www.mynetfone.com.au
My Net Fone Limited
Annual Report 2007
Contents
Board of Directors 2/ Company Profile, Vision & Values 3/ What is VoIP? 4/ Key Achievements 5/ Chairman’s Review 6/ Managing Director’s Review 7/ 2006 - 2007 Business Highlights 10/ Directors’ Report 14/ Income Statement 21/ Balance Sheet 22/ Cash Flow Statement 23/ Statement of Changes in Equity 24/ Notes to the Financial Statements 25/ Directors’ Declaration 49/ Auditor’s Independence Declaration 50/ Independent auditor’s report 51/ ASX Additional Information 53/ Corporate information 55/MyNetFone PowerSaver plan
GOLD AWARD WINNER – BEST VoIP PLAN, BUSINESS USER
MONEY
MAGAZINE, BEST OF THE BEST 2007
MyNetFone JumboSaver plan
SILVER AWARD WINNER – BEST VoIP PLAN, HOME USER
MONEY
MAGAZINE, BEST OF THE BEST 2007
Board
of Directors
Mr Terry Cuthbertson B. Bus., CA
Chairman
A Chartered Accountant, previously partner with KPMG with extensive corporate finance expertise and knowledge. Also Director of S2Net Limited, Montec International Limited, Austpac Resources N.L. and Healthzone Limited.
Director since March 2006
Mr Andy Fung B.E. MCom Managing Director Extensive experience in telecommunications. Formerly Director of Business Development of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002.
Director since March 2006
Mr René Sugo B.Eng. (Hon) Technical Director Extensive experience in telecommunications. Formerly Technical Director of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002.
Director since March 2006
Mr Michael Boorne Electronics Eng. Dip. Non-Executive Director A successful entrepreneur with extensive experience in combining technical expertise with commercial and corporate experience. Founder of Sprit Modems and Mitron Pty Ltd and previously a non Executive Director of Netcomm Ltd. Director since December 2006
Ms Catherine Ly B.Bus., CPA
Chief Financial Officer Company Secretary since July 2006
2
My Net Fone Limited (ASX: MNF), listed on the Australian Securities Exchange, is Australia’s leading broadband VoIP service provider. Headquartered in Sydney, Australia, the company provides voice and broadband services for customers to make and receive phone calls over any type of broadband Internet connection. The company’s mission is to help customers save on their phone bills, deliver excellent customer service and offer innovative service offerings.
Company
Profile
Vision
Values
• Superior Customer Service • Excellent Quality
• Value for money • Innovation
• Team work
• Integrity • Passion To revolutionise how our customers
communicate and enhance their
communication experiences by delivering innovative solutions with superior value and quality customer service.
To be recognised by our customers, employees and shareholders as the most innovative and customer-centric
communications provider in Australia.
To be an employer of choice and provide our employees with relevant training, career development opportunities and a great environment in which to work.
3
What
is VoIP?
4
VoIP or Voice over IP is a new communication technology which converts voice into packets of data. Unlikeconventional voice services which require a dedicated connection, the data packets in VoIP are transmitted over Internet based networks and are re-assembled at the receiving end. Subscribers make or receive VoIP calls via their broadband connection, which may be DSL, cable or broadband wireless. These calls are then sent via the Internet to the receiving subscriber anywhere in the world. A VoIP subscriber uses the VoIP service just like a conventional phone service.
What is convergence?
Convergence is the integration of voice, data, Internet and business applications on one network. The implementation and maintenance of convergence is more cost effective than separate traditional networks. The circuit switched network (voice),
dedicated private line network (data) and the Internet can all be combined into a single network connection, eliminating the need to continue to invest in separate legacy data or voice platforms.
Benefits of VoIP
Why is VoIP important?
• Cost saving: VoIP service can significantly reduce communication costs by providing low call rates, low monthly fees and free on-net calls
• Convergence: Convergence is the integration of voice, data and Internet; delivering convenience and flexibility • Enhanced Features: VoIP delivers range of enhanced
features to customers
The continuing advance in computer power and software
development, coupled with the abundance of bandwidth and the ubiquitous nature of the Internet, is causing a paradigm shift towards convergence of voice, data, video and multi media services. Previously, separate stand-alone networks were built and operated to deliver different types of services, resulting in a myriad of
incompatible systems and processes.
My Net Fone Limited is well positioned to capitalise on the industry shift to VoIP and convergence - all systems and processes have been developed for the specific purpose of delivering efficient and quality VoIP services.
Wall Socket DSL/Cable Modem Router
Voice
Adaptor
Telephone InternetKey
Achievements – June 07
5
Paying customers as of June 07
Gross revenue
Gross margin
Revenue per employee
35,000
$3,275,942
$747,963
$93,600
180%
104%
423%
20%
Financial year
06/07
% change from
last year
Percentage of enterprise vs residential
customers
Chairman’s
Review
6
This 2006/07 period is the first full financial year that My Net Fone Limited has been in operation following itssuccessful listing on the ASX in May 2006. During this period, the company has firmly established itself as one of the leading providers of VoIP services in the Australian market and has experienced substantial growth in all its business segments.
The company’s gross revenue and gross profit for the year grew to $3,275,942 (2006: $1,603,436) and $747,963 (2006: $142,958) respectively. The number of paying customers reached 35,000 in June, representing a 180% increase to the same time last year. The deferred revenue for the year increased to $437,539 as compared to $217,926 in 2006 – an increase of 100.8%. The deferred revenue comprised of call credits deposited by
customers into their accounts for making phone calls. The revenue will be recognised once the customers have progressively used up the call credits. The business gross margin increased across the product line while the operating expenses remained reasonably static.
