Knaus Tabbert
Annual Report 2018

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& Controlled Entities Annual Report For the year ended 30 June 2018 Krakatoa Resources Limited & Controlled Entities CONTENTS CORPORATE DIRECTORY ................................................................................................................... 3 DIRECTORS’ REPORT .......................................................................................................................... 4 AUDITOR’S INDEPENDENCE DECLARATION .................................................................................. 13 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME .............................................................................................................................................................. 14 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ............................................................... 15 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ............................................................... 16 CONSOLIDATED STATEMENT OF CASH FLOWS ............................................................................ 17 NOTES TO THE FINANCIAL STATEMENTS ...................................................................................... 18 DIRECTORS’ DECLARATION.............................................................................................................. 39 INDEPENDENT AUDITOR’S REPORT ................................................................................................ 40 CORPORATE GOVERNANCE STATEMENT ...................................................................................... 43 ASX INFORMATION ............................................................................................................................. 60 SCHEDULE OF MINERAL TENEMENTS ............................................................................................ 63 – 2 – Krakatoa Resources Limited & Controlled Entities CORPORATE DIRECTORY PRINCIPAL AND REGISTERED OFFICE Level 11, 216 St Georges Terrace Perth WA 6000 Tel: +61 8 9481 0389 Fax: +61 8 9463 6103 Email: admin@krakatoaresources.com Web: https://ktaresources.com DIRECTORS Colin Locke – Executive Chairman Timothy Hogan – Non-Executive Director David Palumbo – Non-Executive Director COMPANY SECRETARY David Palumbo SHARE REGISTRAR Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Tel: +61 8 9323 2000 Fax: +61 8 9323 2033 Web: www.computershare.com.au AUDITORS RSM Australia Partners Level 32, Exchange Tower 2 The Esplanade PERTH WA 6000 – 3 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT Your directors present the following report on Krakatoa Resources Limited (the “Company”) and controlled entities (referred to hereafter as the “Group”) for the financial year ended 30 June 2018. DIRECTORS The names of directors in office at any time during the financial year and up to the date of this report are: - Colin Locke (Executive Chairman) - Timothy Hogan (Non-Executive Director) - David Palumbo (Non-Executive Director) - appointed 7 August 2017 - Aryo Bimo (Non-Executive Director) – resigned 7 August 2017 Unless noted above, all directors have been in office since the start of the financial year to the date of this report. COMPANY SECRETARY The following persons held the position of Company secretary during the financial year: - David Palumbo PRINCIPAL ACTIVITIES The principal activity of the Group during the financial year was the acquisition and exploration of resource based projects. OPERATING RESULTS The loss of the Group after providing for income tax amounted to $800,182 (2017: $1,651,514). FINANCIAL POSITION As at 30 June 2018, the Group had a cash balance of $685,709 (2017: $1,007,728) and a net asset position of $1,563,349 (2016: $1,542,885). DIVIDENDS PAID OR RECOMMENDED No dividends have been paid, and the directors do not recommend the payment of a dividend for the financial year ended 30 June 2018. SIGNIFICANT CHANGES IN STATE OF AFFAIRS No significant changes in the state of affairs occurred during the financial year. REVIEW OF OPERATIONS Dalgaranga Project The Dalgaranga Project is located 80km north-west of Mount Magnet in Western Australia and is considered prospective for Tantalum, Lithium, Niobium and Rubidium. Dalgaranga was initially discovered by Dann Todd in about 1961 and subsequently underwent small-scale mining over many years, producing tantalum, beryl, tin and tungsten. Alluvial mining of tantalite has additionally been mined throughout the project area. The Dalgaranga open pit is 200m long, 40m wide and up to 15m deep. – 4 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) During the year ended 30 June 2018, the Company completed a 11 vertical RC drill hole program for 1,066 metres. The drilling program revealed more extensive pegmatite intersections and widely distributed multi-element rare metal mineralisation than anticipated; highlighted by the discovery of a rubidium, tin and tantalum enriched 71-metre interval. The assays showed evidence of Rubidium (Rb) enrichment in addition to confirming the existence of Tin (Sn), Tantalum (Ta), Lithium (Li), Cesium (Cs), and Niobium (Nb). One hundred and ninety-seven or 56% of the samples returned Rb values exceeding 1000ppm, with a peak value of 4943.3ppm (0.49%). The drilling revealed that several elements, including Be, Cs, Ge, K, Rb, Sn, Ta, Tl and W, exhibit systematic zonation in and around the pegmatites on the Dalgaranga property. The association between these elements is characteristic and supports the presence of an LCT or Lithium-Cesium-Tantalum Pegmatite at Dalgaranga. Full results from drilling program were detailed in the ASX announcement dated 31 October 2017 and titled Rubidium Mineralised Pegmatites Confirmed at Dalgaranga. On 7 May 2018, the Company announced that it had been granted three new prospecting tenements (P59/2140, P59/2141 and P59/2142) adjoining the existing Dalgaranga Project (P59/2082). A program of geological mapping and collation of all available historical exploration data on the newly acquired project area will commence in due course. Mac Well Project The Mac Well Project (E59/2175) has a land area of 66.9km2 is located 10km west of Krakatoa’s Dalgaranga Project and is considered prospective for Beryl and Lithium. A desktop review was completed during the year ended 30 June 2018, with multiple areas identified as prospective for saprolitic nickel-cobalt, pegmatite-hosted beryl and gold. Subsequent to year end, the Company completed a mobile metal ion (MMI) soil geochemistry sampling program and reprocessed legacy aeromagnetic and heliborne VTEM surveys which confirmed the prospectivity at Mac Well. Corkill-Lawson and Farr Projects The Corkill-Lawson and Farr Projects are located in the Gowganda area of north-eastern Ontario and are prospective for cobalt-silver mineralisation. The Cobalt-Gowganda mining area (otherwise known as the Cobalt Camp) of Ontario is historically one of the most prolific cobalt and silver mining areas in the world. The Company completed the purchase of the Corkill-Lawson and Farr Projects during the year, for consideration of AUD$50,000, 2,500,000 fully paid ordinary shares and 2,500,000 listed options exercisable at $0.10 on or before 31 May 2019 (ASX: KTAOB). The Company also issued 15,000,000 ordinary shares at a price of $0.035 per share to raise $525,000 with the acquisition. The Company completed a review of all available geophysical data from the Ontario Geological Survey (OGS) system. Through this process, it was confirmed that VTEM and Magnetic work previously completed by Klondike Silver Corp (KSC) entirely covers the Corkhill-Lawson claims, with ultra-high resolution 75m x 75m flight lines. In addition, DDIP work completed by KSC partially covers the Corkhill-Lawson claims The Company obtained the original geophysical survey data and engaged Core Geophysics to compile the legacy geophysical datasets on the Corkhill-Lawson claims and reprocess using modern approaches and enhancements. The Company announced that reprocessing and review of historical heliborne versatile time electromagnetic data (VTEM) and ground induced polarisation (IP) surveys returned 11 target anomalies considered prospective for Ag-Co-Ni mineralisation within the project. The Company plans to ground inspect each target to ensure the EM and IP responses are not due to cultural objects, with coincident mapping and geochemical sampling. – 5 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) INFORMATION ON DIRECTORS Colin Locke Executive Chairman From 1984 to 1993, Colin Locke worked in the mining industry processing base and precious metals. During this time, he traded resource stocks and international futures contracts. In 1993, Mr. Locke joined an Australian commodity and futures broking firm as an investment advisor and became a Director in 1994. In 1998 Mr. Locke founded a boutique Australian Financial Services firm and held the position of Managing Director from 1999 until 2010. In 2007 Mr. Locke held the role of Corporate Advisor during the acquisition process for the Mayoko iron ore project in the Republic of Congo that was subsequently taken over in 2010 for circa AUD 50mi and later on sold for over 300mi. thought From 2008, Mr. Locke focused on natural resources exploration pursuits founded Western Mining Network Ltd, (now European Cobalt, EUC) where he held the role of Executive Director from 2010 until 2012. Indonesian archipelago and the Interest in Securities Mr. Locke brings to the board and shareholders a mining related background with business management and financial experience spanning over 30 years. 129,000 Fully paid ordinary shares 3,000,000 options exercisable at $0.10 on or before 31 May 2019 4,000,000 options exercisable at $0.10 on or before 24 October 2020 Directorships held listed entities in other None Timothy Hogan Non-Executive Director Mr. Hogan has approximately 25 years’ experience in the stockbroking industry in Australia, initially as a founding private client advisor at Hogan and Partners. Mr. Hogan has provided corporate and execution services for a wide variety of corporate and private clients. Mr. Hogan is currently a Director of Barclay Wells Limited, a boutique advisory firm that specialises in Australian resource stocks, and has assisted many companies from their initial capital raising and flotation on the ASX through to production. Mr. Hogan brings extensive experience and a wide range of contacts that will benefit the Company. 2,000,000 options exercisable at $0.10 on or before 31 May 2019 4,000,000 options exercisable at $0.10 on or before 24 October 2020 – 6 – Interest in Securities Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) Directorships held in other listed entities None David Palumbo Non-Executive Director & Company Secretary Mr Palumbo is a Chartered Accountant with over ten years’ experience in the accounting and financial reporting of ASX listed and unlisted companies, which includes five years as an external auditor. Mr Palumbo provides corporate advisory and financial management advice and specialises in corporate compliance, statutory reporting and financial accounting services. He has also been junior exploration companies on the ASX and currently acts as Company Secretary for a number of ASX listed, unlisted and private companies. listing of several involved the in Interest in Securities 501,500 Fully paid ordinary shares 250,000 options exercisable at $0.10 on or before 31 May 2019 289,389 options exercisable at $0.40 on or before 12 December 2019 2,000,000 options exercisable at $0.10 on or before 24 October 2020 Directorships held in other listed entities Roto-Gro International Limited (appointed 27 May 2015) High Grade Metals Limited (appointed 18 January 2017) REMUNERATION REPORT (AUDITED) This report details the nature and amount of remuneration for each director of Krakatoa Resources Limited and for the executives receiving the highest remuneration. 1. Employment Agreements Mr Colin Locke has worked for the Group in an executive capacity as Executive Chairman since his appointment on 6 August 2015. Under the terms of the executive agreement, Mr Locke’s total remuneration package is currently $84,000. Appointments of non-executive directors Timothy Hogan and David Palumbo are formalised in the form of service agreements between themselves and the Group. Their engagements have no fixed term but cease on their resignation or removal as a director in accordance with the Corporations Act 2001. Mr Hogan is currently entitled to receive directors’ fees of $60,000 plus superannuation (increased from $36,000 from 1 August 2018) and Mr Palumbo is currently entitled to receive directors’ fees of $40,000 per annum. 