Hosted Service Enterprise Services

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1 Number Porting Hosted Service Enterprise Services SIP Trunking Virtual PBX My Net Fone Limited Annual Report 2011

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3 Contents Board of Directors 2 Chairman Review 3 What does MyNetFone stand for? 4 Our Solutions 5 Our Customers 6 Business Community 8 Directors Report 10 Corporate Governance Statement 18 Consolidated Statement of Comprehensive Income 24 Statement of Financial Position 25 Statement of Cash Flows 26 Statement of Changes in Equity 27 Notes to the Financial Statements 28 Directors Declaration 52 Auditor s Independence Declaration 53 Independent Auditor s Report 54 ASX Additional Information 56 Corporate Information 58 Awards The awards received in 2011 financial year include: Deloitte Technology Fast 500 Asia Pacific Awards for the 3rd consecutive year Deloitte Technology Fast 50 Australia Awards for the 3rd consecutive year City of Sydney Business Awards finalist 2010 Other awards we are proud to have earned...

4 Board of Directors Mr Terry Cuthbertson B. Bus., CA Chairman A Chartered Accountant, previously partner at KPMG with extensive corporate finance expertise and knowledge. Also Director of S2 Net Ltd, Montec International Ltd, Austpac Resources N.L., Mint Wireless Ltd, Healthzone Ltd and South American Iron & Steel Ltd and OMI Holding Ltd. Mr Andy Fung B.E. MCom Managing Director Extensive experience in telecommunications. Formerly Director of Business Development of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002 and Symbio Wholesale Pty Ltd since Director since March 2006 Director since March 2006 Mr Michael Boorne Electronics Eng. Dip. NonExecutive Director A successful entrepreneur with extensive track record in combining technical expertise with commercial and corporate experience. Founder of Sprit Modems and Mitron Pty Ltd and previously a non Executive Director of Netcomm Ltd. Also Director of Boorne Management Pty Ltd and Earglow Pty Ltd. Mr René Sugo B.Eng. (Hon) Technical Director Extensive experience in telecommunications. Formerly Technical Director of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002 and Symbio Wholesale Pty Ltd since Director since March 2006 Director since December 2006 Ms Catherine Ly B.Bus., CPA Chief Financial Officer Company Secretary since July 2006 Mr Sugo Mr Boorne Mr Cuthbertson Mr Fung Ms Ly

5 Chairman Review 3 Fellow Shareholders, With another year of solid growth behind it, MyNetFone has once again set new records for itself. Revenue rose by 12.5% to $13.6M due to consistent customer acquisition and delivery of new products and services. Gross profit rose by 9.8% to $5.7M yielding an EBIDTA of $1.08M and NPAT of $1.01M in what was a very tough economic climate. Now with a total base of over 92,000 services in operation, MyNetFone has established itself as a solid and credible communications provider in the Australian market. This solid performance has allowed the board to declare an annual dividend of 1.3 cents per share, (an increase of 73% on last year s performance) rewarding shareholders for their continued loyalty. The increase in dividends reflects the Board s confidence in the future growth potential of the business. Achievements During the year MyNetFone led the market with its innovation, being the first service provider in Australia (and all of Asia Pacific) to be fully certified by Microsoft for interoperability with its revolutionary Microsoft Lync unified communications platform. This endorsement from one of the world s largest software companies is a testament to the technical capabilities and quality of the team at MyNetFone, and has given us a unique advantage in the Business and Enterprise market. In addition MyNetFone passed another milestone having deployed its 1000th Virtual PBX customer this year. The Virtual PBX system is a hosted phone system, meaning that customers do not need to purchase PBX equipment, but rather rely on a system hosted by MyNetFone in its data centre commonly referred to as the cloud. This allows small to medium businesses to take advantage of leading edge technology and features without the costs and hassles of purchasing and maintaining their own equipment. National Broadband MyNetFone is preparing itself for the upcoming opportunities presented by the Federal Government s National Broadband Network (NBN). As this new network rolls out across the country it will provide an opportunity for competitive providers like MyNetFone to reach customers on a level playing field not previously seen in the Australian market. The new National Broadband Network will bring the ability to deliver high quality broadband to customers from all around the country. This will enable MyNetFone to deliver its innovative value added voice and internet services to residential and business customers alike. It will for example, facilitate the delivery of our innovative and market leading Virtual PBX service, and allow us to innovate even further to provide new products to Australian homes and businesses. The Future At MyNetFone we are very excited about the opportunities that the future holds for us. We have the reputation of a solid and reliable service provider, we have the willingness and ability to innovate and create new products and services, and most importantly we have the team in place to carry us forward and allow us to grow at an ever increasing pace. On behalf of the board, I would like to take this opportunity to thank all the staff and the management team in achieving another very successful year. The board will continue to provide its full support to the team to ensure the company maintains its momentum of profitable growth and continues to deliver more amazing achievements and strong performance. I would also like to thank my fellow colleagues on the Board of Directors, and the Management team for their hard work and dedication in making MyNetFone one of Australia s leading communications service providers. Most importantly I would like to thank our many shareholders for their continued and loyal support. We look forward to a very exciting year ahead which I am sure will be rewarding for all of us. Terry Cuthbertson Chairman

