Pacific Star Network Limited. Andrew Moffat (Chairman) Ronald Hall Gary Pert. Stephen Sweeney CA, MBA. 473 Swan Street RICHMOND VIC 3121

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1 Corporate Directory Directors Company Secretary Registered Office Share Registry PACIFIC STAR NETWORK LIMITED ABN Andrew Moffat (Chairman) Ronald Hall Gary Pert Stephen Sweeney CA, MBA 473 Swan Street RICHMOND VIC 3121 Telephone: (03) Facsimile: (03) Internet: Computershare Investor Services Pty Ltd Level 2, 45 St Georges Terrace PERTH WA 6000 Telephone: (08) Facsimile: (08) Auditors Solicitors Bankers Stock exchange listings BDO Audit (NSW-VIC) Pty Ltd Level 30, 525 Collins Street MELBOURNE VIC 3000 Stynes Dixon Lawyers (formerly Voitin Walker Davis) Level 1, 520 Bourke Street MELBOURNE VIC 3000 St George Bank Moorabin Corporate 424 Warrigal Road MOORABIN VIC 3189 ordinary shares are quoted on the Australian Stock Exchange (ASX code: PNW).

2 Chairman s Report for Dear Shareholder, Your directors present their report on the consolidated entity consisting of and the entities it controlled at the end of, or during, the year ended 30 June 2010, (the Company) Highlights The Company achieved a 100% increase in trading profit to $684 thousand (EBITDA $808 thousand) and was cash flow positive for the financial year. The result was within the earnings guidance range provided in the interim results released in February. The adjusted result excluding the combined impact of share option and one-off operating costs of $195 thousand (relating to termination of contractor agreements) was an EBITDA of $1.0 million. Revenue growth of 13.3% continues to track well ahead of the industry average of 2.9%. Of particular note, was the strong performance of SEN1116 with revenues up 16% on the comparative period. Share of the radio advertising market at 6.65% continues to trend upwards ( %). Following a review of the long term viability of the 3MP easy listening music format, directors resolved to become equal partners in a joint venture with Macquarie Radio Network Limited (2GB / 2CH Sydney) to relaunch 3MP as Melbourne Talk Radio 1377AM (MTR) effective from 19 April The new station will take time to achieve ratings and profitability. Both joint venture parties are committed over the long term to this important project. Digital Radio In April the Company launched two digital radio stations mymp as soft adult contemporary and Aussie as an all Australian rock format. Impressively these new stations are already generating advertising income. Both 1116 SEN and 1377 MTR are also simulcast on digital radio. One of the outcomes of launching digital radio in Melbourne was the emergence of three major black spots in the Melbourne metropolitan area, that limit a listener s ability to get an audible signal with a digital radio. Melbourne Digital Radio Broadcasting Melbourne Pty Ltd, the joint venture company established by the eleven Melbourne radio stations to manage and maintain digital infrastructure has been provided with a sizeable financial budget over the next year to address this problem. Overview of Operating Results The directors report that in the financial year: 1116 SEN generated revenue and EBITDA results which were 5% ahead of budget expectations. This format continues to attract strong loyalty and a growing list of high profile clients. Results from the 3MP easy listening music station were disappointing, with revenue and profitability well down on previous years. This necessitated a number of programming changes during the year and a decision was taken in early December 2009 to discontinue this format and enter into a joint venture with Macquarie Radio Network Limited to relaunch the station as Melbourne Talk Radio. This decision was made in the context of ensuring that the Company explored all avenues for enhancing shareholder returns over the longer term.

3 The Company has brought $935 thousand of historical tax losses to account to offset current and future year taxable profits. The Company has accumulated tax losses of $19.8 million, however, given that there have been many changes in business structure over the years, the advice we have received is that those tax losses may be quarantined and may limit our ability to utilise them in future years. We continue to explore the options for utilising those losses and thus have adopted a conservative approach to bringing them to account. Financial Results The Company finished the year with cash of $2.13 million after achieving a positive operating cash flow of $246 thousand for the financial year. Investment in capital was $0.55 million for the year. Revenue growth of 13.3% was offset by an 11.6% increase in operating costs which combined to deliver an EBITDA result of $808 thousand for the financial year ( $491 thousand). Of this increase: o o Sales costs were up 17.5%, in line with revenue and reflect commissions and wage costs associated with generating higher revenues. Technical and programming costs increased 9.1% with the primary driver for this being higher AFL licensing and on air talent costs. Outlook o Corporate costs were up 72% on the comparative period and result from higher depreciation / amortisation charges and the Company s contribution towards the maintenance of the new digital radio platform which was launched over a year ago. With continued strengthening of the 1116 SEN brand, directors anticipate that revenue growth and prudent cost management will generate increased profits and cash flow for the 2011 financial year. The Company will issue earnings guidance with the release of the Company s interim results in February The Company announced a share buy back at the annual general meeting in November No shares were bought back during the 2010 financial year and from 1 July 2010 to 25 August 2010, 778,036 shares have been acquired through the buy back. In light of the low level of share buy back, the Board intends to consider other capital management options that will provide benefit to shareholders. At this early stage, it s difficult to accurately predict when Melbourne Talk Radio will become earnings and cash flow positive. Directors and management continue to work closely with Macquarie Radio Network Limited to drive the success of this initiative and review options for pursuing other projects. We look forward to keeping you informed of these developments and your Company s performance. Yours sincerely, Andrew Moffat Chairman Melbourne, 29 September 2010

