Algae.Tec Annual Report 2012

ALGAE.TEC LIMITED
ABN: 16 124 544 190

Financial Report
For the Financial Year
Ended 30 June 2012

Financial Report – 30 June 2012 Page 1 of 65

CONTENTS

Company Details 3

Directors’ Report 4

Corporate Governance Statement 16

Consolidated Statement of Comprehensive Income 26

Consolidated Statement of Financial Position 27

Consolidated Statement of Equity 28

Consolidated Statement of Cash Flows 29

Notes on the Financial Statements 30

Directors’ Declaration 59

Auditor’s Independence Declaration 60

Independent Auditor’s Report 61

Shareholder Information 63


Company Details

Directors
Roger Stroud Executive Chairman
Peter Hatfull Managing Director
Earl McConchie Executive Director
Timothy Morrison Non-Executive Director

Company Secretary
Peter Hatfull

Principal Registered Office in Australia
Ground Floor, 516 Hay Street
Subiaco WA 6008

Share Register
Computershare Investor Services Pty Limited
Level 2, 45 St George's Terrace
Perth WA 6000

Auditors
Somes Cooke Jack Milner
1304 Hay Street 1400 Buford Highway, Suite G-4
West Perth WA 6005 Sugar Hill, GA 30518-8727

Bankers
National Australia Bank Commonwealth Bank of Australia
International Operations Business and Private Banking
Level 3, Building B, Level 1, 38 Adelaide Street
Rhodes Corporate Park Fremantle WA 6160
1 Homebush Bay Drive
Rhodes NSW 2138

Securities Exchange
Australian Securities Exchange Frankfurt Stock Exchange New York Stock Exchange
ASX FSE NYSE
Level 5, 20 Bridge Street 60485 Frankfurt am Maim 11 Wall Street
Sydney NSW 2000 Germany New York NY 10005
AEB GZA:GR ALGXY:US


Directors’ Report

The Directors present their report together with the financial report of Algae.Tec Limited (“the
Company”) and of the consolidated entity, being the Company and its controlled entity, for the year
ended 30 June 2012.

Directors
The names of the directors of the Company during or since the end of the financial year are:

Mr Timothy Morrison Non - Executive Director

Mr Peter Ernest Hatfull Managing Director and Company Secretary

Garnet Earl McConchie Executive Director

Roger Sydney Stroud Executive Chairman

Information on Directors
Details of the Directors’ qualifications and experience are set out as follows:

Timothy Morrison
Non-Executive Director

Timothy Morrison is currently a partner at Empire Equity, a boutique corporate advisory group based
in Perth with offices in San Francisco and London. In this role, Mr Morrison is responsible for
structuring equity debt financing for mid-tier ASX listed companies. Prior to this role, Mr Morrison
was CEO and Executive Chairman for a number of listed and private companies.
Mr Morrison has previously served as a member of the investment committee for superannuation
funded private equity investment vehicles. In this role, Mr Morrison engaged in investment and
management of early stage technology ventures.
Previously, Mr Morrison was General Manager of Murdoch Link Pty Ltd, the commercial arm of
Murdoch University, which is the dedicated provider of quality research consultancy services to the
professions, industry and government.
Tim has a BA (1st Hon) from Murdoch University, a Post Grad Diploma (Social Research Methods)
from Murdoch, and an MBA (Financial Management) from the University of Western Australia.

Interest in Shares and Options
Mr Timothy Morrison currently holds 2,000,000 ordinary shares in Algae.Tec Limited, and nil options.


Peter Ernest Hatfull
Managing Director and Company Secretary

Peter has over 30 years’ experience in a range of senior executive positions with Australian and
international companies. He has an extensive skill-set in the areas of business optimisation, capital
raising and Group restructuring.

Prior to becoming Managing Director of Algae. Tec Ltd, Peter held senior financial and Board
positions in Australia, Africa and the UK. He has particular experience in turnaround and slow
growth situations, where companies have struggled to expand their business. This has required
revitalising the business plan, attracting investor funding and implementing profitable strategies.
Peter is currently a director of The GFR Group, Structerre Group, Barholdco Pty Ltd and is based in
Perth, WA.

Peter graduated as a Chartered Accountant in the United Kingdom, where he worked for Coopers
and Lybrand (now PriceWaterhouseCoopers), and subsequently moved to Africa, where he spent 8
years in Malawi. Peter moved to Perth in 1988.

Mr Peter Hatfull currently holds 9,697,865 ordinary shares in Algae. Tec Limited, and nil options.

Garnet Earl McConchie
Executive Director

Earl has over 35 years’ experience over a broad field of chemistry and associated technologies,
including global markets, bulk chemicals and plastics, differentiated commodities and intermediates,
specialty chemicals, polymers and interaction with environmental sectors.

Earl’s field experience includes international business management, plant operations, and project
engineering in the US, Europe (especially Germany, Holland, Switzerland, UK and CIS), Latin America
(Brazil, Argentina and Mexico) and Asia (Korea, China and Australia). Earl was employed with Dow
Chemical Company for 25 years. He served as Global Director for chemicals and plastics in the latter
part of his employment.

Subsequently Earl was employed with Lockwood Greene and Foster Wheeler Corporation.
Earl has over 10 years of specific technical and business experience in the biodiesel and glycerine
industry sectors. He is a founding director and joint controlling shareholder of Teco.Bio LLC, and is
based in Atlanta, Georgia where he has co-ordinated the microalgae development.

Earl has received a BSc (Chem. Eng) from Virginia Polytechnic Institute & State University, and a ME
Chemical Engineering from Texas A & M University. He is a registered Professional Engineer,
Member of the National Society of Professional Engineers, The American Institute of Chemical
Engineers, and the Society of Plastic Engineers.


Mr Earl McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLC which in turn holds 200
million shares in Algae. Tec Ltd. An additional 4,500,000 shares are held by the immediate family of
Mr Earl McConchie. Mr Earl McConchie currently holds nil options.


Directors’ Report

Roger Sydney Stroud
Executive Chairman

Roger has over 35 years’ experience in a variety of industries. He spent over 10 years in finance in a
number of areas including credit, money market and investment banking for CitiNational
(Citibank/National Mutual) merchant bank, predominantly in Sydney.

Following the above, he floated a mining company, with a head office based in Sydney, and
undertook the role of Managing Director for 8 years. After floating a manufacturing company, and
overseeing the building of modern brickworks in Perth, Roger provided advisory services to mining
and manufacturing businesses for a number of years. In the late 1990s, Roger began the process of
building businesses in the renewable fuel sector, primarily biodiesel. This included floating two
separate biodiesel companies. Roger is a founding director and joint controlling shareholder of
Teco.bio LLC, and is based in Perth, WA.

Roger has received a BSc from Sydney University, majoring in Chemistry and Geology and a BA
(Economics) from Macquarie University. He is currently chairman of the “Centre for Research into
Energy for Sustainable Transport,” a collaborative of Curtin and Murdoch Universities based on
Murdoch Campus. Additionally, he is on the Board of the Fuels and Energy Technology Institute
(FETI), situated at Curtin University.

As Mr Roger Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC which in turn holds 200
million shares in Algae.Tec Ltd. An additional 321,549 shares are held indirectly. Mr Roger Stroud
currently has nil options.

