DIVERSA LIMITED ABN AND ITS CONTROLLED ENTITIES CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2010

Transcription

1 DIVERSA LIMITED ABN AND ITS CONTROLLED ENTITIES CONSOLIDATED INTERIM FINANCIAL REPORT FOR THE PERIOD ENDED 31 DECEMBER 2010

2 Directors report For the six months ended 31 December 2010 The directors present their report together with the consolidated financial report of Diversa Limited and its controlled entities (the Group ) and the Group s interest in associates for the financial period ended 31 December 2010 and the review report thereon. 1 Directors The directors of Diversa Limited (the Company ) at any time during or since the end of the interim period are: Name and independence status Age Experience, special responsibilities and other directorships Mr Matthew Morgan Chairman Non-executive director Appointed: 2 July 2008 Mr Stuart Korchinski Managing director Appointed as a non-executive director: 26 May 2009 Appointed managing director: 16 October 2009 Mr Stephen Bizzell Non-executive director Appointed: 25 August 2010 Mr Timothy Brown Independent non-executive director Appointed: 21 August 2007 Resigned: 25 August Mr Morgan is currently Head of Business Development for Integria Healthcare, a private equity backed aggregation of brands in the natural products sector. Prior to his current role Mr Morgan was a Senior Investment Manager with QBF, a venture capital fund manager wholly owned by QIC. He was the first Australian selected to the prestigious Kauffman Fellows Program and currently also serves as a director of Relevare Pharmaceuticals. 46 Mr Korchinski was most recently the CEO of CitiStreet Australia (a joint venture between Citi and State Street), a provider of superannuation administration services to industry, corporate and retail superannuation funds. Stuart previously held the role of Managing Director of KAZ Business Services Limited, a leading supplier of outsourced services to the superannuation and funds management, insurance and financial services industries and Chief General Manager of Allianz s financial institution and direct insurance business. Stuart has significant experience in multiple sectors of the banking & finance industry including pension/superannuation, financial planning/advice, general and life insurance and IT services sectors. 43 Mr Bizzell is Chairman of Bizzell Capital Partners (BCP), a boutique investment banking and funds management firm which focuses on small to mid-cap companies. He was formerly an executive director of Arrow Energy Limited, a role he held since co-founding the company in 1999 until its recent acquisition by Shell and PetroChina for $3.5 billion. At Arrow he focused on strategic issues, business development and corporate finance matters. During the past three years Mr Bizzell also served as a director of the following ASX listed companies: Bow Energy Limited to present Dart Energy Limited to present Renison Consolidated Mines NL to present Stanmore Coal Limited to present Apollo Gas Limited to present Hot Rock Limited to 2011 Renaissance Uranium Limited to present Arrow Energy Limited to Mr Brown is currently CEO of Vow Financial, a mortgage aggregation business. Prior to that he was employed by Macquarie Bank Limited as Head of Sales, Macquarie Intermediaries Solutions. Mr Brown has worked in the banking and finance industry for over 25 years and has held senior management positions in financial intermediaries such as Suncorp, LJ Hooker, Aussie Home Loans and AVCO Finance (acquired by GE Capital). Diversa Limited and its controlled entities 2

