DIGITALX LIMITED — Annual Report 2010

Sep 23, 2010

A.B.N. 59 009 575 035

A.B.N. 59 009 575 035

ANNUAL REPORT

FOR

THE FINANCIAL YEAR ENDED

30 JUNE 2010

Verus Investments Ltd Contents

CORPORATE DIRECTORY LETTER FROM THE CHAIRMAN CORPORATE GOVERNANCE STATEMENT REVIEW OF INVESTMENTS DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDITOR’S REPORT DIRECTORS’ DECLARATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS INVESTMENT POLICY STATEMENT AUSTRALIAN SECURITIES EXCHANGE INFORMATION

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Verus Investments Ltd Corporate Directory

Directors

Andrew McIlwain Gregory Lee David Calcei Michael Montgomery

Share Registry

Computershare Investor Services Pty Ltd Level 2 Reserve Bank Building 45 St Georges Terrace Perth WA 6000

GPO Box D182 Perth WA 6840

Company Secretary Paul Jurman

ABN 59 009 575 035

Registered and Administrative Office

30 Ledgar Road Balcatta WA 6021 Tel: (08) 9240 8645 Fax: (08) 9240 2406

Telephone: +61(8) 9323 2000 Facsimile: +61(8) 9323 2096 Email: perth.services@computershare.com.au

Bankers

National Australia Bank Limited 50 St Georges Terrace Perth WA 6000 Tel: (08) 9441 9379

Website www.verus.com.au

Auditor

Deloitte Touche Tohmatsu Woodside Plaza Level 14, 240 St Georges Terrace Perth WA 6000 Tel: (08) 9365 7000 Fax (08) 9365 7001

Solicitor

Steinepreis Paganin Level 4, The Read Buildings, 16 Milligan Street Perth WA 6000

Stock Exchange Listing

Verus Investments Limited shares are listed on the Australian Securities Exchange. ASX Code: VIL

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Verus Investments Ltd Letter from the Chairman

Dear Verus Shareholder,

In a few years time, there will be little doubt that the past year will be seen as pivotal in the development of your company. The 2010 financial year has been a positive one for Verus Investments Limited and has seen us leap out of the global financial crisis with a significantly increased portfolio of investments and opportunities.

After securing the right to participate in the Fausse Point Project, an oil and gas investment onshore in Louisiana, in September 2009 we are now a diversified investor with a raft of holdings.

Our investment in the Bongo Prospect, a high-impact exploration and appraisal gas well in Wharton County, Texas has provided us with an opportunity to participate in a highly endowed field. The well has been drilled by our partner and operator, Caza Operating LLC, who has good local experience and in whom we have a high level of confidence. Drilling at Bongo by Caza intersected hydrocarbon-bearing sands with potentially significant gas and condensate between 12,400’ and 12,900’ depth. These intersections are to be tested when crews tied up in the highly buoyant US oil and gas industry become available later in 2010 or early 2011.

The proposed merger with Pass Petroleum Pty Ltd (Pass), post year end, is a company-transforming step for Verus. Following the merger we will move from investments in two projects to five, complemented by a significantly expanded participation in the Fausse Point project and immediate cash flow from the Bullseye prospect.

The inclusion of Pass’ Silverwood Project in the final merger proposal was a massive bonus and clearly demonstrates the support and commitment from the Pass group towards Verus.

The Pass team has a successful track record and our initial involvement with them was the introduction of the Fausse Point project. Through the merger they will become significant shareholders in Verus and the opportunity to work closely with this group going forward will no doubt provide other possibilities.

The merger with Pass will increase our working interest in Fausse Point to 72%. The presence of hydrocarbons during drilling at Fausse demonstrates we are in the right address. We have established production facilities with the intention to use it for further wells at Fausse. At the time of writing this letter, a significant build up of pressure in Fausse Point #1 Well following shutting in continues to suggest that there is potential in the well and the field. Our partners and operators, Golden Gate Petroleum, or GGP, completed the #1 Well in difficult conditions and we look forward to working with them in future developments.

Our fluctuating share price reflects the heightened expectations of investors as wells in which we have invested are developed and results awaited. To date, two wells have been drilled and both announced as discoveries – a rare outcome in the oil and gas business. With the inclusion of the Pass assets in our portfolio, we will see both diversification and depth with highly exciting exploration continuing, complemented by cashflow from producing projects.

Finally, I would like to take this opportunity to thank the Verus staff, contractors and consultants for their efforts during the very busy past year. The upcoming year is showing a lot of promise and we will be busily working towards increasing shareholder wealth.

Yours sincerely,

==> picture [119 x 49] intentionally omitted <==

Andrew McIlwain Chairman

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Verus Investments Ltd Corporate Governance Statement

Introduction

The ASX Listing Rule 4.10.3 requires listed companies to disclose in their Annual Report the extent to which they have complied with the ASX Best Practice Recommendations of the ASX Corporate Governance Council in the reporting period.

This statement summarises the corporate governance practices in place for the year ended 30 June 2010. It is structured along the same lines as the August 2007 ASX Principles of Good Corporate Governance and Best Practice Recommendations , with sections dealing in turn with each of the Council’s 8 corporate governance principles. The various codes, policies and charters referred to in this statement can be found on the Company website www.verus.com.au.

1. Lay solid foundations for management and oversight

The ASX Corporate Governance Council states that a company should “Recognise and publish the respective roles and responsibilities of board and management.” Throughout the period, Verus had in place a formal Board Charter that sets out the functions reserved to the board.

Specifically the board is responsible for:

• Oversight of the Company, including its control and accountability systems;

• Appointing, monitoring, managing the performance of, and if necessary terminating (the employment of) the Chief Executive Officer;

• Ratifying the appointment and, if necessary, terminating (the employment) of the Chief Financial Officer and the Company Secretary;

• Input, assessment, appraisal and final approval of management’s development of corporate strategy and performance objectives;

• Reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct, and legal compliance;

• Monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are available to undertake those strategies;

• Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;

• Approving and monitoring financial and other reporting (including audit matters);

• Recruitment, remuneration, performance review and succession plans for the Company board;

• Approving significant changes to the organisational structure;

• Approving the issue of any shares, options, equity instruments or other securities in the Company, including a Company Share Purchase Plan (if any);

• Ensuring a high standard of corporate governance practice and regulatory compliance and promoting ethical and responsible decision making, including maintaining an appropriately documented and disseminated Corporate Code of Conduct;

• Recommending to shareholders the appointment of the external auditor as and when their appointment or reappointment is required to be approved by them; and

• Meeting with the external auditor, at their request, without management.

The board delegated responsibilities and authorities to management to enable management to conduct the Company’s day to day activities. Matters which exceed certain defined authority limits require board approval. The functions reserved to the board and those delegated to senior executives is disclosed in the Board Charter which can be found on the Company website.

Due to the size of the Board and the nature of its business, it has not been deemed necessary to institute a formal documented performance review program of individuals. The Chairman conducts an informal review annually whereby he has discussed with individual directors and executives their attitude, performance and approach toward meeting the short and long term objectives of the Company. The board considers that at this stage of the company’s development an informal process is appropriate.

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Verus Investments Ltd Corporate Governance Statement

2. Structure the Board to add Value

The ASX Corporate Governance Council states that a company should “Have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.” Verus’ board is so structured, and its directors have adequately discharged their responsibilities and duties to the benefit of shareholders.

A fundamental requirement for the Verus board is a deep understanding of investment, managing businesses and financial markets. All board members throughout the year met this requirement, and brought a diverse range of skills, and backgrounds to the board. The experience and qualifications of each board member and their terms of office are set out in the Directors’ Report.

Verus directors may seek external professional advice at the expense of the Company on matters relating to their role as directors of Verus. However, they must first request approval from the Chairman, which must not reasonably be withheld. If withheld then it becomes a matter for the whole board.

Directors must keep the board advised, on an ongoing basis, of any interests which could potentially conflict with any of those of the Company. Where the board believes that a significant conflict exists for a director on a board matter, the director concerned is not present at the meeting while the matter is being considered.

Independence and the Chairperson (Recommendations 2.1, 2.2 and 2.3)

The board considers an independent director to be a non-executive director who meets the criteria for independence included in the ASX Best Practice Recommendations. Materiality for these purposes is determined on both quantitative and qualitative bases. An amount of over 5% of annual turnover of the Company or 5% of the individual directors’ net worth is considered material for these purposes. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the director’s performance.

The board considers that all four directors, Andrew McIlwain (Chairman), Michael Montgomery, David Calcei and Greg Lee are independent directors. All these directors have completed a checklist to document this independence. There was no Executive Director of the Company for the full year. In respect to its compliance with Recommendation 2.3 the Board as a whole have the duties normally associated with a Managing Director of the Company.

Nomination Committee & Board Performance Review (Recommendation 2.4, 2.5)

A Nomination Committee comprising David Calcei, Greg Lee and Andrew McIlwain was formed in August 2008. The Nomination Committee Charter can be found on the Company website.

Details of each director’s attendance at committee meetings are set out in the Directors’ report.

When a new director is to be appointed the Nomination Committee reviews the range of skills, experience and expertise on the board, identifies its needs and prepares a short-list of candidates with appropriate skills and experience. Where necessary, advice is sought from independent search consultants. The Board then appoints the most suitable candidate who must stand for election at the next annual general meeting of the Company.

Retirement and rotation of Directors are governed by the Corporations Act 2001 and the Constitution of the Company. Each year one third of the Directors must retire and offer themselves for re-election. This selection, nomination and appointment process is detailed on the company website in the Nomination Committee Charter.

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Verus Investments Ltd Corporate Governance Statement

The Nomination Committee conducts a performance evaluation of the Board, its Committees and its individual Directors on an annual basis. To assist in this process an independent advisor may be used. This process for evaluating the Board, its Committees and its individual Directors is contained in the Disclosure – Performance Evaluation section on the Company website.