The company made a loss of $3,250,320 which includes a $700,000 share base expense which arose from the valuation of the options by an independent professional valuer in accordance with accounting standards. These options were granted in the February Extraordinary General Meeting. The company’s net trading loss is $2,550,320.
During the year, Mr Michael Boorne joined the board as a non Executive Director. Mr Boorne brings with him many years of experience in the telecom and IT sector of the Australian industry combining technical expertise with commercial flair and corporate management. We look forward to his valuable contributions to providing strategic input to the board.
We expect the My Net Fone business continues to grow strongly in the new financial year with customer sign-ups increasing steadily every month. The company will have a range of new generation service features which will attract more customers to join the service as well as lifting the ARPU (average spend per user). My Net Fone’s cash burn is decreasing and is moving towards positive territory. While My Net Fone continues to build a creditable and reputable brand within its resource constraint, the company is very well aware of the highly competitive nature of the Australian market and is never complacent about what it must do to win and keep its customers.
The 2006/07 was a successful year for the company with gross revenue doubled and customer numbers trebled. I want to thank the executive team, Andy Fung, Rene Sugo and Catherine Ly for providing the leadership to successfully grow the business and manage the internal resources efficiently. I also would like to thank my fellow Director Mr Boorne for his contributions to the board. Last but not least, my sincere thanks to the many shareholders for their continued support and commitments to the company
Terry Cuthbertson Chairman
Managing Director’s
Review
7
I am pleased to report that the company achieved excellent results for the financial year of 2006/07. At theend of June, the company had over 35,000 paying customers, a 180% increase from the same time last year. Our gross revenue grew to $3,275,942 with gross profit to $747,963, compared with $1,603,436 and $142,958 respectively last financial year.
The company made a net loss of $3,250,320 which includes a $700,000 share base expense which arose from the valuation of the options granted in the Extraordinary General Meeting in February. The gross margin has increased across the range of products.
Business Highlights
My Net Fone now offers a range of comprehensive service plans that address the needs of different customer and market segments. The company has plans that cater for customers just starting out who want to try VoIP for the first time as well as plans that are suited to experienced and heavy users. While the customer profile is still predominantly residential, the number of customers in the home office (SOHO) and business segments has increased significantly during the year.
The increase is due to the introduction of the PRO plans as well as a range of enhanced features which business users have found useful in helping them to run their business more efficiently as well as saving costs. Business customers are also attracted to the MNF business solutions because they can utilise VoIP on a small scale initially to gain confidence in the quality and reap the cost benefits before implementing a wide scale deployment.
My Net Fone customers can use the service with any broadband connection, typically DSL and cable. My Net Fone successfully implemented and delivered VoIP services to users with satellite broadband connections in regional and remote parts of Australia. The successful deployment of the service over satellite broadband with reasonable quality and reliability is a milestone to the company in delivering the benefits of VoIP to nearly every corner of Australia.
My Net Fone launched the GlobalSaver service which was very well received by customers who make frequent calls to overseas destinations. Customers can make 10 cents untimed calls after 100 free calls to 30 different countries around the world including the US, UK, New Zealand, Hong Kong, China and Singapore. A highlight of the year was My Net Fone’s successful participation in the leading IT&T trade exhibition CeBIT. The company’s success was measured not just in terms of the exceptional sales achieved, but also the profile and brand awareness that resulted in during and after the event. My Net Fone had a stand that was not only professional and functional, but also well attended by visitors comprising novice as well as experienced VoIP users. The goodwill and creditability generated as a result of the company’s presence at the exhibition has been invaluable to the MyNetFone brand as well as to the company.
My Net Fone is very proud to have won Money magazine’s Best of the Best 2007 Gold award for Best VoIP plan – Business User and Silver award for the Best VoIP Plan – Home User. The magazine worked with a range of Australian experts to develop its winners list, which covers more than 60 categories and over 300 individual products. My Net Fone won the Gold award in this category (i.e. Best VoIP Plans – Business User) with the PowerSaver plan.
8
Internal Operations
My Net Fone launched a new website which provides freshness to the brand and enables customers to navigate and obtain information easily about the company’s products and services. The customer account portal has also been updated with an array of new features which include the ability for the customers to update their profile and change service plan without the need of contacting My Net Fone’s customer service centre. We will continue to enhance and add new features to the portal. Customers will increasingly have control over how they want their service to be tailored to their own individual needs. We believe that the customer self-control functions will become a key differentiating factor of the My Net Fone service.
My Net Fone constantly develops and fine-tunes its internal systems and processes to deliver highly efficient, accurate and fast order fulfilment. Since My Net Fone sells a wide range of hardware devices and service plans, the company continually works on improving its provisioning and fulfilment processes and ensuring its customers can enjoy the service as soon as is practicable after placing their order.
My Net Fone prides itself in delivering efficient and friendly customer service. The company regularly monitors key performance indicators (KPIs), enhances its processes and provides training and feedback to its staff with the aim of delivering a high-quality and efficient service to its customers. We continue to develop and reinforce an ethos of service quality and a culture of “doing it now and doing right the first time” throughout the
organisation. Going Forward
With this year’s results, My Net Fone has demonstrated a track record of exceptional growth. The company’s brand awareness and profile in the market are continually increasing and its presence will even be stronger as time goes on.
