AI assistant
SPACETALK LTD Annual Report 2006
65842_rns_2006-09-27_44ab2d60-712c-44e1-b32e-7ccc0fa4131b.pdf
Annual Report
Open in viewerOpens in your device viewer
2006 Annual Report
CORPORATE DIRECTORY
DIRECTORS
Mark Fortunatow Executive Chairman
Mark Hurd Executive Director
Richard Sciano Non-Executive Director
SECRETARY
Neville Bassett
REGISTERED OFFICE
Suite 13, The Parks 154 Fullarton Road Rose Park SA 5067
PRINCIPAL OFFICE
Suite 13, The Parks 154 Fullarton Road Rose Park SA 5067
Telephone: (08) 8431 2300 Facsimile: $(08)$ 8431 2400
AUDITOR
RSM Bird Cameron Partners 8 St George's Terrace Perth WA 6000
SHARE REGISTRY
Computershare Investor Services Pty Ltd Level 2 45 St George's Terrace Perth WA 6000
Telephone: (08) 9323 2058 Facsimile: (08) 9323 2033
STOCK EXCHANGE
The securities of MGM Wireless Limited are listed on the Australian Stock Exchange Limited
| ASX Codes: | MWR | ordinary fully paid shares |
|---|---|---|
| MWRO options, expiring 30 November 2010 |
Your Directors present their report on the Company and its controlled entities for the year ended 30 June 2006.
DIRECTORS
The names of the Directors of the Company in office during the financial year and up to the date of this report are as follows. Directors were in office for the entire year unless otherwise stated.
Mark Fortunatow Mark Edwin Hurd Richard Salvatore Sciano
INFORMATION ON DIRECTORS
Mark Fortunatow BSc BEc - Executive Chairman
Executive Chairman Mark Fortunatow, founder and chief executive of the Company's subsidiary MGM Wireless Holdings Pty Ltd. brings more than 14 years of senior executive management experience in marketing, engineering, information systems, finance and customer support.
Mr Fortunatow previously founded three successful technology-based enterprises, Linx Computer Systems (developer and marketer of financial software). Timekeeping Australia (a leader in the Australian workforce management market) and Netline Technologies (a company designing, engineering, selling and distributing voice based mobile wireless solutions), accumulating substantial practical experience in the many disciplines required to successfully launch and sustainably grow a successful technology enterprise.
Mr Fortunatow is on the Board of Directors of the Asthma Foundation of South Australia Incorporated.
He holds a degree of Bachelor of Science and Bachelor of Economics from Adelaide University.
Director since 3 October 2003.
No other directorships in listed companies in the last 3 years.
Mark Edwin Hurd BSc(Hons) - Executive Director
Mr Hurd is co-founder and Chief Technical Officer of MGM Wireless Holdings Pty Ltd.
He holds an honours degree in Mathematical and Computer Sciences and has received numerous awards for outstanding academic and software engineering achievements. He is the chief architect of MGM's technology.
A reqular active contributor to Microsoft technical forums, Mr Hurd is sought after internationally by leading software engineers and corporations for his advice and software architecture expertise.
Prior to MGM. Mr Hurd was Chief Technical Officer at Netline Technologies, and before that held positions with Logica and Coopers and Lybrand and carried out numerous academic research projects.
In 1998, Mr Hurd co-founded Netline Technologies to design. Engineer, sell and distribute voice based mobile wireless solutions. The company achievements included Winner - Most outstanding Wireless Mobile Product.
Director since 3 October 2003.
No other directorships in listed companies in the last 3 years.
Richard Salvatore Sciano - Non-executive Director
Mr Sciano was born and educated in Western Australia. He has been involved in the Australian property investment and development industry for over 15 years. Mr Sciano is also the Executive Director of ASX-listed minerals explorer Golden State Resources Ltd, and a director of a number of private companies whose businesses are focused on property investment and development.
Director since 2 January 2003.
During the past 3 years, Mr Sciano has also served as a director of the following listed companies:
Golden State Resources Limited (January 2003 - present)
COMPANY SECRETARY
Neville John Bassett B.Bus, CA - Mr Bassett was appointed company secretary on 16 March 1999. A chartered accountant with over 25 years experience. Mr Bassett has been involved with a diverse range of Australian public listed companies in directorial, company secretarial and financial roles.
DIRECTORS' INTERESTS IN SHARES AND OPTIONS
The relevant interest of each Director in the shares and options of the Company at the date of this Report is as follows:
Mark Fortunatow
- 41,743,046 ordinary fully paid shares
- 2,500,000 options expiring 31 December 2007, exercisable at 3 cents each
- 1,500,000 options expiring 31 January 2010, exercisable at 7 cents each
- 1,500,000 options expiring 31 January 2010, exercisable at 9 cents each
Mark Hurd
- 12,542,500 ordinary fully paid shares
- 2,500,000 options expiring 31 December 2007, exercisable at 3 cents each
- 1,500,000 options expiring 31 January 2010, exercisable at 7 cents each
- 1,500,000 options expiring 31 January 2010, exercisable at 9 cents each
Richard Sciano
- 1,000,000 options expiring 31 December 2007, exercisable at 3 cents each
- 300,000 options expiring 31 January 2010, exercisable at 7 cents each
PRINCIPAL ACTIVITY
The principal activity and focus of the Company's operations during the period was a single source provider of mobile messaging solutions for business enterprises.
OPERATING RESULTS
The amount of the operating loss attributable to members of the Company after income tax was $631.148 (2005; $514.333 - loss).
DIVIDENDS
Since the incorporation of the Company, no dividends have been paid by the Company or are recommended to be paid by the directors.
REVIEW OF OPERATIONS AND LIKELY DEVELOPMENTS IN THE FUTURE
The Directors of MGM Wireless Limited are pleased to report revenues for the year ended 30 June 2006 of $1,991,000 representing an increase of 84% over the previous corresponding period.
before The net loss tax increased by $21%$ $f0$ $631.148 whilst the loss before depreciation and amortisation increased by 49% to $451,944. All R&D activities of $590,804 were fully expensed in the year as were the international expansion costs of $163,891. This amounted to a charge against the profit and loss account of $754,695.
These R&D and US activities are expected to result in the company receiving in 2007 a cash refund of approximately $250,000 through AusIndustry R&D Tax Concessions and Austrade EMDG programs.
2006 results reflect accelerating sales and continued strong progress in implementing our vision of market leadership.
Greater awareness amongst educators of the success schools are achieving through implementing MGM Wireless solutions has resulted in the company placing greater emphasis and more resources on growing school numbers and market share.
The annuity nature of the company's business model is such that the majority of costs of new sales and customer implementations are borne in the current year, whereas incomes flow for a minimum period of 3 years, and in most cases for longer.
Because of this effect, as of the date of this report, the company has forward revenue of $1.5 million for 2006/7, comprising annual license fees, messaging and reimbursement of expenses through Grant programs.
Key areas of strategic improvement included:
- Growth in Australian School numbers and business
- US expansion
- Enhancing existing products and infrastructure
- Developing new products to meet customer needs
Our focused commitment to these strategic initiatives was key to our success this year, and positions MGM Wireless for further growth during 2007 and beyond.
Growth in Australian school numbers
The directors believe that the company has reached a pivotal point of achieving critical mass in the Australian market with approximately 10% of all Australian high schools and colleges using our service.
As of the date of this report, we have more than 240 client schools in Australia and New Zealand, Significantly, in some markets we believe we are near saturation with about 60% of high schools using messagevou™. Our text message revenue continues to expand, with the company now handling around 15,000 text messages a day. Schools are expanding usage of unobtrusive text messages to communicate with their school communities, with the result that the volume of text message traffic has been growing at a rate of 30% per month over the past few months.
US expansion
During the year the company also fully expensed the $163,891 in costs of taking our first steps into the US market, where trials are taking place in three Tucson, Arizona, high schools.
The board of MGM believes this presents a significant opportunity to take the messageyou™ text message based school attendance systems to the North American market.
Initial media, parent and school response has been overwhelmingly positive, exceeding our expectations, and the early indications are that messagevou™ will provide a similar positive impact on student attendance as in the Australian market. However, the results will be immensely more measurable: School funding is directly and publicly linked to attendance figures in the US. Many school districts also receive hefty grants and donations to help increase attendance. Additionally, several high profile programs and individual efforts to tackle the truancy issue have been well publicised and documented, including the Gates Foundation's "Silent Epidemic" report.