3. Promote ethical and responsible decision making

The ASX Corporate Governance Council states that a company should, “Actively promote ethical and responsible decision making”. Verus has a formally adopted Code of Conduct. The Code of Conduct was based on respect for the law and acting accordingly, dealing with conflicts of interest appropriately, and ethical matters such as acting with integrity, exercising due care and diligence in fulfilling duties, acting in the best interests of the Company and respecting the confidentiality of all confidential information.

Verus also has a documented Share Trading Policy for directors and executives. The policy prohibits short term trading in the Company’s securities and directors and employees are prohibited from dealing in the Company’s securities whilst in possession of price sensitive information. It specifies periods for transactions which broadly include within one month of results announcements, reports and general meetings and any period where a prospectus has been issued.

The Code of Conduct and Share Trading Policy are available on the Company website.

4. Safeguard integrity in financial reporting

The ASX Corporate Governance Council states that a company should, “Have a structure to independently verify and safeguard the integrity of the company’s financial reporting.” Verus believes that it has appropriate measures in place which includes the Managing Director (or Chairman in lieu of the position being vacated), Company Secretary and Finance Manager providing letters of assurance to the board for the accounts, engagement of an external auditor, rotation of the engagement audit partner, and a risk management plan in place.

Audit and Risk Committee (Recommendations 4.1, 4.2 and 4.3)

An Audit and Risk Committee comprising of three independent directors, David Calcei, Greg Lee and Andrew McIlwain was established in August 2008. The Audit and Risk Committee Charter is available on the Company website. Details of each directors’ qualifications and attendance at committee meetings are set out in the Directors’ Report.

The company is not one of the S&P All Ordinaries Top 300 Companies and as such is exempt under ASX Listing Rule 12.7 from maintaining an Audit Committee and thus compliance with Recommendation 4.1. The Company however continues to have an Audit Committee as a principle of best practice.

External Auditors

The Company requires external auditors to demonstrate quality and independence. The performance of the external auditor is reviewed and applications for tender of external audit services requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs.

Deloitte Touche Tohmatsu are the appointed external auditors. It is Deloitte Touche Tohmatsu’s policy to rotate audit engagement partners on listed companies at least every 5 years, and in accordance with that policy a new audit engagement partner was introduced for the year ended 30 June 2008.

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Verus Investments Ltd Corporate Governance Statement

5. Make timely and balanced disclosure

The ASX Corporate Governance Council states that a company should, “Promote timely and balanced disclosure of all material matters concerning the company.” Verus is committed to the promotion of investor confidence by ensuring that trading in the Company’s securities takes place in an informed market. In accordance with continuous disclosure requirements under the ASX Listing Rules, the Company has documented procedures in place to ensure that all price sensitive information is identified, reviewed by management and disclosed to the ASX in a timely manner, including changes in directors’ interests in the Company.

The Continuous Disclosure Policy is available on the Company website.

6. Respect the rights of shareholders

The ASX Corporate Governance Council states that a company should, “Respect the rights of shareholders and facilitate the effective exercise of those rights”. In addition to a documented procedure for continuous disclosure, Verus maintained a website throughout the year which provided access to all recent ASX announcements, recent disclosure documents (e.g. prospectuses, notice of meeting explanatory memorandums, annual reports) and key contact details. A Shareholders Communications Strategy to promote effective communication with shareholders and encourage shareholder participation at AGM’s has also been adopted and is available on the Company website.

Shareholders meetings represent a good opportunity for shareholders to meet with the board of Verus and the external auditor. The external auditor is requested to attend each Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

7. Recognise and manage risk

The ASX Corporate Governance Council states that a company should, “Establish a sound system of risk oversight and management and internal control”. Management is responsible for designing, implementing and reporting on the adequacy of the Company’s risk management and internal control system. Verus maintains documented policies for identifying, assessing and monitoring risk. The Company utilises measures including formal authority limits for management to operate within. The risks for the Company continue to be regularly monitored and management has regularly appraised the Board as to the effectiveness of the Company’s management of its material business risks. All proposals reviewed by the Board include a consideration of the issues and risks of the proposal. The potential exposures associated with running the Company have been managed by the Directors and Company Secretary who combined have significant broad-ranging industry experience.

The Managing Director (or Chairman in lieu of the position being vacated), Company Secretary and Finance Manager provide a written declaration to the Audit Committee in relation to each six-month reporting period that the Company’s financial reports are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. Given the size of the company and the level of its investment activities, it has outsourced its Finance function. The board as a whole closely monitor and review all aspects of the finance function to gain assurance as to the integrity of the financial reporting process and ensure the maintaining of sound internal control systems.

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Verus Investments Ltd Corporate Governance Statement

In the course of its formal and informal discussions, the Board as a whole will review and comment upon the company’s existing investments as well as new investment opportunities that may be presented to the Company.

The Audit and Risk Committee Charter and a Risk Management Policy are available on the Company website.

The Company’s main areas of risk include:

• new project acquisitions;

• exploration, security of tenure and environment for mining acquisitions;

• government policy changes and political risk;

• occupational health and safety;

• financial reporting; and

• continuous disclosure obligations.

8. Remunerate fairly and responsibly

The ASX Corporate Governance Council states that a company should, “Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined”. A discussion about the Verus policy, along with all remuneration for directors and executives can be found in the Directors’ Report.

Remuneration Committee (Recommendation 8.1)

A Remuneration Committee comprising of David Calcei, Greg Lee and Andrew McIlwain was established in August 2008. The Remuneration Committee Charter is available on the Company website.

Details of each director’s attendance at committee meetings are set out in the Directors’ report.

The Remuneration Committee is responsible for determining and reviewing compensation arrangements for the directors and senior executives. The committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality team.

Remuneration Policy (Recommendation 8.2)

Non-Executive Directors

Non-executive directors receive fees which are determined by the Board within the aggregate limit set by the shareholders at a General Meeting. All Non-Executive Directors will receive remuneration by way of fees and receive no retirement benefits.

Non-executive directors may receive options. The issue of options to non-executive directors is considered an appropriate method of providing sufficient incentive and reward whilst maintaining cash reserves.

Executive Directors and Senior Executives

Executive directors’ and senior executives’ remuneration is considered to properly reflect the person’s duties and responsibilities, and takes account of remuneration levels across the sector.

Mr McIlwain, Mr Lee, Mr Montgomery and Mr Calcei have in place consultancy agreements for the provision of services outside the scope of duties as a director. Remuneration by way of consulting fees is calculated on the basis of a daily rate. The term of the consultancy agreement is not fixed, and has an allowance for either party to terminate the agreed arrangements by the giving of 30 days notice.

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Verus Investments Ltd Review of Investments

Fausse Point Project

The Fausse Point Project is located onshore, approximately 140 kms west of New Orleans, in an existing established oil and gas province of Louisiana where the salt dome complex has previously produced more than 44 million barrels of oil and 141 billion cubic feet of gas. Local market, production facilities and experienced service companies are readily available in the area ensuring that any discovery can be quickly brought into production.

Fausse Point #1 Well spudded on 5 December 2009 and reached its targeted depth of 8,475 feet in midJanuary. The well encountered three separate oil and gas formations starting around 7,000 feet. Numerous zones of interest were encountered across these formations. The lowest formation extends over 300 feet and includes several zones of interest some of which had shown good permeability, porosity and oil/condensate in the sample cores.

Subsequent to year end, in September 2010, joint-venture partners and operators Golden Gate Petroleum (ASX: GGP) announced that the testing of the current phase of the T.G.R. #1 well had been completed, although the last zone of interest was still being monitored for pressure build to determine if further flow testing is in order. Several other zones of interest had been tested with gas and condensate being produced along with oil indications. The production rates recorded were not of sufficient commercial quantities to commercialise the well. While a significant hydrocarbon presence over a 1,500 feet interval had been encountered during drilling, it appears that the well's close proximity to the Fausse Point salt dome may have ultimately restricted the various hydrocarbon intervals and their ability to produce at sustainable rates. In some instances, it is apparent that salt has penetrated the potential hydrocarbon bearing intervals. In other cases, it appears that the gas and condensate zones have been isolated from the main hydrocarbon bearing structures.

Work will continue on evaluating the test results and the physical data obtained during drilling, prior to the partners in Fausse Point project determining the next steps.

Additional seismic data has been acquired and is being reprocessed, facilitating planning for an appraisal well (FP#2) which will be further away from the salt dome in a location where reservoir quality is expected to significantly improve. There is potential for the current well bore to be used and a “side track” well drilled from this – thereby utilising both part of the existing well bore and production infrastructure.

It is clear there is a presence of hydrocarbons in the Fausse Point property as evidenced by the numerous influxes of hydrocarbons whilst drilling the T.G.R. #1 well and the production test particularly in the deeper zone. There is also evidence to suggest that these hydrocarbons may be connected to larger hydrocarbon accumulations with the potential for a significant financial outcome.

The Company intends to understand the complex geology and test this theory in the coming months.

The challenge for Fausse Point partners is to fully understand the behaviour and nature of the formations intersected. The partners remain optimistic about the significance of Fausse Point's potential. The T.G.R. #1 well has provided it challenges; however, it has encountered hydrocarbons over multiple levels which are extremely encouraging. Persisting with the project is expected to eventually yield favourable outcomes.

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Verus Investments Ltd Review of Investments

Bongo Prospect

The Bongo Prospect is located onshore in the upper Texas gulf coast in Wharton County, approximately 65 miles south west of Houston.

Verus management diligently reviewed the Bongo prospect and decided to invest and participate in the project as it was deemed a high-impact, low-risk exploration/appraisal well with a very high probability of success. Verus acquired a 9.375 per cent working interest (WI) in the Bongo Prospect.

