HARRIS TECHNOLOGY GROUP LIMITED — Annual Report 2012

Sep 26, 2012

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ADEFFECTIVE LIMITED AND CONTROLLED ENTITIES ABN 93 085 545 973

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ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

TABLE OF CONTENTS

TABLE OF CONTENTS
	Page
Chairman’s Letter	3
Corporate Information	5
Directors’ Report	6
Auditor’s Independence Declaration	15
Corporate Governance Statement	16
Financial Report for the Year Ended 30 June 2012
Consolidated Statement of Comprehensive Income	22
Consolidated Statement of Financial Position	23
Consolidated Statement of Changes in Equity	24
Consolidated Statement of Cash Flows	25
Notes to the Consolidated Financial Statements	26
Directors’ Declaration	53
Independent Auditor’s Report	54
ASX Additional Information	56

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CHAIRMAN’S LETTER

Dear Shareholder

The Year in Review

I enclose the Annual Report for AdEffective Limited (the Company ”) and its controlled entities (the Group”) for the financial year ended 30 June 2012.

The financial year ended 30 June 2012 has been a year of restructure, consolidation and recapitalisation for the Company on a number of levels.

As previously announced to the market, the Directors strategic focus during the period was on recapitalising the Company with the aim of eliminating debt, stabilising its business and generating a sustainable future for AdEffective.

At an operating level, the Company successfully completed the reconstruction of its business around online advertising, settled several outstanding matters, ceased work on non-performing business units and undertook initiatives to reduce operating costs.

In December 2011, the Company was presented an opportunity by Patersons Securities Limited ( Patersons ), under which Patersons proposed to assist in the recapitalisation of the Company. As part of this recapitalisation process, Patersons assisted the Company in obtaining an immediate capital injection of $300,000 via a convertible loan, of which $100,000 was applied to enable the Company to redeem a number of convertible notes then on issue in the Company. The balance of $200,000 was utilised for the Company’s working capital purposes.

Further, the Company completed a share consolidation on a 1 for 50 basis, and then successfully completed a renounceable rights issue raising approximately $1.5 million before costs.

With the Company’s restructuring and recapitalisation complete, the focus returned to the key businesses of the Company, being the traditional AdFeed business together with the newly developed Footar business. The Group’s results for FY12 reflect revenues predominantly generated from the AdFeed business with some revenue generated by the Footar division in the second half. Revenue for the year was $2,620,459 as compared to the prior year of $2,132,559.

FORWARD STRATEGY

The company made a net loss for the year of $1,650k, which included an impairment of goodwill and intangible assets of $983k. A full summary of our results is included in the segment disclosures of the notes to the financial statements. The syndicated online advertising business (AdFeed) continues to provide steady revenues for the organization and in FY12 delivered a segment result of $112k (before impairment, finance costs and other corporate expenses). However, due to a number of challenges within this industry the Company does not expect significant growth from this channel in the short to medium term. The Company remains committed to supporting and organically growing the AdFeed division, but expect that revenue growth for FY 13 will be less than 5% compared to FY 12.

Accordingly, the Company has shifted its focus to developing new platforms, such as Footar. The company is also looking at other opportunities to diversify its business content and has explored multiple revenue generation opportunities exploring additional online revenue streams.

Since July 2011, Footar has signed a number of major US website publishers and US advertising partners. Footar generated its first significant revenues in the second half of FY12 ($748k), with a total of $865K in revenues for FY12. The Footar division Net loss for FY12 was around 90K, most of

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which was incurred in the first half of FY12. Based on Footar Division results for Q4 2012, the Company expects Footar to be the main source of revenue growth in FY 13.

The Company has commenced additional development of the Footar Technology and remains committed to further expanding the product offering

In order to further grow and provide further stability to the business, the Company intends to actively pursue new business opportunities, possibly including opportunities in sectors other than the digital media industry in which it currently operates. Should suitable business opportunities be identified, the Company will assess them for technical, legal and commercial suitability.

OUTLOOK

With a solid Q4 in 2012, the company remains optimistic about achieving and maintaining profitability in FY13.

The Company remains committed to organic growth of its existing core businesses by focusing its attention on signing up additional partners and clients to its range of online advertising offerings.

In addition to focusing on organic growth, the Company intends to actively pursue acquisition opportunities to diversify its current business offerings.

The Directors believe the Group is well placed to leverage a number of opportunities and look forward to being in a position to provide shareholders with further updates on the Group’s progress shortly.

Andrew Plympton Non-Executive Chairman

Melbourne, 27 September 2012

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CORPORATE INFORMATION

DIRECTORS

Andrew Plympton Non-Executive Chairman Damian London Executive Director, Chief Executive Officer Sophie Karzis Non-Executive Director

COMPANY SECRETARY

Sophie Karzis

REGISTERED OFFICE

Level 3 1 Collins Street Melbourne Victoria 3000

AUDITORS

Ernst & Young 8 Exhibition Street Melbourne Victoria 3000

LAWYERS

HWL Ebsworth Level 26, 530 Collins Street Melbourne Victoria 3000

BANKERS

Westpac 360 Collins Street Melbourne Victoria 3000

SHARE REGISTRY

Computershare Registry Services GPO Box 242 Melbourne Victoria 3001 Tel: 1300 137 328

EXCHANGE LISTING

AdEffective Limited’s ordinary shares are quoted on the Australian Securities Exchange Limited. (ASX: ABN). The Company’s listed options are also quoted on the ASX, under the ASX code ABNO.

STATE OF INCORPORATION

Victoria

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DIRECTORS’ REPORT

The Directors present their report together with the financial report of the consolidated entity consisting of AdEffective Limited (the Company ) and its controlled entities (the Group ), for the financial year ended 30 June 2012 and independent auditor’s report thereon.

Information on directors and company secretary

The qualifications, experience and special responsibilities of each person who has been a Director of AdEffective Limited, together with details of the Company Secretary, during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities

Name Particulars Mr Andrew Plympton Non-Executive Chairman Mr Plympton joined the Company in February 2010 and brings to the role a wealth of experience in a diverse range of commercial activities. In the financial services sector, Mr Plympton has been either the managing director and/or executive chairman of a number of International insurance brokers, underwriting agencies and captive insurance managers. In the public company sector, Andrew is the chairman of Beyond Sportswear International Limited (ASX: BSI), Chairman of Entellect Limited (ASX: ESN) and is a director of Newsat Limited (ASX: NWT) and Energy Mad Limited (NZX: MAD). Andrew is also a Commissioner of The Australian Sports Commission, Executive Member and Director of The Australian Olympic Committee and Australian Olympic Foundation Limited. During the last three years Mr Plympton has not served as a director of any other listed companies, other than those listed above.

Mr. Damian London Executive Director and Chief Executive Officer

Mr. London co-founded Planet W in 2007 and brings with him over 16 years’ experience in management, software and web development, search engine marketing and online advertising. In 2004 he co-founded Ansearch (later to become Ansearch Ltd) and spent 3 years as Chief Technology Officer and Group Search and Information Technology Manager, during which time he was responsible for the Search Divisions overall business activities including marketing, technology, business development and innovation. Mr. London has a particularly strong technical background in the online search and marketing area and has also co-founded a number of online advertising and marketing companies in the last four years including PlanetW, Project Search and Hot Shot Media. During the last three years, Mr London has not served as a director of any other listed companies.

Ms Sophie Karzis Non-executive Director (Appointed on 20 January 2012) and Company Secretary B.Juris, LLB

Ms Karzis is practising lawyer with over 10 years’ experience in corporate law. She is company secretary and general counsel to a number of public (listed and unlisted) and private companies and is the principal of Corporate Counsel, a business which provides corporate and company secretarial services to Australian companies.

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Mr. Barry Green

Executive Director

Resigned 20 January 2012

Barry Green, based in the San Francisco Bay Area is the head of Business Development for AdEffective Ltd. He was President at Barry Green & Associates, an internet consultancy, from March 1996 until August 1998. He was Western Regional Manager at Media Space Solutions from September 1998 until August 1999 and Sales Director Western Region at Northern Light search engine from September 1999 until January 2002. He subsequently joined Submitnet as VP Sales & Business Development in Feb 2002 and then became Vice President, Business Development at ExactSeek.com and Jayde Online Network in October 2004. In conjunction he was also Vice President of the ISEDN.org, starting in June 2005. He was also Co-Founder of Online Media Ventures LLC from August 2007. He joined the Ad Effective as Senior Vice President Business Development in 2010 and was appointed to the AdEffective Board in May 2011. During the last three years, Mr Green has not served as a director of any other listed companies.

Directors’ Meetings

The number of meetings of the Board of Directors held during the financial year and the numbers of meetings attended by each Director (while they were a Director) were as follows:

Director	Eligible to Attend	Number Attended
Mr. Andrew Plympton	10	10
Mr. Damian London	10	10
Ms Sophie Karzis (appointed 20 January 2012)	5	5
Mr. Barry Green (resigned 20 January 2012)	5	3

Board Committees

During the financial year and as at the date of this report, the Group did not have separately established nomination, audit or remuneration committees (refer Corporate Governance Statement below).

Directors’ Interests in Shares and Options of the Group

As at the date of this report, the relevant interests of the Directors in the shares and options of the Group were:

Director Mr. Andrew Plympton Mr. Damian London_(1)_ Ms Sophie Karzis	Numbers of ordinary shares Nil 34,518,667 Nil	Number of options (unlisted) 600,000 1,000,000 Nil

1. Includes shares held by Planet W Pty Ltd in which the director holds approximately a 26% interest. In addition the director holds shares and options individually and through his director related entity.

Directors’ Interests in Contracts

Directors’ interests in contracts are disclosed in note 25 to the consolidated financial statements.

Earnings Per Share	Cents
Basic and diluted earnings per share	(1.35)

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Dividends, paid, recommended and declared

No dividends were paid, declared or recommended since the start of the financial year ended 30 June 2012.

Corporate Information

Corporate structure

AdEffective Limited is a company limited by shares that is incorporated and domiciled in Australia and listed on the Australian Securities Exchange (ASX). AdEffective Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year ending 30 June 2012. The Company’s subsidiary entity is set out in note 25 to the consolidated financial statements.

Nature of operations and principal activities

The Group’s principal activities in the course of the financial year were in the area of online Internet advertising, including search, text and display advertising. There has been no significant change in the nature of these activities during the financial year.

Employees

The Group employed no employees as at 30 June 2012 (2011: Nil). The Group had consulting agreements with 4 contractors as at 30 June 2012 (2011: 5 contractors) who performed the primary activities of the Group at 30 June 2012.

Operating and financial review

Review of Operations

In 2012 AdEffective committed to focusing on the further development of the Footar Division and continual operations of the AdFeed Division. AdEffective achieved three solid months of results in Q4 2012 resulting in a profitable of $58,678 net profit excluding the impairment, depreciation and amortisation expenses and finance cost in Q4 quarter for the Company.

