2011 annual report

algae.tec limited

a renewable and sustainable energy company

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Company Details 3

SECTION 1 - OVERVIEW

Chairman’s Letter 6

Review of Operations 8

SECTION 2 - CORPORATE GOVERNANCE INFORMATION

Corporate Governance Statement 14

Corporate Governance and Board Practices 17

Directors’ Report 20

SECTION 3 - CONSOLIDATED STATEMENT INFORMATION

Consolidated Statement of Comprehensive Income 32

Consolidated Statement of Financial Position 33

Consolidated Statement of Equity 34

Consolidated Statement of Cash Flows 35

SECTION 4 - NOTES ON FINANCIALS STATEMENTS

Notes of the Financial Statements 38

Director’s Declaration 66

Auditor’s Independence Declaration 67

Independent Auditor’s Report 68

SECTION 5 - SHAREHOLDER INFORMATION

Shareholder Information 72

contents

ALGAE.TEC ANNUAL REPORT - 30.06.11 | 1

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2 | ALGAE.TEC ANNUAL REPORT - 30.06.11 ALGAE.TEC ANNUAL REPORT - 30.06.11 | 3

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

Suite 9, 3 Centro Avenue Subiaco WA 6008

SharE rEgiSTEr

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

auDiTOrS

Somes and 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

COmpaNy DETailS“Algae.Tec uses water, sunlight and nutrients to grow algae that produces high-value sustainable fuels such as biodiesel and jet fuel.”

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LETTER FROM THE CHAIRMAN 6

REVIEW OF OPERATIONS 8

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Dear Shareholders

How time flies when your AlgaeTec team is building an exciting company.

Since listing we have worked hard to achieve all the goals outlined in the prospectus. Additionally, we have been assiduously developing a strategic network with significant carbon emitters and large biofuel (biodiesel and jet fuel) consumers.

AlgaeTec has attained a listing on the Frankfurt stock exchange, and on the OTC as an American Depository Receipt (ADR) in the United States. We have maintained strong shareholder support in a very volatile and unpredictable stock market for most of 2011.

When the focus in our country and globally turns to fuel and energy, the phrase “we live in interesting times” takes on a very topical resonance. Over this year there have been strategic developments in various countries in the arena of Carbon Abatement. China and South Korea are considering some form of carbon tax, as is California. Both Australia and the United States have committed to specific financial support for projects involved in the production of advanced biofuels (Algae in particular). Additional financial support in the form of fuel subsidies exists in both countries for fuel products from algae.

The genesis of AlgaeTec Limited’s algae production technology was over 8 years ago. During this time two specific global resource issues, namely food and water, have been critically focused upon. Many countries have embraced solutions enthusiastically, and in a manner consistent with their politically varied structures. Food and water are linked to the global population number and its extraordinary exponential growth. These commodities are inextricably linked to energy in all its forms, and in particular, transport fuels. Careful management of these scarce resources at a national and international level has never been more important. It is with this background that AlgaeTec’s business takes on its current global relevance.

AlgaeTec’s strategic goal is to embrace transport fuels in a very practical manner. Your company intends to initiate the development and operation of commercial facilities in several countries, predominantly by way of joint venture. The primary focus will be on Australia, the United States, China, Brazil and Southern Europe. The products will be primarily Biodiesel and Grade A Jet Fuel.

Discussions are underway with several companies in the various countries mentioned above, with the intention of negotiating either a joint venture at a facility level or at the country level. The Chinese discussions, as mentioned variously before, have changed from one party to another, and are progressing very well.

lETTEr frOm ThE ChairmaN

I have just returned from visiting our excellent facility in Atlanta, Georgia in the United States. The research and development and training facility in Atlanta has been developed to a high standard by Earl McConchie and his team. The Facility is a credit to the company, and as an algae facility, ranks very high in its technical and manufacturing excellence.

The containers prepared for the Shoalhaven One Demonstration program, will be, shortly after you receive this annual report, on the high seas bound for Sydney. Permitting procedures have been completed, and should have been approved by the time you read this letter.

During the prospectus period onwards, AlgaeTec engaged an investor relations company, Dateline Media. This has raised the market’s awareness of the company’s potential, significantly. The dynamic AlgaeTec website reflects an extensive media coverage in Australia and abroad, in print, radio and through the visual mediums. We encourage all shareholders to refer to the website regularly.

We thank all shareholders for their support to date, and believe that the next 12 months will be very positive for AlgaeTec’s development towards a profitable company.

Roger Stroud

Executive Chairman

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rEviEw Of OpEraTiONS

• Group overview

The year to 30 June 2011 was an extremely significant period for Algae.Tec Ltd as it completed the transition to a publicly listed Group, and commenced the building of its first full scale modules.

Great strides have been made in following the goals set in our prospectus of positioning Algae.Tec Limited at the forefront of developing sustainable energy solutions, and in developing a state of the art research and development and manufacturing centre in Atlanta, Georgia.

The period also saw the continuation of negotiations with a number of strategic partners to add certainty to each link in its supply and value chain, and to form long term strategic partnerships.

• ASX Listing

Algae.Tec Ltd released a prospectus on 26 July 2010 with the aim of raising $7.5 million and listing on the Australian Securities Exchange. The issue closed in December 2010 once the minimum of $5 million and 500 shareholders had been achieved. The $5 million was adequate for the initial goals of the Group due to favourable exchange rates and considerable cost savings being achieved through strategic partners. Shares were issued at $0.20 with 28,346,668 receiving quotation. With another 219,575,000 shares being issued to original founders and seed investors which were subject to restriction agreements, the total shares on issue post listing were 247,921,668 and giving a market capitalisation at listing of $49,584,334. At the time of this report the shareholders have grown to approximately 750 and the market capitalisation to approximately $90 million, a very positive result in a very negative market period.

• Manildra Group

On 20 August 2010, the Group announced that it had signed a memorandum of understanding with the Manildra Group. This MOU details the collaboration between the parties to build 2 full size demonstration modules at the Manildra site in Nowra NSW. This arrangement was strengthened in June 2011 when the MOU was upgraded to a collaboration agreement. This agreement firms up details regarding the demonstration facility and details the understanding to build a commercial size plant on the same site once the demonstration plant is successful.

These first modules are being built in the Group’s facility in Atlanta and are on track to be shipped to the Nowra site in October 2011. It is anticipated that they will be operational on target in the first quarter of 2012. This was a crucial step for the Group as it will allow it to obtain external validation of the Group’s technology and commercial capability.

• Chinese Strategic Partners

On 20 August 2010, the Group announced the signing of a strategic relationship agreement with Pacific Minerals, a Hong Kong based Group, regarding the commercialisation of its technology in China. The parties agreed to set up a joint venture company in China with the aim of identifying and progressing with commercial applications of its technology.

Roger Stroud visited China during the year at the invitation of our joint venture partners and visited potential sites. The duration of this specific MOU has since expired, but negotiations are continuing with certain identified parties and Roger Stroud is again visiting China in October 2011.


“Algae.Tec Limited at the forefront of developing sustainable energy solutions.”

The bLuE LINE represents the price or value of the security over the requested time frame. The actual price or value is shown on the left axis.

The DARk GREEN bARS represent the turnover for the primary security.

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• Frankfurt Exchange

On 21 February, Algae.Tec Ltd was accepted to list on the Frankfurt Stock Exchange. Germany has successfully positioned itself as the cleantech leader in the European Union and Algae.Tec Ltd considered it to be important to be listed on this exchange as part of its globally focussed path.

European governments continue to discuss methods of restricting polluting companies and ways to encourage clean technologies and it was considered important to raise our profile in Europe and have an easy trading platform for European investors.

• Atlanta Facility

One of the reasons for the listing of the Group was to raise funds for the establishment of a first class research and development and commercial facility. On 17 March 2011 Algae.Tec Limited announced the opening of its 18,000sq ft facility in Atlanta Georgia. This facility is currently being used to build the first full size modules that will be established on the Manildra site in Nowra, NSW.

The facilities at this site have already led to further improvements to the Algae.Tec Limited technology, and new innovations are always being devised and tested.

