TALIUS GROUP LIMITED — Annual Report 2014

Apr 29, 2014

Suite 2, 16 Ord Street	abn: 65
West Perth WA 6005	$+6$ tel:
PO Box 1779	$+6$ fax:
West Perth 6872	advance

111 823 762 61 8 9429 2900 61894861011 energyltd.com.au

ADVANCE ENERGY LIMITED ACN 111 823 762

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2013

CORPORATE DIRECTORY	2
CORPORATE GOVERNANCE	3
DIRECTORS' REPORT	13
AUDITOR'S INDEPENDENCE DECLARATION	23
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME	24
CONSOLIDATED STATEMENT OF FINANCIAL POSITION	25
CONSOLIDATED STATEMENT OF CASH FLOWS	26
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	27
NOTES TO THE FINANCIAL STATEMENTS	28
DIRECTORS' DECLARATION	54
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS	55
ADDITIONAL SHAREHOLDER INFORMATION	57

CORPORATE DIRECTORY Directors:
Chairman	Anthony Short
Non Executive Directors	Kip Plankinton Igor Soshynsky
Company Secretary	Roland Berzins David Ballantyne
Registered & Principal Office	16 Ord Street
	WEST PERTH WA 6005
	Telephone: + 618 9429 2900
	Facsimile: + 618 9486 1011
Postal Address	P.O. Box 1779
	WEST PERTH WA 6872
Auditors	Somes Cooke
	Level 2, 35 Outram Street West Perth WA 6005
Solicitors - Perth	Hardy Bowen
	28 Ord Street
	WEST PERTH WA 6005
Website Address	www.advanceenergyltd.com.au
Stock Exchange Listings	Advance Energy Ltd shares are listed on the Australian Stock Exchange under following code: Fully paid ordinary shares - AVD Convertible notes - AVDG
Share Registry	Advanced Share Registry Services 150 Stirling Hwy Nedlands WA 6009

CORPORATE GOVERNANCE

COMPLIANCE WITH ASX CORPORATE GOVERNANCE RECOMMENDATIONS

APPROACH TO CORPORATE GOVERNANCE

In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Advance Energy Ltd (Advance), support and adhere to the principles of sound corporate governance. The Board recognises the recommendations of the Australian Securities Exchange Corporate Governance Council, and considers that the Company is in compliance with those guidelines, to the extent possible, which are of importance to the commercial operation of a junior resource company.

During the financial period ended, shareholders continued to receive the benefit of an efficient and cost - effective corporate governance policy for the Company.

The board of directors of Advance Energy Ltd is responsible for the Corporate Governance of the Company. The board guides and monitors the business and the affairs of the Company on behalf of the shareholders, by whom they were elected and to whom they are responsible.

Upon listing, the Company established a set of Corporate Governance policies and procedures. These were based on the Australia Securities Exchange Corporate Governance Council's ("Council") "Principles of Good Corporate Governance and Best Practice Recommendations"

In accordance with the Council's recommendations, the Company has followed the guidelines during this period. Where a recommendation is not followed, that fact must be disclosed, together with the reason for the departure.

For further information on Corporate Governance policies adopted by the Company, refer to our website: www.advanceenergyltd.com.au

The table below summarises the Company's compliance with the Corporate Governance Council's Recommendations:

	Principles and Recommendations	Compliance	Comply
	Principle 1 - Lay solid foundations for management and oversight
Establish 1.1 the functions reserved to the Board of directors ("Board") of Advance Energy Ltd ("the Company") and those delegated to Senior executives and disclose those functions.		The Board is responsible for the overall corporate governance of the Company. The Board has adopted a Board charter that formalises its roles and responsibilities and defines the matters that are reserved for the Board and specific matters that are delegated to management. On appointment of a director, the Company issues a letter of appointment setting out the terms and conditions of the appointment to the Board.	Complies
1.2	Disclose the process for evaluating the performance of senior executives	The board only employ's I employee and does not formally review the performance of the senior executives / Board.	Does not comply.
		Does not comply. However the Board continually monitors the behavior of its senior executives directors and discusses with them all aspects of their activities with regard to the Company.
1.3	Provides the information indicated Guide to $\ln$ reporting on Principle 1.	A summary of the Board's functions and responsibilities is summarised in this Corporate Governance Statement. The Boards charter is also available on request.	Complies

ÿ.

	Principle 2 – Structure the board to add value
2.1	A majority of the Board should be independent directors	An Advance Energy director is considered independent when he or she is independent of management (that is, non-executive), and free from any business or other relationship that could materially interfere with, or could be reasonably perceived to materially interfere with, the exercise of his or her unfettered and independent judgement. Materiality is considered on a case by case basis by reference to the director's individual circumstances rather than general materiality thresholds. The Advance Energy Board has made its own assessment to determine the independence of each director on the board. In essence a non-executive director is deemed independent, if the director does not fail any of the following materiality thresholds: less than 10% of the Company shares ø. are held by the director and any entity or individual directly or indirectly associated with the director; no sales are made to or purchases made from any entity or individual director or indirectly associated with the director; and none of the directors' income of an individual or entity directly or indirectly associated with the director is received from a contract with any member of the economic entity other than income which is derived as a director of the entity.	Complies
2.2	The chair should be an		Does not
	independent director.		comply
2.3	The roles of the chair and chief executive officer should not be exercised by the same individual		Does not comply
2.4	The Board should establish a nominations committee	Due to the size of the Board, it was determined that the board will execute the functions of the nominations committee and that a separate nominations committee was not necessary.	Complies
		The Board of directors as a whole acts in this role and therefore the Company complies.
2.5	Disclose the process for evaluating the performance of the Board, its committees and individual directors.	The Company did not conduct a formal performance evaluation of the board and has not adopted a performance evaluation policy.	Does not comply. Refer to 1.2 above.
2.6	Provide the information indicated in the Guide to reporting Principle 2.	This information has been disclosed (where applicable) in the Directors report attached to the Corporate Governance statement. The Board carries out the functions of the nominations committee. In accordance with the information suggested in the Guide to reporting on Principle 2, the Company has disclosed full details of its directors in the Directors report attached to the	Does not comply.

	Corporate Governance Statement.
		Other disclosure material as suggested in the
		Guide to reporting Principle 2 has been made
		available on the Company's website.
		The company does not comply. Due to the size of the board, the directors determine that it will
		execute the functions of a nominations committee and the separate nominations committee
	and evaluation committee are not necessary.
	Principle 3 - Promote ethical and responsible decision making.
3.1		Establish a code of conduct As part of the board's commitment to the high	Complies
	and disclose the code or a	standards of conduct, the Company has
	summary of the code as to:	established operating protocols to deal with
	the e. practice	various issues including:
	10 necessary	conflicts of interest; $\bullet$
	maintain confidence	employment practices; $\circ$
	in the Company's	fair trading; $\bullet$
	integrity;	health and safety; and $\bullet$
	the practice ø.	relations with customers and suppliers. $\bullet$
	necessary to take into account their
	legal obligations and	These are designed to:
	the reasonable	clarify the standards ۰ $\circ$ f ethical
	expectations of the	behaviour required of the board, senior managers and employees
	shareholders;	and encourage compliance with those
	the responsibility and $\bullet$	standards; and
	accountability of the	assist the company to comply with its $\bullet$
	individuals for	legal obligations and have regard to
	reporting and	the reasonable expectations of
	investigating reports	shareholders.
	$\circ f$ unethical
	practices.
3.2	Establish $\alpha$ policy		Does not
	concerning the diversity and		comply.
	the policy or a summary of
	the policy. The policy should
	include requirements of the
	$\overline{1}$ establish board
	measurable objectives for
	achieving gender diversity for the board and to assess
	annually both the objectives and progress in achieving
	them.
		At this stage, the Board does not consider it relevant to establish a diversity policy as the
		Company has only one direct employee, other than Board Members, but instead has
	administrative and technical services provided to it by consultants
3.3	Disclose in each annual		Does not
	report the measurable		comply.
	objectives for achieving
	gender diversity set by the
	board in accordance with
	the diversity policy and
	progress towards achieving
	them.
		The Company does not have a diversity policy and, consequently, did not disclose any
	measurable objectives for achieving gender diversity.
3.4	Companies should disclose		Does not
	in each annual report the		comply.
	proportion of women
	employees in the whole

	organisation, women in senior executive positions
	and women on the board.
		The Company did not disclose the proportion of women in the organisation in its Annual Report.
	The Company does not have any female employees.
3.5	Provide the information The Board Charter containing the Code of indicated in the Guide to Conduct is available on request. The Securities reporting Principle 3. trading policy is summarised in this Corporate Governance Statement and is available on request Principle 4 - Safeguard integrity in financial reporting
4.1		The board should establish An audit committee has not been established	Does not
	an audit committee		comply
		Due to the size of the Board, the directors determine that it will execute the function of an audit
4.2	committee and that a separate audit committee is not necessary. The audit committee should	An audit committee has not been established
	be structured so that it consists of only non- executive directors, $\alpha$ majority of independent directors, is chaired by an independent chair person who is not chairperson of the board and the committee shall have at least 3 members.	by the Board.	Does not comply.
4.3	The audit committee should have a formal charter.	An audit committee has not been established. The functions of the audit committee are reserved for the Board and operate under the Board charter.	Does not comply. Refer to 4.1 above
4.4	Provide the information indicated in the Guide to reporting Principle 4.	The functions associated with the safeguarding Does not the integrity in financial reporting are carried comply. out by the Board; is encompassed within the Refer to Board's Charter which is summarised in this 4.1 Corporate Governance Statement and is above
	Principle 5 - Make timely and balanced disclosure	available on request.
5.1	Establish written policies designed 10 ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance and disclose those policies or a summary of those policies.	The company secretary has The recommendation been nominated as the person 10 1 establish responsible for communication publish written policies with the Australian Securities regarding Exchange (ASX). This role compliance with ASX includes responsibility for Listing Rule disclosure ensuring compliance with the requirements has not continuous disclosure been adopted in view requirement in the ASX listing of the nature and rules and overseeing and co- extent of company ordinating information operations. disclosure to the ASX and the public. The company secretary and/or the chairman jointly ensure that any proposed announcement is drafted in a timely manner, is factual, expressed in a clear and consistent manner and does	and

