ADSLOT LTD. - AGM Information 2010

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Webfirm Group Limited ABN: 70 001 287 510 ASX: WFM

23 Union St, South Melbourne www.webfirmgroup.com Victoria 3250 Australia T: +61 (0) 3 8695 9199 E: [email protected] F: +61 (0) 3 9696 0700

A S X A N N O U N C E M E N T

29 October 2010

Annual General Meeting Notice & Proxy Form

Independent Experts deem QDC IP Technologies Pty Ltd acquisition to be fair and reasonable for Webfirm shareholders
QDC IP Technologies Pty Ltd valuation significantly higher than assessed acquisition compensation

The Directors wish to invite all Webfirm Group Limited (ASX: WFM) shareholders to attend the Annual General Meeting of members to be held at 12:00pm on Tuesday 30 November 2010 at the office of Minter Ellison Lawyers, Level 23 Rialto Towers, 525 Collins Street, Melbourne Victoria.

Following are the Notice of Meeting, Explanatory Memorandum and Proxy Form, along with an Independent Experts Report pertaining to the proposed acquisition of QDC IP Technologies Pty Ltd Webfirm. The documents following set out the business to be considered at this Annual General Meeting.

The Directors are pleased to advise the shareholders that the Independent Expert’s Report prepared by Grant Thornton has deemed the acquisition of QDC IP Technologies Pty Ltd to be both fair and reasonable for shareholders.

In addition they have valued the value of the assets at a rate considerably higher that the acquisition consideration as detailed in the following table.

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The Notice of Meeting, Explanatory Memorandum and Proxy Form, along with an Independent Experts Report will all be available on the Company’s website and posted or emailed to all WFM shareholders on 29 October 2010. A copy of the Annual Report will be posted to those WFM shareholders who have elected to receive a copy of the Annual Report. The Annual Report is also available on the Company’s website.

If you are unable to attend, we encourage you to exercise your right to vote by either completing and returning the attached Proxy Form, or by lodging your proxy votes online at www.investorvote.com.au.

Damian Element Company Secretary

M E L B O U R N E

S Y D N E Y

B R I S B A N E

P E R T H

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WEBFIRM GROUP LIMITED

ABN 70 001 287 510

NOTICE OF MEETING

30 November 2010 at 12.00pm (AEST)

TO BE HELD AT

The offices of Minter Ellison Lawyers Level 23, Rialto, 525 Collins Street, Melbourne, Victoria

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting.

Should you wish to discuss any matters relating to this Notice of Meeting please contact Damian Element, Company Secretary on +61 (0)3 8695 9104.

WEBFIRM GROUP LIMITED

ABN 70 001 287 510

NOTICE OF ANNUAL GENERAL MEETING Tuesday 30 November 2010

Notice is given that the Annual General Meeting of the Shareholders of Webfirm Group Limited (‘ Company ’ or ‘ Webfirm ’) will be held at the offices of Minter Ellison Lawyers, Level 23 Rialto, 525 Collins Street, Melbourne, Victoria, on Tuesday 30 November 2010 at 12:00pm (AEST).

ORDINARY BUSINESS

1. Financial statements and reports

To receive and consider:

the Financial Report;
the Directors' Report; and
the Auditor's Report,

for the financial year ended 30 June 2010.

2. Remuneration report (Resolution 1)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That the Remuneration Report as set out in the Annual Report of the Company for the financial year ended 30 June 2010 be adopted.

Note: The vote on this resolution is advisory only and does not bind the Company or its directors.

3. Re-election of Mr Adrian Giles as a director (Resolution 2)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That Mr Adrian Giles, a director retiring by rotation in accordance with clause 58.1 of the Company’s constitution, and being eligible, be re-elected as a director of the Company.

4. Re-election of Mr Andrew Barlow as a director (Resolution 3)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That Mr Andrew Barlow, a director appointed during the year to fill a casual vacancy, and being eligible, be re-elected as a director of the Company.

5. Re-election of Mr Chris Morris as a director (Resolution 4)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That Mr Chris Morris, a director appointed during the year to fill a casual vacancy, and being eligible, be re-elected as a director of the Company.

6. Re-election of Mr Anthony Du Preez as a director (Resolution 5)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That Mr Anthony Du Preez, a director appointed during the year to fill a casual vacancy, and being eligible, be re-elected as a director of the Company.

SPECIAL BUSINESS

7. Acquisition of QDC IP Technologies Pty Ltd (Resolution 6)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That, for the purposes of Listing Rule 10.1 of the ASX Listing Rules and for all other purposes, subject to the approval of Resolution 7, the acquisition by Adslot Pty Ltd, a wholly owned subsidiary of the Company, of all of the issued shares in QDC IP Technologies Pty Ltd is approved.

8. Approval of issue of Shares to the shareholders of QDC IP Technologies Pty Ltd (Resolution 7)

To consider and, if thought fit, pass the following resolution as an ordinary resolution:

That, for the purposes of Listing Rule 7.1 and 10.11 of the ASX Listing Rules and for all other purposes, subject to the approval of Resolution 6 and completion of the QDC Acquisition, the issue of up to 29,309,091 Shares by the Company to the shareholders of QDC IP Technologies Pty Ltd is approved.

VOTING EXCLUSION STATEMENT

Under ASX Listing Rule 14.11, the Company will disregard any votes cast on Resolutions 6 and 7 by any QDC IP Technologies Shareholder who is also a Webfirm shareholder and any associate of any such QDC IP Technologies Shareholder.

However, the Company need not disregard a vote if:

it is cast by a person as proxy for a member who is entitled to vote and it is cast in accordance with the directions on the proxy form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote and it is cast in accordance with a direction on the proxy form to vote as the proxy decides.

PROXY NOTES

A member entitled to attend and vote at the meeting has a right to appoint a proxy.
The proxy need not be a member of the Company.
A member who is entitled to cast two or more votes may appoint up to two proxies and, in the case of such an appointment, may specify the proportion or number of votes each proxy is appointed to exercise.
If a member appoints two proxies and the appointment does not specify the proportion or number of the member’s votes which each proxy may exercise, each proxy may exercise half of the votes.
The proxy form included in this Notice of Annual General Meeting must be signed by the member or the member’s attorney. Proxies given by corporations must be signed under the hand of a duly authorised officer or attorney.
To be valid, the form appointing the proxy and the power of attorney or other authority (if any) under which it is signed (or a certified copy of it) must be lodged with the Share Registry - Computershare Investor Services Pty Limited at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067, using the reply paid envelope supplied or by facsimile to 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia) or online at www.investorvote.com.au as soon as possible and in any event not later than 48 hours prior to the time appointed for the Annual General Meeting.
A proxy may decide whether to vote on any resolution, except where the proxy is required by law or the Company's constitution to vote, or abstain from voting, in their capacity as proxy. If a proxy is directed how to vote on an item of business, the proxy may vote on that item only in accordance with that direction. If a proxy is not directed how to vote on an item of business, the proxy may vote as he or she thinks fit.
If a shareholder appoints the chairperson of the meeting as the shareholder's proxy and does not specify how the chairperson is to vote on an item of business, the chairperson will vote, as proxy for that shareholder, in favour of that item on a poll.

Members should refer to the Explanatory Statement, which accompanies and forms part of this Notice of General Meeting for information regarding each Resolution.

DETERMINATION OF VOTING ENTITLEMENTS

In accordance with regulation 7.11.37 of the Corporations Regulations 2001 (Cth) , for the purpose of the meeting, only persons holding Shares at 7.00pm (AEST) on 28 November 2010 will be treated as Shareholders. This means that only those persons who are the registered holders of Shares at that time will be entitled to attend and vote at the Annual General Meeting.

REQUIRED VOTING MAJORITIES

All Resolutions are proposed as ordinary resolutions. Accordingly, the passage of each of the Resolutions requires approval by a simple majority of the votes cast by members present and voting at the Annual General Meeting, whether in person or by proxy.

Dated: 29 October 2010

By Order of the Board Damian Element Company Secretary

WEBFIRM GROUP LIMITED ABN 70 001 287 510

EXPLANATORY STATEMENT

PURPOSE OF INFORMATION

The purpose of this Explanatory Statement (which is included in and forms part of the Notice of Annual General Meeting dated 29 October 2010) is to provide members with an explanation of the business and the resolutions to be proposed and considered at the Annual General Meeting ( AGM ) of the Company which is to be held on Tuesday 30 November 2010 at 12:00pm at the offices of Minter Ellison Lawyers, Level 23 Rialto, 525 Collins Street, Melbourne, Victoria. The information in the Explanatory Statement will also assist members to determine how they wish to vote on each resolution.

FINANCIAL STATEMENTS AND REPORTS

Pursuant to the Corporations Act, the directors of a public company that is required to hold an annual general meeting must table the financial statements and reports of the Company (including the Directors' Report and Auditor's Report) for the previous financial year before the members at that annual general meeting.

Shareholders have been provided with all relevant information concerning the Company's financial statements, the Directors' Report and Auditor's Report in the Annual Report of the Company for the year ended 30 June 2010. A copy of the Annual Report has been forwarded to each shareholder (other than those shareholders who have previously elected not to receive the Annual Report, whether in paper form or electronically). Any shareholder who has made this election and now wishes to receive a paper or electronic copy of the Annual Report should contact the Company to arrange receipt.

The Annual Report can also be viewed, printed and downloaded from the Company's website www.webfirmgroup.com. A copy of the financial statements, the Directors' Report and the Auditor's Report will be tabled at the meeting.

Shareholders should note that the sole purpose of tabling the financial statements and the reports of the Company at the AGM is to provide shareholders with the opportunity to ask questions or discuss matters arising from the financial statements and/or the reports at the meeting. It is not the purpose of the meeting that the financial statements or the reports be accepted, rejected or modified in any way. Further, as it is not required by the Corporations Act, no resolution to adopt, receive or consider the Company's financial statements or the reports (other than the Remuneration Report) will be put to the shareholders at the meeting.

Shareholders will be given a reasonable opportunity at the meeting to ask questions and make comments on the financial statements and the reports. The Company's auditor will also be available to receive questions and comments from shareholders about the preparation and content of the financial statements and the Auditor's report and the conduct of the audit generally.

Further, any shareholder entitled to cast a vote at the AGM may submit written questions to the auditor if:

(a) the question is relevant to:
(i) the content of the Auditor’s report to be considered at the AGM; or
(ii) the conduct of the audit of the 2010 financial report to be considered at the AGM; and
(b) the shareholder gives the question to the Company no later than 5 business days before the day on which the AGM is to be held.

Where appropriate, and practical to do so, the Company may provide answers to any such written questions at the AGM.

REMUNERATION REPORT (Resolution 1)

The Directors’ Report for the year ended 30 June 2010 contains a Remuneration Report, which sets out the policy for remuneration of its officers and senior employees.

The Corporations Act (section 250R(2)) requires that each listed company put a resolution to its shareholders at its annual general meeting that its remuneration report be adopted. The Corporations Act expressly provides that the vote is advisory only and does not bind the directors or the company.

Resolution 1 is put to the shareholders at the AGM in fulfilment of the obligations of the Company under section 250R(2) of the Corporations Act 2001 (Cth) . Shareholders attending the AGM will be given a reasonable opportunity to ask questions about, or make comments on, the Remuneration Report.

RE-ELECTION OF MR ADRIAN GILES AS DIRECTOR (Resolution 2)

Introduction

Clause 58.1 of the Company's constitution requires one third of the directors (other than the Managing Director) to retire by rotation at each annual general meeting. Accordingly, Mr Adrian Giles retires from office and, being eligible, offers himself for re-election.

Biographical details of Mr Adrian Giles are set out below.

Adrian Giles is an entrepreneur specialising in the internet and information technology industry. In 1997, Adrian co-founded Australia's first search engine optimisation company, Sinewave Interactive, with fellow entrepreneur Andrew Barlow. In 1998 Adrian and Andrew co-founded Hitwise. Hitwise grew over 10 years to become one of the most recognised global internet measurement businesses with over 300 staff and operating successfully in the USA, UK, Australia, NZ, Hong Kong and Singapore. By monitoring more than 25 million internet users via more than 40 ISP relationships worldwide, Hitwise provided competitive ratings of the most popular businesses across more than 160 industries and in 6 key markets. Whilst positioning the company for a NASDAQ listing in early 2007 Hitwise was sold to Experian (LSE: EXPN) for USD$240m. Throughout its growth Hitwise was ranked by Deloitte’s as one of the fastest growing IT companies in the Asia Pacific region for five consecutive years. Hitwise was also a winner of the Victorian Small Business Awards; was awarded the ‘Most Innovative Digital Business’ in the UK for 2004; and was a finalist as ‘Most Innovative Company’ at the 2005 American Business Awards in New York. Adrian was also a finalist in the 2003 Australian ‘Entrepreneur of the Year’ awards. Adrian is the Managing Director of Yarra Ventures an advisory and private investment fund he formed after the sale of Hitwise.

ELECTION OF MR ANDREW BARLOW, MR CHRIS MORRIS AND MR ANTHONY DU PREEZ AS DIRECTORS (Resolutions 3, 4 and 5)

Introduction

Clause 57.1 of the Company's constitution allows the Directors, in any year, to appoint any person as a Director to fill a casual vacancy or as an addition to the existing Directors. A Director appointed under this clause will hold office until the next annual general meeting of the Company, when the director may be elected (but will not be taken into account in determining the number of directors who must retire by rotation). Mr Andrew Barlow, Mr Chris Morris, and Mr Anthony Du Preez were appointed during the year pursuant to clause 57.1 and must now retire at the 2010 AGM.

Mr Andrew Barlow, Mr Chris Morris, and Mr Anthony Du Preez are eligible for re-election and are seeking re-appointment as Directors.

Biographical details of Mr Andrew Barlow, Mr Chris Morris, and Mr Anthony Du Preez are set out below.

Biography of Andrew Barlow (Executive Director)

Mr Andrew Barlow, aged 37, was appointed a director of the Company on 16 February 2010.

Mr Barlow is an experienced entrepreneur who acts as an investor and mentor to early-stage technology companies with unique IP, highly scalable business models and strong executive teams. Mr Barlow is well-known as a co-founder of Hitwise with Adrian Giles. Mr Barlow was Chairman and Managing Director of Hitwise from 1997 – 2000, and Director of R&D from 2000 – 2002. Hitwise was ranked one of the Top 10 fastest growing companies by Deloittes for 5 years running, before being sold to Experian Group (LSX.EXPN) in May 2007 for US$240m. Mr Barlow is also a co-founder of Adslot, a revenue optimisation platform for online media publishers. Adslot was acquired by Webfirm Group in February 2010. Mr Barlow is also a former Chairman of Webfirm Group Limited (October 2007 – October 2009). Mr Barlow is the Founder of Venturian (2004), a privately-owned and run venture capital investment group. Venturian is an investor in a number of other technology ventures, including Nitro PDF (the second biggest distributor of PDF editing software in the world), QDC IP Technologies (which personalises video advertising and builds automated ad creation tools) and QMCodes (which makes print media interactive via mobile devices). Mr Barlow has significant expertise in online media and business building with a strong understanding of the UK and North America markets.