6 What does MyNetFone stand for? 4 MyNetFone ticks the right boxes to deliver the right solutions to satisfy our business customers communications needs and is the sound choice for business customers to stay connected. Reliable & sound network Flexibility sounds great Cost savings that sound right Sound technology innovation Customer Support Team based in Australia Sound Choice Breeds Success MyNetFone s tagline, Your World, Connected encompasses the company s culture and focus which is to understand the customers needs and deliver quality communications solutions that connect customers seamlessly with their clients, suppliers, partners and stakeholders. MyNetFone is the sound choice for customers to stay connected within their world. As a growing business itself, MyNetFone truly understands the needs and aspirations of our business customers, and offers solutions that successfully combine quality and feature rich benefits with simplicity and flexibility. The strong uptake of these IP based communications solutions is a testament to the increasing acceptance by customers of new generation, innovative services with great value and benefits. MyNetFone is well positioned to serve our customers in this increasingly Internet (IP) centric world of communications including the upcoming NBN.

7 Our Solutions MyNetFone provides cloud hosted communications solutions to businesses of all sizes whether they update to a new phone system, move/expand to a new office or simply just want to make the most of their existing system by exploiting new generation IP communications. Enterprise Solutions Enterprise customers demand high service quality and reliability. MyNetFone delivers on both counts with the most comprehensive VoIP infrastructure in Australia with protected fibre network and builtin redundancy as well as a highy qualified and experienced service team delivering 24/7 support backed by enterprise grade SLA s. Business Solutions MyNetFone delivers tailored solutions to meet the needs of business customers with big business features without the high price tag. Customers could enjoy savings at up to 60%. Virtual PBX offers user friendly call features in the cloud without the need for upfront investments in expensive PBX equipment. SIP Trunking enables businesses to leverage their existing hardware investments and eliminate expensive ISDN access and call costs. MyNetFone is the first service provider in Australia accredited to fully interwork with Microsoft s Lync Server.* Small Office Solutions MyNetFone offers a suite of simple to use, flexible solutions to meet the needs of home offices and small businesses. The Small Office Solutions provide exceptional value and help small businesses keep their overheads low and run their operations efficiently. MyNetFone Enhanced Services Number Portability You can bring your phone number with you when you join the MyNetFone. Virtual Fax You can send and receive faxes via your address no need for fax equipment. Meetme Conference You can set up multiple calls to have a conference, saving time and travel. Special Numbers With 1300 & 1800 toll free and gold numbers, you can make it easy for your clients to reach you. * Microsoft Unified Communications Open Interoperability Program Lync Server

8 Our Customer Stories michaels Camera Video & Digital Challenge As the owner of Australia s number one camera, video and digital store, michaels, Peter Michael recognises that the same progression is happening in communications as in cameras the move from analog to digital. michaels needed a flexible system from a reliable provider that met the store s actual communications requirements. The business existing PABX was sophisticated, but it was difficult to make changes to the system to keep up with the requirements of a dynamic business. In addition, there was a high probability that once anything did go wrong, it would be very expensive and difficult to fix. Solution MyNetFone provided to michaels a Virtual PBX system with 30 lines with Cisco SPA942 desktop handsets and supplemented by Siemens C470IP cordless handsets, ideal for the retail environment. The system, as Peter Michael describes it, is designed for the layman anybody can set it up. The switch to the new system was smooth that the customers didn t notice, the staff didn t notice it was virtually seamless, says Mr. Michael. Benefits Peter Michael lists the following among the benefits michaels has gained from the new Virtual PBX system: Futureproof system that will keep up as the business grows Flexibility to add, remove or change lines as required Handsets are virtually plug & play 50% savings on communications costs since switching to Virtual PBX Improved customer communications with national toll free 1800 numbers, as well as local numbers in different states MyNetFone has been the sound choice for our business, check it out yourself and you ll most likely find it is the sound choice for your business Peter Michael, michaels Camera Video & Digital