5.2 6.1	Provide the information indicated in the Guide to reporting Principle 5. Principle 6 - Respect the rights if the Shareholders Design communications $\alpha$ policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the	Except for standard secretarial and procedural matters, all material announcements $\overline{1}$ the ASX are authorised by the board. The Company's continuous disclosure policy is available on request. The Company has an effective communication and promotion activity and welcomes discussion with its shareholders and encourages participation in general	Complies. The recommendation establish and 10 1 publish written policies regarding compliance with ASX Listing Rule disclosure
	policy or a summary of that policy.	meeting.	requirements has not been adopted in view of the nature and extent of company operations.
6.2	Provide the information indicated in the Guide 10 reporting on Principle 6. ÷,	The Company aims to keep shareholders informed of its performance and all major developments in an ongoing manner. Information disclosed to the ASX is available by a link on the Company's website. Additionally, information is communicated $\dagger$ O shareholders through: the annual report which ø is distributed to all shareholders; the half annual report $\circ$ which is distributed to all shareholders in an abbreviated form; and other correspondence regarding matters impacting on shareholders as required.	Complies. Any departure from Recommendations 6.1 and 6.2 is explained under Recommendation 6.1
	Principle 7 - Recognise and manage risk
7.1	Establish policies the for oversight and management of material business risks and disclose a summary of those policies.	In view of the nature and extent of Company operations, the tenure, experience and understanding of directors, the Company has established informal policies for the oversight and management of material business risks.	Does not comply. Formal policies would be inappropriate to the Company's particular circumstances.
7.2	should The Board require management to design and implement the risk management and internal control system to manage the company's material business	In view of the nature of the Company's investment activities, formal and informal policies for the oversight and management of the various business risks associated with	Does not comply. formal A and documented risk management and internal control system has not been

	risks and report to it on whether those risks are being managed effectively. Disclose that management has reported to the board as to the effectiveness the of company's management of its material business risks.	the Company's specific investments are conducted at the full board level, by all of the directors.	adopted as $\ddot{1}$ is inappropriate to the Company's particular circumstances. The Board as a whole is responsible this for aspect.
7.3	Disclose whether the board has received assurance from the chief executive $($ or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.	The board has received the declaration in accordance with section 295A $\circ f$ the Corporations Act and has had an opportunity to question whether the declaration is founded on a system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.	Complies
7.4	Provide the information indicated in the Guide to reporting on Principle 7.	The Board has not established audit and risk charter, an however has identified key risks within the business.	Complies
	Principle 8 - Remunerate fairly and responsibly
8.1	The board should establish a remunerations committee.	The board has not established a remunerations committee and has not adopted $\alpha$ remunerations charter.	Does not comply. Due to the size of the Board, all the directors have determined that they will participate in and execute the functions of the remunerations committee and that a separate remunerations committee is. not necessary.
8.2	The remunerations committee should be structured such that: consists of a majority of e. independent directors; chaired by IS an ø independent chair; have at least 3 e members	The Company's remuneration policy for senior managers and non-executive directors is set out in the Remuneration Report.	Complies

Council Principle 1: Lay solid foundations for management and oversight

1.1 Role of the Board

The Board's primary role is the protection and enhancement of medium to long term shareholder value. To fulfil this role, the Board is responsible for the overall Corporate Governance of the consolidated entity including its strategic direction, establishing goals for management and monitoring the achievement of these goals.

1.2 Responsibility of the Board

The Board is collectively responsible for promoting the success of the Company by:

• Supervising the Company's framework of control and accountability systems to enable risk to be assessed and managed:

• Ensuring the Company is properly managed:

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

• $\triangleright$ Approval of the annual budget:

• Monitoring the financial performance of the Company:

• Approving and monitoring financial and other reporting:

• Overall corporate governance of the Company, including conducting regular reviews of the balance of responsibilities within the Company to ensure division of functions remain appropriate to the needs of the Company;

• $\triangleright$ Liaising with the Company's external auditors as appropriate: and

• Monitoring, and ensuring compliance with, all of the Company's legal obligations, in particular those obligations relating to the environment, native title, cultural heritage and occupational health and safety.

The Board must convene regular meetings with such frequency as is sufficient to appropriately discharge its responsibilities. Between regular meetings it will also ensure that important matters are addressed by way of circular resolutions. The Board may, from time to time, delegate some of the responsibilities listed above to its senior management team.

1.3 Materiality threshold

The Board has agreed on both quantitative and qualitative guidelines for assessing the materiality of matters. Qualitative indications of materiality would include if:

• $\triangleright$ They impact on the reputation of the Company:
• $\triangleright$ They involve a breach of leaislation:
• $\geq$ They are outside the ordinary course of business:

• They could affect the Company's rights to its assets; or

• $\triangleright$ If accumulated they would trigger the quantitative tests.

1.4 The Chairman

The chairman is responsible for leadership of the Board, for the efficient organisation and conduct of the Board's function and for the briefing of all directors in relation to issues arising at Board meetings. The chairman is also responsible for chairing shareholder meetings, and arranging Board performance evaluation.

1.5 The Managing Director

The managing director is responsible for running the affairs of the Company under delegated authority from the Board and to implement the policies and strategy set by the Board. In carrying out his/her responsibilities the managing director must report to the Board in a fimely manner and ensure all reports to the Board present a true and fair view of the Company's financial condition and operational results.

1.6 Role and responsibility of management

The role of management is to support the managing director and implement the running of the general operations and financial business of the Company, in accordance with the delegated authority of the Board. Management is responsible for reporting all matters which fall within the Materiality Threshold at first instance to the managing director or if the matter concerns the managing director then directly to the chairman or the lead independent director, as appropriate.

1.7 Relationship of Board with management

Management of the day-to-day business of the Company is to be conducted by or under the supervision of the Board, and by those other officers and employees to whom the management function is properly delegated by the Board.

The Board will adopt appropriate structures and procedures to ensure that the Board functions independently of management. Appropriate procedures may involve the Board meeting on a regular basis without management present, or may involve expressly assigning the responsibility for administering the Board's relationship to management to a Committee of the Board.

Information is formally presented to the Board at Board meetings by way of Board reports and review of performance to date. When directors are providing information about opportunities for the Company, this should always be through the Board.

Council Principle 2: Structure the board to add value

The Company presently has two non-executive directors and one executive director. Two directors are independent in accordance with the terms of the ASX Corporate Governance Council's definition of an independent director. The Chairman (Mr Anthony Short) is an executive and non-independent director in terms of the ASX Corporate Governance Council's definition of an independent director. The Board considers that its structure has been and continues to be appropriate in the context of the Company's current projects and operations. The Company considers that each director possesses skills and experience suitable for building the Company. Furthermore, the Board considers that in the current phase of the Company's growth, the Company's shareholders are better served by directors who have a vested interest in the Company. The Board intends to reconsider its composition as the Company's operations evolve, and appoint independent directors as appropriate.

The full board of directors performs the role of the nomination committee.

Council Principle 3: Promote ethical and responsible decision-making

The Company complies with this recommendation. The Company has a dopted a code of conduct incorporating all corporate executives. It requires all business affairs to be conducted legally, ethically and with integrity. The code provides for reporting of breaches of the code by others. The code of conduct has been made available on the Company's website.

The Board has adopted a policy and procedure on dealing in the Company's securities by Directors, officers and employees which:

• Prohibits dealing in the Company's securities whilst in possession of insider information;

• Prevents short-term trading in the Company's securities;

• Requires the Company secretary or a director (other than the director trading, if applicable) to be notified upon a trade occurring; and

• Prevents dealing in the Company's securities during specified blackout periods.

Council Principle 4: Safeguard integrity in financial reporting

Due to the size of the Board, the directors determine that it will execute the function of an audit committee and that a separate audit committee is not necessary. The Board minutes that the consolidated financial statements of the Company and its controlled entities for each half and full year present a true and fair view, in all material aspects, of the Company's financial condition and operational results and are in accordance with accounting standards.

The Board fulfils its role in maintaining integrity in financial reporting by:

• Monitoring the integrity of the financial statements of the Company, and reviewing significant financial reporting judgments.

• Reviewing the Company's internal financial control system and risk management systems.

• Reviewing the appointment of the external auditor and approving the remuneration and terms of engagement.

• Monitoring and reviewing the external auditor's independence, objectivity and effectiveness, taking into consideration relevant professional and regulatory requirements.

Council Principle 5: Make timely and balanced disclosure

Compliance procedures for ASX Listing Rule disclosure requirements have been adopted by the Company. It has appointed an officer of the Company to be responsible for compliance.

Council Principle 6: Respect the rights of shareholders

Information will be communicated to shareholders as follows:

• The annual report is distributed to all shareholders. The Board ensures that the annual report includes relevant information about the operations of the consolidated entity during the year, changes in the state of affairs of the consolidated entity and details of future developments, in addition to the other disclosures required by the Corporations Act. The annual report is made available on the Company's website, and is provided in hard copy format to any shareholder who requests it.

• The half-yearly report contains summarised financial information and a review of the operations of the consolidated entity during the year. The half-year audited financial report is prepared in accordance with the requirements of applicable Accounting Standards and the Corporations Act and is lodged with the Australian Securities Exchange. The half-yearly report is made available on the Company's website, and is sent to any shareholder who requests it.

• The quarterly report contains summarised cash flow financial information and details about the Company's activities during the quarter. The quarterly report is made available on the Company's website, and is sent to any shareholder who requests it.

• Proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a general meeting of shareholders.

• The Company's website is well promoted to shareholders and shareholders may register to receive updates, either by email or in hard copy.

The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity's strategy and goals, important issues are presented to the shareholders as resolutions.

The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options and shares to directors and changes to the constitution. Copies of the constitution are available to any shareholder who requests it.

Company's website

The Company maintains a website at www.advanceenergyltd.com.au

On its website, the Company makes the following information available on a regular and up to date basis:

• $\triangleright$ Company announcements:
• $\triangleright$ latest information briefings:

• notices of meetings and explanatory materials: and

• $\triangleright$ quarterly, half yearly and annual reports.

The website is being continuously updated with any information the directors and management may feel is material. The Company also ensures that the audit partner attends the Annual General Meeting.

Council Principle 7: Recognise and manage risk

The Company has developed an initial framework for risk management and internal compliance and control systems which covers organisational, financial and operational aspects of the Company's affairs. The framework is the subject of ongoing review and yet to be finalised. It appoints the Managing Director and Company Secretary as being responsible for ensuring that the systems are maintained and complied with.

Council Principle 8: Remunerate fairly and responsibly

The Board believes the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of a permanent remuneration committee. The Board as a whole is responsible for the remuneration arrangements for Directors and executives of the Company and considers it more appropriate to set aside time at board meetings to specifically address matters that would ordinarily fall to the remuneration committee.

DIRECTORS' REPORT

Your Directors present their report on Advance Energy Limited (or "the Company") and its controlled entities ("the consolidated entity" or "the Group") for the year ended 31 December 2013.

Directors

The names and details of the Company's Directors in office at any time during the financial year and until the date of this report are detailed below.

A. Short	Managing Director
K. Plankinton	Non-Executive Director
A. Joblina	Non-Executive Director (Resigned June 6, 2013)
Igor Soshynsky	Non-Executive Director (Appointed June 6, 2013)

Principal activities

The principle continuing activities of the Company during the financial period were the acquisition, production and exploration of petroleum and gas properties in Texas, United States of America and the Carpathian Basin in Western Ukraine.

This has been a year of transition as the Company has commenced the process of restructuring as a precursor to recapitalisation. As announced in December the majority of convertible note holders have agreed to convert their notes into fully paid ordinary shares at \$0.0008 per share. The Company is also confident that the majority of its other creditors will convert at the same price. Once this debt conversion process has occurred the Company is confident that it will be able to recapitalise.

Operating results

The net operating loss of the Group for the period ended 31 December 2013 after income tax amounted to \$3,933,116 (2012: loss \$1,457,950).

Dividends paid or recommended

No dividend was paid or declared during the period and the Directors do not recommend the payment of a dividend.

Review of operations

There were geological issues associated with the Ortynytska project in the West Ukraine making it likely that the cost of any drilling programme would be considerably in excess of that originally anticipated. This, combined with the problems of raising capital within the current structure and the unpredictable political environment, led the Company to withdraw from this region in January 2014.

The Company does retain its interest on the Motherlode III project in the Permian Basin, Texas, upon which there is one operating well. The Company went non consent on this well when it was originally drilled and has not yet earned back in. The Company also retains significant seismic data over this area and will consider participating on the next well proposed by the operator, based in part upon the seismic data it has.

Significant changes in the state of affairs

The Company is in a transitional state as it moves forward on the restructuring process (see Review of Operations). Part of this restructuring involved amending the terms of the listed convertible notes to allow conversion at a fixed price of \$0.0008. This was approved by

shareholders at the Annual General Meeting in May 2013 and gives a realistic conversion price to the noteholders.

Subsequent to year end the Company also withdrew from its Ukrainian interests (see Review of Operations).

Matters subsequent to the end of the financial year

Other than the withdrawal from its Ukrainian ventures, announced to the market in January 2014, there were no other matters subsequent to 31 December 2013.