4 Contents 6 Directors Report 19 Auditor s Independence Declaration 20 Independent Audit Report 23 Directors Declaration 24 Statement of Comprehensive Income 25 Statement of Financial Position 26 Statement of Changes in Equity 27 Statement of Cash Flows 28 Notes to the Financial Statements 58 Corporate Governance 65 Shareholder Information

5 Directors Report The directors of, the consolidated entity, submit herewith the annual financial report for the financial year ended 30 June In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: The names and particulars of the directors of the company during or since the end of the financial year are: Current Directors Ronald Hall Appointed Non-Executive Director on 13 February 2002 Peter Quattro 1 Appointed Non-Executive Director on 25 April 2003 Andrew Moffat Appointed Non-Executive Director on 1 September 2004 Gary Pert Appointed Non-Executive Director on 1 July 2008 The biographies for current directors and other staff are detailed below: Ronald Hall Non Executive Director age 69 Andrew Moffat Non Executive Director Chairman age 49 Gary Pert Director aged 45 Mr Hall is the founder and promoter of several successful Melbourne based retail chains, including Going Going Green, Supply & Demand along with Going Going Gone. Ron has been a long time user of the radio medium for marketing his products. Mr Moffat has in excess of 20 years of corporate and investment banking experience and is the sole principal of Cowoso Capital Pty Ltd, a company providing strategic corporate advisory services. Prior to establishing Cowoso Capital Pty Ltd, Andrew was a Director of Equity Capital Markets & Advisory for a top 10 Australian stock broking firm where he was responsible for mergers and acquisition advisory services and a range of equity capital raising mandates including placements, IPO s, rights issues, dividend reinvestment plans and underwritings. Mr Pert possesses extensive media industry experience, gained whilst serving in various senior executive roles including Managing Director of the Channel Nine Network and General Manager of Austereo Melbourne. After a successful AFL/VFL football career which included 233 games with Fitzroy and Collingwood, Gary took up a role with the AFL as promotions and development officer between 1989 and 1994, following which he became a sales executive in the Melbourne office of the Austereo radio network. During his 12 years with Austereo, Gary held various senior management roles culminating in 2006 when he held the joint role of General Manager of Austereo Melbourne and Austereo s National Sales Director. 1 Peter Quattro resigned as a director effective from 25 October

6 Gary Pert Cont d As Managing Director of Channel Nine Melbourne, Gary held principal responsibility for one of Australia s largest media organisations with more than 450 staff. After one of the most profitable periods in Channel Nine s history, Gary was recruited as Chief Executive Officer of the Collingwood Football Club, one of Australia s largest sporting brands. Stephen Sweeney Company Secretary age 46 Mr Sweeney is a Chartered Accountant and also holds an MBA awarded by Heriot-Watt University (Edinburgh Business School). Stephen is also the Company s Chief Financial Officer and has over 20 years experience as a senior management executive in the banking, government and the not for profit sector. Directorship of other Listed Companies Directorships of other listed companies, held by directors in the three years preceding the end of the financial year are as follows: Andrew Moffat Principal Activities Non-Executive Director :- Infomedia Limited Non-Executive Director :- Rubik Financial Limited Non-Executive Director :- itx Limited (appointed 26 March 2010) Non-Executive Director :- Cash Converters International Limited (resigned October 2008) The principal activities of the group during the year were commercial broadcasting licence ownership of SEN (1116AM), 3MP (1377AM), Melbourne Talk Radio which replaced 3MP from 19 April 2010 and new digital radio stations mymp and Aussie from April Review of Operations The trading loss for the parent entity for the year after income tax amounted to $434 thousand (2009: $352 thousand). The trading profit for the consolidated entity for the year after income tax amounted to $684 thousand (2009: profit $341 thousand). The Company generated an EBITDA result of $808 thousand for the financial year (2009: $491 thousand). Significant changes in the state of affairs There were no significant changes in the state of affairs of the economic entity. Profit per Share The basic profit per share was 0.13 cents (2009: 0.06 cents) and diluted profit per share was 0.13 cents (2009: 0.06 cents). The weighted average number of ordinary shares on issue during the financial year used in the calculation of basic profit per share was 535,300,897 shares (2009: 533,914,596 shares). 7