Drilling of the Bongo OB Ranch # 1 well commenced in the later part of July 2010 and reached a total depth of 16,280 ft in August. The drilling intersected hydrocarbon-bearing sands with potentially significant gas and condensate between 12,400’ and 12,900’ depth.

Caza Oil and Gas Inc (Caza) and its subsidiaries are the majority owners and are operators of Bongo. Caza has a significant portfolio of projects in Texas and Louisiana and are well regarded as competent operators. Total leasehold associated with in the WI is in excess of 4,000 contiguous acres.

At the time of writing, the operators have prepared the well for perforation. Perforation will provide some initial indications of potential flows, however the partners’ technical teams agree that the formation will require stimulation through a process known as “fraccing”. It is planned to complete this later in 2010 or early 2011 as crews become available.

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Verus Investments Ltd Directors’ Report

Your directors present their report together with the financial report on the consolidated entity (referred to hereafter as the Group or Consolidated entity) consisting of Verus Investments Limited and the entities it controlled at the end of, or during, the year ended 30 June 2010.

Directors

The following persons were directors of Verus Investments Limited during the whole of the financial year and up to the date of this report:

Mr. Andrew McIlwain BE (Mining)

Chairman and Non-Executive Director

Appointed 23 April 2008

Mr McIlwain has over 20 years experience in the mining industry. He is a qualified mining engineer and has held technical, senior management and executive roles within Mount Isa Mines Limited, Central Norseman Gold Corporation Limited, WMC Resources Limited and Lafayette Mining Limited.

He is a current member of the Australian Institute of Mining and Metallurgy (AusIMM).

During the last three years, Mr McIlwain has also served as a director of the following listed companies: Emerson Resources Ltd (Appointed 1 February 2007) Windy Knob Resources Limited (Resigned 30 June 2009) Tusker Gold Limited (Appointed 11 November 2009, Resigned 3 May 2010 after takeover)

Interests in shares and options

1,732,527 ordinary shares in Verus Investments Limited 3,000,000 unlisted options (exercise price of $0.015 and expiry 1 March 2012)

Mr Greg Lee CPEng

Non-Executive Director

Appointed 25 May 2007

Mr Lee is a qualified chartered professional engineer with more than 28 years experience in the petroleum industry focussing on oil and gas field development, management and operations, petroleum/production engineering and drilling operations.

A member of the Institute of Engineers (Australia) (MIE Aust) and the Society of Petroleum Engineers (SPE), Mr Lee assisted in the development of Grove Energy Ltd and as General Manager, actively assisted in the listing of the company on the Alternative Investment Market in London. Mr Lee has significant international experience.

During the last three years, Mr Lee has also served as a director of the following listed companies: Quest Petroleum NL (formerly Nuenco NL) (Appointed 1 November 2005)

Interests in shares and options

2,681,818 ordinary shares in Verus Investments Limited

3,000,000 unlisted options (exercise price of $0.015 and expiry 1 March 2012)

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Verus Investments Ltd Directors’ Report

Mr. David Calcei CA

Non-Executive Director

Appointed 18 June 2007

Mr Calcei is a Chartered Accountant with over 10 years experience. He is a director of Icon Financial Management, an accounting and tax practice providing taxation, corporate and consultancy services to small to medium sized entities and public companies, principally in the resource sector.

Interests in shares and options

1,681,818 ordinary shares in Verus Investments Limited

3,000,000 unlisted options (exercise price of $0.015 and expiry 1 March 2012)

Mr. Michael Montgomery B App Sc (Geology)

Non-Executive Director

Appointed 23 April 2008

Mr Montgomery is a Geologist with more than 15 years experience in the minerals sector. He has held senior exploration and operational positions with companies such as Consolidated Minerals, Goldfields Australia and KCGM (joint venture between Barrick Gold of Australia Ltd and Newmont Australia Limited).

Mr Montgomery has worked with a diverse range of commodities including gold, copper, diamonds, nickel, manganese, chromite and iron ore. He has undertaken post-graduate studies in mineral economics as well as mine planning and is a member of the Australian Institute of Mining and Metallurgy (AusIMM).

Interests in shares and options 200,000 ordinary shares in Verus Investments Limited

3,000,000 unlisted options (exercise price of $0.015 and expiry 1 March 2012)

Mr Paul Jurman CPA

Company Secretary

Appointed 2 June 2009

Mr Jurman is a CPA with over 10 years experience and has been involved with a diverse range of Australian public listed companies in company secretarial and financial roles. He is currently company secretary of ASX listed entities - Lindian Resources Limited, Erongo Energy Limited and Carnavale Resources Limited.

During the last three years, Mr Jurman has also served as a director of the following listed companies: Lindian Resources Limited (Appointed 20 August 2010)

Principal activities and Review of Investments

The Verus Group principal activities, undertaken in accordance with its current Investment Policy, are as follows;

• (i) to identify, evaluate and execute entry into any new short, medium or long term investments thought to be worthwhile, to the degree or magnitude deemed appropriate, and whether or not they relate to securities listed on a Securities Exchange or directly owning assets of any type; and/or

• (ii) to review and establish a preferred strategic direction for existing investments, and/or

• (iii) to consider suitable financing options for (i) and (ii).

Further information on the operations, business strategies and prospects is set out in the Review of Investments section of this report.

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Verus Investments Ltd Directors’ Report

Review of Operations and Dividends

The consolidated loss after tax for the year was $1,609,540 (2009: $1,318,155). No dividends have been paid or declared up to the date of this report (2009: Nil). The directors have not recommended the payment of a dividend in the current financial year.

The net assets of the consolidated group increased from $550,837 as at 30 June 2009 to $4,381,522 as at 30 June 2010.

Significant changes in the state of affairs

Significant changes in the state of affairs of the Group during the financial year were as follows;

Fausse Point Oil and Gas Prospect

In September 2009, a 45% working interest in an oil and gas prospect, Iberish Parish, Louisiana, USA was secured.

Bongo Oil and Gas Prospect

In June 2010, a 9.375% working interest in an oil and gas prospect, Wharton County, Texas, USA was secured.

Matters subsequent to the end of the financial year

The following significant events have occurred subsequent to the end of the financial year:

• On 30 July 2010, the Company completed the issue of 8,337,271 shares at an issue price of 2.2 cents each under the terms of the Share Purchase Plan for gross proceeds of $183,420.

• On 2 August 2010, the Company announced its intention to merge with Pass Petroleum Pty Ltd (“Pass”). Pass holds working interests (“WI”) in several onshore oil and gas projects in the USA. These projects being - Bullseye (WI - 10%), West Bowtie (WI – 18%) and Fausse Point (WI – 27%), which will move the consolidated Verus WI up to 72%. The key transaction terms are that the Company will issue 369 million Verus shares to the vendors of Pass.

• On 8 August 2010, the Company announced the completion of a private placement of 26.25 million shares (within the Company’s 15% placement capacity) raising approximately $523,000 after costs.

• On 8 September 2010 the Company announced the completion of due diligence and that final binding documentation for the Pass merger had been executed. As part of the final negotiation, Pass’s 30% WI in the Silverwood project (previously quarantined from the merged assets) was included.

• On 22 September 2010, Verus Shareholders unanimously approved the issue of shares to the vendors of Pass Petroleum Pty Ltd.

Likely developments and expected results of operations

The Company’s focus for the next financial year is to finalise the Pass merger and integrate those assets into Verus. It will then manage its existing and new onshore Oil & Gas investments to maximise value and continue to assess any new investment opportunities that present from time to time.

Environmental issues

The Group is a party to various onshore oil and gas exploration and development licences or permits. In most cases, these contracts and licences specify environmental regulations applicable to those operations in their respective jurisdictions. The Group, in conjunction with the respective project’s partners and at the direction of the project operators, aim to ensure compliance with the identified regulatory requirements in each jurisdiction in which it operates. There have been no significant known breaches of any environmental obligations at any of the Group’s investment projects.

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Verus Investments Ltd Directors’ Report

Remuneration Report

This remuneration report, which forms part of the directors’ report, sets out information about the remuneration of Verus Investments Limited’s directors and its senior management for the financial year ended 30 June 2010, under the following main headings:

Director and senior management details Remuneration policy Relationship between the remuneration policy and Company performance Key terms of employment contracts Remuneration of Directors and senior management Share based payments granted

The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001

(a) Directors and senior management details

The key management personnel of the Group consist of the directors and Company Secretary. This is the case due to the size and scale of the Group’s current operations. All the named persons held their current position for the whole of the financial year and since the end of the financial year.

• A McIlwain – Chairman and Non-Executive Director

• G Lee – Non-Executive Director

• D Calcei - Non-Executive Director

• M Montgomery – Non-Executive Director

• P Jurman – Company Secretary

(b) Remuneration policy

The Remuneration Committee has taken on the responsibility for determining and reviewing compensation arrangements for the executive directors and where applicable the executive team. This committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality team.

(c) Relationship between the remuneration policy and Company performance

The Remuneration Committee reviews the remuneration packages to the executive directors and nonexecutive directors on at least an annual basis.

There is currently no component, aside from options issued to directors and senior management, within the remuneration packages that is dependent upon Company performance. This, in part, is attributed to the Group’s current size and scale of operations.

The Remuneration Committee will align the interests of the executive team with those of the shareholders when setting future short and long-term benefits. This will from time to time require management to seek shareholder approval to provide compensation to executive management and the non-executive directors in the form of share options, exercisable to shares, given the achievement of pre-specified objectives.

