TALIUS GROUP LIMITED — Interim / Quarterly Report 2012

Aug 26, 2012

Suite 2, 16 Ord Street
West Perth WA 6005 PO Box 1779 West Perth 6872

abn: 65 111 823 762 tel: +61 8 9429 2900 fax: +61 8 9486 1011 advanceenergyltd.com.au

ADVANCE ENERGY LIMITED

ACN 111 823 762

HALF YEAR REPORT

30 JUNE 2012

The information contained in this document should be read in conjunction with Advance Energy Ltd's annual report for the year ended 31 December 2011and any public announcements made by the company in accordance with the continuous disclosure obligations arising from the Corporations Act 2001 and the ASX Listing rules.

$\overline{a}$

CONTENTS
	Page
	No.
DIRECTORS REPORT	$\overline{2}$
AUDITOR'S INDEPENDENCE DECLARATION	4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME	5
CONSOLIDATED STATEMENT OF FINANICAL POSITION	6
CONSOLIDATED STATEMENT OF CASHFLOWS	7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	8
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT	9
DIRECTORS' DECLARATION	16
INDEPENDENT AUDITOR'S REVIEW REPORT	17

DIRECTORS REPORT

Your directors present their report of the consolidated entity ("the Group") consisting of Advance Energy Ltd ("the Company") and the entities it controlled as at the end of, or during, the half year ended 30 June 2012.

DIRECTORS

The following persons were directors of the Company during the half year and until the date of this report:

Anthony Short Managing Director Non-Executive Director Gordon Sklenka Non-Executive Director Kip Plankinton

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 Company has been seeking to acquire additional oil and gas assets.

OPERATING RESULTS

The net operating loss of the Group for the half year ended 30 June 2012 after income tax amounted to \$660,524 (same period 2011: loss \$837,076). Further details are supplied in the Review of Operations section below.

DIVIDENDS PAID OR RECOMMENDED

No dividends were paid or declared during the half year and the Directors do not recommend the payment of a dividend.

CORPORATE

Acquisition of Celiastad Pty Ltd

The Company entered into a Heads of Agreement with Celiastad Pty Ltd to acquire 100% of the issued capital of Celiastad Pty Ltd. Celiastad, through a wholly-owned subsidiary Epic Energy Ukraine Ltd, has entered a Joint Activity Agreement with Ukrainian company ZakhidUkrGeologiiya (ZUG), which is the holder of a 19km² special subsoil license over the Ortynytska Prospect in Western Ukraine. The Ortynytska Prospect was first explored in 1993, shortly after Ukraine became independent from the former Soviet Union.

Variation of Listed Convertible Notes

Holders of Listed Convertible Notes and Shareholders approved the variation of the conditions of the Company's Listed Convertible Notes. The conversion price has been changed to the lower of \$0.08 and 85% of the volume weighted average price of shares in the 30 days before the Listed Convertible Notes are converted.

Noteholders and Shareholders also approved a variation allowing the Company to issue shares to satisfy interest payable under the Listed Convertible Notes. Interest payable for the quarters ending 31 March 2012 and 30 June 2012 was subsequently satisfied by the issue of shares.

OPERATIONS

Motherlode Phase III Project, Martin County

AEPI has a 50% working interest (38% NRI) in the Mother Lode III project which includes 48,000 acres (75 square miles) of 3D seismic. No further exploration or development has occurred on the project.

SUBSEQUENT EVENTS

On 20 July 2012, shareholders approved the issue of 500m shares for the acquisition of Celiastad Pty Ltd and approved the proposed offer of 600m shares at \$0.005 per share.

LIKELY DEVELOPMENTS

Advance expects to complete the acquisition of Celiastad Pty Ltd and to undertake a placement to raise \$3m. Advance will undertake the acquisition of approximately 20km of 2D seismic data in order to assist in the design of a re-entry of the Ortynytska-3 well which was originally drilled in 1993-4 but was never brought into production.

AUDITOR'S INDEPENDENCE DECLARATION

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 4.