2. Remuneration policy The Group’s remuneration policy has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the Group’s financial results. The board believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the Group, as well as create goal congruence between directors, executives and shareholders. – 7 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) The board’s policy for determining the nature and amount of remuneration for board members and senior executives of the Group is as follows:  The remuneration policy, setting the terms and conditions for the executive directors and other senior executives, was developed by the board.  All executives receive a base salary (which is based on factors such as length of service and  experience), superannuation and are entitled to the issue of share options. Incentive paid in the form of share options are intended to align the interests of directors and Group with those of the shareholders. The performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the forecast growth of the Group’s shareholders’ value. The board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes to the committee’s recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. Executives are also entitled to participate in the employee share and option arrangements. All remuneration paid to directors and executives is valued at the cost to the Group and expensed, or capitalised to exploration expenditure if appropriate. Options, if given to directors and executives in lieu of remuneration, are valued using the Black-Scholes methodology. The board policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities. The remuneration committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of fees that can be paid to non-executive directors is $250,000. Fees for non-executive directors are not linked to the performance of the Group. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the Group and are able to participate in the employee share option plan. 3. Performance-based remuneration There is currently no performance-based remuneration policy in place. 4. Details of remuneration for the year ended 30 June 2018 The remuneration for each key management personnel of the Group during the financial year ended 30 June 2018 and 30 June 2017 was as follows: 2018 Key Management Person Directors Colin Locke Timothy Hogan David Palumbo1 Aryo Bimo1 Short-term Benefits Post- employment Benefits Other Long- term Benefits Share based Payment Total Perfor- mance Related Value of Options Re- muneration Cash, salary & commissions $ Super- annuation Other Equity Options $ $ $ $ $ % % 94,000 58,000 36,667 13,500 - 5,510 - - 202,167 5,510 - - - - - - 70,000 164,000 70,000 133,510 - 70,000 106,667 - - 13,500 - 210,000 417,677 - - - - 43% 52% 66% - 1Aryo Bimo resigned on 7 August 2017 and David Palumbo was appointed on 7 August 2017 – 8 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) 2017 Key Management Person Directors Colin Locke Aryo Bimo Timothy Hogan Short-term Benefits Post- employment Benefits Other Long- term Benefits Share based Payment Total Perfor- mance Related Value of Options Re- muneration Cash, salary & commissions $ Super- annuation Other Equity Options $ $ $ $ $ % % 100,500 24,000 63,000 187,500 - - 5,985 5,985 - - - - - - - - 100,500 - - 24,000 68,985 - 193,485 - - - - - - 5. Equity holdings of key management personnel Shareholdings Number of shares held by key management personnel during the financial year ended 30 June 2018 was as follows: 2018 Directors Colin Locke Timothy Hogan David Palumbo1 Aryo Bimo1 Total Balance 1.7.2017 No. Received as Compensation No. Options Exercised No. Net Change Other No. Balance 30.6.2018 No. 129,000 - 501,500 1,000,000 1,630,500 - - - - - - - - - - - - - (1,000,000) (1,000,000) 129,000 - 501,500 - 630,500 1Aryo Bimo resigned on 7 August 2017 and David Palumbo was appointed on 7 August 2017 Option holdings Number of options held by key management personnel during the financial year ended 30 June 2018 was as follows: 2018 Directors Colin Locke Timothy Hogan David Palumbo1 Aryo Bimo1 Total Balance 1.7.2017 No. Received as Compensation No. Options Expired No. Net Change Other No. Balance 30.6.2018 No. 3,000,000 2,000,000 539,389 1,000,000 6,539,389 4,000,000 4,000,000 4,000,000 - 12,000,000 - - - - - - - (2,000,000)2 (1,000,000) (3,000,000) 7,000,000 6,000,000 2,539,389 - 15,539,389 1Aryo Bimo resigned on 7 August 2017 and David Palumbo was appointed on 7 August 2017 2 2million of the 4million options were issued to David Palumbo’s employer, Mining Corporate Pty Ltd – 9 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ REPORT (CONT.) 6. Other transactions with key management personnel There were no other transactions with key management personnel during the 2018 financial year. The Group incurred the following transactions with related parties during the year ended 30 June 2017: Timothy Hogan invoiced the Group $20,000 for promotional and investor relation services. All transactions were made on normal commercial terms and conditions and at market rates. 7. Equity instruments granted as compensation There were no other equity instruments granted as compensation during the year 8. Company Performance The earnings of the consolidated entity for the five years to 30 June 2018 are summarised below: Sales revenue EBITDA EBIT 2018 2017 2016 2015 2014 $ - $ - $ - $ - $ - (801,182) (1,651,514) (1,171,305) (2,952,584) (1,884,114) (801,182) (1,651,514) (1,171,305) (2,952,584) (1,884,114) (Loss) after income tax (800,182) (1,651,514) (1,171,305) (2,952,584) (1,884,114) The factors that are considered to affect total shareholder return ('TSR') are summarised below: Share price at financial year end ($) 2018 0.027 Dividends declared (cents per share) - Basic loss per share (cents per share) (0.77) 2017 0.04 - (2.52) 2016 0.18 - (2.3) 2015 0.15 - (7.53) 2014 0.16 - (6.12) “End of Remuneration Report (Audited)” MEETINGS OF DIRECTORS The number of Directors' meetings held during the financial year and the number of meetings attended by each Director are: Director Colin Locke Timothy Hogan David Palumbo Aryo Bimo Directors’ Meetings Number eligible to attend 1 1 1 - Number attended 1 1 1 - EVENTS AFTER THE REPORTING PERIOD No matters or circumstances have arisen since the end of the financial period which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. – 10 – Krakatoa Resources Limited & Controlled Entities INDEMNITY AND INSURANCE OF AUDITOR DIRECTORS’ REPORT (CONT.) The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. ENVIRONMENTAL ISSUES The Group’s operations are subject to significant environmental regulation under the law of the Commonwealth and State in relation to discharge of hazardous waste and materials arising from any mining activities and development conducted by the Group on any of its tenements. To date there have been no known breaches of any environmental obligations. INDEMNIFYING AND INSURANCE OF OFFICERS The Group has entered into deeds of indemnity with each director and the company secretary whereby, to the extent permitted by the Corporations Act 2001, the Group agreed to indemnify each director against all loss and liability incurred as an officer of the Group, including all liability in defending any relevant proceedings. The Group has paid premiums to insure each of the directors and the company secretary against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director of the Group, other than conduct involving a wilful breach of duty in relation to the Group. The disclosure of the amount of the premium is prohibited by the insurance policy. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES Further information, other than as disclosed this report, about likely developments in the operations of the Group and the expected results of those operations in future periods has not been included in this report as disclosure of this information would be likely to result in unreasonable prejudice to the Group. PROCEEDINGS ON BEHALF OF THE GROUP No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. – 11 – Krakatoa Resources Limited & Controlled Entities NON-AUDIT SERVICES DIRECTORS’ REPORT (CONT.) There following fees were paid or payable to the auditor for non-audit services provided during the year ended 30 June 2018: — taxation services $ 700 The directors are satisfied that the provision of non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the non-audit services provided by the auditor do not compromise the auditor’s independence requirements of the Corporations Act 2001 for the following reasons:  all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and  none of the services provided undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board. OFFICERS OF THE COMPANY WHO ARE FORMER PARTNERS OF RSM AUSTRALIA PARTNERS There are no officers of the Company who are former partners of RSM Australia partners. AUDITOR’S INDEPENDENCE DECLARATION The lead auditor’s independence declaration for the year ended 30 June 2018 has been received and can be found on the next page of the directors’ report. Signed in accordance with a resolution of the Board of Directors. Colin Locke Executive Chairman Dated: 20 September 2018 – 12 – RSM Australia Partners Level 32, Exchange Tower, 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Krakatoa Resources Limited for the year ended 30 June 2018, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Perth, WA Dated: 20 September 2018 ALASDAIR WHYTE Partner THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation Krakatoa Resources Limited & Controlled Entities CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 Revenue Administration expense Compliance and regulatory expense Employee benefits expense Exploration expenditure and project evaluation costs Travel and accommodation Share based payment expense Loss before income tax expense Income tax expense Loss from continuing operations after tax Discontinued operations after income tax Gain/(loss) from discontinued operations after income tax Loss attributable to members of the parent entity Other comprehensive income, net of tax Reclassification adjustments Reclassification to profit or loss on loss of control of subsidiary Other comprehensive income/(loss) Note 2 3 4 4 2018 $ 2017 $ 5,606 - (54,266) (206,240) (207,677) (78,693) (36,912) (222,000) (162,313) (286,217) (220,985) (1,003,376) (26,477) - (800,182) - (1,699,368) - (800,182) (1,699,368) - 47,854 (800,182) (1,651,514) - - 28,669 28,669 Total comprehensive (loss) attributable to members of the parent entity (800,182) (1,622,845) Basic and diluted loss per share from continuing operations (cents per share) Basic and diluted gain per share operations (cents per share) Basic and diluted loss per share (cents per share) from discontinued 5 5 5 (0.77) - (0.77) (2.59) 0.07 (2.52) The accompanying notes form part of these financial statements. – 14 – Krakatoa Resources Limited & Controlled Entities CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON CURRENT ASSETS Exploration and evaluation expenditure TOTAL NON CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables TOTAL CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Accumulated losses TOTAL EQUITY Group 2018 $ Company 2017 $ Note 6 7 8 685,709 11,958 1,007,728 8,579 697,667 1,016,307 933,126 610,751 933,126 610,751 1,630,793 1,627,058 9 67,444 84,173 67,444 84,173 67,444 84,173 1,563,349 1,542,885 10 11 9,093,382 1,544,885 (9,074,918) 8,509,736 1,307,885 (8,274,736) 1,563,349 1,542,885 The accompanying notes form part of these financial statements. – 15 – Krakatoa Resources Limited & Controlled Entities CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2018 Note Issued Capital $ Accumulated Losses $ Option Premium Reserve $ Foreign Currency Translation Reserve $ Total $ Balance at 1 July 2016 6,549,132 (6,623,222) 693,403 (28,669) 590,644 Loss for the year Other comprehensive income Total comprehensive loss - - - (1,651,514) - (1,651,514) with owner Transactions directly recorded in equity Shares issued during the year 10 2,689,455 Less: transaction costs arising from issue of shares 10 Options issued during the year 11 Balance at 30 June 2017 (728,851) - 