This openness in reporting the causes of truancy and their link to drop-out and crime rates means that we expect solid demand for a product that can both tackle the problem head-on and provide measurable results.
Intellectual Property Assets.
The company has significant intellectual property assets in the form of proprietary technology and brands. Proprietary technology includes customer products (messageyou™Schools, messageyou™Watchlists), implementation methodologies (professional services) and communication (text messaging) infrastructure.
All assets are protected by patents that have either been granted or applied for in the markets of Australia, New Zealand, United States of America, Europe and Canada.
MGM Wireless products are considered to be 'best of breed' and certainly commercially are the most successful of their type in Australia. The company has more than 90% market share, which provides significant competitive advantage.
In the US, these assets will provide significant advantage through reducing time to market and providing barriers to entry for potential competitors.
Launching new products and enhancing existing products
MGM Wireless remains committed to the continued evolution of our existing products in 2006. The company invested $590.804 in product R&D - all of which was expensed in the current year.
We introduced a record number of enhancements. The most significant of these were end-to end security and data caching. The security improvements have resulted in the messageyou™ suite having the highest level of security technically possible an very important factor in Child Safety. Data caching has meant delivered performance benefits whilst simultaneously reducing implementation and support costs. These enhancements have improved the company's competitiveness and have resulted in continuing high yields.
SMS Centre (SMSC) Infrastructure
SMS Volumes
During the course of 2006, we also achieved significant improvements in the efficiency, scalability and reporting of our SMS Centre. During the year, traffic volumes grew 121%, with a reduction in operating costs. We believe the investments in our SMSC will enable MGM Wireless to consolidate its position as the most secure, high quality, high bandwidth and lowest cost provider of SMS communications to schools.
As we enter 2007, our products and services in Australia are more competitive than ever before, and we are confident we will build on this platform to grow market share even further.
We are especially excited about our prospects for the United States market – an endeavour that represent an opportunity to have access to a market that is over 15 times greater than Australia and that has strong financial as well as educational and social incentives for implementing a text messaging truancy solution.
We appreciate the continued support of our shareholders and customers. We would particularly like to thank our dedicated MGM employees and licensees, whose individual efforts were so important in producing the positive results in growth,
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 30 June 2006, 9.300,000 ordinary shares were issued at an issue price of 4 cents per share, thereby raising $372,000.
In the opinion of the Directors, there were no other significant changes in the state of affairs of the Company that occurred during the financial year under review, not otherwise disclosed in these financial statements and Directors' report.
EVENTS SUBSEQUENT TO END OF THE FINANCIAL YEAR
Since the end of the financial year under review and the date of this report, there has not arisen any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to significantly affect the operations of the consolidated entity, in subsequent financial years, other than as detailed in the Review of Operations
LIKELY DEVELOPMENTS
Comments on likely developments and expected results have been covered generally herein and in the Review of Operations.
MEETINGS OF DIRECTORS
The attendance of Directors at the meetings of the Company's Board of Directors held during the year is as follows:
| Directors | Number of MeetingsHeld whilst in office | Number of meetingsAttended |
|---|---|---|
| M Fortunatow | Q | |
| M Hurd | Q | |
| R Sciano | ۹ |
REMUNERATION REPORT
This report details the nature and amount of remuneration for each director and executive of MGM Wireless Limited. The information provided in the remuneration report includes remuneration disclosures that are required under Accounting Standard AASB 124 "Related Party Disclosures". These disclosures have been transferred from the financial report and have been audited.
Remuneration policy (audited) $\Delta$
The board policy is to remunerate directors at market rates for time, commitment and responsibilities. The board determines payments to the directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required. The maximum aggregate amount of directors' fees that can be paid is subject to approval by shareholders in general meeting, from time to time. Fees for non-executive directors are not linked to the performance of the consolidated entity. However, to align directors' interests with shareholders interests, the directors are encouraged to hold shares in the company.
The company's aim is to remunerate at a level that will attract and retain high-calibre directors and employees. Company officers and directors are remunerated to a level consistent with the size of the company.
The executive directors and full time executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation.
All remuneration paid to directors and executives is valued at the cost to the company and expensed.
Performance-based remuneration
The company does not pay any performance-based component of salaries.
Details of remuneration for year ended 30 June 2006 (audited) В.
Details of the remuneration of each Director and named executive officer of the company, including their personally-related entities, during the year was as follows:
| Year | Primary | Post Employment | ShareBased | Other | |||
|---|---|---|---|---|---|---|---|
| Salary andfees | CashBonus | Superannuation | Options | Total | |||
| s | £. | S | 素 | ||||
| Directors | |||||||
| M Fortunatow | 2006 | 207,576 | 14,661 | 17,430 | 239,667 | ||
| 2005 | 129,000 | 7.175 | 59,000 | 195,175 | |||
| M Hurd | 2006 | 146,538 | 13,188 | 17,430 | 177,156 | ||
| 2005 | 76.000 | 7,175 | 49,000 | 132,175 | |||
| R Sciano | 2006 | 24,000 | u. | 2,247 | 26.247 | ||
| 2005 | 6,000 | $\overline{\phantom{a}}$ | 2,870 | 15,000 | 23,870 |
There were no performance related payments made during the year.
The Black and Scholes valuation was used to value to value the options issued as share-based payments. The following factors and assumptions were used in determining the fair value of options on grant date:
| Expiry Date | Fair Value per Option | Exercise Price | Estimated Volatility | Risk Free Interest Rate |
|---|---|---|---|---|
| 31 January 2010 | $0.0075 | $0.07 | 25% | 5.19% |
| 31 January 2010 | $0.0041 | $0.09 | 25% | 5.19% |
A discount factor of 30% has been applied to the determined fair value due to the lack of marketability, as the options are unlisted and are non-transferable.
C. Employment contracts of directors and senior executives (audited)
The employment arrangements of the directors are not formalised in a contract of employment.
CORPORATE GOVERNANCE PRACTICES
The Company's corporate governance practices are set out in the Corporate Governance Statement contained in this Financial Report.
OFFICERS' INDEMNITY AND INSURANCE
The Company has not, during or since the financial year, in respect of any person who is or has been an officer or auditor of the Company or a related body corporate:
- indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings; or
- paid or agreed to pay a premium in respect of a contract insuring against a liability incurred as an officer for the costs or expenses to defend legal proceedings.
DIRECTORS' REPORT
SHARE OPTIONS
As at the date of this report there were the following unissued ordinary shares for which options were outstanding:
- 2,000,000 options expiring 30 June 2007, exercisable at 3 cents each
- 9,000,000 options expiring 31 December 2007, exercisable at 3 cents each
- 5,400,000 options expiring 31 January 2010, exercisable at 7 cents each
- 3,000,000 options expiring 31 January 2010, exercisable at 9 cents each
- 14,103,380 options expiring 30 November 2010, exercisable at 20 cents each
- 5,100,000 options expiring 31 December 2010, exercisable at 20 cents each
During the year options were granted as follows:
- 5,400,000 options expiring 31 January 2010, exercisable at 7 cents each
- 3,000,000 options expiring 31 January 2010, exercisable at 9 cents each
No person entitled to exercise these options had or has any right, by virtue of the option, to participate in any share issue of the company or of any related body corporate.
ENVIRONMENTAL REGULATION
The Company's operations are not regulated by any significant environmental regulation under a Law of the Commonwealth or of a State or Territory.
LEGAL PROCEEDINGS
No person has applied for leave of court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings.
The Company was not a party to any such proceedings during the year.
AUDITOR
RSM Bird Cameron continues in office in accordance with Section 327 of the Corporations Act 2001.
NON-AUDIT SERVICES
No non-audit services have been provided by the Auditor or by another person on the Auditor's behalf during the year.
AUDITOR'S DECLARATION OF INDEPENDENCE
The auditor's independence declaration for the year ended 30 June 2006 has been received and is included as part of the financial statements
Signed in accordance with a resolution of directors
Mark for
Mark Fortunatow Executive Chairman Signed at Perth on 28 September 2006
CORPORATE GOVERNANCE STATEMENT
The Board of Directors of MGM Wireless Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of MGM Wireless Limited on behalf of the shareholders by whom they are elected and to whom they are accountable.
