tsv jun08 report final- bam - transerv.com.au · he has experience in strategic planning, business...
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ABN 68 079 432 796
Financial Report 30 June 2008
TRANSERV AUSTRALIA LTD Annual Financial Report 30 June 2008
2
Contents
Directors’ Report 4
Auditors’ independence declaration 14
Independent Audit Report 15
Income Statements 18
Balance Sheet 19
Statements of changes in equity 20
Cash flow statements 21
Notes to the consolidated financial statements 22
Directors’ Declaration 41
TRANSERV AUSTRALIA LTD Annual Financial Report 30 June 2008
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Corporate Directory
Directors Mr Andrew Leibovitch Non‐Executive Chairman Mr Brett Mitchell Executive Director Mr Tim Wise Non‐Executive Director
Secretary Mr Brett Mitchell
Principal registered office in Australia Level 21, Allendale Square 77 St Georges Terrace Perth WA 6000
Auditor Grant Thornton (WA) Partnership Level 1, 10 Kings Park Road West Perth WA 6005
Solicitor Steinepreis Paganin Level 4, 16 Milligan Street Perth WA 6000
Banker Bank of Western Australia Limited
Stock exchange Transerv shares are listed on the Australian Securities Exchange (ASX: TSV)
Company website www.transerv.com.au
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The Directors’ present their report together with the consolidated financial report for the year ended 30 June 2008. 1. Directors and Company secretary
1.1 Directors’ Meetings
Board meetings
Board of Directors Director
Present Held Brett Mitchell 7 7 Claire Poll 3 3 Tim Wise 7 7 Andrew Leibovitch 6 7
1.2 Corporate Governance
In recognising the need for the highest standards of corporate behaviour and accountability, the Directors’ of Transerv Australia Limited support and have adhered 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 which are of importance to the commercial operation of a junior listed resource Company. During the financial year, shareholders continued to receive the benefit of an efficient and cost‐effective corporate governance policy for the Company.
1.3 Directors’ Information
Brett Mitchell B Ec | Executive Director & Company Secretary | Appointed 24 July 2006
Mr Mitchell has worked for both private and publicly listed entities for the past 16 years as a corporate finance executive. Mr Mitchell holds a Bachelor of Economics degree from the University of Western Australia and has specific experience in the financial markets and resources sectors. Mr Mitchell is currently executive director and company secretary of Energy Ventures Limited and non executive director and company secretary of Nuenco NL. He is also Company Secretary for African Energy Resources (Guernsey) Limited.
Tim Wise B Sc | Non Executive Director | Appointed 24 July 2006
Mr Wise holds a Bachelor of Science degree from the University of Western Australia. He is currently the managing director of Wasabi Energy Limited, an ASX listed company investing in power generation technology. Mr Wise has extensive experience in public company management, with roles as both as an executive and non‐executive director over the last 6 years. Prior to Wasabi Energy, Mr Wise was the joint founder of The Tap Doctor, a successful Australia wide plumbing franchise. He has numerous private business interests and is an active investor in public listed companies. He previously worked as a stock broker for Patersons Securities Limited. Andrew Leibovitch | Non Executive Director | Appointed 26 June 2007
Mr Leibovitch is a Chartered Accountant from the United Kingdom and has more than 20 years experience in corporate finance and the resources industry. He has experience in strategic planning, business development, acquisitions and mergers, gas commercialisation, project development and general management. From 1997 to 2006 he was with Woodside performing a number of roles including commercialising major gas projects. Mr Leibovitch headed Woodside’s Browse Gas Project seeking to commercialise over 20 trillion cubic feet of gas as a major LNG development. Mr Leibovitch also headed Woodside’s south eastern Australia gas business, developing gas projects in the Otway and Bass Strait basin, as well as managing interests in gas and electricity retailing in Victoria. Prior to joining Woodside, Mr Leibovitch worked for Western Mining Corporation in the Corporate Planning and Acquisitions Group and as Group Finance Manager. From 1986 to 1993 he worked as a Chartered Accountant in London before emigrating to Australia and working for Coopers & Lybrand in Perth. Mr Leibovitch currently runs his own energy consultancy business and is a non‐executive director of Eden Energy Limited.
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Claire Poll | Non Executive Director | Appointed 24 July 2006, Resigned 28 November 2007
Ms Poll has over 12 years experience as a corporate executive for start‐up and mature technology companies internationally. As Director of Corporate Development for Inmarsat in London – an international provider of satellite communication services, Ms Poll had responsibility for group strategy, mergers and acquisitions and advised the Inmarsat board on investing over US$1.5 billion in new satellite technology. Throughout her career, Ms Poll has managed the listing of large and small cap companies on the ASX, Nasdaq, LSE and the German Neuer Market stock exchanges. Ms Poll holds the degrees of Bachelor of Arts, Bachelor of Jurisprudence and Bachelor of Law from the University of Western Australia and is an Associate of the Securities Institute of Australia.
2. Review of operations
Transerv Secures 10% Warro Project Interest On 13 June 2008 Transerv announced that Alcoa of Australia had executed into a farm‐in agreement on the Warro Gas Project with the project owner Latent Petroleum Pty Ltd. This was a significant event for Transerv as it secured the terms under which its existing $3.6m seed loan facility with Latent Petroleum for work programs on the Warro Gas Project was converted into a direct 10% Warro project interest. Alcoa can earn a 65% project interest in Warro by funding a staged evaluation program that includes a multi well program, 3D seismic surveys and production facilities. The evaluation program is due to commence with the drilling of the first Warro well which is expected to commence in late December 2008. If developed, Warro would become the first commercially viable tight gas field in Western Australia and could yield 1‐3 TCF of gas for domestic consumption. Transerv is free carried for the first $40m expenditure by Alcoa on the Warro Gas Project. Key terms for Transerv’s 10% interest in Warro
The execution of the Alcoa farm‐in agreement on 13 June 2008 crystallised the terms upon which Transerv secured its 10% interest in the Warro Project, as summarised below:
• Transerv acquired a 10% interest in the Warro Gas Project through the conversion of its $3.6m seed loan facility to Latent into this project interest.
• This 10% interest is carried for the first $40m in project expenditure on the Warro Gas Project, i.e. the $3.6m already paid by Transerv pre pays its share of project expenditure obligations until $40m in total is spent.
• After $40m is spent, Transerv will contribute 15% of the next $60m in project expenditure. • Thereafter, Transerv will contribute in accordance with its 10% working interest, i.e. 10% of further project
expenditure. • The Alcoa farm‐in does not dilute Transerv’s 10% interest. Subject to the completion of all farm‐in
expenditure obligations, the project interests held will be Alcoa 65%, Latent 25% and Transerv 10%. The parties have agreed the terms of a Joint Operating Agreement.
Background on the Warro Gas Project
The Warro Gas Field is located onshore in the Perth Basin, approximately 200 km north of Perth (60 kilometres east of Jurien), covering nearly 7,000 hectares and holds up to 5 TCF of gas in place. The project was discovered in 1977 by WAPET through the drilling of 2 wells that intersected substantial gas saturated columns, including a 390m gas column in the Yarragadee formation in Warro‐2. Recent advances in drilling and completion technology combined with higher domestic gas prices have significantly changed the project’s economic parameters. Warro is a tight gas field that requires fracture stimulation to promote gas flow. These types of gas fields are common in other parts of the world and account for over 20% of the United State’s domestic gas supply. The joint venture plans to drill over 200 wells for the full development of the field to produce 100‐ 150 TJ/day, which is approximately 10% of current gas consumption in the South West of Western Australia.