3 Mr Gregory Baynton Independent non-executive director Appointed: 2 July 2008 Resigned: 18 August Mr Baynton is Managing Director of Orbit Capital, a private, independent investment company that also provides corporate advisory services, focusing on capital raisings, preparation for Stock Exchange listing and listed investment opportunities. He has extensive experience in establishing and structuring new companies, and raising seed and venture capital. During the past three years Mr Baynton also served as a director of the following ASX listed companies: NextDC Limited to present Tissue Therapies Limited to present Lodestone Energy Limited to present PIPE Networks Limited to Company secretary Mr Angus Craig Appointed: 30 August Angus Craig held the position of Company Secretary and Chief Financial Officer at the end of the interim period. Previously he held the position of Company Secretary of Virotec International plc for seven years, and prior to that was a Senior Companies Advisor with the Australian Securities Exchange for six years. 3 Review of Operations The Group has continued to follow its stated strategy of building a differentiated wealth management business purpose built for the new, emerging regulatory environment. It is seeking to achieve this through acquisition, partnering, product enhancement and investment in distribution. The Group currently has two established revenue generating business units, and their performance is discussed below. Superannuation During the period the Group conducted a review of its superannuation administration capabilities, resulting in changes being implemented to resourcing and systems, the benefits of which are expected to be realised in future periods. The Group provides administration and promotion services to the Bookmakers Superannuation Fund (BSF). As at 31 December 2010, BSF had approximately $146 million under management on behalf of approximately 2,000 members. During the period the Group continued to work with the BSF trustee to achieve removal of the transfer and redemption restrictions on members which have been in place since September It is currently expected that these restrictions will be lifted in March The Group provides administration and promotion services to the Managed Australian Retirement Fund (MARF) which manages approximately $43 Million on behalf of approximately 4,300 members at 31 December The Group also earns administration fees on certain insurance products available to members of MARF. Revenue for the period for the superannuation business was $969,479 (2009: $866,481) with an EBITDA of $202,386 (2009: $358,681). The decrease in earnings is due largely to the additional resources employed to facilitate the changes noted above. Funds Management The Group provides investment management services to MARF, and is building further investment services capability to enable the offering of services to other superannuation funds in the future. The Group currently owns interests in Headland Global Investment Management Pty Limited (40%) an absolute return manager, Huon Capital Pty Ltd (20%) an Australian equities manager and Centec Securities Pty Limited (49%) a provider of investment services. Revenue for the period for the funds management business was $111,926 (2009: $74,905) with an EBITDA of ($14,751) (2009: $3,993). In addition the loss from associates was $66,853 (2009: nil). Diversa Limited and its controlled entities 3

4 New business operations In November the Group acquired a group life and salary continuance insurance business. The business provides group life and salary continuance insurance products to superannuation funds, employers and advisors. The total consideration for the acquisition is $450,000 in cash with $150,000 payable on completion and the remainder payable over a three year period with the future payments subject to certain conditions being satisfied. The Group plans to build the business by actively expanding marketing and distribution of the products via financial intermediaries and directly. On 24 December 2010, the Company announced the proposed acquisition of CCSL Limited ( CCSL ), which is the holder of a Registrable Superannuation Entity Licence (No.L ) and provides superannuation trustee services to a range of master trusts, corporate and insurance only super funds. The purchase price for the proposed acquisition is approximately $3 million (and up to $3.5 million), and includes: $2 million cash payable on completion; $500,000 cash payable 12 months after completion; and $500,000 cash payable 24 months after completion. Up to a further $500,000 may be payable where specific revenue targets are achieved during the 12 months from 24 December In addition, the initial payment may be adjusted if the net tangible assets (NTA) of CCSL are less than $1 million in the completion accounts, with the vendor paying the difference between the dollar amount shown for NTA and $1 million. the Company is providing CCSL with security for the deferred payments by way of a fixed and floating charge over the assets of the Company, which will be released at the time that the final deferred payment is made. The acquisition of CCSL by the Company is subject to several conditions, including terms and conditions that are usual in a transaction of this nature, and: the Company completing a proposed capital raising to fund the acquisition; the Company obtaining any necessary shareholder approvals to issue equity interests in the Company as part of a capital raising; and the Australian Prudential Regulation Authority not indicating any objection to the acquisition or any significant change to the conditions currently imposed in respect of CCSL s business. The Director s believe that the CCSL trustee services offering complements the Group s current service offerings of administration, product management, promotion and investment management services to superannuation funds. Corporate and other matters The Group has continued to examine opportunities for growth through acquisition and partnership. Costs incurred relating to these activities, whether resulting in a transaction or not, have been expensed in accordance with the accounting standard requirements. During the period, $163,695 was expensed relating to due diligence and acquisition costs (2009 $79,533). The results from operating activities contain two significant non-cash expense items of amortisation and depreciation of $246,941 (2009: $283,981) and share based payments expense (recorded in personnel expenses) of $112,381 (2009: $219,389). These expenses are calculated in accordance with the relevant accounting standards and accounting policies as disclosed. When these items are added back, the adjusted loss from operating activities is $531,928 (2009: $28,722). Looking forward Looking forward, the Group is seeking to grow its exposure to superannuation funds under management through acquisition, product enhancement and investment in distribution. In particular, the board believes that while the current economic environment is strengthening and industry facing regulatory changes, opportunities will continue to arise to acquire or otherwise secure interests in both superannuation and funds management businesses which provide attractive growth potential. A number of opportunities have been, and are currently being considered. 4 Events subsequent to reporting date Since the end of the financial year the Group has entered into agreements with Bizzell Capital Partners to raise approximately $5.1 million by way of a placement and rights issue of convertible notes. The purpose of the capital raising is to raise funds to settle the acquisition of CCSL noted above and provide additional working capital. Following completion of the capital raising it is expected that the Group will effect the acquisition of CCSL Limited as noted above in early April Diversa Limited and its controlled entities 4

