investment in Modena Resources was nil. The Shares were transferred to a third party as consideration for assignment of debts. As at June 30, the Group s shareholding in Modena Resources was 106,720,000 shares representing approximately 13% of the total issued capital of Modena Resources Ltd. Furthermore, the Group had a redeemable convertible note, which if converted would have resulted in an ownership interest in excess of 20%. 39

41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Shares Shares Shares at the start of the year 106,720,000 10,300,000 Shares received in lieu of interest on Convertible Note - 5,855,340 Shares received as part of consideration for Blackgate transaction - 120,000,000 Shares issued to third parties in lieu of payment of services (see Note 9) - (25,000,000) Shares sold on market - (4,435,340) Shares assigned to third party (106,720,000) ,720,000 The Group s investment in Modena Resources was recognised as an investment in associate on 3 April 2009 and the investment was equity accounted for from this date. On transfer of Shares to a third party the Group ceased to recognise any investment in an associate. Refer to Note 8b regarding the transfer of Shares. 13. Non Current Assets Financial Assets Consolidated Loans and receivables convertible note (a) - 2,072,000 Derivative financial assets convertible note - 70,000 Rental Bond - 102,000 TOTAL - 2,244,000 (a) Refer to Note 8b for details of the assignment of convertible notes. 14. Non-Current Assets Interests in Gas Fields Consolidated Caledonian Fields (a) - 3,216,000 TOTAL - 3,216,000 (a) Caledonian Fields On 4 March, the Group announced that it had completed the sale of the Caledonian Assets advising that it had received an initial refundable deposit of $500,000 with the balance of USD $1,700,000 cash at settlement. The Group also received 196,000,000 shares in the purchaser, Golden Gate Petroleum. Refer to Note 4e ii for details on the sale of the Caledonian Asset. (b) Jackson Wells and Grimes The Group holds an interest in the Jackson and Grimes assets which includes a 10% interest in Certain oil and gas leases acquired from Alicons International Limited on the 20 th January Said interests are held by its wholly owned subsidiary Arturus Energy LLC. They include a 10% royalty stream on the shallow well gas projects located on the lands known as The Sandy Slazenger and Wagner prospects in Jackson County Texas. The Group had nil value attributed to this asset as at 30 June as it had been sold. On March 4, the Group announced that it had retained certain assets of Jackson Wells and Grimes that could not be settled in the original sale. The Group, has not valued the income stream due to uncertainty in future cash flows. The Group is currently considering further investment to re-establish the production and income stream, which could potentially realise a gain for the Group. 40

42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 15. Non-Current Assets - Plant and Equipment Consolidated Total plant and equipment at cost - 230,000 Less: Accumulated depreciation - (56,000) Total plant and equipment at cost - 174,000 Carrying amount at 1 July 174, ,000 Additions - Less: Accumulated depreciation - (37,000) Less: Assets written off 174,000 - Carrying amount as at 30 June - 174,000 The Group has impaired its plant and equipment held at 30 June, due to uncertainty as to the ownership of such plant and equipment. 16. Current Liabilities Trade and other payables Consolidated Trade Payables (a) 1,518,192 1,840,000 Withholding Tax payable (b) - 471,000 Accrued other expenses (c) 70,884 98,000 Accrued legal settlement costs (d) 1,218,425 - Creditor settlement outstanding (e) 500,000 - TOTAL 3,307,501 2,409,000 (a) Trade payables represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. These amounts are unsecured and usually are paid between 180 days of recognition unless extended payment terms have been negotiated. As at 30 June, all creditors were within 180 day payment terms. (b) Withholding Tax Payable was originally provided for in 2009 for a sale that never eventuated (c) Accrued other expenses represent goods and services received for which invoices have not yet been received. Such amounts are moved to the payables account as invoices are received and paid according to terms. (d) Accrued legal settlement costs represents legal fees payable to Nair and estimated legal defence costs for claims against Arturus Energy LLC as disclosed in Note 24. (e) Represents balance outstanding, to be settled by issue of shares. 41

