Papyrus Australia Annual Report 2012

Plain-text annual report

PAPYRUS AUSTRALIA LTD ABN 63 110 868 409 ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2012 Contents Corporate information Directors’ report Auditor’s independence declaration Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements 1 Nature of operations 2 General information and statement of compliance 3 Changes in accounting policies 4 Summary of accounting policies 5 Parent Information 6 Operating Segments 7 Revenue and expenses 8 Income tax expense 9 Earnings per share 10 Cash and cash equivalents 11 Trade and other receivables 12 Other current assets 13 Property, plant and equipment 14 Intangible assets 15 Share based payments 16 Trade and other payables 17 Borrowings 18 Provisions 19 Other non-current liabilities 20 Issued capital 1 3 4 17 18 19 20 21 22 22 22 22 24 32 33 33 34 35 36 37 38 38 39 39 41 41 41 42 42 21 Reserves 22 Committments for expenditure 23 Contingent liabilities and contingent assets 24 Auditor’s remuneration 25 Controlled and other entities 26 Financial risk management 27 Related party disclosure and key management personnel remuneration 28 Going concern Directors’ Declaration Auditor’s Report to the members of Papyrus Australia Limited ASX Additional Information 43 43 44 44 44 45 47 49 50 51 54 2 Corporate information This annual report covers both Papyrus Australia Ltd (ABN 63 110 868 409) as a consolidated group (’Group’) comprising Papyrus Australia Ltd and its subsidiaries. The Group’s functional and presentation currency is Australian dollars. A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the directors’ report on pages 5 to 10. The directors’ report is not part of the ﬁnancial report. Directors Mr Edward Byrt, Chairman Mr Ramy Azer, Managing Director Mr Donald Stephens, Non-Executive Director Mr Christopher Smerdon, Non-Executive Director (Resigned 31 August 2011) Mr Colin Dunsford, Non-Executive Director Company Secretary Mr Pierre Van Der Merwe Registered Ofﬁce C/- HLB Mann Judd (SA) Pty Ltd 169 Fullarton Road DULWICH SA 5065 Principal place of business Building 42, Adelaide University Research Precinct 12 Queen Street THEBARTON SA 5031 Share Register Computershare Investor Securities Pty Ltd Level 5, 115 Grenfell Street ADELAIDE SA 5000 Legal Advisors O’Loughlins Lawyers Level 2, 99 Frome Street ADELAIDE SA 5000 Bankers National Australia Bank 22 - 28 King William Street ADELAIDE SA 5000 Auditors Grant Thornton, South Australian Partnership Chartered Accountants Level 1 67 Greenhill Road WAYVILLE SA 5034 3 Directors’ report Your directors present their report on the consolidated group for the ﬁnancial year ended 30 June 2012. Directors The names of the Directors in ofﬁce at any time during, or since the end of, the year are: Mr Edward Byrt, Chairman Mr Ramy Azer, Managing Director Mr Donald Stephens, Non-Executive Director Mr Colin Dunsford, Non-Executive Director Mr Christopher Smerdon (resigned 31 August 2011) Directors have been in ofﬁce since the start of the ﬁnancial year to the date of this report unless otherwise stated. Names, qualiﬁcations, experience and special responsibilities Mr Edward Byrt, LLB, (Chairman) Ted Byrt is a company director with over 30 years experience in commerce, corporate governance and international business. He is a specialist strategic advisor for major development and infrastructure projects within Australia and offshore. Ted is a business advisor and Board member of several leading organisations in South Australia. He is Presiding Member of the Development Assessment Commission, Chairman of the China Cluster, The Australian Advanced Manufacturing Centre Pty Ltd and SMAC Technologies Pty Ltd, a Director of Treyo Leisure & Entertainment Ltd (ASX listed) and a Board member of the Aboriginal Foundation of SA Inc. He is also a member of the Company’s Audit committee and has been a Director of Papyrus since 2004. Mr Ramy Azer, MSTC, MSc (Eng), Grad Dip Bus, Bachelor of Engineering (Mechanical), (Managing Director) Ramy Azer is the founder and developed the Company’s technology. He has been a regular guest lecturer and speaker on issues including sustainable business development and innovation. Ramy has been Managing Director since 2005 and prior to that had 10 years experience with Papyrus Technology Pty Ltd. Mr Donald Stephens, BAcc, FCA, (Non-Executive Director) Donald Stephens is a Chartered Accountant and corporate adviser with over 20 years experience in the accounting industry, including 14 years as a partner of HLB Mann Judd Stephens, a ﬁrm of Chartered Accountants. Donald is a non-executive director of Mithril Resources Ltd and TW Holdings Ltd and is company secretary to Toro Energy Ltd, Minotaur Exploration Ltd, and Petratherm Ltd (all ASX Listed entities). He holds other public company secretarial positions and directorships with private companies and provides corporate advisory services to a wide range of organisations. He is also a member of the Company’s Audit committee. 4 Mr Colin Dunsford, B.Ec., FCA, (Non-Executive Director) Colin is a former partner of Ernst and Young, having joined the ﬁrm in May 2002 as a result of the integration with Arthur Andersen. At Arthur Andersen, Colin was Managing Partner and Division Head of the Adelaide Assurance and Business Advisory Division with many client responsibilities, a position held at Ernst and Young until his retirement in July 2010. During his more than 40 year professional career, Colin has had extensive experience with a wide range of corporate, government and incorporated clients in Australia and the United States of America. Colin’s current directorships include, Chairman of Bedford Group, Independent Gaming Corporation, Adelaide Symphony Orchestra and Leaders Institute of South Australia. Board member of Aboriginal Foundation of South Australia and University of Adelaide Finance Committee. Colin joined the Board of Papyrus Australia Ltd in October 2010 and is Chairman of the Company’s Audit committee. Mr Christopher Smerdon, (Non-Executive Director) Chris Smerdon has extensive experience in the Information Technology ﬁeld. He founded Protech Australasia in 1984 and was Managing Director until he sold his interests in 1995. Under his leadership, Protech commenced as a start up and was developed into a national business with ofﬁces located throughout Australia. In 1996, he established IT Services Group which in 2001 became part of Vectra Corporation Ltd, an international player in Security Consulting Solutions and Infrastructure. Chris is currently a Director of the South Australia Government Motorsport Board, Kangaroo Island Sealink Ltd and Coachlines of Australia Pty Ltd. COMPANY SECRETARY Mr Pierre Van Der Merwe, CA Pierre is a Chartered Accountant with over 20 years experience and is currently a director of HLB Mann Judd (SA) Pty Ltd, a ﬁrm of Chartered Accountants in Adelaide, and a number of other private companies. He provides corporate advice and support to a number of companies listed on the ASX, has held the position of Company Secretary to ASX listed companies and is currently Company secretary to a number of unlisted companies. Pierre has extensive experience in the provision of professional services to clients, including tax consulting, management of client accounting systems, reporting at Board level assisting with ﬁnancial interpretations and strategic planning. He is also a Fellow of the Financial Services Institute of Australasia. REVIEW OF OPERATIONS Corporate During the ﬁnancial year:- • The Company placed a total of 21,640,000 ordinary fully paid shares at a price of $0.05, raising $1.082 million; and • A total of 750,000 unlisted options with an exercise price of $0.12 and an expiry date of 30 June 2016 were issued to key management personnel. 5 The Company’s commercialisation strategy is to be a technology licensing company assisting suitable entities to establish banana veneering and ﬁbre production factories in locations worldwide where bananas are grown. The Company’s revenue will be generated from technology licencing fees, machinery sales and support services. To that end the commercial focus during FY12 was on developing its operational activity in Egypt, the market for product in Egypt and Europe, and the development of the joint venture company Yellow Pallet BV based in the Netherlands. The Company signiﬁcantly reduced its operating costs, including the non payment of directors’ fees, to preserve working capital. At 30 June 2012, the Company held $366k in available cash. Mr Christopher Smerdon retired as a director of the Company on 31 August 2011. The Company chose not to replace the position. The Company’s 2011 Annual Report was published: ASX Announcement 21 November 2011. The Annual General Meeting of the Company was held on 23 November 2011 whereat the Chairman and Managing Director gave comprehensive reviews of the Company’s operations: ASX Announcements 21 October 2011 and 23 November 2011. During the period Shareholder Newsletters were published: ASX Announcements - 20 October 2011, 18 January 2012, 18 April 2012 and 25 June 2012. The company’s leased facility at Yeerongpilly, Brisbane, Queensland (former Brimms factory) ceased on 30 June 2012. Removal of all redundant plant and equipment has taken place and all settlement arrangements with the landlord were achieved satisfactorily. Intellectual Property The Company’s intellectual property bank continued to grow. During FY12, patents were granted for the Method and Apparatus for Removing Sheets of Fibres from Banana Plants (Original Patent) by the United States and Taiwan. Patent rights have now been granted for this patent in the following countries: Australia, China, Egypt, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Peru, Philippines, Russia, Singapore, South Africa, Vietnam, African Regional Intellectual Property Organisation (ARIPO) countries, the United States and Taiwan. The Company’s patent application for Improved Fibre Furnish has entered the national phase for patent protection in the following Patent Cooperation Treaty (PCT) countries: Australia, Brazil, Canada, China, Egypt, Hong Kong, India, Japan, Mexico, New Zealand, Russia, Sri Lanka, Ukraine and USA. This patent is for the production of ﬁbre chips (to be used for the making of panel and other products) and directly relates to the Fibre Production Unit, recently developed, and attaches to the Beta Veneering Unit (which is the patent protected under the group’s Original Patent). Capital Raising A share placement announced to the market on 7 November 2011 injected $1082K in capital to the Company. The ﬁrst tranche of $722K occurred in November 2011: ASX Announcement 7 November 2011. The balance via the second tranche of $360k followed a General Meeting of Shareholders held on 18 January 2012: ASX Announcement 18 January 2012. The funds raised were applied to working capital requirements in particular, to assist the Company in continuing to support the establishment of Papyrus Egypt and the Yellow Pallet project. 