MONEYSWITCH LIMITED ABN 49 103 575 042 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2006 1 MONEYSWITCH LIMITED ABN 49 103 575 042 CORPORATE INFORMATION Directors Richard Freemantle (Chairperson) Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Robert A Ferguson Thomas J Girgensohn Company Secretary Mark A Wood Registered Office Level 5, 121 Walker Street North Sydney, New South Wales, 2060 (02) 8907 1700 Solicitors Sparke Helmore Auditors Ernst & Young Internet Address www.MoneySwitch.net 2 MONEYSWITCH LIMITED ABN 49 103 575 042 CONTENTS Directors’ Report Income Statement Balance Sheet Statement of Cash Flows Statement of Changes in Equity Notes to and Forming Part of the Financial Statements Note 1 – Statement of Accounting Policies Note 2 – Revenue and Expenses Note 3 – Income Tax Note 4 – Cash and Cash Equivalents Note 5 – Receivables Note 6 – Property, Plant and Equipment Note 7 – Share-based Payments Note 8 – Payables Note 9 – Provisions Note 10 – Contributed Equity and Reserves Note 11 – Additional Financial Instrument and Disclosure Note 12 – Commitments and Contingencies Note 13 – Capital Commitments Note 14 – Controlled Entities Note 15 – Subsequent Events Note 16 – Financial Reposting by Segments Note 17 – Auditor’s Remuneration Note 18 – Related Party Disclosures Note 19 – Transition to AIFRS Directors’ Declaration Independent Audit Report PAGE 4 15 16 17 18 19 19 27 28 29 29 30 31 34 34 34 35 37 37 37 37 37 38 38 42 44 45 3 MONEYSWITCH LIMITED ABN 49 103 575 042 Your directors submit their report for the year ended 30 June 2006. DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Richard Freemantle (Non-Executive Chairperson) Non-Executive Chairperson since 20 June 2003. Richard has been involved in establishing and growing companies for more than 20 years. Starting in the early 1980s he created Network Solutions, which grew under his leadership to become Australia's largest and most successful network integration company. In 1990 Richard established the first international subsidiary for Cisco Systems in Australia. As this grew into one of Cisco's key international markets, Richard was promoted to build Cisco's operations in Europe and then promoted to Senior Vice President and member of Cisco's senior management team. He returned to Australia to establish the Cisco Asia Pacific headquarters, growing the business to more than 4000 staff and US$3B in revenue. Since retiring from Cisco, Richard has been involved in board positions on a number of technology start-up companies, including as Chairperson for the successful public float of Eserv Global in 2002. Richard has not held any other directorships of listed public companies in the past 3 years. Jost Stollmann (Director and Chief Executive Officer) Executive Director and Chief Executive Officer since 5 April 2005. Jost founded and grew the German system and network integrator CompuNet Computer AG into a US$1B company, sold it to GE Capital and led the integration and expansion of GE Capital IT Solutions across the continent as President of Europe. As Federal Shadow Minister of Economy and Technology, he ran and managed his own election campaign, contributing significantly to the landslide victory of the first German government of Chancellor Gerhard Schröder. Jost has not held any other directorships of companies in the past 3 years. 4 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) Names, qualifications, experience and special responsibilities continued Paul A Wood (Director and Chief Technical Officer) Executive Director since 3 February 2003 and Chief Technical Officer since 5 April 2005. Paul has been in the network technology business throughout his career, most recently at Cisco Systems in a business development role. He was the co-founder and Chief Executive Officer of Metaplex, a networking software business that was purchased by Cisco Systems in 1996. Metaplex developed products that allowed IBM networking systems to use Internet protocols. Metaplex was a key contributor to Data Link Switch (DLSw) which is in service in most banks worldwide today. Paul was the founder and Chief Executive Officer of Netlink, a venture capital based data communications company that developed products in the mainframe networking area. Netlink was sold to Cabletron Systems, a US public company. Paul’s initial experience was in networking, technical and product management roles at IBM. Paul was Chief Executive Officer of MoneySwitch from 3 February 2003 until 5 April 2005. Paul has not held any other directorships of companies in the past 3 years. William J Bartlett FCA, CPA, FCMA, CA (SA) (Non-Executive Director) Non-Executive Director since 14 April 2004. Bill has 35 years of accounting experience and was a partner of Ernst & Young in Australia for 23 years, retiring on 30 June 2003. He has extensive experience in the actuarial, insurance and financial services sectors through membership of many industry and regulatory advisory bodies including the Life Insurance Actuarial Standards Board since 1994. During the past three years Bill has served as a director of the following listed companies: • Peptech Limited * • Retail Cube Limited * • RGA Inc * • Suncorp-Metway Limited * * denotes current directorship Denis A Calvert (Non-Executive Director) Non-Executive Director since 14 April 2004. Denis Calvert has EFTPOS and acquiring skills, having been Executive Vice President for Global Sales and Marketing of Verifone Inc, a major EFTPOS supplier. He was Division Head of Retail and Merchant Services for Citibank North America, responsible for the integration of all global merchant services operations. He was also Chief Executive Officer of Tasq Technology Inc. which provides outsourced EFTPOS technology and logistical support to more than 1.4M retail merchants. Denis is currently an advisor to several EFTPOS manufacturers and payment processors. During the past three years Denis has served as a director of the following company: • Verifone Australia Pty Ltd * denotes current directorship 5 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) Robert A Ferguson (Non-Executive Director) Non-Executive Director since 14 November 2005. Rob began his career as a Research Analyst for a Sydney stockbroker. He joined Bankers Trust Australia as a portfolio manager in 1972 when the company's turnover totalled $6 million and became Managing Director in 1985. Through his ongoing delivery of higher investment performance, he and his team built BT Funds Management into the leader in the retail mutual funds business. By the mid- 1990s, Bankers Trust had $50 billion under its care. Following the sale of the funds management arm of Bankers Trust to Principal Financial Group in 1999, Rob became Chairman of BT Funds Management. He stepped down from that position in 2002. During the past three years Rob has served as a director of the following companies: • Lowy Institute for International Policy* • Sydney Institute* • The Sydney Writers’ Festival Limited* * denotes current directorship Dr Thomas J Girgensohn (Non-Executive Director) Non-Executive Director since 9 March 2006 . Thomas Girgensohn brings to MoneySwitch extensive experience in the consulting sector in both Australia and internationally. He is a previous Managing Partner (Australia and New Zealand) of the Boston Consulting Group and was also a former chairman of Netcomm Ltd and TDG Logistics as well as a former director of the Strathfield Group, Byron Holdings Ltd and Comweld Group Pty Ltd. Dr Girgensohn has a PhD in Business Administration from the University of Munich, a Master of Business Administration from the University of Saarbrucken and a Bachelor of Economics from the University of Bochum, all in Germany. Dr Girgensohn is a current Fellow of the Australian Institute of Company Directors. During the past three years Thomas has served as a director of the following companies: • Dairy Farmers* • Stemcor Australia Pty Ltd* • Australian Bulk Minerals* * denotes current directorship 6 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) COMPANY SECRETARY Mark A Wood Company Secretary since 29 July 2004. Mark has a Bachelor of Business, Hospitality and Tourism from Macquarie University, and is currently the Business Development Manager of MoneySwitch Limited. 