Biography of Chris Morris (Non-executive Director)

Mr Chris Morris, aged 63, was appointed a director of the Company on 20 September 2010.

Mr Morris is among Australia's most accomplished entrepreneurs and business leaders, having founded Computershare Limited (ASX:CPU) in 1978 - one of Australia's most successful global technology companies. Mr Morris was Chief Executive Officer of Computershare from 1990 to 2006, Executive Chairman from 2006 to 2010, and is presently non-executive Chairman. Mr Morris has extensive knowledge of the securities industry from both a national and international perspective, and has diverse experience in building and managing large global enterprise. Chris brings exceptional understanding of the needs of growing companies, their investors and stakeholders, and in addition has wide ranging knowledge and experience growing Australian IT companies to be global. Chris is also non-executive Chairman of Empire Beer Group Limited (ASX:EEE), and controls a number of private companies including Colonial Leisure Group Pty Ltd.

Biography of Anthony Du Preez (Executive Director)

Mr Anthony Du Preez, aged 41, was appointed a director of the Company on 22 February 2010.

Anthony Du Preez is the co-founder of both Tradeslot and Adslot. He has spent the last 10 years designing and building auction based markets for a range of industries including logistics, supply chain, port capacity, forestry timber, energy, and carbon permits. Anthony has developed a unique combinatorial auction technology that can process premium ‘conditional bids’. This proven technology enables the establishment of efficient auction based markets in complex sales environments that have traditionally been served by face-to-face sales and one-on-one negotiations. This unique and patented technology has significant application for selling premium display/video ad space in the media sector. Previously, Anthony worked as business development executive for Honeywell Aerospace division in the North American and European markets. Anthony has a Bachelor of Engineering (First Class Honours), and a MBA from the Melbourne School. Anthony also completed an advanced management post graduate certificate at Berkley University in San Francisco.

THE ACQUISITION OF QDC IP TECHNOLOGIES PTY LTD (Resolutions 6 and 7)

On 12 August 2010, the Company announced its intention to acquire, via its wholly owned subsidiary Adslot Pty Ltd ( Adslot ), all of the issued share capital of QDC IP Technologies Pty Ltd ( QDC ) for a consideration to be satisfied by the issue to the shareholders of QDC ( QDC Shareholders ) of 40,000,000 Shares ( QDC Acquisition ). In addition, if on the date 18 months after completion of the QDC Acquisition, the total value of the 40,000,000 Shares issued to the QDC Shareholders is less than $4.0 million, further Shares, up to a maximum of 13,333,333 additional Shares (as detailed below), will be issued to the QDC Shareholders.

In October 2010, the Company made a revised offer to all QDC Shareholders whereby each QDC Shareholder can individually elect to receive cash in lieu of their portion of the original 40,000,000 Shares that they would have received under the original offer.

All of the Shares issued to QDC Shareholders will be escrowed for a period of 18 months.

Completion of the QDC Acquisition, and the issue of the Shares to the QDC Shareholders, is subject to approval by the Shareholders of Resolutions 6 and 7.

Background

The focus for the Webfirm business is across two key markets:

(a) helping SMEs profit from their online activity; and
(b) assisting companies to facilitate online media sales.

In the past year, Webfirm has identified several new opportunities (of which QDC is one) to commercialise its advertising auction technology. The QDC Acquisition presents Webfirm with an opportunity to increase its ownership of important additional technical intellectual property in its key business areas.

The QDC Technology and Business

QDC is the owner of various technologies and intellectual property (IP) relating to display and video advertisement creation and personalisation. The core IP is currently the subject of a number of world-wide patents pending (one awarded), and has been developed over the last ten years at a cost of more than $6 million.

The two core pieces of technology owned by QDC are:

Display Ad Builder – an automated content creation tool that allows end users (advertisers) to quickly and easily build display advertisements in the web browser using a vast advertisement template library (and then output the customised advertisements in multiple IAB advertisement sizes).
Personalised Video Ad Platform – a video personalisation tool that enables advertisers to seamlessly create and customise video and rich media advertisements to fit individual audience profile (where targeting data is available).

QDC’s technology will be combined with the Adslot and Adimise technologies (owned by Webfirm) to create the new Adslot Direct Platform. The integration of QDC technology into the Adslot Direct Platform will allow online publishers to offer an automated, end-to-end advertisement sales system so that any advertiser may – on a self-serve basis – buy, build and monitor advertising campaigns on the publisher’s website. The platform, which will remove the barriers that prevented the easy creation of display-based advertisements, will deliver smaller advertisers, traditionally the sole domain of Google™, to online publishers for the first time, thereby adding another revenue stream to the Adslot division.

More information on QDC can be found in the Independent Experts Report prepared by Grant Thornton and included in Appendix 1 of this document.

What are the benefits of the QDC Acquisition?

The QDC acquisition will add automated display advertisement building technology to the Adslot advertisement auction and automation technology platform acquired in February 2010.
The QDC Acquisition will increase the growth opportunities of the Adslot technology platform.
The QDC business is complementary to the existing Webfirm business, with strong potential for synergies.
With ownership of QDC and its platform technology, the Directors believe Webfirm’s objective of becoming the leading platform to automate the sale of premium advertising inventory is enhanced.

What are the disadvantages of the QDC Acquisition?

As a result of the QDC Acquisition, Webfirm will forgo any other immediate merger and acquisition opportunities.
There will be a dilution of the interests of the existing Shareholders resulting from the issue of the Shares to the QDC Shareholders.

What are the risks of the QDC Acquisition?

Webfirm has set out below a summary of some of the major risks faced by it in undertaking the QDC Acquisition. The risks noted below should not be taken to be an exhaustive description of the risk faced by Webfirm. The risks below, and others not specifically referred to below, may in the future affect the financial and operational performance of Webfirm and its Shares.

The QDC sales platform technology is largely unproven in the commercial area. There can be no assurance that the technology will ultimately perform in accordance with expectations and, even if it does so, that Webfirm will be able to successfully commercialise it.
There can be no assurance that other parties will not develop technologies that directly or indirectly compete with, or supersede, the QDC platform technology.
There may be changes in business practices, customer demand and/or market expectations for the QDC technology or Adslot technology platform that make its commercialisation either impractical or of limited or no commercial value.
Webfirm's competitors in Australia and overseas are numerous and include major multinational companies. There can be no assurance that Webfirm's competitors will not succeed in developing technologies that are more effective or which are able to be delivered to the market or gain market acceptance faster and to the detriment of the Adslot platform.

QDC Acquisition Terms

If the QDC Acquisition is approved, the Company intends to acquire (through its wholly owned subsidiary, Adslot) all of the issued share capital of QDC for a consideration comprising $801,818.18 in cash and 29,309,091 new Shares. In addition, if on the date 18 month after completion of the QDC Acquisition, the total value of the $801,818.18 cash and 29,309,091 Shares issued to the QDC Shareholders at completion is less than $4.0 million, such further new Shares, up to a maximum of 13,333,333 additional new Shares, will be issued to the QDC Shareholders such that the total value of the Shares issued to them is, at that date, not less than $4.0 million.

In October 2010, every QDC Shareholder was made a revised offer whereby that QDC Shareholder may elect to receive either cash or Shares as consideration for their QDC shares. If a QDC Shareholder elected to

receive cash as their consideration for their QDC shares, the amount of cash payable is calculated at the rate of $0.075 (7.5 cents) for each Webfirm Share they would otherwise have received had they elected to receive the consideration in the form of Webfirm Shares.

The effect of the revised offer is that the number of shares to be issued to QDC Shareholders will be less, the total number of Webfirm Shares on issue will be less, and Webfirm’s cash reserves will reduce by $801,818.18.

One QDC Shareholder, Venturian Pty Ltd (an entity associated with Mr Andrew Barlow), elected to receive the consideration for their QDC Shares in the form of cash.

The Directors advise that entry by Webfirm into the agreement to acquire QDC followed several months of negotiations between the parties and the completion of an extensive technical due diligence investigation. As a precursor to that exclusive opportunity to undertake a formal due diligence review of the QDC technology and business, Webfirm was required by QDC to agree to the key indicative terms of the proposed acquisition.

The terms for the QDC Acquisition, as noted above, reflect the proposed terms provided by Webfirm to QDC in June 2010. At that time, the market price of Webfirm shares was $0.07 cents and the number of Shares to be issued (40,000,000) was based on an acquisition price for QDC of $3,000,000 and a Webfirm share price of $0.075 (7.5 cents).

In subsequent trading on ASX, the market price of the Shares increased significantly. At the close of trading on ASX on 11 August 2010, the day immediately prior to the announcement by Webfirm of the QDC Acquisition, the closing sale price of the Shares was $0.14.

Despite the significant increase in the market price of Webfirm shares, the independent directors of Webfirm have remained at all times of the opinion that it continues to be in the interests of the Shareholders to proceed with the QDC Acquisition on the basis of the originally proposed terms. The conclusions of the Directors are supported by the opinion of Grant Thornton, the independent expert appointed by the Company to provide a report on the fairness and reasonableness of the QDC Acquisition to the non-associated Shareholders. Shareholders should read carefully the Report prepared by Grant Thornton and included in Appendix 1 of this Explanatory Statement.

On completion of the QDC Acquisition (assuming no further Shares are issued in 18 months to the QDC shareholders) and full subscription under the recent Webfirm Share Purchase Plan (SPP), the issued capital of Webfirm will be as follows:

Shareholder	No. of shares	%
Current Webfirm Shareholders	556,157,523	81.8
QDC Shareholders	29,309,091*	4.3
Webfirm Shareholders (who are issued additional Shares pursuant to the SPP)	94,412,286**	13.9
Total	679,878,900	100

This represents the number of shares to be issued to the ten QDC Shareholders (out of eleven total QDC Shareholders) who elected to receive the consideration for their QDC Shares in the form of Webfirm Shares. ** These figured are based on an issue price of $0.13 per Share under a non-renounceable SPP that closed on 21 October 2010.

Regulatory requirements

ASX Listing Rules

ASX Listing Rule 10.1 – Transactions with persons in a position to influence

Under ASX Listing Rule 10.1, a listed company must not acquire a 'substantial asset' without obtaining shareholder approval if the vendor is a related party (as defined in the Corporations Act), a substantial shareholder, a subsidiary, an associate of any of those persons or any person whose relationship to the listed company (or to a related party of the listed company) is such that the acquisition ought to be approved by the listed company's shareholders under Listing Rule 10.1.

The ASX Listing Rules further require that, at any meeting convened for the purpose of approving such an acquisition, the shareholders of the listed company must have the benefit of an independent expert's report on the fairness and reasonableness of the proposed transaction to the non-associated shareholders.

What is a 'Substantial asset'?

Under ASX Listing Rule 10.2, an asset is considered to be 'substantial' if its value, or the value of the consideration for it is, or in ASX's opinion is, 5% or more of the total paid up capital, reserves and accumulated profits or losses (but disregarding redeemable preference share capital and outside equity interests) ( Total Equity ) of the listed entity (as disclosed in the latest accounts given by the listed company to ASX).

The Total Equity for Webfirm at 30 June 2010, as reported in its financial statements for the year ended 30 June 2010 (lodged with ASX on 26 August 2010) is $11,827,226. The effective purchase price payable under the sale agreement for the QDC Acquisition (based on the agreed issue price of $0.075 per Share and the issue of 29,309,091 Shares and payment of $801,818.18 cash to the QDC Shareholders) is $3,000,000. Therefore, the acquisition by Webfirm of QDC is an acquisition of a 'substantial asset' within Listing Rule 10.1.

Related party

Both Mr Adrian Giles and Mr Andrew Barlow are significant shareholders of QDC. Mr Giles is a Director (Chairman) of Webfirm. Mr Andrew Barlow is also a Director and substantial shareholder of Webfirm.

While it is unlikely, if the QDC Acquisition is approved and proceeds, the consideration to be paid to the QDC Shareholder entities associated with Mr Giles (by way of Shares to be issued) and Mr Barlow (by way of cash to be paid) would exceed 5% of Webfirm's Total Equity, the Directors of Webfirm are of the opinion that, regardless of the above, the ASX would regard the QDC Acquisition as a transaction involving vendors whose relationship to Webfirm (or to Adrian Giles or Andrew Barlow) is such that the QDC Acquisition should be approved by the Webfirm Shareholders under Listing Rule 10.1.

Independent Expert's Report

As required by ASX Listing Rule 10.10, attached at Annexure A is a report from Grant Thornton, as the nominated independent expert, on the QDC Acquisition. Grant Thornton has concluded that the QDC Acquisition is fair and reasonable to the non-associated shareholders of Webfirm for the reasons set out in its report. All Shareholders are invited to read the Grant Thornton report before determining how to vote on the QDC Acquisition (Resolution 6).

Voting exclusion statement

A voting exclusion statement relating to Resolution 6 is included in the Notice.

ASX Listing Rules 7.1 and 10.11 – Issue of new Shares on completion of QDC Acquisition

Under ASX Listing Rule 7.1, a listed company must obtain the approval of its shareholders before it can issue or agree to issue securities if the number of those securities, plus the number of any securities issued by the company in the previous 12 months, is more than 15% of the number of issued securities of the company at the start of that 12 month period.

If an issue of equity securities takes place with shareholder approval, the issue of those securities need not be taken into account by the listed company in calculating its 15% limit in any 12 month period. Resolution 7 is being put to the Shareholders for the purpose of obtaining that shareholder approval.

Under ASX Listing Rule 10.11, unless one of the permitted exceptions applies, without the approval of its shareholders a listed company must not issue or agree to issue equity securities (includes shares) to a related party. Mr Giles (and entities associated with him) are related parties of Webfirm. Therefore, to the extent that the entity associated with Mr Giles is a QDC Shareholder and will therefore receive Shares on completion of the QDC Acquisition, the prior approval of the issue of those Shares to those entities is required under ASX Listing Rule 10.1.

Required information

Where shareholder approval of an issue of Shares is sought under ASX Listing Rules 7.1 and 10.11, ASX Listing Rules 7.3 and 10.13 require the following information about the proposed issue of those Shares to the QDC Shareholders (on completion of the QDC Acquisition) be provided to Webfirm Shareholders.