With Footar Division revenues continually improving on a quarterly basis since Q2 2012 and AdFeed Division revenues remaining in line with budgeted expectations, the Company is positioned well to ensure future growth in FY2013.

The Company intends to undertake further development of its Footar Technology in FY2013 and continues to seek additional Advertising suppliers and Publishing partners to grow revenues.

The Group’s results for the year ended 30 June 2012 resulted in a loss of $1,649,942. Although higher than 2011, the figure includes impairment, depreciation and amortisation expenses totalling $1,339,003 and finance costs of $121,083 associated with the convertible notes and loan from the directors incurred during the year.

The Group employment expenses in 2012 decreased to $590,224 (2011:$1,086,146). Although this was a significant decrease, it did not have an impact on sales revenues.

Revenues were predominantly generated in Q1 and Q2 from the AdFeed business, whilst Q3 and Q4 saw a significant increase in Footar revenues. Overall revenues increased by around $487,900 to $2,620,459 in 2012 (2011: $2,132,559) which can be attributed to better results in the Footar Division in Q3 and Q4.

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Results

Revenue for the year ended 30 June 2012 was $2,620,459 (2011:$2,132,559). Loss from continuing operations was $1,649,942 (2011: $1,105,827). This result includes the impairment of the goodwill and intangibles assets associated with the Planet W business, together with the write-off of the Group’s finance facility fee which was previously being amortised over a 5 year period.

Group Performance over the five-year period

	2012	2011	2010*	2009	2008
Basic earnings per share (cents)	(1.35)	(1.12)	0.01	(0.5)	(0.3)

* Change of business structure and ownership.

Financial position

The Group had net assets of $593,492 as at 30 June 2012 (2011: $828,979).

The Group had receivables of $946,821 as at 30 June 2012 (2011: $513,345).

The Group had payables of $707,328 at 30 June 2012 (2011: $626,995). The Group had paid off the convertible notes as at 30 June 2012 (2011: $531,397).

Cash flows

The Group incurred net operating cash outflows of $424,440 during the year ended 30 June 2012 (2011: $973,661). Net investing cash outflows were $nil in the year ended 30 June 2012 (2011: $nil).

Net financing cash inflows were $643,416 in the year ended 30 June 2012 (2011: $532,732). During the financial year the Group paid off the convertible notes (2011: Inflow of $531,397).

There was a cash balance at 30 June 2012 of $353,999 (2011:$135,023).

Likely developments and expected results

Disclosure of information regarding likely developments in the operations of the Group in future financial years has been made, in part, in the Chairman’s Letter of this Annual Report. Any further such disclosure and the expected results of those operations are likely to result in unreasonable prejudice to the Group and has accordingly not been disclosed in this report.

Risk Management

The Board takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Company’s objectives and activities are aligned with the risks and opportunities identified by the Board. The Company believes that it is crucial for all Board members to be a part of this process and, as such, the Board has not established a separate risk management committee.

Significant changes in the state of affairs

The following significant changes in the state of affairs of the Group occurred during the financial year:

• On 22 December 2011, the Company entered into convertible loan agreements to the value of $300,000 with the clients of Paterson’s Securities Limited.

• On 20 January 2012, Mr Barry Green resigned as non-executive director of the Company to focus on other interests. On the same day, the Board appointed Ms Sophie Karzis as nonexecutive director of the Company.

• On 17 February 2012, the Company completed the 1 for 50 share consolidation of the Company securities.

• On 5 April 2012, the Company issued and allotted 25,787,586 shares and 25,787,586 free attaching share options to the shareholders under Rights Issue for $386,814.

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• On 13 April 2012, the Company announced the completion of Right issue and the shortfall shares of 73,401,934 and free attaching share options of 73,401,934 were issued and allotted to the Underwriter under the Rights issue for $1,101,029. In addition, 33,063,174 share options were issued to the Underwriter under the Underwriter offer.

• On the 13 April 2012, convertible notes with a face value of $400,000 were redeemed in full together with interest of $55,774; these amounts were funded from the proceeds of the Right Issue.

• On 17 April 2012, convertible notes with a face value of $300,000 were redeemed in full together with interest of $12,526.

• On 18 April 2012, the Company issued 9,518,667 fully paid ordinary shares to Planet W Pty Ltd as deferred consideration (more specifically an “earn-out”) for the acquisition of the business and assets of Planet W Pty Ltd of $142,780, as approved by shareholders at the Company’s EGM held in February 2012.

• On 15 May 2012, the Company issued 15,000,000 listed options to the providers of convertible loans pursuant to convertible loan deeds entered into as disclosed in the Company’s Rights Issue Prospectus dated 2 March 2012.

• On 21 May 2012, the Company issued 10 listed options under a Prospectus dated 16 May 2012 primarily to satisfy compliance requirements under s708A(11) of the Corporations Act to remove any secondary sale restrictions attached to 15,000,000 listed options issued on 15 May 2012.

After balance date events

No matter or circumstance has occurred or been identified since 30 June 2012 to the date of this report, that has significantly affected, or may significantly affect the Group’s continuing business operations.

Environmental regulation

The Group’s operations are not subject to any significant Commonwealth or State environmental regulations or laws.

Share options (listed & unlisted)

A total of 147,252,704 listed share options were issued during the financial year, and no options have been issued since 30 June 2012. A total of 4,214 listed share options were exercised during the financial year, and no options have been exercised since 30 June 2012. As at the date of this report, there were 147,248,490 listed share options and 2,600,000 unlisted share options outstanding. Refer to note 26 of the financial statements and the Remuneration Report for further details of share options outstanding to directors and key management personnel.

Indemnification and insurance of directors, officers and auditors

No indemnities have been given or insurance premiums paid during or since the end of the financial year for any Directors, officers or auditors of the Group.

Proceedings on behalf of the Consolidated Entity

No person has applied for leave of Court to bring proceedings on behalf of the Group.

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Remuneration Report (Audited)

This report outlines the remuneration arrangements in place for Directors and executives of the Group.

Remuneration policy

The performance of the Group depends upon the quality of its Directors and executives. To be successful, the Group must attract, motivate and retain highly skilled Directors and executives. To this end, the Group seeks to provide competitive rewards to attract high calibre executives. The Board of Directors is responsible for determining and reviewing remuneration arrangements for the Directors, the Managing Director and the executive team. The Board of Directors assesses the appropriateness of the nature and amount of remuneration of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team.

Hedging of equity awards

The Group has a policy in place to prohibit Directors and executives from entering into arrangements to protect the value of unvested options.

Remuneration committee

In view of the size of the Group, the Group does not have a separately established remuneration committee.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct.

Executive Director and senior manager remuneration

Objective

The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to:

• Reward executives for the Group and individual performance;

• Align the interests of executives with those of shareholders;

• Link reward with the strategic goals and performance of the Group; and

• Ensure total remuneration is competitive by market standards.

Structure

Currently remuneration is paid in the form of cash remuneration, superannuation contributions and share options where applicable. The Group’s remuneration policy was not directly related to Group performance during the FY12 year due to the fact that the Group arranged these remuneration packages when coming out of administration and prior to its shares being requoted on the ASX; at that point in time, the Board of Directors took the view that the business was at an early stage and the key rationale of issuing share options was to serve as a retention incentive. For the financial year ending 30 June 2013, the Directors have put in place remuneration packages with key executives that are dependent on performance conditions being met; these will be appropriately disclosed in the relevant reporting periods in the future. The Group paid bonuses during the financial year ended 30 June 2012. Further details of the remuneration of the Directors and Key Management Personnel are provided in note 26 to the consolidated financial statements.

Share options

All Directors, employees, and consultants, have the opportunity to qualify for participation in the Group Share Option Plan. The issue of options under this plan is at the discretion of the Board and is not currently based on the Group performance. Options are used by the Group as a non-cash form of remuneration and have the objective of aligning employee interests with the objective of increasing shareholder wealth. Any issue of options under the plan to Directors is subject to shareholder approval. No options were granted as part of Directors’ remuneration during the year ended 30 June 2012 (2011: 50,000,000). Details regarding the issue of share options under the Group Share Option Plan to Directors during the year are provided in note 17 to the consolidated financial

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statements. No options were issued to executives or staff during the year ended 30 June 2012 (2011: nil).

Employment contracts

The CEO has formal service agreements with the Group.

The Company has entered into a service contract with DL Consulting Group Pty Ltd ACN 127 541 011 under which DL Consulting Group Pty Ltd is obliged to provide the services of Mr Damian London to the Company to perform the functions of the Chief Executive Officer. Under this Contract, either party can terminate the arrangement at any time by giving to the other notice in writing for a period of not less than three (3) months or in the case of the Company by providing an equivalent payment in lieu of such notice.

The amount of the fees payable under the Contract is $6,000.00 per month plus GST (but exclusive of any superannuation if applicable) until 30 September 2011 and $12,500.00 per month plus GST (but exclusive of any superannuation if applicable) from 1 October 2011 until further review or the termination of this Agreement. In addition, a performance bonus is set on an annual basis. This is as determined by the Board for a combination of achievement of net profit after tax and achievement of personal KPIs as approved by the Board. The incentive is subject to specific annual agreement between the parties so as to reflect relevant circumstances at the time. No bonus was payable to the CEO for the 2011 financial year.

Other staff and contractors are employed on contracts which are generally terminable on either party giving one month’s written notice.

Non-executive director remuneration

The Group’s constitution provides that the total amount of remuneration provided to all non-executive Directors must not exceed $200,000.

Remuneration of key management personnel and executives of the Company and the Group

Executive remuneration for the years ended 30 June 2012 and 30 June 2011 were as follows:

	Short Term Benefits Post- Equity
	Employment
	Salary & Bonus Super- Number of Value of Number of Value of Percentage
Name	Fees $ annuation Shares Shares Options Options of options Total
	$ Contri- butions $ Granted No. Granted $ Granted No. Granted $ value/bonu s that represent remu- neration % $
2012
Mr. Damian	$130,500 - $11,745 - - - - - $142,245
London Exec
Director,
CEO
Mr Barry	$89,138 $12,860 - - - - - 12.61 $101,998
Green Exec
Director*
Ms Sophie	$10,175 - - - - - - - $10,175
Karzis Co
Secretary,
Non-exec
Director
Total	$229,813 $12,860 $11,745 - - - - - $254,418

* Resigned during the year.