5 The Group has also continued discussions with a number of parties regarding potential transactions involving the Group in line with its stated growth strategy. These discussions may result in acquisitions or investments in the near term however no binding arrangements exist as at the date of these financial statements. Apart from the matters noted above, there has not arisen, in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 5 Lead auditor s independence declaration The lead auditor s independence declaration is set out on page 6 and forms part of the directors report for the six months ended 31 December This report is made with a resolution of the directors: M. Morgan Chairman Dated at Brisbane this 18 th February Diversa Limited and its controlled entities 5

6 ABCD Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Diversa Limited I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31 December 2010 there have been: (a) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and (b) no contraventions of any applicable code of professional conduct in relation to the review. KPMG Simon Crane Partner Brisbane 18 February KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. Liability limited by a scheme approved under Professional Standards Legislation.

7 Consolidated interim statement of comprehensive income For the six months ended 31 December 2010 Note 31 Dec Dec 2009 Revenue from rendering of services 1,081, ,386 Other income 3 5, ,144 Occupancy expenses (80,889) (104,348) Administration and corporate expenses (539,713) (363,683) Amortisation and depreciation (246,941) (283,981) Personnel expenses (946,936) (735,427) Other expenses 4 (163,695) (943,183) Results from operating activities (891,250) (532,092) Finance income 14,920 35,546 Finance expense (31,852) (92,997) Net finance income/(expense) (16,932) (57,451) Share of profit/(loss) of equity accounted investees 5 (66,853) - Loss before income tax (975,035) (589,543) Income tax expense (benefit) - - Loss after income tax (975,035) (589,543) Other comprehensive income - - Total comprehensive loss for the period (975,035) (589,543) Earnings per share Basic earnings per share (0.019) (0.012) Diluted earnings per share (0.019) (0.012) The consolidated statement of comprehensive income is to be read in conjunction with the notes of the consolidated interim financial statements set out on pages 11 to 18. Diversa Limited and its controlled entities 7

8 Consolidated interim statement of changes in equity For the six months ended 31 December 2010 Note Share capital Share based payments reserve Accumulated losses Total equity Balance at 1 July ,345, ,103 (97,512,920) 8,145,380 Total comprehensive income for the period Loss for the period - - (589,543) (589,543) Total comprehensive income for the period - - (589,543) (589,543) Transactions with owners, recorded directly in equity Shares issued 56, ,250 Share-based payment transactions 57, ,110 46, ,158 Total transactions with owners 113, ,110 46, ,408 Balance at 31 December ,458, ,213 (98,055,683) 7,861,245 Balance at 1 July ,704, ,421 (98,757,645) 7,534,510 Total comprehensive income for the period Loss for the period - - (975,035) (975,035) Total comprehensive income for the period - - (975,035) (975,035) Transactions with owners, recorded directly in equity Shares issued 17, ,275 Share-based payment transactions 9 9,045 89,202 14, ,381 Total transactions with owners 26,320 89,202 14, ,656 Balance at 31 December ,731, ,623 (99,718,546) 6,689,131 The consolidated interim statement of changes in equity is to be read in conjunction with the notes to the consolidated interim financial statements set out on pages 11 to 18. Diversa Limited and its controlled entities 8

