FSA GROUP LTD A N N U A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 FSA GROUP LTD ANNUAL REPORT 2004 A N N U A L F I N A N C I A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 2 CORPORATE INFORMATION DIRECTORS Sam Doumany (Chairman) Tim Odillo Maher Deborah Southon Fletcher Quinn COMPANY SECRETARY Duncan Cornish REGISTERED OFFICE AND CORPORATE OFFICE Level 5, 60 Edward Street, Brisbane QLD 4000 Phone: + 61 7 3303 0690 Fax: + 61 7 3303 0601 PRINCIPAL BUSINESS OFFICE Suite 201, Level 2 83 York Street, Sydney NSW 2000 Phone: +61 2 9290 2288 Fax: +61 2 9290 1977 SOLICITORS Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street, Brisbane QLD 4000 SHARE REGISTER ASX Perpetual Registrars (Formerly Pitcher Partners Registries) Level 22, 300 Queen Street, Brisbane QLD 4000 Phone: +61 7 3228 4000 AUDITORS PKF Level 6, 120 Edward Street Brisbane QLD 4000 COUNTRY OF INCORPORATION Australia STOCK EXCHANGE LISTING Australian Stock Exchange Ltd ASX Code: FSA INTERNET ADDRESS www.fsagroup.com.au AUSTRALIAN BUSINESS NUMBER ABN 98 093 855 791 A N N U A L R E P O R T FSA GROUP LTD A N N U A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 1. 2. 3. 4. 5. 6. CHAIRMAN’S REPORT REVIEW OF OPERATIONS AND FUTURE DEVELOPMENTS DIRECTORS’ REPORT SHAREHOLDER INFORMATION CORPORATE GOVERNANCE STATEMENT STATEMENTS OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2004 CONTENTS 7. STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2004 8. STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2004 9. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2004 10. DIRECTORS’ DECLARATION 11. INDEPENDENT AUDIT REPORT NOTICE OF MEETING FORM OF PROXY 2 3 7 12 14 17 18 19 20 47 48 50 51 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 1 1C H A I R M A N ’ S R E P O R T Dear Shareholder The 2003/04 financial year was one of many challenges for FSA Group Limited (the “Company” and “FSA Group”), however it achieved a modest profit. FSA Group generated $13.9 million in revenue and achieved a profit after tax of $1.2 million. The Company had hoped that the Bankruptcy Legislation Amendment Bill 2002, which took effect from May 2003 and raised the income threshold for debtors eligible to submit a Debt Agreement, would result in an increase in the number of administrations. While the number of administrations was greater than the previous year, the introduction of this legislation did not improve business as much as expected. Over the last year we have observed an increasing number of administrators offering similar products to the FSA Group and accordingly the sector is becoming increasingly competitive. As a leader in this field, FSA Group is well placed to remain a strong competitor, however further competition is eroding FSA Group’s capacity for new client acquisition and accordingly its market share. The Company has incurred significant costs in strengthening its advertising and communication efforts through multiple mediums including continued television and print advertising and a stronger web presence. The costs associated with the Company’s communications have unfortunately risen throughout the year and remain a significant concern. FSA Group continued to explore the potential of consolidation loans and non-conforming lending. Early indications show that this is a prospective area for future growth. It is expected that more investment and focus will need to be placed on these initiatives in the year ahead. During the year there were management changes and structural changes which resulted in improved focus on the core business and initiatives. One of the major challenges for the Company is managing the large cumulative growth in the administrations under management which have substantially increased over recent years. The desired productivity gains from investment in technologies have been elusive primarily due to the cumulative volume of long-term administrations being managed. From its inception the Company has always been aware of its responsibilities to its many stakeholders and has intensely focused on guaranteeing that systems and procedures are in place to ensure absolutely stringent ethical dealings to protect our clients as well as our various counterparties. In April 2004, FSA Group reported to the Australian Stock Exchange that it was defending allegations by the Australian Competition and Consumer Commission (ACCC). Proceedings against Fox Symes and Associates Pty Ltd and Debt Relief Services Pty Ltd (both wholly owned subsidiaries of FSA Group) and two of its directors have commenced in the Federal Court. The allegations relate to the Company’s role as a debt administrator (under Part IX of the Bankruptcy Act 1966) during the period 2000 to 2002. The Company does not accept the Commissions allegations in these proceedings and they are being strenuously defended. Unfortunately the year ahead may see a very significant expenditure on legal fees as the Company defends the above action. Further, as with any legal proceedings, there is inherent uncertainty with the prospects of a positive outcome. The Company continues to rely on the acceptance and goodwill of the financial institutions in administering Part IX debt agreements. FSA Group distributed over $10.0 million to financial institutions during the year. This is a significant milestone in maintaining the strong relationship with the financial institutions. I would like to extend my thanks to the Directors, management and staff who have made a valuable contribution to the improved result achieved by the Company this financial year. Thank you for your continued support. Sam Doumany - Chairman 2 A N N U A L R E P O R T 2R E V I E W O F O P E R A T I O N S A N D F U T U R E D E V E L O P M E N T S H I S T O R Y A N D B A C K G R O U N D FSA Group commenced operation in February 2000. FSA Australia Pty Ltd (previously FSA Group Pty Ltd) is the ultimate holding company of Fox Symes and Associates Pty Ltd, FSA Finance Pty Ltd, Debt Relief Services Pty Ltd and Its principal business office is FSA Services Group Pty Ltd. situated in Sydney, and has operations in all Australian States. On 15 November 2001 the Board announced the Company had entered into an agreement to acquire all of the issued share capital in financial services company, FSA Group Pty Ltd (”FSA Group”). Shareholders’ approval for the acquisition was granted at a shareholders’ meeting convened on 24 June 2002, the requirements of the ASX were met and the acquisition of FSA Group was completed on 30 July 2002. The Company changed its name from Prospex Interactive Limited to FSA Group Limited on 30 July 2002. Shareholders were advised in January 2003 of the intention to close the gogo7 real estate virtual tour division. The decision was reached following a major review which found that it was unlikely that the division could generate sufficient profits in an appropriate time frame to justify further resourcing or capital investment. For the year ended 30 June 2003, the FSA Group consolidated entity’s operating loss before tax, interest and depreciation and amortisation (EBITDA) was $611,682 before allowing for the write off of the carrying value of the Intellectual Property relating to gogo7 business. Last year, the overall loss for the consolidated entity was $1,668,391 after tax, depreciation, amortisation and the write off of Intellectual Property of $499,995 (relating to the closure of the gogo7 virtual tour business). FSA Group’s core business is to provide financial services to individuals with financial problems. This core part of the group’s activities made a small operating loss (EBITDA) during the 11 months from its acquisition (30 July 2002) to 30 June 2003 from revenues of $10.4 million, for the 11 month period, lower than expected. O V E R V I E W For the FSA Group, the 2003/04 financial year was the first full year of operation solely as a financial services company. In the four years since FSA Group commenced operations, an administrative structure has been developed to support the considerable number of consumer debtors who want to rely upon the remedies offered by FSA Group, to address their financial problems. This structure is underpinned by operational systems and procedures which, although still evolving, are focused on ensuring efficient and streamlined client outcomes. This structure allows the undertaking of the following range of activities: • marketing and advertising, field agent and call centre services designed to promote and capture awareness of distressed debtors; • • • • • • rigorous assessment of a debtor’s eligibility for assistance; internal auditing of a debtor’s submission to creditors; liaison with creditors, ITSA and debtors; advocacy on the debtor’s behalf with creditors; ethical compliance; exploration of debtor options; and • monitoring debtor compliance and ongoing administration. FSA currently has 53 full time and part time employees and 24 contractor field agents engaged to provide the above services. O P E R A T I N G R E S U LT S FSA Group’s core business is to provide financial services to individuals with a range of financial problems. FSA Group made a profit after tax of $1.2 million in the 12 months to 30 June 2004, from revenues of $13.9 million. The Company distributed over $10.0 million to financial institutions during the financial year which is significant as the Company relies on the acceptance and goodwill of the financial institutions in administering debt agreements. F S A G R O U P L I M I T E D 3 2R E V I E W O F O P E R A T I O N S A N D F U T U R E D E V E L O P M E N T S Substantial efforts were made last financial year to invest in and build systems and operations. This effort did not fully achieve the desired efficiency and productivity gains because of the cumulative growth in the number of debt agreements to be managed. Over the twelve month period the number of debt agreements managed by FSA Group increased by 55%. Further significant costs are currently being incurred across all of the Company’s business processes to manage the growth and achieve the necessary efficiency benefits. The advertising and marketing strategies adopted by the business have always been a major overhead cost. Once again this area has been the subject of constant focus and refinement and the costs in this regard remain an area of concern. Television advertising continued and other mediums including the internet were utilised. There have been increases in costs from all of the television networks and newspapers throughout the year. to advertising have been variable and have not always followed increases in expenditure. Incoming calls in response P R O D U C T S A N D S E R V I C E S P R O V I D E D B Y F S A G R O U P FSA Group specialises in providing financial services to companies, businesses and individuals with financial problems. FSA Group provides methods of restructuring the financial problems facing companies, businesses and individuals through a variety of debt restructuring services, loan re- financing and other solutions. In the majority of cases this is done through utilising provisions of the Corporations Law and the Bankruptcy Act. FSA Group is currently the market leader in terms of the number of debt agreement proposals lodged with the Insolvency and Trustee Service of Australia (ITSA). Debt agreements are a valid and non-adversarial means for resolving a consumer debtor’s financial problems. They allow those debtors, who want to repay their debts, an affordable and effective method of resolving their financial problems while also endeavouring to minimise the effects of insolvency on the individual and the community. In essence a consumer debtor who relies upon a debt agreement engages in a rehabilitative process aimed at repaying the debt. Part of this process intends the debtor to address the underlying problems, which lead to insolvency and thus prevent indebtedness from occurring again. Debt agreements rely equally upon the support of creditors as well as commitment from individual consumer debtors. In this regard FSA Group has forged key strategic alliances with major institutional creditors. This is seen as a critical part of the business conducted by FSA Group because it is the creditors who adjudicate on whether a debt agreement is ultimately acceptable and approved for administration. FSA Group’s core business remains centred on assisting those individuals who have debts they cannot service. As over-indebtedness continues to rise, the importance of providing consumer debt solutions which are humane and afford dignity and self respect to the individual, becomes critical. FSA Group, in an effort to achieve a satisfactory solution for their client, also aims to: • minimise the effect of insolvency on the community and the major financial institutions; • • establish an affordable, effective and legally binding method of resolving debt problems; and offer significantly higher returns to creditors than those they would receive through bankruptcy. Under a debt agreement the debtor and creditor must agree on the terms of arrangement, and an external administrator (such as FSA Group’s subsidiary, Debt Relief Services Pty Ltd) may be appointed to administer the arrangement. Where FSA Group facilitates the acceptance of a debt agreement Debt Relief Services will be appointed as administrator of the agreement for the purpose of the Bankruptcy Act. Creditors remunerate Debt Relief Services Pty Ltd for the work it performs by agreeing to forgo a small part of the debts to be repaid. With the escalating growth of personal debt in Australia, FSA Group realised the advantage of using debt agreements as an affordable, effective and binding method of resolving an individual’s debt problem. A debt agreement has a number of advantages for debtors, including the avoidance of bankruptcy proceedings and the flexibility available under such an agreement. For creditors one of the most obvious advantages is that they are likely to yield a greater rate of return. Additionally society benefits because a greater number of consumer debts, which may have been pursued through an already congested court system, are dealt with through a simple and legal negotiation process. 