Likely developments

As discussed in the Review of Operations, the Company anticipates a significant amount of debt will be converted into equity at \$0.0008, in order to allow the Company to recapitalise and start to review new projects or contemplate participating in any proposed wells on its existing Motherlode III project.

Environmental Issues

The Group's Ukrainian activities are subject to environmental conditions imposed by the Ukrainian Ministry of Ecology and Natural Resources and the subsoil license holder, ZakhidUkrGeologiya is responsible for ensuring compliance with local regulations.

The Group's US operations are subject to various environmental regulations under the Federal and State Laws of United States of America. The majority of the company's activities involve low level disturbance associated with its production facilities and exploration drilling programs. As at the date of this report the Group complies fully with all such regulations.

The Group is subject to the reporting requirements of both the Energy Efficiency Opportunities Act 2006 (Aust) and the National Greenhouse and Energy Reporting Act 2007 (Aust).

The Energy Efficiency Opportunities Act 2006 (Aust) requires the Group to assess its energy usage, including the identification, investigation and evaluation of energy saving opportunities, and to report publicly on the assessments undertaken, including what action the Group intends to take as a result.

The National Greenhouse and Energy Reporting Act 2007 (Aust) require the Group to report its annual greenhouse gas emissions and energy use. The Group intends to implement system and process for the collection and calculation of the data required in financial year 2013.

DIRECTORS' REPORT (Cont)

INFORMATION ON DIRECTORS AND SECRETARY

Names, qualifications, experience and special responsibilities:

Mr Anthony Short BPE, BCom, Grad Dip (Fin), MAICD - Chairman (appointed 16 November 2004)

Mr Short has over 20 years experience in the administration and management of listed public companies. He has extensive experience at board level in the management and formation of public companies in the areas of gold mining, drilling and oil and gas in the USA. Mr Short has held the position of Chairman, CFO and Managing Director in a number of listed public companies and has also acted as corporate advisor to a number of public company listings.

Other Current directorships

Odin Energy Ltd

Other directorships within the last three years

Palace Resources Ltd and Tamaska Oil and Gas Ltd (previously known as Kilgore Oil and Gas $L(d)$ .

Mr Kip Plankinton - Non Executive Director (appointed 9 April 2009)

Mr Kip Plankinton was appointed a Director in April 2009. Mr Plankinton is an oil and gas attorney with over 20 years experience in the oil and gas industry. He focuses on energy and natural resource matters with an emphasis on international and domestic oil and gas acquisitions and divestments, oil and gas operational and regulatory issues, oil and gas royalty matters and administrative adjudication. Prior to establishing his own practice in 2006, he served as in-house legal counsel for ExxonMobil, Colorado Interstate Gas Company, Texaco and Marathon Oil Company.

Other Current directorships

None

Other directorships within the last three years

None

Alistair Jobling MBA, Grad Dip App Fin - Company Secretary (appointed 30 January 2012) and Non-Executive Director (Resigned June 6, 2013)

Mr Jobling is a finance professional who has provided consulting services to the Company since before listing, including business planning and administrative support to the Board and previous company secretaries. He has provided corporate advisory and company secretarial services to several other resources companies, including investment analysis, statutory reporting, project management, due diligence and the preparation of commercial agreements. He has previously worked as a consultant for a Big 4 accounting firm and as a director and investment manager focussing on property developments and technology. Mr Jobling is also Compliance Manager for AFS Licenses GBU Securities Pty Ltd.

Other Current directorships

Acuvax Limited

Other directorships within the last three years

None

DIRECTORS' REPORT (Cont)

Igor Soshynsky - Non executive director, appointed 6th June 2013

Founding partner of Geopushuk and KGI Industries in the Ukraine. Igor has over 17 years experience in E&P Oil and Gas and successful business ventures including property development, infrastructure and telecommunications. Igor has facilitated numerous transactions whilst building a portfolio of production and exploration assets for KIG Industries that provide Advance Energy with an enviable source of assets throughout the CIS region. Igor has a good understanding of both equity/debt markets and capital raising process along with rules associated with listing on stock exchanges across the alobe.

Roland Berzins Company Secretary BComm.ACPA FFIN TA., Group Secretary and Public Officer, appointed on 31 May 2013.

Mr. Berzins graduated from the University of Western Australia with a Bachelor of Commerce majoring in accounting and finance. Mr. Berzins has over 23 years' experience in the mining industry and was previously Chief Accountant for 6 years for Kalgoorlie Consolidated Gold Mines Pty Ltd. Since 1996 Mr. Berzins has been Group secretary for a variety of ASX listed companies, and has also had experience in retail, merchant banking, venture capital and SME business advisory.

David Ballantyne - Company Secretary MA (Hons) University of Edinburgh, ACA (appointed -31 May 2013)

Mr. Ballantyne is a Charlered Accountant with commercial experience in the exploration/mining, biotechnology and aquaculture sectors. He previously worked for both big 4 and second tier accounting firms in the areas of audit, corporate services and insolvency. Mr. Ballantyne has also had extensive experience in the corporate management, and director/ company secretary roles of small mineral exploration and production companies and has completed listings on AIM and the ASX. He was director and company secretary of Odin Energy Ltd (resigned - 2 August 2011) and is currently a director of Indobara Resources Limited,

Meetings of Directors

The number of meetings held by the Company's Board of Directors during the year ended 31 December 2013 and the number of meeting attended by each director were:

	Board meetings held	Board meetings attended
A. Short Controller of the Act Control	$\frac{16}{2}$	10
I.Soshynsky	9	$\cdot$
K. Plankinton	16	16
A. Jobling	ä,	$\mathcal{I}$

Securities held and controlled by Directors

As at the date of this report, the interests of the Directors in shares, Convertible Preference Shares ("CPS") and options of the Company were:

Ordinary shares Holder	Held at beginning of year.	Acquired	Dispose	Converted CPS	Balance at end of year and date of directors report
Anthony Short
Indirect ۰	25,792,438	$\overline{\phantom{a}}$		×,	25,792,438
Kip Plankinton
Indirect ۰	÷	$\sim$	÷	æ	ë
Igor Soshynsky
Direct ۰	×2	Ξ	$\sim$	$\sim$
Alistair Jobling
Direct * ۰	84,529		84,529

* Shares issued to Mr Jobling were in lieu of interest payment for convertible notes.

Converting Preference shares (CPS)

Holder	Held at beginning of year	Acquired	Sold	Converted to shares	Balance at end of year and date of directors report
Anthony Short
Indirect ۰		$\sim$		$\sim$	3
Kip Plankinton
Indirect $\bullet$	w.	×	٠
Igor Soshynsky
Direct ۰	×	×	$\sim$	۰
Alistair Jobling
Indirect ۰	$\sim$

Details of the conditions relating to conversion of the Converting Preference Shares are included in note 15.3.

Remuneration Report (Audited)

This report outlines the remuneration arrangements in place for Key Management Personnel ('KMP') of Advance Energy Limited. This report has been set out under the following main headings:

• A. Principles Used to Determine the Nature and Amount of Remuneration
• B. Service Agreements
• Details of Remuneration C.
• D. Share-based Remuneration
• F. Additional Information

As noted in the corporate governance section of this Annual Report, under council principle 8, the Company is not currently of a size, nor are its affairs of such complexity to justify the formation of a separate remuneration committee. The Board of Directors manages the remuneration policy, setting the terms and conditions for KMP.

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

Principles Used to Determine the Nature and Amount of Remuneration A.

The Board of Directors is responsible for determining and reviewing compensation arrangements for KMP. It assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of high quality KMP.

The objective of the Group's executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices:

• Competitiveness and reasonableness ø
• Acceptability to shareholders $\bullet$
• Transparency $\bullet$
• $\bullet$ Capital management

The Board policy is to remunerate non executive directors at fair market rates for comparable companies for the relevant time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually based on

market practice, duties and accountability. The maximum amount of fees that can be paid to directors is subject to approval by shareholders at General Meetings.

Fees for non-executive directors are currently not linked to the financial performance of the Group. However, to align director's interests with shareholder interests, the directors are encouraged to hold shares in the company and may be issued with additional securities as deemed appropriate.

The Board believes that the remuneration policy is appropriate given the stage of development of the Company and the activities which it underlakes and is appropriate for aligning KMP objectives with shareholder and business objectives. The Board will continue to develop new practices which are appropriate to the Company's size and stage of development.

Executive Officers are those directly accountable for the operational management and strategic direction of the Company and the consolidated entity.

All contracts with KMP may be terminated by either party with three months' notice, in most cases.

Fixed remuneration

Fixed remuneration consists of a base remuneration package, which includes directors' fees (in the case of Directors), salaries, consulting fees and employer contributions to superannuation funds.

Fixed remuneration levels for KMP officers will be reviewed annually by the Board through a process that considers the employee's personal development, achievement of key performance objectives for the year, industry benchmarks wherever possible and CPI data.

Appropriate key performance indicators (KPIs) will be developed by the Board for each KMP each year, and reflect an assessment of how that individual can fulfil their particular responsibilities in a way that best contributes to Company performance and shareholder wealth in that year.

Performance-linked remuneration

The Company currently has no performance based remuneration. One Board member the Chairman, has a material vested interest in the success of the business through his holdings of shares, options and converting preference shares.

$B$ Service Agreements

Remuneration and other terms of employment for the KMP are not formalised in service agreements. However it should be noted that remuneration levels have not increased since the Company listed in 2006 on ASX and, during the 2011 year, were reduced significantly, and any future adjustments will be approved at Board level. The major provisions of the remuneration of KMP are set out below.

The directors and KMP during the year included:

Directors

Mr A Short. Executive Chairman

• Commenced 24 November 2004 $\overline{a}$
• Base salary (paid as consulting fees), inclusive of superannuation, for the year ended 31 $\ddot{\phantom{a}}$ December 2013 of A\$90,000, to be reviewed annually by the Board; and
• Payment of a termination benefit on early termination by the Company, other than for gross misconduct, equal to 3 months' fees (subject to Board approval).

Mr K Plankinton, Non-executive Director

• Commenced 9 April 2009, no termination date:
• Mr Plankinton has agreed not to charge directors' fees in the financial year ended 31 ä December 2013, and will only commence charging fees once the Company's reconstruction and recapitalisation is completed during the current financial year. At that stage he will be paid non executive directors' fees of \$24,000 per annum.

Mr A Jobling, Non-executive director and Company Secretary

• Commenced as company secretary on 27 January 2012 and Non-Executive Director on 12 December 2012, resigned June 6, 2013.
• No company secretary fees are paid in 2013.

Mr I Soshynsky, Non-executive director

• Commenced as director June 6, 2013.
• . Mr Soshynsky has agreed not to charge directors' fees in the financial year ended 31 December 2013, and will only commence charging fees once the Company's reconstruction and recapitalisation is completed during the current financial year. At that stage he will be paid non executive directors' fees of \$24,000 per annum.

Mr R Berzins, Joint Company Secretary

• Commenced as company secretary on 31 May 2013, no termination date.
• Company secretary fees of \$8,500

Mr D Ballantyne, Joint Company Secretary

• Commenced as company secretary on 31 May 2013, no termination date.
• Company secretary fees of \$15,990 $\bullet$

$C.$ Details of Remuneration

The KMP of Advance Energy Limited during the year ended 31 December 2013 includes all directors and executives mentioned above.

