EDEN INNOVATIONS LTD — Interim / Quarterly Report 2014

Jul 29, 2014

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ACN 109 200 900

ASX Quarterly Report

For the Period Ended 30 June 2014

HIGHLIGHTS

Optiblend™ Dual Fuel Project

• Cummins selected Eden’s Optiblend[TM ] dual fuel system to deliver an integrated retrofit solution for dual fuel drilling rig power.

• Orders received during the quarter for 8 units having an aggregate value of US$307,000 (A$326,000).

• Aggregate value of orders received in Financial Year (FY) 2013-14 of US$1.796million (A$1.9million). Equates to an increase of 233% over FY 2012-13 orders received of US$0.77million.

• Target markets – Oil and Gas Market, and Back-up Power (hospitals, essential services, data centres).

• Further increases in sales during FY 2014-15 anticipated.

UK Gas Assets

• Eden is continuing to negotiate the merger agreement pursuant to the conditional Heads of Terms with its existing UK gas and petroleum Joint Venture partners and is hopeful of signing these documents during August 2014.

Pyrolysis Project - Carbon Nanotubes/ Carbon Nanofibres/ Hydrogen

• Eden’s carbon nanotube project was selected from a field of 228 entries as one of 36 semi-finalists in the 2014 Australian Technologies Competition business accelerator program.

• Preliminary talks for a trial in USA during the next 3-6 months of Eden’s CNT enriched concrete on a suitable roadway similar area are currently underway.

Level 15, 197 St Georges Terrace, Perth, Western Australia 6000 Telephone: (08) 9282 5889 Facsimile: (08) 9282 5866 Email: mailroom@edenenergy.com.au

DETAILS

OPTIBLEND™ DUAL FUEL SYSTEM (EDEN 100%)

Cummins chooses Optiblend[TM ] Dual Fuel System

The OptiBlend[TM] Dual Fuel System developed and marketed by Hythane Company, the wholly owned US subsidiary of Perth based Eden Energy Ltd (“Eden”) (ASX Code: EDE) has been chosen by Cummins Inc in the USA as the system that it will use to deliver an integrated solution for retrofitting dual fuelled power on drilling rigs.

The Hythane OptiBlend[TM] components will remain Hythane branded, and certain Cummins distributors will become certified Hythane service and warranty dealers, allowing Cummins to be the single point of contact for the rig owner.

Cummins and Hythane Company have worked together to integrate the dual fuel components with the Drilling Power Module and the oil field skid structure on which the engine is mounted.

• There is an integrated user interface panel for the Cummins Drilling Power Module and the Hythane OptiBlend[TM ] dual fuel controls (see Figure 1).

• The diesel oxidation catalyst and gas train components have been integrated into the oil field skid structure, following Hythane’s guidelines (see Figures 2 and 3).

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Figure 1 - Fully integrated control panel that includes Cummins engine monitoring and OptiBlend[TM] dual fuel controller

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Figure 2 - Gas Train integrated into Cummins-Supplied Master Skid and Roof Structure

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Figure 3 - Gas Train integrated into Cummins-Supplied Master Skid and Roof Structure

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Emissions Verification

Hythane Company performed laboratory emissions testing at an EPA-certified testing laboratory in Texas on the Cummins QSK50 engine/ generator set (genset) intended for subsequent drilling applications in the USA (see Figure 4). This established a “reasonable basis” under the broad definitions of the EPA’s Memorandum 1A, in order to prove that the dual fuel retrofit equipment results in emissions that are compliant with the applicable standards.

Hythane’s testing allows them, as dealers of aftermarket equipment, to document and demonstrate the expectations described by the EPA.

The EPA Memorandum 1A (B.1.b) covers;

“Use of a non-original equipment aftermarket part or system as am add-on, auxiliary, augmenting, or secondary part or system, if the dealer has a reasonable basis for knowing that such use will not adversely affect emissions performance”.

Further, Memo 1A(B.3.a) states that (comments added)

“For the purposes of clauses 1(b) (above)…a reasonable basis for knowing that a given act will not adversely affect emissions performance exists if: …the dealer knows of emissions tests which have been performed to testing procedures prescribed in 40CFR section 85 showing that the act does not cause similar vehicles or engines to fail to meet applicable emissions standards…”

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Figure 4: Cummins QSK 50 Drilling Power Module, with Hythane OptiBlend[TM] Dual Fuel System installed, shown during testing at the EPA-certified testing laboratory.