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Verus Investments Ltd Directors’ Report

The table below sets out summary information about the Consolidated entity’s/Company’s earnings and movements in shareholder wealth for the five years to June 2010:

	June	June	June	June	June
	2010 (i)	2009 (i)	2008 (i)	2007	2006
	$	$	$	$	$
Revenue and other income	32,066	56,241	166,285	606,059	727,208
Net (Loss)/profit after tax	(1,609,540)	(1,318,155)	(6,278,952)	(182,414)	233,041
Share Price at start of year	$0.006	$0.02	$0.09	$0.05	$0.04
Share price at end of year	$0.019	$0.006	$0.02	$0.09	$0.05
Final dividend	-	-	-	-	-
Basic earnings per share	(0.30) cps	(0.55) cps	(2.62)cps	(0.08)cps	0.21cps
Diluted earningsper share	(0.30)cps	(0.55)cps	(2.63)cps	(0.08)cps	0.21cps

(i) Consolidated entity amounts disclosed for 30 June 2008, 2009 and 2010. For preceding years, only parent entity amounts disclosed as the consolidated entity only started on 14 March 2008.

(d) Key terms of employment contracts

Non-executives

The remuneration arrangements for the non-executive directors include compensation in the form of annual directors’ fees and from time to time share based payments.

From time to time it is necessary for the Non-executive Directors to provide additional services to the Company. Mr McIlwain, Mr Montgomery, Mr Lee and Mr Calcei have in place consultancy agreements for the provision of services outside the scope of duties as a non-executive director. Remuneration by way of consulting fees is calculated on the basis of a daily rate. The term of the consultancy agreement is not fixed, and has an allowance for either party to terminate the agreed arrangements by the giving of 30 days notice.

The remuneration of non-executives includes amounts payable to director controlled entities for services provided by directors and for the year ending 30 June 2010 is detailed in the following table of this report.

The Group carries out consulting activities with the directors on an arms length basis in the normal course of business.

14

Verus Investments Ltd Directors’ Report

(e) Remuneration of Directors and senior management

The compensation for each director and member of senior management for the year is contained in the following table.

ollowing table.
	**short-term employee benefits **
Name	Director Fees	Consulting Fees	Share-based payment (f)	Total	Percentage of Remuneration as Options
	$	$	$	$	%
2010
Andrew McIlwain	46,325	6,000	77,700	130,025	59.8
Michael Montgomery	32,250	-	77,700	109,950	70.7
GregoryLee	32,250	30,208	77,700	140,158	55.4
David Calcei	32,250	4,100	77,700	114,050	68.1
Paul Jurman	-	-	7,311	7,311	100
Total	143,075	40,308	318,111	**501,494 **
2009
Andrew McIlwain	46,325	73,619	-	119,944	0
Michael Montgomery	24,917	39,968	-	64,885	0
Gregory Lee	29,750	16,900	-	46,650	0
David Calcei	29,750	-	-	29,750	0
Nerida Schmidt	-	16,500	2,400	18,900	12.7
Paul Jurman	-	-	-	-	0
Total	130,742	146,987	2,400	280,129

(f) Share-based payments granted during the year

During the year the following options were granted to Directors and Key Management personnel (KMP);

• (i) Directors - 12,000,000 options were granted during the year, (exercise price of 1.5 cents and expiring 1 March 2012) as approved by shareholders (2009: Nil), with Mr Mcilwain, Mr Lee, Mr Calcei and Mr Montgomery each receiving 3,000,000 option. The options vested immediately and the fair value per option at grant date was calculated as 2.59 cents

• (ii) Other KMP – 500,000 unlisted options were granted to Mr Jurman during the year, (exercise price of 4 cents and expiring 9 December 2012) under the Employee Option Plan (2009:1,000,000). The options vest on 9 December 2010 and the fair value per option at grant date was calculated as 2.61 cents. (2009:500,000).

15

Verus Investments Ltd Directors’ Report

Directors’ Meetings

During the year there were eleven Directors meetings held. The following table sets out both the number held and the number of meetings attended by each director

Directors	Number Attended	Number eligible to attend
AndrewMcIlwain	11	11
Michael Montgomery	10	11
GregoryLee	11	11
DavidCalcei	11	11

Audit and Risk Committee

The Audit and Risk Committee consists of David Calcei (Chairman), Andrew McIlwain and Gregory Lee. During the year there were two meetings held and all members of the Committee were in attendance.

Remuneration Committee

The Remuneration Committee consists of David Calcei (Chairman), Andrew McIlwain and Gregory Lee. Given the size and scale of activities during the year, matters regarding remuneration were handled by the entire board, with no Committee meetings held for the year.

Nomination Committee

The Nomination Committee consists of David Calcei (Chairman), Andrew McIlwain and Gregory Lee. Given the size and scale of activities during the year, matters regarding nomination were handled by the entire board, with no Committee meetings held for the year.

Shares under option

Details of un-issued ordinary shares for which options are outstanding at the date of this report:

Date options granted	Class of shares	Exercise price of options	Expiry date of options	Number of shares under option
6February2009	ordinary	$0.015	1 March 2012	500,000
27November 2009	ordinary	$0.015	1 March 2012	12,000,000
9December 2009	ordinary	$0.04	9December 2012	500,000
4June 2010	ordinary	$0.03	31 December 2010	15,000,000

The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the Company or any other body corporate or registered scheme.

Shares Issued on the exercise of options

The following ordinary shares of Verus Investments Limited were issued during the year ended 30 June 2010 on the exercise of options granted under the DEOP. No further shares have been issued since that date. No amounts are unpaid on any of the shares.

No amounts are unpaid on any of the shares.
Date options granted	Issue price of shares	Number of shares issued
6February2009	$0.015	500,000

There were no remuneration options cancelled or forfeited during the year and since the date of this report.

16

Verus Investments Ltd Directors’ Report

Indemnification of officers and auditors

During the financial year, the Company has paid premiums with respect to a contract insuring any person who is or has been an officer or auditor of any company in the Group against liabilities incurred whilst acting as officers or auditors. The contract prohibits the disclosure of the amount of premium paid in respect of the contract.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

The Company has executed a Deed of Protection for each of the directors. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor.

Non-audit services

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in note 5 to the financial statements.

The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

Auditor’s Independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 18.

Auditor

Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001.

The directors’ report is signed in accordance with a resolution of directors made pursuant to s. 298(2) of the Corporations Act 2001.

On behalf of the Directors

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Andrew McIlwain Director

Perth, 24 September 2010

17

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

The Board of Directors Verus Investments Limited 30 Ledger Road, Balcatta, WA, 6021

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 9365 7001 www.deloitte.com.au

24 September 2010

Dear Board Members

Verus Investments Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Verus Investments Limited.

As lead audit partner for the audit of the financial statements of Verus Investments Limited for the financial year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been no contraventions of:

• (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

• (ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

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DELOITTE TOUCHE TOHMATSU

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L Karamfiles

Partner

Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu

Deloitte Touche Tohmatsu ABN 74 490 121 060

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Independent Auditor’s Report to the members of Verus Investments Limited

Woodside Plaza Level 14 240 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia

DX: 206 Tel: +61 (0) 8 9365 7000 Fax: +61 (0) 9365 7001 www.deloitte.com.au

Report on the Financial Report

We have audited the accompanying financial report of Verus Investments Limited, which comprises the statement of financial position as at 30 June 2010, and the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, 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 as set out on pages 21 to 50.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies 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. These Auditing Standards require that we 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.

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 entity’s preparation and fair presentation of the financial report 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 entity’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.

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu

Page 2 24 September 2010

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Auditor’s Independence Declaration

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 Verus Investments 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 2010 and of its performance for the year ended on that date; and

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

• (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 13 to 15 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Verus Investments Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

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L Karamfiles Partner Chartered Accountants Perth, 24 September 2010

Verus Investments Ltd Directors’ declaration For the Financial Year Ended 30 June 2010

In the opinion of the directors of Verus Investments Limited (the ‘Company’):

• (a) the financial statements, notes and the additional disclosures of the consolidated entity are 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 2010 and of their performance for the year then ended; 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 the Company will be able to pay its debts as and when they become due and payable.

• (c) the financial statements and notes thereto are in accordance with International Financial Reporting Standards, as stated in Note 1 to the financial statements.

This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2010.

Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001.

On behalf of the directors

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Andrew McIlwain Director

Perth, 24 September 2010

21

Verus Investments Ltd Consolidated Statement of Comprehensive Income For the Financial Year Ended 30 June 2010

	2010 2009
Notes	$ $
Continuing operations Investment income 3 Share based payments - employee benefits 3 Administration expenses Share based payments - investor relations consulting fees 3 Impairment loss – mineral investment 3 Impairment loss-oil & gas investment 3 Other expenses Loss before income tax Income tax expense 4 Loss after income tax from continuing operations Loss attributable to; Members of the Parent Entity Other comprehensive income Exchange differences arising on translation of foreign operations Total comprehensive loss for the year Earnings Per Share: Basic (cents per share) 8 Diluted (cents per share) 8	32,066 56,241 (318,111) (7,200) (647,345) (614,129) (676,350) - - (716,908) - (34,429) - (1,730)
	(1,609,540) (1,318,155) - -
	(1,609,540) (1,318,155)
	(1,609,540) (1,318,155) 121,833 1,175
	(1,487,707) (1,316,980)
	Cents Cents (0.30) (0.55) (0.30) (0.55)

The accompanying notes form part of these financial statements

22

Verus Investments Ltd Consolidated Statement of Financial Position As at 30 June 2010

		2010 2009
	Notes	$ $
ASSETS Current Assets Cash and cash equivalents Other receivables Total current assets Non-current assets Prepayments Exploration & Evaluation Assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Total current liabilities Total liabilities NET ASSETS EQUITY Contributed equity Reserves Accumulated losses Total equity	17 9 10 11 12 13 14 15	305,986 573,983 27,747 12,683
		333,733 586,666
		365,621 - 3,761,066 -
		4,126,687 -
		4,460,420 586,666
		78,898 35,829
		78,898 35,829
		78,898 35,829
		4,381,522 550,837
		13,148,308 8,824,377 1,429,426 313,132 (10,196,212) (8,586,672)
		4,381,522 550,837