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Independent Technical Evaluation of Warro Gas Project
Latent engaged various technical experts from the United States to independently evaluate the Warro Gas Project over the past 18 months. Gaffney Cline completed an independent reservoir report and Schlumberger completed a detailed technical analysis of appropriate drilling strategies and expected flow rates from the Warro Project. The Gaffney Cline report estimates a range of contingent resources for Warro including 2C recoverable gas of 1.14 Tcf (Trillion Cubic Feet) and 3C recoverable gas of 2.11 Tcf, confirming the size potential of the project. Schlumberger reported that vertical wells into the Warro Field are expected to yield in excess of 6Bcf each with an initial flow rate from vertical wells in excess of 6.5 MMcf (million cubic feet) per day. Schlumberger concluded that the reservoir characteristics of the Warro field, combined with the modern fraccing techniques used widely on tight gas fields in the United States, should produce commercial gas flows. Schlumberger consider Warro as highly analogous to the Jonah and Pinedale tight sand gas fields located in Wyoming, USA. These fields are expected to produce in excess of 14 TCF of gas. The Warro Gas Field has important structural characteristics which give it a strong probability of commercial success:
• A large gas column, with very wide net pay zone (over 200m) • High gas saturated sands (60‐75%), with low water content • Benign reservoir rocks that are not sensitive to water (no swelling clays) • No requirement for underbalanced drilling or unconventional fraccing techniques
These characteristics positively differentiate Warro from other onshore gas projects in Western Australia. For example, the Whicher Range project is also a tight sand play but is challenged by swelling clays, interbedded shales and water bearing sands, importantly none of which are present at the Warro Gas Project.
Project Economics
In March 2008 Transerv has released Latent Petroleum’s Information Memorandum on the Warro Project, which includes details of the independent technical analysis by Schlumberger and Gaffney Cline. Recent events highlight the gas supply issues that are present in Western Australia and current expectations are for domestic gas prices to remain strong into the future. Using economic parameters verified by the independent reports including the 2C contingent resource of 1.14 Tcf recoverable gas, a gas price of $6 per Gj (gigajoule), initial flow rates of only 4MMcf per day per well and contracted sales of 100 Tj/day, the economic model attributes an NPV to the project of $655m on a “base case” scenario. Using “reasonable” case economic model assumptions which include a gas price of $7.50 per Gj, initial flow rates of 5 MMcf per day, cost savings from drilling multiple wells and contracted sales of 150 Tj/day, the NPV of the project increases significantly to $2.2 billion. As a result, the potential size of the Warro Gas Project is considered to be a very significant asset for the company and Transerv shareholders.
New Oil and Gas Investment Opportunities
Transerv is evaluating new oil and gas project investment opportunities to complement its 10% equity interest in the Warro Gas Project, both in Australia and overseas.
TRANSERV AUSTRALIA LTD Directors’ report
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Corporate
The Company announced on 16 November 2007 it had successfully completed the placement of 227,139,817 ordinary fully paid shares at 1.5 cents each to raise a total of $3,407,097 under the 1:2 non‐renounceable rights issue as announced on 18 October 2007. On 29 November the Company completed the placement of 75,637,560 rights issue shortfall shares and underwriter top up shares at 1.5 cents each, raising an additional $1,134,563 in working capital for the Company. These funds were used to fund the companys share of expenditure on the intial earn in well on the Reese oil and gas project in Louisiana, fund the $3.6m seed capital loan facility to Latent Petroleum, which has converted into the Company’s 10% interest in the Warro Gas Project, and general working capital. The Company also appointed Mr Will Barker as Executive Technical Consultant to the Company during the year. Mr Barker’s appointment provides the Company with an oil and gas consultant to manage its existing investments and to identify new oil and gas project investment opportunities. Westrans Services
In the 2007 financial year the Company disposed of a 50% interest and management rights in its subsidiary Westrans Services WA Pty Ltd to Ausdrill Limited and as a result the Company holds the remaining 50% interest in Westrans but not a controlling interest in Westrans. Accordingly, the Company recognises its interest in Westrans as an investment measured at cost as the Company has no significant influence over the decision making of the board, as detailed in the notes to the accounts. Reese Prospect
In the prior financial year the Company announced it had entered a farm in agreement with Salinas Energy Ltd to acquire a 50% working interest in the onshore Reese oil and gas prospect in Louisiana. Under the agreement Transerv would contribute 67% of the initial Granger‐1 well costs to production casing point, plus its share of project costs incurred up to the date.
The Granger‐1 well was spudded in early December 2007 and reached its total depth of 5,500 feet on 12 December. Based on the analysis of the logs received it was apparent the well didn’t encounter commercial hydrocarbons in the target zones below 2,500 feet as planned and the well was subsequently plugged and abandoned. The Company earned its 50% interest in the Reese Prospect through the drilling of the Granger‐1 well, although is not planning to explore other targets on the prospect at this stage.
3. Remuneration report
This Remuneration Report outlines the remuneration arrangements which were in place during the period, and remain in place as at the date of this report, for the Directors of Transerv Australia Limited. 3.1 Remuneration Policy
The Directors’ and key management personnel remuneration is based on commercial rates and the existing level of activities in the Group at this point of time. Should the extent of those activities change, the remuneration of Directors and key management personnel would be amended to reflect that change.
3.2 Principles of compensation
Remuneration is referred to as compensation throughout this report. Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity, including Directors of the Company and other executives. Key management personnel include the most highly remunerated Directors and executives for the Company and the consolidated entity.
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3.2 Principles of compensation (continued)
Compensation levels for key management personnel and secretaries of the Company, and relevant key management personnel of the consolidated entity are competitively set to attract and retain appropriately qualified and experienced Directors and executives. The Company obtains independent advice on the appropriateness of compensation packages of both the Company and consolidated group given trends in comparative companies both locally and internationally and the objectives of the Company’s compensation strategy. The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The compensation structures take into account:
• The capability and experience of the key management personnel; • The key management personnel’s ability to control the relevant segment/s’ performance; • The consolidated entity’s performance including:
o The consolidated entity’s earnings; o The growth in share price and delivering constant returns on shareholder wealth; and
• The amount of incentives within each key management person’s compensation. Compensation packages include a mix of fixed and variable compensation and short‐ and long‐term performance‐based incentives. In addition to their salaries, the consolidated entity also provides non‐cash benefits to its key management personnel. 3.2.1 Fixed Compensation
Fixed compensation consists of base compensation, which is calculated on a total cost basis and includes any FBT charges related to employee benefits.
3.2.2 Performance‐linked compensation
The Company currently has no performance based remuneration built into Director or executive remuneration packages.
3.2.3 Long‐term incentive
Incentive options have been issued to non‐executive Directors of the Company. The ability to exercise the options is conditional upon the non‐executive Directors achieving certain vesting conditions. These vesting conditions are set for each non‐executive Director and are based on the time spent providing their services to the Company.
3.2.4 Service contracts
The Company currently has no service contracts in place. Non‐Executive Directors
Total compensation for all non‐executive Directors is to be approved by the Company in general meeting as detailed in the Company’s Constitution. Non–executive Directors base fees are presently $25,000 per annum.
3.3 Directors and executive officers’ remuneration (Company and consolidated)
The following table sets out remuneration paid to Directors and key executive personnel of the Company and the consolidated entity during the reporting period:
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3.3 Directors and executive officers’ remuneration (Company and consolidated) (continued)
2008 Directors’
Fees Executive
fees
Equity Share based
payments Total
Value of options as
proportion of remuneration
Directors Executive director Brett Mitchell 25,000 60,000 ‐ 85,000 ‐% Non‐executive directors Claire Poll 10,278 ‐ 11,799 22,077 53% Tim Wise 25,000 ‐ 11,799 36,799 32% Andrew Leibovitch 25,000 ‐ 15,900 40,900 39% Executives Will Barker ‐ 85,000 20,200 105,200 19% 85,278 145,000 59,698 289,976
2007 Directors’
Fees Executive
fees
Equity Share based
payments Total
Value of options as
proportion of remuneration
Directors Executive director Brett Mitchell 25,000 75,000 ‐ 100,000 ‐% Non‐executive directors Claire Poll 25,000 ‐ 40,402 65,402 62% Tim Wise 25,000 ‐ 40,401 65,401 62% Andrew Leibovitch ‐ ‐ 7,950 7,950 100% 75,000 75,000 88,753 238,753 62%
Remuneration payments to Mr Tim Wise were made to a related entity, Finind Pty Ltd.
