BLUGLASS LIMITED — Annual Report 2013

Aug 25, 2013

BLUGLASS LIMITED AND CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

BLUGLASS LIMITED and CONTROLLED ENTITIES

ABN 20 116 825 793

Financial Statements for the Year Ended 30 June 2013

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BLUGLASS LIMITED AND CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

CONTENTS

Page

Directors’ Report	03
Information on Directors	10
Remuneration Report	12
Directors Report cont.	18
Auditor’s Independence Declaration	20
Financial Statements	21
Statement of Profit or Loss and other Comprehensive Income	21
Statement of Financial Position	22
Statement in Changes In Equity	23
Statement of Cash Flow	24
Notes to the Financial Statements	25
Directors’ Declaration	54
Independent Auditor’s Report	55

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BLUGLASS LIMITED AND CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

DIRECTORS’ REPORT

Your directors present their report on BluGlass Limited Group and its controlled entities (“the Group”) for the financial year ended 30 June 2013.

DIRECTORS

The names of directors in office at any time during or since the end of the year are:

Mr George Venardos Mr Gregory Cornelsen Mr Chandra Kantamneni Dr Alan Li (Resigned 28 August 2012)

Dr William Johnson

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated.

COMPANY SECRETARY

The following person held the position of company secretary at the end of the financial year:

Mr Emmanuel Correia

Mr Emmanuel Correia is a Chartered Accountant and has extensive experience in the corporate finance and equity capital markets. Emmanuel has had over 20 years public accounting and corporate finance experience both in Australia, North America and the United Kingdom. He has held various senior positions with Big 4 accounting firms and boutique corporate finance houses.

Emmanuel provides corporate advice to a diverse client base both in Australia and in overseas markets. Emmanuel has previously held a number of public company directorships and his key areas of expertise include Initial Public Offerings and secondary capital raisings, corporate strategy and structuring merger and acquisitions.

PRINCIPAL ACTIVITIES

The principal activity of the consolidated entity or “the Group” during the financial year was to further the research and development of Group III nitrides for the development of new processes and equipment to manufacture high efficiency devices such as LEDs and solar cells. The Group is working on achieving its technology milestones using its patented low temperature Remote Plasma Chemical Vapour Deposition (RPCVD) technology to manufacture semiconductor materials. RPCVD has many potential advantages over the current industry technologies.

There were no significant changes in the nature of the Group’s principal activities during the financial year.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

FINANCIAL SUMMARY

Revenue has increased by $2,298,092 up 93.5% to $4,725,912 due to the following factors:

• Initial eligibility and receipt of the Commonwealth’s Research and Development Tax Rebate ($2,349,139) for expenditure incurred in both BluGlass Limited ($736,112) and EpiBlu Technologies ($1,626,030) for the year ending 30 June 2012. This was the first year of the scheme so no funds where received in the year ending 30 June 2012;

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• The final retention payment of $240,054 being received from the Commonwealth Climate Ready, which ended on the 30 June 2012.

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• Accrual of the Research and Development Tax Rebate applicable to for the 2012/13 financial year. The Research and Development program has been registered with AusIndustry early July 2013 and the appropriate schedules prepared for inclusion with the 2012/13 tax return.

• Other income, being principally interest has decreased by $113,692, down 42.2%, due to the decrease in interest rates during the year and lower cash balances held on short-term deposits.

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Gross expenditure has decreased on a consolidated basis by $2,269,777, down 26.2% to $6,402,638 due to the following factors:

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• Research and development expenditure was no longer being incurred in EpiBlu Technologies Pty Ltd (the JV subsidiary, EpiBlu) from 1 July 2012. Salaries and wages where thus no longer being incurred for staff in the UK. Salaries and wages have decreased down to $2,395,296, down 21.6% from $3,056,584 in 2012. The minority shareholding of 49% in EpiBlu was acquired on 9 October 2012(with the economic value being acquired from 1 July 2013);

• Depreciation expense is reducing as original research equipment is progressively being written off, $719,821 (2012; $1,641,923);

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• The other major non cash item of expenditure; employee incentive option amortisation increased by $235,421 due to new allocations granted in January 2013.

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Cash required for operational expenses, repayment of borrowings and capital expenditure before the allocation to non-controlling interest in EpiBlu averaged $255,167 per month, (2012: $439,513). The decrease is mainly due to no expenditure on research in EpiBlu Technologies RPCVD technology.

The consolidated loss for the period amounted to $1,676,726 (2012: $6,230,574). This result was able to be achieved principally through reduced depreciation and closure of the EpiBlu joint venture operations as well as receipt and accrual of 2 years worth of Research and Development Tax Rebates.

The net assets of the consolidated entity increased by $3,794,784 from 30 June 2012 to $17,126,424 due to the following:

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Successful share placement and Share Purchase Plan during the period (2012: nil);

Receipt of the Research and Development Tax Rebate for expenditure for the 2011/2012 financial year Accrual of the 2012/13 Research and Development Tax Rebate of $1.967m.

The statement of Financial Position does not include a value for the increasing number of patent applications and patents granted during the period since listing on the ASX in 2006 as all research and development costs are expensed as incurred, and not capitalised;

Accounting Standards applicable to the acquisition of SPTS’s 49% of EpiBlu require that BluGlass recognises the EpiBlu balance sheet as at the 30th June 2012 (the effective date of the transaction) and as such does not reflect any of the $1.626m of the Research and Development Tax Rebate subsequently claimed and received by EpiBlu. Fair value of the shares issued to SPTS was $1.374m compared to the net assets at 30 June 2012 of $0.391m giving rise to a $0.981m Non-Controlling Interest (NCI) Acquisition Reserve. The subsequent receipt of this cash does not enable the NCI Acquisition Reserve to be adjusted.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REVIEW OF OPERATIONS

The 2013 Financial Year was a year of major technical breakthroughs for the Company with the achievement of a number of key technology and commercial milestones. The Company is now closer to taking the breakthrough RPCVD technology to the rapidly expanding LED market. The key achievements during the year are discussed below;

In July 2012, the Company announced that SPTS had agreed to sell to BluGlass its 49% interest in the Joint Venture company, EpiBlu Technologies Pty. Ltd. This restructure was designed to provide BluGlass sufficient freedom to pursue the full range of commercialisation avenues potentially involving one of the major LED equipment manufacturers. This capital restructure also delivered a number of core benefits to BluGlass being:

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100% ownership of the RPCVD technology that was developed by the EpiBlu joint venture along with the future benefits from commercialisation of the technology

Continued support from SPTS who will continue to provide marketing assistance to promote the commercialisation of the technology

• BluGlass also retains a license to the background intellectual property required in order to exploit the technology

In September 2012, BluGlass announced that the claims of one of its key patents was accepted and granted by the US Patent and Trademarks Office. This brought the total granted patent portfolio of the company to 17 international patents in five patent families, a significant advancement for the company which commenced with three provisional patents in 2006.

Critically in October 2012, the Company announced that it had been successful in bringing key impurity levels (carbon, hydrogen and oxygen) on par with the industry standard process, MOCVD. This was a significant step forward for the Company that represented the overcoming of a major technical hurdle. Carbon and oxygen were well known inhibitors of RPCVD for commercial application in the LED industry, and the demonstration of industry accepted levels of these materials was recognised by the LED community as an important achievement for BluGlass.

Compound Semiconductor Magazine followed this announcement with the first BluGlass feature interview since 2006 and said “The breakthrough has been a long time coming… but could have a profound effect on LED manufacturing”.

This key technical achievement enabled BluGlass to achieve its Proof of Concept Milestone shortly afterwards.

In November 2012, BluGlass announced that it had successfully demonstrated n-GaN films with electrical properties that meet industry performance benchmarks.

ROOM TEMPERATURE HALL MEASUREMENT RESULTS OF AN RPCVD n-GaN FILM GROWN ON A UN-DOPED COMMERCIAL GaN TEMPLATE COMPARED TO A TYPICAL MOCVD GROWN n-GaN FILM

	TYPICAL MOCVD p-GaN SPECIFICATION	RECENT RPCVD p-GaN DATA	RECENT RPCVD p-GaN DATA
		IQE Data	ANU Data
Mobility	≥ 250 cm2/V.s	297 cm2/V.s	300 cm2/V.s
For a Carrier Concentration of	2.0 x 1018 cm-3	2.0 x 1018 cm-3	2.1 x 1018 cm- 3

In December 2012 BluGlass was successful in raising $4.75M through an Institutional Placement and Share Purchase Plan. This funding will be used to continue operations and commence the commercialisation and scaling activities in line with the published roadmaps.

Also in December 2012, BluGlass announced that its initial laboratory experiments in the development of p-GaN had been successful. A low temperature p-GaN layer was grown on a commercially produced MOCVD 456nm blue multiquantum well structure. Preliminary testing was carried out on the sample using a 0.5 mm diameter size p-type indium contact. The light output was measured with a UV-detector positioned under the wafer calibrated at the wavelength of the light emission.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REVIEW OF OPERATIONS (Cont)

• At 20 mA, 4.7V the light output was 270 µW (Light emission at 458 nm, FWHM of 19 nm)

• • At 50 mA, 5.5V the light output was 1.23 mW (Light emission at 456 nm, FWHM of 18 nm)

The current was applied continuously for more than 60 minutes without the loss of function.

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FIGURE TWO: Demonstration of light emission from a BluGlass low temperature RPCVD p-GaN layer grown on a MOCVD grown multiquantum well structure.

In February 2013, BluGlass announced that it had succeeded in producing p-type gallium nitride (GaN) films with industry equivalent performance properties using its low temperature RPCVD technology when grown on top of MOCVD GaN templates. This breakthrough followed on from the company’s proof of concept milestone achievement in November 2012.

ROOM TEMPERATURE HALL MEASUREMENT RESULTS OF AN RPCVD p-GaN FILM GROWN ON A COMMERCIAL GaN TEMPLATE COMPARED TO A TYPICAL MOCVD GROWN p-GaN FILM

	TYPICAL MOCVD p-GaN SPECIFICATION	RECENT RPCVD p-GaN DATA
Resistivity	< 3 Ohm.cm	0.7 Ohm.cm
For a Carrier Concentration of	≥ 1 x 1017	1 x 1017

This is possibly the most significant technical milestone achieved to date; and the Company is now focussed on demonstrating improved LED device efficiency using RPCVD grown p-GaN layers to prove the commercial value of a low temperature technology.

In July 2013, BluGlass announced that it had won almost $3 million in funding under the Australian Federal Government’s Clean Technology Innovation Program to demonstrate higher efficiency, energy saving, lower cost nitride based LED’s on various substrates, including silicon. This funding support for the continued advancement of our RPCVD technology represents an enormous commitment from the Commonwealth Government and demonstrates their continued belief in BluGlass’ ability to bring its breakthrough technology to market.