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 MoneySwitch Limited were: Person Richard Freemantle* Jost Stollmann Paul A Wood^ William J Bartlett# Denis A Calvert+ Robert A Ferguson Thomas J Girgensohn^ Ordinary Shares 6,111,112 11,680,999 9,664,836 924,222 2,831,313 2,949,495 1,818,182 Options over Ordinary Shares 726,667 1,020,000 2,833,333 386,667 386,667 32,821 13,427 * Includes Ordinary Shares held by Cazalla Developments Pty Ltd being an associate of Richard Freemantle. ^ Includes Ordinary Shares held by Pamela R Wood and Mark A Wood being associates of Paul A Wood. # Shares jointly held with Delwyn Bartlett. + Includes Ordinary Shares held by Tamoda Pty Ltd being an associate of Denis A Calvert. ^Includes Ordinary Shares held by Dacroft Pty Ltd being an associate of Thomas J Girgensohn. DIVIDENDS No dividends have been declared or paid since the date of incorporation 7 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) CORPORATE INFORMATION Corporate Structure MoneySwitch Limited is an unlisted public company. It is incorporated and domiciled in Australia. The registered office of MoneySwitch is Level 5, 121 Walker Street, North Sydney, New South Wales, 2060. Nature of operations and principal activities MoneySwitch’s principal activities are: • Providing electronic transaction acquiring services to Australian businesses (merchants). This includes the authorisation, clearing and settlement of credit card and pin based debit card transactions. It also includes the provision of direct debit services. • Developing the transaction switching and payment software and infrastructure required to support the provision of credit and debit acquiring services. There have been no significant changes in the nature of those activities during the year. Employees The company employed 28 employees as at 30 June 2006 (compared to 17 employees in 2005). OPERATING AND FINANCIAL REVIEW Overview MoneySwitch Limited was founded on 3 February 2003 by Paul Wood, Peter Haig and Andrew Rothwell. All have maintained their association with MoneySwitch with Paul Wood as Chief Technical Officer, Peter Haig as Vice President of Engineering and Andrew Rothwell as Senior Software Manager. Credit and Debit Acquiring Services MoneySwitch is a specialist financial institution focussed on providing credit and debit acquiring services. As such, the Company is developing the necessary relationships, policies, procedures, systems and approvals to comply with the stringent prudential and regulatory requirements to perform electronic transaction processing, clearing and settlement activities. Software development MoneySwitch’s focus is on using proven modern technology to provide extremely reliable, secure, low cost and flexible acquiring services to merchants and value-added resellers. As such, MoneySwitch owns its own switching and payment software code and has continued to develop this code over the course of the year. Performance Indicators The Board and Management monitor MoneySwitch’s overall performance - from overall business positioning through to the performance of the Company against software engineering development plans, business performance operating plans and financial budgets. The Board, together with Management, have identified key milestones and deadlines that are used to monitor MoneySwitch’s development. Management monitors achievement of milestones and deadlines on a bi-weekly basis. Directors receive status reports for review prior to each monthly board meeting. 8 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) Operating Results for the Year The Company reported an operating loss after providing for income tax of $4,386,098 (2005: $1,263,082 loss). This result was in line with expectations given that the Company is in the development stage of its lifecycle. 2006 2005 Revenues Operating Profit Revenues Operating Profit MoneySwitch Limited $631,945 -$4,386,098 $389,586 -$1,263,082 Investments for Future Performance The Company has been actively working with Visa, MasterCard and other upstream credit and debit participants to build the relationships, commercial arrangements and physical connections necessary for MoneySwitch to provide acquiring services to its merchants. In parallel, the Company is investing significant human resources to develop its switching and payments system architecture. It is also investing capital for the purchase of computer servers and networking and security monitoring equipment to scale-up MoneySwitch’s production IT infrastructure. Review of Financial Condition Capital Structure During the period, the Company issued 19,020,203 ordinary shares and raised $9,650,000 of additional capital. The capital was raised to ensure that MoneySwitch was fully compliant with the prudential capital requirements imposed on it by the Australian Prudential Regulation Authority (APRA) and to fund on-going operations. The capital raising was completed in two tranches – on 28 November 2005; 7,555,557 ordinary shares were issued at $0.45 per share totalling $3,400,000, and on 31 March 2006 and 06 April 2006; 10,909,091 ordinary shares were issued at $0.55 per share totalling $6,000,000. In addition, on 19 December 2005, 555,555 options were exercised at an exercise price of $0.45 per share totalling $250,000. As at 30 June 2006 the Company had no debt. Cash from Operations MoneySwitch continued to operate at a loss for the 2005/6 financial year, in line with the fact that the Company is in the development phase of its lifecycle. The Company had interest income of $279,698 for the period. The Company also claimed an R&D Tax Rebate through the Industry Research and Development (IR&D) Board and the Australian Taxation Office of $352,227. Liquidity and Funding The Company had cash-on-hand of $7,903,263 at the end of the period. Under MoneySwitch’s banking authority as a Specialist Credit Card Institution (SCCI), the Company is required by APRA to hold Tier 1 capital in the greater of the following two amounts: (a) $5 million; or 9 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) (b) 20% of the value of the risk weighted on- and off- balance sheet credit exposures of the company (at the time of calculation). MoneySwitch has sufficient capital to meet APRA’s Tier 1 capital requirements. Risk Management MoneySwitch is prudentially supervised by the Australian Prudential Regulation Authority (APRA) and is required to comply with prudential standards and provide quarterly capital adequacy and liquidity reporting. The Company has developed the policies, procedures and systems required to ensure on-going compliance with the standards and generate the required quarterly reports. Statement of Compliance This report is based on the guidelines in The Group of 100 Incorporated publication Guide to the Review of Operations and Financial Condition. EMPHASIS OF MATTER Although the Company has made operating losses in the prior 3 years, this is inline with expectations given that MoneySwitch was in the start-up phase of its business development. MoneySwitch has sufficient cash for the 2006/7 financial year to pay its debts, as and when, they become due and payable. It is also able to manage and control its expenses. As such the directors believe the Company is a viable going concern. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On 8 July 2005, MoneySwitch became a principal member of MasterCard. On 25 July 2005, MoneySwitch became the fourteenth Tier 1 Member of the Bulk Electronic Clearing System (BECS) and the first new Tier 1 Member in ten years. This allows MoneySwitch to settle directly into the nominated transaction bank accounts of its customers. On 8 August 2005, Brad Banducci was appointed Chief Financial Officer. Brad was previously a Vice President and Director of The Boston Consulting Group and the Leader of its Asia Pacific Corporate Finance and Strategy Practise. On 17 November 2005, Robert Ferguson joined the MoneySwitch Board of Directors, contributing his strong financial background as a previous Managing Director of Bankers Trust. MoneySwitch became a Principal Member of Visa International on 1 December 2005 after completing its testing and certification process. MoneySwitch appointed John Hallis as Vice President Operations on 14 February 2006. John’s focus is on building an efficient responsive Operations team. He has done so on two previous occasions, most notably setting up Cisco System’s Asia Pacific customer care organisation. On 9 March 2006, Dr Thomas J Girgensohn, a former managing partner of The Boston Consulting Group Australia and New Zealand, joined the MoneySwitch Board of Directors, contributing his strategy and board governance skills. On 1 May 2006, MoneySwitch was issued a Variation of Conditions document from APRA, which specifically notes that MoneySwitch can provide direct debit and BPAY in addition to credit card and debit card acquiring. On 15 June 2006, MoneySwitch became a member of the Consumer Electronic Clearing System (CECS) as an EFTPOS Acquirer. 