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Annual Report 2007

Plain-text annual report

www.empired.com I E M P R E D L T D A N N u A l R e p o R t 2 0 0 7 EMPIRED Ltd. ABN 81 090 503 843 Annual Report 2007 EMPIRED Ltd. ABN 81 090 503 843 corporate directory DiRectoRs Mel Ashton (Chairman) legAl ADviseRs McKenzie Moncrieff lawyers David taylor (Non – executive Director) level 5, 37 St Georges tce Russell Baskerville (Managing Director & Ceo) perth WA 6000 compAny secRetARy Craig J Ferrier RegisteReD office 469 Murray Street peRtH WA 6000 telephone No: +618 9321 9401 Fax No: +618 9321 9402 compAny numbeR A.C.N: 090 503 843 AsX coDe epD countRy of incoRpoRAtion Australia AuDitoRs ernst & Young the ernst & Young Building 11 Mounts Bay Road peRtH WA 6000 shARe RegisteR Computershare Investor Services pty ltd level 2, 45 St Georges tce perth WA 6000 pRinciple plAce of business Perth 469 Murray Street peRtH WA 6000 telephone No: +618 9321 9401 Fax No: +618 9321 9402 compAny Domicile AnD legAl foRm empired limited is the parent entity and an Australian Melbourne 470 Collins Street Company limited by shares MelBouRNe VIC 3000 telephone No: +613 8610 0700 Fax No: +613 8610 0701 Website www.empired.com Contents KEY ACHIEVEMENTS RESULTS CHAIRMAN AND CEO REVIEW DIRECTORS’ REPORT FINANCE REPORT Income Statement Balance Sheet Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDIT REPORT DIRECTORS’ DECLARATION SHAREHOLDING ANALYSIS Page 4 5 6 10 18 19 20 21 22 23 69 70 71 72 KEY ACHIEVEMENTS EMPIRED LTD Annual Report 2007 $7,080,596 $93,163 $00,155 1.1c 58% Sales Revenue EBITDA NPAT Earnings Per Share Year on Year Revenue Growth 8 7 6 5 4 3 2 1 FY05 FY06 FY07 Series 1  EMPIRED LTD Annual Report 2007 RESULTS • Revenue of $7,080,596 up 58% against 2006 financial year, EBITDA of $493,163 and NPAT of $400,155 from continuing operations • Divestment of BigRedSky Limited through a return of capital to shareholders, immediately creating positive cash flow and profitability from continuing operations • Secured two multi year recurring revenue contracts for the provision of IT outsourcing services to Oxiana Limited and Anvil Mining Australia Pty Limited Investment for future growth • Expanded senior management team, increased sales resources and grew billable staff numbers • Expanded Victorian operation with the appointment of additional resources • Investment in Empired’s Operations Centre, providing improved capability in the delivery of IT Outsourcing services that deliver recurring revenue and multi year contracts • Expanded service offerings with the introduction of Data Management services • Developed clear growth strategy • Prepared the company for listing on the ASX 5 EMPIRED LTD Annual Report 2007 Chairman and CEO Review 6 EMPIRED LTD Annual Report 2007 Dear Shareholder It is with great pride that we present Empired’s inaugural annual report as a listed company to you. Results from continuing operations were above our expectations with revenue growing to $7.08 Million, a 58% increase on the previous financial year, EBITDA and NPAT of $493,163 and $400,155 respectively and importantly both exceeding Empired’s budgeted 2007 figures. There is no question that this year has been very satisfying, yet it is just the beginning. During the year we have created the basis to grow our company. This has been achieved by the divestment of Empired’s non core business, development of a clear plan for growth, investment in key areas of Empired’s operations and the preparation and subsequent listing of Empired Limited on the Australian Securities Exchange. All of this, whilst outperforming all our key financial measures, from continuing operations, set for the 2007 financial year. The year was again a pivotal step in the history of Empired. A review of operations was undertaken resulting in a strong clear direction to develop a world class Australian IT Services business. Empired has successfully grown its IT Services business year on year since 2002, when it first entered the IT Services market. Laying the Foundations We embarked on divesting Empired’s interests in businesses outside of its core and profitable IT Services operation. This was undertaken through a return of capital to shareholders by way of an in-specie distribution of wholly owned subsidiary BigRedSky Limited. The transaction was concluded on 23 July 2007, providing a clean commencement to the 2008 financial year. Upon divestment, Empired immediately began its journey as a dedicated and focused IT Services organisation that is both profitable and has positive cash flow. A decision was made for Empired to seek listing of its shares on the Australian Securities Exchange (ASX). Much of the planning and corporate activity for this was done in the 2007 financial year, with a prospectus released to the market in August 2007 for the issue of 10 Million shares to raise $3 Million dollars. Today we write this letter to you as an ASX listed IT Services business, confident that the foundations the Board and Management sought are now in place. The listing of Empired on the ASX provides us with additional funding to enable us to implement our growth strategy. With our strengthened Balance Sheet and enhanced public profile we are confident that we are well placed to deliver on Empired’s key objectives. Enterprise Strategy & Architecture Service Desk I S N O T U L O S I E S R P R E T N E Programme & Project Management Collaboration Solutions Data Management Advanced Infrastructure I S N O T U L O S G N C R U O S T U O I Desktop Management Server Management Network & Communications Management Storage Management Contracting Solutions Security & Administration Current Services Portfolio New Services Planned for the 2008 financial year 7 Chairman and CEO review (cont’d) EMPIRED LTD Annual Report 2007 Investing for the future In line with laying the corporate foundations of our company we identified key areas of investment in Empired’s IT Services business for the 2007 financial year. These investments will assist us to achieve sustainable year on year growth, provide improved services to our customers and a business model that generates strong earnings. We commenced by investing in our direct sales and marketing activity, securing two senior sales resources plus the appointment of an additional General Manager to drive national growth. This investment will underpin organic growth in the 2008 financial year and is already delivering new business opportunities. Of note two multi year recurring revenue contracts were secured for the provision of IT outsourcing services to Oxiana Limited and Anvil Mining Australia Pty Limited. Our breadth of services was increased with the introduction of our Data Management Practice. Strong demand for these services has been experienced with this division being profitable in its first year of operation. A national services partnership was secured with global Data Management specialist NettApp and new customers were attracted including Shell Australia and Racing and Wagering WA. Cross selling of these new services into Empired’s existing customers was also successful. It is expected that this demand will continue and that this practice will have significant profit contribution to Empired’s growth in the 2008 financial year. Importantly we recognised the need to secure long term recurring revenue through Empired’s Operations division that provides managed services to our customers. Investment in our people, toolsets and processes has led to improved customer satisfaction, new customers being secured and importantly the level of contracted recurring revenue growing 153% between the 1st July 2006 and the 1st of July 2007. In addition to these key investments, Empired has focused on attracting and retaining the best possible people and has overseen staff numbers increase by 80% between the 1st July 2006 and the 1st of July 2007. This substantial increase in billable staff numbers will assist Empired in delivering on its improved revenue and earnings growth ambitions during the 2008 financial year. A Clear Plan for Growth For the 2008 financial year Empired has a well defined plan to grow operations across Australia and deliver improved earnings and shareholder value. 8 EMPIRED LTD Annual Report 2007 Regional diversification is aimed at expanding the markets in which we operate, reducing geographic reliance and improving our national coverage. This will be delivered through an investment in resources in our Victorian office, leveraging our national partnerships and where appropriate opportunities present, expanding into new regions through earnings accretive acquisitions. We also plan to deepen our current services through investing in training, forging partnerships with leading technology specialists and continuously striving to attract and retain the highest quality, innovative and driven professionals from our industry. We will also broaden our services to improve opportunities to cross sell into existing customers, ensure our technical leadership and continue to provide points of differentiation. New service offerings that will be introduced to Empired’s services portfolio include “Enterprise Strategy & Architecture” and “Collaboration Solutions”. Recurring Revenue @ 1 July 2006 and 1 July 2007 2500000 2000000 1500000 1000000 500000 0 153% 2006 2007 In addition Empired will focus on the development of long term recurring revenue through the provision of Managed Services. The investment in this area in 2007 enables us to provide world class managed services. This not only provides an opportunity to aggressively drive new business but to ensure we retain and grow our current recurring revenue streams. Focused on Delivering Value Delivering on our goals means delivering value to our stakeholders. This starts with improving our current services, seizing opportunities to introduce new services and capitalising on introducing these services to existing customers in existing locations. It is extended by creating value propositions to attract new clients in new locations. It is an exciting time to be a part of Empired, our staff are presented with great opportunities, our customers will enjoy expanded and improved services and to our shareholders, you are served by an experienced dedicated board and a proven driven management team that are all aligned to the common goal of value creation and improvement. On behalf of the board of directors we thank our staff for their dedication, without which we would not be here today, our customers for your commitment and trust and you our shareholders for your patience, loyalty and support. Yours Sincerely, Russell Baskerville Chief Executive Officer Mel Ashton Chairman 9 EMPIRED LTD Annual Report 2007 Director’s Report The directors present their report together with the financial report of Empired Limited (“the Company”) and the consolidated financial report of the consolidated entity, being the Company and its controlled entities, for the year ended 30 June 2007. The names of the Company’s directors in office during the year and until the date of this report are as below. Directors were in office for this entire period unless stated. Directors Name Age Experience and special responsibilities Mel Ashton Chairman 49 Mel Ashton is a Chartered Accountant with over 25 years experience. For a majority of that time he has specialised in Corporate Reconstruction. Mel established his own practice in Western Australia, which has grown to be a market leader. Mel’s experience covers a wide range of industries and he consults to a number of Executives and Entrepreneurs as a business mentor. Mel is a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Chartered Accountants in Australia. Mel’s other appointments include: Regional Councilor and former State Chairman of the WA Branch of Institute of Chartered Accountants Director and Vice President of the Fremantle Football Club Ltd Chairman of Venture Minerals Limited Chairman of Gryphon Minerals Ltd Chairman of Empire Beer Group Limited 10 EMPIRED LTD Annual Report 2007 Name Age Experience and special responsibilities David Taylor Non - executive Director 65 David has extensive commercial experience with a banking and marketing background. During the nineties he held positions as General Manager of the principal operating divisions of BankWest. He was also Chairman of BankWest subsidiaries TrustWest and TW Nominees during that period. He currently holds the position of Chairman of both Perth Market Authority and Forest Products Commission and is a non-executive director of HBF Financial Services David is a Fellow of the Australian Institute of Company Directors. Russell Baskerville Managing Director & CEO 29 Mr Baskerville is an experienced business professional and has worked in the IT industry for in excess of 10 years. He has extensive knowledge in both the strategic growth and development of technology businesses balanced by strong commercial and corporate skills. Prior to joining Empired, Mr Baskerville was a founding member of Tusk Technologies Pty Ltd, which was acquired by the company in March 2002. He was also the founder and Managing Director of Procom Holdings Pty Ltd, a company established to provide technical service and support to merchant banking facilities on behalf of the larger banks in Australia. Mr Baskerville currently holds non- executive directorships with Procom Holdings Pty Ltd and BigRedSky Limited. 