DIGITALX LIMITED — Annual Report 2011

Aug 31, 2011

Appendix 4E Preliminary final Report

Rules 4.3A

Appendix 4E

Preliminary Final Report

Name of entity

VERUS INVESTMENTS LIMITED

ABN or equivalent company reference 59 009 575 035	Financial year ended (‘current period’)
59 009 575 035	30 June 2011

For announcement to the market

For announcement to the market
	$A
Revenue from ordinary activities Loss from ordinary activities after tax attributable to members Net loss for the period attributable to members	Up 1,100% to 384,808 Up 301% to 6,458,190 Up 301% to 6,458,190
Dividends (distributions)		Amount per security	Franked amount per security
Final dividend Interim dividend		None	- ¢
Previous corresponding period		None	-¢
+Record date for determining entitlements to the dividend, (in the case of a trust,distribution)	N/A
	N/A

The above results should be read in conjunction with the notes and commentary contained in this report.

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Appendix 4E Preliminary final Report

Management Discussion and Analysis

1. Commentary

The consolidated loss after tax for the financial year ended 30 June 2011 was $6,458,190 (2010: $1,609,540). The loss is impacted mainly by an impairment charge of around $5 million in relation to some of the Company’s oil and gas investments, further details of which are provided later in this report.

Review of Operations

Sidi Dhaher Prospect

On 25 November 2010, the Company announced it had acquired a 10% working interest in the Chorbane Permit, an onshore Tunisian Oil and Gas permit containing numerous ready to drill prospects. It was originally planned to drill the first prospect (Sidi Dhaher) in the 1st quarter of 2011, however this was delayed due to the turmoil in the region and the operator ADX Energy sought assurance from the Tunisian Government on the safe mobilisation of a drill rig to the location and safe secure drilling of the well. The well was spudded on 27 August 2011 and is expected to take 33 days to drill to target depth.

The Sidi Dhaher exploration well has multiple targets and the two top targets on the well are estimated to potentially contain 44 mmbo and 175 BCF of gas.

Lyons Point

In May 2011, the Company acquired a 15% working interest in the Lyons Point Prospect, operated by Clayton Williams Energy Inc (NASDAQ: CWEI). Lyons Point is located in Acadia Parish, Louisiana. The prospect will be drilled to a total depth of 16,300 feet. The Lyons Point Prospect has a closure of ~400 acres and the recoverable resource potential is 3 MMBC (Million Barrels Condensate) and 60 BCFG (Billion Cubic Feet Gas) with upside potential of 4 MMBC and 80 BCFG. This estimate is conceptual in nature and insufficient activity has been conducted to determine a hydrocarbon reserve.

A turnkey basis drilling contract has been executed subsequent to year end. In August 2011, the Company met its obligation to participate in the drilling of the well, being a payment to the operator of US$1.27 million. It is planned to spud the well in the second week of September 2011 and the well is expected to take 45 days to drill.

Bongo Prospect

On 23 November 2010, it was announced that the OB Ranch #1 discovery well (Bongo #1) on the Bongo prospect in Wharton County, Texas, had been successfully fracture stimulated and was producing oil and gas. The Bongo #1 well commenced production on 13 December 2010. After several weeks of production, the well commenced producing water and an artificial lift was installed on the well in an effort to enhance production and stabilise flow rates. The well is presently producing 650 mcf and 20 bbls per day with 18 bbls of water.

It was decided to drill a second well on the Bongo prospect, the OB Ranch #2 well, as a direct offset to the Bongo #1 well. The well was designed to target the Eocene, Cook Mountain interval between 12,400 and 12,900 feet. Drilling on this well commenced on 17 May 2011, and having reached target depth, it was decided to complete Bongo #2 as a development well. The well has been fracture stimulated and is undergoing well cleanup and flow stabilisation prior to extended production testing.

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Fausse Point Prospect

The Company and Operator (Kindee Oil and Gas Inc) have completed reprocessing of newly acquired seismic and in conjunction with the existing TGR#1 subsurface well have developed two additional prospects within the AMI. The TGR#1 well bore can be sidetracked at minimal expense to target a potential 120-acre and 80 acre hydrocarbon accumulation over two primary intervals up dip from the original wellbore. A shallower prospect, possibly oil-bearing, has been identified from the reinterpreted seismic and is in the process of being further detailed and assessed. Once the prospect has been fully developed and reviewed by the partners and if it appears economic, this prospect will also be drilled.