Furthermore, in July 2013 BluGlass received final development consent to put in place the remaining infrastructure upgrades to BluGlass’ state of the art Silverwater facility. This was a lengthy Development Application (DA) process, and to receive full consent is a good step for BluGlass as it completes the facility upgrades that will allow the company to take the Silverwater facility from a predominately research focused facility to one that is ready to meet the company’s commercialisation and technology scaling milestones.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REVIEW OF OPERATIONS (Cont)

The team has been meticulously designing and developing these facility improvements since early 2013. This has involved sourcing a suitable larger scale MOCVD deposition tool (compared to the existing RPCVD tool employed at BluGlass) and it’s shipping and installation at Silverwater. This MOCVD machine arrived in Australia in March 2013 and following the recent DA approval it is now in the final stages of installation and commissioning and it is expected to come online at Silverwater in the coming weeks.

This new machine will initially operate as an MOCVD machine which the technology team will use to produce the MOCVD LED and multi-quantum well base structures for the demonstration of the Brighter LEDs milestone. While this machine is operating as an MOCVD machine, the design phase for its retrofit as an RPCVD machine will commence in order to demonstrate the scalability of the RPCVD technology from a 7x2” deposition machine capable cycle to a 19x2” deposition machine.

BluGlass has also purchased a Photoluminescence (PL) Mapper. This machine will be a great asset for the company, as it will enable BluGlass to demonstrate easily and in-house the photoluminescence and thickness profiles of RPCVD material at a wafer scale, particularly the effect of high quality, low temperature p-GaN material on top of an MOCVD grown multi-quantum well LED structure. This will significantly reduce the time it takes to evaluate material and allow us to test more of our growth runs for PL. The acquisition of the PL Mapper adds to a state of the art set of characterisation tools (like the XRD) enabling us to quickly process wafers and show progress to the industry.

Based on the technical successes during the year, BluGlass has been able to re-engage with companies in the LED value chain, including the major industry leaders to develop future commercial interest in the RPCVD technology. We look forward to furthering these discussions as the Company continues to advance the technology roadmaps.

In conclusion, 2013 has been the most significant year to date for the Company and bodes very well for an exciting 2014 as BluGlass evolves from a pure research and development company to one pursuing its commercial and market goals. The next milestone to produce Brighter LEDs using our revolutionary RPCVD approach is not just an achievement for BluGlass, but one that will have implications for the entire LED industry.

The Company will also continue to develop its low temperature RPCVD technology for other emerging market applications such as Concentrated Photovoltaics (CPV) and GaN on Silicon and other optical and electrical device applications. The installation of the new tool will help expedite activity on these roadmaps objectives.

This industry continues to face two major challenges and is continually seeking ways to increase the efficiency of LED devices and also to drive down the cost of manufacture in order to enable the mass adoption of energy saving LEDs in the overhead lighting market.

The RPCVD technology has the potential to address both of these industry concerns. The Company is working towards delivering the RPCVD technology platform with its low temperature advantages as the natural choice for the industry to meet these critical challenges in a single technology solution.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REVIEW OF OPERATIONS (Cont) - DEVELOPMENT ROADMAPS

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SIGNIFICANT CHANGES IN STATE OF AFFAIRS

Other than the developments reported elsewhere in this report, there were no significant changes in the state of affairs during the year.

DIVIDENDS PAID OR RECOMMENDED

No dividends were declared in 2013 or 2012.

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

The company was succesful in being awarded a Commonwealth Government Clean Technoloy Innovation Grant for $2,999,355 for reseach to undertaken over the next 30 months for its Nitride based LED programme.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REVIEW OF OPERATIONS (Cont)

FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES

BluGlass will position itself to take advantage of the growing LED and PV markets in order to maximise shareholder return.

BluGlass will continue to deliver on its technology milestones as outlined in the roadmap in the Review of Operations above.

These developments, together with the current strategy of continuous improvement and innovation are expected to assist in the acheivement of the Group’s long-term goals and development of its business opportunities.

ENVIRONMENTAL AND SAFETY ISSUES

The BluGlass RPCVD technology uses some materials classified under the Dangerous Goods Act. All materials and consumables are handled in strict compliance with relevant regulatory environmental, health and safety codes, as do all facility emmisions.

The company has in place strict OHS&E procedures and a Safety Manager who reports weekly to the CEO on all safety and environmental related matters. BluGlass meets and exceeds all state and federal OHS&E statutory requirements.

There were no reportable safety or environmental incidents during the course of the year.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

INFORMATION ON DIRECTORS

MR. GEORGE VENARDOS

Non Executive Chairman

BCom, FCA, FTI, FAICD, FCSA

Current Directorships:

Former Directorships: (last 3 years)

Experience and Expertise

Non Executive Director – Ardent Leisure Group Non Executive Director – IOOF Holdings Limited Non Executive Director – Miclyn Express Offshore Limited

Extensive directorship experience across a broad range of ASX listed companies

Over 30 years experience in the finance, IT, funds management, reinsurance and corporate services sectors

Special Responsibilities

Risk and Audit Committee member, Remuneration and Nominations Committee member

George is a non-executive director with broad listed company experience across a range of different industries. He has more than 30 years experience in the Insurance and Financial Services sector and was formally Group Chief Financial Officer of Insurance Australia Group Limited; Chief Financial Officer, Legal and General Australia; and Chairman of the Insurance Council of Australia Finance and Accounting Committee. George is himself a committed shareholder of BluGlass holding over 980,118 shares.

DR. WILLIAM JOHNSON Non Executive Director BS-Phy, MS-EE, PhD, Current Directorships: President and CEO SPTS Pty Ltd Former Directorships in the last 3 Director Surface Technology Systems (STS) Pt. Ltd (Wales) years: Managing Director Crane Ridge Group (CA, USA) Experience and Expertise More than 30 years executive experience in the semiconductor equipment Industry Semiconductor equipment management and commercialisation expertise Extensive technical, marketing and executive leadership expertise

Special Responsibilities

Remuneration and Nominations Committee member

William Johnson (“Bill”), is a seasoned CEO with extensive business development/M&A, technological leadership, and general management experience; successful hands-on leadership roles in operations ranging from high technology start-ups to Fortune 500 high technology companies. He is currently President and Chief Executive Officer of SPP Process Technology Systems (SPTS), a manufacturer of capital equipment for the semiconductor and related industries.

Bill has held technical, marketing, and executive management positions with Ford Motor Co. Scientific Research Laboratories (1973-1978), Perkin-Elmer Corp. (1978-1986), Ulvac Corp. (1987-1991), Varian Associates (19921994), Intevac Inc. (1994-1996), Oryx Instruments and Materials Corp. (1996-1999), and Therma-Wave, Inc. (19992002). From 2003-2006, he was founder and managing director of Crane Ridge Associates, a firm providing consulting and M&A guidance to select high tech clientele; his association with Sumitomo Precision Products began in 2007, and he was the architect for the formation of SPTS through the acquisition of assets of Aviza Technology.

Bill was also instrumental in leading the all equity based management buy-out of SPTS in mid 2011 which saw Bridgepoint, a leading European Private Equity company, align themselves with SPTS fully backing the management team and endorsing SPTS’s participation with BluGlass.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

MR. CHANDRA KANTAMNENI Non Executive Director MSc, MS, MBA Former Directorships in last 3 Managing Director, Peregrine Semiconductor.Australia years: Experience and Expertise : More than 30 years experience in the Semiconductor Industry Operational, Manufacturing & Process Management Expertise Special Responsibilities Risk and Audit Committee member

Chandra Kantamneni has more than 30 years experience in the global semiconductor industry and is currently the Technical Director for the University of California Los Angeles (UCLA)’s California Nano Systems Institutes where he manages a state of the art semiconductor and cleanroom fabrication facility. Formerly he was the Vice President of Worldwide Fab Operations of US-based Peregrine Semiconductor Corporation where he managed the world wide Foundry Operations for the Corporation. Prior to that he was the Vice-President and Managing Director of Peregrine Semiconductor, Australia.

Chandra has worked in senior management and engineering positions for some of the world's largest US-based semiconductor companies, including director of worldwide foundry operations and engineering manager for International Rectifier Corporation, director of engineering for GMT Microelectronics, and Manufacturing Manager of the Fairchild Research Centre of National Semiconductor Corporation.

MR. GREG CORNELSON	Non Executive DirectorBEc
Current Directorships:	Welcome Stranger Mining Limited
	Arasor International Limited
	MOV Corporation Limited
	EHG Corporation Limited
	Collect Hodlings Limited
Former Directorships in last 3	Blackcrest Resources Limited RKS Consolidated Limited
years:	FTD Corporation Limited Shell Villages and Resources Limited
	AAT Corporation Ltd
Experience and Expertise :	Economist and expert in growing SME’s
	Track record in managing growth from start-up to success exit via listing
	Previous Directorships on Numerous ASX listed companies
Special Responsibilities:	Remuneration and Nominations Committee Chairman, Risk and Audit
	Committee Chairman

Greg Cornelsen is an economics and business development specialist and a successful businessman having held leadership positions in both large Australian based multinationals and start-up operations. A former international rugby union player, with 25 caps for the Australian Wallabies, he is president of the Australian Barbarian Rugby Club and a board member of the Australian Schools Rugby Foundation. His rugby and business backgrounds have allowed him to develop an extensive network within the Australian business community.

Greg is a long-time passionate supporter of sustainable practises and clean technologies having grown up on a family station that employed revolutionary broad acre sustainable practises. Greg has always understood the importance of the BluGlass technology for both the LED and solar industries. He is instrumental in steering the Board’s sub committees and is a committed BluGlass shareholder holding 927,941 BLG shares.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

REMUNERATION REPORT 2012- 2013

INTRODUCTION

The Directors of BluGlass Limited present the Remuneration Report for the Company and its controlled entities for the year ended 30 June 2013. This Remuneration Report forms part of the Directors Report and is subject to audit by the external auditor in accordance with the Corporations Act 2001.

The Report details the nature and amount of remuneration for the company’s non-executive directors and the executive team who by definition are the company’s Key Management Personnel . The Key Management Personnel are the key people accountable for directing the affairs of the company and its controlled entities.

The people who currently hold these Key Management Personnel positions are listed in the table below

	NON-EXECUTIVE DIRECTORS		EXECUTIVES
	George Venardos	Chairman	Giles Bourne	Chief Executive Officer
	Gregory Cornelsen	Director	Ian Mann	Chief Technology Officer
	Chandra Kantamneni	Director	Stuart Uhlhorn	Chief Financial Officer
	Alan Li (Resigned 28/08/12)	Director
	William Johnson	Director

During the period the Remuneration and Nominations Committee comprised 3 independent directors - Greg Cornelsen (Committee Chairman), William Johnson and George Venardos. The Committee met once during the year.