(a) Maximum number of securities to be issued

The QDC Shareholders will be issued a maximum of 42,642,424 Shares. Of those Shares, a maximum of 3,636,364 Shares may be issued to the related parties (refer below), and an additional 4,775,757 Shares may be issued to the related parties in 18 months after the QDC Acquisition subject to Shareholder approval at that time.

(b) Issue date

29,309,091 Shares will be issued to the QDC Shareholders on completion of the QDC Acquisition, which is expected to be shortly after the Meeting (early December 2010). In no event will those Shares be issued later than 1 month after the date of the Meeting.

For the remaining 13,333,333, if the Company is required to issue any of those Shares, that issue will take place shortly after the date that is 18 months after completion of the QDC Acquisition. As this is in excess of period after the date of the Meeting in which the Listing Rules permit the Shares to be issued, if the Company is required to issue any Shares at that time, it will be required to either do so within the 15% limit on issues of equity securities in any 12 month period or to obtain Shareholder approval of such issue at that time (or both). If at that time the Company is required to issue any Shares to a QDC Shareholder who is also a related party of Webfirm, the Company will not issue any shares to the related party prior to obtaining Shareholder approval.

(c) Issue price

The implied issue price of the Shares to be issued to the QDC Shareholders is $0.075 per Share.

(d)

Allottees

If Resolution 7 is approved by the Webfirm Shareholders and the QDC Acquisition proceeds, the Shares will be issued to the QDC Shareholders. There are eleven QDC Shareholders, with two of the five principal shareholders being entities associated with Adrian Giles and Andrew Barlow, Directors of Webfirm.

The related party entities are Yarra Ventures Pty Ltd (an entity associated with Adrian Giles) and Venturian Pty Ltd (an entity associated with Andrew Barlow). Of the total number of Shares to be issued on completion of the QDC Acquisition, those entities will receive the following number of Shares:

Related entity	Number of Shares received on completion of QDC Acquisition	Maximum number that may be received 18 months later
Yarra Ventures Pty Ltd	3,636,364	1,212,121
Venturian Pty Ltd	nil	3,563,636

(e) Terms of issue

The Shares issued to the QDC Shareholders will be ordinary shares in the capital of Webfirm that rank equally with and have the same rights as all other Shares. Importantly, the QDC Shareholders have agreed to a voluntary escrow (to be enforced by the use of a holding lock) of the Shares to be issued to them for a period of 18 months from the date of issue.

(f) Intended use of Funds raised

No funds will be raised as part of the issue of the Shares to the QDC Shareholders.

(g) Voting exclusion statement

A voting exclusion statement relating to Resolution 7 is included in the Notice.

Implications if Resolution 6 and 7 are not passed

As evident from Resolutions 6 and 7, the two Resolutions are interdependent. If, therefore, either Resolution 6 or 7 is not approved by the Webfirm Shareholders:

(a) the QDC Acquisition will not proceed;
(b) Webfirm will have incurred costs and expended management time and resources in developing and pursuing the QDC Acquisition without the benefits of the QDC Acquisitions being delivered; and
(c) the Board will continue to look for further merger and acquisition opportunities.

When will the QDC Acquisition proceed, if approved?

If both Resolutions 6 and 7 are passed and all other conditions precedent to the QDC Acquisition are either satisfied or waived, the QDC Acquisition will be completed. It is expected that completion will occur as soon as practicable after the Meeting.

ASX escrow requirements

The ASX has advised Webfirm that it will regard those Shares to be issued to those QDC Shareholders who are also related parties of Webfirm (that is, entities associated with Mr Adrian Giles and Mr Andrew Barlow) as 'restricted securities' (within the meaning of that term in the ASX Listing Rules). Under Chapter 9 and Appendix 9B of the ASX Listing Rules, the Shares issued to the entities associated with Mr Giles and Mr Barlow that are classified by ASX as 'restricted securities' will be subject to escrow restrictions (and the entities associated with Mr Giles and Mr Barlow will be required to enter into restriction agreements with Webfirm in accordance with Appendix 9A of the ASX Listing Rule). For those Shares, the escrow period is likely to be 12 months commencing on the later of the date of issue of the Shares to the QDC Shareholders and the date that the last of the restriction agreements is entered into by the entitles associated with Mr Giles and Mr Barlow.

Corporations Act

As indicated above, each of Adrian Giles and Andrew Barlow is a related party of Webfirm (within the meaning of that term in section 228 of the Corporations Act). A public company, like Webfirm, is not permitted to give a financial benefit to a related party unless it does so with the approval of its shareholders or

the giving of the benefit falls within an exception to the general prohibition (refer sections 210 to 216 of the Corporations Act).

Adrian Giles is a significant shareholder of QDC. Andrew Barlow is a major shareholder of QDC. As entities controlled by Mr Giles and Mr Barlow are QDC Shareholders, they will receive a financial benefit, in the form of cash or Webfirm Shares, on completion of the QDC Acquisition (if it is approved).

One permitted exception to the general prohibition on the giving by a public company of a financial benefit to a related party of that company is where the financial benefit is given on terms that would be reasonable in the circumstances if the public company and the related party were dealing at arm's length. For the following reasons:

the entities associated with Mr Giles and Mr Barlow are two only of eleven QDC Shareholders;
the same consideration (per QDC share) has been offered to and accepted by each QDC Shareholder (including shareholders with no relationship or connection with Webfirm); and
the independent expert (Grant Thornton), reporting on the QDC Acquisition for the purpose of ASX Listing Rule 10.1, has concluded the transaction is fair and reasonable to the non-associated Webfirm Shareholders,

the Directors of Webfirm are of the opinion that the financial benefit that Mr Giles and Mr Barlow may receive as a result of completion of the QDC Acquisition would be regarded as reasonable if Webfirm and Mr Giles and Mr Barlow were dealing at arm's length.

Accordingly, the Directors of Webfirm do not consider the QDC Acquisition requires the approval of the Webfirm Shareholders under the related party provisions in Part 2E.1 of the Corporations Act.

Directors' recommendation

The Directors unanimously recommend that Shareholders vote in favour of Resolutions 6 and 7 to approve the QDC Acquisition in accordance with ASX Listing Rule 10.1 and to approve the issue of the Shares to the QDC Shareholders in accordance with ASX Listing Rules 7.1 and 10.11.

Each Director who is a member of the Company and entitled to vote intends to vote his Shares in favour of both Resolutions 6 and 7. As entities associated with both Mr Giles and Mr Barlow will be recipients of Shares if the QDC Acquisition is approved and completed, neither Mr Giles and Mr Barlow nor entities associated with either one of them will be permitted to vote on either Resolution 6 or 7.

HOW TO VOTE

To vote on the resolutions, members will need to follow these steps:

EITHER: Complete the Form of Proxy and return it by facsimile or mail (to be received no later than 12.00pm on 28 November 2010 to the following office or facsimile number:

Computershare Investor Services Pty Limited:

Online at: www.investorvote.com.au By Mail: GPO Box 242, Melbourne VIC 8060 By delivery: Yarra Falls, 452 Johnston Street, Abbotsford, Victoria

By facsimile: 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia

OR Attend the AGM.

Custodian voting: For Intermediary Online subscribers only (custodians) please visit www.intermediaryonline.com to submit your voting intentions.

QUERIES

If your have any queries about the AGM, the financial statements to be put to the AGM or the resolutions being considered, please contact the Company Secretary, Mr Damian Element, on (+61 3) 8695 9104.

Dated: 29 October 2010

By Order of the Board Damian Element Company Secretary

GLOSSARY

In this Explanatory Statement the following terms have the following meanings unless the context otherwise requires:

AEST	Australian Eastern Standard Time (or Summer Time, as the case may be)
ASX	ASX Limited.
ASX Listing Rules	the Official Listing Rules of ASX.
Board	the board of Directors of the Company.
Chairman	Chairman of the Company.
CompanyorWebfirm	Webfirm Group Limited ACN 001 287 510.
Corporations Act	Corporations Act 2001(Cth).
Director	a director of the Company.
Dollars, A$or$	Australian dollars.
Explanatory Statement	the Explanatory Statement accompanying and forming part of the Notice
	of Meeting.
Meeting or AGM	means the annual general meeting of Shareholders (convened by the
	Notice) to be held on 24 November 2010 at 12.00pm (AEST).
Notice	the Notice of Meeting and the accompanying Explanatory Statement.
Resolution	a resolution set out in the Notice.
Share	a fully paid ordinary share in the capital of the Company.
Shareholder	a shareholder of the Company.

Annexure A

Independent Expert's Report

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Webfirm Group Limited

Independent Expert's Report- Related Party Transactions Acquisition of QDC IP Technologies Pty Ltd

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The Directors Webfirm Group Limited 23 Union Street South Melbourne VIC 3205

25 October 2010

Grant Thornton Corporate Finance Pty Ltd ABN 59 003 265 987 AFSL 247140

Level 2 215 Spring Street Melbourne Victoria 3000 GPO Box 4984WW Melbourne Victoria 3001

T +61 3 8663 6000 F +61 3 8663 6333 E [email protected] W www.grantthornton.com.au

Dear Directors

EXECUTIVE SUMMARY

Introduction

Webfirm Group Limited (“Webfirm” or “the Company”) is a listed company trading on the Australian Securities Exchange (“ASX”). Webfirm is an internet technology and online marketing company.

Webfirm has entered into a Share sale and purchase agreement (“the Agreement”) with the shareholders of QDC IP Technologies Pty Ltd (“QDC”) to acquire all the shares in QDC.

Rationale for the Transaction

Webfirm management have a strategy to build a digital media business that can leverage the growth opportunities in the online advertising industry. Coherent with its strategy, in February 2010, Webfirm purchased combinatorial auctioning technology (“the Adslot Technology”) from Adslot Pty Ltd and formed the Adslot division. The Adslot Technology allows publishers to improve the revenue yield from their online advertising inventory.

The acquisition of QDC is expected to enhance the growth opportunities of the Adslot division. This is because QDC owns the Adbuilder Technology and Video Personalisation Technology, which are expected to enhance the Adslot product offering.

The Adbuilder Technology enables advertisers to simply and cost-effectively build online display advertisements using an extensive template library. Webfirm plans to integrate QDC’s Adbuilder Technology with the existing Adslot Technology to develop an end-to-end advertising sales platform that will make targeted online display advertising more accessible and more cost effective for advertisers.

The Video Personalisation Technology enables video advertisements to be modified based on the profile of a particular viewer. The key advantage of the Video Personalisation Technology is

Holder of Australian Financial Services Licence No. 247140

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

Our Ref: WFM FINAL IER (QDC) 25_10_10

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expected to be its ability to create relevant personalised communication for viewers thereby increasing the effectiveness of the advertiser’s campaign. Webfirm has plans to use the Video Personalisation Technology to build a product that leverages the high growth opportunities expected in online video advertising.

The Adbuilder Technology and Video Personalisation Technology are collectively referred to in this report as “QDC Technologies”.

The Proposed Transaction

Under the terms of the Proposed Transaction, Webfirm will acquire 100% of the issued capital of QDC from QDC shareholders (“Vendors”) in exchange for:

Approximately 29.3 million Webfirm shares to be issued to Vendors other than Venturian Pty Ltd; and
Approximately $0.8 million cash consideration to be paid to Venturian Pty Ltd, an entity related to Mr Andrew Barlow who is a director and shareholder in Webfirm.

Other terms of the Proposed Transaction are:

The approximately 29.3 million Webfirm shares proposed to be issued to the Vendors other than Venturian Pty Ltd will be held in escrow for 18 months from the completion date of the Proposed Transaction; and
If at the end of the 18 month period, the total value of the consideration paid to the Vendors is calculated to be less than $4.0 million, then up to a maximum of 13.3 million additional Webfirm shares will be issued as consideration (the “Further Consideration”).

Conditions precedent to the Proposed Transaction

The Proposed Transaction is subject to a number of conditions precedent, including:

Webfirm entering into a Licence Agreement with EWT Trade and Business Consultants NZ Ltd (“EWT”) to obtain an irrevocable, perpetual, royalty-free but non-exclusive licence in respect of the EWT Patent;
Webfirm completing its due diligence and being satisfied in all material respects with the results of its due diligence;
Webfirm being satisfied that the intellectual property relating to QDC Technologies is owned by, or licensed to, the Company on terms satisfactory to Webfirm;
QDC does not have any liabilities outstanding to the vendors of QDC or any of its affiliates; and

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Webfirm obtaining approval of the terms of this agreement from its shareholders at an extraordinary general meeting to be held pursuant to and in accordance with the requirements of the Corporations Act 2001 and the ASX listing rules.

Scope

Webfirm has appointed Grant Thornton Corporate Finance Pty Ltd (“Grant Thornton Corporate Finance”) to prepare this Independent Expert Report (“IER”).

Chapter 10 of the Listing Rules (“the Listing Rules”) of the ASX requires that when the acquisition or disposal of a substantial asset to a related party is proposed, a report by an independent expert should be obtained stating whether the proposed transaction is fair and reasonable to the non associated shareholders.

This IER is required pursuant to the Listing Rules because:

Mr Andrew Barlow and Mr Adrian Giles are executive directors of Webfirm and indirect shareholders of both Webfirm and QDC; and
The value of the asset proposed to be acquired pursuant to the Proposed Transaction, represents more than 5.0% of Webfirm’s latest reported net assets of $11.8 million at 30 June 2010.

With respect to the Proposed Transaction:

Mr Andrew Barlow and Mr Adrian Giles are considered to be Associated Shareholders; and
All other shareholders of Webfirm are Non Associated Shareholders.

The Directors of Webfirm (“the Directors”) have requested that Grant Thornton provide an opinion on whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders.

This report is to be included with the Notice of Meeting and Explanatory Memorandum to be sent to the Non Associated Shareholders of Webfirm to consider the merits of the Proposed Transaction.

Grant Thornton is independent of Webfirm and has no other involvement with, or interest in, the outcome of the Proposed Transaction.

Approach

In assessing whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders of Webfirm, we have considered the following:

Compared the consideration offered by Webfirm to acquire QDC to our assessed value of QDC; and

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Considered the other potential advantages and disadvantages of the Proposed Transaction to the Non Associated Shareholders.

Comparison of the consideration offered by Webfirm to our assessed value of QDC

We set out in the table below a comparison of our assessment of the fair market value of Webfirm’s consideration with our assessed fair market value of QDC.

		Low	High
Assessed value of the consideration	($'000)	4,612	4,612
Assessed value of QDC	($'000)	7,129	7,749

Based on the above analysis, our assessed value of the consideration offered by Webfirm to acquire QDC is less than our assessed fair market value of QDC. Thus the Proposed Transaction is considered to be fair to the Non Associated Shareholders of Webfirm.