9 Consolidated interim balance sheet As at 31 December 2010 Note 31 Dec Jun 2010 Assets Cash and cash equivalents 175,720 1,271,825 Trade and other receivables 413, ,434 Total current assets 589,217 1,463,259 Trade and other receivables 37,386 70,134 Investments in associates 5 403, ,321 Property, plant and equipment 25,981 32,636 Intangible assets 6 6,575,853 6,431,665 Total non-current assets 7,042,688 7,004,756 Total assets 7,631,905 8,468,015 Liabilities Trade and other payables 880, ,358 Employee benefits 62,442 52,147 Total current liabilities 942, ,505 Total liabilities 942, ,505 Net assets 6,689,131 7,534,510 Equity Issued capital 105,731, ,704,734 Reserves 676, ,421 Accumulated losses (99,718,546) (98,757,645) Total equity 6,689,131 7,534,510 The consolidated interim balance sheet is to be read in conjunction with the notes to the consolidated interim financial statements set out on pages 11 to 18. Diversa Limited and its controlled entities 9

10 Consolidated interim statement of cash flow For the six months ended 31 December 2010 Note 31 Dec Dec 2009 Cash flows from operating activities Cash receipts from operations 896, ,069 Cash paid to suppliers and employees (1,521,001) (1,807,284) Cash generated from operations (624,158) (1,067,215) Interest paid (776) (45) Interest received 14,302 35,546 Net cash (used in)/from operating activities (610,632) (1,031,714) Cash flows from investing activities Acquisition of subsidiary 7 (150,000) - Acquisition of business - (1,068,750) Acquisition of property, plant and equipment (7,563) - Deferred acquisition payments (328,228) - Proceeds from sale of property, plant and equipment Net cash used in investing activities (485,473) (1,068,750) Cash flows from financing activities Proceeds from borrowings - 500,000 Net cash from financing activities - 500,000 Net decrease in cash and cash equivalents (1,096,105) (1,600,464) Cash and cash equivalents at 1 July 1,271,825 3,189,851 Cash and cash equivalents at 31 December 175,720 1,589,387 The consolidated interim statement of cash flows is to be read in conjunction with the notes to the consolidated interim financial statements set out on pages 11 to 18. Diversa Limited and its controlled entities 10

11 Notes to the consolidated financial statements 1. Significant accounting policies Reporting entity Diversa Limited (the Company ) is a company domiciled in Australia. The consolidated interim financial report of the Company as at and for the six months ended 31 December 2010 comprise the Company and its controlled entities (the Group ) and the Group s interest in associates. The consolidated financial report of the Group as at and for the year ended 30 June 2010 are available upon request from the Company s registered office at Level 11, Waterfront Place, 1 Eagle Street, Brisbane QLD 4000 or at Statement of compliance The consolidated interim financial report has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporation Act It does not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated annual financial report of the Group as at and for the year ended 30 June The consolidated interim financial report was approved by the board of directors on 18 February Accounting policies The accounting policies applied by the Group in this consolidated interim financial report are the same as those applied by the Group in its consolidated financial report as at and for the year ended 30 June Estimates The preparation of the interim financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this consolidated interim financial report, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial report as at and for the year ended 30 June Going Concern The consolidated interim financial report has been prepared on a going concern basis which assumes the Group will continue its operations for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of business. The Group currently has revenue generating businesses, however has reported a loss after tax of $975,035 for the period to 31 December 2010 (2009: loss of $589,543). The Group has a cash balance of $175,720 as at 31 December 2010 (30 June 2010: $1,271,825) and a net operating cash outflow for the period ended 31 December 2010 of $610,632 (2009: $1,031,714). At 31 December 2010 the Group has an excess of current liabilities over current assets of $353,557 (30 June 2010: excess of current assets over current liabilities $529,754). During the period the Board established a short term loan facility of $500,000 which remained undrawn at 31 December As noted in the Directors report, on 24 December 2010, the Group entered into an agreement to acquire CCSL Limited. The purchase price for the proposed acquisition is approximately $3 million (and up to $3.5 million), and includes: $2 million cash payable on completion; $500,000 cash payable 12 months after completion; and $500,000 cash payable 24 months after completion. Diversa Limited and its controlled entities 11

