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Annual Report 28 September 2007

EFTel Ltd (ASX: EFT) today posted its Annual Report. Key features of the year’s results include:

• 31% sales growth to a new record high of $34.4m. • EBITDA of $1.6m, ahead of the $1.0m guidance provided in May. • Fifth consecutive year of positive operating cash flow.

The company is pleased to affirm its guidance of $3 million EBITDA for the 2007-08 financial year. Enquiries Chief Executive Officer (08)9420 9999

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ANNUAL REPORT ‘07

2007 Annual Report of EFTel Limited

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corporate directory page 01

chairman’s report page 02

ceo’s report page 03

directors’ report page 04

corporate governance statement page 14

financial statements page 17

directors’ declaration page 59

auditor’s report page 60

additional information page 62

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Directors

Glenn Darlington - Chairman

Simon Ehrenfeld - Chief Executive Officer

Russell Collett

Daniel Ehrenfeld

Jurgen Steinert

Paul Stevenage

Secretary

John Raftis

Notice of Annual General Meeting

The annual general meeting of

EFTel Limited will be held at:

The Theatrette QV1

Level 2, 250 St George’s Terrace Perth

Time: 9.30am

Date: Tuesday 27 November 2007

Registered Office

Level 8 QV1 Building

250 St Georges Terrace Perth WA 6000

Ph: (08) 9420 9999 Fax: (08) 9481 4777

ACN 073 238 178 ABN 47 073 238 178

www.eftel.com

Share Register

Computershare Investor Services Pty Limited

Level 2, 45 St Georges Terrace

Perth WA 6000

Ph: (08) 9323 2000 Fax: (08) 9323 2033

Auditor

Deloitte Touche Tohmatsu

QV Building

180 Lonsdale Street

Melbourne VIC 3000

Solicitors

Allens Arthur Robinson

530 Collins Street

Melbourne VIC 3000

Bankers

Westpac

109 St Georges Terrace

Perth WA 6000

Stock Exchange Listing

EFTel Limited shares are listed on the Australian Stock Exchange.

ASX code: EFT

Corporate Directory

2007 Annual Report EFTel Limited - 1 -

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Chairman’s ReportComing from a background principally in the media sector, it has been of great interest to me

to observe the convergence of the Internet and traditional media industries.

This convergence is occurring on several levels. Advertising revenue and audiences are

shifting from traditional media properties to the online sector; content is increasingly being

distributed in multiple formats, including the Internet; and of course media companies are

taking an ever-greater interest in Internet and new-media businesses, which have access to

large subscriber bases.

The recently launched takeover offer for Unwired by Channel 7 indicates that the convergence

process is set to accelerate. Our company plays a significant role in communications

technology in Australia, and it is well positioned to participate in the converging media and

communications markets, with new opportunities emerging every day. I am pleased to be able

to present this year’s annual report, which shows that the company is in excellent financial

and strategic health, providing a foundation confidently to pursue its aims and objectives in

the forthcoming term on a broader basis.

The board’s principal aim will continue to be to enhance shareholder value through the careful

management of the assets and prudent application of the company’s resources to maximise

opportunities in our industry. The initiatives will include application of strategies to further

acquisitions, investment in and development of technology and infrastructure, and a focus on

our customers’ communications needs.

EFTel Ltd has grown very rapidly, doubling approximately every three years. This past year

has witnessed revenue climb by over 30%. Key components of the business strategy are

to further increase the number of customer accounts, and capture more of each customer’s

communications spend. In the last term the company has established a powerful impetus

towards this objective. Costs have been closely managed during this strong growth effort.

Shareholder relations and management initiatives undertaken by the board recently include

relocating our share registry service, and the Small Holdings Sale and Top-Up Facilities which

will reduce the number of unmarketable parcels of shares. These efforts should not only see a

higher proportion of serious share purchase and sale decisions, but will also reduce the total

cost of administering the share register.

The company in the forthcoming year anticipates the deployment of a national Wireless Web

Service. It also expects further revenue growth, accompanied by improved profitability from

these initiatives.

I thank my fellow board members and all of the staff for their valuable contribution in the past

year. The hard work has produced tangible results for all stakeholders. I wish also to indicate

to our shareholders the whole company’s appreciation of your loyalty, and we look forward to

your continued support as we endeavour to be even better stewards of your investment in the

years ahead.

Glenn Darlington

Chairman

- 2 - 2007 Annual Report EFTel Limited

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CEO’s Report2006-07 has been a year of growth, success and consolidation for EFTel Ltd. The company has grown

rapidly, and has also set about undertaking sustainable cost management programmes.

With the launch of full voice service, we have truly become a telecommunications provider to our

customers, and yet we continue to set unsurpassed standards for Internet network reliability. Record

numbers of customers are now being supported.

In 2006-07 some short term profit pain has been worn in order to continue the company on a path of

rapid growth and cost sustainability. In addition, we have been engaging in reasonably quiet yet thorough

preparation for future developments in the EFTel business. Some highlights of the year include:

A revenue leap to $34M, a new record and a 31% rise on last year.

The acquisition of the fast-growing broadband specialist, aaNet Communications.

The launch of Full-service Speak telephony.

The development and successful implementation of Single-Bill capability.

Establishment of our first overseas office in Malaysia.

Appointment as a Preferred Supplier to the Victorian Government.

In addition, the development of our web-based capacity through our wholesale, resale and retail

interfaces means we now connect 35% of all new accounts online, a remarkable achievement in view of

our diverse product range and high personal service levels.

The company’s overall strategy has been justified, as the telecommunications industry undergoes

significant change, and enters a period of intensified consolidation activity. EFTel has continued to grow

in a sustainable manner by focusing on the fundamentals of its core business – customer acquisition,

servicing, and billing.

Tasmania’s Broadband over Power Lines commercial trial, EFTel’s various wireless projects, VoIP telephony,

the newly announced wireless Web device planned for launch, and a host of other initiatives have placed

EFTel at the forefront of the effort to discover and develop new solutions to telecommunications demands

in Australia. EFTel will continue its tradition of careful financial management, growth by acquisition and

innovation.

Over the last year I have had the opportunity, along with other EFTel senior executives, to communicate

or meet with key decision makers in various telecommunications companies, both large and small,

throughout Asia, the Americas and Europe. We have also had the privilege of examining various facilities

in a number of countries. We believe we have developed from this an even stronger understanding of

where the telecommunications market is headed in Australia.

Telecommunications businesses all over the world are being challenged to be innovative and bold in

developing new services, and at the same time reduce costs so as to remain competitive as retail prices

of legacy products fall. Cautious and well-defined investments aimed at meeting both challenges are

being actively worked upon at the time of writing. We are laying out the necessary foundations well ahead

of the competition.

Simon Ehrenfeld MBA MMR

Chief Executive Officer


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Directors’ ReportDirectors’ Report

Your directors present their report on the company and its controlled entities

for the financial year ended 30 June 2007.

Directors

The names of directors in office at any time during or since the end of the

year are:

Russell CollettSimon EhrenfeldJurgen SteinertDaniel Ehrenfeld

Glenn Darlington (appointed 20 December 2006)

Juliette Reay (retired 23 December 2006)

Gregory Searle (retired 19 January 2007)

Paul Stevenage

Directors have been in office since the start of the financial year to the date

of this report unless otherwise stated.

Company Secretary

John Raftis held the position of company secretary throughout the financial

year.

Principal Activities

The principal activities of the economic entity during the financial year

were:

Telecommunications and supply of Internet services;

There were no significant changes in the nature of the economic entity’s

principal activities during the financial year.

Operating Results

The consolidated loss of the economic entity after providing for income tax

and eliminating outside equity interests amounted to $746,000

(2006: Profit of $799,000).

Dividends Paid or Recommended

Dividends paid or declared for payment are as follows:

Ordinary dividend as recommended in last year’s report: Nil

Interim ordinary dividend: Nil

Ordinary dividend as recommended in this year’s report: Nil

Review of Operations

Significant events during the 2006-07 Reporting Period:

Acquisition of the aaNet Communications group of ISPs.

Release of full-service telephony products.

Appointed as a Preferred Supplier for the Victorian Government.

Secured exclusive rights for Australia, New Zealand and Oceania for

new low-cost wireless web access technology.

Significant events since the end of the Reporting Period:

Small Shareholdings Facilities

EFTel has implemented small shareholding facilities to permit holders

of unmarketable parcels to either dispose of their holding, keep their

current holding, or increase their holding. The costs of the sales and

purchases are to be borne by EFTel as a service to its shareholders. It

is envisaged that the company will be able to reduce the number of

unmarketable parcels held and in doing so reduce the ongoing costs

of shareholder management.

Financial Position

The net assets of the economic entity were $15.7m at 30 June 2007

($16.5m at 30 June 2006). During the period, the company engaged

in heavy investment into its growth strategy, which has included the

development of its aaNet business, the rollout of full service telephony

products, and the deployment of new technologies.

The directors believe the group is in a strong and stable financial position

to expand and grow its current operations.

Significant Changes in State of Affairs

The following significant changes in the state of affairs of the parent entity

occurred during the financial year:

On 1 July 2006 the company acquired the businesses of Instant

Communications.

On 10 July 2006 the company acquired the businesses of the aaNet

Communications group.

Subsequent Events

There has not been any matter or circumstance occurring subsequent

to the end of the financial year that has significantly affected, or may

significantly affect, the operations of the consolidated entity, the results of

those operations, or the state of affairs of the consolidated entity in future

financial years.

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.

i.

ii.


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Simon Ehrenfeld MBA - MANAGING DIRECTOR (Age 40)

Simon is the CEO of EFTel Limited (formerly Datafast Telecommunications Ltd). He holds a Master of Business

Administration degree with 5 Dux awards from the University of Western Australia, as well as a Masters in

Management Research.

Simon is a former State President and Honorary Life Member of the Young Liberal Movement of Australia. He

has served as Managing Director of various ISPs in the EFTel group for 11 years.

Simon serves as a member of the nomination committee, the remuneration committee and the stakeholder

relations committee.

Information on Board Members

Glenn Darlington - NON-EXECUTIVE CHAIRMAN (Age 60)

Glenn has been a senior executive for many years with companies such as MCA/Universal City

Studios, News Limited, Walt Disney Productions, TVW Entertainment, Menwood Television, George

Patterson Advertising and the Australian Broadcasting Corporation.

He also has extensive experience in Australia with companies such as MCA/Universal, Lucasfilm,

Columbia Pictures and Warner Bros Licensing.