7 Subsequent Events No matters or circumstances have arisen since the end of the financial year that have significantly affected, or may significantly affect the state of affairs of the consolidated entity in subsequent financial years. Future Developments, Prospects and Business Strategies Refer to the Chairman s report for details of future developments, prospects, and business strategies. Dividends No dividend has been paid or declared since the start of the financial year and the directors do not recommend the payment of a dividend in respect of the 2010 financial year. Shares and options granted to executives and employees Shares and options are granted under the Employee Share Option Plan (ESOP). When exercisable, each option is convertible into one ordinary share of (ASX Code: PNW). The Company s obligations under the existing ESOP are as follows: In the previous financial year, the Company entered into contracts to issue options over ordinary shares to Key Management Personnel (KMP) at future dates. If all conditions are met over the remaining term of these contracts, four million ordinary shares will be issued to KMP for nil consideration as a Short Term Incentive (STI). Information on the performance and vesting criteria of these shares can be located in the remuneration report below. Shares issued under the plan will only vest provided the performance and vesting conditions are achieved and no shares will be issued until this occurs. The vesting period is deemed to commence on the date that new contracts were agreed by both parties and it is only at this point that the Company is conditionally obliged to issue shares in accordance with those contracts. Shares not yet vested lapse if KMP resign their position. In addition to the future entitlements noted above, two million options were granted and vested during the year and were subsequently exercised into ordinary shares for an equivalent amount. As a Long Term Incentive (LTI), the Company previously granted million options to KMP / employees exercisable on or after 20 October 2011 for a consideration of 4 cents per share and with an expiry date of 20 October The vesting condition for these options is that KMP / employees continue to be employed on or after the vesting date. Further information on options issued by the Company can be located in the remuneration report below and in Note 7. In accordance with AASB 2: Share-based payment options have been valued and are or will be accounted for as an expense in the Statement of Comprehensive Income in this or future periods. Shares and options granted subsequent to reporting date will be expensed in future periods. The total number of share options on issue at reporting date was 13 million options. 8

8 Shares and options granted to executives and employees Cont'd The following KMP have a pre-existing entitlement to vested options over ordinary shares relating to the grant of options in previous financial years: Key Management Personnel Number of options granted in previous years and / or subsequent to end of reporting period D Hung 2 2,000,000 3,000,000 M Johnson 3 1,000,000 1,000,000 S Sweeney 4 1,000,000 1,000,000 Exercise Price Nil 4.0 cents Nil 4.0 cents Nil 4.0 cents Value per option at grant date 3.1 cents 3.6 cents 3.1 cents 3.6 cents 3.1 cents 3.6 cents Vesting Date 50% on 1/09/10 50% on 1/09/11 100% on 20/10/11 50% on 20/10/10 50% on 20/10/11 100% on 20/10/11 50% on 20/10/10 50% on 20/10/11 100% on 20/10/11 Expiry Date N/a N/a 20/10/12 N/a N/a 20/10/12 N/a N/a 20/10/12 G Moore 1,000, cents 3.6 cents 100% on 20/09/11 20/10/12 Total 10,000, cents 3.4 cents Meetings of Directors The following table sets out the number of directors meetings held during the financial year and the number of meetings attended by each director. During the financial year 11 board meetings were held. Directors Eligible to Attended attend Ronald Hall Andrew Moffat Gary Pert Peter Quattro Indemnification of Officers and Auditors The Company has purchased Director s and Officer s liability insurance to provide cover in respect of claims made against the Directors and Officers in office during the financial period and as at the date of this report, so far as is permitted by the Corporations Act As at the date of this report, no amounts have been claimed or paid in respect of this indemnity, other than the premium referred to above. During or since the financial period, the Company has not indemnified or made a relevant agreement to indemnify the auditor of the Company against a liability incurred as auditor. 2 In addition to the above, exercised options over one million ordinary shares for nil consideration in November 2009 under ESOP. 3 In addition to the above, exercised options over five hundred thousand ordinary shares for nil consideration in November 2009 under ESOP. 4 In addition to above, his corporate entity exercised options over five hundred thousand ordinary shares for nil consideration in November Peter Quattro resigned as a director effective from 25 October