Projects have been set up to evaluate all methods of producing algae, not just the Group’s enclosed bio reactor technology, and this will allow us to be at the forefront of new developments. Numerous species of algae are also continuously being grown and tested to ensure that we have the best strain for the required product.

• ADR Facility

Following the Group’s globalisation strategy, on 27 April 2011, the Group announced that it had set up an American Depository Receipt platform with the Bank of New York Mellon as managers of the programme. This level one programme will allow American investors to invest directly in the Group’s stock. This also recognises the awareness and appetite for this technology in this market place. The Group is currently evaluating the benefits of improving this ADR platform to a full OTCQX listing.

• DMG Media Marketing

During the year Algae.Tec Limited appointed DMG to handle our worldwide investor relations and media requirements. DMG have achieved a tremendous uplift in the Group’s profile and in the awareness of Algae.Tec Limited and its technology around the world. As partial compensation for the services received, and in recognition of the value of service, Algae.Tec Limited issued 1,000,000 shares to DMG on 9 March 2011.

“Australian price on Carbon to accelerate up take of Algae.Tec Technology.”

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CORPORATE GOVERNANCE STATEMENT 14

CORPORATE GOVERNANCE AND bOARD PRACTICES 17

DIRECTOR’S REPORT 20

COrpOraTE gOvErNaNCE iNfOrmaTiON

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COrpOraTE gOvErNaNCE STaTEmENT

The Algae.Tec Limited Board is committed to protecting shareholders interests and keeping investors fully informed about the performance of the Group’s business.

The Directors have undertaken to perform their duties with honesty, integrity, care and diligence, according to the law and in a manner that reflects the highest standards of governance.

ThE BOarD Of DirECTOrSThe Group’s Board of Directors is responsible for the corporate governance of the Group. The Board develops strategies for the Group, reviews strategic objectives and monitors performance against those objectives. The goals of the corporate governance processes are to:

• Maintain and increase Shareholder value

• Ensure a prudential and ethical basis for the Group’s conduct and activities; and

• Ensure compliance with the Group’s legal and regulatory objectives.

Consistent with these goals, the Board assumes the following responsibilities:

• Developing initiatives for profit and asset growth

• Reviewing the corporate, commercial and financial performance of the Group on a regular basis;

• Acting on behalf of, and being accountable to the Shareholders; and

• Identifying business risks, and implementing actions to manage those risks and corporate systems to assure quality.

The Group is committed to the circulation of relevant materials to Directors in a timely manner to facilitate Directors’ participation in the Board discussions on a fully-informed basis.

SharEhOlDErSThe Shareholders of the Group elect Directors at the Annual General Meeting in accordance with the Constitution. All directors, other than the Managing Director are subject to re-election by rotation within three years.

The Annual General meetings are held in Perth. Shareholders have the opportunity to express their views, ask questions about Group business and vote on items of business for resolution by shareholders at the Annual General Meeting.

COmmuNiCaTiON wiTh SharEhOlDErSAlgae.Tec Limited is committed to complying with the continuous disclosure obligations of the Corporations Act and the Australian Securities Exchange Listing Rules.

The Group keeps the market informed through its annual report, half year report and by disclosing material developments to the ASX and the media as they occur.

COmpOSiTiON Of ThE BOarDElection of Board members is substantially the province of the Shareholders in general meeting, however, subject thereto, the Group is committed to the following principles;

• The Board is to comprise of Directors with a blend of skills, experience and attributes appropriate for the Group and its business; and

• The principal criterion for the appointment of new Directors is their ability to add value to the Group and its business.

No formal nomination committee or procedures have been adopted for the identification, appointment and review of the Board membership, but an informal assessment process, facilitated by the Chairman in consultation with the Group’s professional advisors, has been committed to by the Board.

BOarD COmmiTTEESThe Board has established a separate Audit Committee consisting of the Chairman, the Managing Director and the independent Director.

rEmuNEraTiON arraNgEmENTSThe remuneration of an Executive Director will be decided by the Board, without the affected Executive Director participating in that decision-making process.

The total maximum remuneration of Non-executive Directors is the subject of a Shareholder resolution in accordance with the Group’s Constitution, the Corporations Act and the ASX Listing Rules, as applicable. The determination of Non-executive Directors’ remuneration within that maximum will be made by the Board having regard to the inputs and value to the Group of the respective contributions by each Non-executive Director.

The Board may award additional remuneration to Non-executive Directors called upon to perform extra services or make special exertions on behalf of the Group.

iNDEpENDENT prOfESSiONal aDviCESubject to the Chairman’s approval (not to be unreasonably withheld), the Directors, at the Group’s expense, may obtain independent professional advice on issues arising in the course of their duties.

iNTErNal CONTrOlS aND maNagEmENT Of riSkSThe Board’s collective experience will enable accurate identification of the principal risks that may affect the Group’s business. Key operational risks and their management will be recurring items for deliberation at Board meetings.

EThiCal STaNDarDSThe Board is committed to the establishment and maintenance of appropriate ethical standards.

DirECTOrS’ SharE DEaliNgSThe Board has adopted a Code of Conduct for Directors which establishes guidelines for their conduct in matters such as ethical standards and conflicts of interests. The Code is based on that developed by the Australian Institute of Company Directors.

• Directors must consult with the Chairman of the Board before dealing in shares or other securities of the Group

• Dealings in the Group’s shares or other securities by related persons may be carried out other than the period 2 weeks prior and 1 day following the date of announcement of the Group’s annual or half yearly results or a major announcement leading, in the opinion of the Board, to a fully informed market.

Directors are prohibited from buying or selling Algae.Tec Limited shares at any time if they were aware of price sensitive information that has not been made public. In accordance with the Corporations Act and the ASX Listing Rules, Directors advise the Group of any transactions conducted by them in shares in the Group, which then informs the ASX of the details of the transaction.


“The Board is committed to the establishment and maintenance of appropriate ethical standards.”

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rETirEmENT, ElECTiON aND CONTiNuaTiON iN OffiCE Of DirECTOrSIn accordance with the Constitution of Algae.Tec Limited, at each Annual General Meeting, one-third (or a number nearest one-third (excluding any other Director appointed by the Directors either to fill a vacancy or as and addition to the existing Directors) must retire by rotation: and

• Any other Director who has held office for three years or more since last being elected; and

• Any other Director appointed to fill a casual vacancy or as an addition to the existing Directors.

Accordingly, at the 2010 Annual General Meeting, Mr Roger Sydney Stroud, Mr Peter Ernest Hatfull, Mr Garnet Earl McConchie and Mr Timothy Morrison retired as Directors by rotation. All Directors being eligible offered themselves for re-election and were re-elected.

Mr Roger Sydney Stroud and Mr Garnet Earl McConchie, being the longest serving Directors will retire by rotation at the 2011 Annual General Meeting and, being eligible, will offer themselves for re-election.

Algae.Tec Limited aims for best practice in the area of corporate governance and enhancement of its shareholders’ interest. The Chairman, the Directors’ and Company Secretary are responsible for ensuring that the Group complies with best practice in its corporate governance on a day to day basis.

The Group’s main corporate governance and Board practices in place during the fiscal year 2011 are described in the next section and where appropriate, elsewhere in our annual report, as indicated.

We regularly review and update our corporate governance practices. The Board evaluates and, where appropriate, implements relevant proposals with the aim of ensuring that we continue to demonstrate our commitment to good corporate governance, having regard to developments in market practice and regulation.

We comply with the ASX Corporate Governance Council’s “Revised Principles of Good Corporate Governance and Best Practice Recommendations”. These provisions require listed companies to report on their main corporate governance practices and require a Group to highlight any areas of departure from the Recommendations of the Council and explain that departure.

1. lay SOliD fOuNDaTiONS fOr maNagEmENT aND OvErSighT

The Directors monitor the business affairs of the Group on behalf of the Shareholders and have formally adopted a corporate governance policy which is designed to encourage Directors to focus their attention on accountability, risk management and ethical conduct.

The objective of Algae.Tec Limited’s governance framework is to allow the Board to:

• Provide strategic guidance for the Group and effective oversight of management

• Facilitate board and management accountability to our shareholders through clearly defined roles and responsibility for the Board and executive management; and

• Ensure a balance of appropriate authority to avoid individuals having sole authority.