It is anticipated that drilling of the side-track well will commence in the last quarter of 2011. Verus’s Board is also reviewing the option of farming down some of the Company’s interest in Fausse Point.

Merger with Pass Petroleum

Verus Investments increased its portfolio of onshore oil and gas investments during the year.

On 5 October 2010, a merger of Pass Petroleum Pty Ltd (“Pass”) with the Verus Group was completed and resulted in:

• An increase in the working interest (“WI”) of the Fausse Point prospect in Louisiana from 45% to 72%;

• The acquisition of a 10% WI in the Bullseye prospect in Louisiana and its producing wells (Jumonville #1 and Jumonville #2);

• The acquisition of a 18% WI in the Bowtie West prospect in Texas;

• The acquisition of a 30% WI in the Silverwood prospect, in Louisiana; and

• The issue of 369 million Verus shares to Pass vendors as consideration for the transaction.

Subsequent to the acquisition, the Silverwood prospect was divested on 17 March 2011. Sub economic production rates, high water rates and disposal costs, lack of technical information on the project and the reservoir size and the ongoing leasing costs led to the decision to divest the project.

Corporate

In December 2010, it was announced that Mr. Greg Lee would take up the position of Executive Director for Verus, effective 1 January 2011.

On 22 October 2010, Mr. Mark Freeman was appointed a director and Mr. Michael Montgomery resigned as a director of Verus.

The Company has completed several private share placements during the year raising approximately ~$5 million (after costs). The Company also completed the raising of a further $227,000 (after costs) in January 2011 via the issue of listed options.

2. Principal activities

The principal activity of the economic entity during the financial year was the identification, evaluation and possible execution of investment opportunities thought to be worthwhile for any short, medium or long term purposes, to whatever degree or magnitude deemed appropriate whether or not such opportunities relate to securities listed on a Security Exchange or directly owned assets of any type, including investments in the mineral exploration sector.

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Appendix 4E Preliminary final Report

Condensed Consolidated Statement of Comprehensive Income For the Year ended 30 June 2011

For the Year ended 30 June 2011
	Notes	30 June 2011 $	30 June 2010 $
Revenue Oil and Gas Sales Interest Income Expenses Loss before tax Income tax benefit Loss for the year Attributable to: Members of the Parent entity Other comprehensive (loss)income Exchange differences arising on translation of foreign operations **Total comprehensive loss of the year **	2 2 2	356,097 28,711	- 32,066
		384,808	32,066
		(6,842,998)	(1,641,606)
		(6,458,190) -	(1,609,540) -
		(6,458,190)	(1,609,540)
		(6,458,190) (793,516)	(1,609,540) 121,833
		(7,251,706)	(1,487,707)

Earnings per share	30 June 2011 $	30 June 2010 $
Basic earnings / (loss) per share from continuing operations	(0.56) cents	(0.30) cents (0.30) cents
Diluted earnings / (loss) per share from continuing operations	(0.56) cents

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Appendix 4E Preliminary final Report

Condensed Consolidated Statement of Financial Position

As at 30 June 2011

As at 30 June 2011
	Notes	30 June 2011 $	30 June 2010 $
Current assets Cash and cash equivalents Receivables	1	1,740,019 99,997	305,986 27,747
Total current assets		1,840,016	333,733
Non-current assets Prepayments Exploration & Evaluation Assets Oil & Gas Properties Plant and Equipment	4	755,416 5,497,530 107,203 788	365,621 3,761,066 - -
Total non-current assets		6,360,937	4,126,687
Total assets		8,200,953	4,460,420
Current liabilities Trade and otherpayables		197,815	78,898
Total current liabilities		197,815	78,898
Total liabilities		197,815	78,898
Net assets		8,003,138	4,381,522
Equity Contributed equity Reserves Accumulated losses	6	23,347,487 1,310,053 (16,654,402)	13,148,308 1,429,426 (10,196,212)
Total equity		8,003,138	4,381,522

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Appendix 4E Preliminary final Report