Glen retired from the Australian Army reserve with the rank of Major and serves as a Councillor on

the Celebrate WA Council. He has been elected to the Sovereign Order of St John of Jerusalem.

Glen serves on the nominations committee and remuneration committee.

Jurgen Steinert GAICD - EXECUTIVE DIRECTOR (Age 36)

Jurgen is the Chief Technical Officer of EFTel and has a strong technical knowledge in addition to his background in management.

Jurgen previously served as the Director of Finance and Resources.

He is a certified member of the Australian Computer Society having completed the ACS Certification Course specialising in Project

Management.

He is a graduate of the Australian Institute of Company Directors. Originally starting with Southwest Internet Systems, he has been

with ISPs in the group for 12 years.

Jurgen serves as a member of the nomination committee and the audit committee.

Russell Collett Dip.R.E.M. - NON-EXECUTIVE DIRECTOR

(Age 43)

Russell is a Licensed Real Estate Agent, Auctioneer, and Business Agent. He is the Managing Director of Collett Realty.com and is a member of the one of the

Real Estate institute’s liaison committees. Russell has over 20 years management experience.

Russell serves as a member of the nomination committee, the audit committee and chairman of the stakeholder relations committee.


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Directors’ Report

Daniel Ehrenfeld - EXECUTIVE DIRECTOR (Age 47)

Daniel has had 18 years experience in the IT industry, with particular experience in retail sales and marketing. For the last 10 years he has been actively

involved in numerous aspects of the ISP industry including mergers, acquisitions, marketing and brand integrations. He was responsible for the creation and

development of Internet Express, which became part of the EFTel group in 2000.

Daniel serves as a member of the nomination committee and two special sub-committees of the board.

John Raftis CPA ACIS - COMPANY SECRETARY (Age 37)

John is a Business graduate of Curtin University. He completed his CPA with one of the highest rankings in the country. He is a Chartered Secretary and holds

a Graduate Diploma in Company Secretarial Practice with Chartered Secretaries Australia. John has 17 years of industry-based accounting experience. John

is the Chief Financial Officer and has been with ISPs in the group for 7 years.

John serves as secretary to the audit committee.

Paul Stevenage ASA - NON-EXECUTIVE DIRECTOR (Age 38)

Paul is the Finance Manager of Major Change for Woolworths Ltd. His previous roles include Group Commercial Manager for ACM, the largest division of Boral

Ltd, State Commercial Manager for Mayne Nickless and Financial Controller with BGC. Paul is a former Lions Youth of the Year, Commonwealth of Nations

Youth of the Year, and Murdoch University Guild President. He holds a Bachelor of Commerce degree.

Paul serves as a member of the remuneration committee, as chairman of the audit committee, and as chairman of the nomination committee

Juliette Reay Dip.Mgt. - DIRECTOR (Retired 23 December 2006) (Age 51)

Juliette is a Manager within the Department of Treasury and Finance. She has previously served as a Manager in the Department of Consumer and

Employment Protection, as an Executive Officer in the Ministry of Premier, and as an Executive Advisor for the Australian Taxation Office.

Juliette was Chairman of the Liberal Party’s Parliamentary Candidate Selection Committee for 8 years, and is a former Air Force NCO. She holds a Diploma of

Management.

Juliette served as a member of the audit committee and a special sub-committee of the board, member and secretary of the nomination committee, and

chairman of the remuneration committee.

Greg Searle B.App.Sc. DIRECTOR (Retired 19 January 2007) (Age 53)

Greg is a veteran of the IT industry having built and sold several IT services businesses over the past 30 years. He has resided in Japan for a number of years

and is engaged internationally as a both a technical and strategic advisor. He has worked in both the public and private sectors during his career, and has

extensive experience in the implementation of Enterprise Wide Resource Management Systems, and the development of internet based applications. His

technical expertise was acknowledged in 1998 by winning the “Best Legal Site on the Web” for the design and development of Netjustice. Greg holds a degree

in Applied Science from the University of Canberra.

Greg served as a member of the audit committee and the nomination committee, and as secretary of a special sub-committee of the board.

Information on Board Members (continued)


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Remuneration Report

This report details the nature and amount of remuneration for each director

of EFTel Limited and for the executives receiving the highest remuneration.

Remuneration PolicyOverview

The remuneration policy of EFTel Limited has been designed to align director

and executive objectives with shareholder and business objectives by

providing a fixed remuneration component and offering incentives based on

key performance areas affecting the economic entity’s financial results. The

board of EFTel Limited believes the remuneration policy to be appropriate

and effective in its ability to attract and retain the best executives and

directors to run and manage the economic entity, as well as create goal

congruence between directors, executives and shareholders.

The remuneration policy, setting the terms and conditions for the executive

directors was developed by the remuneration committee. The remuneration

committee reviews the packages of the top 5 executives as well as all non-

executive directors and the company secretary. It undertakes this process

annually by reference to the economic entity’s performance, executive

performance and comparable information from industry sectors and other

listed companies in similar industries.

The board policy is to remunerate non-executive directors at market rates

for comparable companies for time, commitment and responsibilities.

The remuneration committee determines payments to the non-executive

directors and reviews their remuneration annually, based on market

practice, duties and accountability. The maximum aggregate amount of

fees that can be paid to non-executive directors is subject to approval by

shareholders at the Annual General Meeting.

The non-executive directors receive a superannuation guarantee

contribution required by the government, which is currently 9%, and do

not receive any other retirement benefits. The executive directors and other

specified executives receive a superannuation guarantee contribution

required by the government, which is currently 9%, and are entitled to

receive up to a further 3% matched by the company on a dollar for dollar

basis for voluntary superannuation contributions. Directors and all other

employees are able to enter into salary sacrifice arrangements for their

superannuation and eligible equipment such as laptop computers.

The directors are employed on a continuous basis. Should the executive

directors be terminated then they would receive a termination payment

based upon their length of service and specified notice periods. The other

key management personnel are employed on a continuous basis with

specified notice periods required for termination of employment.

Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration

The basis for determining the nature and amount of remuneration for board

members and senior executives of the economic entity is as follows:

The performance of executives is measured against criteria set by the

remuneration committee. All bonuses and incentives must be linked to

predetermined performance criteria. The policy is designed to attract and

retain the highest calibre of executives and reward them for performance

that results in long-term growth in shareholder wealth. The company has an

excellent record of key executive retention and this is viewed as one of its

main strengths.

The remuneration policy has been tailored to increase goal congruence

between shareholders, directors and executives. There have been two

methods applied in achieving this aim. These are the payment of a

performance bonus based on key performance indicators, in cash, and/or

the payment of bonuses in the form of an issue of shares, to the directors

and a number of executives.

The remuneration committee has set bonuses to encourage achievement of

specific goals that have been given a high level of importance in relation to

the future growth and profitability of the economic entity. The remuneration

committee will review the performance bonuses to gauge their effectiveness

against achievement of the set goals, and adjust future years’ incentives as

they see fit, to ensure use of the most cost effective and efficient methods.

Performance Based Remuneration

Various remuneration packages include a performance-based component,

consisting of key performance indicators (KPIs). The intention of this

programme is to align the goals of directors and executives with that of the

business and shareholders. The KPIs are set annually. The KPIs are targeted

in areas the board believes hold greater potential for group expansion and

profit.


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Performance in relation to the KPIs is assessed annually, with bonuses

being awarded depending on the number and deemed difficulty of the

KPIs achieved. Following the assessment, the KPIs are reviewed by the

remuneration committee in light of the desired and actual outcomes, and

their efficiency is assessed in relation to the group’s goals. In determining

whether or not a KPI has been achieved, EFTel bases the assessment on

both audited figures and information recorded in the company’s customer

service systems.

The telecommunications sector faces increasingly competitive issues in key

areas, with customer numbers affected by churn and market maturation,

pressures on profitability, and challenges to improving shareholder value,

all prevailing phenomena in the sector. These issues have combined with

significantly rising costs in the Australian labour market, particularly in

Western Australia where most of the senior executives are based.

The company has met these challenges by giving some consideration to the

reviewing of base salaries to account for market pressures, while offering

the majority of potential additional remuneration in the form of incentives

based on improving the key areas.

The company rewards its senior executives with incentive-based

remuneration based on achieving ambitious performance targets for three

key indicators – number of active accounts, EBITDA and share price. For

achieving each of these targets, the incentives are capped at $85,000

spread across all senior executives, of which no more than 60% can be

paid to the executive directors. To achieve the full incentive bonus in each

category, the company is required to increase the number of active accounts

by 20%, increase EBITDA by 20%, and increase the share price by 100%.

The number of active accounts is measured on information recorded in the

company’s customer service systems. EBITDA is measured on comparisons

of audited figures between financial years. Share price is measured by the

weighted average price in the month following release of the Annual Report.

The amount of each incentive bonus is scaled back for partial achievement

of targets. For each item where the previous year’s result is successfully

maintained but not improved upon, no incentive bonus is payable. The

senior executives are responsible as a group for working towards these

targets. The senior executives also have individual KPI incentives for which

a combined limit of $85,000 is payable across all senior executives, and of

which no more than 60% can be paid to the executive directors. For each

KPI incentive the managing director is limited to 30% of the bonus.

Additional incentive bonuses for exceeding the performance targets apply

in the event that the KPI target for that category is exceeded. Accounts

growth is rewarded at $6 per active account above target. EBITDA growth

is rewarded at 6% of EBITDA above target. Share price growth is rewarded

at 3% of the share price above target, multiplied by the number of

shares currently on issue. The number of active accounts is measured on

information recorded in the company’s customer service systems. EBITDA is

measured on comparisons of audited figures between financial years. Share

price is measured by the weighted average price in the month following

release of the Annual Report. The additional incentive bonuses stated

are the collective total payable across the remuneration packages of all

senior executives, of which no more than 60% can be paid to the executive

directors, and no more than 30% to the managing director.

The current incentive scheme is viewed as effective. The company has

required its senior executives to cope with fewer supporting resources. This

has resulted in reduced labour costs as a proportion of revenue, as well as

a more narrowed focus on achievement in the key areas. Over the 2006-07,

there were improvements in the number of active accounts and share price.

The improved run rate of EBITDA has enabled the company to give guidance

of $3 million for 2007-08, almost double the 2006-07 result. It is also

viewed that the remuneration focus needs to support a continuation of the

current improvements. Further improvements in these areas are anticipated

to put the company into a position where it can pay ongoing dividends in

order to enhance sustainable shareholder wealth.