The accompanying notes form part of these financial statements

23

Verus Investments Ltd Consolidated Statement of Changes in Equity For the Financial Year Ended 30 June 2010

	Contributed equity Reserves Accumulated Losses Total $ $ $ $ 8,824,377 304,757 (7,268,517) 1,860,617 - - (1,318,155) (1,318,155) - 1,175 - 1,175
Balance at 1 July 2008 Loss for the period Exchange differences arising on translation of foreign operations Total Comprehensive Income / (Loss) Share based payments – employee benefits expense Balance at 30 June 2009 Loss for the period Divesture of foreign operations Exchange differences arising on translation of foreign operations Total Comprehensive Income / (Loss) Share issues Share issue costs Share based payments – employee benefits expense Share based payments – other equity settled Balance at 30 June 2010
	- 1,175 (1,318,155) (1,316,980)
	- 7,200 - 7,200
	8,824,377 313,132 (8,586,672) 550,837
	- - (1,609,540) (1,609,540) - (4,904) - (4,904) - 126,737 - 126,737
	- 121,833 (1,609,540) (1,487,707)
	4,644,728 - - 4,644,728 (320,797) - - (320,797) - 318,111 - 318,111 - 676,350 - 676,350
	13,148,308 1,429,426 (10,196,212) 4,381,522

The accompanying notes form part of these financial statements

24

Verus Investments Ltd Consolidated Statement of Cash Flows For the Financial Year Ended 30 June 2010

		2010	2009
	Notes	$	$
Cash flows from operating activities Interest Received Payments to suppliers and employees Deposit refunded Net cash outflow from operating activities 17 Cash flows from investing activities Payments for exploration and evaluation – oil & gas projects Payments for exploration and evaluation – minerals projects Purchase of property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Proceeds from issues of equity securities 13 Share issue costs Net cash outflow from investing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of year		30,506 74,438 (480,551) (638,460) - 39,596
		(450,045) (524,426)
		(4,008,483) (122,832) - (574,216) - (1,366)
		(4,008,483) (698,414)
		4,511,328 - (320,797) -
		4,190,531 -
		(267,997) (1,222,840) 573,983 1,796,823
		305,986 573,983

The accompanying notes form part of these financial statements

25

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Verus Investments Limited and its subsidiary.

(a) General information

Verus Investments Limited (the Company) is a limited liability company incorporated in Australia. The address of its registered office and principal place of business is disclosed in the introduction to the annual report.

(b) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Interpretations and the Corporations Act 2001 .

Compliance with IFRS

The consolidated financial statements of Verus Investments Limited group also comply with International Financial Reporting Standards (IFRS’) as issued by the International Accounting Standards Board (IASB).

The financial statements were authorised for issue by the directors on 24 September 2010.

Historical cost convention

These financial statements have been prepared under the historical cost convention. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

Adoption of new and revised standards

The Company and the Group have applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All nonowner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Company and the Group had to change the presentation of its financial statements.

AASB 8 Operating Segments is a disclosure Standard that has no impact on the reported results or financial position of the Group. The operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

Comparative information has been re-presented so that it is also in conformity with the revised standard.

AASB 3 Business Combinations

AASB 3(2008) has been adopted in the current year. Its adoption will affect the accounting for business combinations in future periods.

In accordance with the relevant transitional provisions, AASB 3(2008) has been applied prospectively to business combinations for which the acquisition date is on or after 1 July 2009. The impact of the adoption of AASB 3(2008) Business Combinations has been:

26

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

• to allow a choice on a transaction-by-transaction basis for the measurement of non-controlling interests (previously referred to as ‘minority’ interests) either at fair value or at the noncontrolling interests’ share of the fair value of the identifiable net assets of the acquiree.

• to change the recognition and subsequent accounting requirements for contingent consideration. Under the previous version of the Standard, contingent consideration was recognised at the acquisition date only if payment of the contingent consideration was probable and it could be measured reliably; any subsequent adjustments to the contingent consideration were recognised against goodwill. Under the revised Standard, contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against goodwill only to the extent that they arise from better information about the fair value at the acquisition date, and they occur within the ‘measurement period’ (a maximum of 12 months from the acquisition date). All other subsequent adjustments are recognised in profit or loss;

• where the business combination in effect settles a pre-existing relationship between the Group and the acquiree, to require the recognition of a settlement gain or loss; and

• to require that acquisition-related costs be accounted for separately from the business combination, generally leading to those costs being recognised as an expense in profit or loss as incurred, whereas previously they were accounted for as part of the cost of the acquisition.

It has been determined by the Group that there are no other impacts, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change in necessary to Group accounting policies.

New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting periods. The directors have assessed the impact of these new standards and interpretations and do not believe that they will have a material impact on the financial statements of the Group based on its current activities and operations.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements is in relation to Noncurrent assets - intangibles (Exploration and Evaluation Assets) (note k).

Going concern

The financial report had been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The Group has incurred a loss for the year after tax of $1,609,540 (2009:$1,318,155) and experienced net cash outflows of $267,997 (2009:$1,222,840). As at 30 June 2010 the consolidated entity has net current assets of $254,835 (2009:$550,837), which includes $305,986 (2009:$573,983) in cash and cash equivalents.

The directors believe that it is appropriate to prepare the financial statements on a going concern basis for the following reasons:

• (i) In July 2010, the Company raised $183,420 (before costs) from a share purchase plan;

• (ii) In August 2010, the Company raised $551,250 (before costs) from a private share placement;

27

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

• (iii) The Company undertook and continues to undertake a program to minimise all discretionary expenditures during the year;

• (iv) Having executed binding agreements for a merger with Pass Petroleum Pty Ltd (“Pass”) (approved by shareholders at a General Meeting held on 22 September 2010), the Group expects to secure three additional onshore oil and gas projects including Bullseye which is in production and is expected to generate revenue of approximately $38,000 per month for the Group, as well as an additional 27% working interest in the Fausse Point Project

• (v) The Company believes that its has the capacity to raise new equity to invest in the ongoing development of its five oil and gas interests based upon the indicative drilling results achieved to date on each of the projects; and

• (vi) The Company is not committed to future drilling and well completion costs, beyond the commitments disclosed in note 22 to these accounts, as such that the Company will only expend future amounts if they have sufficient cash to meet the cost.

The ability of the consolidated entity and company to continue as going concerns is dependent on the ability of the company to source additional funds from debt and/or equity markets to meet working capital requirements and future drilling and (if applicable) well completion costs for each of the five projects in which it holds a working interest.

The Directors have reviewed the consolidated entity’s and company’s overall position and outlook in respect of the matters identified above and are of the opinion that the use of the going concern basis is appropriate in the circumstances.

However, if the consolidated entity and company are unable to achieve successful outcomes in relation to the matters discussed above there is significant uncertainty whether the consolidated entity and company will be able to continue as going concerns.

Should the consolidated entity and company be unable to continue as going concerns, they may be required to realise their assets and extinguish their liabilities other than in the normal course of business and at amounts different from those stated in the financial report.

The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary should the consolidated entity and company be unable to continue as going concern concerns.

(c) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Verus Investments Limited as at 30 June 2010 and the results of all subsidiaries for the year then ended. Verus Investments Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

28

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Investments in subsidiaries are accounted for at cost in the separate financial statements of Verus Investments Limited.

(d) Segment reporting

The Group has applied AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes.

Operating segments are now reported in a manner that is consistent with the internal reporting provided to the Board. The Board as a whole will make strategic decisions on the direction and activities of the Group.

(e) Foreign currency translation

Functional and presentation currency

Items included in the financial statement of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency for Verus Investments Limited

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit and loss as part of their fair value gain or loss.

Group companies

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet

• income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and

• all resulting exchange differences are recognised as a separate component of equity

29

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

(f) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns or discount.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below.

• Interest revenue is recognised on a time proportion basis that takes into account the effective yield on the financial asset.

(g) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

(h) Impairment of assets

Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash flows of other assets or groups of assets. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. Non-financial assets (other than goodwill) that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

30

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

(i) Cash and cash equivalents

Cash and cash equivalents consists of cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

(j) Property, plant and equipment

Plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment. Depreciation is calculated on a diminishing value method so as to write off the net cost or other re-valued amount of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period.

The gain or loss arising on disposal or retirement of an item of Property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss.

The following estimated useful lives are used in the calculation of depreciation:

• Plant and equipment - 4 to 5 years

(k) Intangible assets

Exploration Expenditure and Development Expenditure Assets

Exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are only carried forward to the extent that the rights to tenure of the area of interest are current, and that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves and active and significant operations in the area are continuous.

Accumulated costs in relation to an abandoned area are written off in full against income statement in the year in which the decision to abandon the area is made.

When production commences, the accumulated costs for the relevant area of interest are tested for impairment and the balance is then reclassified to development expenditure assets. These are amortised over the life of the area according to the rate of depletion of the economically recoverable reserves.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest

(l) Financial assets

Financial assets are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through the profit or loss which are initially measured at fair value.

The investment in subsidiaries is recorded at cost in the Company financial statements.

31

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

The Loans to the subsidiary is denominated in a foreign currency (USD $) and is translated (in accordance with Note 1(e) to the functional currency as at the reporting date.

Financial assets, other than those at fair value through the profit and loss, are assessed for indicators of impairment at each balance sheet date. An impairment review will be carried out on all financial assets consistent with the methodology outlined in note 1(h).

(m) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

(n) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.

(o) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the net asset or part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST component of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows.

