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1 annual report

2 personal use only 2 For Limited Annual Report

3 annual report ebet Limited is listed on the Australian Securities Exchange (ASX: EBT) with operations and commercial arrangements in Australia, New Zealand, Malaysia, the Philippines, South Korea, Vietnam, Singapore and the USA with over 800 customers, operating some 55,000 gaming machines across Australasia. The ebet Group includes divisions catering to Gaming products, Wagering platforms and technologies, and the newly acquired Odyssey Gaming Limited. ebet s Gaming Division offers complete gaming solutions to customers through a diverse range of products and services, including exclusive distribution rights for WMS electronic gaming machines. ebet s Wagering Division develops and markets online gaming technologies to government sanctioned and licensed gaming operators located in regulated jurisdictions. This includes ebet Online, a joint venture which is the fourth largest online horse racing platform in the US market, regulated by both the Oregon Racing Commission and the Government of the United States. Odyssey Gaming Limited, a fully-owned subsidiary, provides Licensed Monitoring Operator services to Queensland-based venues for the electronic monitoring, reporting and maintenance of their electronic gaming machines. More information on ebet Group can be found at evolution for better 1

4 Contents Chairman s Report 3 Managing Director s Report 4 Directors Report 6 Corporate Governance Statement 14 Auditors Independence Declaration 17 Financial Report 18 Directors Declaration 61 Independent Auditors Report 62 Additional Information for Listed Public Companies 64 2 Limited Annual Report

5 chairman s report Dear Shareholder The Financial Year ended 30 June, was a transforming year for your company, despite a challenging environment. We achieved underlying NPBT of $1.13 million with revenue growing by 16% to $32.70 million. Statutory NPAT of $(5.94) million was recorded once acquisition costs and impairment charges were included. We continue to grow our share of poker machines sales, with FY sales volume increasing by more than double to 555 units across 199 venues in NSW. We launched 12 new games during the year which contributed to this success and further reinforced our market strength. Our machines remain the most innovative and profitable, consistently recording very high levels of customer enjoyment and involvement. Our success was despite our customers facing the uncertainty of future changes to the Regulatory Framework. The Federal Government s Joint Select Committee on Gaming Reform has made a number of well publicised recommendations, in particular relating to the design and implementation of a mandatory pre-commitment system. These recommendations have created a significant level of uncertainty across the NSW gaming market, and impacted negatively on sales for gaming machines, gaming systems as well as upgrades. Whilst ebet is at the forefront of gaming systems technology and has already implemented systems with pre-commitment functionality, ebet is committed to providing an industry-led solution which will maintain industry economic sustainability. We successfully acquired Odyssey Gaming Limited which provides the company a solid platform for increased sales and continued growth. The key benefits of Odyssey s integration into ebet are the improved access to the Queensland market (Australia s 2nd largest gaming market). It also provides us with an expanded product portfolio and entry into the gaming monitoring market. The integration is proceeding extremely well, with good cost savings and is already providing profitable results. ebet Online Inc, our USA-based online horse wagering technology joint venture, has expanded the number of racetracks using our technology, and is now the fourth largest online horse racing platform in the US market. Very importantly, ebet Online has achieved sufficient scale that it is now profitable after a number of years of investment, with growth expected to continue in the coming year. Over the past few years debt reduction has been an important objective of the company and we continued to successfully implement this objective in FY. I am pleased to announce that we paid $4.05 million in debt repayments during the year, and outstanding debts now stand at only $3.82 million, with gearing now at 56%. This includes $1.33 million of debt held previously by Odyssey, as at the acquisition date. In summary, we had a good year in FY despite a challenging environment. We achieved increased sales of WMS poker machines and gaming systems, successfully acquired Odyssey, moved ebet Online into profitability, and repaid further debt. These will continue to be the key drivers of success for the year ahead. Finally, I also would like to, on behalf of the Board and shareholders, thank Tony Toohey, CEO and Managing Director, and his team for their effort and dedication. In a very challenging environment, they have worked extremely hard and delivered an excellent result. I thank you for your support and look forward to reporting to you on our successes and progress during the coming year. Mike Hale Chairman evolution for better 3

6 managing director s report Dear Shareholder As our Chairman stated, the Financial Year ended 30 June was challenging, due to uncertainty surrounding proposed changes to gaming machine legislation as well as from the subdued economic environment. Despite this backdrop, ebet staff worked hard to deliver a superior operational performance: substantially increasing sales, launching new games and systems, improving our finances and of course, working hard to secure the successful acquisition of Odyssey. Financial Performance Key points in comparison to the prior corresponding period are shown below: 35 Revenue $m EBITDA* $m $m EBIT* * Before impairment and acquisition costs PROFIT Underlying NPBT was a $1.13 million (pcp $2.03 million). Statutory NPAT of $(5.94) million (after tax credit of $0.41 million) was adversely impacted by acquisition costs of $0.58 million and $6.896 for impairment of assets. REVENUE Full year revenue grew strongly to $32.70 million which was a 16.4% increase (pcp $28.07 million) driven by a full-year contribution of $12.98 million from WMS gaming machine sales. Recurring revenues of $10.21 million contributed 31% of ebet s total revenues (pcp $10.49 million and 37%). This result reflects the Company s continued focus on maintaining revenues from recurring sources through its support services and licensed systems products. REGULATORY FRAMEWORK Despite strong growth, our results have been adversely impacted by the continuing uncertainty of proposed regulatory changes. The Parliamentary Joint Select Committee on Gambling Reform has made a number of well publicised recommendations, in particular relating to the design and implementation of a mandatory pre-commitment system. These recommendations have created a significant level of concern across the NSW gaming market, and have impacted negatively on gaming machine, and gaming system sales and upgrades. Whilst ebet is at the forefront of gaming systems technology and has already implemented systems with pre-commitment functionality, ebet is committed to providing an industry-led solution which will maintain industry economic sustainability. GAMING MACHINES Gaming machine sales reached 555 units (pcp 254) for the year. This means that we have sold 809 units since receipt of regulatory approval in February, with 12 games approved during the year. Key Statistics for FY are as follows: R 555 units sold R 199 venues R 23% re-order rate R $12.38M sales revenue The WMS product continues to perform very strongly in venues across NSW. 4 Limited Annual Report

7 for the year ended June GAMING SYSTEMS Gaming systems revenue was $9.22 million in FY (pcp $10.49 million). The Gaming Systems Division continues to be one of the largest contributing divisions to ebet s revenues. International sales revenue was $1.82 million (pcp $1.13 million) which was driven by demand from the Asian casino and club market and this continues to be a focus for our activities through our permanent Asian regional office in Kuala Lumpur, Malaysia. ODYSSEY ACQUISITION As shareholders, you would be aware that we successfully acquired Odyssey Gaming Limited during June,. The integration benefits of our expanded product offering (as well as cost savings across the expanded business) continue to progress on schedule. In order to improve sales into the Queensland market (Australia s 2nd largest gaming market) a new General Manager for Queensland, Mark Anderson, has been appointed. Mark is a founding Director of Industry Data Online (IDOL), the leading provider of benchmarking in the Australian club industry, and led their recent entry into the USA casino market. He brings to the role a wealth of experience with over 25 years in the Licensed Club, Hospitality and Transport industries. ebet ONLINE Our Online Wagering Division in the United States (through our JV company ebet Online Inc.) contributed revenue of $144k (pcp $593k) and I am pleased to announce that it is now profitable. It continues to grow and is now the fourth largest online horse racing platform in the US. CASH FLOW AND DEBT REDUCTION Cash flows from operations were $4.86 million (pcp $6.67 million). The company is committed to ongoing debt reduction. As a result, debt repayments of $4.05 million were made in FY. The closing borrowings balance of $3.82 million as of 30 June, includes additional debt of $1.33 million held by Odyssey at the acquisition date, which consists predominantly of finance leases linked to recurring income streams. CONCLUSION Whilst we experienced a challenging year, the Company remains focused on the challenges ahead, in order to take advantage of the opportunities available. ebet will continue to support our customers and the wider industry through engagement in industry-led solutions which will maintain industry economic sustainability. The success of the past year and the potential of the year ahead can only be realised through a highly skilled, committed and motivated team responding to the leadership and experience afforded to the company by Mike Hale (Chairman), Ian James and Allan Sullivan (Directors). Thank you to the ebet shareholders for your ongoing support in FY, and I look forward to your support in FY Anthony P Toohey CEO and Managing Director evolution for better 5

8 directors report The Directors present their report on the consolidated entity (referred to hereafter as the Group ) consisting of ebet Limited (referred to hereafter as the Company ) and the entities it controlled at the end of, or during, the year ended 30 June,. Principal Activities The principal activities of the Group during the financial year were: R Developing and marketing, standalone and integrated gaming systems and business solutions, including player tracking, machine management, card-based cashless gaming, loyalty systems and network solutions, that enhance the efficiency and profitability of gaming operations, through its Gaming Division; R Developing and marketing, internet-based interactive applications and systems for wagering operations, through its Wagering Division; R Marketing and operating integrated, networked wide area accounting control and progressive jackpot systems and graphical content and displays, through its Gaming Division; R Gaming Machine Monitoring and maintenance services; R Marketing and distribution of WMS gaming machines and parts, through its Gaming Division. The following significant changes in principal activities occurred during the financial year: R Through the acquisition of Odyssey Gaming Limited, the Group has expanded into gaming machine monitoring and maintenance services in Queensland. R Development and marketing, mobile media management technologies, through its Media Division ceased. Operating Results The consolidated profit before tax, impairment and business acquisition costs for the year ended 30 June, was $1,127,000 ( : $2,028,000). This represents a 44% decrease on the year ended 30 June,. The consolidated loss for the year was $5,939,000 ( : profit $1,773,000). Review of Operations In FY, total revenue rose 16.5% to $32,699,000 due to increased gaming machine sales. Total expenses (excluding impairment and business acquisition costs) rose 21.2% to $31,572,000 due to the increased cost of sales and other expenses resulting from increased gaming machines sales. Earnings before income tax depreciation, impairment and amortisation (EBITIDA) for the year fell by 14.8%. A review of the carrying value of intangible assets by the Directors has resulted in an impairment of $6,896,000. This impairment was due to the current uncertainty that exists in relation to the regulatory future of the gaming industry in Australia, and the improbability of commercialisation of the media and wagering assets. The Company acquired the ASX listed Odyssey Gaming Limited in FY and incurred acquisition costs of $580,000. The Group continued to repay debt, by repaying $4,053,000 in FY. Financial Position Net Assets of the Group decreased from $20,684,000 at 30 June, to $14,941,000 at 30 June,. This decrease is mainly due to the effect of the impairment of intangible assets referred to above. Working capital, current assets less current liabilities, has decreased from a net deficit of $266,000 as at 30 June to a net deficit of $2,092,000 as at 30 June due to the recognition of $2,281,000 as a current payable to Odyssey Gaming Limited shareholders, which has since been refinanced. Borrowings have reduced from $5,410,000 as at 30 June to $3,820,000 as at 30 June which includes $1,328,000 attributable to Odyssey Gaming Limited at the date of acquisition. Significant Changes in State of Affairs On 24 June the Company announced the acquisition of 90.66% of the issued share capital of Odyssey Gaming Limited, a listed gaming machine monitoring and maintenance services provider in Queensland. On 27 June, the Company announced that it would proceed to compulsory acquisition of the remaining shares. The Directors have considered the uncertainty that exists about the regulatory future of the gaming industry in Australia and the technologies applicable to a new regulatory framework, when assessing the carrying value of relevant intangible assets. As a result, an impairment of $5,765,000 has been recognised against the Company s gaming assets during FY. The Directors have also determined that the commercialisation of relevant intellectual property in the Media and Wagering segments is no longer probable and, as a result, a $1,131,000 impairment has been made against these assets. Dividends Paid or Recommended The Directors do not recommend that a dividend be declared for the financial year. Since the end of the previous financial year, no dividends have been paid. Likely Developments and Expected Results of Operations During FY 2012, the Group plans to continue to grow its market share in Australia, Asia and other parts of the world, by ongoing product development, the release of innovative new products, entering new markets with existing technologies and through acquisitions. Increased 6 Limited Annual Report