Names and positions of KMP at any time during the financial period are:

Mr A Short	Chairman
Mr K Plankinton	Non-Executive Director
Mr A Jobling	Non-Executive Director (Resigned June 6, 2013)
Mr I Soshynsky	Non-Executive Director (Appointed June 6, 2013)
Mr R Berzins	Joint Company Secretary (Appointed May, 31 2013)
Mr D Ballantyne	Joint Company Secretary (Appointed May, 31 2013

Remuneration packages contain the following key elements:

• Short-term employee benefits salary/fees and bonuses; $\alpha$
• Post-employment benefits including superannuation; $b$
• Equity share options and other equity securities; and $C$

Nature and amount of remuneration for the year ended 31 December 2013.

		Short-term employee benefits		$1.021 -$ employ ment benefits		Equity:
		Salary, consulting fees S	Bonus S.	Superan nuation ® $\overline{\mathbf{S}}$	Option based payments s	Preference share based payments s	Total S.	Remuner- ation consisting of equity $\frac{a}{2}$	Remuneration linked to performance NG
Executive directors
A Short	2013	90,000					90,000
Non-executive directors	2012	60,000					60,000
G Sklenka*	2013
	2012	60,000				$\sim$	60,000
I Soshynsky	2013			$\equiv$
	2012
K Plankinton
	2013
	2012	19,304				g	19,304
A Jobling **	2013
	2012
Total directors'
remuneration	2013 2012	90,000 139,304					90,000
Other key management personnel							139,304
R Berzins
	2013	63,500					63,500
D Ballantyne	2012	÷
	2013 2012	15,990				$\overline{\phantom{a}}$	15,990
Total other key								$\overline{a}$
management	2013	79,490			÷	٠	79,490
remuneration	2012	u						٠ ٠
TOTAL	2013	169,490
REMUNERATION	2012	139,304	×				169,490
						٠	139,304

$\overline{1}$

* Due to changes in the calculation of consultant fees, during the year to 31 December 2012, Mr Sklenka waived outstanding amounts totalling \$137,661 that were owing in relation to his services.

** Company secretary fees in 2012 and up to June 2013 of \$4,125 per month were charged to the Company through monthly corporate administration fees charged by AAG Management Pty Ltd. (note 21). No director fees have been charged to the Company.

D. Share-based Remuneration

Options

No options were granted to directors and other key management during the year ended 31 December 2013 (2012: Nil).

Convertible Preference Shares

No convertible preference shares were issued during the year ended 31 December 2013 (2012: Nil).

$E$ . Additional Information

Principles used to determine the nature and amount of remuneration: relationship between remuneration and company performance.

As stated elsewhere in this Remuneration Report, the Board, including the Chairman, who are the key management has a material vested interest in the success of the business through its directors' holdings of shares, options and converting preference shares. Currently these holdings are considered an adequate performance based incentive KMP. They also help to preserve the Company's cash resources given that all efforts are currently being expended to restructure and to build the business and establish self-sustaining revenue streams.

The Group did not employ the services of remuneration consultants during the year to 31 December 2013.

This is the end of the audited remuneration report.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

During the financial period, the Company maintained an insurance policy which indemnifies the Directors and Officers of Advance Energy Limited in respect of any liability incurred in connection with the performance of their duties as Directors or Officers of the Company. The Company's insurers have prohibited disclosure of the amount of the premium payable and the level of indemnification under the insurance contract.

PROCEEDINGS ON BEHALF OF THE COMPANY

No person has applied for Leave of the Court under section 237 of the Corporations Act 2001 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 period.

SHARE OPTIONS

All share options had expired in the prior financial year.

CONVERTIBLE PREFERENCE SHARES

At the date of this report the following unlisted Convertible Preference Shares in Advance Energy Ltd were on issue:

	Number CPS in Issue
CPS B
CPS C
CPS D
Total

Conditions relating to the outstanding Convertible Preference Shares are contained in note $14.3.$

AUDIT SERVICES

No non-audit services have been provided by the Group's auditor, Somes Cooke or associated entities.

Auditors of the Company received or are due to receive the following amounts for the provision of audit and assurance services:

2013
	2012
S	S.
÷	16,687
	23,000
27,000	39.687
	27,000

Auditor's Independence Declaration

The Auditor's Independence Declaration, as required under Section 307c of the Corporations Act 2001, for the financial year ended 31 December 2013 has been received and can be found on page 23.

Signed in accordance with a resolution of the Board of Directors.

$\lambda$ $\Lambda\Lambda\times$

A. Short Managing Director West Perth, W.A. 31^th March 2014

35 Outram St West Perth WA 6005

PO Box 709 West Perth WA 6872

T 08 9426 4500 F 08 9481 5645 W somescooke.com.au

E info@somescooke.com.au

Chartered Accountants (Aus) Business Consultants Financial Advisors

Auditor's Independence Declaration

To those charged with the governance of Advance Energy Ltd

As auditor for the audit of Advance Energy Ltd for the year ended 31 December 2013, I declare that, to the best of my knowledge and belief, there have been:

$i)$ no contraventions of the independence requirements of the Corporations Act 2001 in relation to the audit; and

ii) no contraventions of any applicable code of professional conduct in relation to the audit.

Somes Cooke

Somes Cooke

ichdes Hollens

Nicholas Hollens Partner

Perth

31 March 2014

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For The Year Ended 31 December 2013

			Group
	Notes	2013 s	2012 S.
Continuing operations
Revenue
Other income	5	5,400	203,035
Administrative expenses		(824, 269)	(932, 613)
Finance costs	6	(681, 974)	(655, 372)
Share based payment expense	27		(25,000)
Impairment expense	$ \ $	(2,432,273)	(47,000)
Loss before income tax		(3,933,116)	(1.456, 950)
Income tax expense	$\overline{\mathcal{I}}$
Loss for the year after tax		(3,933,116)	(1.456, 950)
Other comprehensive income - items that may be reclassified to profit and loss Exchange differences on translation of foreign
operations		170,308	52,158
Other comprehensive income for the year, net of tax		170,308	52,158
Total comprehensive income for the year attributable to the owners of Advance Energy Limited		(3,762,808)	(1.404.792)
Loss per share
Basic and diluted loss (cents per share)	17	(0.32)	(0.30)

The above Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2013

			Group)
	Notes	2013 s	2012 s
Current assets
Cash and cash equivalents	8		101,320
Trade and other receivables	9	46,119	63,990
Total current assets		46,119	165,310
Non-current assets
Inventory		332	153
Property, plant and equipment	10	2.048	6,187
Oil and gas exploration	11	1,609,097	3,828,523
Other financial assets			13,829
Total non-current assets		1.611.477	3,848,692
		1.657.596	4,014,002
Total Assets
Current liabilities
Bank overdraft	8	64
Trade and other payables	12	1,327,592	726,521
Borrowings	13	7,334,349	322,543
Total current liabilities		8,662,005	1,049,064
Non-current liabilities
Borrowings	13	871,726	7,370,337
Total non-current liabilities		871,726	7,370,337
Total Liabilities		9,533,731	8,419,401
Net Liabilities		(7, 876, 135)	(4,405,399)
Equity
Issued capital	14	19,975,401	19,683,329
Reserves	15	(2,668,134)	(2,838,442)
Accumulated losses	16	(25, 183, 402)	(21, 250, 286)
Total Equity		(7, 876, 135)	(4,405,399)

The above Statement of Financial Position should be read in conjunction with the notes to the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Year Ended 31 December 2013

			CHARD
	Notes	2013	2012
Cash flows from operating activities
Receipts from customers		5,785	49.543
Payments to suppliers and employees		(78, 654)	(655, 185)
Interest received		1,515	5,161
Net cash used in operating activities	18	(71, 354)	(600, 481)
Cash flows from investing activities
Payments for oil and gas exploration costs		(3,440)	(60, 425)
Payments for plant and equipment		(2.772)	(7, 411)
Net cash used in from investing activities		(6.212)	(67, 836)
Cash flows from financing activities
Proceeds from issues of shares	14.1		599,706
Capital raising costs	14.1	(450)	(26.759)
Proceeds from borrowings		13,829
Net cash from/(used in) financing activities		13,379	572,947
Net decrease in cash and cash equivalents		(64, 187)	(95, 370)
Cash and cash equivalents at the beginning of the
financial year		101,320	144,532
Exchange rate changes on cash		(37, 197)	52,158
Cash and cash equivalents at the end of the financial
year	8	(64)	101,320

The above Statement of Cash Flows should be read in conjunction with the notes to the financial statements.

CONSOLIDATED STATEMENT OF CHANGE IN EQUITY

For The Year Ended 31 December 2013

CONSOLIDATED

Year ended 31 December 2013	Issued Capital s	Foreign Currency Translation Reserve S.	Investment Reserve S	Accumulated losses s	TOTAL. S
Balance at beginning of year	19,683,329	(2,839,021)	579	(21, 250, 286)	(4, 405, 399)
Loss for the year				(3,933,116)	(3,933,116)
Other equity reserve	ä.
Currency translation on foreign operations		170,308			170,308
Total comprehensive income for the year		170,308		(3,933,116)	(3,762,808)
Transactions with equity holders in their capacity as equity holders
Issues of share capital. net of transaction costs	292.522	i iz	۰		292,522
Capital Raising Costs	(450)	$\frac{1}{2}$	L)		(450)
Balance at 31 December 2013	19,975,401	(2,668,713)	579	(25.183.402)	(7, 876, 135)

Issued Capital S.	Foreign Currency Translation Reserve S	Investment Reserve S.	Accumulated losses S	TOTAL s
16,109,747	(2,891,179)		(19, 793, 336)	(6, 574, 768)
			(1,456,950)	(1,456,950)
		579		579
	52,158	۰		52,158
	52,158	579	(1,456,950)	(1,404,213)
3,573,582				3,573,582
19,683,329	(2, 839, 021)	579	(21, 250, 286)	(4, 405, 399)

The Statement of Changes in Equity should be read in conjunction with the notes to the financial statements.

NOTES TO THE FINANCIAL STATEMENTS For The Year Ended 31 December 2013

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements include separate financial statements for Advance Energy Limited as an individual entity and the consolidated entity consisting of Advance Energy Limited (or "the Company") and its subsidiaries ("the Group" or "consolidated entity").

Basis of Preparation

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

i) Going concern

These financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business

As at 31 December 2013, the Group had net current liabilities of \$8,615,886 (2012: \$883,754) and net liabilities of \$7,341,202 (2012: net liabilities of \$4,405,399).

As announced to the market in December 2013 more than 90% of the listed convertible note holders have made an in principle undertaking to convert their debts into shares at the rate of \$0.0008. This conversion price was approved at the Annual General Meeting in May 2013. It has also been the case since amending the Convertible Trust Deed in March 2012 that the Company can issue shares in lieu of interest payments to its convertible note holders. Additionally a significant proportion (\$1,057,222) of the company's payables are fees payable to related parties including consulting companies related to directors and former directors. The directors of these entities have agreed not to demand payment of outstanding invoices in circumstances that would result in the Company being unable to pay its debts as and when they are due. In addition these entities have also committed to converting the majority of their debt into shares at the same time and rate (being \$0.0008 per share) as the listed convertible note holders.

The Group has incurred a net loss after tax for the year ended 31 December 2013 of \$3.933.116 (2012: \$1.457 million) and net cash outflow from operating activities of \$71,354 (2012: \$600,481).

The short term working capital requirements of the Group require a successful capital raise. The Directors believe that there are sufficient funding strategies and alternatives to meet the Group's working capital requirements and are confident the Group will be able to raise funds in the near future, and as and when required.

However, the Directors recognise that the ability of the Company to continue as a going concern and to pay its debts as and when they fall due is dependent on its ability to develop cash flow from its assets, acquire new projects and to secure additional funding through the raising of further capital and/or support from its financiers.

Based on the above, the Group is confident that it will successfully meet its financial obligations for the next 12 months.