Remuneration payments to Mr Andrew Leibovitch were made to a related entity, Cascades Corporation Pty Ltd. Remuneration payments to Mr Brett Mitchell were made to a related entity, Sibella Capital Pty Ltd.
3.4 Equity instruments
3.4.1 Options granted as compensation
During the period, options were granted as compensation to the Directors and officers of the Company. Information for the options granted in the financial period is shown in the table below.
Number of options granted
during 2008 Grant date
Number of options vested
during 2008
Fair value per option at grant date
Exercise price per option Expiry date
Will Barker 10,000,000 09 Nov 2007 2,000,000 1.01c 2.0c 30 Jun 2010
Vesting conditions
Grant Date Employee Entitled
Number of Instruments Vesting Conditions Expiry Date
09 Nov 2007 Will Barker 10,000,000 20% on appointment, 40% after 1st year, 40% after 2nd year
30 Jun 2010
Total share options 10,000,000
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3.4.1 Options granted as compensation (continued)
No options were granted since the end of the financial period. The options were provided at no cost to the recipients. No terms of equity‐settled share‐based payment transactions have been altered or modified during the reporting period. During the reporting period no shares were issued on the exercise of options previously granted as compensation. All options expire on the earlier of their expiry date or on termination of the individual’s employment. The options are exercisable on annual basis four years from grant date. 3.4.2 Value of options issued to Directors and executives
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Binomial and the Black Scholes option‐pricing model. The contractual life of the option and expectations of early exercise are incorporated into these models.
Options granted on 9 November 2007
Directors options 09‐Nov‐07 Fair value at measurement date (cents per option) 1.01c Share price (cents per share) 2.2c Exercise price (cents per option) 2.0c Expected volatility 60% Option life 2.64 yrs Expected dividends ‐ Risk‐free interest rate (based on national government bonds) 6.76%
- The expected volatility is based on historic volatility as well as the volatility of similar companies, adjusted for any expected changes to future volatility due to publicly available information. Under the binomial option‐pricing and Black and Scholes models it is expressed as weighted average volatility.
- Share options are granted under a service condition and, for grants to key management personnel, market and non‐market performance conditions. Non‐market performance conditions are not taken into account in the grant date fair value measurement of the services received.
- Option life is expressed as weighted average life used in the modelling under binomial option‐pricing model. 3.4.3 Analysis of options over equity instruments granted as compensation
Details of vesting profile of the options granted as remuneration to each Director of the Company and each named Company executive and relevant group executives is detailed below.
Number Date
% vested in year
Forfeited in year (A)
Financial year in which grant
vests Will Barker 10,000,000 09 Nov 2007 20% ‐% 30 Jun 2010
(A) The % forfeited represents the reduction from the maximum number of options available to vest due to
the highest level performance criteria not being achieved.
3.5 Company performance, shareholder wealth and Director and executive remuneration
The remuneration policy has been tailored to increase goal congruence between the shareholders, Directors and executives. The Company has a share option plan under which it issues share options to Directors and executives as part of their remuneration to encourage the alignment of personal and shareholders interests. The Company believes that this policy is the most effective way to ensure the protection and increase of shareholders wealth.
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4. Principal Activities
The principal activity of the consolidated group during the course of the financial period consisted of evaluation, and exploration of oil and gas in Western Australia.
5. Results and Dividends
The consolidated group’s loss after tax attributable to members of the Company for the financial year ending 30 June 2008 was $1,169,438 (30 June 2007: $1,799,878). The loss of the Company for the financial period was $1,183,793 (30 June 2007: $1,837,236). No dividends have been paid or declared by the Company during the period ended 30 June 2008.
6. Financial Position
The net assets of the Group at 30 June 2008 were $4,588,849 (30 June 2007: $2,050,407) of which $969,320 (30 June 2007: $1,751,973) represents cash and cash equivalents. Directors believe that the Group is in a stable financial position with sufficient cash to fund its current operations.
7. Loss Per Share
The basic loss per share for the Group for the financial year ending 30 June 2008 was 0.2 cents per share (30 June 2007: 0.5 cents per share).
8. Events subsequent to reporting date Other than the issues outlined in the Review of Operations, no matters or circumstances have arisen since the end of the financial year which have significantly affected or may significantly affect the operations, results or state of affairs of the Group.
9. Likely Developments and Expected Results
The Company will continue to pursue activities within its corporate objectives. Further information about likely developments in the operations of the Company and the expected results of those operations in the future financial years has not been included in this report because disclosure would be likely to result in unreasonable prejudice to the Company.
10. Environmental regulations
The Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. However the Board believes there are adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply.
11. Directors’ and executives’ interests
As at the date of this report, the interests of the Directors and Executives in the shares and options of Transerv Australia Limited (“the Company”) were:
Shares Options Directors Brett Mitchell 11,250,000 ‐ Claire Poll1 6,000,000 3,000,000 Tim Wise 7,000,000 3,000,000 Andrew Leibovitch ‐ 5,000,000 Executives Will Barker ‐ 10,000,000
1 Shareholding for Claire Poll is reflected as at date of resignation, 28 November 2007
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12. Share options
12.1 Options granted to officers of the Company
During or since the end of the financial year, the Company granted for no consideration options over unissued ordinary shares in the Company to the following officers of the Company:
Officer Number of
options granted Exercise price Expiry date Will Barker 10,000,000 2.0 cents 30 Jun 2010
12.2 Unissued shares under options As at the date of the report, there were 21,000,000 unlisted options on issue detailed as follows:
Number of Options Exercise Price Expiry Date
3,000,000 5.0 cents 20 Dec 2008 57,200,000 1.0 cents 30 Jun 2010 11,000,000 2.5 cents 30 Jun 2010 10,000,000 2.0 cents 30 Jun 2010
All options expire on the earlier of their expiry date or termination of employment. Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company.
12.3 Shares issued on exercise of options During and since the end of the financial period, the company issued ordinary shares as a result of the exercise of options as follows:
Number of shares Date of exercise Amount paid on each
share 800,000 19 June 2008 1 cent
13. Indemnification and Insurance of Officers and Auditors
13.1. Indemnification
An indemnity agreement has been entered into with each of the Directors and Company Secretary of the Company named earlier in this report. Under the agreement, the Company has agreed to indemnify those officers against any claim or for any expenses or costs which may arise as a result of work performed in their respective capacities to the extent permitted by law. There is no monetary limit to the extent of this indemnity. 13.2. Insurance premiums
During the financial year the Company has paid insurance premiums in respect of Directors’ and officers’ liability and legal expenses’ insurance contracts, for current Directors and officers. The insurance premiums relate to costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and whatever their outcome and other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of duty or improper use of information or position to gain a personal advantage. The premiums were paid in respect of the following Directors and officers: Tim Wise, Brett Mitchell, Andrew Leibovitch and Will Barker. There were no legal proceedings entered into on behalf of the Company or the consolidated group by any of the Directors or executive officers of the Company.
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14. Corporate Structure
Transerv Australia Limited is a Company limited by shares that is incorporated and domiciled in Australia. The Company is listed on the Australian Securities Exchange under code TSV.