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US Optiblend™ Progress

Hythane Company, the wholly owned US subsidiary of Eden Energy, received purchase orders for 8 Optiblend[TM] dual fuel system units totalling US$307,000 (A$326,000) during the quarter.

This brings the aggregate value of orders for Financial Year (FY) 2013-14 to over US$1.796 million (approx. A$1.9 million).

Interest in Canada and South America for the Optiblend[TM] dual fuel system is emerging, and these new markets are expected over the next 12-24 months to generate a growing proportion of future sales.

The target markets continue to be the oil and gas exploration and production sectors, and back-up power where existing diesel powered gensets are converted to a lower cost dual fuel configuration. This latter market sector includes hospitals, essential services, and data centres which all maintain full electricity generating capacity to supply their power needs if the grid power should fail for any reason.

It is anticipated, based on growing market interest and an increasing number of distributors who have been appointed in USA by Hythane Company to market and service the Optiblend[TM] system, that sales will continue to experience strong growth during 2014-2015.

India Optiblend™ Progress

During the quarter, Eden Energy India received no new orders for Optiblend™ systems in India. This is largely due to the high price of natural gas in India and its relative short supply. However Eden India has received interest from potential customers in a number of other countries, which are all being pursued. Since the change of government in India in May 2014, the previous government’s policy of capping the price of diesel fuel is finally being reversed with the new government allowing the price of diesel to increase by 50 paise (Rs0.5) per month. If this continues it is estimated that diesel prices will be at parity with the global market by December 2014. If the natural gas supply increases as anticipated, this change in policy could result in significant change to the economics of operating an Optiblend[TM] dual fuel system for back-up power, which would be likely to increase Indian Optiblend[TM] sales.

India has many hundreds of thousands of generators that are used for back-up or prime power generation. Further, Cummins is a major supplier of these generators into the Indian market. If the gas is available and the economics are favourable, India could become a major market for Optiblend[TM] .

Optiblend™ Background

Eden has developed an efficient dual fuel system that is capable of operating on diesel engines and displacing up to 70% of the diesel fuel with natural gas. If Hythane™ (hydrogen enriched natural gas) is used in place of natural gas, the displacement of diesel fuel could be as high as 80%. The use of the natural gas will greatly reduce greenhouse gas emissions and, in places where natural gas is cheaper than diesel, will also reduce fuel costs. It has significant market potential particularly in the diesel powered generator set (“genset”) market.

As a result of the increase in shale gas recovery in USA, the lower priced natural gas has resulted in a large market in USA for the conversion of these diesel engines to operate on a dual-fuel system of both natural gas and diesel is anticipated. Depending upon the size of the engine and the number of hours per day that it operates, payback times for the conversions are mostly a lot less than 12 months, so the cost is minimal compared to the replacement cost of a natural gas generator.

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UK GAS PROJECT

Eden has entered into a conditional Heads of Terms with UKOG (the parent company of Eden’s two existing UK gas joint venture partners - Coastal Oil and Gas Limited and UK Methane Limited) and its shareholders to sell all of the shares in Adamo UK to UKOG on the following terms:

1. The total consideration payable by UKOG will be:

2. 1.1. The issuance to Eden of shares in UKOG representing 33.33% of the total issued share capital of UKOG on a fully diluted basis (the “Consideration Shares”) before any further capital is raised and before any loans owed by UKOG that are to be capitalised have been converted; and

3. 1.2. A deferred cash payment of £1million (approx. A$1.87m) documented by way of an interest free, unsecured loan note issued by UKOG to Eden, repayable out of the proceeds of a proposed capital raising by UKOG or a its purchaser as the case may of not less than £10million be on or before 30 September 2014.

4. 1.3. If the £1million has not been paid to Eden by 30 September 2014, or such later date as the parties may agree, Eden may elect to increase its shareholding in UKOG by 6.67% from 33.33% to 40% and forego the payment of the £1million.

5. The other major terms of the heads of Terms are:

6. 2.1. It is the intention that UKOG will either:

   • list on AIM (expected to be by way of reversal into an existing listed company) after the listed company has completed or contemporaneously with it completing a public fundraising of not less than £10million; or

   • complete an off-market capital raising into UKOG of not less than £10million.

7. 2.2. Eden must consent to any such capital raising or takeover transaction that places a value of less than £36million on the total issued capital of UKOG before such capital raising.

8. 2.3. The major shareholder in UKOG, Gerwyn Williams, will advance funds to UKOG by way of loan to fund all operating expenses, transactional expenses and listing expenses.