MGM Wireless Limited's Corporate Governance Statement is structured with reference to the Corporate Governance Council's principles and recommendations, which are as follows:
- Principle 1. Lay solid foundations for management and oversight
- Principle 2. Structure the board to add value
- Principle 3. Promote ethical and responsible decision making
- Principle 4. Safequard integrity in financial reporting
- Principle 5. Make timely and balanced disclosure
- Princíple 6. Respect the rights of shareholders
- Principle 7. Recognise and manage risk
- Principle 8. Encourage enhanced performance
- Principle 9. Remunerate fairly and responsibly
- Principle 10. Recognise the legitimate interests of stakeholders
The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of separate or special committees at this time. The Board as a whole is able to address the governance aspects of the full scope of the Company's activities and to ensure that it adheres to appropriate ethical standards.
The Board continues to review its current practices in light of the ASX Principles of Good Corporate Governance and Best Practice Guidelines 2004 with a view to making amendments where applicable after considering the Company's size and resources it has available. As the Company's activities develop in size, nature and scope, the size of the Board and the implementation of any additional formal corporate governance committees will be given further consideration.
During the financial year the Company has complied with each of the 10 Essential Corporate Governance Principles and the corresponding Best Practice Recommendations, other than in relation to the matters specified below:
| PrincipleRef | RecommendationRef | Notification of Departure | Explanation for Departure |
|---|---|---|---|
| $\mathbf{2}$ | 2.1 | Majority of Board not independent | The size and scope of the Company'snot justify the cost ofactivitiesdoesadditionalindependentappointingtwodirectors. |
| $\overline{2}$ | 2.2 & 2.3 | Chairman is not independent | The Board considers that, at this stage of theCompany's development, the executive rolecarried out by the Chairman is in the bestinterests of the Company. |
| $\overline{2}$ | 2.4 | The Company does not have aNomination Committee | The role of the Nomination Committee hasbeen assumed by the full Board. The size andscope of the Company's activities does notjustify the establishment of such a Committee. |
| 4 | 4.2, 4.3 & 4.4 | The Company does not have anAudit Committee | The role of the Audit Committee has beenassumed by the full Board. The size andscope of the Company's activities does notjustify the establishment of such a Committee. |
| 6 | 6.1 | Formalisation of a communicationsstrategy with shareholders | line with adherence$\mathsf{to}$continuousIn.ASXrequirementsofdisclosureallshareholders are kept informed of majordevelopments affecting the company. Thisdisclosure is through regular shareholdercommunications including the Annual Report,Half-Year Report, Quarterly Reports and thedistribution of specific releases coveringmajor transactions or events. The Company'sauditors attend all shareholders' meetings. |
CORPORATE GOVERNANCE STATEMENT
| PrincipleRef | RecommendationRef | Notification of Departure | Explanation for Departure |
|---|---|---|---|
| 7.1 | The Board or appropriate boardcommitteeshouldestablishpolicies of risk oversight andmanagement | While the Company does not have formalisedpolicies on risk management the Boardrecognises its responsibility for identifyingareas of significant business risk and forensuring that arrangements are in place foradequately managing these risks. This issueis regularly reviewed at Board meetings. | |
| -9 | 9.2 | The Company does not have aRemuneration Committee | The role of the Remuneration Committee hasbeen assumed by the full Board. The size andscope of the Company's activities does notjustify the establishment of such a Committee.No director participated in any deliberationregarding his own remuneration or relatedissues. |
Structure of the Board
The skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report is included in the Directors' Report. Directors of MGM Wireless Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with – or could reasonably be perceived to materially interfere with - the exercise of their unfettered and independent judgment.
In the context of director independence, 'materiality' is considered from both the company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal to or less than 5% of the appropriate base amount. It is presumed to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the appropriate base amount. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors that point to the actual ability of the director in question to shape the direction of the company's loyalty.
In accordance with the definition of independence above, and the materiality thresholds set, the following directors of MGM Wireless Limited are considered to be independent:
Position Namo Richard Sciano Non-Executive Director
There are procedures in place, agreed by the Board, to enable directors in the furtherance of their duties to seek independent professional advice at the company's expense.
The term in office held by each director in office at the date of this report is as follows:
| Name | Term in Office |
|---|---|
| Mark Fortunatow | Since 3 October 2003 |
| Mark Hurd | Since 3 October 2003 |
| Richard Sciano | Since 2 January 2003 |
Appointments to Other Boards
Directors are required to take into consideration any potential conflicts of interest when accepting appointments to other Boards.
Ethical Standards
All Directors and employees are expected to act with the utmost of integrity and objectivity, striving at all times to enhance the reputation and performance of the Company.
Conflict of Interest
In accordance with the Corporations Act 2001 and the Company's Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the Board believes that a significant conflict exists the Director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.
CORPORATE GOVERNANCE STATEMENT
Directors Dealings in Company Securities
The Constitution permits Directors to acquire securities in the Company. Company policy prohibits Directors from dealing in Company securities whilst in possession of price sensitive information. Directors must notify the Company Secretary once they have bought or sold shares in the Company or exercised options over ordinary shares. In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange, the Company on behalf of the Directors must advise the Australian Stock Exchange of any transactions conducted by them in shares and/or options in the Company.
Nomination Committee
The full Board carries out the functions of the Nomination Committee. The Board did not meet formally as the Nomination Committee during the financial year, however any relevant matters were discussed on as-required basis from time to time during regular meetings of the Board.
Audit Committee
The Company does not have an Audit Committee. The role of the Audit Committee has been assumed by the full Board. The Board as the Audit Committee meets at least bi-annually (in respect of the full year and half year reports).
Performance Evaluation of the Board and its Members
During the financial year an evaluation of the Board and its members was not formally carried out. To date, there has been no formal process in place for performance evaluation. During the reporting period an evaluation of the Board was informally carried out by the Chairman.
Company's Remuneration Policies
Remuneration levels for executives are competitively set to attract the most qualified and experienced candidates, taking into account prevailing market conditions and individual's experience and qualifications. Each of the non-executive directors receives a fixed fee for their services as directors. There is no direct link between remuneration paid to any of the directors and corporate performance such as bonus payments for achievement of certain key performance indicators.
For a full discussion on the company's remuneration philosophy and framework and the remuneration received by directors and executives in the current period please refer to the remuneration report, which is contained within the Directors Report.
Existence and Terms of any Schemes for Retirement Benefits for Non-Executive Directors
There are no retirement benefits for non-executive directors.
RSM Bird Cameron Partners
Chartered Accountants
8 St Georges Terrace Perth WA 6000 8 St Georges Tenaco | Statistics - 2012GPO Box R1253 Perth WA 6844T +61 8 9261 9100 | F +61 8 9261 9101 www.rsmi.com.au
AUDITOR'S INDEPENDENCE DECLARATION TO THE BOARD OF DIRECTORS OF MGM WIRELESS LIMITED
As lead audit partner for the audit of the financial report of MGM Wireless Limited for the year ended 30 June 2006. I declare that to the best of my knowledge and belief, there have been no contraventions of:
- $(i)$ the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
- $(ii)$ any applicable code of professional conduct in relation to the audit.
RSM Bird Cameron Partners
RSM BIRD CAMERON PARTNERS Chartered Accountants
Suulvitt
Perth, WA Dated: 28 September 2006
S C CUBITT Partner
Liability limited by a scheme approved under Professional Standards Legislation
Major Offices in: Perth, Sydney, Melbourne. Adelaide and Canberra ABN 36 965 185 036
12
RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.
un kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendaKalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari kalendari
RSM Bird Cameron Partners
Chartered Accountants
8 St Georges Terrace Perth WA 6000 GPO Box R1253 Perth WA 6844 T+61 8 9261 9100 F +61 8 9261 9101 www.rsmi.com.au
INDEPENDENT AUDIT REPORT
TO THE MEMBERS OF
MGM WIRELESS LIMITED
Scope
The financial report, remuneration disclosures and directors' responsibility
The financial report comprises the income statement, balance sheet, statement of changes in equity, cash flow statement, accompanying notes to the financial statements and the directors' declaration for both MGM Wireless Limited (the company) and MGM Wireless Limited and its controlled entities (the consolidated entity), for the year ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during that year.
The company has disclosed information about the remuneration of key management personnel (remuneration disclosures) as required by Accounting Standard AASB 124 Related Party Disclosures (AASB 124), under the heading "remuneration report" on pages 6 to 7 of the directors' report, as permitted by the Corporations Regulations 2001.