2. STruCTurE ThE BOarD TO aDD valuE

As at the date of this report, the Board comprises four directors. Algae.Tec Limited’s constitution provides for a minimum of three directors and not more than nine directors.

The Board consists of an 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). 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.

Each of the directors has been appointed for their particular skills, expertise and

experience. The Group intends to seek out and appoint independent directors in the future. However, due to the current limited size of the Group’s operations, it may not be appropriate to appoint a majority of independent directors for some time. The Group feels the range of skills and breadth of industry and professional expertise held by the Board members provides a sound basis for increasing the Group’s value.

3. prOmOTE EThiCal aND rESpONSiBlE DECiSiON-makiNg

Algae.Tec Limited is committed to maintaining high ethical standards in its internal operations and its interaction with shareholders, investors, stakeholders and regulatory bodies. The Group does not consider the small size of the board and management warrants a separate code of conduct. The Group has adopted and applies a Corporate Governance Policy, a Trading Policy and the directors’ operate under the Directors’ Code of Conduct.

The Board meets on a regular basis and follows meeting guidelines set down to ensure all directors are made aware of and have all necessary information to participate in informed discussions on all agenda items.

The Board and Management understand the obligations for ethical and responsible decision making.

COrpOraTE gOvErNaNCE aND BOarD praCTiCES

“The global market for Algae is poised for explosive growth in the next 10 years.”F

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4. SafEguarD iNTEgriTy iN fiNaNCial rEpOrTiNg

The Audit Committee assists the Board in fulfilling its responsibilities relating to the accounting and financial reporting practices of the Group and monitors necessary statutory and regulatory compliance.

The Audit committee functions include:

• 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.

5. NOmiNaTiON COmmiTTEENo formal nomination committee or procedures have been adopted for the identification, appointment and review of the Board membership, but an informal assessment process, facilitated by the Chairman in consultation with the Group’s professional advisors, has been committed to by the Board.

6. auDiT aND COmpliaNCE COmmiTTEE

Due to the current size of the organisation, the creation of a separate audit committee was not seen as necessary for the year to 30 June 2011. However, 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.

• An Audit Committee has been established from 1 July 2011 however does not have a majority of independent Directors.

7. makiNg TimEly aND BalaNCED DiSClOSurE

The Group recognises the significance of continuous and timely disclosure and has developed a strict Securities Trading Policy. This policy and ongoing formal and informal meetings of the Directors and Management ensures accountability and provision of relevant and timely information to all shareholders and investors.

The Group includes continuous disclosure as a permanent item on the agenda for Board meetings and in compliance with ASX Listing rules. The Company Secretary is responsible for ensuring compliance with the continuous disclosure requirements and overseeing and authorising disclosure information to the ASX. All media releases which contain material price sensitive information must be approved by the Board prior to release to the ASX.

8. rESpECT ThE righTS Of SharEhOlDErS

The Directors recognise that for shareholders of Algae.Tec Limited to be able to make informed decisions regarding their investment, they need relevant and timely information. The Board has approved the use of third party Investor Relation firms to ensure appropriate and frequent communication with shareholders.

The Group updates its website with all media releases during the year and has made several presentations to market representatives and financial analysts.

9. rECOgNiSE aND maNagE riSkThe Board acknowledges Principle 7 of the ASX Corporate Governance Council in its approach to risk management. The identification and effective management of risk is viewed as an essential part of the Group’s approach to creating long-term shareholder value. 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 risks and their management will be recurring items for deliberation at Board Meetings.

10. rEmuNEraTE fairly aND rESpONSiBly

The Board has not established a Remuneration Committee at this point in the Group’s development. 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.

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.

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 Revised Principles of Good Corporate Governance during the financial year. The Board guides and monitors the business affairs of Algae.Tec Limited and its subsidiary on behalf of the shareholders to whom they are accountable.


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DirECTOrS’ rEpOrT

The directors submit herewith the annual financial report of Algae.Tec Limited. In order to comply with the provisions of the Corporations Act 2001, the Directors report is as follows:

DirECTOrSThe names and particulars of the directors of the Company as at 30 June 2011 and at the date of this report are as follows. Directors were in office for the entire period.

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

priNCipal aCTiviTiESThe 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 rESulTSThe consolidated comprehensive loss for year was $2,437,487 (2010: $410,174).

The consolidated cash flow statement shows that cash and cash equivalents at year ending 30 June 2011 were $2,434,251 (2010: $9,779).

SigNifiCaNT ChaNgES iN STaTE Of affairSPlease see ‘Review of Operations’ page 8.

DiviDENDSNo dividends were paid or recommended by the Directors.

SigNifiCaNT EvENTS afTEr ThE BalaNCE DaTEThere have been no significant events occurring after the balance date which have significantly affected or may significantly affect the Group’s operations or results of those operations or the Group’s state of affairs in future financial years.

ENvirONmENTal rEgulaTiONS aND pErfOrmaNCEAlgae.Tec Ltd will not be subjected to significant environmental regulations under both the Commonwealth and State legislation.

DirECTOrS’ rEpOrT

TimOThy mOrriSONNon Executive Director

Tim Morrison currently is the acting CEO of RGM Media Limited, an ASX listed company. Prior to this, Tim was Director of Research and Development at Murdoch University. He had responsibility for the provisions of high level support to the Pro Vice Chancellor (Research) in the management of research and the commercialisation of the University’s Intellectual Property. His primary responsibility in this position was to extend existing research relationships and to develop new links with business and industry. His role was the key driver and catalyst for the University’s continuing development of global research and training, as well as its application to economic and national benefit.

Prior to this position he 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 OptionsMr Timothy Morrison currently holds 2,000,000 ordinary shares in Algae.Tec Limited.

iNfOrmaTiON ON DirECTOrSDETailS Of ThE DirECTOrS’ qualifiCaTiONS aND ExpEriENCE arE SET OuT aS fOllOwS:

pETEr ErNEST haTfullManaging 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 was recently Managing Director of a leading integrated metal recycling and contracting company, CMA Corporation Ltd, based in Sydney, where he managed a period of dramatic growth and increased profitability. Prior to this appointment, he 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 GFR Group, Structerre Consulting, Barminco 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.

interest in Shares and OptionsMr Peter Hatfull currently holds 9,557,865 ordinary shares in Algae.Tec Limited.

“The Directors perform their duties with honesty, integrity and care.”

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mEETiNgS Of DirECTOrS

During the year ended 30 June 2011, the number of meetings of the Board of Directors and the number of meetings attended by each of the Directors are as follows:

DirECTOr’S mEETiNg Number of meetings held 8

Number of meetings attended

Mr Timothy Morrison 8

Mr Peter Ernest Hatfull 8

Garnet Earl McConchie 8

Roger Sydney Stroud 8

DirECTOrS’ rEpOrTDirECTOrS’ rEpOrT

garNET Earl mCCONChiEExecutive 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 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.

interest in Shares and OptionsMr Earl McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLC which in turn holds 200 million shares.

An additional 4,500,000 shares are held by the immediate family of Mr Earl McConchie.

rOgEr SyDNEy STrOuDExecutive 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 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.

interest in Shares and OptionsMr Roger Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC which in turn holds 200 million shares.

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rEmuNEraTiON rEpOrT (auDiTED)Principles used to determine the nature and amount of remuneration

The Board is responsible for making recommendations on remuneration packages and policies applicable to the Board members and senior executives of the Group.

The Board’s remuneration policy is to ensure the remuneration package reflects the person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of the highest quality. Directors’ and executives’ remuneration is arrived at after consideration of the level of expertise each director and executive brings to the Group, the time and commitment required to efficiently and effectively perform the required tasks and after reference to payments made to directors and executives in similar positions in other companies.

At this stage the remuneration reflects the performance of the Group in a development stage in that the levels of remuneration are at the low end of the market. As the Group becomes revenue producing and shareholder wealth increases, regular reviews will be conducted as to the remuneration of directors and executives.

Non Executive Directors Pay

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 Group pays its non-executive Director, Mr Timothy Morrison, a fee of $40,000 per year.