45 Mr Ferrier holds a Bachelor of Business and is a CPA with approximately 20 years experience gained at chief financial officer and company secretary level. He has worked within a broad range of sectors including mining and exploration, venture capital, manufacturing and information technology. He is the principle of Seincorp Pty Ltd, a consultancy providing specialist company secretarial and corporate advisory services. He is also a non-executive director of BigRedSky Limited and ASX listed pieNETWORKS Limited. Craig Ferrier Company secretary Principal Activities The principal activities of the consolidated entity during the year have comprised: • The continued operation of its IT infrastructure services business resulting in the provision of services covering software systems, consulting and infrastructure design and deployment. • The ongoing development of the BigRedSky online Recruitment Management System and sales and marketing activities associated with commercialising this technology. The company demerged the BigRedSky operations in July 2007 leaving the IT infrastructure services business as the company’s only continuing operation. Other than as described above there were no significant changes in the nature of the activities carried out during the year. Number of Employees At 30 June 2007 the Company employed 75 staff. Significant changes in the state of affairs There were no significant changes in the state of affairs during the year. A special resolution put before shareholders on the 23rd of July 2007, was passed to enable the company to demerge the BigRedSky business to focus on its core competency of IT infrastructure services. This resulted in a decrease to the net assets of $621,491 for the consolidated group. 11 EMPIRED LTD Annual Report 2007 Director’s Report (cont’d) Events subsequent to reporting date There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years other than as set out below: A special resolution put before shareholders on the 23rd of July 2007, was passed to enable the company to demerge the BigRedSky business to focus on its core competency of IT infrastructure services. The Company has issued Directors and Key Executives share options in July 2007. This was subject to shareholder approval at an extraordinary shareholder meeting on the 23rd of July 2007. 3,600,000 options were granted on the 23rd of July 2007. The company has raised $3,000,000 (net of $2,650,000 after costs) from an initial public offering. The company listed on ASX on the 19th of October 2007. Environmental Regulation The consolidated entity’s operations are not subject to any significant environmental regulations under either Commonwealth or State Legislation. Dividends The directors of Empired Limited do not recommend the payment of a dividend and no dividends have been paid or declared since the commencement of the year. Operating Results for the Year The net profit after tax from continuing operations for the year for the consolidated entity is $400,155 (2006: $1,004,151). The loss after tax for discontinued operations for the consolidated entity is ($2,610,401). Likely Developments Further information about the likely developments in the operations of the consolidated entity and the expected results of those operations for future years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. Share Options Share Options Granted to Directors and Officers As per shareholder approval during the financial year 750,000 options over ordinary shares were granted to Russell Baskerville and 250,000 options over ordinary shares were granted to each of Mel Ashton and David Taylor or their specified nominees. As per shareholder approval post the end of the financial year 1,100,000 options were granted to Russell Baskerville, 600,000 options to Mel Ashton, and 350,000 options to David Taylor or their specified nominees. Unissued Shares At the date of this report, there were 8,161,476 unissued ordinary shares under options (4,561,476 at the reporting date). Refer to Note 14 of the financial statements for more detail. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate or in the interest issue of any other registered scheme. 12 EMPIRED LTD Annual Report 2007 Shares Issued as a result of the exercise of options No share options have been exercised in the period, or to the date of this report. Share issues during the year 2,000,000 shares were issued during the year at $0.15 per share to raise $300,000. The funds were used to pay for the listing costs the company incurred prior to listing on ASX. Auditor’s independence declaration to the directors of Empired Limited The directors have received an Independence Declaration from Ernst & Young the auditors of Empired Limited and it is attached at page 69. Non-Audit Services Non-Audit services provided by the entity’s Auditor can be found at note 26. The Directors are satisfied that the provision of non-audit services is compatible with the standard of independence for auditors imposed by the Corporations Act. The nature and scope of each non-audit service provided means that auditor independence was not compromised. Indemnification of Officers and Directors The Directors, Secretary and certain former directors of Empired Limited have been indemnified by the company in respect of their potential liability to third parties. The Company does not have a policy of insurance to provide for such liabilities in place at this stage. Remuneration Report This report outlines the remuneration arrangements in place for directors and executives of Empired Limited (the company). Remuneration Philosophy The performance of the company depends upon the quality of its directors and executives. To prosper, the company must attract, motivate and retain highly skilled directors and executives. To this end, the company embodies the following principles in its remuneration framework: • Provide competitive rewards to attract high calibre executives; • Link executive rewards to shareholder value; • Have a portion of certain executive’s remuneration ‘at risk’, dependant upon meeting pre-determined performance benchmarks; and • Establish appropriate, demanding performances hurdles for variable executive remuneration. Remuneration Committee Due to the structure of the Board, a separate remuneration committee is not considered to add any efficiencies to the process of determining the levels of remuneration for the Directors and key executives. The Board considers that it is more appropriate that it set aside time at Board meetings to address matter that would normally fall to the remuneration committee. Remuneration Structure In accordance with the best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. 13 EMPIRED LTD Annual Report 2007 Director’s Report (cont’d) Non-executive director remuneration Objective The board seeks to set aggregate remuneration at a level that provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Structure The constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual General Meeting held on the 17th of November 2006 when shareholders approved an aggregated remuneration of $175,000 per year. The amount of aggregated remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed from time to time. The Board considers advice from external consultants as well as the fees paid to non-executive directors of comparable companies when undertaking the annual review process. The remuneration of non-executive directors for the period ending 30 June 2007 is detailed in Table 1 of this report. Executive director remuneration Objective The company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to: • Reward executives for company, business unit and individual performances against targets set by reference to appropriate benchmarks; • Align the interests of executives with those of shareholders; • Link rewards with the strategic goals and performance of the company; and • Ensure total remuneration is competitive by market standards. Structure In determining the level of remuneration paid to senior executives of the company, the Board took into account available benchmarks and prior performance. Remuneration consists of the following key elements: • Fixed Remuneration • Variable Remuneration • Short Term Incentive (STI); and • Long Term Incentive (LTI). The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) is established for each senior executive by the Board. Table 1 details the fixed and variable components (%) of the executive directors of the company. Fixed Remuneration Objective Fixed remuneration is reviewed annually by the Remuneration Committee. The process consists of a review of companywide, business unit and individual performance, relevant comparative remuneration in the market and internally and, where appropriate, external advice on policies and practices. As noted above, the Committee has access to external advice independent of management. 1 EMPIRED LTD Annual Report 2007 Structure Senior executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the group. The fixed remuneration component of the company executives is detailed in Table 1. Variable Remuneration - Short Term Incentive (STI) Objective The objective of the STI program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. Structure Actual STI payments granted to the company executives depend on the extent to which specific operating targets set at the beginning of the financial year are met. The operational targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial measures of performance. Typically included are measures such as contribution to net profit after tax, customer service, risk management, and leadership/team contribution. Any STI payments are subject to the approval of the Remuneration Committee. Payments made are delivered as a cash bonus in the following reporting period. No STI payments were made during or since the end of the financial period. Variable Pay - Long Term Incentive (LTI) Objective The objective of the LTI plan is to reward senior executives in a manner that aligns this element of remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have a direct impact on the Group’s performance against the relevant long term performance hurdle. Structure LTI grants to executives are delivered in the form of options. Relationship of rewards to performance The only performance related condition was in relation to options, which was listing the company on ASX. This condition has been satisfied. There are no other performace related rewards. Table 2 provides details of options granted and the value of options granted, exercised and lapsed during the year. Employment Contracts The CEO, Mr. Baskerville, is employed under contract. The current employment contract commenced on 1 July 2005 and is a rolling twelve month contract. • Mr. Baskerville receives fixed remuneration of $200,000 per annum at balance date. • Mr. Baskerville may resign from his position and thus terminate his contact by giving three months written notice. • Any options not exercised within 30 days of termination will be forfeited. • The company may terminate this employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of Mr. Baskerville’s remuneration). • The company may terminate the contact at any time without notice if serious misconduct has occurred. Where the termination with cause occurs the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of the termination. 