The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error and for the accounting policies and accounting estimates inherent in the financial report. The directors are also responsible for the remuneration disclosures contained in the directors' report.
Audit approach
We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement and the remuneration disclosures comply with AASB 124 and the Corporations Regulations 2001. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position and of their performance as represented by the results of their operations, changes in equity and cash flows. We also performed procedures to assess whether the remuneration disclosures comply with AASB 124 and the Corporations Regulations 2001.
Liability limited by a scheme approved under Professional Standards Legislation
Major Offices in: Perth, Sydney, Melbourne, Adelaide and Canberra ABN 36 965 185 036
13
RSM Bird Cameron Partners is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms.
una1999 - Parti de Santo III (1999), presidente de Santo II (1999), presidente de Santo II (1999), presidente d1999 - Parti de Santo II (1999), presidente de Santo II (1999), presidente de Santo II (1999), presidente de
We formed our audit opinion on the basis of these procedures, which included:
- examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report and remuneration disclosures; and
- assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.
While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.
Audit Opinion
In our opinion,
- the financial report of MGM Wireless Limited: $(a)$
- gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of the company and the consolidated entity as at 30 June 2006 and of their performance for the year ended on that date; and
- is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia and the Corporations Regulations 2001.
- $(b)$ the remuneration disclosures that are contained on pages 6 to 7 of the directors' report comply with AASB 124 and the Corporations Regulations 2001.
RSM Bird Cameron Partners
RSM BIRD CAMERON PARTNERS Chartered Accountants
Simm
Perth, WA Dated: 28 September 2006 S C CUBITT Partner
- $\uparrow$ . In the opinion of the directors:
- a) The financial statements and notes are in accordance with the Corporations Act 2001, including:
- giving a true and fair view of the Company's and consolidated entity's financial position as at i) 30 June 2006 and of their performance for the year then ended; and
- $\ddot{1}$ complying with Accounting Standards and the Corporations Regulations 2001; and
- b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
- a) The financial statements and notes are in accordance with the Corporations Act 2001, including:
- $\overline{2}$ . This declaration has been made after receiving the declarations required to be made to the directors in accordance with Section 295A of the Corporations Act 2001 for the financial year ended 30 June 2006.
This declaration is signed in accordance with a resolution of the Board of Directors.
Mark for
M Fortunatow Director
Signed at Perth on 28 September 2006
INCOME STATEMENT
For the year ended 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Note | 2006$ | 2005S | 2006S | 2005s | |
| Revenue | 2 | 1,991,803 | 1.079.960 | 1,903,317 | 1.006,560 |
| Cost of salesBad and doubtful debtsBorrowing costsDepreciation and amortisation expenseAdvertising and marketingConsulting expensesCorporate and administration expensesShare based payment expenseEmployee benefit expensesImpairment of receivablesImpairment of financial assetsLoss before income tax expense | (293,005)(31, 974)(89)(179,049)(324, 590)(338, 731)(376, 407)(52, 836)(1,026,115)(630, 993) | (102, 168)(5,528)(25)(216.418)(239, 414)(167.258)(224, 448)(17, 220)(627,054)(519, 573) | (247, 195)(31, 974)(89)(17, 849)(289, 144)(338,731)(370,913)(52, 836)(1,025,157)(25, 323)(443,384)(939, 278) | (102, 168)(5,528)(14)(55,218)(192, 435)(167, 258)(211, 771)(17,220)(587, 121)(332, 173) | |
| Income tax expenseLoss after tax from continuing operationsNet loss attributable to minority interestNet loss attributable to members of MGMWireless Limited | 3 | (630, 993)(155)(631, 148) | (519, 573)5,240(514, 333) | (939, 278)(939, 278) | (332, 173)(332, 173) |
| Basic loss per share (cents per share) | 4 | (0.41) | (0.35) | ||
| Diluted loss per share (cents per share) | 4 | (0.41) | (0.35) |
BALANCE SHEET
As at 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Note | 2006$ | 2005$ | 2006$ | 2005$ | |
| ASSETS | |||||
| Current AssetsCash and cash equivalentsTrade and other receivablesOther current assets | 567 | 562,834329,0545,155 | 649,387272,5655.155 | 561,755329,0545,155 | 618,637184,2535,155 |
| Total Current Assets | 897,043 | 927,107 | 895,964 | 808,045 | |
| Non Current AssetsOther financial assetsTrade and other receivablesPlant and equipmentIntangible assets | 86910 | 158,723344,700 | 107,752497,900 | 323,70040,079140,723$\ddot{\phantom{1}}$ | 767.084121,02181,752$\sim$ |
| Total Non Current Assets | 503,423 | 605,652 | 504,502 | 969,857 | |
| Total Assets | 1,400,466 | 1,532,759 | 1,400,466 | 1,777,902 | |
| LIABILITIESCurrent LiabilitiesTrade and other payablesProvisions | 1112 | 281,13822,818 | 223,3266,766 | 281,13822,818 | 160,1846,766 |
| Total Liabilities | 303,956 | 230,092 | 303,956 | 166,950 | |
| Net Assets | 1,096,510 | 1,302,667 | 1,096,510 | 1,610,952 | |
| EQUITYParent entity interestIssued capitalReservesAccumulated lossesTotal parent entity interest in equity | 1314 | 4,663,58475,796(3,637,805)1,101,575 | 4,291,58422,960(3,006,657)1,307,887 | 4,663,58475,796(3,642,870)1,096,510 | 4,291,58422,960(2,703,592)1,610,952 |
| Minority interestIssued capitalAccumulated losses | 20(5,085)(5,065) | 20(5, 240)(5, 220) | |||
| Total Equity | 1,096,510 | 1,302,667 | 1,096,510 | 1,610,952 |
STATEMENT OF CHANGES IN EQUITY
For the Year Ended 30 June 2006
| Consolidated | IssuedCapital | AccumulatedLosses | OptionIssueReserve | OutsideEquityInterest | TotalEquity |
|---|---|---|---|---|---|
| $ | $ | S | S | $ | |
| At 1 July 2004 | 3,731,664 | (2,492,324) | 1,239,340 | ||
| Shares issued | 559,920 | 20 | 559,940 | ||
| Cost of share based payment | 22,960 | 22,960 | |||
| Loss attributable to minority interestLoss attributable to members of parent | (5,240) | (5,240) | |||
| entity | (514, 333) | (514, 333) | |||
| At 30 June 2005 | 4,291,584 | (3.006.657) | 22,960 | (5,220) | 1,302,667 |
| At 1 July 2005 | 4,291,584 | (3,006,657) | 22.960 | (5, 220) | 1,302,667 |
| Loss attributable to members of parent | |||||
| entity | (631, 148) | (631,148) | |||
| Profit attributable to minority interest | 155 | 155 | |||
| Shares issued | 372,000 | 372,000 | |||
| Cost of share based payment | 52,836 | 52,836 | |||
| At 30 June 2006 | 4,663,584 | (3,637,805) | 75,796 | (5,065) | 1,096,510 |
| Parent | issuedCapital | AccumulatedLosses | OptionIssueReserve | OutsideEquityInterest | TotalEquity |
|---|---|---|---|---|---|
| $ | $ | s, | $ | S | |
| At 1 July 2004 | 3,731,664 | (2,371,419) | 1,360,245 | ||
| Shares issued | 559.920 | 559,920 | |||
| Cost of share based payment | 22,960 | 22,960 | |||
| Net loss | (332, 173) | (332, 173) | |||
| At 30 June 2005 | 4,291,584 | (2,703,592) | 22,960 | 1,610,952 | |
| At 1 July 2005 | 4,291,584 | (2,703,592) | 22,960 | 1,610,952 | |
| Loss attributable to members of parent | |||||
| entity | (939, 278) | (939, 278) | |||
| Shares issued | 372,000 | 372,000 | |||
| Cost of share based payment | 52,836 | 52,836 | |||
| At 30 June 2006 | 4,663,584 | (3,642,870) | 75,796 | 1,096,510 |
STATEMENT OF CASH FLOWS
For the year ended 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| Note | 20065 | 2005s | 20065 | 2005s | |
| Cash flows from operating activitiesReceipts from customersPayments to suppliers and employeesInterest receivedInterest and other costs of finance | 1,879.817(2, 284, 985)23,524(89) | 937.109(1,074,449)19.921(25) | 1,703,044(2, 134, 135)23.499(89) | 952,026(1,037,922)19,916(14) | |
| Net cash used in operating activities | 5 | (381, 733) | (117, 444) | (407, 681) | (65,994) |
| Cash flows from investing activitiesPayment for investmentsPayments for plant and equipmentLoan to controlled entityLoan repaid by controlled entityNet cash on acquisition of controlled entity | (76, 820) | (39, 689)100 | (76, 820)55,619 | (79)(39, 689)(81,021) | |
| Net cash used in investing activities | (76, 820) | (39,589) | (21, 201) | (120.789) | |
| Cash flows from financing activitiesProceeds from issue of sharesExpenses of share issues | 372,000 | 437.500(9, 840) | 372,000 | 437,500(9, 840) | |
| Net cash provided by financing activities | 372,000 | 427,660 | 372,000 | 427,660 | |
| Net increase/ (decrease) in cash heldCash held at the beginning of the financial year | (86, 553)649,387 | 270,627378,760 | (56, 882)618,637 | 240,877377,760 | |
| Cash held at the end of the financial year | 5 | 562.834 | 649.387 | 561,755 | 618,637 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES $\ddot{\phantom{a}}$
$(a)$ Basis of Preparation
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared in accordance with the historical costs convention. The following is a summary of the significant accounting policies adopted by the consolidated entity in the preparation of the financial report.