9 Environmental Regulation The consolidated entity is not subject to any significant and/or particular environmental regulation. Directors Shareholdings The relevant interests of past / current directors in the shares of the Company or a related body corporate as at the date of this report are as follows. There are no options on issue to directors. Directors No. of Fully Paid Ordinary Shares Ronald Hall 6 158,779,682 Peter Quattro 7 8,835,750 Andrew Moffat 8 7,046,288 Gary Pert - Total 174,661,720 Remuneration Report (Audited) This Remuneration Report provides an overview of the Company s remuneration policies and practices and explains the links between performance and rewards. The Report also provides details about the remuneration of Directors and Key Management Personnel (KMP). Principles used to determine the nature and amount of remuneration The primary objective is to ensure that rewards paid for performance are competitive and appropriate for the results that are delivered. The guiding principles for developing executive remuneration is that: o o o There should be an appropriate mix of fixed and performance based variable pay components; Remuneration components should be simple, transparent and easy to communicate; and Remuneration practices should be acceptable to internal and external stakeholders. There is no specific relationship between the Company s remuneration policies and its financial performance over the last 5 years. Components of Key Management Personnel Total Remuneration Remuneration structures continue to be reviewed on a regular basis, to ensure that a significant proportion of total remuneration is at risk, is underpinned by achievable metrics and that accountabilities are explicit so as to minimise conflicts of interest and enable effective decision making. Total remuneration is made up of three key components: Fixed Remuneration; Short Term Incentive (STI); and Long Term Incentive (LTI) Fixed remuneration is based on each individual s experience, qualifications, capabilities and responsibility and is benchmarked to ensure that remuneration is competitive with the market median. 6 Ron Hall has a beneficial interest in shares through a controlling interest in Rosh Hagiborim Pty Ltd, Talk to Edith Pty Ltd and Mastiff Nominees Pty Ltd. 7 Peter Quattro resigned effective from 25 October 2009 and holds a beneficial interest in shares through a controlling interest in Quattrovest Pty Ltd. 8 Andrew Moffat has a direct interest in 27,000 shares and a beneficial interest in the remaining shares through the Cowoso Superannuation Fund. 10

10 Remuneration Report (Audited) Cont d Components of Key Management Personnel Total Remuneration Cont d STI s are based on key performance measures and are aimed at achieving growth whereas LTI s are aimed at creating shareholder wealth thereby not limiting the group s long term goals due to short term decision making. Short Term Incentives (STI) are paid on achieving agreed performance targets. The performance measures reflect the key business drivers / measures and incorporate the principles of growth, retention and service. STI s include paying incentives to individuals for achieving / exceeding monthly sales targets and / or issuing ordinary shares for nil consideration as an incentive for achieving / exceeding annual targets. The CEO is responsible for assessing the performance of individuals against targets on a monthly and quarterly basis and the payment of rewards during the year. The CEO may also recommend other STI s over and above target amounts. The CEO presents his recommendations to the full Board for consideration and recommendations are made by the Board for approval, at which time STI s are incorporated into contracts. During the financial year, the Company issued two million ordinary shares for nil consideration to key executives in recognition of key deliverables having been achieved and intends to issue further ordinary shares in future years. Ordinary shares issued under the STI are held in escrow, thus restricting the holder from dealing in the shares for twelve months from date of issue. The following table summarises the performance and vesting conditions for ordinary shares that may be issued under the STI plan, as at the date of this report. Series Issued Vesting Timing Vesting Conditions 1 - Share Issued Vest over a 3 year Divisional EBITDA not less than 95% of Options 20/10/08 contract period YTD budget for 3 consecutive months. KMP performance conditions are varied based on position and responsibilities. Divisional revenue not less than 90-95% of YTD budget for 3 consecutive months. Divisional YTD expenditure not to exceed budget by 10%+ for 3 consecutive months. Combined radio station ratings of 5 or more in last published ratings. Continuing to be in the service of the Company. The objective of the LTI is to assist with the recruitment, reward, retention, and motivation of individuals of the Company. The ESOP is designed to encourage a focus on the long term results of the Company. Directors invite individuals to participate in the ESOP and grant them options subject to service / vesting conditions at the end of specific periods. Options only vest if service / vesting conditions are achieved. There is no intention to provide loans, interest free or otherwise to fund such transactions but this will be reviewed nearer to the time that individuals will have the opportunity to exercise options and purchase ordinary shares. The table on the next page summarises the service and vesting conditions for shares issued under the LTI plan as at the date of this report. Directors believe there is no risk to KMP limiting their exposure in relation to options / shares that have been or will be issued and accordingly the Company has not formalised a policy in relation to KMP hedging their exposure to Company s shares. Series Issued Vesting Timing Vesting Conditions 1 Share Issued Vest 20/10/11 Continuing to be in the service of Options 20/10/08 Expiry 20/10/12 the Company at the vesting date. 11