Reasonableness of the Proposed Transaction

As the Proposed Transaction is fair to the Non Associated Shareholders, it is also considered to be reasonable. Nonetheless, we have summarised some of the relevant potential advantages and disadvantages of the Proposed Transaction to the Non Associated Shareholders.

Advantages

Webfirm plans to integrate the Adbuilder Technology with the Adslot Technology. This new integrated product offering is expected to increase the demand for publisher’s online advertising inventory, as it will become more cost-effective for advertisers to place advertisements on the publisher’s websites. Accordingly, the Proposed Transaction presents new growth opportunities and increased potential earnings for Webfirm.
The Proposed Transaction is expected to offer Webfirm significant additional growth opportunities, as the online video advertising segment is expected to be the fastest growing segment of all the online advertising forms and categories in Australia over the next few years.

Webfirm will be well placed to capitalise on these growth prospects as, according to industry experts, a key driver of the effectiveness of an online video advertisement is the relevance of the online video advertisement to the audience. QDC’s Video Personalisation Technology is expected to provide this relevance as it enables the advertisements to be customised based on the profile of the viewer.

QDC has also lodged patent applications in Australia, New Zealand, Canada, Europe and the United States of America relating to personalising video generation using a group substitution interface. If these patent applications are successful, they are expected to offer a significant competitive advantage to Webfirm in the online video advertising market. One such patent has been recently awarded in New Zealand.

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The majority of the consideration will be paid in the form of Webfirm shares, which will ensure that the interests of the vendors of QDC are aligned with those of the current Webfirm shareholders.
The Proposed Transaction is aligned to Webfirm’s current strategy of investing in products that offer substantial growth opportunities and that are scalable with relatively low infrastructure investment.

Disadvantages

QDC is a start up company with no earnings history. There is a risk that Webfirm will not be successful in commercialising the QDC Technologies or that the successful commercialisation of the QDC Technologies could be materially delayed.

If the commercialisation of the QDC Technologies is not successful or is delayed, this could result in Webfirm incurring losses which may adversely impact the value of Webfirm shares.

The Proposed Transaction is expected to dilute the relative holdings of the Non Associated Shareholders of Webfirm (including the shares to be allotted on 29 October 2010 under the share purchase plan) from 88.9% to 85.1%.
There is a risk that, in the event, that the trading price of Webfirm shares declines below $0.10 per share at the end of the 18 months escrow period, Webfirm will be required to issue Further Consideration of up to 13.3 million additional shares to the Vendors of QDC. The issue of the maximum number of shares under the Further Consideration would further dilute the relative holdings of the Non Associated Shareholders of Webfirm from 85.1% to 83.5%.

However, it should be noted that Webfirm will require further shareholder approval to issue any Further Consideration to the Associated Shareholders.

Conclusion

The Proposed Transaction provides significant potential valuation upside for Webfirm, in the event that QDC Technologies are able to be successfully commercialised with the Adslot Direct Platform and further video advertising opportunities. However, there is a risk that Webfirm shares will decline in value if the commercialisation of the products expected to use the QDC Technologies is not successful.

The growth opportunities arising from the Proposed Transaction appear to outweigh the risks. Therefore, after considering all of the above, we have concluded that the advantages of the Proposed Transaction to the Non Associated Shareholders of Webfirm outweigh the disadvantages.

Accordingly, it is our opinion that the Proposed Transaction is fair and reasonable to the Non Associated Shareholders of Webfirm.

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Limitations and reliance on information

The opinion of Grant Thornton is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. This report should be read in conjunction with the declarations outlined in Section 10.

This opinion should also be read in conjunction with the full text of the attached report.

Yours faithfully

GRANT THORNTON CORPORATE FINANCE PTY LTD

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Liz Smith Director

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

Financial Services Guide

Grant Thornton Corporate Finance Pty Ltd

Grant Thornton Corporate Finance Pty Ltd (“Grant Thornton Corporate Finance”) carries on a business, and has a registered office, at Level 17, 383 Kent Street, Sydney NSW 2000. Grant Thornton Corporate Finance holds Australian Financial Services Licence No 247140 authorising it to provide financial product advice in relation to securities and superannuation funds to wholesale and retail clients.

Grant Thornton Corporate Finance has been engaged by Webfirm Group Limited (“Webfirm”) as an independent expert to express an opinion as to whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders.

Financial Services Guide

This Financial Services Guide (“FSG”) has been prepared in accordance with the Corporations Act, 2001 (the “Act”) and provides important information to help retail clients make a decision as to their use of general financial product advice in a report, the services we offer, information about us, our dispute resolution process and how we are remunerated.

General financial product advice

In our report we provide general financial product advice. The advice in our report does not take into account the personal objectives, financial situation or needs of individual Non-Associated Shareholders.

Grant Thornton Corporate Finance does not accept instructions in relation to securities from retail clients. Grant Thornton Corporate Finance provides no financial services in relation to securities directly to retail clients and receives no remuneration from retail clients for financial services in relation to securities. Grant Thornton Corporate Finance does not provide any personal retail financial product advice directly to retail investors in relation to securities nor does it provide market-related advice directly to retail investors in relation to securities.

Remuneration

When providing the report, Grant Thornton Corporate Finance’s client is Webfirm. Grant Thornton Corporate Finance receives its remuneration from Webfirm. Grant Thornton Corporate Finance will receive a fee from Webfirm based on commercial rates for the preparation of our report. Our directors and employees providing financial services receive an annual salary, a performance bonus or profit share depending on their level of seniority.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

Except for the fees referred to above, no related body corporate of Grant Thornton Corporate Finance, nor any director or employee of Grant Thornton Corporate Finance or any related body corporate of Grant Thornton Corporate Finance or any associate has received any other remuneration or other benefit attributable to the preparation of and provision of this report.

Independence

Grant Thornton Corporate Finance is required to be independent of Webfirm in order to provide this report. The guidelines for independence in the preparation of independent expert’s reports are set out in Regulatory Guide 112 Independence of experts (“RG 112”) issued by the Australian Securities and Investments Commission (“ASIC”).

Grant Thornton Corporate Finance considers itself to be independent in accordance with RG 112.

Complaints procedures

Grant Thornton Corporate Finance has an internal complaint handling mechanism and is a member of the Financial Industry Complaints Service’s Complaints Handling Tribunal, No F- 3986. All complaints must be in writing and addressed to the National Service Line Leader at Grant Thornton Corporate Finance. We will endeavour to resolve all complaints within 30 days after receiving the complaint. If a complaint has not been satisfactorily dealt with, the complaint can be referred to the Financial Industry Complaints Service, which can be contacted at:

GPO Box 3 Melbourne VIC 3001 Telephone: 03) 9613 7366 Facsimile: (03) 9613 6399

Grant Thornton Corporate Finance is only responsible for its report and this FSG. Complaints or questions about the Notice of General Meeting and Explanatory Notes and Memorandum should not be directed to Grant Thornton Corporate Finance, which is not responsible for that document. Grant Thornton Corporate Finance will not respond to a complaint to the extent to which it might involve any provision of financial product advice to any retail investor.

Compensation arrangements

Grant Thornton Corporate Finance has professional indemnity insurance cover under its professional indemnity insurance policy. This policy meets the compensation arrangement requirements of Section 912B of the Act.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

		Page
Financial Services Guide		1
1.	Introduction	4
2.	Industry overview	8
3.	Overview of Webfirm	13
4.	Assessed market value of Webfirm	19
5.	Overview of QDC	24
6.	Valuation methodologies	28
7.	Assessed market value of Webfirm	32
8.	Market value of QDC and the QDC Technology	33
9.	Assessment of the Proposed Transaction	37
10.	Qualification, declarations and consents	41
Appendix 1-Sources of information		43
Appendix 2-Abbreviations used		45

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

1. Introduction

1.1 Background

Webfirm has entered into a Share sale and purchase agreement (“the Agreement”) with the shareholders of QDC IP Technologies Pty Ltd (“QDC”) to acquire all the shares in QDC.

QDC is an Australian private company owning technologies which would allow advertisers to:

Build display advertisements in the web browser using a vast advertisement template library (“Adbuilder Technology”); and
Personalise video advertisements for each advertisement view depending on the individual audience profile (“Video Personalisation Technology”).

The Adbuilder Technology and Video Personalisation Technology are collectively referred to as “QDC Technologies” for the purposes of this report.

1.2 The Proposed Transaction

Under the terms of the Proposed Transaction, Webfirm will acquire 100% of the issued capital of QDC from QDC shareholders (“Vendors”) in exchange for:

Approximately 29.3 million Webfirm shares to be issued to Vendors other than Venturian Pty Ltd; and
Approximately $0.8 million cash consideration to be paid to Venturian Pty Ltd, an entity related to Mr Andrew Barlow who is a director and shareholder in Webfirm.

Other terms of the Proposed Transaction are:

The approximately 29.3 million Webfirm shares proposed to be issued to the Vendors other than Venturian Pty Ltd will be held in escrow for 18 months from the completion date of the Proposed Transaction; and

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

If at the end of the18 month period, the volume weighted average price (“ VWAP”) of Webfirm shares is less than $0.10 per share, then Webfirm must issue to each Vendor the number of additional Webfirm shares determined by application of the following formula (the “Further Consideration”):

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Where:

Y is the number of Webfirm shares to be issued to the Vendor as Further Consideration;

X is the number of the Webfirm shares that were issued to the Vendors on completion or, where the initial consideration was paid to any Vendor in cash, the amount of that initial consideration divided by 0.075; and

Z is VWAP based on the 5 trading days VWAP of Webfirm shares immediately before the end of the 18 month period.

1.3 Purpose of our report

Shareholder approval of the Proposed Transaction is required pursuant to ASX Listing Rule 10.1, which applies where an entity acquires or disposes of a substantial asset from a related party, a subsidiary, a substantial shareholder or an associate of any of the aforementioned. ASX Listing Rule 10.2 states that an asset is substantial if its value or the value of the consideration for it is 5.0% or more of the equity interests of the entity as set out in the latest accounts given to ASX.

We understand that the Proposed Transaction may result in giving a financial benefit or acquiring of substantial assets from a related party as a result of:

Mr Andrew Barlow and Mr Adrian Giles are executive directors of Webfirm and indirect shareholders of both Webfirm, and QDC; and
The value of the asset proposed to be acquired pursuant to the Proposed Transaction, represents more than 5.0% of Webfirm’s latest reported net assets of $11.8 million at 30 June 2010.

ASX Listing Rule 10.10.2 requires that the notice of meeting to approve the transaction be accompanied by a report from an independent expert, stating whether the proposed transaction is fair and reasonable to the Non Associated shareholders.

With respect to the Proposed Transaction:

Mr Andrew Barlow and Mr Adrian Giles are considered to be Associated Shareholders; and
All other shareholders of Webfirm are Non Associated Shareholders.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

The Board of Webfirm has appointed Grant Thornton Corporate Finance Pty Ltd (“Grant Thornton Corporate Finance”) to prepare this Independent Expert Report (“IER”) to assist the Non Associated Shareholders in determining whether to approve the Proposed Transaction pursuant to ASX Listing Rule 10.

1.4 Scope

Webfirm has appointed Grant Thornton Corporate Finance to prepare this IER to express an opinion as to whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders of Webfirm.

This report is to be included with the Notice of Meeting and Explanatory Memorandum to be sent to the Non Associated Shareholders of Webfirm to consider the merits of the Proposed Transaction.

Grant Thornton is independent of Webfirm and has no other involvement with, or interest in, the outcome of the Proposed Transaction.

1.5 Basis of evaluation

This IER has been prepared pursuant to the requirements under ASX Listing Rule 10. In this regard, Regulatory Guide 111 (“RG111”) “Content of expert reports”, issued by the Australian Securities and Investments Commission (“ASIC”) gives ASIC’s views on how an expert can help security holders make informed decisions about transactions. Whilst, RG111 does not specifically address expert reports prepared in accordance with ASX Listing Rule 10, it notes that “in deciding on the appropriate form of analysis for a report, an expert should bear in mind that the main purpose of the report is to adequately deal with the concerns that could reasonably be anticipated of those persons affected by the proposed transaction.”

We are of the opinion that the Proposed Transaction will be fair and reasonable to the Non Associated Shareholders if the advantages of the Proposed Transaction to the Non Associated Shareholders outweigh the disadvantages.

1.6 Limitations and reliance on information

Our procedures and enquiries do not include verification work nor constitute an audit in accordance with Australian Auditing Standards, nor do they constitute a review in accordance with the Standards on Review Engagements issued by the Auditing and Assurance Standards Board.

This report constitutes general financial product advice only. In undertaking our assessment, we have considered the likely impact to the Non Associated Shareholders of Webfirm as a whole. We have not considered the potential impact of the Proposed Transaction on individual shareholders. Individual shareholders have different financial circumstances and it is neither practicable nor possible to consider the implications of the Proposed Transaction on individuals.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

The decision as to whether or not to approve the Proposed Transaction is a matter for each shareholder of Webfirm to be considered based on their own views of the value of Webfirm and expectations about future market conditions, Webfirm’s performance, risk profile and investment strategy. If shareholders are in doubt about the action they should take in relation to the Proposed Transaction, they should seek their own professional advice.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

2. Industry overview

2.1 Introduction

QDC Technologies relate to creation of online display advertisements and personalisation of online video advertisements. Webfirm plans to integrate QDC Technologies with its Adslot business to develop new products to be offered for online display and video advertising. This section has been prepared from various industry reports and publications as mentioned in Appendix 1 of this report.

2.2 Australian online advertising industry

The online advertising industry uses the internet for the purpose of delivering marketing messages to attract customers. The internet search and advertising industry has experienced significant growth since the early 2000s through the introduction and development of Yahoo, Google, eBay and a multitude of other websites. The prolific reach of the internet is challenging the preference of advertising on traditional media. Advertising dollars are chasing consumers online and Frost and Sullivan[1] estimate that online advertising[2] in Australia will rise to over 27.0% of total advertising expenditure by 2014, up from approximately 14.0% in 2008.

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----- Start of picture text -----

100%
13.8% 16.1% 18.4% 20.9% 23.3% 25.5% 27.6%
80%
60%
40%
20%
0%
2008A 2009A 2010F 2011F 2012F 2013F 2014F
Online advertising % to total advertising expenditure in Australia
Offline advertising % to total advertising expenditure in Australia
total advertising expenditure
% of
----- End of picture text -----

Source: Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009

1Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009 2 According to Frost and Sullivan, offline advertising channels categories include newspapers, Free-to-air TV, pay TV, radio, magazine, outdoor, cinema as well as mobile advertising. Where as online advertising channels include online classifieds, general display and search and directories.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

2.2.1 Key demand determinants

The key factors driving increased preference for online advertising channels as compared to traditional channels are:

Growing adoption of the internet with continued demand from businesses and individuals for easily accessible information;
The changing pattern of media usage and habits, with an increasing use of new digital media, in particular by the younger generation. According to a report by Neilsen[3] , internet is the most widely used form of media in Australia as compared to television (“TV”), radio, newspapers and magazines. An average Australian spends over 16 hours per week on the internet as compared to approximately 12 hours per week spent watching TV (the second most used form of media);
The cost advantage of advertising on online channels as compared to the high cost of advertising on main stream media such as newspapers and TV; and
The growing preference amongst advertisers to use internet based targeted marketing as opposed to mass marketing on traditional media such as newspapers and TV. Online advertising offers more direct, targeted and interactive advertising as opposed to mass media advertising.