15. Non‐audit services
During the year Grant Thornton (WA) Partnership, the Company’s auditor, have not performed any other services except for their statutory duties. 16. Lead auditors’ independence declaration
The lead auditor’s Independence Declaration is set out on page 14 and forms part of the Directors’ report for the financial year ended 30 June 2008. Signed in accordance with a resolution of the Directors. Perth, 26 September 2008
Brett Mitchell Director
TRANSERV AUSTRALIA LTD Income statements
For the year ended 30 June 2008
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Consolidated Company 2008 2007 2008 2007 Note AUD AUD AUD AUD Audit and accounting costs 5 (22,445) (20,200) (22,445) (20,200) Employee benefit expense 6 (204,976) (238,753) (204,976) (238,753) Professional fees 7 (62,608) (58,630) (51,970) (50,008) Written off exploration expenditure 8 (857,268) (799,985) ‐ ‐ Depreciation expense (746) ‐ (746) ‐ Administrative expenses 9 (147,023) (60,181) (145,527) (60,116) Impairment expense 10 ‐ (100,000) (710,398) (855,606) Recapitalisation and restructuring expenses 11 ‐ (590,292) ‐ (590,292) Loss before financing costs (1,295,066) (1,868,041) (1,136,062) (1,814,975) Interest income 13 125,628 68,162 125,628 68,162 Foreign currency losses ‐ ‐ (173,359) (90,423) Net finance income 125,628 68,162 (47,731) (22,261) Loss before tax (1,169,438) (1,799,879) (1,183,793) (1,837,236) Income tax expense 14 ‐ ‐ ‐ ‐ Loss for the period attributable to the ordinary shareholders of the Company (1,169,438) (1,799,879) (1,183,793) (1,837,236)
Basic loss per share (cents per share) 12 (0.2) (0.5) (0.2) (0.5) Diluted earnings per share (cents per share) 12 (0.2) (0.5) (0.2) (0.5)
The accompanying notes form part of these financial statements.
TRANSERV AUSTRALIA LTD Balance Sheet
As at 30 June 2008
19
Consolidated Company
2008 2007 2008 2007 Note AUD AUD AUD AUD
Assets Current Assets Cash and cash equivalents 15 969,320 1,751,973 969,320 1,751,973 Other receivables and prepayments 16 23,572 46,267 23,572 46,267
Total current assets 992,892 1,798,240 992,892 1,798,240 Non‐current Assets Financial assets 17 50,000 50,000 50,000 345,455 Property, plant and equipment 18 11,260 ‐ 11,260 ‐ Exploration and evaluation expenditure 19 3,685,000 295,455 3,685,000 ‐
Total non‐current assets 3,746,260 345,455 3,746,260 345,455 Total assets 4,739,152 2,143,695 4,739,152 2,143,695 Liabilities Current Liabilities Trade and other payables 21 150,303 93,288 150,303 93,288
Total current liabilities 150,303 93,288 150,303 93,288 Total liabilities 150,303 93,288 150,303 93,288 Net assets 4,588,849 2,050,407 4,588,849 2,050,407
Equity Issued capital 22 7,461,428 3,798,890 7,461,428 3,798,890 Reserves 23 96,738 51,396 148,451 88,753 Accumulated losses (2,969,317) (1,799,879) (3,021,029) (1,837,236)
Total equity attributable to equity holders of the Company
4,588,849 2,050,407 4,588,849 2,050,407
The accompanying notes form part of these financial statements.
TRANSERV AUSTRALIA LTD Statements of changes in equity
For the year ended 30 June 2008
20
Consolidated Issued Accumulated Reserves Total capital losses equity For the year ended 30 June 2007 Note AUD AUD AUD AUD Balance at the beginning of the period ‐ ‐ ‐ ‐ Equity settled share based payment transactions ‐ ‐ 88,753 88,753 Share issue net of issue costs 22 3,798,890 ‐ ‐ 3,798,890 Effect of translation of foreign operations to group presentation currency ‐ ‐ (37,357) (37,357) Net loss for the period ‐ (1,799,879) ‐ (1,799,879) Balance at 30 June 2007 3,798,890 (1,799,879) 51,396 2,050,407 For the year ended 30 June 2008 Balance at the beginning of the period 3,798,890 (1,799,879) 51,396 2,050,407 Equity settled share based payment transactions ‐ ‐ 59,698 59,698 Share issue net of issue costs 22 3,662,538 ‐ ‐ 3,662,538 Effect of translation of foreign operations to group presentation currency ‐ ‐ (14,356) (14,356) Net loss for the period ‐ (1,169,438) ‐ (1,169,438) Balance at 30 June 2008 7,461,428 (2,969,317) 96,738 4,588,849
Company Issued Accumulated Reserves Total capital losses equity For the year ended 30 June 2007 Note AUD AUD AUD AUD Balance at the beginning of the period ‐ ‐ ‐ ‐ Equity settled share based payment transactions ‐ ‐ 88,753 88,753 Share issue net of issue costs 22 3,798,890 ‐ ‐ 3,798,890 Effect of translation of foreign operations to group presentation currency ‐ ‐ ‐ ‐ Net loss for the period ‐ (1,837,236) ‐ (1,837,236) Balance at 30 June 2007 3,798,890 (1,837,236) 88,753 2,050,407 For the year ended 30 June 2008 Balance at the beginning of the period 3,798,890 (1,837,236) 88,753 2,050,407 Equity settled share based payment transactions ‐ ‐ 59,698 59,698
Share issue net of issue costs 22 3,662,537 ‐ ‐ 3,662,537 Net loss for the period ‐ (1,183,793) ‐ (1,183,793) Balance at 30 June 2008 7,461,427 (3,021,029) 148,451 4,588,849
The accompanying notes form part of these financial statements.
TRANSERV AUSTRALIA LTD Cash flow statements
For the year ended 30 June 2008
21
Consolidated Company 2008 2007 2008 2007 Note AUD AUD AUD AUD Cash flows from operating activities Interest received 125,628 68,162 125,628 68,162 Payment to suppliers and employees (364,754) (1,669,624) (352,620) (823,595) Net cash used in operating activities 24 (239,126) (1,601,462) (226,992) (755,433) Cash flows from investing activities Payment for exploration and evaluation expenditure
(4,194,057) (295,455) (3,685,000) ‐
Payment for property, plant & equipment (12,007) ‐ (12,007) ‐ Loan to Westrans Services WA Pty Ltd ‐ (50,000) ‐ (50,000) Loans to controlled entities ‐ ‐ (521,191) (1,141,484) Acquisition of investment ‐ (200,000) ‐ (200,000) Disposal of 50% interest in investment ‐ 100,000 ‐ 100,000 Net cash used in investing activities (4,206,064) (445,455) (4,218,198) (1,291,484) Cash flows from financing activities Proceeds from the issue of share capital 3,892,542 3,882,000 3,892,542 3,882,000 Payment for share issuance costs (230,005) (83,110) (230,005) (83,110) Net cash from financing activities 3,662,537 3,798,890 3,662,537 3,798,890 Net increase / (decrease) in cash and cash equivalents
(782,653) 1,751,973 (782,653) 1,751,973
Cash and cash equivalents at 1 July 2007 1,751,973 ‐ 1,751,973 ‐ Cash and cash equivalents at 30 June 2008 15 969,320 1,751,973 969,320 1,751,973
The accompanying notes form part of these financial statements.
TRANSERV AUSTRALIA LTD Notes to the financial statements
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1. Reporting entity Transerv Australia Limited (the ‘Company’) is a Company domiciled in Australia. The address of the Company’s registered office is Level 21, Allendale Square, 77 St Georges Terrace, Perth WA 6000. The consolidated financial report of the consolidated entity for the period ended 30 June 2008 comprises the Company and its subsidiary (together referred to as the ‘Group’ or ‘consolidated entity’). The Group is primarily involved in oil and gas exploration in California. The financial report was authorised for issue by the directors on 26th September 2008.