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	Short Term Benefits Post- Employm ent $ Equity
	Salary & Fees $ Bonus $ Super- annuation Contri- butions $ Number of Shares Granted No. Value of Shares Granted $ Number of Options Granted No. Value of Options Granted $ Percentage of options value/bonus that represent remu- neration % Total $
Name
2011
Mr. Damian	$64,462 - $6,096 - - - - - $70,558
London Exec
Director,
CEO
Mr Barry	$179,442 $32,189 - - - - - 15.21 $211,631
Green Exec
Director
Mr. Dean	$197,940 - $14,105 - - - - - $212,045
Jones
Managing*
Director
Mr. Cary	$153,083 - $9,282 37,468,738 $37,468 50,000,000 $16,335 7.56 $216,168
Stynes Exec
Director *
Ms Sophie	$45,500 - - - - - - - $45,500
Karzis Co
Secretary
Total	$640,427 $32,189 $29,483 37,468,738 $37,468 50,000,000 $16,335 - $755,902

* Resigned during the year.

Remuneration of Non-executive directors for the Group

Non-executive remuneration for the year ended 30 June 2012 and 30 June 2011 was as follows:

Name 2012 Mr Andrew Plympton Non- Executive Chairman Total Name 2011 Mr Andrew Plympton Non- Executive Chairman Total	Short Term Benefits Post- Employment Equity Salary & Fees $ Superannuatio n Contributions $ Number of Options Granted No. Value of Options Granted $ Total $ $24,000 - - - $24,000
	$24,000 - - - $24,000
	Short Term Benefits Post- Employment Equity Salary & Fees $ Superannuation Contributions $ Number of Options Granted No. Value of Options Granted $ Total $ $24,000 $2,160 - - $26,160
	$24,000 $2,160 - - $26,160

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Share issues during the year

On 18 April 2012, 9,518,667 fully paid ordinary shares were issued to Planet W Pty Ltd, a company of which Mr Damian London, the Company’s CEO and Executive Director, is a shareholder and director. These shares were issued in lieu of deferred cash consideration (more specifically an “earn-out”) for the acquisition of the business and assets of Planet W Pty Ltd in April 2010. Refer to note 17.

Options granted

No options were issued to Directors or other key management personnel during the year ended 30 June 2012 (2011: post consolidation 1,000,000).

Tax consolidation

The Company and its subsidiaries have formed a tax consolidated group as at the date of this report.

Auditor’s independence declaration

A copy of an auditor’s independence declaration in relation to the audit for the financial year is provided with this report.

Non-audit services

The auditor, Ernst & Young, did not provide any non-audit services to the Group during the financial year ended 30 June 2012.

Signed in accordance with a resolution of the Directors.

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Andrew Plympton Non-Executive Chairman

Melbourne, 27 September 2012

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Corporate Governance Statement

This statement sets out the corporate governance practices that were in operation throughout the financial year for AdEffective Limited and its controlled entities (the Group ). The Group’s Directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance.

The Company has adopted and substantially complies with the ASX Corporate Governance Council’s Principles and Recommendations 2010 Amendments, 2nd Edition, to the extent appropriate to the size and nature of the Company’s operations.

A summary of how the Company complies with the revised ASX Corporate Governance Principles and Recommendations is included below. The various charters and policies are all available on the Company’s web site: www.adeffective.com.au.

ASX Principle	Status	Reference / Comment
Principle 1: Lay solid foundation for management oversight
Formalise and disclose the functions reserved to the board and those delegated to
management
1.1 Companies should establish the	Complying	The Board has adopted a charter which establishes the role of the Board
functions reserved to the board and		and its relationship with management. The primary role of the Board is the
those delegated to senior executives		protection and enhancement of long term shareholder value. Its
and disclose those functions		responsibilities include the overall strategic direction of the Group,
		establishing goals for management and monitoring the achievement of
		these goals. The functions and responsibilities of the Board and
		management are consistent with ASX Principle 1. A copy of the Board
		Charter is posted on the Group’s website.
		Each Director is given a letter upon his or her appointment which outlines
		the Director’s duties. The Group has in place systems designed to fairly
		review and actively encourage enhanced Board and management
		effectiveness.
1.2 Companies should disclose the	Complying	The Board and the Chief Executive Officer monitor the performance of
process for evaluating the performance		senior management, including measuring actual performance against
of senior executives.		planned performance. The Board also reviews the Chief Executive
		Officer’s performance annually.
1.3 Companies should provide the	Complying	A copy of the Company’s Board Charter is available on the Company’s
information indicated in the Guide to		website in a clearly marked Corporate Governance section. A performance
reporting on Principle 1.		evaluation for senior executives has taken place in the reporting period.

Principle 2: Structure the Board to add value

Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties

2.1 A majority of the board members	Complying	Two of the three Directors of the Board are independent. The test to
should be independent.		determine independence which is used by the Company is whether a
		Director is independent of management and any business or other
		relationship with the Group that could materially interfere with – or could
		reasonably be perceived to materially interfere with – the exercise of their
		unfettered and independent judgement. The Directors considered to be
		independent are Mr Andrew Plympton and Ms Sophie Karzis.

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ASX Principle	Status	Reference / Comment
2.2 The chairman should be an	Complying	The Chairman, Mr Andrew Plympton has been Chairman of the Company
independent director.		since 26 August 2010 and was, at the date of his appointment and
		continues to be, independent. The Chairman leads the Board and is
		responsible for the efficient organisation and conduct of the Board’s
		functions.
2.3 The roles of the chairman and the	Complying	The positions of Chairman and Chief Executive Officer are held by
chief executive officer should not be		separate persons.
exercised by the same individual.
2.4 The board should establish a	Non-	The Board does not currently have a formal Nomination Committee,
nomination committee.	Complying	however the Board as a whole carries out the functions that would
		otherwise be carried out by a Nomination Committee.
2.5 Companies should disclose the	Complying	The Board conducts an informal annual performance review of itself that
process for evaluating the performance		compares the performance of the Board with the requirements of the
of the board, its committees and		Board Charter, critically reviews the mix of the Board and suggests and
individual directors.		amendments to the Board Charter as are deemed necessary or
		appropriate.
2.6 Provide the information indicated in	Complying	The following information is set out in the Company’s annual report:
the Guide to reporting on Principle 2.
		• the skills, experience and expertise relevant to the position of
		director held by each director in office at the date of the annual
		report;
		• the directors considered by the Board to constitute independent
		directors and the Company’s materiality threshold;
		• the existence of any of the relationships which may affect
		independence and an explanation of why the board considers a
		director to be independent notwithstanding the existence of these
		relationships;
		• a statement regarding directors’ ability to take independent
		professional advice at the expense of the Company;
		• a statement as to the mix of skills and diversity for which the board
		of directors is looking to achieve in membership of the Board;
		• The term of office held by each director in office at the date of the
		report.
		• The names of members of the Company’s committees and their
		attendance at committee meetings.
		• whether a performance evaluation for the board, its committees and
		directors has taken place in the reporting period and whether it was
		in accordance with the process disclosed;
		• an explanation of any departures from Recommendations 2.1, 2.2,
		2.3, 2.4, 2.5 or 2.6.
		The following material is publicly available on the Company’s website in a
		clearly marked Corporate Governance section:
		• a description of the procedure for the selection and appointment of
		new directors and the re-election of incumbent directors;
		• the Board’s policy for the nomination and appointment of directors.

Principle 3: Promote ethical and responsible decision-making

Companies should actively promote ethical and responsible decision-making

3.1 Companies should establish a code	Complying	The Group has formulated a Code of Conduct which can be viewed on its
of conduct and disclose the code as to:		website.
 The practices necessary to
maintain confidence in the **company’s integrity. **		The Group has adopted a Share Trading Policy which can be viewed on its

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ASX Principle	Status	Reference / Comment	Reference / Comment	Reference / Comment
 The practices necessary to take		website.
into account their legal
obligations and the reasonable
expectations of their
stakeholders.
The responsibility and accountability of
individuals for reporting and
investigating reports of unethical
practices.
3.2: Companies should establish a		The Board has contemplated the necessity of implementing a diversity
policy concerning diversity and	Non-	policy. Noting the relatively small size of the Company and the fact that the
disclose the policy or a summary of	Complying	Company has a	small	number of employees, the Board has resolved to
that policy. The policy should include		depart from the	new	recommendations by not implementing		a gender
requirements for the board to establish		diversity policy.
measurable objectives for achieving
gender diversity and for the board to
assess annually both the objectives
andprogress in achieving them.
3.3: Companies should disclose in each	Non-	The Board has not implemented a diversity policy and is of the view that
annual report the measurable	Complying	due to the relatively few employees that the Company				has, the
objectives for achieving gender		recommendation	is	inappropriate	to the Company’s	particular
diversity set by the board in		circumstances
accordance with the diversity policy
and progress towards achieving them.
3.4: Companies should disclose in each	Complying	The Company does not have any			employees, other than	the Chief
annual report the proportion of women		Executive Officer, who		is a male, and a small number of contractors, who
employees in the whole organisation,		are also male. There is		a woman on the Board of Directors,
women in senior executive positions
and women on the board.

Principle 4: Safeguard integrity in financial reporting

Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.

Whilst the Board has established an Audit Committee, this is currently 4.1 The board should establish an audit Nonsuspended until such time as the Board appoints a further Non-Executive committee. Complying and independent director. In the meantime, the Board as a whole carries out the functions of the Audit Committee in accordance with the Group’s Audit Committee Charter. 4.2 The audit committee should be See above. The Board as a whole carries out the functions of an audit Non- structured so that it: committee. • Consists only of non-executive Complying directors ; Consists of a majority of independent directors; Is chaired by an independent chair, who is not chair of the board; Has at least three members. 4.3 The audit committee should have a The Board has established an audit and risk committee charter. Non- formal charter. Companies should Complying provide the information indicated in the Guide. 4.4 Companies should provide the The Company will continue to explain any departures from Principle 4 in its Complying information indicated in the Guide to future annual reports. reporting on Principle 4.

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ASX Principle Status Reference / Comment

Principle 5: Make timely and balanced disclosure

Companies should promote timely and balanced disclosure of all material matters concerning the company

5.1 Companies should establish written	Complying	The Group has a documented policy which has established procedures
policies designed to ensure compliance		designed to ensure compliance with ASX Listing Rule disclosure
with ASX Listing Rule disclosure		requirements and to ensure accountability at a senior management level
requirements and to ensure		for that compliance. The Chief Executive Officer and the Company
accountability at a senior executive		Secretary are responsible for interpreting the Group’s policy and where
level for that compliance and disclose		necessary informing the Board. The Company Secretary is responsible for
those policies.		all communications with the ASX.
5.2 Companies should provide the	Complying	The Company’s Market Disclosure & Shareholder Communication Policy is
information indicated in the Guide.		posted on the Company’s website in a clearly marked Corporate
		Governance section.