$(b)$ Statement of Compliance
The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).
This is the first financial report prepared based on AIFRS and comparatives for the year ended 30 June 2005 have been restated where. Reconciliations of AIFRS equity and profit for 30 June 2006 to the balances reported in the 30 June 2005 financial report and at transition to AIFRS are detailed in Note 21.
$(c)$ Basis of consolidation
The consolidated financial statements comprise the financial statements of MGM Wireless Limited ("Company" or "Parent Entity") and its subsidiaries as at 30 June each year (the Group).
The financial statements of the subsidiaries are prepared for the same period as the parent entity, using consistent accounting policies.
In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
The acquisition of subsidiaries has been accounted for using the purchase method of accounting. The purchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired and the liabilities and contingent liabilities assumed at the date of acquisition. Accordingly, the consolidated financial statements include the results of subsidiaries for the period from their acquisition.
$(d)$ Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Sale of Goods
Control of the goods has passed to the buyer.
Interest
Control of a right to receive consideration for the provision of, or investment in, assets has been attained. Interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset.
Cash and cash equivalents $(e)$
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less.
For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as described above, net of outstanding bank overdrafts.
$(f)$ Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
$\ddot{\mathbf{1}}$ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
$(a)$ Income Tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
- * when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
- . when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in ioint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:
- when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
- . when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income legislation and the anticipation that the Group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
$(h)$ 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: and
- receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or pavable to, the taxation authority is included as part of receivables or pavables in the balance sheet.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
$\ddagger$ . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
$(h)$ Other taxes (Cont.)
Cash flows are included in the cash flow statement 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 are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Plant and equipment ${i}$
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:
Plant and equipment - over 5 to 10 years Leasehold improvements - 10 years
The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.
(i) tmpairment
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.
The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cashgenerating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.
An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount.
For plant and equipment, impairment losses are recognised in the income statement.
(ii) Derecognition and disposal
An item of plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.
$(i)$ Intangibles
Intangible assets acquired separately or 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. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed 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 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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
$\ddagger$ . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
$\bf{u}$ Intangibles (Cont.)
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.
Research and development costs
Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment tosses. Any expenditure so capitalised is amortised over the period of expected benefits from the related project.
The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not vet available for use, or more frequently when an indication of impairment arises during the reporting period.
$(k)$ Impairment of assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease).
An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
$(1)$ Trade and other payables
Trade pavables and other pavables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services.
$(m)$ Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate assets but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) $\mathbf{1}$ .
$(m)$ Provisions (Cont.)
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
$(n)$ Employee leave benefits
Wages, salaries and annual leave $(ii)$
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date, They are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and period of service. Expected future payments are discounted using market vields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
$(0)$ Share-based payment transactions
The Group provides benefits to employees (including senior executives) of the Group in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).
When provided, the cost of these equity-settled transactions with employees 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 by an external valuer using a black-scholes model.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of MGM Wireless Limited (market conditions) if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).
The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition.
If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.
$(p)$ Contributed equity
Ordinary shares are classified as equity, Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
$\ddagger$ . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
$(q)$ Earnings per share
Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for:
- costs of servicing equity (other than dividends) and preference share dividends:
- the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses: and
- other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
Significant Accounting Estimates and Judgments $(r)$
The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.
Key Estimates - Impairment
The group assess impairment at each reporting date by evaluating conditions specific to the group that may to lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-inuse calculations performed in assessing recoverable amounts incorporate a number of key estimates.
No impairment has been recognised in respect of intangible assets.
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2006$ | 2005$ | 2006$ | 2005S | |
| 2.REVENUE AND EXPENSES | ||||
| Revenue from ordinary activitiesSales revenueInterest | 1,968,27923,524 | 1,060,03919,921 | 1,879,81823,499 | 986,64419,916 |
| Total revenue from ordinary activities | 1,991,803 | 1,079,960 | 1,903,317 | 1,006,560 |
| Expenses and Losses/(Gains) | ||||
| Depreciation of plant and equipmentAmortisation of intangibles | 25,849153,200 | 20,618195,800 | 17,849 | 12,61842,600 |
| Bad debtsShare based payment expense | 31,97452,836 | 5.52817,220 | 31,97452,836 | 5,52817,220 |
| Auditor's remuneration:RSM Bird Cameron Partners- Audit and review of financial reports | 13,000 | 10,250 | 13,000 | 10,250 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2006$ | 2005S | 2006Ŝ | 2005$ | |
| 3.INCOME TAX | ||||
| Income tax expense${a}$The income tax expense for the year differs fromthe prima facie tax as follows: | ||||
| Loss for year | 630,993 | 519.573 | 939,278 | 332,173 |
| Prima facie tax benefit at $30%$ (2005 : $30%$ )Tax effect of non-deductible itemsDeferred tax assets not brought to account | 189,298(62, 448)(126, 850) | 155,871(72, 568)(83, 303) | 281,783(157, 100)(124,683) | 99,652(26, 609)(73, 043) |
| Total income tax expense | ||||
| Deferred Tax Asset(b)Deferred tax assets not brought to account arisingfrom tax losses, the benefits of which will only berealised if the conditions for deductibility set out inNote $1(q)$ occur: | 828,090 | 701,240 | 813,863 | 689,180 |
| EARNINGS PER SHARE (EPS)4. | Cents | Cents | ||
| Basic earnings per share - Continuing operations | (0.41) | (0.35) | ||
| The earnings and weighted average number ofordinary shares used in the calculation of basicearnings per share is as follows: | ||||
| Reconciliation of earnings to net lossNet loss for yearAdjustment: | (630, 993) | (519, 573) | ||
| Net loss attributable to outside equity interest | (155) | 5,240 | ||
| Earnings used in calculation of basic EPS | (631, 148) | (514, 333) | ||
| No of Shares | No of Shares | |||
| Weighted average number of ordinary sharesused in the calculation of basic $\mathsf{FPS}$ . | 155 347 169 | 144 784 704 |
There are no potential ordinary shares on issue that are considered to be dilutive, therefore basic earnings per share also represents diluted earnings per share also
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2006ŝ | 2005s | 2006$ | 2005$ | ||
| 5. | CASH AND CASH EQUIVALENTS | ||||
| Cash at bank | 562,834 | 649.387 | 561,755 | 618,637 | |
| Cash at bank earns interest at floating rates based on daily bank deposit rates. | |||||
| (i) | Reconciliation of loss for year to net cash used inoperating activities: | ||||
| Loss for the year | (630, 993) | (519, 573) | (939, 278) | (332, 173) | |
| Non-cash items | |||||
| Amortisation | 153,200 | 195,800 | 42,600 | ||
| Depreciation | 25,849 | 20,618 | 17,849 | 12,618 | |
| Bad and doubtful debts | 31,973 | 5,528 | 31.973 | 5,528 | |
| Provision for impairment - financial assets | 443,384 | ||||
| Provision for impairment - receivable | 25,323 | ||||
| Equity issued in lieu of fees | 138,000 | 138.000 | |||
| Equity settled share based payment | 52.836 | 17.220 | 52,836 | 17.220 | |
| Changes in assets and liabilities: | |||||
| Receivables | (88, 462) | (122, 930) | (176, 774) | (34, 618) | |
| Tax asset | 2,698 | 20.449 | 2,698 | 20.449 | |
| Other assets | (4,607) | (4,607) | |||
| Payables | 55,114 | 132,785 | 118,256 | 69,723 | |
| Provisions | 16,052 | (734) | 16,052 | (734) | |
| Cash flows used by operating activities | (381, 733) | (117, 444) | (407, 681) | (65,994) |
$(ii)$ Non-cash investing and financing activities:
There were no non-cash financing and investing activities during the financial year.