9 for the year ended June distribution of WMS gaming machines will further enhance and strengthen the Group s cash flow, revenue and profit base. The Group will continue with its debt repayment strategies. Through the acquisition of Odyssey Gaming Limited, the Group has expanded into gaming machine monitoring and maintenance services in Queensland, and expects to rationalise costs and product offerings as well as expand its market share. It is expected to have a positive influence on the Group s revenue and profit base. Further information on the likely developments and expected results of the operations of the Group will be announced to the market in due course. Significant After Balance Date Events As at 30 June the Group had outstanding commercial debt facilities of $1,250,000 and master asset finance debt facilities of $443,000 with St George Bank. On 14 July the Commonwealth Bank of Australia refinanced the Group s commercial debt facilities as follows:- R $1,500,000 commercial bill facility R $2,500,000 acquisition funding for Odyssey Gaming Limited R $500,000 overdraft facility On 15 July, the Company completed the acquisition of Odyssey Gaming Limited (Odyssey) shares from those Odyssey shareholders who had accepted its off-market offer under its takeover bid for all the ordinary shares of Odyssey (its Offer ) which involved the issue of 8,616,218 ordinary shares in the Company. On 26 August, the Company completed the compulsory acquisition of Odyssey shares from those Odyssey shareholders that did not accept its Offer, involving the issue of a further 886,774 ordinary shares in the Company. On 15 July, Odyssey Gaming Services Pty Limited (OGS) was issued with Notice of Event of Default by the Australia and New Zealand Banking Group Limited (ANZ), in respect of credit facilities provided to OGS in the form of borrowings and lease asset finance, due to the of change in control of OGS, resulting from the Company s acquisition of OGS parent Odyssey Gaming Limited. The ANZ also advised that they did not propose to take any action in respect of the event of default. Refer to the notes to the financial statements, note 31 of this financial report, for further information. Environmental Issues The Group operates primarily in the gaming sector and conducts its business activities with respect for the environment, while continuing to meet the expectations of shareholders, customers, employees and suppliers. The Group is not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. Directors The Directors of the Company in office during the financial year and at the date of this report are: Michael B. Hale Non-Executive Chairman Board member since 1999 Anthony P. Toohey CEO and Managing Director Board member since 2004 Ian R. James Executive Director Board member since 2007 Dr Allan C. Sullivan Non-Executive Director Board member since 2009 Information on Current Directors Michael B Hale Non-Executive Chairman Experience Board member since April Background includes Chairman and Managing Director of The Hale Agency, Chairman and CEO of Young & Rubicam Australia, Director of Saatchi and Saatchi London and Foote Cone & Belding UK. Mr Hale was involved with business and strategic planning for major Australian and international companies, including British Airways, Unilever, Epson, Toshiba, NRMA and BMW. Interests in shares and options At 30 June, Mr Hale, or his related parties, hold 12,153,662 shares. Special Responsibilities Chairman of ebet and Chairman of the Remuneration Committee. Anthony P Toohey Managing Director / Chief Executive Officer Experience Joined ebet and the Board in March Mr Toohey is an accomplished senior executive in the club, entertainment and leisure industries, with a proven track record of success in increasing sustainable competitive advantage and creating a strong platform for continuing growth. His background includes General Management positions held at Wentworthville Leagues, Wests Leagues Illawarra and Dee Why RSL Clubs. Interests in shares and options At 30 June, Mr Toohey, or his related parties, hold 2,236,750 shares and unlisted options to acquire 2,000,000 shares. Ian R James Executive Director Experience Joined the Board in May Mr James is a former partner of Mallesons Stephen Jaques, a leading international commercial law firm, and has focused on advising major corporations and financial institutions. His commercial evolution for better 7

10 directors report experience over the past 30 years has been gained in Australia, the United Kingdom, Hong Kong and other offshore markets. He was a founding shareholder of ebet and has closely followed its progress since listing. Interests in shares and options At 30 June, Mr James, or his related parties, hold 8,988,581 shares. Special Responsibilities Member of the Audit and Remuneration Committees. Dr. Allan C Sullivan Non-Executive Director Experience Joined the Board in March Dr. Sullivan has a Bachelor of Science Engineering degree and a doctorate of Engineering from Sydney University. Dr. Sullivan has previously held many executive positions, including Professional Engineer with Electricity Commission of NSW; President of ABB Company in Seoul; Member of the Executive Board of Landis & Gyr Asia Pacific and Electrowatt Asia Pacific, Hong Kong; Member of the Executive Board of Siemens Building Technologies Asia Pacific; CEO & Member of the Board of Directors of the ERG Group of Companies; adviser to Utilico / Ingot Group, including Director of Ellect Holdings and Chairman of Freshtel Holdings. Interests in shares and options At 30 June, Dr Sullivan, or his related parties, hold 1,806,000 shares. Special Responsibilities Chairman of the Audit Committee. Company Secretary The position of company secretary was held by Richard Standen; BEc, CPA, ACIS who was appointed in February 2009 and has been employed by ebet since July 2006 in senior finance capacities. Meetings of Directors During FY, 13 meetings of Directors were held. Attendances were: Name Directors Meetings Remuneration Committee Audit Committee Meetings eligible to attend Meetings attended Meetings eligible to attend Meetings attended Meetings eligible to attend Michael B Hale Anthony P Toohey Ian R James Dr Allan C Sullivan Meetings attended Indemnifying and insurance of Directors and Officers During FY, the Company had a contract for liability insurance on behalf of the Directors and Officers as listed in this Annual Report. As permitted by the Corporations Act 2001, the premium for this renewal of insurance was paid by the Company. The Company paid a premium of $68,000 ( : $56,000) for this insurance cover. Options At the date of this report, the unissued ordinary shares of the Company under option are Particulars Grant Date Expiry Date Exercise Price Number of options Tony Toohey 01/07/ /07/2012 $ ,000,000 Tony Toohey 27/11/ /11/2012 $ ,000,000 WMS Gaming Inc 27/11/ /11/2015 $ ,246,248 Total 17,496,248 No shares were issued during FY by virtue of the exercise of options (: Nil), or to the date of this Report. For details of options issued to Directors and executives as remuneration, refer to the Remuneration Report below. 8 Limited Annual Report

11 for the year ended June Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, or for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-audit Services Details of the amounts paid or payable to the Auditors (PKF East Coast Practice) for non-audit services provided during the financial year are set out below :- Tax Compliance and Related Services Consolidated Entity Other 9 - Related practices of PKF East Coast Practice The Directors, in accordance with advice from the Audit Committee, are satisfied that the provision of non-audit services during the year by the Auditor 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 did not compromise the auditor independence requirements of the Corporations Act 2001, for the following reasons:- R all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and R none of the services undermine the general principles relating to auditor independence, as set out in APES 110 Code of Ethics for Professional Accountants. Auditor s Independence Declaration The Auditor s independence declaration under section 307C of the Corporations Act 2001 has been received and is attached. Rounding of Amounts The Company is an entity to which ASIC Class Order 98/100 applies. Accordingly, amounts in the financial report and this Report have been rounded to the nearest thousand dollars. Remuneration Report (Audited) The following Remuneration Report forms part of the report of the Directors, and is the only section of the Directors Report subject to audit. Remuneration of Non-Executive Directors comprises fees determined by the Remuneration Committee having regard to industry practice and the need to obtain appropriately qualified independent persons. Remuneration of Executive Directors and senior executives is determined by the Remuneration Committee (refer Corporate Governance Statement for further details). In this respect, consideration is given to normal commercial rates of remuner ation for similar levels of responsibility. Remuneration comprises salaries, use of a motor vehicle, bonuses, superannuation contributions, ordinary shares and share options. Bonuses are paid on the basis of achievement of pre-set key performance indicators (KPIs). In FY, a $40,000 bonus was paid to CEO/Managing Director Mr. A Toohey ( Nil). No other bonus has been paid to the date of this Report. Incentives determined in relation to the achievement of EBITDA targets and movement in the Company s share price over the preceding 12 months are paid by the issue of shares in the Company. For FY, the incentives were issued dependent upon satisfaction of the following performance conditions: CEO/Managing Director Mr. A Toohey R 1,000,000 shares issued, based upon EBITDA targets for FY (Issued 28 April after being approved by shareholders at the Annual General Meeting held on 26 November ). For FY, the incentives were issued dependent upon satisfaction of the following performance conditions: CEO/Managing Director Mr. A Toohey R 1,000,000 options granted, based upon EBITDA targets (Issued 27 November 2009 after being approved by shareholders at the Annual General Meeting held on 28 November 2009). All remuneration paid to Directors and Executives is valued at cost to the Company and expensed. Shares granted to Directors and Executives are valued at the difference between the market price of those shares at the time of issue and the amount paid by the Director or Executive. Options are valued using the Black-Scholes option pricing model. evolution for better 9

12 directors report Performance-based Remuneration As part of the CEO and Executive remuneration packages, there is a performance-based component consisting of KPIs. The intention of this program is to facilitate goal congruence between Directors/Executives and that of the business and shareholders. The KPIs are set annually, following a level of consultation with Directors/Executives, to ensure buy-in. These measures are specifically tailored to the areas in which each Director/Executive is involved and may have control. The KPIs target areas which the Board believes hold greater potential for the Group s expansion and profit, covering financial and non-financial as well as short and long term goals. The level set for each KPI is based on budgeted figures for the Group and industry standards. Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the deemed difficulty of each KPI achieved. Following this assessment, the KPIs are reviewed by the Remuneration Committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the Group s goals and shareholder wealth, before the KPIs are set for the following year. In determining whether or not a KPI has been achieved, the Group bases its assessment on audited figures. Group Performance, Shareholder Wealth and Director and Executive Remuneration The remuneration policy has been tailored to increase goal congruence between shareholders, Executive Directors and Executives. There have been two methods applied in achieving this aim, the first being a performance-based bonus focused on KPIs, and the second being the issue of ordinary shares/options to the majority of Executive Directors and Executives. The Group believes this policy is increasing shareholder wealth. The following table has been prepared to give ebet shareholders a clear view of the alignment of key organisational performance measures compared to changes in Directors and Senior Executives remuneration. Company Performance, Shareholder Wealth and Director and Executive Remuneration 2007 % Change 2008 % Change 2009 % Change % Change % Change Company Performance EBITDA* ($ 000) 3,538 14% 5,372 52% 5,345 0% 5,152 1% 4,385 (15)% EPS (cents) 0.39 (52)% (0.07) (118)% ,100% % (2.71) (434)% Dividends (cents) Share price at year end (cents) % 6.0 (65)% 5.0 (17)% % 5.0 (44)% Director Remuneration ($) Michael B Hale 73,869 15% 70,417 (5)% 66,932 (5)% 65,000 (3)% 65,000 0% Anthony P Toohey 397,553 16% 442,802 11% 477,256 8% 561,319 18% 653,771 16% Ian R James 270, ,183 42% 379,050 (1)% 365,050 (4)% 295,050 (19)% Dr Allan C Sullivan ** ,050-49,050 0% 49,050 0% Anthony H Tighe ** ,350-16,350-4,087 (75)% - (100)% Executive Remuneration ($) Ian Thomson ** , ,935 (51)% - (100)% Richard Standen ** , ,862 (8)% 185,731 12% Note Excludes Directors and executives who have not served during the current or prior year. * EBITDA refers to earnings before interest, tax, impairment, depreciation, amortisation and acquisitions costs. ** A Sullivan appointed 02/03/2009, A Tighe appointed 08/02/2008 and resigned 14/07/2009, I Thomson executive appointed 01/07/2008 and resigned 27/10/2009, R Standen executive appointed 01/07/ Limited Annual Report

13 for the year ended June Performance Income as a Proportion of Total Remuneration Names and positions of Directors in office at any time during FY are :- Executive Directors and Executives are paid performancebased bonuses based on set monetary figures, rather than proportions of their salary. This has led to the proportions of remuneration related to performance varying between individuals. The Remuneration Committee has set these bonuses to encourage achievement of specific goals that have been given a high level of importance in relation to the future growth and profitability of the Group. Name Michael B Hale Anthony P Toohey Ian R James Dr Allan C Sullivan Position Non-Executive Chairman CEO / Managing Director Executive Director Non-Executive Director The Remuneration Committee will review the performance bonuses to gauge their effectiveness against achievement of set goals, and adjust future year incentives to reward the achievement of designated outcomes. These performance conditions have been chosen because they reflect the Group s strategies for growth and increased shareholder wealth, in respect of which the Executive Directors play a crucial role. Names and positions of specified Executives in office at any time during the financial year are: Name Richard Standen Position General Manager Finance / Company Secretary Directors and Executives Remuneration Year Ended 30 June Name Salary, allowances and fees $ Short term benefits Cash bonuses $ Non cash benefits $ Post employment benefits Superannuation $ Termination benefits $ Share based payments $ Long term benefits Long service leave $ Total $ Performance related % Directors Michael B Hale 65, ,000 - Anthony P Toohey 517,451 40,000 13,204 15,199-60,000 7, ,771 16% Ian R James 295, ,050 - Dr Allan C Sullivan 49, ,050 - Total Directors 926,551 40,000 13,204 15,199-60,000 7,917 1,062,871 Executives Richard Standen 154,107-4,999 24, , ,731 - Total Executives 154,107-4,999 24, , ,731 TOTAL 1,080,658 40,000 18,203 40,159-60,000 9,582 1,248,602 evolution for better 11

14 directors report Directors and Executives Remuneration Year Ended 30 June Name Salary, allowances and fees $ Short term benefits Cash bonuses $ Non cash benefits $ Post employment benefits Superannuation $ Termination benefits $ Share based payments $ Long term benefits Long service leave $ Total $ Performance related % Directors Michael B Hale 65, ,000 - Anthony P Toohey 467,546-20,100 14,461-52,000 7, , % Ian R James 365, ,050 - Dr Allan C Sullivan 49, ,050 - Anthony H Tighe * 4, ,087 - Total Directors 950,733-20,100 14,461-52,000 7,212 1,044,506 Executives Ian Thomson * 97, , ,935 - Richard Standen 148, , , ,862 - Total Executives 246, , , ,797 TOTAL 1,196,914-20,100 49,675-52,000 8,614 1,327,303 * A Tighe resigned 14/07/2009, I Thomson resigned 27/10/2009. An incentive bonus element of Executive Directors remuneration is determined in relation to achievement of profit targets and KPIs, and paid by the grant of fully paid ordinary shares in the Company. The Group believes that profit targets and KPIs are the most appropriate method of rewarding Executive Directors. The performance conditions do not involve a comparison with factors external to the Group. Remuneration of Senior Executives is assessed with regard to normal commercial rates of remuneration for similar levels of responsibility, experience and skills. In addition, a portion of the aggregate remuneration of each Senior Executive comprises an incentive bonus related to the performance of those parts of the Group s operations which are relevant to the Executive s responsibilities. Employment conditions for the CEO/Managing Director, Mr. A. Toohey, are formalised in a written contract of employment. Relevant details of Mr. Toohey s contract of employment are as follows: 1. duration is indefinite, subject to the right of Mr. Toohey to terminate on giving 6 months notice and the right of the Company to terminate on giving 12 months notice (in the ordinary course) or immediately (for misconduct); 2. the Company may elect to pay to Mr. Toohey in lieu of notice, the amounts which he would otherwise have received under (1) above during the relevant notice period; 3. Mr. Toohey is entitled to an annual review of his contract entitlements, and this may (but is not guaranteed to) result in an increase in his salary and other base entitlements; 4. in addition, as part of this annual review, Mr. Toohey may (but is not guaranteed to) become entitled to a cash bonus and/or shares under the Group s Executive Share Trust Plan, subject to meeting specified KPIs. Other specified Executives are permanent employees of the Group. Their contracts typically stipulate a 6 month notice period for termination or resignation, and the selected Executives will be entitled to participate in the Group s Executive Share Trust Plans. However, instant termination may result from serious misconduct, for which termination payments/entitlements are not generally available. Directors and Executives Shares The number of shares in which the key management personnel of the Group held a relevant interest are set out in note 30 of the financial statements and for Directors, above in information on current Directors. 12 Limited Annual Report