4 A N N U A L R E P O R T 2R E V I E W O F O P E R A T I O N S A N D F U T U R E D E V E L O P M E N T S Debt Agreements, Part IX Bankruptcy Act Introduction Debt agreements were introduced into the Bankruptcy Act in 1996. Until recently, debtors have infrequently relied them upon. Community awareness of the benefits, as well as the spirit and intention of the legislation, is still not well known. Debt agreements were introduced to enable people, on low incomes, with few assets and who are committed to meeting their obligations, a means of paying (to some extent) their unsecured debts. It offers those people who find themselves temporarily unable to pay all their debts or who may be unable to meet repayments due to changes in their circumstances an alternative to bankruptcy. It thereby allows these people to avoid the stigma and consequences of bankruptcy when they face misfortune and where misfortune can be defined, for example, as illness, loss of employment or marital breakdown. Fraud or deliberate financial recklessness is not deemed to be suitable criteria for Part IX eligibility. In May 2003, the Bankruptcy Legislation Amendment Bill 2002 took effect. Amongst other changes this Bill increased after tax income threshold for debtors eligible to rely upon a debt agreement. Currently the net income threshold is $52,900. An increase in Part IX’s at the expense of bankruptcies means five important factors, namely: (1) Rates of returns are higher. Unlike in a bankruptcy, where a debtor’s assets are liquidated (subject to certain exemptions), the debtor continues to work to repay the debt under a Part IX. Under Voluntary Administration (Deed of Company Arrangement), the corporate equivalent of a Part IX, the average return to creditors is about 24 cents in the dollar. This compares to a return rate under a Part IX, which is typically more than 55 cents in the dollar, and quite commonly 65 cents or more. (2) Part IX administrators are not creating a market in Part IX’s but are primarily substituting Part IX’s for bankruptcies – thereby responding to the debt problems amongst debtors rather than developing it; (3) Debtors who honour their repayment plans under a Part IX may be eligible for further finance based on their demonstrated ability to repay debts; (4) Debtors are rehabilitated rather than bankrupted – meaning the social impact of bankruptcy generally is lessened over time, with creditors also bearing the economic benefits of debtors with greater financial planning skills; and The introduction of the Bill did not meet expectations in terms of materially expanding FSA Group’s Part IX base. (5) The banks and other financial institutions are assisting individuals in financial difficulty. Bankruptcies in Australia Any consideration of debt agreements must be considered against the backdrop of bankruptcies in Australia. It is axiomatic and well documented that debt agreements provide, from a commercial standpoint, more positive benefits to creditors than bankruptcy. Evidence shows that creditors can expect to see a substantial return on debts through debt agreements. ITSA statistics demonstrate a clear shift from a growth in bankruptcies pre-1999 to a downward trend post-1999. Notably this shift occurred at the time at which there was a definite increase in Part IX’s. 30,000 25,000 20,000 15,000 10,000 5,000 0 NUMBER OF BANKRUPTCIES AND PART IX’s: 1998 - 2004 1998 1999 2000 2001 2002 2003 2004 KEY Bankruptcies Part IX’s F S A G R O U P L I M I T E D 5 2R E V I E W O F O P E R A T I O N S A N D F U T U R E D E V E L O P M E N T S While 2003/04 has seen the Company make some headway and return to profitability, there is still considerable further work to be done in the areas of building systems, improving the outcomes from marketing and advertising investment and further enhancing and streamlining procedures and client and stakeholder outcomes. This year the major emphasis in stakeholder relations will be directed towards raising awareness among the financial institutions of the commercial imperatives and genuine benefits of debt agreements. The marketplace is being constantly reviewed for opportunities for new products and growth that fit comfortably and ethically with the existing business and are financially viable. New Products and Services In 2002 FSA Group launched its Refinance Division which specialises in qualifying and referring otherwise credit worthy individuals with unique circumstances or those that have experienced temporary problems and have the need to refinance. This area of lending is referred to as non- conforming. Further avenues are being explored to expand the division’s scope by establishing relationships with conforming lenders. The growth of the Refinance Division in both non-conforming and conforming lending is broadening the Company’s revenue base. Further, FSA Group has a large number of enquiries from individuals who require an unsecured consolidation loan. The Company has recently entered into an agreement with a conforming loan provider and is currently trialing this product. Once the operating protocols and parameters have been successfully established, the Company aims to expand its portfolio to include non-conforming unsecured consolidation loans. Client satisfaction is of absolute importance to FSA Group. In this context the Company has employed a full time financial counselor to add additional depth and range of services to actual and potential clients. Future Developments In April 2004, the Australian Competition and Consumer Commission commenced proceedings in the Federal Court against Fox Symes and Associates Pty Ltd (a wholly owned subsidiary) of FSA Group and its directors Mr Tim Maher and Ms Deborah Southon. The allegations relate to the period from 2000 to 2002. The directors of FSA Group accept that the Commission discharges an important role in the Australian economy and in consumer welfare, however the directors do not accept the Commission’s allegations in these proceedings and they are being vigorously and strenuously defended. To put the complaints into context, the ACCC made initial enquiry in 2002 in relation to three (one on each of three different states), ultimately five complaints – FSA Group has assisted over 9,000 clients since it commenced operations in 2000. 6 A N N U A L R E P O R T 3D I R E C T O R S ’ R E P O R T Your directors submit their report for the year ended 30 June 2004. Mr Doumany holds a Bachelor of Science from the University of Sydney and is a member of the Australia Institute of Company Directors. D I R E C T O R S Mr Doumany serves on the Company’s Audit Committee. The names of the directors of the Company in office during the period and until the date of this report are as follows. Names, qualifications, experience and special responsibilities Sam Doumany (Non-Executive Chairman) Mr Doumany was appointed as a non-executive director on 18 December 2002 and was appointed Chairman on 30 June 2003. Mr Doumany commenced his career in economic research, agribusiness and marketing before embarking on a distinguished political career as a member of parliament in Queensland in 1974. Between 1974 and 1983 Mr Doumany served on several parliamentary committees, the Liberal Party’s State and Federal Rural Policy Committees and the Queensland Liberal Party State Executive. Elevated to the Cabinet in 1978, Mr Doumany served firstly as Minister for Welfare and Corrective Services before serving as Minister for Justice, Queensland Attorney-General and the Deputy Leader of the Liberal Parliamentary Party until late 1983. Throughout his parliamentary and ministerial career Mr Doumany worked closely, at a senior level, with a wide range of key professional, industry and community organisations. Since 1983 Mr Doumany has operated a consultancy practice providing services in government relations, corporate strategy and market development. Mr Doumany was also retained by Ernst & Young in an executive consultancy role between 1991 and 2002. Significant assignments for Ernst & Young include the Coutts and Bartlett Receiverships as well as major submissions to the Federal Government. He has also held numerous executive and non-executive board positions, many as Chairman, for both private and public companies, industry authorities/associations and review committees. Tim Odillo Maher (Executive Director) Mr Maher was appointed on 30 July 2002. Mr Maher’s background has been in banking and finance, before concentrating on insolvency and corporate finance assignments. He has worked at ANZ Banking Corporation and Star Dean Wilcocks (Chartered Accountants). Mr Maher holds a Bachelor of Business Degree (majoring in Accounting and Finance) from Australian Catholic University and is a Certified Practicing Accountant. His work experience has included special reviews of companies experiencing financial difficulties, the rationalisation and re-organisation of businesses, and the implementation of turnaround and exit strategies for businesses, including support plans and asset disposal programmes. Deborah Southon (Executive Director) Ms Southon was appointed on 30 July 2002. Ms Southon has attained a wealth of experience in the government and community services sectors having worked for the Commonwealth Department of Health and Family Services, the former Department of Community Services, and the Smith Family. Ms Southon has successfully managed a programme and administration budget exceeding $150 million and was part of a management team which oversaw a significant growth in client numbers and service delivery which stemmed from the implementation of fresh legislation. Ms Southon has an Executive Certificate in Leadership & Management (University of Technology, Sydney) and a Bachelor of Arts Degree (Sydney University). She also has qualifications in Speech and Drama (AMEB) and has undertaken post graduate management studies at the Australian Graduate School of Management. F S A G R O U P L I M I T E D 7 3D I R E C T O R S ’ R E P O R T Fletcher Quinn (Non-Executive) Mr Quinn was appointed on 22 October 2002. Mr Quinn has 20 years experience in venture capital, corporate finance and investment banking including extensive managerial experience with both listed and unlisted companies. Further, he has some 17 years experience in public company development, management and governance. Mr Quinn holds a Certificate of Management, a Certificate in Financial Markets from the Securities Institute of Australia and studied Economics and Business at Queensland University of Technology. He is also an associate fellow of the Australian Institute of Management, a member of The Australian Institute of Company Directors and an associate of The Australian Institute of Mining and Metallurgy. Mr Quinn is currently Chairman of Sirocco Technologies Group Ltd, and a former Chairman of Sirocco Resources NL (1996 – June 2002), a diversified resource and technology company listed on the Australian Exchange. He is also Chairman of Seco Resource Finance Pty Ltd, a boutique Australian investment bank which is a Queensland based syndicated investor and venture capitalist. He was a founding director of Scorpion Minerals Inc. (1995 – 2001), which is listed on the Toronto Stock Exchange in Canada. Mr Quinn serves on the Company’s Audit Committee. S E C R E T A R Y The name of the secretary of the Company in office during the period and until the date of this report is as follows. Name, qualifications, experience and special responsibilities Duncan Cornish (Company Secretary) Mr Cornish has more than ten years experience in the accountancy profession both in England and Australia, mainly with the accountancy firms Ernst and Young and PricewaterhouseCoopers. He has extensive experience in all aspects of company financial reporting, corporate regulatory and governance areas, business acquisition and disposal due diligence, capital raising and company listings and company secretarial responsibilities. Mr Cornish is a Chartered Accountant. He holds a Bachelor of Business (Accounting) and is a member of the Australian Institute of Chartered Accountants. Mr Cornish is also company secretary of D’Aguilar Gold Ltd, an ASX listed gold exploration company. Mr Cornish also serves as secretary on the Company’s Audit Committee. Interests in the shares and options of the company As at balance date and the date of this report, the interests of the directors in the shares and options of FSA Group Ltd were: Ordinary Shares $0.20 options exercisable on or before 31 December 2005 $0.60 options exercisable on or before 30 November 2006 Sam Doumany Tim Odillo Maher Deborah Southon Fletcher Quinn - 17,120,512 12,571,533 5,750,560 - 2,400,000 2,400,000 253,334 - 6,250,000 6,250,000 - 8 A N N U A L R E P O R T 3D I R E C T O R S ’ R E P O R T C O R P O R A T E I N F O R M A T I O N F U T U R E D E V E L O P M E N T S Likely developments in the operations of the Company and the expected results of those operations in subsequent financial years have been discussed where appropriate in the Annual Report under Review of Operations. There are no further developments of which the directors are aware which could be expected to affect the results of the