12 Up to a further $500,000 may be payable where specific revenue targets are achieved during the 12 months from 24 December In addition, the initial payment may be adjusted if the net tangible assets (NTA) of CCSL are less than $1 million in the completion accounts, with the vendor paying the difference between the dollar amount shown for NTA and $1 million. The acquisition of CCSL by the Company is subject to several conditions, including terms and conditions that are usual in a transaction of this nature, and: the Company completing a proposed fund raising to fund the acquisition; the Company obtaining any necessary shareholder approvals to issue equity interests in the Company as part of a fund raising; and the Australian Prudential Regulation Authority not indicating any objection to the acquisition or any significant change to the conditions currently imposed in respect of CCSL s business. At the date of this report, the directors are in the process of finalising a prospectus to raise sufficient funds to complete the acquisition of CCSL and provide working capital to enable the Group to settle its current obligations and pursue its operational objectives. It is currently expected that these funds be raised by the issue of convertible notes. The right to convert the convertible notes to equity securities will be subject to shareholder approval, and the Company intends to convene a meeting of shareholders in March 2011 for this purpose. Should the shareholder approval not be obtained, based on the proposed terms of the convertible notes, the convertible notes would be payable in March In conjunction with the preparation of this prospectus, the Company has entered into agreements with Bizzell Capital Partners Pty Ltd, a company related to a director, Mr Stephen Bizzell, to raise a minimum of $5.1 million, of which $3.7 million will be by way of an underwritten rights issue of convertible notes providing sufficient funds to complete the acquisition. Due to the inherent uncertainties associated with the proposed fund raising, including the requirement to obtain shareholder approval, the directors acknowledge that at the date of this report there exists a material uncertainty that may cast significant doubt as to whether the Group will be able to continue as a going concern and therefore, whether it will realise it assets and extinguish it liabilities in the normal course of business and at the amounts stated in the interim financial statements. In addition, the growth strategy will influence profitability due to scale of operations and the ability to achieve economies of scale, and synergies from complementary operations. It is expected that acquisitions of complementary businesses will generally be earnings accretive and therefore reduce the net cash outflow from operations for the Group. In the current period, the Group has incurred operating expenditure in anticipation of such growth, most notably in increased personnel costs. In the event that growth is not forthcoming, these resources will be surplus to the Group s requirements and may be reduced. Based on discussions with the underwriter, the directors are confident that sufficient funds will be raised to enable the Group to continue as a going concern. However there can be no certainty in this matter and if adequate financing is not available, the Group may be required to delay, or cease its growth strategy, and significantly reduce its operating expenditure. In the event that the Group is not able to obtain additional funding and/or reduce expenditure in line with operating revenue, it may not be able to continue as a going concern and therefore may not be able to realise its assets and extinguish its debts in the ordinary course of operations and at the amounts stated in the financial statements. 2. Operating segments The Group operates predominately within the financial services industry in Australia. The Group has two reportable segments, as described below, which are the Group s business units. For each of the business units, the Managing Director reviews internal management reports on a regular basis. The following summary describes the operations in each of the Group s reportable segments: Superannuation Administration provision of administration and promotion services to superannuation funds Funds Management - funds management and the provision of investment management services Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax as included in the internal management reports that are reviewed by the Managing Director. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm s length basis. Diversa Limited and its controlled entities 12