Principle 6: Respect the rights of shareholders

Companies should respect the rights of shareholders and facilitate the effective exercise of those rights

6.1 Companies should design a	Complying	The	Board informs shareholders of all major developments affecting the
communications policy for promoting		Group’s state of affairs as follows:
effective communication with
shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.		1. 2.	The annual report is distributed to all shareholders, including relevant information about the operations of the consolidated entity during the year and changes in the state of affairs. The half-yearly report to the Australian Securities Exchange contains
			summarised financial information and a review of the operations of
			the consolidated entity during the period.
		3.	All major announcements are lodged with the Australian Securities
			Exchange, and posted on the Group’s website.
		4.	Proposed major changes in the consolidated entity which may impact
			on share ownership rights are submitted to a vote of shareholders.
		5.	The Board encourages full participation of shareholders at the Annual
			General Meeting to ensure a high level of accountability and
			identification with the consolidated entity’s strategy and goals.
		6.	The Group’s auditor attends the Annual General Meeting.
6.2 Companies should provide the	Complying	The	Company explains any departures from Principle 6 in its annual
information indicated in the Guide to		reports. The Company’s Market Disclosure & Shareholder Communication
reporting on Principle 6.		Policy is posted on the Company’s website in a clearly marked Corporate
		Governance section.

Principle 7: Recognise and manage risk

Companies should establish a sound system of risk oversight and management and internal control

7.1 Companies should establish	7.1 Companies should establish	Complying	The Board has responsibility for monitoring risk oversight and ensures that
policies for	the oversight and		the Chief Executive Officer reports on the status of business risks through
management of	material business risks		risk management programs aimed at ensuring risks are identified,
and disclose	a summary of those		assessed and appropriately managed. In addition the Board is responsible
policies.			for reviewing the risk management framework and policies of the Group.

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ASX Principle	Status	Reference / Comment
7.2 The board should require	Complying	The Board reviews the Group’s major business units, organisational
management to design and implement		structure and accounting controls and processes on a continuing basis. A
the risk management and internal		description of the Group’s risk management policy and internal compliance
control system to manage the		and control systems will be available on the Group’s website shortly.
company’s material business risks and
report to it on whether those risks are
being managed effectively. The board
should disclose that management has
reported to it as to the effectiveness of
the company’s management of its
material business risks.
7.3 The board should disclose whether it has received assurance from the chief executive officer and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of	Complying	The Chief Executive Officer and the Chief Financial Officer (or equivalent) are required to state to the Board in writing that the integrity of the financial statements is founded on a sound system of risk management and internal compliance and control and that the Group’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.
risk management and internal control
and that the system is operating
effectively in all material respects in
relation to financial reporting risks.
7.4 Companies should provide the information indicated in the Guide to reporting on Principle 7.	Complying	The following material is included in the corporate governance statement in the Company’s Annual Reports:
		• explanation of any departures from Recommendations 7.1, 7.2,
		7.3 or 7.4.
		• whether the Board has received the report from management
		under Recommendation 7.2
		• whether the Board has received assurance from the chief
		executive officer (or equivalent) and the chief financial officer (or
		equivalent) under Recommendation 7.3.
		A summary of the Company’s policies on risk oversight and management
		of material business risks is either currently, or will shortly be, publicly
		available on the Company’s website in a clearly marked corporate
		governance section.

Principle 8: Remunerate fairly and responsibly

Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

8.1 The board should establish a	Non-	The Board has not established a Remuneration Committee but the Board
remuneration committee.	Complying	as a whole carries out the functions that would otherwise be carried out by
		a Remuneration Committee.
8.2 The remuneration committee	Non-	See above.
should be structured so that it consists	Complying
of a majority of independent directors,
is chaired by an independent chair and
has at least three members.
8.3 Companies should clearly	Complying	Details of the Directors and key senior executives remuneration are set out
distinguish the structure of non-		in the Remuneration Report of the Annual Report. The structure of non-
executive directors’ remuneration from		executive Directors’ remuneration is distinct from that of executives and is
that of executive directors and senior		further detailed in the Remuneration Report of the Annual Report.
executives.

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ASX Principle	Status	Reference / Comment
8.4 Companies should provide the	Complying	Details of the Directors and key management personnel remuneration are
information indicated in the Guide to		set out in the Remuneration Report of the Annual Report.
reporting on Principle 8.
		The Company does not have a Remuneration Committee although the
		Board as a whole carries out this function in accordance with a Charter.
		There are no schemes for retirement benefits, other than superannuation,
		for non-executive directors.
		A copy of the Company’s Remuneration Committee charter is posted on
		the Company’s website in a clearly marked corporate governance section,
		together with a summary of the Company’s policy on prohibiting entering
		into transactions in associated products which limit the economic risk of
		participating in unvested entitlements under any equity-based
		remuneration schemes

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012

Notes Revenue Sales revenue 6 Other income 6 Direct costs 7 Gross profit Employee benefits expenses 7 Administrative expenses 7 Depreciation and amortisation expenses 7 Impairment of goodwill, intangibles and plant & equipment expenses 7 Write off of Furneaux facility fee Finance costs 7 Loss before income tax Income tax expense 8 Loss from continuing operations after income tax Other Comprehensive Income Total Comprehensive loss for the year Earnings per share (cents per share) - Basic and diluted loss per share 9	Consolidated Consolidated 2012 2011 $ $ 2,620,459 2,132,559 11,376 6,055
	2,631,835 2,138,614 (1,696,356) (1,321,464)
	935,479 817,150 (590,224) (1,086,046) (531,356) (593,300) (180,915) (209,545) (983,088) - (175,000) - (124,838) (34,086)
	(1,649,942) (1,105,827) - -
	(1,649,942) (1,105,827) - -
	(1,649,942) (1,105,827)
	(1.35) (1.12)

The accompanying notes form part of these financial statements.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

Notes Current Assets Cash and cash equivalents 10 Trade and other receivables 11 Prepayments 12 Total Current Assets Non-current Assets Prepayments 12 Plant and equipment 13 Goodwill and intangible assets 14 Total Non-current Assets Total Assets Current Liabilities Trade and other payables 15 Convertible Notes 16 Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity 17 Reserves 18 Accumulated losses 19 Total Equity	Consolidated Consolidated 2012 2011 $ $ 353,999 135,023 946,821 513,345 - 50,000
	1,300,820 698,368
	- 150,000 - 121,172 - 1,017,831
	- 1,289,003
	1,300,820 1,987,371
	707,328 626,995 - 531,397
	707,328 1,158,392
	707,328 1,158,392
	593,492 828,979
	26,404,522 25,430,399 24,000 112,842 (25,835,030) (24,714,262)
	593,492 828,979

The accompanying notes form part of these financial statements.

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2012

Notes Share Capital $ Reserves $ At 1 July 2011 25,430,399 112,842 Loss for the year 19 - - Other comprehensive income - - Total comprehensive income - - Transactions with owners in their capacity as owners Rights issued 17 1,487,843 - PlanetW deferred consideration 17 142,780 - Cash on exercise of share options 17 63 - Listed options valued 17 117,720 - Transaction costs on share issued 17,18 (333,678) - Transferred to accumulated losses 18 (440,605) (88,842) At 30 June 2012 26,404,522 24,000 At 1 July 2010 25,392,930 111,507 Profit for the year 19 - - Other comprehensive income - - Total comprehensive income - - Transactions with owners in their capacity as owners Share based payments 18 37,469 16,335 Transaction costs on share issued 18 - (15,000) At 30 June 2011 25,430,399 112,842	Share Capital $ Reserves $ 25,430,399 112,842	Accumulated Losses $ Total Equity $ (24,714,262) 828,979
		(1,649,942) (1,649,942) - -
		(1,649,942) (1,649,942) - 1,487,843 - 142,780 - 63 - 117,720 (273) (333,951) 529,447 -
	26,404,522 24,000	(25,835,030) 593,492
	25,392,930 111,507	(23,608,435) 1,896,002
		(1,105,827) (1,105,827) - -
		(1,105,827) (1,105,827) - 53,804 - (15,000)
	25,430,399 112,842	(24,714,262) 828,979

The accompanying notes form part of these financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Borrowing costs Net cash used in operating activities 10 Cash flows from investing activities Cash flows from financing activities Proceeds from option issued Proceeds from rights issued Cash from exercise of share options Proceeds from convertible notes Repayment of convertible notes Capital raising costs Net cash provided by financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of financial year Cash and cash equivalents at the end of financial year 10	Consolidated Consolidated 2012 2011 $ $ 2,410,779 2,102,655 (2,818,619) (3,048,286) 11,376 6,055 (27,976) (34,085)
	(424,440) (973,661)
	- - - 1,335 1,487,843 - 63 - 400,000 531,397 (991,520) - (252,970) -
	643,416 532,732
	218,976 (440,929) 130,023 575,952
	353,999 135,023

The accompanying notes form part of these financial statements.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

1. CORPORATE INFORMATION

The consolidated financial report of AdEffective Limited (the Company or AdEffective ) and controlled entities (the Group ) for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the directors on 28 September 2012.

AdEffective is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers AdEffective and controlled entities as a consolidated entity. AdEffective is a listed public company, limited by shares, incorporated and domiciled in Australia.

The financial report has been prepared in accordance with the historical cost convention and, except where stated, does not take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. The financial report is presented in Australian dollars.

The following is a summary of material accounting policies adopted by the consolidated entity in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Comparatives have been restated where appropriate to ensure consistency and comparability with the current year.

(a) Statement of compliance

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(b) New accounting standards and interpretations

(i) Changes in accounting policy and disclosures.

The accounting policies adopted are consistent with those of the previous financial year except as follows. The other changes and amendments did not have a significant impact on accounting policies, financial position or performance of the Group is not shown below.

The Group has adopted the following new and amended Australian Accounting Standards and AASB Interpretations applicable to its operations which became mandatory as of 1 January 2011:

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Reference	Title	Application date of standard*	Application date for Group*
AASB 124 (Amendment)	The AASB issued an amendment to AASB 124 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group.	1 January 2011	1 July 2011

(ii) Accounting Standards and Interpretations issued but not yet effective.