15 Director’s Report (cont’d) EMPIRED LTD Annual Report 2007 Table 1: Directors remuneration for the year ended 30 June 2007 and 30 June 2006 Primary benefits Post Employment Equity Options Total % Performance related Salary & Fees Cash STI LTI Superannuation M. Ashton Chairman 2007 2006 50,000 25,000 R. Baskerville Chief Executive 2007 2006 200,000 165,000 D. Taylor Non-executive Director 2007 2006 5,000 2,083 - - - - - - - - - - - - - - - - 6,000 - 56,000 25,000 12,750 30,800 212,750 195,800 25,000 10,416 6,000 - 36,000 12,499 - - - - - - Table 2: Options granted as part of remuneration Grant date Grant number Average Value per option at Value of options granted during Total value of options granted, % remuneration grant date the year exercised and consisting of lapsed during options for the year year M. Ashton 17/11/2006 250,000 R. Baskerville 17/11/2006 750,000 D. Taylor 17/11/2006 250,000 0.024 0.017 0.024 6,000 6,000 10.71 12,750 12,750 5.99 6,000 6,000 16.67 Directors Meetings The number of Directors meetings and the number of meetings attended by each Director during the year are: Name of Director No. of Meetings Held No. of Meetings Attended as a Director while a Director during the year ended 30 June 2007 Russell Baskerville Mel Ashton David Taylor 13 13 13 13 13 13 16 EMPIRED LTD Annual Report 2007 Director’s interests The following table sets out each Directors (including their related parties) interest in shares and options of the company as at the end of the financial year: Director Russell Baskerville Mel Ashton David Taylor Ordinary Shares Options 4,614,031 2,550,000 - - 850,000 600,000 Signed in accordance with a resolution of directors. Russell Baskerville Managing Director 26th of October 2007 17 EMPIRED LTD Annual Report 2007 Empired Limited and its Controlled Entities Annual Financial Report For the Year Ended 30 June 2007 18 EMPIRED LTD Annual Report 2007 Income Statement FOR THE YEAR ENDED 30 JUNE 2007 Continuing Operations Revenue Rendering of services Cost of Sales Gross profit Other Income Legal expenses Marketing expenses Occupancy expenses Employee expenses Finance costs Depreciation expenses Other expenses Notes CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 4 7,080,596 4,470,118 7,080,596 4,470,118 (4,907,888) (3,080,716) (4,907,888) (3,080,716) 2,172,708 1,389,402 2,172,708 1,389,402 4 9,150 10,118 9,150 10,118 (36,384) (786) (2,681) (2,244) (36,384) (786) (2,681) (2,244) (61,569) (61,194) (61,569) (61,194) (1,153,224) (348,602) (1,153,224) (348,602) (16,159) (76,849) (7,623) (50,249) (16,159) (74,872) (7,623) (44,733) (436,736) (219,332) (438,709) (224,847) Profit before income tax 400,155 707,596 400,155 707,596 Income tax (expense) / benefit relating to ordinary activities 5 Profit/Loss after tax from continuing operations - 296,555 - 296,555 400,155 1,004,151 400,155 1,004,151 Profit / (loss) from discontinued operations 6 (2,610,401) (805,753) (2,610,401) (805,753) Loss after tax attributable to members of the Company (2,210,246) 198,399 (2,210,246) 198,399 Earnings per share (cents per share) Basic for profit for the year attributable to ordinary shareholders of the parent Basic for profit from continuing operations attributable to ordinary equity holders of the parent Diluted for profit for the year attributable to ordinary equity holders of the parent Diluted for profit from continuing operations attributable to ordinary equity holders of the parent Dividends per share (cents per share) (6.1) 1.1 (6.1) 1.0 - 0.6 2.9 0.5 2.7 - 19     Balance Sheet AS AT 30 JUNE 2007 ASSETS Current Assets Trade and other receivables Inventories Prepayments Assets classified as held for Sale Total Current Assets Non-Current Assets Other financial assets Property, plant and equipment Intangible assets & goodwill Total Non-current assets TOTAL ASSETS LIABILITIES Current Liabilities Bank overdraft Trade and other payables Interest-bearing loans and borrowings Income tax payable Provisions Unearned revenue Liabilities directly associated with assets classified as held for sale EMPIRED LTD Annual Report 2007 Notes CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 9 10 11 6 24 12 13 8 15 16 17 17 18 6 1,355,037 1,025,578 1,355,037 1,025,578 - 93,364 1,448,401 1,596,325 4,830 71,248 1,101,656 - - 93,364 1,448,401 1,596,325 4,830 71,248 - 3,044,726 1,101,656 3,044,726 1,101,656 - - 325,108 256,680 372,369 304,390 374,345 233,985 1,866,958 3,985,576 - 2,118,619 2,192,066 4,242,256 676,759 2,726,949 5,236,792 5,343,912 3,721,485 3,828,605 412,591 844,047 70,197 - 127,290 202,517 1,656,643 1,964 567,036 73,128 36,338 91,560 112,199 882,225 412,591 844,047 70,197 - 127,290 202,517 1,656,643 1,964 567,036 73,128 36,338 91,560 112,199 882,225 974,834 - 974,834 - Total Current Liabilities 2,631,477 882,225 2,631,477 882,225 Non-current Liabilities Interest-bearing loans and borrowings 16 67,478 23,799 419,129 375,450 Total Non-current Liabilities 67,478 23,799 419,129 375,450 TOTAL LIABILITIES 2,698,955 906,024 3,050,606 1,257,675 NET ASSETS EQUITY Issued capital Employee equity benefits reserve Accumulated losses TOTAL EQUITY 2,537,837 4,437,888 670,880 2,570,930 19 19 19 5,936,265 5,659,623 5,936,265 5,659,623 56,602 23,049 56,602 23,049 (3,455,030) (1,244,784) (5,321,988) (3,111,742) 2,537,837 4,437,888 670,880 2,570,930 20     EMPIRED LTD Annual Report 2007 Cash Flow Statement FOR THE YEAR ENDED 30 JUNE 2007 Notes CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ Cash flows from operating activities Receipts from customers 7,957,076 4,960,703 7,957,076 4,960,703 Payments to suppliers and employees (8,372,590) (4,976,165) (8,372,590) (4,966,220) Borrowing costs Income tax rebate Income tax paid Receipt of government grants Interest received (24,860) (11,727) (24,860) (11,727) 332,726 338,686 332,726 338,686 (36,338) (63,130) (36,338) (63,130) - 10,385 12,437 3,129 - 10,385 12,437 3,129 Net cash flows from/(used in) operating activities 8(iii) (133,601) 263,933 (133,601) 273,877 Cash flows from investing activities Purchase of property, plant and equipment (275,831) (159,201) (275,831) (159,201) Purchase of other financial assets - (3,500) - (3,500) Net cash flows from/(used in) investing activities (275,831) (162,701) (275,831) (162,701) Cash flows from financing activities Proceeds from issue of shares Payment of share issue and capital raising costs 300,000 (23,358) - - 300,000 (23,358) - - Payment of finance lease liabilities (49,998) (50,974) (49,998) (50,974) Proceeds from borrowings 172,160 59,447 172,160 59,447 Net cash flows from/(used in) financing activities 398,804 8,472 398,804 8,472 Net increase/(decrease) in cash and cash equivalents (10,628) 109,704 (10,628) 109,704 Net foreign exchange differences - - - - Cash and cash equivalents at beginning of period (1,964) (111,668) (1,964) (111,668) Cash and cash equivalents at end of period 8 (12,592) (1,964) (12,592) (1,964) 21   Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2007 EMPIRED LTD Annual Report 2007 At 30 June 2007 5,936,265 (3,455,030) Attributable to equity holders of the  parent Total equity Issued capital $ Retained earnings $ Employee Equity  Benefits Reserve  $ $ 5,659,623 (1,443,182) 370 4,216,810 - - - 198,399 - - 5,659,623 (1,244,784) (23,358) - - (2,210,246) 300,000 - - - - - - - 22,679 23,049 - - - - 33,553 56,602 198,399 - 22,679 4,437,888 (23,358) (2,210,246) 300,000 - 33,553 2,537,837 Attributable to equity holders of the  parent  Total equity Issued capital $ Retained Earnings $ Employee Equity  Benefits Reserve  $ $ 5,659,623 (3,310,141) 370 2,349,852 - - - 198,399 - - 5,659,623 (3,111,742) (23,358) - - (2,210,246) 300,000 - - - - - - - 22,679 23,049 - - - - 33,553 56,602 198,399 - 22,679 2,570,930 (23,358) (2,210,246) 300,000 - 33,553 670,879 CONSOLIDATED At 1 July 2005 Profit for the year Exercise of options Cost of share-based payments At 30 June 2006 Share raising costs Profit for the year Issue of share capital Exercise of options Cost of share-based payments PARENT At 1 July 2001 Profit for the year Exercise of options Cost of share-based payments At 30 June 2006 Share raising costs Profit for the year Issue of share capital Exercise of options Cost of share-based payments At 30 June 2007 5,936,265 (5,321,988) 22     EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 1 CORPORATE INFORMATION The financial report of Empired Ltd for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 26 October 2007. Empired Limited is a company limited by shares incorporated in Australia. The nature of the operation and principal activities of the Group are described in note 3. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and applicable Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for available-for-sale financial assets that have been measured at fair value. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand unless otherwise stated. (b) Statement of compliance The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standard (‘AIFRS’). The financial report also complies with international financial standards (‘IFRS’). In the current year the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Urgent Issues Group that are relevant to its operations and effective for annual reporting periods beginning on 1 July 2006. The adoption of these new and revised Standards and Interpretations did not have any effect on the financial position or performance of the Group. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 30 June 2007. These are outlined in the table below. 23 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary Amendments arise from the release in August 2005 of AASB 7 Financial Instruments: Disclosures. Amending standard issued as a consequence of AASB Interpretation 11 Group and Treasury Share Transactions. Amending standard issued as a consequence of AASB Interpretation 12 Service Concession Arrangements. Application  date for  Group* 1 July 2007 Application  date of  standard* 1 January 2007 Impact on Group financial  report AASB 7 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However, the amendments will result in changes to the financial instrument disclosures included in the Group’s financial report. 1 March 2007 This is consistent with the Group’s existing accounting policies for share-based payments so will have no impact 1 July 2007 1 July 2008 1 January 2008 As the Group currently has no service concession arrangements or public- private-partnerships (PPP), it is expected that this Interpretation will have no impact on its financial report. 1 January 2009 Amending standard issued as a consequence of AASB 8 Operating Segments 1 July 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However the new standard may have an impact on the segment disclosures included in the Group’s financial report. AASB 2005-10 AASB 2007-1 AASB 2007-2 AASB 2007-3 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038] Amendments to Australian Accounting Standards arising from AASB Interpretation 11 [AASB 2] Amendments to Australian Accounting Standards arising from AASB Interpretation 12 [AASB 1, AASB 117, AASB 118, AASB 120, AASB 121, AASB 127, AASB 131 & AASB 139] Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038] 2 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Application  date for  Group* 1 July 2007 1 July 2009 Application  date of  standard* 1 July 2007 1 January 2009 Impact on Group financial  report As the Group does not anticipate changing any of its accounting policy choices as a result of the issue of AASB 2007-4 this standard will have no impact on the amounts included in the Group’s financial statements. Changes to disclosure requirements will have no direct impact on the amounts included in the Group’s financial statements. However the new standard may have an impact on the disclosures included in the Group’s financial report. As the Group does not currently construct or produce any qualifying assets which are financed by borrowings the revised standard will have no impact. 1 July 2007 Refer to AASB 2007-4 above. 1 July 2007 1 January 2007 Refer to AASB 2005-10 above. 1 July 2007 1 January 2009 Refer to AASB 2007-3 above. 1 July 2009 Reference Title Summary AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments AASB 2007-6 AASB 2007-7 AASB 7 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12] Amendments to Australian Accounting Standards [AASB 1, AASB 2, AASB 4, AASB 5, AASB 107 & AASB 128] Financial Instruments: Disclosures AASB 8 Operating Segments The standard is a result of the AASB decision that, in principle, all accounting policy options currently existing in IFRS should be included in the Australian equivalents to IFRS and the additional Australian disclosures should be eliminated, other than those considered particularly relevant in the Australian reporting environment. Amending standard issued as a consequence of AASB 123 (revised) Borrowing Costs. Amending standard issued as a consequence of AASB 2007-4. New standard replacing disclosure requirements of AASB 132. This new standard will replace AASB 114 Segment Reporting and adopts a management approach to segment reporting. 