9. 2.4. Eden will appoint a director to the board of directors of UKOG.

10. 2.5. All parties have agreed that all applications for any licence interests in the forthcoming 14[th] Round of UK Onshore Licence Applications will be made by UKOG.

11. 2.6. A shareholders agreement will be executed by the parties to provide reasonable minority shareholder protections for Eden.

12. 2.7. The Heads of Terms is conditional upon a formal agreement being executed by 30 April 2014 and also to approval by the shareholders of Eden. Eden shareholder approval for the now terminated Shale Energy transaction was obtained.

13. Subject to completion of this transaction, UKOG (or its ultimate AIM listed parent as the case may be) will own 100% of the combined petroleum and gas licences of Adamo UK and UKOG that until now have been held in 50/50 joint venture between Adamo UK and the subsidiaries of UKOG. This is thought to be a far better structure both from an operational perspective and for capital raising purposes as it would eliminate a major potential source of conflict between the joint venture partners, and as such is anticipated to be more favourably viewed by the financial market than the joint venture structure.

During the quarter Eden and UKOG have both been completing their respective due diligence reviews on each other and negotiating the terms of the formal agreements. However as at the date of this report, this process is not yet fully completed although the parties are currently moving closer to completion of the formal merger agreements which will hopefully occur during August 2014.

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The UK Gas Project Sale Assets

The sale assets comprise Eden’s 50% joint venture interests in 13 Petroleum and Development Licences (PEDLs) in England and South Wales (“Eden’s UK Licence Interests”). Previously the estimated in ground gas resources for 17 PEDLs were reported to the ASX on 30 May 2011. During the quarter four of these PEDLs (one in South Wales and the other three in Bristol/Somerset and Kent) have been surrendered due to both environmental and social reasons and the likelihood that the terms of these four licences would not be extended buy DECC at 30 June 2014, the expiry date of the first term of each of these licences.

NANO-CARBON, HYDROGEN and HYTHANE™ Pyrolysis Project (Eden 100%)

Market progress

During the quarter, Eden and its US subsidiary continued its efforts to develop suitable large scale commercial markets for its nano-carbon products. Eden continued to focus on developing a number of collaborations with groups and universities with the requisite skills to assist in developing commercial applications of the CNTs.

Australian Technologies Competition

During the quarter Eden’s carbon nanotube project was selected from a field of 228 entries as one of 36 semi-finalists in the 2014 Australian Technologies Competition business accelerator program.

CNT Enriched Concrete and Cement Project in the USA

During the quarter Eden has been continuing preliminary testing in the US on the technology and know-how that Eden acquired the exclusive, world-wide, perpetual licence from Monash University (“Monash”) and also trialled several other products to enable carbon nanotubes produced by Eden to be effectively mixed into cement in order to produce stronger concrete.

The best results to date of these initial US tests of carbon nanotube enriched mortar paste have resulted in an encouraging increase of 23.3% in compressive strength and a 13.6% increase in flexural strength after 28 days. These trials will continue for the next several months.

Eden has identified a possible immediate application for the stronger concrete in the USA for hardening the surface of concrete floors, roadways and paving on concrete bridges that are subject to heavy wear due to vehicle usage, and in particular for concrete roadways that are subject to heavy snowfall and are regularly cleared using snow-ploughs, that often cause considerable abrasion and damage to the concrete surface, necessitating frequent repairs. Subject to the preliminary US testing being successful, a trial in a US warehouse that is exposed to heavy vehicle and fork-lift activity, which could take six months, or more, to complete, is planned. If successful, it is hoped that a commercial trial on a suitable roadway that is exposed to frequent clearing by snow-plough can then be arranged in the US.

CNT Enriched Concrete and Cement Projects in Australia

Eden and Monash were unsuccessful in their recent application for an ARC grant. Eden and Monash are now exploring the opportunity for an alternative research and development program for the joint development of a process to combine carbon nanotubes / carbon nanofibres with cement and concrete to produce a high strength concrete suitable for high rise building applications.

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CNT Enriched Polymers and Plastics Project in Australia

A well-qualified post-doctoral candidate from the US has been selected to run the collaboration research program with Eden and UQ for development of a method for production of super high strength, low weight carbon nanotube (“CNT”) reinforced polymer composites for potential automotive and aerospace applications. Currently the candidate is applying for an Australian visa, once this has been received it is expected that the project will commence shortly after.