Company’s operations in subsequent financial years other than information which the directors believe comment on or disclosure of would prejudice the interests of the Company. E N V I R O N M E N T A L I S S U E S There are no matter that have arisen in relation to environmental issues up to the date of this report. S H A R E O P T I O N S As at the date of this report (and at the balance date) there were 49,674,233 unissued ordinary shares under options. Refer to Notes 17 and 21 of the financial statements for further details of the options outstanding. I N D E M N I F I C A T I O N A N D I N S U R A N C E O F D I R E C T O R S A N D O F F I C E R S Each of the directors of the Company has entered into a Deed with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company to those directors. The Company has insured all of the directors of FSA Group Ltd. The contract of insurance prohibits the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require disclosure of the information in these circumstances. Corporate structure FSA Group Ltd is a company limited by shares that is incorporated and domiciled in Australia. FSA Group Ltd has prepared a consolidated financial report which consolidates it’s controlled entities. Nature of operations and principal activities The principal activities of the Company during the period were providing financial services to individuals in financial distress. Employees As at 30 June 2004, the consolidated entity employed 37 full- time employees (2003: 48) and 24 (independent) contractor field agents (2003: 22). O P E R A T I N G R E S U LT S The consolidated profit from ordinary activities for the Consolidated Entity after providing for income tax was $1,205,481 (2003: loss of $1,668,391). D I V I D E N D S P A I D O R R E C O M M E N D E D There were no dividends paid or recommended during the financial year. R E V I E W O F O P E R A T I O N S Detailed comments on operations up to the date of this report are included separately in the Annual Report under Review of Operations. S I G N I F I C A N T C H A N G E S I N T H E S T A T E O F A F F A I R S No significant changes in the state of affairs of the parent entity occurred in the financial year. S I G N I F I C A N T E V E N T S A F T E R B A L A N C E D A T E There have been no events since the end of the financial year that impact upon the financial report as at 30 June 2004. F S A G R O U P L I M I T E D 9 3D I R E C T O R S ’ R E P O R T D I R E C T O R S ’ A N D O T H E R O F F I C E R S ’ E M O L U M E N T S Remuneration policy The Board of Directors of FSA Group Limited is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board 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 may be given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits. 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 Board links the nature and amount of executive directors’ and officers emoluments to the company’s financial performance. All directors and executives have the opportunity to qualify for participation in the Employee Share Option Plan which currently provides incentives, at the Board’s discretion, based on individual key performance indicators (“KPI’s”) being met and other criteria relating to profitability, cash flow and share price growth. In addition, executive directors are entitled to annual bonuses payable upon the achievement of certain pre-determined operational KPI’s. It is the Board’s policy that employment agreements are entered into with all executive directors and executives. The current employment agreements each has a one month notice period. Emoluments’ of directors and other officers of FSA Group Ltd Emoluments of directors of FSA Group Ltd for the year ended 30 June 2004: Annual Emoluments Post-Employment Salary & Fees Cash Bonus Non-Cash benefits Superan- nuation Retirement benifits Equity Options Other Total Sam Doumany Tim Odillo Maher Deborah Southon Flecther Quinn 46,048 120,000 113,903 93,992 - 20,000 20,000 - - - - - 4,144 - 10,251 - - - - - - - - - - - - - 50,192 140,000 144,154 93,992 Emoluments of the five most highly paid executive officers of the consolidated entity for the year ended 30 June 2004: Annual Emoluments Post-Employment Salary & Fees Cash Bonus Non-Cash benefits Superan- nuation Retirement benifits Equity Options Other Total Andrew Aravanis Jamal Tabbaa Kevin McDonnell Nino Eid Duncan Cornish 104,379 96,162 93,472 86,942 92,400 - - - - - - - - - - 9,200 7,652 8,380 7,739 - - - - - - 263 - 840 840 - - - - - - 113,842 103,814 102,692 95,521 92,400 10 A N N U A L R E P O R T 3D I R E C T O R S ’ R E P O R T Calculation of value of options granted is made using the Black-Scholes option pricing model, which takes into account factors such as the option exercise price, the market price at the date of issue and volatility of the underlying share price and the time to maturity of the option. Details of the calculations of granted options in relation to each officer of vested options are set out below: Number of Options Vesting Date Expiry Date Andrew Aravanis 30,000 9/6/04 9/6/06 Kevin McDonnell 100,000 23/11/04 23/11/06 Nino Eid 100,000 23/11/04 23/11/06 Strike Price Cents 10.0 10.0 10.0 Market Value at date of issue Cents Black-Scholes Price per option Cents 5.0 5.0 5.0 2.9 2.8 2.8 Black- Scholes Valuation $ 870 840 840 Previously recognised $ 2004 Remuneration $ (679) - - 263 840 840 No shares were issued post year end as a result of exercising options. D I R E C T O R S ’ M E E T I N G S T A X C O N S O L I D A T I O N The number of meetings of directors held during the period and the number of meetings attended by each director are as follows: Number of meetings held Meetings attended while in office Sam Doumany Tim Odillo Maher Deborah Southon Fletcher Quinn 11 11 11 11 11 11 11 11 Total number of meetings held during the financial year – 11. A U D I T C O M M I T T E E M E E T I N G S The number of meetings of the Audit Committee held during the period and the number of meetings attended by each member of the Audit Committee are as follows: Effective 1 July 2003 FSA Group Limited and its 100% owned subsidiaries have formed a tax consolidated group. At the date of this report, the members of the group are in the process of finalising tax sharing and tax funding arrangements effective for the year ended 30 June 2004. Accordingly the substance of this intention existed at 30 June 2004 and inter-company tax balances have been accounted for as if the agreements were in place during the year given the existence of the constructive obligation. C O R P O R A T E G O V E R N A N C E In recognising the need for the highest standards of corporate behaviour and accountability, the directors of FSA Group Ltd support and have adhered to the principles of corporate governance. The Company’s corporate governance statement is contained in the Shareholder Information section of the Annual Report. Signed in accordance with a resolution of the directors. Number of meetings held Meetings attended while in office Sam Doumany Fletcher Quinn 2 2 2 2 Fletcher Quinn Director Brisbane 30 September 2004 Total number of meetings held during the financial year – 2 F S A G R O U P L I M I T E D 11 4S H A R E H O L D E R I N F O R M A T I O N Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 27 September 2004. (a) Distribution of equity securities The number of holders, by size of holding, in each class of security are: Quoted Ordinary shares Quoted $0.20 options exercisable on or before 31 December 2005 Unquoted $0.60 options exercisable on or before 30 November 2006 Number of holders Number of shares Number of holders Number of options Number of Number of holders options 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 7 172 235 128 51 593 2,961 589,834 2,231,187 4,699,778 78,861,187 86,384,947 - 26 2 239 24 291 - 58,340 20,000 5,131,251 17,913,743 23,123,334 - - - - 4 4 - - - - 25,000,000 25,000,000 The number of shareholders holding less than a marketable parcel of shares are 222 (906,056 ordinary shares). Unquoted $0.10 ESOP options exercisable on or before 9 June 2006 Unquoted $0.10 ESOP options exercisable on or before 24 November 2006 Unquoted $0.10 options exercisable on or before 24 November 2006 Number of holders Number of shares Number of holders Number of options Number of Number of holders options 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total - - - 4 1 5 - - - 310,000 163,333 473,333 - - - 5 - 5 - - - 400,000 - 400,000 - - - 12 - 12 - - - 677,566 - 677,566 12 A N N U A L R E P O R T 4S H A R E H O L D E R I N F O R M A T I O N (b) Twenty largest holders The names of the twenty largest holders, in each class of security are: Ordinary shares: 1. Mazamand Group Pty Ltd 2. ADST Pty Ltd 3. Monhill Pty Ltd 4. Solutions Network Pty Ltd 5. Q Supa Pty Ltd 6. Anglo Irish Nominees Pty Ltd 7. Tricom Nominees Pty Ltd 8. Sareena Enterprises Pty Ltd 9. Mr G W Pernase & Mrs S A Botica 10. Gregory Woszczalski 11. Sirocco Technologies Group Ltd 12. Albiano Pty Ltd 13. TDM Nominees Pty Ltd 14. Karia Investments Pty Ltd 15. Moonheath Pty Ltd 16. Mr David John Vincent 17. Mr Derek Roger Maltz 18. Eumundi Brewing Group Limited 19. Cliffsun Pty Ltd 20. Renison Consolidated Mines NL Top 20 Total 19.8% 17,120,512 14.6% 12,571,533 13.5% 11,650,000 12.8% 11,060,000 6.7% 5,750,560 5.4% 4,666,667 2.0% 1,685,000 1.6% 1,356,667 1.3% 1,090,000 1.2% 1,000,097 0.8% 732,000 0.8% 714,355 0.8% 678,638 0.8% 666,666 0.8% 658,037 0.7% 600,000 0.7% 579,834 545,986 0.6% 422,342 0.5% 0.5% 400,000 73,948,894 85.6% 86,384,947 100.0% Options exercisable at $0.20 on or before 31 December 2005: 1. Mazamand Group Pty Ltd 2. Monhill Pty Ltd 3. Solutions Network Pty Ltd 4. ADST Pty Ltd 5. Tricom Nominees Pty Ltd 6. Saber Limited 7. GBUS Ventures Pty Ltd 8. J F Enterprises Pty Ltd 9. Mr Derek Roger Maltz 10. Tizoku Securities Pty Ltd 11. Moonheath Pty Ltd 12. Hadley Castle Pty Ltd 13. Cliffsun Pty Ltd 14. Arrowhead Media Pty Ltd 15. Mrs Jenni Read 16. Mr Hamish Arthur Jamieson 17. Mr G W Pernase & Mrs S A Botica 18. Mr Kenneth Livingston 19. Mr Rizwan Khan 20. Mikinos Investment Pty Ltd Top 20 Total 2,400,000 10.4% 2,400,000 10.4% 2,400,000 10.4% 2,400,000 10.4% 7.2% 1,666,667 4.9% 1,139,493 4.3% 1,000,000 4.1% 958,333 2.9% 665,000 2.3% 540,250 1.7% 395,833 1.1% 251,667 1.1% 250,000 1.0% 220,000 0.8% 173,500 0.7% 170,000 0.7% 161,500 0.7% 161,500 0.7% 160,000 0.7% 160,000 17,673,743 76.4% 23,123,334 100.0% (c) Substantial shareholders (d) Voting rights The names of substantial shareholders who have notified the Company in accordance with section 671B of the Corporations Act 2001 are: All ordinary shares carry one vote per share without restriction. Number of shares (e) Restricted securities Mazamand Group Pty Ltd ADST Pty Ltd Monhill Pty Ltd Solutions Network Pty Ltd Q Supa Pty Ltd Anglo Irish Nominees Pty Ltd 17,120,512 12,571,533 11,650,000 11,500,000 5,750,560 4,666,667 As at the date of this report, there were no securities subject to (ASX or voluntary) restriction agreements. (f) Business objectives The entity has used its cash and assets that are readily convertible to cash in a way consistent with its business objectives. F S A G R O U P L I M I T E D 13 5C O R P O R A T E G O V E R N A N C E S T A T E M E N T The board of directors of FSA Group Ltd is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of FSA Group Ltd on behalf of the shareholders by whom they are elected and to whom they are accountable. FSA Group Ltd’s Corporate Governance Statement is now structured with reference to the Australian Stock Exchange Corporate Governance Council’s (the “Council”) “Principles of Good Corporate Governance and Best Practice Recommendations”, which are as follows: Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Principle 9 Principle 10 Lay solid foundations for management and oversight Structure the board to add value Promote ethical and responsible decision making Safeguard integrity in financial reporting Make timely and balanced disclosure Respect the rights of shareholders Recognise and manage risk Encourage enhanced performance Remunerate fairly and responsibly Recognise the legitimate interests of stakeholders FSA Group Ltd’s corporate governance practices were in place throughout the year ended 30 June 2004. Any departures to the Council’s best practice recommendations are set out below. Structure of the Board The skills, experience and expertise relevant to the position of director held by each director on office at the date of the annual report is included in the Director’s Report. Corporate Governance Council Recommendation 2.1 requires a majority of the board to be independent directors. The Corporate Governance Council defines independence as being free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with – the exercise of their unfettered and independent judgement. In the context of director independence, “materiality” is considered from both the company and the individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal or less than 5% of the appropriate base amount. qualitative evidence to the contrary) if it is equal to or grater than 10% of the appropriate base amount. Qualitative factors considered included whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the director in question to shape the direction of the company’s loyalty. It is presume to be material (unless there is In accordance with the Council’s definition of independence above, and the materiality thresholds set, the following director is considered to be independent: Name Position Mr Sam Doumany Chairperson, Non-Executive Director 14 A N N U A L R E P O R T 5C O R P O R A T E G O V E R N A N C E S T A T E M E N T In accordance with the Council’s