Meetings of Directors

The following table sets out the number of directors’ meetings held during the financial year and the
number of meetings attended by each Director.

Directors Meeting

No. of meetings held 7

No. Of meetings attended

Mr Timothy Morrison 7

Mr Peter Ernest Hatfull 7

Garnet Earl McConchie 7

Roger Sydney Stroud 7

Principal Activities

The principal activity of the Group is to produce algal oil and algal biomass for sale as feedstock to
producers of biodiesel, jet fuel and ethanol.


Operating Results

The consolidated loss of the Group amounted to $6,771,109 (2011: Loss $2,468,569) after including
a tax refund for R & D activities in the financial year 2011 of $199,727.
Net cash expensed through operating activities for the financial year was $6,181,409, a 239%
increase on the $1,822,900 spent the prior year and which reflects the establishment of a full size
development facility in Nowra, NSW.

Significant Changes in State of Affairs
The following significant changes in the state of affairs of the Group occurred during the financial
year:

Review of Operations

 Group overview
The year to 30 June 2012 has been extremely rewarding for Algae. Tec Limited as the
Company continued to develop its showcase demonstration facility at Nowra in New South
Wales, and continues to form strong strategic relationships.
 Holcim
On 1 December 2011 the Company announced the signing of a collaboration contract with
Holcim Lanka, one of the two largest cement manufacturers in the world. This contract
detailed that Algae.Tec will build a facility of up to 5 modules in Sri Lanka, which on
successful completion would be extended to a full commercial facility.
 Convertible Note
On 9 December 2011 the Company completed an agreement to enable the raising of
convertible notes to raise up to $9 million.
 Lufthansa
On 22 December 2011 an MOU was signed with Europe’s largest airline, Lufthansa AG. This
detailed a working collaboration between the companies to develop algae facilities for the
generation of fuel for the aviation industry.
 Atlanta Facility
During the year Algae.Tec Limited signed a lease for a fourfold increase in area at its Atlanta
development facility to enable it to build fabrication and manufacturing facilities for its
photo bioreactors. This increase also gave space for increases in research and development
facilities and for the building of a working demonstration bio reactor.
 Chinese Strategic Partners
The Company has been in discussions with various Chinese groups for a period of time, and
this resulted in the signing of a binding MOU on 18 January 2012 with the Shandong Kerui
Group. This was significant as the agreement details the building of a first commercial plant
in the Shandong province.


Directors’ Report
Significant Changes in State of Affairs (continued)

 Capital Raising
As a result of the above commercial discussions, on 23 January 2012 the Company
announced the raising of $5 million through a placement of shares through Paterson’s
Securities to enable it to fast track the commercial arrangements required for its strategic
relationships.
 ADR Facility
With the increased interest in the Company’s technology in the USA, the Company
announced the listing of the Company’s shares in the USA through a listing on the OTC
market on 24 February 2012.

Dividends
No dividends were paid or recommended by the Directors.

Subsequent Events
On 2 August 2012, Australia’s first advanced engineered algae to biofuels facility was officially
opened by NSW Minister for Resources and Energy, the Honourable Chris Hartcher. This facility was
designed and built by the Company using its proprietary technology.
On 17 September the Company signed a collaboration agreement with Deutsche Lufthansa
Aktiengesellschaft. The agreement states that the parties will jointly develop a large scale algae to
aviation biofuels production facility. This agreement builds on and supersedes the MOU signed
between the two parties in January 2012.
On 6 September 2012, Algae. Tec Limited entered into a facility agreement with Macquarie Bank
Limited. The facility will provide up to A$2,000,000 in advance funding of the Research and
Development Tax Incentive offered by the Australian Government.
Macquarie Bank Limited will advance funds of eligible Research and Development expenditure. On
10 September 2012 a drawdown on this facility was made in the amount of A$1,260,301 being 80%
of the 2012 claim of $1,575,389 referred to in Note 6.
As at the date of this Director’s report, the Directors are not aware of any other matter or
circumstance that has arisen in the interval between the end of the financial year under review and
the date of this Director’s report that, in the opinion of the Directors has significantly affected, or
may significantly affect, the operations of the consolidated entity, the results of those operations, or
the state of affairs of the consolidated entity in future financial years.

Likely developments, future business strategies and prospects

Information regarding the likely developments in the operations of the consolidated entity in future
financial years and the expected results of those operations is included in the Review of Operations
on pages 8 to 9, which forms part of the Directors’ report.
Some information regarding likely developments in the operations of the consolidated entity in
future financial years and the expected results of those operations has been omitted from this
Directors’ report on the grounds that such disclosure is, in the Directors’ opinion, likely to result in
unreasonable prejudice to the consolidated entity.


Environmental Regulations and Performance

Algae.Tec Ltd will not be subjected to significant environmental regulations under both the
Commonwealth and State legislation.

Corporate Governance
In recognising the need for high standards of corporate behaviour and accountability, the Directors
support and have adhered to the ASX Corporate Governance Council’s Corporate Governance
Principles and Recommendations with 2010 Amendments (2nd Edition). The Company’s Corporate
Governance Statement is on pages 16 to 25 of this Annual Report.

Remuneration Report – audited
This Remuneration Report, sets out the information about the remuneration of the consolidated
entity’s Key Management Personnel (‘KMP’) for the financial year ended 30 June 2012. KMP
comprise of the directors of the Group. The prescribed details for each person covered by this report
are set out below.

Details of Directors
The following persons acted as directors of the Company during or since the end of the financial year.

Person Position Period in position during the year

Directors: Executive

Roger Stroud Executive Chairman Full year

Peter Hatfull Managing Director Full year

Earl McConchie Executive Director Full year

Directors: Non - Executive

Timothy Morrison Non-executive Director Full year

Principles used to determine the nature and amount of remuneration
The objective of the Company is to ensure that the level and composition of remuneration is
sufficient and reasonable and that its relationship to corporate and individual performance is
defined.
The Board is responsible for making recommendations on remuneration packages and policies
applicable to the KMP.
The Board aims to ensure that executive director reward satisfies the following key criteria as part of
its good governance practices:
 Competitiveness and reasonableness
 Performance linkage/alignment of executive compensation
 Deliver a balanced solution addressing all elements of total remuneration.