15 for the year ended June Directors and Executives Options Year Ended 30 June Name Exercise price per option (cents) Expiry Date Balance 01/07/ Granted as remuneration Options exercised Options Expired Balance 30/06/ Total Vested & Exercisable 30/06/ Directors AP Toohey 15 29/11/10 750, (750,000) - - AP Toohey /07/12 1,000, ,000,000 1,000,000 AP Toohey /11/12 1,000, ,000,000 1,000,000 TOTAL 2,750, (750,000) 2,000,000 2,000,000 Year Ended 30 June Name Exercise price per option (cents) Expiry Date Balance 01/07/2009 Granted as remuneration Options exercised Options Expired Balance 30/06/ Total Vested & Exercisable 30/06/ Directors AP Toohey 16 30/09/09 750, (750,000) - - AP Toohey 15 29/11/10 750, , ,000 AP Toohey /07/12-1,000, ,000,000 1,000,000 AP Toohey /11/12-1,000, ,000,000 1,000,000 TOTAL 1,500,000 2,000,000 - (750,000) 2,750,000 2,750,000 Each option provides the holder with an entitlement to purchase, prior to the expiry date, one fully paid ordinary ebet Limited share at the exercise price. Signed in accordance with a resolution of the Board of Directors. Michael B Hale Chairman anthony P Toohey CEO and Managing Director Dated this 28th day of September, in Sydney. evolution for better 13

16 corporate governance statement ebet Limited (the Company ) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board continues to review the framework and practices to ensure they meet the interests of shareholders. The Company and its controlled entities together are referred to as the Group in this statement. Below is a summary of the Group s corporate governance practices applied for the year ended 30 June. They comply with the Corporate Governance and Recommendations of the ASX Corporate Governance Council where considered appropriate, given the size and complexity of the business. On 30 June, the ASX Corporate Governance Council released amendments to the second edition in relation to diversity, remuneration, trading policies and briefings, which applied to the Company from 1 January. The business and management systems that support the Corporate Governance Framework are regularly reviewed and updated in line with the growth of the business. Principle 1 Lay Solid Foundations for Management and Oversight Recommendation 1.1 Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions. The Board has the following responsibilities: R oversee the operation of the Company s businesses; R approve the Company s strategy, business plans, budgets and financial direction, including review of management reporting of performance indicators compared with the strategy, plans, budgets and finances previously approved by the Board; R oversee the Company s financial position, and its ability to meet its obligations as and when they fall due; R oversee the role of the Chief Executive Officer and the Company Secretary, and put in place defined delegations of authority to enable them to perform their duties in accordance with the Board s wishes; R work with the Company s management to identify the key risks, and ensure the implementation of appropriate risk management and reporting systems; R oversee the external audit and ensure that proper audit procedures are in place, and (in conjunction with the Auditors) ensure that accounts comply with the current Australian Accounting Standards; R ensure effective communication between the Company and its stakeholders, including shareholders, regulators and other interested parties; and R review the Board s own processes, performance, composition and processes for the nomination of new Directors, remuneration of Directors and the retirement of Directors. The CEO and other Senior Executives are responsible for: R developing corporate strategy, business plans, budgets etc. for review and approval by the Board; R developing appropriate policies and procedures for the management and control of the business; and R the day to day management of the Company s affairs. A copy of our Role of the Board policy document is available on our website, Recommendation 1.2 & 1.3 Companies should disclose the process for evaluating the performance of senior executives and provide the information required in the guide to Principle 1. The Remuneration Committee is responsible for reviewing the performance of the Chief Executive Officer ( CEO ), ensuring that there is an appropriate process to review the performance of Senior Executive Officers and for setting and approving performance objectives for the CEO and Senior Executive Officers (including in relation to bonus payments, option and share plans). Principle 2 Structure the Board to Add Value Recommendation 2.1 A majority of the Board should be independent Directors. The Board of Directors consists of four Directors, of which two are non-executive Directors, one of which is the Non-Executive Chairman. Details of the skills, experience and expertise of each of our Directors are set out in the Annual Report. Of the two Non-Executive Directors, the Chairman Mr Hale, is not considered independent as he is a substantial shareholder. Dr Sullivan is independent and Mr Toohey, as Chief Executive Office is not considered independent, nor is Mr James, as a company he is associated with is responsible for the provision of services on a fee retainer for the purposes of the ASX Governance Principles. The Board regularly assesses Director independence having regard to the criteria outlined in the ASX Governance Principles. A Director is permitted to seek independent external expert advice on any Board matter with the prior consent of the Chairman, and at the expense of the Company. Such advice is to made available to all Directors. Recommendation 2.2 The chair should be an independent Director. The Chairman of our Board is not an independent Director as he is a substantial shareholder. The Board considers Mr Hale to be objective in his decision making. Recommendation 2.3 The roles of the chair and the Chief Executive Officer should not be exercised by the same individual. 14 Limited Annual Report

17 for the year ended June The role of Chairman and CEO are exercised by different individuals. Recommendation 2.4 The Board should establish a nomination committee. Due to the current size of the Board and the Company, the Board, as a whole, is responsible for: R monitoring the ongoing development of the Board, consistent with the Company s growth and development prospects; R making recommendations to the Board for the appointment and removal of Directors; R evaluating the performance and contribution of individual Directors and the Board Committees; and R assisting the Board in establishing remuneration policies and practices that enable the Company to attract, retain and motivate executives and Directors who will pursue the long-term growth and success of the Company. The appointment of new Directors and the re-appointment of existing Directors will be based on the Board s recommendations. Recommendation 2.5 Companies should disclose the process for evaluating the performance of the Board, its committees and individual Directors. Due to the current size of the Board and Company, the Board as a whole is responsible for :- R reviewing our current corporate governance practices, and identifying any requirements that are required to be changed; R reviewing the respective roles of the Board and management; R reviewing the mix of experience and skills required by the Board; R assessing the performance of the Board as a whole over the previous 12 months; R assessing the effectiveness of Board processes; and R examining ways of assisting the Board in performing its duties more effectively and efficiently. Principle 3 Promote Ethical and Responsible Decision Making Recommendation 3.1 Companies should establish a code of conduct and disclose the code or a summary of the code as to: R the practices necessary to maintain confidence in the Company s integrity; R the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; R the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. A copy of our Code of Conduct policy document is available on our website, Recommendation 3.2 Companies should 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. Recommendation 3.3 Companies should 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. Recommendation 3.4 Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. Recommendation 3.5 Companies should provide the information indicated in the Guide to reporting on Principle 3. Whilst the Company does not have a Board sanctioned diversity policy, the Company is an equal opportunity employer and welcomes people from a diverse range of backgrounds. The Board recognises that diversity encompasses gender, race, ethnicity, age, disability and cultural background. The Company is committed to providing equal access to opportunities based on merit, regardless of diversity. As such, the Board deems it not necessary to disclose measurable objectives for achieving diversity. The Board acknowledges these recommendations and will ensure that the Company practices the intent and spirit of these recommendations. Principle 4 Safeguard Integrity in Financial Reporting Recommendation 4.1 The Board should establish an Audit Committee. The Board has established an Audit Committee. Recommendation 4.2 The Audit Committee should be structured so that it: R consists only of Non-Executive Directors; R consists of a majority of independent Directors; R is chaired by an independent chair, who is not chair of the Board; R has at least three members. Due to the current size of the Board and Company, the Audit Committee has only two members, of which one is independent. Otherwise, the Audit Committee complies with the above recommendations and is responsible for :- evolution for better 15

18 corporate governance statement R the integrity of the financial reporting process and all other financial information published by us; R the integrity of the financial reporting system, including the management of risk and systems of internal control; R our external audit process, including appointment of the external auditor and overseeing the independence of the external auditor; and R our process for monitoring compliance with laws and regulations. Recommendation 4.3 The Audit Committee should have a formal charter. A copy of our Audit Committee Charter policy document is available on our website, Principle 5 Make Timely and Balanced Disclosure Recommendation 5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance, and disclose those policies or a summary of those policies. A copy of our Continuous Disclosure policy document is available on our website, Principle 6 Respect the Rights of Shareholders Recommendation 6.1 Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings, and disclose their policy or a summary of that policy. A copy of our Shareholder Communications policy document is available on our website, Principle 7 Recognise and Manage Risk Recommendation 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. The Audit Committee is responsible to the Board for oversight of material business risks and internal controls. A copy of our Risk Management policy document is available on our website, The Statutory Annual Report also contains details of the material business risks relevant to us. Recommendation 7.2 The Board should require management to design and implement a risk management and internal control system to manage the Company s material business risks, and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company s management of its material business risks. The Audit Committee, as overseers of this area, requires management to establish appropriate systems and procedures to manage our material business risks, and to report on the management of those risks. Recommendation 7.3 The Board should disclose whether it has received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board receives a written certification each year from both the Chief Executive Officer and the General Manager Finance & Administration that the declaration provided in accordance with section 295A of the Corporations Act (the integrity of financial statements) is founded on a sound system of risk management and internal control, and that the system is operating effectively in all material respects in relation to financial reporting risks. Principle 8 Remunerate Fairly and Responsibly Recommendation 8.1 The Board should establish a Remuneration Committee. The Board has established a Remuneration Committee. A copy of our Remuneration Committee Charter policy document is available on our website, Recommendation 8.2 The remuneration committee should be structured so that it: R consists of a majority of independent directors R is chaired by an independent chair R has at least three members. Due to the current size of the Board and Company, the Remuneration Committee has only two members. The Remuneration Committee comprises two Directors, one Executive Director and one Non-Executive Director who is also Chairman of the Committee. The Chairman of the Remuneration Committee is not an independent Director as he is a substantial shareholder. The Board considers Mr Hale to be objective in his decision making. Recommendation 8.3 Companies should clearly distinguish the structure of Non-Executive Directors remuneration from that of Executive Directors and senior executives. As Non-Executive Directors assess individual and Company performance, their remuneration does not have any variable incentive component. Only the Chief Executive Officer s remuneration includes a variable component such as the vesting of options, shares or bonus payments linked to the achievement of performance targets. Details of remuneration of Non-Executive Directors, Executive Directors and senior executives are set out in the Remuneration Report. 16 Limited Annual Report

19 auditors independence declaration Lead auditor s independence declaration under Section 307C of the Corporations Act 2001 To: the directors of ebet Limited and the entities it controlled during the year I declare to the best of my knowledge and belief, in relation to the audit for the financial years ended 30 June there have been: no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit, and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Saxon Partner Sydney, 28 September Tel: Fax: PKF ABN Level 10, 1 Margaret Street Sydney New South Wales 2000 Australia The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of the PKF Australia Limited national network of legally independent firms each trading as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Liability limited by a scheme approved under Professional Standards Legislation. evolution for better 17

20 financial report 30 June Contents of financial report Consolidated Income Statement 19 Consolidated Statement 20 of Comprehensive Income Consolidated Statement 21 of Financial Position Consolidated Statement 22 of Changes in Equity Consolidated Statement of Cash Flows 23 Notes to the Financial Report 24 Directors Declaration 61 Independent Auditors Report Limited Annual Report

21 consolidated income statement for the year ended 30 June CONSOLIDATED ENTITY Notes Revenue Sales Gaming machines and systems 22,017 16,646 Service revenue 10,186 10,494 Wagering revenue Other revenue Total revenue 2 32,699 28,069 Expenditure Cost of sales 3 (15,349) (11,667) Audit and accounting fees (295) (329) Bad and doubtful debts (76) (68) Consulting expenses (493) (779) Depreciation and amortisation 3 (3,223) (2,796) Directors fees and related expense (223) (240) Employee benefit expense (8,415) (6,813) Finance costs 3 (310) (584) Insurance expenses (308) (297) Marketing expenses (258) (285) Motor vehicle expenses (151) (160) Occupancy and equipment rental expenses (1,087) (1,015) Telecommunications (194) (156) Travel and entertainment expenses (428) (366) Other expenses (762) (486) Total expenses (31,572) (26,041) Profit before income tax, impairment and business acquisition costs 1,127 2,028 Impairment of intangible assets 16 (6,896) - Business acquisition costs 25 (580) - Profit / (loss) before income tax (6,349) 2,028 Income tax benefit / (expense) (255) Profit / (loss) for the year (5,939) 1,773 Profit / (loss) for the year attributable to members of the parent entity (5,939) 1,773 Basic earnings per share (cents per share) 7 (2.7) 0.8 Diluted earnings per share (cents per share) 7 (2.7) 0.8 The above consolidated income statement should be read in conjunction with the accompanying notes. evolution for better 19