definition of independence above, and the materiality thresholds set, the following directors are not considered to be independent: Name Position Reason for non-compliance Mr Tim Odillo Maher Ms Deborah Southon Mr Fletcher Quinn Executive Director Executive Director Non-Executive Director Mr Maher is employed by the Company in an executive capacity Ms Southon is employed by the Company in an executive capacity Mr Quinn has a relevant interest in a substantial shareholder FSA Group Ltd has four directors in total. The three directors listed above are not considered to be independent when applying the Council’s definition of independence. Therefore the majority of the board are not independent. FSA Group Ltd considers industry experience and specific expertise, as well as general corporate experience, to be important attributes of its board members. The members of the board have been brought together to provide a blend of qualifications, considerable industry skills and national and international experience required for managing a company operating within the financial services and debt management industry. There are procedures in place, agreed by the board, to enable directors, in furtherance of their duties, to seek independent professional advice at the company’s expense. The term in office held by each director in office at the date of this report is as follows: Name Term in office Sam Doumany Tim Odillo Maher Deborah Southon Fletcher Quinn 2 years 2 years 2 years 2 years Nomination and Remuneration Committees Recommendations 2.4 and 9.2 require listed entities to establish nomination and remuneration committees. During the year ended 30 June 2004, FSA Group Ltd did not have separately established nomination or remuneration committees. The full Board shall for the time being carry out the functions of remuneration & nomination committees. The board does not believe that any marked efficiencies or enhancements would be achieved by the creation of separate remuneration or nomination committees. F S A G R O U P L I M I T E D 15 5C O R P O R A T E G O V E R N A N C E S T A T E M E N T Audit committee The Board has established an audit committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the consolidated entity to the audit committee. The committee also provides the board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the audit committee are non-executive directors. The members of the audit committee during the year were: - Sam Doumany - Fletcher Quinn For additional details of directors’ attendance at audit committee meetings and to review the qualifications of the members of the audit committee, please refer to the Directors’ Report. Performance The performance of the board and key executives is reviewed regularly against both measurable and qualitative indicators. The performance criteria against which directors and executives are assessed is aligned with the financial and non-financial objectives of FSA Group Limited. Remuneration It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality board and executive team by remunerating director and key executives fairly and appropriately with reference to relevant and employment market conditions. To assist in achieving this objective, the Board links the nature and amount of executive director’s and officer’s emoluments to the company’s financial and operations performance. The expected outcomes of the remuneration structure are: • Retention and Motivation of key executives • Attraction of quality management to the company • Performance incentives which allow executives to share the rewards of the success of FSA Group Limited For details on the amount of remuneration and all monetary and non-monetary components for each of the five highest paid (non- director) executives during the year, and for all directors, please refer to the Directors’ Report. bonuses, options and other incentive payments, discretion is exercised by the board, having regard to the overall performance of FSA Group Limited and the performance of the individual during the period. In relation to the payment of There is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors. The Board is responsible for determining and reviewing compensation arrangements for the directors themselves and the executive team. As noted above, no separate remuneration committee has been created. 16 A N N U A L R E P O R T 6S T A T E M E N T O F F I N A N C I A L P E R F O R M A N C E F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 Revenues from ordinary activities Expenses from ordinary activities (excluding borrowing costs and write downs) Borrowing costs Write down of Intellectual Property Profit / (Loss) from ordinary activities before income tax expense Income tax expense relating to ordinary activities Profit / (Loss) from ordinary activities before income tax expense Notes 2 3 3(a) 3(b) Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 13,921,648 10,926,923 172,614 493,051 (12,271,756) (11,883,629) (98,713) (1,193,681) (71,240) (85,665) (65,805) (58,689) - (499,995) - (499,995) 1,578,652 (1,542,366) 8,096 (1,259,314) 4 (373,171) (126,025) (925,982) - 1,205,481 (1,668,391) (917,886) (1,259,314) Transaction costs arising on issue of shares 18(b) Total reserves, expenses and valuation adjustments recognised directly in equity Total changes in equity other than those resulting from transactions with owners as owners - - (265,351) (265,351) - - (265,351) (265,351) 1,205,481 (1,933,742) (917,886) (1,524,665) Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 23 1.40 1.38 (2.05) (1.90) F S A G R O U P L I M I T E D 17 7S T A T E M E N T O F F I N A N C I A L P O S I T I O N A S A T 3 0 J U N E 2 0 0 4 CURRENT ASSETS Cash assets Receivables Other Financial Assets Other Total Current Assets NON-CURRENT ASSETS Receivables Plant and equipment Other Financial Assets Deferred Tax Benefit Intangibles Total Non-Current Assets TOTAL ASSETS CURRENT LIABILITIES Payables Tax Liabilities Interest-bearing liabilities Provisions Total Current Liabilities NON-CURRENT LIABILITIES Interest-bearing liabilities Deferred Income Tax liabilities Notes Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 19 5 6 7 8 10 11 12 13 14 15 16 4,303,722 5,260,904 - 125,285 2,033,686 4,333,115 68,299 158,757 2,226,518 - - - 640,172 16,612 68,299 20,143 9,689,911 6,593,857 2,226,518 745,226 270,100 360,313 - 233,326 345,124 201,402 340,040 - 104,005 431,404 - - 2,564,935 233,326 - - - 2,564,935 - - 1,208,863 1,076,851 2,798,261 2,564,935 10,898,774 7,670,708 5,024,779 3,310,161 5,356,693 393,700 339,000 510,655 3,633,621 71,966 - 83,439 1,707,643 393,700 339,000 - 46,564 - - - 6,600,048 3,789,026 2,440,343 46,564 - 1,159,308 931,000 1,027,162 - 1,159,308 931,000 - Total Non-Current Liabilities 1,159,308 1,958,162 1,159,308 931,000 TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses TOTAL EQUITY 7,759,356 5,747,188 3,599,651 977,564 3,139,418 1,923,520 1,425,128 2,332,597 17 18 9,450,899 (6,311,481) 9,440,482 (7,516,962) 9,450,899 (8,025,771) 9,440,482 (7,107,885) 3,139,418 1,923,520 1,425,128 2,332,597 18 A N N U A L R E P O R T 8S T A T E M E N T O F C A S H F L O W S F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 Notes Consolidated Entity Parent Entity 2004 $ 2003 $ 2004 $ 2003 $ Inflows/ Inflows/ Inflows/ Inflows/ (Outflows) (Outflows) (Outflows) Outflows) CASH FLOWS FROM OPERATING ACTIVITIES Receipts from debtors and customers 22,966,927 10,445,970 18,708 908,981 Payments to institutional creditors, suppliers and employees (19,305,705) (9,179,323) (7,818) (1,163,284) Income Tax Paid Interest received Interest and other costs of finance paid GST recovered/(paid) Net cash inflow/outflow from operating (48,612) 165,628 (71,240) (670,242) - 53,795 (85,665) (276,723) - 71,453 (65,805) (1,139) - 28,903 (58,689) 29,442 activities 19(b) 3,036,756 958,054 15,399 (254,647) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of plant and equipment (273,168) (158,521) Proceeds from sale of property, plant and equipment Acquisition of controlled entity Acquisition of controlled entity – net of cash - - - Proceeds from disposal of liquid marketable securities 98,448 11,500 - (153,297) 34,157 - - - - (1,160) 4,143 (500,000) - 98,448 34,157 Net cash inflow/outflow from investing activities (174,720) (266,161) 98,448 (462,860) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings – commercial loan Share subscription proceeds Capital raising costs - - - Proceeds / (repayments) from borrowing (592,000) (33,128) 340,028 (265,351) 455,000 - - - (33,128) 340,028 (265,351) (592,000) 455,000 Intercompany loans Finance lease principal - - - 2,064,499 - (90,712) - (74,826) Net cash inflow/(outflow) from financing activities (592,000) 405,837 1,472,499 421,723 Net increase/(decrease) in cash held 2,270,036 1,097,730 1,586,346 (295,784) Cash at the beginning of the financial year 2,033,686 935,956 640,172 935,956 Cash at the end of the financial year 19(a) 4,303,722 2,033,686 2,226,518 640,172 F S A G R O U P L I M I T E D 19 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 1 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S The financial report is a general purpose financial report which has been drawn up in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. Basis of accounting The financial report has been prepared on the historical cost basis except for other financial assets which are recognised at fair values. Principles of consolidation The consolidated financial report combines the financial reports of FSA Group Limited (parent entity) and all its (Refer Note 9). controlled entities. The effects of all transactions between entities in the consolidated entity have been eliminated. Cash and cash equivalents Cash on hand and in banks and short-term deposits are stated at the lower of cost and net realisable value. For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks, and money market investments readily convertible to cash within 2 working days, net of outstanding bank overdrafts. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable debts. An estimate for doubtful debts is made, when revenue is recognised, based on historical trends. Bad debts are written-off as incurred. Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis. Investments Listed shares held for trading are carried at net market value. Changes in net market value are recognised as revenue or expense in the profit and loss for the period. Where listed shares have been revalued, any capital gains tax which may become payable has not been taken into account in determining the revalued carrying amount. All other non-current investments are carried at the lower of cost and recoverable amount. Recoverable Amount Non-current assets are not carried at an amount above their recoverable amount, and where carrying values exceed this recoverable amount assets are written down. In determining recoverable amount, the expected net cash flows have not been discounted to their present value using a market determined risk adjusted discount rate. Plant and equipment Measurement All classes of plant and equipment are measured at cost. Depreciation Depreciation is provided on a straight line basis on all plant and equipment. Major depreciation periods are: Plant and equipment: 2 to 5 years Leases A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of the leased property, without transferring the legal ownership, and operating leases under which the lessor effectively retains substantially all the risks and benefits. Where assets are acquired by means of finance leases, the present value of minimum lease payments is established as an asset at the beginning of the lease term and amortised on a straight line basis over the expected economic life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense. Operating lease payments are charged to expense on a basis which is representative of the pattern of benefits derived from the leased property. 