2.2.2 Historical industry performance

Online advertising expenditure in Australia for the year ended 30 June 2010 (“FY10A”) grew by 13.0% from the previous year to reach over $2.0 billion. The Australian online advertising industry has achieved a significant compounded annual growth rate (“CAGR”) of 21.3% for the 5 years to FY10A. Despite the recent economic slowdown and tighter advertising budgets, online advertising expenditure in Australia recorded strong growth in recent years. The graph below shows the online advertising expenditure in Australia for the 5 years to FY10A.

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----- Start of picture text -----

2.50
2.04
2.00 1.81
1.52
1.50
1.20
1.00 0.78
0.50
0
FY06A FY07A FY08A FY09A FY10A
($ billions)
----- End of picture text -----

Australian online advertising expenditure ($ billions)

Source: Interactive Advertising Bureau Online Advertising Expenditure Report, Quarter ended June 2010

3 Neilsen Online Internet & Technology Report 2008-2009

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2.2.3 Industry segments

The online advertising industry is comprised of the following segments:

Search and directories advertising: This is the largest segment and contributed 50.2% of the total online advertising expenditure for FY10A. This segment includes revenues from online directories and search engine listings;
General display advertising: This segment contributed 26.8% of the total online advertising expenditure for FY10A and includes revenue from banner advertisements, affiliate marketing programmes, partnerships, sponsorships and emails. This segment also includes online video advertising; and
Classified advertising: This contributed 23.0% of the total online advertising expenditure for FY10A and includes revenues from advertisements placed to buy or sell products or services.

2.2.4 Competition

The industry is intensely competitive, highly fragmented and rapidly changing. Barriers to entry in this industry are medium to high. The key constraints include limited access to patented technologies, low availability of specialist personnel with high technological innovative knowledge and skills, as well as high research and development costs.

2.2.5 Key success factors

The key success factors for companies operating in the online advertising industry include:

Being responsive to the changes in the market by identifying and capitalising on new opportunities early on in the product life cycle;
The ability to vary services to suit the different needs of advertisers and consumers;
Offering technology that not only adds value but is user friendly and compatible with the user’s existing hardware and software;
Access to a highly skilled workforce; and
Undertaking ongoing technical research and development.

2.2.6 Industry outlook

According to Frost and Sullivan, the online advertising industry is expected to grow at a CAGR of 16.3% over the next 5 years from 2009 to 2014. It is anticipated that the redirection of marketing budgets from traditional mass media to more direct forms such as online media will continue. This is supported by the growing view amongst advertisers that mass media is a high cost method of communicating with potential target customers and that the message may be diluted or lost among the many other advertisements. Advertisers are demanding more targeted, cost effective and direct methods of reaching audiences using online advertising.

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Further, according to IBISWorld, the internet search, advertising and transactions based revenue is expected to continue to grow strongly due to increased access to cheaper and faster internet services.

According to IBISWorld, niche operators specialising in digital media are expected to thrive as conservative and traditional main media advertising is being continuously challenged. Thus the expected growth in online advertising expenditure appears to offer many opportunities for companies that enable the offering of online advertising.

2.3 Online video advertising industry

Online video advertising is a sub segment within the general display segment of the online advertising industry. Online video advertising is an emerging category of the online advertising industry and is also expected to grow significantly over the next few years.

2.3.1 Industry performance and outlook

According to Frost and Sullivan[4] , the online video advertising market grew from $17.0 million in 2008 to $24.0 million in 2009 at an annual rate of 41.2%. Further, over the next few years, online video advertising is expected to be the fastest growing segment of all the online advertising forms and categories in Australia. The online video advertising market in Australia is forecast to grow from $24.0 million in 2009 to $131.0 million in 2014 at a CAGR of 40.4%[5] . The expected growth in online video advertising is significantly higher as compared to the lowest growth of 7.6% expected in the email newsletters sub segment.

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140 131.0
120 108.0
100
79.0
80
54.0
60
36.0
40
24.0
17.0
20
0
2008A 2009A 2010F 2011F 2012F 2013F 2014F
($ millions)
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Online video advertising market annual revenue ($ millions)

Source: Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009

4 Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009 5 Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009

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2.3.2 Key demand determinants

The key factors driving growth for online video advertising are:

Increased availability of online video entertainment content such as TV shows, movies, sports, news etc;
Growing audience and increased preference for viewing online video entertainment;
Within the online advertising segments, online video advertisements are considered to be the most effective way to communicate marketing messages to increasing numbers of online media users. It is understood that marketers prefer video advertising for its far greater branding power than other online formats; and
Availability of more online video advertising, including content types, advertisement formats, buying methods, tracking and targeting.

2.3.3 Key success factors

The key success factors for online video advertising include:

Availability of creative content for online video advertising;
Availability of faster broadband internet at cheaper rates; and
Availability of techniques for behavioural targeting. According to a survey on the Importance of Online Video Ad Characteristics reported by eMarketer[6] , the two most important online video advertisement characteristics cited by viewers were that online video advertisements were fitting their interests and were related to the website they were viewing. Thus relevancy of online video advertisements is considered to be the primary characteristic expected to drive the effectiveness of the marketing campaign and thus deliver value for the advertiser’s marketing spend.

2.4 Conclusion

Significant growth is expected in the online advertising industry as compared to other traditional forms of advertising such as TV and print. While all segments of online advertising are expected to grow over the next 5 years, online video advertising is forecast to be the fastest growing segment.

6 eMarketer, Video Advertising Growth Factors, September 2008

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3. Overview of Webfirm

3.1 History

Webfirm is a listed digital media company trading on the ASX (ASX: WFM). The Company originally listed on the ASX in 1987 and operated a number of different businesses. A new management team was formed in late 2007 to lead the Company and reinvigorate its business model.

3.2 Webfirm’s operating divisions

Webfirm currently operates two key operating divisions, the Adslot division and Webfirm division. The Company has a head office located in Melbourne.

The current business structure of Webfirm is shown below.

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Webfirm Group Corporate division
Adslot division Webfirm division
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Source: Webfirm management

3.2.1 Adslot division

Webfirm management have a strategy to build a digital media business that can leverage the growth opportunities of the online advertising industry.

Coherent with its strategy, Webfirm purchased Adslot Pty Ltd (“Adslot”) in February 2010. The Adslot business consists of a patented online combinatorial auctioning technology for the buying and selling of advertising inventory (“Adslot Technology”). Adslot Technology allows publishers to sell their advertising inventory (whether it is text, display, classifieds, directories, video, TV, radio or newspaper advertisements) in a way that is designed to maximise revenue for the publisher.

Publishing revenue is expected to be enhanced from the use of the Adslot Technology because:

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The publisher uses an auction based methodology that allows the market to set inventory prices rather than utilising standard prices. This auctioning process enables the publisher to achieve higher than list prices for their premium inventory;
The Adslot Technology enables the publisher to use more complex product packages and individual or hybrid pricing systems. For example, inventory that is not sold would be able to be packaged up and auctioned with more popular inventory;
The Adslot Technology is expected to be able to cost-effectively manage the sale of advertising inventory to smaller advertisers;

The systems currently used by publishers to sell inventory are labour intensive and therefore it is often not cost-effective for publishers to accept advertising expenditure below certain minimum thresholds. Conversely, the Adslot Technology has been designed to provide a centralized advertising market where any publisher can offer their entire advertising inventory for sale, and any agency, media buyer or advertiser can bid on customized advertising campaigns; and

The Adslot Technology is expected to be attractive to smaller advertisers, who generally have a preference for low cost advertising that is directly targeted at their specific niche markets.

At the time of Adslot’s acquisition by Webfirm, the Adslot Technology was fully developed but not commercialised. Webfirm has now successfully started commercialisation of the Adslot Technology by securing the first client for Adslot in July 2010 by entering into an agreement with Realestate.com.au Pty Ltd (“Realestate.com”). Realestate.com is Australia’s largest online real estate classifieds company. We understand that Webfirm is also having discussions with other website publishers in Australia.

Adslot’s revenue model is based around receiving a share of any increased advertising revenue that the publishers generate using the Adslot Technology.

3.2.2 Webfirm division

The Webfirm division has three business segments. These are the Webfirm business, Searchworld business and Webfirm Media business. A brief description of each of the Webfirm division business segments is provided below:

Webfirm business

The Webfirm business offers a complete range of web design and development services to small and medium enterprises (“SME”). Webfirm assists SME customers to implement their online marketing strategies.

Webfirm division’s revenue grew in the year ended 30 June 2009 (“FY09A”) and FY10A as a result of an aggressive sales effort and an increasing preference of SME’s to establish an online presence. In FY10A, the Webfirm business achieved cost efficiencies by transitioning some of the website development function to an offshore operation in Manila. These changes have resulted in the first month of profitable trading for the Webfirm business in June 2010.

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Other business segments

A brief description of the other business segments within the Webfirm division is included below:

The Searchworld business syndicates global search advertising feeds to website publishers. Searchworld was generating low quality advertising feeds. In order to protect Searchworld’s relationships with its publisher customers, Webfirm management decided to forego revenue from low quality search traffic and thus Seachworld’s revenues declined in FY09A and FY10A; and
Webfirm Media business has an exclusive licensing agreement with Navteq to sell their Points of Interest advertising inventory in Australia and New Zealand.

Subsequent to the acquisition of Adslot, Webfirm management have shifted resources from the Searchworld and Webfirm Media business segments to capitalise on the commercialisation opportunities expected from Adslot. Thus Webfirm management have decided not to actively pursue the Searchworld and Webfirm Media businesses in the short term.

3.3 Historical financial performance of Webfirm

The following table shows an overview of the reported historical financial performance of Webfirm for the years ended 30 June 2008 (“FY08A”), FY09A and FY10A:

	Audited	Audited	Audited
$’000	FY10A	FY09A	FY08A
Operating revenue	5,341	10,802	12,151
Operating revenue growth/(decline) %	(50.6)%	(11.1)%	na
Other income	111	229	7
Total revenue	5,452	11,031	12,158
Website publishers and related costs	(487)	(4,787)	(5,232)
Employee costs	(5,365)	(6,366)	(7,846)
Impairment expenses	(490)	(822)	(2,662)
Other operatingexpenses	(2,794)	(2,949)	(3,062)
Total operating expenses	(9,136)	(14,924)	(18,802)
Reported EBITDA	(3,684)	(3,893)	(6,644)
Depreciation and amortization	(652)	(239)	(181)
Reported EBIT	(4,336)	(4,132)	(6,825)

Source: Webfirm Group Appendix 4E and Audited Financial Statements for FY10 and Annual Report for FY08

We make the following comments in relation to Webfirm’s historical financial performance:

Operating revenue for FY10A reduced significantly by 50.6% to $5.3 million from FY09A. The decrease in revenue is primarily due to an exit from the traditional search syndication business of Searchworld;
The Adslot division did not contribute any revenue in FY10A as the Adslot Technology was preparing for commercialisation and secured its first client in July 2010. However during the

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period February 2010 to June 2010 Webfirm incurred costs of approximately $943k for the Adslot business. These costs include approximately $151k for acquisition costs and other costs to prepare the Adslot business for commercialisation; and

Although revenues significant decreased by 50.6% in FY10A, reported earnings before interest and tax (“EBIT”) was down by only $204k or 4.9% on FY09A due to active reduction of costs in line with the decline in revenue.

3.4 Historical financial position of Webfirm

The following table shows the historical financial position of Webfirm as at 30 June 2009 and 30 June 2010.

	Audited	Audited
($’000)	30-Jun-10	30-Jun-09
Current assets
Cash and cash equivalents	3,808	695
Trade and other receivables	1,740	2,257
Total current assets	5,548	2,952
Non current assets
Trade and other receivables	200	200
Property, plant and equipment	129	232
Intangible assets	8,409	2,939
Total non-current assets	8,738	3,371
Total assets	14,286	6,323
Current liabilities
Trade and other payables	1,146	3,680
Other liabilities	1,176	865
Provisions	124	153
Total current liabilities	2,446	4,698
Non current liabilities
Provisions	13	21
Total non current liabilities	13	21
Total liabilities	2,459	4,719
Net assets	11,827	1,604

Source: Webfirm Group Appendix 4E and Audited Financial Statements for FY10

We make the following comments in relation to Webfirm’s historical financial position:

Webfirm’s net asset position of $11.8 million as at 30 June 2010 comprised of approximately 71% of intangible assets;
The intangible assets of $8.4 million as at 30 June 2010 include:

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$5.5 million relating to the Adslot Technology and intellectual property acquired on acquisition of the Adslot business in February 2010;
$2.5 million of goodwill relating to the Webfirm business; and
Balance of $0.4 million relating to other intangible assets such as domain names, software and customer contracts.

3.5 Webfirm’s strategy

Webfirm has recently successfully commercialised the Adslot Technology by securing its first customer. After this successful commercialisation of the Adslot Technology, Webfirm management plans to take the following measures to further grow the Adslot business:

Secure other website publishers in Australia;
Pursue opportunities for the Adslot Technology with website publishers in the global market;
Build new product offerings using the Adslot Technology for its publisher customers; and
In the medium term, Adslot also plans to license the Adslot Technology to be used as a platform for video advertisements in the broadcast and the online television markets.

Through the following activities and initiatives, Webfirm management has started executing the above strategy to grow the Adslot division:

Having discussions with other publishers in Australia to secure more customers;
Undertaken a share placement in September 2010, raising approximately $7.6 million to be applied for the international roll-out of the Adslot Technology. We understand that the Adslot division has received strong interest from online publishers in Europe and North America for its product; and
Started building a new self-serve end-to-end advertisement sales platform referred to as the “Adslot Direct Platform” which is expected to increase demand for the publisher’s online advertising inventory.

Adslot Direct Platform

The Adslot Direct Platform is planned to be a self-serve end-to-end advertising sales platform which will allow SME advertisers to create and serve advertisements on the publisher’s websites. Thus the Adslot Direct Platform is expected to tap into the ‘long-tail’ of advertisers who are currently not using online display advertising campaigns for their small to medium sized businesses due to the costs associated with creating online display advertisements with their limited advertising budgets.