Executive Directors Pay

The remuneration of Executive Directors is fixed by the Directors and paid by way of salary or consultancy fee. The remuneration package properly reflects the person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of the highest quality. Directors and executives’ remuneration is arrived at after consideration of the level of expertise each director and executive brings to the Group, the time and commitment required to efficiently and effectively perform the required tasks and after reference to payments made to directors and executives in similar position in other companies.

DETailS Of rEmuNEraTiONDetails of the remuneration of the directors of Algae.Tec Limited is set out in the following tables. The key management personnel of Algae.Tec Limited are:

Mr Peter Ernest Hatfull Managing Director and Company Secretary

Garnet Earl McConchie Executive Director

Roger Sydney Stroud Executive Chairman

Mr Timothy Morrison Non - Executive Director


iNSuraNCE aND iNDEmNiTiES Of OffiCErS aND DirECTOrSThe Group has not, during or since the financial year, in respect of any person who is or has been a director, officer or auditor of the Group or a related body corporate, indemnified or made any relevant agreement for indemnifying against a liability incurred as a director, officer or auditor, including costs and expenses in successfully defending legal proceedings. The Group is in the process of finalising Directors and Officers Liability Insurance at the date of this report.

SharE OpTiONSAt the date of this report, the following options to acquire Ordinary shares of the Group were on issue:

graNT DaTE NumBEr ExErCiSE priCE

Expiry DaTE

Unlisted Ordinary Options

12/01/2011 49,584,334 $ 0.75 12/01/2016

Unlisted Ordinary Options

3/03/2011 5,000,000 $ 0.75 13/01/2014

54,584,334

prOCEEDiNgS ON BEhalf Of ThE grOupNo person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings.

The Group was not a party to any such proceedings during the year.

NON-auDiT SErviCESThe Board of Directors, in accordance with advice from the audit committee, is satisfied that the provision of non-audit services during the year is compatible with the generated standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

• All non-audit services are reviewed and approved by the Board prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor, and

• The nature of the services provided does not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

fuTurE DEvElOpmENTSThe current strategy of continuous improvement and adherence to quality control in existing markets, are expected to assist in the achievement of the consolidated group’s long term goal and development of new business opportunities.F

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rEmuNEraTiON rEpOrT (CONT)

TaBlE Of BENEfiTS aND paymENTS fOr ThE yEar ENDED 30 JuNE 2010

Short term benefits post-employment

benefits

Share-based payment

Salary and

Directors fees

Consulting fees

Non monetary Benefits

Superannuation Shares/Options

Total

$ $ $ $ $ $Key Management Personnel

Roger Sydney Stroud

- 103,946 - - - 103,946

Peter Ernest Hatfull - 20,000 - - - 20,000

Garnet Earl McConchie

- 142,047 - - - 142,047

Tim Morrison - - - - - -

Total 265,993 265,993

SECuriTiES rECEivED ThaT arE pErfOrmaNCE rElaTEDNo members of key management personnel are entitled to receive securities which are performance-based as part of their remuneration package.

CaSh BONuSES, pErfOrmaNCE-rElaTED BONuSES aND SharE-BaSED paymENTSNo cash bonuses, performance-related bonuses or share based payments were granted as remuneration during the year to key management personnel.

SErviCE CONTraCTSRemuneration and other terms of employment for the Managing Director, Executive Director and other key management personnel are not formalised in service agreements. Service agreements will be entered into as the Group matures.

OpTiONS aND righTS graNTEDNo options or rights were granted to key management personnel during the year.


rEmuNEraTiON rEpOrT (CONT)

TaBlE Of BENEfiTS aND paymENTS fOr ThE yEar ENDED 30 JuNE 2011

Short term benefits post-employment

benefits

Share-based payment

Salary and

Directors fees

Consulting fees

Non monetary Benefits

Superannuation Shares/Options

Total

$ $ $ $ $ $Key Management Personnel

Roger Sydney Stroud

- 135,000 - - - 135,000

Peter Ernest Hatfull 90,000 - - 8,100 - 98,100


154,945 - - 4,352 - 159,297

Tim Morrison - 30,000 - - - 30,000

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

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auDiTOr’S iNDEpENDENCE DEClaraTiONA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2011 is set out on page 67.

auDiTOrSomes and Cooke continue in office in accordance with section 307C of the Corporations Act 2001.

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

Peter Hatfull

managing Director

30 September 2011

DirECTOrS’ rEpOrT

“Algae holds promise as a renewable future.”

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CONSOliDaTED STaTEmENT iNfOrmaTiONS

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 32

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 33

CONSOLIDATED STATEMENT OF EquITy 34

CONSOLIDATED STATEMENT OF CASH FLOWS 35

CONSOliDaTED STaTEmENT iNfOrmaTiON

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CONSOliDaTED STaTEmENT Of COmprEhENSivE iNCOmE

For the year ended 30 June 2011

CONSOliDaTED grOup

2011 2010

NOTES $ $

INTEREST INCOME 21,282 -

EXPENDITURE -

Employee benefits expense (554,105) -

Depreciation and amortisation expense 11 (5,835) (291)

Advertising (232,133) (6,100)

Property rent and lease payments (49,136) (22,081)

Communication expense (17,175) (1,151)

Consultancy (315,651) (64,380)

Professional fees (358,920) (45)

Travel expense (241,336) (88,251)

Other Expenses (265,206) (61)

Finance costs (2,376) -

Unrealised Exchange losses 21 (274,559) -

Research Costs (173,417) (227,814)

LOSS BEFORE INCOME TAX (2,468,567) (410,174)

Income Tax Expense 6 - -

NET LOSS ATTRIBUTABLE TO MEMBERS OF THE GROUP

(2,468,567) (410,174)

Other Comprehensive Income 17 31,080 -

TOTAL COMPREHENSIVE (LOSS) (2,437,487) (410,174)

TOTAL COMPREHENSIVE (LOSS)

ATTRIbuTAbLE TO MEMbERS OF THE GROuP (2,437,487) (410,174)

Earnings per share (cents per share)

Basic earnings per share (cents per share) 16 (0.010) (0.002)

Diluted earnings per share (cents per share) (0.010) (0.002)

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

As at 30 June 2011

CONSOliDaTED grOup

2011 2010

NOTES $ $

CuRRENT ASSETS

Cash and cash equivalents 8 2,434,251 9,779

Trade and other receivables 9 47,990 19,834

Prepayments 10 63,554 221,448

TOTAL CuRRENT ASSETS 2,545,795 251,061

NON CuRRENT ASSETS

Plant and equipment 11 127,554 2,436

Other Receivables 20(d) 18,000 -

TOTAL NON CuRRENT ASSETS 145,554 2,436

TOTAL ASSETS 2,691,349 253,497

CuRRENT LIAbILITIES

Trade and other payables 13 81,386 56,671

Provisions 14 10,820 -

TOTAL CuRRENT LIAbILITIES 92,206 56,671

NON CuRRENT LIAbILITIES

Other non current liabilities - 7,000

TOTAL NON CuRRENT LIAbILITIES - 7,000

TOTAL LIAbILITIES 92,206 63,671

NET ASSETS 2,599,143 189,826

EquITy

Issued capital 15 5,446,804 600,000

Foreign Exchange Reserve 17 31,080 -

Accumulated losses (2,878,741) (410,174)

TOTAL EquITy 2,599,143 189,826


CONSOliDaTED STaTEmENT Of fiNaNCial pOSiTiON

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CONSOliDaTED STaTEmENT Of ChaNgES iN EquiTy


Share Capital accumulated losses

reserve Total Equity

$ $ $ $

bALANCE AT 1 JuLy 2009 - - - -

Loss for the period - (410,174) - (410,174)

Other comprehensive income/loss - - - -

Total comprehensive income/loss for the year

- (410,174) - (410,174)

Share issued during the period 600,000 - - 600,000

Share issue expenses - - - -

bALANCE AT 30 JuNE 2010 600,000 (410,174) - 189,826

SharE CapiTal

aCCumulaTED lOSSES

rESErvE TOTal EquiTy

$ $ $ $

bALANCE AT 1 JuLy 2010 600,000 (410,174) - 189,826

Loss for the period - (2,468,567) - (2,468,567)

Other comprehensive income/loss - - 31,080 31,080

Total comprehensive income/loss for the year

- (2,468,567) 31,080 (2,437,487)