Directors’ Report
Remuneration Report – audited (continued)
Non-Executive Directors
Fees and payments to Non-Executive Directors reflect the demand which are made to, and the
responsibilities of, the Non-Executive Directors’. Non-Executives Directors’ fees and payments are
reviewed annually by the Board.
Non-Executive Directors’ Remuneration
The Group’s Constitution provides that the remuneration of non-executive Directors will be not
more than the aggregate fixed sum determined by a general meeting. The aggregate remuneration
for non-executive Directors has been set an amount not to exceed $150,000 per annum. The actual
Non-Executive Director’s fees for the reporting period were $50,000, but payments are no longer
made in arrears. This has resulted in five payments being made in the financial year covering the
June 2011 quarter as well as the current financial year. There has been no increase in the fee
amounts payable per annum. Non-Executive Directors’ are not eligible for any bonus or incentive
payments and the Non-Executive Directors do not participate in any share-based incentive plans.
Executive Directors Pay
The remuneration of Executive Directors are fixed by the Directors and paid by way of salary or
consultancy fee. The remuneration policy aims to provide fair and equitable remuneration in order
to retain and attract executives of sufficient calibre to facilitate the efficient and effective
management of the Company’s operations. The policy has been consistently applied over past years,
and sets remuneration levels that are:
 Market competitive; and
 Structured for the Managing Director and other Executive Directors to reward the
achievement of defined annual goals directly linked to performance and the creation of
longer term shareholder wealth.
Executive directors and executives are offered performance bonuses based on set monetary figures,
rather than proportions of their salary. The set bonuses are to encourage achievement of specific
goals that have been given a high level of importance in relation to the future growth and
profitability of the entity.
The remuneration packages of the Managing Director and Executive Directors are reviewed annually.
Use of Remuneration Consultants
The Group did not employ the services of any remuneration consultants during the financial year
ended 30 June 2012.
Details of remuneration
Details of the remuneration of the KMP are set out in the following tables. The KMP of Algae. Tec
Limited are:

Person Position Employment Period
Directors: Executive
Roger Stroud Executive Chairman Full year
Peter Hatfull Managing Director/Company Secretary Full year
Earl McConchie Executive Director Full year
Directors: Non - Executive
Timothy Morrison Non-executive Director Full year


Remuneration Report – audited (continued)

Table of Benefits and Payments for the year ended 30 June 2012

Post-
employment Share-based
Short term benefits benefits payments
Salary
and
Directors Consulting
Fees Fees Other Superannuation Shares/Options Total
Bonus
$ $ $ $ $ $ $

Key Management
Personnel
Roger Sydney
Stroud - 360,000 33,000 - - - 393,000
Peter Ernest Hatfull 300,000 15,000 - 28,350 - 343,350

Garnet Earl
McConchie 300,000 - 50,000 45,926 12,415 - 408,341

Tim Morrison - 50,000 - - - 50,000

Total 600,000 410,000 98,000 45,926 40,765 - 1,194,691

Table of Benefits and Payments for the year ended 30 June 2011

Post-
employment Share-based
Short term benefits benefits payments
Salary and Non
Directors Consulting Monetary
Fees Fees Benefits Superannuation Shares/Options Total
$ $ $ $ $ $

Key Management
Personnel
Roger Sydney
Stroud - 135,000 - - - 135,000
Peter Ernest
Hatfull 90,000 - - 8,100 - 98,100
Garnet Earl
McConchie 154,945 - - 4,352 - 159,297
Tim Morrison - 30,000 - - - 30,000

Total 244,945 165,000 - 12,452 - 422,397


Directors’ Report
Securities Received that Are Performance Related
No members of key management personnel are entitled to receive securities which are
performance-based as part of their remuneration package.

Cash Bonuses
Executive directors and executives are offered performance bonuses based on set monetary figures,
rather than proportions of their salary. The set bonuses are to encourage achievement of specific
goals that have been given a high level of importance in relation to the future growth and
profitability of the entity.
During the year ended 30 June 2012, Roger Stroud received a cash bonus of $33,000, Peter Hatfull
received a cash bonus of $15,000, and Earl McConchie received a cash bonus of USD$50,000.

Service Contracts

Managing Director
Set out below are the key terms of the employment contract of the Managing Director, Peter Hatfull:
From 1 October 2010 until one of the following occurs:
Term
a. The Company gives the Managing Director one month written notice;
b. The Managing Director gives the Company one month written notice; or
c. The Company terminates the contract due to actions of the Managing
Director such as serious misconduct, dishonesty and bankruptcy.
Payments on If the contract is terminated under (a) or (b) above, the Company is obliged
Termination to pay the Managing Director equivalent amount of Remuneration in lieu
of notice.
If the contract is terminated under (c) above, the Company is only obliged
to pay the Managing Director any accrued remuneration, including
superannuation and leave entitlements.

Fixed annual remuneration:
Remuneration
$327,000 comprising of base salary, including superannuation
contributions and benefits as allocated by the Managing Director in
accordance with the Company's policies.

Review of remuneration:
The remuneration will be reviewed at least annually, with any increase at
the absolute discretion of the Company.

Annual leave:
Four weeks annual leave per annum (in addition to public holidays)


Service Contracts (continued)

Executive Director
Set out below are the key terms of the employment contract of the Executive Director, Algae Energy,
Earl McConchie:
From 1 October 2010 until one of the following occurs:
Term
a. The Company gives the Managing Director one months' written notice;
b. The Managing Director gives the Company one months' written notice;
c. The Company terminates the contract due to actions of the Managing
Director such as serious misconduct, dishonesty and bankruptcy.

Payments on If the contract is terminated under (a) or (b) above, the Company is obliged
Termination to pay the Managing Director equivalent amount of Remuneration in lieu of
notice.
If the contract is terminated under (c) above, the Company is only obliged to
pay the Managing Director any accrued remuneration, including
superannuation and leave entitlements.

Fixed annual remuneration:
Remuneration
A$300,000 gross salary per annum not inclusive of superannuation and
health insurance benefits.

Review of remuneration:
The remuneration will be reviewed at least annually, with any increase at
the absolute discretion of the Company.

Annual leave:
Six weeks annual leave per annum (in addition to public holidays)

Key terms of consultant agreement
Set out below are the key terms of consultant agreement of the Executive Chairman, Roger Stroud:

Term From 1 July 2010 to end on 1 July 2013 unless otherwise negotiated.
a. Either party may cancel this agreement on 30 days written notice
b. The Company can terminate the agreement due to actions of the Consultant
such as serious misconduct, dishonesty and bankruptcy.
Payments on If the contract is terminated under (a) above, the Company is obliged to pay
Termination the Consultant equivalent amount in lieu of notice.

Remuneration The Consultant is paid a monthly rate of $30,000 for work performed in
accordance with the agreement.
The Company and Consultant agree that the Consultant will act as an
independent contractor and is responsible for payment of all taxes.

END OF AUDITED REPORT


Directors’ Report
Directors’ Interests
The following table sets out each director’s relevant interest in shares at the date of this Directors’
report:
Received on
Held at 1 July Granted as exercise of Other Held at 30
2011 Compensation options changes June 2012

No. No. No. No.1 No.
2
Roger Stroud 200,321,549 - - - 200,321,549
Peter Hatfull 9,497,565 - - 200,300 9,697,865
Garnet Earl
McConchie 204,500,0003 - - - 204,500,000
Timothy Morrison 2,000,000 - - - 2,000,000

1. Other changes refers to shares acquired on the market
2. By virtue of Section608 (3) of the Corporations Act, as Mr Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC which in
turn holds 200 million Shares.
3. By virtue of Section 608(3) of the Corporations Act, as Mr McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLC which
in turn holds 200 million Shares. Related parties of Mr McConchie together hold 4.5 million Shares.

Options and Rights Granted
No options or rights were granted to key management personnel during the year.

Indemnification and Insurance of Officers and Executives

Indemnification
Under the Company’s constitution and subject to Section 199A of the Corporations Act 2001, the
Company indemnifies in favour of persons who are, or have been, an Officer of the company.
To the extent permitted by law, the Company indemnifies every person who is or has been:
 An Officer against any liability to any person (other than the company or related entity)
incurred while acting in the capacity and in good faith.
 An Officer of the company against cost and expenses incurred by that person in that capacity
in successfully defending legal proceedings and ancillary matters.