25 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Application  date for  Group* 1 July 2007 Application  date of  standard* 1 January 2007 Impact on Group financial  report AASB 101 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However, the revised standard may result in changes to the disclosures included in the Group’s financial report. 1 January 2009 Refer to AASB 2007-6 above. 1 July 2009 Reference Title Summary AASB 101 (revised October 2006) Presentation of Financial Statements. AASB 123 (revised June 2007) Borrowing Costs The revised standard includes some text from IAS 1 that is not in the existing AASB 101 and has fewer additional Australian disclosure requirements than the existing AASB 101. AASB 123 previously permitted entities to choose between expensing all borrowing costs and capitalizing those that were attributable to the acquisition, construction or production of a qualifying asset. The revised version of AASB 23 requires borrowing costs to be capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. 26 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary AASB Interpretation 134 Interim Financial Reporting and Impairment AASB Interpretation 2 Group and Treasury Share Transactions AASB Interpretation 129 Service Concession Arrangements AASB Interpretation 129 (revised June 2007) Service Concession Arrangements: Disclosures IFRIC Interpretation 13 Customer Loyalty Programmes Addresses an inconsistency between AASB 134 Interim Financial Reporting and the impairment requirements relating to goodwill in AASB 136 Impairment of Assets and equity instruments classified as available for sale in AASB 139 Financial Instruments: Recognition and Measurement Specifies that a share-based payment transaction in which an entity receives services as consideration for its own equity instruments shall be accounted for as equity-settled. Clarifies how operators recognize the infrastructure as a financial asset and/or an intangible asset – not as property, plant and equipment. The revised interpretation was issued as a result of the issue of Interpretation 12 and requires specific disclosures about service concession arrangements entered into by an entity, whether as a concession provider or a concession operator. Deals with the accounting for customer loyalty programmes, which are used by companies to provide incentives to their customers to buy their products or use their services. Application  date for  Group* 1 July 2007 Application  date of  standard* 1 November 2006 Impact on Group financial  report The prohibitions on reversing impairment losses in AASB 136 and AASB 139 to take precedence over the more general statement in AASB 134 that interim reporting is not expected to have any impact on the Group’s financial report. 1 March 2007 Refer to AASB 2007-1 above. 1 July 2007 1 January 2008 Refer to AASB 2007-2 above. 1 July 2008 1 January 2008 Refer to AASB 2007-2 above. 1 July 2008 1 July 2008 The Group does not have 1 July 2008 any customer loyalty programmes and as such this interpretation is not expected to have any impact on the Group’s financial report. 27 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (b) Statement of compliance (cont’d) Reference Title Summary Application  date of  standard* Impact on Group financial  report Application  date for  Group* IFRIC IAS 19 – The Aims to clarify how to 1 January The Group does not have 1 July 2008 Interpretation Asset Ceiling: determine in normal 2008 a defined benefit pension 14 Availability circumstances the of Economic limit on the asset that Benefits and an employer’s balance Minimum Funding sheet may contain in respect of its defined Requirements benefit pension plan. plan and as such this interpretation will not have an impact on the Group’s financial report. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of Empired Limited and its subsidiaries as at 30 June each year (‘the Group’). The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which Empired Limited has control. Tusk Technologies Pty Ltd has been included in the consolidated financial statements using the purchase method of accounting, which measures the acquiree’s assets and liabilities at their fair value at acquisition date. Accordingly, the consolidated financial statements include the results of Tusk Technologies Pty Ltd for the full financial year. The purchase consideration has been allocated to the assets and liabilities on the basis of the fair value at the date of acquisition. (d) Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Buildings & Improvements Leasehold Improvements Furniture & Fittings Computer Hardware Computer Software DV DV DV DV SL 7.5 – 20 yrs 5 – 20 yrs 3 – 20 yrs 3 – 5 yrs 1 – 2.5 yrs 28 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (d) Property, plant and equipment (cont’d) Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the income statement in the cost of sales line item. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued used of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised. (e) Borrowing costs Borrowing costs are recognised as an expense when incurred. (f) Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. 29 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (g) Intangible Assets Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to the class of intangible assets. Where amortisation is charged on assets with finite lives, this expense is taken to the income statement through the ‘amortisation expenses’ line item. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. A summary of the policies applied to the Group’s intangible assets is as follows: Useful lives Method used Internally generated/ Acquired Patents and Licences Development Costs Indefinite Finite Not depreciated or revalued 6 years- Straight line Acquired Internally generated Impairment test / Recoverable amount testing Annually and where an indicator of impairment exists Amortisation methods reviewed at each financial year-end; Reviewed annually for indicator of impairment Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised on the income statement when the asset is derecognised. (h) Recoverable amount of assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 30 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (i) Investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. The fair value is based on the net assets of the investment at balance date. (j) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials - purchase cost on a first-in, first-out basis; and Finished goods and work-in-progress - cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (k) Trade and other receivables Trade receivables, which generally have 30-45 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. (l) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (m) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised and as well as through the amortisation process. (n) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. 31 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (n) Provisions (cont’d) If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (o) Employee leave benefits (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employee’s services up to reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (p) Share-based payment transactions The Group provides to employees (including directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). There are currently two plans in place to provide these benefits: (i) The Empired Employee Share Option Plan (ESOP), which provides to all employees excluding directors, and (ii) The Empired Executive Share Option Plan (ESOP), which provides benefits to directors and senior executives. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a binomial model further details are given in note 14. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. 32 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (p) Share-based payment transactions (cont’d) The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 7). (q) Leases Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same bases as the lease income. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. (r) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Rendering of services Revenue from the provision of services is recognised when the service has been provided. Maintenance, Hosting and Support fees Revenue from maintenance, hosting and support is recognised and bought to account over the time it is earned. Unexpired revenue is recorded as unearned income. Interest received Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. (s) Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income amount and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. 33 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (t) Income tax Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: • except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement. (u) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. • The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. 3 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (u) Other taxes (cont’d) Cash flows are included in the Cash Flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (v) Significant accounting judgements, estimates and assumptions Impairment of goodwill and intangibles with indefinite useful lives The group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill and intangibles with indefinite useful lives are allocated. The assumptions used in this estimation of recoverable amount and carrying amount of goodwill and intangibles with indefinite useful lives are discussed in note 23. 35 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 3 SEGMENT INFORMATION The Group’s primary reporting format is business segments. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. There is only one geographical segment. The company operates in the software contract service industry within Australia. The company operates in the following 2 segments: Services Designs, builds and implements software and hardware infrastructure for large corporate companies. Software Development and implementation of BigRedSky, an online recruitment program for the corporate, academic and government sectors. Segment accounting policies Segment accounting policies are the same as the company’s accounting policies described in note 1. No intersegment sales or transfers have occurred. Business segments The following tables present revenue and profit information and certain asset and liability information regarding business segments for the years ended 30 June 2007 and 2006. 