The Adslot Direct Platform will allow the ‘long-tail’ advertisers to:

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Book an advertising inventory on the publisher’s websites;
Build a display advertisement using user friendly templates;
Serve the advertisement on the publisher’s website; and
Measure the results of the advertising campaign.

Thus the Adslot Direct Platform will increase the number of online advertisements that will be displayed on the publisher’s website. Such increased numbers of online advertisements will in turn increase the demand for the publisher’s online advertising inventory and thus generate higher revenue for the publisher’s online advertising inventory. Adslot’s revenue model is based on the increase in the publisher’s advertising revenue generated as a result of the use of the Adslot Technology. Thus the potential increase in the number of online advertisements is expected to increase revenue for the Adslot division.

The following key technologies will be integrated to create the Adslot Direct Platform:

The Adslot Technology which will be integrated on the publisher’s websites will enable the SME advertisers to book an advertising inventory;
Webfirm plans to use QDC’s Adbuilder Technology to enable the SME advertisers to build display advertisements using professionally created advertisement templates. If the Proposed Transaction does not proceed, then Webfirm will need to build a technology that is similar to the Adbuilder Technology. This may reduce the level of revenue that Webfirm could derive from its Adslot Technology in the short to medium term; and
The Adimise Technology acquired by Webfirm in July 2010 will be used to serve the advertisements, run the campaign and measure the results.

Having already acquired the Adslot Technology and Adimise Technology, the acquisition of the Adbuilder Technology will complete the development of the Adslot Direct Platform and assist Webfirm to bring the Adslot Direct Platform to market.

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4. Assessed market value of Webfirm

4.1 Share price history

The following graph illustrates the movement in Webfirm’s share price from 1 September 2009 to 22 October 2010. Following shareholder approval at an Annual Meeting held on Friday, 28 November 2009 a reorganisation of capital of Webfirm, was effected by way of a share consolidation whereby every 5 fully paid ordinary shares were consolidated into 1 fully paid ordinary share.

In preparing this trading history, the actual trading prices of the shares prior to the capital reorganisation has been adjusted for the effect of the reorganisation to enable the trading price of the shares to be compared on a consistent basis.

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0.300 14,000,000
0.250 12,000,000
10,000,000
0.200
8,000,000
0.150
6,000,000
0.100
4,000,000
0.050 2,000,000
0.000 0
Daily traded volume Daily VWAP ($)
traded
shares
$ per share
Number of
01-Sep-09 01-Oct-09 01-Nov-09 01-Dec-09 01-Jan-10 01-Feb-10 01-Mar-10 01-Apr-10 01-May-10 01-Jun-10 01-Jul-10 01-Aug-10 01-Sep-10 01-Oct-10
----- End of picture text -----

Source: Daily WFM VWAP and volume history sourced from Bloomberg LLP on 25 October 2010

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Major announcements that have had an impact on Webfirm’s share price during the period 1 September 2009 to 25 October 2010 include:

On 7 September 2009, the company announced a potential 50:50 joint venture with Adslot;
On 9 September 2009, Webfirm completed a capital raising program successfully placing 60.0 million ordinary shares in two tranches to sophisticated and specialist institutions at an issue price of $0.06 per share raising a total of $3.6 million;
On 18 September 2009, the Company released its Annual Report for the year ended 30 June 2009. The loss for the year was $4.15 million, which was an improvement on the loss of $6.72 million for the previous corresponding period;
On 19 October 2009, Webfirm released an Investor Update which advised the market of the termination of two of Searchworld’s largest advertising feeds, which was adversely impacting revenue and the Company’s trading position. As a result, the Directors announced that it was unlikely that Searchworld would achieve its $11.0 million revenue target for 2010. This announcement also reported that following lengthy negotiations with Adslot, the parties had not yet reached agreement on a number of contractual terms;
On 18 December 2009, Webfirm announced that the Company had executed an agreement to merge with Adslot. Under the agreement, Webfirm agreed to acquire Adslot for $6.0 million to be paid in the form of Webfirm shares issued at 3.5 cents per share. Webfirm also announced plans to raise $4.2 million through a fully underwritten entitlements offer to Webfirm shareholders;
On 16 February 2010, Webfirm announced the successful completion of the Adslot acquisition and declared the initial sales roll-out strategy for Adslot;
On 23 February 2010, Webfirm released its half year accounts for the six months ended 31 December 2009 and advised the market of the reduction in losses for the half-year period compared to the prior corresponding period;
On 13 April 2010, Webfirm announced that Mr. Adrian Giles and Mr. Andrew Barlow will take on new executive roles within the Webfirm Group whereby they would assist with the commercialisation of the newly acquired Adslot technology. Webfirm also advised to the market that both Mr. Adrian Giles and Mr. Andrew Barlow have had significant experience in commercialising new technologies;
On 1 July 2010, Webfirm announced that it had reached a commercial outcome for Adslot by entering into an agreement with Realestate.com. Since acquisition by Webfirm in February 2010, Adslot secured its first customer whereby the Adslot Technology will be integrated with Realestate.com’s sales process to create a new advertising market place for real estate agents advertising on the Realestate.com website;

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On 8 July 2010, Webfirm announced the acquisition of Adimise Pty Ltd and Full Circle Online Pty Ltd. Through this acquisition Webfirm acquired Adimise’s online advertisement serving technology which would form a key part of the new Adslot Direct Platform. Webfirm announced that the Company planned to develop a new Adslot Direct Platform which would complement the existing Adslot Publisher’s Platform;
On 20 July 2010, Webfirm released a Trading Update advising that the implementation work for integrating Adslot Publisher’s Platform with Realestate.com had started and that Realestate.com’s advertising inventory will commence selling on Adslot Platform during the first quarter of the 2011 financial year;
On 12 August 2010, Webfirm Group announced the proposed acquisition of QDC to complete the new Adslot Direct Platform. Our IER is in relation to the proposed acquisition of QDC which is subject to approval from the Non Associated Shareholders of Webfirm;
On 26 August 2010, Webfirm released its FY10 audited financial statements to the market;
On 13 September 2010, Webfirm announced the successful completion of a placement of 58.25 million shares at $0.13 per share to institutional and sophisticated investors raising $7.6 million. The funds raised pursuant to the recent placement are planned to be used for expanding the Adslot business into international markets;
On 16 September 2010, Webfirm invited eligible Webfirm shareholders to participate in an Share Purchase Plan (“SPP”) whereby each Webfirm shareholder could apply for up to $15k of new Webfirm shares at $0.13 per share;
On 16 September 2010, Webfirm announced the sale of Searchworld’s AdFeedEngine for USD 1.0 million. Webfirm mentioned that this sale was consistent with the Company’s strategy to divest its non-core assets to focus on the growth of the Adslot business;
On 20 September 2010, Webfirm announced the appointment of Computershare Limited’s founder Chris Morris to the Company’s Board as a non-executive director;
On 8 October 2010, Webfirm announced that Adslot had secured its second customers by entering into a formal commercial agreement with Carsales.com. Caresales.com is Australia’s largest automotive classifieds publisher; and
On 25 October 2010, Webfirm announced that it has raised $12.2 million from the SPP and will allot approximately 94.4 million shares at $0.13 per share on 29 October 2010. As per the announcement, the total cash reserves of Webfirm following the share placement to sophisticated investors and the SPP are expected to be approximately $22.0 million. The Company plans to use these funds for international expansion of the Adslot business and for general working capital.

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The share price history of Webfirm between 1 September 2009 and 22 October 2010 is summarised in the table below:

				Total monthly volume of
Months	Low (1)($)	High (1)($)	VWAP (1)($)	shares traded
From 1 Oct-10 to 22 Oct-10	0.190	0.225	0.209	28,166,480
Sep-10	0.150	0.190	0.175	24,293,205
Aug-10	0.135	0.160	0.151	13,024,455
Jul-10	0.088	0.150	0.120	47,120,312
Jun-10	0.063	0.080	0.073	10,431,436
May-10	0.059	0.072	0.069	16,366,481
Apr-10	0.059	0.080	0.068	31,790,811
Mar-10	0.046	0.058	0.051	21,873,217
Feb-10	0.033	0.059	0.049	28,820,363
Jan-10	0.033	0.038	0.035	8,901,195
Dec-09	0.031	0.045	0.035	7,662,056
Nov-09	0.030	0.037	0.033	6,717,590
Oct-09	0.030	0.062	0.038	27,216,836
Sep-09	0.061	0.080	0.070	9,473,994
	Low closing price (Sep- 09 to 22 Oct-10)	High closing price (Sep- 09 to 22 Oct-10)	Average of monthly VWAP	Total volume of shares traded (Sep-09 to 22 Oct-10)
	0.030	0.225	0.084	281,858,431
Note 1: Based on daily closing prices reported by Bloomberg
Source: Daily share price and volume history sourced from Bloomberg LLP on 25 October 2010

We note the following with regard to Webfirm’s share price history and volume:

From 1 September 2009 to 22 October 2010, a total of 281.9 million shares have been traded, representing approximately 56.7% of the total shares outstanding before the recent share placement on 13 September 2010. We note that this represents a reasonable level of liquidity in Webfirm’s shares;
The closing share price of Webfirm between 1 September 2009 and 22 October 2010 has fluctuated in the range of $0.030 to $0.225 with an average daily VWAP of $0.084 per share;
Webfirm’s share price has been on an upward trend since the announcement of an agreement with Realestate.com on 1 July 2010. The closing share price increased by 89.2% from a $0.074 on 30 June 2010 pre-announcement of Realestate.com to $0.140 per share on 11 August 2010 before announcement of the QDC acquisition;
Following the announcement of the potential commencement of advertising inventory sales on Realestate.com in the first quarter of 2011 on 20 July 2010, Webfirm’s shares were trading at around $0.14 per share and this was before the QDC acquisition was announced on 12 August

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The 1 month VWAP at 12 August 2010 was $0.139 per share. The VWAP over different periods before the Proposed Transaction was announced are detailed in the table below.

	VWAP (1) before the transaction announcement on 12 August 2010
	($)
1 Jul-10 to 11 Aug-10	0.122
1 month	0.139
3 months	0.108
6 months	0.081
12 months	0.070

Note 1: Based on daily closing prices reported by Bloomberg

Source: Daily share price and volume history sourced from Bloomberg LLP on 27 August 2010

On 13 September 2010, Webfirm announced the successful completion of a placement of 58.25 million shares at $0.13 per share to institutional and sophisticated investors raising $7.6 million. The placement represented 11.7% of the current shares on issue before the placement. The placement price of $0.13 per share represented a 16.6% discount to the 1 month VWAP of $0.156 per share at 13 September 2010;
On 8 October 2010, Webfirm announced that the Company had secured its second key customer, Carsales.com, for the Adslot Technology. The closing price of Webfirm after the Carsales.com announcement on 8 October 2010 has been in the range of $0.21 and $0.225 per share and is at an all time-high for the Company’s shares; and
On 25 October 2010, Webfirm announced that it has raised $12.2 million from the SPP at $0.13 per share.

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5. Overview of QDC

5.1 Introduction QDC is an Australian private company formed in April 2009. QDC owns software, patents and licences related to technologies that assist in the creation and personalisation of display and video advertising.

QDC owns technologies which allow advertisers to:

Build display advertisements in the web browser, using a vast advertisement template library (“Adbuilder Technology”); and
Personalise video advertisements for each advertisement view, depending on the individual audience profile (“Video Personalisation Technology”).
The Adbuilder Technology and Video Personalisation Technology are collectively referred to as “QDC Technologies” for the purposes of this report.

5.2 QDC Technologies

A brief description of QDC Technologies is included below:

5.2.1 Adbuilder Technology

QDC’s Adbuilder Technology allows advertisers to easily create online display advertisements at a low cost using an advertisement template library.

The key benefit of QDC’s Adbuilder Technology is that it removes the barrier of high online display advertisement creation costs for SME advertisers. Using the Adbuilder Technology, SME advertisers can easily create their own online display advertisements and thus undertake targeted online advertising at minimal cost.

5.2.2 Video Personalisation Technology

QDC’s Video Personalisation Technology can generate different digital video versions of an advertising campaign that are personalised to fit the profile and preferences of individual consumers. The video communications can be delivered through email, mobile phones, the internet, bank ATMs, interactive TV and mobile phones. Therefore instead of a one size fits all approach to video advertising, QDC’s Video Personalisation Technology can customize the video advertisement to make it relevant for the viewer.

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It is expected that through real time personalisation QDC’s Video Personalisation Technology will increase the impact and effectiveness of marketing communications. Using QDC’s Video Personalisation Technology, advertisers will be able to access tools to:

Store, re-use, re-purpose and create video content;
Use a customer database to personalise and customise communications;
Create communications that are relevant to the consumer;
Deliver communications to new portable digital devices; and
Build and maintain an on-going personal dialogue.

The key benefits of QDC’s Video Personalisation Technology are that it:

Delivers stronger consumer engagement and thus higher response rates; and
Significantly reduces the cost to create personal advertisements thus offering greater return on investment to advertisers at high scale and low cost.

5.3 The Patents

QDC has applied for patents over the “Personalised Video Generation” to be awarded for Australia, New Zealand, Canada, Europe and the United States of America (“USA”). We have been advised by Webfirm management that as of the date of this report, QDC has been awarded patents in New Zealand and patent applications in other regions are pending. We understand that the patents/ patent applications relate to personalised video generation using a group substitution interface. The patents/ patent applications are primarily for the following features which would enable generation of video personalisation:

Marking a video file with references to content groups and substitution rules enabling substituting content across a video file; and
Tagging a video file to access personal data which is then used to personalise the content.

We understand that for the Adbuilder Technology, Webfirm will enter into a licence agreement with EWT Trade and Business Consultants NZ Ltd (“EWT”) to obtain an irrevocable, perpetual, royaltyfree but non-exclusive licence in respect of the EWT Patent. EWT is the registered owner of a patent known as the “EWT Patent” which describes “an internet based method of placing display advertising in publications including the step of facilitating a provisioned internet site which can be accessed by advertisers who wish to insert advertisements in publications”.

We understand that the EWT Patent is granted for use in Australia, Singapore and New Zealand and an application for EWT Patent is made in Canada, Europe, Japan and USA.

Acquisition of QDC IP Technologies Pty Ltd-Independent Expert’s Report

5.4 Background to ownership of QDC Technologies

Qmecom Pty Ltd (“Qmecom”) was the original company that started development of the Video Personalisation Technology in 2003. In March 2009, Qmecom sold its physical assets to Lizard Research Services Pty Ltd (“Lizard Research”) and the intellectual property relating to the Video Personalisation Technology to QDC. Subsequent to March 2009, further development of the Video Personalisation Technology was performed by Lizard Research. In 2009, Lizard Research also started the development of the Adbuilder Technology.