This report is made in accordance with a resolution of directors.

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

an Most

A. Short Managing Director

West Perth, W.A. 27th August 2012

1304 Hay 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 Business Consultants Financial Advisors

AUDITOR'S INDEPENDENCE DECLARATION

To those charged with governance of Advance Energy Limited

As auditor for the review of Advance Energy Limited for the half year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been:

• a) No contraventions of the independence requirements of the Corporations Act 2001 in relation to the review; and
• b) No contraventions of any applicable code of professional conduct in relation to the review.

Somes Cooke

icholas Hollens

Nicholas Hollens Perth 27 August 2012

$\overline{4}$

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

		Half Year 2012	Half Year 2011
	Notes
Revenue
Other income		4,439	41,832
Depreciation		(1, 448)	(3, 161)
Administrative expenses		(343, 434)	(535, 566)
Finance costs		(320, 081)	(340, 181)
Loss before income tax		(660, 524)	(837,076)
Income tax expense
Loss for the half year		(660, 524)	(837,076)
Other comprehensive income
Exchange differences on translation of foreign operations		26,925	(57, 878)
Other comprehensive income for the half
year, net of tax		26,925	(57, 878)
Total comprehensive income for the half year attributable to the owners of
Advance Energy Ltd		(633,599)	(894, 954)
Loss per share
Basic and diluted (cents per share)	9	(0.26)	(0.39)

The Consolidated Statement of Comprehensive Income should be read in conjunction with the
accompanying notes to the consolidated interim financial report.

$\widetilde{R}$

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012

	30 June	31 December
		2011
	$\mathcal{S}$	\$
	42,063	144,532
	75,057	42,600
	117,120	187,132
		5,844
7	615,813	609,981
		615,825
		802,957
	513,880	420,440
11	186,700	281,785
11	158,543
	859,123	702,225
		6,675,500
	6,675,500	6,675,500
	7,534,623	7,377,725
	(6,738,553)	(6, 574, 768)
10		16,109,747
		(714, 262)
		(21, 970, 253)
	(6, 738, 553)	(6, 574, 768)
	Notes 11	2012 58,724 4,413 678,950 796,070 6,675,500 16,579.561 (687, 337) (22,630,777)

The Consolidated Statement of Financial Position should be read in conjunction with the accompanying
notes to the consolidated interim financial report.

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

	Half year	Half year
	2012	2011
	\$
Cash flows from operating activities
Receipts from customers Payments to suppliers & employees	(236, 497)	(671, 734)
Interest paid	(2,995)	(345,026)
Interest received	4,439	41,832
Net cash (used in) operating activities	(235, 053)	(974, 928)
Cash flows from investing activities
Purchase of oil and gas properties		(2, 562)
Net cash (used in) investing activities		(2, 562)
Cash flows from financing activities
Proceeds from issue of shares	319,706 (8, 435)	(34, 511)
Capital raising costs Loan to other parties	(58, 724)
Repayments of borrowings	(114, 131)	(441, 854)
Net cash (used in)/ provided by financing activities	138,416	(476, 365)
Net (decrease) in cash and cash equivalents	(96, 637)	(1,453,855)
Cash and cash equivalents at the beginning of the financial period	144,532	2,545,539
Effect of exchange rate changes on cash and cash equivalents	(5,832)	(12, 501)
Cash and cash equivalents at the end of the financial period	42,063	1,079,183

The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes to the consolidated interim financial report.