36 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 3 SEGMENT INFORMATION (cont’d) 2007 Business Segment Information Business Segments  Revenue Segment revenue External revenue Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result Unallocated expenses Consolidated entity profit(loss) from ordinary activities before income tax revenue Income tax (expense) revenue Consolidated entity profit/(loss) from ordinary activities after income tax revenue Assets Segment assets Unallocated assets Total assets Liabilities Segment liabilities Unallocated liabilities Total liabilities Other Segment Information Acquisition of segment plant & equipment Depreciation Amortisation Impairment Continuing  Operations Discontinued  Operations Services  2007 $ Software 2007 $ Eliminations 2007 $ Total  Operations Consolidated 2007 $ 7,080,596 7,080,596 911,991 911,991 400,155 (2,610,401) - - 3,640,467 1,596,325 - - 1,724,121 974,834 - - 200,400 76,849 - - 72,791 41,380 505,122 1,168,446 - - - - - - - - - - - - 7,992,587 7,992,587 10,385 8,002,972 (2,210,246) - (2,210,246) - (2,210,246) 5,236,792 - 5,236,792 2,698,955 - 2,698,955 273,191 118,229 505,122 1,168,446 37         EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 3 SEGMENT INFORMATION (cont’d) 2006 Business Segment Information Business Segments  Services  Software Eliminations Continuing  Operations Discontinued  Operations Revenue Segment revenue External revenue Total segment revenue Unallocated revenue Total consolidated revenue Results Segment result 4,470,118 4,470,118 506,441 506,441 - - 707,596 (805,753) Unallocated expenses - - Consolidated entity profit(loss) from ordinary activities before income tax revenue Income tax revenue Consolidated entity profit/(loss) from ordinary activities after income tax revenue Assets Segment assets 2,621,813 2,722,099 Unallocated assets - - Total assets Liabilities Segment liabilities 597,298 308,727 Unallocated liabilities Total liabilities Other Segment Information - - Acquisition of segment plant & equipment Depreciation Amortisation 143,281 69,573 15,920 7,733 539,914 - - - - - - - - - - - - Total  Operations Consolidated 2006 $ 4,976,559 4,976,559 15,566 4,992,125 (98,157) - (98,157) 296,555 198,398 5,343,912 - 5,343,912 906,025 - 906,025 159,201 77,306 539,914 38         EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 4 REVENUES CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 7,080,596 4,470,118 7,080,596 4,470,118 7,080,596 4,470,118 7,080,596 4,470,118 2,295 - 6,855 9,150 2,034 8,084 - 10,118 2,295 - 6,855 9,150 2,034 8,084 - 10,118 7,089,746 4,480,236 7,089,746 4,480,236 Sales Revenue Services Other Revenue Interest Government grants Other 5 INCOME TAX Major components of income tax expense for the years ended 30 June 2007 and 2006 are: Income Statement Current income Current income tax charge Research & Development Rebate Receivable Deferred income tax Relating to origination and reversal of temporary differences Income tax expense reported in income statement - - - - 36,338 (332,893) - (296,555) - - - - 36,338 (332,893) - (296,555) 39 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 5 INCOME TAX (cont’d) EMPIRED LTD Annual Report 2007 Prima facie tax on operating profit calculated at 30% Add tax effect of: Non-deductible expenses Amortisation of trademark Development expenditure Entertainment CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ (663,074) (29,447) (663,074) (29,447) (663,074) (29,447) (663,074) (29,447) 2,099 13,731 2,099 13,731 356 - 3,848 356 61,750 4,409 356 - 3,848 356 61,750 4,409 Timing differences not bought to account 513,186 40,046 513,186 40,046 Prior year tax losses utilised - (54,507) - (54,507) Addition to prior year losses 172,819 - 172,819 - Research and Development offset Income tax expense / (revenue) - - - (332,893) (296,555) (296,555) - - - (332,893) (296,555) (296,555) Deferred tax assets and liabilities as a result of temporary differences Deferred Tax Assets Deferred Tax Liabilities Current tax receivable Income tax losses 58,824 283,466 58,824 273,231 (47,351) (59,992) (47,351) (59,992) - 296,556 - 296,556 Deferred tax asset arising from tax losses of the parent company has not been recognised at reporting date. This is as a result of the consolidated entity not being able to satisfy the carried forward losses rules as a result of the demerge of the BigRedSky business. Revenue losses Capital losses Tax consolidation - 260,876 10,235 10,235 - - 260,876 - Effective 1 July 2002, for the purposes of income taxation, Empired Limited and its 100% subsidiaries formed a tax consolidated group. The head entity of the consolidated group is Empired Limited. The head entity is responsible for tax liabilities of the group. Intra group transactions are ignored for tax purposes and there is a single return lodged on behalf of the group. Empired Limited formally notified the Australian Taxation Office of its adoption of the tax consolidation regime upon lodgement of its 30 June 2003 consolidated tax return. There was a tax funding agreement formalised at 30 June 2003. Under this tax funding agreement Empired Limited is responsible for the tax liabilities of the group. No tax amounts have been recognised as part of the consolidated group. 0 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 6 DISCONTINUED OPERATIONS Post balance sheet date the Board of Directors decided to dispose of the BigRedSky talent management software business. A sale agreement was entered into on the 1st of July 2007. The disposal of BigRedSky to BigRedSky Limited and the subsequent return of capital to shareholders in the form of shares in BigRedSky Limited was executed on the 23rd of July 2007. As at 30 June 2007 the assets and liabilities associated with the business are classified as assets and liabilities held for sale. The results of the Discontinued operations are presented below: Revenue Amortisation Impairment Other expenses Loss Before Tax from discontinued operations Income tax (expense) / benefit relating to discontinued operations Loss for the year from discontinued operations The major classes of assets and liabilities of BigRedSky are as follows: Assets Cash Intangibles Property, plant and equipment Inventories Prepayments Trade and other receivables Assets classified as held for sale Liabilities Trade creditors Other payables Interest bearing liabilities Provisions Other Liabilities Directly associated with assets classified as held for sale Net Assets attributable to discontinued operations 2007 $ 913,227 (505,122) (1,168,446) (1,850,060) (2,610,401) - (2,610,401) 2007 $ 400,000 834,846 89,174 5,200 16,425 250,681 1,596,326 (51,031) (134,285) (74,133) (64,511) (650,875) (974,835) 621,491 1 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 6 DISCONTINUED OPERATIONS (cont’d) The net cash flows of BigRedSky are as follows: Operating activities Investing activities Financing activities 2007 $ 357,931 - 42,756 Net cash inflow / (outflow) 400,687 Consideration receivable Present Value of deferred sales proceeds Total disposal consideration Less net assets disposed of Loss in disposal before income tax Income tax expense Loss on disposal after income tax 2007 $ 621,491 621,491 621,491 - - - The Proceeds on the sale were equal to the book value of the related net assets. As such no impairment expense was recognised on the reclassification of these operations as held for sale. Earnings per share (cents per share) 2007 2006 Basic from discontinued operations Diluted from discontinued operations -7.2 -7.2 -2.4 -2.4 2   EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 7 EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following represents the income and share data used in the basic and diluted earnings per share computations: CONSOLIDATED 2007 $ 2006 $ Net profit attributable to ordinary equity holders of the parent from continuing operations 400,155 1,004,151 Profit / (loss) attributable to ordinary equity holders of the parent from discontinued operations (2,610,401) (805,753) Net profit attributable to ordinary equity holders of the parent (2,210,246) 198,399 2007 Thousands 2006 Thousands Weighted average number of ordinary shares for basic earnings per share 36,210 34,210 Effect of dilution: Share options Weighted average number of ordinary shares adjusted for the effect of dilution 4,561 2,313 40,771 36,523 3 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 8 CASH AND CASH EQUIVALENTS (i) Reconciliation of Cash For the purposes of the statement of cash flows, cash includes cash on hand and cash in banks. Cash at the end of the year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows: Consolidated Parent 2007 ($) 2006 ($) 2007 ($) 2006 ($) Cash assets Bank accounts 250 152 250 383,258 (2,116) 383,258 Invoice debtor facility (396,100) - (396,100) 152 (2,116) - (12,592) (1,964) (12,592) (1,964) Overdraft in continuing operations (412,592) (1,964) (412,592) (1,964) Bank accounts in discontinuing operations 400,000 (12,592) - 400,000 - (1,964) (12,592) (1,964) (ii) Financing facilities available At reporting date the following facilities were available but not used: Bank Overdraft - 247,884 - 247,884 Invoice Discounting Facility 453,900 - 453,900 - The Invoice Discounting Facility has a total limit of $850,000.  EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 8 CASH AND CASH EQUIVALENTS (cont’d) (iii) Reconciliation of net cash flows from operating activities to operating profit (loss) after income tax Operating profit\(loss) after income tax (2,210,246) 198,399 (2,210,246) 198,399 Depreciation Amortisation Write down\(up) of investment in subsidiary Impairment of deferred expenditure Option Plan Expense Loss on disposal of assets Changes in assets and liabilities net of effects of purchases and disposals of controlled entities: (Increase)/decrease in net trade debtors 118,229 77,306 116,253 71,790 505,122 539,914 505,122 539,914 - 1,168,446 33,554 - - - 22,679 2,765 1,976 23,081 1,168,446 33,554 - - 22,679 2,438 (508,860) 193,333 (508,860) 193,333 (Increase)/decrease in other receivables 336,226 19,531 336,226 (Increase)/decrease in other assets (224,859) (10,090) (224,859) (Increase)/decrease in prepayments (22,116) 8,708 (22,116) 2,293 (146) 8,708 (Increase)/decrease in unbilled income (156,825) 97,242 (156,825) 97,242 (increase)/decrease in deferred R & D 441,205 (831,000) 441,205 (831,000) Increase/(decrease) in trade creditors Increase/(decrease) in audit fees Increase/(decrease) in other creditors Increase/(decrease) in unexpired interest 62,256 (3,500) 86,199 8,516 64,994 2,500 108,257 (3,550) 62,256 (3,500) 86,199 8,516 64,994 2,500 108,257 (3,550) Increase/(decrease) in accrued liabilities 143,342 (23,832) 143,342 (23,832) Increase/(decrease) in unearned income 90,318 (209,651) 90,318 (209,651) Increase/(decrease) in income tax (36,338) (26,792) (36,338) (26,792) Increase/(decrease) in provision for employee entitlements 35,730 33,221 35,730 33,221 Net cash used in operating activities (133,601) 263,934 (133,601) 273,878 5 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 9 TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables Provision for doubtful debts Term Deposit Receivable Unbilled Income CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 1,195,857 686,997 1,195,857 686,997 - - - - 1,195,857 686,997 1,195,857 686,997 - 159,013 3,500 2,187 - 159,013 3,500 2,187 Research & Development Rebate Receivable - 332,893 - 332,893 Withholding tax receivable 167 - 167 - 1,355,037 1,025,578 1,355,037 1,025,578 Trade receivables are non-interest bearing and are generally on 30-day terms. 10 INVENTORIES Online Job Ads held for Sale (at cost) Total inventories at lower of cost and net realisable value - - 4,830 4,830 - - 4,830 4,830 11 OTHER ASSETS Current Prepayments 93,364 71,248 93,364 71,248 Total current other assets 93,364 71,248 93,364 71,248 6 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 12 PROPERTY, PLANT AND EQUIPMENT Plant and Equipment At cost CONSOLIDATED PARENT 2007 ($) 2006 ($) 2007 ($) 2006 ($) 728,399 639,692 728,399 533,919 Accumulated depreciation (403,290) (383,012) (403,291) (299,934) Net carrying amount of plant and equipment 325,108 256,680 325,108 233,985 Assets are held as security for hire purchase contracts. Plant and Equipment Movements during the year: Opening balance 1 July 2006 256,680 177,550 256,680 149,012 Additions Disposals 275,831 159,201 275,831 159,201 - (2,768) - (2,438) Assets included in discontinued operations held for sale (note 6) Depreciation expense relating to assets included in discontinued operations held for sale (note 6) (89,174) (41,380) - - (89,174) (41,380) - - Depreciation expense (76,849) (77,303) (76,849) (71,790) Closing balance 30 June 2007 325,108 256,680 325,108 233,985 7 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 13 INTANGIBLE ASSETS & GOODWILL Year ended 30 June 2007 CONSOLIDATED Development  costs1 $ Patents and  licenses $ Goodwill2 $ Total $ PARENT Total $ At 1 July 2006, net of accumulated amortisation 2,116,276 2,342 1,866,958 3,985,576 2,118,618 Additions Impairment Amortisation At 30 June 2006, 389,795 (1,168,447) - - (503,934) (1,188) Intangible assets included in discontinued operations held for sale (note 6) (833,690) (1,154) - - - - 389,795 389,795 (1,168,447) (1,168,447) (505,122) (505,122) (834,844) (834,844) net of accumulated amortisation - - 1,866,958 1,866,958 - At 1 July 2006 Cost (gross carrying amount) 3,855,037 13,389 1,866,958 5,735,384 3,037,427 Accumulated amortisation and impairment (1,738,761) (11,047) - (1,749,808) (1,209,896) Net carrying amount 2,116,276 2,342 1,866,958 3,985,576 1,827,531 At 30 June 2007 Cost (gross carrying amount) 4,244,832 13,389 1,866,958 6,125,179 4,258,221 Accumulated amortisation and impairment (3,411,142) (12,235) Intangible assets included in discontinued operations held for sale (note 6) (833,690) (1,154) - - (3,423,377) (3,423,377) (834,844) (834,844) - - 1,866,958 1,866,958 - 1 Internally generated 2 Purchased as part of business combinations 8 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 13 INTANGIBLE ASSETS & GOODWILL (cont’d) Year ended 30 June 2006 At 1 July 2005, CONSOLIDATED Development  costs1 $ Patents and  licenses $ Goodwill2 $ Total $ PARENT Total $ net of accumulated amortisation 1,824,002 3,528 1,866,958 3,694,488 1,827,531 Additions Impairment Amortisation At 30 June 2006, 831,000 - - - (538,726) (1,186) - - - 831,000 831,000 (539,912) (539,912) net of accumulated amortisation 2,116,276 2,342 1,866,958 3,985,576 2,118,619 At 1 July 2005 Cost (gross carrying amount) 3,024,037 13,389 1,866,958 4,904,384 3,037,427 Accumulated amortisation and impairment (1,200,035) (9,861) - (1,209,896) (1,209,896) Net carrying amount 1,824,002 3,528 1,866,958 3,694,488 1,827,531 At 30 June 2006 Cost (gross carrying amount) 3,855,037 13,389 1,866,958 5,735,384 3,868,427 Accumulated amortisation and impairment (1,738,761) (11,047) - (1,749,808) (1,749,808) 2,116,276 2,342 1,866,958 3,985,576 2,118,619 1 Internally generated 2 Purchased as part of business combinations Development costs have been capitalised at cost. This intangible asset has been assessed as having a finite life and is amortised using the straight line method over a period of 6 years. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount. The patent acquired has been granted for a minimum of fifty years by the relevant government agency with the option of renewal at the end of this period based on whether the entity meets certain predetermined targets. In view of the small cost to acquire this asset, it was decided to amortise over six years. Prior to the classification of BigRedSky as a discontinued operation, the recoverable amount was determined as value in use using a discounted rate of 12.75%. The impairment loss of $1,168,446 represents the write down of that intangible asset based on a discounted cash flow valuation and testing for obsolescence in the cash-generating unit. The impairment loss has been recognised in the income statement in the line item ‘Loss for the year from discontinued operations’. Goodwill has been tested for impairment, this is detailed at note 23. No impairment loss was charged for continuing operations in the 2007 financial year (note 23). 9 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 14 EMPLOYEE BENEFITS (a) Empired employee share option plan The Group has an employee share options plan (ESOP) for the granting of non-transferable options to employees and senior executives to assist in motivating and retaining employees. Options issued under the ESOP will vest on the sooner of one of the following conditions being satisfied: (i) on the second anniversary, one third of the grant of options; (ii) on the third anniversary, two thirds of the grant of options; (iii) on the fourth anniversary, all of the grant of options; or (iv) a takeover offer or bid in respect of Empired shares is made in accordance with the Corporations Act and the Board recommends that shareholders accept the offer. Other relevant terms and conditions applicable to options granted under the ESOP include: - - any vested options that are unexercised on the fifth anniversary of their grant date will expire; and upon exercise, options will be settled in ordinary shares of Empired Limited on the basis of one share for each option exercised. On the 22nd of February 2007, 414,389 options were granted with a fair value as follows: Options 138,136 138,132 138,121 414,389 Fair value per option Exercise price per option $0.015 $0.011 $0.009 $0.30 $0.35 $0.40 The options were granted over ordinary shares and are exercisable upon meeting vesting conditions outlined above and until their expiry on 22 February 2012. The fair value of the options are estimated at the date of grant using a binomial model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2007. Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) 2007 - 40% 5.80% 5 years $0.30, $0.35, $0.40 Share price at grant date ($) (Net Asset Backing) $0.11 The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. During the year ended 30 June 2007, no options were exercised over ordinary shares. 50 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 14 EMPLOYEE BENEFITS (cont’d) The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under the ESOP. 2007 No. 2007 WAEP 2006 No. 2006 WAEP Outstanding at the beginning of the year 277,550 $0.35 - Granted during the year Forfeited during the year Exercised during the year Expired during the year 414,389 $0.35 308,070 $0.35 (15,463) $0.35 (30,520) $0.35 - - - - Outstanding at the end of the year 676,476 $0.35 277,550 $0.35 Exercisable at the end of the year - - - - The outstanding balance as at 30 June 2007 is represented by: • 277,550 options over ordinary shares with an average exercise price of $0.35 each, exercisable upon meeting the above conditions and until 31 July 2010; • 398,926 options over ordinary shares with an average exercise price of $0.35 each, exercisable upon meeting the above conditions and until 22 February 2012 The weighted average contractual life for the share options outstanding as at 30 June 2007 is 4 years (2006: 4 years). Share options issued under the ESOP and outstanding at the end of the year have the following exercise prices: Expiry Date 31-Jul-2010 31-Jul-2010 31-Jul-2010 22-Feb-2012 22-Feb-2012 22-Feb-2012 Total Exercise  price 2007     No. 2006     No. $0.30 $0.35 $0.40 $0.30 $0.35 $0.40 94,364 94,364 91,593 91,593 91,593 91,593 132,981 132,977 132,968 - - - 676,476 277,550 51 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 14 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan The Group has an executive share option plan (ESOP) for the granting of non-transferable options to certain directors and senior executives to assist in motivating and retaining executives. Options issued under the ESOP will vest on the sooner of one of the following conditions being satisfied: (i) on the second anniversary of the grant of the options; (ii) a takeover offer or bid in respect of Empired shares is made in accordance with the Corporations Act and the Board recommends that shareholders accept the offer. Other relevant terms and conditions applicable to options granted under the ESOP include: (a) any vested options that are unexercised on the fifth anniversary of their grant date will expire; (b) upon exercise, options will be settled in ordinary shares of Empired Limited; and (c) options are issued to executives subject to successful ASX listing which has occurred post balance date. On 28 July 2006, 600,000 options were granted with a fair value as follows: Options 200,000 200,000 200,000 600,000 Fair value per option Exercise price per option $0.037 $0.028 $0.022 $0.20 $0.25 $0.30 The options were granted over ordinary shares and are exercisable upon meeting vesting conditions outlined above and until their expiry on 28 July 2011. On 17 November 2006, 500,000 options were granted with a fair value as follows: Options 166,666 166,666 166,668 500,000 Fair value per option Exercise price per option $0.031 $0.023 $0.018 $0.20 $0.25 $0.30 The options were granted over ordinary shares exercisable upon meeting vesting conditions outlined above and until their expiry on 17 November 2011. On 17 November 2006, 750,000 options were granted with a fair value as follows: Options 750,000 750,000 Fair value per option Exercise price per option $0.017 $0.25 The options were granted over ordinary shares and are exercisable upon meeting the vesting conditions outlined above and until their expiry on 17 November 2010. 52 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 14 EMPLOYEE BENEFITS (cont’d) (b) Empired executive share option plan (cont’d) The fair value of the options are estimated at the date of grant using a binomial model. The following table gives the assumptions made in determining the fair value of the options granted in the year to 30 June 2006. 28 July 2007 (600,000) 17 November 2007 (500,000) 17 November 2007 (750,000) Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Option exercise price ($) - 40% 5.9% 5 years - 40% 5.74% 5 years $0.20, $0.25, $0.30 $0.20, $0.25, $0.30 Share price at grant date ($) (Net Asset Backing) $0.13 $0.12 - 40% 5.74% 4 years $0.25 $0.12 The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. During the year ended 30 June 2007, no options were exercised over ordinary shares. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of share options issued under the ESOP. 2007 No. 2007 WAEP 2006 No. 2006 WAEP Outstanding at the beginning of the year Granted during the year Forfeited during the year Exercised during the year Expired during the year 2,035,000 1,850,000 $0.25 $0.25 235,000 1,800,000 - - - - - - Outstanding at the end of the year 3,885,000 $0.25 2,035,000 Exercisable at the end of the year 235,000 $0.25 235,000 $0.25 $0.25 $0.25 $0.25 $0.25 As at 30 June 2007 there were 3,885,000 options over ordinary shares with an average exercise price of $0.25 each, exercisable upon meeting the conditions outlined above and until their expiry dates as set out in the table below. The weighted average contractual life for the share options outstanding as at 30 June 2007 is 3.58 years (2006: between 1 and 5 years). Share options issued under the ESOP and outstanding at the end of the year have the following average exercise prices: Expiry Date Exercise price 2007    No. 2006    No. 26 November 2007 23 November 2009 28 November 2010 23 March 2011 28 July 2011 17 November 2010 17 November 2011 Total $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 $0.25 135,000 100,000 700,000 135,000 100,000 700,000 1,100,000 1,100,000 600,000 750,000 500,000 - - - 3,885,000 2,035,000 53 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 15 TRADE AND OTHER PAYABLES (CURRENT) EMPIRED LTD Annual Report 2007 Trade payables Audit fees payable Superannuation payable GST payable PAYG payable Accrued liabilities Credit cards payable CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 290,297 228,041 290,297 228,041 13,000 90,349 98,955 91,965 16,500 58,977 78,280 65,664 13,000 90,349 98,955 91,965 226,694 94,639 226,694 32,787 24,936 32,787 16,500 58,977 78,280 65,664 94,639 24,936 844,047 567,036 844,047 567,036 Included in the above are aggregate amounts payable to the following related parties: Owing to directors and director related entities 24,709 127,700 24,709 127,700 Trade payables are non-interest bearing and are normally settled on 30-day terms. For terms and conditions relating to related parties refer to note 27. The net of GST payable and GST receivable and Superannuation payable and is remitted to the appropriate body on a quarterly basis. PAYG payable is remitted to the appropriate body on a monthly basis. 5 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 16 INTEREST-BEARING LOANS AND BORROWINGS Current Obligations under finance leases and hire purchase contracts (note 21) Obligations under premium funding contracts Non-current Obligations under finance leases and hire purchase contracts (note 21) Loan from Employee Loan from Subsidiary Effective  interest  rate % CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 46,423 23,774 34,272 38,856 46,423 23,774 34,272 38,856 70,197 73,128 70,197 73,128 67,478 20,299 67,478 20,299 - - 3,500 - 3,500 - 351,651 351,651 67,478 23,799 419,129 375,450 Hire Purchase Contracts Hire purchase contract maturity ranges from June 2008 to June 2010. Finance facilities available At reporting date, the following financing facilities had been negotiated and were available: Total facilities: - Bank overdraft CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ - 250,000 - 250,000 - Invoice discounting facility 850,000 - 850,000 - Facilities used at reporting date - Bank overdraft - (2,116) - (2,116) - Invoice discounting facility (396,099) - (396,099) - Facilities unused at reporting date - Bank overdraft - Invoice discounting facility - 247,884 - 247,884 453,901 - 453,901 - Bank overdrafts The bank overdrafts are secured by a floating charge over assets of the Group. Invoice discounting facility The invoice discounting facility is secured by the debtors ledger and a floating charge over assets of the Group. 