9 Abigroup Challenge Abigroup is one of Australia's leading national contractors with construction projects across multiple sites nationwide. When establishing site offices for new projects, Abigroup faces two main challenges: setting up a phone and fax connection, and short timeframes for establishing the site offices. At most of Abigroup s construction sites, there are no existing landlines and installing new lines used to present the company with a significant cost as well as a potential delay to a project s delivery schedule. Solution MyNetFone s solution addresses both of Abigroup s communication challenges: cost and time. MyNetFone provides Voice services over 3G internet connection to their various sites across Australia. The service is connected to an existing phone handset and fax machine via a Voice Adaptor, delivering all communications requirements for a small site office. Some larger sites have multiple adaptors with lines to key telephone systems. This provides seamless telephone services to the end users. This is a solution that appears the same to the user that found in any small to medium office at a fraction of the cost. The solution was recommended to Abigroup by their Site Setup contractor company Sheahan & Associates International, who investigated a number of alternatives before settling on MyNetFone as the most flexible and efficient solution. Benefits The communications solution provided by MyNetFone delivers a number of benefits to Abigroup and is the perfect fit for their requirements. Fast delivery MyNetFone services can be setup within hours, and the Voice Adaptor delivered by express courier within days, so a new Site can be up and running in minimum time. This is compared to several weeks worth of lead time required for traditional landline phone services. Flexibility & portability The portability of the MyNetFone service is a major drawcard for Abigroup once a project is finished, the 3G Device, Voice Adaptor, phone handset and fax machine can simply be taken to another location where there is 3G coverage, plugged in, and start working immediately. Value The MyNetFone service is a very costefficient solution for Abigroup s requirements. Each combination of Voice plan and Adaptor from MyNetFone, plus wireless modem and internet tail sourced by Sheahan & Associates International can be used over and over at various projects with a low monthly voice plan fee. This is a saving of at least 60% to 90%, depending on site requirements, compared to Abigroup s previous site communications setups.

10 Engaging the Business Community 8 Award Sponsorship MyNetFone prides itself on being Australia s most awarded IP communications provider. Having reaped the benefits of being recognised for service quality and financial performance with multiple awards, in FY10/11 MyNetFone has stepped up to sponsor the City of Sydney Business Awards and help other businesses achieve the same recognition. MyNetFone has a solid history with the City of Sydney Business Awards, having been a finalist twice and winning the award in previous years, so it was natural progression for MyNetFone to support the awards in a sponsor capacity. MyNetFone's support of the City of Sydney Business Awards reflects our commitment to helping small businesses grow. Our services facilitate this by delivering 'big business' features without the high pricetag, helping small businesses present themselves professionally and communicate with their customers more efficiently. Thought Leadership MyNetFone aims to not only lead innovation, but also educate business owners about the opportunities presented by the shift to IP communications. The Let s Talk Business series of seminars was the perfect opportunity to fulfill this aim, and MyNetFone Technical Director, Rene Sugo was invited to be a guest speaker at the Communicationsthemed seminar, which focused on informing business owners about the developments in communications, and helping them utilise these to run their business more efficiently. Expos MyNetFone participated in the inaugural MyBiz Expo. The expo provided information about the latest products and services designed to meet the needs of small and medium enterprises. Our participation allowed us to reach out to the small business community, which accounts for 96% of all Australian businesses*. * Australian Bureau of Statistics: Counts of Australian Businesses, most recent June 2009

11 2011

12 Directors Report 10 FOR THE YEAR ENDED 30 JUNE 2011 Your Directors present this report, together with the financial statements of the Group, being the company and its controlled entities, for the financial year ended 30 June 2011 Information on Directors The Directors of the Company at any time during or since the end of the financial year are: Name and qualifications Mr Terry Cuthbertson B.Bus., CA Chairman Experience, special responsibilities and other directorship A Chartered Accountant, previously partner at KPMG with extensive corporate finance expertise and knowledge. Also Director of S2 Net Ltd, Montec International Ltd, Austpac Resources N.L., Mint Wireless Ltd, South American Iron & Steel Ltd, Sun Biomedical Ltd and OMI Holdings Ltd. Director since March 2006 Mr Michael Boorne Electronics Eng. Dip. NonExecutive Director A successful entrepreneur with extensive track record in combining technical expertise with commercial and corporate experience. Founder of Sprit Modems and Mitron Pty Ltd and previously a non Executive Director of Netcomm Ltd. Also Director of Boorne Management Pty Ltd and Earglow Pty Ltd. Director since December 2006 Mr Andy Fung B.E. MCom Managing Director Extensive experience in telecommunications. Formerly Director of Business Development of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002 and Symbio Wholesale Pty Ltd since Director since March 2006 Mr René Sugo B.Eng. (Hon) Technical Director Extensive experience in telecommunications. Formerly Technical Director of Lucent Technologies. Director of Symbio Networks Pty Ltd since 2002 and Symbio Wholesale Pty Ltd since Director since March 2006 Company Secretary Ms Catherine Ly B.Bus., CPA, is Chief Financial Officer for the Company and has been appointed as Company Secretary since July 2006.