13 Funds Management Superannuation Administration Total 31 Dec Dec Dec Dec Dec Dec 2009 External revenues 111,926 74, , ,481 1,081, ,386 Reportable segment profit/ (loss) before income tax Share of profit/(loss) of equity accounted investees (55,551) (53,723) (38,664) 79,735 (94,215) 26,012 (66,853) (66,853) - Reportable segment assets 817, ,739 6,400,000 6,601,043 7,217,614 7,328,782 Investment in associates 403, ,468 - Reconciliation of reportable segment profit or loss Note 31 Dec Dec 2009 Total profit/(loss) for the reportable segments (94,215) 26,012 Unallocated amounts: Provision of property services 3-905,535 Costs of providing property services 4 - (863,650) Personnel expenses not included in reportable segments (363,262) (485,533) Other net corporate revenue and expenses (450,705) (171,907) Share of profit/(loss) of equity accounted investee (66,853) Consolidated loss after income tax (975,035) (589,543) 3. Other income Rental income 5,519 51,609 Provision of property services - 905,535 5, ,144 The provision of property services relates to services provided in respect of certain properties controlled by BSF to facilitate their sale, including sourcing funding to complete the development and preparation of the properties for sale. This amount is considered to be non-recurring in nature. 4. Other expenses Due diligence and acquisition costs 163,695 79,533 Costs of providing property services - 863, , ,183 The provision of property services relates to services provided in respect of certain properties controlled by BSF to facilitate their sale, including sourcing funding to complete the development and preparation of the properties for sale. This amount is considered to be non-recurring in nature. Further costs in relation to the provision of these services are included in Finance expense. Diversa Limited and its controlled entities 13

14 5. Investments in associates The Group s share of losses for its equity accounted investees for the interim period ended 31 December 2010 was ($66,853) (2009: nil). During the interim period ended 31 December 2010, the Group did not receive dividends from any of its investments in equity accounted investees. 31 Dec Jun 2010 Investment in associates 470, ,196 Less share of loss of associates (66,853) (24,875) Balance at 31 December , ,321 Summary financial information for equity accounted investees as at and for the half year ended 31 December 2010, not adjusted for the percentage held by the Group is as follows: Ownership Total assets Total liabilities Total revenue Profit/ (loss) Share of net assets Share of profit/ (loss) Huon Capital Pty Ltd 20% 50,689 (52,889) 55,365 (3,263) (440) (653) Headland Global Investment 40% 104,223 (8,220) 29,185 (41,351) 38,401 (16,541) Management Pty Ltd Centec Securities Pty Ltd 49% 256,352 (155,609) 18,938 (101,346) 49,364 (49,659) (66,853) Diversa Limited and its controlled entities 14