2. Basis of preparation
(a) Statement of Compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (‘AASBs’) (including Australian Accounting Interpretations), other authoritative pronouncements of the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. Australian Accounting Standards set out accounting policies that the AASB has concluded would result on a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Complies with Australian Accounting Standanrds ensures that the financial statements and notes also comply with the International Financial Reporting Standards (IFRS).
(b) Basis of measurement The financial report is prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: financial instruments held for trading and financial instruments classified as available‐for‐sale.
(c) Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the functional currency of the Company. The functional currency of the Company’s foreign subsidiary is US dollars. The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates.
(d) Critical accounting estimates and judgements The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 6 – Share‐based payment arrangements Note 16 – Financial assets Note 18 – Recoverability of exploration and evaluation expenditure (see note 3(c))
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3. Significant accounting policies
(a) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exits when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Investments in subsidiaries are carried at their cost of acquisition in the Company’s financial statements.
(ii) Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency
(i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non‐monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non‐monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined.
(ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity.
(iii) Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations are taken to translation reserve. They are released into the income statement upon disposal.
(c) Exploration and evaluation expenditure
Exploration and evaluation costs, which are intangible costs, including the costs of acquiring licences and the costs of acquiring the rights to explore, are capitalised as exploration and evaluation assets on an area of interest basis. Costs incurred before the consolidated entity has obtained the legal rights to explore an area are recognised in the income statement. Exploration and evaluation assets are only recognised if the rights of the area of interest are current and either:
(i) the expenditures are expected to be recouped through successful development and exploitation of the area of interest; or
(ii) activities in the area of interest have not at the reporting date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in, or in relation to, the area of interest are continuing.
Exploration and evaluation assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount (see impairment accounting policy (f)). For the purposes of impairment testing, exploration and evaluation assets are allocated to cash‐generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest.
TRANSERV AUSTRALIA LTD Notes to the financial statements
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(c) Exploration and evaluation expenditure (continued)
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified from intangible assets to mineral property and development assets within property, plant and equipment.
(d) Other receivables
Other receivables are recorded at amounts due less any allowance for doubtful debts. (e) Cash and cash equivalents
Cash and cash equivalents comprise cash balances, short term bills and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statements.
(f) Impairment
The carrying amounts of the consolidated entity’s assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement unless the asset has previously been revalued, in which case the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through profit or loss. Impairment losses recognised in respect of cash‐generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash‐generating unit (group of units) and then, to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
Reversals of impairment Impairment losses, other than in respect of goodwill, are reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimate used to determine the recoverable amount.
An impairment loss in respect of goodwill is not reversed.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(g) Share capital
(i) Dividends Dividends are recognised as a liability in the period in which they are declared. (ii) Transaction costs Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit.
(h) 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 weighted average number of ordinary shares outstanding during the financial year, adjusted for the bonus elements in ordinary shares issued during the year.
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(h) Earnings per share (continued)
(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 shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
(i) Employee Benefits
(i) Share‐based payment transactions The share option program allows the consolidated entity employees and consultants to acquire shares of the Company. The fair value of options granted is recognised as an employee or consultant expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Binomial and Black Scholes option‐pricing models, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.
(j) Provisions
A provision is recognised in the balance sheet when the consolidated entity has a present, legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect 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, when appropriate, the risks specific to the liability.
(k) Trade and other payables
Trade and other payables are non‐interest bearing liabilities stated cost and settled within 30 days.
(l) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. (i) Net financial income Net financial income comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested and dividend income. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established which in the case of quoted securities is the ex‐dividend date. (ii) Sales revenue Sales revenue comprises revenue earned from the sale of gas to external entities. Sales revenue is recognised upon delivery of products to customers.
(m) Income tax
Income tax on the income statement for the periods presented comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
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(m) Income tax (continued)
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised, or to the extent that the group has deferred tax liabilities with the same taxation authority. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
(n) Segment reporting
A segment is a distinguishable component of the consolidated entity that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
(o) Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet. Cash flows are included in the cash flow statements on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
(p) Financial instruments
Non‐derivative financial instruments Non‐derivative financial instruments comprise investments in equity securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non‐derivative instruments are recognised initially at fair value plus, for instruments not at fair value trough profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non‐derivative financial instruments are measured as described below. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Available for sale financial assets Available for sale financial assets are carried at cost, net of any impairment losses (see note 3(f)). The intercompany loans which are non‐interest bearing and have fixed term of repayment are classified as investments in subsidiaries. Loans and receivables Loans and receivables are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non‐current assets. Loans and receivables are included in receivables in the balance sheet. Cash and cash equivalents comprise cash balances and call deposits. Accounting for net finance income is discussed in note 3(l)(i).
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(q) New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2008, but have not been applied in preparing this financial report: • Revised AASB 3 Business Combinations changes the application of acquisition accounting for business
combinations and the accounting for non‐controlling (minority) interests. Key changes include: the immediate expensing of all transaction costs; measurement of contingent consideration at acquisition date with subsequent changes through the income statement; measurement of non‐controlling (minority) interests at full fair value or the proportionate share of the fair value of the underlying net assets; guidance on issues such as reacquired rights and vendor indemnities; and the inclusion of combinations by contract alone and those involving mutuals. The revised standard becomes mandatory for the Consolidated Entity’s 30 June 2010 financial statements. The Consolidated Entity has not yet determined the potential effect of the revised standard on the Consolidated Entity’s financial report.
• AASB 8 Operating Segments introduces the “management approach” to segment reporting. AASB 8,
which becomes mandatory for the Consolidated Entity’s 30 June 2010 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Consolidated Entity’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. Currently the Consolidated Entity presents segment information in respect of its business and geographical segments (see note 4).
• Revised AASB 101 Presentation of Financial Statements introduces as a financial statement (formerly
“primary” statement) the “statement of comprehensive income”. The revised standard does not change the recognition, measurement or disclosure of transactions and events that are required by other AASBs. The revised AASB 101 will become mandatory for the Consolidated Entity’s 30 June 2010 financial statements. The Consolidated Entity has not yet determined the potential effect of the revised standard on the Consolidated Entity’s disclosures.
• Revised AASB 123 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised AASB 123 will become mandatory for the Consolidated Entity’s 30 June 2010 financial statements and will constitute a change in accounting policy for the Consolidated Entity. In accordance with the transitional provisions the Consolidated Entity will apply the revised AASB 123 to qualifying assets for which capitalisation of borrowing costs commences on or after the effective date. The Consolidated Entity has not yet determined the potential effect of the revised standard on future earnings.
• Revised AASB 127 Consolidated and Separate Financial Statements changes the accounting for investments in subsidiaries. Key changes include: the remeasurement to fair value of any previous/retained investment when control is obtained/lost, with any resulting gain or loss being recognised in profit or loss; and the treatment of increases in ownership interest after control is obtained as transactions with equity holders in their capacity as equity holders. The revised standard will become mandatory for the Consolidated Entity’s 30 June 2010 financial statements. The Consolidated Entity has not yet determined the potential effect of the revised standard on the Consolidated Entity’s financial report.
• AASB 2008‐1 Amendments to Australian Accounting Standard ‐ Share‐based Payment: Vesting Conditions and Cancellations changes the measurement of share‐based payments that contain non‐vesting conditions. AASB 2008‐1 becomes mandatory for the Consolidated Entity’s 30 June 2010 financial statements. The Consolidated Entity has not yet determined the potential effect of the amending standard on the Consolidated Entity’s financial report.