6 Papyrus Egypt The Company’s objective in Egypt is to develop the world’s ﬁrst integrated commercial banana ﬁbre and banana veneer factory utilising waste banana tree trunks and developing strategic alliances with suppliers of raw materials, users of the factory’s off take and distributers and users of the product produced in Egypt and Europe. Papyrus Australia Ltd in addition to being a 50% equity holder of the established company Papyrus Egypt will also supply the machinery, intellectual property and know-how under a licence agreement and machinery purchase agreement. The choice of Egypt, more speciﬁcally Sohag in Upper Egypt (over 500km South of Cairo in the Nile Valley), as the location of the ﬁrst factory was a considered strategic decision of the Board, having regard to many factors not the least of which were: • the identiﬁed demand in Egypt for a new indigenous renewable and sustainable source of ﬁbre - Egypt does not have any forests and imports at great cost most of the ﬁbre required for its considerable domestic consumption; • the comparatively cheaper and readily available energy, labour and infrastructure costs in Upper Egypt; • the availability of abundant quantities of waste banana tree trunk material in Upper Egypt which is currently a nuisance waste by-product of banana fruit production; and • the encouragement of the Egyptian government, the Executive Governor of the Sohag Governate in Upper Egypt (a Governate is the equivalent of a State in the Australian context), and leading business organisations such as the National Bank of Egypt and the Upper Egypt Investment Company, and regional communities, to establish a new, and for Upper Egypt, a signiﬁcant economic enterprise which beneﬁts the community and the environment. Papyrus Egypt has been granted land by the local authorities of 2,000sqm in the Kawthar industrial estate in Sohag to build the factory which is around 1200 sqm of concrete and masonry construction build. The necessary operating infrastructures have been connected. This is at the cost of our partner, the Egypt Banana Fibre Company (EBFC). EBFC is solely responsible to fund the capital and initial operating requirements of Papyrus Egypt through the joint venture and Papyrus Australia will own 50% of the issued shares in Papyrus Egypt. Details of EBFC have been advised to the market during FY12 - refer Shareholder Newsletters noted above. Another important participant in Egypt is the Egyptian Government owned NAG- HAMADY Fiber Board Company also based in the Sohag Governate. NAG-HAMADY is Egypt’s largest producer of bagasse ﬁbre (from sugarcane) MDF panelboard sold in Egypt and the Middle East region, and is seeking additional sources of agricultural ﬁbre for its growing business to export to Europe. NAG-HAMADY has successfully undertaken testing of banana ﬁbre (sourced from the Company’s Walkamin Demonstration factory in Far North Queensland) and the off take ﬁbre from the Papyrus Egypt factory, once operational, will be an additional natural ﬁbre source for NAG-HAMADY for their existing business of panelboard manufacture. As the Chairman said in the June 2012 Shareholder Newsletter, Egypt continues to challenge the Company because of the prolonged unsettled political environment and consequently the social and economic climate, that has caused some uncertainty and slowed the decision making processes of government and business. The Board is of the view that patience and persistence are required and remains conﬁdent of the future for the Papyrus Egypt project. 7 Yellow Pallet The company Yellow Pallet B.V. has been incorporated in the Netherlands with Papyrus Australia owning 50% equity. Details of the other joint venture partners are contained in the Shareholder Newsletter No 4 published in October 2011. The objective of the Yellow Pallet project is to develop technology and new patented machinery to produce pallets from banana ﬁbre for use in the logistic industry starting with transport pallets for use initially by the banana industry in central and southern America. The proposal is for Yellow Pallet to sell banana ﬁbre producing factories which will comprise the patented Papyrus banana veneering and ﬁbre producing machines to be manufactured by the Papyrus Australia wholly owned subsidiary The Australian Advanced Manufacturing Centre Pty Ltd (AAMC). Yellow Pallet will also be the sole supplier of proprietary adhesives and other specialist machines needed to manufacture banana ﬁbre pallets. In March 2012 a consulting company to Yellow Pallet, Hollandia Systems B V (a leading Dutch machinery and processing equipment manufacturing company) had a senior engineer visit the Walkamin Demonstration Factory to witness and assess the proprietary Papyrus technology and processes and validate the production capacity of the machines. The pre-feasibility work already undertaken by the Yellow Pallet project team suggests that this project will: • Prove the utilisation of waste banana ﬁbre and create a new industry; • Address the huge demand from the global shipping pallet market currently relying on forest sourced timber; • Realise a price reduction per pallet from around US$11 to about US$9; • Create at least 150 jobs per pallet factory; • Create a stream of new bio-mass (renewable energy source) to Europe, USA and Japan; and • Reduce carbon emissions and the use of wood. In addition to being a 50% equity holder of this project, the Company, through its subsidiary AAMC, stands to signiﬁcantly beneﬁt from this project through the sale of the Papyrus proprietary machines for each factory and ongoing maintenance contracts. The Yellow Pallet project is supported in various ways by a number of governmental, institutional and private companies in Europe. The most recent activity of the project team is the preparation of a comprehensive business case to take to identiﬁed funding institutions. Product Development Testing of ﬁbre and products occurred on several fronts during the year. The process was to submit batch quantities of ﬁbre chips taken from the Company’s Walkamin factory and utilising various recipes, techniques and formulae under heat test and pressure conditions to produce panel. The test panels have been submitted for independent testing and evaluation. The objective is to achieve results of suitable standards and certiﬁcation to enable banana ﬁbre panel to be offered as a sustainable and superior panelboard product alternative to wood-based products for use in the construction industry. The Australian trials with ﬁbre conducted early in the year concluded more work was required on the binding properties for structural panel which has now been taken up by NAG-HAMADY in Egypt and the Fraunhoffer Institute in Germany. However, for non structural panel such as ceiling/acoustic tiles and insulation it appears banana ﬁbre is quite suitable and is to be market tested. 8 NAG-HAMADY has now satisfactorily completed its own scientiﬁc analysis and industrial testing of banana ﬁbre for the purpose of making ﬁbre board (MDF). Together with another Egyptian company Abu El Holl, a large panelboard manufacturer introduced by NAG-HAMADY, we have jointly funded and commissioned the Fraunhofer Institute to develop the formula to make certiﬁable industrial-use panelboard from banana ﬁbre. Papyrus Australia will retain ownership of any new intellectual property developed by Fraunhoffer. These two Egyptian companies (NAG-HAMADY and Abu El Holl) remain active and interested prospective commercial participants in the business opportunities presented in Egypt and Europe for MDF and panel board production from banana ﬁbre, as an alternate to the use of wood products. The Fraunhofer Institute is Europe’s largest agricultural application orientated research organisation and is regarded as a world leading panelboard research Institute. We expect this project to deliver an independent veriﬁcation of the formula and the costs of producing panel board from banana ﬁbre for certiﬁable industrial use worldwide. The results are expected in Q1 of FY13. EBFC continues to process the veneer produced and sold from the Walkamin Demonstration Factory for the making of ﬂoorboards (the veneer being applied to MDF/HDF substrate), skins for doors and decorative panels for sale in Egypt and Europe. Additionally, EBFC has been supplying a company located in Holland, Steward Design Panels, with banana veneer laminate on bagasse MDF panel board. Steward has designed and engineered this product to create decorative acoustic ceiling panels, which has attracted the architectural profession and are now being installed in major projects in Holland. Images of these products and a catalogue can be viewed at Papyrus Australia’s website: www.papyrusaustralia.com.au. The banana veneered ﬂoorboards and the decorative banana veneered panels made by EBFC are the ﬁrst totally "green" natural ﬁbre panels available in Egypt and Europe - absolutely tree free. This is a signiﬁcant marketing edge for the Papyrus branded products. During the year an alternative veneer drying process using pressure as an alternative to oven drying was trialled at the Company’s Walkamin factory. The testing was successful and the process has been documented. This drying process will now be applied at a commercial scale when the Egypt factory is ready for production. Testing for banana ﬁbre strength and utility for the making of pallets for the Yellow Pallet project is being conducted by the Wageningen University in the Netherlands and these results will be known in Q1 of FY13. The Australian Advanced Manufacturing Centre Pty Ltd (AAMC) AAMC is the wholly owned subsidiary of Papyrus Australia Ltd located at Stirling Street, Thebarton, South Australia. The Company’s main function is to design, build, commission and service machinery and equipment required by Papyrus and other customers. The Board of AAMC decided to close down its precision engineering workshop early in the year due to the down turn in the economy and limited work being available or prospectively available in the short term. The tool shop has been contracted out in the interim. The plant and equipment will be available to the Company if and/or when required in the future. The completion of 2 new veneering machines has been put on hold until such time as sufﬁcient funding arrangements are in place from Egypt. 