8,509,736 - - - 614,482 - (8,274,736) 1,307,885 Balance at 1 July 2017 8,509,736 (8,274,736) 1,307,885 Loss for the year Other comprehensive income Total comprehensive loss - - - (800,182) - (800,182) with owner Transactions directly recorded in equity Shares issued during the year 10 Less: transaction costs arising from issue of shares 10 Options issued during the year 11 Balance at 30 June 2018 612,500 - (28,854) - 9,093,382 - - 237,000 - (9,074,918) 1,544,885 - - - - - - - - - 28,669 28,669 (1,651,514) 28,669 (1,622,845) - - - - - - - - - - - - 2,689,455 (728,851) 614,482 1,542,885 1,542,885 (800,182) - (800,182) 612,500 (28,854) 237,000 1,563,349 The accompanying notes form part of these financial statements. – 16 – Krakatoa Resources Limited & Controlled Entities CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2018 Note 2018 $ 2017 $ CASH FLOWS FROM OPERATING ACTIVITIES Interest received Payments to suppliers and employees Payment for exploration and evaluation expenditure and project evaluation costs 5,606 (535,994) - (664,889) (202,585) (1,140,070) Net cash used in operating activities 12 (732,973) (1,804,959) CASH FLOWS FROM INVESTING ACTIVITIES Payments for exploration assets Proceeds from sale of financial assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares and options Payment of transaction costs associated with capital raising (50,000) - (25,000) 4,929 (50,000) (20,071) 525,000 2,737,455 (64,046) (162,368) Net cash provided by financing activities 460,954 2,575,087 Net (decrease)/increase in cash held Cash at beginning of financial year (322,019) 1,007,728 750,057 257,671 Cash at end of financial year 6 685,709 1,007,728 The accompanying notes form part of these financial statements. – 17 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES These financial statements and notes represent those of Krakatoa Resources Limited (the “Company”) and its controlled entities (the “Group” or “consolidated entity”). Krakatoa Resources Limited is a listed public Company, incorporated and domiciled in Australia. The financial statements were authorised for issue on 20 September 2018 by the directors. Basis of Preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001. The Group is a for profit entity for financial reporting purposes under Australian Accounting Standards. Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Material accounting policies adopted in the preparation of this financial report are presented below. They have been consistently applied unless otherwise stated. The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected financial assets for which the fair value basis of accounting has been applied. All amounts are presented in Australian dollars unless otherwise stated. – 18 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Accounting Policies a) Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Income and expense of subsidiaries acquired or disposed of during the year are included in profit or loss from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control are accounted for as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Company loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable Standards). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139 ‘Financial Instruments: Recognition and Measurement’ or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity. – 19 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) Income Tax b) The income tax expense (revenue) for the period comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the period as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set- off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. – 20 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) c) Discontinued operations A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of profit or loss and other comprehensive income. d) Exploration and Evaluation Expenditure Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. Accumulated costs in relation to an abandoned area are written off in full against profit in the period in which the decision to abandon the area is made. When production commences, the accumulated costs for the relevant area of interest are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the costs of that stage. Site restoration costs include the dismantling and removal of mining plant, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the mining permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on an undiscounted basis. Any changes in the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly the costs have been determined on the basis that the restoration will be completed within one period of abandoning the site. e) Financial Instruments Initial recognition and measurement Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transaction costs where the instrument is not classified as ‘at fair value through profit or loss’, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Finance instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and reduction for impairment, and adjusted for any cumulative amortisation of the difference between the amount initially recognised and the maturity amount calculated using the effective interest method. – 21 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) e) Financial Instruments (Cont.) Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit and loss Financial assets are classified ‘at fair value through profit or loss’ when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance valuation where financial assets are managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in the carrying value being included in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. All other loans and receivables are classified as non- current assets. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. (All other investments are classified as current assets). If during the period the Group sold or reclassified more than an insignificant amount of the held-to- maturity investments before maturity, the entire held-to-maturity investments category would be tainted and reclassified as available-for-sale. – 22 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) e) Financial Instruments (Cont.) (iv) Available for sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. All other financial assets are classified as current assets. (v) Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Fair Value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value of all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. De-recognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. f) Foreign Currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Australian dollars (‘$’), which is the functional currency of the Group and the presentation currency for the consolidated financial statements. In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. – 23 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) f) Foreign Currencies (Cont.) Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for:  exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;  exchange differences on transactions entered into in order to hedge certain foreign currency risks; and  exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Company are reclassified to profit or loss. In addition, in relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of accumulated exchange differences are reattributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the Company losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss. Impairment of Assets g) At the end of each reporting date, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed. Impairment testing is performed annually for intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. h) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short- term highly liquid investments with original maturities of 3 months or less. – 24 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) i) Revenue Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. All revenue is stated net of the amount of goods and services tax (GST”). j) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. k) Trade and other receivables All trade receivables are recognised when they are due for settlement in the short term. Collectability of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful debts is raised when some doubt as to collection exists. l) Trade and other payables These amounts represent liabilities for goods and services provided to the Group before the end of the financial period and which are unpaid. The amounts are unsecured and usually paid within 30 days of recognition. m) Issued capital Ordinary shares are classified as equity. Costs directly attributable to the issue of shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. n) Earnings per share Basic earnings per share Basic earnings per share is determined by dividing the net profit after income tax attributable to members of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. o) Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. p) Critical Accounting Estimates and Judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. – 25 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) p) Critical Accounting Estimates and Judgements (Cont.) Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a valuation model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Exploration and Evaluation Expenditure Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at balance date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, refer to the accounting policy stated in Note 1(d). q) Changes in accounting policies and disclosure In the year ended 30 June 2018, the Group has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for the current annual reporting period. It has been determined by the Group that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to Group accounting policies. r) New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2018. The consolidated entity's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the consolidated entity, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost, if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, which arise on specified dates and solely principal and interest. All other financial instrument assets are to be classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income ('OCI'). For financial liabilities, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' ('ECL') model to recognise an allowance. – 26 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT.) r) New Accounting Standards and Interpretations not yet mandatory or early adopted (Cont.) Impairment will be measured under a 12-month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. The standard introduces additional new disclosures. The consolidated entity will adopt this standard from 1 July 2018 but the impact of its adoption is expected to be insignificant. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will require: contracts (either written, verbal or implied) to be identified, together with the separate performance obligations within the contract; determine the transaction price, adjusted for the time value of money excluding credit risk; allocation of the transaction price to the separate performance obligations on a basis of relative stand-alone selling price of each distinct good or service, or estimation approach if no distinct observable prices exist; and recognition of revenue when each performance obligation is satisfied. Credit risk will be presented separately as an expense rather than adjusted to revenue. For goods, the performance obligation would be satisfied when the customer obtains control of the goods. For services, the performance obligation is satisfied when the service has been provided, typically for promises to transfer services to customers. For performance obligations satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied. Contracts with customers will be presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Sufficient quantitative and qualitative disclosure is required to enable users to understand the contracts with customers; the significant judgments made in applying the guidance to those contracts; and any assets recognised from the costs to obtain or fulfil a contract with a customer. The consolidated entity will adopt this standard from 1 July 2018 but the impact of its adoption is expected to be insignificant. AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard replaces AASB 117 'Leases' and for lessees will eliminate the classifications of operating leases and finance leases. Subject to exceptions, a 'right-of-use' asset will be capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term. The exceptions relate to short-term leases of 12 months or less and leases of low-value assets (such as personal computers and small office furniture) where an accounting policy choice exists whereby either a 'right-of-use' asset is recognised or lease payments are expensed to profit or loss as incurred. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117. However EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The consolidated entity will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the consolidated entity. – 27 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 2: REVENUE Interest received NOTE 3: INCOME TAX EXPENSE a. Reconciliation of income tax expense to prima facie tax payable: Loss from ordinary activities before income tax expense Prima facie tax benefit on loss from ordinary activities before income tax at 27.5% (2017: 27.5%) Increase/(decrease) in income tax due to: - Capital raising costs - Losses and recognised temporary differences not Income tax attributable to the Group b. Unused tax losses and temporary differences for which no deferred tax asset has been recognised at 27.5% (2017: 27.5%): tax assets have not been Deferred recognised in respect of the following: Tax revenue losses 2018 $ 2017 $ 5,606 - (800,182) (1,651,514) (220,050) (454,166) (91,987) 312,037 (87,195) 541,361 - - 6,590,545 5,455,865 Potential deferred tax assets attributable to tax losses and exploration expenditure carried forward have not been brought to account at 30 June 2018 because the directors do not believe it is appropriate to regard realisation of the deferred tax assets as probable at this point in time. These benefits will only be obtained if: - the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the loss and exploration expenditure to be realised; - no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the loss and exploration expenditure. – 28 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 4: DISCONTINUED OPERATIONS 2018 $ 2017 $ On 9 March 2017, the Company executed a binding term sheet to dispose of its dormant Indonesian subsidiaries PT Bumi Pratama and PT Bina Citra Sawita for $1. The financial performance of the discontinued operation, which is included in the loss from discontinued operations per the statement of comprehensive income, is as follows: Revenue Administration expense Employee benefits expense Gain/(loss) before income tax Income tax expense Gain/(loss) after income tax attributable to members of the parent entity Gain on disposal of liabilities on loss of control of subsidiaries before income tax Reclassification of items within other comprehensive income Income tax expense Total gain/(loss) after income tax attributable to the discontinued operation The net cash flows of the discontinued division, which have been incorporated into the statement of cash flows, are as follows: Net cash outflow from operating activities Net cash outflow from investing activities Net cash outflow from financing activities Net cash outflow from the outgoing operation NOTE 5: EARNINGS PER SHARE - - - - - - - - - - - - - - 24,502 (2,333) (7,313) 14,856 - 14,856 61,667 (28,669) - 47,854 (85,881) - - (85,881) Loss from continuing operations used to calculate basic EPS Loss from discontinued operations used to calculate basic EPS Loss used to calculate basic EPS (800,182) - (800,182) (1,699,368) 47,854 (1,651,514) Weighted average number of ordinary shares outstanding during the period used in calculating basic and diluted EPS 103,575,342 65,678,805 No. No. Loss from continuing operations used to calculate basic EPS Loss from discontinued operations used to calculate basic EPS Loss used to calculate basic EPS (0.77) - (0.77) (2.59) 0.07 (2.52) Cents Cents – 29 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 6: CASH AND CASH EQUIVALENTS Cash at bank Term deposits 2018 $ 2017 $ 685,709 - 685,709 307,728 700,000 1,007,728 NOTE 7: TRADE AND OTHER RECEIVABLES GST receivable 11,958 8,579 NOTE 8: EXPLORATION EXPENDITURE AND EVALUATION Exploration expenditure capitalised - Exploration and evaluation phase A reconciliation of the carrying amount of exploration and evaluation expenditure is set out below: - Carrying amount at the beginning of the year - Acquisition of exploration assets (Corkill-Lawson and Farr claims) - Exploration expenditure capitalised - Exploration written off 933,126 610,751 610,751 550,000 152,500 169,875 - - 60,751 - 933,126 610,751 The value of the Group’s interest in exploration expenditure is dependent upon: the continuance of the Group’s rights to tenure of the areas of interest; the results of future exploration; and the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale.    NOTE 9: TRADE AND OTHER PAYABLES Trade payables and accrued expenses 67,444 84,173 Trade creditors, excluding related party payables, are expected to be paid on 30 day terms. – 30 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 10: ISSUED CAPITAL 2018 No. 2018 $ 2017 No. 2017 $ Fully paid ordinary shares with no par value 117,500,000 9,093,382 100,000,000 8,509,736 a) Ordinary shares At the beginning of reporting period Shares issued during the year: - 14 September 2016 (i) - 28 September 2016 - 7 October 2016 - 12 October 2016 - 2 December 2016 - 27 March 2017 - 26 May 2017 - 20 June 2017 - 9 April 2018 (ii) - 31 May 2018 (iii) Less capital raising costs 100,000,000 8,509,736 54,167,768 6,549,132 - - - - - - - - 15,000,000 2,500,000 - 1,000,000 - 920,035 - 6,530,669 - 1,764,154 - 3,333,333 - - 1,000 - 17,559,660 - 14,723,381 - - - 525,000 87,500 (28,854) - 138,005 979,600 264,623 500,000 150 438,992 368,085 - - (728,851) Net share capital 117,500,000 9,093,382 100,000,000 8,509,736 (i) (ii) (iii) Pursuant to the tenement sale agreement announced on 2 March 2016, 1,000,000 shares and 1,000,000 listed options exercisable at $0.20 on or before 31 March 2017 were to be issued upon grant of the Dalgaranga tenement. On 14 September 2016, the securities were issued upon grant of the Dalgaranga tenement. Placement of 15,000,000 shares at $0.035 per share to raise $525,000. Pursuant to the sale and purchase agreement announced on 5 April 2018 the Group acquired the Corkill-Lawson and Farr claims in Ontario, Canada. Consideration for the acquisition was $50,000 cash, 2,500,000 shares and 2,500,000 listed options exercisable at $0.10 on or before 31 May 2019. The acquisition was completed on 31 May 2018. b) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it may continue to provide returns for shareholders and benefits for other stakeholders. The Group’s capital includes ordinary share capital and financial liabilities, supported by financial assets. Due to the nature of the Group’s activities, being mineral exploration, it does not have ready access to credit facilities, with the primary source of funding being equity raisings. Accordingly, the objective of the Group’s capital risk management is to balance the current working capital position against the requirements of the Group to meet exploration programmes and corporate overheads. This is achieved by maintaining appropriate liquidity to meet anticipated operating requirements, with a view to initiating appropriate capital raisings as required. The Group is not subject to any externally imposed capital requirements. – 31 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 10: ISSUED CAPITAL (CONT.) Cash and cash equivalents Trade and other receivables Trade and other payables Working capital position c) Share Options on issue 2018 $ 685,709 11,958 (67,444) 2017 $ 1,007,728 8,579 (84,173) 630,223 932,134 At 30 June 2018, the Group had 52,500,000 listed options exercisable at $0.10 on before 31 May 2019, 10,893,878 unlisted options exercisable at $0.40 on before 12 December 2019 and 12,000,000 unlisted options exercisable at $0.10 on or before 24 October 2020. At 30 June 2017, the Group had 48,000,000 listed options exercisable at $0.10 on before 31 May 2019 and 10,893,878 unlisted options exercisable at $0.40 on before 12 December 2019. NOTE 11: RESERVES Foreign currency translation reserve Opening balance Foreign currency translation Reclassification Closing balance Option premium reserve Opening balance Option subscription Options issued – share based payments Closing balance - - - - 1,307,885 - 237,000 1,544,885 (28,669) - 28,669 - 693,403 48,000 566,482 1,307,885 Total Reserves 1,544,885 1,307,885 Foreign currency translation reserve Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Option premium reserve The Option premium reserve is used to recognise the fair value of options issued but not exercised. – 32 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 12: RECONCILIATION OF CASH FLOW FROM OPERATIONS WITH LOSS AFTER INCOME TAX Loss after income tax Non cash-flows in loss: Loss/(gain) on financial assets Share based payments Discount received Foreign exchange loss Changes in assets and liabilities: Trade and other receivables Exploration expenditure Trade payables and accruals 2018 $ 2017 $ (800,182) (1,651,514) - 222,000 - - (3,379) (169,875) 18,463 1,991 - (27,514) (30,276) (979) (60,751) (35,916) Cash flow used in operations (732,973) (1,804,959) Non Cash Investing & Financing Activities: During the financial year ended 30 June 2018, the Group issued 2,500,000 shares and 2,500,000 listed options exercisable at $0.10 on or before 31 May 2019 as consideration for the Corkill-Lawson and Farr claims in Ontario, Canada. The Group also issued 2,000,000 listed options exercisable at $0.10 on or before 31 May 2019 to the facilitator of the transaction. Refer to Note 15. During the financial year ended 30 June 2017, the Group issued 10,893,878 unlisted options exercisable at $0.40 on or before 12 December 2019 as consideration for brokerage services associated with the placements completed during the year, as disclosed in Note 15. Apart from the above, there were no non-cash investing or financing activities entered into by the Group during the year (2017: Nil). NOTE 13: KEY MANAGEMENT PERSONNEL COMPENSATION Remuneration of Key Management Personnel The totals of remuneration paid to the KMP of the Group during the year are as follows: Short-term employee benefits Post-employment benefits Share based payments Total remuneration 202,167 5,510 210,000 187,500 5,985 - 417,677 193,485 NOTE 14: RELATED PARTY TRANSACTIONS There were no related party transactions during the 2018 financial year. During the 2017 financial year Timothy Hogan invoiced the Group and was paid $20,000 for promotional and investor relation services. All related party transactions are made on normal commercial terms and condition and at market rates. – 33 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 2018 $ 2017 $ NOTE 15: SHARE BASED PAYMENTS The following share based payments were in existence during the year: Options The Group issued 12,000,000 unlisted options exercisable at $0.10 on or before 24 October 2020 to Directors (a) 210,000 The Group issued 2,500,000 listed options exercisable at $0.10 on or before 31 May 2019 as part consideration for the Ontario cobalt-silver claims (b) The Group issued 2,000,000 listed options exercisable at $0.10 on or before 31 May 2019 to the facilitator of the transaction to acquire the Ontario cobalt-silver claims (b) The Group issued 10,893,878 unlisted options exercisable at $0.40 on or before 12 December 2019 as consideration for brokerage services associated with the placements completed (c) Fair value of options issued during the period: - - - 15,000 12,000 - 566,482 (a) The options were deemed to have a fair value of $0.0175 per option. This value was calculated using the Black-Scholes option pricing model applying the following inputs: Share price Exercise price Expected volatility Risk-free interest rate Annualised time to expiry $0.04 $0.10 100% 1.50% 3 (b) (c) The fair value of listed options issued were determined by reference to the market price. The options were deemed to have a fair value of $0.052 per option. This value was calculated using the Black-Scholes option pricing model applying the following inputs: Share price Exercise price Expected volatility Risk-free interest rate Annualised time to expiry $0.15 $0.40 87% 2.50% 3 – 34 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 15: SHARE