22 consolidated statement of comprehensive income for the year ended 30 June CONSOLIDATED ENTITY Profit / (loss) for the year (5,939) 1,773 Other comprehensive income Exchange difference on translation of foreign operations (344) (167) Other comprehensive income for the year, net of tax (344) (167) Total comprehensive income for the year (6,283) 1,606 Total comprehensive income attributable to members of the parent entity (6,283) 1,606 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 20 Limited Annual Report

23 consolidated statement of financial position as at 30 June CONSOLIDATED ENTITY Notes Current assets Cash and cash equivalents 9 1,864 2,592 Trade and other receivables 10 10,541 9,005 Inventories 11 11,225 6,675 Derivative financial instruments Other current assets Total Current Assets 24,021 18,548 Non-current assets Trade and other receivables Property, plant and equipment 15 2,020 1,074 Deferred tax assets 4(a) 1, Intangible assets 16 14,876 20,862 Total Non-Current Assets 18,566 23,004 Total assets 42,587 41,552 Current liabilities Trade and other payables 17 17,197 12,340 Borrowings 18 2,533 3,519 Provisions 19 1,753 1,226 Derivative financial instruments Current tax liability 4(e) Other current liabilities 20 3,801 1,453 Total Current Liabilities 26,113 18,814 Non-current liabilities Borrowings 18 1,287 1,891 Provisions Total Non-Current Liabilities 1,533 2,054 Total liabilities 27,646 20,868 Net assets 14,941 20,684 Equity Contributed equity 21 50,820 50,280 Reserves 22 (323) 263 Accumulated losses (35,556) (29,859) Total equity 14,941 20,684 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. evolution for better 21

24 consolidated statement of changes in equity for the year ended 30 June Consolidated Entity Contributed Equity Accumulated Losses Option Reserve Foreign Currency Exchange Reserve Total Balance as at 1 July ,234 (31,667) 277 (93) 18,751 Share Issue of 909,091 on 11 Dec Share Issue of 101,217 on 01 Feb Options issued Transfer options expired - 35 (35) - - Total comprehensive income for the year - 1,773 - (167) 1,606 Balance as at 30 June 50,280 (29,859) 523 (260) 20,684 Share issue of 69,006 on 25 Nov Share issue of 1,000,000 on 28 Apr Transfer options expired (242) - - Shares under issue at 30 Jun Total comprehensive income for the year - (5,939) - (344) (6,283) Balance as at 30 June 50,820 (35,556) 281 (604) 14,941 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 22 Limited Annual Report

25 consolidated statement of cash flows for the year ended 30 June Consolidated Entity Notes Cash flows from operating activities Receipts from customers 38,129 26,779 Payments to suppliers and employees (33,125) (19,865) Interest received Interest and other costs of finance paid (290) (502) Income taxes paid (132) - Net cash provided by operating activities 8 4,857 6,668 Cash flows from investing activities Payment for business acquisition, net of cash acquired (29) - Payments for purchases of property, plant and equipment (781) (271) Payments for software development and other intangibles (2,499) (2,342) Net cash used in investing activities (3,309) (2,613) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings (4,053) (1,334) Net cash used in financing activities (3,917) (1,334) Net increase / (decrease) in cash held (2,369) 2,721 Cash at beginning of the financial year 2,592 (129) Effects of exchange rate changes on cash and cash equivalents 4 - Cash at end of the financial year ,592 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. evolution for better 23

26 notes to the financial report Note 1: Statement of significant accounting policies The principal accounting policies adopted by ebet Limited comprising the parent entity and its controlled entities are stated below in order to assist in a general understanding of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Basis of preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act The financial report covers the consolidated entity consisting of ebet Limited and its controlled entities (referred to in this financial report as the Group or the consolidated entity ). ebet Limited (the Company ) is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Stock Exchange. Historical cost convention The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of certain non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Financial report complies with IFRS These financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Critical accounting estimates The preparation of financial statements in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are set out at Note 1 (y). Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in Note 33. New Australian Accounting Standards The following Australian Accounting Standards have been issued or amended and are applicable to the parent and consolidated entity but are not yet effective. They have not been adopted in preparation of the financial statements at reporting date. AASB 9 'Financial Instruments' AASB 10 'Consolidation' AASB 11 'Joint Arrangements' AASB 12 'Disclosure of Interests in Other Entities' AASB 13 'Fair value measurement' AASB 1053 'Application of Tiers of Australian Accounting Standards' AASB Amendments to Australian Accounting Standards [AASB 5, 8, 108, 110, 112, 119, 133, 137, 139, 1023 and 1031 and Interpretations 2, 4, 16, 1039 and 1052] AASB -2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements AASB -4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, 7, 101 and 134 and Interpretation 13] 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 and 1038 and Interpretations 112, 115, 127, 132 and 1042] Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 July 2013 Effective for annual reporting periods beginning on or after 1 January Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 July Effective for annual reporting periods beginning on or after 1 January 24 Limited Annual Report

27 for the year ended June Note 1: Statement of Significant Accounting policies (continued) AASB -6 Amendments to Australian Accounting Standards - Disclosures on Transactions of Financial Assets [AASB 1 and 7] 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 and 1038 and Interpretations 2, 5, 10, 12, 19 and 127] AASB -8 Amendments to Australian Accounting Standards - Deferred Tax: Recovery of Underlying Assets [AASB 112] AASB -9 Amendments to Australian Accounting Standards - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters [AASB 1] AASB -10 Further amendments to Australian Accounting Standards - Removal of Fixed Dates for First-time Adopters [AASB and AASB -7] AABS -1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132 and AASB 134 and Interpretations 2, 112 and 113] AABS -2 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project Reduced Disclosure Requirements [AASB 101 and AASB 1054] AASB -4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] Effective for annual reporting periods beginning on or after 1 July Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 January 2012 Effective for annual reporting periods beginning on or after 1 July Effective for annual reporting periods beginning on or after 1 January 2013 Effective for annual reporting periods beginning on or after 1 July Effective for annual reporting periods beginning on or after 1 July 2013 Effective for annual reporting periods beginning on or after 1 July 2013 The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the consolidated entity. (b) Principles of consolidation (i) Subsidiaries The consolidated entity comprises ebet Limited and all of its controlled entities. A controlled entity is any entity controlled by ebet Limited. Control exists where ebet Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with ebet Limited to achieve the objectives of ebet Limited. A list of controlled entities is contained in Note 14 to the financial report. Controlled entities are included in the consolidated entity from the date that control commences until the date control ceases. In the Company s financial statements, investments in controlled entities are carried at cost. All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of controlled entities have been changed where necessary to ensure consistencies with those policies applied by the parent entity. (ii) Joint venture entities The interests in joint venture entities are accounted for in the consolidated financial statements using the equity method. Under the equity method, the share of the profits or losses of the joint venture entities is recognised in the income statement and the share of post-acquisition movements is recognised in other comprehensive income. Details relating to joint venture entities are set out in Note 14 to the financial statements. (c) Income tax Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. The charge for current tax expenses is based on the profit for the year adjusted for any non assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet date. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is evolution for better 25

28 notes to the financial report Note 1: Statement of Significant Accounting policies (continued) realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Tax consolidation The Company and its wholly owned Australian controlled entities are part of a tax consolidated group under Australian taxation law where ebet Limited is the head entity The head entity, ebet Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, ebet Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. (d) Inventories Inventories are measured at the lower of cost or net realisable value. Costs have been assigned to inventory quantities on-hand at balance date on the basis of weighted average costs. (e) Property, plant and equipment Property, plant and equipment is carried at cost or at independent or Directors valuation, less (where applicable) any accumulated depreciation or amortisation and impairment losses. The carrying amount of property, plant and equipment is reviewed annually by the Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The depreciable amount of all property, plant and equipment (including building and capitalised lease assets, but excluding freehold land) is depreciated on a straight line basis over their useful lives to the consolidated entity, commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable asset using the straight-line method are: Fixed Assets Class Depreciation Rate Plant and equipment 7% 33% Leased motor vehicles 25% Leasehold improvements 20% 25% (f) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases (Note 18). Finance leases are capitalised at the lease s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases is depreciated over the asset s useful life, or over the shorter of the asset s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight line basis over the life of the lease term. Lease income from operating leases where the Group is the lessor, is recognised in income on a straight line basis over the lease term. The respective leased assets are included in the statement of financial position based on their nature. (g) Investments Investments in controlled entities are measured on the cost basis. The carrying amounts of investments are reviewed annually by Directors to ensure that they are not in excess of the recoverable amounts of these assets. (h) Intangibles i) Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled 26 Limited Annual Report

29 for the year ended June Note 1: Statement of Significant Accounting policies (continued) entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of controlled entities is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purposes of impairment testing. The allocation is made to those cash-generating units or groups of cashgenerating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (Note 28). ii) Intellectual property, software development and other intangibles Intellectual property and other intangibles are carried at cost and are amortised on a straight-line basis over 5 to 10 years. The balances are reviewed annually, and any balance representing future benefits for which the realisation is considered to be no longer probable is written off. Software development is included in other intangibles and is valued in the financial report at cost. Software development is capitalised when it is probable that future economic benefits of the development will eventuate. Costs capitalised include external direct costs of materials and services, direct payroll and payroll related costs of employees time spent on the project. Development costs are only those directly attributable to the development phase, and are only recognised following the completion of technical feasibility and where the Group has an intention and ability to use the asset. Software development is amortised on a straight-line basis over 5 to 10 years from the date that the benefits commence to be realised. The balances are reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer probable are written off. (i) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the Group s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the Parent Entity s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised in the foreign currency translation reserve in equity. Otherwise the exchange difference is recognised in the income statement. Group companies The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency. Assets and liabilities for each income statement presented are translated at the closing rate at the date of the income statement and income and expenses for each income statement are translated at average exchange rates. Exchange differences arising on translation of foreign operations into the presentation currency are transferred directly to the Group s foreign currency translation reserve in the income statement. These differences are recognised in the income statement in the period in which the operation is disposed. (j) Employee entitlements Provision is made for the Group s liability for employee entitlements arising from services rendered by employees to balance date. Employee entitlements expected to be settled within one year, together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at amounts expected to be paid when the liability crystallises, plus related on-costs. Other employee entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those entitlements. Liabilities are determined after taking into consideration estimated future increases in wages, salaries and past experience of staff departures and related on-costs. Contributions are made by the Group to employee nominated superannuation funds and are charged as expenses when incurred. (k) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions evolution for better 27

30 notes to the financial report Note 1: Statement of Significant Accounting policies (continued) and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position. (l) Comparative figures When required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. (m) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity, and specific criteria have been met for each of the Group s activities described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. All revenue is stated net of the amount of goods and services tax (GST). Revenue is recognised for the major business activities as follows: (i) Sale of goods Revenue from sale of goods is recognised on delivery of goods to customers. Delivery does not occur until the goods have been shipped to the specified location and the risks and rewards of ownership have been transferred to the customer. Revenue is recognised net of any discounts provided on goods sold. Trade-in allowances are often provided to customers which may include an incentive component to return goods which can be in excess of the value of the goods to be returned. The trade-in is not recognised until goods have been returned and the risks and rewards of ownership have been transferred to the Group. However, the incentive component is accounted for prior to the return of goods to the extent that, based on experience, it is likely that the goods will be returned. (ii) Contract to provide services When the outcome of a contract to provide services can be estimated reliably, net revenue is recognised by reference to the percentage of service performed. (iii) Finance lease rental revenue The consolidated entity derives rental revenue from finance leases. Finance leases arise where substantially all of the risks and benefits incidental to ownership of the leased asset pass to the lessee. Finance lease revenue is recognised at the time the rental contract is entered into based on the present value of the minimum lease payments, with interest income recognised over the life of the lease. (iv) Finance income Interest is recognised on a time proportion basis using the effective interest rate method. (v) Operating lease revenue The consolidated entity derives income from operating leases where the risk of ownership of the leased assets are retained by the Group. Revenue is recognised on a straight line basis over the term of the lease. (n) Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Cash flows relating to short-term receivables are not discounted if the effect of the discounting is immaterial. Collectability of trade receivables are reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Other receivables are recognised for goods which were delivered to customers and contract services performed, which are in excess of the amounts billed as at that date. (o) Financial assets and liabilities Recognition Financial assets and liabilities are initially measured at fair value on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition, these instruments are measured as set out below. Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term, or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise. 28 Limited Annual Report

31 for the year ended June Note 1: Statement of Significant Accounting policies (continued) 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 stated at amortised cost using the effective interest rate method. Held-to-maturity investments Held-to-maturity investments are non derivative financial assets with fixed or determinable payments and maturities, and it is the Group s intention to hold these investments to maturity. Held-to-maturity investments are included within non-current assets, except for those with maturities less than 12 months from the end of the reporting date, which are classified as current assets. Available-for-sale financial assets Available-for-sale financial assets include any financial assets not included in the above categories. Availablefor-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Subsequent measurement Loans and receivables and held-to maturity investments are carried at amortised cost using the effective interest method. Available-for-sale financial assets and financial assets at fair value through the profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets at fair value through the profit or loss category are presented in profit or loss within other income or other expenses in the period in which they arise. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences related to changes in the amortised cost are recognised in the income statement, and other changes in carrying amount are recognised in other comprehensive income. Changes in the fair value of other monetary and non-monetary securities classified as available-forsale are recognised in other comprehensive income. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss gains and losses from investment securities. Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. Derivative instruments Derivative instruments are measured at fair value. Gains and losses arising from changes in fair value are taken to the income statement 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 arms length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, 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 income statement. (p) Impairment of assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, is compared to the asset s carrying value. Any excess of the asset s carrying value over its recoverable amount is expensed to the income statement. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives, or more frequently if events or changes in circumstances indicate that they might be impaired. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (q) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowing using the effective interest rate method. evolution for better 29