REMUNERATION STRATEGY

The remuneration policy of BluGlass Limited has been designed to align shareholder objectives with the strategic business objectives of BluGlass. This is achieved by providing;

1. a modest market related fixed remuneration component,

2. a small component of short term incentives and

3. long-term incentives based on key performance areas affecting the consolidated entity’s ability to commercialise its technology milestones when achieved.

The remuneration policy, setting the terms and conditions for the directors and executives was developed by the remuneration committee and approved by the Board after seeking professional advice from independent external consultants. No additional advice was sought during the year.

The Board of BluGlass Limited aims for the remuneration strategy to attract and retain the appropriate executives and directors to run and manage the consolidated entity recognising that as a pre-revenue research and development company it has limited ability to pay competitive base cash salaries and short term cash incentives. The ability to attract the best staff is achieved via ensuring all staff as well as executives and directors have access to a meaningful and rewarding long term incentive scheme currently in the form of an employee option scheme that creates goal congruence between directors, executives and shareholders.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

DIRECTORS’ REMUNERATION

The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The remuneration and nominations committee determines payments for the non-executive directors and reviews their remuneration annually. The review is based on market practice, duties and accountability. Independent external advice is sought when required.

The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the consolidated entity. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and are able to participate in the employee option plan. An issue of director options was approved at the 2011 AGM under the same terms and conditions of a October 2011 issue to staff.

The current remuneration of non-executive directors is:

Position	Remuneration
	$
Chairman	70,000
Director	40,000
Committee Chairperson	5,000
Committee member	-

A non-executive directors remuneration thus comprises the base board fee, any applicable committee chairman fee and the 9% superannuation levy contribution. No LTIs where allocated to directors during the year. William Johnson’s fees in his capacity as director are paid directly to SPTS.

		SHORT	POST	LONG TERM	TOTAL REMUNERATION	TOTAL REMUNERATION
		TERM	EMPLOYMENT	INCENTIVES
		Board and Committee fees $	Superannua- tion $	Options $	Total $ % of remunera- tion that is options based
Directors
George Venardos	2013	70,000	6,300	-	76,300	0.0
	2012	70,000	6,300	61,600	137,900	44.7
Gregory Cornelsen	2013	50,000	4,500	-	54,500	0.0
	2012	50,000	4,500	30,800	85,300	36.1
Chandra Kantamneni	2013	40,000	3,600	-	43,600	0.0
	2012	40,000	3,600	30,800	74,400	41.4
Alan Li	2013	-	-	-	-	0.0
	2012	43,600	-	30,800	74,400	41.4
William Johnson	2013	40,000	-	-	40,000	0.0
	2012	40,000	-	30,800	70,800	100.0
Total	2013	200,000	14,400	-	214,400
Total	2012	243,600	14,400	184,800	442,800

The options granted in the above tabled are valued in accordance with Australian Accounting Standards and the full market price of the underlying BluGlass share price at the date of grant, and may not reflect the current market value of the options granted. Additionally no discount for uncertainty has been assigned to the option valuations, which do carry the risk of not meeting vesting hurdles.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

EXECUTIVE REMUNERATION

The Board’s policy for determining the nature and amount of remuneration for executives of the consolidated entity is as follows:

All key management personnel receive a base salary (which is based on factors such as length of service and experience), superannuation, access to a limited short term cash incentive scheme and to the longer term incentive scheme via options.

Short term incentives are only paid once predetermined annual key performance indicators have been met and are capped at 20% of base salary.

Incentives may be paid in the form of options or rights and are intended to align the interests of the key management personnel and company with those of shareholders. In this regard, key management personnel are prohibited from limiting risk attached to those instruments by use of derivatives or other means.

The remuneration and nominations committee reviews executive packages annually by reference to the consolidated entity’s performance, executive performance and comparable information from similar industry sectors.

The performance of executives is measured against criteria agreed annually with each executive and is based predominantly on the achievement of specific BluGlass technology and commercial milestones being achieved and the efficient conduct of the company’s operations. All bonuses and incentives must be linked to these predetermined performance criteria or milestones. The Board may, however, exercise its discretion in relation to approving incentives, bonuses and options, and can recommend changes to the committee’s recommendations. Any changes must be justified by reference to measurable performance criteria. The policy is designed to reward executives for performance that will result in long-term growth in shareholder wealth.

Executives are also entitled to participate in the employee share and option arrangements under the employee incentive scheme.

Executives receive a superannuation guarantee contribution required by the government, which for the period was 9%, and do not receive any other retirement benefits. Some individuals, however, have chosen to sacrifice part of their salary to increase payments towards superannuation.

	EXECUTIVES TOTAL REMUNERATION	EXECUTIVES TOTAL REMUNERATION
	Executives Giles Bourne 2013 2012 Ian Mann 2013 2012 Stuart Uhlhorn 2013 2012	SHORT-TERM POST EMPLOY- MENT LONG TERM INCENT- IVES TOTAL REMUNE- RATION
		Cash Salary $ KPI Related Incent- ive $ Super- annuation $ Options $ Total $ % of remuner- ation that is performa- nce based % of remuner- ation that iis options based 302,753 52,800 27,247 105,975 488,776 10.8 21.7 296,106 43,225 24,933 112,000 476,265 9.1 23.5 220,184 43,200 19,816 103,625 386,825 11.2 26.8 208,073 19,266 24,211 100,800 352,350 5.5 28.6 213,184 43,200 26,816 77,625 360,825 12.0 21.5 185,136 24,220 49,144 78,400 336,900 7.2 23.3
	Total 2013 Total 2012	736,121 139,200 73,880 287,225 1,236,426 689,316 86,711 98,288 291,200 1,165,515
	Th i i	h l l i ih Ali Ai S h

The options granted in the above tabled are valued in accordance with Australian Accounting Standards and the full market price of the underlying BluGlass share price at the date of grant and may not reflect the current market value of the options granted. Additionally no discount for uncertainty has been assigned to the option valuations, which do carry the risk of not meeting vesting hurdles.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

CONTRACTED EXECUTIVE REMUNERATION

The company secretary, Emmanuel Correia is contracted to BluGlass from Cardrona Energy Pty Ltd. The agreement includes provisions that the contract may be terminated by either party with one months’ notice. Payments for services to Cardrona were $85,200 in 2013. Payments for services were $79,200 in the 2012 financial year. As a contracted position, the company secretary is not eligible to participate in short term incentive scheme and does not form part of the BluGlass’ executive team.

EMPLOYMENT CONTRACTS OF EXECUTIVES

The employment terms and conditions of the CEO and other executives are formalised in contracts of employment. All executives are permanent employees of BluGlass Limited.

Terms of employment require that the relevant group entity provide an executive contracted person with a minimum of one months’ notice prior to termination of contract. The CEO’s contract is subject to 3 months’ notice. Termination payments are determined by the remuneration and the nominations committee if a termination payment is appropriate. A contracted person deemed employed on a permanent basis may terminate their employment by providing at least one months’ notice. Termination payments are not payable on resignation or under the circumstances of unsatisfactory performance.

PERFORMANCE BASED REMUNERATION

As part of the executive remuneration package there is a performance-based component, consisting of key performance indicators (KPIs). The intention of this program is to facilitate goal congruence between directors/executives with that of the business and shareholders. The KPI’s are set annually, with a certain level of consultation with executives to ensure buy-in. The measures are specifically tailored to the areas each executive is involved in and has a level of control over. The KPI’s target areas the Board believes hold greater potential for group expansion and profit, and cover financial and non-financial as well as short and long term goals. The level set for each KPI is based on budgeted figures for the group and respective industry standards.

Performance in relation to the KPI’s is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPI’s achieved and the period of employment for the period. Following the assessment, the KPI’s are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the group’s goals and shareholder wealth, before the KPI’s are set for the following year.

The following table shows the gross revenue and losses over the last 7 years as well as the increasing portfolio of patents that has been built.

	2007	2008	2009	2010	2011	2012	2013
Revenue $'000	1,059.8	3,216.1	1,845.0	1,720.8	2,085.1	2427.8	4,725.9
Loss attributable to the
Parent Entity $'000	-2,241.2	-2,686.9	-8,443.3	-5,348.7	-4,170.6	-3,273.3	-1,676.7
Share price at year-
end cents	0.57	0.47	0.21	0.112	0.115	0.086	0.15
Patents lodged	-	10	15	15	1	1	2
Patents granted	-	-	3	6	2	2	2
Cumulative patents
managed	29	39	54	69	70	71	73

BluGlass’ potential value exists in it being able to finalise its research and development programmes and to then commercialise its IP portfolio into the rapidly growing global market for LED manufacturing equipment and high efficiency solar cells.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

OPTIONS ISSUED AS PART OF REMUNERATION FOR THE YEAR ENDED 30 JUNE 2013

Options and Rights Granted

Options and Rights Granted
Grant Details	Overall
Directors Date No. Value $ Exerc- ised no. Lapsed no. Vested no. Vested % Unvested % Lapsed 30/06/2012 George Venardos - - - - - - - - - Greg Cornelsen - - - - - - - - - Chandra Kantamneni - - - - - - - - - Alan Li - - - - - - - - - William Johnson - - - - - - - - - - - - Grant Details Overall Executives Date No. Value $ Exerc- ised no. Lapsed no. Vested no. Vested % Unvested % Lapsed 30/06/2013 Giles Bourne 18/02/2013 471,000 105,975 - - - - 314,00 - Stuart Uhlhorn 18/02/2013 345,000 77,625 - - - - 230,000 - Ian Mann 18/02/2013 460,000 103,500 - - - - 306,667 - - - - DESCRIPTION OF OPTIONS GRANTED AS REMUNERATION 2013

Directors George Venardos Greg Cornelsen Chandra Kantamneni Alan Li William Johnson Executives Giles Bourne Ian Mann Stuart Uhlhorn	Options Vested Options Granted Grant Date Value per Option Exercise Price First Exercise Date Last Exercise Date No. No. $ $ N/A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
	Options Vested Options Granted Grant Date Value per Option Exercise Price First Exercise Date Last Exercise Date 471,000 18/01/2013 0.225 0.00 N/A 18/01/2016 460,000 18/01/2013 0.225 0.00 N/A 18/01/2016 345,000 18/01/2013 0.225 0.00 N/A 18/01/2016
	1,276,000

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

DESCRIPTION OF OPTIONS GRANTED AS REMUNERATION 2013 (Cont.)

The value of options in the above table reflects the full market price of the underlying BluGlass share price at the date of grant and may not reflect the current market value of the options granted. Additionally no discount for uncertainty has been assigned to these option valuations, which do carry the risk of not meeting vesting hurdles.

Staffs were granted options as remuneration during the year, in line with the Board’s approval in November 2012 and communicated to the ASX at the time of issue in January 2013.