Directors’ Report


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The remuneration for each director and each of the 5 executive officers of the consolidated entity receiving the highest remuneration during the year was as

follows:

2007

Short-term employee benefits Post-employmentShare-based

paymentTotal

Salary & fees Bonus Non-Monetary Other Superannuation Other Shares

$ $ $ $ $ $ $ $

Glenn Darlington1 16,723 - - - 1,505 - - 18,228

Simon Ehrenfeld 236,716 - - - 26,963 - - 263,679

Russell Collett 21,096 - - - 1,898 - - 22,994

Daniel Ehrenfeld 94,751 - - - 8,527 - - 103,278

Juliette Reay2 10,835 - - - 975 - - 11,810

Greg Searle3 - - 9,199 - 4,232 - - 13,431

Jurgen Steinert 139,340 - 4,773 - 37,495 - - 181,608

Paul Stevenage 21,096 - - - 1,898 - - 22,994

Total 540,557 - 13,972 - 83,493 - - 638,022 1 The remuneration was for the period from 20 December 2006 to 30 June 20072 The remuneration was for the period from 1 July 2006 to 23 December 20063 The remuneration was for the period from 1July 2006 to 19 January 2007

Other key management personnel remuneration

2007

Short-term employee benefits Post-employmentShare-based

paymentTotal

Salary & fees Bonus Non-Monetary Other Superannuation Other Shares

$ $ $ $ $ $ $ $

Jeremy Cousins 141,289 - - - 18,887 - - 160,176

John Raftis 139,898 - - - 18,934 - - 158,832

John Lane 139,574 - - - 18,534 - - 158,108

Luke MacKinnon 145,295 - 4,037 - 13,439 - - 162,771

Richard Swancott 117,953 - - - 10,539 - - 128,492

Total 684,009 - 4,037 - 80,333 - - 768,379

Performance Income as a Proportion of Total Remuneration

Executive directors and executives are offered performance based bonuses

based on set monetary figures, rather than proportions of their salary. The

remuneration committee has set bonuses to encourage achievement of

specific goals that have been given a high level of importance in relation to

the future growth and profitability of the economic entity. The remuneration

committee will review the performance bonuses to gauge their effectiveness

against achievement of the set goals, and adjust future years’ incentives as

they see fit, to ensure use of the most cost effective and efficient methods.

Shares and Options Issued as Part of Remuneration for the Year Ended 30 June 2007

No shares or options were issued to directors and executives as part of

remunerations for the year ended 30 June 2007.

Employment Contracts of Directors and Senior Executives

The employment conditions of the Chief Executive Officer, Simon Ehrenfeld,

the executive directors, Mr Jurgen Steinert and Mr Daniel Ehrenfeld,

and specified executives are formalised in contracts of employment. All

executives are permanent employees.


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Directors’ ReportTermination Costs

Senior Executives can fall into one of six bands in determining the cost to the company in the event that their employment is terminated, according to the

following schedule:

Band Position and Length of Service Termination Benefit Additional Benefit for Termination by Company

A Service for periods less than Bands B- F Nil 1 week per year of continuous full-time employment

B

(i)5 years of Senior Management service and

7 Years continuous full-time employment OR

(ii) 3 years Executive Director service and


(iii) 1 year of Managing Director service and

3 Years continuous full-time employment

1 months’ salary 1 week per year of continuous full-time employment

C

(i) 7 years of Senior Management service and




(iii) 3 years Managing Director service and



D







2 months’ salary 2 weeks per year of continuous full-time employment

E

(i) 10 years Executive Director service and


(ii) 7 years Managing Director service and



F(i)10 years Managing Director service and

15 Years continuous full-time employment4 months’ salary 2 weeks per year of continuous full-time employment

The following criteria apply to the Termination Costs Schedule:

The sum of the Termination Benefit and the Additional Benefit for Termination by the Company is limited to 12 months’ salary.

Length of Service in the capacity of Senior Management, Executive Director, or Managing Director refers to service to EFTel Ltd (formerly Datafast

Telecommunications Ltd) and EFTel More Than Broadband Pty Ltd (formerly EFTel Pty Ltd).

Length of Continuous Full-time Employment relates to service to EFTel Ltd and/or any of its subsidiaries.

In any instance where the Termination Benefits are calculated to be an amount less than the Minimum Conditions of Employment, the Minimum

Conditions of Employment prevail.

1.

2.

3.

4.


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Termination Cost bands and Notice Periods are as per the following table:

Executive Classification Band Termination Notice Period Required

Length of Full-time Continuous Employment

Simon Ehrenfeld Managing Director E* 3 months 11 years

Jeremy Cousins Senior Management B 2 months 7 years

Daniel Ehrenfeld Executive Director A 2 months 1 year

John Lane Senior Management A 2 months 6 years

Luke MacKinnon Senior Management A 2 months 11 years

John Raftis Senior Management B 3 months 7 years

Jurgen Steinert Executive Director D* 2 months 11 years

Richard Swancott Senior Management A 2 months 6 years

* Under agreements that existed prior to the current schedule being set, for voluntary or mutually agreed termination, Mr S Ehrenfeld is entitled to an additional three months salary and no cap, and Mr J Steinert is entitled to an additional two months and no cap.

Meetings of Directors

During the financial year, 17 meetings of directors (excluding committees of directors) were held. Attendances by each director during the year were as

follows:

BOARD MEETINGS AUDIT COMMITTEE REMUNERATION COMMITTEE

Number eligible to attend

Number Attended


Number Attended


Number Attended

Glenn Darlington 7 7

Simon Ehrenfeld 17 17 3 3

Russell Collett 17 17 3 2

Daniel Ehrenfeld 17 17

Juliette Reay 10 10 2 2 2 2

Greg Searle 10 10 2 1

Jurgen Steinert 17 17 1 1

Paul Stevenage 17 16 3 3 4 4

NOMINATION COMMITTEE STAKEHOLDER RELATIONS COMMITTEE

Number eligible to attend Number Attended Number eligible to

attend Number Attended

Glenn Darlington

Simon Ehrenfeld 2 2 1 1

Russell Collett 2 2 2 2

Daniel Ehrenfeld 2 2 1 1

Juliette Reay 2 2

Greg Searle 2 2 2 2

Jurgen Steinert 2 2

Paul Stevenage 2 2

The board meets on a regular monthly basis. In addition, a number of special meetings have been convened.


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Directors’ ReportDirectors’ Shareholdings

The following table sets out each director’s relevant interest in shares of the

company as at the date of this report: Conditions of Employment prevail.

Fully Paid Ordinary Shares

Number

Directors

Russell Collett 43,000

Daniel Ehrenfeld 15,444,585

Simon Ehrenfeld 27,492,983

Jurgen Steinert 6,068,962

Paul Stevenage 100,000

Indemnifying Officers or Auditor

The company has entered into an agreement to pay insurance premiums

to indemnify directors and officers against any payment they shall become

legally obligated to make arising out of claims made against them in their

capacity as directors or officers of the company. The total annual premium

is $16,125.00.

EFTel has not entered into any arrangement to indemnify the auditors.

Options

At the date of this report, the unissued ordinary shares of EFTel Limited

under option are as follows:

Grant Date Date of Expiry Exercise Price Number under Option

15-June-2000 16-June-2010 $2.00 100,000

During the year ended 30 June 2007, no ordinary shares of EFTel Limited

were issued on the exercise of options granted under the EFTel Employee

Option Plan.

No person entitled to exercise the option had or has any right by virtue of the

option to participate in any share issue of any other body corporate.

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.

Non-audit Services

The board of directors, in accordance with advice from the audit committee,

is satisfied that the provision of non-audit services during the year is

compatible with the general standard of independence for auditors imposed

by the Corporations Act 2001. The directors are satisfied that the services

disclosed below did not compromise the external auditor’s independence for

the following reasons:

all non-audit services are reviewed and approved by the audit

committee prior to commencement to ensure they do not adversely

affect the integrity and objectivity of the auditor; and

the nature of the services provided do not compromise the general

principles relating to auditor independence as set out in the APES110:

Code of Ethics for Professional Accountants issued by the Accounting

Professional & Ethical Standards Board.

There were not any fees for non-audit services paid/payable to the external

auditors during the year ended 30 June 2007:

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2007

has been received and can be found on page 13 of the directors’ report.

Rounding off of Amounts

The company is an entity to which ASIC Class Order 98/100 dated 10 July

1998 applies and, accordingly, amounts in the financial statements and

directors’ report have been rounded to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors made

pursuant to s. 298(2) of the Corporations Act 2001.

Simon Ehrenfeld

Chief Executive Officer

Dated this 28th day of September 2007.


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EFTel Limited produces its Corporate Governance guidelines giving

consideration to the Principles of Good Corporate Governance and Best

Practice Recommendations of the ASX Corporate Governance Council.

1. ROLE OF THE BOARD AND MANAGEMENT

The Board of Directors is responsible to shareholders for the overall

corporate governance of the company. This responsibility includes:

reviewing and determining the company’s strategic direction, the

annual budget and financial plans;

overseeing and monitoring organisational performance and the

achievement of the company’s strategic goals and objectives;

enhancing and protecting the reputation of the organisation;

appointing, monitoring and rewarding the managing director;

approving all significant business transactions, including acquisitions

and significant capital expenditure;

ensuring the significant risks facing the company and its controlled

entities have been identified and appropriate and adequate control,

monitoring and reporting mechanisms are put in place;

monitoring and approving financial and other reporting including

continuous disclosure reporting; and

reporting to shareholders

In accordance with the Principles of Good Corporate Governance and Best

Practice Recommendations of the ASX Corporate Governance Council the

roles, the roles of chairman and managing director were separated with

the appointment of an independent chairman in December 2006. With

the growth in size of the organisation, this appointment will allow the

managing director to add additional value in his executive role.

The managing director is accountable to the board for the management

of the company within the policy and authority levels prescribed by the

board. He has the authority to approve capital expenditure and business

transactions within limits set by the board.

2. COMPOSITION OF THE BOARD

The company presently has three non-executive directors, all of whom

are considered by the board to be independent in terms of the Council’s

definition of independent director, and three executive directors. The names

of the directors of the company in office at the date of this Statement are

set out on page 4 of this Annual Report.

Directors have the right to seek independent professional advice at the

company’s expense in the furtherance of their duties as directors. Written

approval must be obtained from the chairman prior to incurring any

expense on behalf of the company.

In addition, the board has established an audit committee to assist it in

discharging its responsibilities. The responsibilities of that committee of

the board are set out later in this Statement. It is the board’s policy that the

audit committee should be entitled to obtain independent professional or

other advice at the cost of the company and to obtain such resources and

information from the group, including direct access to employees of and

advisers to the group, as it may require.