Should the Company be unable to continue as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those stated in the financial report.

The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

ii) Compliance with IFRSs

The consolidated entity financial statements also comply with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).

iii) Early adoption of standards

The Group has not elected to apply any pronouncements early.

iv) Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets.

v) Critical accounting estimates

The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies (refer note 3).

Principles of Consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Advance Energy Ltd as at 31 December 2013 and the results of all subsidiaries for the year then ended

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

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

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

Investments in subsidiaries are accounted for at cost in the individual financial statements of Advance Energy Ltd.

Business combinations

Business combinations occur when an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions).

When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not measured and its subsequent settlement is accounted for within equity.

Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognition any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date.

All transaction costs incurred in relation to business combinations are expensed to the statement of comprehensive income.

The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase price.

Segment reporting

AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner that is consistent with the internal reporting to the chief operating decision maker, which has been identified by the company as the Board.

Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in Australian dollars, which is Advance Energy Limited's functional and presentation currency. The functional currencies of the overseas subsidiaries are US\$ and Ukraine Hryvnia ("UAH").

(ii) Transactions and balances

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

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each statement of financial position presented are translated at $\bullet$ the closing rate at the date of that statement of financial position
• income and expenses for each statement of comprehensive income are translated at $\infty$ average exchange rates (unless this is not a reasonable approximation of the cumulative

effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and

all resulting exchange differences are recognised as a separate component of equity. $\alpha$

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of comprehensive income, as part of the gain or loss on sale where applicable.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the consolidated entity and the revenue can be reliably measured.

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised as follows:

(i) Interest income

Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

(ii) Oil and Gas revenue

Revenue is recognised when the significant risks and rewards of ownership of the goods have delivered to the buyer and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

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

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

Property, Plant and Equipment

i) Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulated losses for impairment.

Any item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of comprehensive income for the year the item is derecognised.

ii) Depreciation

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset which is estimated to vary between 3 and 5 years for office equipment.

iii) Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If any indication of impairment exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater 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.

Impairment losses are recognised separately in the profit or loss.

Any item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the profit or loss in the year the item is derecognised.

Financial Instruments

Recognition and Derecognition

Regular purchases and sales of financial assets are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognised at fair value and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the financial assets has expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

(i) Investments in subsidiaries

Investments in subsidiaries are carried at cost less any impairment losses.

(ii) Borrowings and convertible notes

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

The fair value of the liability portion of a convertible note is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the notes. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholder's equity, net of income tax effects.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the statement of financial position date.

(iii) Trade and other payables

These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year, which remain unpaid at year end. The amounts are unsecured and are usually paid within 60 days of recognition. They are recognised at fair value on initial recognition and subsequently at amortised cost.

(iv) Cash and cash equivalents

Cash and short-term deposits in the statement of financial position 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 statement of cash flows cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Cash and short-term deposits in the statement of financial position 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 statement of cash flows cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(v) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income.

(vi) Fair Value estimation

The fair value of financial assets and financial liabilities must be estimated for initial recognition or for disclosure purposes.

The fair value of financial instruments that are not traded in an active market (for example convertible notes, receivables and payables) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held.

Other techniques such as estimated discounted cash flows are used to determine fair value for remaining financial instruments.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Oil and gas exploration costs

Oil and gas exploration costs are capitalised, provided the rights to tenure of the area of interest are current and either:

• The exploration costs are expected to be recouped through successful development and exploitation of the area of interest or, alternatively, by its sale; or
• Exploration activities in the area of interest have, at the reporting date, reached a stage that permitted a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or relation to, the areas of interest is continuina.

Accumulated costs in relation to an abandon area are written off in full against profit in the period in which the decision to abandon the area is made.

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

Restoration, rehabilitation and environmental costs necessitated by exploration activities are capitalised as oil and gas exploration costs.

Impairment of assets

Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

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.

Where 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 asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Provision is made for employee entitlement benefits as a result of employees rendering services up to balance date. These benefits include salary and wages, annual leave and long service leave. Liabilities in respect of salary and wages and annual leave expected to be settled within 12 months of the reporting date are measured at their nominal value. The liability for long service leave is measured at the present value of expected future outflows to be made in respect of services provided by employees up to the reporting date.

Employee benefits

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick 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 and are measured at the amounts expected to be paid when the liabilities are settled.

Share Based Payments

From time to time, the Group provides benefits to employees (including directors) of the Group in the form of share-based payment transactions, whereby personnel render services in exchange for shares or rights over shares ('equity-settled transactions').

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using the Black & Scholes method.

In valuing equity-settled transactions, no account is taken of any performance conditions.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('vesting date').

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 number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. 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.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognized as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognised immediately unless the original vesting conditions are not market related and those conditions have not been met. 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.

Borrowing Costs

Borrowing costs are recognised as an expense when incurred except if costs were incurred for the construction of any qualifying asset, where the costs are capitalised over the period that is required to complete and prepare the asset for its intended use or sale.

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 reporting date.

Deferred tax is provided on all temporary differences at the reporting date arising between the fax bases of assets and liabilities and their carrying amounts in the financial statements and are recognised for all taxable temporary differences:

• Except where the deferred tax liability 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; and
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised:

• Except where the deferred 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 the taxable profit or loss; and
• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future extent that it is probable that the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting 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 tax asset to be utilised.

Deferred 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 reporting date.

Deferred and income taxes relating to items recognised directly in equity are recognised directly in eauity.

Goods and Services Tax (GST)

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

• Where the GST incurred on a purchase of goods and services is not recoverable from the .
  H faxation authorities, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense item as applicable; and
• Receivables and payables are stated with the amount of GST included.

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

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

Contributed Equity

Issued and paid up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction, net of tax, of the share proceeds received.

Earnings per share

(i) Basic earnings per share

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

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary share and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

New accounting standards and interpretations

The adoption of new accounting standards applicable to the Group for the first time in 2013 has not had a material on the financial statements. The Group has chosen not to early-adopt any accounting standards that have been issued, but are not yet effective. The impact of accounting standards that have been issued, but are not vet effective, is not material to this financial statements.

2 FINANCIAL RISK MANAGEMENT

The Group's activities expose it to a variety of financial risks; market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and aging analysis for credit risk.

Risk management is carried out by the Board of Directors.

(a) Market risk

(i) Foreign exchange risk

Foreign exchange risk arises from commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity's functional currency.

The Group's exposure to foreign exchange risk at the reporting date is limited to the transfer of funding from the Australian head office to fund the US and Ukraine operations.

Ukrainian operations have some exposure to foreign exchange risk, as expenditure is denominated in either US dollars or Ukrainian Hryvnia. However, to date, expenditure in these foreian currencies has been minimal.

The American subsidiaries are not exposed to foreign exchange risk as all transactions are denominated in its functional currency being US dollars.

(ii) Price risk

Over the reporting period, the Company did not have any oil and gas production and was therefore not exposed to movements in the price of oil and gas. The Company therefore has no requirement to mitigate oil and gas price risk.

Group sensitivity

As the Company did not receive any revenue from the sale of oil and gas, it is not considered necessary to review sensitivities to movements in oil and aas prices.

(iii) Cash flow and fair value interest rate risk

Interest rate risk arises from both short and long-term borrowings and cash at bank. Borrowings issued at variable rates would expose the Group to cash flow interest rate risk. During 2012 and 2013, the Group had no borrowings at a variable rate of interest. The Group reviews its arrangements on a regular basis. The Parent Entity's fixed rate risk is managed by limiting borrowings of this nature to periods of no more than two years, or if larger, to interest rate reviews every two years.

Group sensitivity

At 31 December 2013 and 2012, if interest rates had changed by -/+ 10% from the year-end rates with all other variables held constant, post-tax loss for the year would have been materially the same.

(b) Credit risk

The Group has no significant concentrations of credit risk. As the Group does not presently have any debtors, significant stock levels or any other significant financial assets, a formal credit risk management policy is not maintained.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities and/or the capacity to raise additional equity. As an oil and gas producer, the Group has aimed to maintain flexibility in funding by keeping committed credit lines available with a variety of counterparties. In light of the Company's current activities, the need to maintain a diverse range of funding maturities has been diminished.

(i) Maturities of financial liabilities

The tables below analyses the Group's material financial liabilities based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows as at 31 December 2013 and are no different to the carrying values.

Group				2013
	Within 6 months s	6 Months to I year	Between 1 and 2 vears S.	Between 2 and 5 vears \$	Over 5 years S.	Total contractual cash flows	Carrying amount s
Financial Liabilities
Trade creditors and accruals	1,327,592					1,327,592	1,327,592
Convertible notes		7.170,349		÷	÷	7,170,349	7.170.349
Other borrowings			1,035,726			1,035,726	1,035,726
Total Financial Liabilities	1,327,592	7.170.349	1.035.726	$\omega$		9,533,667	9,533.667
Group				2012
	Within 6 months	6 Months to 1 year	Between 1 and 2 vears s	Between 2 and 5 vears s	Over 5 vears	Total contractual cash flows s	Carrying amount
Financial Liabilities
Trade creditors and accruals	726.521	×	$\sim$	×	×	726,521	726,521
Convertible notes Interest bearing	٠	×	$\sim$	6,675,500	$\sim$	6,675,500	6,675,500
borrowings	158.543	164,000		694,837		858,837	1,017,380
Total Financial Liabilities	885.064	164,000		7,370,337		8,260,858	8.419,401

(d) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(e) Capital risk management

The Group's objective when managing capital is to safeguard its ability to continue as a going concern (note 1 (i)). Where possible the Group seeks to maximise longer term debt and to minimise additional equity capital, to avoid unnecessary shareholder dilution.

	Note	ROUP
		2013	2012
Total borrowings		8,206,075	7,692,880
Less: Cash and cash equivalents/bank overdraft	8	64	(101,320)
Net debt		8.206.139	7,591,560
Total equity		(7, 876, 135)	(4,405,398)

3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts. of assets and liabilities within the next financial year are discussed below.

(i) Estimated impairment

The Group tests annually deferred oil and gas exploration costs for indicators of impairment, in accordance with the accounting policy stated in note 1. The recoverability of deferred oil and gas exploration expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself, or, if not, whether it successfully recovers the related oil and gas asset through sale.

Factors that could impact the future recoverability include the level of reserves and resources. future technological changes, future legal costs, future changes to the legal environment in which the Group's projects are located, and changes to commodity prices.

To the extent that capitalised oil and aas exploration expenditure is determined not to be recoverable in the future, profits and net assets are reduced in the period in which the determination is made.

(ii) Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations underlaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated fax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such

differences will impact the current and deferred tax provisions in the period in which such determination is made.

(iii) Fair Value of Derivatives Convertible Notes

Under AASB 132, converlible notes are classified as compound financial instruments if they have both a liability and equity component. The Company is required to classify the liability and equity components separately in its financial statements. AASB 139 'Financial Instruments: Recognition and Measurement' deals with the measurement of financial assets and liabilities. Eauity instruments are instruments that evidence a residual interest in the assets of an entity after deducting all of its liabilities. Therefore, when the initial carrying amount of a compound financial instrument is allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instruments as a whole the amount first determined for the liability component.

In relation to the convertible notes disclosed in Note 13, as the liability component exceeds the face value of the Notes, no value exists for the equity component of the notes. Further information is contained in note 13. During the year ended 31 December 2013, the holders of convertible notes voted to approve changes to the terms and conditions of the convertible notes. These changes were subsequently approved by shareholders at a general meeting. The conversion price has been changed to the lower of \$0.0008 and 80% of the volume weighted average price of shares traded on ASX in the 30 days before a notice of conversion is received. The Company has also been given the option of paying interest due under the convertible notes by the issue of shares at 80% of the volume weighted average price of shares in the five days before the interest payment date. The carrying amount of these convertible notes as at 31 December 2013 was \$6,630,500 (2012: \$6,675,500)

4. SEGMENT REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors as it makes the strategic decisions. The Group has adopted a 'management' approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker.