BASED PAYMENTS (CONT.) Ordinary shares During the financial year ended 30 June 2018, the Group granted 2,500,000 ordinary shares as part consideration for the Ontario cobalt-silver claims 2018 $ 2017 $ 87,500 - Fair value of ordinary shares issued during the period: The fair value of ordinary shares issued were determined by reference to the market price. NOTE 16: AUDITORS’ REMUNERATION Remuneration of RSM Australia Partners as auditor for: — — Auditing or reviewing the financial report taxation services 25,700 700 26,400 27,250 700 27,950 NOTE 17: CONTINGENT LIABILITIES The Group has no contingent liabilities as at 30 June 2018 (2017: Nil). NOTE 18: EVENTS AFTER THE REPORTING PERIOD No matters or circumstances have arisen since the end of the financial period which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods. NOTE 19: COMMITMENTS In order to maintain current rights of tenure to Western Australia exploration tenements, the Group is required to perform minimum exploration requirements specified by the Department of Mines and Petroleum of $46,837 (2017: $29,439). In order to maintain current rights of tenure to the Canadian exploration tenements, the Group is required to perform minimum exploration requirements specified by the Ministry of Energy, Northern Development and Mines of $16,400. The Group has no other commitments. – 35 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 20: CONTROLLED ENTITIES Equity Holding Equity Holding Country of Incorporation Subsidiaries of Krakatoa Resources Ltd: Krakatoa Minerals Pty Ltd Krakatoa Minerals – SMC Limited (i) 2634501 Ontario Limited (i) Australia Uganda Canada 2018 % 100 100 100 2017 % - - - (i) Krakatoa Minerals – SMC Limited and 2634501 Ontario Limited were incorporated on 23 February 2018 and 8 May 2018 respectively. NOTE 21: PARENT ENTITY DISCLOSURES Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Equity Issued capital Accumulated losses Reserves Total equity Financial performance (Loss) for the year Total comprehensive (loss) for the year 2018 $ 2017 $ 697,667 933,126 1,630,793 1,016,307 610,751 1,627,058 67,444 67,444 84,173 84,173 9,093,382 (9,074,918) 1,544,885 1,563,349 8,509,736 (8,274,736) 1,307,885 1,542,885 (800,182) (800,182) (1,780,311) (1,780,311) Guarantees: Krakatoa Resources Limited has not entered into any guarantees in the current or previous financial year, in relation to the debts of its subsidiaries. Other Commitments and Contingencies: Krakatoa Resources Limited has no commitment to acquire property, plant and equipment and has no contingent liabilities (Note 17). – 36 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 22: OPERATING SEGMENTS The Group has identified its operating segments based on the internal reports that are used by the Board (the chief operating decision makers) in assessing performance and in determining the allocation of resources. The operating segments are identified by the Board based on the phase of operation within the mining industry. For management purposes, the Group has organised its operations into two reportable segments on the basis of stage of development as follows:  Development assets; and  Exploration and evaluation assets, which includes assets that are associated with the determination and assessment of the existence of commercial economic reserves. The Board as a whole will regularly review the identified segments in order to allocate resources to the segment and to assess its performance. During the year ended 30 June 2018, the Group had no development assets. The Board considers that it has only operated in one segment, being mineral exploration. The Group is domiciled in Australia. All revenue from external customers are only generated from Australia. No revenues were derived from a single external customer. NOTE 23: FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from their use of financial instruments: credit risk; liquidity risk; and - - - market risk. This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the Group through regular reviews of the risks. Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at reporting date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions is spread amongst approved counterparties. Credit risk related to balances with banks and other financial institutions is managed by the board. The board’s policy requires that surplus funds are only invested with counterparties with a Standard & Poor’s rating of at least AA-. All of the Group’s surplus funds are invested with AA Rated financial institutions. – 37 – Krakatoa Resources Limited & Controlled Entities NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2018 NOTE 23: FINANCIAL RISK MANAGEMENT (CONT.) The credit risk for counterparties included in cash and cash equivalents at 30 June 2018 is detailed below: Financial assets: Cash and cash equivalents - AA rated counterparties 2018 $ 2017 $ 685,709 1,007,728 The Group does not have any material credit risk exposure to any single receivable or Group of receivables under financial instruments entered into by the Group. Liquidity risk The responsibility with liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate working capital is maintained. The Group’s policy is to ensure that it has sufficient cash reserves to carry out its planned exploration activities over the next 12 months. Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. Interest rate risk The Group does not have any exposure to interest rate risk as there were no external borrowings at 30 June 2018 (2017: nil). Interest bearing assets are all short term liquid assets and the only interest rate risk is the effect on interest income by movements in the interest rate. There is no other material interest rate risk. – 38 – Krakatoa Resources Limited & Controlled Entities DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Krakatoa Resources, I state that: 1. In the opinion of the directors: (a) the financial statements and notes of the Group are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the financial position of the Group as at 30 June 2018 and of its performance for the year ended on that date; and complying with Accounting Standards (including Interpretations) and the Corporations Regulations 2001; the Australian Accounting (b) (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable; and the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1. 2. This declaration has been made after receiving the declarations required to be made by the directors in accordance with sections of 295A of the Corporations Act 2001 for the financial year ended 30 June 2018. On behalf of the Board Colin Locke Executive Chairman Dated: 20 September 2018 – 39 – RSM Australia Partners Level 32, Exchange Tower, 2 The Esplanade Perth WA 6000 GPO Box R1253 Perth WA 6844 T +61 (0) 8 9261 9100 F +61 (0) 8 9261 9111 www.rsm.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KRAKATOA RESOURCES LIMITED Opinion We have audited the financial report of Krakatoa Resources Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor's report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How our audit addressed this matter Carrying Value of Capitalised Exploration and Evaluation Expenditure Refer to Note 8 in the financial statements The Group has capitalised a significant amount of exploration and evaluation expenditure, with a carrying value of $933,126 as at 30 June 2018. Our audit procedures in relation to the carrying value of exploration and evaluation expenditure included: We determined this to be a key audit matter due to the significant management in assessing the carrying value in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources, including: judgment involved  Determination of whether expenditure can be associated with finding specific mineral resources, and the basis on which that expenditure is allocated to an area of interest;  Determination of whether exploration activities have progressed to the stage at which the existence of an economically recoverable mineral reserve may be assessed; and  Assessing whether any indicators of impairment are present, and if so, judgments applied to determine and quantify any impairment loss.  Obtaining evidence that the Group has valid rights to explore in the specific area;  Reviewing and enquiring with management the basis on which they have determined that the exploration and evaluation of mineral resources has not yet reached the stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves;  Agreeing a sample of additions to capitalised exploration and evaluation expenditure during the year to supporting documentation and ensuring that the amounts were capital in nature and relate to the area of interest;  Enquiring with management and reviewing budgets and plans to test that the Group will incur substantive expenditure on further exploration for and evaluation of mineral resources in the specific area; and  Critically assessing and evaluating management’s assessment that no indicators of impairment existed. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group's annual report for the year ended 30 June 2018, but does not include the financial report and the auditor's report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Group are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our auditor's report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Krakatoa Resources Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Group are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. RSM AUSTRALIA PARTNERS Perth, WA Dated: 20 September 2018 ALASDAIR WHYTE Partner Krakatoa Resources Limited & Controlled Entities CORPORATE GOVERNANCE STATEMENT The Company is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve the Company has considered the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Recommendations. In line with the above, the Board has set out the way forward for the Company in its implementation of its Principles of Good Corporate Governance and Recommendations. The approach taken by the board was to set a blueprint for the Company to follow as it introduces elements of the governance process. Due to the current size of the Company and the scale of its operations it is neither practical nor economic for the adoption of all of the recommendations approved via the board charter. Where the Company has not adhered to the recommendations it has stated that fact in this Corporate Governance Statement however has set out a mandate for future compliance when the size of the Company and the scale of its operations warrants the introduction of those recommendations. Date of last review and Board approval: 20 September 2018. Compliance Reference Commentary Principle / Recommendation Principle 1: Lay solid foundations for management and oversight Recommendation 1.1 A listed disclose: a) entity should the respective roles and responsibilities of its and board management; and matters those expressly reserved to the board and those delegated to management. b) Yes Board Charter Code of Conduct, Independent Professional Advice Policy, Website – 43 – and size skills required composition, responsibilities To add value to the Company the Board has been formed so that it has effective and commitment to adequately discharge its duties. Directors are appointed based on the by specific the their decision- Company and on making and judgment. The Board’s role is to govern the Company rather than to manage it. In governing the Company, the Directors must act in the best interests of the Company as a whole. the role of senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out those delegated duties. is It In carrying out its governance role, the main task of the Board is to drive the performance of the Company. The the that Board must also ensure Company complies with all of its contractual, statutory and any other legal the requirements of any regulatory body. The Board has the final responsibility for the successful operations of the Company. To assist the Board carry its functions, it has developed a Code of obligations, including Krakatoa Resources Limited & Controlled Entities Conduct to guide the Directors. In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, and operations of the Company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company. management Without intending to limit this general role of the principal functions and responsibilities of the Board include the following: the Board,  Leadership of the Organisation: overseeing the Company and establishing codes that reflect the values of the Company and guide the conduct of the Board.  