Share issued during the period 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



CONSOliDaTED grOup

2011 2010

NOTES $ $

CASH FLOWS FROM OPERATING ACTIVITIES

Payments to trade creditors, other creditors and employees (inclusive of goods and services tax)

(1,836,504) (390,672)

Interest paid (1,575) -

Interest received 15,179 -

Net cash outflows from operating activities 22 (1,822,900) (390,672)

CASH FLOWS FROM INVESTING ACTIVITIES

Loans to Directors (25,000) -

Payment for property, plant and equipment (130,953) (2,727)

Net cash outflow from investing activities (155,953) (2,727)

CASH FLOWS FROM FINANCING ACTIVITIES

Issue of shares net of capital raising costs 4,646,804 600,000

Proceeds from borrowings - 7,000

Prepaid issue costs - (203,822)

Net cash flows from financing activities 4,646,804 403,178

Net increase in cash and cash equivalents 2,667,951 9,779

Effect of exchange rate translations 31,080 -

Cash and cash equivalents at the beginning of the financial period

9,779 -

Effect of exchange rate changes of cash held in foreign currencies

(274,559) -

CASH AND CASH EquIVALENTS AT THE END OF THE FINANCIAL PERIOD

8 2,434,251 9,779


CONSOliDaTED STaTEmENT Of CaShflOwS

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NOTES ON fiNaNCial STaTEmENTSS

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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

- 1. Summary of significant accounting policies 38- 2. Critical accounting estimates and judgements 47- 3. Segment reporting 48 - 4. Expenses 48- 5. Leases and commitments 48- 6. Income tax expense 49- 7. Auditors remuneration 50- 8. Current assets – cash and cash equivalents 50- 9. Current assets – trade and other receivables 51- 10. Current assets - other 51- 11. Non-current assets – property, plant and equipment 52- 12. Non-current assets – intangible 53- 13. Current liabilities – trade and other payables 54- 14. Current liabilities – provisions 54- 15. Contributed equity 54- 16. Earnings per share 56- 17. Reserves 56 - 18. Controlled entities 57- 19. Key management personnel disclosures 57- 20. Related party transactions 59- 21. Financial risk management 60- 22. Reconciliation of loss after tax to net 64

cash flows from operations- 23. Events subsequent to end of reporting period 64- 24. Parent entity disclosures 64- 25. Share-based payments 65- 26. Contingent liabilities 65

DIRECTOR’S DECLARATION 66

AuDITOR’S INDEPENDENCE DECLARATION 67

INDEPENDENT AuDITOR’S REPORT 68

NOTES ON fiNaNCial STaTEmENTS

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(c) 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.

(d) foreign Currency Translation

(i) Functional and presentation currency

Items included in the financial statements in the Group’s entity are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency gains and losses resulting from the settlement of such transactions and from the transaction at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in equity as qualifying cash flow hedges.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation

differences on assets and liabilities, carried at fair value are reported as part of the fair value gain or loss.

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.

(e) leasesLease 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.

NOTES TO aND fOrmiNg parT Of ThE fiNaNCial STaTEmENTSNOTES TO aND fOrmiNg parT Of ThE fiNaNCial STaTEmENTS

The financial report of Algae.Tec Limited and its subsidiary (the Group) for the year to 30 June 2011 was authorised for issue in accordance with the directors meeting of Friday 16 September 2011.

Algae.Tec Limited is a company limited by shares, incorporated, and domiciled in Australia.

1. Summary Of SigNifiCaNT aCCOuNTiNg pOliCiES

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statement is for the consolidated entity of Algae.Tec Limited and its subsidiary.

(a) Basis of preparation of the financial report

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

COmpliaNCE wiTh ifrSThe financial statements of Algae.Tec Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Historical Cost convention

These financial statements have been prepared on historical costs, modified, where applicable, by the measurement at fair value of selected non-current, financial assets and financial liabilities.

(b) principles of Consolidation

Subsidiaries

The consolidated financial statements incorporate the assets and liabilities and results of entities controlled by Algae.Tec Limited (“Company” or “parent entity”) at the end of the reporting period. A controlled entity is any entity over which Algae.Tec Limited has the power to govern the financial and operating policies, so as to obtain benefits from the entity’s activities, generally accompanying a shareholding of more than one-half of the voting rights.

In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those adopted by the parent entity.

Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are shown separately within the Equity section of the consolidate Statement of Financial Position and Statement of Comprehensive Income. The non-controlling interest in the net assets comprises their interest at the date of the original business combination and their share of changes in equity since that date.

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(i) Trade and Other payablesTrade 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 recognised as a current liability with the amount being normally paid within 30 days of recognition of liability.

(j) property, plant and EquipmentPlant 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% Straight Line

Office Equipment 20% Straight Line

Furniture & Fittings 14.3% Straight Line

Facility Improvements 14.3% Straight Line

Plant and equipment 14.3% Straight Line

Laboratory Systems 14.3% 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.

(k) Earnings per ShareBasic earnings per share is calculated as net loss attributable to members of the Group, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element.


(f) research CostsExpenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

(g) impairment of assetsThe Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount 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 which the estimate of future cash flows have not be adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount.

An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluating decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

(h) Cash and Cash EquivalentsCash 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.

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(m) financial instruments (cont)The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirement of Accounting Standards specifically applicable to financial instruments.

(i) Financial assets at fair value through profit or loss

Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a Group of financial assets is managed by key management of personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measure at fair value with changes in carrying value being included in profit or loss.

(ii) Loans and receivables

Loans receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group’s intention to hold these investments to maturity. They are subsequently measure at amortised cost.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments.

They are subsequently measured at fair value with changes in such fair value (i.e. gains or losses) recognised in other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss.

Available-for-sale financial assets are included in non-current assets where they are expected to be sold within 12 months after the end of the reporting period. All other financial assets are classified as current assets.

(n) Contributed EquityOrdinary shares and options are classified as contributed equity. Incremental costs directly attributable to the issue of new share or options are shown in equity as a deduction, net of tax, from proceeds.


(l) goods and Services Tax (gST)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. Receivable s 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.

(m) financial instrumentsFinancial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted).

Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately.

Classification and subsequent measurement

Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost.

Amortised cost is the amount at which the financial asset or financial liability is measure at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method.

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payment or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss.

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(p) Employee leave Benefits

(i) 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.

(ii) 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 expected 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.

(q) revenue recognitionRevenue 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.

(i) 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.

(ii) Interest income

Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(r) Share-based payment TransactionsThe 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.


(o) Taxation

(i) 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).

(ii) 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.

(iii) 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.

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NOTES TO aND fOrmiNg parT Of ThE fiNaNCial STaTEmENTS

(r) Share-based payment Transactions (cont)

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, and 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.

(s) New accounting Standards for application in future periods

The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Group is as follows:

• AASB 9: Financial instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 (AASB 1,3,4,5,7,101,102,108,112, 118,121,127,128,131,132,136,139, 1023 & 1038 and Interpretations 10 & 12) (applicable for annual reporting periods commencing on or alter 1 January 2013).

These standards are applicable retrospectively and amend the classification and measurement of financial assets. The Group has not yet determined the potential impact on the financial statements.

The changes made to accounting requirements include:

• Simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value.

• Simplifying the requirements for embedded derivatives

• Removing the tainting rules associate with held-to-maturity assets


(s) New accounting Standards for application in future periods (cont)

• Removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost

• Allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument, and

• Reclassifying financial assets where there is a change in an entity’s business model as they are initially classified based on:

(a) The objective of the entity’s business model for managing financial assets, and

(b) The characteristics of the contractual cash flows.

• AASB 124: Related Party Disclosures (applicable for annual reporting periods commencing on or after 1 January 2011)

This standard removes the requirement for government related entities to disclose details of all transactions with the government and other government related entities and clarifies the definition of a related party to remove inconsistencies and simplify the structure of the standard. No changes are expected to materially affect the Group.

The Group does not anticipate early adoption of any of the above accounting standards.

Other Australian Accounting Standards issued but not yet effective are not expected to result in significant accounting policy or disclosure changes.