My Net Fone’s strategies in the new financial year focus in the following areas: - Increasing customer numbers
- Increasing ARPU (average spend per user) - Maintaining the cost base
- Maintaining the quality and reliability of the service - Developing additional marketing channels
My Net Fone has plans to roll out a range of enhanced services and features which will attract new customers as well as increasing the ARPU. The company recently launched the new MyNetFone On-the-Go service which enables My Net Fone to tap into the mobile market segment.
The new MyNetFone Global Access service allows users without broadband connection to access My Net Fone’s low call rates for the first time wherever they are on any phone and make calls to anywhere in the world. Global Access customers do not need to change their existing phone service provider and the service would not interfere with it.
9
Another recently launched feature that will increase the ARPU is the Follow Me feature of My Net Fone’s Unified Messaging service. By simply using the MyNetFone My Account portal, customers can re-direct their incoming calls to any service on the My Net Fone network or to a mobile or landline service on the public network within Australia or overseas. With this service customers have the ability to control their incoming calls to ring multiple destination numbers sequentially based on various options, or to deposit a voicemail which will be delivered to their desktop email in real-time.
Looking at the broadband market in Australia, the customer uptake is still continuing and is far from saturation. The percentage of VoIP users in relation to the total broadband market is still relatively small and the potential growth is therefore high. My Net Fone with its experience and track record is well positioned to take
advantages of this growth.
Without dedicated staff with the passion and commitment to customer service, no organisation would be able to survive, let alone grow in this increasingly competitive world. My Net Fone is very fortunate that its staff is highly motivated and committed to delivering quality products and customer service. The company regularly receives positive feedback and compliments from customers on their experiences with My Net Fone staff. I want to take this opportunity to thank our staff for their dedication and contributions as well as their passion in serving our customers.
I have no doubt that the brand and services of My Net Fone will continue to grow in the new financial year and look forward to your continuing support.
Andy Fung
Managing Director
10
My Net Fone delivers a comprehensive range of broadband phone and data solutions to business and residential market in Australia. In 2006/07 My Net Fone further developed product and service offerings for both markets, adding a range of enhanced service features and competitively priced plan choices to increase the value proposition, provide superior service to our customers and stay competitive in the market.
Residential Segment
My Net Fone’s residential broadband phone service is available to our customers with a broadband Internet connection and delivers significant and often unbelievable savings on their phone bills.
My Net Fone’s residential service plans offer a wide choice to cover every possible need and budget ranging from no monthly service fee suitable for beginners trying out VoIP to plans offering free calls every month with low rates well suited to sophisticated and heavy users.
• In December 2006, My Net Fone won Money magazine’s Best of the Best 2007 Silver award for Best VoIP plan – Home User, for its JumberSaver service plan.
• In June 2007, My Net Fone lowered the entry-cost to VoIP consumers by offering VoIP adaptors under $20.
• In July 2007, My Net Fone enhanced its MegaSaver service plan and added 100 free local/national calls to this already attractive service plan, delivering superior value for money for low call volume users.
• My Net Fone launched GlobalSaver. Customers can call 30 overseas contries around the world with untimed calls. These countries include New Zealand, the US, UK, Hong Kong, China, Singapore and many more, reaching 2.5 billion people or 40% of the world’s population.
• My Net Fone provides New Zealand DID.
2006
/
07
Business Highlights
“Can I just say WOW. Quick
activation and great quality
phone calls.. Very impressed,
keep up the great work”
-- Residential customer,
Mar
ch 2007.
“Been a VoIP use
r for the past
2 years and have found M
NF
to be the best so fa
r with regard
to reliability when mak
ing &
receiving calls...
thus far it’s
been a very pleasant experience.
much more so than a traditional
provider. Excellent work guys!”
-- Residential cu
stomer,
March 2007.
11
Business Segment
MNF Business Solutions offer a comprehensive range of voice and data solutions for business of all sizes, from small office/home office to large corporate users. We know business customers want to reduce their
communications costs and demand quality, reliability and flexibility with little risk exposure. MNF Business Solutions are able to meet the stringent requirements of the business enterprises and reduce their telecommunications costs significantly while maximising productivity and efficiency.
MNF Buiness Solutions deliver quality customised solutions based on customers’ unique business requirements, including a wide range of services from basic multi-line VoIP service plans to premium phone and data services, high speed Internet and business applications all on one converged service.
• In December 2006, My Net Fone won Money magazine’s Best of the Best 2007 Gold award for Best VoIP plan – Business User, for its PowerSaver PRO service plan.
• In September 2006, My Net Fone launched a new suite of converged VoIP and Internet broadband solutions including hardware ranging from multi-port gateways to the latest generation of IP PBX’s, plus other modern telephony services essential for today’s enterprises including private IP networks, managed firewall, 1300 numbers and lines, Interactive Voice Response (IVR), virtual office numbers, fax over IP and more.
• My Net Fone launched a range of new ‘PRO’ services targeted at the SOHO and small business market. The new PRO services comprise multiple telephone lines on one low cost monthly rental with free calls included every month.
• My Net Fone launched an innovative mobile VoIP service, MyNetFone On-The-Go, which users can make MyNetFone VoIP calls with supported Nokia mobile devices.
2006
/
07
Business Highlights
“Historically On
Call
Communication
s has been
with ‘traditional
’ providers for
all of our landline
s...