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

Period ended 30 June 2012	Issued Capital	Equity Reserve	Option Reserve	Foreign Currency Translation Reserve	Accumulated losses	TOTAL
	\$	Ş	Ş	\$	Ş	s
Balance at beginning of period	16,109,747	151.072	2,025,845	(2,891,179)	(21, 970, 253)	(6, 574, 768)
Loss for the period					(660, 524)	(660, 524)
Currency translation on foreign operations				26,925		26,925
Total comprehensive income for half year Transactions with equity holders in their capacity as equity holders				26,925	(660, 524)	(633, 599)
Issues of share capital, net of transaction costs	469,814			÷.		469,814
Balance at 30 June 2012	16,579,561	151,072	2,025,845	(2,864,254)	(22,630,777)	(6,738,553)

Period ended 30 June 2011	Issued Capital	Equity Reserve	Option Reserve	Foreign Currency Translation Reserve	Accumulated losses	TOTAL
	\$	S	Ş	Ş	Ş	\$.
Balance at beginning of period	16,144,258	151,072	2,025,845	(2,798,305)	(20.374.429)	(4,851,559)
Loss for the period					(837,076)	(837,076)
Currency translation on foreign operations		$\overline{\phantom{a}}$		(57, 878)		(57, 878)
Total comprehensive income for half year Transactions with equity holders in their capacity as equity holders				(57, 878)	(837,076)	(894, 954)
Issues of share capital, net of transaction costs	(34,511)					(34, 511)
Balance at 30 June 2011	16,109,747	151,072	2,025,845	(2,856,183)	(21, 211, 505)	(5,781,024)

The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes to the consolidated interim financial report

CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

1. REPORTING ENTITY

Advance Eneray Limited ("Advance") is a company domiciled in Australia. The consolidated interim financial report of the Company as at and for the half year ending 30 June 2012 comprises Advance and its subsidiaries (together referred to as the "consolidated entity") and the consolidated entitys' interests in associated and jointly controlled entities.

The annual financial report of the consolidated entity as at and for the year ended 31 December 2011 is available upon request from Advance's website, www.advanceenergyltd.com.au, the ASX website or the companies registered office at Suite 2, 16 Ord Street, WEST PERTH, Western Australia 6872.

2. STATEMENT OF COMPLIANCE

The consolidated half year financial report is a general purpose financial report which has been prepared in accordance with AASB 134; Interim Financial Reporting and the Corporations Act 2001.

The consolidated half year financial report does not include all of the notes and information normally included in an annual financial report. Accordingly this report should be read in conjunction with the consolidated annual financial report for the year ended 31 December 2011 and any public announcements made by Advance Energy Limited during the half year in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules.

This consolidated half year financial report was approved by the Board of Directors on 29th August 2012.

3. GOING CONCERN

This report has been prepared on the going concern basis, which contemplates the continuation of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The consolidated entity has incurred a net loss after tax for the half year ended 30 June 2012 of \$660,524 (2011: \$837,076) and experienced net cash outflows from operations of \$235,053 (2011: \$974,928). As at 30 June 2012, the consolidated entity had net liabilities of \$6,738,553 (31 December 2011: $$6,574,768$ .

As stated in the "Subsequent Events" and "Likely Development" sections of this report, the shareholders have approved the issue of 500M shares for the acquisition of Celiastad Pty Ltd and approved the proposed offer of 600M shares at \$0.005 per share.

The directors expect the Company to complete the acquisition of Celiastad Pty Ltd and to undertake a placement to raise \$3M.

The Directors believe that there are sufficient funds to meet the consolidated entity's working capital requirements and expect that major shareholders of the consolidated entity will support fund raising, as has been demonstrated in past share issues to the existing shareholder base.

However, the Directors recognise that the ability of the consolidated entity to continue as a going concern and to pay its debts as and when they fall due is dependent on the ability of the consolidated entity to secure additional funding through either the issue of further shares and or options, convertible notes or entering into negotiations with third parties regarding the sale and or farm out of assets of the consolidated entity or a combination thereof.

The directors have reviewed the business outlook and are of the opinion that the use of the going concern basis of accounting is appropriate as they believe the consolidated entity will achieve the matters set out above. As such, the directors believe that they will continue to be successful in securing additional funds through debt or equity issues as and when the need to raise working capital arises.

Notwithstanding this, there is uncertainty whether the consolidated entity will be able to continue as a going concern.

Should the consolidated entity 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 consolidated entity be unable to continue as a going concern.

4. SIGNIFICANT ACCOUNTING POLICIES

The same accounting policies and methods of computation have been followed in this interim financial report as were applied in the most recent annual financial statements, except in relation to the matters discussed below.