2. CriTiCal aCCOuNTiNg ESTimaTES aND JuDgEmENTSEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

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

Income taxes

The group is subject to income taxes in Australia. The group estimates its tax liabilities based on the understanding of the tax laws and advice from tax experts. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period such determinations are made.

In addition, the group has recognised deferred tax assets relating to carried forward tax losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same subsidiary against which the unused tax losses can be utilised.

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5. lEaSES aND COmmiTmENTS (CONT)

CONSOliDaTED

2011 2010

$ $ Commitments in relation to the rental of a photocopier/printer/fax machine contracted for at the reporting date but not recognised as liabilities payable:

Within 1 year 5,089 -

Later than 1 year but within 5 years 14,420 -

Later than 5 years - -

Rental is for 48 months from 2 May 2011 at a fixed rate of $424.10 per month.

6. iNCOmE Tax ExpENSE

CONSOliDaTED

2011 2010

$ $(a) Reconciliation of Income Tax

expense to prima facie tax payable:

Profit/(Loss) before income tax (2,468,567) (410,174)

Prima facie income tax at 30% (740,570) (123,052)

Tax effect of amounts not assessable/deductible in calculating taxable income:

Non-deductible expenses 1,063 -

Share based payments 54,545 -

Gross income tax expense/(benefit) (684,962) -

Future income tax benefit not brought to account 684,962 123,052

Income tax expense/(benefit) recognised - -

2. CriTiCal aCCOuNTiNg ESTimaTES aND JuDgEmENTS (CONT)(b) Critical judgements in applying the entity’s accounting policies Estimated impairment of noncurrent assets

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

3. SEgmENT rEpOrTiNgA segment is a component of the consolidated entity that engages in business activities to provide products or services within a particular economic environment. The Company operates predominantly in the environmental and energy industry and a single geographic segment.

4. ExpENSESLoss before income tax includes the following specific expenses:

CONSOliDaTED

2011 2010

$ $

Depreciation Plant and Equipment 5,835 291


Interest Expense 1,575 -

Unrealised Exchange 274,559 -

Research Costs 173,417 227,814

5. lEaSES aND COmmiTmENTSCommitments in relation to a property lease contracted for at the reporting date but not recognised as liabilities payable:

Within 1 year 5,250 35,000

Later than 1 year but within 5 years - -

Later than 5 years - - Lease term was 18 months from 24 March 2010 at rental of $30,000 per annum. 2 months remain on current lease with an option for a further 12 months. Rent review was conducted in March 2011 and will be reviewed again in March 2012.


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(b) Deferred Tax Assets

The potential deferred tax asset arising from the tax losses and temporary differences have not been recognised as an asset because recovery of tax losses is not yet probable.

CONSOliDaTED

2011 2010

$ $Provisions

Annual Leave 3,246 8,100

Accrued Superannuation 1,485 -

Foreign Exchange Gains/Losses 82,368 -

Borrowing costs (Profit/Loss) 77,671 -

Equity raising costs (Profit/Loss) 6,244 -

Equity raising costs (Equity) 105,404 -

Australian Tax Losses 480,485 123,052

Gross Deferred Tax Assets 756,903 131,152

Unrecognised deferred tax assets relating to the above temporary differences

(756,903) (131,152)

Deferred Tas Assets Recognised - -

7. auDiTOrS rEmuNEraTiON

CONSOliDaTED

2011 2010

$ $Auditing the Group's financial statement

Somes and Cooke – Holding Company Auditor 27,250 7,500

Jack Milner – Subsidiary Company Auditor 9,669 -

36,919 7,500

8. CurrENT aSSETS – CaSh aND CaSh EquivalENTS

CONSOliDaTED

2011 2010

$ $Cash at bank and on hand 2,380,840 9,779

Deposit at call 53,411 -

2,434,251 9,779

NOTES TO aND fOrmiNg parT Of ThE fiNaNCial STaTEmENTS NOTES TO aND fOrmiNg parT Of ThE fiNaNCial STaTEmENTS

9. CurrENT aSSETS – TraDE aND OThEr rECEivaBlES

CONSOliDaTED

2011 2010

$ $Accrued Income 258 -

GST 47,277 -

Other receivables 455 19,834

47,990 19,834

10. CurrENT aSSETS - OThEr

CONSOliDaTED

2011 2010

$ $

Prepayments 63,554 221,448

63,554 221,448

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11. NON-CurrENT aSSETS – prOpErTy, plaNT aND EquipmENT

CONSOliDaTED

2011 2010

$ $

plant and EquipmentPlant and Equipment - at cost 80,044 -

Less: Accumulated depreciation (2,141) -

77,903 -

Computer EquipmentComputer Equipment - at cost 12,776 2,727

Less: Accumulated depreciation (2,126) (291)

10,650 2436

Office EquipmentOffice Equipment - at cost 19,020 -

Less: Accumulated depreciation (646) -

18,374 -

facility improvementsFacility Improvements - at cost 4,217 -


4,057 -

laboratory SystemsLaboratory Systems - at cost 6,094 -


6,047 -

motor vehiclesMotor Vehicles - at cost 11,364 -


10,523 -

TotalsAsset at cost 133,515 2,727

Less: Accumulated depreciation (5,961) (291)

127,554 2,436


2011 TOTal p&E C&E O&E f&i l&S mv

$ $ $ $ $ $ $

CONSOliDaTEDCarrying amount of 1 July 2010

2,436 - 2,436 - - - -

Additions 130,789 80,044 10,050 19,020 4,217 6,094 11,364

Disposals - - - - - - -

Depreciation /amortisation expense

(5,834) (2,256) (1,849) (672) (169) (47) (841)

Currency exchange reserve effect

163 115 13 26 9 - -

Carrying amount at 30 June 2011

127,554 77,903 10,650 18,374 4,057 6,047 10,523

2010 TOTal p&E C&E O&E f&i l&S mv

$ $ $ $ $ $ $

CONSOliDaTEDCarrying amount of 1 July 2009

- - - - - - -

Additions 2,727 - 2,727 - - - -

Disposals - - - - - - -

Depreciation /amortisation expense

(291) - (291) - - - -

Carrying amount at 30 June 2010

2,436 - 2,436 - - - -

12. NON-CurrENT aSSETS - iNTaNgiBlEAs at the date of this report, the Company has no Intangible Non Current Assets.

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13. CurrENT liaBiliTiES – TraDE aND OThEr payaBlES

CONSOliDaTED

2011 2010

$ $Trade payables 29,047 56,671

Other payables 52,339 -

81,386 56,671

fair valuEDue to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

iNTErEST raTE, fOrEigN ExChaNgE aND liquiDiTy riSkInformation regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 21.

14. CurrENT liaBiliTiES – prOviSiONS

CONSOliDaTED

2011 2010

$ $Provisions for Annual Leave 10,820 -

10,820 -

15. CONTriBuTED EquiTy

CONSOliDaTED

2011 2010

$ $Balance at start of the year 600,000 600,000

Ordinary shares 5,325,987 -

Cost of issue of shares (479,183) -

Balance at end of financial year 5,446,804 600,000


rECONCiliaTiON Of CONSOliDaTED SharE mOvEmENTS

NO Of SharES $

Balance at 30 June 2010 222,291,667 600,000Issue of shares via IPO 25,430,001 5,085,987

Issue of shares via placement - -

Issues of shares as consideration of Investor Relations

200,000 40,000

Issue of shares through other activities - -

Share based payments 1,000,000 200,000

Exercise of options through year - -

Balance at 30 June 2011 248,921,668 5,925,987 SharE OpTiONSAt the date of this report, the following options to acquire Ordinary shares of the company were on issue:

Number Exercise price

Expiry Date

Unlisted ordinary options 5,000,000 0.75 13/1/2014

Unlisted ordinary options 49,584,334 0.75 12/1/2016

54,584,334 0.75 -

CapiTal maNagEmENTThe Management controls the capital of the Group in order to maintain a good debt to equity ratio, proved the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern.

The Group’s debt and capital includes ordinary shares financial liabilities, supported by financial assets.

There are no externally imposed capital requirements.

Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues.