9 The Walkamin Demonstration Factory The Company previously reported that production at the Walkamin Demonstration Factory had been scaled back to preserve working capital while the Company focuses its efforts in the development of the Egypt facility. Prior to the scale back in Q1, the Company was able to conﬁdently demonstrate the machinery and in-line production - that is the linkages between the Log Yard and conveying system, to the Beta Veneering Unit, to the drying process for veneer and Fibre Production Unit for ﬁbre chips - worked seamlessly. This was an important milestone in the context of developing the Company’s (through Papyrus Egypt) ﬁrst full scale operation in Egypt. Work continued during the period making minor enhancements to the Beta Veneering and the Fibre Production Units and producing sample batches of ﬁbre forwarded for testing in Egypt, Germany and the Netherlands. Environmental Value The Company continues to monitor the developments and opportunities in carbon emission reduction initiatives worldwide. As previously reported, the Company is cognisant that the conversion of banana tree trunk waste into usable product will generate particularly in developing countries, "carbon certiﬁcates" which are able to be monetised and are presently tradeable in Europe. Speciﬁcally in reference to the Company’s development in Egypt, a developing country, a carbon emission reduction project is eligible within the United Nations sponsored Clean Development Mechanism (CDM) and Papyrus Egypt is likely to be eligible for carbon certiﬁcates which are presently tradeable in Europe. As Yellow Pallet factory facilities will be in developing countries as well, these same beneﬁts are likely to apply. Update post 30 June 2012 In July 2012 the Company was pleased to receive the grant of patent from African Intellectual Property Organization (OAPI) and Israel for the Company’s original patent application – Method and Apparatus for Removing Sheets of Fibres from Banana Plants. In July 2012 the Managing Director travelled to Egypt and Europe to progress the development of Papyrus Egypt and to advance the business of Yellow Pallet. He was joined by the Chairman in Egypt in late July 2012. The Managing Director remained in Egypt until mid August. The Company will announce any material developments from Egypt/Europe as matters progress and as required. Going Concern - cash position of the Company The Directors of the Company have prepared a comprehensive cash budget for the 13 month period September 2012 to September 2013 demonstrating a positive cash position in each monthly period based on expected cash inﬂows from the activities of Papyrus Egypt and the Yellow Pallet project and known expenditures. In line with those expectations the Company is in receipt of a non conditional Letter of Credit (LOC) from EBFC (the Company’s Egyptian joint venture partner) to the value of USD50k issued by the National Bank of Egypt. The Company is currently endeavouring to secure a further non conditional LOC of USD100k from EBFC. Additionally the Company expects to receive a cash payment into its Australian bank account of USD50k from EBFC by the end of September 2012 - all as progress payments for machinery purchase from the Company’s engineering subsidiary AAMC. The Company is also assisting EBFC in its negotiations to secure a loan of up to USD2.0M to Papyrus Egypt for further machinery payments to AAMC. The Company is currently in negotiations to secure a company experienced in machinery development to assist AAMC with the development and construction of the proprietary Papyrus technology by way of a licence for a fee(s). 10 OPERATING RESULTS The consolidated loss of the group after providing for income tax amounted to ($5,391,335) [2011: ($4,791,977)]. INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE As at the date of this report, the interests of the directors in the shares and options of Papyrus Australia Ltd were: Mr Edward Byrt Mr Colin Dunsford Mr Ramy Azer Mr Donald Stephens Number of Ordinary Shares 4,796,597 23,810 28,678,853 975,630 Number of Options over Ordinary Shares 416,667 - 1,250,000 - DIVIDENDS PAID OR RECOMMENDED No dividends were paid or declared since the start of the ﬁnancial year. No recommendation for payment of dividends has been made. PRINCIPAL ACTIVITIES The Group’s commercialisation strategy remains focused on being a technology licensing Group assisting suitable entities to establish banana veneering and panel production factories in locations worldwide where bananas are grown. There have been no signiﬁcant changes in the nature of those activities during the year. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No matters or circumstances have arisen since the end of the ﬁnancial year 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 years. FUTURE DEVELOPMENTS Disclosure of information regarding likely developments in the operations of the consolidated entity in future ﬁnancial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. ENVIRONMENTAL REGULATIONS The Group’s operations are not subject to any signiﬁcant environmental regulations under either Commonwealth or State legislation. The Group however believes that it has adequate systems in place for the management of any future environmental regulations. SUBSEQUENT EVENTS No matters or circumstances have arisen since 30 June 2012 that has signiﬁcantly affected, or may signiﬁcantly affect the operations of the Group. 11 Unissued Shares At the date of this report, the following options to acquire ordinary shares in the Company were on issue: Issue Date Expiry Date Exercise Price Balance at 1 July 2011 14/08/2006 14/08/2006 08/10/2007 08/10/2007 15/10/2007 15/10/2007 01/07/2008 01/07/2008 17/03/2009 17/03/2009 17/02/2011 24/03/2011 01/07/2011 13/08/2011 13/08/2011 07/10/2012 07/10/2012 14/10/2012 14/10/2012 30/06/2013 30/06/2013 16/03/2014 16/03/2014 31/03/2013 31/03/2013 30/06/2016 $0.40 $0.50 $0.80 $1.25 $0.80 $1.25 $1.50 $1.75 $1.50 $1.50 $0.12 $0.12 $0.12 SHARE OPTIONS 500,000 500,000 250,000 250,000 250,000 250,000 100,000 100,000 125,000 175,000 4,825,974 1,666,667 - 8,942,641 Net Issued/(Exercised or expired) during year (500,000) (500,000) - - - - - - - - - - 750,000 (250,000) Balance at 30 June 2012 - - 250,000 250,000 250,000 250,000 100,000 100,000 125,000 125,000 4,825,974 1,666,667 750,000 8,692,641 Shares issued as a result of exercise of options No shares were issued a result of an exercise of options during the ﬁnancial year. New options issued During the ﬁnancial year, 750,000 options were issued to an employee of the Company under the Employee Share Option Plan. The options have an exercise price of $0.12 and expire 30 June 2016. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS To the extent permitted by law, the Company has indemniﬁed (fully insured) each Director and the Company Secretary of the Company for a premium of $15,388. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings (that may be brought) against the ofﬁcers in their capacity as ofﬁcers of the Company or a related body, and any other payments arising from liabilities incurred by the ofﬁcers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the ofﬁcers or the improper use by the ofﬁcers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. REMUNERATION REPORT - AUDITED This report outlines the remuneration arrangements in place for Directors and executives of Papyrus Australia Ltd. Remuneration philosophy The Board is responsible for determining remuneration policies applicable to Directors and senior executives of the Group. The broad policy is to ensure that remuneration properly reﬂects the individuals’ duties and responsibilities and that remuneration is competitive in attracting, retaining and motivating people with appropriate skills and experience. At the time of determining remuneration consideration is given by the Board to the Group’s ﬁnancial performance. 12 Employment contracts The employment conditions of the Managing Director, Mr Ramy Azer, are formalised in a services contract between his related entity Talisker (SA) Pty Ltd and Papyrus Australia Ltd and his fee is $300,000 per annum (exclusive of GST). The Company may terminate the services contract without cause by providing one (1) month’s written notice or making payment in lieu of notice, based on the annual fee. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time. The employment conditions of the Chief Executive Mr Geoff Whitbread, are formalised in a services contract dated 5 July 2010. The contract provides for a daily fee rate of $900 (exclusive of GST). Mr Whitbread is responsible for the non engineering aspects of the Company’s operation and reports to Company’s Board of Directors. The Company may terminate the services contract without cause by providing one (1) month’s written notice or making payment in lieu of notice, being calculated as 20 days at the daily rate. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time. Key management personnel remuneration and equity holdings The Board currently determines the nature and amount of remuneration for Board members and senior executives of the Group. The policy is to align director and executive objectives with shareholder and business objectives by providing a ﬁxed remuneration component and offering speciﬁc long-term incentives. The non-executive directors and other executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement beneﬁts. Some individuals, however, may choose to sacriﬁce part of their salary to increase payments towards superannuation. All remuneration paid to directors and executives is expensed as incurred. Executives are also entitled to participate in the Group share option scheme. Options are valued using the Black-Scholes methodology. The board policy is to remunerate non-executive directors at market rates based on comparable companies for time, commitment and responsibilities. The Board determines payments to non-executive directors and Independent reviews their remuneration annually, based on market practice, duties and accountability. external advice is sought when required. USE OF REMUNERATION CONSULTANTS During the ﬁnancial year, there were no remuneration recommendations made in relation to key management personnel for the Company by any remuneration consultants. VOTING AND COMMENTS MADE AT THE COMPANY’S 2011 ANNUAL GENERAL MEETING Papyrus Australia Ltd received more than 91% of "yes" votes on its remuneration report for the 2011 ﬁnancial year by proxy. The Company did not receive any speciﬁc feedback at the AGM on its remuneration report. 