(p) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit/(loss) after tax attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

32

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

(q) Share based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 16.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.

The policy described above is applied to all equity-settled share-based payments that were granted after 7 November 2002 and vested after 1 January 2005. No amounts have been recognised in the financial statements in respect of other equity-settled shared-based payments.

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

(r) Financial instruments by the Company

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual agreement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after detecting all of its liabilities. Equity instruments, issued by the Group are recorded at the proceeds received, net of direct issue costs.

(s) Parent entity financial information

The financial information for the parent entity, Verus Investments Limited, disclosed in note 21 has been prepared on the same basis as the consolidated financial statements, except as set out below.

• (i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Verus Investments Limited.

• (ii) Financial guarantees

Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.

33

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

2. FINANCIAL RISK MANAGEMENT

The Group’s investment activities expose it to a variety of financial risks: foreign exchange risk, liquidity risk, and interest rate risk. The Group’s and the Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risks to which it is exposed. The method used is sensitivity analysis for each of foreign exchange risk, liquidity risk and interest rate risk.

The Group and Company manage their capital to ensure the Group will be able to continue as a going concern while maximising the return to stakeholders. The Group’s overall strategy remains unchanged from 2009.

The capital structure of the Group consists of equity attributable to equity holders of the Company, comprising issued capital, reserves and accumulated losses. The Group is debt free, except for trade payables (note 12).

Operating cash flows have been used by the Group in the year to invest in exploration & evaluation activities and to fund corporate costs of the Company.

The Group holds the following financial instruments:

	2010 2009
	$ $
Financial Assets Cash and cash equivalents Receivables Financial liabilities Trade and other payables	305,986 573,983 27,747 12,683
	333,733 586,666
	78,898 35,829

(a) Foreign exchange risk

The Group and the parent entity operate internationally and during the year were exposed to foreign exchange risk arising from currency exposures, primarily with respect to the US dollar.

Foreign exchange risks arise from future commercial transactions and recognized assets and liabilities that are denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.

Management regularly monitors exposure to foreign exchange risk, but do not have a current hedging policy in place. It is intended that this policy will be continuously assessed in line with funding requirements for each of the investment opportunities.

As at 30 June 2010, the Group had minimal exposure to foreign currency risk within its recognised assets and liabilities. The Cash and cash equivalents included $62,593, held in USD bank account, being USD$53,623 (2009: Nil).

34

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

(b) Group sensitivity – foreign exchange risk

Based upon the financial instruments held as at 30 June 2010 (and 30 June 2009), had the Australian dollar weakened/strengthened 10% against the US dollar with all other variables held constant it would not have had a material impact on the Group and Company loss for the year (<$10,000).

(c) Interest rate risk management

The Group is exposed to interest rate risk as entities in the Group deposit funds at both short-term fixed and floating rates of interest. The Group did not have any interest bearing liabilities as at balance date.

The Group exposure to interest rates on financial assets and liabilities is detailed in the liquidity risk management section of this note.

(d) Interest rate sensitivity

A change in interest rates would not have a material impact on the profit and equity for the current and previous years of the Group or the Parent entity.

(e) Fair value estimation

The directors consider that the carrying amount of financial assets and financial liabilities, as recorded in the financial statements, represent or approximate their respective fair values.

(f) Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, who oversee a liquidity risk management framework for the management of the Group’s funding and liquidity management requirements. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and ensuring there are appropriate plans in place to finance these future cash flows.

		Less than 1	1 to 3	Less than 1
	Weighted	month	months	month	1 to 3
	average	Interest	Interest	Non-	months
	effective	bearing -	bearing -	interest	Non-interest
	interest rate	variable	variable	bearing	bearing
	%	$	$	$	$
2010
Cash & Cash equivalents	3.92	305,986	-	-	-
Other receivables	-	-	-	-	27,747
Other payables	-	-	-	-	78,898
2009				-
Cash & Cash equivalents	5.76	67,536	506,447	-	-
Other receivables	-	-	-	-	12,683
Other payables	-	-	-	-	35,829

The Liquidity and interest risk table above has been drawn up based on the undiscounted cash flow (including both interest and principal cash flows expected) using contractual maturities of financial assets and the earliest date on which the Group can be required to pay financial liabilities. Amounts for financial assets include interest earned on those assets except where it is anticipated cash will occur in a different period.

35

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

3. REVENUE AND EXPENSES

		2010	2009
		$	$
An analysis of the revenue for the year is as follows: Investment income Interest received – bank deposits Total income Loss for the year before tax Loss for the year has been arrived at after charging the following losses and expenses: Share based payments – employee benefits expense (note 16) Share based payments - investor relations consulting fees Share based payments - project introduction fees Impairment of Brazilian investment Impairment of Oil & Gas investment Depreciation Loss on disposal of Plant & equipment		32,066 56,241
		32,066 56,241
		318,111 7,200 676,350 - 133,400 - - 716,908 - 34,428 - 59 - 1,672

36

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

4. INCOME TAXES

			2010	2009
			$	$

The prima facie income tax expense on pre-tax accounting loss from operations reconciles to the income tax benefit in the financial statements as follows:

Loss from operations Add tax effect of: Non-deductible expenses Capital Loss on investments write-off Income accrual Income tax benefit not brought to account Less tax effect of: Section 40-880 deduction Capitalised Exploration expenditure Deferred tax assets (unrecognised) Unused revenue tax losses carried forward Unused capital tax losses carried forward Unused Section 40-880 deductions	(1,609,540) (1,318,155)
	(482,862) (395,447) 302,397 34,692 - 225,401 468 5,459 1,046,590 325,214
	866,593 195,319 (76,204) (22,702) (790,389) (172,617)
	- -
	1,794,580 747,990 358,478 453,996 245,455 14,819
	2,398,513 1,216,805

The benefits will only be obtained if:

• The companies derive future assessable income of a nature and of an amount sufficient to enable the benefit from the deduction for the losses to be realised;

• The companies continue to comply with the conditions for deductibility and availability of tax losses imposed by the law; and

• No changes in tax legislation adversely affect the companies in realising the benefits from the deductions for the losses.

37

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

5. REMUNERATION OF AUDITORS

		2010	2009
		$	$
Remuneration of the auditor of the Company for: Deloitte Touche Tohmatsu Audit and review of financial reports 42,100 40,626

6. KEY MANAGEMENT PERSONNEL COMPENSATION

(a) Key management personnel compensation

The aggregate compensation made to key management personnel of the Company and the Group is set out below:

		2010	2009
		$	$
Short term employee benefits Share based payments		183,383 277,729 318,111 2,400
		501,494 280,129

(b) Key management personnel details

The following persons were directors of Verus Investment Limited during the financial year were:

A McIlwain – Chairman and Non-executive Director

G Lee - Non-executive Director

D Calcei - Non-executive Director

M Montgomery – Non-executive Director

Paul Jurman held the position of Company Secretary of Verus Investments Limited during the financial year.

There were no other key management personnel employed by the Company during the financial year.

38

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

(c) Key management personnel equity holdings (Fully paid VIL ordinary shares)

The number of shares in the Company held as at the end of the financial year by directors, including shares held by entities they control are set out below:

			Exercise of
	Opening	Granted as	non-	Other	Closing
	Balance	compensation	renounceable	changes (i)	Balance
	1 July		rights issue		30 June
	No.	No.	No.	No.	No.
2010
Andrew McIlwain	-	-	-	1,050,709	1,050,709
Michael Montgomery	-	-	-	200,000	200,000
Gregory Lee	1,000,000	-	1,000,000	-	2,000,000
David Calcei	-	-	-	1,000,000	1,000,000
2009
Andrew McIlwain	-	-	-	-	-
Michael Montgomery	-	-	-	-	-
Gregory Lee	1,000,000	-	-	-	1,000,000
David Calcei	-	-	-	-	-

• (i) Net other changes comprises of either purchases or sale of shares conducted during the year ‘on or off’ the market.

(d) Key management personnel option holdings

The number of listed options in the Company held as at end of the financial year by directors, including options held by entities they control, are set our below. The options, exercisable at 10 cents expired on 30 June 2010.

	Opening	Granted as	Lapse	Net other	Closing
	Balance	compensation	of listed	changes	Balance
	1 July		options		30 June
	No	No.	No.	No.	No.
2010
Andrew McIlwain	-	3,000,000	-	-	3,000,000
Michael Montgomery	-	3,000,000	-	-	3,000,000
Gregory Lee	666,667	3,000,000	(666,667)	-	3,000,000
David Calcei	-	3,000,000	-	-	3,000,000
2009
Andrew McIlwain	-	-	-	-	-
Michael Montgomery	-	-	-	-	-
Gregory Lee	-	-	-	666,667	666,667
David Calcei	-	-	-	-	-

(e) Other transactions with key management personnel and their related parties

Refer to Note 19(c)

39

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

7. FRANKING ACCOUNT BALANCE

		2010	2009
		$	$
Adjusted franking account balance (tax paid basis) 6,187 6,187

8. EARNINGS PER SHARE	8. EARNINGS PER SHARE
		2010	2009
		Cents	Cents
Basic and diluted loss per share The loss used in the calculation of basic and diluted loss per share are as follows:		(0.30) (0.55)
		(1,609,540) (1,318,155) Number of Shares Number of Shares 536,950,940 238,794,160
Weighted averaged number of ordinary shares on issue during the year used in the calculation of basic and diluted EPS: Potential ordinary shares not considered to be dilutive
		28,000,000 165,196,107

As the Group made a loss for the period, diluted earnings per share is the same as basic earnings per share. The impact of the dilution would be to reduce the loss per share.

9. CURRENT ASSETS – OTHER RECEIVABLES

		2010	2009
		$ $
Other receivables(i)		27,747 9,160
Prepayments		- 3,523
		27,747 12,683

(i) Due to the short term nature of these receivables, their carrying amount is assumed to approximate their fair value and the company does not face any significant credit risk exposure as at balance date.