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ending 30 June 2012, outlined in the table below:

Reference	Title	Summary	Application date of standard*	Impact on Group financial report	Application date for Group*
AASB 2011-9	Amendments to Australian Accounting Standards – Presentation of Other Comprehensive Income [AASB 1,5,7,101,112,12 0,121,132,133,1 34,1039 &1049]	This Standard requires entities to group items presented in other comprehensive income on the basis of whether they might be reclassified subsequently to profit or loss and those that will not.	1 July 2012	No impact expected	1 July 2012
AASB 10	Consolidated Financial Statements	AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation – Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to other standards via AASB 2011-7.	1 January 2013	No impact expected	1 July 2013

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Reference	Title	Summary	Application date of standard*	Impact on Group financial report	Application date for Group*
AASB 13	Fair value measurement	AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8.	1 January 2013	No impact expected	1 July 2013
AASB 2011-4	Amendments to Australian Accounting Standards to Remove individual Key Management Personnel Disclosure Requirements (AASB 124)	This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies.	1 July 2013	The impact has yet to be determined	1 July 2013
AASB 2012-2	Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities	AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities, on the entity’s financial position.	1 January 2013	The impact has yet to be determined	1 July 2013
AASB 2012-3	Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities	AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement.	1 January 2014	The impact has yet to be determined	1 July 2015

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Reference	Title	Summary	Application date of standard*	Impact on Group financial report	Application date for Group*
AASB 9	Financial Instruments	AASB 9 includes requirements for the classifications and measurement of financial assets. It was further amended by AASB 2010-7 to reflect amendments to the accounting for financial liabilities. These requirements improve and simplify the approach for classification AASB 139. The main changes are described below. (a) Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial asset; (2) the characteristics of the contractual cash flows. (b) Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income, Dividends in respect of these investments that are a return on investment can be recognized in profit or loss and there is no impairment or recycling on disposal of the instrument. (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. (d) Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:  The change attributable to changes in credit risk are presented in other comprehensive income (OCI)  The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. (e) Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010- 7 and 2010-10.	1 January 2015	The impact has yet to be determined	1 July 2015

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(c) Basis of consolidation

The consolidated financial statements are those of the consolidated entity, comprising the financial statements of the parent entity and of all entities, which AdEffective Limited controlled from time to time during the year and at balance date.

The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation.

(d) Going concern basis of accounting

Notwithstanding the loss for the year of $1,649,942 (2011: $1,105,827) and net cash outflows used in operations of $424,440 (2011: $973,661) for the year ended 30 June 2012, the financial report has been prepared on a going concern basis. Although the loss is greater than the loss recorded for the previous corresponding period, it should be noted that the 30 June 2012 result includes impairment, depreciation and amortisation expenses totalling $1,339,003 and finance costs of $121,083 associated with the convertible notes and loan from the directors incurred during the year. In effect, the overall loss if measured excluding impairment, depreciation and amortisation expenses was $310,939, significantly less than compared to 2011 (2011: loss less impairment, depreciation and amortisation was $896,282).

The directors are confident that the combination of careful management of overheads, the continuation of its revenue growth from the Footar Division and sustaining AdFeed Division, and the potential to raise capital should circumstances require, provides sufficient funds to meet ongoing capital requirements of the Group and the Company for the foreseeable future.

Whilst there is significant uncertainty, the directors consider it appropriate to prepare the accounts on a going concern basis as they are satisfied that based on the factors outlined, the Group will be able to meet its debts as and when they become due and payable for a period of at least 12 months from the date of this report.

Accordingly without funding from positive operating cash flows and ability to raise capital if required, there would be a material uncertainty as to whether the consolidated entity would be able to continue as a going concern and therefore whether it would be able to realise its assets and extinguish its liabilities in the normal course of business, and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded assets amounts or to the amounts or classifications of liabilities that might be necessary should the Group not continue as a going concern.

(e) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of the payment and excluding taxes or duty. The Group assesses its revenue from the provision of services to customers is recognised upon delivery of the service to the customer. Revenue from internet advertising is recognised on the basis of underlying performance of key contracted metrics, for which revenue is contracted.

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

(f) Cash and cash equivalents

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

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(g) Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or any accumulated impairment losses, if any.

The carrying amount of plant and equipment is reviewed for impairment annually by the Directors for events or changes in circumstances that indicate the carrying value may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the assets are written down to their recoverable amount

Depreciation

The depreciable amounts of fixed assets are depreciated on a straight-line basis or diminishing balance basis as appropriate over their estimated useful lives commencing from the time the asset is held ready for use.

The useful life for plant and equipment is 5 years (2011: 2 to 10 years).

(h) Goodwill and intangibles

Goodwill

Goodwill on consolidation represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired entities at the date of acquisition.

Goodwill is not amortised but is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is carried at cost less accumulated impairment losses.

Intangible assets

Intangible assets acquired in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over their useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

(i) Impairment of property, plant, equipment, goodwill and intangible assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information, If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income, unless the asset is carried at revalued amount in which case the impairment loss is treated as a revaluation decrease.

(j) Income tax and other taxes

Current income tax expense is the tax payable on the current year’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities.

Deferred tax assets and liabilities are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred tax asset or liability is recognised in relation to temporary differences arising from the initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(j) Income tax and other taxes (cont’d)

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

Current and deferred tax balances attributable to amounts recognized directly in equity are also recognised directly in equity.

Tax Consolidation

AdEffective Limited and its wholly-owned subsidiary have formed an income tax consolidated group under tax consolidation legislation.

The head entity, AdEffective Limited and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group.

In addition to its own current and deferred tax amounts, AdEffective Limited also recognizes the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable.

Receivables and payables, which are stated with the amount of GST included

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.

(k) Financial instruments

Classification

The group classifies its financial instruments in the following categories: loans and receivables and financial liabilities. The classification of investments depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition.

Loans and Receivables

Loan and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method.

Financial Liabilities

Financial liabilities include trade payables, other creditors and loans from third parties including intercompany balances and loans from or other amounts due to director-related entities.

Non-derivative financial liabilities are recognised fair value and carried at amortised cost, comprising original debt less principal payments and amortisation.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(l) Foreign Currencies

Functional and Presentation Currency

The financial statements of each group entity are measured using its functional currency, which is the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars, as this is the parent entity’s functional and presentation currency.

Transactions and Balances

Transactions in foreign currencies of entities within the consolidated entity are translated into functional currency at the rate of exchange ruling at the date of the transaction.

Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the financial year.

Resulting exchange differences arising on settlement or re-statement are recognised as revenues and expenses for the financial year.

Group Companies

The financial statements of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:

• Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;

• Income and expenses are translated at average exchange rates for the period; and

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

Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve as a separate component of equity in the balance sheet.

(m) Comparatives

Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures.

(n) Convertible notes

The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs.

On issuance of the convertible note, the fair value of the liability component is determined using a market rate for an equivalent convertible bond and this amount is carried as a liability on an amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost.

The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholder’s equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years.

Interest on the liability component of the instrument is recognised as an expense in profit and loss.

Transaction costs are apportioned between the liability and equity components of the convertible note based on the allocation of proceeds to the liability and equity component when the instruments are first recognised.

(o) Share based payments

Equity settled transactions

The Group provides benefits to the directors in the form of share options under the AdEffective Share Option Plan. These are equity settled transactions under Australian Accounting Standards.

The cost of these equity-settled transactions with directors is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the binomial option model, further details of which are given in note 17.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(o) Share based payments (cont’d)

In valuing equity-settled transactions, no account is taken of any non-market vesting conditions.

The charge to the statement of comprehensive income for the period is the cumulative amount as calculated less the amounts already charged in previous periods. There is a corresponding entry to equity.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share (see note 9).

(p) Earnings per share

Basic earnings per share is calculated as net profit attributable to members of the parent divided by the weighted average number of ordinary shares.

Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

3. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise cash, receivables and other receivables, payables and other payables.

The Group manages its exposure to key financial risks, including interest rate risk in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security.

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate risk and assessments of market forecasts for interest rates. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts.

The Board reviews and agrees policies for managing each of these risks as summarised below.

Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for interest rate risk, credit allowances and future cash flow forecast projections.

Risk exposures and responses

Interest rate risk

At balance date, the Group had the following financial asset exposed to Australian variable interest rate risk. The Group has no floating interest rate exposure on financial liabilities as the Group has no floating rate debt.

Financial assets Cash and cash equivalents Net exposure	Consolidated Consolidated 2012 2011 $ $ 353,999 135,023
	353,999 135,023

The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing and the mix of fixed and variable interest rates.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Interest rate risk (cont’d)

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date:

At 30 June 2012, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit/(loss) and other comprehensive income would have been affected as follows:

	Post Tax Profit/(Loss)	Post Tax Profit/(Loss)	Other Comprehensive	Other Comprehensive
			Income
	Higher/	(Lower)	Higher/	(Lower)
	2012	2011	2012	2011
	$	$	$	$
Consolidated
+1% (100 basis points)	3,540	1,350	-	-
-0.5% (50 basis points)	(1,770)	(675)	-	-

The movements in post-tax profit/(loss) and other comprehensive income are due to higher cash balances on hand as at 30 June 2012. The sensitivity is higher in 2012 than in 2011 because the cash balance in 2012 is higher.

Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note.

The Group trades only with recognised, creditworthy third parties and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables.

It is the Group’s policy that all customers who wish to trade on credit terms are assessed as to creditworthiness, including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for individual customers.

There were two customers with $853,296 making up 96% of the debtors balance at 30 June 2012.

In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Foreign currency risk

The Group generates its revenue and major purchases denominated in United States dollars. Hence, the Group’s statement of financial position can be affected significantly by movements in the US$/A$ exchange rates. The Group do not have a hedge policy in place.

Approximately 43% of the Group’s sales and 40% cost are denominated in US$ whilst 60% of costs are denominated in the functional currencies.

At balance date, the Group had the following exposure to US$ foreign currency that is not designated in cash flow hedges:

Financial assets Trade and other receivables Financial liabilities Trade and other payables Net exposure	Consolidated Consolidated 2012 2011 $ $ 377,625 178,875 601,742 290,733
	(224,117) (111,858)

At 30 June 2012, the Group has not hedged its US$ sales or purchases.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Foreign currency risk (cont’d)

The following sensitivity analysis is based on the foreign currency risk exposures in existence at the balance sheet date:

At 30 June 2012, if Australian Dollar had moved, as illustrated in the table below, with all other variables held constant, post tax profit/(loss) and other comprehensive income would have been affected as follows:

	Post Tax Profit/(Loss)	Post Tax Profit/(Loss)	Other Comprehensive	Other Comprehensive
			Income
	Higher/	(Lower)	Higher/	(Lower)
	2012	2011	2012	2011
	$	$	$	$
Consolidated
AUD to US Dollar +15% (2011: +15%)	29,233	14,590	-	-
AUD to US Dollar -15% (2011: -15%)	(39,550)	(19,740)	-	-

The movements in post-tax profit/(loss) and other comprehensive income are due to higher net exposure balance as at 30 June 2012. The sensitivity is higher in 2012 than in 2011 because net exposure balance for 2012 is higher.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank facilities, a convertible note facility and equity raisings.

At 30 June 2012, 100% of the Group’s debt will mature in less than one year (2011: 100%).

The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities. The respective undiscounted cash flows for the respective upcoming fiscal periods are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing at 30 June 2012.