Strategy Formulation: to set and review the overall strategy and goals the Company and ensuring that there are policies in place to govern the operation of the Company. for  Overseeing Planning Activities: the development of the Company’s strategic plan. of  Shareholder Liaison: ensuring communications with effective shareholders an through appropriate communications policy and promoting participation at general meetings of the Company as well as ensuring timely and all disclosures balanced material information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the entity’s securities.  Monitoring, Compliance and Risk Management: the development of the Company’s risk management, and compliance, and accountability monitoring and directing the financial operational and performance of the Company. control systems  Company Finances: approving expenses and approving and monitoring acquisitions, divestitures and financial and other reporting along with ensuring the integrity of the Company’s financial and other reporting.  Human Resources: reviewing the – 44 – Krakatoa Resources Limited & Controlled Entities performance of Executive Officers and monitoring the performance of their senior management implementation of the Company’s strategy. in the  Ensuring the Health, Safety and in Well-Being of Employees: senior conjunction with team, developing, management overseeing and the reviewing effectiveness of the Company’s occupational health and safety systems to ensure the well-being of all employees.  Delegation Authority: of delegating appropriate powers to the Managing Director to ensure the day-to-day management of the Company and establishing and determining the powers and the Committees of the Board. functions of effective  Monitoring the effectiveness of the Company’s corporate governance practices. the Board’s and Full details of roles and Company Secretary’s responsibilities are contained in the Board Charter. The Board collectively and each Director has the right to seek independent professional advice at the Company’s expense, up to specified limits, (that limit is currently set at $2,000), to assist them to carry out their responsibilities. Directors are appointed based on the specific governance skills required by the Company. Given the size of the Company and the business that it operates, the Company aims at all times to have at least one Director with the appropriate experience Company’s The operations. Company’s current Directors all have relevant experience in the operations. In addition, Directors should have the relevant blend of personal experience in: to  Accounting and financial management; and  Director-level experience. business Each member of is committed to spending sufficient time to enable them to carry out their duties the Board Yes Director Selection Procedure, Website Recommendation 1.2 A listed entity should: a) undertake appropriate before checks appointing a person, or putting forward to security a candidate for election, as a director; and holders security b) provide with all holders information material in possession its relevant to a decision on whether or not to elect or re- elect a director. – 45 – Krakatoa Resources Limited & Controlled Entities for as a Director of the Company. In determining candidates the the Nomination Committee Board, (refer to recommendation 2.1) follows a prescribed process whereby it evaluates the mix of skills, experience and expertise of the existing Board. In particular, the Nomination Committee is to identify the particular skills that will best the Board's effectiveness. Consideration is also given to the balance of independent directors. Potential candidates are identified the if Nomination Committee (or equivalent) recommends an appropriate candidate for appointment to the Board. Any appointment made by the Board is subject to ratification by shareholders at the next general meeting. relevant, increase and, than impact of Board The Board recognises that Board renewal is critical to performance and tenure on the succession planning. Each director other the Managing Director, must not hold office (without re- election) past the third annual general meeting of the Company following the director's appointment or three years following that director's last election or appointment (whichever is the longer). However, a director appointed to fill a casual vacancy or as an addition to the Board must not hold office (without re-election) past the next annual general meeting of the Company. At each annual general meeting a minimum of one director or one third of the total number of directors must resign. A director who retires at an annual general meeting is eligible for re-election at that meeting and re- appointment of directors is not automatic. to is The Nomination Committee for responsible a implementing identify, assess and program enhance Director competencies. In addition, the Nomination Committee puts in place succession plans to ensure an appropriate mix of skills, experience, expertise and diversity are maintained on the Board. – 46 – Krakatoa Resources Limited & Controlled Entities Yes Recommendation 1.3 A listed entity should have a written agreement with each director and senior executive setting out the their of terms appointment. Kept at registered office, Independent Professional Advice Policy Each non-executive director has a written agreement with the Company their that covers all aspects of appointment time term, including commitment required, remuneration, disclosure of interests that may affect independence, guidance on complying with corporate governance policies and the right to seek independent advice, indemnity and insurance arrangements, rights of access to the Company’s information and ongoing confidentiality obligations as well as roles on the Company’s committees. the Company’s Each executive director’s agreement with the Company includes the same details as the non-executive directors’ includes a agreements but also position reporting description, hierarchy and termination clauses. independent to properly discharge To assist directors with independent judgement, it is the Board's policy that if a director considers it necessary to professional obtain advice the responsibility of their office as a director then, provided the director first obtains approval from the Chair for incurring such expense, the Company will pay the reasonable expenses associated with obtaining such advice (that limit is currently set at $2,000). Recommendation 1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. Recommendation 1.5 A listed entity should: a) have a diversity policy includes which requirements the for board or a relevant committee of the board set measurable to for objectives achieving gender diversity and to assess Yes Board Charter, Website the Board’s and Full details of Company Secretary’s roles and responsibilities are contained in the Board Charter. Yes Diversity Policy, Website – 47 – recognises The Company and respects the value of diversity at all levels of The the organisation. to setting is committed Company measurable objectives for attracting and engaging women at the Board level, in senior management and across the whole organisation. The Diversity Policy was re-adopted during the year and the Company set both annually objectives and entity’s progress achieving them; the the in each b) disclose that policy or a summary of it; and c) disclose as at the end of reporting period the measurable for objectives achieving gender the diversity set by board or a relevant committee of the board in accordance with the entity’s diversity policy and progress towards achieving them, and either: 1) the its respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or 2) if the entity is a Krakatoa Resources Limited & Controlled Entities following objectives the employment of women: for the    senior to the Board – no target set to (including Secretary) – 20% to the organisation as a whole – 20% management Company As at the date of this report, the Company has the following proportion of women appointed:    to the Board – 0% to senior (including Secretary) – 0% to the organisation as a whole – 20% management Company in some instances. that industry the The Company recognises mining and exploration is intrinsically male dominated in many of the operational sectors and the pool of women with appropriate skills will be limited The Company recognises that diversity extends to matters of age, disability, status, ethnicity, religious/cultural and sexual orientation. Where possible, the Company will seek to identify suitable candidates for positions from a diverse pool. marital/family background best this evaluation practice It is the policy of the Board to conduct evaluation of its performance. The objective of to is provide corporate governance to the Company. During the financial year an evaluation of the performance of the Board and its members was not formally carried out. However, a general review of the Board and executives occurs on an on-going basis that structures suitable to the Company's status as a listed entity are in place. to ensure “relevant employer” under the Workplace Gender Equality the entity’s Act, most recent “Gender Equality as Indicators”, defined in and published under that Act. Yes Recommendation 1.6: A listed entity should: a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and b) disclose, in relation to each reporting period, whether a performance Board , Committee & Individuals Performance Evaluation Procedure Website – 48 – Krakatoa Resources Limited & Controlled Entities Yes No Board , Committee & Individuals Performance Evaluation Procedure, Website best practice It is the policy of the Board to conduct evaluation of individuals’ performance. The objective of this evaluation is to provide corporate governance to the Company. During the financial year an evaluation of the performance of the individuals was not However, a formally carried out. general individuals occurs on an on-going basis to ensure that the Company's status as a listed entity are in place. review of structures suitable the to Nomination Committee Charter, Independent Professional Advice Policy Website is The full Board performs the role of Nomination Committee. The role of a Nomination Committee to help achieve a structured Board that adds value to the Company by ensuring an appropriate mix of skills are present in Directors on the Board at all times. The Nomination Committee did not meet during the year ended 30 June 2018. evaluation was undertaken the in reporting accordance with that process. in period Recommendation 1.7: A listed entity should: a) have and disclose a process for periodically evaluating the performance of its senior executives; and b) disclose, in relation to each reporting period, a whether performance was evaluation the undertaken in reporting accordance with that process. in period Principle 2: Structure the board to add value listed Recommendation 2.1 The Board of a entity should: a) have a nomination committee which: 1) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, disclose: the charter of the committee; the members of the committee; and and 4) 2) 3) and identifying the need succession review by The responsibilities of a Nomination include devising Committee would for Board membership, criteria regularly for reviewing various skills and experience on the specific Board individuals for nomination as Directors for the Board. The Nomination Committee also oversees management plans including the Executive Director and his/her direct reports and evaluate the Board’s performance and make recommendations for the appointment and removal of Directors. Matters such as remuneration, expectations, terms, the procedures for dealing with conflicts of interest and the availability of independent professional advice are clearly understood by all Directors, who are experienced public company Directors. The Board collectively and each Director has the right to seek 5) as at the end of each reporting period, the number of the times committee met the throughout the period individual attendances of the members at those meetings; or and if it does not have a nomination committee, disclose the fact and that b) – 49 – processes it employs board to address issues succession that and to ensure the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties responsibilities