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16. EarNiNgS pEr SharE

2011 2010

CENTS CENTS

Basic earnings per shareLoss attributable to the ordinary owners of the Group

(0.010) (0.002)

Diluted earnings per shareLoss from continuing operations attributable to the ordinary owners of the Group

(0.010) (0.002)

2011 2010

$ $

reconciliation of earnings used in calculating earnings per shareLoss attributable to the ordinary owners of the Group used in calculating basic earnings per share

(2,468,567) (410,174)

2011 2010

NumBEr NumBEr

weighted average number of shares used as the denominatorWeighted average number of ordinary shares on issue used in the calculation of basic EPS

235,703,366 222,291,667

Diluted earnings per share are calculated after classifying all options on issue remaining unconverted at 30 June 2011 as potential ordinary shares. As at 30 June 2011, the Company has on issue 54,584,334 options over unissued capital and has incurred a net loss. As the notional exercise prices of these options is greater than the current market price of the shares, they have not been included in the calculations of the diluted earnings per share as they are anti-dilutive for the period presented.

17. rESErvES

CONSOliDaTED

2011 2010

$ $Foreign Exchange Reserve 31,080 -

The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations and the equity accounting of foreign associates.


18. CONTrOllED ENTiTiES

COuNTry Of iNCOrpOraTiON

OrDiNary SharE CONSOliDaTED EquiTy iNTErEST

2011 2010

% %

parent EntityAlgae.Tec Limited Australia 100% 100%

Controlled EntityAlgae Energy Inc USA 100% 100%

19. kEy maNagEmENT pErSONNEl DiSClOSurES

key management personnelThe following persons were directors of the Company during the financial year.

Roger Stroud Executive Chairman

Peter Hatfull Managing Director/Company Secretary

Earl McConchie Executive Director

Timothy Morrison Non Executive Director

kEy maNagEmENT pErSONNEl COmpENSaTiONAs at the date to this report the directors have relevant interest in shares and have received remuneration by way of salary and consulting fees and this is set out in remuneration report within the Directors Report section.

CONSOliDaTED

2011 2010$ $

Short term employee benefits 409,945 265,993

Post-employment benefits 12,452 -

Share based payments - -

422,397 265,993

Further information on key management personnel can be found in the remuneration report within the director’s report.

Equity instrument disclosures relating to key management personnel

The number of shares in the Group held during the financial year by each Director of Algae.Tec Limited, including their personally-related entities, is set out as follows:

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19. kEy maNagEmENT pErSONNEl DiSClOSurES (CONT) DirECTOrS aND ExECuTivES EquiTy hOlDiNg:Fully paid ordinary shares issued by Algae.Tec Limited

held at 1 July 2010

granted as Compensation

received on exercise of options

Other change

No. No. No. No.1 held at 30 June 2011

Roger Stroud

200,000,0002 - - 321,549 200,321,549

Peter Hatfull

8,000,000 - - 1,497,565 9,497,565


204,500,0003 - - - 204,500,000

Timothy Morrison

2,000,000 - - - 2,000,000

1. Other changes refer 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.

DirECTOrS aND ExECuTivES EquiTy hOlDiNg:Fully paid ordinary shares issued by Algae.Tec Limited

held at 1 July 2009

granted as Compensation

received on exercise of options

Other change

No. No. No. No.1 held at 30 June 2010

Roger Stroud

- - - 200,000,0002 200,000,0002

Peter Hatfull

- - - 8,000,000 8,000,000


- - - 204,500,0003 204,500,0003

Timothy Morrison

- - - 2,000,000 2,000,000


DirECTOrS aND ExECuTivES EquiTy hOlDiNg: (CONT)1. Other changes refer to shares issued to the founders of the company.

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.

OpTiON hOlDiNgSThe Directors do not hold any options in the Group during the financial year or for the prior financial years.

20. rElaTED parTy TraNSaCTiONS

(a) parent entitiesThe legal and ultimate parent entity within the Group is Algae.Tec Limited.

(b) SubsidiariesInterests in subsidiaries are set out in note 18.

(c) key management personnelDisclosures relating to key management personnel are set out in note 19.

(d) Borrowings to/transactions with related partiesThe following loans occurred with related parties:

CONSOliDaTED

2011 2010$ $

loan to roger StroudBalance at beginning of the year - -

Loan drawdown 18,000 -

Loan repayment - -

Balance at end of the year 18,000 -

The loan provided to Roger Stroud is an unsecured loan comprising of the consideration payable by R Stroud. The loan has been provided interest free and will be repaid as deductions from his consulting fees as monthly installments, not exceeding 12 months from 1 July 2011.

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(e) motor vehicleA second hand motor vehicle for general use of the Group and its employees (and designated as a “pool” vehicle), garaged overnight on the Group’s premises, was purchased from a relative of Roger Stroud at fair market value of $12,500 including GST.

(f) A prepayment of $60,000 was made to Roger Stroud in June 2011 being an advance of consulting fees for July and August and is shown as a prepayment in the accounts.

(g) Prior to the listing of the Company, various expenses were incurred and paid for by the Directors. These monies were repaid to the Directors upon receipt from the sale of shares.

Peter Hatfull $ 102,269.11

Roger Stroud $ 140,983.09

(h) Amounts of A$173,417 (US$161,454) were paid to Dot.Bio prior to the listing of Algae.Tec Limited. Dot.Bio is controlled by Mr Earl McConchie.

Date US$

21/07/2010 6,475.00

30/07/2010 5,975.00

18/08/2010 9,975.00

30/08/2010 9,975.00

16/09/2010 8,975.00

18/10/2010 7,495.00

26/11/2010 22,975.00

16/12/2010 9,634.00

12/01/2011 79,975.00

161,454.00

(i) Five members of Mr Earl McConchie’s immediate family were employed by Algae Energy Inc during the year. The Group paid the family members a total of A$149,415 (US$139,108) as salaries and wages.

21. fiNaNCial riSk maNagEmENTThe Group’s operations expose it to various financial risks including market, credit, liquidity and cash flow risks. Risk management programmes and policies are employed to mitigate the potential adverse effects of these exposures on the results of the Group.

Financial risk management is carried out by the Board on a regular basis by reviewing current and potential sources of funding, cash flow and operating/capital expenditure forecasts, to manage credit, liquidity and cash flow risk.


The Group holds the following financial instruments:

CONSOliDaTED

2011 2010

$ $

financial assetsCash and cash equivalents 2,434,251 9,779

Trade and other payables 47,990 19,834

Other financial assets 18,000 221,448

2,500,241 251,061

CONSOliDaTED

2011 2010

$ $Financial Liabilities

Trade and other payables 81,386 56,671

81,386 56,671

(a) market risk

(i) Foreign exchange risk

Exposure to foreign exchange risk may result in the fair value or future cash flows of a financial instrument fluctuating due to movement in foreign exchange rates of currencies in which the Group holds financial instruments which are other than the AUD functional currency of the Group.

With instruments being held by overseas operations, fluctuations in the US Dollar may impact on the Group’s financial results unless those exposures are appropriately hedged.

The ongoing development of the technology is to be carried out in the USA and is fully funded by the capital raisings to date. The prospectus used an exchange rate of USD $0.75 to AUD for its projections of cost. In February 2011, with the USD 0.982 against AUD it was decided to purchase USD $2,946,000(AUD $3,000,000) effectively fixing the cost of the short term development expenditure.

The continuing rise in the AUD since the purchase of USD in February has given rise to a substantial unrealised exchange loss in the USD cash holdings for the year.

It is the Group’s policy that future US development costs will be assessed at regular intervals and where deemed appropriate, further purchase of USD will occur to minimise exchange rate exposure of US expenditure.

The following table shows the foreign currency risk on the financial assets and liabilities of the Groups operations denominated in currencies other that the functional currency of the operations. This included all cash holdings of USD.F

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CONSOliDaTED

2011 2010

uSD$ uSD$

financial assetsCash and cash equivalents 1,820,624 -

Trade and other receivables 9,470 -

1,830,094 -

financial liabilitiesTrade and other payables 17,167 -

17,167 -

Net exposure 1,812,927 -

(ii) Consolidated Entity - sensitivityBased on financial instruments held at 30 June 2011, had the Australian dollar weakened/strengthened by 20% against the US dollar with all other variables held constant, the Consolidated Entity’s post-tax profit/loss for the year and equity would have been $332,708 lower/higher, mainly as a result of foreign exchange gains/losses on translation of US dollar denominated financial instruments as detailed in the above table.