Insurance of Officers
Since the end of 30 June 2012, Algae. Tec Limited has obtained Directors and Officers Liability
Insurance. The insurance contract entered into prohibits disclosure of the specific nature of the
liabilities covered by the insurance contracts and the amount of the premiums.

Non-Audit Services
During the year Jack Milner CPA, the subsidiary’s auditor, performed services in addition to his
statutory duties. Jack Milner was paid a total of $34,272 (USD36,438) for these non-audit services.
The Audit Committee has advised the Board, and the Directors are satisfied that the provision of the
non-audit services during the year is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001 for the following reasons:


Non-Audit Services (continued)
 J Milner services have not involved partners or staff in a managerial or decision making
capacity with the consolidated entity or being involved in the processing or origination of
transactions
 J Milner non-audit services have only been provided where the Company is satisfied that the
related function or process will not have a material bearing on the audit procedures
 J Milner’s partners and staff involved in the provision of non-audit services have not
participated in associated approval or authorisation processes
 J Milner obtained prior approval from the Audit Committee for the provision of the non-
audit services
 A description of all non-audit services undertaken by J Milner and the related fees have been
reported to the Board to ensure complete transparency in relation to the services provided.

Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as required under section 307C of the
Corporations Act 2011 is set out on page 60.

Signed at Perth, in accordance with a resolution of the directors,

Peter Hatfull
Managing Director
28 September 2012


Corporate Governance Statement

The Algae. Tec Limited Board is committed to achieving and demonstrating the highest standards of
corporate governance. The Board guides and monitors the Company’s activities on behalf of the
shareholders. In developing policies and standards the Board considers the ASX Group (ASX)
Corporate Governance Principles and Recommendations (2nd Edition with 2010 Amendments (CGC
Recommendations).
The Corporate Governance Statement set out below describes the Company’s current corporate
governance principles and practices which the Board considers to comply with the Corporate
Governance Council Recommendations.
As a framework of how the Board of Directors at Algae.Tec Limited (“Company”) carries out its
duties and obligations, the Board has considered the eight principles of corporate governance as set
out in the ASX Corporate Governance Principles and Recommendations, 2nd Edition (“Principles”).

The eight principles of corporate governance are:

1. Lay solid foundations for management and oversight
2. Structure the Board to add value
3. Promote ethical and responsible decision-making
4. Safeguard integrity in financial reporting
5. Make timely and balanced disclosures
6. Respect the right of shareholders
7. Recognise and manage risk
8. Remunerate fairly and responsibly

There are a number of recommendations in the Principles with which the Company does not comply
due to the size of the Company and the Board and its practical management requirements.
A summary of the Principles and those recommendations with which the Company does not comply
are detailed at the end of this statement.

1. Lay solid foundations for management and oversight
Companies should establish and disclose the respective roles and responsibilities of board and
management.
Recommendation 1.1: Companies should establish the functions reserved to the board and those
delegated to senior executives and disclose those functions.
The Board is responsible for the governance of the Company. The role of the Board is to provide
strategic guidance and effective oversight of management. The Board derives its authority to act
from the Company’s Constitution.
The objective of Algae.Tec Limited’s governance framework is to allow the Board to:
 Reviewing and approving the Company’s strategic plans and performance objectives and
reviewing the underlying assumptions and rationale.
 Monitoring financial outcomes and the integrity of reporting, and in particular, approving annual
budgets and longer-term strategic and business plans.


Corporate Governance Statement (continued)

 Monitoring the effectiveness of the Company’s audit, risk management and compliance systems
that are in place to protect the Company’s assets and to minimise the possibility of the
Company’s operating beyond acceptable risk parameters.
 Monitoring compliance with legislative and regulatory requirements (including continuous
disclosure) and ethical standards, including reviewing and ratifying codes of conduct and
compliance systems.
 Selecting, appointing and monitoring the performance of the Senior Executives, and if
appropriate, terminating the appointment of these Senior Executives.
 Reviewing senior management succession planning and development and ensuring appropriate
resources are available to senior executives.
 Reviewing and recommending to shareholders the appointment or if appropriate the
termination of the appointment of the external auditor.
 Monitoring the timelines and effectiveness of reporting to shareholders.
The Board delegates to the Managing Director responsibility for implementing the Company’s
strategic direction and for managing the Company’s day to day operations. Clear lines of
communication have been established between the Chairman and the Managing Director to ensure
that the responsibilities and accountabilities of each are clearly understood.

Recommendation 1.2: Company should disclose the process for evaluating the performance of the
Executive Team.
All Executive Team members have formal position descriptions and each year key performance
measures are established in line with their roles and responsibilities.
The Managing Director has personal objectives related to business units and the Company as a
whole.
The Chairman together with the full Board assesses the performance of the Managing Director
against those objectives on a regular basis at Board meetings. The Board also monitors the
performance of the Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”), Company
Secretary and other members of the Executive Team. The Company will move to more formal
processes with the introduction of the Remuneration Committee, which will be established during
the year to June 2013.
All newly appointed executives receive formal letters of appointment. The contents of the
appointment letter contain sufficient information to allow the new Director to gain an
understanding of.

 The Company’s financial position, strategies, operations and risk management policies.
 The rights, duties and responsibilities of Directors.
 The roles and responsibilities of the Executive Team.
 The role of Board Committees.


2. Structure of the board to add value
As at the date of this report, the Board comprises of four directors. Algae. Tec Limited’s constitution
provides for a minimum of three directors and not more than nine directors. The Board is composed
of Directors with diverse skills and experience, relevant to the business of the Company and a
mixture of executives and independent non-executive director.
The Board met 7 times during the financial year. Directors’ attendances are set out on Page 6 of this
report.

Recommendation 2.1: A majority of the board should be independent directors.
The Board consists has one independent non-executive Director, Mr Timothy Morrison, who is not a
major shareholder (i.e. neither he nor his associates hold more than 5% of the Group’s paid up
capital and he has no association with any major shareholder). Due to the size of the Company, it is
not considered practical at this time to have a majority of independent directors. It is the Boards’
intent to appoint more independent directors and move to a majority of independent directors as
the Company grows.
The Company considers an independent Director to be a Director who does not have any material
relationship with the Company that a reasonable person would consider may influence the
Director’s ability to:
 Objectively make decisions on matters that come before the Board
 Carry out their duties as a Director acting in the best interest of the Company
 Be free of real or reasonably perceived conflict of interest.
In assessing independence, the Board reviews the relationship that the Director and their immediate
family have with the Company. In Particular the Board applies the following criteria in determining
independence.
Non-Executive Director
 Is not a shareholder of the Company holding more than five per cent of the voting shares or an
officer of or otherwise associated directly with, a shareholder of the Company holding more
than five per cent.
 Within the last three years has not been a principal of a material professional adviser or a
material consultant to the Company or any other group member, or an employee materially
associated with the service provided.
 Is a material supplier or customer of the Company or other group member, or an officer of or
otherwise associated directly or indirectly with a material supplier or customer.
 Has no material contractual relationship with the Company or another Group member other
than as a Director of the Company.
The Board regularly assesses the independence of the Non-Executive Director and has specifically
considered the independence of the Non-Executive Director, in accordance with the above criteria,
during the financial year. The Board has determined that the Non-Executive Director remains
independent.