10 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) SIGNIFICANT EVENTS AFTER THE BALANCE DATE There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material or unusual nature which, in the opinion of the directors of the company, will significantly affect the operation of the company, the results of these operations or the state of affairs of the company in future financial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The directors foresee that in the 2006/7 financial year MoneySwitch will continue activities towards launching its range of electronic transaction acquiring services. SHARE OPTIONS Unissued shares As at the date of this report, there were 16,141,065 un-issued ordinary shares under options. Option holders do not have any right, by virtue of the option, to participate in any share issue of the company. Shares issued as a result of the exercise of options During the financial year, an employee exercised the option to acquire 555,555 fully paid ordinary shares in MoneySwitch Limited at an exercise price of $0.45. Since the end of the financial year, no further options have been exercised. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During or since the financial year, the company has not in respect of any person who is, or has been, an officer or auditor of the company or of a related body corporate: (a) indemnified or made any relevant agreement for indemnifying against a liability, including costs and expenses in successfully defending legal proceedings with the exception of the general indemnity provisions contained in the Company's Constitution. During or since the financial year, the company has paid premiums in respect of a contract insuring all the directors and officers of MoneySwitch Limited against legal costs incurred in defending proceedings for conduct involving: (a) a wilful breach of duty; or (b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of the Corporations Act 2001. 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 is as follows: 11 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) Directors’ Meetings Committee Meetings Number of meetings held: Number of meetings attended: Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Robert A Ferguson Thomas J Girgensohn 11 11 10 11 10 7 6^ 2+ Audit 4 Risk 9 Remuneration 2 — — 2# 4 1 2^ 1+ — — 9 8 4 — — 2 — 1# — 1 1^ 1+ Directors meetings have been held every month except for the month of January 2006. Notes: ^ + # Robert A Ferguson attended all meetings held since his appointment to the Board, Audit Committee and Remuneration Committee. Thomas J Girgensohn attended all meetings held since his appointment to the Board, Audit Committee and Remuneration Committee. Paul A Wood attended all meetings held prior to his resignation from the Audit Committee and Remuneration Committee. Committee Membership As at the date of this report, the Company had an Audit Committee, a Risk Committee and a Remuneration Committee of the Board of directors. Members acting on the Committees of the Board during the year were: Audit Risk Remuneration Current W Bartlett (c) R Ferguson T Girgensohn During the year D Calvert * P Wood # Current D Calvert (c) B Bartlett P Wood During the year — Current R Freemantle (c) D Calvert R Ferguson T Girgensohn During the year P Wood # Notes (c) * # Designates the chairperson of the committee. D Calvert was on the Audit Committee until 11 May 2006. P Wood was on the Audit Committee until 17 November 2005 and the Remuneration Committee until 11 May 2006. 12 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The directors received the following declaration from the Auditor of MoneySwitch Limited. 13 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ REPORT (cont’d) The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. NON-AUDIT SERVICES Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Extended Assurance Services Capital Verification Agreed Upon Procedures CECS Agreed Upon Procedures Review and Lodgement of the Company Income Tax Return $13,390 $5,282 $62,256 $6,000 Signed in accordance with a resolution of the directors. Richard Freemantle Chairperson Sydney, 16 August 2006 Jost Stollmann Director and Chief Executive Officer 14 MONEYSWITCH LIMITED ABN 49 103 575 042 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2006 Continuing Operations Revenue Depreciation expense Share-based payments expense Engineering expenses General and administrative expenses Operations expenses Sales and marketing expenses NOTE 30-Jun-06 30-Jun-05 $ $ 2 631,945 389,586 105,081 1,392,823 1,719,755 1,250,107 540,090 10,187 30,701 301,841 862,157 395,207 31,942 30,820 Profit/(loss) from continuing operations before related income tax expense (4,386,098) (1,263,082) Income tax expense 3 - - Net profit/(loss) (4,386,098) (1,263,082) The above Income Statement should be read in conjunction with the accompanying notes. 15 MONEYSWITCH LIMITED ABN 49 103 575 042 BALANCE SHEET AS AT 30 JUNE 2006 ASSETS Current Assets Cash and cash equivalents Receivables Investment securities Total Current Assets Non-current Assets Property, plant and equipment Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Payables Provisions 30-Jun-06 30-Jun-05 $ $ 4 5 12(b) 7,903,263 393,077 1,553,677 3,154,563 361,240 - 9,850,017 3,515,803 6 581,752 86,009 581,752 86,009 10,431,769 3,601,812 8 9 144,171 80,536 28,077 23,399 Total Current Liabilities 224,707 51,476 TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY 224,707 51,476 10,207,062 3,550,336 10 10 10 14,500,001 1,725,428 (6,018,367) 4,850,000 332,605 (1,632,269) 10,207,062 3,550,336 The above Balance Sheet should be read in conjunction with the accompanying notes. 16 MONEYSWITCH LIMITED ABN 49 103 575 042 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2006 Cash flows from operating activities Receipt for research & development tax concession Payments to suppliers and employees Interest received Net cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Gross payments for investment securities 30-Jun-06 30-Jun-05 $ $ 327,724 (3,353,812) 279,288 99,919 (1,289,471) 50,144 (2,746,800) (1,139,408) (600,824) (1,553,677) (90,318) - 4 6 Net cash flows used in investing activities (2,154,501) (90,318) Cash flows from financing activities Proceeds from issue of shares 10 9,650,001 3,950,000 Net cash flows from/(used in) financing activities 9,650,001 3,950,000 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period 4,748,700 3,154,563 2,720,274 434,289 Cash and cash equivalents at end of period 4 7,903,263 3,154,563 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 17 MONEYSWITCH LIMITED ABN 49 103 575 042 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006 Attributable to equity holders of MoneySwitch Limited Total Equity Retained Earnings Issued Capital $ $ $ Other Reserves (Note 10) $ At 1 July 2004 900,000 (369,187) 30,764 561,577 Profit/(loss) for the period Issue of share capital Exercise of options Cost of share-based payments At 30 June 2005 Profit/(loss) for the period Issue of share capital Exercise of options Cost of share-based payments 10 10 10 10 10 10 - 3,450,000 500,000 - (1,263,082) - - - - - - 301,841 (1,263,082) 3,450,000 500,000 301,841 4,850,000 (1,632,269) 332,605 3,550,336 - 9,400,001 250,000 - (4,386,098) - - - - - - 1,392,823 (4,386,098) 9,400,001 250,000 1,392,823 At 30 June 2006 14,500,001 (6,018,367) 1,725,428 10,207,062 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 18 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 1. STATEMENT OF ACCOUNTING POLICIES The significant policies which have been adopted in the preparation of this financial report are set out below: The financial report covers the economic entity of MoneySwitch Limited. MoneySwitch Limited is an unlisted public company, incorporated and domiciled in Australia. (a) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards. Unless otherwise indicated, all amounts are expressed in Australian dollars. All amounts contained in the financial report and directors' report have been rounded to the nearest dollar ($1). The financial report has been prepared on the basis of historical cost and, except where stated, does not take into account changing money values or fair values of non-current assets. (b) Going Concern The directors consider the going concern assumption to be appropriate. MoneySwitch Limited is in the development phase of operations and has a history of raising sufficient capital to meet the Company's expenditure and prudential capital needs. MoneySwitch Limited is able to control its expenses. Should current cash levels not be sufficient to meet the Company's prudential capital requirements, the Company will seek to raise additional funding through capital raising in the 2006/2007 financial year internally from existing shareholders and/or externally from additional strategic investors as required. (c) Statement of compliance The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (“IFRS”). These financial statements are the first MoneySwitch Limited financial statements to be prepared in accordance with AIFRS. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements. Certain of the exemptions allowed by AASB 1 from retrospective application have been used, details can be found in the applicable notes below. Comparatives for the year ended 30 June 2005 have been restated accordingly. Reconciliations of AIFRS equity and profit for 30 June 2005 to the balances reported in the 30 June 2005 financial report and at transition to AIFRS are detailed in note 19. 19 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (c) Statement of compliance (cont'd) Except for the revised AASB 119 Employee Benefits (issued December 2005), Australian Accounting Standards that have recently been issued or amended but are not yet effective have not been adopted for the annual reporting period ending 30 June 2006: Title Affected standard(s) AASB 2005-1 AASB 139 AASB 2005-4 AASB 2005-5 AASB 139 AASB 132 AASB 1 AASB 1023 AASB 1038 AASB 1 AASB 139 AASB 2005-6 AASB 3 AASB 2005-9 AASB 2005-10 AASB 4 AASB 1023 AASB 139 AASB 132 AASB 132 AASB 101 AASB 114 AASB 117 AASB 133 AASB 2006-1 AASB 121 AASB 7 AASB 7 AASB 2002-2 AASB 1 Nature of change to accounting policy No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. No change to accounting policy required. Therefore no impact. Application date (*) 1 January 2006 1 January 2006 1 January 2006 1 January 2006 1 January 2006 1 January 2007 1 January 2006 1 January 2007 30 June 2006 *Application date is for the annual reporting periods beginning on or after the date shown in the above table. Changes made to accounting policies to comply with AIFRS are detailed below in note 1, paragraph (d) through paragraph (v). 20 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (d) Significant accounting judgements, estimates and assumptions The adoption of AASB 2 Share-based payments have had a significant impact on the amounts recognised in the financial statements. The details can be found in the applicable notes below. The Company recognises the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. The fair value has been determined using the Black Scholes model, and the assumptions related to this can be found in note 7. (e) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. (i) Service revenue Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. Stage of completion is measured using the labour hours incurred to date as a percentage of total estimated labour hours for each contract. Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent that costs have been incurred, where it is probable that the costs will be recovered. (ii) Interest income The Company has elected to apply the option available under AASB 1 of adopting AASB 132 and AASB 139 from 1 July 2005. The relevant accounting policies for interest income applicable for the years ending 30 June 2006 and 30 June 2005 are: Accounting policies applicable for the year ending 30 June 2006 Interest income is recognised in the income statement on an accruals basis, using the effective interest method. This method measures the amortised cost of a financial asset and allocates the interest income over the relevant period using the effective interest which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Accounting policies applicable for the year ending 30 June 2005 Revenue is recognised when the Company's right to receive payment is established. (f) Leases Leases under which the Company assumes all the risks and benefits are classified as financial leases. Other leases are classified as operating leases. Finance leases are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease- term, if there is no reasonable certainty that the Company will obtain ownership of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term. 21 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (g) Cash and cash equivalents Cash and cash equivalents includes cash on hand, and deposits held at call with financial institutions. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (h) Receivables Receivables (current) are recognised and carried at original value less a provision for any uncollectible debts. An estimate of recoverable amounts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred. Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis. (i) Investments Investment securities are securities purchased with the intent of being held to maturity. The Company currently does not have any investments held for trading. All non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity where management has the positive intention and ability to hold to maturity. All investments are initially recognised at cost, being the fair value of the consideration given including acquisition charges associated with the investment. Investments that are intended to be held to maturity are subsequently measured at amortised cost, less provision for impairment in value. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are derecognised or impaired as well as through the amortisation process. Purchases and sale of investments are recognised on settlement date - the date on which the Company receives or delivers the asset. (j) Income Taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to recognise the deferred tax asset or liability. An exemption is made for temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or loss or taxable profit or loss. 22 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (j) Income Taxes (cont'd) Deferred tax assets relating to tax losses, unused tax credits and deductible temporary differences are not carried forward as an asset unless it is probable that the future taxable amounts will be available to utilise those temporary differences, losses and tax credits. (k) Other Taxes Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: - where the GST incurred on the purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and - receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (l) Acquisition of assets All assets acquired including property, plant and equipment are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. Expenditure is only recognised as an asset only when it is probable that future economic benefits associated with the asset will flow to the Company and the cost of the item can be measured reliably. All other expenditure is expensed as incurred. (m) Recoverable amount of non-current assets valued on cost basis The carrying amount of non-current assets valued on the cost basis are reviewed to determine whether they are in excess of their recoverable amount at balance date. If the carrying amount of a non-current asset exceeds the recoverable amount, the asset is written down to the lower amount. The write-down is expensed in the reporting period in which it occurs. Recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where a group of assets working together supports the generation of cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value. 23 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (n) Property, Plant and Equipment (i) Cost and Valuation Freehold land and buildings on freehold land are measured on a fair value basis. At each reporting date, the value of each asset in these classes is reviewed to ensure that it does not differ materially from the asset's fair value at that date. Where necessary, the asset is revalued to reflect its fair value. All other classes of property, plant and equipment are measured at cost less accumulated depreciation and any impairment in value. The Company recognises in the carrying amount of an item of property, plant and equipment the cost of replacing parts when the cost is incurred and the recognition criteria are met. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant or equipment, as a replacement, provided that the recognition criteria are satisfied. Where assets have been revalued, the potential effect of the capital gains tax on disposal has not been taken into account in the determination of the revalued carrying amount. Where it is expected that a liability for capital gains tax will arise, this expected amount is disclosed by way of note. (ii) Depreciation Depreciation is provided on a straight-line basis on all property, plant and equipment, other than freehold land. Major depreciation periods are: Plant and Equipment: - Furniture and Office Equipment - Computer Equipment 2006 2005 5 years 4 years 5 years 4 years The assets' residual values, remaining useful lives and depreciation methods are reassessed and adjusted, if appropriate, at each balance sheet date. (iii) Impairment The impairment testing for property, plant and equipment is conducted in accordance with the Accounting Policy in Note 2(m). (iv) Derecognition and disposal An items of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected to arise from continued use of the asset. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and asset's carrying amount and are included in the income statement in the year the item is derecognised. (o) Research and Development Costs Research and development costs are expensed as incurred, except where future benefits are expected beyond any reasonable doubt, to exceed those costs. Where research and development costs are deferred such costs are amortised over future periods on a basis related to expected future benefits. Unamortised costs are reviewed at each reporting date to determine the amount (if any) that is no longer recoverable and any amount identified is written off. 24 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (p) Trade and Other Payables Liabilities for trade creditors and other amounts are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity. (q) Provisions and Contingencies Provisions are recognised when the Company has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation. If the impact of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of times is recognised as a finance cost. Contingent liabilities and contingent assets are not recognised in the balance sheet, but are disclosed in the relevant notes to the financial statements. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Where settlement becomes probable, a liability or asset is recognised. (r) Employee Benefits Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefits expected to be settled within the twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. Employee benefit expenses and revenues arising in respect of the following categories: - wages and salaries, non-monetary benefits, annual leave, long service leave and other leave benefits; and - other types or employee benefits are recognised against profits on a net basis in their respective categories. (s) Share-based payment transactions Share-based compensation benefits are provided to employees (including directors) via the MoneySwitch Stock Option Plans. The Company has applied the requirements of AASB 1 ‘First-time Adoption of Australian Equivalents to IFRS’ in respect of equity-settled share-based payment transactions and has applied AASB 2 ‘Share based Payments’ only to equity instruments granted after 7 November 2002 that had not vested before 1 January 2005, as given below: Shares, options and rights granted before 7 November 2002 and/or vested before 1 January 2005 No expense is recognised in respect of these options. The shares are recognised when the options are exercised and the proceeds received allocated to share capital. 25 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 STATEMENT OF ACCOUNTING POLICIES (cont'd) (s) Share-based payment transactions (cont'd) Shares, options and rights granted after 7 November 2002 and vested after 1 January 2005 The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined internally using the Black-Scholes Option Valuation Model, further details of which are given in note 7. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the Directors of the Company, will ultimately vest. This opinion is formed based on the best available information at the reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. There were no modifications to the terms of outstanding options during the financial year. (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (u) Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. (v) Derecognition of Assets and Liabilities Assets and liabilities are derecognised in the balance sheet upon sale, maturity or settlement. Gains and losses are recognised in profit or loss when the assets/liabilities are derecognised. 26 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 2. REVENUE AND EXPENSES Profit or loss has been arrived at after charging (crediting) the following items: Revenue Interest and other income R&D tax rebate Depreciation and amortisation Depreciation of non-current assets - Property, plant & equipment Share-based payments expense Equity-settled share-based payments (note 7) Engineering expenses Employee benefits expense Recruitment Rent Training Travel Other General and administrative expenses Interconnect & membership Professional fees Employee benefits expense Provision for employee leave entitlement Legal Rent Travel Insurance Other Operations expenses Communication and hosting Scheme fees Employee benefits expense Other Sales and marketing expenses Brand development and market research Total expenses 27 30-Jun-06 30-Jun-05 $ $ 279,718 352,227 631,945 61,862 327,724 389,586 105,081 105,081 30,701 30,701 1,392,823 1,392,823 301,841 301,841 1,521,311 104,299 35,294 10,974 9,377 38,500 1,719,755 509,708 153,421 262,639 57,137 52,375 49,210 32,583 23,209 109,825 1,250,107 255,454 178,926 105,320 390 540,090 745,237 - 46,177 - - 70,743 862,157 116,107 - 14,139 61,724 7,848 17,633 17,381 160,375 395,207 - - 24,690 7,252 31,942 10,187 10,187 30,820 30,820 5,018,043 1,652,668 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 3. INCOME TAX Operating profit for the year Prima facie income tax expense on profit from continuing operations (30%) Expenditure not allowable for income tax purposes Share-based payments expense R&D tax concession Other non-deductible expenses Tax effect of timing differences and current year tax losses not brought to account: not probable of recovery This future income tax benefit will only be obtained if: (a) future taxable income is derived of a nature and amount sufficient to enable the benefit to be realised; (b) the conditions for deductibility imposed by taxation legislation continue to be complied with; (c ) no changes in taxation legislation adversely affect the entity in realising the benefit. Income tax expense 30-Jun-06 30-Jun-05 $ $ (4,386,098) (1,315,829) (1,263,082) (378,925) 417,847 (176,114) 2,174 (1,071,922) 90,552 (163,862) - (452,235) 1,071,922 452,235 - - The future income tax benefit comprises cash rebates received/receivable which are available under the Research and Development Tax Concession of the Income Tax Assessment Act 1936. 28 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 4. CASH & CASH EQUIVALENTS Cash at bank Exchange settlement account 30-Jun-06 30-Jun-05 $ $ 7,876,480 26,783 7,903,263 3,154,563 - 3,154,563 Cash at bank earns interest at floating rates based on daily bank deposit rates. The Reserve Bank (RBA) pays interest on balances held in Exchange settlement accounts at a rate 25 basis points below the cash rate. Reconciliation of net profit after tax to net cash flows from operations Operating profit for the year (4,386,098) (1,263,082) Adjustments for: Depreciation and amortisation Provision for employee leave entitlements Share-based payments expense Changes in assets and liabilities Decrease/(Increase) in receivables Increase/(Decrease) in payables Net cash from operating activities Disclosure of financing facilities - refer to note 10 Disclosure of non-cash financing and investing activities - refer to note 6 & 12 5. RECEIVABLES Due from other financial institutions Sundry debtors - Research & development tax rebate Sundry debtors - others Interest receivable Prepayments 105,081 57,137 1,392,823 31,515 14,139 301,841 (31,837) 116,094 (251,898) 28,077 (2,746,800) (1,139,408) 5,692 352,227 23,010 12,148 - 393,077 - 327,724 20,998 11,718 800 361,240 The Company has applied through AusIndustry for a Research and Development tax concession. A registration number has been granted and the Application will be lodged with the Australian Taxation Office. 