and effectively. Recommendation 2.2 A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. Recommendation 2.3 A listed entity should disclose: a) of the names of the directors considered to be by the board independent directors; if a director has an position, interest, or association relationship the type described in Box 2.3 but the board is of the opinion that it does not compromise independence of the the the director, the nature of position, interest, or association in relationship question an explanation of why the board that opinion; and the length of service of each director. and of is b) c) Krakatoa Resources Limited & Controlled Entities Yes Yes Kept at registered office Board Charter, Independence of Directors Assessment Website independent professional advice at the Company’s expense, up to specified limits, (that limit is currently set at $2,000), to assist them to carry out their responsibilities. The Company has reviewed the skill set of its Board to determine where the skills lie and any relevant gaps in skills shortages. The Company is working through professional development initiatives as well as seeking to identify suitable Board candidates for positions from a diverse pool. recognises The Company the importance of Non-Executive Directors and the external perspective and advice that Non-Executive Directors can offer. An Independent Director: 1. is a Non-Executive Director and; 2. is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; 3. within the last three years has not been employed in an executive capacity by the Company or another group member, or been a Director after ceasing to hold any such employment; 4. within the last three years has not been a principal of a material professional adviser or a material consultant the Company or another group member, or an employee materially associated with the service provided; to 5. is not a material supplier or customer of the Company or another group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; no material contractual relationship with the Company or other group member other than as a Director of the Company; 6. has 7. has not served on the Board for a period which could, or could – 50 – Krakatoa Resources Limited & Controlled Entities to, reasonably be perceived materially the interfere with Director’s ability to act in the best interests of the Company; and 8. is free from any interest and any business or other relationship which could, or could reasonably be to, materially interfere with the Director’s ability to act in the best interests of the Company. perceived with regard Materiality for the purposes of points 1 to 8 above is determined on the basis of both quantitative and qualitative the aspects to independence of Directors. An amount over 5% of the Company’s expenditure or 10% of the particular is directors annual gross considered to be material. A period of more than six years as a Director would be considered material when assessing independence. income Colin Locke (appointed 6 August 2015) is an Executive Director of the Company and does not meet the Company’s criteria for independence. However, and knowledge of the Company makes his contribution to the Board such that it is appropriate for him to remain on the Board. experience his Timothy Hogan (appointed 7 October 2015) is a Non-Executive Director of the Company the Company’s criteria for independence. and meets David Palumbo (appointed 7 August 2017) is a Non-Executive Director of the Company the Company’s criteria for independence. and meets 2 out of 3 directors are independent. is not The Chairperson an independent Director and is not the CEO / Managing Director. The Company is continually evaluating and reviewing the Board structure. Yes No Recommendation 2.4 A majority of the board of a listed entity should be independent directors. Recommendation 2.5 The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. Independence of Directors Assessment, Website Independence of Directors Assessment, Website – 51 – Krakatoa Resources Limited & Controlled Entities Director Induction Program, Ongoing Education Framework, Website It is the policy of the Company that each new Director undergoes an induction process in which they are given a full briefing on the Company. Where possible this includes meetings with key executives, the premises, an induction package and presentations. Information conveyed to new Directors include: tours of Yes Recommendation 2.6 A listed entity should have a program for inducting new directors provide and appropriate professional development opportunities for directors to develop and the skills and maintain to needed knowledge perform as role directors effectively. their Principle 3: Act ethically and responsibly Recommendation 3.1 A listed entity should: code a) have for a conduct directors, executives employees; and of its senior and b) disclose that code or a summary of it. Principle 4: Safeguard integrity in corporate reporting Recommendation 4.1 The board of a listed entity should: (a) have an audit committee which: a) has at least three members, all of whom are non- executive directors and a majority of whom are independent directors; and 1) is chaired by an independent Yes Code of Conduct Website No Audit Committee Charter, Website – 52 –  details   a of the and roles responsibilities of a Director; formal on Director policies appointment as well as conduct and contribution expectations; of the Corporate Governance Statement, Charters, Policies and Memos and copy  a copy of the Constitution of the Company. In order continuing to achieve improvement in Board performance, all Directors are encouraged to undergo continual professional development. The Board has implemented an Ongoing Education Framework. its commitment As part of to recognising the legitimate interests of the Company has stakeholders, established a Code of Conduct to guide compliance with legal and other obligations to legitimate stakeholders. These include stakeholders customers, clients, employees, government authorities, creditors and the community as whole. the that size Audit Given and current composition of the Board, the Board believes there would be no efficiencies gained by establishing a separate Committee. Accordingly, the Board performs the role of Audit Committee. Items that are usually required to be discussed by an Audit Committee are discussed at a separate meeting when required. When the Board convenes as the Audit Committee it carries out those functions which are delegated to it in the Company’s Audit Committee director, who is not the chair of the board, and disclose: 2) the charter of the 5) 3) committee; the relevant qualifications and 4) experience of the members of the committee; and in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. b) Krakatoa Resources Limited & Controlled Entities Charter. The Board deals with any conflicts of interest that may occur when convening in the capacity of the Audit Committee by ensuring that the Director with conflicting interests is not party to the relevant discussions. The Board did not meet as the Audit Committee during the year. To assist the Board to fulfil its function as the Audit Committee, the Company has adopted an Audit Committee Charter which describes the role, composition, functions and responsibilities of the Audit Committee. All of the Directors consider themselves to be financially literate and possess relevant industry experience. has any arises, the rotation of The Board established The Company selection, procedures for its appointment and is external auditor. responsible for the initial appointment of the the external auditor and appointment of a new external auditor as vacancy when recommended by the Audit Committee (or its equivalent). Candidates for the position of external auditor must demonstrate complete independence from the engagement period. The Board may otherwise select an external auditor based on criteria relevant the and Company's circumstances. The performance of the external auditor is reviewed on an annual basis by the Audit Committee any (or recommendations are made to the Board. the Company equivalent) business through and its to entity’s Recommendation 4.2 The board of a listed entity should, before it approves the financial statements for a financial period, receive from its a C E O CFO in that, declaration their opinion, financial the records of the entity have been properly maintained and financial statements comply with appropriate the that and the Yes Kept at registered office – 53 – for each The Executive Director (Executive Chairman) and Company Secretary (Chief Financial Officer) provide a declaration to the Board in accordance with section 295A of the Corporations financial report and Act assure the Board that such declaration is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. Recommendation 4.3 A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to from answer security holders relevant to the audit. questions Principle 5: Make timely and balanced disclosure Recommendation 5.1 A listed entity should: a) have a written policy for complying with its continuous disclosure obligations under the Listing Rules; and b) disclose that policy or a summary of it. Principle 6: Respect the rights of security holders listed entity Recommendation 6.1 A should provide information about itself and its governance to investors via its website. Krakatoa Resources Limited & Controlled Entities Yes AGM The external auditor is required to attend every AGM for the purpose of answering questions from security holders relevant to the audit. Yes Continuous Disclosure Policy, Website for overseeing The Board has designated the Company Secretary as the person and responsible coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the the Company ASX Listing Rules immediately notifies the ASX of information: 1. concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and 2. that would, or would be likely to, influence persons who commonly invest in deciding whether to acquire or dispose of the Company’s securities. in securities The Company’s website includes the following:  Corporate Governance policies, procedures, charters, programs, and assessments, frameworks codes  Names and biographical details of each of its directors and senior executives  Constitution  Copies of annual, half yearly and quarterly reports  ASX announcements Yes Website Disclosure Policy, Website – 54 – Krakatoa Resources Limited & Controlled Entities  Copies of notices of meetings of security holders  Media releases  Overview of the Company’s current business, structure and history  Details of upcoming meetings of security holders  Summary of the terms of the securities on issue  Historical market price information of the securities on issue  Contact details for the share registry and media enquiries  Share registry key security holder forms The Company respects the rights of its the shareholders and effective exercise of those rights the Company is committed to: facilitate to  communicating effectively with shareholders through releases to the market via ASX, information mailed to shareholders and the general meetings the Company; of  giving balanced shareholders to ready and information and the Company access understandable about corporate proposals; requesting the external auditor to general attend meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report of future Annual Reports. annual the  The Company also makes available a telephone number and email address for shareholders to make enquiries of the Company. to The Company respects the rights of its shareholders and the effective exercise of those rights the Company is committed to making it easy for shareholders to participate in shareholder meetings of the Company. facilitate Shareholders are regularly given the opportunity to receive communications electronically. Yes Recommendation 6.2 A listed entity should design and implement an investor relations program to facilitate effective two- way communication with investors. Shareholder Communication Policy, Social Media Policy Website Recommendation 6.3 A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. Recommendation 6.4 A listed entity should give security holders the option to receive Yes Yes Shareholder Communication Policy Website Shareholder Communication Policy Website – 55 – Krakatoa Resources Limited & Controlled Entities communications from and send communications to, the entity and its security registry