The board is balanced in its composition with each current director

bringing a range of complementary skills and experience to the company

as indicated on pages 5-6 of this Annual Report. The board will consider

the appointment of further directors if it is felt that additional expertise is

required in specific areas, or when an outstanding candidate is identified.

The company’s chairman, Mr Glenn Darlington, was appointed in December

2006 as independent Chairman and Director under the terms and

conditions of the company’s constitution.

The board has established a nomination committee. The responsibilities

of the committee are set out later in this statement. The committee is

comprised of the current directors. It is chaired by Mr Paul Stevenage, who

is an independent director.

3. ETHICAL AND RESPONSIBLE DECISION-MAKING

It continues to be the policy of the company for directors, officers and

employees to act with the utmost integrity, objectivity and in compliance

with the letter and the spirit of the law and company policies.

EFTel Ltd allows employees and directors to own and trade securities in the

company under the following guidelines:

All employees and directors are required to notify the Company

Secretary of any acquisition or disposal of company securities within 5

working days of the transaction occurring.

All directors’ notifications are to be tabled at the subsequent Board

meeting.

No trading in company securities is permitted within six weeks of the

scheduled Australian Stock Exchange (ASX) announcements of the

company’s preliminary results for the half-year and full financial year.

In periods not covered by (3), trading in company securities is only

permitted within the four weeks subsequent to:

any scheduled ASX announcements, or

any ASX announcements made under the continuous disclosure

requirements.

4. INTEGRITY OF FINANCIAL REPORTING

EFTel’s managing director and group financial controller report in writing

to the audit committee that the consolidated financial statements of EFTel

and its controlled entities for each half and full financial year present a true

and fair view, in all material respects, of the group’s financial condition and

operational results and are in accordance with accounting standards.

An audit committee was established during the 2004 financial year. The

current members of the EFTel audit committee are Mr Russell Collett, Mr

Jurgen Steinert and Mr Paul Stevenage. The committee is comprised of a

majority of independent directors. Mr Stevenage, who is an independent

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2.

3.

4.

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b)

Corporate Governance Statement


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director, is the chairman of the committee. The objectives of the audit

committee are to:

monitor the integrity of the company’s financial statements and

any formal announcements relating to the company’s financial

performance

investigate and resolve any disputes regarding financial reports

between the external auditors and the management

review the company’s internal financial controls and risk management

systems

make recommendations to the board in relation to the appointment

of the external auditor and to approve the remuneration and terms of

engagement of the external auditor

review and monitor the independence of the external auditor and

overall effectiveness of the audit process

report to the board on all matters and note any items of concern or

areas where improvement is needed, and make recommendations as

to how those concerns can be resolved.

5. CONTINUOUS DISCLOSURE TO ASX

The board of directors is responsible for monitoring compliance with ASX

Listing Rule disclosure requirements and reviews proposed announcements

to the ASX before they are released. The company secretary is responsible,

under the ASX Listing Rules, for all communications with the ASX. The

chairman, managing director and company secretary regularly discuss

issues relating to the company’s continuous disclosure obligations.

6. COMMUNICATION WITH SHAREHOLDERS

It is the policy of the company to communicate with shareholders and other

stakeholders in an open, regular and timely manner so that the market

has sufficient information to make informed investment decisions on the

operations and results of the company. Mechanisms used to communicate

with shareholders include:

regular shareholder communications such as the Annual Report and

the Half-Yearly Report (unless a shareholder has elected not to receive

same);

shareholder access to communications through the use of information

technology, e.g. the EFTel website

The board encourages full participation of shareholders at the Annual

General Meeting to ensure a high level of accountability and understanding

of the company’s strategy and goals. It is also the company’s practice is to

ensure the group’s external auditor attends the AGM.

7. RISK MANAGEMENT

The board is responsible for the oversight of the group’s risk management

and control framework. The audit committee assists the board in fulfilling

its responsibilities in this regard by reviewing the financial and reporting

aspects of the framework.

Responsibility for control and risk management at different sites is

delegated to the appropriate individual within the group with the managing

director having ultimate responsibility to the board for the risk management

and control framework.

Arrangements put in place by the board to monitor risk management

include:

regular reporting to the board in respect of operations and the

financial position of the group;

circulation to the board of the minutes of each meeting of the audit

committee; and

presentations to the board by appropriate managers and/or

independent advisers, where necessary on the nature of particular

risks and details of the measures which have been or can be adopted

to manage or mitigate the risk.

EFTel’s Chief Executive Officer and Chief Financial Officer report in writing

to the audit committee that:

the statement given in accordance with Council’s best practice

recommendation 4.1 is founded on a sound system of risk

management and internal compliance and control which implements

the policies adopted by the board; and

the company’s risk management and internal compliance and control

framework is operating efficiently and effectively in all material

respects.

8. PERFORMANCE

The board is equipped with the necessary skills and experience to

successfully implement the current strategy of the company. In order to

achieve this, the board is to:

assess the necessary and desirable competencies of board members

review board succession plans

evaluate the board’s performance

appoint and recommend the removal of directors

appoint and remove the Company Secretary

set the appropriate size of the board within the terms of the company’s

constitution

set the composition of the board with regard to executive directors,

non-executive directors and independent directors.

facilitate continuing education programmes

The board is responsible for the appointment of the managing director and

conducts reviews of his performance.

9. REMUNERATION

The company’s policies relating to directors’ and senior executives’

remuneration and the level of their remuneration are set out in the

Directors’ Report on page 7-11 of this Annual Report and Note 4 to the full

financial report.


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A remuneration committee was established during the 2004 financial year.

The committee comprises Mr Glenn Darlington, Mr Paul Stevenage, both of

whom are non-executive independent directors, and Mr Simon Ehrenfeld.

The committee is chaired by Mr Stevenage.

The role of the remuneration committee is to:

Review and recommend to the Board as appropriate Remuneration

policy, including:

Employee share plans

Incentive schemes

Superannuation

Determine the broad structure and objectives of the remuneration

policy and its relationship to company performance.

Determine:

the remuneration of all Directors

the fees of the Company Secretary

the remuneration of executives who earn above a threshold set by the

Board from time to time.

The fees payable to individual non-executive directors have been

determined by the board within the aggregate sum of $150,000 per annum

provided for under clause 21.1 of the constitution. That aggregate sum

can only be increased with the prior approval of the shareholders of the

company at a general meeting. A non-executive director is entitled to

a refund of approved expenditure and may also receive payments for

consultancy work contracted for and performed on the company’s behalf.

The remuneration levels of executive directors are determined by the

remuneration committee after taking into consideration those that apply to

similar positions in comparable companies in Australia.

10. INTERESTS OF STAKEHOLDERS

EFTel conducts its business within the policies set to promote ethical and

responsible decision-making, and in accordance with the group’s core

values. EFTel values the role that stakeholders play in the business and has

created a Stakeholder Relations Committee consisting of Mr Russell Collett,

Mr Daniel Ehrenfeld and Mr Simon Ehrenfeld. The committee is chaired by

Mr Collett and its role is to:

undertake stakeholder related activities as directed by the Full Board

that require appropriate and effective mediation.

develop policies of mediation that are designed to meet the needs

of the company and its stakeholders, with the aim of enhancing

corporate and individual relationships.

conduct reviews and make subsequent recommendations to the board

in relation to stakeholder issues and negotiations and any other

matter determined by the full board.

Corporate Governance

Unless disclosed above, all the best practice recommendations of the ASX

Corporate Governance Council have been applied for the entire financial

year ended 30 June 2007.

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Financial Report


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Income statement for the financial year ended 30 June 2007

Consolidated Company

2007 2006 2007 2006

Note

$’000 $’000 $’000 $’000

Revenue 2 34,142 25,972 18,249 13,062

Other income 2 289 238 269 12

Communication expenses (21,489) (12,222) (12,738) (10,280)

Employee benefits expenses (7,788) (7,376) (2,856) -

Occupancy expenses (1,027) (1,020) (574) (311)

Depreciation and amortisation expenses (2,239) (1,851) (1,251) (997)

Finance costs (148) (65) (144) (35)

Other expenses (2,536) (2,431) (1,168) (1,136)

Profit/(loss) before income tax expense 2 (796) 1,245 (213) 315

Income tax benefit/(expense) 3 50 (446) (78) (91)

Profit/(loss) for the period (746) 799 (291) 224

Profit/(loss) attributable to members of EFTel Limited (746) 799 (291) 224

Earnings per share:

Basic (cents per share) 20 (0.473) 0.506

Diluted (cents per share) 20 (0.473) 0.506

The notes following the financial statements form part of the financial report.

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Balance sheet as at 30 June 2007


2007 2006 2007 2006 Note

$’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 27 2,451 2,209 2,375 1,438

Trade and other receivables 6 2,251 2,569 6,342 6,431

Other 7 882 614 234 432

Total current assets 5,584 5,392 8,951 8,301

Non-current assets

Other financial assets 8 1 1 14,294 14,216

Property, plant and equipment 9 1,826 2,321 801 1,321

Deferred tax assets 3 3,757 3,731 2,842 2,881

Goodwill 10 12,556 11,157 1,321 -

Other intangible assets 11 2,189 1,615 1,140 168

Total non-current assets 20,329 18,825 20,398 18,586

Total assets 25,913 24,217 29,349 26,887

Current liabilities

Trade and other payables 12 4,994 3,702 3,454 2,168

Borrowings 13 1726 248 1726 231

Current tax payables 3 386 1,098 386 1,098

Provisions 14 381 298 - -

Deferred revenue 15 1,954 1,717 844 218

Total current liabilities 9,441 7,063 6,410 3,715

Non-current liabilities

Borrowings 16 137 97 137 97

Deferred tax liabilities 3 262 407 307 289

Provisions 17 335 166 - -

Total non-current liabilities 734 670 444 386

Total liabilities 10,175 7,733 6,854 4,101

Net assets 15,738 16,484 22,495 22,786

Equity

Issued capital 18 37,708 37,708 37,708 37,708

Accumulated losses 19 (21,970) (21,224) (15,213) (14,922)

Parent entity interest 15,738 16,484 22,495 22,786

Total equity 15,738 16,484 22,495 22,786


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Statement of changes in equity for the financial year ended 30 June 2007


Issued Capital Accum Losses

Total Equity Issued Capital

Accum Losses

Total Equity

$’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2005 37,726 (22,023) 15,703 37,726 (15,146) 22,580

Profit attributable to members of parent entity* - 799 799 - 224 224

Share consolidation costs (18) - (18) (18) - (18)

Balance at 30 June 2006 37,708 (21,224) 16,484 37,708 (14,922) 22,786

Profit attributable to members of parent entity* - (746) (746) - (291) (291)

At 30 June 2007 37,708 (21,970) 15,738 37,708 (15,213) 22,495

* Profit attributable to members of parent entity equals the total recognised income and expenses.