5. NEW AND REVISED ACCOUNTING REQUIREMENTS APPLICABLE TO THE CURRENT HALF YEAR REPORTING PERIOD

For the half-year reporting period to 30 June 2012, a number of new and revised Accounting Standard requirements became mandatory for the first time, some of which are relevant to the consolidated entity. A discussion of these new and revised requirements that are relevant to the consolidated entity is provided below:

AASB 124: Related Party Disclosures (December 2009)

AASB 124 (December 2009) introduces a number of changes to the accounting treatment of related parties compared to AASB 124 (December 2005, as amended), including the following:

• 1) The definition of a "related party" is simplified, clarifying its intended meaning and eliminating inconsistencies from the definition, including:
• a) the definition now identifies a subsidiary and an associate with the same investor as related parties of each other;

• b) entities significantly influenced by one person and entities significantly influenced by a close member of the family of that person are no longer related parties of each other;

• 2) the definition now identifies that, whenever a person or entity has both joint control over a second entity and joint control or significant influence over a third party, the second and third entities are related to each other; and

• 3) the definition now clarifies that a post-employment benefit plan and an employer sponsor of such a plan are related parties of each other.

A partial exemption is provided from the disclosure requirements for governmentrelated entities. Entities that are related by virtue of being controlled by the same government can provide reduced related party disclosures.

Application of AASB 124 (December 2009) did not have a significant impact on the financial statements of the consolidated entity.

AASB 2010-4: Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101 & AASB 134 and Interpretation 13]

This Standard details numerous non-urgent but necessary changes to Accounting Standards arising from the IASB's annual improvements project. Key changes include:

• 1) clarifying the application of AASB 108 prior to an entity's first Australian-Accounting-Standards financial statements;
• 2) adding an explicit statement to AASB 7 that qualitative disclosures should be made in the context of the quantitative disclosures to better enable users to evaluate an entity's exposure to risks arising from financial instruments;
• 3) amending AASB 101 to clarify that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is required to be presented, but is permitted to be presented in the statement of changes in equity or in the notes;
• 4) adding a number of examples to the list of events and transactions that require disclosure under AASB 134; and
• 5) making sundry editorial amendments to various Standards and Interpretations.

Application of the amendments in AASB 2010-4 did not have a significant impact on the financial statements of the consolidated entity.

AASB 1054; Australian Additional Disclosures and AASB 2011-1: Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project [AASB 1, AASB 5, AASB 101, AASB 107, AASB 108, AASB 121, AASB 128, AASB 132 & AASB 134 and Interpretations 2, 112 & 1131

AASB 1054 sets out the Australian-specific disclosures that are additional to IFRS disclosure requirements. The disclosure requirements in AASB 1054 were previously located in other Australian Accounting Standards.

Application of AASB 1054 did not have a significant impact on the financial statements of the consolidated entity.

$6.$ SEGMENT INFORMATION

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 seament information is presented on the same basis as that used for internal reporting purposes. This has not resulted in change in the number of reportable segments presented. The segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker.

The chief operating decision maker has determined the reporting segments as detailed below: Seament revenue

2012

Revenues - half year to 30 June 2012 Segment loss - half year to 30 June 2012 Seament assets - as at 30 June 2012 Seament liabilities - as at 30 June 2012 Acquisition of plant & equipment, exploration & evaluation and other non-

current assets

Depreciation and amortisation

Revenues - half year to 30 June 2011 Segment loss - half year to 30 June 2011 Segment assets - as at 31 Dec 2011 Seament liabilities - as at 31 Dec 2011 Acquisition of plant & equipment, exploration & evaluation and other noncurrent assets

USA	Australia	Total
1,998	115,987	117,985
(163,284)	(418, 835)	(582, 119)
1,167,757	975,386	2, 143, 143
8,603,638	7,526,025	16,129,663