43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 17. Current Liabilities Interest-Bearing Loans and Borrowings Consolidated Redeemable Convertible Notes (a) 3,100,098 4,836,000 Accrued interest Redeemable Convertible Notes (a) 537, ,000 Promissory Note (b) - 2,400,000 Accrued interest Promissory Note (b) - 336,000 Other liabilities 115,885 - Short-term loans 206,602 - TOTAL 3,960,426 7,716,000 (a) (i) (ii) Redeemable Convertible Loans The Convertible Notes issued in 2009 are convertible at the lesser of $0.20 or the 5 day VWAP of the company s share price before the date of conversion. The notes have an interest rate of 10% per annum. The maturity date of these notes was May,. As at the date of this report, these notes have neither converted nor been repaid. From October 2009 to December 2009, the Company issued Notes to note holders. These Notes were subsequently amended to Redeemable (Convertible) Notes as follows: Number of Notes (net of refunds) 9,120,000 Maturity date December 2012 Issue Price AU$0.25 Interest Rate 8% per annum, payable 6 monthly Of the 9,120,000 notes of this class, 6,660,000 are convertible at the discretion of the Company. (iii) From February to March the Company issued Redeemable (Convertible) Notes as follows: Number of Notes 5,384,000 Maturity date From February 2013 to March 2013 Issue Price AU$0.25 Interest Rate 8% per annum, payable 6 monthly The option to redeem or convert at any time resides solely with the Company. The Notes are unsecured. (iv) The Notes are classified as current liabilities as the Notes are in default due to unpaid interest. (b) Promissory Notes In April, the Company received a Promissory Note from Merchant Striker Capital The terms of the note are: - Interest rate of 18% per annum; - Maturity date of December 12 th ; - Merchant Striker Capital shall receive a 3% Overriding Royalty Interest ( ORRI ) on all wells drilled in the lease acreage known as Scottish Rite. The Scottish Rite acreage is part of the Caledonian Fields asset; - Merchant Striker Capital shall be granted the right to participate in up to 50% working interest on a well by well basis for a period of 2 years from April. The face value of the Promissory Note is 3,072,000. The company received 2,400,000 in cash. The difference between the face value of the Note and the cash received of 672,000 represents brokers fees, deal origination charges and other associated costs. These expenses are being amortised over the 6 month term of the Note. The term of the Note has been extended until December 12 th in return for an extension fee payable of 60,000. On 4 March, the Group completed the sale of its Caledonian Assets. A condition of the completion of the sale was the discharge of all liabilities against the Caledonian Assets which included the promissory note, all expenses that had accrued in relation to the note and an ongoing 3% royalty both in favour of Merchant Striker Limited. The ongoing 3% royalty did not have any value attributed to it in the accounts of the Group which resulted in an impairment as outlined in note 4d. 42

44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 18. Contributed Equity (a) Share capital Shares Shares Ordinary shares issued and fully paid 139,507,742 46,753,839 (b) Movements in ordinary share capital of the Group during the year: Date Details Number of Shares 1 July Opening Balance 46,753, ,092, July Issue of 5,575,590 Shares 5,575, , August Issue of 2,000,000 Shares 2,000, , October Issue of 16,150,000 Shares 16,150,000 1,845, March Issue of 125,000 Shares 125,000 14, May Issue of 10,000,000 Shares 10,000, , May Issue of 6,903,313 Shares 6,903, ,657 1 June 1011 Issue of 10,000,000 Shares 10,000, ,516 1 June Issue of 31,000,000 Shares 31,000, , June Issue of 11,000,000 Shares 11,000, ,799 Cost of issues - (82,992) 139,507, ,255,270 Date Details Number of Shares 1 July 2009 Opening balance 35,427, ,752,000 4 December 2009 Issue of 5,302,000 shares 5,302,000 1,183,000 Cost of Issue - (100,000) 20 April Issue of 100,000 shares (in lieu of mandate fees) 100,000 9, June Issue of 5,924,410 shares 5,924, , June Cost of Issue - (254,739) 46,753, ,092,261 (c) Ordinary Shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Group in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. (d) Options over Ordinary Shares Options issued, exercised and lapsed during the year. Grant date Expiry date Vesting date Exercise price AU$ Balance at start of year Issued during the year Exercised during the year Lapsed/ cancelled during the year Balance at end of year 4 Dec /11/ /12/ , , Feb 11/02/ /02/ ,844, ,844, May 31/12/ /05/ ,924, ,924,410 2 Aug 31/12/2013 2/08/ ,575, ,575, Aug 31/12/ /08/ ,000, ,000,00 16 Sept 31/12/ /09/ , , Oct 31/12/ /10/ ,500, ,500, Dec 31/12/ /12/ ,825, ,825,000 TOTAL 34,868,410 24,780, ,649,000 43