We understand that Lizard Research has assigned all rights to the QDC Technologies to QDC. Thus QDC owns the rights to the QDC Technologies and its associated intellectual property. As mentioned in the Agreement, the Proposed Transaction is conditional on Webfirm being satisfied that the intellectual property relating to QDC Technologies is owned by, or licensed to, the Company on terms satisfactory to Webfirm.

5.5 Historical financial performance of QDC

The following table shows the historical financial performance of QDC for the 3 months between April 2009 and June 2009 and for FY10A.

	Unaudited	Unaudited
$'000	FY10A	(April 2009 to June2009)
Revenue	8	15
Expenses
- Patent application fees	(17)	-
- Server access fees	(13)	-
- Administration and other	(2)	(1)
Total expenses	(32)	(1)
EBIT	(24)	14

Source: QDC information as provided by Webfirm management

We make the following comments in relation to QDC’s historical financial performance:

Revenue represents license and subscription fees received for product trials conducted for customers; and
As previously mentioned, QDC acquired the intellectual property relating to the Video Personalisation Technology from Qmecom in March 2009. The employees of Qmecom were transferred to Lizard Research. We understand that further development of the Video Personalisation Technology was carried out in Lizard Research by the ex-Qmecom employees. Lizard Research also started developing the Adbuilder Technology. No costs were charged to QDC by Lizard Research for development of the QDC Technologies. Thus the costs as recorded in QDC’s books do not reflect the actual costs incurred to develop the QDC Technologies.

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5.6 Historical financial position of QDC

The following table shows the historical financial position of QDC as at 30 June 2010.

	Unaudited
$'000	30-Jun-10
Cash and cash equivalents	13
Intellectualpropertyandpatents	203
Total assets	216
Current tax liabilities	(1)
Loans
- Lizard Research	100
- Qmecom	110
- Other	10
Total liabilities	219
Net asset deficiency	(3)

Source: QDC information as provided by Webfirm management

We make the following comments in relation to QDC’s financial position at 30 June 2010:

QDC has a net asset deficiency of $3k as at 30 June 2010. We understand that one of the conditions of the Proposed Transaction is that the balance sheet of QDC must be working capital neutral at acquisition.
The book value of QDC’s intellectual property and patents includes the consideration of $201k paid by QDC to acquire those assets from Qmecom in March 2009. We understand that Qmecom is under administration and in the process of being wound up.
As discussed previously, development of QDC Technologies was continued by Lizard Research and thus the costs relating to further development are not reflected in QDC’s books.
It is a condition precedent to the Proposed Transaction that at completion date, QDC does not have any liabilities outstanding to the Vendors of QDC or any of their affiliates. We understand that the loans to Lizard Research and Qmecom have been converted to shares.

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6. Valuation methodologies

6.1 Valuation overview

For the purpose of our opinion, fair market value is defined as:

“The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller, acting at arm’s length.”

Fair market value does not incorporate any special value. Special value is defined as the amount a special purchaser is willing to pay in excess of the fair market value. Such special purchasers may be willing to pay a premium over the fair market value as a result of the potential economies of scale, reduction in competition or other synergies they may enjoy arising from the acquisition of the asset.

6.2 Common valuation methodologies

RG 111 outlines the appropriate methodologies that a valuer should consider when valuing assets or securities for the purposes of independent expert reports. These methods are listed below and broadly categorised as:

Market based approach;
Income based approach –the discounted cash flow (“DCF”) method;
Asset based approach; and
The quoted price for listed securities.

Each of these methodologies has application in different circumstances. The decision as to which methodology to use generally depends on the methodology most commonly adopted in valuing the asset in question and the availability of appropriate information.

6.2.1 Market based approach

Market based methods estimate a company’s fair market value by considering the market price of transactions involving comparable companies, or the market value of comparable publicly traded companies. Market-based methods involve the capitalisation of maintainable earnings by a multiple that reflects the risks associated with those earnings.

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Methodologies using capitalisation multiples of earnings or cash flows are commonly applied when valuing businesses where a future “maintainable” earnings stream can be established with a degree of confidence. Generally, this applies in circumstances where the business is relatively mature, has a proven track record, expectations of future profitability, and has relatively steady growth prospects. Such a methodology is generally not applicable where a business is in a start-up phase, has a finite life or is likely to experience a significant change in growth prospects and risks in the future.

6.2.2 Income based approach

Under the DCF methodology, the value of an asset is calculated as the net present value of the estimated future cash flows including a terminal value, if appropriate. In order to arrive at the net present value, cash flows are discounted using a discount rate, which reflects the risks associated with the cash flow stream. This approach is commonly used to value companies/assets with a finite life and when the future cash flows can be forecast with a reasonable degree of confidence.

6.2.3 Asset based approach

An asset based methodology is applicable in circumstances where neither a capitalisation of earnings nor a DCF methodology is appropriate.

Asset based methods are commonly used when:

A business is operating at a loss or at a low return that is not consistent with the level of net assets employed;
The nature of a business is to hold capital growth assets;
The asset value represents the minimum value that a vendor might be willing to accept on the sale of the business; and
The business is not considered to be a going concern.

There are three general assumptions under which a valuer can perform an asset based valuation:

The business is a going concern;
The business is undertaking an orderly realisation of assets; or
The business will be liquidated.

Going concern basis

A valuation using the asset based method on a going concern basis requires the determination of the market value of net assets. The value is estimated by determining the market value of assets, and then deducting the market value of liabilities. In the absence of any information to the contrary (e.g. a property valuation), the carrying or book value of assets is usually taken to be representative of market value.

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The going concern assumption assumes that the business will continue to trade and therefore no allowance for realisation costs is made.

Orderly realisation of assets

The value achievable in an orderly realisation of assets is estimated by determining the net value of the assets or business segments on the basis of an assumed orderly realisation. Using this methodology, the value of the net assets of the company would be adjusted for the time, cost and taxation consequences of realising the company’s assets.

Liquidation basis

The liquidation basis is appropriate when there is an event such as a liquidity crisis or formal administration or liquidation appointment requiring the assets to be realised in a short timeframe. Under this scenario, assets are typically sold at values that are materially lower than their fair market value.

6.2.4 Quoted market price

Where there is a ready market for securities where shares can be traded, recent prices at which shares are bought and sold provides evidence as to the market value of the share.

The quoted market price of listed securities can be used to derive the value of a portfolio shareholding in the company. The quoted market price of a listed security is expected to provide good evidence of the value a security, where the market is well informed and there is regular high volume trading in that security (i.e. the market for the security is reasonably liquid).

6.3 Selected methodology – Webfirm

Webfirm has been making losses and therefore it is not appropriate to apply a capitalisation of earnings methodology.

Furthermore, we do not consider it appropriate to apply a DCF methodology because one of Webfirm’s key operating divisions, Adslot division, is in the early stages of commercialisation and therefore it is not possible to derive reliable long term cash flow forecasts with a degree of certainty.

Based on Webfirm’s latest reported statement of financial position prior to the Proposed Transaction, Webfirm reports a net asset value of 2.4 cents per share. However, an asset based approach is also not considered particularly relevant for Webfirm given that:

Approximately 46% of the carrying value of Webfirm’s net assets at 30 June 2010 related to intangible assets of the Adslot division. These intangible assets represent the carrying value of the Adslot Technology which has been recorded at approximately the historical costs incurred to develop the Adslot Technology. This value based on historical development costs does not reflect the commercialisation of the Adslot division achieved by entering into an agreement with Realestate.com in July 2010 and the growth prospects attached to this technology; and
Webfirm’s interests in the Webfirm division are carried at a historical acquisition cost, adjusted for subsequent impairment write-downs.

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The traded share price of Webfirm has increased significantly in the last three to four months after the announcement of Realesate.com being secured as the first customer of Adslot. The traded price of Webfirm has increased by 156.8% from a $0.074 on 30 June 2010 pre-announcement of Realestate.com to a current price of $0.190 per share on 22 October 2010. We believe that such a significant movement in the share price in less than a four month period reflects a potential element of speculation and may not be a stable indicator of the fair value of Webfirm shares.

Therefore, for the purposes of our report, we have considered the placement price of $0.13 per share as a more stable indicator of fair value of Webfirm shares as this price reflects a value paid for a similar size parcel of shares acquired by knowledgeable sophisticated investors.

6.4 Selected methodology – QDC

As QDC is a start up company that is in the early stages of commercialising its QDC Technologies, neither a capitalisation of earnings nor a DCF methodology is considered appropriate to value QDC. Accordingly, we have selected an asset based methodology on a going concern basis to value QDC. As discussed in Section 8 of this IER, this requires a valuation of the QDC Technologies.

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7. Assessed market value of Webfirm

7.1 Assessed value of a Webfirm share issued as consideration The traded share price of Webfirm has increased significantly in the last three to four months after the announcement of Realesate.com being secured as the first customer of Adslot. The trading price of Webfirm during the last three to four months incorporates the market’s expectations around the following:

The recent trading price incorporates the market’s expectations for the potential gains from the commercialisation of the Adslot Technology after it secured its first customer; and
The recent trading price also incorporates the market’s expectations around the potential gains expected from the acquisition of the QDC Technologies, as a result of the Proposed Transaction.

The traded price of Webfirm has increased by 156.8% from a $0.074 on 30 June 2010 preannouncement of Realestate.com to a current price of $0.190 per share on 22 October 2010. We believe that such a significant movement in the share price in less than a four month period reflects a potential element of speculation and may not be a stable indicator of the fair value of Webfirm’s shares.

For the purposes of our report, considering the current speculative volatility of the Webfirm share price, we believe that the placement price of $0.130 per share is the best indicator of the fair value of a Webfirm share. Accordingly, we consider it appropriate to use the placement price of $0.130 per share to value the Webfirm shares that are to be issued as consideration under the Proposed Transaction.

Our selection of $0.130 per share based on the placement price is in line with 1 month traded VWAP of $0.139 per share observed before the announcement of the QDC acquisition.

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8. Market value of QDC and the QDC Technology

8.1 Approach to valuing QDC

In order to assess whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders we need to first derive a valuation of QDC.

As discussed in Section 6 of this report, an asset based methodology is applicable in circumstances where neither a capitalisation of earnings nor a DCF methodology is appropriate and where there is no other market evidence to support the value of the shares. Therefore we have chosen an asset based methodology to derive a valuation of QDC.

As discussed in Section 5 of this report, QDC’s major assets are intellectual property related to the Adbuilder Technology and the Video Personalisation Technology.

Therefore to derive an asset based valuation of QDC, we need to first value the QDC Technologies.

8.2 Approach to valuing QDC Technologies

A number of valuation methodologies can be adopted to determine the fair market value of an identifiable intangible asset. The principal methodologies are:

Market approach;
Income approach; and
Cost approach.

These methodologies and their relative merits in valuing the QDC Technologies are discussed below:

8.2.1 Market approach

The market approach provides an indication of the fair value by comparing the asset under review to similar assets that were bought and sold in recent market transactions. A fair value estimate is generally derived from the transaction price for an asset or a number of similar assets for which observable market data is available.

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The QDC Technologies are unique and no prices for similar assets are available. Therefore a market based methodology is not considered appropriate.

8.2.2 Income approach

Fair value estimates using the income approach provide a value based on the cash flows that an individual intangible asset is expected to generate.

This approach is also not considered appropriate given the difficulty in preparing reliable cash flow forecasts for QDC Technologies.

8.2.3 Cost approach

The cost approach seeks to estimate fair value by quantifying the amount of money that would be required to repurchase or reproduce the asset.

Five components of cost are generally included in deriving the value of an intangible asset by applying a cost approach[7] . These components of cost are:

Material – direct material costs;
Labour – direct labour costs;
Overhead – recovery of overhead costs;
Developer’s profit – the developer expects to earn a reasonable profit on the development of the intangible; and
Entrepreneurial incentive – the developer also expects to be compensated for the risk of the development process.

In deriving the value of an asset from a cost based approach, the valuer also needs to consider whether the cost based valuation should be reduced for any form of obsolescence.

For the purposes of assessing the Proposed Transaction, we have used a cost based methodology to value the QDC Technologies.

7 Valuing Intangible Assets by Robert F Reilly and Robert P Schweihs

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8.3 Cost based valuation of QDC Technologies

The following table summarises the total replication costs expected to be incurred to replicate the QDC Technologies:

($'000)	Rebuild costs
Adbuilder Technology labour and overheads costs	1,222
Video Personalisation Technology labour and overheads costs	4,137
Other software, hardware, hosting and quality and assurance costs	690
Patent costs	150
Estimated total replication costs	6,199

Source: Webfirm management information

We make the following comments in relation to the technology costs detailed in the table above:

The replication costs have been derived having regard to the actual time that has been spent to develop the QDC Technologies as well as Webfirm management’s estimates as to the cost that would be expected to rebuild the QDC Technologies;
The total replication cost of $6.2 million, as calculated in the table above, only allows for direct labour, direct material and overhead costs. That is, no allowance had been made for developer’s profit or entrepreneurial incentive. Therefore in deriving a valuation of the QDC Technologies, we consider it appropriate to add a premium of between 15% and 25% to reflect for the developer’s expected profit margin and entrepreneurial incentive. This premium has been assessed having regard to:
Development margins typically derived in the software development industry;
The significant market opportunities associated with the online display and video advertising; and
The time it would take to redevelop the Adbuilder Technology and the potential opportunity loss from use of this technology.

After incorporating a premium of between 15% and 25% to allow for developer’s profit and entrepreneurial incentive we have valued the QDC Technologies at between $7.1 million and $7.7 million as shown in the table below.

		Low	High
Labour, material and overhead costs associated with developing QDC Technologies	($'000)	6,199	6,199
Premium to allow for developer'sprofit and entrepreneurial incentive	(%)	15.0%	25.0%
Assessed market value of QDC Technologies	($'000)	7,129	7,749

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8.4 Cost based valuation of QDC

We understand that at the date of implementing the Proposed Transaction, QDC is expected to have a nil net tangible asset position (i.e. before taking into account the value of the QDC Technologies).

This results in an asset based valuation of QDC between $7.1 million and $7.7 million as calculated in the table below.

($'000)	Low	High
Expected net tangible assets position of QDC immediately before the Proposed Transaction	-	-
Assessed market value of QDC Technologies	7,129	7,749
Assessed market value of QDC	7,129	7,749

We consider it important to note that in valuing QDC, we have valued the QDC Technologies based on the estimated replication cost plus a premium to allow for the developer’s profit and entrepreneurial incentive. We have selected this approach because it is difficult to reliably estimate the present value of the future cash flows that may be able to be generated from the commercialisation of the QDC Technologies.