2013	USA	Ukraine	Australia	Total S.
Revenues (other income)		3,885	229,001	232,886
Segment result (loss)	(262, 807)	(164.976)	(1, 132, 743)	(1, 560, 528)
Segment assets	1.017.123	429,746	3.770.920	5,217,789
Segment liabilities	(10.419.039)	(1.140.329)	(8,679,160)	(20.238.530)
2012	USA	Ukraine	Australia	Total
Revenues (other income)	2.052	60,881	230,874	293,807
Segment result (loss)	(305, 481)	8.782	(1.039, 535)	(1,336,234)
Segment assets	1.155.958	3,233,798	3,643,326	8.033.082
Seament liabilities	(8.709.239)	(724.421)	(7,710,896)	(17, 144, 556)

Segment revenue $_{1}$

Segment revenue reconciles to total revenue from the continuing operations as follow:

	Consolidated
	2013
Total segment revenue	232.886	293,807
Intersegment eliminations	(227, 486)	(90.772)

Total revenue from continuina operations

5.400 203.035

2) Segment results

Segment result reconciles to total comprehensive income as follows: Consolidated

	$-201$	2012
Total segment result (loss)	(1,560,528)	(1,336,234)
Intersegment eliminations	(2,372,588)	(120.716)
Loss before tax	(3.933, 116)	.456.950

3) Segment assets

The amounts provided to the board with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

Reportable segments' assets are reconciled to total assets as follows:

	ensolidated
Segment assets	5,217,789	8,033,082
Intersegment eliminations	(3,560,257)	(4,019,079)
Total assets	1.657.532	4.014.003

4) Segment liabilities

The amounts provided to the board with respect to total liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment and the physical location of the asset.

Reportable segments' liabilities are reconciled to total assets as follows:

	Consolidated
	2013	2012
Segment liabilities	(20.238.530)	(17, 144, 556)
Intersegment eliminations	10.704.863	8.725.155
Total liabilities	(9, 533, 667)	(8, 419, 401)

5. OTHER INCOME

		GROUP
	2013	2012
Oil and gas sales
Other revenue	5,400	65,374
Debts forgiven*		137,661
	5,400	203,035

* Due to changes in the calculation of consultant fees, during the year to 31 December 2012, Mr Sklenka, a director of Advanced Energy Limited until December 2012, waived outstanding amounts totalling \$137,661 that were owing in relation to his services.

6. EXPENSES

	GROUP
	2013	2012
Loss from operations before income tax has been determined after:
(a) Key management personnel remuneration expenses (b) Finance costs - Interest on borrowings	114,490 681,974	139,304 655,372
7. INCOME TAX	GROUP
	2013 $\overline{S}$	2012 S
a) Income tax (benefit)/expense
Current tax charge Deferred tax relating to origination and reversal of
temporary differences
Income tax expense/(benefit) reported in the income statement
	GROUP
	2013	2012
b) Deferred tax expense		S
Decrease/(increase) in deferred tax asset
(Decrease)/increase in deferred tax liability

The prima facie income tax expense/(income) on pre-tax accounting loss from operations reconciles to the income tax expense/(income) in the financial statement as follows:

	GROU
	2013	2012
c) Numerical reconciliation of income tax expense to prima
facie tax payable
Accounting loss before tax	(3,933,116)	(1,456,950)
At statutory income tax rate of 30% (2012: 30%)	(1.179.935)	(437, 085)
Expenditure not allowable for tax purposes	729,682	51,000
Deferred Tax Assets not brought to account	450,253	299,122
Foreign exchange movements		(13.037)
Income fax expense/(benefit)	$\sim$

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. Deferred tax assets relating to tax losses have not been bought to account because the Directors do not consider that it is probable that there will be future profits available for which the losses may be utilised.

	GROUP
	2013	2012
d) Unrecognised deferred fax balances
Deferred tax assets/(liabilities) recognised and un-
recognised:
Tax losses:
Australian tax losses - revenue	6,578,260	3,072,927
Foreign tax losses - revenue	4.059.482	3,631,699
Temporary differences

Australian - other Foreign subsidiaries - Capitalised exploration and	(2,432,273)	64.124
evaluation	(482, 729)	(330,769)
Foreign subsidiaries - Other		(2, 556)
Total unrecognised	7,722,740	6.435.425

The franking balance as at the end of the year was nil (2012: nil)

Advance Energy Limited has tax losses arising in Australia of A\$14,389,078 (2012: A\$10,243,091) that are available indefinitely to offset against future profits of the Company providing the tests for deductibility against future profits are met.

8. CASH AND CASH EQUIVALENTS

Cash and cash equivalents is reconciled to the cashflow statement as follows;
Cash at bank		101.320
Bank Overdraft	64
	64	01.320

9. TRADE AND OTHER RECEIVABLES

Current
Trade receivables	46.119	63,990
Other receivables		$\sim$
	19	63,990

10. PROPERTY, PLANT AND EQUIPMENT

The second complete the control of the second control of the control of the control of the control of the control of the control of the control of the control of the control of the control of the control of the control of
Office Equipment
Opening net book value	6,187	5,844
Exchange differences	(1.902)	46
Additions	2.773	7.364
Depreciation	(5.010)	(7,067)
Closing book value	2,048	6,187

11. OIL AND GAS EXPLORATION

Oil and Gas Exploration

	GROUP
	2013	2012
Oil and gas exploration - cost	1,609,097	3,828,523
Movements in carrying amounts are reconciled as follows:
Opening balance	3,828,523	609,981
Acquired on acquisition of subsidiary (Note 20)	3.440	3,195,487
Exploration costs capitalised	65,878	65,878
Impairment (i)	(2,498,151)	(47,000)
Foreign exchange difference	209,407	4,177
Closing balance	1,609,097	3,828,523

Recovery of the carrying amount is dependent upon successful development and commercial exploitation, or alternatively, sale of the respective areas of interest.

$(i)$ Subsequent to year end the Company announced that it had withdrawn from its Ukrainian ventures. As a result of this the carrying value of deferred oil and gas exploration costs has been impaired in the year to 31 December 2013, It is anticipated that the Ukrainian ventures. along with Ukraine related Borrowings (Note 13), will be disposed for a nominal sum.

12. TRADE AND OTHER PAYABLES

	GROUP
Trade payables Other payables	1,292,459 35,133	726,521
	1,327,592	726,521

Refer to Note 2 for foreign currency exposure and disclosures on fair values, Included in trade and other payables are amounts due to related parties amounting to \$1,057,222.

13. BORROWINGS

convertible notes.

	GROUP
	2013	2012
Current
Short term loans
Unsecured 1	164,000	164,000
Accrued interest 2	539,849	158,543
Convertible Notes - unsecured 2	6,630,500
	7,334,349	322,543
Non-current
Convertible Notes- unsecured 2		6,675,500
Other loan 3	703,259	587,522
Borrowing from related party 4	168,467	107,315
	871,726	7,370,337
For further details see note 22 of this report.

• $21$ The listed convertible notes may be converted at the option of the holder at the lower of \$0.08 and 80% of the volume weighted overgae price of shares traded on ASX in the 30 days before a notice of conversion is received. The terms of the listed notes are sixty (60) months with a coupon rate of 9.5% for the listed notes, and a redemption date of 31 December 2014, As at 31 December 2013 all unlisted notes have been repaid. The Company has the option of paying interest due under the convertible notes by the issue of shares at 80% of the volume weighted average price of shares in the five days before the interest payment date. Accrued interest relates to interest owing on the
• Epic Energy Ukraine Ltd has a historical loan with an unrelated party, Wellmarsh Properties Ltd which was $31$ provided to fund development of Epic's Balochna project in Crimea. Any return of loan funds or interest is to be made from the proceeds of the Balochna project and, in the event that the lender does not provide additional funds to complete any work commitments, no loan funds or interest need be repaid
• 41

The outstanding finance facility of \$168,467 is owed to Mr Gennady Varitsky, who was owner of Epic. Eneray Ukraine LLC until it was acquired by Celiastad Holdings Ltd in September 2012. Mr Varitsky is the current director of Epic Energy Ukraine LLC. The finance facility is interest-free

14. ISSUED CAPITAL

14.1 Ordinary shares		GROUP
	2013 s	2012 S
1,298,959,600 authorised and fully paid ordinary shares (2012: 1,022,915,843)	19,975,401	19,683,329
Movements in shares on issue
Opening balance	19,683,329	16,109,747
Shares issued during the period
18,815,591 Conversion of convertible notes at \$0.0024	45,000
144,668,004 Convertible note interest converted at \$0.0011	157,475
69,186,734 Convertible note interest converted at \$0,0008	55,349
21,686,714 Convertible note interest converted at \$0.0008	17,349
21,686,714 Convertible note interest converted at \$0.0008	17,349
13,499,998 fully paid ordinary shares issued at \$0.006 each		81,000
34,676,537 fully paid ordinary shares issued at \$0.004 each		138,706
49,544,700 fully paid ordinary shares issued at \$0.003 each (issued to settle
quarterly interest payable on convertible notes - Note 13)	$\sim$	158,543
25,000,000 fully paid ordinary shares issued at \$0.004 each	u	100,000
10,000,000 fully paid ordinary shares issued at \$0.004 each		40,000
49,544,709 fully paid ordinary shares issued at \$0.003 each (issued to settle
quarterly interest payable on convertible notes - Note 13)	$\overline{a}$	158,543
5,000,000 fully paid ordinary shares issued at \$0.004 each		20,000
6,250,000 fully paid ordinary shares issued at \$0.004 each for share based
payment to supplier (Note 29)		25,000
27 fully paid ordinary shares issued at \$0.03 each		0.81
500,000,000 fully paid ordinary shares issued at a deemed price of \$0.005
each to acquire 100% of Celiastad Pty Ltd - Note 21)		2,500,000
38,389,624 fully paid ordinary shares issued at \$0.004 each (issued to settle
quarterly interest payable on convertible notes - Note 13)		158,549
73,333,333 fully paid ordinary shares issued at \$0.003 each		220,000
Less capital raising costs	(450)	(26, 760)
Closing balance	19,975,401	19,683,329

• $(\alpha)$ Effective 1 July 1998 the Corporations Legislation in place abolished the concepts of authorised capital and par value of shares. Accordingly the Parent does not have authorised capital or par value in respect of issued shares.
• $(b)$ Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.
• $|C|$ At shareholders meetings each ordinary share is entitled to one vote when a poll is called. otherwise each shareholder has one vote on a show of hands.