11 Remuneration Report (Audited) Cont d Components of Key Management Personnel Total Remuneration Cont d If performance conditions are met over the three-year period and KMP continue to be employed, they will have met the required the service condition for the vesting of share options at the end of three year s. These conditions are considered an appropriate means to reward KMP for achieving benchmarks. Details of Remuneration Key Management Personnel Remuneration packages contain cash salary / fees, commissions / incentives, bonuses, superannuation and the cost of share based payments expensed under the Company s STI / LTI plans. Compensation for each member of the KMP for the year ended 30 June 2010 is set out below Directors of Short Term Employee Benefits Cash salary/fees $ Post Employment Benefits Superannuation $ Share Based Payment Options $ / % Short Term Employee Benefits Other Performance $ / % R Hall 45,871 4, ,000 P Quattro (resigned 25 October 2009) 16, ,667 A Moffat (Chairman) 68,807 6, ,000 G Pert 45,871 4, ,000 Sub-total 177,216 14, ,667 Other Key Management Personnel of the Group B Quick Chief Executive Officer 220,000 27, , ,623 30% M Johnson Group Program Director 155,000 14,040 24,885 1, ,925 13% 1% G Meadows Group Sales Director 130,000-10,914 33, ,965 (resigned 27 November 2009) S Sweeney Company Secretary / CFO 110,046-6% 24,885 19% - 134,931 18% - G Moore Group Creative Director 110,000 9,900 3,638 3% ,538 D Hung Group Agency Sales Director 165,138 14,462 53, , ,967 14% 38% Sub-total 890,184 65, , , ,358,949 9% 21% Total 1,067,400 80, , ,186 1, % 18% Total $ 9 Under his employment contract, the CEO is entitled to a bonus based on achieving budgeted profitability. B Quick had the potential to earn a bonus of $34,000. His actual bonus was $23,000 (68%) and bonus foregone was 11,000 or 32% of the potential bonus amount. 10 P Quattro, G Meadows and S Sweeney provided their services via corporate entities. 11 Benefit calculated under the Binomial model in respect of the value of share options issued to date. 12 Includes monthly, quarterly, and annual incentives paid during the financial year resulting from the achievement of sales targets. 12

12 Remuneration Report (Audited) Cont d Details of Remuneration Key Management Personnel 2009 Short Term Employee Benefits Cash salary/fees $ Post Employment Benefits Superannuation $ Share Based Payment Options $ Short Term Employee Benefits Other Performance $ / % Total $ Directors of R Hall 44,132 3, ,104 P Quattro 48, ,104 A Moffat (Chairman) 67,240 6, ,292 G Pert 44,132 3, ,104 Sub-total 203,608 13, ,604 Other Key Management Personnel of the Group B Quick Chief Executive Officer 220,000 26, M Johnson Group Program Director 155,000 14,124 2,522 1% G Meadows Group Sales Director 238,030-7,565 3% S Sweeney Company Secretary / CFO 114,841-2,522 2% G Moore Group Creative Director 110,000 9,900 2,522 1% D Hung Group Agency Sales 144,786 16,302 7,565 3% Sub-total 982,657 67,114 22,696 2% Total 1,186, ,110 22, % 77,647 24% 4,000 2% 46,362 16% ,888 36% 222,897 17% 222,897 15% , , , , , ,541 1,295,364 1,512, No bonus payments were paid for the year ended 30 June P Quattro, G Meadows, and S Sweeney provide their services via corporate entities rather than being directly employed by the company. 15 Benefit calculated under the Binomial model in respect of the value of shares options issued to date. As there are no performance conditions attached to the grant of share options, no performance based % component has been shown for share options. 16 Includes monthly, quarterly, and annual incentives paid during the financial year resulting from the achievement of sales targets. 13