6. TRADE AND OTHER RECEIVABLES
| CurrentTrade debtorsLess: Provision for doubtful debts | 329.054 | 272.565 | 329.054$\mathbf{H}$ | 184.253 |
|---|---|---|---|---|
| 329,054 | 272.565 | 329.054 | 184,253 | |
| Non-CurrentAmount owed by controlled entitiesProvision for impairment | ۰ | 65,402(25, 323) | 121,021 | |
| ۰ | 40.079 | 121.021 |
Terms and conditions relating to the above financial instruments:
$(i)$
Trade debtors are non-interest bearing and generally on 30 day terms.Amount receivable from the controlled entity are non-interest bearing and repayable on request from the parent entity. $\overline{(\mathbf{ii})}$
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2006$ | 2005$ | 2006$ | 2005s | ||
| 7.Rental bond | OTHER CURRENT ASSETS | 5,155 | 5,155 | 5,155 | 5,155 |
| 8. | OTHER FINANCIAL ASSETS | ||||
| Shares in unlisted controlled entitiesProvision for impairment | $\blacksquare$ш. | w | 767,084(443, 384) | 767,084 | |
| ۰ | a. | 323,700 | 767,084 |
Controlled entities:
| Name of entity | Date of Acquisition | Country ofIncorporation | Class ofShares | EquityHoldina | Cost of ParentEntity'sInvestment |
|---|---|---|---|---|---|
| MGM Wireless (NSW) Pty LtdEzyauto Pty LtdEzyrealty Pty LtdEzytours Pty LtdLand Fund Pty LtdMGM Wireless Holdings Pty Ltd | 7 July 20007 July 20007 July 20007 August 200031 January 20028 October 2003 | AustraliaAustraliaAustraliaAustraliaAustraliaAustralia | OrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinary | 80%100%100%100%100%100% | 80767.000767.084 |
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2006$ | 2005S | 2006ŝ | 2005s | |
| 9.PLANT AND EQUIPMENT | ||||
| Plant and equipmentAt costAccumulated depreciation and impairment | 183,992(101, 858) | 157.232(80, 136) | 143,992(79,858) | 117,232(66,136) |
| Total plant and equipment | 82,134 | 77,096 | 64,134 | 51,096 |
| Leasehold improvementsAt costAccumulated amortisation and impairmentTotal leasehold improvements | 82,410(5,821)76,589 | 32,350(1,694)30,656 | 82,410(5,821)76,589 | 32,350(1,694)30,656 |
| Total property, plant and equipmentAt cost | 266,402 | 189,582 | 226,402 | 149,582 |
| Accumulated depreciation and impairment | (107,679) | (81, 830) | (85,679) | (67, 830) |
| Total written down value | 158,723 | 107.752 | 140,723 | 81,752 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| 200620052006$sSPLANT AND EQUIPMENT (Cont.)Reconciliations of the carrying amounts of plantand equipment at the beginning and end of thecurrent financial year:Plant and equipmentAt 1 July 2005, net of accumulated depreciation77,09686,32151,096Additions26,76010,28926,760DisposalsDepreciation(21, 722)(19, 514)(13, 722)(11, 514)At 30 June 2006, net of accumulated82,13464,13477,096depreciationLeasehold improvementsAt 1 July 2005, net of accumulated depreciation30,6562,36030,656Additions50,06050,06029,400Disposals(4, 127)(4, 127)Depreciation(1, 104)At 30 June 2006, net of accumulated76,58976,58930,656depreciation10.INTANGIBLE ASSETSIntellectual Property - MSGU™766,000766,000CostAccumulated amortisation and impairment(421, 300)(268, 100)344,700497,900$\overline{\phantom{a}}$Website development expenditureCost142,000142,000142,000(142,000)(142,000)(142,000)Accumulated amortisation and impairment(142,000)٠$\tilde{\phantom{a}}$$\mathbf{r}$344,700497,90011.TRADE AND OTHER PAYABLESTrade creditors and accrualsOther corporations209,157209,15787,970149.592Directors and director related entities6,60011,0506,600Tax liability65,38162,68465,381 | Consolidated | Parent Entity | |
|---|---|---|---|
| 9. | 2005$ | ||
| 52,32110,289 | |||
| 51,096 | |||
| 2,36029,400 | |||
| (1, 104) | |||
| 30,656 | |||
| 142,000 | |||
| 11,050 | |||
| 61,164 | |||
| 281,138223,326281,138 | 160,184 |
Trade creditors are non-interest bearing and are normally settled on 30 day terms.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| Consolidated | Parent Entity | ||||
|---|---|---|---|---|---|
| 2006S | 2005$ | 2006S | 2005s | ||
| 12.PROVISIONS | |||||
| CurrentEmployee benefits | 22,818 | 6,766 | 22,818 | 6,766 | |
| Number of employees | 11 | 3 | 11 | 3 | |
| 13.CONTRIBUTED EQUITY | |||||
| Issued and paid up capital(a) | |||||
| Ordinary shares, fully paid | 4,663,584 | 4,291,584 | 4,663,584 | 4.291.584 | |
| (b)Movement in shares on issue | Number | 2006 | Number | 2005 | |
| Balance at beginning of yearCash issue at 2.5 centsIssue in lieu of fees at 2.5 centsCash issue at 4 centsExpenses of issue | $\left( i\right)$$\binom{ii}{iii}$ | 155,321,6909,300,000 | $4,291,584372,000 | 132,301,69017,500,0005,520,000 | $3,731,664437,500138,000(15, 580) |
| Balance at end of year | 164,621,690 | 4,663,584 | 155,321,690 | 4,291,584 |
On 23 December 2004, 17,500,000 ordinary shares were issued at an issue price of 2.5 cents per share, thereby raising $(i)$ $437,500.
- On 23 December 2004, 5.520,000 ordinary shares were issued in lieu of outstanding fees at an issue price of 2.5 cents per (ii) share.
- On 30 June 2006, 9,300,000 ordinary shares were issued at an issue price of 4 cents per share, thereby raising $372,000. $(iii)$
Share Options $(c)$
As 30 June 2006, there were the following unissued ordinary shares for which options were outstanding:
- 2,000,000 options expiring 30 June 2007, exercisable at 3 cents each
- 9,000,000 options expiring 31 December 2007, exercisable at 3 cents each
- 5,400,000 options expiring 31 January 2010, exercisable at 7 cents each
- 3,000,000 options expiring 31 January 2010, exercisable at 9 cents each
- 14.103.380 options expiring 30 November 2010, exercisable at 20 cents each
- 5,100,000 options expiring 31 December 2010, exercisable at 20 cents each
During the year, options were granted as follows:
- 5,400,000 options expiring 31 January 2010, exercisable at 7 cents each
- 3,000,000 options expiring 31 January 2010, exercisable at 9 cents each
(d) Terms and conditions of contributed equity
Ordinary shares have the right to receive dividends as declared and, in the event of the winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holders to one vote, either in person or by proxy, at a meeting of the company.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2006$ | 2005S | 2006S | 2005S | |
| 14.RESERVES | ||||
| Option issue reserve | 75,796 | 22,960 | 75,796 | 22,960 |
$\theta$ Nature and purpose of reserve
The option issue reserve is used to accumulate amounts received on the issue of options and records items recognised as expenses on valuation pf incentive based share options.
Movements in reserve $(ii)$
| Opening balance 1 July | 22,960 | ALC | 22.960 | |
|---|---|---|---|---|
| Share based payments | 52.836 | 17,220 | 52.836 | 17.220 |
| Issue in satisfaction of placement fees | 5.740 | 5.740 | ||
| Closing balance 30 June | 75.796 | 22.960 | 75.796 | 22.960 |
15. DIRECTOR AND EXECUTIVE DISCLOSURES
$(a)$ Details of Key Management Personnel
Directors
| Mark Fortunatow | Executive Chairman |
|---|---|
| Mark Hurd | Executive Director - Technical |
| Richard Sciano | Director (Non-executive) |
Compensation of Key Management Personnel $(b)$
$\theta$ Compensation Policy
The remuneration policy of MGM Wireless Limited as it applies to key management personnel is disclosed in the Remuneration Report contained in the Directors' Report.