29 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 6. PROPERTY, PLANT AND EQUIPMENT Year ended 30 June 2006 At 1 July 2005, net of accumulated depreciation and impairment Additions Depreciation charge for the year At 30 June 2006, net of accumulated depreciation and impairment At 1 July 2005 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2006 Cost or fair value Accumulated depreciation and impairment Net carrying amount Year ended 30 June 2005 At 1 July 2004, net of accumulated depreciation and impairment Additions Depreciation charge for the year At 30 June 2005, net of accumulated depreciation and impairment At 1 July 2004 Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 June 2005 Cost or fair value Accumulated depreciation and impairment Net carrying amount Furniture and Office Equipment ($) Computer Equipment ($) Total ($) 25,795 38,073 (13,173) 60,214 562,751 (91,908) 86,009 600,824 (105,081) 50,695 531,057 581,752 45,096 (19,301) 25,795 86,256 (26,042) 60,214 131,352 (45,343) 86,009 83,169 (32,475) 50,694 649,008 (117,950) 531,058 732,177 (150,425) 581,752 Furniture and Office Equipment ($) Computer Equipment ($) Total ($) 12,958 21,974 (9,137) 13,434 68,344 (21,564) 26,392 90,318 (30,701) 25,795 60,214 86,009 23,123 (10,165) 12,958 45,096 (19,301) 25,795 17,912 (4,478) 13,434 86,256 (26,042) 60,214 41,035 (14,643) 26,392 131,352 (45,343) 86,009 30 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 7.SHARE-BASED PAYMENTS (a) Details of MoneySwitch Stock Option Plans The MoneySwitch Stock Option Plans were established to issue options over ordinary shares in the Company to employees or directors of the company or to external consultants who provide services to the Company. The rules of the MoneySwitch Stock Plans provide that the Board has the authority, in its discretion, and subject to such terms and conditions as it deems appropriate, to grant options to employees and consultants (Including directors). Options granted pursuant to the Stock Options Plans may be exercised, in whole or part, subject to vesting terms and conditions indicated below: Type Linear vesting schedule Terms and Conditions Options granted will vest in proportion to the time that passes linearly during the vesting schedule, subject to maintaining continuos status as an employee or consultant with the Company during the vesting schedule; Service vesting schedule The options with service vesting schedule may be exercised as to a set number of shares per agreed day of consulting service, as defined in the specific option grant. Fully vested at time of grant Options may be exercised as to all shares from the vesting commencement date. Other relevant terms and conditions applicable to options granted under the MoneySwitch Stock Option Plans include: - All stock options granted under those plans had an exercise price equal to the fair value of the underlying ordinary shares on the date of the grant. - the term of each option grant shall be 10 years from the date of grant or such shorter term as provided in the Stock Option Grant agreement. However, in the case of options granted to an Optionee who, at the time the options is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company, the term of the Option Grant shall be 5 years from the grant date or such shorter term as may be provided in the Stock Option Grant agreement. - each option entitles the holder to one ordinary share. - All awards granted under the MoneySwitch Stock Option Plans are equity-settled. (b) Fair value of options The weighted average fair value of the share options granted during the financial year is 24c (2004/05: 10c). The fair value of each option grant was estimated on the date of the grant using the Black-Scholes Option Valuation Model. The following table lists the assumptions used in determining the fair value of the options granted in the years ended 30 June 2006 and 30 June 2005: Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) 2006 0% 74% 5.34% 2005 0% 74% 5.16% A zero dividend policy assumption is used for valuing all option grants. This is in line with the Company's development status and growth strategy. 31 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 7.SHARE BASED PAYMENTS (cont'd) (b) Fair value of options (cont'd) Expected volatility used is the historical volatility of the peer group. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The average expected life for 10 year options is assumed to be 8 years from the grant date. For all other options with a contractual life of 5 years or less, the expected life is assumed to be total years from grant date to expiration date. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share option issued during the year: 30-Jun-06 No 30-Jun-06 WAEP 30-Jun-05 No 30-Jun-05 WAEP Linear vesting schedule Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/Expired during the year Outstanding at the end of the year Exercisable at the end of the year Fully vested at time of grant Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/Expired during the year Outstanding at the end of the year Exercisable at the end of the year Service vesting schedule Outstanding at the beginning of the year Granted during the year Exercised during the year Forfeited/Expired during the year Outstanding at the end of the year Exercisable at the end of the year 3,673,977 1,717,449 - (88,438) 5,302,988 2,362,697 3,222,521 3,333,333 (555,555) - 6,000,299 6,000,299 4,837,778 - - - 4,837,778 4,837,778 Total Outstanding at the end of the year Total Exercisable at the end of the year 16,141,065 13,200,774 16c 47c - 45c 26c 25c 10c 45c 45c - 26c 26c 13c - - - 13c 13c 22c 21c 2,525,000 1,413,443 - (264,466) 3,673,977 783,031 3,151,410 3,413,333 (3,333,333) (8,889) 3,222,521 3,222,521 2,560,000 2,277,778 - - 4,837,778 3,708,889 11,734,276 7,714,441 10c 26c - 10c 16c 16c 10c 15c 15c 45c 10c 10c 10c 16c - - 13c 12c 13c 13c Included within this balance are options over 8,920,165 shares (2005: 8,920,165 shares) that have not been recognised in accordance with AASB 2, as the options were granted and vested before 1 January 2005. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with AASB 2. The above balance does not include 681,013 fully vested options approved on 18/07/2006 as 2005/2006 financial year's annual bonuses for executives and employees of the Company. The fair value of the above options, estimated on the balance sheet date, has been recognized as an expense in the income statement in accordance with AASB 2, as the options were granted in respect of services rendered in 2005/2006 financial year. The expense recognised in the income statement in relation to share-based payments is disclosed in note 2. 32 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 7.SHARE BASED PAYMENTS (cont'd) The average share price at the date of exercise for the options exercised in 2005/06 is 45c (2004/05: 15c). The weighted average remaining contractual life for the share options outstanding as at 30 June 2006 was 4.4 years (2005: 5.7 years). The following table summarizes further details of the stock options outstanding at 30 June 2006: Range of Exercise Prices Contractual life Vesting conditions 10c to 55c 10c to 45c 10c to 55c 10c to 45c Total 10 years 5 years 5 years 2 years or less 5 year - linear vesting 12 months - service vesting 12 months - linear vesting Fully vested at time of grant No: of Outstanding Options 4,632,295 4,837,778 670,693 6,000,299 16,141,065 Share options granted under the MoneySwitch Stock Option Plan and outstanding at the end of the year have the following exercise prices: Expiry Date 31-Dec-06 31-Mar-07 31-Dec-07 19-Apr-08 15-Jun-08 01-Apr-09 21-Nov-09 15-Dec-09 15-Jun-10 17-Aug-10 08-Feb-11 08-Mar-11 01-Apr-14 13-Apr-14 28-Jul-14 15-Sep-14 17-Nov-14 06-Feb-15 17-May-15 15-Jun-15 17-Aug-15 21-Oct-15 16-Nov-15 08-Feb-16 08-Mar-16 05-Apr-16 10-May-16 Exercise Price 10c 10c 45c 10c 45c 10c 15c 15c 45c 45c 45c 45c 10c 10c 15c 15c 15c 15c 30c 45c 45c 45c 45c 45c 45c 55c 55c 2006 No 120,000 216,410 2,777,778 85,534 4,444 4,975,000 886,667 1,280,000 111,111 77,778 512,821 66,667 2,175,000 400,000 122,333 183,333 333,333 250,000 66,667 524,444 105,556 133,333 11,562 211,111 208,120 13,427 288,636 16,141,065 2005 No 120,000 216,410 - 85,534 4,444 4,975,000 886,667 1,280,000 111,111 - - - 2,175,000 400,000 122,333 183,333 333,333 250,000 66,667 524,444 - - - - - - - 11,734,276 33 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 8. PAYABLES (CURRENT) Due to other financial institutions Bills payable Accruals and other liabilities Items in suspense 9. PROVISIONS Accrued annual leave Balance at the beginning of the year Additional provision recognised during the year Balance at the end of the year Current Non-current 10. CONTRIBUTED EQUITY & RESERVES (i) Ordinary Shares Issued and fully paid - 3,000,000 Ordinary shares paid at 10c each - 10,333,333 Ordinary shares paid at 15c each - 10,000,000 Ordinary shares paid at 30c each - 8,111,112 Ordinary shares paid at 45c each - 10,909,091 Ordinary shares paid at 55c each 30-Jun-06 30-Jun-05 $ $ 730 74,102 63,647 5,692 144,171 23,399 57,137 80,536 80,536 - 80,536 - 28,077 - - 28,077 9,260 14,139 23,399 23,399 - 23,399 300,000 1,550,000 3,000,000 3,650,000 6,000,000 14,500,000 300,000 1,550,000 3,000,000 - - 4,850,000 Terms and conditions of contributed equity Ordinary shares have the right to receive dividends as declared and, in the event of winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. Movement in ordinary shares on issue At 1 July 2004 Shares issued during the year: - 24 December, 2004, equity raising at 15c each - 5 April, 2005 for cash on exercise of share options at 15c each - 5 April, 2005, equity raising at 30c each At 1 July 2005 Shares issued during the year: - 28 November, 2005, equity raising at 45c each - 19 December, 2005, equity raising at 45c each - 31 March, 2006, equity raising at 55c each - 06 April, 2006, equity raising at 55c each At 30 June 2006 No: Shares $ 7,000,000 900,000 3,000,000 3,333,333 10,000,000 23,333,333 7,555,557 555,555 10,563,636 345,455 42,353,536 450,000 500,000 3,000,000 4,850,000 3,400,001 250,000 5,810,000 190,000 14,500,001 34 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 10. CONTRIBUTED EQUITY & RESERVES (cont'd) (ii) Share-based payments reserve Balance at the beginning of the year Share-based payments during the year Balance at the end of the year 30-Jun-06 30-Jun-05 $ $ 332,605 1,392,823 1,725,428 30,764 301,841 332,605 Nature and purpose of reserve The share-based payments reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 7 for further details of these plans. (iii) Retained earnings Movements in retained earnings were as follows: Retained profits at the beginning of the financial year Net Profit attributable to the shareholders of the entity Retained profits at the end of the financial year (1,632,269) (4,386,098) (6,018,367) (369,187) (1,263,082) (1,632,269) 11. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The credit risk on financial assets of the Company which have been recognised on the statements of financial position, is the carrying amount, net of any impairment losses. Interest rate risk The entity's financial assets and liabilities are subject to interest rate risk. These will fluctuate in accordance with movements in the market interest rates. The exposure to interest rate risk and the weighted average effective interest rates on the interest-bearing financial assets and liabilities of the Company are summarised in the table below. All other assets and liabilities disclosed on the statement of financial position are non-interest bearing. Liquidity risk Liquidity risk is the risk that the Company will have insufficient liquidity to meet its obligations as they fall due. This risk is managed by maintaining adequate cash resources for future expenditure and other financial commitments. At balance sheet date, the board of directors determined that there was sufficient cash resources available to meet its anticipated expenditure and other financial liabilities. Foreign Currency risk All foreign-currency denominated receivables and payables are translated at the exchange rate as at the balance sheet date. Amounts receivable and payable in foreign currency that are not effectively hedged (denominated in Australian dollars) and will be affected by future currency movements: Bills payable - Visa International - Banksys 30-Jun-06 30-Jun-05 U.S. Dollar Euro $ € 24,180 15,250 - - All other assets and liabilities of the Company are held in its functional currency, being the Australian dollar. 35 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 11. ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES (cont'd) 30 June 2006 FINANCIAL ASSETS Floating rate Cash & cash equivalents Fixed rate Investment securities 30 June 2005 FINANCIAL ASSETS Floating rate Cash & cash equivalents < 1 year Total $ $ Weighted average interest rate (%) 7,903,263 7,903,263 1,553,677 1,553,677 5.06% 4.92% < 1 year Total $ $ Weighted average interest rate (%) 3,154,563 3,154,563 5.17% Interest on financial assets classified as floating rate is repriced at intervals of less than one year. Interest on financial assets classified as fixed rate is fixed until maturity of the asset. The other financial assets and liabilities not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. Pre Establishment There were no entity financial assets or liabilities prior to the formation of the company on 3 February, 2003. Net fair values The aggregate net fair values of financial assets and financial liabilities, both recognised and unrecognised at the reporting date, are as follows: Net fair values of financial assets are: Financial Assets Cash & cash equivalents Receivables Investment securities Financial Liabilities Payables Provisions Off balance sheet Contingencies Carrying value Fair value 30-Jun-06 $ 30-Jun-05 $ 30-Jun-06 30-Jun-05 $ $ 7,903,263 393,077 1,553,677 9,850,017 3,154,563 361,240 - 3,515,803 7,903,263 393,077 1,544,664 9,841,004 3,154,563 361,240 - 3,515,803 144,171 80,536 224,707 1,540,000 1,540,000 28,077 23,399 51,476 - - 144,171 80,536 224,707 1,540,000 1,540,000 28,077 23,399 51,476 - - Contingencies The Company has potential financial liabilities that may arise from certain contingencies disclosed in note 12. No material losses are anticipated in respect of any of those contingencies and the fair value disclosed above is the directors' estimate of amounts that would be payable by the Company in the event of a default. 36 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 12. COMMITMENTS AND CONTINGENCIES (a) Contingent liabilities to other entities - Irrevocable standby letters of credit provided by the Company (b) Assets pledged as security to other entities Off-balance sheet facilities in respect of the above are secured by a fixed equitable mortgage over the Company's asset, the carrying amount of which is: - Investment securities (mature on 15 November 2006) 30-Jun-06 30-Jun-05 $ 1,540,000 1,540,000 1,553,677 1,553,677 $ - - - - The contingent liabilities relates to the irrevocable standby letters of credit provided to MasterCard International for $1,400,000 and Visa International for $140,000. These are one-year arrangements that are automatically renewed on a yearly basis. MasterCard International and Visa International may, at their discretion, increase the required amounts of the standby letters of the credit upon written request to the Company. The required amounts of the standby letters of credit are dependent on MasterCard International's and Visa International's view of their exposure to the Company. The standby letters of credit were issued by the Commonwealth Bank of Australia to MasterCard International and Visa International on behalf of the Company and are secured by a equitable mortgage over the Company's investment securities detailed above. Under the arrangement, the company has the contractual obligation to issue the Commonwealth Government bonds to the Commonwealth Bank of Australia, if the Company defaults on its obligations to MasterCard International and/or Visa International. 13. CAPITAL COMMITMENTS The Company does not have any capital commitments as at the date of this report. 14. CONTROLLED ENTITIES There are no controlled entities as at 30 June, 2006 nor were any acquired or sold during the period. 15. SUBSEQUENT EVENTS There has not arisen in the interval between end of financial year and the date of this report any item, transaction or event of a material or unusual nature, in the opinion of the directors of the Company, to affect significantly the operation of the Company, the results of these operations or the state of affairs of the Company, in future financial years. 16. FINANCIAL REPORTING BY SEGMENTS The Company operates in the financial services industry in Australia. MoneySwitch Limited is entering the market for the provision of credit and debit acquiring services to merchants. As such, the Company is developing the necessary policies, procedures, systems, relationships and approvals for financial transaction processing, clearing and settlement. 37 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 17. AUDITOR'S REMUNERATION Amounts received or due and receivable by Ernst & Young: - an audit of the financial report of the entity - other services in relation to the entity 30-Jun-06 30-Jun-05 $ $ 35,633 86,927 15,450 59,377 122,560 74,827 18. RELATED PARTY DISCLOSURES No cash remuneration is paid to the Directors and Executives of the Company other than Mr. Peter Haig, an Executive who received salary and superannuation contributions amounting to $132,233 during the year. Details of Key Management Personnel Directors Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Robert Ferguson Thomas Girgensohn Executives Peter J Haig Bradford L Banducci John Hallis Appointed 20/06/2003 5/04/2005 3/02/2003 14/04/2004 14/04/2004 14/11/2005 9/03/2006 3/02/2003 8/08/2005 14/02/2006 Compensation of Key Management Personnel For the year-ended 30 June 2006 Directors Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Rob Ferguson Thomas Girgensohn Executives Peter J Haig Bradford L Banducci John Hallis Short-term Benefits Salary & fees ($) Post Employment Super- annuation ($) Share-based Payments Options ($) Total ($) - - - - - - - - - 33,315 - - - - - - - - - 98,918 7,727 77,603 77,603 7,727 7,727 9,511 5,656 7,727 77,603 77,603 7,727 7,727 9,511 5,656 46,128 735,549 73,727 178,361 735,549 73,727 33,315 98,918 1,048,958 1,181,191 38 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 18. RELATED PARTY DISCLOSURES (cont'd) Compensation of Key Management Personnel For the year-ended 30 June 2005 