13 Table 1: Director remuneration for the year ended 30 June 2012 and 30 June 2011 Primary Beneﬁts Post Employment Share-based payments Totals Salary & Fees Superannuation Options $ Mr Edward Byrt 2012 2011 Mr Ramy Azer 2012 2011 Mr Donald Stephens 2012 2011 Mr Christopher Smerdon 2012 2011 Mr Colin Dunsford 2012 2011 Mr Graeme Menzies 2012 2011 Total 2012 2011 - 30,581 250,000 300,000 - 10,000 - 13,333 - - - 10,000 250,000 363,914 - 2,752 - - - - - - - - - - - 2,752 - - - - - - - - - - - - - - - 33,333 250,000 300,000 - 10,000 - 13,333 - - - 10,000 250,000 366,666 Table 2: Remuneration of key management personnel for the year ended 30 June 2012 and 30 June 2011 Primary Beneﬁts Post Employment Share-based payments Totals Salary & Fees Superannuation Options $ Mr Geoff Whitbread 2012 2011 Total 2012 2011 213,750 239,400 213,750 239,400 - - - - 25,875 - 25,875 - 239,625 239,400 239,625 239,400 14 Table 3: Options granted as part of remuneration Grant Date Grant Number 30 June 2012 Vesting Date 01/07/2011 500,000 01/07/2011 Value per option at grant date $0.035 Exercise price Total fair value $0.12 17,250 % of Remuner- ation 7.01% 01/07/2011 250,000 01/01/2012 $0.035 $0.12 8,625 3.51% Mr Geoff Whitbread Mr Geoff Whitbread No options were issued to any Key Management Personnel as part of remuneration for the year ended 30 June 2011. No portion of remuneration paid or payable to any Key Management Personnel employed by the Group was performance based in 2011 or 2012. HLB Mann Judd (SA) Pty Ltd has received professional fees for accounting, taxation and secretarial services provided during the year amounting to $67,308 (2011: $64,263). Mr Pierre Van Der Merwe, the Company Secretary, is a director of HLB Mann Judd (SA) Pty Ltd and Mr Donald Stephens, Non-Executive Director, is a consultant to HLB Mann Judd (SA) Pty Ltd. DIRECTORS’ MEETINGS The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director were as follows: Director Mr Edward Byrt Mr Colin Dunsford Mr Ramy Azer Mr Donald Stephens Mr Christopher Smerdon Directors’ Meetings Audit Committee Eligible 16 16 16 16 2 Attended 16 15 15 13 2 Eligible 2 2 - 2 - Attended 2 2 - 2 - Members acting on the audit committee of the board are: Colin Dunsford (Chairman) Donald Stephens Edward Byrt 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. 15 AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES Grant Thornton South Australian Partnership, in its capacity as auditor for Papyrus Australia Ltd, has not provided any non-audit services throughout the reporting period. The auditor’s independence declaration for the year ended 30 June 2012 as required under section 307C of the Corporations Act 2001 has been received and can be found on page 17. Signed in accordance with a resolution of the Directors. Mr Ramy Azer Managing Director 27 September 2012 16 Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001 T 61 8 8372 6666 F 61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF PAPYRUS AUSTRALIA LIMITED In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Papyrus Australia Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON SOUTH AUSTRALIAN PARTNERSHIP Chartered Accountants Justin Humphrey Partner Adelaide, 27 September 2012 Grant Thornton South Australian Partnership ABN 27 244 906 724 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia. Liability limited by a scheme approved under Professional Standards Legislation Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2012 Revenue from operating activities Other income/(expenses) Depreciation expense Employee beneﬁts expense Other expenses Impairment expense 7(a) 7(b) 7(c) 7(d) 7(e) 13/14 Consolidated Group 2012 $ 14,783 202,211 (640,765) (981,223) (1,162,899) (3,113,104) 2011 $ 195,070 21,500 (280,148) (1,413,542) (1,613,850) (1,989,489) Loss before income tax expense (5,680,997) (5,080,459) Income tax beneﬁt/(expense) 8 289,662 288,482 Loss from continuing operations (5,391,335) (4,791,977) Loss for the year Loss attributable to members of the parent entity (5,391,335) (4,791,977) (5,391,335) (4,791,977) Other comprehensive income - - Total comprehensive income for the year (5,391,335) (4,791,977) Total comprehensive income attributable to members of the parent entity (5,391,335) (4,791,977) Earnings per share: Basic earnings per share Diluted earnings per share 9 9 Cents (4.43) (4.43) Cents (4.75) (4.75) The accompanying notes form part of these ﬁnancial statements. 18 Consolidated Statement of Financial Position AS AT 30 JUNE 2012 Consolidated Group Note 2012 $ 2011 $ CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Other ﬁnancial assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Borrowings Provisions Other current liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Provisions Other non-current liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserves Retained earnings/(accumulated losses) TOTAL EQUITY 10 11 12 13 14 25 16 17 18 19 17 18 19 20 21 366,071 35,651 40,649 442,371 1,810,628 2,144,593 19,367 832,919 52,551 74,356 959,826 5,093,770 2,888,330 - 3,974,588 7,982,100 4,416,959 8,941,926 82,386 26,674 - 100,000 209,060 11,715 - 3,030,132 223,940 26,674 66,608 - 317,222 38,389 15,188 3,118,031 3,041,847 3,171,608 3,250,907 3,488,830 1,166,052 5,453,096 19,459,231 795,646 (19,088,825) 18,380,815 769,771 (13,697,490) 1,166,052 5,453,096 The accompanying notes form part of these ﬁnancial statements. 19 Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2012 Balance at 1 July 2010 Total comprehensive loss Share based payments Shares issued via private placement Transaction costs (net of tax) Balance as at 30 June 2011 Balance at 1 July 2011 Total comprehensive loss Private placement on 9 November 2011 Private placement on 30 January 2012 Private placement on 10 February 2012 Transaction costs (net of tax) Share-based payments Balance as at 30 June 2012 21 20 20 20 20 20 20 21 Issued capital $ 16,889,136 - - 1,558,234 Consolidated Group Retained losses $ (8,905,513) (4,791,977) - - Share option reserve $ 761,252 - 8,519 - Total $ 8,744,875 (4,791,977) 8,519 1,558,234 (66,555) 18,380,815 - (13,697,490) - 769,771 (66,555) 5,453,096 18,380,815 - 722,000 (13,697,490) (5,391,335) - 769,771 - - 5,453,096 (5,391,335) 722,000 160,000 200,000 - - - - (3,584) - 19,459,231 - - (19,088,825) - 25,875 795,646 160,000 200,000 (3,584) 25,875 1,166,052 The accompanying notes form part of these ﬁnancial statements. 20 Consolidated Statement of Cash Flows FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012 Consolidated Group Note 2012 $ 2011 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Research and Development concession received Payments to suppliers and employees Grant funds received Interest received NET CASH USED IN OPERATING ACTIVITIES 10 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment Purchase of develpoment assets Proceeds from sale of property, plant and equipment NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Transaction costs of issue of shares Repayment of borrowings NET CASH PROVIDED BY FINANCING ACTIVITIES Net increase/(decrease) in cash and cash equivalents Cash at the beginning of the period CASH AT THE END OF THE YEAR 10 41,513 363,999 (1,921,417) - 14,783 (1,501,122) (92,024) (55,607) 131,700 158,007 396,256 (3,156,338) 623,023 92,929 (1,886,123) (1,155,646) (23,525) - (15,931) (1,179,171) 1,082,000 (5,121) (26,674) 1,050,205 1,558,234 (95,079) (9,054) 1,454,101 (466,848) (1,611,193) 832,919 366,071 2,444,112 832,919 The accompanying notes form part of these ﬁnancial statements. 21 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2012 These consolidated ﬁnancial statements and notes represent those of Papyrus Australia Ltd and Controlled Entities (the "consolidated group" or group”). The separate ﬁnancial statements of the parent entity, Papyrus Australia Ltd, have not been presented within this ﬁnancial report as permitted by the Corporations Act 2001. 1 Nature of operations Papyrus Australia Ltd’s principal activities is to continue its commercialisation strategy of being a technology licensing Group assisting suitable entities to establish banana veneering and panel production factories in locations worldwide where bananas are grown. 2 General information and statement of compliance The consolidated general purpose ﬁnancial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Papyrus Australia Ltd is a for-proﬁt entity for the purpose of preparing the ﬁnancial statements. Papyrus Australia Ltd is a public company incorporated and domiciled in Australia and listed on the ASX (ASX Code: PPY). The consolidated ﬁnancial statements for the year ended 30 June 2012 (including comparatives) were approved and authorised for issue by the board of directors on 27 September 2012. 3 Changes in accounting policies Adoption of AASBs and improvements to AASBs 2011 - AASB 1054 and AASB 2011-1 The AASB has issued AASB 1054 Australian Additional Disclosures and 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project, and made several minor amendments to a number of AASBs. These standards eliminate a large portion of the differences between the Australian and New Zealand accounting standards and IFRS and retain only additional disclosures considered necessary. These changes also simplify some current disclosures for Australian entities and remove others. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company At the date of authorisation of these ﬁnancial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group. 22 Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the ﬁrst period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s ﬁnancial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s ﬁnancial statements. AASB 9 Financial Instruments (effective from 1 January 2015) The AASB aims to replace AASB 139 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (AASB 9) is being issued in phases. To date, the chapters dealing with recognition, classiﬁcation, measurement and derecognition of ﬁnancial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2015. Further chapters dealing with impairment methodology and hedge accounting are still being developed. Management have yet to assess the impact that this amendment is likely to have on the ﬁnancial statements of the Company. However, they do not expect to implement the amendments until all chapters of AASB 9 have been published and they can comprehensively assess the impact of all changes. Consolidation Standards A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Group’s management have yet to assess the impact of these new and revised standards on the Group’s consolidated ﬁnancial statements. AASB 10 Consolidated Financial Statements (AASB 10) AASB 10 supersedes the consolidation requirements in AASB 127 Consolidated and Separate Financial Statements (AASB 127) and Interpretation 112 Consolidation - Special Purpose Entities. It revised the deﬁnition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same. AASB 11 Joint Arrangements (AASB 11) AASB 11 supersedes AASB 131 Interests in Joint Ventures (AASB 131). It aligns more closely the accounting by the investors with their rights and obligations relating to the joint arrangement. It introduces two accounting categories (joint operations and joint ventures) whose applicability is determined based on the substance of the joint arrangement. In addition, AASB 131’s option of using proportionate consolidation for joint ventures has been eliminated. AASB 11 now requires the use of the equity accounting method for joint ventures, which is currently used for investments in associates. Consequential amendments to AASB 127 Separate Financial Statements (AASB 127) and AASB 128 Investments in Associates and Joint Ventures (AASB 128) AASB 127 Consolidated and Separate Financial Statements was amended to AASB 127 Separate Financial Statements which now deals only with separate ﬁnancial statements. AASB 128 brings investments in joint ventures into its scope. However, AASB 128’s equity accounting methodology remains unchanged. AASB 13 Fair Value Measurement (AASB 13) AASB 13 does not affect which items are required to be fair-valued, but clariﬁes the deﬁnition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Group’s management have yet to assess the impact of this new standard. 