(ii) Compensation of Key Management Personnel
| Year | Primary | Post Employment | ShareBased | Other | |||
|---|---|---|---|---|---|---|---|
| Salary andfees | CashBonus | Superannuation | Options | Total | |||
| ж. | s | ||||||
| Directors | |||||||
| M Fortunatow | 2006 | 207,756 | 14,661 | 17,430 | 239,847 | ||
| 2005 | 129,000 | 7,175 | 59.000 | 195,175 | |||
| M Hurd | 2006 | 146,538 | 13,188 | 17,430 | 177,156 | ||
| 2005 | 76.000 | 7.175 | 49.000 | 132,175 | |||
| R Sciano | 2006 | 24,000 | ш. | 2,247 | 26,247 | ||
| 2005 | 6.000 | 2,870 | 15,000 | 23,870 |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
DIRECTOR AND EXECUTIVE DISCLOSURES (Cont.) 15.
(iii) Compensation by category: Key Management Personnel
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| 5 | $ | $ | ||
| Short-Term | 378,294 | 334,000 | 378,294 | 334,000 |
| Post Employment | 27,849 | 27,849 | $\omega$ | |
| Other Long-Term | $\omega$ | |||
| Termination Benefits | $\sim$ | ÷ | ||
| Share-based Payment | 37,107 | 17,220 | 37.107 | 17.220 |
| 443.250 | 351,220 | 443.250 | 351,220 |
(c) Option holdings of Key Management Personnel
| Balance01/07/05 | Granted asRemuneration | OptionsExercised | Net ChangeOther | Balance30/06/06 | |
|---|---|---|---|---|---|
| Directors | |||||
| M Fortunatow | |||||
| - Expiring 31 December 2007; 3 cents | 2.500.000 | 2,500,000 | |||
| - Expiring 31 January 2010; 7 cents | 1.500.000 | $\blacksquare$ | 1.500.000 | ||
| - Expiring 31 January 2010; 9 cents | 1.500,000 | $\tilde{\phantom{a}}$ | 1,500,000 | ||
| M Hurd | |||||
| - Expiring 31 December 2007; 3 cents | 2.500.000 | $\overline{\phantom{a}}$ | 2,500,000 | ||
| - Expiring 31 January 2010; 7 cents | 1.500.000 | $\blacksquare$ | 1,500,000 | ||
| - Expiring 31 January 2010; 9 cents | 1.500,000 | $\tilde{\phantom{a}}$ | 1,500,000 | ||
| R Sciano | |||||
| - Expiring 31 December 2007; 3 cents | 1.000.000 | $\tilde{\phantom{a}}$ | 1,000,000 | ||
| - Expiring 31 January 2010; 7 cents | 300,000 | 300,000 |
All options have vested and are exercisable.
(d) Shareholdings of Key Management Personnel
| Balance01/07/05 | Received asRemuneration | OptionsExercised | Net ChangeOther | Balance30/06/06 | |
|---|---|---|---|---|---|
| M Fortunatow | 41.743.046 | $\mathbf{m}$ | - | $\overline{\phantom{a}}$ | 41.743.046 |
| M Hurd | 12.542.000 | $\blacksquare$ | $\bullet$ | 12.542.000 | |
| R Sciano | $\sim$ | $\overline{\phantom{a}}$ |
All equity transactions with key management personnel have been entered into under terms and conditions no more favourable that those the Group would have adopted if dealing at arm's length.
(e) Loans with Key Management Personnel
There were no loans to key management personnel or their related entities during the financial year.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
16. SHARE BASED PAYMENTS
The following share-based payment arrangements existed at 30 June 2006:
- During the year ended 30 June 2005, 2,000,000 share options were issued to consultants for in satisfaction of placement fees. The options expire on 31 December 2007. All options have vested and exercisable. No options have been exercised at balance date.
- During the year ended 30 June 2005, 6,000,000 share options were issued to directors to take up ordinary shares at an exercise price of 3 cents. The options expire on 31 December 2007. All options have vested and exercisable. No options have been exercised at balance date.
- On 31 March 2006, 3,300,000 share options were issued to directors to take up ordinary shares at an exercise price of $\blacksquare$ 7 cents. The options expire on 31 January 2010. All options have vested and exercisable. No options have been exercised at balance date.
- On 31 March 2006, 3,000,000 share options were issued to executive directors to take up ordinary shares at an $\blacksquare$ exercise price of 9 cents. The options expire on 31 January 2010. All options have vested and exercisable. No options have been exercised at balance date.
- On 31 March 2006, 2,100,000 share options were issued to employees and consultants to take up ordinary shares at an exercise price of 7 cents. The options expire on 31 January 2010. All options have vested and exercisable. No options have been exercised at balance date.
The Black and Scholes valuation was used to value to value the options issued as share-based payments. The following factors and assumptions were used in determining the fair value of options on grant date:
| Expiry Date | Fair Value per Option | Exercise Price | Estimated Volatility | Risk Free Interest Rate |
|---|---|---|---|---|
| 31 December 2007. | $0.0029 | $0.03 | 25% | 5.21% |
| 31 January 2010 | $0.0075 | $0.07 | 25% | 5.19% |
| 31 January 2010 | $0.0041 | $0.09 | 25% | 5.19% |
A discount factor of 30% has been applied to the determined fair value due to the lack of marketability, as the options are unlisted and are non-transferable.
The weighted average fair value of the options granted during the year was $0,0063.
The weighted average exercise price of share based payment options that were outstanding was $0.0541.
Include as an expense in the income is $52,836 (2005: $17,220) and relates, to share based payments made during the year.
$17.$ SEGMENT REPORTING
The company operates predominantly in one business segment, being provision of business messaging solutions and internet related services utilising Web server technology and one geographic region, namely Australia.
18. CONTINGENT LIABILITIES
There were no contingent liabilities at balance date.
19. COMMITMENTS
There were no commitments at balance date.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
20. FINANCIAL INSTRUMENTS
$\mathbf{u}$ Financial risk management
The Group's financial instruments consist mainly of deposits with banks, accounts receivable and payable and loans to and from subsidiaries.
The Group does not speculate in the trading of derivative instruments. The main risks the Group is exposed to through its financial instruments are interest rate risk and liquidity risk.
Interest rate and liquidity risk
The Group manages interest rate and liquidity risk by monitoring immediate and forecast cash requirements and ensuring adequate cash reserves are maintained.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted the policy of dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group measures credit risk on a fair value basis The Group does not have any significant credit risk exposure to a single counterparty or any group of counterparties having similar characteristics.
The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the Group's maximum exposure to credit risk without taking account of the fair value of any collateral or other security obtained.
$(ii)$ Interest rate risk
| Weighted AverageInterest Rate | Floating InterestRate | Non-InterestBearing | Total | |||||
|---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | 2006$ | 2005s | 2006S | 2005 | |
| Financial AssetsCashReceivables | 5.28% | 5.25% | 562.834 | 649.387 | 329.054 | 272.565 | 562.834329,054 | 649.387272,565 |
| Total financial assets | 562.834 | 649.387 | 329,054 | 272.565 | 891.888 | 921.952 | ||
| Financial LiabilitiesPayablesTotal financial liabilities | 281,138281.138 | 223.326223.326 | 281,138281,138 | 223,326223,326 |
$(iii)$ Net fair value
The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities approximates their carrying value.
The net fair value of financial assets and financial liabilities is based upon market prices where a market exists or be discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2006
$21.$ IMPACT OF ADOPTION OF AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
For periods up to and including the year ended 30 June 2005, the Group prepared its financial statements in accordance with Australian generally accepted accounting practice (AGAAP). These financial statements for the year ended 30 June 2006 are the first the Group is required to prepare in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS).
Accordingly, the Group has prepared financial statements that comply with AIFRS applicable for periods beginning on or after 1 January 2005. In preparing these financial statements, the Group has started from an opening balance sheet as at 1 July 2004, the Group's date of transition to AIFRS, and made those changes in accounting policies and other restatements required by AASB 1 First-time adoption of AIFRS.