(iii) Cash flow and fair value interest rate riskExposure to interest rate risk arises on financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments.

At the date of this report, the Group was not exposed to interest rate risk due to negative long/short term borrowings.

(b) Credit riskCredit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, including outstanding receivables. For banks and financial institutions, only major Australian banking institutions are used. For customers, individual risk limits are set based on internal or external ratings in accordance with limits set by the Board.

The maximum exposure to credit risk at the end of the reporting period is the carrying amount of the financial assets. The Group does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the Group. Cash is only held in AA credit rated financial institution.


(c) liquidity riskLiquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms.

- Preparing forward looking cash flow analysis in relation to its operational, investing and financing activities;

- Obtaining funding from a variety of sources;

- Maintaining a reputable credit profile;

- Managing credit risk related to financial assets;

- Only investing surplus cash with major financial institutions; and

- Comparing the maturity profile of financial liabilities with the realisation profile of financial assets.

The Group’s policy is to ensure no more than 30% of borrowing should mature in any 12-month period.

(d) fair value estimationThe fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The carrying value of all financial assets and liabilities are assumed to approximate their fair values due to their short term nature.

“Further improvements to the Algae.Tec technology are already being tested using the new improved facility.”

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22. rECONCiliaTiON Of lOSS afTEr Tax TO NET CaSh flOwS frOm OpEraTiONS.

CONSOliDaTED

2010 2011

$ $

Loss after income tax (2,468,567) (410,174)

Adjustment for non cash items:

Depreciation of non-current assets 5,835 291

Amortisation of non-current assets - -

Foreign exchange translation 274,559 -

Employee share options - -

Net (gain)/loss on disposal of property, plant and equipment

- -


Fair value change in derivatives - -

Change in assets and liabilities

(Increase)/decrease in trade and other receivables

(28,156) (19,834)

(Increase)/decrease in deferred tax assets - -

(Increase)/decrease in prepayments 157,894 (17,626)

(Decrease)/increase in trade and other payables

35,535 56,671

Net cash flow from operating activities (1,822,900) (390,672)

23. EvENTS SuBSEquENT TO END Of rEpOrTiNg pEriODThere has been no significant event occurring after balance date which has significantly affected or may significantly affect the Group’s operations or results of those operations or the Group’s state of affairs in future financial years.

24. parENT ENTiTy DiSClOSurESThe following information has been extracted from the books and records of the parent and has been prepared in accordance with the accounting standards.


24. parENT ENTiTy DiSClOSurES (CONT)a. financial information

2011 2010

$ $

Loss from ordinary activities after tax 1,859 ,013 410,174

Other Comprehensive Income - -

Total Comprehensive loss 1,859,013 410,174

Current Assets 2,086,101 251,061

Non Current Assets 1,118,802 2,436

Total Assets 3,204,903 253,497

Current Liabilities 45,286 56,671

Non Current Liabilities (18,000) 7,000

Total Liabilities 27,286 63,671

Net assets 3,177,617 189,826

Share Holder Equity

Issue Capital 5,885,987 600,000

Capital Raising Costs (439,183) -

Share Options Reserve - -

Convertible Note Reserve - -

Accumulated Losses (2,269,187) (410,174)

Total Equity 3,177,617 189,826

b. guaranteesAlgae.Tec Limited has not issued any guarantees to any subsidiaries. It is however committed to the ongoing funding of its American subsidiary Algae Energy Inc.

c. Other CommitmentsAlgae.Tec Limited has no commitments to acquire property, plant and equipment, and has no contingent liabilities.

25. SharE-BaSED paymENTSA share based payment of 1,000,000 shares @ $0.20 per share was made on 10 May 2011 to DMG Group in consideration of advertising services provided to Algae.Tec Ltd following the initial IPO through to June 2011.

26. CONTiNgENT liaBiliTiESAlgae.Tec Limited has no contingent liabilities.

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In the opinion of the Directors’ of Algae.Tec Limited (“the Group”)

(a) The financial statements and the notes and the additional disclosures included in the directors’ report designated as audited in accordance with the Corporations Act 2001, including:

(i) Giving a true and fair view of the Group’s financial position as at 30 June 2011 and its performance for the year ended that date; and

(ii) Complying with Accounting Standards and Corporations Regulations 2001, and:

(b) There are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable.

This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2011.

Signed in accordance with a resolution of the Directors made pursuant to s295(5) of the Corporations Act 2001.

On behalf of the Board

Roger Stroud

Executive Chairman

30 September 2011 Perth, Western Australia

DirECTOr’S DEClaraTiON

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SHAREHOLDER INFORMATION

- A. Distribution of equity securities 72

- B. Equity Security Holders 73

- C. Substantial holders 73

- D. Voting Rights 75


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The shareholder information set out below was applicable as at 31 July 2011.

a. Distribution of equity securitiesAnalysis of numbers of equity security holders by size of holding:

Ordinary Shares listed Options unlisted Options

1-1000 11,078 - -

1,001 - 5,000 393,577 - -

5,001 - 10,000 3,217,941 - -

10,001 - 100,000 6,496,876 - -

100,001 and over 238,802,196 - 54,584,334

248,921,668 - 54,584,334

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B. Equity Security holdersTwenty largest quoted equity security holders

The names of the twenty largest holders of quoted ordinary shares are listed below:

SharEhOlDErS NumBEr hElD pErCENTagE Of iSSuED SharES

Teco Bio LLC 200,000,001 80.35Mr Peter Ernest Hatfull 8,095,000 3.25FMR Investments Pty Ltd 5,000,000 2.01Mrs Jeanette McConchie 2,400,000 0.96Mr Timothy Morrison 2,000,000 0.80Tinkler Investments Pty Ltd <Tinkler Family A/C> 1,610,000 0.65The Lawsons Company Pty Ltd 1,300,000 0.52Mr Joseph Chung <TH & TH Chung Super Fund A/C> 1,250,000 0.50Hover Holdings Pty Ltd 1,250,000 0.50Ms Susan Fitzpatrick-Napier <The Susan Self Man S/F> 1,000,000 0.40Moltoni Super Pty Ltd <Moltoni Super Fund A/C> 950,000 0.38Mr Peter Ernest Hatfull + Mrs Julie Ellen Hatfull 922,286 0.37Bordeaux Holdings Pty Ltd 750,000 0.30Mr Duncan Neil Preston 750,000 0.30Mr Graham Woolford 745,714 0.30Mr Tralan McConchie 700,000 0.28Mr Stephen Crotty 625,000 0.25Mrs Marie Denise Alban 589,000 0.24Moltoni Corporation Pty Ltd 577,000 0.23Ms Andrea Lyle 500,000 0.20

231,014,001 92.79

C. Substantial holdersSubstantial holders in the company are set out below:

OrDiNary SharES

NumBEr hElD pErCENTagE Of iSSuED SharES

Teco.Bio LLC 200,000,001 80.35

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D. voting rightsThe voting rights attaching each class of security are set out below.

Ordinary shares

On a show of hands, each member present in person and each other person present as a proxy of a member has one vote. On a poll each member present in person has one vote for each fully paid share held by the member and each person present as a proxy of a member has one vote for each fully paid share held by the member that the proxy represents.

“Algae.Tec Limited is committed to protecting Shareholders interest.”

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NOTES

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78 | ALGAE.TEC ANNUAL REPORT - 30.06.11

algaE.TEC limiTEDABN 16 124 544 190

Suite 9, 3 Centro Avenue Subiaco, Perth, Western Australia 6008

Copyright in this document is the property of ALGAE.TEC LIMITED. This document may not be reproduced in whole or in part without the prior written consent of ALGAE.TEC LIMITED. ALGAE.TEC LIMITED may seek both injunctive relief restraining the unauthorised use of this document (or any part thereof) and an accounting for profits against any person who reproduces this document (or any part thereof) without written consent.

© ALGAE.TEC LIMITED 2011www.algaetec.com.au

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2011 annual report

Economy & Finance

annual report

algae facility

personal use onlysection

independent auditors

australia suite

algaetec team

specific financial support

overview letter