We have moved all fixed
services across to M
yNetFone,
and have found the
call
quality, redunda
ncy,
technical expertise and serv
ice
second to none. MyNet
Fone
has allowed us to expand our
business with very little capital
outlay. Moreover, MyNetFone
has not only exceeded all
expectations but have also
managed to reduce our monthly
phone bill by over 40%”.
-- James Stewart, Director - I.T.
OnCall Communications,
May 2007.
12
Christmas Party 06’
New website for 2007
MyNetFone in CeBIT 2 007
Staff in CeBIT 2007
MyNetFone in CeBIT 2007
Directors’
Report
14
FOR THE YEAR ENDED 30 JUNE 2007
Your directors present this report on the company and its controlled entity (the economic entity) for the financial year ended 30 June 2007.
Directors
The directors of the Company at any time during or since the end of the financial year are:
Name and qualifications Experience, special responsibilities and other directorship
Mr Terry Cuthbertson B.Bus., CA
Chairman
Mr Michael Boorne Electronics Eng. Dip. Non-Executive Director Mr Andy Fung B.E. MCom Managing Director
Mr René Sugo
B.Eng. (Hon)
Technical Director
A Chartered Accountant, previously partner with KPMG with extensive corporate finance expertise and knowledge. Also Director of S2 Net Limited, Montec International Limited, Austpac Resources N.L. and Healthzone Limited. Director since March 2006
A successful entrepreneur with extensive experience in combining technical expertise with commercial and corporate experience. Founder of SpritModems and Mitron Pty Ltd and previously a non Executive Director of Netcomm Ltd. Director since December 2006 Extensive experience in telecommunications. Formerly Director of Business Development of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002. Director since March 2006
Extensive experience in telecommunications. Formerly Technical Director of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002. Director since March 2006
Company Secretary
Ms Catherine Ly B.Bus., CPA, is Chief Financial Officer for the Company and has been appointed as Company Secretary since July 2006.
Board and Committee Meetings
From 1/7/06 to 30/6/07, the Directors held 12 board meetings and 4 audit committee meetings. Each director’s attendance at those meetings is set out in the following table.
Directors
T. Cuthbertson A. Fung R. Sugo M. Boorne
Committe Meetings Attended
Board Audit
Eligible to Attend Attended Eligible to Attend Attended 12 12 12 6 12 12 12 6 4 4 2 1 4 4 2 1
Directors’
Report
15
Operating Result
The consolidated loss of the Group for the financial year after providing for income tax amounted to $3,250,320 (2006: $1,406,147). This loss includes a charge of $700,000 due to accounting for share-based expense in relation to the options granted in February EGM.
Review of Operations
A review of the operations of the economic entity during the financial year and the results of those operations are as follows:
The gross revenue and gross profit for the year are $3,275,942 (2006:$1,603,436) and $747,963 (2006:$142,958) respectively. The revenue growth was due to the increase in subscriber growth and the gross profit was achieved as a result of economies of scale and efficient application of resources. The deferred revenue for the year increased to $437,539 as compared with $217,926 in 2006 – an increase of 100.8%. The deferred revenue is the call credits deposited by the customers in their accounts for making future phone calls. This will be recognized once the customers have progressively used up the call credits.
The subscriber numbers at the end of June exceeded 35,000 representing a 180% increase over last year. We expect the trend of subscriber growth to continue as a result of sustained marketing efforts and the brand recognition and credibility that have gradually been built up in the market. We continue to work with existing and new equipment suppliers that offer unique value propositions. At the same time, we are developing new enhanced product offerings and solutions suitable for the residential and enterprise sectors. These products and solutions are expected to deliver higher average call spend per user as well as increase in subscriber numbers.
We strive to continue lowering our cost base by exploiting the economies of scale, automated processes and systems as well as efficient application of resources.
Significant Changes in the State of Affairs
No significant changes in the economic entity's state of affairs occurred during the financial year. Principal Activities
The principal activity of the Group during the course of the year was to provide broadband VoIP phone service to residential and business customers.
In the financial year, the Group derived its revenue from:
• Monthly fees and call charges from residential and business customers • Sales of customer premises devices, i.e. voice adaptors
• Wholesale charges of traffic minutes • Sale of prepaid calling cards
After Balance Date Events
There were no significant events after the balance date that would materially alter the operations or financial performance of the company.
Directors’
Report
16
Future Developments
The likely developments in the operations of the economic entity and operations in future financial years are as follows:
• The sale of broadband Internet and VoIP bundled services
• The development of enhanced services for residential and business customers
• The sale and use of My Net Fone On-the-Go VoIP service over WiFi and 3G based mobile handsets • The development and joint marketing with strategic partners.
Environmental Issues
The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or a State or Territory.
Dividends
No dividends were declared or paid since the start of the financial year. No recommendation for payment of dividends has been made.
Options
Options that were granted during or since the end of the financial year by the company to directors.
Number of options Exercise price Expirydate granted
Directors
Mr Terry Cuthbertson 1,000,000 30 cents 30 September 2008
Mr Michael Boorne 2,000,000 20 cents 30 April 2007
Mr Michael Boorne 2,000,000 25 cents 31 December 2007
Mr Michael Boorne 2,000,000 30 cents 30 September 2008
A total of 7,000,000 options issued to the two non-executive Directors was approved by the shareholders in the EGM held on 16 February 2006.