The Directors in office at the date of this statement are:

Mr Timothy Morrison Non - Executive Director
Mr Peter Ernest Hatfull Managing Director and Company Secretary
Garnet Earl McConchie Executive Director
Roger Sydney Stroud Executive Chairman



Recommendation 2.2: The Chair should be an independent director.
The Chairman, Mr Roger Stroud is currently not independent nor are the other two directors, Mr
Peter Hatfull and Mr Earl McConchie. Each of them are shareholders of the Group. As the Group
grows, it is intended that an independent Chairman will be appointed.

Recommendation 2.3: The roles of the chair and managing director should not be exercised by the
same individual.
The roles of the Chairman and Managing Director are not exercised by the same individual. The
Chairman Mr Roger Stroud is responsible for leading the Board in its Duties, facilitating effective
discussions at Board level and ensuring that general meetings are conducted efficiently, whereas,
the Managing Director, Mr Peter Hatfull, is responsible for the efficient operation of the Company.

Recommendation 2.4: The Board should establish a nomination committee.
The Board has not established a nomination committee. The Board, as a whole, deals with areas
that would normally fall within the charge of the Nomination Committee. These include matters
relating to the renewal of Board Members and Board Performance.

Recommendation 2.5: Companies should disclose the process for evaluating the performance of
the Board, its committees and individual directors.
The Board undertakes ongoing self-assessment and review of its performance and of the
performance of the Chairman and individual Directors.

3. Promote ethical and responsible decision-making
Companies should actively promote ethical and responsible decision-making

Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a
summary of the code as to:

 The Practices necessary to maintain confidence in the Company’s integrity.
 The Practices necessary to take into account their legal obligations and the reasonable
expectations of their stakeholders.
 The responsibility and accountability of individuals for reporting and investigating reports of
unethical practices.

The Company is committed to Directors and employees maintaining high standards of integrity and
ensuring that activities are in compliance with the law and Company policies.



3. Promote ethical and responsible decision-making (continued)

Directors are acquainted with obligations imposed on them and the Company by the Corporations
Act and are familiar with other documents prepared by the Company to meet Corporate Governance
requirements:
 Algae.Tec Limited Corporate Governance Policy
 Algae.Tec Limited Trading Policy
 Algae.Tec Limited Code of Conduct

The Objective of the Company’s Code of Conduct is to help Directors and Employees make informed
choices about their behaviour.

The Company’s Corporate Governance Practices and Policies summarises the Corporate Governance
practices put in place by the Board, including:

 The Role of the Board
 Composition of the Board
 Independence of the Board
 Audit Committee and Risk Management
 Board Committees
 Ethical Standards
 Dealing with Shares
 Continuous Disclosures

Recommendation 3.2: Companies should establish policy diversity and disclose the policy or a
summary of that policy. The policy should include requirements for the board to establish
measurable objectives for achieving gender diversity and for the board to assess annually both the
objectives and progress in achieving them.

The Company has established a Diversity Policy, however due to the Company’s size and short
history, there are aspects which do not comply with the CGC Principles and Recommendations 3.2
and Recommendations 3.3 pertaining to disclosure for achieving gender diversity set by the Board.
The Board at this juncture has not set measurable objectives. This policy will be reviewed as part of
the annual compliance review to the Board to ensure that the Diversity Policy is being progressed as
required and to set measurable objectives when appropriate for the Company.

Recommendation 3.3: Companies should disclose in each annual report the measurable objectives
for achieving gender diversity set by the board in accordance with the diversity policy and progress
towards achieving them.

The Board at this juncture has not set measurable objectives. This policy will be reviewed as part of
the annual compliance review to the Board to ensure that the Diversity Policy is being progressed as
required and to set measurable objectives when appropriate for the Company.



3. Promote ethical and responsible decision-making (continued)
Recommendation 3.4: Companies should disclose in each annual report the proportion of women
employees in the whole organisation, women in senior executive positions and women on the board.

The table in respect of this follows:

Senior
Gender Total Management Board
Female 9 0 0
Male 24 3 4
%Female 27 0 0

Recommendation 3.5: Companies should provide the information indicated in the Guide to
reporting on Principle 3.

The Company in respect of the Diversity Policy has followed the recommendations set by the ASX
Corporate Governance Council for the whole period during the financial year ended 30 June 2012
except for items noted above.

4. Safeguard integrity in financial reporting
Companies should have a structure to independently verify and safeguard the integrity of their
financial reporting.

Recommendation 4.1: The Board should establish an audit committee.
The Board has established an Audit Committee.

Recommendation 4.2: The audit committee should be structured so that it:
 Consist only of non-executive directors
 Consists of majority of independent directors
 Is chaired by an independent chair, who is not chair of the board
 Has at least three members
Due to the current size of the organisation, the audit committee does not have a majority of
independent directors. However, the Audit Committee and the Board currently regularly;

 Monitor and review the effectiveness of the Group’s control environment, reporting
practices and responsibilities in the areas of accounting, risk management and safeguard of
assets.
 Review and approve internal audit plans including identified audit risk areas.
 Oversee and appraise the quality of audits conducted and monitor their effectiveness.
 Monitor and evaluate compliance processes and adherence.



4. Safeguard integrity in financial reporting(continued)

Recommendation 4.3: The audit committee should have a formal charter.
The committee is responsible for:
 Providing assistance to the Board in fulfilling its corporate governance and oversight
responsibilities in relation to the Group’s risk management systems, financial reporting,
internal control structure and the internal and external audit functions.
 Monitoring compliance with the Corporations Act, ASX Listing Rules and any matters
outstanding with taxation and other regulatory authorities.
 Nomination of external auditors; and
 Overseeing the financial reporting process.


The Company will make the relevant material available, on its website in accordance with this
recommendation.

5. Making timely and balanced disclosure

Companies should promote timely and balanced disclosure of all material matters concerning the
Company.

Recommendation 5.1: Companies should establish written policies designed to ensure compliance
with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level
for that compliance and disclose those policies or a summary of those policies.

The Company has obligations under the Corporations Act and ASX Listing Rules to keep the market
fully informed of information which may have a material effect on the price or value of its securities.
The Company discharges these obligations by releasing information to ASX in the form of an ASX
release or disclosure in other relevant documents (e.g. the Annual Report).

The Company Secretary is responsible to the Board, through the Chairman, on all governance
matters and maintaining compliance systems which ensure the Board and Company adhere to ASX
Listing Rules and the Corporations Act.


The Company will make available its Continuous Disclosure Policy on its website, in accordance with
this recommendation.



6. Respect the rights of shareholders

Companies should respect the rights of shareholders and facilitate the effective exercise of those
rights.

Recommendation 6.1: Companies should design a communications policy for promoting effective
communication with shareholders and encouraging their participation at general meetings and
disclose their policy or a summary of that policy.

The Board recognises the important rights of shareholders and strives to communicate with
shareholders regularly and clearly, both by electronic means and using more traditional
communication methods. Shareholders are encouraged to attend and participate at general
meetings. The Company’s auditors attend the Annual General meeting of the Company and are
available to answer shareholders’ questions.