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Cash flow statement for the financial year ended 30 June 2007


Note 2007 2006 2007 2006

$’000 $’000 $’000 $’000

Cash flows from operating activities

Receipts from customers 39,560 29,965 33,355 14,336

Payments to suppliers and employees (36,914) (27,987) (30,657) (11,605)

Interest and other costs of finance paid (148) (65) (144) (35)

Income taxes paid (833) - (833) -

Net cash provided by operating activities 27(c) 1,665 1,913 1,721 2,696

Cash flows from investing activities

Interest received 140 70 140 12

Payment for property, plant and equipment (1,151) (546) (529) (296)

Proceeds from sale of property, plant and equipment - 189 - -

Payment for businesses 27(b) (1,815) (1,220) (1,815) (1,220)

Other (115) - (115) -

Net cash (used in) investing activities (2,941) (1,507) (2,319) (1,504)

Cash flows from financing activities

Proceeds from issues of equity securities - - - -

Payment for share consolidation - (18) - (18)

Payment for share issue costs - - - -

Proceeds from borrowings 2,002 179 2,002 179

Repayment of borrowings (484) (362) (467) (79)

Net cash provided by/(used in) financing activities 1,518 (201) 1,535 82

Net increase in cash and cash equivalents 242 205 937 1,274 Cash and cash equivalents at the beginning of the financial year 2,209 2,004 1,438 164

Cash and cash equivalents at the end of the financial year 27(a) 2,451 2,209 2,375 1,438


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1. Summary of accounting policies Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with the A-IFRS ensures that the consolidated financial statements and notes of the consolidated entity comply with International Financial Reporting Standards (‘IFRS’). The parent entity financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 ‘Financial Instruments: Disclosure and Presentation’; as the Australian equivalent Accounting Standard, AASB 132 ‘Financial Instruments: Disclosure and Presentation’ does not require such disclosures to be presented by the parent entity where its separate financial statements are presented together with the consolidated financial statements of the consolidated entity.

The financial statements were authorised for issue by the directors on 28 September 2007.

Basis of preparation

The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars.

Going Concern

The financial report has been prepared on the going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

For the reasons described below, there is significant uncertainty whether the company will continue as a going concern:

i. At balance date the company has net liabilities of $3, 857 and has incurred a loss of $746k after tax in the current period; and

ii. As at 30 June 2007 the company is not in compliance with its banking covenants.

The ability of the company to continue as a going concern is dependant on its ability to:

• Generate sufficient cash flows from operations to meet its financial obligations,

• Achieve future profitable trading operations, and

• Renegotiate its banking facilities.

At the date of this report and having considered the above factors, the directors are confident that the company will be able to continue as a going concern. Notwithstanding this there is significant uncertainty whether the company 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.

The financial report does not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company not continue as a going concern.

The company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 10 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

(a) Borrowings

Borrowings are recorded initially at fair value, net of transaction costs.

Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method.

(b) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

(c) Employee benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.

Defined contribution plans

Contributions to defined contribution superannuation plans are expensed when incurred.

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(d) Financial assets

Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs.

Subsequent to initial recognition, investments in subsidiaries are measured at cost. Subsequent to initial recognition, investments in associates are accounted for under the equity method in the consolidated financial statements and the cost method in the company financial statements.

Other financial assets are classified as either financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, or ‘loans and receivables’, and are measured at amortised cost or at fair value with changes in fair value recorded in equity, according to their classification. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Loans and receivables

Trade receivables, loans, and other receivables are recorded at amortised cost less impairment.

(e) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

ii. for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

(f) Goodwill

Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired, is recognised as an asset and not amortised, but tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Refer also note 1(g).

(g) Impairment of assets

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

Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

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

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(h) Income tax

Current tax

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

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches, associates and joint ventures except where the consolidated entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company/consolidated entity intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess.

Tax consolidation

The company and all its wholly-owned Australian resident entities have formed a tax consolidated group under Australian taxation law from 7 January 2003. EFTel Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group).

The EFTel group has entered into a Tax Funding and Sharing Agreement between the entities in the tax-consolidated group. Therefore amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 3 to the financial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants.

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(i) Intangible assets

Patents, trademarks and licences

Patents, trademarks and licences are recorded at cost less impairment. EFTel has acquired the domain broadband.com.au and regards this as having an indefinite useful life. In determining the useful life of the domain the following factors have been taken in to consideration:

• the expected usage of the asset; • changes in the market demand for the products or services output from the asset.

EFTel reviews the carrying amounts of these assets on an annual basis to determine whether there is any indication that those assets have suffered an impairment loss.

Software

Software is recorded at cost less amortisation and impairment. Software is amortised over 3 years.

Internally generated software arising from internal development is recognised if, and only if, all of the following are demonstrated:

• how the intangible asset will generate probable future economic benefits; • the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally-generated software are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over 3 years.

Research and development costs

Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred.

An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale; • the intention to complete the intangible asset and use or sell it; • the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits; • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Internally-generated intangible assets are stated at cost less accumulated amortisation and impairment, and are amortised on a straight-line basis over their useful lives as follows:

• Capitalised development costs

Purchased customer bases

Purchased customer bases represent the purchase price allocated to the existing customer base acquired. The purchased customer bases are recorded at cost less amortisation and impairment. Customer bases are amortised over the estimated customer attrition of the related customer base, which is 5 years.

Intangible assets acquired in a business combination

All potential intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably.

(j) Leased assets

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Consolidated entity as lessee

Assets held under finance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the consolidated entity’s general policy on borrowing costs.

Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

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(k) Payables

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services.

(l) Principles of consolidation

The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the company (the parent entity) and its subsidiaries as defined in Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in note 23 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If, after reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition, the deficiency is credited to profit and loss in the period of acquisition.

The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

The consolidated financial statements include the information and results of each subsidiary from the date on which the company obtains control and until such time as the company ceases to control such entity.

In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity are eliminated in full.

(m) Property, plant and equipment

Plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method is reviewed at the end of each annual reporting period.

The following estimated useful lives are used in the calculation of depreciation:

♦ Leasehold improvements 5

♦ Plant and equipment 5

♦ Equipment under finance lease 5

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(n) Provisions

Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

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

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

(o) Revenue recognition

Sale of goods

Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the significant risks and rewards of ownership of the goods.

Rendering of services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows:

♦ installation fees are recognised on completion of the installation ♦ internet and telephony service fees are recognised by reference to the period of time for which the service has been supplied. ♦ excess usage charges for internet services and telephony call charges are recognised in arrears at the time the charges are raised.

Dividend and interest revenue

Dividend revenue is recognised when the shareholder's right to receive payment has been established. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(p) Accounting standards not yet effective

Standards and Interpretations in issue not yet adopted

At the date of authorisation of the financial report, a number of Standards and Interpretations were in issue but not yet effective.

Initial application of the following Standards will not affect any of the amounts recognised in the financial report, but will change the disclosures presently made in relation to the consolidated entity’s and the company’s financial report:

Standard Effective for annual reporting periods beginning on or after

Expected to be initially applied in the financial year ending

♦ AASB 7 ‘Financial Instruments: Disclosures’ and consequential amendments to other accounting standards resulting from its issue

1-Jan-07 30-Jun-08

♦ AASB 101 ‘Presentation of Financial Statements’ – revised standard 1-Jan-07 30-Jun-08

♦ AASB 2007-7 ‘Amendments to Australian Accounting Standards’ 1-Jul-07 30-Jun-08

♦ AASB 8 ‘Operating Segments’ 1-Jan-09 30-Jun-10

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Initial application of the following Standards and Interpretations is not expected to have any material impact to the financial report of the consolidated entity and the company:

Standard/Interpretation

Effective for annual reporting periods beginning on or

after

Expected to be initially applied in the financial year ending

♦ AASB Interpretation 10 ‘Interim Financial Reporting and Impairment’ 1-Nov-06 30-Jun-08

♦ AASB Interpretation 11 ‘AASB 2 – Group and Treasury Share Transactions’ 1-Mar-07 30-Jun-08

♦ AASB 2007-1 ‘Amendments to Australian Accounting Standards arising from AASB Interpretation 11’

1-Mar-07 30-Jun-08

♦ AASB Interpretation 12 ‘Service Concession Arrangements’ 1-Jan-08 30-Jun-09

♦ AASB 2007-2 ‘Amendments to Australian Accounting Standards arising from AASB Interpretation 12’

1-Jan-08 30-Jun-09

♦ AASB 2007-4 ‘Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments’

1-Jul-07 30-Jun-08

♦ AASB Interpretation 13 ‘Customer Loyalty Programmes’ 1-Jul-08 30-Jun-09

♦ AASB Interpretation 14 ‘AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’

1-Jan-08 30-Jun-09

♦ AASB 123 ‘Borrowing Costs’ – revised standard 1-Jan-09 30-Jun-10

♦ AASB 2007-6 ‘Amendments to Australian Accounting Standards arising from AASB 123’ 1-Jan-09 30-Jun-10

Critical accounting judgements

In the application of the Group’s accounting policies, which are described in note 1, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgments. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The accounting policies set out above have been applied in preparing the financial statements for the year ended 30 June 2007 and the comparative information presented in these financial statements for the year ended 30 June 2006.