The basic economic principal behind a cost based valuation methodology is that a rational investor will pay no more for an intangible asset than the cost to obtain an asset of equal utility. Therefore the cost base methodology assumes that the asset is not unique and therefore is able to be replicated. However, patent applications with respect to the Video Personalisation Technology have been lodged in Australia, New Zealand, Canada, Europe and the USA. Therefore if the patents are successful, then it may not be possible for Webfirm (or any other investor) to obtain an asset of equal utility. Our cost based approach does not take into account the future economic benefits that Webfirm (or any other investor) might expect to derive from owning these patent applications.

Accordingly, it is our opinion that our cost based valuation of the rights to the Video Personalisation rights is likely to represent its minimum value.

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9. Assessment of the Proposed Transaction

9.1 Approach

In assessing whether the Proposed Transaction is fair and reasonable to the Non Associated Shareholders of Webfirm, we have considered the following:

Compared the consideration offered by Webfirm to acquire QDC to our assessed value of QDC; and
Considered the other potential advantages and disadvantages of the Proposed Transaction to the Non Associated Shareholders.

9.2 Value of the consideration to be paid by Webfirm to the Vendors

Under the terms of the Proposed Transaction, Webfirm will acquire 100% of the issued capital of QDC from QDC shareholders (“Vendors”) in exchange for:

Approximately 29.3 million Webfirm shares to be issued to Vendors other than Venturian Pty Ltd; and
Approximately $0.8 million cash consideration to be paid to Venturian Pty Ltd, an entity related to Mr Andrew Barlow.

In Section 7 of this report, we have assessed the fair value of a Webfirm share to be $0.130 per share. Therefore, the total consideration to be paid to the Vendors is assessed to be $4.6 million as shown in the table below:


To QDC shareholders other than Mr Andrew Barlow
Number of Webfirm shares to be issued as consideration	('000)	29,309
Assessed valueper Webfirm share	($per share)	0.130
Assessed value of the share consideration	($'000)	3,810

To Venturian Pty Ltd for the 26.7% shareholding in QDC
Cash consideration	($'000)	802
Total value of the consideration	($'000)	4,612

As outlined in Section 1 of this report, the Vendors will be issued Further Consideration of up to 13.3 million Webfirm shares if the price of the Webfirm shares at the end of 18 month period

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declines below $0.10 per share. We have assessed the value of a Webfirm share to be $0.13 per share and hence at our current valuation of Webfirm no Further Consideration will have to be issued.

9.3 Comparison of the consideration offered by Webfirm to our assessed value of QDC

We set out in the table below a comparison of our assessment of the fair market value of the consideration paid to the Vendors to our assessed fair market value of QDC.

		Low	High
Assessed value of the consideration	($'000)	4,612	4,612
Assessed value of QDC	($'000)	7,129	7,749

9.4 Reasonableness of the Proposed Transaction

9.4.1 Advantages

Webfirm plans to integrate the Adbuilder Technology with the Adslot Technology. This new integrated product offering is expected to increase the demand for publisher’s online advertising inventory, as it will become more cost-effective for advertisers to place advertisements on the publisher’s websites. Accordingly, the Proposed Transaction presents new growth opportunities and increased potential earnings for Webfirm.
The Proposed Transaction is expected to offer Webfirm significant additional growth opportunities, as the online video advertising segment is expected to be the fastest growing segment of all the online advertising forms and categories in Australia over the next few years.

QDC has also lodged patent applications in Australia, New Zealand, Canada, Europe and the USA relating to personalising video generation using a group substitution interface. If these patent applications are successful, they are expected to offer a significant competitive advantage to Webfirm in the online video advertising market. One such patent has been recently awarded in New Zealand.

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The majority of the consideration will be paid in the form of Webfirm shares, which will ensure that the interests of the vendors of QDC are aligned with those of the current Webfirm shareholders.
The Proposed Transaction is aligned to Webfirm’s current strategy of investing in products that offer substantial growth opportunities and that are scalable with relatively low infrastructure investment.

9.4.2 Disadvantages

QDC is a start up company with no earnings history. There is a risk that Webfirm will not be successful in commercialising the QDC Technologies or that the successful commercialisation of the QDC Technologies could be materially delayed.

If the commercialisation of the QDC Technologies is not successful or is delayed, this could result in Webfirm incurring losses which may adversely impact the value of Webfirm shares.

The Proposed Transaction is expected to dilute the relative holdings of the Non Associated Shareholders of Webfirm (including the shares to be allotted on 29 October 2010 under the share purchase plan) from 88.9% to 85.1%. A summary of the shareholding before and after the Proposed Transaction is presented below:

			Number of Webfirm
			shares to be issued
	Number of shares	% of shares held	to current QDC	Number of shares	% of shares
	held prior to the	before the	shareholders under	expected to be held	expected to be held
	Proposed	Proposed	the Proposed	after the Proposed	after the Proposed
	Transaction	Transaction	Transaction	Transaction	Transaction
Andrew Barlow (1)	57,140,133	8.8%	-	57,140,133	8.4%
Adrian Giles (1)	14,669,539	2.3%	3,636,393	18,305,932	2.7%
Other current Webfirm shareholders (2)	577,760,137	88.9%	-	577,760,137	85.1%
Other current QDC shareholders	-	-	25,672,698	25,672,698	3.8%
Total	649,569,809	100.0%	29,309,091	678,878,900	100.0%

Note 1: Andrew Barlow and Adrian Giles are Associated Shareholders for the purposes of the Proposed Transaction.

Webfirm shares owned by Andrew Barlow and Adrian Giles are held through indirect entities.

Note 2: The number of shares held by the other current Webfirm shareholders include the approximately 94.4 million shares to be allotted to shareholders on 29 October 2010 under the SPP.

There is a risk that, in the event, that the trading price of Webfirm shares declines below $0.10 per share at the end of the 18 months escrow period, Webfirm will be required to issue Further Consideration of up to 13.3 million additional shares to the Vendors of QDC. The issue of the maximum number of shares under the Further Consideration would further dilute the relative holdings of the Non Associated Shareholders of Webfirm from 85.1% to 83.5%.

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However, it should be noted that Webfirm will require further shareholder approval to issue any Further Consideration to the Associated Shareholders.

9.4 Conclusion

Accordingly, it is our opinion that the Proposed Transaction is fair and reasonable to the Non Associated Shareholders of Webfirm.

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10. Qualification, declarations and consents

10.1 Disclosure of communications Neither Grant Thornton Corporate Finance nor any member of Grant Thornton Corporate Finance has had any shareholding in or is associated with Webfirm. Grant Thornton Corporate Finance is entitled to a fee for its professional services in preparing this report. The fee for this report will be charged on a “time cost” basis.

An advance draft of this report was provided to Webfirm. As a result, certain changes were made to factual statements in the report. However, there were no alterations to the methodology, valuations or conclusions.

10.2 Qualifications and declarations

Our report has been prepared in accordance with professional standard APES 225 “Valuation Services” issued by the Accounting Professional & Ethical Standards Board (“APESB”).

Grant Thornton Corporate Finance is licensed under the Act as an investment adviser and licensed dealer in securities. Our opinions are based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.

Our report is also based upon financial and other information provided by Webfirm and other publicly available information. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld. The information provided was evaluated through analysis, enquiry and review for the purpose of forming an opinion on the Proposed Transaction from the perspective of the Non Associated Shareholders of Webfirm. However, in assignments such as this, time is limited and we do not warrant that our enquiries have identified or verified all the matters which an audit, extensive examination or ‘due diligence’ investigation might disclose. None of these additional tasks have been undertaken.

An important part of the information based in forming an opinion of the kind expressed in this report is the opinions and judgment of management. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation.

Other than this report, Grant Thornton Corporate Finance has not been involved in the preparation of the Notice of Meeting and Explanatory Memorandum or any other document prepared in respect

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of the Proposed Transaction. Accordingly, we take no responsibility for the content of the Notice of Meeting and Explanatory Memorandum as a whole or any other document prepared in respect of the Proposed Transaction.

10.3 Consents

Grant Thornton Corporate Finance consents to the inclusion of this report in the form and context in which it is included with the Notice of Meeting and the Explanatory Memorandum to be issued to the shareholders of Webfirm. Neither the whole nor any part of this report or any reference thereto may be included in any other document without the prior written consent of Grant Thornton Corporate Finance as to the form or context in which it appears.

10.4 Indemnity

Webfirm has agreed to indemnify Grant Thornton Corporate Finance in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of Webfirm which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.

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Appendix 1-Sources of information

In preparing this IER, we have had access to the following principal sources of information:

Frost & Sullivan, Australian Online Advertising Market Summary Report dated December 2009
Interactive Advertising Bureau Online Advertising Expenditure Report, Quarter ended June 2010
Neilsen Online Internet & Technology Report 2008-2009
eMarketer, Video Advertising Growth Factors, September 2008
IBISWorld Report on Advertising Services in Australia dated July 2010;
Share sale and purchase agreement entered into between Webfirm and shareholders of QDC IP Technologies;
Webfirm Group Limited’s Annual Report for FY08;
Webfirm Group Limited’s Appendix 4E and Audited Financial Statements for FY10
Webfirm Group Limited’s Shareholder Update dated August 2010;
Grant Thornton’s Independent Expert’s Report for Webfirm Group Limited- Related Party Transactions, Adslot acquisition dated 18 December 2009;
Various ASX Announcements made by Webfirm;
QDC Presentations as provided by Webfirm management;
QDC’s financial information for April to June 2009 and FY10 as provided by Webfirm management;
Patent application summary prepared by QDC IP Technologies Pty Ltd;
Copy of EWT Trade and Business Consultants NZ Limited’s Australian Patent;

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Redevelopment costs for QDC Technologies as provided by Webfirm management;
Bloomberg LLP; and
Discussions with Webfirm management.

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Appendix 2-Abbreviations used

Abbreviations used	For
Adslot	Adslot Pty Ltd
Adslot Technology	Adslot's combinatorial auctioning technology
ASIC	Australian Securities and Investments Commission
Associated Shareholders	Mr Andrew Barlow and Mr Adrian Giles
ASX	Australian Securities Exchange
CAGR	Compounded annual growth rate
Corporations Act	Corporations Act, 2001
DCF	Discounted cash flow
Directors	Directors of Webfirm
EBIT	Earnings before interest and tax
EBITDA	Earnings before interest, tax, depreciation and amortisation
EWT	EWT Trade and Business Consultants NZ Ltd
FSG	Financial Services Guide
Further Consideration	Potential issue of 13.3 million additional share as consideration
FY08A	For the financial year ended 30 June 2008
FY09A	For the financial year ended 30 June 2009
FY10A	For the financial year ended 30 June 2010
Grant Thornton Corporate Finance	Grant Thornton Corporate Finance Pty Ltd
GST	Goods and Services Tax
IER	Independent Expert Report
IPO	Initial Public Offer
Lizard Research	Lizard Research Services Pty Ltd
Non Associated Shareholders	Webfirm shareholders other than Mr Andrew Barlow and Mr Adrian Giles
Percentage	%
QDC	QDC IP Technologies Pty Ltd
QDC Technologies	Adbuilder Technology and Video Personalisation Technology
Qmecom	Qmecom Pty Ltd
Realestate.com	Realestate.com.au Pty Ltd
RG 111	Regulatory Guide 111- Content of expert reports
RG 112	Regulatory Guide 112- Independence of experts
SME	Small and Medium Enterprises
The Listing Rules	Chapter 10 of the Listing Rules
Thousands	k or '000
TV	Television
USA	United States of America
Vendors	QDC shareholders
VWAP	volume weighted average price
Webfirm or the Company	Webfirm GroupLimited

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ADSLOT LTD. — AGM Information 2010

64306_rns_2010-10-28_2516246d-675a-4df7-a67d-8fea94fe8181.pdf

A S X A N N O U N C E M E N T

Annual General Meeting Notice & Proxy Form

WEBFIRM GROUP LIMITED

NOTICE OF MEETING

TO BE HELD AT

WEBFIRM GROUP LIMITED

NOTICE OF ANNUAL GENERAL MEETING Tuesday 30 November 2010

ORDINARY BUSINESS

1. Financial statements and reports

2. Remuneration report (Resolution 1)

3. Re-election of Mr Adrian Giles as a director (Resolution 2)

4. Re-election of Mr Andrew Barlow as a director (Resolution 3)

5. Re-election of Mr Chris Morris as a director (Resolution 4)

6.

Re-election of Mr Anthony Du Preez as a director (Resolution 5)

SPECIAL BUSINESS

7. Acquisition of QDC IP Technologies Pty Ltd (Resolution 6)

8. Approval of issue of Shares to the shareholders of QDC IP Technologies Pty Ltd (Resolution 7)

VOTING EXCLUSION STATEMENT

PROXY NOTES

DETERMINATION OF VOTING ENTITLEMENTS

REQUIRED VOTING MAJORITIES

EXPLANATORY STATEMENT

PURPOSE OF INFORMATION

FINANCIAL STATEMENTS AND REPORTS

REMUNERATION REPORT (Resolution 1)

RE-ELECTION OF MR ADRIAN GILES AS DIRECTOR (Resolution 2)

Introduction

ELECTION OF MR ANDREW BARLOW, MR CHRIS MORRIS AND MR ANTHONY DU PREEZ AS DIRECTORS (Resolutions 3, 4 and 5)

Introduction

Biography of Andrew Barlow (Executive Director)

Biography of Chris Morris (Non-executive Director)

Biography of Anthony Du Preez (Executive Director)

Background

The QDC Technology and Business

Regulatory requirements

ASX Listing Rules

ASX Listing Rule 10.1 – Transactions with persons in a position to influence

What is a 'Substantial asset'?

Related party

Independent Expert's Report

Voting exclusion statement

ASX Listing Rules 7.1 and 10.11 – Issue of new Shares on completion of QDC Acquisition

Required information

(a) Maximum number of securities to be issued

(b) Issue date

(c) Issue price

(d)

Allottees

(e) Terms of issue

Implications if Resolution 6 and 7 are not passed

When will the QDC Acquisition proceed, if approved?

ASX escrow requirements

Corporations Act

Directors' recommendation

HOW TO VOTE

QUERIES

GLOSSARY

Annexure A

Webfirm Group Limited

EXECUTIVE SUMMARY

Introduction

Rationale for the Transaction

The Proposed Transaction

Conditions precedent to the Proposed Transaction

Scope

Approach

Comparison of the consideration offered by Webfirm to our assessed value of QDC

Reasonableness of the Proposed Transaction

Advantages

Disadvantages

Conclusion

Limitations and reliance on information

Financial Services Guide

Grant Thornton Corporate Finance Pty Ltd

Financial Services Guide

General financial product advice

ADSLOT LTD. AGM Information 2010