The first tranche of 2,000,000 options was exercised in the year by Michael Boorne (refer to Note 13 of the Financial Statements for further details of the options).
Remuneration Report Remuneration philosophy*
The remuneration philosophy of the Board is currently to recognize that in the early stage of growth the company needs to contain operating costs and so the salaries established for the executive directors are negotiated at rates below market levels that would normally be available to persons with such experience and qualifications. At this time the Board has established salary arrangements for the key executives which is commensurate with their level of experience. As the company matures the Board will review its approach to setting remuneration levels by balancing short and long term benefits and linking remuneration to
performance. The Board may issue options to employees under the Company Employee Option Plan as set out in note 13 to the financial statements.
*designated as audited
Directors’
Report
17
Remuneration of Key Management Personnel
For all the key management personnel, only basic salaries and fees and superannuation were granted during the year, no other short term benefit, long term benefit, performance related or share based payment were paid in the year except for the options disclosed above. No bonuses were granted during the year.
Details of the nature and amount of each major element of remuneration of each director of the Company and each of the named company executives who receives the highest remuneration are:
Year ended 30 June 2007 Year Short term* Post Employment* Share Based Total* Payment Options*
Salary & fees $ Superannuation $ $ $
Non-executive
Mr T. Cuthbertson Mr M. Boorne
Executive
Mr A. Fung (Managing Director) Mr R. Sugo (Technical Director)
Total
Management Executives
Mr L. Tai (Director)
Ms C. Ly (Chief Financial Officer)
Total (Commenced 19 December 2006) 2007 2007 2007 2007 2007 2007 50,000 15,000 150,000 150,000 365,000 50,000 100,000 150,000 4,500 1,350 13,500 13,500 32,850 4,500 9,000 13,500 80,000 620,000 -700,000 -134,500 636,350 163,500 163,500 1,097,850 54,500 109,000 163,500 Only two specified executives are included in the disclosure as there are only four specified executives in total employed in the Company in 2007, two of whom are Executive Directors disclosed above.
Year ended 30 June 2007 Year Short term* Post Employment* ShareBased Total* Payment Options*
Salary & fees $ Superannuation $ $ $
Non-executive
Mr T. Cuthbertson Mr M. Boorne
Executive
Mr A. Fung (Managing Director) Mr R. Sugo (Technical Director)
Total
Management Executives
Mr L. Tai (Director)
Ms C. Ly (Chief Financial Officer)
Total (Commenced 19 December 2006) 2006 2006 2006 2006 2006 2006 8,333 -25,000 25,000 58,333 16,666 24,444 41,110 750 -2,250 2,250 5,250 1,500 2,200 3,700 -151,183 151,183 302,366 30,967 -30,967 9,083 -178,433 178,433 365,949 49,133 26,644 75,777 Only two specified executives are included in the disclosure as there are only four specified executives in total employed in the Company in 2006, two of whom are Executive Directors disclosed above.
*designated as audited Directors
Directors
Directors’
Report
18
Compensation of Directors and Key Management Personnel*
These share based payments are for the options disclosed above. The details and valuation of these options are set out in Note 13 to the financial statements. The fair value of the option was valued at grant date at 13 cents, 10 cents and 8 cents per option for 2 million, 2 million and 3 million options respectively. The options granted were approved by shareholders in the EGM held on 16 February 2007; where the last 2,000,000 options issued to Mr. Michael Boorne were contingent upon the successful exercising of the first and second 2,000,000 options.
The Company has entered into Executive Employment Agreements with Andy Fung and Rene Sugo. Each of the agreements is for a period of three years expiring on 30 April 2009. The key terms of the agreements are for a base salary of $150,000 per annum (exclusive of Superannuation Guarantee Levy) and are reviewable on July 1 each year. The Board approved a salary increment for Andy Fung and Rene Sugo in July 2007 for 12 percent. Their base salary is $168,000 per annum plus the standard superannuation guarantee levy. The remuneration and other terms of employment for the key executives above are set out in written agreements. Each of these employment agreements are unlimited in term but may be terminated by written notice by either party and by the Company making a payment in lieu of notice.
Each of these agreements sets out the arrangements for total fixed remuneration, performance-related cash bonus opportunities, superannuation, termination rights and obligations and eligibility to participate in the employee equity-based incentive scheme. Executive salaries are reviewed annually. The executive employment agreements do not require the Company to increase base salary, incentive bonuses or to continue the participants’ participation in equity-based incentive programs.
The Company may terminate the employment of the key executive without notice and without payment in lieu of notice in some circumstances. This includes if the executive:
1. commits an act of serious misconduct;
2. commits a material breach of the executive employment agreement;
3. denigrates or engages in any behaviour that may materially damage the reputation of, or otherwise bring, the Company disrepute; or
4. is convicted of any criminal offence which would in the reasonable opinion of the Board of Directors adversely affect the carrying out of the executive’s duties.