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4. Segment reporting
During the period the Company operated in one business segment – mineral exploration, development and production of gas in two geographical segments ‐ Australia and the United States of America.
2008 Australia USA Unallocated Consolidation Profit and loss Segment revenue ‐ ‐ ‐ ‐ Segment result (1,136,062) (869,402) ‐ (2,005,465) Net financial income/ (expense) (47,731) ‐ ‐ (47,731) Loss for the period (1,183,793) (869,402) 883,758 (1,169,438)
Balance sheet Deferred exploration expenditure 3,685,000 ‐ ‐ 3,685,000 Financial assets 50,000 ‐ ‐ 50,000 Other 1,004,152 ‐ 1,004,152 Segment assets 4,739,153 ‐ ‐ 4,739,153 Segment liabilities 150,304 ‐ ‐ 150,304 Total cost incurred during the period to acquire long term segment asset 3,685,000 561,813 ‐ 4,246,813 Non‐cash expenses Depreciation expenses 746 ‐ ‐ 746 Impairment for intercompany receivables 710,398 ‐ ‐ 710,398 Other non‐cash expenses 233,057 ‐ ‐ 233,057 2007 Australia USA Unallocated Consolidation Profit and loss Segment revenue ‐ ‐ ‐ ‐ Segment result ‐ (808,672) (1,059,369) (1,868,041) Net financial income/ (expense) ‐ ‐ 68,162 68,162 Loss for the period ‐ (808,672) (991,207) (1,799,879)
Balance sheet Deferred exploration expenditure ‐ 295,455 ‐ 295,455 Financial assets ‐ ‐ 345,455 50,000 Other ‐ ‐ 1,798,240 1,798,240 Segment assets ‐ 295,455 ‐ 2,143,695 Segment liabilities ‐ ‐ 93,288 93,288 Total cost incurred during the period to acquire long term segment asset ‐ 1,095,440 ‐ 1,095,440 Non‐cash expenses Depreciation expenses ‐ ‐ ‐ ‐ Impairment for intercompany receivables ‐ ‐ 855,606 855,606 Other non‐cash expenses ‐ ‐ 179,176 179,176
5. Audit and accounting costs
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Auditors of the Company Auditors of the Company: Grant Thornton (WA) Partnership
Full year audit and half year review of financial reports (22,445) (20,200) (22,445) (20,200)
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6. Employee benefit expense
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Directors' fees (85,278) (75,000) (85,278) (75,000) Consultancy fees (60,000) (75,000) (60,000) (75,000) Share based payments expense (59,698) (88,753) (59,698) (88,753) (204,976) (238,753) (204,976) (238,753)
7. Professional fees
Consolidated Company
2008 2007 2008 2007 AUD AUD AUD AUD Legal fees (17,049) (16,367) (16,175) (16,367) Tax advisory services (15,264) (4,000) (5,500) (4,000) Other professional fees (30,295) (38,263) (30,295) (29,641) (62,608) (58,630) (51,970) (50,008)
8. Written off exploration expenditure
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Reese Project, Grainger‐1 well (857,268) ‐ ‐ Windgap 42‐36 well ‐ (799,985) ‐ ‐ Exploration expenditure written off during the period (857,268) (799,985) ‐ ‐
9. Administration expenses
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Corporate costs (77,128) (37,923) (77,128) (37,858) Insurance (17,211) ‐ (17,211) ‐ Office costs (52,684) (22,258) (51,188) (22,258) (147,023) (60,181) (145,527) (60,116) 10. Impairment expense
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Provision for impairment of investment in Westrans Services WA Pty Ltd ‐ (100,000) ‐ (100,000) Provision for impairment of intercompany loans ‐ ‐ (710,398) (755,606) ‐ (100,000) (710,398) (855,606)
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11. Recapitalisation and restructuring expenses Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Recapitalisation expense ‐ (500,000) ‐ (500,000) Restructuring expense ‐ (90,292) ‐ (90,292) ‐ (590,292) ‐ (590,292)
12. Earnings per share The calculation of basic loss per share at 30 June 2008 of 0.2 cents per share (30 June 2007: 0.5 cents per share) was based on the loss attributable to the ordinary shareholders of $1,169,438 (30 June 2007: 1,799,879) and a weighted average number of ordinary shares outstanding during the year ended 30 June 2008 of 611,789,813 (30 June 2007: 364,008,402 shares) being calculated as follows:
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Loss attributable to the ordinary shareholders Loss for the period (1,169,438) (1,799,879) (1,183,793) (1,837,236) Weighted average number of ordinary shares Opening balance 454,279,635 23,279,635 454,279,635 23,279,635 Weighted movement during the year 157,510,178 340,728,767 157,510,178 340,728,767 611,789,813 364,008,402 611,789,813 364,008,402
Basic loss per share (cents per share) (0.2) (0.5) (0.2) (0.5) Diluted loss per share (cents per share) (0.2) (0.5) (0.2) (0.5)
The potential ordinary shares are not considered to be dilutive.
13. Financial income
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Financial income
Interest income 125,628 68,162 125,628 68,162
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14. Income tax expense
Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Prima facie tax/(benefit): Consolidated (615,959) (539,964) ‐ ‐ The Company ‐ ‐ (355,138) (551,171) (615,959) (539,964) (355,138) (551,171) Add tax effect: Tax effect of consolidation journals ‐ (253,809) ‐ ‐ Non allowable items 2,789 7,997 2,789 7,978 Recapitalisation and restructuring expense ‐ 155,302 ‐ 155,302 Exploration expense (844,679) 242,583 (1,105,500) ‐ Employee entitlements 15,209 2,700 15,209 2,700 Unrealised foreign currency loss 52,008 27,127 52,008 27,127 Impairment of investment 213,119 30,000 213,119 30,000 Share issue costs (18,787) 22,101 (18,787) 22,101 Tax losses not brought to account 1,196,300 305,963 1,196,300 305,963 Income tax attributable to entity ‐ ‐ ‐ ‐
Liabilities CURRENT Income tax (337,229) (551,171) (337,229) (551,171) Deferred tax assets not brought to account the benefits of which will only be realised if the conditions for the deductibility set out in Note 1b occur.
Temporary differences (840,284) 223,107 (840,284) 223,107 Temporary differences to equity (18,787) 22,101 (18,787) 22,101 Tax losses:
Operating losses 1,196,300 305,963 1,196,300 305,963 Capital losses ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. It is in the opinion of management of the Company that there will be no taxable profits generated in the near future and the deferred tax asset is not to be recognised. 15. Cash and cash equivalents Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Cash at bank 69,197 811,799 69,197 811,799 Term deposits 900,123 940,174 900,123 940,174 969,320 1,751,973 969,320 1,751,973
16. Other receivables and prepayments
Consolidated Company
2008 2007 2008 2007 AUD AUD AUD AUD Prepaid insurance 12,188 13,148 12,188 13,148 Other receivable 11,384 33,119 11,384 33,119 23,572 46,267 23,572 46,267
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17. Financial assets Consolidated Company 2008 2007 2008 2007 Available for sale assets Note AUD AUD AUD AUD Non‐controlling 50% interest Investment in Westrans Services WA Pty Ltd 100,000 100,000 100,000 100,000 Impairment loss (a) (100,000) (100,000) (100,000) (100,000) ‐ ‐ ‐ ‐
Non‐interest bearing loan to Westrans Services WA Pty Ltd 50,000 50,000 50,000 50,000 Loan to a subsidiary ‐ ‐ 710,399 1,051,061 Impairment loss (b) ‐ ‐ (710,399) (755,606)
50,000 50,000 50,000 345,455
The Company carries its Investment in Westrans Services Pty WA Ltd at cost.