Conditions of issues were;

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Vest conditionally over a three year period from the grant date and expire on 18 January 2016.

1/3[rd] of the options vest when the BLG achieves the milestone of MOCVD equivalent P GaN

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1/3[rd] of the options vest when the BLG achieves the milestone of a commercial arrangement with customer

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1/3[rd] of the options vest base on 24 months continuous employment with BluGlass

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Options issued in accordance with the company’s approved Incentive Option Scheme All options were granted for nil consideration.

SHARES ISSUED ON EXERCISE OF COMPENSATION OPTIONS

4,058,444 options were exercised during the year that had been granted as compensation in prior periods.

There were 2,905,000 options exercisable at 17cents from the 2010 employee incentive scheme issue, this tranche represented 50% of the options from this issue that had met the requisite hurdle criteria to be exercised. Directors and staff exercised 1,320,000 options, realising $224,000 for the company. The second tranche of these 2010 options lapsed in May 2013 as they had not met the hurdle criteria. The discount to prevailing market price of the share (if any) at the time of exercise is taxable to the director/employee at that time.

Options also became exercisable from the 2011and 2013 employee incentive scheme issues. These options when issued under the BluGlass Option Incentive Scheme are assigned to the BluGlass Employee Incentive Plan Pty Ltd (the Trust), where they are held in trust for employees. When options are exercisable after having met vesting criteria they are converted to shares by the Trust and the shares continue to be held by the Trust until employees are ready to withdraw their share entitlement from the Trust. The shares are taxable to the employees when they are withdrawn from the Trust.

When options are exercised by staff they are restricted from trading in BluGlass Limited shares by the company’s share trading policy. They are also limited in their ability to trade, during the recognised trading windows of this policy, if they are in possession of any inside company information that is not known to the market as a whole.

REMUNERATION ADVISORS

During the period no remuneration advisors were retained or used by the Company.

END OF REMUNERATION REPORT -

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

DIRECTORS’ REPORT cont.

MEETINGS OF DIRECTORS

During the financial year, 7 meetings of directors (including committees of directors) were held. Attendances by each director during the year were:

each director during the year were:
	DIRECTORS’				COMMITTEE MEETINGS
	MEETINGS
				Audit	& Risk	Remuneration &
				Committee		Nominations
						Committee
	Number		Number			Number
	eligible to	Number	eligible	to	Number	eligible to	Number
	attend	Attended	attend		Attended	attend	Attended
George Venardos	7	7	3		3	2	2
Gregory Cornelsen	7	7	3		3	2	2
Chandra Kantamneni	7	7	3		1	-	-
Alan Li (Resigned 28/08/12)	1	-	-		-	-	-
William Johnson	7	7	-		-	2	2

INDEMNITIES GIVEN AND INSURANCE PREMIUMS PAID TO AUDITORS AND OFFICERS

The Group has entered into Deeds of Indemnity, Insurance and Access with each of the directors and the Company Secretary. Each deed provides officers with the following:

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• A right to access certain Board papers of the Group during the period of their tenure and for a period of seven years after that tenure ends;

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• Subject to the Corporations Act 2001, an indemnity in respect of liability to persons other than the Group and its related bodies corporate that they may incur while acting in their capacity as an officer of the Group or a related body corporate, except where that liability involves a lack of good faith, and for defending certain legal proceedings; and the requirement that the Group maintains appropriate directors’ and officers’ insurance for the officer.

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No liability has arisen under these indemnities as at the date of this report.

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• The Company has paid premiums to insure each of the directors, secretary and executives against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of a director or officer of the company, other than conduct involved in a wilful breach of duty in relation to the company.

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The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify any current or former officer or auditor of the Group against a liability incurred as such by an officer or auditor.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

OPTIONS

At the date of this report, the unissued ordinary shares of BluGlass Limited under option are as follows:

Options

At the date of this report, the unissued ordinary shares of BluGlass Limited under option are as follows:

Grant Date Date of Expiry Exercise Price $ 13/10/2011 13/10/2014 0.00 29/11/2011 13/10/2014 0.00 31/01/2012 13/10/2014 0.00 26/01/2013 26/01/2016 0.00	Number Under Option 988,223 1,400,000 396,000 1,832,668
	4,616,891

During the year ended 30 June 2012, 5,004,778 ordinary shares of BluGlass Limited were issued on the exercise of options.

PROCEEDINGS ON BEHALF OF COMPANY

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party of taking responsibility on behalf of that company for all or any part of those proceedings.

NON-AUDIT SERVICES

The Board of directors, in accordance with advice from the Audit and Risk committee, is satisfied that the provision of nonaudit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

all non-audit services are reviewed and approved by the Audit and Risk committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES110:Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

The following fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2013:

$ Government grant review services 4,000

AUDITOR’S INDEPENDENCE DECLARATION

The lead auditor’s independence declaration as required by s307C of the Corporation Act 2001 for the year ended 30 June 2013 has been received and can be found on page 20 and forms part of the directors’ report.

This Directors’ Report incorporating the Remuneration Report is signed in accordance with a resolution of the Board of Directors.

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George Venardos

Director Dated the 26th day of August 2013

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Grant Thornton Audit Pty Ltd ACN 130 913 594

Level 19, 2 Market Street Sydney NSW 2000 GPO Box 2551 Sydney NSW 2001 T +61 2 9286 5555 F +61 2 9286 5599 E info.nsw@au.gt.com W www.grantthornton.com.au

Auditor’s Independence Declaration To the Directors of BluGlass Limited

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of BluGlass Limited for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been:

• a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• b no contraventions of any applicable code of professional conduct in relation to the audit.

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

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G S Layland Director - Audit & Assurance

Sydney, 26 August 2013

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

COMPREHENSIVE INCOME

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013

Note Revenue 2 Other income 2 Employee benefits expense 18 Professional fees Board and secretarial fees Corporate compliance & legal expense Consultant fees Rent expense Travel and accommodation expense Consumables Depreciation and amortisation expense Other expenses Loss before income tax 3 Income tax expense 4 Loss for the period Other comprehensive income Total comprehensive income Loss attributable to: - Members of the parent entity - Non-controlling interest Total Comprehensive Income attributable to: - Members of the parent entity - Non-controlling interest Earnings Per Share Basic loss per share (cents per share) 7 Diluted loss per share (cents per share) 7 Dividends per share (cents)	Consolidated Entity 2013 $ 2012 $ 180,113 269,624 4,545,799 2,158,196 (3,033,870) (3,372,266) (257,296) (61,900) (268,680) (371,149) (192,583) (71,811) (259,153) (337,017) (236,319) (218,320) (116,327) (117,141) (674,116) (1,650,017) (719,821) (1,641,923) (644,473) (816,850)
	(1,676,726) (6,230,574) - -
	(1,676,726) (6,230,574) - -
	(1,676,726) (6,230,574)
	(1,676,726) (3,237,312) - (2,993,262)
	(1,676,726) (6,230,574)
	(1,676,726) (3,237,312) - (2,993,262)
	(1,676,726) (6,230,574)
	(0.63) (1.35) (0.63) (1.35) N/A N/A

The financial statements should be read in conjunction with the following notes.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

FINANCIAL POSITION

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013

Note Current Assets Cash and cash equivalents 8 Trade and other receivables 9 Consumables 10 Other current assets 11 TOTAL CURRENT ASSETS Non-Current Assets Property, plant and equipment 12 Intangible assets 13 TOTAL NON-CURRENT ASSETS TOTAL ASSETS Current Liabilities Trade and other payables 15 Short-term provisions 17 Short-term borrowings 16 TOTAL CURRENT LIABILITIES Non-Current Liabilities Long-term provisions 17 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Equity Issued capital 19 Reserves 20 Non-controlling interest Accumulated Losses TOTAL EQUITY	Consolidated Entity 2013 $ 2012 $ 5,589,870 3,731,750 1,967,784 - 144,062 210,727 113,564 68,059
	7,815,280 4,010,536
	1,327,286 1,380,890 8,695,000 8,695,000
	10,022,286 10,075,890
	17,837,566 14,086,426
	251,101 133,452 161,958 174,528 - 182,781
	413,059 490,671
	298,083 264,025
	298,083 264,025
	711,142 754,786
	17,126,424 13,331,640
	42,673,992 36,022,046 (572,538) 1,192,445 - 391,283 (24,975,030) (24,274,134)
	17,126,424 13,331,640

The financial statements should be read in conjunction with the following notes.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

CHANGES IN EQUITY

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013

Consolidated Entity Balance at 30 June 2011 Total comprehensive income for the period Transactions with owners in their capacity as owners Shares issued during the year Transaction costs Share options issued Transfer of retained earnings Dividends paid or provided for Balance at 30 June 2012 Balance at 1 July 2012 Total comprehensive income for the period Transactions with owners in their capacity as owners Shares issued during the year Share transaction costs during the year Purchase of 49% non-controlling interest Share options issued Exercise of share option Transfer of retained earnings Dividends paid or provided for Balance at 30 June 2013	Issued Capital Share- Based Payments Other Reserves Non- Controlling Interest Accumulated Losses Total $ $ $ $ $ $ 36,022,046 876,763 - 749,614 (21,036,822) 16,611,601 - - (2,993,262) (3,237,312) (6,230,574)
	- - - (2,993,262) (3,237,312) (6,230,574)
	- - - 2,634,931 - 2,634,931 - - - - - - - 315,682 - - - 315,682 - - - - - - - - - - - -
	36,022,046 1,192,445 - 391,283 (24,274,134) 13,331,640
	36,022,046 1,192,445 - 391,283 (24,274,134) 13,331,640 - - (1,676,726) (1,676,726)
	- - (1,676,726) (1,676,726)
	4,828,205 - - - 4,828,205 (132,478) - - - (132,478) 1,373,735 - (982,452) (391,283) - - - 551,383 - - 551,383 582,484 (358,084) - - - 224,400 - (975,830) - 975,830 - - - - - -
	42,673,992 409,914 (982,452) - (24,975,030) 17,126,424

The financial statements should be read in conjunction with the following notes.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

CASHFLOWS

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2013

Note CASH FLOWS FROM OPERATING ACTIVITIES Receipts from grants Interest and other income received Payments to suppliers and employees Net cash used in operating activities 23 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares, net of transaction costs Proceeds from options exercised Repayment of borrowings Proceeds from issue of shares from non- controlling interest in subsidiary Net cash provided by financing activities Net increase/(decrease) in cash held Cash at beginning of financial year Cash at end of financial year 8	Consolidated Entity 2013 $ 2012 $ 240,054 2,158,196 2,518,074 269,624 (4,971,138) (6,814,769)
	(2,213,010) (4,386,949)
	(666,217) (151,030)
	(666,217) (151,030)
	4,695,728 - 224,400 - (182,781) (736,172) - 1,028,976
	4,737,347 292,804
	1,858,120 (4,245,175) 3,731,750 7,976,925
	5,589,870 3,731,750

The financial statement should be read in conjunction with the following notes.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1:STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report covers BluGlass Limited as a consolidated entity (“Group”). BluGlass Limited is a listed public company, incorporated and domiciled in Australia.