45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Grant date Expiry date Vesting date Exercise price AU$ Balance at start of year Issued during the year Exercised during the year Lapsed/ cancelled during the year Balance at end of year Consolidated entity Directors Options Plan Tranche 1 28/01/ /01/ ,330 - (833,330) - Tranche 2 2/8/01/ /01/ ,330 - (833,330) - Tranche 3 28/01/ /01/ ,330 - (833,330) - Share placement Options 4 Dec /11/ /12/ , , Feb 11/02/ /02/ ,844, ,844, May 31/12/ /05/ ,924, ,924,410 TOTAL - 37,368,400 - (2,499,990) 34,868,410 Capital Management When managing capital, managements objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits to other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. The Group s process of managing capital is incorporated into the Board decision making. Consolidated Total borrowings 3,960,426 7,716,000 Less: cash and cash equivalents (22,536) (198,000) Net Debt 3,937,890 7,518,000 Total Equity (6,373,762) 3,373,000 Total Capital (2,435,872) 10,891,000 Gearing Ratio (162%) 69% 19. Reserves and Accumulated Losses (a) Reserves Consolidated Balance at beginning of year 3,620,000 3,472,000 Movement during the year 1,257, ,000 Balance at end of year 4,877,596 3,620,000 This is represented by: Unissued Share reserve - 575,000 Share option reserve 1,537,000 1,537,000 Foreign currency translation reserve 3,340,596 1,508,000 4,877,596 3,620,000 44

46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 19. Reserves and Accumulated Losses (b) Accumulated losses Consolidated Accumulated loss at the beginning of the financial year (112,418,229) (101,490,229) Net loss attributed to members of the Group and controlled entities (15,168,398) (10,928,000) Accumulated losses at the end of the financial year (127,586,627) (112,418,229) Refer to the Consolidated Statement of Changes in Equity for net movement in reserves. The share option reserve recognises the fair value of share based compensation to employees including key management personnel as part of their remuneration. The foreign currency translation Reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. The unissued share reserve represents monies received in relation to shares that were not issued as at balance date. The Group considers the gearing ratio to be too high and is embarking on further capital injections as noted in the Directors report to reduce the gearing ratio. The group is not subject to any externally imposed capital requirements. 20. Remuneration of Auditors The auditor of the Group is Bentleys Audit and Corporate (WA) Pty Ltd. The auditor at the end of was Ernst & Young. Consolidated Amounts receivable or due and receivable by Auditors for: An audit and review of the financial report of the group 26, ,500 - Amounts related to prior year - 46,325 Other services in relation to the Group and any other entity in the consolidated group: 26, ,825 - Independent Accountants Report - 61,625 - Accounting Support - 21,352 - Taxation Services - - Total other services - 82,977 Total remuneration of all services 26, ,802 Amounts received or due and receivable by non-audit firm for other non-audit services - Tax Compliance Services - 34,595 Total remuneration for non-audit services - 34,595 It is the Group s policy to employ Ernst & Young on assignments additional to their statutory audit duties where their expertise and experience with the Group are not available. It is the Group s policy to seek competitive tenders for all major consulting projects. 45

47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 21. Key Management Personnel (a) Details of Key Management Personnel - (i) Directors Mr Andrew Waller Mr Paul Blackman Mr Douglas Jendry (appointed 23 September 2009 and resigned 11 December 2009 and then appointed again on 27 May and resigned 21 June ) Mr George Woodcock (appointed 27 May and resigned on 15 December. (ii) Executives The Group had no executives during the financial year ended 30 June (b) Compensation of Key Management Personnel: Short term employee benefits 421,617 1,053,570 Post-employment benefits - 16,415 Other long term benefits - - Share-based payment - - Termination benefits ,617 1,069,985 Note: Short term benefits included cash salary, automobile allowance, housing and education. Post-employment benefits included superannuation. (i) Option holding of key management personnel Directors Balance at start of Granted as Lapsed during the Balance at end of year year remuneration year Andrew Waller Paul Blackman George Woodcock Doug Jendry TOTAL Balance at start of Granted as Lapsed during the Balance at end of year year remuneration year Andrew Waller Paul Blackman George Woodcock Wayne Bellman - 500, ,000 - Michael Bertuccio - 500, ,000 - Tony Izelaar - 500, ,000 - Jim Story Silas Myers - 500, ,000 - Don Telford - 500, ,000 - Doug Jendry TOTAL - 2,500,000 2,500,000 - There were no options issued or outstanding during. 46