1,448		1,448
Total	Australia	USA
206,978	206,867	111
(1, 172, 943)	(993,213)	(179,730)
1,948,217	759,235	1,188,982
15,723,951	7,313,853	8,410,099
2,562		2.562

Depreciation and amortisation 3.161 $3,161$ Segment revenue reconciles to total revenue from the continuing operations as follow:

	Half Year	Half Year
	30 June 2012	30 June 2011
Total segment revenue	117,985	206,978
Intersegment eliminations	(113, 546)	(165, 146)
Total revenue from continuing operations	4.439	41,832

Seament results

Seament result reconciles to total comprehensive income as follows:

	Half Year 30 June 2012	Half Year 30 June 2011
Total segment result	(582, 119)	(1, 172, 943)
Intersegment eliminations	(78, 405)	393,745
(Profit)/loss from discontinued operations		(57, 878)
Foreign exchange elimination
Loss before tax	(660, 524)	(837,076)

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:

	June 2012	December 2011
Segment assets Intersegment eliminations	2.143.143 (1,347,073)	1,948,217 (1, 145, 260)
Total assets	796.070	802,957

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:

	June 2012	December 2011
Segment liabilities Intersegment eliminations	16,129,663 (8,595,040)	15,723,951 (8,346,226)
Total liabilities	7,534,623	7,377,725

EXPLORATION AND EVALUATION $\overline{7}$ .

EXPLORATION AND EVALUATION 7.	Half year 30 June 2012	Full year 31 December 2011
Oil & Gas assets as at 31 December	609.981	699,262
Depletion
Impairment		(88, 345)
Foreign exchange difference	5,832	(936)
Oil & Gas Assets at 30 June	615,813	609,981

8. CONTINGENT ASSETS AND LIABILITIES

Since the last annual reporting date, there has been no change in any contingent liabilities or contingent assets.

LOSS PER SHARE $\bullet$

	Half year	Half year
	30 June 2012	30 June 2011
loss used in the calculation of basic EPS	(660,524)	(837,076)
	Number	Number
Weighted average number of ordinary shares outstanding during the period used in
calculation of basic and diluted EPS	249,495,975	214,469,117

$10.$ EQUITY SECURITIES ISSUED

During the half year, the company has issued the following shares:

• 13,499,998 fully paid ordinary shares were issued at \$0,006 to raise \$81,000
• 34,676,537 fully paid ordinary shares were issued at \$0.004 to raise \$138,706
• 49,544,700 fully paid ordinary shares were issued to cover interest on convertible notes for March 2012 quarter.
• 25,000,000 fully paid ordinary shares were issued at \$0.004 to raise \$100,000

As at 30 June 2012, there were 340,398,150 fully paid ordinary shares and 202,931,748 options on issue.

11. BORROWINGS

	Half year	Full year
	30 June 2012	31 December 2011
	\$	P
Current Short term loans
Unsecured	180,000	255,000
Accrued interest	6,700	26,758
	186,700	281,785
Accrued interest on
convertible loans	158,543
Non Current
Convertible Notes -
unsecured(1)
Face value of the note	6,675,500	6,675,500
	6,675,500	6,675,500

(1) The terms of these notes are sixty (60) months with a coupon rate of 9.5% per annum, and a redemption date of 31 December 2014. The conversion price is the lower of \$0.08 and 85% of the volume weighted average price of shares in the 30 days before the Convertible Notes are converted. Of the 6,675,500 notes, 1,600,000 notes are held by Odin Energy Ltd, a director related entity, and 400,000 notes are held by AXG Mining Ltd, a director related entity.

$12.$ SUBSEQUENT EVENTS

On 20 July 2012, shareholders approved the issue of 500m shares for the acquisition of Celiastad Pty Ltd and approved the proposed offer of 600m shares at a minimum of \$0.005 per share to raise \$3 million. Further details are available on the ASX.

Other than the above, no significant events have occurred subsequent to 30 June 2012.

$13₁$ RELATED PARTY TRANSACTIONS

During the period there were changes to related party transactions to those contained in the Annual Report for the year ended 31 December 2011. These are listed below.