Consistent with this approach, the Company has adopted a Shareholder Communications Policy,
which includes the following initiatives and practices.
 Communicating effectively with shareholders through releases to the market via the ASX, the
media, the company’s website, information mailed to shareholders and the general meetings of
the Company.
 Ensuring all information disclosed to the ASX is posted on the Company’s website when it is
disclosed to the ASX. This includes presentation material used in public presentations and to
brief analysts, which is also released to the ASX and posted on the Company’s website.
 Arranging for the external auditor to attend the Company’s Annual General Meeting and be
available to answer shareholder questions about the conduct of the auditor and the preparation
and content of the Auditor’s Report.

Reporting on Principle 6.

The Company will make the relevant material available, being its Shareholder Communications
Policy, on its website in accordance with this recommendation.

7. Recognise and manage risk

Companies should establish a sound system of risk oversight and management and internal control.

Recommendation 7.1: Companies should establish policies for the oversight and management of
material business risks and disclose a summary of those policies.
The Board, together with management, has sought to identify, assess, monitor and mitigate risk.
Internal controls are monitored on a continuous basis and wherever possible, improved. The Board
determines the Group’s risk profile and is responsible for overseeing and approving risk
management strategy and policies, internal compliance and internal control. The Board’s collective
experience will enable accurate identification of the principal risk that may affect the Group’s
business. Key operational risk and their management will be recurring items for deliberation at
Board Meetings.



7. Recognise and manage risk (continued)

Recommendation 7.2: The board should require management to design and implement the risk
management and internal control system to manage the company’s material business risks and
report to it on whether those risks are being managed effectively. The board should disclose that
management has reported to it as to the effectiveness of the company’s management of its material
business risks.

The Company performs regular audits of the internal control systems and risk management
compliance across the Group. The audits take account of both the nature and materiality of risk.

Management provide monthly reports to the Board which include the identification of material
business risks and matters relating to the effectiveness of the Company’s management of its
material business risk.

Recommendation 7.3: The Board should disclose whether it has received assurance from the chief
executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration
provided in accordance with section 295A of the Corporations Act is founded on a sound system of
risk management and internal control and that the systems is operating effectively in all material
respects in relation to financial reporting risks.

The Managing Director and Management Accountant confirm in writing to the Board that the
declaration provided in accordance with s295A of hte Corporations Act is founded on sound risk
management and internal control systems and that the system is operating effectively in all material
aspects in relation to financial reporting risks.


The Company has included the information indicated in the Guide to reporting on Principle 7 in the
Corporate Governance Statement. The Company will also place the material that the Guide specifies
and make publicly available on its website, in accordance with this recommendation.

8. Remunerate fairly and responsibly

Companies should ensure that the level and composition of remuneration is sufficient and
reasonable and that its relationship to performance is clear.

Recommendation 8.1: The board should establish a remuneration committee.

The Board has not established a Remuneration Committee at this point in the Group’s development,
but will soon as per point 1.2 It is considered that the size of the Board along with the level of
activity of the Group renders this impractical and the full Board considers in detail all of the matters
for which the directors are responsible. Remuneration to the independent Director is by way of
Director Fees only, with the level of such fees, having been set by the Board to an amount it
considers to be commensurate for a Group of its size and level of activity.



8. Remunerate fairly and responsibly (continued)

The remuneration for the executive directors is as disclosed in the Directors’ Report. Non – executive
Directors do not receive performance based bonuses and do not participate in equity schemes of the
Group, nor are they entitled to retirement allowances. There is currently no link between
performance and remuneration and there are no schemes for retirement benefits in existence.

The Board is responsible for determining the remuneration of the Chief Executive Officer and senior
executives.

Recommendation 8.2: The remuneration committee should be structured so that it consists of a
majority of independent directors, is chaired by an independent chair, and has at least three
members.

Refer to recommendation 8.1 above.

Recommendation 8.3: Companies should clearly distinguish the structure of non-executive
directors’ remuneration from that of executive directors and senior executives.

A description of the structure of Non-Executive Director’s remuneration and Executive Director’s
remuneration is contained in the remuneration report on page 10 of this Annual Report.


The Company has included the information in the Guide to reporting on Principle 8 in this Corporate
Governance Statement. The Company will also place the material that the Guide specifies and make
publicly available on our website, in accordance with this recommendation.

The Board of Directors and the Company Secretary are responsible for the corporate governance of
the Group and were guided by the Director’s Code of Conduct, the Corporate Governance Policy and
the ASX Corporate Governance Council Principles and Recommendations during the financial year.
The Board guides and monitors the business affairs of Algae. Tec Limited and its subsidiary Group on
behalf of the shareholder to whom they are accountable.


Consolidated Statement of Comprehensive Income
For the year ended 30 June 2012
Notes 2012 2011

$ $

REVENUE
Interest 24,267 21,282
Derivative fair value movement 14 41,085 -
Other 17,390 -
82,742 21,282
EXPENDITURE
Employee benefits expenses (1,808,139) (554,105)
Depreciation expense (80,500) (5,835)
Advertising expenses (265,167) (232,133)
Property rent & lease expenses (196,335) (49,136)
Communication expenses (54,650) (17,175)
Consultancy expenses (606,502) (315,651)
Filing and listing fees (90,043) (1,303)
Freight and courier expenses (137,576) (2,592)
Insurance expenses (66,180) (14,094)
Legal fees (80,930) (12,036)
Materials and supplies (323,864) -
Professional fees (1,219,996) (358,920)
Repairs and maintenance expenses (349,293) (10,544)
Travel expenses (499,962) (241,336)
Finance costs (18,087) (2,376)
Unrealised foreign exchange profit/(losses) 219,436 (274,559)
Other expenses (487,148) (224,637)
Research and development expenses (988,642) (173,417)

LOSS BEFORE INCOME TAX 4 (6,970,836) (2,468,567)
Income tax benefit 6 199,727 -

NET LOSS ATTRIBUTABLE TO MEMBERS OF THE
COMPANY (6,771,109) (2,468,567)

Other Comprehensive Income (78,735) 31,080
TOTAL COMPREHENSIVE INCOME (6,849,844) (2,437,487)

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO MEMBERS OF THE COMPANY (6,849,844) (2,437,487)

Earnings per share
Basic earnings per share (cents per share) 16 (0.03) (0.01)
Diluted earnings per share (cents per share) 16 (0.03) (0.01)

The above consolidated statement of comprehensive income should be read
In conjunction with the accompanying notes


Consolidated Statement of Financial Position
As at 30 June 2012

Notes 2012 2011

$ $
CURRENT ASSETS
Cash and cash equivalents 8 1,586,787 2,434,251
Trade and other receivables 9 395,537 47,990
Other current assets 10 79,277 63,554
TOTAL CURRENT ASSETS 2,061,601 2,545,795

NON CURRENT ASSETS
Property, plant, and equipment 11 1,095,532 127,554
Other non-current assets - 18,000
TOTAL NON CURRENT ASSETS 1,095,532 145,554
TOTAL ASSETS 3,157,133 2,691,349