13 Directors Report 11 Board and Committee Meetings From 1/7/10 to 30/6/11, the Directors held 11 board meetings and 2 audit committee meetings. Each Director s attendance at those meetings is set out in the following table. Committee Meetings Attended Directors Board Audit Eligible to Attend Attended Eligible to Attend Attended T. Cuthbertson A. Fung R. Sugo M. Boorne Principal Activities and Significant Changes in Nature of Activities The principal activity of the Group during the course of the year was to provide VoIP telephony, broadband Internet and other enhanced services to residential and enterprise customers. In the financial year, the Group primarily derived its revenue from fees and call charges from residential and enterprise customers as well as from sales of customer premises equipment. There was no significant change in the nature of the business activities of the Group during the year. Operating Result The consolidated profit of the Group for the financial year after providing for income tax amounted to $1,005,197 (2010: $1,973,565). Review of Operations A review of the operations of the economic entity during the financial year and the results of those operations are as follows: 1. Gross Revenue Increase and Profitable EBITDA and NPAT The Group delivered gross revenue of $13,604,905 and EBITDA profit of $1,084,700 for the year ended June The results were achieved through organic growth of the customer numbers and service usage of MyNetFone s VoIP, broadband Internet and a range of enhanced services by residential and business customers. The gross profit for the year was $5,720,047 (2010: $5,208,249) which was achieved due to the maintenance of margins. The Net Profit After Tax (NPAT) was $1,005,197 with earnings per share at 1.91 cents. The deferred revenue for the year increased 1.7% to $1,021,176 compared with $1,004,588 in the previous year. The deferred revenue is the call credits deposited by the customers in their accounts for making future phone calls. This revenue will be recognised once the customers have progressively used up the call credits.

14 Directors Report 12 Full year ended June 2011 Full year ended June 2010 % increase Gross revenue $13,604,905 $12,091, % Gross Profit $5,720,047 $5,208, % EBITDA $1,084,700 $2,026,149 (46.5%) NPAT $1,005,197 $1,973,565 (49.1%) Earnings per share 1.91 cents 3.76 cents (49.1%) 2. Net Cash Flow The Net Cash Flow generated from operating activities increased by $487,464 for the financial year. The closing cash balance was $2,452,732 (2010: $1,965,268). The Company remains debt free with no overdraft or loan facilities. Business Outlook and Guidance My Net Fone Group continued to sign up new customers and recorded the highest number of 92,000 services in operation as of July The Group has experienced solid growth in the enterprise segment with the uptake of its Virtual (hosted, cloud based) PBX service. As the service does not require significant upfront capital investments and delivers flexibility and enhanced features, it proves to be popular with SME s (small and medium enterprises) as well as businesses with multiple locations, especially in some vertical market segments, e.g. retail, accounting firms. There are now over 1,000 businesses around Australia using MyNetFone s Virtual PBX service. This number is expected to grow further with marketing campaigns underway to further promote the service and with the release of more features in the financial year. With the SIP Trunking service, the Group offers quality VoIP service to business enterprises that deploy physical PBX equipment on their premises. Since the Group has undertaken extensive interworking testing with leading brands of PBX equipment available on the Australian market, it expects the SIP Trunking service to grow strongly as more businesses install new generation IP based PBX s. Customers moving across to take up the MyNetFone VoIP service inevitably want to retain their telephone numbers as a number change would be detrimental to ongoing business operations. The Group has now developed comprehensive, field proven systems and processes to implement number portability, whereby new customers to the MyNetFone service are able to keep their existing telephone numbers. The Group s capability to offer number portability efficiently and seamlessly is a key market differentiator. An innovative product which has enjoyed strong growth is MyNetFone s Virtual Fax, with which customers can send and receive faxes using their computer, without a fax machine. The Group will continue to develop innovative IP based services that offer flexibility and convenience.

15 Directors Report 13 Financial Position The net assets of the company have marginally increased to $386,523 as at June 2011 from $13,572 of the same period last year due to business growth. Significant Changes in the State of Affairs No other significant changes in the economic entity's state of affairs occurred during the financial year. After Balance Date Events The My Net Fone Board entered into Head of Agreement on 24 August, 2011 to acquire the whole of Symbio Group. The details of this agreement were released to the market on 30 August Except for the above, there were no other significant events after the balance date that would materially alter the operations or financial performance of the company. Future Developments Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. Environmental Issues The Group s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Dividends Paid or Recommended Dividends paid or declared for payment during the financial year are as follows: Ordinary dividend paid on 15 October 2010 as recommended in last year s report $394,166 Interim dividend of 0.5 cents per share paid on 18 March 2011 $262,778 Final ordinary dividend of 0.8 cents per share recommended to be paid 8 September 2011 to shareholders registered at 25 August 2011 in respect of the financial year ended 30 June 2011 $420,444 The dividends are unfranked.