13 Remuneration Report (Audited) Cont d Share Based Payments Cont d 2009 Issue 3 Issued to / grant date D Hung Date Vested and Exercisable Expiry Date Exercise Price Number Balance at start of the year Number Vested during the year Number Balance at the end of the year Number Share price at grant date Risk free interest rate % 20 Oct Oct Oct cents 3,000,000-3,000, cents 4.45% M Johnson 20 Oct Oct Oct cents 1,000,000-1,000, cents 4.45% S Sweeney 20 Oct Oct Oct cents 1,000,000-1,000, cents 4.45% G Moore 20 Oct Oct Oct cents 1,000,000-1,000, cents 4.45% Total 20 Oct Oct cents 6,000,000-6,000, cents 4.45% 2010 Issue 4 Issued to / grant date D Hung Date Vested and Exercisable Expiry Date Exercise Price Number Vested during the year Number Exercised during the year Number Balance at the end of the year Number Share price at grant date Risk free interest rate % 06 Nov Nov 09 N/a Nil 1,000,000 (1,000,000) cents 5.62% M Johnson 06 Nov Nov 09 N/a Nil 500,000 (500,000) cents 5.62% S Sweeney 06 Nov Nov 09 N/a Nil 500,000 (500,000) cents 5.62% Total 06 Nov 09 N/a Nil 2,000,000 (2,000,000) cents 5.62% The fair value of each of the 2 million share options exercised by KMP was 3.1 cents. In the previous financial year, the Company granted million options to KMP and other employees as an LTI, with an exercise date of 20 October 2011 and an exercise price of 4 cents. Of this amount, 9 million options were granted to KMP, however 3 million options were forfeited due to the departure of G Meadows who was a member of KMP up until November The remaining 6 million options issued to other remaining KMP is shown above. Of the remaining 4.25 million share options granted to other employees under the ESOP plan, 1.25 million were forfeited due to the departure of various employees. For further information on options issued refer to Note 7. 2 million options were granted to KMP on 6 November 2009 (Issue 4) and these were subsequently exercised and converted to ordinary shares of an equivalent amount for nil consideration. Subject to meeting performance conditions previously disclosed on page 11, the Company has the discretion to issue a further 4 million shares to KMP as STI s over the next 2 years. There are currently, 13 million share options issued to KMP and other employees under the ESOP. When exercisable, each option is convertible into one ordinary share in. 14

14 Remuneration Report (Audited) Cont d Share Based Payments Cont d Details of options over ordinary shares in the Company provided as remuneration to KMP is set out below. When exercisable, each option is convertible into one ordinary share in Pacific Star Network Limited. Further information on share options is disclosed in Note 7. Key Management Personnel Granted in previous years Granted / (Exercised) in the year Vested and Exercisable Exercised Vested during the year Forfeited during the year Expiry Date Estimate of min / max value of grant Number Number Date Number % % $ 2009 Issue 3 D Hung 3,000,000-20/10/ /10/12 10,914 M Johnson 1,000,000-20/10/ /10/12 3,638 G Meadows 3,000,000-20/10/ (3,000,000) 20/10/12 10,914 S Sweeney 1,000,000-20/10/ /10/12 3,638 G Moore 1,000,000-20/10/ /10/12 3,638 Sub-total 9,000,000-20/10/ (3,000,000) 20/10/12 32, Issue 4 D Hung - 1,000,000 06/11/09 (1,000,000) N/a 42,494 M Johnson - 500,000 06/11/09 (500,000) N/a 21,247 G Meadows N/a N/a S Sweeney - 500,000 06/11/09 (500,000) N/a 21,247 G Moore N/a N/a Sub-total - 2,000,000 06/11/09 (2,000,000) - - N/a 84,988 Total 9,000,000 2,000,000 - (2,000,000) - (3,000,000) N/a 117,730 Where applicable, the assessed fair value at grant date of options granted to individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently determined using the binomial approximation option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield (where applicable) and the risk-free interest rate for the term of the option. The model inputs for options granted during the financial year ended 30 June 2010 included: I. Options were issued for nil consideration and on vesting are exercisable into an equivalent amount of ordinary shares. II. Exercise price at grant date is as per the table above for the options issued on specified dates. III. The Company s weighted average share price on 6 November 2009 was 3.1 cents. IV. Grant date for the share options was 6 November V. Expected price volatility of shares for the calculation of the share based cost was 75.2%. VI. Risk free interest rate for options issued on 6 November 2009 was 5.62%. The weighted average fair value of options granted and exercised during year was 3.1 cents. 15

15 Remuneration Report Cont d (Audited) Cont d Non-executive Directors remuneration Non-executive directors are remunerated by fees within the aggregate limit approved by shareholders. In August 2008, the Board undertook to benchmark directors remuneration with other public companies of a similar size. This review identified that the existing levels of directors remuneration was well below market values and accordingly the Board resolved to address this by increasing remuneration to reflect market values. Directors remuneration continues to remain well within the ceiling of $450 thousand prescribed in the constitution. Service Agreements Key Management Personnel Remuneration and other terms of employment for the CEO and other specified executives are formalised in service agreements. None of the directors are under contract. Barrie Quick, Chief Executive Officer - Term of Agreement is 3 years renewable from 30 September Base salary, inclusive of superannuation, for the year ended 30 June 2010 was $239,800 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. Mark Johnson, Group Program Director - Term of employment is ongoing. - Base salary, inclusive of superannuation, for the year ended 30 June 2010 was $168,950 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. Gavin Meadows, Group Sales Director (resigned 27 November 2009) - Term of Agreement is 3 years renewable from 20 October Base fee for the year ended 30 June 2010 was $195,000 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base fee. The contract may be terminated by the contractor providing three months notice. Stephen Sweeney, Company Secretary, and Chief Financial Officer - Term of Agreement is 3 years renewable from 20 October Base fee for the year ended 30 June 2010 was $154,285 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base fee. The contract may be terminated by the contractor providing three months notice. Gordon Moore, Group Creative & Brand Director - Term of Agreement is ongoing. - Base fees, inclusive of superannuation for the year ended 30 June 2010 was $119,900 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. 16