15 6. Intangible Assets Customer contracts Customer relationships Goodwill Total Cost Balance at 1 July , ,566 4,345,352 5,649,719 Acquisitions through a business combination 304, , ,442 1,451,087 Balance at 31 December ,307 1,015,705 5,086,794 7,100,806 Balance at 1 July ,307 1,015,705 5,086,794 7,100,806 Acquisitions through a business , ,159 combination Balance at 31 December ,307 1,015,705 5,500,953 7,514,965 Amortisation and impairment Balance at 1 July 2009 (66,258) (18,502) - (84,760) Amortisation for the year (208,241) (69,233) - (277,474) Balance at 31 December 2009 (274,499) (87,735) - (362,234) Balance at 1 July 2010 (496,057) (173,084) - (669,141) Amortisation for the year (155,124) (85,350) - (240,474) Adjustments resulting from changes in acquisition cost - - (29,497) (29,497) Balance at 31 December 2010 (651,181) (258,434) (29,497) (939,112) Carrying amounts At 1 July , ,064 4,345,352 5,564,959 At 31 December , ,970 5,086,794 6,738,572 At 1 July , ,621 5,086,794 6,431,665 At 31 December , ,271 5,471,456 6,575,853 For the purposes of impairment testing, goodwill is allocated to the Group s superannuation administration business and funds management business, at which level the value of goodwill is monitored for internal management purposes. The recoverable amount of both the superannuation and funds management cashgenerating units were based on their value in use. At 31 December 2010, the recoverable amount of the businesses exceeds the carrying amounts and, as a result, no impairment loss has been recognised in the consolidated interim statement of comprehensive income. Value in use was determined by discounting the future cash flows generated from the continuing use of the cashgenerating units and was based on the following key assumptions: Cash flows were projected based on actual historical operating results for a five year forecast period. Cash flows for a further three year period were extrapolated using a constant growth rate of two percent, which does not exceed the long term growth rate for the industry. Revenue and expenses were forecast to grow at 0 percent in 2011 then 5 percent per annum for 2012 to A pre discount rate of 21 percent was applied in determining recoverable amount. Diversa Limited and its controlled entities 15

16 7. Acquisition of subsidiary On 17 November 2010, the Group acquired a group life and salary continuance insurance business from Peter Mueller and Associates Pty Ltd. The business provides group life and salary continuance products to superannuation funds, employers and advisors. The total consideration which may be payable is $414,161. The Group paid $150,000 in cash. An additional cash payment of up to $264,161 may be payable if certain conditions are satisfied over a three year period. The acquisition had the following effect on the Group s assets and liabilities on acquisition date: Pre-acquisition carrying amounts $ Fair value adjustments $ Recognised values on acquisition $ Investment in Cotspalm Pty Limited - 2 Net identifiable assets and liabilities - 2 Goodwill on acquisition 414,159 Total consideration paid or payable 414,161 Deferred consideration payable (264,161) Net cash outflow 150,000 The Group incurred acquisition-related costs of $20,193 relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in other expenses in the consolidated interim statement of comprehensive income. From the date of acquisition to 31 December 2010, the business acquired contributed revenue of $478 and profit of $456. If the acquisition had occurred on 1 July 2010, management estimates that consolidated revenue would have been $1,151,074 and consolidated loss for the period would have been $966,010. This represents the historical operating results of the business acquired and assumes a full period of amortisation of intangibles as if the acquisition occurred on 1 July The goodwill recognised on the acquisition is attributable to the expected future value of the new business in insurance management. None of the goodwill recognised is expected to be deductible for income tax purposes. Due to the timing of this acquisition, the fair values currently established are provisional and are subject to further review during the year ended 30 June Borrowings In November 2010, the Group entered into an unsecured loan facility arrangement with Bizzell Nominees Pty Ltd, an entity associated with a director. The total amount which may be drawn is $500,000 at a rate of 10% per annum repayable by June As at 31 December 2010, the facility remained undrawn. 9. Share-based payments During the six month period ended on 31 December 2010, the total amount expensed in relation to share based payments was $112,381 (2009: $219,389). The Group issued the following share-based payments during the period: Executive officer share plan The Company has an Executive Officer Share Plan ( EOSP ) under which directors may elect to receive shares in lieu of director s fees or other payments that would otherwise be payable in cash and shares may be issued or unallocated shares, allocated to executives in accordance with the terms of EOSP. The terms and conditions of the EOSP are disclosed in the consolidated financial report as at and for the year ended 30 June This EOSP was last approved by shareholders at the Company s Annual General Meeting held on 24 November During the period the following allocations occurred under the EOSP: Diversa Limited and its controlled entities 16