16 Directors Report 14 Options At the date of this report, the unissued ordinary shares of My Net Fone Limited under option as follows: Grant Date Date of Expiry Exercise price Number under Option 29 July August cents 400, October October cents 2,000, October October cents 1,000,000 A total of 3,000,000 options issued to directors were approved by the shareholders in the AGM held on 26 October For details of options issued to directors and executives as remuneration, refer to the remuneration report. Remuneration Report Remuneration Philosophy The remuneration philosophy of the Board currently is to recognise that in the early stage of growth the company needs to contain operating costs and so the salaries established for the Executive Directors are negotiated at rates below market levels that would normally be available to persons with such experience and qualifications. At this time the Board has established salary arrangements for the key executives which is commensurate with their level of experience. As the company matures the Board will review its approach to setting remuneration levels by balancing short and long term benefits and linking remuneration to performance. The Board may issue options to employees under the Company Employee Option Plan as set out in Note 13 to the financial statements. Remuneration Details of Key Management Personnel for the Year Ended 30 June 2011 For all the Key Management Personnel, only basic salaries and fees, bonuses and superannuation were granted during the year, no other short term benefit, long term benefit, performance related or share based payments were paid in the year except for the options disclosed above. No bonuses were granted during the year. Details of the nature and amount of benefits and payments for each Director of the Company and each of the named company executives who receives the highest remuneration are:

17 Directors Report 15 Group Key Management Personnel Short Term Benefits Post Employment Benefits Share Based Payment Options Total Directors Nonexecutive Salary & fees $ Bonus $ Superannuation $ Options $ $ Mr T. Cuthbertson 59,125 5,321 7,141 71,587 Mr M. Boorne 37,625 3,386 7,141 48,152 Executive Mr A. Fung (Managing Director) 208,555 18,770 14, ,606 Mr R. Sugo (Technical Director) 208,555 18,770 14, ,606 Total 513,860 46,247 42, ,951 Management Executives Mr L. Tai (Director) 60,000 5,400 65,400 Ms C. Ly (Chief Financial Officer) 127,085 11,438 4, ,590 Total 187,085 16,838 4, ,990 (Only two specified executives are included in the disclosure as there are only four specified executives in total employed in the Company in 2011, two of whom are Executive Directors disclosed above.) Securities Received that are Not Performance Related No members of key management personnel are entitled to receive securities which are not performance based as part of their remuneration package. Share Based Payments The terms and conditions relating to options granted as remuneration during the year to key management personnel and other executives during the year are as follows: Group Key Personnel Option ( 000) Grant Date Grant Value $ Vested During Year % Expiry Date for Vesting Mr T. Cuthbertson /10/10 7,141 31/10/2013 Mr M. Boorne /10/10 7,141 31/10/2013 Mr A. Fung 1,000 26/10/10 14,281 31/10/2013 Mr R. Sugo 1,000 26/10/10 14,281 31/10/2013 Ms C. Ly /07/10 4,067 31/08/2013 These share based payments are for the options disclosed above. The details and valuation of these options are set out in Note 13 to the financial statements. The fair value of the option was valued at grant date at 1.43 cents and 2.03 cents for 3 million and 200,000 options respectively. The 3 million options were approved by shareholders in the AGM held on 26 October 2010; and 400,000 options were granted under the Company Employee Option Plan by the board on 29 July 2010.

18 Directors Report 16 The Company has entered into Executive Employment Agreements with Andy Fung and Rene Sugo. The remuneration and terms of employment for other Key Executives are also set out in written agreements. Each of these employment agreements are unlimited in term but may be terminated by written notice by either party and by the Company making payment in lieu of notice. Each of these agreements sets out the arrangements for total fixed remuneration, performancerelated cash bonus opportunities, superannuation, termination rights and obligations and eligibility to participate in the employee equitybased incentive scheme. Executive salaries are reviewed annually. The Executive Employment Agreements do not require the Company to increase base salary, incentive bonuses or to continue the participants participation in equitybased incentive programs. The Company may terminate the employment of the Key Executive without notice and without payment in lieu of notice in some circumstances. This includes if the executive: 1. commits an act of serious misconduct; 2. commits a material breach of the Executive Employment Agreement; 3. denigrates or engages in any behaviour that may materially damage the reputation of, or otherwise bring, the Company into disrepute; or is convicted of any criminal offence which would in the reasonable opinion of the Board of Directors adversely affect the carrying out of the executive s duties. The Company may terminate the employment of the Key Executive at any time by giving the executive notice of termination or payment in lieu of such notice. The amount of notice required from the Company in these circumstances is set out in the following table: Name of key executive Company notice period Employee notice period Termination provision Andy Fung 1 month 1 month 1 month base salary René Sugo 1 month 1 month 1 month base salary Leo Tai 1 month 1 month 1 month base salary Catherine Ly 1 month 1 month 1 month base salary Directors Interests in Shares and Options of the Company or Related Bodies Corporate At the date of this Report, the particulars of shares and options held by the Directors of the company in the company or in related bodies corporate which are required to be declared in the register of Directors' share holdings are as follows: Name of Director Share holding Options Mr Andy Fung 13,488,955 1,000,000 Mr René Sugo 13,488,955 1,000,000 Mr Terry Cuthbertson 1,125, ,000 Mr Michael Boorne 4,225, ,000 Total 32,328,443 3,000,000