As at 30 June 2012 the following loans amounts were owed to related parties:
------------------------------------------------------------------------------	--	--

Entity	Amount (Owing)/Receivable \$A	Relationship
AAG Management Pty Ltd GBU Capital Pty Ltd	(44,000) (33,000)	Management Pty Ltd AAG is a management which company provides facilities, human resources, other administration and and consulting services. AAG Management Pty Ltd is a fully owned subsidiary of GBU Capital Pty Ltd. GBU Capital Pty Ltd is a related party because Anthony Short and Gordon Sklenka are directors of GBU Capital.
Greencode Pty Ltd Loan payable Interest payable	(60,000) (6,700)	Greencode Pty Limited is a related party because it is a subsidiary company of AXG Mining Limited of which Gordon Sklenka is a directors of. The loan facility accrues 6.25% interest per annum. During the half year \$15,000 has been repaid.
Odin Energy Ltd	(4, 275)	Energy is a related Odin party because Anthony Short is a director of Odin Energy Ltd. During the half year \$106,195 has been repaid. Kilgore Exploration Inc (KEI) is fully owned subsidiary of Odin Energy Ltd. The receivables from KEI of \$4,275 are included in trade creditors.

Director's consulting

• Formaine Pty Ltd is a consulting company of Gordon Sklenka. During the half year \$30,000 has been charged for their consulting. The outstanding director's fees of \$104,661 are included in trade payables as at 30 June 2012.
• Cumberland Pty Ltd and Fay Holdings Pty Ltd are consulting companies of Anthony Short. During the half year \$39,232 has been charged for director's consulting. The outstanding amount of \$212,024, relating to director's fees to Cumberland Pty Ltd and travel reimbursements to Fay Holdings Pty Ltd are included in trade payables as at 30 June 2012.

DIRECTORS DECLARATION FOR THE HALF YEAR ENDED 30 JUNE 2012

In the opinion of the directors of Advance Energy Limited ("the Company"):

• 1. the financial statement and notes set out on pages 5 to 15, are in accordance with the Corporations Act 2001 including:
• (a) giving a true and fair view of the financial position of the consolidated entity as at 30 June 2012 and of its performance, as represented by the results of its operations and cash flows, for the half-year ended on that date; and
  • (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting; and
• 1. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

an Most

Anthony Short Managing Director Dated at PERTH this 27^th day of August 2012.

1304 Hay St West Perth WA 6005

PO Box 709. West Perth WA 6872

T 08 9426 4500 F 08 9481 5645

E info@somescooke.com.au

W somescooke.com.au

Chartered Accountants Business Consultants Financial Advisors

Independent Auditor's Review Report

To the members of Advance Energy Limited

Report on the Half-year Financial Report

We have reviewed the accompanying half-year financial report of Advance Energy Limited, which comprises the consolidated statement of financial position as at 30 June 2012, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration.

Directors' Responsibility for the Half-year Financial Report

The directors of Advance Energy Limited are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of Advance Energy Limited's financial position as at 30 June 2012 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Advance Energy Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Advance Energy Limited, would be in the same terms if provided to the directors as at the time of this auditor's review report.

17

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Advance Energy Limited is not in accordance with the Corporations Act 2001 including:

• giving a true and fair view of the Advance Energy Limited's financial position as at 30 June 2012 and of its $(a)$ performance for the half-year ended on that date; and
• (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

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

Without modifying our conclusion, we draw attention to Note 3 to the financial report, which indicates that Advance Energy Limited incurred a net loss of \$660,524 during the half-year ended 30 June 2012 and, as of that date Advance Energy Limited's total liabilities exceeded its total assets by \$6,738,553. Advance Energy Limited will be required to seek additional funding through either issue of further shares or other means to continue its activities. These conditions, along with other matters as set forth in Note 3, indicate the existence of material uncertainty related to events or conditions that may cast significant doubt on Advance Energy Limited'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.

Somes Cooke

idrolas Hollens

Nicholas Hollens

27 August 2012

Perth Western Australia