16 Remuneration Report Cont d (Audited) Cont d Service Agreements Key Management Personnel David Hung, Group Sales Director - Term of Agreement is 3 years renewable from 1 September Base fees, inclusive of superannuation for the year ended 30 June 2010 was $180,000 p.a. - Payment of termination benefit on early termination by the Company, other than for gross misconduct, equal to three months base salary. The contract may be terminated by the employee providing three months notice. End of Remuneration Report Non Audit Services The Company may decide to employ the auditors on assignments additional to their statutory audit duties where the auditors expertise and experience with the Company and / or the consolidated entity are important. During the year, non-audit services performed by the auditors was $18,794. The Board has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: o o all non-audit services have been reviewed by the Board to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in the Corporations Act 2001 including reviewing or auditing the auditor s own work, acting in a management or a decision making capacity for the Company, acting as advocate for the Company, or jointly sharing economic risk and rewards. The details of fees paid to auditors are disclosed in Note 8 including fees for non-audit services. Auditor s Independence Declaration The auditor s independence declaration for the year ended 30 June 2010 as required under Section 307(c) of the Corporations Act 2001 has been received and is located on page 19 of this report. Proceedings on behalf of the Company No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in proceedings to which the Company is a party, for the purposes of taking responsibility on behalf of the Company for all or part of those proceedings. Environmental Regulation The consolidated entity s operations are not subject to any significant Commonwealth or State environmental regulations or laws. 17

17 Directors Interests in Contracts Directors interests in contracts are disclosed in Note 22(d) to the financial statements. Rounding of Amounts In accordance with ASIC Class Order 98/100 dated 10 July 1998, amounts shown in the directors report and the financial report have been rounded off to the nearest thousand dollars. Signed in accordance with a resolution of the Board of Directors made pursuant to section 298 (2) of the Corporations Act On behalf of the Directors, Andrew Moffat Chairman Melbourne, 29 September

18 DECLARATION OF INDEPENDENCE BY JUSTIN OWEN TO THE DIRECTORS OF PACIFIC STAR NETWORK LIMITED As lead auditor of for the year ended 30 June 2010, I declare that, to the best of my knowledge and belief, there have been no contraventions of: the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. This declaration is in respect of and the entities it controlled during the period. JUSTIN OWEN Director BDO Audit (NSW-VIC) Pty Ltd Chartered Accountants Dated 29 September, Melbourne 19

19 Independent Auditor s Report to the members of We have audited the accompanying financial report of, which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors declaration of 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. Directors Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor s Responsibility 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 judgement, 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. 20

20 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act We confirm that the independence declaration required by the Corporations Act 2001 would be in the same terms if it had been given to the directors at the time that this auditor s report was made. Auditor s Opinion In our opinion: (a) the financial report of is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity s financial position as at 30 June 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 17 of the directors report for the year ended 30 June The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. 21

21 Auditor s Opinion In our opinion, the Remuneration Report of for the year ended 30 June 2010, complies with section 300A of the Corporations Act BDO Audit (NSW-VIC) Pty Ltd JUSTIN OWEN Director Melbourne, 29 September

22 Directors Declaration In the Directors opinion a) the financial statements and notes set out on pages 24 to 57 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity s financial position as at 30 June 2010 and its performance, as represented by the results of operations, changes in equity and cash flows, for the financial year ended on that date; and (ii) complying with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (iii) As stated in Note 1, the consolidated financial statements also comply with International Financial Reporting Standards. b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001 for the financial year ended 30 June d) the remuneration disclosures included at pages 10 to 17 of the Directors Report (the Audited Remuneration Report) for the year ended 30 June 2010, comply with section 300A of the Corporations Act Signed in accordance with a resolution of the Directors made pursuant to section 295 (5) of the Corporations Act On behalf of the Directors, Andrew Moffat Chairman Melbourne, 29 September