UQ was awarded a $255,000 grant by the Australian Research Council (“ARC”) to partially fund this project. This collaboration project follows preliminary encouraging results from the addition of carbon nanotubes into polypropylene.

Background

Eden remains optimistic that it will develop suitable markets for the nano-carbon products that it can produce in an efficient, commercially competitive production process. Eden currently has established production capabilities at its subsidiary in Colorado that enable it to produce up to 40 tonnes of nan-carbon per year from a feedstock of natural gas (methane).

Additionally, the only other major by-product from Eden’s pyrolysis process is hydrogen, the real cost of which will be dependent upon the value of the carbon produced. The quantity of hydrogen produced will be 33.33% (by weight) of the quantity of carbon produced.

This hydrogen can be used either re-mixed with natural gas to create Hythane™ to fuel the pyrolysis reactor or applied for other similar purposes, or captured and fed into the various hydrogen/Hythane™ applications that Eden has been developing, to try and accelerate the commercial rollout of these hydrogen applications based on the relatively low cost hydrogen. The current cost of hydrogen is one of the major limiting factors holding back a broader rollout of hydrogen and Hythane™. Encouragingly, the hydrogen produced using the Eden pyrolysis process will generate only a relatively very small amount of greenhouse gas as a by-product compared with most other currently available methods of hydrogen production, and in consequence it is projected that the hydrogen is likely to be both commercially competitive and environmentally preferable.

Hythane™

Indian Hythane™ Bus Demonstration Projects

During the quarter, no progress on either of these projects was achieved.

Despite no significant progress having been made on any of these Indian Hythane™ projects, there remains a reasonable level of interest from the Indian Government in hydrogen projects. Eden remains hopeful that these projects will ultimately proceed particularly if Eden can utilise low cost hydrogen produced as a by-product from its pyrolysis project to produce carbon nanotubes and nanofibres, and Eden will continue to follow up on these projects as they emerge.

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Gregory H Solomon

Executive Chairman

For further information, please contact Greg Solomon (+61 8 9282 5889) or visit our website (www.edenenergy.com.au).

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Interests in Tenements

Tenements	Location	Interest held at end of quarter	Acquired during the quarter	Disposed during the quarter
PEDL100	UK	50%
PEDL148	UK	50%
PEDL149	UK	50%
PEDL212	UK	-		100%
PEDL214	UK	50%
PEDL215	UK	50%
PEDL216	UK	50%
PEDL217	UK	50%
PEDL218	UK	-		50%
PEDL219	UK	50%
PEDL220	UK	50%
PEDL226	UK	-		50%
PEDL227	UK	50%
PEDL228	UK	-		50%
PEDL249	UK	50%
PEDL250	UK	50%
PEDL251	UK	-		50%
PEDL252	UK	50%

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Appendix 5B Mining exploration entity quarterly report

Rule 5.3

Appendix 5B

Mining exploration entity quarterly report

Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10

Name of entity

Name of entity
EDEN ENERGY LTD
ABN 58 109 200 900	Quarter ended (“current quarter”)
58 109 200 900	30 June 2014

Consolidated statement of cash flows

Cash flows related to operating activities 1.1 Receipts from product sales and related debtors 1.2 Payments for (a) exploration & evaluation (b) development (c) production (d) administration (e) other 1.3 Dividends received 1.4 Interest and other items of a similar nature received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other (provide details if material) Net Operating Cash Flows	Curent quarter $A’000	Year to June (12 months) $A’000
	635 - - - (109) (849) - 2 - - 50	1,590 (153) - - (751) (2,854) - 16 - - 1,211
	(271)	(941)
Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other (provide details if material) Net investing cash flows 1.13 Total operating and investing cash flows(carried forward)	- - (2) - - - - - -	- - (11) - - - - - -
	(2)	(11)
	(273)	(952)

Notes 1.2e Other – Payments to suppliers and employees by Eden’s wholly owned subsidiaries; Eden Energy India Pvt Ltd and Hythane Co LLC which are trading companies and these payments mainly consist of payments for cost of goods sold, research & development, inventory and overheads. 1.7 Other – Relates to proceeds from settlement of Engenco matter, the non-refundable deposit from Shale Energy Plc, refund of enviromental bond on PEL183 and a lage VAT refund resulting from the release of prior years VAT returns delayed by HMRC during their investigation.

• See chapter 19 for defined terms.