CURRENT LIABILITIES
Trade and other payables 12 349,892 81,386
Provisions 13 36,220 10,820
Borrowings 14 578,556 -
TOTAL CURRENT LIABILITIES 964,668 92,206

NON CURRENT LIABILITIES
Borrowings 14 11,305 -
TOTAL NON CURRENT LIABILITIES 11,305 -

TOTAL LIABILITIES 975,973 92,206

NET ASSETS 2,181,160 2,599,143

EQUITY
Issued capital 15 11,878,665 5,446,804
Reserves 17 (47,655) 31,080
Accumulated losses (9,649,850) (2,878,741)
TOTAL EQUITY 2,181,160 2,599,143

The above consolidated statement of financial position should be read
In conjunction with the accompanying note


Consolidated Statement of Changes in Equity
Foreign
Issued Accumulated Exchange Total
Capital Losses Reserves Equity

$ $ $ $

BALANCE AT 1 JULY 2011 5,446,804 (2,878,741) 31,080 2,599,143

Net Loss (6,771,109) - (6,771,109)

Other comprehensive income - - (78,735) (78,735)

Total comprehensive income - (6,771,109) (78,735) (6,849,844)

Share issued 6,880,081 - - 6,880,081

Share issue expenses (448,220) - - (448,220)

BALANCE AT 30 JUNE 2012 11,878,665 (9,649,850) (47,655) 2,181,160

Foreign
Issued Accumulated Exchange Total
Capital Losses Reserves Equity

$ $ $ $

BALANCE AT 1 JULY 2010 600,000 (410,174) - 189,826

Net loss - (2,468,567) - (2,468,567)

Other comprehensive income - - 31,080 31,080

Total comprehensive income - (2,468,567) 31,080 (2,437,487)

Share issued 5,325,987 - - 5,325,987

Share issue expenses (479,183) - - (479,183)

BALANCE AT 30 JUNE 2011 5,446,804 (2,878,741) 31,080 2,599,143

The above consolidated statement of changes in equity should be read


Consolidated Statement of Cash Flows
2012 2011

Notes $ $

CASH FLOWS FROM OPERATING ACTIVITES

Payments to suppliers and employees (inclusive of
goods and services tax) (6,187,889) (1,836,504)

Interest paid (18,087) (1,575)

Interest received 24,267 15,179

Net cash outflows from operating activities 22 (6,181,409) (1,822,900)

CASH FLOWS FROM INVESTING ACTIVITIES

Loans to Directors - (25,000)

Repayment of loans to Directors 25,000 -

Payments for property, plant and equipment (1,061,419) (130,953)

Net cash outflows from investing activities (1,036,419) (155,953)

CASH FLOWS FROM FINANCING ACTIVITIES

Issue of shares net of capital raising costs 15 4,831,780 4,646,804

Proceeds from borrowings 14,15 1,397,884 -

Net cash inflows from financing activities 6,229,664 4,646,804

Net (decrease) / increase in cash and cash equivalents (988,164) 2,667,951

Effect of exchange rate translation (78,735) 31,080

Cash and cash equivalents at the beginning of the
financial period 8 2,434,251 9,779

Effect of exchange rate changes of cash held in foreign
currencies 219,435 (274,559)

CASH AND CASH EQUIVALENTS AT THE END OF THE
FINANCIAL PERIOD 8 1,586,787 2,434,251

The above consolidated statement of cash flows should be read


Notes to the Financial Statements
30 June 2012
The financial report of Algae.Tec Limited and its subsidiary (the Group) for the year to 30 June 2012
was authorised for issue in accordance with the directors meeting of Friday 28 September 2012.
Algae.Tec Limited is a company limited by shares, incorporated, and domiciled in Australia. It’s
registered office and principal place of business is 516 Hay Street, Subiaco, WA 6008.

1. Significant accounting policies
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance
with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and other
authoritive pronouncements. The financial report includes the consolidated financial statements of
the Group.
Compliance with Australian Accounting Standards ensures the financial statements and notes of the
Group comply with International Financial Reporting Standards (“IFRS”)
Basis of preparation
The financial report has been prepared on the accruals basis, and on the basis of historical cost
except for the revaluation of financial instruments. Cost is based on the fair values of the
consideration given in exchange for assets. All amounts are presented in Australian dollars, unless
otherwise noted. Comparative information is reclassified where appropriate to enhance
comparability.
Going Concern
This financial report has been prepared on the going concern basis. The Directors are confident that
the Company is a going concern for the following reasons:
- A number Memorandum of Understandings and joint ventures have been established for the
ongoing development of the technology and construction of commercial sized facilities;
- Commencement of the construction ventures is expected to be towards the end of 2012 and
it is anticipated that this will be funded through a combination of joint venture partners,
capital raisings and specific project funding. The ongoing research and development costs
associated with the business are currently covered through a number of facilities as follows:
- Funding through the Australian Government for Research and Development
expenditure – As outlined at Note 23, subsequent to year end, Macquarie Bank
advanced 80% of the research and development rebate claimed by the company for
expenditure incurred in the year to 30 June 2012.
- A $20 million facility is in place with GEM, subject to the satisfaction of a number of
conditions, the Company can require GEM drawdown on the Equity Line of Credit.
- A convertible note facility is in place with La Jolla Cove Investors. This facility is to the
value of $6 million (as at 30th June 2012, $1.5 million drawn down). This funding is paid
on a monthly basis (minimum $200,000) with the amounts dependent upon the
current share price. This note is expandable to $9 million at our request (further
details at Note 14); and
- If required, further share placements and/or capital raisings will take place to continue
to fund further development of the technology.


Notes to the Financial Statements continued
30 June 2012
1. Significant accounting policies (continued)

Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, management is required to make judgements
estimates and assumptions about carrying values of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from
these estimates.
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. Refer to note 2 for a discussion of critical judgements in applying the
entity’s accounting policies, and key sources of estimation uncertainty.

Adoption of new and revised Accounting Standards
In the current year, the Group has adopted all of the new and revised Standards and Interpretations
issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and
effective for the current annual reporting period. Details of the impact of the adoption of these new
accounting standards, if applicable are sets out in the individual accounting policy notes set out
below.
The following significant accounting policies have been adopted in the preparation and presentation
for the financial report.

(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the
entity controlled by the Company (it’s subsidiary) (referred to as ‘the Group’ in these financial
statements). Control is achieved where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by the Group.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-
group transactions with the exception of unrealised foreign exchange gains or losses on
intercompany receivables and payables, are eliminated in preparing the consolidated financial
statements.

(b) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost
of the business combination is measured as the aggregate of the fair values (at the date of exchange)
of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in
exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognitions under AASB3 ‘Business Combinations’ are recognised at their fair values
at the acquisition date, except for non-current assets (or disposal groups) that are classified as held
for sale in accordance with AASB5 ‘Non-current Assets Held for Sale and Discontinued Operations’
which are recognised and measured at fair value less cost of sale.


30 June 2012
Business combinations (continued)
The Group measures goodwill as the fair value of the consideration transferred including the
recognised amount of any non-controlling interest in the acquiree, less the net recognised amount
(generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of
the acquisition date.