Directors Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Executives Peter J Haig Short-term Benefits Salary & fees ($) Post Employment Super- annuation ($) Share-based Payments Options ($) Total ($) - - - - - - - - - - 12,733 70,780 63,663 12,733 12,733 12,733 70,780 63,663 12,733 12,733 121,565 10,941 - 132,506 121,565 10,941 172,642 305,148 Shareholdings of Key Management Personnel & Related Parties 30 June 2006 Directors Cazalla Developments Pty. Limited Richard Freemantle Jost Stollmann Paul Wood Pamela Wood Mark Wood Tamoda Pty Ltd William and Delwyn Bartlett Robert Alexander Ferguson Darcroft Pty Ltd Outstanding at start of period 1-Jul-05 Shares Issued 2005 On exercise Outstanding of options at end of period 30-Jun-06 5,000,000 - 6,507,261 3,253,630 3,253,631 - 2,500,000 654,525 - - - 1,111,112 5,173,738 1,245,454 1,245,454 666,667 331,313 269,697 2,949,495 1,818,182 - - - - - - - - - - 5,000,000 1,111,112 11,680,999 4,499,084 4,499,085 666,667 2,831,313 924,222 2,949,495 1,818,182 Executives Peter and Nola Haig Bradford Leon Banducci & Anna Krystina Mackbron Pty Ltd 1,250,000 - - 222,222 631,313 181,818 - 555,555 - 1,472,222 1,186,868 181,818 Total 22,419,047 15,846,465 555,555 38,821,067 39 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 18. RELATED PARTY DISCLOSURES (cont'd) Shareholdings of Key Management Personnel & Related Parties (Cont'd) 30 June 2005 Directors Cazalla Developments Pty. Limited Jost Stollmann Paul Wood Pamela Wood Tamoda Pty Ltd William and Delwyn Bartlett Executives Peter and Nola Haig Total Option Holdings of Key Management Personnel Outstanding at start of period 1-Jul-04 Shares Issued 2005 On exercise Outstanding of options at end of period 30-Jun-05 2,333,333 - 1,166,666 1,166,667 1,000,000 333,334 2,666,667 3,173,928 2,086,964 2,086,964 1,500,000 321,191 - 3,333,333 - - - - 5,000,000 6,507,261 3,253,630 3,253,631 2,500,000 654,525 500,000 750,000 - 1,250,000 6,500,000 12,585,714 3,333,333 22,419,047 30 June 2006 Linear/Service vesting schedule Directors Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Rob Ferguson Thomas Girgensohn Executives Peter J Haig Bradford L Banducci John Hallis Fully vested at time of grant Directors Richard Freemantle Jost Stollmann Paul A Wood Executives Peter J Haig Bradford L Banducci John Hallis Total Outstanding at start of period 1-Jul-05 Granted as Options exercised Remuneration during the year Outstanding at end of period 30-Jun-06 Exercisable at end of period 30-Jun-06 460,000 886,667 2,000,000 360,000 360,000 - - 1,260,000 - - 5,326,667 240,000 - 750,000 26,667 133,333 133,333 26,667 26,667 32,821 13,427 - 211,111 102,564 706,590 - - - - - - - - - - - - - - - - - 486,667 1,020,000 2,133,333 386,667 386,667 32,821 13,427 1,260,000 211,111 102,564 6,033,257 486,667 1,020,000 2,133,333 386,667 386,667 32,821 13,427 900,000 211,111 102,564 5,673,257 240,000 - 750,000 240,000 - 750,000 1,000,000 - 1,990,000 7,316,667 - 3,333,333 - 3,333,333 4,039,923 - 555,555 - 555,555 555,555 1,000,000 2,777,778 - 4,767,778 10,801,035 1,000,000 2,777,778 - 4,767,778 10,441,035 40 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 18. RELATED PARTY DISCLOSURES (cont'd) Option Holdings of Key Management Personnel (cont'd) 30 June 2005 Linear/Service vesting schedule Directors Richard Freemantle Jost Stollmann Paul A Wood William J Bartlett Denis A Calvert Executives Peter J Haig Fully vested at time of grant Directors Richard Freemantle Jost Stollmann Paul A Wood Executives Peter J Haig Total Outstanding at start of period 1-Jul-04 Granted as Options exercised Remuneration during the year Outstanding at end of period 30-Jun-05 Exercisable at end of period 30-Jun-05 300,000 - 1,200,000 200,000 200,000 160,000 886,667 800,000 160,000 160,000 1,260,000 3,160,000 - 2,166,667 - - - - - - - 460,000 886,667 2,000,000 360,000 360,000 380,000 486,667 1,600,000 280,000 280,000 1,260,000 5,326,667 780,000 3,806,667 240,000 - 750,000 - 3,333,333 - - 3,333,333 - 240,000 - 750,000 240,000 - 750,000 1,000,000 1,990,000 5,150,000 - 3,333,333 5,500,000 - 3,333,333 3,333,333 1,000,000 1,990,000 7,316,667 1,000,000 1,990,000 5,796,667 Option Terms and Conditions Stock option grants may be exercised, in whole or in part, subject to vesting terms and conditions indicated below: Type Linear vesting schedule Terms and Conditions Options may be exercised linearly during the vesting schedule as to the shares subject to options, with vesting subject to maintaining continuos status as an employee or consultant with the Company. Service vesting schedule The options with service vesting schedule may be exercised as to a set number of shares per agreed day of consulting service, as defined in the specific option grant. Fully vested at time of grant Options may be exercised as to all shares from the vesting commencement date. Other transactions with directors There were no other transactions with directors. Transactions with other related parties None during the year. 41 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 19. TRANSITION TO AIFRS MoneySwitch first adopted Australian equivalent of IFRSs (AIFRS) in 2005/2006 financial year, with a date of transition to Australian equivalents to AIFRS of 1 July 2004. Its last financial report under previous AGAAP was for the year ended 30 June 2005. Exemptions Applied Under AASB 2 Share-based Payment, from 1 July 2004 the Company is required to recognise an expense for options issued under the Company's Stock Option Plan. The Company has elected to apply the exemption under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, for AASB 2 to only recognise an expense for options granted after 7 November 2002 but that had not vested by 1 January 2005. The impact of adopting AIFRS on the total equity and profit after tax as reported under previous Australian Generally Accepted Accounting Principles (“AGAAP”) are illustrated below. (a) Reconciliation of total equity as presented under previous AGAAP to that under AIFRS Total equity under AGAAP Adjustment to retained earnings: Recognition of share-based payments expense (1) Formation cost written-off (2) Adjustment to other reserves: Recognition of share-based payment expense (1) Total equity under AIFRS (b) Reconciliation of profit before tax under previous AGAAP to that under AIFRS Profit after tax as previously reported under AGAAP - Recognition of share-based payments expense (1) Prior year profit before tax under AIFRS 1-Jul-04 $ 30-Jun-05 $ 563,204 3,551,963 (30,764) (1,627) (332,605) (1,627) 30,764 332,605 561,577 3,550,336 30-Jun-05 $ (961,241) (301,841) (1,263,082) 42 MONEYSWITCH LIMITED ABN 49 103 575 042 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2006 19. TRANSITION TO AIFRS (Cont'd) (1) Under AASB 2 Share based payments, the company would recognise the fair value of options granted to employees (including directors) as an expense on a pro-rata basis over the vesting period in the income statement with a corresponding adjustment to equity. No such expense was recognised under AGAAP. The effect of this on the Company is: (i) Equity at transition : 1 July 2004 A decrease in retained earnings of $30,764, and an increase in reserves of $30,764, Net effect is zero. (i) Equity at 30 June 2005 A decrease in retained earnings of $332,605, and an increase in reserves of $332,605, Net effect is zero. (i) Profit for 30 June 2005 An increase in share-based payments expense of $301,841. (2) A deferred charge of $1627, relating to legal costs incurred on establishment of the Company was recognised under previous AGAAP, but does not qualify for recognition as an asset under AIFRS. The effect of this on the Company is: (i) Equity at transition : 1 July 2004 A decrease in retained earnings of $ 1,627, and a corresponding decrease in non-current assets. (c) Explanation of material adjustments to the cash flow statements There are no material differences between the cash flow statement presented under AIFRS and the cash flow statement presented under previous AGAAP. 43 MONEYSWITCH LIMITED ABN 49 103 575 042 DIRECTORS’ DECLARATION In accordance with a resolution of the directors of MoneySwitch Limited, I state that: (1) In the opinion of the directors: a. the financial statements and notes of the company are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of the company’s financial position as at 30 June 2006 and of their performance for the year ended on that date; and ii. complying with Accounting Standards and Corporations Regulations 2001; and b. there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial period ending 30 June 2006. On behalf of the Board Richard Freemantle Chairperson Sydney, 16 August 2006 Jost Stollmann Director and Chief Executive Officer 44
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