32 notes to the financial report Note 1: Statement of Significant Accounting policies (continued) The fair value of the liability portion of a convertible note is determined using a market interest rate for an equivalent non-convertible bond. The amount is recognised as a liability on an amortised cost basis until extinguishment on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders equity, net of income tax effects. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (r) Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred. (s) Share-based payments Equity settled transactions: The Group provides benefits to employees of the Group in the form of share-based payments, whereby some employees render services in exchange for shares or rights over shares (equity-settled transactions). There is currently an employee share scheme to provide these benefits. (Information relating to these schemes is set out in Note 32). The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the market value of a share on the date they are granted. The cost of equity-settled transactions is recognised in the income statement over the vesting period. The cumulative expense recognised for equity-settled transactions at each reporting date until the 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. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 7). (t) Contributed equity Issued capital is recognised at the fair value of consideration received by the Company and 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. (u) Rounding of amounts The Parent Entity has applied the relief available to it under ASIC Class Order 98/100 and, accordingly, amounts in the financial report and Directors Report have been rounded off to the nearest $1,000. (v) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisitionby-acquisition basis, the group recognises any noncontrolling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group s share of the net identifiable assets acquired, is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in the income statement as a bargain purchase. (w) Earnings per share (EPS) Basic EPS is calculated as net profit attributable to members of the Parent Entity, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares adjusted for any bonus element. Diluted EPS adjust the figures used in the determination of basic earnings per share to take into account the after tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 30 Limited Annual Report

33 for the year ended June Note 1: Statement of Significant Accounting policies (continued) (x) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST is not recoverable from tax authorities. In these circumstance, the GST is recognised as part of the acquisition of the asset or as part of an item of expense. Receivables and payable balances are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the tax authorities is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing or financing activities which is recoverable from, and, or payable to, the tax authorities is classified as operating cash flows. (y) Critical accounting estimates and judgments The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the consolidated entity. The following key assumptions have been made concerning the future and other key sources of estimation uncertainty at the balance date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Key estimates Impairment The consolidated entity assesses impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Valuein-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Valuation-in-use calculations use cash flow projections based on financial budgets approved by management covering a three or five year period. Cash flows beyond this period are not used in the calculations. Should the projections prove incorrect, then adjustments may need to be made for impairment losses in respect of specialised plant and equipment and intangibles. Key estimates tax losses The consolidated entity recognises carried forward tax losses based on tax loss utilisation projections over a five year period. Management based their utilisation projections on budgets; used a loss recoupment fraction of 0.54 for the tax consolidated Group comprising ebet Limited and its wholly owned Australian controlled entities, and assumed that there would be no adverse changes in tax legislation. Should the tax consolidated Group derive future assessable income of amounts materially different to that projected, should the loss recoupment factor materially alter or if there are adverse changes in tax legislation, the balance of carried forward losses recognised will change. (z) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief executive officer. (aa)derivative and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as either: (i) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges) (ii) hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or (iii) hedges of a net investment in a foreign operation (net investment hedges). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 13. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability evolution for better 31

34 notes to the financial report Note 1: Statement of Significant Accounting policies (continued) when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within other income or other expenses. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in profit or loss within finance costs. The gain or loss relating to the effective portion of forward foreign exchange contracts for hedging export sales is recognised in profit or loss within sales. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in equity are reclassified from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of inventory, or as depreciation or impairment in the case of fixed assets. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in profit or loss, and are included in other income or other expenses. Consolidated Entity Note 2: Revenue from continuing operations Sales revenue Machines, systems, equipment and software sales 22,017 16,646 Gaming services revenue 10,186 10,494 Wagering systems and services ,347 27,733 Other revenue Interest received Other revenue Total revenue 32,699 28, Limited Annual Report

35 for the year ended June Consolidated Entity Note 3: expenses Profit / (loss) before income tax includes the following specific expenses: Cost of sales 15,349 11,667 External borrowing costs R Interest and finance charges paid/payable for financial liabilities R Unwinding of discount Depreciation and amortisation R Plant and equipment depreciation R Intellectual property, software development and other intangible assets amortisation 2,680 2,339 3,223 2,796 Foreign exchange R Loss on foreign currency derivatives R Other foreign exchange loss / (profit) 88 (15) Operating leases R Minimum lease payments evolution for better 33

36 notes to the financial report Consolidated Entity Note 4: INCOME TAX (a) Major components of tax expense Current tax (740) (456) Deferred tax Over provision in prior years Income tax benefit / (expense) 410 (255) (b) The prima facie tax on profit / (loss) is reconciled to the income tax expense as follows: Prima facie tax on profit / (loss) before income tax at the Australian tax rate of 30% (: 30%): 1,905 (608) Tax effect of: R Impairment of goodwill (871) - R Other non-allowable items (61) (60) R Rebatable research and development ,437 (383) Difference in overseas tax rates (51) (33) Write back of carry forward losses previously recognised (1,221) - Over provision in prior years Income tax benefit / (expense) attributable to profit / (loss) 410 (255) (c) Tax losses not brought to account as realisation of the benefit is not recognised as sufficiently probable Total tax losses available 24,615 23,097 Less losses recognised as realisation of benefit is deemed to be sufficiently probable (6,100) (8,390) 18,515 14,707 This benefit for tax losses will only be obtained if the consolidated entity derives future assessable income of an amount sufficient to enable the benefit from the deductions for the losses to be realised, the Group continues to comply with the conditions for deductibility imposed by tax legislation, and no changes in tax legislation adversely effect the consolidated entity in realising the benefit from the deductions for the losses. The tax losses recognised as at 30 June were determined based on future assessable income calculations. The future assessable income calculations were based on the tax loss utilisation projections over a five year period. Management based the utilisation projections on budgets, using a loss recoupment fraction of 0.54 for the tax consolidated Group comprising ebet Limited and its wholly owned Australian controlled entities (excluding Odyssey Gaming Limited and its controlled entities), and assumed that there are no adverse changes in tax legislation. The budgets used historical weighted average growth rates to project revenue and budgeted costs were calculated taking into account historical gross margins. The tax losses of the tax consolidated group comprising ebet Limited and its wholly owned Australian controlled entities (excluding Odyssey Gaming Limited and its controlled entities) are subject to a loss recoupment fraction. This means that ebet will only be able to apply prior year tax losses in any given period, to the extent of the taxable income of the tax consolidated group for that period multiplied by the loss recoupment fraction. At 30 June, the fraction was 0.54 (: 0.54). This fraction will be subject to change in future periods when additional shares in ebet Limited are issued. The overprovision for income tax expense in the year ended 30 June and 30 June was predominantly due to the Group being entitled to greater Research and Development Concession Deductions than were anticipated. 34 Limited Annual Report

37 for the year ended June Note 4: income tax (continued) As a result of the federal Government s Parliamentary Joint Select Committee on Gambling Reform Report (May ), the increase risk created by the proposed regulatory changes has been reflected in the future assessable income calculations used to determine the tax losses recognised as at 30 June. This has resulted in a write back of carried forward losses previously recognised of $4,069,000. Consolidated Entity (d) Deferred taxation Deferred tax assets : Future income tax benefits attributable to tax losses 1,829 2,517 Allowance for doubtful debts Allowance for stock obsolescence Employee benefits deducted for tax purposes when paid Accrued expenses deducted for tax purposes when paid Other ,118 3,266 Less: Deferred tax liabilities : Net future income tax asset / (liability) attributable to difference in rates used to amortise / depreciate non-goodwill intangibles and property, plant and equipment for accounting and taxation purposes (1,451) (2,652) Other receivables assessable for tax purposes when raised (467) (319) Net deferred tax asset 1, Net deferred tax assets expected to be recovered within 12 months Net deferred tax assets expected to be recovered after more than 12 months Tax losses Employee Benefits Intangibles 1, , Other Total At 1 July , (2,547) (259) 255 (Charged) / credited to profit or loss (115) 22 (105) At 30 June 2, (2,652) (20) 296 (Charged) / credited to profit or loss (688) 186 1, At 30 June 1, (1,322) 56 1,200 (e) Current tax Income Tax payable (147) (276) Tax Consolidation Legislation ebet Limited and its wholly owned Australian resident subsidiaries have formed a tax consolidation group (excluding Odyssey Gaming Limited and its controlled entities). The head entity is ebet Limited. Members of the group have entered into a tax sharing arrangement with ebet Limited in order to allocate income tax expense between ebet Limited and the members of the group on a notional tax liability basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. evolution for better 35

38 notes to the financial report Note 4: income tax (continued) Odyssey Gaming Limited and its wholly owned subsidiaries have formed a tax consolidation group. The head entity is Odyssey Gaming Limited. Members of the group have entered into a tax sharing arrangement with Odyssey Gaming Limited in order to allocate income tax expense between Odyssey Gaming Limited and the members of the group on a notional tax liability basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. The method adopted for measuring the current and deferred tax amounts is: R consolidated current and deferred tax amounts have been determined in accordance with AASB 112 R each entity in the tax consolidated group has been allocated consolidated current and deferred tax amounts in a manner consistent with the broad principles of AASB 112. Consolidated Entity Note 5: Auditors remuneration During the year the following fees were paid or payable for services provided by the auditors of the parent company, PKF, East Coast Practice: Audit and review of the financial reports Non-audit services, PKF East Coast Practice :- R Tax compliance and related services R Other services Related practices of PKF East Coast Practice Note 6: Dividend imputation The balance of the franking account at year end adjusted for franking credits arising from payments of income tax payable, payment of proposed dividends and franking credits that may be prevented from distribution in subsequent financial years. - - Note 7: earnings per share Basic earnings per share (cents per share) (2.7) 0.8 Diluted earnings per share (cents per share) (2.7) 0.8 Net profit / (loss) used in calculating basic and diluted EPS ($ 000) (5,939) 1,773 (a) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used in calculating basic earnings per ordinary share (000 shares) Adjustments for calculation of diluted earning per share : Share options (000 shares) Weighted average number of ordinary shares used in calculating diluted earnings per share (000 shares) 219, , , , Limited Annual Report

39 for the year ended June Note 7: earnings per share (continued) (b) Shares issued subsequent to the end of the year On 15 July, ebet completed the acquisition of Odyssey Gaming Limited (Odyssey) shares from those Odyssey shareholders that had accepted its offer under its takeover bid for all the ordinary shares of Odyssey (its Offer ), involving the issue of 8,616,228 ordinary shares in ebet Limited. On 26 August, ebet completed the compulsory acquisition of Odyssey shares from those Odyssey shareholders that did not accept its Offer including the issue of 886,744 ordinary shares in ebet Limited (c) Information concerning the classification of securities (i) Options Options granted are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent that they are dilutive. Details relating to the options are set out in Note 32. (ii) Convertible notes Convertible notes are considered to be potential ordinary shares. However, none have been included in the determination of diluted earning per share as they are non-dilutive. Details relating to the convertible notes are set out in Note 18. Consolidated Entity Note 8 : CASH FLOW INFORMATION Reconciliation of cash flow from operations with profit / (loss) after income tax Profit / (loss) after income tax (5,939) 1,773 Non-cash flows in profit R Impairment of intangible assets 6,896 - R Amortisation of intangibles 2,680 2,339 R Depreciation of plant and equipment R Fair value of options and shares issued R Net exchange differences (344) (167) R External borrowing costs - unwinding of discount Changes in assets and liabilities, net of the effects of purchase and disposal of controlled entities Decrease / (Increase) in : - R Trade receivables 381 (4,712) R Other receivables and other current assets (300) 1,466 R Inventories (3,017) (5,099) R Current tax asset - 15 R Deferred tax asset (417) (39) Increase / (Decrease) in : - R Trade payables 722 9,668 R Other payables and derivative financial instruments 1, R Current tax liability (132) 276 R Provisions R Other liabilities 2, Cash flow from operations 4,857 6,668 evolution for better 37

40 notes to the financial report CONSOLIDATED ENTITY Note 9: CASH and cash equivalents Notes Cash Cash at bank and on hand 1,018 2,592 Cash at bank held for jackpots 846-1,864 2,592 Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows :- Cash at bank and on hand * 1,018 2,592 Bank overdraft 18 (791) ,592 *includes cash at bank - MYR (Malaysian Ringgit) *includes cash at bank - USD (US Dollar) 580 1,790 Note 10: TRADE AND OTHER RECEIVABLES Current Trade receivables 7,022 6,196 Provision for impairment (214) (114) 6,808 6,082 Finance lease receivable (a) Other receivables * (b) 3,200 2,648 10,541 9,005 Non-Current Finance lease receivable (a) Trade receivables *includes amounts receivable in foreign currencies - USD 1,340 1,521 *includes amounts receivable in foreign currencies - MYR 29 - (a) Finance lease receivables Finance lease receivables are effectively secured as the rights to the leased assets revert to ebet in the event of default. The effective interest rate is 12.50%. Finance leases are receivable as follows: R not later than 1 year R later than 1 year but not later than 5 years ,241 Future finance charges receivable (77) (193) 773 1, Limited Annual Report