19 Directors Report 17 Directors Benefits No Director has received or has become entitled to receive, during or since the financial year, a benefit because of a contract made by the company, controlled entity or related body corporate with a Director, a firm which a Director is a member of or an entity in which a Director has a substantial financial interest. Indemnifying Officer or Auditor No indemnities have been given or agreed to be given or insurance premiums paid or agreed to be paid, during or since the end of the financial year, to any person who is or has been an officer or auditor of the company. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The company was not a party to any such proceedings during the year. NonAudit Services There were no amounts paid or payable to the auditors for nonaudit services during the year. Auditor s Independence Declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 has been received and can be found on page 56 of the financial report. This Directors Report, incorporating the remuneration report, is signed in accordance with a resolution of the Board of Directors. Terry Cuthbertson Chairman Andy Fung Managing Director Sydney, 31 August 2011

20 Corporate Governance Statement 18 The Board of Directors of My Net Fone Limited is responsible for the corporate governance practices of the consolidated entity. The Board guides and monitors the business and affairs of My Net Fone Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. This statement outlines the main corporate governance practices adopted by the Company, which comply with the ASX Corporate Governance Council Principles and Recommendations (2nd Edition, August 2007) unless otherwise stated. Principle 1: Lay solid foundations for management and oversight The Board s primary role is the protection and enhancement of long term shareholder value. To fulfil this role, the Board is responsible for the overall corporate governance of the Group including formulating its strategic direction, approving and monitoring capital expenditure, setting senior Executive and Director remuneration, establishing and monitoring the achievement of management s goals and ensuring the integrity of risk management, internal control, legal compliance and management information systems. It is also responsible for approving and monitoring financial reporting. The Board has delegated responsibility for the day to day operation and administration of the Company to the Managing Director. Principle 2: Structure the board to add value The skills, experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included in the Directors Report. Directors of My Net Fone Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. The membership of the Board during the year ended 30 June 2011, including independent status, and date of appointment was as follows: Name Terry Cuthbertson Michael Boorne Andy Fung Rene Sugo Status NonExecutive Independent Chairman NonExecutive Independent Director Executive Director Executive Director Date of Appointment 08 March December March March 2006 Recommendation 2.1 requires that a majority of the Board should be Independent Directors. The Company does not comply with this recommendation. The Board is 50% independent. Whilst the Company agrees with the benefits of a majority Independent Directors, it believes that it can better achieve the results of the Company with the current Board s level of expertise without burdening shareholders with the additional costs associated with adding further Independent Directors. Recommendation 2.2 requires the Chairman be an Independent Director. The Company complies with this recommendation. The Company believes that when the Chairman is a significant driver behind the business as well as being a shareholder, he adds much value to the Company.

21 Corporate Governance Statement 19 Recommendation 2.3 requires that the role of the Chairman and Chief Executive Officer of the Company is not exercised by the same individual. The Company complies with this recommendation as the Chairman and the Managing Director are two separate individuals. Independent Directors An Independent Director is considered independent: a) who is not a member of management b) who has not within the last three years been employed in an executive capacity by the Company or been a principal or a professional adviser or consultant to the Company c) is not a significant supplier to the Company d) has no material contractual relationship with the Company other than as a Director, and e) is free from any interest or business or other relationship, which could materially interfere with the Director s ability to act in the best interests of the Company Based on the above criteria, two NonExecutive Directors including the Chairman were considered independent during the financial year. Independent Professional Advice and Access to Company Information Each Director has the right of access to all relevant Company information and to the Company s executives and subject to prior consultation with the Chairman, may seek independent professional advice at the company s expense. A copy of advice received by the Director is made available to all other members of the Board. Board Processes The Board has mandates and operating procedures which are reviewed on a regular basis. The Board has also established a range of policies which govern its operation. The Board holds a scheduled meeting every month and any other strategic meetings as and when necessitated by the Company s operations. The agenda for the meetings is prepared through the input of the Chairman and the Company Secretary. Standing items include matters of Compliance and Reporting, Financials, Shareholder Communications and Investment Strategy and Outcomes. Submissions are circulated in advance. With the exception of the Managing Director, Directors must retire by rotation and stand for reelection at the AGM each year. A performance evaluation for the Board and senior Executives has taken place in the reporting period.