The remaining contractual maturities of the Group’s financial assets and liabilities are:

Year ended 30 June 2012 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net maturity	< 6 months $000 6-12 months $000 1-5 years $000 > 5 years $000 Total $000
	353,999 - - - 353,999 946,820 - - - 946,820
	1,300,819 - - - 1,300,819
	707,328 - - - 707,328
	707,328 - - - 707,328
	593,491 - - - 593,491

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

Liquidity risk (cont’d)

Liquidity risk (cont’d)
Year ended 30 June 2011 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Convertible notes Net maturity	< 6 months $000 6-12 months $000	1-5 years $000 > 5 years $000 Total $000
	135,023 - 563,345 -	- - 135,023 - - 563,345
	698,368 -	- - 698,368
	626,995 - 531,397 -	- - 626,995 - - 531,397
	1,158,392 -	- - 1,158,392
	(460,024) -	- - (460,024)

Maturity analysis of financial assets and liabilities based on management’s expectation.

Management’s expectation reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial obligations mainly originate from the financing of assets used in the Group’s ongoing operations such as property, plant and equipment and investments in working capital, e.g. trade receivables. These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future assets, the Group has established risk reporting covering its business units that reflect expectations of management of expected settlement of financial assets and liabilities.

All financial assets and liabilities are payable within six months of balance date. Accordingly, the book value of each liability is equivalent to its fair value.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are based on past performance and management’s expectations for the future.

Critical accounting estimates and assumptions

In the preparation of the consolidated financial statements, the Directors are required to make estimates, judgements and assumptions that affect the application of accounting policies and the reported carrying values of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, Revisions to accounting estimates are recognised in the period in which the estimates is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial statements are below:

(a) Share-based payment transactions (listed options)

The Group measures the cost of equity-settled transactions with other parties by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for sharebased payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 17.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

(b) Impairment of goodwill, intangible assets and plant and equipment

The Group tested whether goodwill, intangible assets and plant and equipment have suffered any impairment in accordance with the accounting policy stated in note (i). The recoverable amounts of these assets are determined based on the higher of fair value less costs to sell and value in use. The assessments derived are outlined in Note 13 & 14. However, we note that both methods were considered to be nil.

5. PARENT ENTITY INFORMATION

Information relating to AdEffective Ltd - Parent: Current assets Total assets Current liabilities Total liabilities Issued capital Accumulated losses Share based payments reserve Total shareholders’ equity Loss of the parent entity Total comprehensive income of the parent entity	2012 2011 $ $ 353,901 334,682 353,901 2,048,078 72,188 765,990 72,188 765,990 26,404,522 (26,146,809) 24,000 281,713 25,430,399 (24,261,153) 112,842 1,282,088
	(2,414,829) (2,414,829) (805,056) (805,056)

There are no guarantees entered into by the parent entity in relation to the debts of its subsidiary. The parent entity has no contingent liabilities.

The parent entity has no contractual commitments for the acquisition of property, plant or equipment.

6. REVENUE

Revenue from operating activities Sale of services Total sales revenue Other income Bank interest receivable Sale of domain names Total other income	Consolidated Consolidated 2012 2011 $ $ 2,620,459 2,132,559
	2,620,459 2,132,559
	4,876 6,055 6,500 -
	11,376 6,055

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

7. EXPENSES

Direct Costs Employee benefits expense Wages, salaries and contractors Defined contribution plan expense Other employee benefits expense Total employee benefits expense Administrative expenses Occupancy costs Advertising and marketing expenses Communications costs Professional fees Office administration costs Other expenses Net foreign exchange differences Bad and doubtful debts expense Total administrative expenses Impairment losses Impairment loss on goodwill, intangibles and plant & equipment Depreciation expense Depreciation of non-current assets: Amortisation Plant and equipment Total depreciation expense Finance costs Interest expense: Other loans Bank interest Total finance costs	Consolidated Consolidated 2012 2011 $ $ 1,696,356 1,321,464
	1,696,356 1,321,464
	565,619 934,583 11,745 65,470 12,860 85,993
	590,224 1,086,046
	12,310 76,794 8,661 41,712 38,148 41,500 386,189 305,687 1,927 53,276 20,544 74,331 63,577 - - 3,003
	531,356 593,300
	983,088 -
	983,088 -
	149,302 174,387 31,613 35,158
	180,915 209,545
	96,863 31,397 27,975 2,689
	124,838 34,086

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

8. INCOME TAXES

Consolidated Consolidated 2012 2011 $ $ Current and deferred tax expense for the year ended 30 June 2012 were $nil (2011: $nil) - - A reconciliation between tax expense and the product of accounting profit/(loss) before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit/(loss) before income tax (1,649,942) (1,105,827) At the Group’s statutory income tax rate of 30% (2011: 30%) (494,983) (331,748) Adjustments: Impairment of goodwill & intangibles 294,926 - - Share based payments 4,900 Tax losses not brought to account as deferred tax assets 200,057 326,848 Income tax benefit reported in the consolidated income statement - -

Income tax losses

Unused tax losses for which no deferred tax asset has been recognised

200,057 -

Tax Loss Deferred Tax Asset recognition

Deferred tax assets will only be recognised if:

• a) future assessable income is derived of a nature and of amount sufficient to enable the benefit from the deductions to be realised;

• b) the conditions for deductibility imposed by tax legislation are complied with; and

• c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit.

Unused tax losses for which no deferred tax asset has been recognised comprise current year estimated tax losses only and are not yet confirmed.

Tax losses pre 2011 are not recognised because they are not expected to meet the continuity of ownership and same business tests.

Unrecognised temporary differences

At 30 June 2012 there are no temporary differences recognised in the balance sheet, on the basis of an assessment that recovery through future taxable income of those amounts is not probable at 30 June 2012 (2011: nil).

Tax consolidation

The Company and its subsidiaries have formed a tax consolidated group as at the date of this report.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

9. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the net loss for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

	Consolidated	Consolidated
	2012	2011
Basic and diluted earnings per share	(1.35) cents	(1.12) cents
Net loss for the year	($1,649,942)	($1,105,827)
Weighted average number of ordinary shares used in
calculating basic earnings per share	121,825,174	98,843,523
Weighted average number of ordinary shares used in
calculating diluted earnings per share	121,825,174	98,843,523

10. CASH AND CASH EQUIVALENTS

10. CASH AND CASH EQUIVALENTS
Cash at bank and in hand	Consolidated Consolidated 2012 2011 $ $ 353,999 135,023
	353,999 135,023

Cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at bank earns interest at floating rates based on daily bank deposit rates. Deposits at call earn interest at short-term deposit rates.

Reconciliation of net profit/(loss) after tax to net cash flows from operations Net loss Adjustments for: Bad debt written off Depreciation of non-current assets Amortisation Impairment for goodwill, intangibles and plant & equipment expense Write off of Furneaux facility fee Share based payments Finance cost on expensed of share options valued Changes in assets and liabilities: (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in operating activities

Consolidated Consolidated 2012 2011 $ $ (1,649,942) (1,105,827) - 3,003 31,613 35,158 149,302 174,387 983,088 - 175,000 - - 37,469 36,739 - (433,476) (221,055) 283,236 103,204

(424,440) (973,661)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

10. CASH AND CASH EQUIVALENTS (cont’d)

10. CASH AND CASH EQUIVALENTS (cont’d)
Facilities Equity Line of Credit and Convertible Note Facility – Furneaux Equity Total Facilities used at reporting date Equity Line of Credit and Convertible Note Facility – Furneaux Equity Total Facilities unused at reporting date Equity Line of Credit and Convertible Note Facility – Furneaux Equity Total	ConsolidatedConsolidated 2012 2011 $ $ 5,000,000 5,000,000
	5,000,000 5,000,000
	- -
	- -
	5,000,000 5,000,000
	5,000,000 5,000,000

In July 2010 the Group announced that it had entered into a $5,000,000 Equity Finance Facility with Furneaux Equities Limited. Under the facility the Group can draw down up to $250,000 in any 30 day period subject to the Company’s ability to issue equity, including any approvals of shareholders where the 15% threshold is met. At the date of this report the facility remained undrawn.

11. RECEIVABLES (CURRENT)

11. RECEIVABLES (CURRENT)
Trade receivables Provision for doubtful debts Other receivables	ConsolidatedConsolidated 2012 2011 $ $ 890,050 468,830 - -
	890,050 468,830 56,771 44,515
	946,821 513,345

(a) Terms and conditions

Terms and conditions relating to the above financial instruments

• (i) Trade receivables are non-interest bearing and generally on 60 day terms (2011: 45 days). (ii) Other receivables are non-interest bearing and have repayment terms between 30 and 90 days.

• (iii) For terms and conditions relating to related party receivables refer to note 25.

(b) Allowance for impairment loss

Trade receivables are non-interest bearing and are generally on 60 day terms (2011: 45 days). A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. There is no impairment loss recognised by the Group during the year (2011: $nil).

Movements in the provision for impairment loss were as follows:

At 1 July Charge for the year Amounts written off At 30 June	ConsolidatedConsolidated 2012 2011 $ $ - - - - - -
	- -

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

11. RECEIVABLES (CURRENT) (cont’d)

(b) Allowance for impairment loss (cont’d)

At 30 June, the ageing analysis of trade receivables is as follows:

			60	61-90	+91
		Total	days	days	Days
				PDNI*
2012	Consolidated	890,050	743,005	147,045	-
2011	Consolidated	468,830	458,199	10,631	-

*Past due not impaired (‘PDNI’)

Receivables past due but not considered impaired are: $147,045 (2011: $10,631l). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made.

Other balances within trade and other receivables do not contain impaired assets and are not past due.

(c) Related party receivables

For terms and conditions of related party receivables refer to note 25.

(d) Fair value and credit risk

Due to the short term nature of these receivables, their carrying value has been assessed to approximate their fair value.

The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities.

(e) Foreign exchange and interest rate risk

Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3.

12. PREPAYMENTS

12. PREPAYMENTS
Current assets Prepaid facility fee_(a) Non-current assets Prepaid facility fee(a)_	Consolidated Consolidated 2012 2011 $ $ - 50,000
	- 150,000

(a) Prepayment in respect of the Furneaux Equity finance facility which was executed in July 2010. The prepayment was fully expensed in 2012 due to the Directors believed that it is unlikely that the Company will drawdown the facility, particularly on its certain term and conditions. Hence it was decided to expense off its remaining facility fee from the consolidated statement of financial position.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

13. PLANT AND EQUIPMENT

13. PLANT AND EQUIPMENT
(a) Carrying values Plant and equipment: At cost Accumulated depreciation Impairment Net carrying amount	ConsolidatedConsolidated 2012 2011 $ $ 158,051 158,051 (68,489) (36,879) (89,562) -
	- 121,172

As at 30 June 2012, the Group wrote off the net carrying amount of the PlanetW assets in conjunction with the impairment of goodwill and intangible assets write off. Refer to Note 14 for further explanation.