41 for the year ended June Note 10: TRADE AND OTHER RECEIVABLES (continued) (b) Other receivables Other receivables includes $969,000 (: $273,000) relating to revenue which has been recognised relating to goods delivered to customers and contract services performed at year end which are in excess of the amounts billed as at that date. Other receivables also includes receivable from joint venture entity (see Note 30). Consolidated Entity Note 11: INVENTORIES Current Gaming machines, proprietary hardware, computers and parts - at cost 8,509 2,801 Gaming machines in transit - at cost 2,716 3,874 11,225 6,675 Note 12: OTHER CURRENT ASSETS Current Prepayments - inventory paid for in advance Prepayments - other Note 13: DERIVATIVE FINANCIAL INSTRUMENTS Current asset Forward foreign exchange contracts - held for trading - 98 Current liability Forward foreign exchange contracts - held for trading Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates in accordance with the Group s financial management policies (refer Note 23). In order to protect against exchange rate movements, the Group has entered into forward exchange contracts to purchase US dollars. The contracts are economic hedges in that the contracts are timed to mature when payments for major shipments are due to be paid, but do not satisfy the requirements for hedge accounting. evolution for better 39

42 notes to the financial report % of shares held NOTE 14: Controlled entities and joint venture entities Country of incorporation % % Ultimate parent identity :- R ebet Limited Australia Controlled entities :- R ebet Gaming Systems Pty Limited Australia R Maxi Gaming Pty Limited Australia ebet Inc USA R ebet Systems Pty Limited Australia R Bounty Limited Australia Bounty Systems Pty Limited Australia Clubline Systems Pty Limited Australia Inov8 Mobile Pty Limited Australia R Odyssey Gaming Limited Australia Odyssey Gaming Services Pty Limited Australia Odyssey Gaming Services Victoria Pty Limited Australia 91 - Joint venture entities :- R Gaming Solutions Pty Limited Australia R ebet Online Inc Canada ebet Technologies Inc USA Consolidated Entity Interests in joint ventures a) ebet Online Inc. and ebet Technologies Inc. A subsidiary of ebet Limited has a 50% non-controlling interest in ebet Online Inc. which is resident in Canada. ebet Online Inc. also has a 100% owned subsidiary, ebet Technologies Inc. which is resident in the USA. The principal activity of ebet Online Inc. and ebet Technologies Inc. is developing and marketing of internet-based interactive applications and systems for wagering operations. The interest in ebet Online Inc. is accounted for in the consolidated financial statements using the equity method of accounting in accordance with the accounting policy described in Note 1 (b). Information relating to the joint venture is set out below. Share of joint venture assets and liabilities Current assets Non current assets Total assets Current liabilities Non current liabilities - - Total liabilities Net assets / (liabilities) (65) (275) Share of joint venture revenue, expenses and result Revenue 1, Expenses (992) (830) Profit / (loss) before income tax 275 (40) 40 Limited Annual Report

43 for the year ended June NOTE 14: Controlled entities and joint venture entities (continued) Contingent liabilities relating to joint venture Neither of the partners in the ebet Online Inc. is liable for the debts of the joint venture. The debts of the joint venture exceeded its assets as at 30 June and 30 June. b) Gaming Solutions Pty Limited A subsidiary of ebet Limited has a 50% controlling interest in Gaming Solutions Pty Limited. The principal activity of this subsidiary involves the marketing of ticket based technologies for gaming machines and has not commenced operations as at 30 June. The interest in Gaming Solutions Pty Ltd is accounted for in the consolidated financial statements using the equity method of accounting in accordance with the accounting policy described in Note 1 (b). Gaming Solutions Pty Ltd does not have any assets or liabilities as at 30 June and has not generated any revenue or incurred any expenses up to that date. Consolidated Entity NOTE 15: PROPERTY, PLANT and EQUIPMENT Leasehold Improvements At cost Accumulated depreciation (749) (590) Leased Motor Vehicles At cost Accumulated depreciation (228) (78) Plant and Equipment At cost 6,423 3,545 Accumulated depreciation (4,836) (2,944) 1, Total property, plant and equipment 2,020 1,074 Consolidated : Balance at the beginning of the financial year Leased Motor Vehicles Leasehold improvements Plant and equipment total ,074 Additions Acquired on business combination Disposals Depreciation (134) (107) (302) (543) Foreign exchange fluctuations - - (4) (4) Carrying amount at the end of the financial year ,587 2,020 evolution for better 41

44 notes to the financial report NOTE 15: PROPERTY, PLANT and EQUIPMENT (continued) Leased Motor Vehicles Leasehold improvements Plant and equipment total Consolidated : Balance at the beginning of the financial year Additions Disposals - - (4) (4) Depreciation (41) (146) (270) (457) Foreign exchange fluctuations - (1) (1) (2) Carrying amount at the end of the financial year ,074 CONSOLIDATED ENTITY Note 16: INTANGIBLE ASSETS Goodwill 8,455 8,455 Impairment ** (2,903) - Intellectual property, software development and other intangibles - at cost * 5,552 8,455 35,123 31,289 Accumulated amortisation and impairment** (25,799) (18,882) 9,324 12,407 Total intangible assets 14,876 20,862 * Software development and other intangibles includes development costs being an internally generated asset. ** The carrying amount of the goodwill and intellectual property has been reduced to its recoverable amount through recognition of an impairment loss. This loss has been disclosed as a separate line item in the income statement. a) Intellectual property, software development and other intangibles Reconciliation of carrying amount Carrying amount at beginning of financial year 12,407 11,968 Additions - development phase expenditure 2,503 2,550 Additions - options issued as part of distribution and service agreement (see Note 32(e)) Acquired on business combination (see Note 25) 1,087 - Amortisation charge (2,680) (2,339) Impairment of intangible assets (3,993) - Carrying amount at end of financial year 9,324 12, Limited Annual Report

45 for the year ended June NOTE 16: intangible assets (continued) Impairment of intellectual property and software development As a result of the Federal Government's Parliamentary Joint Select Committee on Gambling Reform Report (May ), uncertainty exists as to the regulatory future of the gaming industry in Australia and the technologies applicable to a new regulatory framework. ebet reviewed the carrying value of intellectual property and software development on a line by line basis, and impaired individual assets as appropriate. This resulted in an impairment of $2,862,000 against assets in the Gaming CGU. ebet has also determined that the commercialisation of intellectual property in the Media and Wagering CGUs is unlikely and, as a result, impairments of $904,000 and $227,000, have been recognised against these assets. CONSOLIDATED ENTITY R Gaming (2,862) - R Wagering (227) - R Media (904) - Total impairment of intellectual property, software development and other intangibles (3,993) - b) Goodwill Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to business segment. A segment level summary of goodwill is presented below :- R Gaming Systems 5,552 8,455 R Wagering - - R Media - - 5,552 8,455 Key assumptions used for value-in-use calculations GROWTH RATES Discount rate Periods of cashflow R Gaming 4% 4% 15.0% 12.5% 3 5 R Wagering 4% 4% 15.0% 12.5% 5 5 R Media 0% 0% 15.0% 12.5% 5 5 The recoverable amount of a CGU is based on value-in-use calculations. The increased risk created by the proposed regulatory changes has also been reflected in the value-in-use calculations for the Gaming Systems CGU which has reduced the periods used from to five to three years, and increased the discount rate used from 12.5% to 15%. This resulted in an impairment of goodwill relating to the Gaming Systems CGU of $2,903,000. The value-in-use calculations for the Wagering and Media CGU's use cashflow projections based on financial budgets covering a three to five year period and cash flows beyond three to five years are not used in the calculations. Impact of possible changes in key assumptions If the discount rate had been 12.5% instead of 15.0%, the impairment of goodwill recognised in the Gaming CGU would have reduced from $2,903,000 to $1,932,000. evolution for better 43

46 notes to the financial report Consolidated Entity Note 17: Trade and other payables Current Unsecured Liabilities Trade payables * 11,962 10,852 Consideration for business combination (see Note 25) 2,281 - Jackpot liability Other payables and accruals * 2,111 1,488 17,197 12,340 *includes amounts payable in foreign currencies - US $ 10,225 8,287 Note 18: BORROWINGS Current Secured Commercial bill facility - St George Bank 1, Commercial bill facility - ANZ Finance leases Bank overdraft Unsecured Convertible notes 8 3,180 2,533 3,519 Non-Current Secured Commercial bill facility - St George Bank 250 1,600 Commercial bill facility - ANZ Finance leases ,287 1,891 (a) Total secured liabilities The total secured liabilities are as follows :- Bank overdraft Commercial bill facility - St George Bank 1,250 1,864 Commercial bill facility - ANZ Finance leases 1, ,812 2,230 * Finance leases future minimum lease payments payable: R minimum lease payments 1, R interest payments (184) (77) (b) Security The bank facility consisting of bank overdraft and commercial bills is secured by a registered first fixed and floating charge over the assets and undertakings of the entities within the Group. Finance leases are effectively secured, as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. 44 Limited Annual Report

47 for the year ended June Note 18: Borrowings (continued) (c) Bank overdraft, master asset finance and commercial bill facility The bank facility provided by St George Bank is provided in Australian dollars and has a variable interest rate. The current bank overdraft interest rate is 10.29% and the average interest rate and facility fees of the commercial bill draw down facility are 7.53%. The master asset finance facility provides lease finance for capital purchases over a four year term, the average interest rate of the master asset finance facility was 9.10%. A commercial bill repayment of $250,000 is due on 30 September. The facility is secured and expires on 30 September See Note 31 for details of refinancing of this facility subsequent to Reporting Date. The bank facility provided by ANZ Banking Group Limited (ANZ) is provided to Odyssey Gaming Services Pty Limited (OGS) in Australian dollars and has a variable interest rate. A commercial bill repayment of $47,500 is due on 30 September. The facility is secured and expires on 30 June On 15 July, OGS was issued a Notice of Event of Default from the ANZ, in respect of credit facilities provided to OGS in the form of borrowings and lease asset finance, for an event of change in control of OGS resulting from the Company s acquisition of OGS parent, Odyssey Gaming Limited. The ANZ has advised that it does not propose to take any action in respect of this event of default. (d) Convertible notes WMS has provided a convertible note facility (EWMS) of A$3,500,000 to facilitate the acquisition of WMS products by ebet Gaming Systems Pty Limited. Interest is payable on the notes at the rate of 8.5% p.a. fixed, and the notes are convertible into fully paid ordinary shares in the Company at a conversion price of A$0.11 per ordinary share. Up to one third of issued notes are capable of being converted in each 12 month period. Full conversion will result in WMS receiving fully paid ordinary shares in the Company representing approximately 15% of its current undiluted share capital. This facility has not been drawn. The parent entity has % convertible notes (EBCI) for $7,500 that were due to be redeemed on 9 January The holder of these notes has not been able to be contacted for instructions. On 30 September the Group redeemed its $3,200,000 10% convertible notes by payment of $3,200,000 to the note holders. Consolidated Entity The convertible notes are as follows :- Convertible Notes - EBCI 8 8 Convertible Notes - EBR - 3,172 Convertible Notes - EWMS ,180 Interest expense * * Interest expense is calculated by applying the effective interest rate of the notes to the liability component (e) Financing arrangements Total facilities Bank overdraft, master asset finance and commercial bill facility (c) 4,948 3,590 Less repayments during the year (c) (886) (860) Other Loan Less repayments during the year - (500) 4,062 2,730 evolution for better 45

48 notes to the financial report Consolidated Entity Note 18: Borrowings (continued) Used at balance date Bank overdraft, master asset finance and commercial bill facility (c) Unused at balance date Bank overdraft, master asset finance and commercial bill facility (c) 3,812 2,230 3,812 2, The bank overdraft facilities may be drawn at any time during the term of the facility. Refer Note 31 for details of refinancing of these facilities subsequent to Reporting Date. The above analysis excludes the convertible note facilities as detailed in Note 18 (d). (g) Risk exposures Details of the Group's exposure to risks arising from current and non-current borrowings are set out in Note 23. Note 19: Provisions Current Provision for employee entitlements 1,753 1,226 Non-Current Provision for employee entitlements Aggregate employee entitlements liability 1,999 1,389 Balance at the beginning of the year 1,389 1,318 Acquired in business combination (see Note 25) Additional provisions Amount used (446) (571) Balance at the end of the year 1,999 1,389 Note 20: OTHER LIABILITIES Current Deferred income 3,801 1,453 3,801 1, Limited Annual Report

49 for the year ended June CONSOLIDATED ENTITY Note 21: CONTRIBUTED EQUITY Issued capital Balance at beginning of financial year 218,816,419 (: 217,806,111) fully paid ordinary shares 50,121 50,075 Shares issued or under issue during the year :- R 909,091 shares on 11 Dec R 101,217 shares on 01 Feb - 6 R 69,006 shares on 30 Nov 5 - R 1,000,000 shares on 28 Apr 60 - R 9,503,026 shares under issue at 30 Jun Other equity securities expired during the year Balance at end of financial year 219,885,425 (: 218,816,419) ordinary shares 50,820 50,121 Other equity securities Value of conversion rights - convertible notes Total contributed equity 50,820 50,280 Notes: On 30 November, 69,006 shares were issued as an employee long service bonus. See Note 32 for more details. On 28 April, 1,000,000 shares were issued to Anthony P Toohey under the ebet Executive Share Trust Plan. See Note 32 for more details. On 30 June, 9,503,026 shares were under issue. See Note 32 for more details. The amount shown for other equity securities is the value of the conversion rights relating to the renegotiation of convertible notes on 2 November On 30 September the Group redeemed the convertible notes by payment of $3,200,000 to the note holders. Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up of the company in proportion to the number and amount 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. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Capital risk management The Group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits to other stakeholders, and maintain an optimal capital structure to reduce its cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including borrowings and trade and other payables as shown in the balance sheet) less cash and cash equivalents. Total capital is calculated as equity as shown in the balance sheet, plus net debt. During, the Group s strategy was to maintain a gearing ratio within 40% to 60%. The gearing ratios at 30 June and 30 June were as follows: Total borrowings 17, 18 21,017 17,750 Less: cash and cash equivalents 9 (1,864) (2,592) Net debt 19,153 15,158 Total equity 14,941 20,684 Total capital 34,094 35,842 Gearing ratio 56% 42% The increase in the gearing ratio during was primarily due to the reduction in total equity caused by the impairment of intangible assets, see Note 16. evolution for better 47