22 Corporate Governance Statement 20 The Board Committees Nomination Committee Recommendation 2.4 states that the Board should establish a Nomination Committee. Due to the size of the Company it has not established a formal Nomination Committee and the functions of the Nomination Committee are undertaken by a full Board. The composition of the Board is monitored (both in respect of size and membership) to ensure that the Board has a balance of skill and experience appropriate to the needs of the Company. When a vacancy arises, the Board will identify candidates with appropriate expertise and experience and appoint the most suitable person. Remuneration Committee Recommendation 8.1 states that the Board should establish a Remuneration Committee. Due to the size of the Company it has not established a formal Remuneration Committee and the functions of the Remuneration Committee are undertaken by a full Board. NonExecutive Directors are remunerated by way of director fee and superannuation contributions. The Chairman and the other NonExecutive Director of My Net Fone Limited are also Directors of several listed and nonlisted companies and are further remunerated by those Companies. Further detail is provided in the Directors Report. Audit Committee Due to the size of the Company it has not established a formal Audit Committee and the functions of the Audit Committee are undertaken by a full Board. The Board is responsible for considering the effectiveness of the systems and standards of internal control, financial reporting and any other matter at the request of the Board. The external auditors attend meetings by invitation to report to the Board. The Audit responsibilities of the Board are to ensure that: relevant, reliable and timely information is available to the Board to monitor the performance of the Company external reporting is consistent with committee members information and knowledge and is adequate for shareholder needs management process supports external reporting in a format which facilitates ease of understanding by shareholders and institutions the external audit arrangements are adequate to ensure the maintenance of an effective and efficient external audit involving, review of the terms of engagement, scope and auditor s independence; * recommendation as to the appointment, removal and remuneration of an auditor; * review of the provision of nonaudit services provided by the external auditor ensuring * they do not adversely impact on audit independence. a review of the Company s risk profile and an assessment of the operation of the Company s internal control system is performed. The external auditor is required to attend the Annual General Meeting and is available to answer shareholder questions. The Board as a whole monitors the performance of the annual & halfyearly audit performed by the External Auditor. For details on the number of meetings of the audit committee held during the year and the attendees at those meetings, refer to the Directors Report.

23 Corporate Governance Statement 21 Principle 3: Promote ethical and responsible decision making The Board expects all Executive and NonExecutive Directors to act professionally in their conduct and with the utmost integrity and objectivity. All Executive and NonExecutive Directors must comply with the Company s Code of Conduct and Ethics (Recommendation 3.1). The company encourages Directors to have a significant personal financial interest in My Net Fone Limited by acquiring and holding shares on a longterm basis. Insider trading laws prohibit Directors and their associates from dealing in the Company s shares whilst in possession of price sensitive information that is not generally available. Once the Directors have traded in shares or otherwise dealt with any securities, they should immediately disclose this to the Board and Company Secretary to facilitate appropriate disclosure with ASX. A Director or an entity controlled by Directors is not permitted to purchase or sell shares in the Company at other times without prior consent of the Board. This policy does not preclude a Director or an entity controlled by a Director from taking up or renouncing an entitlement to the Company s shares or participating in the Company s Share Purchase Plan or the Dividend Reinvestment Plan (Recommendation 3.2). Trading Policy The company s policy regarding Directors trading in its securities restricts them from acting on material information until it has been released to the market and adequate time has been given for it to be reflected in the security s prices. The company has adopted a Securities Trading Policy disallowing Directors and employees from dealing in the Company s securities in the period between the end of the Company s half year/full year and the lodgement of those profit announcements with the ASX. Directors and employees also require the approval of the Board prior to trading in the Company s securities. A copy of the Securities Trading Policy is available on the Company s website at in the Corporate Governance section. Principle 4: Safeguard integrity in financial reporting The Company s Board is committed to ensuring the adoption of processes which are aimed at providing assurance that the financial statements and related notes are in accordance with applicable accounting standards and provide a true and fair view. Compliance with these procedures and policies is subject to review by the external Auditor. The Board also evaluates the performance and independence of the external Auditor on an annual basis. The Managing Director and the Chief Financial Officer provide the Board with written confirmation that the Company s financial reports present a true and fair view, in all material respects, of the Company s financial condition and that the operational results are in accordance with relevant accounting standards.