55 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 17 PROVISIONS EMPIRED LTD Annual Report 2007 Current Employee entitlements Tax payable 18 UNEARNED REVENUE Current Unearned Revenue CONSOLIDATED PARENT 2007 $ 2006  $ 2007 $ 2006 $ 127,290 91,560 127,290 91,560 - 36,338 - 36,338 127,290 127,898 127,290 127,898 CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ 202,517 112,199 202,517 112,199 202,517 112,199 202,517 112,199 19 ISSUED CAPITAL AND RESERVES Ordinary Shares Issued and fully paid Issued and fully paid Movement in ordinary shares on the issue At 1 July 2005 CONSOLIDATED PARENT 2007 $ 5,936,265 5,936,265 2006 $ 2007  $ 5,659,623 5,936,265 5,659,623 5,936,265 2006 $ 5,659,623 5,659,623 No. Price ($) Value ($) No. Price ($) Value ($) 34,210,648 5,659,623 34,210,648 5,659,623 At 1 July 2006 34,210,648 5,659,623 34,210,648 5,659,623 Capital raising Issue costs 2,000,000 0.15 300,000 2,000,000 0.15 300,000 (23,358) (23,358) At 30 June 2007 36,210,648 5,936,265 36,210,648 5,936,265 56       EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 19 ISSUED CAPITAL AND RESERVES (cont’d) The company has two share option schemes under which options to subscribe for the company’s shares have been granted to certain executives and employees (refer note 14) Other Reserves CONSOLIDATED PARENT Employee equity  benefits reserve $ Total $ Employee equity  benefits reserve $ Total $ At 1 July 2005 370 370 370 370 Share based payment At 30 June 2006 Share based payment As at 30 June 2007 22,679 23,049 33,554 56,603 22,679 23,049 33,554 56,603 22,679 23,049 33,554 56,603 22,679 23,049 33,554 56,603 Nature and purpose of reserves Employee equity benefits reserve The employee share option and share plan reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 14 for further details of these plans. Retained Earnings At 1 July 2005 Profit for the year At 30 June 2006 Loss for the year At 30 JUNE 2007 CONSOLIDATED $ PARENT $ (1,443,182) (2,913,343) 198,399 (1,244,784) (2,210,246) (3,455,030) 198,399 (3,111,742) (2,210,246) (5,321,988) 57 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 20 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise bank loans and hire purchase contracts, cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. Interest rate risk The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. At 30 June 2007, 100% of the Group’s borrowings are at a fixed rate of interest. Foreign currency risk The Group’s exposure to foreign currency risk is minimal. Commodity price risk The Group’s exposure to price risk is minimal. Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the measurement currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the Head of Credit Control. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk within the Group. Liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, invoice discounting facilities and hire purchase contracts. 58 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 21 FINANCIAL INSTRUMENTS The fair values of the financial assets and financial liabilities approximate the carrying amounts. Interest Rate Risk Exposure to interest rate risks on financial assets and liabilities are summarised as follows: 2007  i) Financial Assets Receivables – trade Receivables – other Total financial assets ii) Financial liabilities Invoice discounting facility Accounts payables Hire purchase Short term loans Total financial liabilities 2006  Floating  interest  rate 2007 $ Fixed  Interest  Rate 1 year or  less 2007 $ Fixed  Interest  Rate Over 1 to  5 years 2007 $ Non- interest  bearing 2007 $ Carrying  amount as  per statement  of financial  position 2007 $ Weighted  average  effective  interest rate 2007 - - - - - - - - - - - 396,099 - - - - - - 1,195,857 1,195,857 159,180 159,180 1,355,037 1,355,037 - - - 16,492 412,591 9.99% 290,297 290,297 46,423 67,478 23,744 - - - 113,901 23,744 466,266 67,478 306,789 840,533 - 9.03% 7.83% Floating  interest  rate 2006 $ Fixed  Interest  Rate 1 year or  less 2006 $ Fixed  Interest  Rate Over 1 to  5 years 2006 $ Non- interest  bearing 2006 $ Carrying  amount as  per statement  of financial  position 2006 $ Weighted  average  effective  interest rate 2006 iii) Financial Assets Receivables – term deposit Receivables – trade Receivables – loans Receivables – other Total financial assets iv) Financial liabilities - - - - - Bank Overdraft 2,116 Accounts payables Hire purchase Short term loans - - - - - - - - - - 3,500 - 3,500 1.25% - - - 686,997 686,997 17,239 17,239 335,081 335,081 - - - 3,500 1,039,317 1,042,817 - - - 2,116 8.75% 228,041 228,041 37,432 21,473 - 41,858 - 3,500 58,905 45,358 Total financial liabilities 2,116 79,290 21,473 231,541 334,420 - 8.70% 7.28% 59                 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 22 COMMITMENTS AND CONTINGENCIES No contingent assets or liabilities as at 30 June 2007. Commitments for Expenditure CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ Hire Purchase The consolidated entity has various computer equipment on two hire purchase arrangements. The lease is for a period of 35 months. Not later than one year Later than one year but not later than five years 54,872 73,022 37,432 21,473 54,872 73,022 Less: unexpired charges (13,994) (4,329) (13,994) 37,432 21,473 (4,329) 113,900 54,576 113,900 54,576 46,422 67,478 31,954 18,192 46,422 67,478 31,954 18,192 113,900 50,146 113,900 50,147 Hire Purchase Current (refer note 16) Non Current (refer note 16) Total Hire Purchase Loan Repayments The consolidated entity has borrowed the necessary funds from CGU to finance insurance. The terms of the loans are for 10 months each. Not later than one year 25,632 41,858 25,632 41,858 Later than one year but not later than five years - - - - Less: unexpired charges (1,858) (3,002) (1,858) (3,002) 23,774 38,856 23,774 38,856 Loan Repayments Current (refer note 16) 23,774 38,856 23,774 38,856 Non Current (refer note 16) - - - - Total Loan Repayments 23,774 38,856 23,774 38,856 Office premises are leased under non-cancellable operating leases for periods of 12 months ending 30 June 2008. Their commitment can be seen below: Operating Leases Minimum lease payments under non-cancellable operating leases according to the time expected to elapse to the expected date of payment: Not later than one year 119,521 113,102 119,521 113,102 Later than one year but not later than five years - - - - 119,521 113,102 119,521 113,102 60 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 23 IMPAIRMENT TESTING OF GOODWILL Goodwill acquired through business combinations has been allocated to the individual cash generating units for impairment testing. The recoverable amount of the IT Infrastructure Services cash generating unit has been determined based on a value in use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a five-year period. The discount rate applied to cash flow projections is 12.75% (2006: 12.75%) using a 12.7% growth rate (2006: 12.7%) that is the same as the average growth rate for the IT Infrastructure Services market sector. Carrying amount of goodwill, patents and licences CONSOLIDATED IT Infrastructure Services  Segment Total PARENT Total 2007 $ 2006 $ 2007 $ 2006 $ 2007 $ 2006 $ Carrying amount of goodwill 1,886,958 1,886,958 1,886,958 1,886,958 - - Key assumptions used in value in use calculation for 30 June 2007 and 30 June 2006 The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill, patents and licences. Budgeted gross margins – the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year increased for expected efficiency improvements. Bond rates - the yield on a five-year government bond rate at the beginning of the budgeted year is utilised and the value assigned to the key assumption is consistent with external information sources. Values assigned to key assumptions reflect past experience, except for efficiency improvements which have been estimated at 3% per annum. Resources price inflation – the basis used to determine the value assigned to the resources price inflation is the forecast price indices during the budget year for Australia. Key assumptions are consistent with external information sources. 24 RELATED PARTY DISCLOSURE Other Financial Assets % Equity Interest Investment ($) Tusk Technologies Pty Ltd BigRedSky Limited Country of 2007 2006 Incorporation Australia Australia % 100 100 % 100 - 2007 $ 2006 $ 372,367 2 374,345 - 372,369 374,345 The balance of the Tusk Technologies Pty Ltd loan as at 30 June 2007 is $351,651. This loan is unsecured does not bear interest and is not repayable in the next 12 months. The investment in Tusk Technologies Pty Ltd is measured at fair value at the 30th of June 2007. The revaluation downwards is recorded in the income statement. Other than this related party loan there are no other related party transactions requiring disclosure. 61 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 25 EVENTS AFTER THE BALANCE SHEET DATE There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years other than as set out below: A special resolution put before shareholders on the 23rd of July 2007, was passed to enable the company to demerge the BigRedSky business to focus on its core competency of IT infrastructure services. The effect of the demerger was to reduce the net assets of the consolidated group by $621,491 with a resultant return of capital to shareholders. The company has raised $3,000,000 (net of $2,650,000 after costs) and floated on the ASX. Listing date was the 19th of October 2007. 26 AUDITORS’ REMUNERATION CONSOLIDATED PARENT 2007 $ 2006 $ 2007 $ 2006 $ Amounts received or due and receivable by Ernst & Young Australia for: • an audit or review of the financial report of the entity and any other entity in the consolidated entity 32,340 16,500 32,340 16,500 • other services in relation to the entity and any other entity in the consolidated entity * tax compliance * assurance related * special audits required by regulators Amounts received or due and receivable by auditors other than Ernst & Young Australia for: 22,293 21,200 22,293 21,200 - 7,470 - - - 7,470 - - 62,103 37,700 62,103 37,700 • other non-audit services 4,000 - 4,000 - • an audit or review of the financial report of subsidiary entities - 690 - 690 66,103 38,390 66,103 38,390 62 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (a) Details of Directors and Executives (i) Directors Mr. M Ashton Mr. R Baskerville Mr. D Taylor (ii) Executives Mr. Craig Ferrier Mr. Mark Waller Mr. Greg Leach Mr. Brendon Jarvis Chairman (non-executive) Managing Director Director (non-executive) Company Secretary Chief Financial Officer General Manager-Service Delivery General Manager-Strategy (b) Remuneration of Directors and Executives (i) Remuneration Policy The Remuneration Committee of the Board of Directors of Empired Limited is responsible for determining and reviewing compensation arrangements for the directors, the chief executive officer and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company. To assist in achieving these objectives, the Remuneration Committee links the nature and amount of executive directors’ and senior executives’ emoluments to the company’s financial and operational performance. All directors and senior executives have the opportunity to qualify for participation in the Employee Share Option Plan. In addition, certain executives are entitled to bonuses payable upon the achievement of annual corporate profitability measures. On a quarterly basis, after consideration of performance against KPI’s and an overall performance rating for the company the individual performance of each executive is rated. For the 2006 financial year, 68% of the STI cash bonus was paid to executives during the 2006 financial year. For the 2007 financial year 73% of the STI cash bonus was paid to executives during the 2007 financial year. A cash bonus of $72,915 was paid to Greg Leach on a quarterly basis during the year based on gross profit targets (2006: $68,045). It is the Remuneration Committee’s policy that employment agreements shall be entered into with the Chief Executive Officer and all other executives. The current employment agreement is consistent for all executives. The agreement has a 30 day notice period. The amount payable if the executive’s employment is terminated is calculated by reference to a formula based on the number of years’ service. The current employment agreement with the Chief Executive Officer has a three month notice period. The amount payable if the Chief Executive Officer is terminated prior to the end of the agreement is calculated by reference to a formula based on the number of years’ service. 