The separate financial statements of the parent entity BluGlass Limited have not been presented within this financial report as permitted by the Corporations Act 2001.

The financial statements were authorised for issue on 26th August 2013 by the directors of the company

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report.

Basis of Preparation

The consolidated general purpose financial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). BluGlass Limited is a for-profit entity for the purpose of preparing financial statements.

The accounting policies set out below have been consistently applied to all years presented.

The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, and financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by BluGlass Limited at the end of the reporting period. A controlled entity is any entity BluGlass Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities.

Where controlled entities have entered or left the Group during the year, the financial performance of those entities are included only for the period of the year they were controlled. A list of controlled entities is contained in Note 14 to the financial statements. All controlled entities have a June financial year-end.

In preparing the consolidated financial statements all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. Accounting policies of subsidiaries are consistent with those adopted by the parent entity.

Non-controlling interests, presented as part of equity, represents the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries and the non-controlling interests bond on their respective ownership interests.

• (b) Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (revenue) and deferred tax expense (revenue).

Current income tax expense charged to the profit and loss is the tax payable on taxable income calculated using applicable tax rates enacted, or substantially enacted, as at reporting period. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1:STATEMENT OF SIGNIFICANT ACCOUNTING POLICIESNOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(b) Income Tax (cont.)

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Tax consolidation

BluGlass Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under tax consolidation legislation. BluGlass Limited is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. The group notified the Australian Taxation Office that it had formed an income tax consolidated group to apply from 21 September 2006. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

(c) Inventories

Inventories are measured at the lower of cost and net realisable value.

(d) Plant and Equipment

Each class of plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses.

Plant and equipment

Plant and equipment are measured on the cost basis.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets is depreciated on a straight-line basis over their useful lives to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset	Depreciation Rate
Furniture and Fittings	10%
Plant and equipment	20-60%
Leasehold improvements	33.33%
Computer hardware and software	33.33%

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1:STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(e) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated entity are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over their estimated useful lives.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

(f) Financial Instruments

Recognition and measurement

Financial instruments, incorporating financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument.

Financial instruments are initially measured at fair value plus transaction costs where the instrument is not classified as at fair value through profit and loss. Transaction costs related to instruments classified as at fair value through profit and loss are expensed to the profit and loss immediately. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of noncash assets or liabilities assumed, is recognised in profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method.

Financial liabilities

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost using the effective interest rate method.

Impairment

At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. Impairment losses are recognised in the statement of comprehensive income.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(g) Impairment of assets

At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

(h) Intangibles

Patents and trademarks

Patents and trademarks are recognised at cost of acquisition. Patents and trademarks and intellectual property have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Patents and trademarks are amortised over their useful life ranging from 5 to 10 years.

Research and development

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technically feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

Intellectual property

Intellectual property (IP) which represents in process research is recognised at cost of acquisition. IP has a finite life once the asset is ready for use. Once the asset is ready for use the asset will be carried at cost less any accumulated amortisation and any impairment losses.

(i) Foreign Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the Group's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent and controlled entity's functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Nonmonetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the income statement, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(j) Employee Benefits

Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy vesting requirements. Those cashflows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cashflows.

Equity-settled compensation

The Group operates an equity-settled share-based payment employee share and option scheme. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using the Cox-Ross-Rubenstein Binomial pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

(k) Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(l) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position.

(m) Revenue and Other Income

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument.

All revenue is stated net of the amount of goods and services tax (GST).

(n) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(o) Government Grants

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straightline basis.

(p) Borrowing Costs

Borrowing costs are expensed in the period in which they are incurred and reported in finance costs.

(q) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(r) Critical accounting estimates and judgments

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Key estimates — Impairment

The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. See Note 13: Intangible assets for further disclosure of impairment.

Key estimates — Share options

The company issued options under the BluGlass Limited prospectus and the employee incentive option scheme. The options granted in the year were valued using the BluGlass share price at the date of grant. The prior year options were valued the same as they are currently valued. The key inputs to the pricing model are disclosed on Note 24. In addition to the pricing, key judgements revolve around the likelihood of vesting and estimated vesting date where there are vesting conditions. These judgements impact the expense recorded for the period.

(s) Adoption of New and Revised Accounting Standards

AASB 2010-8 Amendments to Australian Accounting Standard – Deferred Tax:

Recovery of Underlying Assets (Applies to annual reporting periods beginning on or after 1 January 2012)

AASB 2010-8 provides clarification on the determination of deferred tax assets and deferred tax liabilities when investment property is measured using the fair value model in AASB 140 Investment Property . It introduces a rebuttable presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model where the objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

AASB 2010-8 also includes the requirement that the measurement of deferred tax assets and deferred tax liabilities on non-depreciable assets measured using the revaluation model in AASB 116Property, Plant and Equipment should always be based on recovery through sale.

These amendments have had no impact on the Group.

AASB 2011-9 Amendments to Australian Accounting Standards – Presentation of Items of Other Comprehensive Income (Applies annual reporting periods beginning on or after 1 July 2012)

AASB 2011-9 requires entities to group items presented in Other Comprehensive Income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently, and changes the title of ‘statement of comprehensive income’ to ‘statement of profit or loss and other comprehensive income’.

The adoption of the new and revised Australian Accounting Standards and Interpretations has had no significant impact on the Group’s accounting policies or the amounts reported during the current period. The adoption of AASB 2011-9 has resulted in changes to the Group’s presentation of its financial statements..

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

• (t) Accounting standards issued but not yet effective and not been adopted early by the Group

AASB 9 Financial Instruments (January 2015)

.

AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are:

• i. Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; and (2) the characteristics of the contractual cash flows.

• ii. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income (instead of in profit or loss). Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument.

• iii. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.

• iv. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:

The change attributable to changes in credit risk are presented in other comprehensive income (OCI); and The remaining change is presented in profit or loss.

If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Otherwise, the following requirements have generally been carried forward unchanged from AASB 139 into AASB 9:

• Classification and measurement of financial liabilities; and

• Derecognition requirements for financial assets and liabilities.

Consequential amendments arising from AASB 9 are contained in AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) , AASB 2010-10 Further Amendments to Australian Accounting Standards – Removal of Fixed Dates for First-time Adopters and AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures .

The Group does not have any financial liabilities measured at fair value through profit or loss. Therefore, there will be no impact on the financial statements when these amendments to AASB 9 are first adopted.

AASB 10 Consolidated Financial Statements (January 2013)

AASB 10 establishes a revised control model that applies to all entities. It replaces the consolidation requirements in AASB 127 Consolidated and Separate Financial Statements and AASB Interpretation 112 Consolidation – Special Purpose Entities. The revised control model broadens the situations when an entity is considered to be controlled by another entity and includes additional guidance for applying the model to specific situations, including when acting as an agent may give control, the impact of potential voting rights and when holding less than a majority voting rights may give ‘de facto’ control. This is likely to lead to more entities being consolidated into the group.

When this standard is first adopted for the year ended 30 June 2014, there will be no impact on the transactions and balances recognised in the financial statements.

AASB 11 Joint Arrangements ( January 2013)

AASB 11 replaces AASB 131 Interests in Joint Ventures and AASB Interpretation 113 Jointly- controlled Entities – Non-monetary Contributions by Ventures . AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition, AASB 11 removes the option to account for jointly-controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations for liabilities are accounted for by recognising the share of those assets and liabilities. Joint ventures that give the venturers a right to the net assets are accounted for using the equity method.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

• (t) Accounting standards issued but not yet effective and not been adopted early by the Group (cont.)

When this standard is first adopted for the year ended 30 June 2014, there will be no impact on transactions and balances recognised in the financial statements because the entity has not entered into any joint arrangements.

AASB 12 Disclosure of Interests in Other Entities (January 2013)

AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures introduced by AASB 12 include disclosures about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests.

As this is a disclosure standard only, there will be no impact on amounts recognised in the financial statements. However, additional disclosures will be required for interests in associates and joint arrangements, as well as for unconsolidated structured entities.

AASB 127 Separate Financial Statements (January 2013)

As a consequence of issuing AASB 10, AASB 11 and AASB 12, revised versions of AASB 127 and AASB 128 have also been issued.

AASB 127 now only deals with separate financial statements. AASB 128 incorporates the requirements in Interpretation 113 Jointly Controlled Entities – Non-Monetary Contributions by Venturers, and guidance relating to the equity method for associates and joint ventures.

When these revised standards are adopted for the first time for the financial year ending 30 June 2014, there will be no impact on the financial statements because they introduce no new requirements.

AASB 13 Fair Value Measurement (January 2013)

AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted by other Standards.

AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined.

The entity is yet to undertake a detailed analysis of the differences between the current fair valuation methodologies used and those required by AASB 13. However, when this standard is adopted for the first time for the year ended 30 June 2014, there will be no impact on the financial statements because the revised fair value measurement requirements apply prospectively from 1 January 2013.

AASB 1053 Application of Tiers of Australian Accounting Standards (July 2013)

AASB 1053 establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements:

a) Tier 1: Australian Accounting Standards; and

b) Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements.

Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements.

The following entities apply Tier 1 requirements in preparing general purpose financial statements: a) for-profit entities in the private sector that have public accountability; and

b) the Australian Government and State, Territory and Local Governments.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

• (t) Accounting standards issued but not yet effective and not been adopted early by the Group (cont.)

AASB 1053 Application of Tiers of Australian Accounting Standards (July 2013) (cont.)

The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: a) for-profit private sector entities that do not have public accountability;

b) all not-for-profit private sector entities; and

c) public sector entities other than the Australian Government and State, Territory and Local Governments.

Consequential amendments to other standards to implement reduced disclosure requirements were introduced by AASB 2010-2.

AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (July 2013)

The Standard amends AASB 124 Related Party Disclosures to remove the individual key management personnel (KMP) disclosures required by Australian specific paragraphs. This amendment reflects the AASB’s view that these disclosures are more in the nature of governance disclosures that are better dealt within the legislation, rather than by the accounting standards.

In March 2013, the Australian government released Corporations Legislation Amendment Regulation 2013 which proposed to insert these disclosures into Corporations Regulations 2001 to ensure the disclosure requirements continue to be operative for financial years commencing on or after 1 July 2013. The closing date for submissions was 10 May 2013.

When these amendments are first adopted for the year ending 30 June 2014, they are unlikely to have any significant impact on the entity.