23 AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income (AASB 101 Amendments) The AASB 101 Amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassiﬁed subsequently to proﬁt or loss and (b) will be reclassiﬁed subsequently to proﬁt or loss when speciﬁc conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Group’s management expects this will change the current presentation of items in other comprehensive income; however, it will not affect the measurement or recognition of such items. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (AASB 124 Amendments) AASB 2011-4 makes amendments to AASB 124 Related Party Disclosures to remove individual key management personnel disclosure requirements, to achieve consistency with the international equivalent (which includes requirements to disclose aggregate (rather than individual) amounts of KMP compensation), and remove duplication with the Corporations Act 2011. The amendments are applicable for annual periods beginning on or after 1 July 2013. The Group’s management have yet to assess the impact of these amendments. 4 Summary of accounting policies (a). Overall considerations The signiﬁcant accounting policies that have been used in the preparation of these consolidated ﬁnancial statements are summarised below. The consolidated ﬁnancial statements have been prepared using the measurement bases speciﬁed by Australian Accounting Standards for each type of asset, liability, income and expense. The measurement bases are more fully described in the accounting policies below. In preparing the ﬁnancial statements, all intercompany balances and transactions, income and expenses and proﬁt and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and ceases to be consolidated from the date on which control is transferred out of the Group. (b). Basis of consolidation The Group ﬁnancial statements consolidate those of the parent company and all of its subsidiary undertakings drawn up to 30 June 2012. Subsidiaries are all entities over which the Group has the power to control the ﬁnancial and operating policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 30 June. (c). Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to proﬁt or loss is the tax payable on taxable income. Current tax liabilities (assets) are 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 year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside proﬁt or loss when the tax relates to items that are recognised outside proﬁt or loss. 24 Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, 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 and 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) a legally enforceable right of set-off exists; and (b) 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. (d). Investments in associates and joint ventures Entities whose economic activities are controlled jointly by the Group and other ventures independent of the Group (joint ventures) are accounted for using the proportionate consolidation method, whereby the Group’s share of the assets, liabilities, income and expenses is included line by line in the consolidated ﬁnancial statements. Associates are those entities over which the Group is able to exert signiﬁcant inﬂuence but which are neither subsidiaries nor joint ventures. Investments in associates are initially recognised at cost and subsequently accounted for using the equity method. Any goodwill or fair value adjustment attributable to the Group’s share in the associate is not recognised separately and is included in the amount recognised as investment in associates. The carrying amount of the investments in associates is increased or decreased to recognise the Group’s share of the proﬁt or loss and other comprehensive income of the associate, adjusted where necessary to ensure consistency with the accounting policies of the Group. Unrealised gains and losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised losses are eliminated, the underlying asset is also tested for impairment. 25 (e). Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in proﬁt or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash ﬂows that will be received from the asset’s employment and subsequent disposal. The expected net cash ﬂows have been discounted to their present values in determining recoverable amounts. The cost of ﬁxed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of ﬁxed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the ﬁnancial period in which they are incurred. Depreciation The depreciable amount of all ﬁxed assets including buildings and capitalised lease assets, but excluding freehold land, is depreciated on a straight-line and dminishing value basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful life for each class of depreciable assets are: Class of Fixed Asset Plant and equipment Useful life 2.5 - 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. 26 (f). Intangible assets Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are expensed against proﬁts in the year in which the expenditure is incurred. Intangible assets The useful lives of intangible assets are assessed to be either ﬁnite or indeﬁnite. with ﬁnite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a ﬁnite useful life is reviewed at least at each ﬁnancial year- end. Changes in the expected useful life or the expected pattern of consumption of future economic beneﬁts embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with ﬁnite lives is recognised in proﬁt or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indeﬁnite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indeﬁnite life is reviewed each reporting period to determine whether indeﬁnite life assessment continues to be supportable. If not, the change in the useful life assessment from indeﬁnite to ﬁnite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. (g). Leases Leases of ﬁxed assets where substantially all the risks and beneﬁts incidental to the ownership of the asset, but not the legal ownership that is transferred to the Company, are classiﬁed as ﬁnance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and beneﬁts remain with the lessor, are recognised as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight- line basis over the lease term. 27 (h). Financial Instruments Recognition and initial measurement Financial assets and ﬁnancial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For ﬁnancial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classiﬁed "at fair value through proﬁt or loss", in which case transaction costs are expensed to proﬁt or loss immediately. Classiﬁcation and subsequent measurement Financial interest rate method, or cost. instruments are subsequently measured at fair value, amortised cost using the effective Amortised cost is the amount at which the ﬁnancial asset or ﬁnancial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that 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 item in proﬁt or loss. The Company 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). 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, where they are expected to mature within 12 months after the end of the reporting period. 28 (i). Equity-settled compensation The Company operates an employee share option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortised over the vesting periods. Share- based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve. The fair value of options is determined using the Black-Scholes pricing model. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest. (j). Provisions Provisions are recognised when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outﬂow of economic beneﬁts will result and that outﬂow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period. (k). Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of 6 months or less, and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the statement of ﬁnancial position. (l). Employee beneﬁts Deﬁned contribution plans The Group pays ﬁxed superannuation contributions into independent entities in relation to several state plans and insurance for individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its ﬁxed contributions, which are recognised as an expense in the periodthat relevant employee services are received. Short-term employee beneﬁts Short-term employee beneﬁts, including annual leave entitlement, are current liabilities included in employee beneﬁts, measured at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. 29 (m). Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inﬂow of consideration is deferred, it is treated as the provision of ﬁnancing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of signiﬁcant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Interest revenue is recognised using the effective interest rate method. Revenue recognition relating to the provision of services is determined with reference to the stage of completion of the transaction at the end of the reporting period, where outcome of the contract can be estimated reliably. Stage of completion is determined with reference to the services performed to date as a percentage of total anticipated services to be performed. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent that related expenditure is recoverable. All revenue is stated net of the amount of goods and services tax (GST). (n). Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in proﬁt or loss in the period in which they are incurred. (o). Goods and Services Tax (GST) 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 (ATO). Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of ﬁnancial position. Cash ﬂows are presented on a gross basis. The GST components of cash ﬂows arising from investing or ﬁnancing activities which are recoverable from, or payable to, the ATO are presented as operating cash ﬂows included in receipts from customers or payments to suppliers. (p). Government Grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis. (q). Contributed equity Ordinary shares are classiﬁed as equity. 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 30 (r). Earnings per share Basic earnings per share is calculated as net proﬁt attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share adjusts the ﬁgures used in the determination of basic earnings per share to take into account the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (s). Comparative Figures When required by Accounting Standards, comparative ﬁgures have been adjusted to conform to changes in presentation for the current ﬁnancial year. (t). Critical Accounting Estimates and Judgments The Directors evaluate estimates and judgments incorporated into the ﬁnancial statements 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 Company. Key estimates (i) Impairment The Company assesses impairment at the end of each reporting period by evaluating conditions and events speciﬁc to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. (ii) Intangible assets The Group has capitalised the development costs in relation to the development of the Banana Ply Technology. The recoverability of the asset is dependent on the successful commercialisation of the technology. As 30 June 2012, the commercialisation of the project was not yet complete. 31 5 Parent Information The following information has been extracted from the books and records of the parent and has been prepared in accordance with Accounting Standards. STATEMENT OF FINANCIAL POSITION ASSETS Current Assets Non-current Assets TOTAL ASSETS LIABILITIES Current liabilities Non-current Liabilities TOTAL LIABILITIES EQUITY Issued Capital Reserves Retained Earnings TOTAL EQUITY STATEMENT OF COMPREHENSIVE INCOME (Loss) for the year Other comprehensive income TOTAL COMPREHENSIVE INCOME 2012 $ 2011 $ 434,478 2,891,486 3,325,964 208,833 1,951,079 2,159,912 641,809 8,868,221 9,510,030 284,919 2,195,152 2,480,071 19,459,231 795,646 (19,088,825) 1,166,052 18,380,815 769,771 (12,120,627) 7,029,959 (6,968,198) - (6,968,198) (3,215,114) - (3,215,114) Guarantees Papyrus Australia Ltd has not entered into any guarantees, in the current or previous ﬁnancial year, in relation to the debts of its subsidiaries. Contingent Liabilities Contingent liabilities of the parent entity have been incorporated into the Group information in note 23. The contingent liabilities of the parent are consistent with that of the Group. Contractual Commitments Contractual Commitments of the parent entity have been incorporated into the Group information in note 22. The contractual commitments of the parent are consistent with that of the Group. 32 6 Operating Segments The Board has considered the requirements of AASB 8 Operating Segments and the internal reports that are reviewed by the chief operating decision maker (the Managing Director) in allocating resources and have concluded at this time that there are no separately identiﬁable segments. 7 Revenue and expenses (a) Revenue Interest received from other parties Sales revenue (b) Other income Net proﬁt on disposal of property, plant and equipment Grant revenue (c) Depreciation of non-current assets Plant and equipment Total depreciation (d) Employee beneﬁts expense Wages, salaries and other remuneration expenses Superannuation expense Transfer to/(from) annual leave provision Share based payments expense Transfer to capitalised intangibles and plant and equipment Total employee beneﬁts expense Consolidated Group 2012 $ 2011 $ 14,783 - 14,783 - 202,211 202,211 640,765 640,765 55,851 139,219 195,070 21,500 - 21,500 280,148 280,148 1,012,324 1,715,416 24,820 (81,796) 25,875 - 65,287 14,140 8,519 (389,820) 981,223 1,413,542 33 (e) Other expenses Audit fees Legal fees Professional services Travel and accomodation Directors fees Company secretarial Rent Communications expense Share registry and ASX expenses Marketing expenses Public relations cost Contractors Freight expenses Motor vehicle costs Factory operating costs Net loss on disposal of plant and equipment Other expenses 8 Income tax expense The major components of income tax expense are: Statement of Comprehensive Income Current income tax charge/(beneﬁt) Research and Delopment Tax offset Income tax expense/(beneﬁt) reported in the income statement Consolidated Group 2012 $ 2011 $ 37,000 38,537 249,092 106,955 - 21,670 165,914 21,839 64,503 3,558 - - - 17,344 24,025 357,469 37,500 11,046 302,845 170,438 73,333 30,008 240,635 48,155 111,918 19,347 39,170 213,906 46,571 87,135 153,223 - 54,993 1,162,899 28,620 1,613,850 Consolidated Group 2012 $ 2011 $ 1,537 (291,199) (289,662) 28,523 (317,005) (288,482) 34 Consolidated Group 2012 $ 2011 $ A reconciliation between tax expense and the product of accounting proﬁt before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting proﬁt before income tax (5,680,997) (5,080,459) At the Group’s statutory income tax rate of 30% (2011: 30%) Expenditure not allowable for income tax purposes Tax losses not recognised due to not meeting recognition criteria Tax portion of share issue costs (1,704,299) (1,524,138) 998,860 705,439 1,537 1,537 596,847 927,291 28,523 28,523 The Group has tax losses arising in Australia of $10,172,276 (2011: $7,820,814) that are available indeﬁnitely for offset against future taxable proﬁts of the companies in which the losses arose. Tax consolidation Papyrus Australia Ltd and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 01 July 2011. Papyrus Australia Ltd is the head entity of the tax consolidated group. 9 Earnings per share Basic earnings per share amounts are calculated by dividing net proﬁt for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net proﬁt attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The following reﬂects the income and share data used in the basic and diluted earnings per share computations: 35 Net loss attributable to ordinary equity holders of the parent entity Weighted average number of ordinary shares for basic earnings per share Effect of dilution Share options Weighted average number of ordinary shares adjusted for the effect of dilution Consolidated Group 2012 $ 2011 $ (5,391,335) (4,791,977) 121,606,841 100,967,047 N/A 121,606,841 N/A 100,967,047 In accordance with AASB 133 ’Earnings per Share’, as potential ordinary shares may only result in a situation where their conversion results in an increase in loss per share or decrease in proﬁt per share from continuing operations, no dilutive effect has been taking into account. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these ﬁnancial statements. 10 Cash and cash equivalents Cash at bank and in hand Consolidated Group 2012 $ 2011 $ 366,071 366,071 832,919 832,919 Cash at bank earns interest at ﬂoating rates based on daily deposit rates Short-term deposits are made for varying periods between one day and six months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rate. Reconciliation to Statement of Cash Flows For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise the following at 30 June: Cash at banks and in hand 366,071 366,071 832,919 832,919 36 Reconciliation of net loss after tax to net cash ﬂows from operations Net proﬁt/(loss) Adjustments for non-cash items: Impairment of non-current assets Depreciation Share based payments Non cash tax expense Net (proﬁt)/loss from sale of property, plant and equipment Changes in assets and liabilities Decrease/(Increase) in trade and other receivables Decrease/(Increase) in other current assets (Decrease)/increase in trade and other payables (Decrease)/increase in provisions (Decrease)/increase in provisions Net cash from operating activities 11 Trade and other receivables Trade receivables (i) Provision for doubtful debts Goods and Services Tax Receivable Consolidated Group 2012 $ 2011 $ (5,391,335) (4,791,977) 3,113,104 640,765 25,875 1,537 357,469 16,900 33,707 1,989,489 280,148 8,519 28,524 - 90,102 72,343 (293,041) (294,873) 81,796 (87,899) (1,501,122) 29,328 702,274 (1,886,123) Consolidated Group 2012 $ 2011 $ 18,353 - 17,298 35,651 42,880 (26,400) 36,071 52,551 (i) Trade receivables are non-interest bearing and are generally on 30-90 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired. No impairment was recognised in 2011 and 2012 and no receivables are past due at balance date. Information regarding the credit risk of current receivables is set out in note 26. 37 12 Other current assets Prepayments Other 13 Property, plant and equipment Plant and equipment Cost Opening balance Additions Disposals Transfer from Capital Works in Progress Impairment of assets Accumulated depreciation Opening balance Depreciation for the year Disposals Net book value of plant and equipment Capital works in progress Cost Opening balance Additions Transfer to plant and equipment Consolidated Group 2012 $ 2011 $ 34,149 6,500 40,649 34,376 39,980 74,356 Consolidated Group 2012 $ 2011 $ 1,650,601 72,657 (441,769) 3,886,615 (2,313,760) 2,854,344 443,446 640,765 (40,495) 1,043,716 1,810,628 3,886,615 - (3,886,615) - 1,276,366 374,235 - - - 1,650,601 163,298 280,148 - 443,446 1,207,155 3,124,139 762,476 - 3,886,615 Total net book value of property, plant and equipment 1,810,628 5,093,770 In 2012, an impairment loss of $2,313,760 represented the group writing down its property plant and equipment to its recoverable amount. This was recognised in the statement of comprehensive income in the line item "Impairment expense". The recoverable amount was based on value in use and determined using a discounted cash ﬂow model. The discount rate applied on a pre-tax basis was 30.6%. 38 14 Intangible assets Patents and intellectual property Cost Opening balance Additions Net book value of patents and intellectual property Development costs Cost Opening balance Impairment of assets Net book value of development costs Total net book value of intangible assets Consolidated Group 2012 $ 2011 $ 710,840 55,607 766,447 687,315 23,525 710,840 2,177,490 (799,344) 1,378,146 4,166,979 (1,989,489) 2,177,490 2,144,593 2,888,330 In 2012, an impairment loss of $799,344 (2011: $1,989,489) represented the group writing down its patents and intellectual property to its recoverable amount. This was recognised in the statement of comprehensive income in the line item "Impairment expense". The recoverable amount was based on value in use and determined using a discounted cash ﬂow model. The discount rate applied on a pre-tax basis was 30.6%. 