63 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (cont’d) (ii) Remuneration of Directors and Executives                  Primary Post Employment Equity Other Total Salary & Fees $ Cash  Bonus $ Non Monetary  benefits $ Superannuation $ Retirement  benefits $ Options $ Directors 30 June 2007 R. Baskerville 200,000 50,004 5,004 255,008 165,000 25,002 2,083 - 192,085 - - - - - - - - - - - - - - - - - - - - 25,000 25,000 - - 10,417 - 10,17 - - - - - - - - - $ - - - $ 212,750 56,004 36,004 12,750 6,000 6,000 2,750 - 30,758 30,800 - - - - - - - 195,800 25,002 12,500 - 30,800 - 233,302 Appointed 21st of December 2005 Appointed 21st of December 2005 Salary & Fees $ Cash Bonus $ Superannuation $ Options $ Total $ 117,487 150,000 141,079 25,519 - 10,574 72,915 - - - 12,697 - 747 875 8,700 - 128,808 223,790 162,476 25,519 3,085 72,915 23,271 10,322 50,59 98,248 150,000 8,600 21,632 - 8,842 68,045 - - - 774 - 5,700 9,500 - - 112,790 227,545 9,374 21,632 278,79 68,05 9,616 15,200 371,31 M. Ashton D. Taylor Total Remuneration Directors: 30 June 2006 R.Baskerville M. Ashton David Taylor Total Remuneration Directors: Mel Ashton David Taylor Executives 30 June 2007 M. Waller G. Leach B. Jarvis C. Ferrier Total Remuneration Executives: 30 June 2006 M. Waller G. Leach B. Jarvis C. Ferrier Total Remuneration Executives: 6   EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (cont’d) (c) Remuneration options: Granted and vested during the year During the financial year options were granted as equity compensation benefits under the executive share option plan (ESOP) to certain directors and executives as disclosed below. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share in the entity at an exercise price of $0.20, $0.25 and 0.30. For further details of the terms and conditions including the service and performance criteria that must be met refer to note 14. Granted Terms & Conditions for each Grant  30 June 2007 No. Grant Date Value per option at  grant date ($) Exercise price per  share ($) Expiry Date Directors R. Baskerville 750,000 17/11/2006 0.017 0.25 17/11/2010 M. Ashton D. Taylor Executives M. Waller G. Leach B. Jarvis 250,000 17/11/2006 0.031, 0.023, 0.018 0.20, 0.25, 0.30 17/11/2011 250,000 17/11/2006 0.031, 0.023, 0.018 0.20, 0.25, 0.30 17/11/2011 64,038 22/02/2007 0.015,0.011,0.009 0.30,0.35,0.40 22/02/2012 75,000 22/02/2007 0.015,0.011,0.009 0.30,0.35,0.40 22/02/2012 300,000 28/07/2006 0.037,0.028,0.022 0.20,0.25,0.30 28/07/2011 Total 1,689,038 Granted Terms & Conditions for each Grant  30 June 2006 No. Grant Date Value per option at  grant date ($) Exercise price per  share ($) Expiry Date Directors R. Baskerville 700,000 29/11/2005 0.025,0.019,0.014 0.20,0.25,0.30 29/11/2010 Executives M. Waller M. Waller G. Leach G. Leach 300,000 23/03/2006 0.005,0.043,0.038 0.20,0.25,0.30 23/03/2011 50,000 01/08/2005 0.038,0.043,0.050 0.30,0.35,0.40 01/08/2010 500,000 23/03/2006 0.025,0.018,0.014 0.20,0.25,0.30 23/03/2011 75,000 01/08/2005 0.038,0.043,0.050 0.30,0.35,0.40 01/08/2010 Total 1,625,000 65 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (cont’d) (d) Option holdings of directors and executives Balance at beg  of period  01-Jul-06 Granted as  Remuneration Options  Exercised Net  Change  Other # Balance  at end of  period   30-Jun-07 Not Vested  & Not  Exercisable Vested &  Exercisable 30 June 2007 Directors R. Baskerville 700,000 750,000 M. Ashton D. Taylor Executives M. Waller G. Leach B. Jarvis C. Ferrier - - 250,000 250,000 350,000 575,000 64,038 75,000 - 300,000 35,000 - - - Total 1,660,000 1,689,038 - - - - - - - - - - - - - - - - - - 1,450,000 1,450,000 250,000 250,000 250,000 250,000 414,038 414,038 650,000 650,000 300,000 300,000 - - - - - - - - - - 35,000 - 3,314,038 3,314,038 35,000 Balance at beg  of period  01-Jul-05 Granted as  Remuneration Options  Exercised Net  Change  Other # Balance  at end of  period   30-Jun-06 Not Vested  & Not  Exercisable Vested &  Exercisable 30 June 2006 Directors R. Baskerville M. Ashton D. Taylor Executives M. Waller G. Leach B. Jarvis C. Ferrier - - - - - - 35,000 - 700,000 - - 350,000 575,000 - - - - - - - - - - - - - - - - - - - - - 700,000 700,000 - - - - 350,000 350,000 575,000 575,000 - - - - - - - - - - - - 35,000 - 1,625,000 1,625,000 35,000 Total 35,000 1,625,000 66 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (cont’d) (e) Shareholdings of Directors and Executives Shares held in Empired Limited 30 June 2007 Balance  01-Jul-06 Granted as  Remuneration On Exercise of  Options Net Change   Other Balance  30-June-07 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Directors Mr. R Baskerville 4,220,841 Mr. M Ashton Mr. D Taylor - - Total 4,220,841 - - - - - - - - - - - - - - - - - - - - 668,428 - - 668,428 - - - - 4,889,269 - - 4,889,269 - - - - 30 June 2006 Balance  01-Jul-05 Granted as  Remuneration On Exercise of  Options Net Change   Other Balance  30-June-06 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Directors Mr. R Baskerville 1,640,841 Mr. M Ashton Mr. D Taylor - - Total 1,640,841 - - - - - - - - - - - - - - - - - - - - 2,580,000 - - 2,580,000 - - - - 4,220,841 - - 4,220,841 - - - - All equity transactions with directors and other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length. 30 June 2007 Balance  01-Jul-06 Granted as  Remuneration On Exercise of  Options Net Change   Other Balance  30-June-07 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Specified Executives M. Waller G. Leach B. Jarvis 810,001 2,987,558 - Total 3,797,559 - - - - - - - - - - - - - - - - - - - - 673,810 563,476 200,000 1,437,286 - - - - 1,483,811 - 3,551,034 - 200,000 - 5,234,845 - 67 EMPIRED LTD Annual Report 2007 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2007 27 DIRECTOR AND EXECUTIVE DISCLOSURES (cont’d) (e) Shareholdings of Directors and Executives 30 June 2006 Balance  01-Jul-05 Granted as  Remuneration On Exercise of  Options Net Change   Other Balance  30-June-06 Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Executives M. Waller G. Leach - 2,987,558 Total 2,987,558 28 DIVIDENDS - - - - - - - - - - - - - - - 810,001 - 810,001 - - - 810,001 2,987,558 3,797,559 - - - There were no Dividends paid or provided for during the year. 68 69 70 71 EMPIRED LTD Annual Report 2007 Directors’ Declaration In accordance with a resolution of the directors of Empired Limited, I state that: In the opinion of the directors: (a) the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made after receiving the declarations required to be made by the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2007. On behalf of the Board Russell Baskerville 26th of October 2007 72 EMPIRED LTD Annual Report 2007 Shareholding Analysis In accordance with Listing Rule 4.10 of the Australia Stock Exchange Limited, the Directors provide the following shareholding information which was applicable as at 19th October 2007. a. Distribution of Shareholding SIZE OF SHAREHOLDING NUMBER OF SHAREHOLDERS 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10001 - 100,000 100,001 - MAX TOTAL 0 3 127 223 24 417 % 0.00 0.03 2.03 17.99 79.95 100.00 b. Substantial Shareholders The following are registered by the Company as substantial shareholders, having declared a relevant interest in the number of voting shares shown adjacent as at the date of giving the notice. SHAREHOLDERS Mr Russell Baskerville Mr Gregory Leach c. Twenty Largest Shareholders The names of the twenty largest shareholders are: NAME Mr Russell Baskerville Mr Gregory Leach Uniplex Constructions Pty Ltd Thames Holdings Pty Ltd Mr David Cawthorn Daccsar Pty Ltd Ms Kym Garreffa Measured Investments Limited Mr John Bardwell Mr Mark Patton Topsfield Pty Ltd Mr Anthony Farrell Mr Gregory Bandy Green Frog Nominees Pty Ltd Mr Mark Waller Mr Kevin Flynn GRD Limited Trovex Pty Ltd Jaffa Perth Pty Ltd Mr Mark Waller TOTAL NUMBER 4,614,031 3,551,034 NUMBER OF SHARES HELD 4,614,031 3,504,225 2,333,414 2,109,582 2,000,000 1,563,387 1,306,167 1,200,000 1,000,000 965,475 895,000 802,500 800,000 750,000 666,667 650,000 600,000 600,000 579,048 547,144 % 10 7.7 % 9.98 7.58 5.05 4.57 4.32 3.28 2.83 2.60 2.16 2.09 1.94 1.74 1.72 1.62 1.44 1.41 1.30 1.30 1.25 1.18 27,486,641 59.48 The twenty members holding the largest number of shares together held a total of 59.48% of issued capital. 73 EMPIRED LTD Annual Report 2007 Shareholding Analysis (cont’d) d. Issued Capital The fully paid issued capital of the company consisted of 46,210,648 shares held by 417 shareholders. Each share entitles the holder to one vote. e. On-Market Buy-Back There is no current on-market buy-back. f. Company Secretary The Company Secretary is Mr Craig Ferrier. g. Registered Office The registered office of Empired Ltd is 469 Murray Street, Perth WA 6000 h. Other Offices The other offices are: HEAD OFFICE 469 Murray Street Perth WA 6000 Telephone + 61 8 9321 9401 Melbourne Level 3 470 Collins Street Melbourne VIC 300 Telephone +61 3 8610 0700 7 EMPIRED LTD Annual Report 2007 OTHER INFORMATION FOR SHAREHOLDERS In accordance with Listing Rule 4.10 of the Australian Stock Exchange Limited, the Directors provide the following information not elsewhere disclosed in this report. functions to manage your personal investment details. You can create and manage your own portfolio of investments, check your security holding details, display the current value of your holdings and amend your details online. SHAREHOLDER COMMUNICATIONS The Board of Directors aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders as follows: – The annual report is distributed to shareholders who elect to receive the document. A copy of the full annual report is available free of charge, upon request, from the Company. The Board ensures that the annual report includes relevant information about the operation of the Company during the year, changes in the state of affairs of the Company and details of future developments, in addition to the other disclosures required by the Corporations Act; – The half-year report contains summarised financial information and a review of the operations of the Company during the period. The half-year financial report is prepared in accordance with the requirements of Accounting Standards and the Corporations Act, and is lodged with the Australian Securities and Investments Commission and the Australian Stock Exchange; and – The Company’s internet website at www.empired.com is regularly updated and provides details of recent material announcements by the Company to the stock exchange, annual reports and general information on the Company and its business. The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. Important issues are presented to the shareholders as single resolutions. INTERNET ACCESS TO INFORMATION Empired maintains a comprehensive Investor Relations section on its website at www.empired.com/index.php?page=corpgovernance You can also access comprehensive information about security holdings at the Computershare Investor Centre at www-au.computershare.com/investor/ By registering with Computershare’s free Investor Centre service you can enjoy direct access to a range of Changes to your shareholder details, such as a change of name or address, or notification of your tax file number or direct credit of dividend advice can be made by printing out the forms you need, filling them in and sending the changes back to the Computershare Investor Centre. SHARE REGISTRY ENQUIRIES Shareholders who wish to approach the Company on any matter related to their shareholding should contact the Computershare Investor Centre in Melbourne: The Registrar Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 6000 Telephone +61 8 9323 2000 Facsimile +61 8 9323 2033 Website www-au.computershare.com/investor ANNUAL GENERAL MEETING The 2007 Annual General Meeting of Empired Limited will be held in the: The Melbourne Hotel 942 Hay Street, Perth WA 6000 at 9.30am on Wednesday, 28 November 2007. Formal notice of the meeting is enclosed with this report. STOCK EXCHANGE LISTING Empired Limited shares are listed on the Australian Stock Exchange (ASX:EPD). The home exchange is Perth. All shares are recorded on the principal share register of Empired Limited, held by Computershare Investor Services Pty Limited at the following street address: Computershare Investor Services Pty Ltd Level 2, 45 St Georges Tce Perth WA 6000 75 www.empired.com I E M P R E D L T D A N N u A l R e p o R t 2 0 0 7 EMPIRED Ltd. ABN 81 090 503 843 Annual Report 2007 

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