14.2 Options

The movements in options over ordinary shares during the year were as follows:

2013. Expiry Date	Exercise Price.	Number at beginning of period	Issued	Exercised	Expired during the period	Number at end of period
31 August 2012	\$0.03	$\sim$		$\frac{1}{2} \left( \frac{1}{2} \right) \left( \frac{1}{2} \right) \left( \frac{1}{2} \right)$ $\sim$		$\sim$
2012 Expiry Date	Exercise Price.	Number at beginning of period	Issued	Exercised	Expired during the period	Number at end of period
31 August 2012	\$0.03	202,931,768		26	202,931,742

14.3 Converting Preference Shares

All convertible preference shares were issued during the period ended 31 December 2005. The movement in Converting Preference Shares during the year were as follows:

2013 Tass	No. a period	ssued	Converted into ords	No. at end of period
$CPS - B$
$CPS - C$		$\frac{1}{2} \left( \frac{1}{2} \right) \left( \frac{1}{2} \right) \left( \frac{1}{2} \right)$
$CPS - D$
	_________ ---------------------------------------

2012 Class	No. at period	cener	Converted into ords	No. at end of period
$CPS - B$
$CPS - C$		$\sim$
$CPS - D$
---

Each Converting Preference Share (CPS) converts into 1,000,000 ordinary shares as follows: CPS-B-upon the Company achieving production of 500 barrels of oil equivalent per day (BOEPD) CPS-C - upon the Company achieving production of 1,000 BOEPD CPS-D - upon the Company achieving production of 1,500 BOEPD

15. RESERVES

	2013	2012
Foreign currency translation reserve (1) Investment reserve	(2,668,713) 579	(2,839,021) 579
	(2,668,134)	(2,838,442)
(1) Foreign currency translation reserve
Opening balance	(2,839.021)	(2.891.179)
Currency translation differences arising during the year	170,308	52,158
Closing balance	(2,668,713)	(2,839,021)

Nature and purpose of reserves

(1) Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve as described in note 1. The reserve is recognised in profit and loss when the net investment is disposed of.

16. ACCUMULATED LOSSES

Opening balance	(21.250.286)	(19, 793, 336)
Net loss attributable to the members of the parent entity	(3.933, 116)	(1.456.950)
Closing balance	(25, 183, 402)	(21, 250, 286)

17. LOSS PER SHARE

	GROUP
	2013	2012
Net loss used to calculate basic loss per share	(3,933,116)	(1.456, 950)
Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS	Number 1,247,740,603	Number 487,068,706

Details of the shares issued are included under note 14. Dilutive EPS is not reflected as it would result in the reduction of the loss per share.

18. CASH FLOW INFORMATION

Reconciliation of cash flow from operations with loss from continuing operations after income tax.

	GROUP
	2013	2012
Loss after income tax	(3,993,116)	(1.456.950)
Non cash flows in loss from continuing operations:
Debts forgiven		(137, 661)
Depreciation expense	5,010	7.067
Impairment expense	2.432.273	47,000
Finance costs (settled through issue of shares or owing at
year end)	681,974	655,372
Foreign exchange	(55,035)
Changes in assets and liabilities
Increase/(decrease) in trade and other payables and
accrued interest	982,377	306,081
(increase)/decrease in trade and other receivables	17,871	(21.390)
Cash flows from (used in) operations	(71, 354)	600,481)

Non-cash investing and financing activities for the year ended 31 December 2013:

Finance costs owing settled through the issues of shares (Note 14.1).

19. DEFERRED TAX LIABILITIES

There were no deferred tax liabilities as at 31 December 2013 (2012: nil).

20. SUBSIDIARIES

The Consolidated Financial Statements incorporate the assets, liabilities and results of the following Subsidiaries in accordance with the accounting policy described in Note 1.

Percentage held

Name of Subsidiary	Incorporation	2013	$-2012$
Advance Exploration and
Production, Inc.	Texas USA	100%	100%
AEPI Midstream, Inc.	Texas USA	100%	100%
Advance Wolfberry Inc	Texas USA	100%	100%
Celiastad Pty Ltd	Aust	100%	100%
Celiastad Holdings Ltd	Cyprus	100%	100%
Epic Energy Ukraine LLC	Ukraine	100%	100%

The parent entity, Advance Energy Limited, acquired a 100% interest in Celiastad Pty Ltd on 25 September 2012. Celiastad Pty Ltd has a 100% interest in Celiastad Holdings Ltd, which in turn has a 100% interest Epic Energy Ukraine LLC.

Purchase consideration:	Fair Value
Ordinary Shares (Note 14.1)	2,500,000
	2,500,000
Fair value of net assets acquired on date of acquisition:
Cash and cash equivalents
Trade and other receivables	25,662
Plant and equipment	3.271
Oil and gas exploration costs	3,195,487
Trade and other payables	(10, 763)
Borrowings	(713, 657)
	2,500,000

There were no acquisitions in the current reporting period.

21. RELATED PARTY TRANSACTIONS

$(a)$ Transactions with related parties

Directors and officers, or their personally-related entities, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of these entities transacted with the Company in the reporting period. The terms and conditions of these transactions, which involved primarily the Companies, charged by related entities for office and secretarial services, and for travel and accommodation costs, were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm's length basis.

The amounts charged during the year to related entities and the trading balances outstanding at the 31 December 2013 are detailed below:

Entity.	Transaction	20135	2012S
Management Ptv AAG L/d/ GCP Capital Pty Ltd/ GBU Security Pty Ltd	AAG Management Pty Ltd is a management company which provides facilities, human resources, and other administration and consulting services. From 01/07/2011 AAG Management Pty Ltd has been charging a fixed monthly fee for the above mentioned services.	351,720	236,500
	AAG Management has also provided Advance energy with a	15,344

	loan during the current financial year.
Greencode Ply Ltd	Entity is no longer a related party. Previously this entity was related to Advance Energy Ltd via director Gordon Sklenka (who resigned in December 2012) - and it provided Advance Energy Ltd with a loan.		50,699
Gondwana Securities	This entity is related to Advance Energy Ltd via Anthony Short (Director of both entities). Gondwana Securities has provided Advance Energy a loan during the year.	7.500
Odin Energy Ltd	This entity is related to Advance Energy Ltd via Anthony Short (Director of both entities). Odin Energy has paid Supplier and Customer deposits on behalf of Advance Energy Ltd.	120,000	120,000
Sealblue Investments Pty Ltd	This entity is related to Advance Energy Ltd via Roland Berzins Company Secretary of Advance Energy, Director of Sealblue Investments). Sealblue Investments Pty Ltd has charged consultancy fees to Advance.	55,000

During the year following expenses were charged by AAG Management and GBU Capital Pty Ltd.

Company	Administrative expenses
AAG Management Pty Ltd (1) GBU Capital Pty Ltd	261.720 90.000
Total	351,720

In 2012, the following expenses were charged by AAG Management Pty Ltd and GBU Capital Pty Ltd:

Company	Administrative expenses
AAG Management Pty Ltd	242,000
GBU Capital Pty Ltd	90.000 332,000
Total

(1) AAG Management is charging fixed monthly fees for corporate administration services which covers the company secretarial fees of Mr Flint (to 30 January 2012) and Mr. Jobling (since 30 January 2012) fees.

The following related parties are holding convertible notes of Advance Energy Ltd:

Company	2013 (Units)	2012 (Units)
Odin Energy Ltd	.600,000	600,000
AXG Mining Ltd	400,000	400,000
Palace Resources Ltd	135,000	135,000

Screm Holdings Pty Ltd*		2.000
Total	2,135,000	2,137,000

Entity is related to Alastair Jobling, who resigned in June 2013.

The aggregate amounts recognised during the year relating to key management personnel and their personally-related entities are included in the primary benefits component of remuneration of directors by the consolidated entity in the remuneration report.

Details of the transactions including amounts accrued but unpaid at the end of the period are as follows:

Specified Director Officer	Transaction	Note	2013\$	2012S
Anthony Short	Consulting fees		90,000	60,000
Gordon Sklenka	Consulting fees	(ii)	$\sim$	60,000
Kip Plankinton	Consulting fees	(iii)	$\overline{\phantom{a}}$	19,304
Igor Soshynsky	Consulting fees		$\overline{\phantom{a}}$	$\sim$
Alistair Jobling	Consulting fees	(iv)	$\sim$	$\sim$

• The Company used the consulting services of Cumberland Investments (WA) Pty Ltd and Fay $(i)$ Holdings, companies within which Mr Anthony Short is a director. He has not been paid any fees since 2012.
• (ii) The Company used the consulting services of Formaine Pty Ltd, a company of which Mr Gordon Sklenka is a related party. Due to changes in the calculation of consultant fees. during the year to 31 December 2012, Mr Sklenka waived outstanding amounts totalling \$137,661 that were owing in relation to his services.
• (iii) The Company used the consulting services of Kip Plankinton.
• (iv) Consulting fee of \$4,125 per month for Alistair Jobling is covered in monthly corporate management fees charged by GBU Capital Pty Ltd (as detailed above).

Amounts were billed based on normal market rates for such services and were due and payable under normal payment terms.

22. KEY MANAGEMENT PERSONNEL DISCLOSURES

$(a)$ Key Management Personnel Remuneration

	CHOUD
	2013	2012
Short-term employee benefits	114,490	139,304
Post-employment benefits
Long-term employee benefits
Share-based payment
	14.490	139,304

Share and Option holdings

The interests of the Directors in shares, Convertible Preference Shares ("CPS") and options of the Company as the year end were:

Shares Indirectly Held - Year Ended 2013

Holder the same part of the same	Held at beginning of	Acquired	Dispose	Converted	Balance at end of
Anthony Short

Indirect ۰ Igor Soshynks	25,792,438	c	$\sim$	$\sim$	25,792,438
Indirect $\bullet$ Kip Plankinton	SE.	$\overline{\phantom{a}}$	É	공	$\sim$
Indirect ۰ Alistair Jobling	$\sim$	÷		×	÷
Direct v $\bullet$	41,187	$\sim$	41,187	$\sim$	$\sim$

Shares Indirectly Held - Year Ended 2012

$\sim$ Holder	Held at beginning of vear	Acquired	Dispose	Converted CPS	Balance at end of vear
Anthony Short
Indirect ۰	25.792.438	92		٠	25,792,438
Gordon Sklenka
Indirect ۰	10.927.499	$\sim$	10,927,499	$\sim$	Ξ
Kip Plankinton
Indirect $\bullet$	$\frac{1}{2} \left( \frac{1}{2} \right) \left( \frac{1}{2} \right)$	$\sim$	$\sim$	$\sim$	$\sim$
Alistair Jobling
Direct v		41,187			41,187

Options - Listed - Year Ended 2013

Holder	Held at beginning of year	cquired	Expired	Exercised	Balance at end of vear
Anthony Short Indirect $\bullet$		$\sim$	$\sim$ 1	$\sim$
Gordon Sklenka Indirect ۰		Ξ	÷.	$\sim$	ä,
Kip Plankinton Indirect $\bullet$	$\sim$	$\sim$		$\rightarrow$
Alistair Jobling Direct ۰	$\sim$	$\sim$		$\frac{1}{2}$	$\sim$

Options - Listed - Year Ended 2012

Holder	Held at beginning of year	Acquired	Expired	Exercised	Balance at end of vear
Anthony Short
Indirect ۰	24,072,937	÷	24,072,937	T.	52
Gordon Sklenka
Indirect ۰	10,198,997	$\sim$	10,198,997	$\overline{\phantom{a}}$	×.
Kip Plankinton
Indirect $\bullet$				i.
Alistair Jobling
Direct ۰

CPS Indirectly Held - Year Ended 2013

PIAINSPORTATION I AN EINA EXIV Director	Balance at start of year	Acquired during vear	Sold during year	Balance at end of vear
Anthony Short		$\sim 10^{-1}$		3
Kip Plankinton			CONTRACTOR
CPS Indirectly Held - Year Ended 2012
Director	Balance at start of year.	Acquired during year	Sold during year	Balance at end of year
Anthony Short	З	m.

51

Kip Plankinton

Refer to the Directors' Report for further information. No shares or options were issued to directors during the current or previous financial year.