electronically. Principle 7: Recognise and manage risk Recommendation 7.1 The board of a listed entity should: a) have a committee or No Risk Management Policy Website 2) committees to oversee risk, each of which: 1) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose: the charter of the committee; the members of the committee; and 4) 3) 5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework. b) Recommendation 7.2 The board or a committee of the board should: a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; and it that Risk Given is not structured The Board has not established a and separate Risk Committee, therefore in accordance with Recommendation the current size and 7.1. composition of the Board, the Board believes there would be no efficiencies gained by establishing a Committee. separate Accordingly, the Board performs the role of Risk Committee. Items that are usually required to be discussed by a Risk Committee are discussed at a required. separate meeting when When the Board convenes as the Risk Committee those functions which are delegated to it in the Company’s Risk Committee Charter. The Board deals with any conflicts of interest that may occur when convening in the capacity of the Risk Committee by ensuring that the Director with conflicting interests is not party to the relevant discussions. it carries out identification The Board as a whole did not meet as the Risk Committee during the year. Risk risk management discussions occurred during the year. To assist the Board to fulfil the Risk function as Committee, the Company has adopted a Risk Management Policy. and its Yes Risk Management Policy Website The Company’s Risk Management Policy states that the Board as a whole is responsible for the oversight of the Company’s risk management and control framework. The objectives of the Company’s Risk Management Strategy are to: identify risks to the Company;   balance risk to reward; – 56 – Krakatoa Resources Limited & Controlled Entities b) disclose, in relation to each reporting period, whether such a review has taken place.  ensure regulatory compliance is achieved; and  ensure senior executives, the Board investors and understand the risk profile of the Company. through risk The Board monitors various arrangements including:  regular Board meetings; share price monitoring;   market monitoring; and  regular position and operations. review of financial No Audit Committee Charter Website The Company has developed a Risk Register in order to assist with the risk management of the Company. The Company’s Risk Management Policy is considered a sound strategy for addressing and managing risk. During the year, the following categories of risks affecting the Company as part of the Company’s systems and processes for managing material business risks: reporting, operational, sovereignty and market-related risks. the Board reviewed financial The Board performs the role of Audit Committee. When the Board convenes as the Audit Committee it carries out those functions which are delegated to it in the Company’s Audit Committee Charter which include overseeing the establishment and implementation by management for identifying, assessing, monitoring and managing material risk throughout the Company, which the Company’s internal compliance and control systems. includes system of a and Due to the nature and size of the Company's the operations, Company’s derive ability substantially all of the benefits of an independent internal audit function, the expense of an independent internal auditor to be is not considered appropriate. to Recommendation 7.3 A listed entity should disclose: a) b) if it has an internal audit function, how the function is structured and what role it performs; or if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. Yes Recommendation 7.4 A listed entity should disclose whether it has any material exposure to economic, environmental Corporate Governance Statement – 57 – its The Company has considered economic, environmental and social sustainability risks by way of internal review and has concluded that it is not economic, subject to material Krakatoa Resources Limited & Controlled Entities environmental and social sustainability risks. and social sustainability risks and, if it does, how it manages or intends to manage those risks. Principle 8: Remunerate fairly and responsibly Recommendation 8.1 The board of a listed entity should: a) have a remuneration committee which: 1) has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose: the charter of the committee; the members of the committee; and 3) 4) 2) b) 5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. Recommendation 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non- No Remuneration Committee Charter, Independent Professional Advice Policy Website the The Board performs role of Remuneration Committee. When the Board convenes as the Remuneration those Committee functions which are delegated to it in the Remuneration Company’s Committee Charter. it carries out of role The a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration for levels and employees. Remuneration Committee did not meet during the financial year ended 30 June 2018. incentive policies The of for and responsibilities recommendations a The include Remuneration Committee setting policies for senior officers’ remuneration, setting the terms and conditions of employment the Executive Director, reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both Non-Executive Executive for Directors, remuneration by gender and making recommendations on any proposed changes and undertaking reviews of the Managing Director’s performance, including, setting with the Executive Director goals and reviewing progress in achieving those goals. The Board collectively and each Director has the right to seek independent professional advice at the Company’s expense, up to specified is limits, currently set at $2,000), to assist them to carry out their responsibilities. (that limit Yes Remuneration Policy Website fees out of amount Non-Executive Directors are to be paid the maximum their aggregate by approved shareholders for the remuneration of Non-Executive Directors. Executive Director remuneration is set by the – 58 – Krakatoa Resources Limited & Controlled Entities Board with the executive director in question not present. Full details of regarding Directors has been included in the Remuneration Report within the Annual Report. remuneration the and Non-Executive Executives Directors are prohibited from entering transactions or arrangements into which risk of the economic participating in unvested entitlements. limit Yes Remuneration Policy Website executive directors and the remuneration of executive directors and other senior executives. Recommendation 8.3 A listed entity which has an equity-based remuneration scheme should: a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and b) disclose that policy or a summary of it. – 59 – Krakatoa Resources Limited & Controlled Entities ASX INFORMATION AS AT 14 SEPTEMBER 2018 The following additional information is required by the ASX Limited in respect of listed public companies and was applicable at 14 September 2018. 1. Shareholder and Option holder information a. Number of Shareholders and Option Holders Shares As at 14 September 2018, there were 628 shareholders holding a total of 117,500,000 fully paid ordinary shares. Options As at 14 September 2018, there were 52,500,000 Quoted Options exercisable at $0.10 on or before 31 May 2019 held by 150 holders. As at 14 September 2018, there were 12,000,000 Unquoted Options exercisable at $0.10 on or before 24 October 2020 held by 4 holders and 10,893,878 Unquoted Options exercisable at $0.40 on or before 12 December 2019 held by 14 holders. b. Distribution of Equity Securities Fully paid ordinary shares Number (as at 14 September 2018) Category (size of holding) Shareholders Ordinary Shares 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over 38 7 87 288 208 628 4,094 21,957 830,542 12,736,999 103,906,408 117,500,000 The number of shareholdings held in less than marketable parcels is 186 shareholders amounting to 1,631,825 shares. Quoted $0.10 options Number (as at 14 September 2018) Category (size of holding) Shareholders Options 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over - 11 2 65 72 150 - 55,000 15,834 3,948,122 48,481,044 52,500,000 The number of option holdings held in less than marketable parcels is 59 option holders amounting to 2,118,956 options. – 60 – Krakatoa Resources Limited & Controlled Entities c. The names of substantial shareholders listed in the company’s register as at 14 September 2018 are: Shareholder Ordinary Shares %Held of Total Ordinary Shares Lafras Luitingh 8,909,937 7.58% d. Voting Rights The voting rights attached to the ordinary shares are as follows: Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. e. 20 Largest Shareholders as at 14 September 2018 — Ordinary Shares Name 1. 2. 3. 4. 5. 6. 7. 8. MR LAFRAS LUITINGH MR BIN LIU MR DAVID ALAN CANDLER PROF YEW KWANG NG CBLT INC EST MR MARTIN GREGORY KUHN Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 8,909,937 3,642,562 3,000,000 2,550,000 2,500,000 2,308,941 7.58 3.10 2.55 2.17 2.13 1.97 MR JOHN COLIN LOOSEMORE + MS SUSAN MARJORY LOOSEMORE 2,000,001 1.70 DR TONY CREA + MRS GINA CREA 9. CV INDO PROJECT SERVICES 10. CV JAVA HOLDINGS 11. MR KONG HOCK TAN + MRS MARY MENG MAY ANG 12. OCEANIC CAPITAL PTY LTD 13. ST BARNABAS INVESTMENTS PTY LTD 14. MR THOMAS FRANCIS CORR 15. MS CHUNYAN NIU + MS RAN LI 16. RAYAN INVESTMENTS PTY LTD 17. MS SALLY JUDITH MOLYNEUX 18. MRS TING TING XUE LUU 19. MR JOHN ROBERT TYRRELL + MS CLAIRE KATHERINE TYRRELL 20. R C FISHING PTY LTD – 61 – 2,000,000 1.70 1,875,000 1,875,000 1,755,898 1,500,001 1.60 1.60 1.49 1.28 1,500,000 1.28 1,499,300 1,428,572 1,428,571 1,400,000 1,335,600 1.28 1.22 1.22 1.19 1.14 1,250,000 1.06 1,249,000 1.06 45,008,383 38.31 Krakatoa Resources Limited & Controlled Entities f. 20 Largest Quoted $0.10 Option Holders as at 14 September 2018 Name 1. 2. 3. 4. 5. 6. 7. 8. SOPRANO INVESTMENTS (WA) PTY LTD MR COLIN KENNETH LOCKE CBLT INC MR TIMOTHY HOGAN MR LAFRAS LUITINGH RAYAN INVESTMENTS PTY LTD OCEANIC CAPITAL PTY LTD MR JOHN ROBERT TYRRELL + MS CLAIRE KATHERINE TYRRELL 9. TITAN SECURITIES PTY LTD 10. MR JOHN COLIN LOOSEMORE + MS SUSAN MARJORY LOOSEMORE 11. MR MURRAY WILLIAM BROUN 12. OPULENTUS INVESTMENTS PTY LTD 13. MRS JILLIANNE MURIEL FREEMAN 14. ARYO BIMO 15. MR DAVID ALAN CANDLER 16. MR TERRY JAMES GARDINER 17. MR TERRY JAMES GARDINER + MRS VICTORIA HELEN GARDINER 18. HARD ROCK MINING PTY LTD 19. MR JOHN LOMBARDO 20. SHRIVER NOMINEES PTY LTD 2. The name of the company secretary is David Palumbo. Number of Ordinary Fully Paid Shares Held % Held of Issued Ordinary Capital 3,108,500 5.92 3,000,000 5.71 2,500,000 2,000,000 2,000,000 2,000,000 1,500,000 4.76 3.81 3.81 3.81 2.86 1,455,000 2.77 1,381,101 2.63 1,333,334 2.54 1,170,000 2.23 1,157,706 2.21 1,107,867 2.11 1,000,000 1,000,000 1,000,000 1.90 1.90 1.90 1,000,000 1.90 1,000,000 1,000,000 1,000,000 1.90 1.90 1.90 30,713,508 58.50 3. 4. 5. The address of the principal registered office in Australia is: Level 11, 216 St Georges Terrace Perth WA 6000 Registers of securities are held at the following address: Computershare Investor Services Pty Ltd, Level 11, 172 St Georges Terrace, Perth WA 6000 Stock Exchange Listing Quotation has been granted for all the ordinary shares of the company on all Member Exchanges of the ASX Limited. – 62 – Krakatoa Resources Limited & Controlled Entities SCHEDULE OF MINERAL TENEMENTS AS AT 14 SEPTEMBER 2018 Project Tenement Interest held by Krakatoa Resources Limited Dalgaranga Dalgaranga Dalgaranga Dalgaranga Mac Well Farr Farr Farr Farr Farr Farr Farr Farr Farr Farr Farr Farr Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson P59/2082 P59/2140 P59/2141 P59/2142 E59/2175 131986 131987 148579 162115 204704 233431 233432 251322 251323 300021 317324 330653 113077 127453 139501 155382 155383 170037 170038 170039 170568 191476 200011 200012 203607 203626 210246 228787 228800 228801 237094 237095 247658 267268 267287 267288 286779 – 63 – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Krakatoa Resources Limited & Controlled Entities 294811 307478 307479 307480 307504 307505 314207 314208 314209 314210 314211 314212 323368 335102 335103 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson Corkill- Lawson – 64 –

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