AASB 2011-4 makes amendments to AASB 124 Related Party Disclosures to remove individual key management personnel disclosure requirements, to achieve consistency with the international equivalent (which includes requirements to disclose aggregate (rather than individual) amounts of KMP compensation), and remove duplication with the Corporations Act 2011. The amendments are applicable for annual periods beginning on or after 1 July 2013. The Group’s management have yet to assess the impact of these amendments.

AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (January 2013)

AASB 2011-7 makes various consequential amendments to Australian Accounting Standards arising from AASB 10, AASB 11, AASB 12, AASB 127 (August 2011) and AASB 128 (August 2011).

When these amendments are first adopted for the year ending 30 June 2014, they are unlikely to have any significant impact on the entity given that they are largely of the editorial nature.

AASB 119 Employee Benefits (January 2013)

Main changes include:

• Elimination of the ‘corridor’ approach for deferring gains/losses for defined benefit plans

• Actuarial gains/losses on remeasuring the defined benefit plan obligation/asset to be recognised in OCI rather than in profit or loss, and cannot be reclassified in subsequent periods

• Subtle amendments to timing for recognition of liabilities for termination benefits

• Employee benefits ‘expected to be settled’ (as opposed to ‘due to be settled’ under current standard) within 12 months after the end of the reporting period are short-term benefits, and therefore not discounted when calculating leave liabilities. Annual leave not expected to be used within 12 months of end of reporting period will in future be discounted when calculating leave liability.

Consequential amendments were also made to other standards via AASB 2011-10.

The Group does not have any defined benefit plans. Therefore, these amendments will have no significant impact on the Group.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

• (t) Accounting standards issued but not yet effective and not been adopted early by the Group (cont.)

AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities (January 2013)

This Standard amends the required disclosures in AASB 7 to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position.

This Standard also amends AASB 132 to refer to the additional disclosures added to AASB 7 by this Standard. When this AASB 2012-2 is first adopted for the year ended 30 June 2014, there will be no impact on the entitiy as the entity does not have any netting arrangements in place.

AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities (January 2014)

AASB 2012-3 adds application guidance to AASB 132 to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.

When AASB 2012-3 is first adopted for the year ended 30 June 2015, there will be no impact on the entitiy as this standard merely clarifies existing requirements in AASB 132.

AASB 2012-4 Amendments to Australian Accounting Standards – Government Loans (January 2013)

AASB 2012-4 adds an exception to the retrospective application of Australian Accounting Standards under AASB 1 First-time Adoption of Australian Accounting Standards to require that first-time adopters apply the requirements in AASB 139 (or AASB 9) and AASB 120 Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans (including those at a below-market rate of interest) existing at the date of transition to Australian Accounting Standards.

When AASB 2012-4 is first adopted for the year ended 30 June 2014, there will be no impact on the entitiy as this standard is only relevant to first-time adoptors of Australian Accounting Standards.

AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009– 2011 Cycle (January 2013)

These amendments are a consequence of the annual improvements process, which provides a vehicle for making non-urgent but necessary amendments to Standards.

The amendments made are largely of the nature of clarifications or removals of unintended inconsistencies between Australian Accounting Standards (for example, AASB 101 is amended to clarify that related notes to an additional statement of financial position are not required in the event of a change in accounting policy, reclassification or restatement).

When these amendments are first adopted for the year ended 30 June 2014, they are unlikely to have any significant impact on the entity given that they are largely of the nature of clarifications or removals of unintended inconsistencies between Australian Accounting Standards.

AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures (January 2013)

AASB 2012-6 amends the mandatory effective date of AASB 9 so that AASB 9 is required to be applied for annual reporting periods beginning on or after 1 January 2015 instead of 1 January 2013. It also modifies the relief from restating prior periods by amending AASB 7 to require additional disclosures on transition from AASB 139 to AASB 9 in some circumstances.

The entity will be able to provide transition disclosures, instead of restating comparatives, upon initial application of AASB 9.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

(t) Accounting standards issued but not yet effective and not been adopted early by the Group (cont.)

AASB 2012-9 Amendment to AASB 1048 arising from the Withdrawal of Australian Interpretation 1039 (January 2013)

AASB 2012-9 amends AASB 1048 Interpretation of Standards as a consequence of the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia .

When AASB 2012-9 is first adopted for the year ended 30 June 2014, there will be no impact on the entitiy as this standard will not affect current practice.

AASB 2012-10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments (January 2013 )

AASB 2012-10 clarifies the transition guidance in AASB 10 Consolidated Financial Statements .

It also provides additional transition relief in AASB 10, AASB 11 Joint Arrangements and AASB 12 Disclosure of Interests in Other Entities by limiting the requirement to provide adjusted comparative information only to the immediately preceding comparative period. In addition, for disclosures related to unconsolidated structured entities, AASB 2012-10 removes the requirement to present comparative information for any periods beginning before the first annual reporting period for which AASB 12 is applied.

Furthermore, AASB 2012-10 defers the mandatory effective date of AASB 10, AASB 11, AASB 12, AASB 127 Separate Financial Statements (August 2011) and AASB 128 Investments in Associates and Joint Arrangements (August 2011) for not-for-profit entities

When these amendments are first adopted for the year ended 30 June 2015, they are unlikely to have any significant impact on the entity given that they are largely clarification of existing transitional provisions

(u) [Going Concern]

Notwithstanding the net loss for the year and the accumulated losses for the consolidated entity, the directors have performed a review of the cash flow forecasts and have considered the cash flow needs and consider the company a going concern.

The directors have approved the company’s forward business plans with an understanding that sufficient cash resources are available to meet the company’s net commitments over the next twelve months.

The directors have prepared the financial statements on a going concern basis as the company has a number of options for raising future capital requirements and the directors are confident that one or more of these options will be successful during the period. Additionally as a fall back equity based funding options are available to the company to continue its research and development efforts.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 2: REVENUE AND OTHER INCOME

Revenue — interest received from other persons — sundry income Total Revenue Other Income — grant revenue — R&D tax rebate Total other income NOTE 3: LOSS FOR THE YEAR Expenses: Rental Expense on operating leases — Minimum lease payments NOTE 4: INCOME TAX EXPENSE (a) The components of tax expense comprise: — Current tax — Deferred tax	Consolidated Entity 2013 $ 2012 $ 155,932 255,603 24,181 14,021
	180,113 269,624
	240,054 2,158,196 4,305,745 -
	4,545,799 2,158,196
	Consolidated Entity 2013 $ 2012 $ 236,319 218,320 Consolidated Entity 2013 $ 2012 $ - - - -
	- -

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 4: INCOME TAX EXPENSE (cont.)

(b) The prima facie tax on loss before income tax is reconciled to the income tax as follows: Prima facie tax payable on loss before income tax at 30% (2012: 30%) — consolidated entity Add: Tax effect of: — IPO related costs(deductible over 5 years) — share based payments during year — other non-allowable items Add: Income tax benefit not bought to account Income tax benefit attributable to the entity Accumulated tax losses not brought to account	Consolidated Entity 2013 $ 2012 $ (503,018) (1,869,539) 92,709 92,709 165,415 94,705 46,712 76,836
	304,836 264,250
	(198,182) (1,604,922)
	- -
	6,025,028 5,827,446

NOTE 5: INTERESTS OF KEY MANAGEMENT PERSONNEL

Refer to the Remuneration Report contained in the Report of the Directors for details of the remuneration paid or payable to each member of the Group’s key management personnel for the year ended 30 June 2013.

(a) The totals of remuneration paid to KMP of the Group during the year are as follows.

Short term employee benefits Post-employment benefits Other long-term benefits Termination benefits Share-based payments	2013 $ 2012 $ 1,075,321 932,916 88,280 112,688 - - - - 287,225 476,000 1,450,826 1,521,604

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 5: INTEREST OF KEY MANAGEMENT PERSONNEL (cont.)

Option Holdings

30 June 2013 George Venardos Gregory Cornelsen Chandra Kantamneni William Johnson Giles Bourne Stuart Uhlhorn Ian Mann

Balance at beginning of year Granted as remuneration during the year Exercised during the year Other changes during the year Balance at end of year Vested during the year Vested and exercise- able(1) Vested and unexercis- eable 1,160,000 - (300,000) (300,000) 560,000 673,333 373,333 - 580,000 - (100,000) (200,000) 280,000 236,666 186,667 - 580,000 - (75,000) (225,000) 280,000 236,666 186,667 - 580,000 - (150,000) (150,000) 280,000 236,666 186,667 - 2,143,607 471,000 - (1,210,274) 1,404,333 622,221 779,221 - 1,153,333 345,000 (250,000) (250,000) 998,333 685,555 550,555 - 1,340,000 460,000 (650,000) (250,000) 900,000 850,000 313,333 -

7,536,940 1,276,000 (1,525,000) (2,585,274) 4,702,666 3,541,107 2,576,443 -

30 June 2012 George Venardos Gregory Cornelsen Chandra Kantamneni Alan Li William Johnson Giles Bourne Stuart Uhlhorn Ian Mann

Balance at beginning of year Granted as remuneration during the year Exercised during the year Other changes during the year Balance at end of year Vested during the year Vested and exercise- able(1) Vested and unexercis- eable 600,000 560,000 - - 1,160,000 - - - 300,000 280,000 - - 580,000 - - - 300,000 280,000 - - 580,000 - - - 300,000 280,000 - - 580,000 - - - 300,000 280,000 - - 580,000 -- - 1,210,274 933,333 - - 2,143,607 - 310,274 - 500,000 653,333 - - 1,153,333 - - - 500,000 840,000 - - 1,340,000 - - -

4,010,274 4,106,666 - - 8,116,940 - 310,274 -

(1) Exercisable subject to Board approval

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 5: INTEREST OF KEY MANAGEMENT PERSONNEL (cont).

(c) Number of Shares held by Key Management Personnel

30 June 2013 George Venardos Gregory Cornelsen Chandra Kantamneni William Johnson Giles Bourne Stuart Uhlhorn Ian Mann 30 June 2012 George Venardos Gregory Cornelsen Chandra Kantamneni Alan Li William Johnson Giles Bourne

Balance at beginning of year Granted as remuneration during the year Issued on exercise of options during the year Other changes during the year Balance at end of year 600,118 - 300,000 80,000 980,118 927,941 - 100,000- - 1,027,941 117,647 - 75,000 - 192,647 - - 150,000 - 150,000 243,730 - - (149,497) 94,233 - - 650,000 (400,000) 250,000 - - 250,000 (181,500) 68,500 1,889,436 1,525,000 (650,997) 2,763,439 Balance at beginning of year Granted as remuneration during the year Issued on exercise of options during the year Other changes during the year Balance at end of year 400,118 - 200,000 600,118 877,941 - - 50,000 927,941 117,647 - - - 117,647 - - - - - - - - - - 243,730 - - - 394,127

1,639,436 - - 250,000 1,889,436

(d) Other Key Management Personnel Transactions

There have been no other transactions involving equity instruments other than those described in the tables above.