23. REMUNERATION OF THE AUDITORS

	GROUP
	2013	2012
Amounts received or due and receivable by auditors:
Audit and assurance services charged by BDO Audit(WA) Pty Ltd Audit and assurance services charged by Somes Cooke Other services - Taxation	27,000	16,687 23,000
	27,000	39.687
Amounts received or due and receivable by Ferguson Comp & Poll, P.C in relation to the US based subsidiary companies for:
Audit and audit review services of the financial reports
Other services - Taxation		10,308
		10,308
	27,000	49.995

24. COMMITMENTS

There were no commitments as at 31 December 2013 (2012:Nil)

25. EVENTS SUBSEQUENT TO BALANCE SHEET DATE

In January 2014 the Company announced to the market that it was withdrawing from its Ukrainian ventures. The reasons for doing this included likely higher drilling costs than originally anticipated, the difficulty of raising capital in the current capital structure and the unpredictable political environment in Ukraine.

26. CONTINGENCIES

There were no known contingencies at year end (2012: Nil).

27. SHARE BASED PAYMENTS

During the year, No fully paid ordinary shares were issued to parties in exchange for services (2012: $6.250.000$ .

28. DIVIDENDS

There were no dividends paid or payable in respect of the current or previous financial period.

29. PARENT ENTITY INFORMATION

The parent entity is Advance Energy Limited.

Parent Entity
2013	2012
40,745	133,173
3.730.175	3,510,153
3,770,920	3,643,326
8,656,317	1,035,396
22.844	6,675,500
8,679,161	7,710,896
19,975,401	19,683,330
(24, 883, 642)	(25, 927, 817)
	2.176,917
(4,908,241)	(4,067,570)
	(1.039.535)
	(1.132.744)

DIRECTORS' DECLARATION

The Directors of the Company declare that:

• 1) The financial statements and notes, as set out on pages 26 to 56 are in accordance with the Corporations Act 2001 and:
• a) comply with Accounting Standards and the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
• b) give a true and fair view of the financial position as at 31 December 2013 and of the performance for the period ended on that date of the Group;
• 2) The Directors have declared that:
• a) the financial records of the Company for the financial period have been properly maintained in accordance with section 286 of the Corporations Act 2001
• b) the financial statements and notes for the financial period comply with the Accounting Standards: and
• c) the financial statements and notes for the financial period give a true and fair view.
• 3) The remuneration disclosures included in the Directors' Report (as part of the audited Remuneration Report), for the year ended 31 December 2013, comply with section 300A of the Corporations Act 2001.
• 4) In the Directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
• 5) The financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board

This declaration is made in accordance with a resolution of the Board of Directors.

$1117$

A.Short Chairman

West Perth, Western Australia 31th March 2014

35 Outrain St West Perth WA 6005

PO Box 709 West Perth WA 6872

T 08 9426 4500 F 08 9481 5645 W somescooke.com.au E info@somescooke.com.au

Chartered Accountants (Aus) Runinger Consultants Financial Advisors

Independent Auditor's Report To the members of Advance Energy Ltd

Report on the Financial Report

We have audited the accompanying financial report of Advance Energy Ltd, which comprises the consolidated statement of financial position as at 31 December 2013, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the period's end or from time to time during the financial period.

Directors' Responsibility for the Financial Report

The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Opinion

In our opinion:

• $(a)$ the financial report of Advance Energy Ltd is in accordance with the Corporations Act 2001, including:
• (i) giving a true and fair view of the consolidated entity's financial position as at 31 December 2013 and of its performance for the year ended on that date; and
• (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
• $(b)$ the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Emphasis of matter - Inherent uncertainty regarding continuation as a going concern

Without modifying our opinion, we draw attention to Note 1 to the financial report, which describes that the ability of the company to continue as a going concern is dependent on its ability to develop cash flow from its assets, acquire new projects and to secure additional funding through the raising of further capital and/or support from its financiers. As a result there is material uncertainty related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern, and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 17 to 21 of the directors' report for the year ended 31 December 2013. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Advance Energy Ltd for the year ended 31 December 2013 complies with section 300A of the Corporations Act 2001.

Somes Cooke

Somes Cooke

es cooke
Dicholas Hallens

Nicholas Hollens 31 March 2014 Perth

TWENTY LARGEST SHAREHOLDERS – FULLY PAID ORDINARY SHARES as at 29th April 2014

Rank	Name	Units	% of Units
1	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	181,744,080	13.539
2	ODIN ENERGY LIMITED	115,125,704	8.577
3	AXG MINING LTD	76,281,426	5.683
4	GOLD WELLS PTY LTD	61,000,000	4.544
5	JACOBS CORPORATION PTY LTD	59,000,000	4.395
6	SACCO DEVELOPMENTS AUSTRALIA PTY LTD <the saccoFAMILY A/C>	43,035,657	3.206
7	PALACE RESOURCES LTD	36,912,544	2.750
8	SUBURBAN HOLDINGS PTY LTD <the fundA/C>	36,170,666	2.695
9	TROCA ENTERPRISES PTY LTD	33,333,333	2.483
10	MELBOR PTY LTD	25,000,000	1.862
11	BOGART GROUP LTD	23,575,594	1.607
12	522 INVESTMENTS PTY LTD	19,995,500	1.487
13	HALLCREST INVESTMENTS PTY LTD	19,649,436	1.464
14	MR SHAIFFUDIN AHMED	18,706,253	1.394
15	MR DEVAKA SANATH HATTHOTUWA	17,500,000	1.304
16	MR DALE ALLAN BRYAN & MRS TRACY TZU-LEI BRYAN <bryan INVESTMENT A/C></bryan	15,504,000	1.155
17	QUINTERO GROUP LTD	15,504,000	1.155
18	MR DEREK KANNGIESSER	15,000,000	1.117
19	FEINT HOLDINGS PTY LTD	13,049,000	0.972
20	MR GUANG JIN XIANG & MRS YING HAI SHI	13,000,000	0.968
	Totals: Top 20 holders of AVD ORDINARY FULLY PAID	837,047,211	62.358
	Total Remaining Holders Balance	505,285,817	37.642

Distribution schedule of the number of holders in each class of equity security.

BY CLASS	HOLDER OF ORDINARY SHARES	NUMBER OF ORDINARY SHARES	%
1 - 1,000	26	3,483	0.000%
1,001 - 5,000	37	125,455	0.009%
5,001 - 10,000	104	843,212	0.063%
10,001 - 100,000	187	8,051,974	0.600%
> 100,000	307	1,333,308,904	99.328%
Total	661	1,342,333,028	100.00%

TWENTY LARGEST HOLDERS OF LISTED CONVERTIBLE NOTES as at 29th April 2014

RANK	NAME	UNITS	% OF UNITS
1	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	4,300,000	64.852
2	ODIN ENERGY LIMITED	1,600,000	24.131
3	AXG MINING LTD	400,000	6.033
4	PALACE RESOURCES LTD	135,000	2.036
5	GOLDBONDSUPER PTY LTD	20,000	0.302
6	GOLDFIRE ENTERPRISES PTY LTD	20,000	0.302
7	DR MARK RODERICK OLIVE + DR BENG HOR EU <mobu superFUND A/C>	15,000	0.226
8	MR MAGNUS GISLI GISLASON & MRS JENNIFER JEAN GISLASON	10,000	0.151
9	DIANA THELMA DANN & SAMANTHA JANE DANN <dalveen lSUPER FUND A/C>	10,000	0.151
10	G & R MCKENZIE PTY LTD	10,000	0.151
11	MR CHRISTOPHER JAMES ASHWORTH	10,000	0.151
12	HAMTWO PTY LTD	10,000	0.151
13	MS BEVERLEY CHARD + MR JOHN SHERATON <chard fA/C>	10,000	0.151
14	MS BEVERLEY JOY CHARD + MR JOHN SHERATON <chard FAMILY S/F A/C></chard	10,000	0.151
15	SANDGROPER SUPER PTY LTD	8,000	0.121
16	FOUR FIFTY PTY LTD	7,500	0.113
17	MISS SUEI YIN HO	7,000	0.106
18	MATTHEW WARNOCK & LUCINDA WARNOCK <warnock superFUND A/C>	5,000	0.075
19	ANTHONY BUHAGIAR	5,000	0.075
20	ALWAYS HOLDINGS PTY LTD	5,000	0.075
	Totals: Top 20 holders of AVDG CONVERTIBLE NOTES	6,597,500	99.502
	Total Remaining Holders Balance	33,000	0.498

Distribution schedule of the number of holders in each class of equity security.

BY CLASS	NUMBER OF HOLDERS	NUMBER OF CONVERTIBLE NOTES	%
1 - 1,000	0	0	0.000%
1,001 - 5,000	19	48,000	0.724%
5,001 - 10,000	10	92,500	1.395%
10,001 - 100,000	3	55,000	0.830%
> 100,000	4	6,435,000	97.052%
Total	36	6,675,500	100.00%

A. CORPORATE GOVERNANCE

A statement disclosing the extent to which the Company has followed the best practice recommendations set by the ASX Corporate Governance Council during the reporting period is previously contained in this document as contained in the 31 Dec 2013 Financial Report, announced to the market on 31/03/2014 and also available on the Company website.

B. SHAREHOLDING

1. Substantial Shareholders

The following substantial shareholders were listed on the Company's register as at 26th April 2013:

	Shareholder	Number of shares	%
1	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	181,744,080	13.539
2	ODIN ENERGY LTD	115,125,704	8.577
3	AXG MINING LTD	76,281,426	5.683

2. Other Securities

Names of persons holding greater than 20% of listed convertible notes:

	Shareholder	Number of shares	%
1	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	4,300,000	64.852
2	ODIN ENERGY LTD	1,600,000	24.131

Names of persons holding greater than 20% of unlisted convertible preference shares:

Shareholder	Number of shares	%
FAY HOLDINGS PTY LTD	3	33.33
NORTH AMERICAN ENERGY, INC	3	33.33

1. Number of holders in each class of equity securities and the voting rights attached.

There are 661 holders of ordinary shares. Each Shareholder is entitled to one vote per share held. On a show of hands every Shareholder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

There are 36 holders of convertible notes. There are no voting rights attached to these convertible notes.

There are 5 holders of convertible preference shares. There are no voting rights attached to these convertible notes.

1. Marketable parcel

There are 468 Shareholders with less than a marketable parcel as at 29th April 2014.

C. OTHER DETAILS

1. Company Secretary:

Roland Berzins/David Ballantyne

1. Address and telephone details of the entity's registered and administrative office

The address and telephone details of the registered and administrative office:

Suite 4, 16 Ord Street WEST PERTH Western Australia 6005

Telephone: + (61) 08 9429 2900 Facsimile: + (61) 08 9486 1011

1. Address and telephone details of the office at which a register of securities is kept

The address and telephone number of the office at which a registry of securities is kept:

Advanced Share Registry Services 110 Stirling Highway NEDLANDS Western Australia 6009

Telephone: + (61) 08 9389 8033 Facsimile: + (61) 08 9389 7871

1. Stock exchange on which the Company's securities are quoted

The Company's listed equity securities are quoted on the Australian Stock Exchange.

1. Restricted Securities

There are no restricted securities.

1. Review of operations

A review of operations is included in this report under Review of operations.

1. Exploration Projects

The Company's leases and operations in the state of Texas in USA are tabled below:

API#	Operator	Lease	Well#	Field name	RRC#	AEPI WI	AEPI NRI	Acreage held
42-317-	Endeavor Energy	Roman		Spraberry (Trend
36123	Resources L.P.	"27"	1	Area)	40739	0.5	0.3778125	160

The Company's ultimate subsidiary, Epic Energy Ukraine Ltd, is also party to a Joint Activity Agreement in the following hydrocarbon license in Ukraine (subsequent to year end the interest has been relinquished by Advance Energy Ltd):

Subsoil Exploration License #	Licensee	Name	Area (Km2)	Interest (Pre payback)	Interest (Post Payback)
2664	ZakhidUkrGeologiya	Ortynytska	19.5	70%	50%