www. com webfiRmgRoup. AnnuAl RepoRt 2012 w e b f i R m g R o u p l i m i t e D A n n u A l R e p o R t 2 0 1 2 www. webfiRmgRoup. com Contents Chairman’s Report 2 Directors’ Report 3 Remuneration Report 10 Auditors Independence Declaration 18 Consolidated Statement of Comprehensive Income 19 Consolidated Statement of Financial Position 20 Consolidated Statement of Changes in Equity 21 Consolidated Statement of Cash Flows 22 Notes to the Financial Statements 23 Directors’ Declaration 63 Independent Audit Report to the Members 64 Corporate Governance Statement 67 Shareholder Information 69 Corporate Directory 71 WEBFIRM GROUP LIMITED ABN 70 001 287 510 Annual Report for the year ended 30 June 2012 Chairman’s Report This year has been an exciting year for Webfirm under the leadership of Andrew Barlow as interim CEO. Andrew is a significant shareholder and founder of the Adslot business which underpins the core focus for the company. Andrew has spent considerable time during the last 12 months continuing to evolve a strong vision for the company, overseeing significant new product development as well as the expansion of key roles within the management team. Our Adslot products continue to evolve as we hoped. To recap, the Adslot division was created via the acquisition of three core pieces of technology during 2010 (Adslot, QDC and Adimise). The first product created from these technologies in 2011 provided customized solutions specifically aimed at major classified publishers in Australia and New Zealand. During the 2012 financial year we then developed and released our first non-customised version of the Adslot platform - called Adslot Premium. It took the best parts of what we learnt from the customized versions of the product and was also the first time the same product could be sold to more than one customer. Adslot Premium is a tool that helps classified publishers sell sponsorship opportunities more effectively to existing advertisers, for example, realestate.com.au as a publisher selling suburb sponsorship to real estate agents. As with all software development we continue to invest, evolve, learn and adapt to customer feedback and customer use of our products. As part of this evolution significant work in this financial year went into developing two new exciting products called Adslot Direct and Adslot Create. Adslot Direct allows any publisher (not just classifieds publishers) to sell their advertising space directly to advertisers, online and with a credit card. By allowing advertisers to buy this advertising space themselves it can significantly reduce sales and administration costs for publishers. It effectively automates the sales process for publishers because their advertising space can be bought directly by an advertiser without the publishers sales people involved. It is also a product that can be set up for a new Publisher very quickly, i.e. a matter of minutes not months. Adslot Direct is due for public beta release in the September quarter of 2012. Adslot Create enables advertisers to quickly and easily build banner ads from a set of professional looking templates using an online editing tool. This turns a process that usually takes weeks into one that takes only minutes, and also breaks down a traditional barrier for advertisers by enabling the creation of banner advertisements quickly and cost effectively. It will also allow publishers to set up specific advertising banner templates designed with their target advertisers in mind. Adslot Create will also allow for a community of designers to build advertising banner templates for sale through the Adslot platform. Adslot Create is due for public release in the December quarter of 2012. Both Adslot Direct and Adslot Create open the market for our business to a much broader number of publisher customers globally beyond just classified publishers. Within the Webfirm division, the decision to exit the highly competitive website creation business and focus primarily on online marketing services has seen that division maintain profitability since August of 2011. The focus for the year ahead is to launch and grow the Adslot Direct and Adslot Create Products and continue our expansion of existing products locally and in the US and European markets. Revenue growth for the business during this period will be a factor of the number of publishers using the Adslot platform and more specifically the amount of advertising space being purchased by advertisers using Adslot. Adrian Giles | Chairman Webfirm Group Limited | 23 August 2012 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 2 ChAIRMAN’S REPoRt Directors’ Report Your Directors present their report, together with the financial report of Webfirm Group Limited ACN 001 287 510 [‘the Company’] and its controlled entities [“the Group”] for the financial year ended 30 June 2012 and the auditor’s report thereon. Information on Directors Mr Adrian Giles, Mr Andrew Barlow, Mr Chris Morris and Ms Tiffany Fuller were directors for the whole financial year and up to the date of this report. Mr David Burden resigned from his appointment as managing director and chief executive officer on 30 August 2011. Mr Andrew Barlow was appointed as acting chief executive officer commencing 30 August 2011. Mr Anthony Du Preez resigned from his appointment as an executive director on 30 March 2012. Mr Adrian Giles [age 38] Executive Chairman Adrian Giles is an entrepreneur specialising in the Internet and information technology industry. In 1997, Adrian co-founded Australia’s first Search Engine Optimisation company, Sinewave Interactive, with fellow entrepreneur Andrew Barlow. In 1998 Adrian and Andrew co-founded Hitwise. Hitwise grew over 10 years to become one of the most recognised global internet measurement brands with over 300 staff operating successfully in the USA, UK, Australia, NZ, Hong Kong and Singapore. By monitoring more than 25 Million Internet users via more than 40 ISP relationships worldwide, Hitwise provided competitive ratings of the most popular businesses across more than 160 industries and in 6 key markets. Whilst positioning the company for a NASDAQ listing in early 2007, Hitwise was sold to Experian [LSE: EXPN] for US$240m. Throughout its growth Hitwise was ranked by Deloitte’s as one of the fastest growing IT companies in the Asia Pacific region for five consecutive years. Hitwise was also a winner of the Victorian Small Business Awards; was awarded the ‘Most Innovative Digital Business’ in the UK for 2004; and was awarded a finalist as ‘Most Innovative Company’ at the 2005 American Business Awards in New York. Adrian was also a finalist in the 2003 Australian ‘Entrepreneur of the Year’ awards. Adrian is also the Managing Director of Yarra Ventures, an advisory and private investment fund he formed after the sale of Hitwise. Adrian is a member of the Remuneration Committee and the Audit & Risk Committee. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W DIRECtoRS’ REPoRt 3 Andrew Barlow [age 39] Executive Director and acting CEO Mr Chris Morris [age 64] Non-Executive Director Chris Morris is among Australia’s most accomplished entrepreneurs and business leaders, having founded Computershare [ASX:CPU] in 1978 – one of Australia’s most successful global technology companies. Mr Morris was Chief Executive Officer of Computershare from 1990 to 2006, and Executive Chairman from 2006 to 2010. He is now Non-Executive Chairman of Computershare. Mr Morris has extensive knowledge of the securities industry from both a national and international perspective, and his diverse experience in building and managing a large global enterprise will aid Webfirm in its international expansion aspirations. Chris is a member of the Remuneration Committee and also the Audit & Risk Committee. Chris is also Chair of Car Parking Technologies Limited [ASX:CPZ]. Mr Barlow is an experienced entrepreneur who acts as an investor and mentor to early-stage technology companies with unique IP, highly scalable business models and strong executive teams. Mr Barlow co-founded Hitwise with Adrian Giles in 1997, was Chairman and Managing Director of Hitwise from 1997 – 2000, and Director of R&D from 2000 – 2002. Hitwise was ranked one of the Top 10 fastest growing companies by Deloitte for five years running, before being sold to Experian Group [LSX.EXPN] in May 2007 for US$240m. Mr Barlow is also a co-founder of Adslot, a revenue optimisation platform for online media publishers, which was acquired by Webfirm Group in February 2010. Mr Barlow is also a former Chairman of Webfirm Group Limited [October 2007 – October 2009]. Mr Barlow is the Founder of Venturian, a privately- owned venture capital fund with investments in a number of other technology ventures, including Nitro PDF [the second biggest distributor of PDF editing software in the world], Brandscreen [Asia’s leading demand side platform for online media buying] and QMCodes [which makes print media interactive via mobile devices]. Mr Barlow has significant expertise in online media and business building with a strong understanding of the UK and North America markets. Andrew is Chair of the Remuneration Committee. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 4 DIRECtoRS’ REPoRt Ms tiffany Fuller [age 42] Non-Executive Director Mr Brendan Maher [age 44] Company Secretary Ms Fuller is a qualified Chartered Accountant who has a 20 year career across Chartered Accounting, Corporate Finance, Investment Banking and Private Equity. Ms Fuller joined Rothschild Australia in 1997 in the Investment Banking Group after 8 years at Arthur Andersen in Audit, Corporate Finance and Management Consulting in Australia, UK and the United States. At Rothschild, Ms Fuller advised various public and private clients, was responsible for managing a Microcap Fund on behalf of a number of Australia’s large superannuation funds, and was a founding director of the Rothschild e-Fund, a technology focused venture capital fund. In her roles Tiffany has worked closely with emerging technology companies at Board level and as corporate adviser. Tiffany is Chair of the Audit & Risk Committee. Tiffany is also a Non-Executive Director of Car Parking Technologies Limited [ASX:CPZ]. Brendan Maher joined the Company on 15 November 2010 as a qualified Chartered Accountant with 23 years experience gained both in Australia and overseas with Arthur Andersen, National Westminster Bank and Skilled Group Limited. Mr Maher has extensive experience in financial reporting, corporate transactions and was Company Secretary at ASX listed Skilled Group Limited [ASX:SKE] prior to joining Webfirm. Mr Maher is a member of the Institute of Chartered Accountants in Australia and also a member of the Australian Institute of Company Directors. Directorships of other listed companies Other than those disclosed on pages 3 to 5 of this Annual Report no director holds a Directorship in any other listed companies in the three year period immediately before the end of the financial year. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W DIRECtoRS’ REPoRt 5 Directors’ shareholdings The following table sets out each director’s relevant interest in shares or options in shares of the Company as at the date of this report. Directors Mr Adrian Giles Mr Andrew Barlow Mr Chris Morris Ms Tiffany Fuller Ordinary Shares # Share Options # 18,421,288 57,140,133 62,739,318 100,000 11,800,000 7,900,000 - - Remuneration of directors and senior management Information about the remuneration of directors and senior management is set out in the remuneration report of this directors’ report. Principal activities The company operates two main divisions: n The Adslot division allows media publishers to sell their premium advertising inventory directly to advertisers via a self-serve channel, increasing yield and significantly reducing sales and administration costs; and n The Webfirm division offers online marketing services including search engine optimisation, search engine marketing [paid search advertising], social media marketing, website hosting and website amendments. Operating results The consolidated operating loss after income tax attributable to the members of Webfirm Group Limited is $7,331,658 [2011: Loss $10,341,829]. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 6 DIRECtoRS’ ShAREhoLDINGS Review of operations Webfirm Division The Webfirm Division offers products and services aimed at helping small and medium enterprise [SME] customers grow their business online. During the prior year, the Company made the decision to exit the highly competitive website creation business and focus primarily on online marketing services including, search engine optimisation, paid search marketing, social marketing, website hosting, non-bespoke website builds and website amendments. The restructure was finalised in August 2011, and with the significantly reduced cost base, the division was able to be profitable for the remainder of the year. During the year the Directors decided to undertake a strategic review of the Webfirm Division to determine the future strategy and focus for this division. The review included the potential sale of the division. Due to its renewed cash contribution to the business, the outcome of the review was to retain the business and continue with its new focus on Search Engine Marketing services. Adslot Division The Adslot Division provides advertising sales automation services that reduce selling costs and increase advertising revenue for its publisher clients. It was created via the acquisition of three core pieces of technology during 2010 [Adslot, QDC and Adimise]. In the financial year 2011, the Company used the technologies to provide bespoke yield optimisation solutions to major classifieds publishers in Australia and New Zealand. This financial year, the Company launched Adslot Premium: a tool for online classifieds publishers to optimise the sales and yield of their premium sponsorship inventory to their existing advertisers. The Company signed four premium classifieds publishers across the real estate, travel and automotive industry verticals this year, after standardising the platform to enable reduced implementation timeframes for clients. During the year, significant work also went into developing two new products: Adslot Direct and Adslot Create. Adslot Direct allows any publisher [not just classifieds publishers] to sell premium advertising inventory via a direct, self-serve channel, significantly reducing sales and administration costs. Adslot Direct has undergone a successful private beta program with clients in Australia and the United States. The product is due for public beta release in the September quarter of 2012. Adslot Create enables advertisers to quickly and easily build banner ads from a template, turning a process that usually takes weeks into one that takes only minutes. It will also allow publishers to create private stores with custom template libraries exclusively for their advertisers. Adslot Create’s beta program commenced in July 2012 with a number of clients in Australia, the United Kingdom and the United States of America. The product is due for public release in the December quarter of 2012. In July 2012, our USA offices opened in San Francisco to facilitate our entry into that market with our product suite. Corporate Webfirm Group Limited is exposed to the rapidly evolving digital media industry and its associated risks, however the existing and emerging opportunities make it an exciting space in which to operate. The potential rewards from the emerging opportunities could be substantial. Group revenues were down 1.5% on the previous year, to $5.3 million primarily due to the exit of unprofitable web site development in the Webfirm division. The net loss after tax at $7.3 million was a reduced loss as compared to FY11 primarily due to impairment write downs that were taken to account in FY11 in the Webfirm division. This result included approximately $2.9 million in non-cash losses consisting of $2.7 million in depreciation and amortisation expenses [mostly relating to acquired intangibles relating to the Adslot division] and $0.2 million of non-cash share based expenses. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REVIEW oF oPERAtIoNS 7 Matters Subsequent to the end of the financial year There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the group, the results of those operations or the state of affairs of the group in future years. Likely future developments and expected results Disclosure of information regarding likely developments in the operations of group in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the group. Accordingly, this information has not been disclosed in this report, other than the expected launch of our new products Adslot Direct [in the September 2012 quarter] and Adslot Create [in the December 2012 quarter]. Environmental regulations The group’s operations are not subject to any significant environmental regulations under the Commonwealth, State or any other country in which the entity operates. Dividends The Directors do not recommend the declaration of a dividend. No dividend has been declared or paid during the year. Shares under option Details of unissued shares or interests under option as at the date of signing this report are: Issue Type Expiry Date Exercise Price Number under option Options over ordinary shares Options over ordinary shares Options over ordinary shares Options over ordinary shares Options over ordinary shares Options over ordinary shares Total 22 Oct 2012 31 Jan 2013 31 Jan 2013 08 Jul 2014 30 Sep 2014 30 Sep 2014 $0.090 $0.053 $0.056 $0.151 $0.116 $0.190 1,000,000 51,700,000 6,180,000 2,000,000 3,000,000 300,000 64,180,000 Details of shares or interests issued during or since the end of the financial year as a result of exercise of an option are: Class of Share Number of shares issued Amount paid per share Amount unpaid per share Ordinary options 1,480,000 $0.056 Nil Indemnification and Insurance of Officers The Company has during the financial year, in respect of each person who is or has been an officer of the company or a related body Corporate, made a relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings. Since the end of the financial year, the Company has paid premiums to insure all directors and officers of Webfirm Group Limited and the Webfirm Group of companies, against costs incurred in defending any legal proceedings arising out of their conduct as a director and officer of the Company, other than for conduct involving a wilful breach of duty or a contravention of Sections 232[5] or [6] of the Corporations Act 2011, as permitted by section 241A[3] of the Corporations Act. Disclosure of the premium amount is prohibited by the insurance contract. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 8 REVIEW oF oPERAtIoNS Directors’ Meetings The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2012 and the number of meetings attended by each Director. Directors Held Attended Held Attended Held Attended Board of Directors Remuneration Committee Audit and Risk Committee Mr Adrian Giles Mr Andrew Barlow Mr David Burden Mr Anthony Du Preez Mr Chris Morris Ms Tiffany Fuller 6 6 1 4 6 6 6 6 1 2 5 6 1 1 - - 1 - 1 1 - - 1 - 4 - - - 4 4 4 - - - 3 4 During the financial year 2012 all audit & risk matters have been attended to by the Audit & Risk Committee in consultation with the Company’s auditors. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2012 has been received and can be found on page 18 of the financial report. Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in note 22 to the financial statements. The directors 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 2001. BDO Audit [NSW-VIC] Pty Ltd amalgamated audit and non-audit services with Grant Thornton during the year under review. The Company has decided to continue services provided by Grant Thornton subject to approval by shareholders at the AGM. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REVIEW oF oPERAtIoNS 9 Remuneration Report The remuneration report is set out under the following headings: Section 1: Non-executive directors remuneration Section 2: Executive remuneration Section 3: Details of remuneration Section 4: Executive contracts of employment Section 5: Equity-based compensation Section 1: Non-executive remuneration Non-executive directors’ fees are reviewed annually and are determined by the Board. In making it’s determination it takes into account fees paid to other non-executive directors of comparable companies and, where necessary, will seek external advice. Non-executive directors’ fees are within the maximum aggregate limit of $350,000 per annum agreed to by shareholders at the Annual General Meeting held on 30 November 2009. To preserve the independence and integrity of their position, non-executive directors do not receive performance based bonuses. Non-executive directors fees are $50,000 per annum. In addition the Chair of the Audit & Risk Committee receives an additional $25,000 in recognition of the additional workload of that position. Section 2: Executive remuneration The Board of Directors are responsible for determining and reviewing compensation arrangements for key management personnel and the executive team. In June 2011, the Company established a Remuneration Committee who now makes recommendations on remuneration of key management personnel to the Board. The Board assesses the appropriateness of the nature and amount of emoluments of these employees on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of high quality executives. Executives’ remuneration consists of a fixed cash component, short-term incentives in the form of cash bonuses, and long-term incentives in the form of equity based compensation linked to the long term prospects and future performance of the Company. The inclusion of equity-based compensation in executives’ remuneration provides a direct link between their remuneration and shareholder wealth, otherwise there are no direct relationships. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 10 REMUNERAtIoN REPoRt Section 3: Details of remuneration Details of the remuneration of the directors and the key management of the Company and its controlled entities are set out in the following tables. The key management personnel of Webfirm Group Limited and its controlled entities include the following directors and executive officers: Directors Position Date appointed/resigned Mr Andrew Barlow Non-Executive Director Executive Director Acting Chief Executive Officer Appointed 16 February 2010 From 13 April 2010 Appointed 30 August 2011 Mr Adrian Giles Non-Executive Director Appointed 19 December 2007 Non-Executive Chairman Executive Chairman Mr David Burden Chief Executive Officer Managing Director Mr Anthony Du Preez Executive Director From 8 October 2009 From 13 April 2010 Appointed 6 February 2008 Resigned 30 August 2011 From 8 April 2008 Resigned 30 August 2011 Appointed 22 February 2010 Resigned 30 March 2012 Mr Chris Morris Non-Executive Director Appointed 20 September 2010 Ms Tiffany Fuller Non-Executive Director Appointed 20 June 2011 Executive Officers Mr Brendan Maher Company Secretary / Chief Financial Officer Appointed 15 November 2010 Mr Mathew Chamley Regional General Manager – Webfirm Pty Ltd Appointed 28 July 2009 Resigned 20 July 2011 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REMUNERAtIoN REPoRt 11 Section 3: Details of remuneration [continued] Group 2012 Short-term benefits Long term benefits Post- employment benefits Share- based payment Bonus $ Other $ Termination benefits $ Super- annuation $ Options & rights1 $ Total $ % of remuneration that consists of options & shares % Name Executive directors Mr A Giles Mr A Barlow Salary & fees $ 83,840 321,959 - - Mr D Burden [i] 133,058 79,834 Mr A Du Preez [ii] 170,915 Non-executive directors Mr C Morris Ms T Fuller 50,000 75,000 - - - Other key management personnel Mr B Maher 255,121 24,000 Mr M Chamley [iii] 12,113 - Totals 1,102,006 103,834 - - - - - - - - - - - 6,593 13,705 - - - - - 6,525 11,831 - - - - - - - - 83,840 321,959 226,010 196,451 50,000 75,000 - - - - - - 15,775 6,365 301,261 2.1% 30,062 2,163 2,030 46,368 4.4% 50,360 36,294 8,395 1,300,889 0.6% 1 Shares issued to Mr B Maher under the Employee Share Option Scheme are in substance rights issues and have been treated as such in the remuneration table. [i] to 30 August 2011 [ii] to 30 March 2012 [iii] to 20 July 2011 Bonuses Bonuses appearing in the table above were paid for the year ended 30 June 2012 as follows: Name Amount Paid $ Amount available in future periods $ Total Bonus Opportunity $ Assessment Criteria Mr D Burden 79,834 Mr B Maher 24,000 - - 79,834 43,750 New client signings, client platform volumes, divisional performance Reporting, Governance and other performance related KPI’s No portion of bonuses paid to key management personnel were forfeited. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 12 REMUNERAtIoN REPoRt Section 3: Details of remuneration [continued] Group 2011 Short-term benefits Long term benefits Post- employment benefits Share- based payment Salary & fees $ Bonus $ Other $ Termination benefits $ Super- annuation $ Options & rights $ Total $ % of remuneration that consists of options % Name Executive directors Mr A Giles Mr A Barlow 86,213 67,740 - - - - Mr D Burden 308,354 87,000 2,755 Mr A Du Preez 173,191 9,001 7,086 Non-executive directors Mr A Vanzyl [i] Mr C Morris [ii] Ms T Fuller [iii] 48,750 37,500 2,083 Other key management personnel Mr G Flower [iv] 38,169 - - - - - - - - - - - - - - - - 89,473 175,686 50.9% 61,333 129,073 47.5% 15,199 93,799 507,107 18.5% 14,884 61,330 265,492 23.1% - - - 54,840 103,590 52.9% - - 37,500 2,083 - - [1,323] 19,584 3,075 32,015 91,520 35.0% Mr D Element [v] 103,858 5,000 1,640 Mr B Maher [vi] 155,500 Mr M Chamley 139,615 - - 8,171 17,431 - - - 375 10,133 - - 110,873 173,804 - - 14,788 44,784 216,618 20.7% Totals 1,160,973 101,001 35,760 19,584 58,454 437,574 1,813,346 24.1% [i] to 20 June 2011 [ii] from 20 September 2010 [iii] from 20 June 2011 [iv] to 13 September 2010 [v] to 15 November 2010 [vi] from 15 November 2010 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REMUNERAtIoN REPoRt 13 Section 4: Executive contracts of employment Formal contracts of employment for all members of the key management personnel are in place. Contractual terms for most executives are similar but do, on occasions, vary to suit different needs. The following table summarises the key contract terms. Length of contract Open ended Fixed Remuneration Remuneration comprises salary and statutory employer superannuation contributions. Incentive Plans Eligible to participate. Incentive criteria and award opportunities vary for each executive. Notice Period of between two and six months with the exception of Mr Giles and Mr Barlow who may All members of the key management, including executive directors, have a notice period terminate their contract of employment immediately upon their notice. Resignation Retirement Termination by the Company Redundancy Employment may be terminated by giving notice consistent with the notice period. There are no financial entitlements due from the Company on retirement of an executive. The Company may terminate the employment agreement by providing notice consistent with the notice period or payment in lieu of the notice period. Payments for redundancy are discretionary and are determined having regard to the particular circumstances. There are no contractual commitments to pay redundancy over and above any statutory entitlement. Termination for serious misconduct The Company may terminate the employment agreement at any time without notice, and the executive will be entitled to payment of remuneration only up to the date of termination. Section 5: Equity-based compensation Employee share ownership plan [ESOP] The Company has operated an ownership-based scheme for executives and senior employees of the Group. This was approved by shareholders at the 2009 Annual General Meeting. Awards were made under this plan up to October 2010 such that senior employees and an executive were granted options to purchase parcels of ordinary shares at an exercise prices ranging from 9.6 cents to 19.0 cents per ordinary share. Each share option converts into one ordinary share of Webfirm Group Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry no voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. All option tranches are based on the individual remaining an employee of the Group. The plan rules allow departed employees to retain their options for a period of time based on the length of their service with the Company and the nature of their separation from the Company. The board considered these conditions appropriate to ensure the objective of maintaining key staff within the Company. The issue of share options are not subject to performance conditions. There is no board policy in place to limit the executive and senior employees exposure to the risk in relation to the options issued. In July 2010, the Board has ceased issuing options to eligible employees under the scheme, as it believes that options are no longer the most effective way to remunerate employees. The Company obtained approval at the 2011 Annual General Meeting to establish an employee incentive scheme comprising the Webfirm Group Limited Share Option Plan and the Webfirm Group Employee Share Trust. Rights to shares are available to be issued to eligible employees based on the performance against agreed key performance indicators. Any rights awarded are subject to a two year service period and if this service period is not met, the rights to shares will be forfeited by the eligible employee. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 14 REMUNERAtIoN REPoRt Section 5: Equity-based compensation [continued] The following table shows grants of share-based compensation to directors and senior management under the ESOP for the current financial year: During the Financial year Name ESOP Series Number Granted Number Vested % of Grant Vested % of Grant Forfeited % of Compensation for the year Consisting of Shares Mr B Maher [i] Accepted on 01 Dec 11 413,511 - - - 2.1% [i] These rights were issued under the ESOP to Mr Brendan Maher under his Employment Agreement. The rights to these shares will vest on 30 November 2013. The Company has valued these rights to shares in accordance with accounting standards at $21,916 of which $6,365 was expensed this year. The following rights to shares were granted to key management personnel during the year: ESOP shares – 2012 Issue Date Number of Shares Vesting Date Exercise Price $ 01-Dec-2011 413,511 30 Nov 2013 - Value of shares at grant date $ Fair Value Per Share $ Date vested and exercisable 21,916 21,916 0.0530 - Shares held by the Trust under the scheme will have voting and dividend rights, and the right to participate in further issues pro-rata to all ordinary shareholders. There is no Board policy in place to limit the executive employees’ exposure to risk in relation to securities issued as remuneration. The following options were granted to key management personnel during the prior year: Options – 2011 Issue Date Number of Options Expiry Date Exercise Price $ Value of options at grant date $ Fair Value Per Option $ Date vested and exercisable 30-Aug-2010 3,000,000 29-Aug-2014 0.096 344,700 0.1149 08-Apr-2011 344,700 The exercise price of the options is based on a pre-set exercise price. Options granted carry no dividend or voting rights. There is no Board policy in place to limit the executive employees’ exposure to risk in relation to securities issued as remuneration. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REMUNERAtIoN REPoRt 15 Section 5: Equity-based compensation [continued] Details of options over ordinary shares in the company provided as remuneration of directors and the key management personnel of the Company are set out below: Rights/Options Granted During the Year Rights/Options Vested During the Year 2012 2011 2012 2011 Number $ Number $ Number $ Number $ Name Directors Mr Adrian Giles Mr David Burden [i] Mr Andrew Barlow Mr Chris Morris Ms Tiffany Fuller Mr Anthony Du Preez [ii] Mr Adrian Vanzyl [iii] - - - - - - - - - - - - - - Other Key Management Personnel Mr B Maher 413,511 $21,916 Mr M Chamley [iv] Mr G Flower [v] [i] to 30 August 2011 [ii] to 30 March 2012 [iii] to 20 June 2011 - - [iv] [v] - - to 20 July 2011 to 13 September 2010 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,900,000 $85,141 6,500,000 $93,799 3,950,000 $57,001 - - - - 4,250,000 $61,330 3,500,000 $50,507 - - 558,824 $2,030 2,000,000 $26,308 3,000,000 $344,700 - - 309,589 $32,015 The assessed fair value at issue date of the options granted to the executive is allocated equally over the period from issue date to vesting date, and the amount is included in the remuneration tables above. Fair values at issue date are independently determined using the binomial option pricing model that takes into account the exercise price, the term of the option, the share price at issue date and the expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for ESOP rights to shares granted during the year ended 30 June 2012 included: ESOP #1 01/12/11 30/11/13 - $0.053 45.0% 0% 3.22% Model Input Grant Date Escrow End Date Exercise Price Price at Grant Date Expected Volatility Expected Dividend Yield Risk Free Interest Rate 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 16 REMUNERAtIoN REPoRt Section 5: Equity-based compensation [continued] The model inputs for options granted during the year ended 30 June 2011 included: Model Input Grant Date Exercise Date Expiry Date Exercise Price Price at Grant Date Expected Volatility Expected Dividend Yield Risk Free Interest Rate Class #1 30/08/10 08/04/11 29/08/14 $0.096 $0.070 102.9% 0% 4.80% Details of options exercised and lapsed during the year appear in the following table: 2012 Name Directors Balance at the start of the year [Number] Granted during the year as compensation [Number] Exercised during the year [Number] Forfeited during the year [Number] Lapsed during the year [Number] Balance at the end of the year [Number] Vested and exercisable at the year end [Number] Mr A Giles 13,800,001 Mr A Barlow 9,900,001 Mr D Burden 13,000,000 Mr A Du Preez 8,500,000 Mr C Morris Ms T Fuller - - Other key management personnel Mr B Maher - Mr M Chamley 4,000,000 Totals 49,200,002 - - - - - - - - - - - - - - - - - - - - - - - [1,480,000]1 [1,441,176]2 [2,000,001] 11,800,000 11,800,000 [2,000,001] 7,900,000 7,900,000 - - - - - - 13,000,000 13,000,000 8,500,000 8,500,000 - - - - - - 1,078,824 1,078,824 [1,480,000] [1,441,176] [4,000,002] 42,278,824 42,278,824 1 The fair value of options exercised during the period was $34,188 2 The fair value of options forfeited during the year was $33,291 This marks the end of the audited remuneration report. This report is made in accordance with a resolution of directors. Adrian Giles | Chairman | 23 August 2012 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W REMUNERAtIoN REPoRt 17 Auditor’s Independence Declaration 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 18 AUDItoR’S INDEPENDENCE DECLARAtIoN Consolidated Statement of Comprehensive Income For the year ended 30 June 2012 Total revenue from continuing operations Other income Website publishers & related costs Depreciation and amortisation expenses Finance costs Salaries and employment related costs Consultancy and contractor costs Directors’ fees Staff recruitment Telephone and internet Share based payment expense Marketing costs Lease – rental premises Impairment of intangibles Impairment of receivables Listing & registrar fees Legal fees Travel expenses Audit and accountancy fees Other expenses Loss before income tax expense Income tax expense Loss after income tax expense Other comprehensive income Foreign exchange translation Revaluation of available for sale investments Total other comprehensive income Notes 2012 $ 2011 $ 3 3 4 4 4 4 4 4,682,469 5,348,965 659,129 75,781 [1,158,310] [1,318,599] [2,658,506] [2,182,718] - [44] [5,504,663] [4,682,391] [587,591] [446,501] [246,471] [213,333] [202,238] [138,541] [114,231] [175,268] [211,045] [822,835] [44,904] [125,567] [377,231] [584,281] [50,000] [2,749,184] [70,091] [340,717] [87,723] [222,805] [130,375] [255,765] [222,029] [404,052] [177,090] [127,912] [830,758] [975,542] [7,331,658] [10,341,309] 5 - [520] [7,331,658] [10,341,829] 36,452 - 36,452 [44] 106,335 106,291 Total comprehensive income attributable to the members of Webfirm Group Limited [7,295,206] [10,235,538] 2012 Cents 2011 Cents Earnings per share [EPS] from loss from continuing operations attributable to the ordinary equity holders of the company Basic earnings per share Diluted earnings per share 17 17 [1.08] [1.08] [1.66] [1.66] The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W CoNSoLIDAtED StAtEMENt oF CoMPREhENSIVE INCoME 19 Consolidated Statement of Financial Position For the year ended 30 June 2012 Notes 2012 $ 2011 $ CURRENT ASSETS Cash and cash equivalents Trade and other receivables Total current assets NON-CURRENT ASSETS Trade and other receivables Property, plant & equipment Other financial assets Intangible assets Total non-current assets Total assets CURRENT LIABILITIES Trade and other payables Other liabilities Provisions Total current liabilities NON-CURRENT LIABILITIES Provisions Total non-current liabilities Total liabilities NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY 7 8 8 9 10 11 12 13 14 14 15 16 13,746,124 18,352,609 1,361,994 1,391,435 15,108,118 19,744,044 - 200,000 167,738 212,664 197,039 212,664 7,869,963 10,486,968 8,250,365 11,096,671 23,358,483 30,840,715 1,015,805 1,470,270 1,011,050 1,110,587 174,727 164,603 2,201,582 2,745,460 26,294 26,294 6,884 6,884 2,227,876 2,752,344 21,130,607 28,088,371 76,674,272 76,547,875 1,945,845 5,830,556 [57,489,510] [54,290,060] 21,130,607 28,088,371 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 20 CoNSoLIDAtED StAtEMENt oF FINANCIAL PoSItIoN Consolidated Statement of Changes in Equity For the year ended 30 June 2012 2012 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Notes Balance at 1 July 2011 76,547,875 5,830,556 [54,290,060] 28,088,371 Movement in foreign exchange translation 16 reserve Increase in available for sale investment reserve 16 Other comprehensive income Loss attributable to members of the company Total comprehensive income - - - - - 36,452 - 36,452 - - - 36,452 - 36,452 - [7,331,658] [7,331,658] 36,452 [7,331,658] [7,295,206] Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Treasury shares Reclassification of lapsed options to retained earnings 15 15 16 Increase in employees share based payments 16 reserve 259,413 [133,016] - - - - - - 259,413 [133,016] [4,132,208] 4,132,208 - 211,045 - 211,045 Balance 30 June 2012 76,674,272 1,945,845 [57,489,510] 21,130,607 126,397 [3,921,163] 4,132,208 337,442 2011 Issued Capital $ Reserves $ Accumulated Losses $ Total Equity $ Notes Balance at 1 July 2010 50,874,027 4,901,430 [43,948,231] 11,827,226 Movement in foreign exchange translation reserve Increase in available for sale investment reserve 16 16 Other comprehensive income Loss attributable to members of the company Total comprehensive income - - - - - [44] 106,335 106,291 - - - [44] 106,335 106,291 - [10,341,829] [10,341,829] 106,291 [10,341,829] [10,235,538] Transactions with equity holders in their capacity as equity holders Contributions of equity, net of transaction costs Increase in employees share based payments reserve 15 16 25,673,848 - - 822,835 25,673,848 822,835 - - - 25,673,848 822,835 26,496,683 Balance 30 June 2011 76,547,875 5,830,556 [54,290,060] 28,088,371 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W CoNSoLIDAtED StAtEMENt oF ChANGES IN EqUIty 21 Consolidated Statement of Cash Flows For the year ended 30 June 2012 Notes 2012 $ 2011 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from trade and other debtors [inclusive of GST] 4,169,273 4,628,338 Interest received Government grants and other receipts 1,154,422 903,194 - 75,781 Payments to trade creditors, other creditors and employees [inclusive of GST] [10,020,116] [9,599,365] Interest paid - [44] Net cash outflows from operating activities 25 [4,696,421] [3,992,096] CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment Proceeds from sale of fixed assets [56,813] [293,429] 20,274 42,903 Net cash acquired via acquisition of subsidiary 19 - 108,344 Payments for intangible assets Payments for available-for-sale financial assets Net cash outflows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Payments for equity raising costs Net cash inflows from financing activities Net increase/[decrease] in cash held Cash at the beginning of the financial year Effects of exchange rate changes on cash [13,741] [776,888] - [106,329] [50,280] [1,025,399] 82,880 20,122,497 - [510,233] 82,880 19,612,264 [4,663,821] 14,594,769 18,352,609 3,807,779 57,336 [49,939] CASH AT THE END OF THE FINANCIAL YEAR 7 13,746,124 18,352,609 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 22 CoNSoLIDAtED StAtEMENt oF CASh FLoWS Notes to the Financial Statements For the year ended 30 June 2012 1. Summary of Significant Accounting Policies The financial report covers Webfirm Group Limited [“Company”] and controlled entities [“Group”]. Separate financial statements for Webfirm Group Limited as an individual entity are no longer presented as a consequence of a change to the Corporations Act 2001. However limited financial information for Webfirm Group Limited, as an individual entity is included in Note 27. Webfirm Group Limited is a listed public company, incorporated and domiciled in Australia. The financial report is for the financial year ended 30 June 2012 and is presented in Australian dollars. The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. [a] Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board [AASB] and the Corporations Act 2001. Compliance with IFRS Australian Accounting Standards include International Financial Reporting Standards as adopted in Australia. Compliance with Australian Accounting Standards ensures that the financial statements and notes of Webfirm Group Limited comply with International Financial Reporting Standards [IFRS]. Adoption of new and revised standards The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2011: n AASB 124 Related Parties/AASB 2009-12 Amendments to Australian Accounting Standards n AASB 2009-14 Amendments to Australian Interpretations – Prepayments of Minimum Funding Requirements [Interpretation 14] n AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvement Project n AASB 2010-5 Amendments to Australian Accounting Standards n AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures in Transfers of Financial Assets n AASB 1054 Additional Australian Disclosures n AASB 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. Historical cost convention These financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale financial assets. Under the historical cost convention assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 23 1. Summary of Significant Accounting Policies [continued] [a] Basis of preparation [continued] Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and associated assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. [b] Going concern Management continue to invest resources into achieving a significant expansion of the business which includes successfully launching the Adslot division. The Group has however incurred net cash outflows from operations of $4.7m for the year, and management anticipate incurring further net cash outflows from operations until such time as sufficient revenue growth is achieved. Accordingly the ability of the Group to continue as a going concern is dependent upon revenue growth in the Adslot division. During FY 2012 Adslot earned revenues from its first five clients on the Adslot Premium platform. During FY 2013 the Group expects more clients to be signed up on the Adslot Premium product in addition to new revenues from the launch of Adslot Direct and Adslot Create. Despite this it is likely net operating cash flows from operations will be negative in FY 2013. However the directors believe the Group can continue to pay its debts as and when the fall due for the following reasons: n The Group has a cash position as at 30 June 2012 of $13.7m; n Whilst the revenue from the Webfirm division is anticipated to be flat the division is expected to make continued positive net cash flows from its operations on existing revenue levels in FY 2013; and n Management could reduce the level of resources dedicated to expanding the business if so required. Accordingly the directors believe there exists a reasonable expectation that the Group can continue to pay its debts as and when they fall due, and the financial report has been prepared on a going concern basis. [c] Principles of consolidation Subsidiaries The consolidated financial statements comprise those of the Company, and the entities it controlled at the end of, or during, the financial year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefit from its activities. All intra-group transactions, balances, income and expenses between entities in the Group included in the financial statements have been eliminated in full. Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. The accounting policies adopted in preparing the financial statements have been consistently applied by entities in the Group. Investments in subsidiaries are accounted for at cost less impairment losses in the parent entity information in Note 27. Business combinations Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values [at the date of exchange] of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in the statement of comprehensive income as incurred. Foreign Currency Exchange In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance date. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 24 NotES to thE FINANCIAL StAtEMENtS 1. Summary of Significant Accounting Policies [continued] [c] Principles of consolidation [continued] Exchange differences are recognised in the statement of comprehensive income in the period in which they arise. On consolidation, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. [d] Cash and cash equivalents For the purposes of the Statement of Cash Flows, cash includes deposits at call which are readily convertible to cash and are not subject to significant risk of changes in value, net of bank overdrafts. [e] Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Leasehold improvements are depreciated over the estimated useful life using the straight-line method with any balance written off at termination of lease. Depreciation is calculated on a straight line basis for all plant and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of asset and is recognised in the statement of comprehensive income. The following depreciation rates are used for each class of depreciable asset: Computer Equipment 20 – 40% per annum Plant & Equipment 20 – 25% per annum Leasehold Improvements 20% per annum [f] Receivables Trade receivables are recognised initially at fair value and thereafter are measured at amortised cost, less provision for impairment. They are non-derivative financial assets with fixed or determinable amounts not quoted in an active market. Trade accounts receivable are generally settled between 14 and 60 days and carried at amounts recoverable. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful 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 effective interest rate. The amount of the provision is recognised in the statement of comprehensive income. Subsequent recoveries of amounts previously written off are credited against the allowance account. [g] Investments and other financial assets Financial assets are recognised when the group entity becomes a party to the contractual provisions of the instrument. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through the statement of comprehensive income, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through the statement of comprehensive income are expensed in the statement of comprehensive income. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Available-for-sale financial assets are subsequently carried at fair value. Gains or losses arising from changes in available-for-sale financial assets are presented in other comprehensive income in the period in which they arise. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 25 1. Summary of Significant Accounting Policies [continued] [h] Trade and other creditors Trade accounts payable and other creditors represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. [i] Borrowings Borrowings are initially recognised at fair value [less transaction costs] and subsequently measured at amortised cost. Any difference between the proceeds and the redemption amount is recognised in the consolidated statement of comprehensive income over the period of the borrowing using the effective interest method. [j] Finance costs Finance costs are recognised as expenses in the period in which they are incurred except where they are incurred in the construction of a qualifying asset in which case the finance costs are capitalised as part of the asset. [k] Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation legislation Webfirm Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Webfirm Group Limited, and the controlled entities in the tax consolidated group account for their own current and tax 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. To the extent that it is not probable that taxable profit will be available in the foreseeable future against which the unused tax losses or unused tax credits can be utilised, the deferred tax assets of its own and its controlled entities are not recognised by Webfirm Group Limited. [l] Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 26 NotES to thE FINANCIAL StAtEMENtS 1. Summary of Significant Accounting Policies [continued] [l] Employee benefits [continued] Long service leave Long service leave liability commences to be accrued for staff at four [4] year anniversary date. The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in provisions for employee entitlements and is measured at the amount expected to be paid when the liabilities are settled. The liability for long service leave expected to be settled more than 12 months from the reporting date, is recognised in the non-current provision for employee benefits and is measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Share-based compensation benefits Equity-settled share-based payments with employees and other providing similar services are measured at the fair value of the equity instrument at the grant date. The fair value at grant date is determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value determined at the grant date of the equity-settled share-based payments is recognised as an expense, with a corresponding increase in equity [share-based payments reserve] on a straight line basis over the vesting period. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. [m] Intangible Assets Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired [acquisition date]. Goodwill is measured as the excess of the fair value of consideration paid over the fair value of the identifiable net assets of the entity or operations acquired. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, being allocated to the cash flows of the relevant cash generating unit and is carried at cost less accumulated impairment losses. An impairment loss for goodwill is recognised immediately in the statement of comprehensive income and is not reversed in a subsequent period. Research & development expenditure Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the assets to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project. The carrying value of an intangible asset arising from development costs is tested for impairment annually when the asset is not yet available for use or more frequently when an indicator of impairment arises during the reporting period. Intellectual property The intellectual property relates to the names, platform technology, branding and domains acquired as a result of the acquisition of Adslot, Adimise, Full Circle Online and QDC IP Technology businesses. Where the useful life is assessed as indefinite, assets are not amortised and the carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate impairment. It is carried at cost less impairment losses. For those assets assessed as having a finite life, they are amortised on a straight-line basis over the estimated useful life of the asset. The expected accounting useful life of intellectual property relating to the Adslot, Adimise and QDC IP Technology business is 5 years. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 27 1. Summary of Significant Accounting Policies [continued] [m] Intangible Assets [continued] Domain name Acquired domain names are brought to account at cost, useful life is assessed as indefinite and the assets are not amortised. The carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate impairment. They are carried at cost less impairment losses. Software Software represents internally developed software platforms capitalised according to accounting standards. Software is assessed as having a finite life and is amortised on a straight-line basis over the estimated useful life of the asset. The expected accounting useful life of software is 5 years. The carrying value of the software is tested for impairment when an indicator of impairment arises during the reporting period. [n] Leased assets Leases of assets under which the Group assumes substantially all the risks and benefits of ownership are classified as finance leases as distinct from operating leases under which the lessor effectively retains substantially all such risks and benefits. Property, plant and equipment acquired by finance leases is capitalised at the present value of the minimum lease payments as a finance lease asset and as a corresponding lease liability from date of inception of the lease. Lease assets are amortised over the period the entity is expected to benefit from the use of the assets or the term of the lease, whichever is shorter. Finance lease liabilities are reduced by the component of principal repaid. Lease payments are allocated between the principal component of the liability and interest expense. Operating lease payments are charged to the statement of comprehensive income on a straight-line basis over the period of lease term. [o] Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax [GST], except: i Where the amount of GST incurred is not recoverable from taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii For receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. [p] Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, allowances and duties and taxes paid. Revenue is recognised for the major business activities as follows: Rendering of services Service revenue is recognised on an accruals basis as and when the service has been passed onto the customer. Website development revenue is recorded based on a twelve [12] week program of project delivery. All projects are assigned percentages of project completion [based on actual work in progress] and all website development revenue applicable to percentage of incomplete work is recorded as unearned revenue. Website hosting, SSL certificate and domain name registration revenue is recorded over one year duration. While 30% of search engine renewal revenue is recorded as earned in first month of renewal contract, the balance 70% revenue is recognised over one year duration. Prepaid revenue calculated in this regard is excluded from revenue and is being treated as unearned revenue in the Consolidated Statement of Financial Position. Interest revenue Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount can be measured reliably, taking into account the effective yield on the financial asset. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 28 NotES to thE FINANCIAL StAtEMENtS 1. Summary of Significant Accounting Policies [continued] [p] Revenue recognition [continued] Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income and are amortised on a straight line basis over the expected lives of the assets. Sale of non-current assets The net gain from the sale of non-current asset sales is recognised in income at the date control of the asset passes to the buyer, usually when the signed contract of sale becomes unconditional. [q] Acquisition of assets The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition. Acquisition-related costs are expensed as incurred. Where equity instruments are issued in an acquisition, the value of the instruments is their market price as at the date of acquisition, unless the notional price at which they could be placed in the market is a better indicator of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Any deferred settlement of cash consideration is discounted to its present value as at the date of acquisition. The discount rate used is the incremental borrowing rate that the Group can obtain from an independent financier under comparable terms and conditions. [r] Leasehold improvements The cost of improvements to leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the group, whichever is the shorter. [s] Earnings per share Basic earnings per share Basic earnings per share for continuing operations and total operations attributable to members of the Company are determined by dividing net profit after income tax from continuing operations and the net profit attributable to members of the Company respectively, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period. The number of shares used in the calculation at any time during the period is based on the physical number of shares issued. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. [t] Dividends Provision is made for the amount of any dividend determined or recommended by the directors on or before the end of the financial year but not distributed at balance date. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 29 1. Summary of Significant Accounting Policies [continued] [u] Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets [cash-generating units]. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. [v] 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 has been identified as the Chief Executive Officer. [w] Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the entity’s accounting policies The following are the critical judgements [apart from those involving estimations, which are dealt with below], that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements: Revenue recognition In web development and web hosting business operations, management assesses stage of completion of each project and recognises revenue in the period in which development work is undertaken. In making its judgement, management considered the standard duration of such contracts, stage of progress in contracts and commencement date of such contracts. Accordingly, management has deferred recognising some web development and web hosting revenue of an estimated value of services to be rendered in the future. Key sources of estimation uncertainty The following are the key assumptions concerning the future and other key estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Impairment of goodwill and intangible assets Determining whether goodwill and intangible assets are impaired required an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. The carrying amount of goodwill and intangible assets at the reporting date was $7,869,963 [2011: $10,486,968] after an impairment loss of $ 50,000 [2011: $2,749,184] was recognised during the current financial year. Refer to Note 11 for further details. Share based payments The calculation of the fair value of options issued requires significant estimates to be made in regards to several variables such as volatility, dividend policy and the probability of options reaching their vesting period. The estimations made are subject to variability that may alter the overall fair value determined. The share based payment expenses for the year was $211,045 [2011: $822,835]. Unrecognised deferred tax assets As disclosed in Note 5, the Group has not recognised deferred tax assets relating to temporary differences, capital losses or operating losses. Deferred tax assets are only recognised when it is probable that they will be able to be utilised in future reporting periods. Due to the continuing operating losses, the directors have determined it not 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 30 NotES to thE FINANCIAL StAtEMENtS 1. Summary of Significant Accounting Policies [continued] [w] Critical accounting judgements and key sources of estimation uncertainty [continued] appropriate to recognise deferred tax assets until a point in time where it is probable that future taxable income is going to be available to utilise the assets. The tax benefit of deferred tax assets not recognised is $7,626,274 [2011: $5,035,116]. Research and development tax concessions A receivable of $659,129 [2011: nil] has been recognised in relation to a research and development tax concession for the 2012 financial year. The actual claim is yet to be submitted with the Australian Tax Office and therefore there remains some uncertainty in regards to the quantum of the concession to be received. The financial statements reflect the Directors estimate of the receivable after taking into account the likelihood of each component of the claim being received. Contingent consideration – QDC Technologies As detailed in Note 19, within the acquisition agreement for QDC Technologies Pty Ltd [QDC], the Company agreed to pay further consideration of up to 13,333,333 additional shares if after eighteen [18] months the total consideration paid to the vendors was less than $4.0 million. On 6 June 2012 all 13,333,333 additional shares became payable and nine out of eleven vendors of QDC were issued with 8,557,576 additional shares in accordance with the QDC acquisition agreement. The issue of additional shares to two QDC vendors who are related parties of the Company are subject to shareholder approval which will be sought at the 2012 AGM. At reporting date, the balance deferred vendor consideration has been estimated at $286,545 [2011: $354,776]. This balance has been recognised in other liabilities with movements in liability during the year being recorded in other expenses in the statement of comprehensive income. [x] New standards and interpretations issued but not effective Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods, and have not yet been adopted by the Group. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below. n AASB 9 Financial Instruments, AASB 2009-11 and AASB 2010-7 Amendments to Australian Accounting Standards arising from the AASB 9 sets out requirements for the classification and measurement of financial assets and liabilities. AASB 9 will become mandatory for the Group’s 30 June 2014 financial statements. The Group will apply this revised AASB 2009-11 and AASB 2010-7 from 30 June 2014 but it is not expected to have any impact on the Group’s financial statements. n AASB 10 Consolidated Financial Statements requires a parent to present consolidated financial statements as those of a single economic entity, replacing the requirements previously contained in AASB 127 Consolidation – Special Purpose Entities. AASB 10 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 10 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 11 Joint Arrangements replaces AASB 131 Interests in Joint Ventures and requires assessing the rights and obligations to account for those rights and obligations in accordance with that type of joint agreement. AASB 11 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 11 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 12 Disclosure of Interests in Other Entities requires extensive disclosure of interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. AASB 12 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 12 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 31 1. Summary of Significant Accounting Policies [continued] [x] New standards and interpretations issued but not effective [continued] n AASB 128 Investments in Associates and Joint Ventures [2011] supersedes AASB 128 Investments in Associates and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. AASB 128 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 128 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 13 Fair Value Measurement and related AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 replaces the guidance on fair value measurement in existing AASB accounting literature with a single standard. AASB 13 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 13 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 119 Employee Benefits [2011], AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 [2011] and AASB 2011-11 Amendments to AASB 119 [September 2011] arising from Reduced Disclosure Requirements is an amended version of AASB 119 Employee Benefits with revised requirements for pensions and other post-employment benefits, termination benefits and other changes. AASB 12 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply AASB 119 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 2010-8 Amendment to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model in AASB 140 Investment Property. AASB 2010-8 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply this revised AASB 2010-8 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. n AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements amends AASB 124 Related party Disclosures to remove the individual key management personnel disclosures required by Australian specific paragraphs. AASB 2011-4 will become mandatory for the Group’s 30 June 2014 financial statements. The Group will apply AASB 12 from 30 June 2014 but it is not expected to have any impact on the Group’s financial statements. n AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income requires entities to group items presented in other comprehensive income [OCI] on the basis of subsequent reclassification to comprehensive income and requires tax associated with items presented before tax to be shown separately. AASB 2011-9 will become mandatory for the Group’s 30 June 2013 financial statements. The Group will apply this revised AASB 2011-9 from 30 June 2013 but it is not expected to have any impact on the Group’s financial statements. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 32 NotES to thE FINANCIAL StAtEMENtS 2. Segment Information 2012 Business segments External sales Adslot $ Webfirm $ Total $ 988,202 2,818,745 3,806,947 Segment result from continuing operations [8,325,243] 90,914 [8,234,329] Depreciation included in segment result [note 9] 24,654 6,707 31,361 Amortisation included in segment result [note 11] 2,533,915 46,831 2,580,746 Additions to non-current assets [PP&E] Impairment of intangibles Statement of Financial Position Segment assets Segment liabilities 2011 Business segments External sales 17,043 3,136 - 50,000 20,179 50,000 15,169,232 607,814 15,777,046 [13,480,099] [783,344] [14,263,443] Adslot $ Webfirm $ Total $ 932,190 3,519,080 4,451,270 Segment result from continuing operations [5,387,331] [2,119,806] [7,507,137] Depreciation included in segment result [note 9] 13,171 89,971 103,142 Amortisation included in segment result [note 11] 1,972,303 55,984 2,028,287 Additions to non-current assets [PP&E] 47,346 13,623 60,969 Impairment of intangibles 249,184 2,500,000 2,749,184 Statement of Financial Position Segment assets Segment liabilities 17,205,397 2,018,314 19,223,711 [13,724,604] [1,262,881] [14,987,485] Segment revenue reconciles to total revenue from continuing operations as follows: Revenue Total segment revenue Head office revenue Interest revenue Intersegment eliminations 2012 $ 2011 $ 3,806,947 4,451,270 11,257 891,590 [27,325] - 903,194 [5,499] Total revenue from continuing operations 4,682,469 5,348,965 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 33 2. Segment Information [continued] A reconciliation from segment result to operating profit before income tax is provided as follows: Segment Result Total segment result Interest revenue Other revenue Impairment of intangibles Deferred vendor consideration Share option expenses 2012 $ 2011 $ [8,234,329] [7,507,137] 891,590 903,194 670,386 75,781 [50,000] [2,749,184] [308,302] [247,976] [211,045] [822,835] Other head office expenses not allocated in segment result [89,958] 6,848 Loss before income tax from continuing operations [7,331,658] [10,341,309] Reportable segment assets are reconciled to total assets as follows: Segment Assets Total segment assets Head office assets Intersegment eliminations 2012 $ 2011 $ 15,777,046 19,223,710 26,816,537 31,401,109 [19,235,100] [19,784,104] Total assets as per the statement of financial position 23,358,483 30,840,715 Reportable segment liabilities are reconciled to total liabilities as follows: Segment Liabilities Total segment liabilities Head office liabilities Intersegment eliminations 2012 $ 2011 $ [14,263,443] [14,987,485] [827,836] [628,262] 12,863,403 12,863,403 Total liabilities as per the statement of financial position [2,227,876] [2,752,344] Notes to and forming part of the segment information Business segments The Group is organised into the following segments by product and service type: Adslot The Adslot division allows media publishers to sell their premium advertising inventory directly to advertisers via a self-serve channel, increasing yield and significantly reducing sales and administration costs. Webfirm The Webfirm division offers online marketing services including search engine optimisation, search engine marketing [paid search advertising], social media marketing, website hosting and website amendments. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 34 NotES to thE FINANCIAL StAtEMENtS 2. Segment Information [continued] Accounting policies The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1. The only exception is the Adslot segment which has brought to account assets for the fair value of intellectual property acquired through business combinations [as determined for consolidation purposes] and corresponding liabilities. These assets would ordinarily only be recognised on consolidation. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment profit represents the profit earned by each segment without investment revenue, finance costs and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, capitalised R&D and other intangible assets, net of related provisions but do not include non-current inter-entity assets and liabilities which are considered quasi-equity in substance. Segment liabilities consist primarily of trade and other creditors, employee benefits and sundry provisions and accruals. Segment assets and liabilities do not include income taxes. Inter-segment transfers Segment revenue reported above represents revenue generated from external customers. Inter segment revenue transfers of $27,325 [2011: $5,499], and corresponding expenses have been eliminated on consolidation. Geographical information Revenues from external customers are attributed to individual countries based on the invoiced address for the services. Revenue from external customers Non-current assets 2012 $ 2011 $ 2012 $ 2011 $ Continuing Operations Australia and New Zealand 3,780,305 4,176,204 8,248,359 13,643,739 North America Europe - 269,567 - 10,574 - 2,006 - 2,116 Total revenue and non-current assets from continuing operations 3,790,879 4,445,771 8,250,365 13,645,855 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 35 3. Revenue and Other Income Revenue Revenue for services rendered Interest income Total revenue Other income R&D grant Export marketing development grant Total revenue and other income 4. Expenses Loss before income tax includes the following specific expenses: Depreciation and amortisation Amortisation – Leasehold improvements Amortisation – Software development costs Depreciation – Plant & equipment Total depreciation and amortisation Finance costs 2012 $ 2011 $ 3,790,879 4,445,771 891,590 903,194 4,682,469 5,348,965 659,129 26,400 - 659,129 49,381 75,781 5,341,598 5,424,746 2012 $ 2011 $ 7,169 53,689 2,580,746 2,028,287 70,591 100,742 2,658,506 2,182,718 Interest paid/payable to unrelated entities - 44 Other charges against assets Impairment of intangibles Impairment of trade receivables Rental expense – operating leases Defined contribution superannuation expense [Profit]/Loss on sale of PP&E & internally developed software Deferred vendor consideration Foreign currency loss 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 36 NotES to thE FINANCIAL StAtEMENtS 50,000 2,749,184 70,091 340,717 377,231 584,281 362,917 [20,274] 308,302 43,541 321,782 42,903 247,976 49,895 5. Income Tax Expense [a] Numerical reconciliation of income tax expense to prima facie tax benefit Loss before income tax [7,331,658] [10,341,309] Prima facie tax benefit on loss before income tax at 30% [2011: 30%] [2,199,497] [3,102,393] 2012 $ 2011 $ Tax effect of: Other non-allowable items Share options expensed during year Research & development tax concession ESOP share purchase 95,011 63,314 [510,081] [39,905] 930,429 246,851 - - Income tax benefit attributable to entity [2,591,158] [1,925,113] Deferred tax assets relating to tax losses not recognised 2,591,158 1,925,633 Income tax expense attributable to entity - 520 [b] Deferred tax assets not brought to account Deferred tax assets not brought to account, the benefits of which will only be realised if the conditions for deductibility set out on Note 1[k] occur Temporary differences Tax losses: Operating losses Capital losses Potential tax benefit [30%] 691,724 1,488,369 24,597,310 15,163,471 131,879 131,879 25,420,913 16,783,719 7,626,274 5,035,116 The company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax-consolidated group is Webfirm Group Limited. 6. Dividends No dividends were declared in the current year or prior year by the Company. There are no franking credits available to shareholders of the Company. 7. Cash and cash equivalents Cash at bank and on hand 13,746,124 18,352,609 2012 $ 2011 $ 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 37 8. Trade and other receivables Current: Trade debtors Less: Allowance for impairment Other receivables Prepayments Earn-out receivable from the sale of Adfeed Engine 2012 $ 2011 $ 983,411 1,325,657 [470,684] [523,190] 512,727 802,467 800,037 451,554 49,230 - 121,375 16,039 1,361,994 1,391,435 Impairment of trade receivables Included in the allowance for impairment is an amount of $445,703 [2011: $445,703] representing a 100% provision over an overseas debt involving a legacy business for which the Company continues recovery proceedings. The average age of the Company’s receivables is 44 days [2011: 53 days]. [a] Ageing of past due but not impaired 0 – 30 days 31 – 60 days 61 – 90 days Over 91 days [b] Movement in the provision for impairment Balance at beginning of the year Impairment recognised during the year Amounts written off as uncollectible Amounts recovered during the year Balance at the end of the year 2012 $ 2011 $ 54,571 49,665 27,567 290,172 121,833 54,545 390 220,623 132,193 687,173 523,190 842,970 95,522 469,292 [108,390] [752,287] [39,638] [36,785] 470,684 523,190 In determining the recoverability of a trade receivable, the Group considers any recent history of payments and the status of the projects to which the debt relates to. No payment terms have been renegotiated. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further provision required in excess of the provision for impairment. Fair value of receivables Fair value of receivables at year end is measured to be the same as receivables net of the allowance for impairment. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 38 NotES to thE FINANCIAL StAtEMENtS 8. Trade and other receivables [continued] Non-current: Employee loans Movement in the provision for impairment: non-current receivables Balance at beginning of the year Amounts written off as uncollectible Balance at the end of the year 2012 $ 2011 $ - - - - - 200,000 200,000 1,363,343 [1,363,343] - 9. Non-Current Assets – Property, plant and equipment Leasehold improvements – at cost Less: Accumulated amortisation Plant and equipment – at cost Less: Accumulated depreciation Computer equipment – at cost Less: Accumulated depreciation 2012 $ 36,385 [7,594] 28,791 2011 $ 96,740 [64,036] 32,704 159,090 248,593 [78,608] [159,386] 80,482 89,207 187,116 358,994 [128,651] [283,866] 58,465 75,128 Total carrying amount of property, plant and equipment 167,738 197,039 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 39 9. Non-Current Assets – Property, plant and equipment [continued] Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below: 2012 Carrying amount at 1 July 2011 Additions Disposals/write offs Depreciation/amortisation expense Carrying amount at 30 June 2012 Leasehold Improvements $ Plant and Equipment $ Computer Equipment $ 32,704 3,256 89,207 19,587 75,128 59,000 Total $ 197,039 81,843 - [3,367] [30,017] [33,384] [7,169] 28,791 [24,945] [45,646] [77,760] 80,482 58,465 167,738 2011 Leasehold Improvements $ Plant and Equipment $ Computer Equipment $ Carrying amount at 1 July 2010 Additions 34,114 52,279 51,010 83,909 44,009 86,149 Total $ 129,133 222,337 Depreciation/amortisation expense [53,689] [45,712] [55,030] [154,431] Carrying amount at 30 June 2011 32,704 89,207 75,128 197,039 10. Non-Current Assets – Other financial assets 2012 $ 2011 $ Available for sale investment carried at fair value Investment – at fair value 212,664 212,664 During the prior year the Company was issued a convertible note for $100,000 in Brandscreen Pty Ltd [an unrelated entity]. This convertible note and accumulated interest of $6,329 was converted to 145,094 preference shares on 11 March 2011. At that time the investment in Brandscreen Pty Ltd was re-valued at fair value reflecting a capital raising which it undertook recognising a gain of $106,335. Uncertainty exists in relation to the fair value of the Brandscreen investment, but the directors are satisfied that it is not below the current carrying value. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 40 NotES to thE FINANCIAL StAtEMENtS 11. Non-Current Assets – Intangible Assets Intellectual Property $ Domain Name $ Goodwill $ Internally developed Software $ Total $ Year ended 30 June 2012 Opening net book amount 10,302,375 38,267 Acquisitions Amortisation Impairment of assets - [2,533,915] [50,000] - - - Carrying amount at 30 June 2012 7,718,460 38,267 - - - - - 146,326 10,486,968 13,741 13,741 [46,831] [2,580,746] - [50,000] 113,236 7,869,963 At 30 June 2012 Cost Accumulated amortisation/ impairment 16,566,906 288,267 5,381,652 247,894 22,484,719 [8,848,446] [250,000] [5,381,652] [134,658] [14,614,756] Carrying amount at 30 June 2012 7,718,460 38,267 - 113,236 7,869,963 Intellectual Property $ Domain Name $ Goodwill $ Internally developed Software $ Total $ Year ended 30 June 2011 Opening net book amount 5,537,106 30,805 2,500,000 341,524 8,409,435 Acquisitions Amortisation Impairment of assets Disposal of assets 6,737,572 7,462 249,184 - 6,994,218 [1,972,303] - - - - - - [55,984] [2,028,287] [2,749,184] - [2,749,184] - - [139,214] [139,214] 146,326 10,486,968 Carrying amount at 30 June 2011 10,302,375 38,267 At 30 June 2011 Cost Accumulated amortisation/ impairment 16,566,906 288,267 5,381,652 234,154 22,470,979 [6,264,531] [250,000] [5,381,652] [87,828] [11,984,011] Carrying amount at 30 June 2011 10,302,375 38,267 - 146,326 10,486,968 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 41 11. Non-Current Assets – Intangible Assets [continued] Goodwill The Goodwill balances related to the acquisitions of Webfirm and Full Circle Online. At June 2011 the Directors passed an impairment expense of $2,749,184, thereby removing all Goodwill. Intellectual property Domain names Domain names opening carrying value of $38,267 relates to the various domain names held by Webfirm CGU and Adslot CGU. The Directors have assessed that this intellectual property has an indefinite useful life on the basis that the Directors do not believe that there is a foreseeable limit on the period over which this asset is expected to generate cash inflows for the entity. The carrying value of this intellectual property attached to the Webfirm CGU and Adslot CGU [and segments] was reviewed and with sufficient future benefits being expected from the asset, no impairment was required. Copyright and patent licences Adslot Pty Ltd [“Adslot”] holds valuable copyright and patent licences [“Licences”] in respect of Combinatorial Auction Platform Technology [“CAP” or “Core IP”] owned by Enterprise Point Pty Ltd and its controlled entities [“Enterprise”]. $5,932,006 of opening balance relates to this “CAP” technology. The directors have assessed the accounting useful life of the Adslot Licences for accounting purposes to be five years. This assessment has given regard to the expected financial benefits of the technology to be potentially well beyond a five year period, together with the risk that competitors could replicate this technology over time, and therefore the potential for the company’s ongoing commitment to research and development of the Core IP. Accumulated amortisation of this asset as at 30 June 2012 was $2,817,702 [2011: $1,631,301]. The amortisation period of the intangible asset is five years on a straight line basis. Adimise Pty Ltd [“Adimise”] holding online ad-serving technology had $271,055 of Ad-serving IP in the opening balance and attached to the Adslot CGU. The directors have assessed the accounting useful life of the Adimise Licences for accounting purposes to be five years. Accumulated amortisation of this asset as at 30 June 2012 was $108,422 [2011: $54,211]. The amortisation period of the intangible asset is five years on a straight line basis. QDC IP Technology [“QDC”] holding video advertising technology had licences to the Core IP valued at $6,466,517 in opening balance and attached to Adslot CGU. The directors have assessed the accounting useful life of the Licences for accounting purposes to be five years. This assessment has given regard to the expected financial benefits of the technology to be potentially well beyond a five year period, together with the risk that competitors could replicate this technology over time, and therefore the potential for the Group’s ongoing commitment to research and development of the Core IP. Accumulated amortisation of this asset as at 30 June 2012 was $2,024,994 [2011: $731,691]. The amortisation period of the intangible asset is five years on a straight line basis. Software The $146,326 opening balance in internally development software is related to costs associated with two internally developed software platforms attached to Webfirm CGU, capitalised according to accounting standards. The Directors are of the opinion that these software developments have a limited five year useful life and hence have been amortised accordingly by $46,831 [2011: $46,830]. During June 2012, research & development related wage costs attached to the Adslot CGU were capitalised according to accounting standards, amounting to $13,741 [2011: nil]. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 42 NotES to thE FINANCIAL StAtEMENtS 12. Current liabilities – Payables Trade creditors Other creditors 13. Current liabilities – Other Current: Unearned revenue [i] Deferred vendor consideration – QDC [ii] 2012 $ 2011 $ 72,618 241,130 943,187 1,229,140 1,015,805 1,470,270 2012 $ 2011 $ 724,505 755,811 286,545 354,776 1,011,050 1,110,587 [i] The significant portion of current year unearned revenue pertains to website development and hosting invoices that are rendered based on full contract terms at the contracts inception, however performed over stages which straddle the reporting date. [ii] Deferred vendor consideration is the estimated value at 30 June 2012 of the balance additional shares that became due on 6 June 2012 as further vendor consideration from the acquisition of QDC. As two of the QDC vendors were related parties, shareholder approval is required prior to issue of these shares. 14. Current Provisions Current: Employee benefits Non current: Employee benefits 15. Contributed equity 2012 $ 2011 $ 174,727 164,603 26,294 6,884 2012 Number 2011 Number 2012 $ 2011 $ Ordinary Shares – Fully Paid 687,567,332 681,698,900 76,674,272 76,547,875 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the numbers of shares. At the shareholders meeting each ordinary share is entitled to one vote when a poll is called, otherwise each shareholders has one vote on a show of hands. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 43 15. Contributed equity [continued] Movements in Paid-Up Capital Date Details Number of shares Number Issue price $ Capital raising costs $ Value $ 30-Jun-10 Balance 491,821,809 423,670 50,874,027 08-Jul-10 Issue of shares to Adimise Pty Ltd vendor 2,143,214 08-Jul-10 Issue of shares to Full Circle Online Pty Ltd vendor 2,142,500 0.115 0.115 31-Aug-10 Exercise of employee options 800,000 0.100 - - - 246,470 246,387 80,000 14-Sep-10 Share Placement - professional investors 21,153,845 0.130 181,390 2,568,610 17-Sep10 Share Placement - professional investors 37,096,155 0.130 13-Oct-10 Exercise of options - sub-underwriter 1,000,000 0.090 - - 4,822,500 90,000 29-Oct-10 Share Placement 94,412,286 0.130 328,843 11,944,834 07-Dec-10 Issue of shares to QDC IP Technologies Pty Ltd vendor 29,309,091 0.190 28-Feb-11 Exercise of employee options 100,000 0.100 23-Mar-11 Exercise of employee options 1,300,000 0.056 11-Apr-11 Exercise of employee options 420,000 0.056 - - - - 5,568,727 10,000 72,800 23,520 30-Jun-11 Balance 681,698,900 933,903 76,547,875 06-Feb12 Exercise of employee options 1,480,000 0.056 20-Mar-12 Cancellation of shares held in escrow [2,000,000] 0.100 06-Jun-12 Issue of shares - QDC deferred vendor consideration 8,557,576 0.044 - - - 82,880 [200,000] 376,533 30-Jun-12 689,736,476 933,903 76,807,288 Less: Treasury shares1 [2,169,144] 0.061 - [133,016] 30-Jun-12 Balance 687,567,332 933,903 76,674,272 1 Treasury shares Treasury shares are shares in Webfirm Group Limited that are held by the Webfirm Group Employee Share Trust which was formed on 1 December 2011 to administer the Webfirm Group Share Ownership Plan [ESOP]. This Trust has been consolidated in accordance with note 1 [c]. Shares held by the Trust on behalf of eligible employees are shown as treasury shares in the financial statements. Shares issued under the ESOP are held in escrow for a period of two years subject to ongoing employment with the Group. Employees may elect not to participate in the scheme. Shares issued under this scheme will, subject to the provision of the Trust deed, rank equally in all respects and will have same rights and entitlements as ordinary shares under the Constitution of the Group. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 44 NotES to thE FINANCIAL StAtEMENtS 15. Contributed equity [continued] Options issued, exercised and lapsed during the financial year and options outstanding at the end of the year are summarised below: Issue Type Notes Expiry Date Exercise Price $ Balance at beginning of the year [Number] Issued during the year [Number] Expired during the year [Number] Exercised during the year [Number] Balance at end of the year [Number] Ordinary options 30/06/12 0.100 6,000,003 Ordinary options 30/06/12 0.100 350,000 Ordinary options 22/10/12 0.090 1,000,000 Ordinary options 31/01/13 0.053 51,700,000 Ordinary options 31/01/13 0.056 10,180,000 Ordinary options 08/07/14 0.151 2,000,000 Ordinary options 29/08/14 0.096 309,589 Ordinary options 30/09/14 0.116 3,000,000 Ordinary options 30/09/14 0.190 300,000 74,839,592 - - - - - - - - - - [6,000,003] [350,000] - - - - - - - - 1,000,000 51,700,000 [1,441,176] [1,480,000] 7,258,824 - [309,589] - - - - - - 2,000,000 - 3,000,000 300,000 [8,100,768] [1,480,000] 65,258,824 Employee ESOP shares issued and outstanding at the end of year the year are summarised below: Issue Type Valuation Price $ Balance at beginning of the year [Number] Issued during the year [Number] Expired during the year [Number] Exercised during the year [Number] Balance at end of the year [Number] Escrow End Date Employee ESOP 30/11/13 Employee ESOP 01/12/13 Employee ESOP 12/12/13 Employee ESOP 18/01/14 0.053 0.060 0.064 0.060 - - - - - 413,511 88,967 833,333 833,333 2,169,144 - - - - - - - - - - 413,511 88,967 833,333 833,333 2,169,144 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 45 16. Reserves Reserves Share–based payments reserve Available for sale investment reserve Foreign currency translation reserve Share–based payments reserve Opening balance Reclassification of lapsed options Share based payment expense Closing balance Available for sale investment reserve Opening balance Movement in fair value Closing balance Foreign currency translation reserve Opening balance Movement on currency translation Transfer to retained earnings 1 Closing balance 2012 $ 2011 $ 1,839,510 5,760,673 106,335 106,335 - [36,452] 1,945,845 5,830,556 5,760,673 4,937,838 [4,132,208] - 211,045 822,835 1,839,510 5,760,673 106,335 - 106,335 - 106,335 106,335 [36,452] [36,408] - 36,452 [44] - - [36,452] 1 The foreign currency translation reserve was transferred to retained earnings due to the exit of the Ansearch Inc business. The Share-based payments reserve is used to record the value of options accounted for in accordance with AASB2: Share Based Payments. The available-for sale investment reserve is used to record net gain/loss arising on revaluation of available-for sale financial assets in accordance with AASB 7: Financial Instruments Disclosure. The foreign currency translation reserve is used to record the value of aggregate movements in the translation of foreign currency in accordance with AASB 121: The Effects of Changes in Foreign Exchange Rates. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 46 NotES to thE FINANCIAL StAtEMENtS 17. Earnings Per Share 2012 Cents 2011 Cents [a] Basic earnings per share Loss attributable to the ordinary equity holders of the Company [1.08] [1.66] [b] Diluted earnings per share Loss attributable to the ordinary equity holders of the Company [1.08] [1.66] [c] Reconciliation of earnings used on calculating earnings per share [i] Loss from continuing operations attributable to the members of the Company used [7,331,658] [10,341,829] on calculating basic and diluted earnings per share 2012 $ 2011 $ 2012 Number 2011 Number [d] Weighted average number of shares used as the denominator Weighted average number of shares on issue used in the calculation of basic EPS 681,316,767 623,779,891 [e] Weighted average number of shares used as the denominator Weighted average number of shares on issue used in the calculation of diluted EPS 681,316,767 623,779,891 [i] During 2012 and 2011 there were no discontinued operations or values attributable to minority interests. Weighted average number of options that could potentially dilute basic earnings 74,062,833 82,793,127 per share in the future, but are not included in the calculation of diluted EPS because they are anti-dilutive for the period presented. 2012 Number 2011 Number 18. Discontinued Operations There were no discontinued operations during the year ended 30 June 2012. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 47 19. Business Combinations 2012 There were no business combinations during the year ended 30 June 2012. 2011 Adimise Pty Ltd and Full Circle Online Pty Ltd: On 8 July 2010 Webfirm Group Limited acquired 100% of the equity of Adimise Pty Ltd and Full Circle Online Pty Ltd. The deal provides Webfirm with Adimise’s online ad-serving technology, key component of Webfirm’s new Adslot Direct Platform. The acquisition costs related to this acquisition were $8,932 which has been included in legal fees in the Statement of Comprehensive Income. The acquired businesses contributed $541,266 in revenue and a net loss of $149,940 to the Group for the period from 8 July 2010 to 30 June 2011. These amounts have been calculated using the Company’s accounting policies, and would have been the same had the acquisition occurred on 1 July 2010. The purchase consideration consists of the following: Equity – 4,285,714 fully paid ordinary shares @ 11.5 cents per share Total consideration paid $ 492,857 492,857 Subject to the achievement of certain post completion sales targets, additional deferred consideration of up to $150,000 can become payable by the Group. No deferred consideration has been provided for as the directors’ estimate that it is unlikely these targets will be met within the required time frame. Details of assets and liabilities acquired are as follows: Purchase consideration Fair value of net identifiable assets acquired Cash and cash equivalents Trade and other receivables Property, plant & equipment Payables Employee benefits Intangible assets [including formation expenses] Intellectual property – platform technology Goodwill Acquirees’ Carrying Amount $ Fair Value $ $ 492,857 106,855 106,855 197,177 8,425 197,177 8,425 [333,197] [333,197] [6,643] 16,943 - - [6,643] - 271,055 249,185 Net identifiable assets acquired [10,440] 492,857 492,857 Statement of Cash Flows For the purposes of the statement of cash flows, the acquisition resulted in net cash acquired of $106,855. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 48 NotES to thE FINANCIAL StAtEMENtS 19. Business Combinations [continued] QDC IP Technologies IP Pty Ltd On 7 December 2010 Adslot Pty Ltd acquired 100% of the equity of QDC IP Technologies Pty Ltd [QDC]. QDC’s Display Ad Builder and Personalised Video Ad Platform technologies will be combined with Adslot and Adimise technologies to create the new Adslot Direct Platform. The integration of QDC technology with Adslot Direct Platform will allow online publishers to offer an automated end to end advertisement sales system. The acquisition costs related to this acquisition were $75,063 which has been included in legal fees and employment related costs in the Statement of Comprehensive Income. The acquired businesses contributed no revenue and a net loss of $987,208 to the Group for the period from 7 December 2010 to 30 June 2011. These amounts have been calculated using the Group’s accounting policies. The amount of revenue and losses for the combined entity calculated, had the acquisition occurred on 1 July 2010 would have been $220,534 in revenue and a net loss of $766,621. The purchase consideration consists of the following: Cash Equity – 29,309,091 fully paid ordinary shares of Webfirm Group Limited @ 19.0 cents per share Deferred vendor consideration Total consideration paid $ 801,818 5,568,727 106,800 6,477,345 If at the end of an eighteen [18] month period from the date of acquisition, the total value of consideration paid to the Vendors is calculated to be less than $4.0 million [using a VWAP of the Company’s share price over the five [5] trading days prior to that date], then up to a maximum of 13.3 million additional Webfirm Group Limited shares is to be issued as further consideration. The directors assessed the potential fair value of contingent consideration at acquisition date to be $106,800. The contingent consideration has been revalued at year end to its fair value of $354,776 as at 30 June 2011. The movement in fair value of contingent consideration is taken to the Statement of Comprehensive Income. Details of assets and liabilities acquired are as follows: Purchase consideration Fair value of net identifiable assets acquired Cash and cash equivalents Trade and other receivables Property, plant & equipment Intangible assets [including formation expenses] Acquirees’ Carrying Amount $ Fair Value $ $ 6,477,345 1,513 3,073 6,266 236,272 1,489 3,073 6,266 - Intellectual property – platform technology - 6,466,517 Net identifiable assets acquired 247,124 6,477,345 6,477,345 Notwithstanding that the Independent Expert’s Report [for the QDC transaction] included an assessment that the fair value of the platform technology could be as high as $7.75 million, having regard to the subjective nature of the valuation for this type of asset, the directors have determined the fair value of intellectual property should not exceed the residual value of $6,466,517. Accordingly the fair value of the platform technology has been determined to be $6,466,517. Statement of Cash Flows For the purposes of the statement of cash flows, the acquisition resulted in net cash acquired of $1,489. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 49 20. Contingencies No contingent assets or liabilities are noted. 21. Commitments Operating lease commitments Total operating lease expenditure contracted for at balance date but not capitalised in the financial statements payable: Within 1 year Between 1 and 5 years 2012 $ 2011 $ 296,425 558,282 261,188 676,541 557,613 1,234,823 The lease commitments detailed above relate to rental premises and lease rental of printer/copier. Capital commitments The Group and the Company have not entered any capital expenditure contracts at reporting date that are not recognised as liabilities on the Statement of Financial Position. 22. Remuneration of auditors During the year the following fees were paid/payable to the auditor of the company: Audit services Audit and review of financial reports 90,000 90,000 2012 $ 2011 $ Other services Indirect tax services 39,500 129,500 - 90,000 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 50 NotES to thE FINANCIAL StAtEMENtS 23. Key Management Personnel Disclosures Directors The following persons were directors of the Company during the financial year: n Mr Adrian Giles [Executive Chairman] n Mr Andrew Barlow [Executive Director] n Mr David Burden [Managing Director] [resigned 30 August 2011] n Mr Anthony Du Preez [Executive Director] [resigned 30 March 2012] n Mr Chris Morris [Non-Executive Director] n Ms Tiffany Fuller [Non-Executive Director] Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Name Position n Mr Brendan Maher Chief Financial Officer and Company Secretary n Mr Mathew Chamley Regional General Manager Webfirm P/L [resigned 20 July 2011] Key management personnel compensation Short-term employee benefits Post-employment benefits Other long-term employee benefits Termination benefits Share based payments Total compensation 2012 $ 2011 $ 1,205,840 1,297,734 36,294 58,454 - 50,360 8,395 - 19,584 437,574 1,300,889 1,813,346 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 51 23. Key Management Personnel Disclosures [continued] Other transactions with key management personnel Loans to key management personnel Aggregate loans to key management personnel and their related parties: Loans to key management personnel Balance at beginning $ Loans granted $ Interest charged $ Amounts repaid/ set off $ Balance at end $ Number in group 2012 2011 200,000 200,000 - - - - [200,000] - - 200,000 - 1 Key management personnel with loans above $100,000 in the reporting period: Balance at beginning $ Loans granted $ Interest charged $ Amounts repaid/ set off $ Balance at end $ Highest in period $ 2012 D. Burden 200,000 2011 D. Burden 200,000 - - - - [200,000] - 200,000 - 200,000 200,000 The $200,000 loan represents financial assistance provided to the CEO for the purpose of acquiring 10,000,000 shares [pre-consolidation equivalent to 2,000,000 post consolidation], on escrow [subject to settlement of loan] in the Company. The loan was provided on an interest free basis. The loan was approved by shareholders at an Extraordinary General Meeting held 16 September 2008. Mr Burden resigned on 30 August 2011 and the loan became due and payable at the end of February 2012. These shares were cancelled in March 2012. The interest not charged, calculated at the statutory interest rate of 7.80% for the year ended 30 June 2012, was $11,210. Business Acquisitions: No related party transactions during the year ended 30 June 2012. Transactions with Directors and their personally related entities: During the year payments of $90,575 were made to Venturian Pty Ltd an entity related to Mr Andrew Barlow for consulting services on normal terms and conditions. Payments of $271,000 were also made to Venturian Pty Ltd for Andrew Barlow’s services as CEO of the Group, which is included in key management personnel compensation. During the year receipts of $86,623 were received from Colonial Leisure Group an entity related to Mr Chris Morris for website hosting and search marketing services on normal terms and conditions. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 52 NotES to thE FINANCIAL StAtEMENtS 23. Key Management Personnel Disclosures [continued] Option holdings The number of options over ordinary shares in the company held during the financial year by each director of Webfirm Group Limited and other key management personnel of the group, including their personally related parties are set out below: 2012 Name Directors Balance at the start of the year [Number] Granted during the year as compensation [Number] Exercised during the year [Number] Forfeited/ Lapsed during the year [Number] Balance at the end of the year [Number] Vested and exercisable at the year end [Number] Mr A Giles 13,800,001 Mr A Barlow 9,900,001 Mr D Burden 13,000,000 Mr A Du Preez 8,500,000 Mr C Morris Ms T Fuller - - Other key management personnel Mr M Chamley 4,000,000 Mr B Maher - Totals 49,200,002 - - - - - - - - - - - - - - - [2,000,001] 11,800,000 11,800,000 [2,000,001] 7,900,000 7,900,000 - - - - 13,000,000 13,000,000 8,500,000 8,500,000 - - - - [1,480,000] [1,441,176] 1,078,824 1,078,824 - - - - [1,480,000] [5,441,178] 42,278,824 42,278,824 2011 Name Directors Balance at the start of the year [Number] Granted during the year as compensation [Number] Exercised during the year [Number] Forfeited/ Lapsed during the year [Number] Balance at the end of the year [Number] Vested and exercisable at the year end [Number] Mr A Giles 13,800,001 Mr A Barlow 11,900,001 Mr D Burden 13,000,000 Mr A Vanzyl 9,000,001 Mr A Du Preez 8,500,000 Mr C Morris Ms T Fuller - - Other key management personnel Mr D Element 4,700,000 Mr M Chamley 4,000,000 - - - - - - - - - Mr G Flower Mr B Maher - - 3,000,000 - - - - - - - - - 13,800,001 13,800,001 [2,000,000] 9,900,001 9,900,001 - - - - - 13,000,000 13,000,000 9,000,001 9,000,001 8,500,000 8,500,000 - - - - [800,000] [400,000] 3,500,000 3,500,000 - - - - 4,000,000 2,000,000 [2,690,411] 309,589 309,589 - - - Totals 64,900,003 3,000,000 [800,000] [5,090,411] 62,009,592 60,009,592 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 53 23. Key Management Personnel Disclosures [continued] Equity holdings and transactions The numbers of shares in the company held during the financial year by each director of Webfirm Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2012 Name Ordinary shares Directors Mr A Giles Mr A Barlow Mr D Burden* Mr A Du Preez* Mr C Morris Ms T Fuller Other key management personnel Mr B Maher Mr M Chamley* Totals Held at 1 July 2011 18,421,288 57,140,133 5,631,499 12,968,051 57,130,848 100,000 - 229,089 151,620,908 *shareholding effective as at date of resignation Received during the year on exercise of options Received during the year as compensation Net other changes during the year Held at 30 June 2012 - - - - - - - - - - - - - - - - - - - - 18,421,288 57,140,133 [5,631,499] [12,968,051] - - 5,608,470 62,739,318 - - [229,089] 100,000 - - [13,220,169] 138,400,739 Held at 1 July 2010 Received during the year on exercise of options Received during the year as compensation Net other changes during the year Held at 30 June 2011 2011 Name Ordinary shares Directors Mr A Giles Mr A Barlow Mr D Burden Mr A Vanzyl* Mr A Du Preez Mr C Morris Ms T Fuller 15,062,872 57,140,133 5,900,731 2,164,277 12,968,051 - - - - - - - - - 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W Other key management personnel Mr D Element* Mr M Chamley Mr G Flower* Mr B Maher Totals 795,091 800,000 229,089 - - - - - 94,260,244 800,000 *shareholding effective as at date of resignation 54 NotES to thE FINANCIAL StAtEMENtS - - - - - - - - - - - - 3,358,416 18,421,288 - 57,140,133 [269,232] 5,631,499 [2,164,277] - - 12,968,051 57,130,848 57,130,848 100,000 100,000 [1,595,091] - - - - 229,089 - - 56,560,664 151,620,908 24. Share Based Payments Employee share option plan The Company has operated an ownership-based scheme for executives and senior employees of the Group. This was approved by shareholders at the 2009 Annual General Meeting. Awards were made under this plan up to October 2010 such that senior employees and an executive were granted options to purchase parcels of ordinary shares at an exercise prices ranging from 9.6 cents to 19.0 cents per ordinary share. Each share option converts into one ordinary share of Webfirm Group Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry no voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The vesting dates of these Options are detailed in the table below. All Option tranches are based on the individual remaining an employee of the Group. The plan rules allow departed employees to retain their options for a period of time based on the length of their service with the Company and the nature of their separation from the Company. The board considered these conditions appropriate to ensure the objective of maintaining key staff within the Company. The Company has valued these options in accordance with accounting standards. The total value of these options vested was assessed at $2,030. There is no amount remaining to be expensed in future years. The board has no formal policy in place for limiting the risk of executive and senior employees of the Group in relation to the options issued. 1,480,000 options provided as remuneration were exercised during the year. There were no options granted to employees of the Webfirm Group during the year in return for services rendered. In July 2010, the Board has ceased issuing options to eligible employees under the scheme, as it believes that options are no longer the most effective way to remunerate employees. The Company obtained approval at the 2011 Annual General Meeting to establish an employee incentive scheme comprising the Webfirm Group Limited Share Option Plan and the Webfirm Group Employee Share Trust. Rights to shares are available to be issued to eligible employees based on the performance against agreed key performance indicators. Any rights awarded are subject to a two year service period and if this service period is not met, the rights to shares will be forfeited by the eligible employee. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 55 24. Share Based Payments [continued] The following table shows grants of share-based compensation to directors and senior management under the ESOP for the current financial year: Grant Date Escrow End Date Valuation Price $ Balance at start of the year (Number) Granted during the year (Number) Vested during the year (Number) Lapsed during the year (Number) Forfeited during the year (Number) Balance at end of the year (Number) Vested and exercisable at the end of the year (Number) 01/12/11 30/11/13 0.053 02/12/11 01/12/13 0.060 13/12/11 12/12/13 0.064 19/01/12 18/01/14 0.060 Total - - - - - 413,511 88,967 833,333 833,333 2,169,144 - - - - - - - - - - - - - - - 413,511 88,967 833,333 833,333 2,169,144 - - - - - Weighted average share price $0.000 $0.060 $0.000 $0.000 $0.000 $0.060 $0.000 Weighted average remaining contractual life at 30 June 2012 [days] 542 The model inputs for ESOP rights to shares granted during the year ended 30 June 2012 included: Model Input ESOP #1 ESOP #2 ESOP #3 ESOP #4 Grant Date Exercise Date 01/12/11 02/12/11 13/12/11 19/01/12 01/12/13 02/12/13 13/12/13 19/01/14 Escrow End Date 30/11/13 01/12/13 12/12/13 18/01/14 Exercise Price Price at Grant Date Expected Volatility Expected Dividend Yield Risk Free Interest Rate - $0.053 45.0% 0% 3.22% - $0.060 45.0% 0% 3.22% - $0.064 49.0% 0% 3.08% - $0.060 54.0% 0% 3.21% ESOP rights to shares are valued using the Binomial option pricing model. Other Options Issued There were no other options issued during the year. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 56 NotES to thE FINANCIAL StAtEMENtS 24. Share Based Payments [continued] 2012 Grant Date Exercise Price $ Balance at start of the year (Number) Granted during the year (Number) Exercised during the year (Number) Lapsed during the year (Number) Forfeited during the year (Number) Balance at end of the year (Number) Expiry Date Vested and exercisable at the end of the year (Number) - [300,000] [50,000] 27/08/08 30/06/12 0.100 350,000 23/09/08 30/06/12 0.100 6,000,003 21/10/09 22/10/12 0.090 1,000,000 16/02/10 31/01/13 0.053 51,700,000 16/02/10 31/01/13 0.056 10,180,000 28/07/10 08/07/14 0.151 2,000,000 30/08/10 29/08/14 0.096 309,589 14/10/10 30/09/14 0.116 3,000,000 14/10/10 30/09/14 0.190 300,000 - - - - - - - - - - [6,000,003] - - [1,480,000] - - - - - - - - [309,589] - - - - - - 1,000,000 1,000,000 51,700,000 51,700,000 - - - [1,441,176] 7,258,824 7,258,824 - - - - 2,000,000 666,667 - - 3,000,000 1,000,000 300,000 100,000 Total 74,839,592 - [1,480,000] [6,609,592] [1,491,176] 65,258,824 61,725,491 Weighted average exercise price $0.064 $0.000 $0.056 $0.100 $0.057 $0.060 $0.056 Weighted average remaining contractual life at 30 June 2012 [days] 260 2011 Grant Date Exercise Price $ Balance at start of the year (Number) Granted during the year (Number) Exercised during the year (Number) Lapsed during the year (Number) Forfeited during the year (Number) Balance at end of the year (Number) Expiry Date Vested and exercisable at the end of the year (Number) 30/06/06 10/04/11 0.500 2,000,000 01/04/08 10/04/11 0.500 100,000 27/08/08 30/06/12 0.100 3,840,000 23/09/08 30/06/12 0.100 6,000,003 21/10/09 22/10/12 0.090 2,000,000 16/02/10 31/01/13 0.053 51,700,000 16/02/10 31/01/13 0.056 15,500,000 - - - - - - - - [2,000,000] - [100,000] [900,000] [2,590,000] - [1,000,000] - - - - [1,720,000] [3,600,000] 28/07/10 08/07/14 0.151 30/08/10 29/08/14 0.096 14/10/10 30/09/14 0.116 14/10/10 30/09/14 0.190 - - - - 2,000,000 3,000,000 3,000,000 300,000 - - - - - - - - - - - - - - - - - - - - 350,000 350,000 6,000,003 6,000,003 1,000,000 1,000,000 51,700,000 51,700,000 10,180,000 4,730,000 2,000,000 - [2,690,411] 309,589 309,589 - - 3,000,000 300,000 - - Total 81,140,003 8,300,000 [3,620,000] [8,290,000] [2,690,411] 74,839,592 64,089,592 Weighted average exercise price $0.072 $0.120 $0.076 $0.182 $0.096 $0.064 $0.059 Weighted average remaining contractual life at 30 June 2011 [days] 605 Options are valued using the Binomial option pricing model. There were no options granted during the year ended 30 June 2012. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 57 24. Share Based Payments [continued] The model inputs for options granted during the year ended 30 June 2011 included: Model Input Grant Date Exercise Date Expiry Date Exercise Price Price at Effective Grant Date Expected Volatility Expected Dividend Yield Risk Free Interest Rate Class #1 30/08/10 08/04/11 29/08/14 $0.096 $0.070 102.9% 0% 4.80% The volatility calculation is based upon historical share price information of the Company from the commencement of the Adslot acquisition within the Group [16 February 2010] up to the grant date. 25. Cash Flow reconciliation Reconciliation of Net Cash Flows from Operating Activities to Loss for the year Loss for the year after income tax Depreciation and amortisation Impairment of intangibles Share based payment Impairment of receivables [Profit]/Loss on asset write off Unrealised foreign currency [loss]/gain Changes in assets and liabilities [net of effects of acquisition and disposal of entities] [Increase]/Decrease in receivables [Decrease]/Increase in payables and other provisions Net cash outflow from operating activities 2012 $ 2011 $ [7,331,658] [10,341,829] 2,658,506 2,182,718 50,000 2,749,184 211,045 822,835 70,091 340,717 [20,274] 43,541 42,903 49,895 [40,650] 208,074 (337,022) (46,593) [4,696,421] [3,922,096] 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 58 NotES to thE FINANCIAL StAtEMENtS 26. Financial Risk Management The Group’s operations expose it to various financial risks including market, credit, liquidity and cash flow risks. Risk management programmes and policies are employed to mitigate the potential adverse effects of these exposures on the results of the Group. Financial risk management is carried out by the Chief Financial Officer with oversight provided by the Board. [a] Market risks Market risks include foreign exchange risk, interest rate risk and other price risk. The Group’s activities expose it to the financial risks of changes in foreign currency, interest rate risk relating to interest earned on cash and cash equivalents and price risk on available-for-sale financial assets. In the current reporting period the foreign currency related exposure is not considered to be material to the entity’s overall business operation. Foreign currency exposure is monitored by the Board on a quarterly basis. The Board has considered that any specific risk mitigation action is not required at this time. Disclosures relating Interest rate risk is covered in Note 26[d] and price risk is covered in Note 26[e]. The Group does not have formal policies that address the risks associated with changes in interest rates or changes in fair values on available-for-sale financial assets. [b] Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on financial assets, other than investments, of the Group which have been recognised in the Consolidated Statement of Financial Position is the carrying amount net of any provision for doubtful debts. The Group has no significant concentrations of credit risk. As disclosed in Note 8 a], ‘Impairment of receivables’, The Group has policies in place to ensure that sales of services are made to customers with appropriate credit history. Before accepting any new customers, the Group internally reviews the potential customer’s credit quality. A substantial deposit on contract in website development and hosting segment of the Group mitigates initial credit risk. The Group held the following financial assets with potential credit risk exposure: 2012 $ 2011 $ Financial assets Cash and cash equivalents 13,746,124 18,352,609 Trade and other receivables 1,361,994 1,391,435 [c] Liquidity risk Financial liabilities 15,108,118 19,744,044 2012 $ 2011 $ Trade and other payables 1,015,805 1,470,270 Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Due to the dynamic nature of the underlying business, the Board aims at maintaining flexibility in funding by keeping committed credit lines and sufficient cash available. All financial liabilities are expected to be settled within 12 months of the reporting date, per the contractual terms of the obligations. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 59 26. Financial Risk Management [continued] [d] Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets or liabilities [except cash], the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on exposure to interest rates on interest bearing bank balances throughout the reporting period. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates [also comparable to movement in interest rates during the reporting year]. At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group’s net profit would increase by $163,667 and decrease by $155,139 [2011: increase by $156,713 and decrease by $150,372]. This is mainly attributable to the Group’s exposure to interest rate on its bank balances bearing variable interest rates. [e] Price risk The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: [a] quoted prices [unadjusted] in active markets for identical assets or liabilities [level 1]; [b] inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly [as prices] or indirectly [derived from prices] [level 2]; and [c] inputs for the asset or liability that are not based on observable market data [unobservable inputs] [level 3]. All financial assets held by the Group have been classified as level 3 as the available-for-sale financial assets are unlisted equities. The fair value of the available-for-sale financial assets were: 2012 $ 2011 $ Available-for-sale financial assets Investments in unlisted equities 212,664 212,664 The fair value of unlisted equities has been determined with reference to comparable equity transactions made by the unlisted company. No change in the fair value of the investments has occurred since the end of the end of the prior financial year. [f] Net fair value of financial assets and liabilities The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the Group approximates their carrying value. The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. The fair value of these assets approximates their carrying value. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 60 NotES to thE FINANCIAL StAtEMENtS 27. Parent Entity Information The following details of information are related to the parent entity, Webfirm Group Limited, at 30 June 2012. This information has been prepared using consistent accounting policies as presented in Note 1. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Share-based payments reserve Available for sale investment reserve Retained losses Total equity Loss for the year Total comprehensive loss for the year 2012 $ 2011 $ 12,887,682 18,110,475 13,209,612 13,079,873 26,097,294 31,190,348 168,682 233,503 - - 168,682 233,503 76,807,288 76,547,875 1,839,510 5,760,673 106,335 106,335 [52,824,521] [51,458,038] 25,928,612 30,956,845 [11,547,299] [10,848,668] [11,547,299] [10,848,668] The Commitments Note 21 includes commitments incurred by the parent entity related to leases of the old head office premises at 23 Union Street, South Melbourne and new head office premises at 85 Coventry Street, South Melbourne for an amount of $544,537 [2011: $909,890] 28. Related Party Transactions Other than the transactions disclosed in Note 23 relating to Key Management Personnel, there have been no related party transactions that have occurred during the current or prior financial year. 29. Events Subsequent to Reporting Date There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly affected, or may significantly affect, the operations of the group, the results of those operations or the state of affairs of the group in future years. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W NotES to thE FINANCIAL StAtEMENtS 61 30. Consolidated Entities Name Parent entity Webfirm Group Limited Controlled entities Ads Alliance Pty Ltd* Adslot Pty Ltd Ansearch.com.au Pty Ltd Ansearch Group Services Pty Ltd Webfirm Media Pty Ltd Enedia Pty Ltd* Searchworld Pty Ltd Webfirm Pty Ltd Webfirm Search Pty Ltd* Adimise Pty Ltd Full Circle Online Pty Ltd QDC IP Technologies Pty Ltd Adslot UK Limited Adslot Inc. Country of Incorporation Ordinary Share Consolidated Equity Interest 2012 % 2011 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom United States - 100 100 100 100 - 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - Equity interests in all controlled entities are by way of ordinary shares. * Companies were deregistered during the year. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 62 NotES to thE FINANCIAL StAtEMENtS Directors’ Declaration The directors declare that the financial statements, comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, accompanying notes, as set out on pages 19 to 62 are in accordance with the Corporations Act 2001 and: [a] comply with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements in Australia; [b] give a true and fair view of the group’s financial position as at 30 June 2012 and of its performance, as represented by the results of its operations and its cash flows, for the financial year ended on that date; and [c] the company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards. In the directors’ opinion: [a] there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. [b] the audited remuneration disclosures set out on pages 10 to 17 of the Directors’ Report comply with section 300A of the Corporations Act 2001. The directors have been given the declaration by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Adrian Giles | Chairman Webfirm Group Limited | 23 August 2012 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W DIRECtoRS’ DECLARAtIoN 63 Independent Audit Report 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 64 INDEPENDENt AUDIt REPoRt Independent Audit Report 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W INDEPENDENt AUDIt REPoRt 65 Independent Audit Report 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 66 INDEPENDENt AUDIt REPoRt Corporate Governance Statement The directors of Webfirm Group Limited have a commitment to maintain long term shareholder value, and recognise the benefits of good corporate governance in achieving this aim. Having regard to the size and resources available to the company, the company endeavours at all times to comply with the Australian Stock Exchange Corporate Governance Principles and Recommendations [‘ASX Principles’]. Unless otherwise stated, the company complies with the ASX recommendations. Principle 1: Lay solid foundations for management and oversight The Company has separate functions for board and senior management. The board and senior management functions are disclosed publicly in the Company Board Charter which is published on the Company’s website. The board meet regularly to perform their prescribed functions, including formal meetings held each two months as well as additional ad hoc meetings where required. Each of the board members is in regular contact with the CEO and CFO/Company Secretary. The company has a process for evaluating the performance of senior executives, including the evaluation of performance against key performance indicators by both the CEO and Board. A performance review of the chief executive officer and senior executives of the company has taken place prior to the date of this report, in accordance with the established process. Principle 2: Structure the board to add value The Board seeks to ensure that its membership represents an appropriate balance between directors with experience and knowledge of the company, and directors with an external or fresh perspective, and that the size of the board is conducive to effective discussion and efficient decision making. The Board is currently comprised of four board members, three of which are not considered independent directors. The only independent director is Ms Tiffany Fuller. As such, the board composition is not in accordance with ASX corporate governance principles 2.1 [majority of board members be independent] and 2.2 [independent chair]. However, the board considers that the individuals on the board can and do make quality and independent judgements in the best interest of the company on all relevant issues. The role of chair and chief executive officer are held by different individuals. A description of the skills and experience of each of the directors and their period in office is contained in the Director’s Report section of the Annual Report. Because the Company has a board consisting of only four directors, the directors collectively perform the functions of a nomination committee, as the directors do not consider that any increase in efficiency or effectiveness would be achieved through the formation of a nomination committee. The directors have access to a broad range of professional advisors who provide advice and assistance as requested by the directors, and at the expense of the Company. The company is yet to implement a formal process for evaluating the performance of the board, its committees or individual directors. Principle 3: Promote ethical and responsible decision-making The Company has a code of conduct for directors that provides policy and guidance on matters of conduct as directors. The aim of the code is to guide directors in the execution of their responsibilities, to ensure all legal obligations and stakeholder requirements are considered, and to provide all stakeholders with confidence in the integrity of the Company and the directors. The company actively complies with this policy. The code of conduct is published on the Company’s website. The Company has a policy concerning trading in company securities by directors and employees. The aim of this policy to provide guidance to directors and senior employees when acquiring or disposing of shares in the Company, and to ensure any acquisition or disposal of shares in the Company by a director or senior employee is conducted in accordance with legal and regulatory requirements and good corporate governance practice. The company actively complies with this policy. This policy is published on the Company’s website. To enable a director to carry out his or her duties, the board allows individual directors to seek independent professional advice after discussion with the chairman in the first instance. The aim of this practice is to ensure that all directors are in a position to have or to obtain all necessary information required for them to make an informed decision about any matter concerning the Company. Any necessary advice is obtained at the company’s expense and advice obtained is made available to all directors. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W CoRPoRAtE GoVERNANCE StAtEMENt 67 Corporate Governance Statement [continued] The Company is committed to diversity in the work place and the benefit from accessing all available talent. The Company has not yet adopted or published an Equality and Diversity Policy. At 30 June 2012 Women filled 25% of the Company’s Board, 0% of the Company’s Senior Management and 21% of all staff positions within the Company. Principle 4: Safeguard integrity in financial reporting In July 2011 the Company formed an Audit & Risk Committee. Ms Tiffany Fuller chairs the Audit & Risk Committee. Mr Chris Morris and Mr Adrian Giles are the committee’s other two members. As recommended by the ASX Principles the committee has at least 3 members, is chaired by an independent chair, who is not chair of the board. It however does not have only non-executive directors as members nor consist of a majority of independent directors. The Audit & Risk Committee Charter can be found at the Company’s website. The board continues to have the power to make call upon the attendance of the CEO, CFO, the external auditor or any other person to the meeting from time to time. The directors also have access to professional advisors who provide advice and assistance as requested by the directors. Compliance with accounting and financial reporting standards and procedures are subject to board review and review by the external auditors. Any non-executive director has direct access to the external auditor and is permitted to make such enquiries of the auditor as they feel necessary. The external auditor is invited to attend the annual general meeting and make himself or herself available to answer any questions pertaining to the conduct of the audit, the content of the audit report or the financial affairs of the Company. Principle 5: Make timely and balanced disclosure The company has a policy of complying with ASX disclosure requirements. The directors and senior management have received education and training on the subject of ASX disclosure requirements. The company actively complies with this policy. The policy is published on the Company website. Principle 6: Respect the rights of shareholders The company has a policy for promoting effective communication with shareholders. The company actively complies with this policy, by way of regular ASX announcements; letters posted to shareholders, and shareholder presentations. The Company also provides the last three years’ press releases and announcements on our website. The policy is published on the Company website. Principle 7: Recognise and manage risk The directors of the Company take the management of business risk seriously, and is actively building policies and procedures aimed at identifying, evaluating and mitigating risk. The Company is in the early stages of the development of its risk management procedures, which is managed via the Audit & Risk Committee. Material business risks that are identified are bought to the attention of the Board or via the Audit and Risk Committee. The Company has a formal business risk management policy and plan. The policy is published on the Company website. The area of risk considered under the risk policy include: strategic and market risk; financial; asset and resources; personnel and productivity; intellectual property and information; product and operations; technological and systems; and legal and compliance risk. Financial risk management, including market risks, credit risk, liquidity risk, cash flow and fair value interest rate risk are each addressed in the annual report of the Company. In accordance with section 295A of the Corporation Act, the board has received assurance from both the CEO and CFO that a system of risk management and internal control appropriate to the size and nature of the organisation is in place and is operating effectively in all material respects. Principle 8: Remunerate fairly and responsibly The Company operates a Remuneration Committee and its Charter is published on the Company website. The members of the Remuneration Committee are Mr Andrew Barlow [Chair], Mr Chris Morris and Mr Adrian Giles. The committee meets the ASX principles by having at least three members, however it is not chaired by an independent director, nor are a majority of its members independent. Despite this the Board believe the composition of this Remuneration Committee operates effectively. The directors have access to professional advisors who provide advice and assistance as requested by the directors. The non-executive directors and the executive directors and senior management of the company have clearly distinguishable remuneration structures which are set out in documented service agreements. Full remuneration details for directors and key executives are provided in the director’s report and the notes to the annual financial statements in this annual report. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 68 CoRPoRAtE GoVERNANCE StAtEMENt Shareholder Information Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 20 August 2012. Distribution of equity securities Ordinary Shares Options Number of Holders Number of Shares Number of Holders Number of Options The number of shareholders by size of shareholding in each class of shares are: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 + TOTAL The number of shareholders holding less than a marketable parcel of shares [16,667 shares]: 117 244 323 13,632 760,014 2,628,448 1,062 44,579,951 792 641,754,431 2,538 689,736,476 889 6,196,146 Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 2 3 4 5 6 7 8 9 10 11 12 VENTURIAN PTY LTDFINICO PTY LIMITED OVERACHIEVE PTY LTD ANDAMA HOLDINGS PTY LTD IMAGE DIGITAL PUBLICATIONS [VICTORIA] PTY LTD PERSHING AUSTRALIA NOMINEES PTY LTD UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD YARRA VENTURES PTY LTD MR JASON CONRAD SQUIRE KHALON PTY LIMITED PHILIP MURPHY INVESTMENTS PTY LTD K PAGNIN PTY LTD
13 COTU INVESTMENTS PTY LTD 14 15 16 17 18 19 KEO PROJECTS PTY LTD FINICO PTY LIMITED YARRA VENTURES PTY LTD ALCATT PTY LTD HSBC CUSTODY NOMINEES [AUSTRALIA] LIMITED 20 CAPITAL ACCRETION PTY LTD Total Top 20 holders of Ordinary Shares Remaining holders balance - - - - 15 15 - - - - 64,180,000 64,180,000 Listed Ordinary Shares Number of Shares % of Shares 56,492,031 55,148,796 28,500,000 16,346,315 14,545,455 10,592,904 9,094,484 8,706,577 8,000,000 7,990,330 7,110,222 7,000,000 6,300,000 5,829,670 5,608,470 5,569,629 5,487,858 5,205,138 5,115,384 8.19 8.00 4.13 2.37 2.11 1.54 1.32 1.26 1.16 1.16 1.03 1.01 0.91 0.87 0.85 0.81 0.81 0.80 0.75 0.74 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 274,643,263 415,093,213 39.82 60.18 ShAREhoLDER INFoRMAtIoN 69 D & J PAGNIN SUPERANNUATION FUND PTY LTD 6,000,000 Shareholder Information [continued] Classes of Shares Webfirm Group Limited has only one class of share on issue, being fully paid ordinary shares. Substantial Shareholders Shares % Shares 62,739,318 57,140,133 9.10% 8.28% Chris Morris Andrew Barlow Voting Rights All ordinary shares carry one vote per share without restrictions. 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 70 ShAREhoLDER INFoRMAtIoN Corporate Directory Directors Mr Adrian Giles– Executive Chairman Mr Andrew Barlow – Acting CEO/Executive Director Mr Chris Morris – Non-Executive Director Ms Tiffany Fuller – Non-Executive Director Auditors Grant Thornton Australia The Rialto Level 30, 525 Collins Street Melbourne Vic 3000 Chief Executive Officer – Acting Solicitors Mr Andrew Barlow Company Secretary Mr Brendan Maher Head Office Webfirm Group Limited Level 2, 85 Coventry Street South Melbourne Vic 3205 Australia Phone: + 61 3 8695 9199 Fax: + 61 3 9696 0700 Toll free 1300 852 722 Registered Office Webfirm Group Limited Level 2, 85 Coventry Street South Melbourne Vic 3205 Australia Phone: + 61 3 8695 9199 Fax: + 61 3 9696 0700 Toll free 1300 852 722 Hall & Wilcox Lawyers Level 30, Bourke Place 600 Bourke Street Melbourne Vic 3000 Bankers National Australia Bank Limited 424 St Kilda Road St Kilda Vic 3004 Share Register Computershare Registry Services Pty Ltd Yarra Falls 452 Johnston Street Abbotsford, Vic 3001 Home Stock Exchange Australian Stock Exchange Limited Level 45, South Tower Rialto, 525 Collins St Melbourne, Vic 3000 ASX Code: WFM 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W CoNSoLIDAtED StAtEMENt oF CoMPREhENSIVE INCoME 71 Notes: 2 1 0 2 t R o P E R L A U N N A D E t I M L P U o R G M R I I F B E W 72 www. com webfiRmgRoup. www. webfiRmgRoup. com AnnuAl RepoRt 2012 w e b f i R m g R o u p l i m i t e D A n n u A l R e p o R t 2 0 1 2