48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE (c) Shareholding of Key Management Personnel The numbers of shares in the Group held during the financial year by each Key Management Personnel of Arturus Capital Limited and its subsidiaries are set out below: Directors Balance at start of year Net change (ordinary shares) Balance at the end of the year Andrew Waller 328, , ,000 Paul Blackman George Woodcock Doug Jendry 2,000,000-2,000,000 TOTAL 2,328, ,500 2,583,000 Balance at start of year Net change (ordinary shares) Balance at the end of the year Andrew Waller 198, , ,500 Paul Blackman George Woodcock Wayne Bellman 39,750-39,750 Michael Bertuccio - 100, ,000 Tony Izelaar Jim Story Silas Myers Don Telford Doug Jendry - 2,000,000 2,000,000 TOTAL 238,000 2,230,250 2,468,250 (d) Transactions with Key Management Personnel related entities The transactions with Key Management Personnel are outlined in Note Related Party Disclosures (a) Subsidiaries Equity Holding Investments As at 30 June Name of entity County of Incorporation Class of Share % % $ $ Arturus Jackson Pty Ltd* Australia Ordinary Arturus Holdings Pty Ltd* Australia Ordinary Arturus Property Pty Ltd* Australia Ordinary Arturus IP Pty Ltd* Australia Ordinary Arturus Project Pty Ltd* Australia Ordinary Arturus Trading Investments Pty Ltd* Australia Ordinary Arturus Resources No 1 Pty Ltd* Australia Ordinary Arturus Resources A Ltd* Australia Ordinary Arturus Resources B Ltd* Australia Ordinary TW Entertainment Pty Ltd* Australia Ordinary Grangewood Resources Ltd* Australia Ordinary Arturus Energy LLC USA Ordinary Arturus Production Partners* USA Ordinary Arturus Holdings LLC* USA Ordinary Caledonia I, LLC* USA Ordinary Caledonia II, LLC* USA Ordinary Note: * indicates dormant companies 47

49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE (b) Ultimate parent Arturus Capital Ltd is the ultimate Australian parent entity. (c) Remuneration of Key Management Personnel Details relating to KMP remuneration are included in the Remuneration Report. (d) Transactions with related parties The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year. Director Related Entities Andrew Waller Consulting Amounts paid to Andrew Waller Consulting during the year were 327,672 (: 128,010). This Group is a director related entity of Andrew Waller. These amounts are disclosed in Mr. Waller s Directors remuneration 23. Financial Risk Management Objectives and Policies The Group s principal financial instruments comprise listed shares, convertible notes, fixed and short term loan agreements, receivables, cash and short term deposits. The main purpose of these financial instruments is to generate an investment return and to raise further finances for the Group s investments. The Group monitors its exposure to key financial risks, including market risk, credit risk and liquidity risk regularly. Primary responsibility for identification and management of financial risk rests with the Board. Through its regular Board Meetings, the board reviews and agrees policies for managing each of the risks identified below, including the mix of borrowing currencies and interest rate risk, credit allowances, and future cash flow forecast procedures. Fair Values All financial assets and liabilities recognised in the statement of financial position, whether they are carried at cost or at fair value, are recognised at amounts that represent a reasonable approximation of fair value unless otherwise stated in the applicable notes. Liquidity risk The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of cash flow from operations. The Group manages any liquidity risk by working with its customers and vendors on negotiating payment terms and managing cash flow on an on-going basis. All liabilities shown on the statement of financial position as at 30 June are due and payable immediately. The contracted payment terms for all liabilities are disclosed in Note 15 and Note 16. The Directors are of the opinion that the Group will be able to adhere to the contractual maturities of the current and noncurrent financial liabilities as they fall due. 48