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

2. Profit from operations

(a) Revenue and other income

Revenue from continuing operations consisted of the following items:

Revenue from the rendering of services 34,142 25,972 18,249 13,062

Other income:

Interest revenue 140 70 140 12

Other income 149 - 129 -

Gain on disposal of property, plant and equipment - 168 - -

34,431 26,210 18,518 13,074

(b) Profit before income tax Profit before income tax has been arrived at after charging the following expenses. The line items below combine amounts attributable to continuing operations:

Cost of sales 21,489 12,222 12,738 10,280

Loss on disposal of property, plant and equipment 8 - - -

Finance costs:

Related parties - 25 - 8

Other 148 40 144 27

Total interest expense 148 65 144 35

Net bad and doubtful debts arising from:

Trade debtors 556 318 106 -

Other related parties 141 292 - -

Total bad and doubtful debts 697 610 106 -

Depreciation of non-current assets 1,560 1,452 971 997

Amortisation of non-current assets 679 399 280 -

Total depreciation and amortisation 2,239 1,851 1,251 997

Post employment expense

Defined contribution plan 582 602 312 -

582 602 312 -

Operating lease rental expenses:

Minimum lease payments 571 545 306 36

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

3. Income taxes

(a) Income tax recognised in profit or loss

Tax expense comprises:

Current tax expense 121 515 42 241 Deferred tax expense/(income) relating to the origination and reversal of temporary differences

(171) (69) 55 (150)

Benefit of tax losses utilised by subsidiary members of the tax consolidated group - - (19) -

Total tax expense/(benefit) (50) 446 78 91

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows:

Profit from operations (796) 1,245 (213) 315

Income tax expense calculated at 30% (239) 374 (64) 94

Non-deductible expenses 189 117 66 -

Non-assessable income - (45) - (3) Adjustments recognised in the current year in relation to the current tax of prior years

- - 76 -

Income tax attributable to entity (50) 446 78 91

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

(b) Current tax liabilities

Current tax payables:

Income tax payable attributable to:

Parent entity - 241 - 241

Other 386 857 386 857

386 1,098 386 1,098

(c) Deferred tax balances

Deferred tax assets comprise:

Provisions 196 139 - -

Allowance for doubtful debts 719 685 9 13

Other 20 55 12 16

Tax Losses 2,822 2,852 2,821 2,852

3,757 3,731 2,842 2,881

Deferred tax liabilities comprise:

Tax allowances relating to property, plant and equipment 86 293 131 289

Other 176 114 176 -

262 407 307 289

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3. Income taxes (cont’d)

Taxable and deductible temporary differences arise from the following:

Consolidated Opening balance

Charged to income

Charged to equity

Acquisitions/ disposals

Exchange differences

Changes in tax rate

Closing balance

2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Deferred tax liabilities: Tax allowances relating to property, plant and equipment

293 (207) - - - - 86

Other 114 62 - - - - 176

407 (145) - - - - 262

Deferred tax assets:

Provisions 139 57 - - - - 196

Provision for doubtful debts 685 34 - - - - 719

Other 55 (35) - - - - 20

879 56 - - - - 935

Consolidated Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance 2006

$’000 $’000 $’000 $’000 $’000 $’000 $’000


506 (213) - - - - 293

Other - 114 - - - - 114

506 (99) - - - - 407


Provisions 187 (48) - - - - 139

Provision for doubtful debts 547 138 - - - - 685

Other 45 10 - - - - 55

779 100 - - - - 879

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3. Income taxes (cont’d)

Company Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance 2007

$’000 $’000 $’000 $’000 $’000 $’000 $’000


289 (158) - - - - 131

Other 176 - - - - 176

289 18 - - - - 307


Provision for doubtful debts 13 (4) - - - - 9

Other 16 (4) - - - - 12

29 (8) - - - - 21

Company Opening balance

Charged to income

Charged to equity



Changes in tax rate

Closing balance

2006

$’000 $’000 $’000 $’000 $’000 $’000 $’000


529 (240) 289

529 (240) - - - - 289


Provision for doubtful debts 13 13

Other 16 16

13 16 - - - - 29

Tax consolidation

Relevance of tax consolidation to the consolidated entity

The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 7 January 2003 and are therefore taxed as a single entity from that date.

Nature of tax funding arrangements and tax sharing agreements

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, each of the entities in the tax-consolidated group will agree to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group.

The tax sharing agreement between members of the tax-consolidated group will provide for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations.

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4. Key management personnel remuneration The directors of EFTel Limited during the year were:

Glenn Darlington Chairman (Appointed 20 December 2006)

Simon Ehrenfeld Managing Director

Russell Collett Non-Executive Director

Daniel Ehrenfeld Executive Director

Juliette Reay Non-Executive Director (Retired as Director on 23 December 2006)

Greg Searle Non-Executive Director (Retired as Director on 19 January 2007)

Jurgen Steinert Executive Director

Paul Stevenage Non-Executive Director

The other key management personnel of EFTel Limited during the year were:

Jeremy Cousins Purchasing Manager

John Lane General Manager

Luke MacKinnon Technical Operations Manager

John Raftis Group Financial Controller/ Company Secretary

Richard Swancott Sales & Marketing Manager

(a) Key management personnel remuneration

The aggregate compensation of the key management personnel of the consolidated entity and company is set out below:


2007 2006 2007 2006

$ $ $ $

Short-term employee benefits 1,242,575 1,032,129 1,242,575 1,032,129

Post-employment benefits 163,826 140,298 163,826 140,298

Share-based payment - - - -

Total 1,406,401 1,172,427 1,406,401 1,172,427

All employees are employed through EFTel More Than Broadband Pty Ltd (formerly EFTel Pty Ltd) a 100% owned subsidiary of EFTel Limited.

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Directors’ remuneration

Short-term employee benefits Post-employment Share-based

payment Total

Salary & fees Bonus

Non-Monetary Other Superannuation Other Shares

2007

$ $ $ $ $ $ $ $

Glenn Darlington1 16,723 - - - 1,505 - - 18,228

Simon Ehrenfeld 236,716 - - - 26,963 - - 263,679

Russell Collett 21,096 - - - 1,898 - - 22,994

Daniel Ehrenfeld 94,751 - - - 8,527 - - 103,278

Juliette Reay2 10,835 - - - 975 - - 11,810

Greg Searle3 - - 9,199 - 4,232 - - 13,431

Jurgen Steinert 139,340 - 4,773 - 37,495 - - 181,608

Paul Stevenage 21,096 - - - 1,898 - - 22,994

Total 540,557 - 13,972 - 83,493 - - 638,022 1 The remuneration was for the period from 20 December 2006 to 30 June 2007 2The remuneration was for the period from 1 July 2006 to 23 December 2006 3 The remuneration was for the period from 1July 2006 to 19 January 2007


payment Total

Salary & fees Bonus Non-

Monetary Other Superannuation Other Shares 2006

$ $ $ $ $ $ $ $

Simon Ehrenfeld 216,370 - - - 19,473 - - 235,843

Russell Collett 21,901 - - - 1,971 - - 23,872

Daniel Ehrenfeld4 2,685 - - - 242 - - 2,927

Jurgen Steinert 133,369 - - - 32,931 - - 166,300

Greg Searle 26,466 - - - 2,381 - - 28,847

Paul Stevenage 23,858 - - - 2,147 - - 26,005

Juliette Reay 21,901 - - - 1,971 - - 23,872

Total 446,550 - - - 61,116 - - 507,666 4 The remuneration was for the period from 24 May 2006 to 30 June 2006.

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Other key management personnel remuneration


payment Total

Salary & fees Bonus

Non-Monetary Other Superannuation Other Shares

2007

$ $ $ $ $ $ $ $

Jeremy Cousins 141,289 - - - 18,887 - - 160,176

John Raftis 139,898 - - - 18,934 - - 158,832

John Lane 139,574 - - - 18,534 - - 158,108

Luke MacKinnon 145,295 - 4,037 - 13,439 - - 162,771

Richard Swancott 117,953 - - - 10,539 - - 128,492

Total 684,009 - 4,037 - 80,333 - - 768,379


payment Total

Salary & fees

Bonus Non-Monetary

Other Superannuation Other Shares 2006

$ $ $ $ $ $ $ $

Luke MacKinnon 135,852 - - - 12227 - - 148,079

John Lane 120,919 - - - 18699 - - 139,618

Jeremy Cousins 113,478 - - - 17548 - - 131,026

John Raftis 113,060 - - - 17353 - - 130,413

Matthew Bretherton5 102,270 - - - 13355 - - 115,625

Total 585,579 - - - 79,182 - - 664,761 5 The remuneration was for the period from 1 July 2005 to 2 June 2006.

(b) Remuneration policy Overview

The remuneration policy of EFTel Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering incentives based on key performance areas affecting the economic entity’s financial results. The board of EFTel Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives and directors to run and manage the economic entity, as well as create goal congruence between directors, executives and shareholders.

The remuneration policy, setting the terms and conditions for the executive directors was developed by the remuneration committee. The remuneration committee reviews the packages of the top 5 executives as well as all non-executive directors and the company secretary. It undertakes this process annually by reference to the economic entity’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries.

The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The remuneration committee determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting.

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(b) Remuneration policy (cont’)

The non-executive directors receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. The executive directors and other specified executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and are entitled to receive up to a further 3% matched by the company on a dollar for dollar basis for voluntary superannuation contributions. Directors and all other employees are able to enter into salary sacrifice arrangements for their superannuation and eligible equipment such as laptop computers.

The directors are employed on a continuous basis. Should the executive directors be terminated then they would receive a termination payment based upon their length of service and specified notice periods. The other key management personnel are employed on a continuous basis with specified notice periods required for termination of employment.

Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration

The basis for determining the nature and amount of remuneration for board members and senior executives of the economic entity is as follows:

The performance of executives is measured against criteria set by the remuneration committee. All bonuses and incentives must be linked to predetermined performance criteria. The policy is designed to attract and retain the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth. The company has an excellent record of key executive retention and this is viewed as one of its main strengths.

The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives. There have been two methods applied in achieving this aim. These are the payment of a performance bonus based on key performance indicators, in cash, and/or the payment of bonuses in the form of an issue of shares, to the directors and a number of executives.

The remuneration committee has set bonuses to encourage achievement of specific goals that have been given a high level of importance in relation to the future growth and profitability of the economic entity. The remuneration committee will review the performance bonuses to gauge their effectiveness against achievement of the set goals, and adjust future years’ incentives as they see fit, to ensure use of the most cost effective and efficient methods.

Performance Based Remuneration

Various remuneration packages include a performance-based component, consisting of key performance indicators (KPIs). The intention of this programme is to align the goals of directors and executives with that of the business and shareholders. The KPIs are set annually. The KPIs are targeted in areas the board believes hold greater potential for group expansion and profit. The level set for each KPI is based on budgeted figures for the group.

Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the remuneration committee in light of the desired and actual outcomes, and their efficiency is assessed in relation to the group’s goals. In determining whether or not a KPI has been achieved, EFTel bases the assessment on audited figures.

The telecommunications sector faces increasingly competitive issues in key areas, with customer numbers affected by churn and market maturation, pressures on profitability, and challenges to improving shareholder value, all prevailing phenomena in the sector. These issues have combined with significantly rising costs in the Australian labour market, particularly in Western Australia where most of the senior executives are based.