Condensed Consolidated Statement of Cash Flows For the Year ended 30 June 2011

For the Year ended 30 June 2011
	30 June 2011 $	30 June 2010 $
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received	374,237 (1,073,982) 28,711	- (480,550) 30,506
Net cash flows used in operating activities	(671,034)	(450,044)
Cash flows from investing activities Payments on Oil & Gas Exploration prospects (Note 4) Payments for plant and equipment Cash received on subsidiaryacquisition	(3,202,044) (816) 110,809	(4,008,483) - -
Net cash flows used in investing activities	(3,092,051)	(4,008,483)
Cash flows from financing activities Proceeds from issue of securities (Note 6) Securities issue costs	5,583,094 (322,444)	4,511,327 (320,797)
Net cash flows from financing activities	5,260,650	4,190,530
Net increase (decrease) in cash held Net foreign exchange difference Cash and cash equivalents at beginningofperiod	1,497,565 (63,532) 305,986	(267,997) - 573,983
Cash and cash equivalents at end ofperiod(Note 1)	1,740,019	305,986

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Appendix 4E Preliminary final Report

Condensed Consolidated Statement of Changes in Equity Year ended 30 June 2011

Year ended 30 June 2011
	Issued Capital $		Accumulated losses $	Reserves $	Total equity $
At 30 June 2010	13,148,308		(10,196,212)	1,429,426	4,381,522
Loss for the period Foreign currency translation Total Comprehensive Income(Loss) Securities issues (net of costs) Share based payments – employee benefits expense	- -		(6,458,190) -	- (793,516)	(6,458,190) (793,516)
	- 10,199,179 -		(6,458,190) - -	(793,516) 227,470 446,673	(7,251,706) 10,426,649 446,673
At 30 June 2011	23,347,487		(16,654,402)	1,310,053	8,003,138
	Issued Capital $	Accumulated losses $		Reserves $	Total equity $
At 30 June 2009	8,824,377	(8,586,672)		313,132	550,837
Loss for the period Divesture of foreign operations Foreign currency translation Total Comprehensive Income(Loss) Share issues (net of costs) Share based payments – employee benefits expense Equity settled share based payments	- - -	(1,609,540) - -		- (4,904) 126,737	(1,609,540) (4,904) 126,737
	- 4,323,931 - -	(1,609,540) - - -		121,833 - 318,111 676,350	(1,487,707) 4,323,931 318,111 676,350
At 30 June 2010	13,148,308	(10,196,212)		1,429,426	4,381,522

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Appendix 4E Preliminary final Report

1 CASH BALANCES

(a) Reconciliation of cash

Reconciliation of cash at the end of the period (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows:	30 June 2011 $	30 June 2010 $
Cash on hand and at bank Deposits at call	1,740,019 -	305,986 -
Total cash at end of period	1,740,019	305,986

(b) Non-cash financing and investing activities

The following significant non-cash financing and investing activities have occurred during the year,

• (i) In September 2010, Verus completed its acquisition of Pass Petroleum Pty Ltd (“Pass”) (and its wholly owned subsidiary Pass Petroleum LLC) via a share sale agreement, whereby the vendors of Pass were issued 369 million Verus shares as consideration (Note 5).

(c) NTA backing

NTA backing
	30 June 2011 $	30 June 2010 $
Net tangible asset backing per ordinary security	0.11 cents	0.05 cents

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Appendix 4E Preliminary final Report

2 REVENUE AND EXPENSES

2 REVENUE AND EXPENSES
Consolidated Other Income Oil and gas sales Interest received	30 June 2011 $	30 June 2010 $
	356,097 28,711	- 32,066
	384,808	32,066
Expenses Production and operating costs Administration expenses Share based payments Equity settled share based payments Impairment – exploration & evaluation asset (Note 4) Other	(358,778) (941,604) (446,673) - (5,032,383) (63,560)	- (647,145) (318,111) (676,350) - -
	(6,842,998)	(1,641,606)

3 DIVIDENDS PAID AND PROPOSED

No dividends have been paid or proposed during the year.