20 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S SUMMARY OF ACCOUNTING POLICIES (Cont’d) Intangibles Goodwill is amortised over its useful life, being 5 years. During the year the directors reassessed the useful life of goodwill that was previously assessed at 20 years. This resulted in an increased amortisation expense of $63,146 during the year. Intangible assets are not carried at an amount above their recoverable amount, and where carrying values after amortisation exceed this recoverable amount the intangible assets have been written down to their recoverable amount. Trade and other payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Monies received (and not yet distributed pursuant to the Debt Agreement Proposals) on behalf of institutional creditors are recorded as current liabilities. Payables to related parties are carried at the principal amount. as an expense on an accrual basis. Interest, when charged by the lender, is recognised Provision for Institutional Creditor Payments Dividends payable to Institutional Creditors are provided for in the financial statements in accordance with the respective Debt Agreement Proposals and are classified as current provisions unless all of the Debt Agreement fee has been received, in which case they are classified as a current payable. Interest bearing liabilities All loans are measured at the principal amount. charged as an expense as it accrues. Interest is Contributed Equity Ordinary share capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Rendering of Services When the outcome of a contract to provide services under the Bankruptcy Act can be estimated reliably, revenue is recognised by reference to the right to be compensated for services and where the stage of completion of the service can be reliably estimated, specifically: Part IX Application Fees Upon the completion of preparing the Part IX proposal for consideration by the creditors and ITSA. Part IX Fees At the date of approval of the Part IX debt proposal by at least 50% (in number) of creditors who vote and they must carry with them at least 75% of the vote value (ie those who vote). Refinance Fees Upon receipt of upfront fee and subsequent trail commission. Sale of Goods Revenue from the sale of goods is recognised when control over the property sold is passed to the buyer, the amount of revenue can be reliably measured and it is probable the revenue will be received by the consolidated entity, specifically: Gogo7 virtual tours At the date of delivery and invoice of the completed tour Interest Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. F S A G R O U P L I M I T E D 21 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S SUMMARY OF ACCOUNTING POLICIES (Cont’d) The value of the employee share option plan described in notes 21 and 26 is not being charged as an employee benefit expense. Earnings per share Basic earnings per share is determined by dividing the profit from ordinary activities after related income tax expense by the weighted average number of ordinary shares outstanding during the financial period. Diluted EPS is calculated as net profit attributable to members, adjusted for: • • • costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. The operations of the parent entity (gogo7 virtual tours) were discontinued during the prior period (refer note 30). Financing arrangements The convertible note facilities currently in place expired on 24 June 2004. Any monies owing on the convertible notes at 24 June 2004, after any conversions, may become due and payable (within 14 days) providing notice of repayment is received from the Noteholder. Accordingly, this liability is no longer interest bearing and is disclosed as a current payable. Income tax Income tax has been brought to account using a method of tax effect accounting whereby income tax expense for the period is calculated on the accounting profit after adjusting for items which, as a result of their treatment under income tax legislation, create permanent differences between that profit and the taxable income. The tax effect of timing differences which arises from the recognition in the accounts of items of revenue and expenses in periods different from those in which they are assessable or allowable for income tax purposes, are represented in the Statement of Financial Position as “deferred tax benefit” or “provision for deferred income tax”, as the case may be at current tax rates. A deferred income tax benefit is only carried forward as an asset where realisation of the benefit can be regarded as being assured beyond reasonable doubt. Effective 1 July 2003, for the purposes of income taxation, FSA Group Limited and its 100% owned subsidiaries have formed a tax consolidated group. At the date of this report, the members of the group are in the process of finalising tax sharing and tax funding arrangements effective for the year ended 30 June 2004. Accordingly the substance of this intention existed at 30 June 2004 and inter-company tax balances have been accounted for as if the agreements were in place during the year given the existence of the constructive obligation. Employee benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee entitlements expected to be settled within twelve months of the reporting date are measured at their nominal amounts. All other employee entitlement liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. Employee benefits expenses and revenues arising in respect of the following categories: • wages and salaries, non-monetary benefits, annual leave, long service leave, sick leave and other leave entitlements; and • other types of employee entitlements are charged against profits on a net basis in their respective categories. 22 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 2004 $ $ Parent Entity 2004 $ 2003 $ 2 . R E V E N U E S F R O M O R D I N A R Y A C T I V I T I E S Revenue from operating activities Sales revenue – services (Debt Agreement Fees) Sales revenue – services (Refinance Fees) Sales revenue - sale of goods Revenues from non-operating activities Interest received Proceeds on sale of property, plant & equipment Proceeds on sale of listed marketable securities 13,053,541 604,031 - 10,387,480 - 464,148 165,628 - 98,448 63,795 11,500 - - - - 74,166 - 98,448 - - 464,148 28,903 - - Total revenues from operating activities 13,921,648 10,926,923 172,614 493,051 3 . E X P E N S E S F R O M O R D I N A R Y A C T I V I T I E S Classification of expenses by function Expenses from operating activities excluding borrowing costs and write downs: Cost of goods sold Marketing expenses Administrative expenses Operating expenses Employee benefits expenses (a) Borrowing costs Finance leases Interest bearing debt – external parties Interest bearing debt – related parties (b) Significant item Profit/Loss from ordinary activities before income tax expense includes the following expense whose disclosure is relevant in explaining the financial performance of the entity: Write down of intellectual property – discontinued operations - 1,978,751 4,675,550 1,587,344 4,030,111 439,949 1,505,506 3,533,776 2,130,573 4,273,825 - - 98,713 - - 439,949 50,843 48,933 505,635 148,321 12,271,765 11,883,629 98,713 1,193,681 - 52,040 19,200 71,240 31,179 35,286 19,200 - 46,605 19,200 4,203 35,286 19,200 85,665 65,805 58,689 - 499,995 - 499,995 F S A G R O U P L I M I T E D 23 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 2004 $ $ Parent Entity 2004 $ 2003 $ (c) Profit / Loss from ordinary activities before income tax Profit/Loss from ordinary activities before income tax expense is after charging / crediting the following items: Depreciation of non-current assets - Office equipment - Plant and equipment under lease Amortisation of non-current assets - Goodwill Amortisation of non-current assets - Intellectual Property 185,253 - - 86,280 173,656 40,094 100,005 31,269 Total depreciation and amortisation expenses 271,533 345,024 Write down of value of intangibles Write down of non-current assets Loss on Disposal Fixed Assets Bad and doubtful debts – trade debtors Operating lease rental Obsolete stock Unrealised losses / (gains) on investments – listed marketable securities - 64,990 2,652 3,931,671 - - - 499,995 - 232,912 2,813,319 74,826 32,446 (1,932) - - - - - - - - 9,123 - - - 27,333 38,348 100,005 - 165,686 499,995 - 33,836 74,826 32,446 (1,932) 4 . I N C O M E T A X The prima facie income tax on the profit/(loss) from ordinary activities is reconciled to the income tax provided in the financial statements as follows: The prima facie income tax benefit (30%) (2003:30%) on profit/(loss) from ordinary activities before income tax Tax effect of permanent differences: Amortisation of intangible assets Amortisation of intellectual property Adjustment for under/over provision in prior year Transfer of tax balances for tax consolidation Increase in net tax balances of subsidiaries within tax consolidated entities Other items (net) Tax effect of timing differences Income tax expense attributable to ordinary activities Dividend Imputation 473,596 (462,710) 2,429 (377,794) 25,884 - (23,355) - - 10,253 (113,207) 373,171 9,763 180,000 - - - 4,648 394,324 126,025 - - - 923,157 2,825 (2,429) - 180,000 - - - 1,240 - 196,554 925,982 - There were no dividends paid or payable during the financial year or since the end of the financial year. The balance of the franking account at balance date was $442,313. 24 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 5 . R E C E I V A B L E S ( C U R R E N T ) Trade debtors Provision for doubtful debts Other Consolidated Entity 2003 2004 $ $ Parent Entity 2004 $ 2003 $ 10,435,534 (5,175,652) 5,259,882 1,022 7,332,451 (3,014,169) 4,318,282 14,833 5,260,904 4,333,115 - - - - - 26,612 (10,000) 16,612 - 16,612 6 . O T H E R F I N A N C I A L A S S E T S ( C U R R E N T ) Listed marketable securities on a prescribed stock exchange at net market value 7. O T H E R A S S E T S ( C U R R E N T ) Prepayments Security Bonds 8 . R E C E I V A B L E S ( N O N - C U R R E N T ) Trade debtors Provision for doubtful debts - 68,299 - 68,299 61,852 63,433 76,284 82,473 125,285 158,757 365,000 (94,900) 272,165 (70,763) 270,100 201,402 - - - - - - 20,143 - 20,143 - - - F S A G R O U P L I M I T E D 25 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 9 . C O N T R O L L E D E N T I T I E S Name Country of Incorporation Percentage of equity interest held by the consolidated entity 2004 % 2003 % Prospex Profile Pty Ltd (previously Prospex Holdings Pty Ltd) FSA Australia Pty Ltd * Debt Relief Solutions Pty Ltd ** ^@ FSA Finance Pty Ltd *^ Fox Symes & Associates Pty Ltd *^ Debt Relief Services Pty Ltd *^ FSA Services Group Pty Ltd *# Australia Australia Australia Australia Australia Australia Australia 100 100 - 100 100 100 100 100 100 100 100 100 100 100 Investment 2004 $ 2 2003 $ 2 2,564,935 2,564,935 - 2 50 2 2 2 2 50 2 2 * Acquired 30 July 2002 ** Incorporated 6 March 2003 ^ Investment held by FSA Australia Pty Ltd @ De-registered 19 December 2003. This Company was dormant from inception. There was no effect on the Consolidated Entity upon de-registration. # Investment held by Fox Symes & Associates Pty Ltd 26 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 2004 $ $ Parent Entity 2004 $ 2003 $ 1 0 . P L A N T A N D E Q U I P M E N T ( N O N - C U R R E N T ) Plant and Equipment At cost Accumulated depreciation Plant and Equipment under lease At cost Accumulated depreciation Total plant and equipment At cost Accumulated depreciation Plant & Equipment: Movements during year: Beginning of the year Additions Disposals Depreciation Write downs Assets transferred upon the acquisition of controlled entities Accumulated depreciation transferred upon the acquisition of controlled entities Plant & Equipment under finance lease: Movements during year: Beginning of the year Additions Disposals Amortisation Write downs Assets transferred upon the acquisition of controlled entities Accumulated amortisation transferred upon the acquisition of controlled entities Total Plant & Equipment Movements during year: Beginning of the year Additions Disposals Depreciation Write downs Assets transferred upon the acquisition of controlled entities Accumulated depreciation transferred upon the acquisition of controlled entities F S A G R O U P L I M I T E D 671,735 (311,422) 360,313 - - - 671,735 (311,422) 360,313 340,040 273,168 (2,652) (185,253) (64,990) - - 360,313 - - - - - - - - 340,040 273,168 (2,652) (185,253) (64,990) - - 360,313 636,520 (296,480) 340,040 229,452 (229,452) - 865,972 (525,932) 340,040 43,888 158,521 (231,750) (173,656) - 634,054 (91,017) 340,040 38,348 - (12,662) (40,094) - 18,793 (4,385) - 82,236 158,521 (244,412) (213,750) - 652,847 (95,402) 340,040 113,076 (113,076) - 229,452 (229,452) - 342,528 (342,528) - 113,076 (113,076) - 229,452 (229,452) - 342,528 (342,528) - - - - - - - - - - - - - - - - - - - - - - - - - 43,888 1,160 (17,715) (27,333) - - - - 38,348 - - (38,348) - - - - 82,236 1,160 (17,715) (65,681) - - - - 27 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 2004 $ $ Parent Entity 2004 $ 2003 $ I N T A N G I B L E S ( N O N - C U R R E N T ) 11 . Intellectual property – at cost Accumulated amortisation 2,344,959 (729,914) 2,344,959 (729,914) 2,344,959 (729,914) 2,344,959 (729,914) 1,615,045 1,615,045 1,615,045 1,615,04 Write down to recoverable amount (1,615,045) (1,615,045) (1,615,045) (1,615,045) Goodwill Accumulated amortisation 1 2 . P A Y A B L E S ( C U R R E N T ) Trade creditors - unsecured Institutional creditors - unsecured Other creditors - unsecured Intercompany loan – controlled entities - 462,673 (117,549) - 462,673 (31,269) 345,124 431,404 - - - - - - - - 454,355 4,071,862 830,476 - 237,712 2,245,775 1,150,134 - 9,568 - - 1,698,075 19,288 - 27,276 - 5,356,693 3,633,621 1,707,643 46,564 I N T E R E S T - B E A R I N G L I A B I L I T I E S ( C U R R E N T ) 1 3 . Convertilble Note facliity - unseured - director related entities - other 1 4 . P R O V I S I O N S ( C U R R E N T ) Employee entitlements Provision for Institutional Creditor Payments 150,000 189,000 339,000 88,905 421,750 510,655 - - - 150,000 189,000 339,000 83,439 - 83,439 - - - - - - 240,000 691,000 931,000 - - - - - - I N T E R E S T - B E A R I N G L I A B I L I T I E S ( N O N - C U R R E N T ) 1 5 . Convertilble Note facliity - unseured - director related entities - other - - - 240,000 691,000 931,000 1 6 . D E F E R R E D I N C O M E T A X L I A B I L I T I E S ( N O N - C U R R E N T ) Provision for deferred income tax 1,159,308 1,027,162 1,159,308 - Future income tax benefits attributable to tax losses deducted in arriving at the provision for deferred income tax - 588,337 - - 28 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated entity 2004 $ 2003 $ 1 7. C O N T R I B U T E D E Q U I T Y (a) Issued and paid up capital 86,384,947 ordinary shares fully paid 9,450,899 9,440,482 (b) Movements in securities on issue Movements in ordinary shares on issue Balance at beginning of period Issued during the period: On 30 July 2002, 53,000,000 fully paid ordinary shares was issued in exchange for shares in FSA Group Pty Ltd (now known as FSA Australia Pty Ltd) On 30 July 2002, 3,000,000 fully paid ordinary shares were issued as a result of the initial public offering During July 2003, 345,000 Convertible Notes converted into 345,000 ordinary shares and 690,000 $0.20 options exercisable on or before 31 December 2003 