50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE The Group s exposure to interest rate risk, maturities and the effective interest rates on financial instruments at balance date is: Notes Weighted average effective interest rate % Floating interest rate 1 Year or less 1-5 Years Financial Assets Current Cash on hand , ,536 Other receivables 9-226, ,971 Financial assets , ,775 Other Assets , ,883 Total Financial Assets Current 22, , ,165 Total Financial Liabilities Convertible Note ,960,426-3,960,426 Total financial liabilities - 3,960,426-3,960,426 Less liabilities attributed to disposal group Net Financial Assets/(Liabilities) 22,536 (3,088,797) - (3,066,261) Financial Assets Current Cash on hand , ,000 Loan to Modena Resources ,285,000-1,285,000 Loan to Raptor Capital , ,000 Total financial assets 198,000 1,975,000-2,173,000 Financial assets Non Current Convertible Note Modena ,142,000-2,142,000 Total Financial Assets 198,000 4,117,000-4,315,000 Financial Liabilities Convertible Note ,316,000-5,316,000 Promissory Note ,400,000-2,400,000 Total financial liabilities - 7,716,000-7,716,000 Less liabilities attributed to disposal group Net Financial Assets/(Liabilities) 198,000 (3,599,000) - (3,401,000) Interest Rate Risk Sensitivity Analysis The following sensitivity analysis is based on the interest rate risk exposures at balance date. If interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have been affected as follows: Judgements of reasonable possible movements Post Tax Loss as at 30 June Consolidated +1% (100 basis points) (8,000) (38,000) -0.5% (50 basis points) 4,000 19,000 49

51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE Significant assumptions used in the interest rate sensitivity analysis include reasonably possible movements in interest rates were determined based on the Group s current credit rating and mix of debt in Australia and foreign countries, relationships with finance institutions, the level of debt that is expected to be renewed as well as a review of the last two year s historical movements and economic forecaster s expectations. d) 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 counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The Group does not hold any credit derivatives to offset its credit exposure. It is the Group's policy not to securitise its trade and other receivables. Receivable balances are monitored on an ongoing basis with the result that the Group s exposure to bad debts is not significant. There is significant concentrations of credit risk within the Group as the entire receivable balance as at 30 June is due from Modena Resources. Whilst Modena Resources has reported a net current liability position as at 30 June, the directors are confident that all monies owed will be repaid. Accordingly no impairment loss has been recognised against the balances. Other Receivables Past Due not impaired The aging analysis of trade receivables as at 30 June is as follows: 0-30 days days days +91 days +91 days Total PDNI* CI* Consolidated 226, , Consolidated 388, ,000 - * Past due not impaired (PDNI) * Considered Impaired (CI) e) Foreign Currency risk A portion of the Group s customers or investments are either US based or are billed in US dollars. Given the limited amount of expenses payable in, the Group does not hedge these arrangements as the exposure is not considered significant. Significant assumptions used in the foreign currency sensitivity analysis include reasonably possible movements in the AUD:USD exchange rate were determined based on the Group s expectation of future exchange rates with reference to independent foreign currency forecasts. At 30 June, the Group had the following exposure to foreign currencies based on its foreign currency denominated financial assets and liabilities. At 30 June, if foreign currency rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have been affected as follows: 50

52 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE The following table presents the Group s assets and liabilities that are denominated in Australian dollars. Post Tax Loss as at 30 June Consolidated AU$ AU$ Financial Assets Cash and trade receivables 888,116 4,862,000 Financial Liabilities Loan and trade payables (7,158,234) (10,125,000) Net exposure (6,270,118) (5,263,000) Judgements of reasonable possible movements Post Tax Loss as at 30 June Consolidated +1% (100 basis points) (34,454) (26,000) -0.5% (50 basis points) 17,227 13,000 f) Other Price risk The Group has divested of the majority of its investment in ASX listed shares during the year ended 30 June and as such the Group is not subject to equity price risk. 24. Commitments and contingencies Capital Commitments There are no commitments for any capital items contracted at the reporting date that are not recognised as liabilities. Operating Lease Commitments The Group leases its office space on a month to month basis and is not committed to a long term lease. Financial Commitments The Group has no financial commitments as at 30 June. Legal Contingencies On 5 August, the Group announced that it had agreed on a compromise agreement with former director, Dr Nair for an amount of $900,000 AUD. This has been provided in the financial report. The Group has received a claim from Caerleon Advisory Pty Ltd for $499,693 for unpaid invoices. The Directors believe that no liability exists based on the legal advice received and have lodged a counter claim against Caerleon Advisory Pty Ltd. 51