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Appendix 5B Page 1

Appendix 5B Mining exploration entity quarterly report

1.13 Total operating and investing cash flows(brought forward)	1.13 Total operating and investing cash flows(brought forward)	(273)	(952)
Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc. 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other (provide details if material) Net financing cash flows		- - - - - -	982 - - - - (348)
		-	634
Net increase (decrease) in cash held 1.20 Cash at beginning of quarter/year to date 1.21 Exchange rate adjustments to item 1.20 1.22 Cash at end ofquarter		(273) 445 (12)	(318) 499 (21)
		160	160
	Notes

1.19 Other – Payment to La Jolla Cove Investors (LJCI) to settle litigation arising out of conduct by LJCI in relation to a funding agreement.

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

1.23 Aggregate amount of payments to the parties included in item 1.2 1.24 Aggregate amount of loans to the parties included in item 1.10	Current quarter $A'000
	93
	-

1.25 Explanation necessary for an understanding of the transactions Management Fees, as per agreement, were paid during the quarter to a company of which Mr GH Solomon and Mr DH Solomon are directors. Directors Fees paid during the period.

Legal Fees were paid during the quarter to a firm of which Mr GH Solomon and Mr DH Solomon are partners.

Non-cash financing and investing activities

• 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

• 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest -

• See chapter 19 for defined terms.

Appendix 5B Page 2

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Appendix 5B

Mining exploration entity quarterly report

Financing facilities available

Financing facilities available
3.1 Loan facilities 3.2 Credit standby arrangements	Amount available $A’000	Amount used $A’000
	-	-
	-	-

Estimated cash outflows for next quarter

4.1 Exploration and evaluation 4.2 Development 4.3 Production 4.4 Administration 4.5 Other	$A’000
	-
	-
	-
	175
	500
Total	675

4.5 Other – Payments to suppliers and employees by Eden’s wholly owned subsidiaries; Eden Energy India Pvt Ltd and Hythane Co LLC which are trading companies and these payments relate to payments for cost of goods sold, research & development, inventory and overheads. These estimated outflows will be partially offset by cash receipts from sales of goods and services.

Reconciliation of cash

sales of goods and services. Reconciliation of cash	sales of goods and services. Reconciliation of cash
Reconciliation of cash at the end of the		Curent quarter		Previous quarter
quarter (as shown in the consolidated		$A’000		$A’000
statement of cash flows) to the related items
in the	accounts is as follows.
5.1	Cash on hand and at bank		160		445
5.2	Deposits at call		-		-
5.3	Bank overdraft		-		-
5.4	Other (provide details)		-		-
	Total: cash at end of quarter(item 1.22)		160		445

Changes in interests in mining tenements

6.1 Interests in mining tenements relinquished, reduced or lapsed 6.2 Interests in mining tenements acquired or increased	Tenement reference	Nature of interest (note (2))	Interest at beginning ofquarter	Interest at end of quarter
	PEDL 212 PEDL 218 PEDL 226 PEDL 228 PEDL 251	Direct Direct Direct Direct Direct	100% 50% 50% 50% 50%	- - - - -

• See chapter 19 for defined terms.

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Appendix 5B Page 3

Appendix 5B Mining exploration entity quarterly report

Issued and quoted securities at end of current quarter

Description includes rate of interest and any redemption or conversion rights together with prices and dates.

and dates.
	Total number	Number quoted	Issue price per security (see note 3) (cents)	Amount paid up per security (see note 3) (cents)
7.1 Preference +securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs, redemptions
7.3 +Ordinary securities 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy- backs	759,201,038	759,201,03 8
7.5 +Convertible debt securities (description) 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted
7.7 Options (description and conversion factor) 7.8 Issued during quarter 7.9 Exercised during quarter 7.10 Expired during quarter	3,375,000	NIL	Exercise price 2.5 cents	Expiry date 20 November 2015
	281,250 69,640,963	NIL 69,640,963	20 cents 20 cents	14 May 2014 30 June 2014
7.11 Debentures (totals only)
7.12 Unsecured notes (totals only)

• See chapter 19 for defined terms.

Appendix 5B Page 4

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Appendix 5B Mining exploration entity quarterly report

Compliance statement

• 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act.

• 2 This statement does give a true and fair view of the matters disclosed.

Sign here: (Company secretary)

Date: 30 July 2014

Print name: Aaron Gates

Notes

• 1 The quarterly report provides a basis for informing the market how the entity’s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

• 2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

• 3 Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities .

• 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report.

• 5 Accounting Standards ASX will accept, for example, the use of International Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

== == == == ==

• See chapter 19 for defined terms.

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Appendix 5B Page 5