40

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

10. NON-CURRENT ASSETS – PREPAYMENT

		2010	2009
		$	$
Prepayment – Cash Calls		365,621 -
		365,621 -

• (i) This represents cash calls paid to the operators of the oil & gas projects for exploration and development activities which had not been spent on exploration activities as at 30 June 2010. The expenditure will be recognised as capitalized “exploration and evaluation assets” when it is spent.

11. NON-CURRENT INTANGIBLE ASSETS

		2010	2009
		$	$
Exploration & evaluation assets – Minerals (a)		- -
Exploration & evaluation assets – Oil & Gas(b) Reconciliation of Intangible assets Opening balance Exploration & evaluation – Oil & Gas(b) Exploration & evaluation – Minerals (a) Translation movement differences Impairment of Minerals Assets (a)		3,761,066 -
		3,761,066 -
		- 141,518 3,653,335 - - 574,215 107,731 1,175 - (716,908)
Closing balance		3,761,066 -

• (a) During the 2009 financial year impairment testing was carried out after the decision was made to cease further investment in the three early stage mineral exploration opportunities in Brazil (Eloi “Iron Ore”, Itagara “Nickel” and Alpinopolis “Nickel” Projects), with the carrying value of each considered impaired and written down to nil.

• (b) The Oil & Gas exploration and evaluation assets consist of the USA on-shore Fausse Point, Louisiana and Bongo, Texas projects

• (c) The ability of the Company to recoup the carrying value of the capitalised exploration and evaluation assets is ultimately dependent on either the successful commercialization of the project(s) or the ability for the Company to sell the asset at an amount exceeding its carrying value.

12. CURRENT LIABILITIES – TRADE AND OTHER PAYABLES

		2010	2009
Trade payables (a)		78,898 35,829

• (a) There are no amounts included with these balances that are not expected to be settled within the next 12 months. The average credit terms for services received by the consolidated Group are 30 days from invoice date.

41

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

13. CONTRIBUTED EQUITY

(a) Issued Capital

Fully paid ordinary shares carry one vote per share and the right to dividends

	2010 2009 2010 2009
	Shares Shares $ $
Ordinary shares Fully paid (b)	685,551,589 238,794,160 13,148,308 8,824,377

(b) Reconciliation of Issued Capital

	Number of shares $ 238,794,160 8,824,377 - -
Balance at 1 July 2008 No movement for the year Balance at 30 June 2009 Issued during the year Share placements Shares issued – project introduction fee Options exercised Capital raising costs Balance at 30 June 2010
	238,794,160 8,824,377 441,657,429 4,503,828 4,600,000 133,400 500,000 7,500 - (320,797)
	685,551,589 13,148,308

(c) Listed and Unlisted Options

Exercise price Expiry date Year ended 30 June 2009 1 Listed $0.10 30 Jun 2010 Unlisted EOP $0.015 1 Mar 2012 Year ended 30 June 2010 1 Listed $0.10 30 Jun 2010 2 Unlisted EOP $0.015 1Mar 2012 Unlisted(d) Directors $0.015 1 Mar 2012 Unlisted EOP $0.04 9 Dec 2012 Unlisted Brokers $0.03 31 Dec 2010	Balance at beginning of year Granted during year Exercised during year (e) Expired during year Balance at end of year	Vested/ exercisable at end of year
	Number Number Number Number Number	Number
	164,196,107 - - - 164,196,107 - 1,000,000 - - 1,000,000	164,196,107 1,000,000
	- 1,000,000 - - 165,196,107	165,196,107
	164,196,107 75,000,000 - (239,196,107) - 1,000,000 - (500,000) - 500,000 - 12,000,000 - - 12,000,000 - 500,000 - - 500,000 - 15,000,000 - - 15,000,000	- 500,000 12,000,000 - 15,000,000
	165,196,107 102,500,000 (500,000) (239,196,107) 28,000,000	27,500,000

(d) Options issued To Directors

During the year there were 12,000,000 options granted to directors, after receiving shareholder approval at the AGM held in November 2010 (2009: Nil).

(e) Options exercised

During the year there were 500,000 options exercised.

42

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

14. RESERVES

	2010 2009
	$ $
Share based payments reserve Balance at the beginning of the financial year Transfer from other equity settled reserve Share based payments for the year Balance at the end of the financial year Option reserve Balance at the beginning of the financial year Share options issued during period Option issue costs Balance at the end of the financial year Other equity settled reserve Balance at the beginning of the financial year Transfer to Share based payments reserve Balance at the end of the financial year Foreign currency translation reserve Balance at the beginning of the financial year Foreign currency translation during the year Balance at the end of the financial year TOTAL RESERVES	13,050 5,850 25,000 - 994,461 7,200
	1,032,511 13,050
	270,178 270,178 - - - -
	270,178 270,178
	25,000 25,000 (25,000) -
	- 25,000
	4,904 3,729 121,833 1,175
	126,737 4,904
	1,429,426 313,132

(a) Share based payments reserve

This reserve represents all share based payments granted to directors, consultants and/or employees. Further information about share-based payments to employees is set out in note 16.

(b) Option reserve

This reserve represents the consideration paid for all series of options issued to shareholders.

(c) Foreign currency translation reserve

This reserve represents Exchange differences relating to the translation of the net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) are reclassified to profit or loss on the disposal or partial disposal of the foreign operation.

43

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

15. ACCUMULATED LOSSES

	2010 2009
	$ $
Balance at the beginning of the financial year Net loss attributable to members of the Company Balance at the end of the financial year	(8,586,672) (7,268,517) (1,609,540) (1,318,155)
	(10,196,212) (8,586,672)

16. SHARE BASED PAYMENTS

Expenses arising from share-based payments transactions

Total expenses arising from share-based payment transactions recognised during the year.

	2010 2009
	$ $
Directors Brokers and consultants Options issued under EOP	310,800 - 676,350 - 7,311 7,200
	994,461 7,200

Non Plan based payments

The Company will from time to time make share based payments to directors. The Remuneration Committee will align the interests of the executive team with those of the shareholders when setting future short and long-term benefits. This will from time to time require management to seek shareholder approval to provide compensation to executive and non-executive directors in the form of share options.

The Company will from time to time make share based payments to consultants and service providers. The options are issued for nil consideration.

The vesting period and maximum term of options granted vary according to Board’s discretion.

Employee Option Plan (“EOP”)

Shareholders approved the Verus Investments Limited Employee Option Plan (“EOP”) at the Annual General Meeting held on 24 November 2009. The plan is designed to provide incentives, assist in the recruitment, reward, retention of employees and key consultants, so as to provide opportunities for employees (both present and future) to participate directly in the equity of the Company.

The contractual life of each option granted is three years. Each option issued under the sharebased payments converts into one ordinary share in the Company on exercise. The options carry neither rights to dividends nor voting rights. There are no cash settlement alternatives.

44

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

The following share-based payment arrangements were in existence during the current and prior reporting periods:

					Fair value
Option series		Grant	Expiry	Exercise	at grant
	Number	date	date	price	date
1EOP - February 2009	1,000,000	2-Feb-09	1-Mar-12	$0.015	$0.0096
2Directors – November 2009	12,000,000	27-Nov-09	1-Mar-12	$0.015	$0.0259
3EOP – December 2009	500,000	10-Dec-09	9-Dec-12	$0.04	$0.0261
4Consultants – June 20101	15,000,000	4-Jun-10	31-Dec-10	$0.03	$0.00009

The value of options was determined by the value of the services provided.

Fair value of unlisted options granted (Series 1 – 3)

The fair value of the equity-settled share options granted (to Directors and under the EOP) are estimated as at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted. The fair value of listed securities is calculated by reference to the market value of the securities trading on the Australian Securities Exchange (ASX) on or around the date of grant.

Inputs into the Model
	Series 1	Series 2	Series 3
Volatility (%)	250%	180%	180%
Risk-free interest rate (%) – range	3.25%	3.25%	3.75%
Expected life of option (years)	3 years	27 months	3 years
Exercise price (cents)	$0.015	$0.015	$0.04
Share price at grant date (cents)	$0.005	$0.029	$0.029

The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

Movement in share options during the period

The following table reconciles those share options (issued under share based payment arrangements) that were outstanding at the beginning and end of the year;

	2010 Number of Options 2010 Weighted average exercise price 2009 Number of options 2009 Weighted average exercise price 1,000,000 $0.015 - $0.015 27,500,000 $0.024 1,000,000 $0.015 75,000,000 $0.10 - - (500,000) $0.015 - - (75,000,000) $0.10 - -
Outstanding at beginning of the year Granted during the year (unlisted) Granted during the year (listed) Exercised during the year Lapsed during the year (listed) Outstanding at the end of the year Exercisable at the end of the year
	28,000,000 $0.024 1,000,000 $0.015
	27,500,000 1,000,000

45

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

17. NOTES TO THE CASH FLOW STATEMENT

	2010	2009
	$	$
(a) Reconciliation of cash and the equivalents: For the purpose of the cash flow statement, cash and cash equivalents includes cash on hand in banks. Cash and cash equivalents (b) Reconciliation of loss for the period to net cash flows from operating activities: Loss for the period Depreciation of non-current assets Loss on disposal of plant and equipment Share based payments Share based payments – other equity settled Shares issued for no consideration: Project introduction fee Impairment of Brazilian Investment Settlement of oil and gas interest Changes in net assets and liabilities: Decrease (increase) in receivables Increase (decrease) in payables Net cash outflows from operating activities	305,986	573,983
	(1,609,540) - - 318,111 676,350 133,400 - - (6,530) 38,164 (450,045)	(1,318,155) 59 1,672 7,200 - - 716,908 122,832 78,395 (133,337) (524,426)

46

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

18. SEGMENT INFORMATION

Business Segments

The following tables present the revenue and loss information regarding segments for the years ended 30 June 2010 and 30 June 2009.