This note explains the principal adjustments made by the Group in restating its AGAAP balance sheet as at 1 July 2004 and its previously published AGAAP financial statements for the year ended 30 June 2005.
Effect of AIFRS on the balance sheet as at 1 July 2004 and 30 June 2005
| Consolidated | Parent Entity | |||
|---|---|---|---|---|
| 30 June 2005 | 1 July 2004 | 30 June 2005 | 1 July 2004 | |
| Total equity under AGAAP | 1,302,667 | 1.239.340 | 1.610.952 | 1,360,245 |
| Adjustments to accumulated losses | ||||
| Recognition of share-based payment expense (i) | (17, 220) | (17.220) | ||
| Adjustments to reserves | ||||
| Share-based payment reserve (i) | 17.220 | 17.220 | ||
| Total equity under AIFRS | 1.302.667 | 1.239.340 | 1,610,952 | 1.360.245 |
Effect of AIFRS on the income statement for the financial year ended 30 June 2005
| Consolidated | Parent Entity | |
|---|---|---|
| Loss after tax for the year under AGAAP | (502.353) | (314.953) |
| Recognition of share-based payment expense (i) | (17.220) | (17.220) |
| Loss after tax for the year under AIFRS | (519.573) | (332,173). |
$(i)$ Equity-based compensation benefits
The Consolidated Entity has elected to adopt the exemption under AASB 1 'First-time adoption of Australian equivalents to International Financial Reporting Standards' and has not valued options issued to employees after 7 November 2002 which vested before 1 January 2005. Under AASB 2 'Share-based Payment', equity-based compensation to employees which vested after 1 January 2005 have been recognised as an expense in respect of the services received.
This has resulted in a change to the accounting policy, under AGAAP no expense was recognised for equity-based compensation.
Effect of AIFRS on cash flow statement for the financial year ended 30 June 2005
There are no material differences between the cash flow statement presented under AIFRS and the cash flow statement presented under previous AGAAP.
SHAREHOLDER INFORMATION
Information relating to shareholders and optionholders at 22 September 2006
| Ordinaryshares | Listed Options30 Nov 2010 | ||
|---|---|---|---|
| 1. | Number of Holders | 457 | 130 |
| 2. | Distribution of shareholders/optionholders | ||
| $1 - 1,000$ | 2 | ||
| $1,001 - 5,000$ | 42 | ||
| $5,001 - 10,000$ | 43214 | 3117 | |
| 10,001 - 100,000100,001 and over | 156 | 9 | |
| Total number of holders | 457 | 129 | |
| Total on issue | 164,621,690 | 14,103,380 | |
| Number of holders of less than a marketable parcel | 89 | ||
| З. | Percentage of total holdings of 20 largest holders | 61.64% | 82.18% |
| 4. | Substantial Shareholders | Number | % |
| Mark Fortunatow | 41,743,046 | 25.36% | |
| PCI Equity Pty Ltd | 14,300,809 | 9.21% | |
| Mark Edwin Hurd | 12,542,500 | 7.62% | |
| Michael Christopher Samra | 8,823,530 | 5.36% | |
| 5. | Twenty largest shareholders | Number | $%$ |
| Paula Fortunatow | 24,721,000 | 15.02% | |
| PCI Equity Pty Ltd | 11,807,198 | 7.17% | |
| Mark Edwin Hurd | 9,882,500 | 6.00% | |
| M Fortunatow <the &="" am="" jm="" trust=""> | 9,870,124 | 6.00% | |
| Michael Christopher Samra | 8,823,530 | 5.36% | |
| Yavern Creek Holdings Pty Ltd | 4,805,000 | 2.92% | |
| M Fortunatow | 3,851,922 | 2.34% | |
| P Fortunatow | 3,300,000 | 2.00% | |
| Mark Hurd | 2,660,000 | 1.62% | |
| Cheval Holdings Pty Ltd | 2,400,000 | 1.46% | |
| Samuel Christopher McCarthy & Brooke Elizabeth Hambour | 2,400,000 | 1.46% | |
| Tayscrip Nominees Pty Ltd | 2,262,414 | 1.37% | |
| Boardwalk Pty Ltd | 2,000,000 | 1.21% | |
| Nicola & Giustino Guglielmo Nurragi Investments Pty Ltd | 2,000,0002,000,000 | 1.21%1.21% | |
| Carmel Elizabeth Whiting | 2,000,000 | 1.21% | |
| Oswin Pty Ltd | 1,800,000 | 1.09% | |
| Graham Flavel Ball | 1,721,000 | 1.05% | |
| Daniel William Eddington | 1,700,000 | 1.03% | |
| Geoffrey Peter Ballard | 1,500,000 | 0.91% | |
| 101,504,688 | 61.64% |
SHAREHOLDER INFORMATION
| 6. | Twenty largest listed optionholders (30 November 2010; 20 cents) | Number | % |
|---|---|---|---|
| Julie Vassallo | 3,230,000 | 22.90% | |
| Craig Peter Ball <1998 Pope A/C> | 3,010,000 | 21.34% | |
| Kalgoorlie Mine Management Pty Ltd | 2,000,000 | 14.18% | |
| Lois Alda Corns | 990.000 | 7.02% | |
| David John McDougall | 500,000 | 3.55% | |
| Kerrie Anne Round | 300,000 | 2.13% | |
| David John Jones | 200,000 | 1.42% | |
| Alan John Taylor | 200,000 | 1.42% | |
| Anketell Pty Ltd | 150,000 | 1.06% | |
| Belmark Investments Pty Ltd | 100,000 | 0.71% | |
| Droga Capital Pty Ltd <droga 2="" a="" c="" capital="" no=""> | 100,000 | 0.71% | |
| Gregory Noel Kenny | 100,000 | 0.71% | |
| L J Thomson Pty Ltd | 100,000 | 0.71% | |
| Ted Marchese | 100,000 | 0.71% | |
| Andrew John Sawyer | 100,000 | 0.71% | |
| Barbara Anne Tolhurst | 100,000 | 0.71% | |
| Mark Andrew Williams | 100,000 | 0.71% | |
| Ronald Robert Porter | 88,000 | 0.62% | |
| Gerald Thomas Foley | 60,000 | 0.43% | |
| Ruth Margaret Osgood | 60,000 | 0.43% | |
| 11,730,000 | 81.89% | ||
| 7. | Unlisted Options | ||
| (a) | Options expiring 30 June 2007, exercisable at 3 cents each | ||
| Number of optionholders | 1 | ||
| Total options issued | 2,000,000 | ||
| Holders with more than 20% of this class | |||
| Taycol Nominees Pty Ltd | 2,000,000 | ||
| (b) | Options expiring 31 December 2007, exercisable at 3 cents each | ||
| Number of optionholders | 8 | ||
| Total options issued | 9,000,000 | ||
| Holders with more than 20% of this class | |||
| Paula Fortunatow ATF Fortunatow Family Trust | 2,500,000 | ||
| Mark Edwin Hurd ATF Mark Hurd Investment Trust | 2,500,000 | ||
| $\rm (c)$ | Options expiring 31 January 2010, exercisable at 7 cents each | ||
| Number of optionholders | 7 | ||
| Total options issued | 5,400,000 | ||
| Holders with more than 20% of this class | |||
| Paula Fortunatow ATF Fortunatow Family Trust | 1,500,000 | ||
| Mark Edwin Hurd ATF Mark Hurd Investment Trust | 1,500,000 | ||
| (d) | Options expiring 31 January 2010, exercisable at 9 cents each | ||
| Number of optionholders | 2 | ||
| Total options issued | 3,000,000 | ||
| Holders with more than 20% of this class | |||
| Paula Fortunatow ATF Fortunatow Family Trust | 1,500,000 | ||
| Mark Edwin Hurd ATF Mark Hurd Investment Trust | 1,500,000 | ||
| (e) | Options expiring 31 December 2010, exercisable at 20 cents each | ||
| Number of optionholders | 6 | ||
| Total options issued | 5,100,000 | ||
| Holders with more than 20% of this class | |||
| M L Stevens | 2,000,000 | ||
| G P O'Hara | 1,200,000 |
8. Voting Rights
Each member present in person, or by proxy, representative or attorney, has one vote on a show of hands and one voteper share on a poll for each share held. Each member is entitled to notice of, and to attend and vote at,