53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE The Group s subsidiary, Arturus Energy LLC has received claims against it from two parties. At the date of this report, the total of the claims amounted to 1,000,000. The Group denies the claims, however, a provision of $250,000 for legal defense has been made. 25. Events after the Balance Date Matters subsequent to the end of the financial year include the following: On 5 August, Mr Paul Benson was appointed a Director of the Group. On 24 August, the Group announced that it had acquired an option to purchase a Mineral Sands project in the Eucla Basin in Western Australia. The Group subsequently allowed the option to lapse. On 6 September, the Group advised the following: a) that it had made a partial payment of $200,000 on the Nair settlement. b) that it was undertaking a fully underwritten non-renounceable rights issue to raise approximately $2,790,155 before costs on the basis that shareholders will be offered 1 new share for every 1 share held at a price of 2 cents per Share, together with 1 attaching option for every 3 shares subscribed for (exercisable at $0.06 each expiring on 31 December c) Mr Paul Benson resigned as a Director of the Group and Mr Richard Griffin was appointed a Director of the Group. There were no other matters subsequent to the end of the financial year. 52

54 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 25. Parent Entity Disclosures (a) Financial Position of Arturus Capital Limited CURRENT ASSETS Cash and cash equivalents 18, ,000 Other receivables 226, ,000 Financial Assets 126,775 4,250,032 Other Assets 515,883 27,000 TOTAL CURRENT ASSETS 888,116 4,862,032 NON-CURRENT ASSETS Investment in associates - 3,002,000 Financial assets - 2,244,000 Interests in Gas fields - 3,216,000 Property, plant and equipment - 174,000 TOTAL NON-CURRENT ASSETS - 8,636,000 TOTAL ASSETS 888,116 13,499,032 CURRENT LIABILITIES Trade and other payables 3,197,808 2,409,000 Interest bearing loans and borrowings 3,960,426 7,716,000 TOTAL CURRENT LIABILITIES 7,158,234 10,125,000 TOTAL LIABILITIES 7,158,234 10,125,000 NET ASSETS (6,270,118) 3,374,032 EQUITY Issued capital 123,214, ,092,261 Unissued Shares reserve - 575,000 Share option reserve 1,537,000 1,537,000 Foreign currency translation reserve 1,508,000 1,508,000 Accumulated losses (132,529,222) (112,338,229) TOTAL EQUITY (6,270,118) 3,374,032 53

55 (b) Financial performance of Arturus Capital Limited Revenue 86,069 1,082,000 Loss for the year (14,791,477) (8,391,000) Other comprehensive income - - Total comprehensive income (14,791,477) (8,391,000) (c) Guarantees entered into by Arturus Capital Limited There are no guarantees entered into by Arturus Capital Limited as at 30 June (: none) (d) Contingent Liabilities of Arturus Capital Limited Legal Contingencies On 5 August, the Company announced that it had agreed on a compromise agreement with former director, Dr Nair for an amount of $900,000 AUD. This has been provided in the financial report. The Company has received a claim from Caerleon Advisory Pty Ltd for $499,693 for unpaid invoices. The Directors believe that no liability exists based on the legal advice received and have lodged a counter claim against Caerleon Advisory Pty Ltd. (e) Commitments by Arturus Capital Limited Capital Commitments There are no commitments for any capital items contracted at the reporting date that are not recognised as liabilities. Operating Lease Commitments The Company leases its office space on a month to month basis and is not committed to a long term lease. Financial Commitments The Company has no financial commitments as at 30 June. 54

56 Directors Declaration In accordance with a resolution of the directors of Arturus Capital Limited, I state that: 1 In the opinion of the directors: (a) the financial statements, notes and additional disclosures included in the directors report designated as audited, of the Group and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group's and consolidated entity's financial position as at 30 June and of their performance for the year ended on that date; and complying with Accounting Standards and Corporations Regulations 2001; and (b) (c) the financial report also complies with International Financial Reporting Standards as disclosed in note 2 (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. 2 This declaration has been made after receiving the declarations required to be made to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June. The declaration is made in accordance with resolution of the board. Andrew Waller Chairman Perth 6 October 55

57 We have audited the accompanying financial report of Arturus Capital Limited ( the Company ) and Controlled Entities ( the Consolidated Entity ), which comprises the consolidated statement of financial position as at 30 June, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the Company and the Consolidated Entity, comprising the Company and the entities it controlled at the year s end or from time to time during the financial year. The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standards AASB 101: Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial report 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act As disclosed in Note 1 to the financial statements, the accounts have been prepared on the going concern basis, which contemplates continuity of normal activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The Consolidated Entity incurred a loss from ordinary activities of 15,168,398 for the year ended 30 June (: 10,888,000 loss). The net deficiency position of the Consolidated Entity at 30 June was 6,373,762 (: 3,374,032 net assets) and the net decrease in cash held during the year was 175,464 (: 1,317,000) to 22,536.