24 Corporate Governance Statement 22 Principle 5: Make timely and balanced disclosure The Company s Board is committed to keeping the investment community including shareholders and regulators fully informed, in a timely and accessible manner, of events and risks that impact the Company. The Board complies with its continuous disclosure obligations, as defined under the Corporations Act and ASX Listing Rules, in respect of price sensitive information which is lodged with the ASX as soon as practicable and before disclosure to external parties. Principle 6: Respect the rights of shareholders Shareholders are entitled to vote on significant matters affecting the business which include the election and remuneration of Directors, changes to the constitution and receipt of annual and interim financial statements. Shareholders are strongly encouraged to attend and participate in the Annual General Meeting of My Net Fone Limited to lodge questions to be responded by the Board and/or the Managing Director, and are able to appoint proxies. The Board informs shareholders of all major developments affecting the Company s state of affairs on the Company s website at A hard copy Annual Report will be mailed to shareholders who have requested to receive one at the close of the financial year. An electronic version of the Annual Report will be available on the Company s website. The Company Secretary is responsible for ensuring My Net Fone Limited complies with its continuous disclosure obligation and in conjunction with the Chairman, will decide whether any price sensitive information they become aware of should be disclosed to the ASX. Where possible, all continuous disclosure releases to the ASX are approved by the Board. Where time does not permit approval by the Board, the Chairman must approve the release. Any information of a material nature affecting the Company is disclosed to the market through release to the ASX as soon as the Company becomes aware of such information, in accordance with the ASX Continuous Disclosure requirement. Principle 7: Recognise and manage risk The Board acknowledges that it is responsible for the overall system of internal control but recognises that no cost effective internal control system will preclude all errors and irregularities. The Board has responsibility for reviewing the risk profile and reporting on the operation of the internal control system. The Board (a) requires executive management to report annually on the operation of internal controls (b) reviews the external audit of internal controls and liaises with the external auditor and (c) conducts any other investigations and obtains any other information it requires in order to assess the effectiveness of the internal control system. In respect of the current financial year all necessary declarations have been submitted to the Board. The Board identifies the following business risks as having the potential to significantly or materially affect the company s performance (a) administrative risks including operational, compliance and financial reporting (b) market related risks.

25 Corporate Governance Statement 23 Administrative Risks The Managing Director is responsible for recognising and managing administrative risks including (a) operational, (b) compliance and (c) financial reporting. The Managing Director and the Chief Financial Officer provide a declaration to the Board to certify that the Company s financial statements and notes present a true and fair view in all material respects of the Company s financial condition and operational results and that they have been prepared and maintained in accordance with relevant Accounting Standards and the Corporations Act In respect of the current financial year all necessary declarations have been submitted to the Board. In addition, the Managing Director and the Chief Financial Officer will confirm in writing to the Board that the declaration provided above is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Market Risks The Board is primarily responsible for recognising and managing market related risks. In respect of the current financial year, all necessary declarations have been submitted to the Board. The Board performs a risk review on an annual basis to ensure that adequate controls are in place to mitigate risk associated with market risk, fraud, transaction reporting errors, material reporting risks and compliance risk. Principle 8: Remuneration fairly and responsibly The Company s remuneration policy and practices are designed to attract, motivate and retain high quality staff. The Remuneration Report in the Director s Report provides detail of remuneration of NonExecutive and Executive Directors. The Company s Employee Share Option Scheme was approved by shareholders at the Company s listing on the ASX. Under this scheme, share options were issued to some senior staff members in this financial year. It is expected more high quality staff will be issued share options in future.

26 Consolidated Statement of Comprehensive Income 24 Note CONSOLIDATED GROUP $ $ Revenue Rendering of services 3.(a) 13,604,905 12,091,969 Cost of sales (7,884,858) (6,883,720) Gross profit 5,720,047 5,208,249 Finance revenue 3.(a) 105,807 55,522 Other income 3.(b) 70,710 70,368 Distribution expenses (119,348) (143,471) Marketing expenses (586,444) (372,379) Occupancy expenses (219,482) (214,750) Administrative expenses (3,428,443) (3,111,345) Technology and support expenses (120,000) (120,000) Other expenses 3.(c) (354,791) (342,744) Finance costs (18,506) (18,649) Profit/(Loss) before income tax 1,049,550 1,010,801 Income tax (expense)/benefit 4 (44,353) 962,764 Profit/(Loss) from continuing operations 1,005,197 1,973,565 Profit/(Loss) for the year 1,005,197 1,973,565 Other comprehensive income Total comprehensive income for the year net of tax Total comprehensive income for the year 1,005,197 1,973,565 Earnings per share (cents per share) basic for profit for the year diluted for profit for the year The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

27 Statement of Financial Position 25 AS AT 30 JUNE 2011 Note CONSOLIDATED GROUP $ $ ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other financial assets Total Current Assets ,452, ,150 62,128 2,907,010 1,965, ,156 62,128 2,217,552 Noncurrent Assets Property, plant and equipment Deferred income tax assets Formation cost Total Noncurrent Assets TOTAL ASSETS , ,411 1, ,923 3,876,933 84, ,764 1,950 1,049,426 3,266,978 LIABILITIES Current Liabilities Trade and other payables Deferred revenue Provisions Total Current Liabilities ,728,310 1,021, ,742 3,395,228 1,606,239 1,004, ,996 3,207,823 Noncurrent Liabilities Provisions Total Noncurrent Liabilities TOTAL LIABILITIES NET ASSETS ,182 92,182 3,490, ,523 45,583 45,583 3,253,406 13,572 EQUITY Issued capital Share based payment reserve Accumulated losses TOTAL EQUITY 12. 3,990,515 1,099,309 (4,703,301) 386,523 3,990,515 1,048,333 (5,025,276) 13,572 The above statement of financial position should be read in conjunction with the accompanying notes.