50 notes to the financial report CONSOLIDATED ENTITY Note 22: reserves Notes Reserves Option reserve Foreign currency translation reserve (604) (260) (323) 263 Option reserve The option reserve arises through the recognition of expenses relating to the granting of share options. Foreign currency translation reserve The foreign currency translation reserve records exchange differences arising on translation of a foreign operation. Note 23: financial risk management The Group s principal financial instruments comprise receivables, payables, bank loans, convertible notes and overdrafts, cash and short-term deposits. The Group s activities expose it to a variety of financial risks; market risk (including interest rate risk, currency risk, and price risk), credit risk and liquidity risk. Although the Group does not have documented policies and procedures, the Directors manage the different types of risk to which it is exposed by considering risk and monitoring levels of exposure to interest rate and foreign exchange risk and by being aware of market forecasts for interest rate and foreign exchange. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through general business budgets and forecasts. The Group and the parent entity hold the following financial assets and liabilities :- weighted average effective interest rate consolidated entity Financial assets Cash and cash equivalents 4.7% 3.7% 1,864 2,592 Trade and other receivables 0.0% 0.0% 10,452 8,844 Financial lease receivables 12.5% 12.5% 773 1,048 Derivative financial instruments 0.0% 0.0% - 98 Total financial assets 13,089 12,582 Financial liabilities Bank overdraft 9.4% 8.1% Commercial bill facilities 7.5% 6.0% 1,630 1,864 Derivative financial instruments 0.0% 0.0% Finance lease payables 9.1% 9.6% 1, Convertible notes EBCI * 10.0% 10.0% 8 8 Convertible notes EBR ** 10.0% 10.0% - 3,172 Trade and other payables 0.0% 0.0% 15,086 10,852 Total financial liabilities 19,588 16,262 *EBCI convertible notes have an interest rate of 10% **EBR convertible notes have an interest rate of 10% for a term ending September. 48 Limited Annual Report

51 for the year ended June Note 23: financial risk management (continued) (i) Interest rate risk The Group s main interest rate risk arises from borrowings. Borrowings undertaken at variable rates expose the Group to cash flow interest risk. Borrowings undertaken at fixed rates expose the Group to fair value interest rate risk. As at the reporting date, the Group had the following variable rate financial assets and liabilities:- weighted average effective interest rate consolidated entity Floating interest rates Financial assets Cash at bank 4.7% 3.7% 1,864 2,592 1,864 2,592 Financial liabilities Bank overdraft 9.4% 8.1% Commercial bill facility 7.5% 6.0% 1,630 1,864 2,421 1,864 Sensitivity Analysis The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. At 30 June, if interest rates had moved, as illustrated in the table below, with all other variables held constant, pre tax profit and equity would have been affected as follows: CONSOLIDATED ENTITY Judgements of reasonably probable movements:- Net profit Higher / (lower) + 2% (200 basis points) (11) 15-1 % (100 basis points) 6 (7) Equity Higher / (lower) + 2% (200 basis points) (11) 15-1 % (100 basis points) 6 (7) The movements in profits is due to higher / lower interest costs from variable rate debt balances and higher / lower interest receipts from variable cash and cash equivalents. The sensitivity is different to the comparable period due to the higher level of variable interest debt and the lower level of variable cash and cash equivalents. evolution for better 49

52 notes to the financial report Note 23: financial risk management (continued) (ii) Currency risk As a result of operations in the US and transactional currency exposures arising from purchases in USD, the Group s statement of financial position can be affected by movements in the USD/AUD exchange rates. Management s policy is to hedge approximately 50% of anticipated cash flows (mainly purchases of inventory) in US dollars. At 30 June the Group had the following exposure to foreign currency expressed in Australian Dollars :- CONSOLIDATED ENTITY Financial assets Cash at bank USD 580 1,790 Cash at bank MYR Trade and other receivables USD 1,340 1,379 Trade and other receivables MYR 29 - Financial liabilities Exposure hedged through foreign exchange contracts USD 5,064 8,276 Trade and other payables USD 10,225 8,287 Sensitivity Analysis The following sensitivity analysis is based on the foreign currency rate risk exposures in existence at the reporting date. At 30 June, if the Australian dollar moved, as illustrated in the table below, with all other variables held constant, pre tax profit and equity would have been affected as follows: Judgements of reasonably probable movements : Net profit Higher / (lower) AUD / USD +10% (514) (43) AUD / USD -10% Equity Higher / (lower) AUD / USD +10% (324) (309) AUD / USD -10% The movements in profit are more sensitive than due to more transactions denominated in USD. Equity balances are more sensitive to foreign exchange movements than net profit due to the balance of trade receivables and payables held by the consolidated entity. Management believe the balance date risk exposures are representative of the risk exposure inherent in the financial instruments. 50 Limited Annual Report

53 for the year ended June Note 23: financial risk management (continued) (iii) 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 maximum exposure equal to the carrying amount of those 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 that all customers who wish to trade on credit terms are subject to credit verification procedures including past experience and industry reputation. In addition, receivables balances are monitored on an ongoing basis, with the result that the Group s exposure to bad debts is not significant. The maximum exposure to credit risk (excluding the value of any collateral or other security) at balance date to recognised financial assets, is the carrying amount net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the Financial Statements. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group s policy to securitise its trade and other receivables. It is the Group s policy to consider the credit worthiness of all customers who wish to trade on credit terms. Allowance for impairment loss Trade receivables are non-interest bearing and are generally on 7-60 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. A provision for impairment loss of $214,000 (: $114,000) has been recognised by the Group. Movements in the provision for impairment loss were as follows: CONSOLIDATED ENTITY Opening balance Acquired in business combination 25 - Adjustment in provision Closing balance Aging analysis of trade receivables The aging analysis of trade receivables is as follows :- Gross trade receivables Current 6,277 4, Days Days Days and over Closing balance 7,022 6,182 evolution for better 51

54 notes to the financial report Note 23: financial risk management (continued) (iv) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as and when they fall due. Responsibility for liquidity management rests with the Board of Directors who have built an appropriate framework for the management of the group s short, medium and long term funding and liquidity management requirements. The Group manages liquidity risk by continually monitoring forecast and actual cash flows and matching the maturity profiles of financial assets with financial liabilities. Short and long term cash flow projections are prepared periodically and submitted to the Board at each board meeting of the Company. The table below analyses the Group s derivative financial instruments into relevant maturity groupings Contractual maturities of financial liabilities Derivatives Gross settled (forward foreign exchange contracts - held for trading) Less than 12 months 1-5 years Total R inflow 4,382-4,382 R (outflow) (5,064) - (5,064) (682) - (682) Maturities The tables below analyse the Group s financial assets and liabilities, net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Deposits held for jackpots have been classified as due within 1 year. These accounts are held in trust and can be called upon at any time. Consolidated Entity 30 June Less than 12 months Total contractual cash flows 1-5 years Total Carrying amount Financial assets Cash at bank 1,864-1,864 1,864 Trade and other receivables 10,452-10,452 10,452 Financial lease receivables ,196 1,003 Total financial assets 12, ,512 13,319 Financial liabilities Bank overdraft Commercial bill facilities 1, ,818 1,630 Finance lease payables ,469 1,391 Convertible notes EBCI * Trade and other payables 14,243-14,243 14,243 Jackpot liabilities Total financial liabilities 17,733 1,440 19,172 18,146 Net financial liability maturity (4,823) (838) (5,600) (4,827) 52 Limited Annual Report

55 for the year ended June Note 23: financial risk management (continued) Capital management The Group's objectives when managing capital is to safeguard their ability to continue as a going concern, so that they can provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital. The Group is currently seeking to consolidate its financial debts and repay its debts in line with cash flow requirements. It is the Groups policy to use positive cashflows to repay debt and thus reduce the weighted cost of capital and to borrow for asset acquisitions deemed to add to future cash flows to the Group at the time. Financing arrangements Details of the Group's financing arrangements are set out in Note 18 (e). Refer Note 31 for details of refinancing of these facilities subsequent to Reporting Date. Net fair values of financial assets and liabilities The carrying amount of the Group's identified financial assets and liabilities represents materially their net fair value. The fair value of forward foreign exchange contracts as at 30 June is determined using forward exchange market rates at the end of the reporting period. These derivative financial instruments are included in level 2 of the fair value measurement hierarchy as detailed in AASB 7 Financial Instruments: Disclosures. Note 24: capital and leasing commitments CONSOLIDATED ENTITY (a) Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable : R not later than 1 year R later than 1 year but not later than 5 years 2, R later than 5 years 112-3,777 1,579 (b) Capital expenditure commitments There are no capital expenditure commitments as at 30 June ( - nil) Note 25: Business combination On 24 June ebet Limited acquired 90.66% of the issued share capital of Odyssey Gaming Limited, a gaming machine monitoring and maintenance services provider in Queensland, for the total consideration of $2,756,000. On 27 June ebet Limited announced that it would proceed to compulsory acquisition of the remaining shares in Odyssey Limited pursuant to section 661A(1) of the Corporations Act. The values identified in relation to the acquisition of Odyssey Gaming Limited are final as at 30 June. Details of the purchase consideration, the net assets acquired and goodwill are as follows: Purchase consideration: R Cash 2,281 R Share issue 475 Total purchase consideration 2,756 evolution for better 53

56 notes to the financial report Note 25: Business combination (continued) Acquiree s Carrying Amount Fair Value Cash and cash equivalents Cash at bank held for jackpots Trade and other receivables 1,445 1,445 Inventories 1,533 1,533 Other current assets Property plant and equipment Deferred tax asset Intangible assets 1,188 1,087 Trade and other payables (1,753) (1,753) Borrowings (1,328) (1,328) Current tax liability (1) (1) Provisions (489) (489) Net identifiable assets acquired 2,857 2,756 Goodwill - Cash used to acquire business, net of cash acquired Total consideration 2,756 Share issue (475) Less: cash consideration payable at year end (2,281) Acquisition costs paid 580 Less: acquisition costs accrued (250) Less: balances acquired (301) Net cash used 29 Revenue and profits contribution The acquired business contributed no revenues or net profit to the Group during the financial year ended 30 June. If the acquisition occurred on 1 July, the full year contribution of revenue would have been $9,938,000 and earnings before income tax, interest, depreciation, amortisation and impairment of $1,593,000. Acquisition related costs Business acquisition costs of $580,000 relating to legal, regulatory and advisory expenses are included as a separate line in the income statement. CONSOLIDATED ENTITY Note 26: contingent liabilities The Group has the following contingent liability, not provided for in the financial report: Bank guarantees No liability was recognised by the parent entity to the consolidated entity in relation to the bank guarantees as the fair value of the guarantees is immaterial. Note 27: Economic dependency The consolidated entity is not economically dependent upon any third parties. 54 Limited Annual Report

57 for the year ended June Note 28: Segment information Description of segments Management has determined the operating segments based on reports reviewed by the Chief Executive Officer (identified as the chief operating decision-maker) and the Board of Directors that are used to make strategic decisions. The Chief Executive Officer and the Board of Directors have identified the following three reportable segments:- R The Gaming Division distributes electronic gaming machines and develops and markets a range of networked solutions for electronic gaming machines including player loyalty and tracking systems, card-based cashless gaming solutions and machine management software. R The Wagering Division supports online wagering technologies and works only with government sanctioned and licensed wagering operators located in regulated jurisdictions in New Zealand and the U.S. R The Media Division develops and markets mobile and media management technologies. Segment information provided to the Chief Executive Officer and the Board of Directors The segment information provided to the Chief Executive Officer and the Board of Directors for the reportable segments is as follows:- Gaming Systems Wagering Media Consolidated Entity Revenue from external customers 32,573 27, ,699 28,069 Depreciation and amortisation expense 2,919 2, ,223 2,796 Impairment of intangible assets 5, ,896 - Profit / (loss) before income tax (4,552) 2,278 (473) 172 (1,324) (422) (6,349) 2,028 Income tax benefit / (expense) 410 (255) Net profit / (loss) (5,939) 1,773 Total segment assets 40,879 38,256 1,708 2, ,587 41,552 Total segment liabilities 27,096 20, ,646 20,868 Accounting Policies Segment revenues and expenses are those directly attributable to the segments and include any joint revenue and expenses where a reasonable basis of allocation exists. Segment assets include all assets used by a segment and consist principally of cash, receivables, inventories, intangibles and property, plant and equipment, net of allowances and accumulated depreciation and amortisation. While most such assets can be directly attributed to individual segments, the carrying amount of certain assets used jointly by two or more segments are allocated to the segments on a reasonable basis. Segment liabilities consist principally of accounts payable, employee entitlements, accrued expenses, provisions and borrowings. Inter-segment transfers Segment revenues, expenses and results include transfers between segments. The prices charged on inter-segment transactions are the same as those charged for similar goods to parties outside of the consolidated entity at an arm s length. Theses transfers are eliminated on consolidation. Other segment information The entity is domiciled in Australia. The amount of its revenue for external customers in Australia is $31,103,000 ( - $20,300,000), and the total revenue from external customers in other countries is $1,820,000 ( - $1,130,000). Segment revenues are allocated based on the country in which the customer is located. The total non-current assets located in Australia is $18,170,000 ( - $22,500,000), and the total non-current assets located in other countries is $396,000 ( - $500,000). Segment assets are allocated based on where the asset is located. evolution for better 55