(b) Reconciliations

Reconciliations of the carrying amounts at the beginning and end of the period:

Consolidated entity Balance at the beginning of the year Depreciation expense Impairment expense Balance at the end of the year	Plant and Equipment Plant and Equipment 2012 2011 $ $ 121,172 156,330 (31,610) (35,158) (89,562)
	- 121,172

14. GOODWILL AND INTANGIBLE ASSETS

(a) Carrying values Goodwill Intangible assets Accumulated amortisation Impairment of goodwill and intangible assets Net carrying amount	ConsolidatedConsolidated 2012 2011 $ $ 789,789 789,789 373,160 373,160 (269,423) (145,118) (893,526) -
	- 1,017,831

(b) Reconciliations

Reconciliations of the carrying amounts at the beginning and end of the period:-

Consolidated entity Balance at the beginning of the year - Goodwill through acquisition - Intangible assets identified through acquisition Amortisation expense Impairment of goodwill and intangible assets expense Balance at the end of the year	2012 2011 $ $ 789,789 789,789 228,042 373,160 (124,305) (145,118) (893,526) -
	- 1,017,831

During the year, the Group tested goodwill for impairment. Due to the difficulty economic conditions affecting the Group’s industry, and changes to the Group’s operating results and forecasts, the Group recognised impairment loss of $789,789 resulted from a material decline in the budgeted financial performance of the Group over the first six months and lower growth expectations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

14. GOODWILL AND INTANGIBLE ASSETS (cont’d)

The impairment loss was due to continued operating losses. As a result, the carrying value of goodwill exceeded its recoverable amount. After the impairment loss, no goodwill remains as at 30 June 2012.

As at 30 June 2012, the Group also wrote off the intangible assets, mainly those associated with the acquired PlanetW Pty Ltd advertising assets. The group wrote off these intangible assets due to revenues for the AdFeed Division decreasing compared to previous financial years and expected future challenges faced in the Global online advertising search syndication marketplace. As such the Group was not expecting significant growth from this Division. After allocation of related corporate and administrative expenses, the AdFeed Division is not expected to generate positive cash flow.

15. TRADE AND OTHER PAYABLES (CURRENT)

Trade payables Other payables Related parties	ConsolidatedConsolidated 2012 2011 $ $ 556,353 374,166 139,230 122,026 11,745 130,803
	707,328 626,995

(a) Terms and conditions

Terms and conditions relating to the above financial instruments:

(i) Trade payables are non-interest bearing and are normally settled on 30-day terms.

(ii) Other creditors are non-interest-bearing and are normally payable within 30 and 90 days

(iii) Details of the terms and conditions of related party payables are set out in notes 25.

(b) Fair value

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

(c) Related party payables

For details of related party payables refer to note 25.

(d) Foreign exchange and interest rate risk

Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 3.

16. CONVERTIBLE NOTES (CURRENT)

	Consolidated	Consolidated
	2012	2011
	$	$
Convertible Notes	-	531,397
	-	531,397
Reconciliations
Reconciliations of the carrying amounts at the beginning and end of the period:-
Balance at the beginning of the year	531,397	-
Issued of Convertible Notes	400,000	500,000
Interest payable	60,123	31,397
Repayment of Convertible Notes including interest	(991,520)	-
Balance at the end of the year	-	531,397

In December 2011, $200,000 convertible notes with interest of $24,241 were redeemed by a Noteholder. At the same time, $400,000 convertible notes were issued to new Note-holders. Each note has a face value of $25,000 and the notes bear interest at a rate of 12% per annum on the face value of the notes. The total convertible notes of $700,000 with interest of $60,123 as at 11 April 2012 were repaid on 14 April 2012.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

17. CONTRIBUTED EQUITY (a) Issued and paid up capital Ordinary shares Ordinary shares fully paid Listed options Share issue costs Contributed equity Movements in ordinary shares on issue Number of Shares Opening balance Shares issued during the year: 4,959,473,337 Issue of shares on 20 December 2010 - Share consolidation on 17 Feb 2012 (4,860,283,817) Issue of rights issue on 5 April 2012 25,787,586 Issue of Rights issue on 12 April 2012 73,401,934 PlanetW deferred consideration on 18 April 2012 9,518,667 Cash on exercise of listed options 4,214 Transaction costs relating to rights issue - Closing balance 207,901,921 Terms and conditions of ordinary shares	Number of Shares 4,959,473,337 - (4,860,283,817) 25,787,586 73,401,934 9,518,667 4,214 -	Consolidated 2012 $ 26,620,480 117,720 (333,678) 26,404,522 $ Number of Shares 24,989,794 4,922,004,599 - 37,468,738 - - 386,814 - 1,101,029 - 142,780 - 63 - (333,678) -	Consolidated 2011 $ 24,989,794 440,605 -
			25,430,399
			$ 24,952,325 37,469 - - - - - -
	207,901,921	26,286,802 4,959,473,337	24,989,794

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. (b) Listed options

Movements in listed options over ordinary shares Opening balance Listed options issued during the year: Expired share options Issue of 25,787,586 options on 5 April 2012 exercisable at $0.015 expiring 30 June 2014 Issue of 73,401,934 options on 12 April 2012 exercisable at $0.015 expiring 30 June 2014 Issue of 33,063,174 underwriting options on 12 April 2012 at fair value of $0.0024 per option with exercisable at $0.015 expiring 30 June 2014 Issue of 15,000,000 options as part consideration to the lenders of convertible loans in accordance with the terms of the deeds on 15 May 2012 Issue of 10 options on 21 May 2012 under the Company’s prospectus dated 16 May 2012 Exercise of options Closing balance

2012 Number of Options 2012 $ 2011 Number of Options 2011 $ 260,302,342 440,605 260,302,342 440,605 (260,302,342) (440,605) - - 25,787,586 - - - 73,401,934 - - - 33,063,174 80,981 - - 15,000,000 36,739 - - 10 - - - (4,214)

147,248,490 117,720 260,302,342 440,605

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

17. CONTRIBUTED EQUITY (cont’d)

These options were issued on Rights Issue Offer during the year to new and existing shareholders. All options are vested as at the date of grant. In the total options of 147,252,704, there were 33,063,174 options issued to the Underwriter which was considered as a transaction cost relating to rights issue and it was valued in accordance to AASB2. Hence a fair value on these options was performed as shown below.

Fair value of listed options

The market value of ordinary shares in AdEffective Limited closed at 1.1 cents per share on 30 June 2012 (5 cents per share on 30 June 2011).

The fair value of each option has been estimated at the date of grant using the option-pricing model with the following weighted average assumptions used:

	2012
Dividend yield	Nil
Expected volatility	50%
Risk-free interest rate	5.0%
Expected life of option	2 years

The dividend yield reflects the assumption that no dividends will be paid by the Company for the foreseeable future. The expected life of the options is based on the term of the options and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. All options issued to date have vested.

18. RESERVES

8. RESERVES
Options granted reserve Balance at beginning of financial year Net movement for the year Balance at end of financial year	Consolidated Consolidated 2012 2011 $ $ 112,842 111,507 (88,842) 1,335
	24,000 112,842

Nature and Purpose of Options Granted Reserve

This reserve is used to record the value of share based payments arises on the grant of share options to employees, including key management personnel, as part of their remuneration under the employee share option plan, refer note 21.

Unlisted options

In accordance with the provisions of the employee share option plan, the outstanding unlisted options during the financial year and as at 30 June 2012 are set out below:-

Balance at beginning of year Granted Expired Forfeited Other changes during the year* Balance at end of year Exercisable at end of year	2012 2012 2011 2011 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price 130,000,000 $0.002 186,000,000 $0.002 - - - (127,400,000) - - - $0.002 50,000,000 (106,000,000) - - $0.002 $0.002 - -
	2,600,000 $0.10 130,000,000 $0.002
	2,600,000 $0.10 130,000,000 $0.002

• Share consolidation of 50 to 1 fully paid ordinary share basis on 17 February 2012.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

18. RESERVES (cont’d)

These options were issued to directors and ex-director on 8 December 2010 and 30 April 2010 at various expiry dates between 8 December 2015 and 30 April 2015. No new options were issued or exercised during the year or until the date of this report.

19. ACCUMULATED LOSSES

Balance at beginning of financial year Net loss for the year Transferred from reserves Balance at end of financial year	Consolidated Consolidated 2012 2011 $ $ (24,714,262) (23,608,435) (1,649,942) (1,105,827) 529,174 -
	25,835,030 (24,714,262)

20. COMMITMENTS

At 30 June 2012, the Company had not entered into any operating and finance lease commitments (2011: nil).

21. EMPLOYEE ENTITLEMENTS

(a) Unlisted share options

Under the Group’s Company Share Option Plan for Directors, employees and contractors of the Company under which the Board can issue options at no cash consideration to purchase fully paid ordinary shares in the Company on the basis of one option for one share at an exercise price to be determined by the Board at the time the options are issued. Options will be exercisable from the time of issue and will lapse on the fifth anniversary of the date of grant if they have not been exercised before that time. Options can be issued up to a maximum of 10% of the issued share capital of the Company. The options cannot be transferred and will not be quoted on the ASX. Eligible persons under the Company Share Option Plan are Directors, employees and contractors of the Company. If the Directorship, employment or contract of the participant terminates, the participant may, within 28 days after the date of termination, exercise all or part of those of the participant’s options. Any option not exercised within that 28 day period will lapse. For details of options outstanding and movements in options during the financial year, refer note 18.

22. CONTINGENT ASSETS AND LIABILITIES

The Company had no contingent assets and liabilities as at 30 June 2012 (2011: nil).

23. AFTER BALANCE DATE EVENTS

No matter or circumstance has occurred or been identified since 30 June 2012 to the date of this report, that has significantly affected, or may significantly affect the Group’s continuing business operations.

24. AUDITOR’S REMUNERATION

Amounts received or due and receivable by Ernst & Young for: An audit or review of the financial report of the entity and any other entity in the consolidated entity Other services	Consolidated Consolidated 2012 2011 $ $ 78,780 70,268 - 7,000
	78,780 77,268

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

25. RELATED PARTY DISCLOSURE

(a) Subsidiary

The consolidated financial statements include the financial statement of AdEffective Limited and the subsidiary listed in the following table:-

	Country of	% of Equity	interest	Investment	Investment
Name of entity	Incorporation
		2012	2011	2012	2011
		%	%	$	$
AdEffective Business Networks	Australia	100	100		-	-
Pty Ltd

(b) Ultimate parent

The consolidated financial statements include the financial statements of AdEffective Limited and its controlled entities. AdEffective Limited is the ultimate parent company.