Impairment of investments – key judgments
(a) Impairment of investment in Westrans Services WA Pty Ltd
The Company has fully provided against its investment in Westrans Services WA Pty Ltd in the previous period.
(b) Impairment of subsidiary loan
The Company raised an impairment against the loan receivable from Tejon Energy Inc as a result of a write off of exploration expenditure incurred during the period.
18. Property, plant and equipment
2008 2007 2008 2007 AUD AUD AUD AUD Plant and equipment at cost 12,006 ‐ 12,006 ‐ Less: accumulated depreciation (746) ‐ (746) ‐ 11,260 ‐ 11,260 ‐ Reconciliation of carrying amounts Opening balance ‐ ‐ ‐ ‐ Additions 12,006 ‐ 12,006 ‐ Depreciation expense (746) ‐ (746) ‐ 11,260 ‐ 11,260 ‐ 19. Exploration and evaluation expenditure Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Exploration and evaluation expenditure – at cost 3,685,000 295,455 3,685,000 ‐
Movement in exploration and evaluation expenditure
Opening balance 295,455 ‐ ‐ ‐ Incurred during the period 4,246,813 1,095,440 3,685,000 ‐ Written off during the period (857,268) (799,985) ‐ ‐ Balance as at 30 June 2008 3,685,000 295,455 3,685,000 ‐
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Exploration and evaluation expenditure (continued)
The recoverability of the carrying amounts of exploration and evaluation assets is dependent on the successful development and commercial exploitation or sale of the respective areas of interest. 20. Contingencies Westrans Services WA Pty Ltd
Under the Shareholders Deed between the Company and Ausdrill Limited, the Company has the following commitment in respect to its interest in Westrans Services WA Pty Ltd:
AUD Working capital facility to Westrans Services WA Pty Ltd 950,000
This is a working capital facility that may be drawn down on as needed basis as determined by the board of Westrans Services Pty Ltd. The facility is secured by fixed and floating charges over 50% of the assets and undertakings of Westrans Services Pty Ltd. The total draw down available under this facility is $1 million. 20. Contingencies
Warro Gas Project The Company has a contingent exploration liability with respect to its 10% working interest that it holds in the onshore Warro Gas Project, located 200km north of Perth in Western Australia. Under the farm in agreement between Latent Petroleum and Alcoa of Australia, the Company will not be required to contribute against project expenditure to maintain its 10% interest until Alcoa has spent $40m on the project. Following this milestone, the Company will be required to spend $9m of the next $60m to maintain its 10% interest. 21. Trade and other payables Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Trade creditors 55,041 56,538 55,041 56,538 Accruals 95,262 36,750 95,262 36,750 150,303 93,288 150,303 93,288
22. Issued capital Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Ordinary shares 7,774,542 3,882,000 7,774,542 3,882,000 Cost of share issue (313,115) (83,110) (313,114) (83,110) 7,461,427 3,798,890 7,461,428 3,798,890
The Company does not have authorised capital or par value in respect of its issued shares.
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Reconciliation of movement in issued capital
2008 Ordinary shares Number of shares Issue price AUD 1 July 2007 Opening balance 454,279,635 ‐ 3,882,000 21 November
2007 Rights Issue 258,969,436 $ 0.015 3,884,542 19 June 2008 Exercise of Options 800,000 $ 0.010 8,000
Closing balance 714,049,071 7,774,542 Less share issue costs: Opening balance (83,110) Current year costs (230,004)
Share issue costs at the end of the year (313,115)
7,461,427
2007 Ordinary shares Number of shares Issue price AUD 1 July 2006 Opening balance 23,279,635 ‐ ‐
3 August 2006 Issue of ordinary shares fully paid 250,000,000 $0.010 2,500,000 3 August 2006 Issue of ordinary shares fully paid 120,000,000 $0.003 300,000 1 June 2007 Exercise of options 2,000,000 $0.010 20,000 5 June 2007 Issue of ordinary shares fully paid 55,000,000 $0.018 990,000 22 June 2007 Issue of ordinary shares fully paid 4,000,000 $0.018 72,000
Closing balance 454,279,635 3,882,000 Less share issue costs: Opening balance ‐ Current year costs (83,110) Share issue costs at the end of the year (83,110) 3,798,890
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Issued Options
Exercisable on or before Issue price Number of options 20 December 2008 5 cents 3,000,000
30 June 2010 1 cent 57,200,000 30 June 2010 2.5 cents 11,000,000 30 June 2010 2 cents 10,000,000
81,200,000 23. Reserves Consolidated Company 2008 2007 2008 2007 AUD AUD AUD AUD Share based payments reserve 148,451 88,753 148,451 88,753 Foreign currency translation reserve (51,713) (37,357) ‐ ‐ 96,738 51,396 148,451 88,753
TRANSERV AUSTRALIA LTD Notes to the financial statements
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23. Reserves (continued)
Share based payments reserve The reserve represents the value of options issued under the compensation arrangement that the consolidated entity is required to include in the consolidated financial statements. This reserve will be reversed against share capital when the underlying options are exercised by the employee or consultant. No gain or loss is recognised in the profit or loss on the purchase, sale, issue or cancellation of the consolidated entity’s own equity instruments. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity. 24. Reconciliation of cash flow from operating activities
Consolidated Company 2008 2007 2008 2007 Note AUD AUD AUD AUD Cash flows used in operating activities
Loss for the period (1,169,438) (1,799,879) (1,183,793) (1,837,236) Adjustments for: Depreciation and amortisation expense 746 ‐ 746 ‐ Impairment expense ‐ 100,000 710,398 855,606 Exploration write off 857,268 ‐ ‐ ‐ Foreign exchange (gains)/losses ‐ 173,359 90,423 Equity‐settled share‐based payment expenses 59,698 88,753 59,698 88,753 Operating profit before changes in working capital and provisions (251,726) (1,611,126) (239,592) (802,454) (Increase)/decrease in trade and other receivables 22,295 (46,267) 22,295 (46,267) (Decrease)/increase in trade and other payables (9,695) 55,931 (9,695) 93,288 Net cash used in operating activities (239,126) (1,601,462) (226,992) (755,433)
25. Financial instruments
Financial Risk Management Overview The Company and Consolidated Entity have exposure to the following risks from their use of financial instruments:
• credit risk; • liquidity risk; and • market risk.
The Consolidated Entity’s management of financial risk is aimed at ensuring net cash flows are sufficient to:
• Meet all it’s financial commitments; and • Maintain the capacity to fund the Consolidated Entity’s operating activities.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Management monitors and manages the financial risks relating to the operations of the Consolidated Entity through regular reviews of the risks.
TRANSERV AUSTRALIA LTD Notes to the financial statements
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25. Financial Instruments (continued)
Market, liquidity and credit risk (including foreign exchange, commodity price and interest rate risk) arise in the normal course of business. These risks are managed under Board approved directives which underpin treasury practices and processes.
This note presents information about the Company’s and Consolidated Entity’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital.
Credit risk Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Consolidated Entity’s receivables from customers. For the Company it arises from receivables due from subsidiaries. Trade and other receivables As the Consolidated Entity operates in the mining exploration sector and is still in the phase of exploration and evaluation. As at 30 June 2008 there were no significant concentrations of credit risk on the balance sheet. Impairment losses None of the Company’s other receivables are past due (2007: nil). As at 30 June 2008 there is no allowance for impairment in respect to other receivables for the Consolidated Entity (2007: nil).