17 Issue date Number of ordinary shares Issue price Amount Expensed Amount to be expensed in future periods 1 September ,000 $0.092 $4,600 $4, November ,222 $0.081 $2,698 $16, November ,445 $0.081 $19, Share capital Number of shares 31 Dec Jun 2010 Balance at 1 July ,318,116 48,123,280 Shares issued to directors and executives in lieu of fees - 370,498 Shares issued as consideration for acquisitions 172,752 2,224,338 Shares issued to executives 111, ,000 Balance at 31 December ,602,535 51,318, Related parties Individual directors and executives compensation disclosures Key management personnel receive compensation in the form of short-term employee benefits, post-employment benefits and share-based payments. Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the Group since the end of the previous financial year and there were no material contracts involving directors interests existing at the end of the interim period. Key management personnel transactions The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm s length basis. During the period, Bizzell Capital Partners Pty Ltd, an entity associated with Stephen Bizzell, provided corporate advisory services to the Group. During the period the Group entered into a loan facility arrangement with Bizzell Nominees Pty Ltd, an entity associated with Stephen Bizzell, as disclosed in Note 8. During the period, Dart Energy Limited, an entity associated with Stephen Bizzell, provided office space and related services to the Group. The aggregate value of transactions during the interim period ended 31 December 2010 relating to key management personnel and their related parties was $52,104 (2009: nil). Diversa Limited and its controlled entities 17

18 The aggregate value of transactions during the period relating to key management personnel and their related parties were as follows: 31 Dec Dec 2009 Rent 11,666 - Loan establishment fee 10,000 - Corporate advisory fees 30,438-52,104 - Amounts payable to key management personnel and other related parties at reporting date were as follows: Other related payables Directors fees 3,333 7,375 Rent 11,666 - Loan establishment fee 10, Subsequent events Since the end of the financial year the Group has entered into agreements with Bizzell Capital Partners to raise approximately $5.1 million by way of placement and rights issue of convertible notes. The purpose of the capital raising is to raise funds to complete the acquisition of CCSL and provide additional working capital. Following completion of the fund, raising it is expected that the Group will effect the acquisition of CCSL Limited as noted in early April The Group has also continued discussions with a number of parties regarding potential transactions involving the Group in line with its stated growth strategy. These discussions may result in acquisitions or investments in the near term however no binding arrangements exist as at the date of these financial statements. Apart from the matter noted above, there have been no events subsequent to balance date which would have a material effect on the Group s financial statements at 31 December Diversa Limited and its controlled entities 18

19 Directors declaration In the opinion of the directors of Diversa Limited (the Company ): (1) the financial statements and notes set out on pages 7 to 18, are in accordance with the Corporations Act 2001 including: (a) (b) giving a true and fair view of the Group s financial position as at 31 December 2010 and of its performance for the six months ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Dated at Brisbane this 18th day of February Signed in accordance with a resolution of the directors: M. Morgan Chairman Diversa Limited and its controlled entities 19

20 ABCD Independent auditor s review report to the members of Diversa Limited We have reviewed the accompanying interim financial report of Diversa Limited, which comprises the consolidated balance sheet as at 31 December 2010, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, notes 1 to 12 comprising a summary of significant accounting policies and other explanatory information and the directors declaration of the Group comprising the company and the entities it controlled at the half-year s end or from time to time during the half-year. Directors responsibility for the interim financial report The directors of the company are responsible for the preparation of the interim financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such control as the directors determine is necessary to enable the preparation of the interim financial report that is free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the interim financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the interim financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group s financial position as at 31 December 2010 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As auditor of Diversa Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of an interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Diversa Limited is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group s financial position as at 31 December 2010 and of its performance for the half-year ended on that date; and (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. Liability limited by a scheme approved under Professional Standards Legislation.

21 ABCD Material uncertainty regarding continuation as a going concern Without qualifying our conclusion, we draw attention to Note 1 Going Concern in the interim financial report. The ability of the Group to continue as a going concern is dependent upon a proposed convertible note issue to raise additional funding from shareholders or other parties. The outcome of the potential funding transactions described in Note 1 cannot presently be determined with certainty. Accordingly, there is material uncertainty as to whether the Group will continue as a going concern and therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. KPMG Simon Crane Partner Brisbane 18 February