23 Statement of Comprehensive Income for the Financial Year Ended 30 June 2010 Consolidated Notes $'000 $'000 REVENUE 2 13,205 11,656 Sales and marketing expenses (3,715) (3,160) Occupancy expenses (481) (431) Administration expenses (2,388) (2,396) Technical expenses (5,406) (4,955) Corporate expenses (641) (373) EXPENSES (12,631) (11,315) PROFIT BEFORE INCOME TAX Income tax expense / (benefit) 5 (110) - NET PROFIT AFTER INCOME TAX TOTAL COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE - Basic (cents per share) Diluted (cents per share) The financial statements should be read in conjunction with the accompanying notes on pages 28 to

24 Statement of Financial Position as at 30 June 2010 Consolidated Notes $'000 $'000 CURRENT ASSETS Cash and cash equivalents 2,132 2,228 Trade and other receivables 9 2,983 2,608 TOTAL CURRENT ASSETS 5,115 4,836 NON-CURRENT ASSETS Property, plant and equipment 10 1, Deferred tax assets Investment in Digital Radio Broadcasting Melbourne Pty Ltd Investment in Melbourne Radio Operations Pty Ltd Intangible assets 12 9,270 9,316 TOTAL NON-CURRENT ASSETS 11,180 10,836 TOTAL ASSETS 16,295 15,672 CURRENT LIABILITIES Trade and other payables 13 1,607 1,794 Provisions TOTAL CURRENT LIABILITIES 1,768 1,960 TOTAL LIABILITIES 1,768 1,960 NET ASSETS 14,527 13,712 EQUITY Contributed equity 15 52,484 52,484 Share based payment reserve Accumulated losses 16 (38,398) (39,082) TOTAL EQUITY 14,527 13,712 The financial statements should be read in conjunction with the accompanying notes on pages 28 to

25 Statement of Changes in Equity for the Financial Year Ended 30 June 2010 Notes Contributed Equity $'000 Share Based Payment Reserve $'000 Accumulated Losses $'000 BALANCE AT 01 JULY , (39,423) Transactions with owners in their capacity as owners Issue of share capital Share options granted to staff / AFL Total comprehensive income BALANCE AT 30 JUNE , (39,082) Notes Contributed Equity $'000 Share Based Payment Reserve $'000 Accumulated Losses $'000 BALANCE AT 01 JULY , (39,082) Transactions with owners in their capacity as owners Issue of share capital Share options granted to staff / management Total comprehensive income BALANCE AT 30 JUNE , (38,398) The financial statements should be read in conjunction with the accompanying notes on pages 28 to

26 Statement of Cash Flows for the Financial Year Ended 30 June 2010 CASH FLOWS FROM OPERATING ACTIVITIES Consolidated Inflows / (Outflows) Notes $ 000 $ 000 Receipts from customers 14,008 12,966 Payments to suppliers and employees (13,804) (12,932) Interest received Interest and other costs of finance paid - - Net cash provided by operating activities 23 (b) CASH FLOWS FROM INVESTING ACTIVITIES Amounts advanced to wholly owned subsidiaries - - Amounts repaid by wholly owned subsidiaries - - Payment for property, plant and equipment (342) (237) Investment in Digital Radio Broadcasting Melbourne Pty Ltd - (598) Net cash used in investing activities (342) (835) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issues of equity Securities - - Payment for share issue costs - - Proceeds from borrowings - - Repayment of borrowings - - Net cash provided by financing activities - - NET (DECREASE) IN CASH EQUIVALENTS (96) (670) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,228 2,898 CASH AND CASH EQUIVALENTS AT END OF YEAR 23(a) 2,132 2,228 The financial statements should be read in conjunction with the accompanying notes on pages 28 to

27 Notes to the Financial Statements for the Financial Year Ended 30 June Summary of Accounting Policies Basis of Preparation The financial statements have been prepared on the basis of historical costs and except where stated, does not take into account changing money values or fair values of assets. All amounts are presented in Australian dollars, unless otherwise stated. The consolidated financial statements include the information contained in the financial statements of and each of its controlled entities as from the date the parent entity obtains control until such time as control ceases. Separate financial statements for as an individual entity are no longer presented as a consequence of a change to the Corporations Act However, limited financial information for this individual entity is included in Note 24. is a company limited by shares and domiciled in Australia, whose shares are publicly traded on the Australian Stock Exchange. Statement of compliance with IFRS This report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (including Australian Accounting Interpretations), other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act This report is to be read in conjunction with any other public announcements made by Pacific Star Network Limited during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the Australian Stock Exchange Listing Rules. Australian Accounting Standards include International Financial Reporting Standards (IFRS) as adopted in Australia. The financial statements and notes of comply with International Financial Reporting Standards (IFRS). Compliance with Australian equivalents of International Financial Reporting Standards ensures compliance with International Financial Reporting Standards (IFRSs). Critical accounting judgements and key sources of estimation uncertainty In the application of the Company s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 28