Consolidated Company 2007 2006 2007 2006 Short term* Post employment* Share-based Payment* $ $ $ $ 515,000 46,350 700,000 1,261,350 99,443 8,950 333,333 441,726 65,000 5,850 700,000 770,850 8,333 750 302,366 311,449 *designated as audited
Directors’
Report
19
The Company may terminate the employment of the key executive at any time by giving the executive notice of termination or payment in lieu of such notice. The amount of notice required from the Company in these circumstances is set out in the following table:
Name of key executive Company notice period Employee notice period Termination provision Andy Fung 1 month 1 month 1 month base salary René Sugo 1 month 1 month 1 month base salary
Leo Tai 1 month 1 month 1 month base salary
Catherine Ly 1 month 1 month 1 month base salary
Directors’ interests in shares and options of the company or related bodies corporate
At the date of this Report, the particulars of shares and options held by the directors of the company in the company or in related bodies corporate which are required to be declared in the register of directors' share holdings are as follows:
Name of Director Share holding Options
Mr Andy Fung 12,100,065 5,039,445 Mr René Sugo 12,100,066 5,039,444 Mr Terry Cuthbertson 1,125,000 1,000,000 Mr Michael Boorne 1,369,000 4,000,000 Total 26,694,131 15,078,889 Directors Benefits
No director has received or has become entitled to receive, during or since the financial year, a benefit because of a contract made by the company, controlled entity or related body corporate with a director, a firm which a director is a member or an entity in which a director has a substantial financial interest.
Indemnifying Officer or Auditor
No indemnities have been given or agreed to be given or insurance premiums paid or agreed to be paid, during or since the end of the financial year, to any person who is or has been an officer or auditor of the company.
Proceedings on Behalf of Company
No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year.
Auditors Independence Declaration
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 has been included.
Directors’
Report
20
Signed in accordance with a resolution of the Board of Directors:
Terry Cuthbertson Chairman
Andy Fung
Managing Director Sydney, 30 August, 2007
Income
Statement
21
FOR THE YEAR ENDED 30 JUNE 2007
Note CONSOLIDATED PARENT
$ $ $ $ Revenue Rendering of services Cost of sales Gross profit Finance revenue Other income Distribution expenses Marketing expenses Occupancy expenses Administrative expenses
Technology and support expenses Other expenses
Finance costs
Loss before income tax Income tax expense Loss after tax
Net loss for the year
Earnings per share (cents per share) - basic for loss for the year
- diluted for loss for the year
3,275,942 (2,527,979) 747,963 55,187 70,457 (112,512) (455,203) (200,927) (2,746,296) (228,799) (368,990) (11,200) (3,250,320) -(3,250,320) (3,250,320) (0.07) (0.07) 3.(a) 3.(a) 3.(b) 3.(c) 2007 2006 2007 2006 1,603,436 (1,460,478) 142,958 13,216 6,872 (72,374) (228,773) (58,943) (1,060,649) (1,336) (141,980) (5,138) (1,406,147) -(1,406,147) (1,406,147) (0.12) (0.12) -44,261 289,903 -(172,400) (779,396) -(223,181) (45) (840,858) -(840,858) (840,858) -10,580 51,763 -(2,124) (357,855) -(85,607) (266) (383,509) -(383,509) (383,509)
The above income statement should be read in conjunction with the accompanying notes.
Balance
Sheet
22
AS AT 30 JUNE 2007
Note CONSOLIDATED PARENT
$ $ $ $
ASSETS Current Assets
Cash and cash equivalents Trade and other receivables Other financial assets Total Current Asset
Non-currect Assets Other receivables Investment in subsidiaries Property, plant and equipment Total Non-current Asset TOTAL ASSETS
LIABILITIES Current Liabilities Trade and other payables Deferred revenue Provisions
Total Current Liabilities
Non-current Liabilities Other payables Provisions
Total Non-current Liabilities TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed capital
Share based payment reserve Accumulated losses TOTAL EQUITY 1,143,489 175,882 62,128 1,381,499 450 -243,054 243,504 1,625,003 1,374,193 437,539 83,915 1,895,647 6,308 11,710 18,018 1,913,665 (288,662) 3,496,887 1,048,333 (4,833,882) (288,662) 5. 6. 7. 6. 18. 8. 9. 10. 11. 9. 11. 12. 2(d). 2007 2006 2007 2006
The above balance sheet should be read in conjunction with the accompanying notes. 1,894,086 154,819 95,728 2,144,633 1,450 -219,694 221,144 2,365,777 731,402 217,926 21,876 971,204 13,888 7,555 21,443 992,647 1,373,130 2,608,359 348,333 (1,583,562) 1,373,130 847,653 2,067 62,128 911,848 2,342,783 5,000,000 -7,342,783 8,254,631 118,778 -118,778 -118,778 8,135,853 8,311,887 1,048,333 (1,224,367) 8,135,853 1,736,233 27,178 62,128 1,825,539 718,983 5,000,000 -5,718,983 7,544,522 142,451 -142,451 13,888 -13,888 156,339 7,388,183 7,423,359 348,333 (383,509) 7,388,183
Cash Flow
Statement
23
FOR THE YEAR ENDED 30 JUNE 2007
CONSOLIDATED PARENT
$ $ $ $
Cash flows from operating activities Receipts from customers
Payments to suppliers and employees Interest received
Borrowing costs
Net cash flows (used in)/from operating activities
Cash flows from investing activities Purchase of property, plant and equipment Decrease/ (Increase) in security deposit Advances to subsidiary
Net cash flows used in investing activities
Cash flows from financing activities Proceeds from issue of shares Transaction costs of issue of shares Net Cash flows from financing activities
Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of the year
3,873,543 (5,517,648) 55,187 (11,200) (1,600,119) (72,607) 33,600 -(39,007) 900,000 (11,472) 888,528 (750,598) 1,894,086 1,143,489 5. 8. 7. 12. 12. 5. 2007 2006 2007 2006
The above cash flow statement should be read in conjunction with the accompanying notes. 1,783,835 (2,099,448) 13,216 (5,138) (307,535) (209,740) (90,649) -(300,389) 3,000,003 (576,644) 2,423,359 1,815,435 78,651 1,894,086 344,004 (541,528) 44,261 (45) (153,308) -(1,623,800) (1,623,800) 900,000 (11,472) 888,528 (888,580) 1,736,233 847,653 24,585 59,086 10,580 (266) 93,985 -(62,128) (718,983) (781,111) 3,000,003 (576,644) 2,423,359 1,736,233 -1,736,233 Note