Costs associated with capital raising On 10 January 2003, 333,333 ordinary shares issued in accordance with an executive service contracts (CEO) On 21 August 2003, 206,594 ordinary shares issued in accordance with an executive service contracts (CEO) 9,419,649 6,914,398 - 2,064,935 - - - - 600,000 69,000 (265,351) 36,667 10,417 - Balance at 30 June 2004, 86,384,947 ordinary shares fully paid (30 June 2003: 86,178,353) 9,430,066 9,419,649 Movements in $0.20 options exercisable on or before 31 December 2005 on issue Balance at beginning of period Issued during the period: On 30 July 2002, 4,166,667 $0.20 options exercisable on or before 31 December 2005 were issued as a result of the initial public offering Balance at 30 June 2004, 23,123,334 options (30 June 2003: 23,123,334) 20,833 - - 20,833 20,833 20,833 Total balance at 30 June 2004 9,450,899 9,440,482 F S A G R O U P L I M I T E D 29 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (c) Movements in number of securities on offer since 30 June 2003 to the date of this report Listed Ordinary shares Listed $0.20 options exercisable on or before 31 December 2005 Unlisted $0.60 options exercisable on or before 30 November 2006 Balance at 30 June 2003 86,178,353 23,123,334 25,000,000 Securities issued in accordance with executive services contract (CEO) Balance as at 30 June 2004 (and date of this report) 206,594 - - 86,384,947 23,123,334 25,000,000 Unlisted $0.10 ESOP options exercisable on or before 9 June 2006 Unlisted $0.10 options exercisable on or before 9 June 2006 Unlisted $0.10 options exercisable on or before 24 November 2006 Balance at 30 June 2003 Options forfeited 1,856,666 (1,383,333) Securities issued to employees and external consultants - 737,566 (60,000) - Balance as at 30 June 2004 (and date of this report) 473,333 677,566 - (150,000) 550,000 400,000 (d) Issued Capital – Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, whether in person or by proxy, at a meeting of the Company. (e) Options – Options granted by the Company give the grantee the right, but not the obligation to purchase shares in the company at a predetermined price by a predetermined date. They do not confer any rights on the grantor to participate in dividends declared by the Company or vote at any meetings of the shareholders of the Company. 30 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 1 8 . A C C U M U L A T E D L O S S E S & T O T A L E Q U I T Y (a) Accumulated Losses Balance at the beginning of period Net profit/(loss) attributable to members of FSA Group Limited (7,516,962) (5,848,571) (7,107,885) (5,848,571) 1,205,481 (1,668,391) (917,886) (1,259,314) Total available for appropriation (6,311,481) (7,516,962) (8,025,771) (7,107,885) Dividends provided for or paid - - - - Balance at end of period (6,311,481) (7,516,962) (8,025,771) (7,107,885) (b) Total Equity Balance at beginning of period Net Profit / (Loss) recognised in the Statement of Financial Performance Transactions with owners as owners: - contributions of equity 1,923,520 1,065,827 2,332,597 1,065,826 1,205,481 (1,668,391) (917,886) (1,259,313) 10,417 2,791,435 10,417 2,791,435 Transaction costs arising from the issue of shares - (265,351) - (265,351) Balance at end of period 3,139,418 1,923,520 1,425,128 2,332,597 F S A G R O U P L I M I T E D 31 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 1 9 . N O T E S T O S T A T E M E N T O F C A S H F L O W S (a) Reconciliation of Cash Cash balance comprises: Cash on hand Deposits (b) Reconciliation of net cash outflows from operating activities to Profit/(loss) from ordinary activities after tax Profit/(loss) from ordinary activities after tax Add back/(deduct) items not involving cash flows: Depreciation of non-current assets Amortisation of non-current assets Amortisation of intellectual property Amortisation of goodwill Write down of intellectual property Write down and loss on disposal on Plant & Equiptment Unrealised losses / (gain) on investments listed marketable securities Loss / (gain) on sale of investments – listed Shares issued in lieu of services rendered Changes in assets and liabilities: (Increase)/decrease in trade and other receivables (Increase)/decrease in inventory (Increase)/decrease in other current assets (Decrease)/increase in trade and other creditors (Decrease)/increase in employee entitlements (Decrease)/increase in other liabilities 2,147,874 2,155,848 2,033,686 - 70,670 2,155,848 640,172 - 4,303,722 2,033,686 2,226,518 640,172 1,205,481 (1,668,391) (917,886) (1,259,314) 185,253 - - 86,280 - 67,642 - (30,149) - (996,487) - 33,472 329,154 5,466 2,150,644 173,656 40,094 100,005 31,269 499,995 232,912 (1,932) - 36,667 (288,732) 43,749 197,294 (81,910) 3,915 1,639,463 - - - - - - - (30,149) - 31,713 - 5,043 916,261 - 10,417 27,333 38,348 100,005 - 499,995 13,572 (1,932) - 36,667 374,739 43,749 192,848 (314,300) (6,357) - Net cash outflows from operating activities 3,036,756 958,054 15,399 (254,647) (c) Non-cash Financing and Investing Activities During the year, the Company issued 206,594 ordinary shares in accordance with an executive service contract (CEO). 32 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ (d) Business acquired During the year 100% of the ordinary shares of FSA Australia Pty Ltd were acquired. Details are as follows: Consideration: - 53,000,000 ordinary shares of FSA Group Ltd issued for 3.90 cents per share - Cash Fair values of net assets acquired: Cash assets Receivables Property, plant & equipment Other assets Inventories Trade creditors Other liabilities Goodwill on acquisition (Note 11) 2,064,935 500,000 2,064,935 500,000 n/a 2,564,935 n/a 2,564,935 346,703 4,134,433 557,445 143,060 - (137,555) (2,941,824) 2,102,262 462,673 2,564,935 Outflow of cash to acquire FSA Australia Pty Ltd, net of cash acquired: n/a n/a Cash consideration Less cash balances acquired Outflow of cash (e) Financing facilities available At balance date, the following financing facilities had been negotiated and were available: Total facilities - Convertible Notes (see Note 29) Facilities used at balance date: - Convertible Notes Facilities unused at balance date: - Convertible Notes (500,000) 346,703 (153,297) 339,000 931,000 339,000 931,000 339,000 931,000 339,000 931,000 - - - - F S A G R O U P L I M I T E D 33 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 2 0 . E X P E N D I T U R E C O M M I T M E N T S (a) Lease expenditure commitments (i) Operating leases (non-cancellable): Minimum lease payments not later than one year – later than one year and not later than five years – later than five years – (ii) Finance leases: – – – not later than one year later than one year and not later than five years later than five years Total minimum lease payments – – future finance charges lease liability Current liability Non-current liability 2 1 . E M P L O Y E E B E N E F I T S (a) Employee benefits The aggregate employee liability is comprised of: Accrued wages and salaries Provisions (current) 178,582 - - 62,052 - - 178,582 62,052 - - - - - - - - - - - - - - - - - - 9,062 88,905 97,967 79,137 83,439 162,576 - - - - - - - - - - - - - - - - 31,145 - - 31,145 - - - - - - - - - - - - At balance date the Consolidated Entity had 37 full time employees (2003: 48) (b) Employee Share Incentive Scheme An employee share incentive scheme has been established where executives and certain members of staff of FSA Group Limited are issued with options over the ordinary shares of FSA Group Limited. The options, issued for nil consideration, are issued in accordance with performance guidelines established by the directors of FSA Group Limited. The options cannot be transferred and will not be quoted on the ASX. The total number of shares in respect of which options may be granted under the scheme to employees and which have not been exercised or lapsed shall not at any time exceed five percent (5%) of the Company’s total issued share capital. There are no such restrictions as to the number of shares in respect of which options may be granted under the scheme to executives. 34 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S The exercise price of an option is ten (10) cents or such other price as may be determined by the Board in accordance with Listing Rules. The option period is three (3) years or such earlier period as either determined by the Board or as a result of the employee ceasing his or her employment with the Company. The option exercise period is the period commencing on: • • • in respect of 1/2 of the Options, the first anniversary of the Option Commencement Date; in respect of the second 1/2 of the Options, the second anniversary of the Option Commencement Date; and expiring, (unless the Board determines a shorter period) at the end of the option period. There have been two tranches ESOP options issued, 1,856,666 issued on 10 June 2003 and 550,000 issued on 24 November 2003. ESOP 10c options (issued 10 June 2003) Balance at beginning of period - granted - forfeited - exercised Balance at end of period Exercisable at end of period ESOP 10c options (issued 24 November 2003) Balance at beginning of period - granted - forfeited - exercised Balance at end of period Exercisable at end of period Total ESOP 10c options (issued all dates) Balance at beginning of period - granted - forfeited - exercised Balance at end of period Exercisable at end of period 2004 Number of Options 733,333 - (260,000) - 473,333 263,666 2004 Number of Options - 550,000 (150,000) - 400,000 - 2004 Number of Options 733,333 550,000 (410,000) - 873,333 263,666 2003 Number of Options - 1,856,666 (1,123,333) - Weighted average exercise price 10 cents 10 cents 10 cents 733,333 10 cents - 2003 Number of Options - - - - - - 2003 Number of Options - 1,856,666 (1,123,333) - Weighted average exercise price 10 cents 10 cents 10 cents 10 cents Weighted average exercise price 10 cents 10 cents 10 cents 733,333 10 cents - F S A G R O U P L I M I T E D 35 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 2 2 . C O N T I N G E N T L I A B I L I T I E S In April 2004, the FSA Group reported to the Australian Stock Exchange that it was defending allegations by the Australian Competition and Consumer Commission (ACCC). Proceedings against Fox Symes and Associates Pty Ltd and Debt Relief Services Pty Ltd (both wholly owned subsidiaries of the FSA Group) and two of its directors have commenced in the Federal Court. The allegations relate to the Company’s role as a debt administrator (under Part IX of the Bankruptcy Act 1966) during the period 2000 to 2002. The Company does not accept the Commissions allegations in these proceedings and they are being strenuously defended. Very significant expenditure on legal fees may be incurred as the Company defends the above action. Further, as with any legal proceedings, there is inherent uncertainty about any prospect of a positive outcome. The action is being strenuously defended. It is not possible to estimate any potential liability at this stage. There are no other contingent liabilities that the Consolidated Entity is aware of. 2 3 . E A R N I N G S P E R S H A R E Basic earnings / (losses) per share [cents per share] Diluted earnings / (losses) per share [cents per share] 2004 2003 1.40 1.38 (2.05) (1.90) Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share 86,356,080 81,200,828 Dilution effect of convertible notes 4,598,233 4,655,000 Weighted average number of ordinary shares on issue used in the calculation of basic and diluted earnings per share 90,954,313 85,855,828 Earnings used in the calculation of basic earnings per share $1,205,481 ($1,668,391) After tax interest expense attributable to convertible notes $49,868 $38,140 Earnings used in the calculation of diluted earnings per share $1,255,349 ($1,630,251) In calculating earnings per share, the weighted average number of the potential ordinary shares (options) was not included as they were considered not dilutive. 2 4 . S U B S E Q U E N T E V E N T S There have been no events since the end of the financial year that impact upon the financial report as at 30 June 2004. 