The company has met these challenges by giving some consideration to the reviewing of base salaries to account for market pressures, while offering the majority of potential additional remuneration in the form of incentives based on improving the key areas.

The company rewards its senior executives with incentive-based remuneration based on achieving ambitious performance targets for three key indicators – number of active accounts, EBITDA and share price. For achieving each of these targets, the incentives are capped at $85,000 spread across all senior executives, of which no more than 60% can be paid to the executive directors. To achieve the full incentive bonus in each category, the company is required to increase the number of active accounts by 20%, increase EBITDA by 20%, and increase the share price by 100%. The number of active accounts is measured on information recorded in the company’s customer service systems. EBITDA is measured on comparisons of audited figures between financial years. Share price is measured by the weighted average price in the month following release of the Annual Report. The amount of each incentive bonus is scaled back for partial achievement of targets. For each item where the previous year’s result is successfully maintained but not improved upon, no incentive bonus is payable. The senior executives are responsible as a group for working towards these targets. The senior executives also have individual KPI incentives for which a combined limit of $85,000 is payable across all senior executives, and of which no more than 60% can be paid to the executive directors. For each KPI incentive the managing director is limited to 30% of the bonus.

Additional incentive bonuses for exceeding the performance targets apply in the event that the KPI target for that category is exceeded. Accounts growth is rewarded at $6 per active account above target. EBITDA growth is rewarded at 6% of EBITDA above target. Share price growth is rewarded at 3% of the share price above target, multiplied by the number of shares currently on issue. The number of active accounts is measured on information recorded in the company’s customer service systems. EBITDA is measured on comparisons of audited figures between financial years. Share price is measured by the weighted average price in the month following release of the Annual Report. The additional incentive bonuses stated are the collective total payable across the remuneration packages of all senior executives, of which no more than 60% can be paid to the executive directors, and no more than 30% to the managing director.

The current incentive scheme is viewed as effective. The company has required its senior executives to cope with fewer supporting resources. This has resulted in reduced labour costs as a proportion of revenue, as well as a more narrowed focus on achievement in the key areas. Over the 2006-07, there were improvements in the number of active accounts and share price. The improved run rate of EBITDA has enabled the company to give guidance of $3 million for 2007-08, almost double the 2006-07 result. It is also viewed that the remuneration focus needs to support a continuation of the current improvements. Further improvements in these areas are anticipated to put the company into a position where it can pay ongoing dividends in order to enhance sustainable shareholder wealth. F

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Shares and Options Issued as Part of Remuneration for the Year Ended 30 June 2007

No shares or options were issued to directors and executives as part of remunerations for the year ended 30 June 2007.

Employment Contracts of Directors and Senior Executives

The employment conditions of the Chief Executive Officer, Mr Simon Ehrenfeld, the executive directors, Mr Jurgen Steinert and Mr Daniel Ehrenfeld, and specified executives are formalised in contracts of employment. All executives are permanent employees.

Termination Costs

Senior Executives can fall into one of six bands in determining the cost to the company in the event that their employment is terminated, according to the following schedule:

Band Position and Length of Service Termination Benefit Additional Benefit for Termination by Company

A Service for periods less than Bands B- F Nil 1 week per year of continuous full-time employment





(iii) 1 year of Managing Director service and

B








C








D



(i) 10 years Executive Director service and


(ii) 7 years Managing Director service and E



(i)10 years Managing Director service and F

15 Years continuous full-time employment 4 months’ salary 2 weeks per year of continuous full-time employment

The following criteria apply to the Termination Costs Schedule:

1. The sum of the Termination Benefit and the Additional Benefit for Termination by the Company is limited to 12 months’ salary. 2. Length of Service in the capacity of Senior Management, Executive Director, or Managing Director refers to service to EFTel Ltd (formerly Datafast

Telecommunications Ltd) and EFTel More Than Broadband Pty Ltd (formerly EFTel Pty Ltd). 3. Length of Continuous Full-time Employment relates to service to EFTel Ltd and/or any of its subsidiaries. 4. In any instance where the Termination Benefits are calculated to be an amount less than the Minimum Conditions of Employment, the Minimum

Conditions of Employment prevail.

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Termination Cost bands and Notice Periods are as per the following table:

Executive Classification Band Termination Notice

Period Required Length of Full-time Continuous Employment

Simon Ehrenfeld Managing Director E 3 months 11 years

Jeremy Cousins Senior Management B 2 months 7 years

Daniel Ehrenfeld Executive Director A 2 months 1 year

John Lane Senior Management A 2 months 6 years

Luke MacKinnon Senior Management A 2 months 11 years

John Raftis Senior Management B 3 months 7 years

Jurgen Steinert Executive Director D 2 months 11 years

Richard Swancott Senior Management A 2 months 6 years

* Under agreements that existed prior to the current schedule being set, for voluntary or mutually agreed termination, Mr S Ehrenfeld is entitled to an additional three months salary and no cap, and Mr J Steinert is entitled to an additional two months and no cap.

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2007 2006 2007 2006

$ $ $ $

5. Remuneration of auditors

Audit or review of the financial report 87,981 68,420 87,981 68,420

87,981 68,420 87,981 68,420

The auditor of the consolidated entity is Deloitte Touche Tohmatsu.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

6. Current trade and other receivables

Trade receivables 4,211 4,383 1,493 830

Allowance for doubtful debts (1,960) (1,915) (367) (45)

2,251 2,468 1,126 785

Other receivables:

Wholly-owned subsidiaries - - 5,216 5,646

Associate companies 436 468 - -

Allowance for doubtful debts associate companies (436) (367) - -

- 101 5,216 5,646

2,251 2,569 6,342 6,431

Trade receivables are generally on 10 to 30 day terms and other receivables are generally on 30 day terms.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

7. Other current assets

Prepayments 789 614 70 432

Others 93 - 164 -

882 614 234 432


2007 2006 2007 2006

$’000 $’000 $’000 $’000

8. Other non-current financial assets

Equity accounted investment in associate entities 1 1 - -

Shares in controlled entities at cost - - 14,294 14,216

1 1 14,294 14,216

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9. Property, plant and equipment

Consolidated

Leasehold

improvements at cost

Plant and equipment at

cost

Equipment under finance lease at

cost Total

$’000 $’000 $’000 $’000

Gross carrying amount

Balance at 1 July 2005 160 9,262 1,184 10,606

Additions 7 356 72 435

Disposals - (205) - (205)

Balance at 30 June 2006 167 9,413 1,256 10,836

Additions 4 618 - 622

Disposals - (148) - (148)

Acquisitions through business combinations - 451 - 451

Balance at 30 June 2007 171 10,334 1,256 11,761

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2005 (47) (6,616) (604) (7,267)

Disposals - 204 - 204

Depreciation expense (24) (1,248) (180) (1,452)

Balance at 30 June 2006 (71) (7,660) (784) (8,515)


Depreciation expense (24) (1,357) (179) (1,560)

Balance at 30 June 2007 (95) (8,877) (963) (9,935)

Net book value

As at 30 June 2006 96 1,753 472 2,321

As at 30 June 2007 76 1,457 293 1,826

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Company

Leasehold

improvements at cost

Plant and equipment at

cost

Equipment under finance lease at

cost Total

$’000 $’000 $’000 $’000


Balance at 1 July 2005 - 3,430 725 4,155

Additions - 112 72 184

Disposals - (110) - (110)

Balance at 30 June 2006 - 3,432 797 4,229

Additions - 451 - 451

Disposals - - - -

Balance at 30 June 2007 - 3,883 797 4,680

Accumulated depreciation/ amortisation and impairment

Balance at 1 July 2005 - (1,768) (253) (2,021)


Depreciation expense - (841) (156) (997)

Balance at 30 June 2006 - (2,499) (409) (2,908)

Disposals - - - -

Depreciation expense - (812) (159) (971)

Balance at 30 June 2007 - (3,311) (568) (3,879)

Net book value

As at 30 June 2006 - 933 388 1,321

As at 30 June 2007 - 572 229 801


2007 2006 2007 2006

$’000 $’000 $’000 $’000

10. Goodwill Net book value

Balance at beginning of financial year 11,157 10,057 - -

Amounts recognised from business combinations occurring in previous year

Stamp Duty and Legal Fees 78 - - - Additional amounts recognised from business combinations occurring during the period

1,321 1,100 1,321 -

Balance at end of financial year 12,556 11,157 1,321 -

(i) During the financial year, EFTel Limited completed impairment testing of goodwill and determined that the carrying value of goodwill is recoverable.

The recoverable amount of goodwill is determined based on a value in use model. The underlying factors for calculating the impairment testing are based on past experience and our expectations for the future. These include a pre tax discount rate of 19.5% and cash flow projections based on the budget for 2008 and a growth rate of 5% over 5 years.

Allocation of goodwill to cash-generating units

Goodwill has been allocated, for impairment testing purposes, to one individual cash-generating unit-being the national telecommunications network, through which all revenue is generated. The company operates in one geographical region in one business segment being the telecommunications industry.

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11. Other intangible assets

Consolidated

Software Patents / Trademarks

Customer Bases

Total

$’000 $’000 $’000 $’000


Balance at 1 July 2005 12 45 1,552 1,609

Additions 17 - - 17

Additions from internal developments 113 - 103 216

Acquisitions through business combinations - - 439 439

Balance at 30 June 2006 142 45 2,094 2,281

Additions 77 - - 77

Additions from internal developments 115 - - 115

Acquisitions through business combinations 0 - 1,060 1,060

Balance at 30 June 2007 334 45 3,154 3,533

Accumulated amortisation and impairment

Balance at 1 July 2005 (1) - (266) (267)

Amortisation expense (18) - (381) (399)

Balance at 30 June 2006 (19) - (647) (666)


Balance at 30 June 2007 (87) - (1,257) (1,344)

Net book value

As at 30 June 2006 123 45 1,447 1,615

As at 30 June 2007 247 45 1,897 2,189

Company

Software Patents / Trademarks

Customer Bases Total

$’000 $’000 $’000 $’000


Balance at 1 July 2005 12 45 - 57

Additions 17 - - 17


Balance at 30 June 2006 142 45 - 187

Additions 77 - 1,060 1,137


Balance at 30 June 2007 334 45 1,060 1,439

Accumulated amortisation and impairment

Balance at 1 July 2005 (1) - - (1)

Amortisation expense (18) - - (18)

Balance at 30 June 2006 (19) - - (19)


Balance at 30 June 2007 (87) - (212) (299)

Net book value

As at 30 June 2006 123 45 - 168

As at 30 June 2007 247 45 848 1,140

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

12. Current trade and other payables

Trade payables 3,909 2,228 3,044 1,559

Sundry creditors and accrued expenses 843 1,238 325 559

Other payables 242 236 85 50

4,994 3,702 3,454 2,168

Terms of major suppliers are typically 30 days.