15 Share based payments Employee Share Option Plan The Company has established the Papyrus Australia Ltd Employee Share Option Plan and a summary of the Rules of the Plan are set out below: • All employees (full and part time) will be eligible to participate in the Plan after a qualifying period of 12 months employment by a member of the Group, although the Board may waive this requirement. • Options are granted under the Plan at the discretion of the board and if permitted by the board, may be issued to an employee’s nominee. • Each option is to subscribe for one fully paid ordinary share in the Company and will expire 5 years from its date of issue. An option is exercisable at any time from its date of issue. Options will be issued free. The exercise price of options will be determined by the board, subject to a minimum price equal to the market value of the Company’s shares at the time the board resolves to offer those options. The total number of shares the subject of options issued under the Plan, when aggregated with issues during the previous 5 years pursuant to the Plan and any other employee share plan, must not exceed 5% of the Company’s issued share capital. • If, prior to the expiry date of options, a person ceases to be an employee of a Group company for any reason other than retirement at age 60 or more (or such earlier age as the board permits), permanent disability, redundancy or death, the options held by that person (or that person’s nominee) automatically lapse on the ﬁrst to occur of a) the expiry of the period of 6 months from the date of such occurrence, and b) the expiry date. If a person dies, the options held by that person will be exercisable by that person’s legal personal representative. 39 • Options cannot be transferred other than to the legal personal representative of a deceased option holder. • The Company will not apply for ofﬁcial quotation of any options. • Shares issued as a result of the exercise of options will rank equally with the Company’s previously issued shares. • Option holders may only participate in new issues of securities by ﬁrst exercising their options. The Board may amend the Plan Rules subject to the requirements of the Listing Rules. The expense recognised in the Statement of Comprehensive Income in relation to share-based payments is disclosed in note 4 (e). The following table illustrates the number (No.) and weighted average exercise prices (WAEP) and movements in share options under the Company’s Employee Share Option Plan issued during the year: 2012 No. 2012 WAEP Outstanding at the beginning of the year Granted during the year Expired or lapsed during the year Outstanding at the end of the year 8,942,641 750,000 (1,000,000) 8,692,641 Exercisable at the end of the year 8,692,641 0.33 0.12 0.30 0.30 0.30 The outstanding balance as at 30 June 2012 is represented by: 2011 No. 2,450,000 6,492,641 - 8,942,641 8,942,641 2011 WAEP 0.90 0.12 - 0.33 0.33 • 250,000 options exercisable at any time until 7 October 2012 with an exercise price of $0.80. • 250,000 options exercisable at any time until 7 October 2012 with an exercise price of $1.25. • 250,000 options exercisable at any time until 14 October 2012 with an exercise price of $0.80. • 250,000 options exercisable at any time until 14 October 2012 with an exercise price of $1.25. • 100,000 options exercisable at any time until 30 June 2013 with an exercise price of $1.50. • 100,000 options exercisable at any time until 30 June 2013 with an exercise price of $1.75. • 125,000 options exercisable at any time until 16 April 2014 with an exercise price of $1.50. • 125,000 options exercisable at any time until 16 April 2014 with an exercise price of $1.75. • 6,492,641 options exercisable at any time until 31 March 2013 with an exercise price of $0.12. • 750,000 options exercisable at any time until 30 June 2016 with an exercise price of $0.12. The weighted average remaining contractual life for the share options outstanding as at 30 June 2012 was 0.98 years (2011: 1.55 years). The range of exercise prices for options outstanding at the end of the year was $0.12 - $1.75 (2011: $0.12 - $1.75). The weighted average fair value of options granted during the year was $0.035, as no options were issued (2011: Nil). 40 The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the year ended 30 June 2012. Historical volatility (%) Risk free interest rate Expected life of options (years) 2012 107.1% 4.96% 5 16 Trade and other payables Trade payables (i) Sundry payables and accrued expenses (ii) Consolidated Group 2012 $ 2011 $ 56,824 25,562 82,386 116,282 107,658 223,940 i. Trade payables are non-interest bearing and are normally settled on 30-day terms. ii. Sundry payables are non-interest bearing and are normally settled within 30 - 90 days. Information regarding the credit risk of current payables is set out in note 26. 17 Borrowings Current Obligations hire purchase contracts Non-current Obligations hire purchase contracts 18 Provisions Current Opening balance Net increase/(decrease in provision) Closing Balance 30 June Consolidated Group 2012 $ 2011 $ 26,674 26,674 11,715 11,715 26,674 26,674 38,389 38,389 Consolidated Group 2012 $ 2011 $ 66,608 (66,608) - 52,468 14,140 66,608 41 Non-current Balance at 1 July Net increase/(decrease in provision) Closing Balance 30 June 19 Other non-current liabilities Current Deferred income + Non-current Deferred income ++ Consolidated Group 2012 $ 2011 $ 15,188 (15,188) - - 15,188 15,188 Consolidated Group 2012 $ 2011 $ 100,000 100,000 - - 3,030,132 3,030,132 3,118,031 3,118,031 + Deferred income ot $100,000 represents the initial non-refundable deposit from the Egyptian Fibre Company ("EBFC") for machinery to be built and delivered by the Company. For further information refer to the Company’s release to the ASX dated 20 October 2011. ++ The Company has been the recipient of two government grants that contain claw back provisions if certain performance targets are not met by the Company. The Company has fulﬁlled its contractual obligations under the respective Grant Deeds as at 30 June 2012. The Company has also ﬁled all reports required of it pursuant to the Grant Deeds. Under government grant conditions it is usual for the grant recipient to be required to continue to ﬁle reports for speciﬁed periods after the conclusion of the funding agreement and claw back provisions remain alive until the reporting requirement periods expire. 20 Issued capital 131,144,764 fully paid ordinary shares (2011: 109,504,764) Consolidated Group 2012 $ 2011 $ 19,459,231 18,380,815 19,459,231 18,380,815 42 Ordinary shares Balance at beginning of ﬁnancial year Shares issued pursuant to private placement Transaction costs on shares issued Balance at end of ﬁnancial year 2012 2011 Number $ Number $ 109,504,764 18,380,815 96,519,483 16,889,136 21,640,000 1,082,000 12,985,281 1,558,234 - (3,584) - (66,555) 131,144,764 19,459,231 109,504,764 18,380,815 Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Parent does not have authorised capital nor par value in respect of its issued shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends (in the event such a dividend was declared). 21 Reserves Share option reserve (a) (a) Share option reserve Balance at beginning of ﬁnancial year Share based payments Balance at end of ﬁnancial year 22 Committments for expenditure Operating leases Not longer than 1 year Longer than 1 year and not longer than 5 years 43 Consolidated Group 2012 $ 2011 $ 795,646 795,646 769,771 25,875 795,646 769,771 769,771 761,252 8,519 769,771 Consolidated Group 2012 $ 2011 $ 24,597 - 24,597 188,100 225,069 413,169 Terms of lease arrangements The property leases are non-cancellable, with three year terms and rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by the lower of CPI or 4% per annum. An option exists to renew the lease at the end of the three year term for an additional 3 years. 23 Contingent liabilities and contingent assets At the date of signing this report, the Group is not aware of any Contingent Asset or Liability that should be disclosed in accordance with AASB 137. 24 Auditor’s remuneration Audit or review of the ﬁnancial report No other services have been provided. 25 Controlled and other entities Name of entity Parent entity Papyrus Australia Limited (i) Subsidiaries PPY EU Pty Ltd (ii) Papyrus Technology Pty Ltd (ii) PPY Manufacturing Pty Ltd (ii) Australian Advanced Manufacturing Centre Pty Ltd (ii) Pulp Fiction Manufacturing Pty Ltd (ii) Other entities Papyrus Egypt (iii) Yellow Pallet B.V. (iii) Country of incorporation Australia Australia Australia Australia Australia Egypt The Netherlands Consolidated Group 2012 $ 2011 $ 41,000 41,000 37,500 37,500 Ownership interest 2012 % 100 100 100 100 100 50 50 2011 % 100 100 100 100 100 - - i. Papyrus Australia Ltd is the head entity within the tax-consolidated group. ii. These companies are members of the tax-consolidated group. iii. These entities were non operating shell companies at 30 June 2012 (A total $19,367 was spent on the initial setup of Yellow Pallet B.V. which has been classiﬁed as other ﬁnancial assets in the Group’s Statement of Financial Position). 44 26 Financial risk management Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses as disclosed in notes 20 and 21 respectively. Proceeds from share issues are used to maintain and expand the Groups exploration activities and fund operating costs. FINANCIAL ASSETS Cash and cash equivalents Trade receivables FINANCIAL LIABILITIES Payables Borrowings Consolidated Group 2012 $ 2011 $ 366,071 35,651 82,386 38,389 832,919 52,551 223,940 65,063 Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁnancial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of ﬁnancial loss from activities. The Group does not have any signiﬁcant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of ﬁnancial assets recorded in the ﬁnancial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk. Interest rate risk The tables listed below detail the Group’s interest bearing assets, consisting solely of cash on hand and on short term deposit (with all maturities less than one year in duration). 2011 Variable interest rate 2012 Variable interest rate Weighted average effective interest rate % Less than one year $ 1.57 832,919 Weighted average effective interest rate % Less than one year $ 0.00 366,071 At reporting date, if interest rates had been 50 basis points higher or lower and all other variables were held constant, the Group’s: 45 • net loss would increase or decrease by $1,478 which is mainly attributable to the Group’s exposure to interest rates on its variable bank deposits. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves. Liquidity and interest risk tables The following table details the Company’s and the Group’s remaining contractual maturity for its non- derivative ﬁnancial liabilities. The table has been drawn up based on the undiscounted cash ﬂows of ﬁnancial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash ﬂows. Consolidated 2011 Interest bearing Non-interest bearing 2012 Interest bearing Non-interest bearing Weighted average effective interest rate % Less than one year $ Longer than 1 year and not longer than 5 years $ 6.38% 0.00% 26,674 223,940 38,389 - Weighted average effective interest rate % Less than one year $ Longer than 1 year and not longer than 5 years $ 6.38% 0.00% 26,674 82,386 11,715 - 46 27 Related party disclosure and key management personnel remuneration The following individuals are classiﬁed as key management personnel ’Related Party Disclosures’: in accordance with AASB 124 Mr Edward Byrt, Chairman Mr Ramy Azer, Managing Director Mr Donald Stephens, Non-Executive Director Mr Christopher Smerdon, Non-Executive Director (resigned 31 August 2011) Mr Colin Dunsford, Non-Executive Director Mr Pierre Van Der Merwe, Company Secretary Mr Geoff Whitbread, Chief Executive Short-term employee beneﬁts Post employment beneﬁts Share-based payments (a). Option holdings of Key Management Personnel Consolidated Group 2012 $ 2011 $ 463,750 - 25,875 489,625 603,314 2,752 - 606,066 Directors 30 June 2012 Ramy Azer* Edward Byrt* 30 June 2011 Ramy Azer* Edward Byrt* Balance at begining of period 1,250,000 Granted as remuner- ation - 416,667 - Balance at begining of period - Granted as remuner- ation - - - Exercised Net change other Balance at end of period Expiry Date First Exercise Date Last Exercise Date - - - - 1,250,000 31/03/13 17/02/11 31/03/13 416,667 31/03/13 24/03/11 31/03/13 Exercised Net change other Balance at end of period Expiry Date First Exercise Date Last Exercise Date - - 1,250,000 1,250,000 31/03/13 17/02/11 31/03/13 416,667 416,667 31/03/13 24/03/11 31/03/13 Options held by Messers Azer and Byrt relate to options issued in conjunction with a private placement conducted in February 2011. 47 Executives 30 June 2012 Geoff Whitbread Geoff Whitbread Balance at begining of period - Granted as remuner- ation 500,000 - 250,000 Exercised Net change other Balance at end of period Expiry Date First Exercise Date Last Exercise Date - - - - 500,000 30/06/16 01/07/11 30/06/16 250,000 30/06/16 01/01/12 30/06/16 (b). Shareholdings of Key Management Personnel 30 June 2011 Mr Edward Byrt Mr Ramy Azer Mr Donald Stephens Mr Christopher Smerdon Mr Colin Dunsford Mr Geoff Whitbread 30 June 2012 Mr Edward Byrt Mr Ramy Azer Mr Donald Stephens Mr Christopher Smerdon + Mr Colin Dunsford Mr Geoff Whitbread Balance at 1 July 2010 973,264 22,928,853 975,630 506,399 23,810 25,783 Balance at 1 July 2011 1,806,597 25,428,853 975,630 506,399 23,810 125,783 On Exercise of Options - - - - - - On Exercise of Options - - - - - - Net Change Other 833,333 2,500,000 - - - 100,000 Net Change Other 2,990,000 3,250,000 - (506,399) - - Balance 30 June 2011 1,806,597 25,428,853 975,630 506,399 23,810 125,783 Balance 30 June 2012 4,796,597 28,678,853 975,630 - 23,810 125,783 + The net change of (506,399) shares in Papyrus relating to Mr Smerdon is due to him no longer being a director at 30 June 2012. Mr Smerdon did hold all 506,399 shares at 30 June 2012 in his capacity as a shareholder. Loans The wholly owned Group consists of those entities listed in note 25. Transactions between Papyrus Australia Ltd and other entities in the wholly owned Group during the year consisted of loans advanced by Papyrus Australia Ltd to fund research and development activities. Director related entities The following transactions with related parties occurred during the ﬁnancial year. All of the transactions were undertaken on an arm’s length basis and at applicable commercial rates. HLB Mann Judd (SA) Pty Ltd has received professional fees for accounting, taxation and secretarial services provided during the year of $67,308 (2011: $64,263). $4,836 was owing to the entity at 30 June 2012 (2011: Nil). Mr Pierre Van Der Merwe is a director of HLB Mann Judd (SA) Pty Ltd and Mr Donald Stephens is a consultant to HLB Mann Judd (SA) Pty Ltd. Einstien’s Cafe has received payments in relation to meals and refreshments made available to the staff of Papyrus. Mr Ramy Azer is a director of Einstien’s Cafe. Papyrus has made payments of $2,530 during the ﬁnancial year (2011: $9,056). No amount was owed to the entity at 30 June 2012 (2011: $874). 48 28 Going concern The ﬁnancial report has been prepared on the basis of a going concern. The ﬁnancial report shows the group incurred a net loss of $5,391,335 and a net cash outﬂow from operating and investing activities of $1,517,053 during the year ended 30 June 2012. The group continues to be economically dependent on the generation of cashﬂow from the business and/ or raising additional capital for the continued development of its Banana Ply Project and working capital. The group continues to be in consultation with its advisers to evaluate alternative means of raising additional capital. The group’s ability to continue as a going concern is contingent upon generation of cashﬂow from its business and/ or successfully raising additional capital. If sufﬁcient cash ﬂow is not generated and/or additional funds are not raised, the going concern basis may not be appropriate, with the result that the group may have to realise its assets and extinguish its liabilities, other than in the ordinary course of business and at amounts different from those stated in the ﬁnancial report. No allowance for such circumstances has been made in the ﬁnancial report. 49 Directors’ Declaration The Directors of the company declare that: 1. the ﬁnancial statements and notes, as set out on pages 18 to 49, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards, which, as stated in accounting policy Note 1 to the ﬁnancial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the ﬁnancial position as at 30 June 2012 and of the performance for the year ended on that date of the company and consolidated group; 2. the Managing Director and Chief Executive have each declared that: a. the ﬁnancial records of the company for the ﬁnancial year have been properly maintained in accordance with s 286 of the Corporations Act 2001; b. the ﬁnancial statements and notes for the ﬁnancial year comply with Accounting Standards; and c. the ﬁnancial statements and notes for the ﬁnancial year give a true and fair view; and 3. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable (refer to note 28). This declaration is made in accordance with a resolution of the Board of Directors. Mr Ramy Azer Managing Director 27 September 2012 50 Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001 T 61 8 8372 6666 F 61 8 8372 6677 E info.sa@au.gt.com W www.grantthornton.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PAPYRUS AUSTRALIA LIMITED Report on the financial report We have audited the accompanying financial report of Papyrus Australia Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine are 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. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Grant Thornton South Australian Partnership ABN 27 244 906 724 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together with its subsidiaries and related entities, delivers its services independently in Australia. Liability limited by a scheme approved under Professional Standards Legislation An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a b the financial report of Papyrus Australia Limited is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Material uncertainty regarding continuation as a going concern Without qualifying our opinion, we draw attention to Note 28 in the financial report which indicates that the consolidated entity incurred a net loss of $5,391,335 and a net cash outflow from operating and investing activities of $1,517,053 during the year ended 30 June 2012. These conditions, along with other matters as set forth in Note 28, indicate the existence of a material uncertainty which may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Report on the remuneration report We have audited the remuneration report included in the directors’ report for the year ended 30 June 2012. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion on the remuneration report In our opinion, the remuneration report of Papyrus Australia Limited for the year ended 30 June 2012, complies with section 300A of the Corporations Act 2001. GRANT THORNTON SOUTH AUSTRALIAN PARTNERSHIP Chartered Accountants Justin Humphrey Partner Adelaide, 27 September 2012 ASX Additional Information Additional information required by the Australian Securities Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 30 September 2012. Distribution of equity securities Ordinary share capital • 131,144,764 fully paid ordinary shares are held by 1,675 individual shareholders. There are no restricted and unquoted ordinary shares. All issued ordinary shares carry one vote per share. Options • 8,692,641 unlisted options are held by 12 individual option holders. One holder, Taycol Nominees Pty Ltd, holds 4,000,974 unlisted options (equivalent to 46.03% of total unlisted options). The number of shareholders, by size of holding, in each class are: 1-1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Holding less than a marketable parcel Substantial shareholders Ordinary shareholders Mr Ramy Azer Mrs Margaret Fuller Fully Paid Ordinary Shares 90 346 260 809 170 1,675 1,132 Unlisted Options - - - 1 11 12 - Fully paid Number 22,637,489 10,000,000 Percentage 17.26% 7.63% 54 Twenty largest holders of quoted equity securities Fully paid ordinary shares Mr Ramy Azer Mrs Margaret Fay Fuller Bijo (SA) Pty Ltd Stroud Nominees Pty Ltd Mrs Marcelle Boctor Mr Allan Harvey Moffatt Phillips Contract Engineering Service Pty Ltd VP Rigano & Co Pty Ltd Mr Mohamed Abbas JP Morgan Nominees Australia Limited Your Child’s Nursery Pty Ltd Mr Allan Harvey Moffatt + Mrs Suzanne Maureen Moffatt Mr Vincent Peter Rigano Your Childs Nursery Pty Ltd DCS Corporate Advisors Pty Ltd Mr Stephen John Ardron HSBC Custody Nominees (Australia) Limited Mr Grant Walter Gilbert + Mr Robert Roy Gilbert Mousetrap Nominees Pty Ltd Dorica Nominees Pty Ltd Number 22,637,489 10,000,000 5,750,000 4,456,061 4,000,000 3,500,000 1,540,000 1,285,045 1,125,000 1,059,000 1,035,353 968,949 939,000 888,931 723,054 699,126 675,000 667,000 642,035 600,000 63,191,043 Percentage 17.26% 7.63% 4.38% 3.40% 3.05% 2.67% 1.17% 0.98% 0.86% 0.81% 0.79% 0.74% 0.72% 0.68% 0.55% 0.53% 0.51% 0.51% 0.49% 0.46% 48.19% 55

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