58 notes to the financial report Note 29: Superannuation commitments The consolidated entity participates in various superannuation funds, which are externally managed and cover all employees. These funds provide accumulation benefits for members based on contributions received and earnings to date. The level of superannuation contributions is determined by the Superannuation Guarantee Levy. The Consolidated Entity has no responsibility for the administration or performance of the funds. If requested by any employee, additional contributions can be made from amounts deducted from that employee s salary. Note 30: related party transactions (a) Parent entity The Parent entity and ultimate parent entity is ebet Limited. (b) Controlled entities and joint venture entities Controlled entities and joint venture entities are detailed in Note 14 to the financial statements (c) Key management personnel Remuneration of key management personnel Details of key management personnel and their positions are detailed in the Remuneration Report within the Director s Report. CONSOLIDATED ENTITY Short-term employment benefits 1,134 1,217 Share based payments Post-employment benefits ,239 1,319 Detailed remuneration disclosures are provided in the Remuneration Report within the Director's Report. Shares held by key management personnel The number of shares in which the key management personnel of the Group held a relevant interest are set out below. Year Ended 30 June 000's Name Balance 30/06/ or date appointed Received as remuneration Options exercised Net change other Balance 30/06/ or date resigned Directors Michael B Hale 11, ,154 Anthony P Toohey 1,237 1, ,237 Ian R James 8, ,989 Allan C Sullivan * 1, ,806 Total Directors 23,687 1, ,186 Executives Richard Standen Total Executives TOTAL 23,780 1, , Limited Annual Report

59 for the year ended June Note 30: related party transactions (continued) Year Ended 30 June 000's Name Balance 30/06/2009 or date appointed Received as remuneration Options exercised Net change other Balance 30/06/ or date resigned Directors Michael B Hale 9, ,167 11,655 Anthony P Toohey 1, ,237 Ian R James 8, ,989 Tony H Tighe * 1, ,544 Allan C Sullivan * ,506 1,806 Total Directors 21, ,673 25,231 Executives Richard Standen Total Executives TOTAL 21, ,766 25,324 * A Sullivan commenced 02/02/09, T Tighe resigned 14/07/09. (d) Transaction with related parties The following transactions occurred with related parties ebet Limited provides management and administration support to ebet Gaming Systems. ebet Limited provides management and administration support to Maxi Gaming ebet Limited provides management and administration support to ebet Systems ebet Limited provides management and administration support to Bounty Limited ebet Gaming Systems Pty Limited pays rental fees and reimbursements to Calculated Business Services of which Mr R Standen is a director ebet Gaming Systems provides management and administration support to Maxi Gaming ebet Gaming Systems provides management and administration support to ebet Systems ebet Gaming Systems provides management and administration support to Bounty Limited ebet Systems holds software and intellectual property used by ebet Gaming Systems 2,002 1, ,973 2,286 Maxi Gaming holds software and intellectual property used by ebet Inc Maxi Gaming provides management and administration support to ebet Inc Inov8 receives rent and service fees from Vix Communications of which Dr A Sullivan is a director ebet Limited receives interest on outstanding loans receivable from controlled entities ,855 1,523 evolution for better 57

60 notes to the financial report Parent Entity Note 30: related party transactions (continued) (e) Loans to related parties The following transactions occurred with related parties Loans to controlled entities Beginning of the year 15,579 14,607 Net Loans advanced / (received) (166) 972 Interest charged 1,855 1,523 Interest received (1,855) (1,523) End of year 15,413 15,579 Loans to joint venture entities ebet Online Inc 1,257 1,425 The interest rate on loans to controlled entities is 9.6% (: 9.6%). Outstanding balances on this account are unsecured and repayable in cash. Note 31: Events Subsequent to Reporting Date Refinance As at 30 June the Group had outstanding commercial debt facilities with St George Bank of $1,250,000 and master asset finance debt facilities of $443,000. On 14 July the Commonwealth Bank of Australia refinanced the Group s commercial debt facilities as follows:- R $1,500,000 commercial bill facility R $2,500,000 acquisition funding for the takeover of Odyssey Gaming Limited; and R $500,000 overdraft facility Acquisition of shares under takeover bid and commencement of compulsory acquisition On 15 July, ebet completed the acquisition of Odyssey Gaming Limited (Odyssey) shares from those Odyssey shareholders that had accepted its offer under its takeover bid for all the ordinary shares of Odyssey (its Offer ) including the issue of 8,816,218 ordinary shares in ebet Limited. On 26 August, ebet completed the compulsory acquisition of Odyssey shares from those Odyssey shareholders that did not accept its Offer including the issue of 886,774 ordinary shares in ebet Limited. Event of default On 15 July, Odyssey Gaming Services Pty Limited (OGS) was issued Notice of Event of Default from the Australia and New Zealand Banking Group Limited (ANZ), in respect of credit facilities provided to OGS in the form of borrowings and lease asset finance, for an event of change in control of OGS, resulting from the Company s acquisition of OGS s parent Odyssey Gaming Limited. The ANZ also advised that they did not propose to take any action in respect of the event of default. 58 Limited Annual Report

61 for the year ended June CONSOLIDATED ENTITY Note 32: share-based payments (a) Expenses arising from share based payments Total expenses arising from share-based payment transactions recognised during the year. Options issued under employee option plan (b) - 52 Shares issued under employee share scheme (c) 66 6 Shares issued for services received (d) - 40 Options issued as part of distribution and services agreement (e) (b) Employee option plan No options were granted under the plan during the year. - - (c) Employee share scheme Shares issued under employee share scheme 66 6 Issue of shares to Micah Lloyd representing an agreed $5,000 bonus for 10 years service at the entity's volume weighted average price ("VWAP") for 30 days prior to anniversary date of 6 March of 8.0c per share. Issue of shares to Trinity Management P/L to be allocated to Tony Toohey representing a bonus for the year ended 30 June at the entities VWAP for 5 days prior to 28 April of 6.0c per share. (d) Shares issued for services received No shares issued for services during the year (e) Options issued as part of distribution and services agreement No options were issued under distribution and service agreement during the year Number of options Consolidated Entity Weighted average exercise price $ Number of options Weighted average exercise price $ Outstanding at the beginning of the year 24,496, ,000, Granted ,246, Expired (7,250,000) (750,000) Outstanding at year-end 17,246, ,496, Exercisable at year-end 2,000, ,250, evolution for better 59

62 notes to the financial report Parent Entity Note 33: Parent entity disclosures As at, and throughout the year ending 30 June, the parent company of the consolidated entity was ebet Limited. Result of the parent entity Profit / (loss) for the year (7,534) 492 Other comprehensive income - - Total comprehensive income for the year (7,534) 492 Financial position of the parent entity at the year end Current assets Total assets 22,508 23,397 Current liabilities 3, Total liabilities 9,697 3,878 Net assets 12,811 19,519 Total equity of the parent entity comprising of: Share capital 50,820 50,234 Reserves Retained earnings (38,290) (30,992) Total equity 12,811 19,519 Parent entity contingencies and commitments The contingent liabilities of the parent entity as at the reporting date are disclosed at Note 26. The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. The parent entity did not have any capital or expenditure commitments as at the reporting date. Impairment During the year ended 30 June, an impairment of $8,666,000 was recognised on loans receivable from a subsidiary of the parent. 60 Limited Annual Report

63 directors declaration In the directors opinion: (a) the attached financial statements and notes thereto comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; (b) the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; (c) the attached financial statements and notes thereto give a true and fair view of the consolidated entity s financial position as at 30 June, and of its performance for the financial year ended on that date; (d) 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 (e) the directors have been given the declarations required by section 295A of the Corporations Act Signed in accordance with a resolution of directors made pursuant to section 295(5) of the Corporations Act On behalf of the directors Michael Hale Chairman Anthony Toohey CEO and Managing Director Dated this 28th day of September, in Sydney. evolution for better 61

64 independent auditors report INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF EBET LIMITED Report on the Financial Report We have audited the accompanying financial report of ebet Limited, which comprises the statement of financial position as at 30 June, the income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies, other explanatory information, and the directors declaration of ebet Limited (the company) and the consolidated entity. The consolidated entity comprises 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 of the financial report that gives a true and fair view 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 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. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act Tel: Fax: PKF ABN Level 10, 1 Margaret Street Sydney New South Wales 2000 Australia The PKF East Coast Practice is a member of the PKF International Limited network of legally independent member firms. The PKF East Coast Practice is also a member of the PKF Australia Limited national network of legally independent firms each trading as PKF. PKF East Coast Practice has offices in NSW, Victoria and Brisbane. PKF East Coast Practice does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Liability limited by a scheme approved under Professional Standards Legislation. 62 Limited Annual Report

65 for the year ended June Opinion In our opinion: (a) the financial report of ebet Limited and the consolidated entity is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company s and consolidated entity s financial position as at 30 June and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 9 to 13 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. Opinion In our opinion, the Remuneration Report of ebet Limited for the year ended 30 June, complies with section 300A of the Corporations Act PKF Grant Saxon Partner Sydney, 28 September evolution for better 63

66 additional information for listed public companies SHAREHOLDING Total number of shares and shareholders At 26 September issued capital was 229,388,397 ordinary shares (EBT) held by 4,328 shareholders. Voting rights (a) On a show of hands, every member present at a general meeting in person (whether or not in one or more capacities) has one vote; (b) Where a person present at a general meeting represents personally or by proxy, attorney or representatives more than one member on a show of hands: (i) The person is entitled to one vote only despite the number of members the person represents; (ii) That vote will be taken as having been cast for all the members the person represents; and (iii) For a person who has been appointed as a proxy under two or more instruments that specify different ways to vote on a resolution, the person may not vote as a proxy on a show of hands, however, if the person is a member, the person may vote on a show of hands without regard to the proxy the person holds; and (c) On a poll, every member present in person has the following voting rights: (i) In the case of fully paid shares, one vote for each share held by the member; and (ii) In the case of party paid shares, for each share, a fraction of a vote equivalent to the proportion which the amount paid up bears to the total issue price for the share. 64 Limited Annual Report

67 for the year ended June 20 Largest Holders of Ordinary Shares and their Holdings at 26 September. Number Ordinary Shares % of Total 1 J P Morgan Nominees Australia Limited 43,544, Gailforce Marketing & PR Pty Limited 11,562, Stoligor Pty Ltd 8,171, Kippilaw Pastoral Company Pty Ltd 7,131, Vix Technology Pty Limited 6,466, Mr Denis William Fitzgerald 6,000, Lost Ark Nominees Pty Limited 5,800, Newport Black Trust Company Limited 4,547, Mr Chris Carr + Mrs Betsy Carr 2,500, Trustcorp Services Limited 2,000, Raylou Investments Pty Ltd 1,960, Scarlex Pty Ltd 1,932, ACS (NSW) Pty Ltd 1,806, Greenfield Company Limited 1,700, Mr Ian Raymond James 1,622, Roberts Development Services Pty Ltd 1,620, Parker Management Pty Limited 1,519, Mr Mark Baruta 1,500, Bond Street Custodians Limited 1,400, Mr William James Corbett 1,370, Total top 20 ordinary shareholders 114,153, Distribution of Shareholders and Shareholdings at 26 September Ordinary Shares (EBT) 1 1, ,819 1,001 5,000 4,958,112 5,001 10,000 4,972,162 10, ,000 29,708, ,001 and over 189,395,225 Total 229,388,397 Ordinary Shares (EBT) Number of Holders Shares Held Holders of less than a marketable parcel 3,240 10,669,272 evolution for better 65

68 additional information for listed public companies Substantial Shareholders Substantial shareholders at 26 September as disclosed in Substantial Shareholder Notices given to the Company. Number of Securities Proportion of Issued Securities Utilico Investments Limited 50,010,767 ordinary shares (EBT) 21.8% Michael Bernard Hale 12,153,662 ordinary shares (EBT) 5.30% Unquoted Securities Options The option holders at 26 September are :- Option Holders Issued Exercise Price Exercise date Balance T Toohey 1/07/2009 $ /07/2012 1,000,000 T Toohey 27/11/2009 $ /11/2012 1,000,000 WMS Gaming Inc 27/11/2009 $ /11/ ,246,248 Total 17,246,248 Stock Exchange Listing The Company s Ordinary shares (EBT) are listed on the Australian Stock Exchange. 66 Limited Annual Report

69 for the year ended June DIRECTORY Share Registrar Computershare Investor Services Pty. Ltd. Level 3 60 Carrington Street SYDNEY NSW 2000 Telephone: Fax: Website: Registered Office Unit Talavera Road NORTH RYDE NSW 2113 Telephone: Fax: investorrelations@ebetgroup.com Website: Company Secretary Richard Standen BEc, CPA, ACIS On-Market Buy Back There is no current on-market buy back. evolution for better 67

70 ebet Group product suite 68 Limited Annual Report

71 evolution for better 69