4 EXPLORATION & EVALUATION ASSETS

4 EXPLORATION & EVALUATION ASSETS
Consolidated Exploration and evaluation – at cost (i) (i) The ultimate recoupment of costs carried forward for exploration and evaluation of hydrocarbon areas of interest is dependent on the successful development and commercial exploitation and sale of the respective interests.	30 June 2011 $	30 June 2010 $
	5,497,530 3,761,066 2,601,862 4,919,841 (517,347) (2,840,036) (1,675,000) (752,856)	3,761,066 1,588,548 2,064,787 - - - - 107,731
(ii) Movement for the year Opening balance Additions Acquired on asset acquisition – Pass Petroleum (Note 5) Impairment and divesture expense – Silverwood prospect Impairment allowance – Fausse Point TGR#1 well Impairment allowance – West Bowtie prospect Movement in carrying value as a result of foreign currency variations
	5,497,530	3,761,066

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Appendix 4E Preliminary final Report

5 ACQUISITION OF NEW ENTITIES

In October 2010, Verus completed its acquisition of Pass Petroleum Pty Ltd (“Pass”) (and its wholly owned subsidiary Pass Petroleum LLC) via a share sale agreement, whereby the vendors of Pass were issued 369 million Verus shares (AUD$5.166 million). The fair value of the consideration was determined by reference to the share price of Verus on the completion date (Note 1 (b) (i)).

The acquisition has been treated as an asset acquisition effective from 1 October 2010 and the fair value of assets and liabilities acquired are as follows;

	1 October 2010 $
Cash balances Trade and other receivables Exploration and evaluation assets Oil and gas properties Trade and other payables	110,809 67,066 4,919,841 365,942 (297,658)
	5,166,000

6 ISSUED CAPITAL

Ordinary shares Issued and fully paid	30 June 2011 $	30 June 2010 $
	23,347,487	13,148,308
Opening balance Shares issued during the year Pass acquisition share issue(Note5)	Number of shares	Number of shares
	685,551,589 441,356,974 369,000,000	238,794,160 446,757,429 -
Closingbalance	1,495,908,563	685,551,589

7 LISTED OPTIONS

	Options As at 30 June 2009 Options issued 26 November 2009 Options expired 30 June 2010 As at 30 June 2010 Options issued 15 February 2011 Options issued 7 June 2011 (Note 1 (b)(ii)) As at 30 June 2011	Number of options No. 164,196,107
		75,000,000 (239,196,107)
		-
		250,000,000 66,000,000
		316,000,000

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Appendix 4E Preliminary final Report

8 SEGMENT REPORTING

Business Segments

The following tables present the revenue and loss information regarding segments for the years ended 30 June 2011 and 30 June 2010.

	Continuing operations Oil and Gas Exploration – USA Interest income Other income Corporate and administration costs Loss before tax Oil and Gas Exploration – USA Oil and Gas Exploration – Africa 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 2011 $ (356,097)	30-Jun 2010 $ -		30-Jun 2011 $ 5,035,064	30-Jun 2010 $ 10,856
					5,035,064 (28,711) - 1,451,837	10,856 (32,066) (1,381) 1,632,131
					6,458,190	1,609,540
				Group Assets by Reportable Operating Segment
				30-Jun 2011 $ 5,188,893 1,381,360		30-Jun 2010 $ 4,139,598 -
				6,570,253 1,630,700		4,139,598 320,822
				8,200,953		4,460,420

9 AFTER BALANCE DAY EVENTS

There were no matters or circumstances that have arisen since 30 June 2011 that has significantly affected, or may significantly affect the Group’s operations in future financial years, the results of those operations in future financial years or the Group’s state of affairs in those future financial years, other than in August 2011, the Company met its obligation to participate in the drilling of the Lyon’s Point well, by making a payment to the operator of US$1.27 million.

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Appendix 4E Preliminary final Report

Annual meeting

(Preliminary final report only)

The annual meeting will be held as follows:

Place Date Time Approximate date the[+] annual report will be available

To be confirmed To be confirmed To be confirmed 29[th] September 2011

Compliance statement

• 1 This report has been prepared in accordance with AASB Standards, other AASB authoritative pronouncements and Urgent Issues Group Consensus Views or other standards acceptable to ASX.

• 2 This report, and the[+] accounts upon which the report is based (if separate), use the same accounting policies.

• 3 This report does give a true and fair view of the matters disclosed.

• 4 This report is based on[+] accounts to which one of the following applies. (Tick one)

 The +accounts have been  The +accounts have been audited. subject to review.  The +accounts are in the  The[+] accounts have not yet process of being audited or been audited or reviewed. subject to review.

Sign here : Date: 31[st] August 2011

Print name : Andrew McIlwain Director

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