(c) Inter-group transactions

Loans

There is no inter-group loan during the year as the previous Swish Group Limited and its subsidiary entities had been put through the administration process.

(d) Other related party transactions

During the financial year ended 30 June 2012, no other related party transactions took place (2011: nil).

(e) Details of Key Management Personnel during the financial year

(i) Directors Mr. Andrew Plympton Non-Executive Chairman Mr. Damian London Executive Director & Chief Executive Officer Ms Sophie Karzis Director ( appointed on 20 January 2012) Mr. Barry Green Director (resigned on 20 January 2012)

(f) Remuneration options: granted and vested during the year

No options were granted as part of Directors’ remuneration during the year ended 30 June 2012 (2011: 50,000,000)

(g) Shares issued on exercise of remuneration options

No shares were issued in the financial year ended 30 June 2012 as a result of the exercise of remuneration options (2011: Nil).

(h) Unlisted Option holdings of Directors

Director Mr Andrew Plympton Mr Damian London Mr Barry Green Ms Sophie Karzis Total*	Balance at 1 July 2011 No. Issued during year No. Other changes during the year No.** Lapsed during year No. Exercised during year No. Balance at 30 June 2012 No. 30,000,000 - (29,400,000) - - 600,000 50,000,000 - (49,000,000) - - 1,000,000 - - - - - - - - - - - -
	80,000,000 - (78,400,000) - - 1,600,000

* Resigned on20 January 2012.

** Share consolidation of 50 to 1 fully paid ordinary share basis on 17 February 2012.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

25. RELATED PARTY DISCLOSURE (cont’d)

(i) Shareholdings of Directors

Director Mr Andrew Plympton Mr Damian London Mr Barry Green Ms Sophie Karzis Total*	Balance at 1 July 2011 No. Issued during year No. Other changes during year No. - - - 50,000,000 33,518,667* (49,000,000) 11,350,000 - (11,123,000) - - -	Cancelled during year No. Sold during year No. Balance at 30 June 2012 No. - - - - - 34,518,667 - - 227,000 - - -
	61,350,000 33,518,667 (60,123,000)	- - 34,745,667

• Resigned on 20 January 2012.

** Share consolidation of 50 to 1 fully paid ordinary share basis on 17 February 2012.

*** 9,518,667 shares were issued in lieu of deferred cash consideration (more specifically an “earn-out”) calculated in 2010 which was included in the AdFeed division result.

(j) Shareholdings of Executives

No Executives hold any shares in the Company other than the Executive Directors detailed in the table above.

(k) Compensation of key management personnel of the Group

			Equity	Equity
	Short Term	Post-	Number of Options/	Value of Options /
	Benefits	Employment	Shares Granted	Shares Granted	Total
	$	Benefits	No.	$	$
		$
2012	242,673	11,745	-	-	254,418
2011	$696,616	$31,643	549,375 shares*	$37,468	$782,062
			1,000,000 options*	$16,335

*Post consolidation of 50 to 1 fully paid ordinary share basis on 17 February 2012.

(l) Loans to Directors

There were no loans made to Directors during the financial year and none are outstanding as at the date of this report.

(m) Other transactions and balances with Directors

Loans with Director-related entities

There were no loans with Director-related entities during the financial year and none are outstanding as at the date of this report.

Payables to Director-related entities

Related party payables Accrued superannuation payable to Directors Accrued fees payable to Non-Executive Directors Total related party payables	Consolidated Consolidated 2012 2011 $ $ 11,745 128,643 2,200 2,160
	13,945 130,803

Other transactions with Director-related entities

During the financial year ended 30 June 2012 there were no other transactions with Director-related entities (2011: nil), other than the payment of certain expenses on behalf of the Company by Planet W Pty Ltd, a company that Mr Damian London has an interest in.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

26. SEGMENT INFORMATION

Identification of reportable segments

The Group has identified its operating segments based on the information used by management in assessing the performance of the Group, and determining investment requirements. The operating segments are based on the manner in which services are provided to a market.

The Group has two operating segments being the AdFeed, the syndication online advertising business and Footar, the premium ad unit.

The accounting policies used by the Group in reporting segments internally are the same as those contained in Note 2 to the financial report.

No comparative operating segments are disclosed because there was only AdFeed, one operating segment in 2011.

Operating Segments

Segment Revenue External Sales Total segment revenue Segment net profit/(loss) before tax Reconciliation of segment result to group net profit Impairment of goodwill and intangibles Write off of Furneaux facility fee Finance Cost Corporate costs Group net loss before tax Assets Segment assets Corporate asset Total Group Assets Liabilities Segment liabilities Corporate liability Total Group Liabilities	2012 AdFeed Footar Consolidated $ $ $ 1,754,826 865,633 2,620,459
	1,754,826 865,633 2,620,459
	111,939 (89,521) 22,418 (983,088) (175,000) (124,838) - - (389,434)
	- - (1,649,942)
	946,919 - 946,919 - - 353,901
	- - 1,300,820
	(635,141) - (635,141) - - (72,187)
	- - (707,328)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

26. SEGMENT INFORMATION (cont’d)

Revenue from external customers by geographical location is not available and the cost to develop it would be excessive.

• (a) Major customers

Sales from customer A account for 98% of AdFeed 2012 revenue. The customer is in the AdFeed division and generated revenue of $1,719,922 (2011: $2,094,227) Sales from customer B account for 97% of Footar 2012 revenue. The customer is in the Footar division and generated revenue of $839,234 (2011: nil).

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DIRECTORS’ DECLARATION FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012

In the opinion of the Directors, the financial statements and notes of AdEffective Limited and its controlled entities are in accordance with the Corporations Act 2001:

• (a) Comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

• (b) Give a true and fair value of the financial position of the Group as at 30 June 2012 and of their performance as represented by the results of their operations, change in equity and their cash flows for the year ended on that date;

In the Directors’ opinion there are reasonable grounds to believe that AdEffective Limited will be able to pay its debts as and when they become due and payable.

This declaration has been made after receiving the declarations required to be made by the managing director to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2012.

The financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards board.

Andrew Plympton Non-Executive Chairman

Melbourne, 27 September 2012

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ASX SECURTIES EXCHANGE INFORMATION

Number of Holdings of Equity Securities as at 25 September 2012

The fully paid issued capital of the Company consisted of 207,901,921 ordinary fully paid shares held by 1,690 shareholders. Each share entitles the holder to one vote.

There are 147,248,490 listed options over ordinary shares, expiring on 30 June 2014 and exercisable at $0.015 each. The options do not carry a right to vote.

There are 1,600,000 unlisted options over ordinary shares, expiring on 30 April 2015 and exercisable at $0.10 each. The options do not carry a right to vote.

There are 1,000,000 unlisted options over ordinary shares, expiring on 8 December 2015 and exercisable at $0.10 each. The options do not carry a right to vote.

Distribution of Holders of Equity Securities as at 25 September 2012

	Range	Total	Units	% Issued
	1 – 1,000	holders 1,069	141,259	capital 0.07
	1,001 – 5,000	202	544,306	0.26
	5,001 – 10,000 10,001 – 100,000	95 181	750,429 6,988,574	0.36 3.36
	100,001 – 999,999,999 1,000,000,000 – 9,999,999,999 Rounding	143 0	199,477,353 0	95.95 0.00 0.00
	Total	1,690	207,901,921	100.00

Unmarketable Parcels as at 25 September 2012

	Unmarketable Parcels	Minimum parcel size	Holders	Units
	Minimum $ 500.00 parcel at $ 0.016 per unit	31,250	1,468	3,415,465

Substantial Shareholders as at 25 September 2012

	Rank 1.	Shareholder PLANET W PTY LTD	No. 33,518,667	% 16.12
	2.	CHRIS RETZOS	18,899,191	9.09
	3.	MP3 AUSTRALIA PTY LTD	16,470,384	7.92

Twenty Largest Holders of Quoted Equity Securities as at 25 September 2012

	Rank	Shareholder	Units	% of issued capital
	1. 2. 3.	PLANET W PTY LTD MP3 AUSTRALIA PTY LTD PENLEIGH BANNER PTY LTD	33,518,667 14,200,000	16.12 6.83
		A/C>	10,234,428	4.92
	4.	T E & J PASIAS PTY LTD	9,000,000	4.33
	5.	SAM GOULOPOULOS PTY LTD A/C>	8,500,000	4.09
	6.	FURNEAUX EQUITY LIMITED	6,989,819	3.36
	7.	NUTSVILLE PTY LTD ELECTRIC CO S/F A/C>	5,499,191	2.65
	8.	MRS JACLYN STOJANOVSKI + MR CHRIS RETZOS + MRS SUSIE RETZOS <RETZOS	4,500,000	2.16
		EXECUTIVE S/F A/C>
	9.	MARUNGI INVESTMENTS PTY
		LTD <RETZOS MARUNGI	4,499,191	2.16
		FAMILY A/C>
	10.	ATLANTIS MG PTY LTD FAMILY SUPER FUND A/C>	4,000,000	1.92
	11.	EXCITE DIGITAL MEDIA PTY LTD	3,899,191	1.88
	12.	G & N LORD
		SUPERANNUATION PTY LTD <GNR SUPERANNUATION	3,684,017	1.77
		FUND A/C>
	13.	ATLANTIS MG PTY LTD FAMILY A/C>	3,500,000	1.68
	14.	SOMNUS PTY LTD SUPERANNUATION A/C>	3,313,912	1.59
	15.	MR RUSSELL HUTCHINSON	3,274,800	1.58
	16.	GOFFACAN PTY LTD	3,020,000	1.45
	17.	MR CHRIS RETZOS	3,000,000	1.44
	18.	BRODEA PTY LTD INVESTMENT A/C>	2,566,399	1.23
	19.	MR CHRIS RETZOS + MRS
		SUSIE RETZOS <RETZOS	2,500,000	1.20
		FAMILY S/FUND A/C>
	20.	RETZOS INVESTMENTS PTY
		LTD <RETZOS ALTONA	2,500,000	1.20
		PROPERTY A/C>
	Top 20 Holders of Ordinary Fully Paid Shares as at 25 September 2012		132,199,615	63.59
	Total Remaining Holders Balance		75,702,306	36.41

Other Information

The name of the Company Secretary is Ms Sophie Karzis. The address of the principal registered office in Australia, and the principal administrative office, is Level 3, 1 Collins Street, Melbourne Victoria 3000 Australia, telephone is +61 (0) 3 9286 7500. The Company is listed on the Australian Securities Exchange. The home exchange is Melbourne. Registers of securities are held by Computershare Investor Services Pty Ltd, Yarra Falls, 452 Johnston Street, Abbotsford, 3067, Victoria, local call is 1300 850 505, international call is + 61 3 9415 4000.