Statment
of Changes in Equity
24
FOR THE YEAR ENDED 30 JUNE 2007
Issued Capital
$ $ $ $
CONSOLIDATED As at 1 July 2005
IPO costs recognised directly in equity Loss for the year
Total recognised income and expense for the year Other equity movements
Issue of share capital Share based payments As at 30 June 2006
Movements
Share issue costs
Net income/ (expense) recognised directly in equity Loss for the year
Total recognised income and expense for the year Other equity movements
Issue of share capital Share based payments As at 30 June 2007
PARENT
As at 1 July 2005
IPO costs recognised directly in equity Loss for the year
Total recognised income and expense for the year Other equity movements
Issue of share capital
Prior period adjustment – Contributed equity (Note 22) Share based payments
As at 30 June 2006
Movements
Share issue costs
Net income/ (expense) recognised directly in equity Loss for the year
Total recognised income and expense for the year Other equity movements
Issue of share capital Share based payments As at 30 June 2007 185,000 (576,644) -(576,644) 3,000,003 -2,608,359 (11,472) (11,472) -(11,472) 900,000 3,496,887 -(576,644) -(576,644) 3,000,003 -2,423,359 (11,472) (11,472) -(11,472) 900,000 -3,311,887
The above statement of changes in equity should be read in conjunction with the accompanying notes. Share based payment & other Accumulated Losses Total -348,333 348,333 -700,000 1,048,333 -5,000,000 348,333 5,348,333 -700,000 6,048,333 (177,415) -(1,406,147) (1,406,147) -(1,583,562) -(3,250,320) (3,250,320) -(4,833,882) -(383,509) (383,509) -(383,509) -(840,858) (840,858) -(1,224,367) 7,585 (576,644) (1,406,147) (1,982,791) 3,000,003 348,333 (1,373,130) (11,472) (11.472) (3,250,320) (3,261,792) -900,000 700,000 (288,662) -(576,644) (383,509) (960,153) 3,000,003 5,000,000 348,333 7,388,183 (11,742) (11,742) (840,858) (852,330) -900,000 700,000 8,135,853
Notes
to the Financial Statements
25
FOR THE YEAR ENDED 30 JUNE 2007
1 CORPORATE INFORMATION
The financial report of My Net Fone Limited and its controlled entity (the Group) for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 30 August 2007.
My Net Fone Limited (the Parent) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange.
The nature of the operations and principal activities of the Group are described in the Directors' Report.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation
The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporation Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis.
The financial report is presented in Australian dollars. (b) Statement of compliance
Certain Australian Accounting Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2007. The directors have not early adopted any of these new or amended standards or interpretations. The directors have not yet fully assessed the impact of these new or amended standards (to the extent relevant to the Group) and interpretations. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).
(c) Basis of consolidation
The consolidated financial statements comprise the financial statement of My Net Fone Limited and its subsidiary (My Net Fone Australia Pty Ltd) as at 30 June 2007 ('the Group').
Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.
The financial statements of the subsidiary are prepared for the same reporting period as the parent company, using consistent accounting policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
In preparing the consolidated financial statements all intercompany balances and transactions have been eliminated in full.
Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.
Notes
to the Financial Statements
26
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (d) Going Concern
The Directors believe that the Group will be able to continue as a going concern and, as a consequence, the financial report has been prepared on a going concern basis. This basis presumes that funds will be available to finance future operations and the realisation of assets and settlement of liabilities will occur in the normal course of business.
The Group incurred an operating loss of $3,250,320 (2006: loss of $1,406,147) during the year ended 30 June 2007, and as at that date the Group's total liabilities exceeded total assets by $288,662. (2006: total assets excedeed total liabilities by $1,373,130)
However, this negative liability position is viewed as controllable by the directors because:
1/ The excess liabilities over assets will be amended once shareholders approve at the next AGM to the conversion of $500,000 debt from Symbio Networks into My Net Fone equity on the same terms and conditions as the placement in June 2007.
2/ Included in the current liabilities is $437,539 of deferred revenue which will be recognised as 2008 revenue when customers' credits are progressively used up. This deferred revenue does not represent a gross cash outflow.
3/ Of the total amount of $1,239,107 of trade payables, $1,060,538 is owed to Symbio Networks Pty Ltd which is a related party to My Net Fone. Symbio Networks has agreed to an extended payment term of the payable at a commercial interest rate similar to bank overdraft to My Net Fone.
The Directors believe that the going concern basis of accounting is appropriate due to the capital raised in June 2007 and the expected cash flows to be generated by the Group over the next twelve months. The Directors will closely monitor cash flows as the Group grows and if revenues do not increase as expected, the directors will look to contain costs and negotiate with the related party supplier Symbio Networks to change and extend payment terms. The Directors believe that these actions, if required, will be sufficient to ensure that the company will be able to pay its debts as and when they fall due for the next twelve months at least.