Exposure to credit risk The carrying amount of the Consolidated Entity’s financial assets represents the maximum credit exposure. The Consolidated Entity’s maximum exposure to credit risk at the reporting date was: Carrying amount Note 2008 2007 Other receivables 15 61,384 83,119 Cash and cash equivalents 14 969,320 1,751,973
Liquidity risk
Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. The Consolidated Entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation. The Consolidated Entity manages liquidity risks by maintaining adequate reserves by continuously monitoring forecast and actual cash flows. The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements:
TRANSERV AUSTRALIA LTD Notes to the financial statements
37
25. Financial Instruments (continued)
Consolidated
30 June 2008
Carrying amount
Contractual cash flows
6 mths or less 6‐12 mths 1‐2 years 2‐5 years
More than 5 years
Non‐derivative financial liabilities
Trade and other payables 150,303 ‐ 150,303 ‐ ‐ ‐ ‐ 150,303 ‐ 150,303 ‐ ‐ ‐ ‐
30 June 2007 Non‐derivative financial liabilities
Trade and other payables 93,288 ‐ 93,288 ‐ ‐ ‐ ‐ 93,288 ‐ 93,288 ‐ ‐ ‐ ‐
Company
30 June 2008
Carrying amount
Contractual cash flows
6 mths or less 6‐12 mths 1‐2 years 2‐5 years
More than 5 years
Non‐derivative financial liabilities
Trade and other payables 150,303 ‐ 150,303 ‐ ‐ ‐ ‐ 150,303 ‐ 150,303 ‐ ‐ ‐ ‐ 30 June 2007 Non‐derivative financial liabilities
Trade and other payables 93,288 ‐ 93,288 ‐ ‐ ‐ ‐ 93,288 ‐ 93,288 ‐ ‐ ‐ ‐
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Consolidated Entity’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Currency risk The Consolidated Entity is exposed to currency risk on purchases and borrowings that are denominated in a currency other than the respective functional currencies of Consolidated Entity entities, primarily the US Dollar (USD) and the Australian Dollar (AUD). The Consolidated Entity holds most of its cash in Australian Dollars.
TRANSERV AUSTRALIA LTD Notes to the financial statements
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25. Financial Instruments (continued)
Exposure to currency risk The Consolidated Entity’s exposure to foreign currency risk at balance date was as follows, based on notional amounts: In AUD AUD USD Total AUD USD Total 2008 2007 Cash 969,320 ‐ 969,320 1,751,973 ‐ 1,751,973 Other receivables 61,384 ‐ 61,384 83,119 ‐ 83,119 Trade payables (150,303) ‐ (150,303) (93,288) ‐ (93,288) Gross balance sheet exposure 880,401 ‐ 880,401 1,741,804 ‐ 1,741,804
The Company’s exposure to foreign currency risk was as follows, based on notional amounts: In AUD AUD USD Total AUD USD Total 2008 2007 Cash 969,320 ‐ 969,320 1,751,973 ‐ 1,751,973 Other receivables 61,384 ‐ 61,384 83,119 ‐ 83,119 Trade creditors (150,303) ‐ (150,303) (93,288) ‐ (93,288) Gross balance sheet exposure 880,401 ‐ 880,401 1,741,804 ‐ 1,741,804
The following significant exchange rates applied during the year:
Sensitivity analysis A 10 percent strengthening of the Australian dollar against the following currencies at 30 June would have increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2007.
Consolidated Company AUD Equity Profit or loss Equity Profit or loss 30 June 2008 USD ‐ 82,201 ‐ ‐ 30 June 2007 USD ‐ ‐ ‐ ‐
A 10 percent weakening of the Australian dollar against the above currencies at 30 June would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Average rate Reporting date spot rate AUD 2008 2007 2008 2007 USD 1.1183 1.2749 1.0411 1.1784
TRANSERV AUSTRALIA LTD Notes to the financial statements
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25. Financial Instruments (continued)
Interest rate risk At the reporting date the interest rate profile of the Company’s and the Group’s interest‐bearing financial instruments was:
Consolidated Company Carrying amount Carrying amount
AUD 2008 2007 2008 2007 Variable rate instruments Financial assets 969,320 1,751,973 969,320 1,751,973 969,320 1,751,973 969,320 1,751,973
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2007. Profit or loss Equity AUD 100bp increase 100bp decrease 100bp increase 100bp decrease 30 June 2008 Variable rate instruments 19,239 (19,239) ‐ ‐ Cash flow sensitivity (net) 19,239 (19,239) ‐ ‐ 30 June 2007 Variable rate instruments 11,174 (11,174) ‐ ‐ Cash flow sensitivity (net) 11,174 (11,174) ‐ ‐
Fair values Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: Consolidated 2008 2007 AUD Carrying
amount Fair value Carrying
amount Fair value
Loans and receivables 61,384 61,384 83,119 83,119 Cash and cash equivalents 969,320 969,320 1,751,973 1,751,973 Trade and other payables* (150,303) (150,303) (93,288) (93,288) 880,401 880,401 1,741,804 1,741,804
Company 2008 2007 AUD Carrying
amount Fair value Carrying
amount Fair value
Loans to subsidiaries ‐ ‐ 295,455 295,455 Trade and other receivables 61,384 61,384 83,119 83,119 61,384 61,384 378,574 378,574
Capital Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Consolidated Entity defines as net operating income divided by total shareholders’ equity.
TRANSERV AUSTRALIA LTD Notes to the financial statements
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25. Financial Instruments (continued)
There were no changes in the Consolidated Entity’s approach to capital management during the year.
As at 30 June 2008, neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
26. Consolidated entities
(a) Parent entity The parent entity of the group is Transerv Australia Limited, incorporated in Australia.
Registered office: Level 21, Allendale Square 77 St Georges Terrace Perth WA 6000 (b) Subsidiaries The consolidated financial statements incorporate assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described under 1(a).
Name of entity Country of incorporation Equity
holding % Tejon Energy Inc USA 100
27. Subsequent events No matters or circumstances have arisen since the end of the financial period which significantly affected or may significantly affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years other than disclosed in the Directors’ report. 28. Interest in joint venture operations On 13 June 2008 the Company announced that Alcoa of Australia entered a farm‐in agreement on the Warro Gas Project with the project owner Latent Petroleum Pty Ltd, which was materially significant for the Company as it secured the terms under which it converted its existing $3.6m working capital facility with Latent into a 10% interest in the Warro Gas Project. Under the terms of the Alcoa farm‐in agreement it can earn a 65% project interest in Warro by funding a staged evaluation program that includes a multi well program, 3D seismic surveys and production facilities. The evaluation program is due to commence in earnest with the drilling of the first Warro well which is expected to commence in late December 2008. If developed, Warro would become the first commercially viable tight gas field in Western Australia and could yield 1‐3 TCF of gas for domestic consumption.
AUD 2008 2007 Equity attributable to shareholders of the Company 7,461,427 3,798,890 Minorities Equity 7,461,427 3,798,890 Total assets 4,654,152 2,143,695 Equity ratio in % 0.62% 0.56% Average equity 7,461,427 3,798,890 Net Profit (1,254,438) (1,799,879) Return on Equity in % (16.81%) (47.38%)
TRANSERV AUSTRALIA LTD Directors’ declaration
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1 In the opinion of the Directors of Transerv Australia Ltd (“the Company”):
a. The financial statements and notes (and the remuneration disclosures that are contained in section 3 of the Remuneration report in the Directors’ report), set out on pages 17 to 40, are in accordance with the Corporations Act 2001, including:
i. Giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2008 and of their performance for the financial year ended on that date; and
ii. Complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
b. the financial report also complies with International Financial Reporting standards as disclosed in note 2(a);
c. the remuneration disclosures that are contained in section 3 of the Remuneration report in the Directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and
d. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
2 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 by the executive officer and chief financial officer for the financial year ended 30 June 2008.
Dated at Perth this 26th day of September 2008. Signed in accordance with a resolution of the Directors. On behalf of the Directors
Brett Mitchell Director