36 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 2 5 . A U D I T O R S ’ R E M U N E R A T I O N Amounts received or due and receivable by PKF: - an audit or review of the financial report of the entity and any other entity in the Consolidated Entity - other services (taxation) in relation to the entity and any other entity in the Consolidated Entity Consolidated Entity 2003 $ 2004 $ Parent Entity 2004 $ 2003 $ 68,200 68,700 35,000 10,810 103,200 79,510 - - - - - - 2 6 . D I R E C T O R A N D E X E C U T I V E D I S C L O S U R E S (a) Details of Specified Directors and Specified Executives (i) Specified directors Sam Doumany Tim Odillo Maher Deborah Southoun Fletcher Quinn (ii) Specified executives Andrew Aravanis Kevin McDonnell Nino Eid Barry Turner Cellina Chen Duncan Cornish Chairman (non-executive) Director (executive) Director (executive) Director (non-executive) Call Centre Manager IT Manager Refinance Manager Operations Manager Financial Controller Company Secretary and Finance Manager (b) Remuneration of Specified Directors and Specified Executives (i) Remuneration Policy The Board of Directors of FSA Group Limited is responsible for determining and reviewing compensation arrangements for the directors and the executive team. The Board 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 may be given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company. F S A G R O U P L I M I T E D 37 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S To assist is achieving these objectives, the Board links the nature and amount of executive directors’ and officers emoluments to the company’s financial performance. All directors and executives have the opportunity to qualify for participation in the Employee Share Option Plan which currently provides incentives, at the Board’s discretion, based on individual key performance indicators (“KPI’s”) being met and other criteria relating to profitability, cash flow and share price growth. In addition, executive directors are entitled to annual bonuses payable upon the achievement of certain pre-determined operational KPI’s. The maximum amount of the annual bonuses is $30,000 each. It is the Board’s policy that employment agreements are entered into with all executive directors and executives. The current employment agreements each has a one month notice period. No termination or other benefits other than the above bonuses are contained within the contracts. (ii) Remuneration of Specified Directors and Specified Executives Sam Doumany 2004 2003 Tim Odillo Maher 2004 2003 Deborah Southon 2004 2003 Fletcher Quinn 2004 2003 Salary & Fees 46,048 29,542 120,000 120,393 113,903 125,286 93,992 48,332 Total Remuneration: Specified Directors 373,943 323,553 2004 2003 Specified Executives Andrew Aravanis 2004 2003 Kevin McDonnell 2004 Nino Eid 2004 Barry Turner 2004 Cellina Chen 2004 Duncan Cornish 2004 2003 104,379 106,144 93,472 86,942 74,631 58,661 92,400 101,500 Total Remuneration: Specified Executives 2004 2003* 510,485 207,644 Primary Equity Cash Non-Cash Superan- Retirement Options unation Bonus Post-Employment benefits benefits - - 20,000 - 20,000 - - - 40,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,144 - - - 10,251 - - - 14,395 - 9,200 8,116 8,380 7,739 6,069 4,762 - - 36,150 8,116 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 263 679 840 840 2,563 785 - - 5,291 679 Other Total - - - - - - - - - - - - - - - - - - - - 50,192 29,542 140,000 120,393 144,154 125,286 93,992 48,332 428,338 323,553 113,842 114,939 102,692 95,521 83,263 64,208 92,400 101,500 551,926 216,439 * Group totals in respect of the financial year ended 30 June 2003 do not equal the sums of amounts disclosed for 2003 for individuals specified in 2004, as different individuals were specified in 2003. 38 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (c) Remuneration options: Granted and vested during the year During the year options were granted as equity compensation benefits to certain specified executives as disclosed below (no options were granted to specified directors during the period). The options were issued free of charge. Each of the granted options entitles the holder to subscribe for one fully paid ordinary share in the entity at an exercise price of $0.10. The option period is three (3) years or as a result of the employee ceasing his or her employment with the Company. The option exercise period for the granted options is the period commencing on: in respect of 1/2 of the Options, the first anniversary of the Option Commencement Date; in respect of the second 1/2 of the Options, the second anniversary of the Option Commencement Date; and expiring, (unless the Board determines a shorter period) at the end of the option period. • • • There have been two tranches ESOP options issued, 1,856,666 issued on 10 June 2003 and 550,000 issued on 24 November 2003. Terms & Conditions for Each Grant Vested number Granted number Grant Date Value per option at grant date ($)# Exercise Price First Exercise Last Exercise Date Date per share ($) Specified Executives Andrew Aravanis Kevin McDonnell Nino Eid Barry Turner Cellina Chen Duncan Cornish Total 30,000 - - 81,667 25,000 - - 136,667 - 100,000 100,000 - - 50,000 - 250,000 24-Nov-03 24-Nov-03 $0.028 $0.028 $0.10 $0.10 23-Nov-2004 23-Nov-2004 23-Nov-2006 23-Nov-2006 24-Nov-03 $0.028 $0.10 23-Nov-2004 23-Nov-2006 # Calculation of value of options granted using the Black-Scholes option pricing model, which takes into account factors such as the option exercise price, the market price at the date of issue and volatility of the underlying share price and the time to maturity of the option. The information set out above, plus the share price of 5.1 cents of the ordinary share price on the date the options were granted, was used in the calculations in relation to each specified executive of granted options. (d) Shares issued on exercise of remuneration options No remuneration options were exercised during the year. (e) Option holdings of specified directors and specified executives Balance at Granted as Options Net 1 July 2003 remunera- Exercised Change Other tion Balance at 30 June 2004 Vested at 30 June 2004 Total Not Exercisable Exercisable ESOP Options Specified Executives Andrew Aravanis Kevin McDonnell Nino Eid Barry Turner Cellina Chen Duncan Cornish Total 60,000 - - 163,333 50,000 - 273,333 - 100,000 100,000 - 50,000 - 250,000 - - - - - - - - - - - - - - 60,000 100,000 100,000 163,333 100,000 - 523,333 30,000 - - 81,667 25,000 - 136,667 - - - - - - - 30,000 - - 81,667 25,000 - 136,667 F S A G R O U P L I M I T E D 39 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (e) Option holdings of specified director and specified executives (continued) Balance at 1 July 2003 Granted as remunera- tion Options Exercised Net Change Other Balance at 30 June 2004 Options ($0.20 @ 31-Dec-05) Specified Directors Sam Doumany Tim Odillo Maher* Deborah Southon* Fletcher Quinn Specified Executives Andrew Aravanis Kevin McDonnell Nino Eid Barry Turner Cellina Chen Duncan Cornish Total - 2,400,000 2,400,000 251,667 120,000 - - 40,000 - 3,333 5,215,000 Options ($0.60 @ 30-Nov-06) Specified Directors Sam Doumany Tim Odillo Maher* Deborah Southon* Fletcher Quinn Total - 6,250,000 6,250,000 - 12,500,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - * These options were subject to ASX escrow until 2 August 2004 (f) Shareholdings of specified directors and specified executives Shares held in FSA Group Balance at 1 July 2003 Limited (number) Granted as remunera- tion Options Exercised Specified Directors Sam Doumany Tim Odillo Maher# Deborah Southon# Fletcher Quinn Specified Executives Andrew Aravanis Kevin McDonnell Nino Eid Barry Turner Cellina Chen Duncan Cornish Total - 12,048,589 11,500,000 - 60,000 - - 20,000 - 3,333 23,631,922 - - - - - - - - - - - - - - - - - - - - - - - - - 1,667 - - - - - - 1,667 - 2,400,000 2,400,000 253,334 120,000 - - 40,000 - 3,333 5,216,667 - - - - - 6,250,000 6,250,000 - 12,500,000 Net Change Other - 5,071,923 1,071,533 5,750,560 - - - - - 714,355 12,608,371 Balance at 30 June 2004 - 17,120,512 12,571,533 5,750,560 60,000 - - 20,000 - 717,688 36,240,293 # 11,500,000 ordinary shares for both Tim Odillo Maher and Deborah Southon were subject to ASX escrow until 2 August 2004. 40 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (g) Loans to specified directors and specified executives There were no loans to specified directors or specified executives during the period. (h) Other transactions to specified directors and specified executives When the Company acquired FSA Group and re-listed on the ASX in August 2002, two specified directors contributed funds through a Convertible Note facility, described further in Notes 13,15 and 29. The opening and closing balances, and any movements during the period, of the value of the Convertible Notes held by the specified directors are set out below: Convertible Notes ($0.20) ($ value) Balance 1 July 2003 Drawdown 30 June 2004 Repayment Conversion Balance Specified Directors Sam Doumany Tim Odillo Maher Deborah Southon Fletcher Quinn Total - 165,000 75,000 - 240,000 - - - - - - (90,000) - - (90,000) - - - - - - 75,000 75,000 - 150,000 Interest paid to Specified Directors on the above convertible notes was $19,200 (2003: $19,200). There were no other transactions or balances with specified directors or specified executives during the period. 2 7. R E L A T E D P A R T Y D I S C O S U R E S Directors The directors of FSA Group Ltd during the financial year were: Sam Doumany (appointed 18 December 2002) Tim Odillo Maher (appointed 30 July 2002) Deborah Southon (appointed 30 July 2002) Fletcher Quinn (appointed 22 October 2002) As at balance date and the date of this report, the interests of the directors in the shares and options of FSA Group Ltd were: Ordinary Shares $0.20 options exercisable on or before 31 December 2005 $0.60 options exercisable on or before 30 November 2006 $0.20 Convertible Notes (Number) Sam Doumany Tim Odillo Maher Deborah Southon Fletcher Quinn - 17,120,512 12,571,533 5,750,560 - 2,400,000 2,400,000 253,334 - 6,250,000 6,250,000 - - 375,000 375,000 - Ultimate Parent Entity FSA Group Ltd is the ultimate parent entity. F S A G R O U P L I M I T E D 41 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 2 8 . S E G M E N T I N F O R M A T I O N The Consolidated Entity operated solely in the financial services industry within Australia for the entire year ended 30 June 2004. During the prior period, the Consolidated Entity also operated a business specialising in real estate marketing products (gogo7 real estate virtual tour division), also within Australia. This business was discontinued in February 2003. Further financial information regarding this discontinued segment is contained in Note 30. Details regarding Asset additions for the prior period in relation to the discontinued segment are contained in the asset movement schedule for the parent entity in Note 10. Details regarding prior year amortisation and depreciation expense for the discontinued segment are disclosed under the parent entity in Note 3(c). There were no inter-segment transactions during the prior or current period. 2 9 . F I N A N C I A L I N S T R U M E N T S (a) Terms and Conditions relating to financial assets and liabilities: Trade Receivables – Trade debtors are non-interest bearing and can take up to eighteen months to collect. This is normal for this type of business. Other Financial Assets – Listed shares are readily saleable with no fixed terms. There would be no material capital gains tax payable if these assets were sold at the reporting date. Payables – Trade and other creditors are non-interest bearing and normally settled on 30 day terms. Institutional Creditors – Non-interest bearing and are dispersed to institutional creditors in accordance with the debt agreements. Convertible Note facility – FSA Group Ltd has entered into convertible note facilities that, at 30 June 2004, had $339,000 owing. The convertible note facilities currently in place expired on 24 June 2004. The Noteholders have the ability at any time up to 24 June 2004 to convert the loan moneys into ordinary shares in the Company at an issue price of 20 cents each, together with two (2) free attaching options to subscribe for ordinary shares in the Company, exercisable at 20 cents each on or before 31 December 2005. Any monies owing on the convertible notes at 24 June 2004, after any conversions, may become due and payable (within 14 days) providing notice of repayment is received from the Noteholder. The notes are no longer interest bearing. 42 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (b) Interest rate risk The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows: Floating interest rate Fixed interest rate Non-interest bearing Total carrying amount as per average effective Weighted 2004 $ 2004 $ 2004 $ the balance sheet 2004 $ interest rate 2004 % (i) Financial assets Cash Trade receivables Total financial assets 2,147,874 - 2,147,874 2,155,848 - 2,155,848 (ii) Financial liabilities Trade creditors Institutional creditors Other creditors Convertible Note - unsecured Total financial liabilities - - - - - - - - - - - 5,259,882 5,259,882 454,355 4,071,862 853,830 339,000 5,719,047 4,303,722 5,259,882 9,563,604 3.00% 454,355 4,071,862 853,830 339,000 5,719,047 Net financial assets / (liabilities) 2,147,874 2,155,848 (459,165) 3,844,557 The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at 30 June 2003, were as follows: Floating interest rate Fixed interest rate Non-interest bearing Total carrying amount as per average effective Weighted 2003 $ 2003 $ 2003 $ the balance sheet 2003 $ interest rate 2003 % (i) Financial assets Cash Trade receivables Listed shares Total financial assets 2,033,686 - - 2,033,686 (ii) Financial liabilities Trade creditors Institutional creditors Other creditors Convertible Note - unsecured Total financial liabilities - - - - - - - - - - - - 931,000 931,000 - 4,519,684 68,299 4,587,983 237,712 2,245,775 1,222,100 - 3,705,587 2,033,686 4,519,684 68,299 6,621,669 237,712 2,245,775 1,222,100 931,000 4,636,587 Net financial assets / (liabilities) 2,033,686 (931,000) 882,396 1,985,082 F S A G R O U P L I M I T E D 3.00% 8.00% 43 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (c) Net fair values All financial assets and liabilities have been recognised at the balance date at their net fair values. (d) Credit risk exposures The consolidated entity’s maximum exposures to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount of those assets indicated in the Statement of Financial Position. 