(c) Foreign currencies
The individual financial statements of each group entity are presented in its functional currency
being the currency of the primary economic environment in which they operates. For the purpose
of the consolidated financial statements, the results and financial position of each entity are
expressed in Australian dollars, which is the functional currency of Algae. Tec Limited and the
presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than
the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the
transactions. At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair
value that are denominated in foreign currencies are retranslated at the rates prevailing on the date
when the fair value was determined. Non-monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated.

Exchange difference arising on translation of foreign operations is transferred directly to the Group’s
foreign currency translation reserve in the statement of financial position. These differences are
recognised in the statement of comprehensive income in the period in which the operation is
disposed.

(d) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount
of GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstances
the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the
expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST.
The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or
liability in the Statement of Financial Position.

Cash Flows are included in the Statement of Cash Flows on a gross basis. The GST components of
cash flows arising from investing and financial activities which are recoverable from, or payable to,
the ATO are classified as operating cash flows.

(e) Revenue
Revenue is recognised and measured at the fair value of the consideration received or receivable to
the extent it is probable that the economic benefits will flow to the consolidated entity and the
revenue can be reliably measured. The following specific recognition criteria must also be met
before revenue is recognised:


30 June 2012

Revenue (continued)
Rendering of services
Consulting services are performed by the parent for the Group’s controlled entity. Revenue is
recognised by reference to the actual labour hours delivered at standard rates and direct expenses
incurred.
Rental income
Rental income from the lease of Suite 9, 3 Centro Avenue, Subiaco is recognised in profit or loss on a
straight line basis over the term of the lease.
Interest income
Interest revenue is recognised on a time proportionate basis that takes into account the effective
yield on the financial asset.

(f) Share-based payments
The Group provides benefits to its directors, employees and consultants (including senior executives)
of the Group in the form of share-based payments, whereby employees render services in exchange
for shares or rights over shares (equity-settled transactions).
The cost of these equity-settled transactions is measured by reference to the fair value of the equity
instruments at the date at which they are granted.
In valuing equity-settled transactions, no account is taken of any performance conditions, other than
conditions linked to the price of shares of Algae. Tec Limited (market conditions) if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in
equity, over the period in which the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees become fully entitled to the award (the vesting period).
The cumulative expense recognised for equity-settled transactions at each reporting date until
vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group’s best
estimate of the number of equity instruments that will ultimately vest. No adjustment is made for
the likelihood of market performance conditions being met as the effect of these conditions is
included in the determination of fair value at grant date. The statement of comprehensive income
charge or credit for a period represents the movement in cumulative expense recognised as at the
beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is
only conditional upon a market condition. If the terms of an equity-settled award are modified, as a
minimum an expense is recognised as if the terms had not been modified.
In addition, an expense is recognised for any modification that increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the employee, as measure at the
date of modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and
any expense not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award and designated as a replacement
award on the date that it is granted, the cancelled and new award are treated as if they were a
modification of the original award, as described in the previous paragraph. The dilutive effect, if any,
of outstanding options is reflected as additional share dilution in the computation of earnings per
share.


30 June 2012

(g) Taxation

Current Tax
Current tax is calculated by reference to the amount of income taxes payable or recoverable in
respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that
have been enacted or substantively enacted by reporting date. Current tax for current and prior
years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred Tax
Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of assets and liabilities
in the Financial Information and the corresponding tax base of those items.
In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax
assets are recognised to the extent that it is probable that sufficient taxable amounts will be
available against which deductible temporary differences or unused tax losses and tax offsets can be
utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences
giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of
a business combination) that affects neither taxable income nor accounting profit. Furthermore, a
deferred tax liability is not recognised in relation to taxable temporary differences arising from
goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted by reporting date. The measurement of
deferred tax liabilities and asset reflects the tax consequences that would follow from the manner in
which the Group expects at the report date, to recover or settle the carrying amount of its assets
and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its current tax assets and liabilities on
the net basis.

Current and deferred tax for the year.
Current and deferred tax is recognised as an expense or income in the income statement, except
when it relates to items credited or debited directly to equity, in which case the deferred tax is also
recognised directly in equity, or where it arises from the initial accounting for a business
combination, in which case it is taken into account in the determination of good or excess.
Research & Development Claims
A claim of $1575,588 for research and development for the year ended 30 June 2012 has been
submitted but not yet approved. The Group is also awaiting determination as to the eligibility of
overseas research and development expenditure which would increase the provisional claim made.
The Groups accounting policy is to account for the research and development claims as an income
tax benefit in the year the claims are approved.


30 June 2012

(h) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in banks 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.
(i) Trade and Other Payables
Trade and other payables represent the liability outstanding at the end of the reporting period for
goods and services received by the Group during the reporting period which remains unpaid. The
balance is recognises as a current liability with the amount being normally paid within 30 days of
recognition of liability.
(j) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision maker. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified as
the Board of Directors.
(k) Property, Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation and any accumulated
impairment losses.
Depreciation is calculated based upon the estimated useful life of the assets as follows:
Computer Equipment 20% to 50% Straight Line
Computer Software 25% (4 years) Straight Line
Office Equipment 20% (5 years) Straight Line
Furniture & Fittings 14.3%(7 years) Straight Line
Facility Improvements 14.3%(7 years) Straight Line
Plant and equipment 14.3%(7 years) Straight Line
Laboratory Systems 14.3%(7 years) Straight Line
Motor Vehicles 22.5% Diminishing Value
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if
appropriate, at each financial year end.
Gains and losses on disposal are determined by comparing proceeds with the carrying amount.
These gains and losses are included in the statement of comprehensive income. When revalued
assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to
retained earnings.

(l) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in the statement of comprehensive income over
the period of the borrowings using the effective interest method. Fees paid on the establishment of
loan facilities, which are not incremental costs relating to the actual draw down of the facility, are
recognised as prepayments and amortised on a straight line basis over the term of the facility.


30 June 2012

(m) Leasing
Lease of assets under which the consolidated entity assumes substantially all the risks and benefits
of ownership are classified as finance leases as distinct from operating leases under which the lessor
effectively retains substantially all such risk and benefits. Property, plant and equipment acquired
by finance leases is capitalised at the present value of the minimum lease payments as a finance
lease asset and as a corresponding lease liability from date of inception of the lease. Lease assets
are amortised over the period the entity is expected to benefit from the use of the assets or the
term of the lease whichever is shorter. Finance lease liabilities are reduced by the component of
principal repaid. Lease payments are allocated between the principal component of the liability and
interest expense.

(n) Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating
sick leave expected to be settled within 12 months of the reporting date are recognised in other
payables in respect of employees’ services up to the reporting date. They are measured at the
amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick
leave are recognised when the leave is taken and are measured at the rates paid or payable.
Long service leave
The liability for long service leave is recognised in the provision for employees’ 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. Consideration is given to expect future wage and
salary levels, experience of employee departures, and period of service. Expected future payments
are discounted using market yields at the reporting date of national government bonds with terms
to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

(o) 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 the Group will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at reporting date, taking into account the risks and uncertainties surrounding the
obligation. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying mount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, the receivable is recognised as an asset if it is virtually certain that
reimbursement will be received and the amount of receivable can be measured reliably.


Algae.Tec Annual Report 2012

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Algae.Tec Annual Report 2012