	Oil and Gas Exploration – USA Mineral Exploration – Brazil Interest income Share based payments Investor relations consulting fee Corporate, administration and directors fees Loss before tax Oil and Gas Exploration – USA (b) Mineral Exploration – Brazil Total segment assets Unallocated assets Total Assets	Revenue Year ended	Revenue Year ended		Segment Loss / (Profit) Year ended	Segment Loss / (Profit) Year ended
		30-Jun 2010 $ - -	30-Jun 2009 $ - -		30-Jun 2010 $ 10,856 (1,381)	30-Jun 2009 $ 34,429 770,060
					9,475 (32,066) 318,111 676,350 637,670	804,489 (56,241) 7,200 - 562,707
					1,609,540	1,318,155
					Group Assets by Reportable Operating Segment
					30-Jun 2010 $ 4,139,598 -	30-Jun 2009 $ - -
					4,139,598 320,822	- 586,666
					4,460,420	586,666

Operating Segment

The Company presently operates in one operating segment being investments in onshore oil & gas exploration & evaluation.

• (a) Depreciation or Amortisation

There was no depreciation or amortisation in any segment for the year.

• (b) Additions to non-current assets

Additions of $3,653,335 during the year relate to the oil & gas exploration – USA segment.

47

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

19. RELATED PARTY TRANSACTIONS

(a) Subsidiaries

Interests in subsidiaries are set out in note 20.

(b) Key management personnel

Disclosures relating to key management personnel are set out in note 6.

(c) Transactions with related parties

• Andrew McIlwain provided executive services under a Consultancy agreement (as disclosed in the Remuneration Report). Consultancy fees received of $6,000 (2009:$73,619).

• Greg Lee provided executive services under a Consultancy agreement (as disclosed in the Remuneration Report). Consultancy fees received of $30,208 (2009:$7,500).

• David Calcei executive services under a Consultancy agreement (as disclosed in the Remuneration Report). Consultancy fees received of $4,100 (2009:$ Nil).

• Fees for taxation and corporate filing services of $5,230 (2009: $280) were paid or payable to Icon Financial Management Pty Ltd, a company in which Mr David Calcei is a Director.

20. SUBSIDIARIES

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1 (c):

	Country of
Name of Entity	Incorporation	Class of Shares	Equity	Holding
			2010	2009
			%	%
Verus Energy Inc	USA	Ordinary	100	-
Verus do Brasil Mineracao Ltda (a)	Brazil	Ordinary	-	100

• (a) Disposal of a subsidiary

In 10 July 2009 the Company divested its interest in Verus do Brasil Mineracao Ltda for no consideration. The assets of the subsidiary were previously written down to nil as at 30 June 2009.

48

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

21. PARENT ENTITY DISCLOSURES

(a) The individual financial statements for the parent entity show the following aggregate information;

	2010 2009
	$ $
Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Equity Contributed equity Accumulated losses Reserves Other equity settled benefits reserve Equity settled benefits reserve Option reserve Total equity Loss for the year Total comprehensive loss for the year	320,822 586,666 4,153,826 -
	4,474,648 586,666
	78,898 35,829 - -
	78,898 35,829
	13,148,308 8,824,377 (10,055,248) (8,581,768) 331,161 13,050 701,350 25,000 270,178 270,178
	4,395,749 550,837
	(1,473,480) (1,338,365)
	(1,473,480) (1,338,365)

• (b) Contingent liabilities of the parent entity

The parent entity did not have any contingent liabilities as at 30 June 2010 or 30 June 2009.

(c) Commitments for expenditure

The parent entity did not have any commitments for expenditure as at 30 June 2010 or 30 June 2009.

49

Verus Investments Ltd Notes to the financial statements For the Financial Year Ended 30 June 2010

22. COMMITMENTS FOR EXPENDITURE

	2010 2009
	$ $
Exploration & evaluation – oil & gas Not later than 1 year	376,038 -
	376,038 -

23. SUBSEQUENT EVENTS

The following significant events have occurred subsequent to the end of the financial year:

• On 30 July 2010, the Company completed the issue of 8,337,271 shares at an issue price of 2.2 cents each under the terms of the Share Purchase Plan for gross proceeds of $183,420.

• On 2 August 2010, the Company announced its intention to merge with Pass Petroleum Pty Ltd (“Pass”). Pass holds working interests (“WI”) in several onshore oil and gas projects in the USA states of Louisiana and Texas. These projects being - Bullseye (WI - 10%), West Bowtie (WI – 18%) and Fausse Point (WI – 27%), which will move the Consolidated Verus Interest up to 72%. The Key transaction terms being that the Company will issue 369 Million Verus shares to the vendors of Pass, but all subject to shareholder approval and completion of necessary due diligence.

• On 8 August 2010, the Company announced the completion of a private placement of 26.25 million shares (within the Company’s 15% placement capacity) raising approximately $523,000 after costs.

• On 8 September 2010 the Company announced the completion of due diligence and that final binding documentation for the Pass merger had been executed. As part of the final negotiation, Pass’s 30% WI in the Silverwood project (previously quarantined from the merged assets) was included.

• On 22 September 2010, Verus Shareholders unanimously approved the issue of shares to the vendors of Pass Petroleum Pty Ltd.

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Verus Investments Ltd Investment Policy

Verus Group Investment Policy

The Investment Policy which has been sanctioned by the Company’s shareholders is:-

“That the goal of the Company be and it’s financial and investment policies be for the purpose of, the growth and maximisation of the value of the equity funds of the Company.

In pursuit of this goal, the directors have absolute discretion in applying the equity and any debt funds of the Company to investments, without limitation or restriction on:-

• (i) The means by which this goal will be pursued;

• (ii) The percentage of the Company’s activities represented by the investment relative to the Company’s own equity or asset bases;

• (iii) The underlying activities into which these funds may be invested;

• (iv) The percentage ownership of or participation in any underlying activity;

• (v) The number of underlying activities in which funds may be invested at any one time;

• (vi) The locations from where these underlying activities may be conducted; and

• (vii) The time frame for which directors may intend to hold an investment prior to sale.

Without limiting the director’s discretion in any way, investments may be made:

• (i) Indirectly through trusts, partnership, joint ventures or securities, whether listed on a securities

• exchange or unlisted;

• (ii) Directly through assets of any type, whether they be generally known as “real”, “financial”, "operating” or “non-operating”;

• (iii) In partnership with others; and

• (iv) Into any underlying industry, business or resource sector.

Subject to all required regulatory approvals being in place, the Company may also act as the manager of funds provided by parties other than the Company.”

51

Verus Investments Ltd Australian Securities Exchange Information

AUSTRALIAN SECURITIES EXCHANGE INFORMATION

The shareholder information set out below was applicable as at 22 September 2010.

(a) Distribution of equity securities

Analysis of numbers of equity security holders by size of holding:

Class of equity security Shares

1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over	24 74 63 1,185 1,121
	2,467

There were 597 holders of less than a marketable parcel of ordinary shares.

(b) Equity security holders – ordinary shares

The names of the twenty largest holders of quoted ordinary shares are listed as follows:

Name Kesar PL Mrs Denise Joyce Murton Comsec Nominees Pty Limited Mr Brett Justin Porter ANZ Nominees Limited Mr Rodney Goullet K & M Adams Pty Ltd ABN AMRO Clearing Sydney Nominees Pty Ltd Mr Guy Alexander Wilkinson Mr John Daniel Powell Mr George Hatziandoniou Lok Hung Nominees Pty Ltd Mr John Anthony Phelan + Mrs Brenda Margaret Phelan Etrade Australia Nominees Pty Limited Mr Tobias Stanley Mission Enterprises (Victoria) Limited Citicorp Nominees Pty Limited Mr Christopher Daniel Shaw Mr Raymond McLaren Micallef Plumbing Industries Pty Ltd TOTAL

Shares Held % Total Issued 15,507,353 2.15 11,500,000 1.60 10,981,796 1.52 9,615,883 1.34 9,376,975 1.30 7,035,000 0.98 7,000,000 0.97 6,310,011 0.88 6,150,000 0.85 5,900,000 0.82 5,497,355 0.76 5,225,000 0.73 4,951,229 0.69 4,838,171 0.67 4,825,000 0.67 4,500,000 0.62 4,258,036 0.59 4,000,000 0.56 3,940,000 0.55 3,710,000 0.52

135,121,809 18.77

52

Verus Investments Ltd Australian Securities Exchange Information

(c) Voting Rights

The voting rights attaching to each class of equity securities are set out below:

• Ordinary shares

• On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

• Options

• No voting rights.

(d) Substantial holders

There are no substantial shareholders as advised to the Company.

(e) Unquoted Options

Unquoted options on issue at 22 September 2010 were as follows:

Refer	Number of	Exercise Price	Exercise Periods/ Expiry Dates	Number of
Note	Options			Holders
	500,000	1.5 cents On	or before 1 March 2012	1
1	12,000,000	1.5 cents On	or before 1 March 2012	4
	500,000	4 cents On	or before 9 December 2012	1
2	15,000,000	3 cents On	or before 31 December 2010	2
The names	of the holders of 20% or more options in these unquoted securities are listed below:
Note	Name		Number of Options Held
1	A McIlwain		3,000,000
1	G Lee		3,000,000
1	D Calcei		3,000,000
1	M Montgomery		3,000,000
2	HSBC Portfolio Nominees Pty Ltd		7,500,000
2	Bardi Holdings Pty Ltd < DDD A/C >		7,500,000

The names of the holders of 20% or more options in these unquoted securities are listed below:

53