3 0 . D I S C O N T I N U E D O P E R A T I O N During the year ended 30 June 2003 (29 January 2003), the Directors publicly announced their intention to close the gogo7 real estate virtual tour division. The gogo7 division was non-core – a review was undertaken which concluded that it was unlikely that the division would generate sufficient profits in the near future. Following the review the directors decided to close the division. The closure of the gogo7 division was completed in February 2003. The value of the gogo7 Intellectual Property at 31 December 2003 was $499,995, which was written off at 31 December 2003. Financial Performance Information for the year ended 30 June Revenues from ordinary activities Expenses from ordinary activities (including borrowing expenses) Write down of intellectual property Write down of investment Loss before income tax Income tax Net loss Financial Position Information as at 30 June Assets Liabilities Net assets Financial Performance Information for the year ended 30 June Cash inflow/(outflow) from operating activities Cash inflow/(outflow) from investing activities Cash inflow/(outflow) from financing activities Total cash inflow/(outflow) 2004 $ 2003 $ - - - - - - - - - - - - - - 464,149 (1,137,103) (499,995) - (1,172,949) - (1,172,949) 16,617 (19,290) (2,673) (108,934) 2,983 (107,954) (213,905) 44 A N N U A L R E P O R T 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 3 1 . I M P A C T S O F A D O P T I N G A U S T R L A I A N E Q U I V A L E N T S T O I N T E R N A T I O N A L F I N A N C I A L R E P O R T I N G S T A N D A R D S Australian equivalents to International Financial Reporting Standards (“IFRS”) will be adopted in the financial report for the year ended 30 June 2006 and the comparative information presented in that report for the year ended 30 June 2005. In preparation for the transition, opening balances as at 1 July 2004 for the comparative year ending 30 June 2005 will be converted to AIFRS in accordance with new accounting standard AASB 1”First Time Adoption of Australian Financial Reporting Pronouncements”. FSA Group Ltd’s management are assessing the significance of these changes and preparing for their implementation. The Audit Committee will oversee and manage the Company’s transition to IFRS. The board has authorised ongoing training courses for members of the Audit Committee (where appropriate) and will also provide access to selected appropriately skilled consultants where necessary to ensure the successful implementation and transition to IFRS. We will seek to keep stakeholders informed as to any material impact of these new standards as they are finalised. The key differences in accounting policy that may arise from the adoption of AIFRS are listed below: Income Tax AASB 112 “Income Tax” requires all income tax balances to be calculated using the comprehensive balance sheet liability method. Deferred tax items will be calculated by comparing the difference in carrying amounts to tax bases for all assets and liabilities and multiplying this by the tax rates expected to apply to the period when the asset is realised or the liability settled. Recognition of the resulting amounts are subject to some exceptions, but generally deferred tax balances must be calculated for each item in the statement of financial position. Deferred tax assets will only be recognised where there exists the probability that future taxable profit will be available to recognise the asset. The application of AASB 112 “Income Tax” should not result in any significant adjustment to either tax assets and liabilities or net profit. Property, plant & equipment Under AASB 116 “Property Plant & Equipment” an impairment test is required when there is an indication that impairment exists by reference to internal and external market factors. Any item of property, plant and equipment which is impaired must be written down to its recoverable amount. The amount of the impairment write down for assets carried at cost will be expensed through the statement of financial performance. Items of property, plant and equipment measured at fair value will still be carried at fair value, however the offsets of balances in the asset revaluation reserve under the new standards will be determined on an “asset by asset” basis rather than the current “class by class” treatment. This means that a change to profit or loss will occur where impairment write down is necessary and there is no existing balance for that asset in the asset revaluation reserve. All consolidated entity assets of property plant and equipment assets are tested to ensure the carrying amount is less than recoverable and write downs are made to reflect losses arising. Goodwill Amortisation of goodwill will no longer be permitted under the new standard. At the date of adoption of IFRS, goodwill will be allocated to cash generating units of the entity and will be impairment tested on initial adoption of IFRS and annually thereafter. Any necessary impairment write down in relation to goodwill after initial adoption will be expensed through the statement of financial performance. F S A G R O U P L I M I T E D 45 9N O T E S T O T H E F I N A N C I A L S T A T E M E N T S Share Based Payments The entity currently engages in the practice of allocating to its employees share options as part of their remuneration packages under the employee share option plan. AASB 2 “Share Based Payments” require that these payments and also payments made to other counterparties in return for goods and services shall be measured at the more readily determinable fair value of the good/service or the fair values of the equity instrument. This amount will be expensed in the statement of financial performance. Where the grant date and the vesting date are different the total expenditure calculated will be allocated between the two dates taking into account the terms and conditions attached to the instruments and the counterparties as well as management’s assumptions about probabilities of payments and compliance with and attainment of the set out terms and conditions. Business Combinations AASB 3 “Business Combinations” mandates that discounts on acquisition will no longer be allocated over the non-monetary assets of the entity. Instead a discount on acquisition will be recognised in profit and loss as income. This standard has retrospective application however the exemption provisions in AASB 1 “First Time Adoption of Australian International Financial Reporting Pronouncements” allows the prospective application of the standard from the time of initial adoption of the standards. If the exemption in AASB 1 is not applied this will result in the entity reinstating the balances of goodwill and non monetary items in relation to its acquisitions for all business combinations effected from 30 July 2002 to the date of adoption of the new standards and adjusting retained earnings by those amounts. Any reverse acquisition situations will also then be accounted for accordingly and will result in an altered consolidated entity column for reporting purposes. The directors propose to utilise this exemption and will not retrospectively apply this standard. 46 A N N U A L R E P O R T 10D I R E C T O R S ’ D E C L A R A T I O N In accordance with a resolution of the directors of FSA Group Ltd, I state that: In the opinion of the directors: (a) the financial statements and notes of the company and the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and the consolidated entity’s financial position as at 30 June 2004 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and the 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. On behalf of the Board Fletcher Quinn - Director Brisbane 30 September 2004 F S A G R O U P L I M I T E D 47 11I N D E P E N D E N T A U D I T R E P O R T Scope The financial report and directors’ responsibilities The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for both FSA Group Limited and the consolidated entity, for the year ended 30 June 2004. The consolidated entity comprises both the company and the entities it controlled during that year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: • • examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. Audit opinion In our opinion, the financial report of FSA Group Limited and its controlled entities is in accordance with: (a) 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 2004 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. PKF Chartered Accountants - Brisbane Partnership C G Bellamy Brisbane 30 September 2004 48 A N N U A L R E P O R T N O T E S F S A G R O U P L I M I T E D 49 F O U R T H A N N U A L G E N E R A L M E E T I N G Notice of Meeting Notice is hereby given that the fourth annual general meeting of FSA Group Ltd will be held at the Brisbane Polo Club, Level 2, 1 Eagle Street, Brisbane at 12.00pm on Friday, 26 November 2004. Business 1. To receive and consider the Directors’ Report and Financial Report for the year ended 30 June 2004 and the Auditor’s Report on the financial report and consolidated financial report. 2. To elect two directors (a) Mr Tim Odillo Maher retires in accordance with the Constitution of the Company and, being eligible, offers himself for re-election. (b) Ms Deborah Southon retires in accordance with the Constitution of the Company and, being eligible, offers herself for re-election. To transact any other business which may be lawfully brought forward. By Order of the Board D P Cornish - Secretary Brisbane 25 October 2004 Proxies A member entitled to attend and vote at the meeting is entitled to appoint a proxy. A member entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise. A proxy need not be a member of the Company. Proxies must be received by the Company not later than 48 hours before the meeting. A form of proxy is provided with this notice. 50 Proxy F O R M O F P R O X Y Secretary FSA Group Ltd Level 5, 60 Edward Street Brisbane QLD 4000 I/We Of Being a member(s) of FSA Group Limited hereby appoint Of or, in his/her absence Of As my/our proxy vote for me/us on my/our behalf at the annual general meeting of the Company to be held at 12.00pm on the twenty-sixth day of November 2004 and at any adjournment of that meeting. I/We desire to vote on the resolutions as indicated below: Please indicate with an X how you wish your vote to be cast. Unless otherwise instructed, the proxy may vote as he/she thinks fit. The resolutions are numbered as in the notice of meeting. Resolutions For Against Abstain 2 (a) Re-election of Director - Mr Tim Odillo Maher 2 (b) Re-election of Director - Ms Deborah Southon Securityholder 1 (INDIVIDUAL) Joint Securityholder 2 (INDIVIDUAL) Joint Securityholder 3 (INDIVIDUAL) Sole Director and Sole Secretary Director / Secretary (delete one) Director Date Date Date (Proxies must be received by the Company not less than forty-eight hours before the time appointed for the holding of the meeting). Proxies can be received by the Company at either Level 5, 60 Edward Street, Brisbane QLD 4000 or by facsimile at (07) 3303 0601. 51 Proxy I N F O R M A T I O N Where more than one proxy is appointed each proxy may be appointed to represent a specific proportion of the shareholder's If the appointment does not specify the proportion or number of votes each proxy may exercise, each proxy may voting rights. exercise half of the votes. Shareholders who are a body corporate are able to appoint representatives to attend and vote at the Meeting under Section 250D of the Corporations Act 2001 (Cwlth). If a member wishes to direct a proxy how to vote an "X" should be inserted in the appropriate space against each a resolution to be proposed at the meeting, otherwise the proxy may vote as he or she thinks fit or may abstain from voting. The proxy form (and the power of attorney or other authority, if any, under which the proxy form is signed) and certificates appointing body corporate representatives or a copy or facsimile which appears on its face to be an authentic copy of the proxy form (and the power of attorney or other authority) or certificate appointing a body corporate representative must be deposited at, posted to, or sent by facsimile transmission to the Company's office not less than 48 hours before the time for holding the Meeting, or adjourned meeting as the case may be, at which the individual named in the proxy form proposes to vote. Deposit or Mail the proxy form to: FSA Group Ltd Level 5 60 Edward Street Brisbane QLD 4000 Or Fax the proxy form to: Fax +61 7 3303 0601 The proxy form must be signed by the shareholder or his/her attorney duly authorised in writing or, if the shareholder is a corporation, in a manner permitted by the Corporations Act. The proxy may, but need not, be a shareholder of the Company. In the case of shares jointly held by two or more persons, all joint holders must sign the proxy form. Voting Entitlement For the purposes of determining voting entitlements at the Meeting, shares will be taken to be held by the persons who are registered as holding the shares at 4.00pm 25 November 2004. Accordingly, transactions registered after that time will be disregarded in determining entitlements to attend and vote at the Meeting. CORPORATE INFORMATION REGISTERED OFFICE AND CORPORATE OFFICE DIRECTORS Sam Doumany (Chairman) Tim Odillo Maher Deborah Southon Fletcher Quinn COMPANY SECRETARY Duncan Cornish Level 5, 60 Edward Street, Brisbane QLD 4000 Phone: + 61 7 3303 0690 Fax: + 61 7 3303 0601 PRINCIPAL BUSINESS OFFICE Suite 201, Level 2 83 York Street, Sydney NSW 2000 Phone: +61 2 9290 2288 Fax: +61 2 9290 1977 SOLICITORS Hopgood Ganim Level 8, Waterfront Place 1 Eagle Street, Brisbane QLD 4000 SHARE REGISTER Phone: +61 7 3228 4000 AUDITORS PKF Level 6, 120 Edward Street Brisbane QLD 4000 COUNTRY OF INCORPORATION Australia STOCK EXCHANGE LISTING Australian Stock Exchange Ltd ASX Code: FSA INTERNET ADDRESS www.fsagroup.com.au AUSTRALIAN BUSINESS NUMBER ABN 98 093 855 791 ASX Perpetual Registrars (Formerly Pitcher Partners Registries) Level 22, 300 Queen Street, Brisbane QLD 4000 A N N U A L R E P O R T FSA GROUP LTD A N N U A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 FSA GROUP LTD A N N U A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 FSA GROUP LTD ANNUAL REPORT 2004 A N N U A L F I N A N C I A L R E P O R T F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 2