For details of other Key Management Personnel refer to Note 25: Related Party Transactions

NOTE 6: AUDITORS’ REMUNERATION

Remuneration of the auditor for: — auditing or reviewing the financial report — taxation services — Other audit services	Consolidated Entity 2013 $ 2012 $ 53,784 49,300 - 9,000 4,000 3,600
	57,784 61,900

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 7: LOSS PER SHARE

		Consolidated	Entity
		2013	2012
		$	$
(a)	Loss attributable to members of the parent entity	(1,676,726)	(3,237,312)
(b)	Basic and diluted loss per share (cents per share)	(0.63)	(1.35)
		No.	No.
(c)	Weighted average number of ordinary shares outstanding during the	266,568,591	239,845,017
	year used in calculating basic EPS.
(d)	Weighted average number of ordinary shares outstanding during the	266,568,591	239,845,017
	year used in calculating diluted EPS.
		Consolidated	Entity
		2013	2012
		$	$
(e)	Weighted average number of potential ordinary shares not included in	-	-
	diluted EPS as anti-dilutive.

NOTE 8: CASH AND CASH EQUIVALENTS

Cash at bank and in hand Short-term bank deposits Petty cash	Consolidated Entity 2013 $ 2012 $ 3,355,603 72,469 2,233,508 3,658,675 759 606
	5,589,870 3,731,750

The effective interest rate on short-term bank deposits was 3.4% (2012:4.4%), these deposits have an average maturity of less than14 days.

Reconciliation of cash

Cash at the end of the financial year as shown in the cash flow statement is reconciled to items in the balance sheet as follows:

follows:
Cash and cash equivalents	5,589,870 3,731,750
	5,589,870 3,731,750

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 9: TRADE AND OTHER RECEIVABLES

NOTE 9: TRADE AND OTHER RECEIVABLES
2013 Research and Development Tax Rebate	Consolidated Entity 2013 $ 2012 $ 1,967,784 -
	1,967,784 -

NOTE 10: CONSUMABLES

CURRENT Consumables NOTE 11: OTHER CURRENT ASSETS CURRENT Prepayments Security deposit Other receivables	Consolidated Entity 2013 $ 2012 $ 144,062 210,727
	144,062 210,727
	Consolidated Entity 2013 $ 2012 $ 28,566 44,100 14,516 14,516 70,482 9,443
	113,564 68,059

All amounts are short-term. The net carrying value of other receivables is considered a reasonable approximation of fair value. No impairment of receivables is deemed to exist. There were no bad debts during the year.

NOTE 12: PLANT AND EQUIPMENT

PLANT AND EQUIPMENT Plant and equipment At cost Accumulated depreciation Total plant and equipment Leased plant and equipment At cost Accumulated depreciation Total leased plant and equipment	Consolidated Entity 2013 $ 2012 $ 5,720,368 5,139,718 (4,556,947) (4,001,957)
	1,163,421 1,137,761
	1,006,170 1,000,000 (1,006,170) (960,120)
	- 39,880

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 12: PLANT & EQUIPMENT (cont.)

Leasehold improvements At cost Accumulated depreciation Total leasehold improvements Furniture and fittings At cost Accumulated depreciation Total furniture and fittings Computer equipment At cost Accumulated depreciation Total computer equipment Total property, plant and equipment	2,978,737 2,916,222 (2,901,173) (2,845,814)
	77,564 70,408
	120,062 118,875 (69,604) (56,563)
	50,458 62,312
	262,083 246,387 (226,237) (175,858)
	35,846 70,529
	1,327,286 1,380,890

(a) Movements in Carrying Amounts

Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the current financial year

current financial year
Consolidated Entity: Balance at 30 June 2012 Additions Disposals Depreciation expense Balance at 30 June 2013	Leased Plant and Equipment Plant and Equipment Leasehold Improvements Furniture and Fittings Computer Equipment Total $ $ $ $ $ $ 39,880 1,137,761 70,408 62,312 70,529 1,380,890 6,170 580,650 62,515 1,186 15,696 666,217 - - - - - (46,050) (554,990) (55,359) (13,040) (50,379) (719,821)
	- 1,163,421 77,564 50,458 35,846 1,327,286

NOTE 13: INTANGIBLE ASSETS

NOTE 13: INTANGIBLE ASSETS
In process research and development: Cost Accumulated impaired losses Net carrying value	Parent Entity 2013 $ 2012 $ 12,130,080 12,130,080 (3,435,080) (3,435,080)
	8,695,000 8,695,000

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 13: INTANGIBLE ASSETS (cont.)

The company obtained a valuation of the intellectual property from an independent valuer Acuity Technology Management Pty Ltd to assist the directors in assessing impairment. The methodology used by the independent valuer to determine the value of the intellectual property was based on a discounted cash flow (DCF) method adjusted for the probability of achieving certain milestones. The DCF was based on management cash flow projections for 3 years and extrapolated for a further 9 years by the valuer. Greater than 5 years is appropriate based on the expected life cycle of the technology. The DCF has been discounted at between 12% and 15% (2012:15% to 17%). Other general market considerations have been considered including the market capitalisation of BluGlass. The IP was assessed to have a value between $24.3 million to $33.9 million.

NOTE 14: CONTROLLED ENTITIES

(a) Controlled Entities Consolidated

Controlled Entities Consolidated
	Country	Percentage Owned (%)*
	of
	Incorporation	2013	2012
Parent Entity:
BluGlass Limited	Australia		-	-
Subsidiaries of BluGlass Limited:
Gallium Enterprises Pty Ltd	Australia		100	100
Blusolar Pty Ltd	Australia		100	100
BluGlass Deposition Technologies Pty Ltd	Australia		100	100
BluGlass Research Pty Ltd	Australia		100	100
EpiBlu Technologies Pty Ltd	Australia		100	51

• Percentage of voting power is in proportion to ownership

NOTE 15: TRADE AND OTHER PAYABLES

NOTE 15: TRADE AND OTHER PAYABLES
CURRENT Trade payables Sundry payables and accrued expenses	Consolidated Entity 2013 $ 2012 $ 117,782 90,511 133,319 42,941
	251,101 133,452

The carrying values of trade payables, sundry and accrued payables are considered to be reasonable approximation of fair value.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 16: BORROWINGS

Note CURRENT Lease liability 21(a) NON-CURRENT Lease liability 21(a) Total non-current borrowings Total borrowings NOTE 17: PROVISIONS Current Non-Current Lease Make Good $ Consolidated Group Opening balance at 1 July 2012 200,000 Additional provisions - Amounts used - Unused amounts reversed - Balance at 30 June 2013 200,000	Note CURRENT Lease liability 21(a) NON-CURRENT Lease liability 21(a) Total non-current borrowings Total borrowings NOTE 17: PROVISIONS Current Non-Current Lease Make Good $ Consolidated Group Opening balance at 1 July 2012 200,000 Additional provisions - Amounts used - Unused amounts reversed - Balance at 30 June 2013 200,000	Consolidated Entity 2013 $ 2012 $ - 182,781 - 182,781 - - - - - 182,781 Consolidated Entity 2013 $ 2012 $ 161,958 174,528 298,083 264,025 460,041 438,553 Employee Benefits $ Total $ 238,553 438,553 21,488 21,488 - - - -
	200,000	260,041 460,041

NOTE 18: EMPLOYEE BENEFITS EXPENSE

Wages, Salaries Share-based payments Superannuation	Consolidated Entity 2013 $ 2012 $ 2,296,379 2,885,857 551,383 315,682 186,108 170,727
	3,033,870 3,372,266

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 19: ISSUED CAPITAL

				Consolidated Entity	Consolidated Entity
				2013	2012
				$	$
284,964,498 (2012: 239,845,016) fully paid				42,673,994	36,022,046
ordinary shares
				42,673,994	36,022,046
The	company has authorised share capital amounting to 284,964,498 ordinary shares.
(a)	Ordinary Shares	No.	$	No.	$
	At the beginning of reporting period	239,845,016	36,022,046	239,845,016	36,022,046
	Shares issued during the year:
	— 9 October 2012	15,973,678	1,604,397	-	-
	— 5 December 2012	950,000	161,500	-	-
	— 7 December 2012	11,766,025	2,353,205	-	-
	— 13 December 2012	2,768,444	-	-	-
	— 17 December 2012	15,000	2,550	-	-
	— 31 December 2012	12,375,000	2,475,000	-	-
	— 17 April 2013	946,334	-	-	-
	— 1 May 2013	325,000	55,250	-	-
	At reporting date	284,964,498	42,673,948	239,845,016	36,022,046

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.

At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

(b)

Options

• i. For information relating to the BluGlass Limited employee option plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, refer to Note 24 Share-based Payments.

• ii. For information relating to share options issued to key management personnel during the financial year, refer to Note 5 Interests of Key Management Personnel.

(c)

Capital Management

• Management controls the capital of the consolidated entity in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the consolidated entity can fund its operations and continue as a going concern.

The consolidated entity’s capital comprises ordinary share capital.

There are no externally imposed capital requirements.

There have been no changes in the strategy adopted by management to control the capital of the consolidated entity since the prior year.

NOTE 20: RESERVES

• (a) Share based payments

The option reserve records items recognised as expenses on valuation of employee share options. During 2012 the company has elected to reclassify amounts representing expired options to accumulated losses.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 20: RESERVES (cont.)

(b) Other Reserves

This reserve is used to recognise the difference between purchase consideration paid and the non-controlling interest carrying value.

NOTE 21: CAPITAL AND LEASING COMMITMENTS

(a) Finance Lease Commitments Commonwealth Bank hire purchase lease for research and development equipment. Payable- minimum lease payments — not later than 12 months — between 12 months and 5 years Minimum lease payments Less future finance charges Present value of minimum lease payments (b) Operating Lease Commitments: Non-cancellable operating lease contracted for but not capitalised in the financial statements Payable -minimum lease payments — not later than 12 months — Between 12 months and 5 years — greater than 5 years	Consolidated Entity 2013 $ 2012 $ - 197,242 - -
	- 197,242 - (14,461)
	- 182,781
	200,000 108,238 716,667 - - -
	916,667 108,238

The lease was renewed for an additional term of five years from February 2013. The property lease is a noncancellable lease with a five year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minimum lease payments shall be increased by the greater of CPI or 4.0% per annum. The lease does not allow for subletting of any lease areas.

NOTE 22: OPERATING SEGMENTS

(a) Business and geographical segments

The Group identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources.

The Group is managed primarily on the basis of research and development activities. The Groups operation has one main risk profile and performance assessment criteria. Operating segments are therefore determined on the same basis.

Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following:

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the products sold and/or services provided by the segment;

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the manufacturing process;

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the type or class of customer for the product or service;

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the distribution method; and any external regulatory requirements

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 22: OPERATING SEGMENTS (Cont.)

• (a) Business and geographical segments (Cont)

Applying the above criteria, the Group only has one operating division being the research and manufacture of Gallium Nitride (GaN).

The Group operates in one geographical area being in Australia. The Group did not undertake any new operations and it did not discontinue any of its existing operations during the year.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 23: CASH FLOW INFORMATION

(a) Reconciliation of Cash Flow from Operations with Loss after Income Tax Loss after income tax Non-cash flows in loss Depreciation expense Share based payment Other Non-cash items Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and term receivables (Increase)/decrease in other assets Decrease/(increase) in deposits Decrease in inventory Increase/(decrease) in trade payables and accruals Increase in provisions Cash flow from operations

Consolidated Entity 2013 $ 2012 $ (1,676,726) (6,230,574) 719,821 1,748,328 551,383 315,682 (1,967,785) 27,175 (45,505) 121,974 - 500 66,665 184,983 (117,649) (657,202) 21,488 102,185

(2,213,010) (4,386,949)

Non-cash Financing and investing activities

(b) Options granted

2,749,000 share options were granted to staff under the BluGlass Limited employee incentive scheme to take up ordinary shares at an exercise price of $0.00 each. Also 7,123,080 options lapsed during the year. Expense for the year was $551,383.

(c) Loan Facilities

Hire purchase facility Amount utilised

-	1,516,344
-	(1,516,344)
-	-

The hire purchase facility expires in February 2013.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 24: SHARE-BASED PAYMENTS

The following share-based payments existed at 30 June 2013:

On 29 October 2012 580,000 share options lapsed following the resignation of a director.

On 13 December 2012 the first and second milestones for the vesting of the BluGlass staff options were achieved. 2,768,444 options were transferred to the BluGlass Incentive Option Scheme Trust.

On 18 January 2013, 2,749,000 options were issued to BluGlass Incentive Option Scheme Trust under the BluGlass Limited employee incentive scheme to take up ordinary shares at an exercise price of $0.00 each subject to technical milestones. These options will only vest in three equal tranches. The first tranche will vest when a P Gan Layer with MOCVD equivalent qualities is achieved and verified. The second tranche when a Beta machine is placed with a customer or similar commercial milestone. The third tranche will vest upon 24 months of continuous employment with BluGlass from the date of issue.

On 17 April 2013 the first milestones for the vesting of the BluGlass staff options was achieved. 916,334 options were transferred to the BluGlass Incentive Option Scheme Trust.

Outstanding at the beginning of the year Granted Forfeited Exercised Expired Outstanding at year-end Exercisable at year-end	Consolidated Entity 2013 2012 Number of Options Weighted Average Exercise Price $ Number of Options Weighted Average Exercise Price $ 13,995,748 0.10 9,638,971 0.24 2,749,000 0.00 5,832,667 0.00 - - (5,004,777) - - - (7,123,080) 0.16 (1,475,890) 0.16
	4,616,891 0.10 13,995,748 0.10
	- - 2,053,081 0.38

5,004,777 employee options were exercised during the year ended 30 June 2013.

The options outstanding at 30 June 2013 had a weighted average share price of $0.00 and a weighted average remained contractual life of 2.7 years. (Option prices were $0.10 in respect of options outstanding at 30 June 2012).

The weighted average fair value of the options granted during the year was $0.00

The life of the options is based on the historical exercise patterns, which may not eventuate in the future.

Included under employee benefits and expense in the income statement relating to share-based payment is $551,383 (2012: $315,682) and relates, in full, to equity-settled share-based payment transactions.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 25: RELATED PARTY TRANSACTIONS

NOTE 25: RELATED PARTY TRANSACTIONS
Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated Transactions with related parties: Other Related Parties Macquarie ARC Linkage Grant Collaboration Alan Li RPCVD Consulting Fees	Consolidated Entity 2013 $ 2012 $ - 100,000 - 10,000
	- 110,000

Key Management Personnel have no related party transactions.

NOTE 26: FINANCIAL RISK MANAGEMENT

The Group’s financial instruments consist mainly of deposits with banks, short-term investments, accounts receivable and payable, loans to a subsidiary and leases.

The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows:

Note Financial Assets Cash and cash equivalents 8 Financial Liabilities Trade and other payables 15 Borrowings 16	Consolidated Entity 2013 2012 $ $ 5,589,870 3,731,750
	5,589,870 3,731,750
	251,101 133,452 - 182,781
	251,101 316,233

The Audit and Risk Committee (ARC) has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The ARC monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counter party credit risk, currency risk, financing risk and interest rate risk. The ARC meets regularly and minutes are reviewed by the Board.

The ARC’s overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 26: FINANCIAL RISK MANAGEMENT (cont.)

Specific Financial Risk Exposures and Management

The main risks the Group is exposed to through its financial instruments is interest rate risk. Other risks include foreign currency risk, liquidity risk, credit risk, and commodity and equity price risk.

The maximum exposure to financial risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements.

(a) Credit Risk

The group does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the consolidated entity.

(b) Price Risk

The group has no exposure to commodity price risk.

(c) Liquidity Risk

Liquidity risk is that the Group might be unable to meet its obligations. The Group manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash inflows and outflows due in day-to-day business. The data used for analysing these cash flows is consistent with that used in the contractual maturity analysis below. Liquidity needs are monitored in various time bands, on a dayto-day and week-to-week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly.

The Group's objective is to maintain cash and marketable securities to meet its liquidity requirements for 30-day periods at a minimum. This objective was met for the reporting periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets.

The Group considers expected cash flows from financial assets in assessing and managing liquidity risk, in particular its cash resources and trade receivables. The Group's existing cash resources and trade receivables significantly exceed the current cash outflow requirements.

As at 30 June 2013 the Groups non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:

30 June 2013 Finance Lease Obligation Trade and other payables Total 30 June 2012 Finance Lease Obligation Trade and other payables Total	Current Within 6 months $ 6 to 12 months $ - - 251,101 - 251,101 - Current Within 6 months $ 6 to 12 months $ 182,781 - 133,452 -	Non-Current 1 to 5 years $ Later than 5 years $ - - - - - - Non-Current 1 to 5 years $ Later than 5 years $ - - - - - -
	316,233 -

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 26: FINANCIAL RISK MANAGEMENT (cont.)

(d) Market Risk

(i) Foreign Exchange Risk

The group does not have any material foreign exchange risk exposure to any single asset or liability or group of assets or liabilities under financial instruments entered into by the consolidated entity.

(ii) Interest Rate Risk

The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets is as follows:

Consolidated Entity Financial Assets: Cash Investments in term deposits and bank bills Total Financial Assets	Weighted Average Effective Interest Rate Floating Interest Rate 2013 $ 2012 % 2013 $ 2012 % 3,356,362 2.27 73,075 2.27 2,233,508 4.40 3,658,675 4.40
	5,589,870 3,731,750

All other financial assets and liabilities are non-interest bearing.

(iii) Financial instrument composition and maturity analysis

• All trade and sundry payables are expected to be paid within the next 45 days.

(iv) Net Fair Values

All financial assets and liabilities at 30 June 2013 have maturities of less than 45 days and carrying value represents net fair value.

(v) Sensitivity analysis

The consolidated and parent entity do not have projected exposure to foreign currency risk or price risk and no material projected exposure to interest rate risk.

NOTE 27: CONTINGENT LIABILITIES

Contingent liabilities include:

• The lease for 74 Asquith Street is supported by a CBA bank guarantee for $133,100. Collateral for the bank guarantee is a set-off against cash invested with the CBA for $133,100. The CBA also holds a Guarantee against the company credit cards of $50,000.

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

NOTE 28: EVENTS AFTER BALANCE SHEET DATE

The company was succesful in being awarded a Commonwealth Government Clean Technoloy Innovation Grant for $2.999,355 for reseach to undertaken over the next 30 months for its Nitride based LED programme.

NOTE 29: BLUGLASS LTD PARENT COMPANY INFORMATION

Parent entity Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Accumulated Losses Share option reserve Total Equity Financial performance Loss for the year Other comprehensive income Total comprehensive income	2013 2012 $ $ 7,848,391 3,574,148 15,499,222 15,516,847
	23,347,613 19,090,995
	2,606,101 685,037 298,083 264,025
	2,904,184 949,062
	20,443,429 18,141,933
	42,673,992 36,022,046 (22,640,476) (19,072,558) 409,913 1,192,445
	20,443,429 18,141,933
	(3,170,714) (123,416) - -
	(3,170,714) (123,416)

NOTE 30: COMPANY DETAILS AND PRINCIPAL PLACE OF BUSINESS

The registered office and principal place of business of the company is:

BLUGLASS LIMITED

74 ASQUITH STREET SILVERWATER NSW 2128 Ph: +61 2 9334 2300

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BLUGLASS LIMITED & CONTROLLED ENTITIES | ABN 20 116 825 793 | FINANCIAL STATEMENTS YEAR END 30 JUNE 2013

DIRECTORS’ DECLARATION

1. In the opinion of the directors of BluGlass Limited:

• a. the consolidated financial statements and notes of BluGlass Limited are in accordance with the Corporations Act 2001, including

i giving a true and fair view of its financial position as at 30 June 2013 and of its performance for the financial year ended on that date; and

ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

b. there are reasonable grounds to believe that BluGlass Limited will be able to pay its debts as and when they become due and payable.

2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2013.

3 . Note 2 confirms that the consolidated financial statements also comply with International Financial Reporting Standards.

Signed in accordance with a resolution of the directors:

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George Venardos Director Dated this 26[th] Day of August 2013

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Grant Thornton Audit Pty Ltd ACN 130 913 594

Level 19, 2 Market Street Sydney NSW 2000 GPO Box 2551 Sydney NSW 2001 T +61 2 9286 5555 F +61 2 9286 5599 E info.nsw@au.gt.com W www.grantthornton.com.au

Independent Auditor’s Report

To the Members of BluGlass Limited

Report on the financial report

We have audited the accompanying financial report of BluGlass Limited (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 The Directors’ responsibility also includes such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited.

Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies.

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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion

In our opinion:

• a the financial report of BluGlass Limited is in accordance with the Corporations Act 2001, including:

• i giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and

• ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and

• b the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements.

Report on the remuneration report

We have audited the remuneration report included in pages 12 to 17 of the directors’ report for the year ended 30 June 2013. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

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Auditor’s opinion on the remuneration report

In our opinion, the remuneration report of BluGlass Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001.

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

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G S Layland Director - Audit & Assurance

Sydney, 26 August 2013

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