Notwithstanding the above, the directors acknowledge that there are a number of risk factors that could materially affect the Group's future profit ability and cash flows, which include, but are not limited to: (i) Competition
There can be no assurance given in respect of the Group's ability to continue to compete profitably in the competitive markets in which the Group operates. The potential exists for change in the competitive environment in which the Group operates.
(ii) Management of Growth
Consistent with early stage growth companies, the Group is not currently operating profitably. There is a risk the Group will have insufficient working capital to meet its business requirements and the expansion of the Group will depend upon the ability of management to implement and successfully manage the Group's growth strategy.
Notes
to the Financial Statements
27
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (d) Going Concern (Continued)
(iii) Reliance on Key Management
The responsibility of overseeing the day-to-day operations and strategic management of the Group is substantially dependent upon its senior management and its key personnel. There can be no assurance given that there will be no detrimental impact on the Group if one, or a number of, these employees cease their employment.
(iv) New Products and Technological Developments
The Group's current core business of broadband telecommunications is highly competitive and is subject to the introduction of new and improved products and services in to the market on a
regular basis.
(v) Broadband Access Arrangements
The Group currently has certain access to the Internet backbone network. Terms of the supply of broadband are negotiated regularly. There is no guarantee that future access arrangements will be able to be negotiated on acceptable terms.
(vi) Distribution Channels and Device Suppliers
Currently the Group benefits from its good working relationship with its distribution channels to promote its products and services and with its device suppliers to provide its VoIP adaptors. There is no guarantee that these relationships will continue in the future.
(vii) Agreement with Symbio
The Group is dependent upon the supply of services by Symbio pursuant to its contract with Symbio, details of which are set out at Note 19. If, notwithstanding its contractual obligations, Symbio were to fail to supply the Group, there is no guarantee that the Group could either obtain these services from another party or provide them itself in the short term.
(viii) Legislation, Regulation and Policies
Any material adverse changes in government or other regulatory organisation policies or legislation which impacts on the telecommunications industry, may affect the viability and profitability of the Group.
(ix) Internet Access
The use of VoIP technology is dependent on quality and speed of access to the Internet. The market growth of VoIP may be limited by the take up rate of broadband and other fast Internet access or by the quality of such access.
(e) Reverse acquisition
In accordance with AASB3 Business Combinations, when My Net Fone Limited (the legal parent) acquired My Net Fone Australia Pty Limited (the legal subsidiary), the acquisition was deemed to be a reverse acquisition since the substance of the transaction was that the existing shareholders of My Net Fone Australia Pty Limited have, through My Net Fone Australia Pty Limited, effectively acquired My Net Fone Limited. Under reverse acquisition accounting, the consolidated financial statements are prepared as if My Net Fone Australia Pty Limited had acquired My Net Fone Limited, not vice versa as represented by the legal position.
Notes
to the Financial Statements
28
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Significant accounting judgements, estimates and assumptions
The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are:
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an independent valuer using a binomial model. The assumptions are detailed in note 13.
(g) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
(i) Rendering of services
Revenue from telecommunication services are recognised when the services are provided to the customer. Deferred revenue represents the un-used proportion of cash received in advance for call credits determined on a specific account basis at balance date.
(ii) Interest income / Finance revenue
Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
(h) Leases
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Lease incentives are recognised on a straight-line basis over the lease term.
(i) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
(j) Trade and other receivables
Trade receivables and other receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.
An allowance for doubtful debts is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.
Notes
to the Financial Statements
29
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (k) Foreign Currency Translation
(i) Functional and presentation currency
Both the functional and presentation currency of My Net Fone Limited and its subsidiary is Australian dollars ($). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. (ii) Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated financial report are taken to profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
(l) Income tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
• when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
• when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:
• when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
• when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.
Notes
to the Financial Statements
30
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (l) Income tax (Continued)
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
(m) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except:
• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
• receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(n) Property, plant and equipment
Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows: Furniture & Fittings – over 6 to 10 years
Office Equipment – over 3 to 5 years IT Systems - over 2 to 4 years
The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.
(i) Impairment
The carrying values of plant and equipment are reviewed for impairment at each reporting date, with recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired.
Notes
to the Financial Statements
31
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Property, plant and equipment (Continued)
The recoverable amount of plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.
An impairment exists when the carrying value of an asset or cash-generating units exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. For plant and equipment, impairment losses are recognised in the income statement in the other expenses line item.
(ii) De-recognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.
Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.
(o) Other financial assets
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale investments, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The group determines the classifications of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.
(i) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains or losses are recognised in the profit or loss when the loans or receivables are derecognised or impaired, as well as through the amortisation process. (ii) Investments in subsidiaries held by the parent
Investments in subsidiaries held by the parent entity are recognised and subsequently measured at cost in the separate financial statements of the Company, less any impairment.
(p) Impairment of assets
The group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset's value in use cannot be estimated to be close to its fair value.
Notes
to the Financial Statements
32
FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (p) Impairment of assets (Continued)
In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset or cash-generating unit is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense
categories consistent with the function of the impaired asset. (q) Trade and other payables
Trade payables and other payables are carried at amortised costs and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (r) Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
When the group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any
reimbursement.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is
recognised in finance costs. (s) Employee leave benefits
(i) Wages, salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in current provisions in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