2007 2006 2006 2005

$’000 $’000 $’000 $’000

13. Current borrowings

Unsecured

Lease liability 151 131 151 131

Bank loan 1,575 117 1,575 100

1,726 248 1,726 231 1EFTel has a facility with Westpac to fund acquisitions. Borrowings are repayable in quarterly instalments of principal and interest (9.25%p.a.) over a 4 year period from drawdown. Westpac has a fixed and floating charge over a number of the group entities as security for the facility. As at 30 June 2007 this loan has been re-classified as current.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

14. Current provisions

Employee benefits 381 298 - -

381 298 - -

Consolidated Company 2007 2006 2007 2006 $’000 $’000 $’000 $’000

15. Other current liabilities

Deferred revenue 1,954 1,717 844 218

1,954 1,717 844 218

Consolidated Company 2007 2006 2007 2006 $’000 $’000 $’000 $’000

16. Non-current borrowings

Unsecured

Lease liability 137 97 137 97

137 97 137 97


2007 2006 2007 2006

$’000 $’000 $’000 $’000

17. Non-current provisions

Employee benefits 335 166 - -

335 166 - -

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

18. Issued capital

157,837,521 fully paid ordinary shares 37,708 37,708 37,708 37,708

(2006: 157,837,521)

37,708 37,708 37,708 37,708

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value.

2007 2006

No. $’000 No. $’000

Fully paid ordinary shares

Balance at beginning of financial year 157,837,521 37,708 1,578,365,034 37,726

Consolidation of shares on 30 November 2005 (1,420,527,513)

Consolidated shares: 1:10 - - 157,837,521 -

Costs relating to share consolidation - - - (18)

Costs relating to share issues - - - -

Share-based payment expense - - - -

Balance at end of financial year 157,837,521 37,708 157,837,521 37,708

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share options

No options were issued or exercised or remain outstanding relating to the EFTel employee option plan.

At 30 June 2007, there were 100,000 unissued ordinary shares for which options were outstanding. These options have an exercise price of $2 and expiry date of 16 June 2010.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

19. Accumulated losses

Balance at beginning of financial year (21,224) (22,023) (14,922) (15,146)

Net profit attributable to members of the parent entity (746) 799 (291) 224

Balance at end of financial year (21,970) (21,224) (15, 213) (14,922)

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20. Earnings per share Consolidated

2007 2006

Cents per share Cents per share

Basic earnings per share:

From continuing operations (0.473) 0.506

Total basic earnings per share (0.473) 0.506

Diluted earnings per share:

From continuing operations (0.473) 0.506

Total diluted earnings per share (0.473) 0.506

Basic earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

2007 2006

$’000 $’000

Earnings (a) (746) 799

2007 2006

No.’000 No.’000

Weighted average number of ordinary shares for the purposes of basic earnings per share 157,838 157,838

(a) Earnings used in the calculation of total basic earnings per share and basic earnings per share from continuing operations reconcile to net profit in the income statement as follows: 2007 2006

$’000 $’000

Net profit (746) 799

Other - -

Earnings used in the calculation of basic EPS (746) 799

Earnings used in the calculation of basic EPS from continuing operations (746) 799

Diluted earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows:

2007 2006

$’000 $’000

Earnings (a) (746) 799

2007 2006

No. ‘000 No. ‘000

Weighted average number of ordinary shares for the purposes of diluted earnings per share (b) 157,838 157,838

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20. Earnings per share (cont'd)

(a) Earnings used in the calculation of total diluted earnings per share and diluted earnings per share from continuing operations reconcile to net profit in the income statement as follows:

Consolidated

2007 2006

$’000 $’000

Net profit (746) 799

Earnings used in the calculation of diluted EPS (746) 799

Earnings used in the calculation of diluted EPS from continuing operations (746) 799

(b) The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

2007 2006

No. ‘000 No. ‘000

Weighted average number of ordinary shares used in the calculation of basic EPS 157,838 157,838

Weighted average number of ordinary shares used in the calculation of diluted EPS* 157,838 157,838

* The following potential ordinary shares are not dilutive and are therfore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share:

2007 2006

No. ‘000 No. ‘000

Share Options 100,000 100,000

21. Contingent liabilities and contingent assets

Contingent liabilities

Court Proceedings

An entity in the consolidated entity is a defendant in a legal action for alleged breach of fiduciary obligations.

The directors believe that the action can be successfully defended and therefore no losses will be incurred.

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22. Leases Finance leases

Leasing arrangements

Finance leases relate to plant and equipment with lease terms of between 3 and 4 years. The borrowings on the finance leases are secured by the assets financed. The consolidated entity retains ownership of the plant and equipment at the conclusion of the lease agreement.

Finance lease liabilities

Minimum future lease payments Present value of minimum future lease payments

Consolidated Company Consolidated Company

2007 2006 2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

No later than 1 year 174 151 174 151 174 151 174 151 Later than 1 year and not later than 5 years

155 114 155 114 143 92 143 92

Minimum lease payments1 329 265 329 265 317 243 317 243

Less future finance charges (41) (37) (41) (37) (39) (34) (39) (34) Present value of minimum lease payments

288 228 288 228 278 209 278 209

Included in the financial statements as:

Current borrowings (note 13) 151 131 151 131

Non-current borrowings (note 16) 137 97 137 97

288 228 288 228 1 Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.

Operating leases

Leasing arrangements

Operating leases relate to property, plant and equipment with lease terms between 1 and 5 years. The majority of operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Not longer than 1 year 412 459 75 50

Longer than 1 year and not longer than 5 years 459 456 62 57

871 915 137 107

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23. Subsidiaries

Ownership interest

2007 2006 Name of entity Country of incorporation

% %

Parent entity

EFTel Limited

Subsidiaries

Datafast Telecommunications Pty Ltd Australia 100% 100%

Datafast (Sites) Pty Ltd Australia 100% 100%

Datafast (Melbourne Central) Pty Ltd Australia 100% 100%

Business Technologies Pty Ltd Australia 100% 100%

Network Technology Pty Ltd Australia 100% 100%

Northvoice Communications Pty Ltd Australia 100% 100%

VivaNET Pty Ltd Australia 100% 100%

Viva.com Pty Ltd Australia 100% 100%

Vivanet Australia Pty Ltd Australia 100% 100%

EFTel More Than Broadband Pty Ltd Australia 100% 100%

Tower.Net Pty Ltd Australia 100% 100%

Spacenet Holdings Pty Ltd Australia 100% 100%

Xcomm (WA) Pty Ltd Australia 100% 100%

Q-Net Australia Pty Ltd Australia 100% 100%

Quality Internet Services Pty Ltd Australia 100% 100%

EFTel Radio Pty Ltd Australia 100% 100%

EFTel Tasmania Pty Ltd Australia 100% 100%

Southern Star Technologies Pty Ltd Australia 100% 100%

EFTel Rural Pty Ltd Australia 100% 100%

Keypoint Pty Ltd Australia 100% 100%

Paradox Digital Pty Ltd Australia 99.99% 99.99%

Planet Netcom Pty Ltd Australia 100% 100%

Planet Netcom Radioworx Pty Ltd Australia 100% 100%

M Power Technologies Pty Ltd Australia 100% 100%

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24. Acquisition of businesses 2007

Date of acquisition

Proportion of shares

acquired (%)

Cost of acquisition

$’000

Names of businesses acquired

aaNet ISP business 10-Jul-06 1,652

Instant Communications ISP 1-Jul-06 163

1,815

Both acquisitions were settled for cash considerations. The principal business of the acquired businesses is internet service provision. In each acquisition, the consolidated entity has paid a premium for the acquiree as it believes the acquisitions will introduce additional synergies to its existing operations. Had the aaNet business combination been effected at 1 July 2006, the revenue of the group would be $34,613k, and net loss before tax $758k. The directors of the Group consider these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group. Both transactions have been accounted for using the acquisition method of accounting.

aaNet ISP business

Net assets acquired Carrying Value Fair value adjustment

Recognised on

acquisition $’000 $’000 $’000

Intangible assets – customer base - 900 900

Property, plant and equipment 451 - 451

Trade & other payables (617) - (617)

Deferred revenue (343) - (343)

(509) 900 391

Goodwill on acquisition 1,261

1,652

Instant Communications ISP business


Recognised on

acquisition $’000 $’000 $’000


Trade and other receivables 82 - 82

Trade and other payables (89) - (89)


(57) 160 103

Goodwill on acquisition 60

163

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2006

Date of acquisition

Proportion of shares

acquired (%)

Cost of acquisition

$’000

Names of businesses acquired

M Power Technologies Pty Ltd 1-Aug-05 100% 519

Vianet internet service provision (ISP) business 1-Jul-05 - 600

Ace Online ISP business 1-May-06 - 120

1,239

The cost of acquisition comprises cash for all the acquisitions, with M Power Technologies Pty Ltd consideration including a $100k deferred payment payable upon certain target criteria being met. The deferred payment has been made since the end of the financial year.

The principal business of each of the acquisitions is internet service provision. In each acquisition, the consolidated entity has paid a premium for the acquiree as it believes the acquisitions will introduce additional synergies to its existing operations. With respect to the financial benefit these acquisitions have added to the EFTel Limited group, had these businesses been effected at 1 July 2005, the revenue of the consolidated entity would be $26,553k, and net profit before tax $1,261k.

All subsidiaries apart from Paradox Digital Pty Limited have entered the tax consolidated group

M Power Technologies Pty Ltd


Recognised on

acquisition $’000 $’000 $’000



Cash and cash equivalents 19 - 19



(85) 170 85


Vianet customer base


Recognised on

acquisition $’000 $’000 $’000




(215) 184 (31)


Ace Online customer base


Recognised on

acquisition $’000 $’000 $’000

Intangible assets - 85 85



- 85 85


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25. Related party disclosures (a) Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 23 to the financial statements.

Equity interests in other related parties

EFTel More Than Broadband Pty Ltd, a 100% owned subsidiary of EFTel Limited, holds 49% of the ordinary share capital of Fleet Broadband Holdings Pty Ltd. The principal business of Fleet Broadband Holdings Pty Ltd is in retail internet services.

(b) Key management personnel

Details of key management personnel compensation are disclosed on note 4 to the financial statements.

(c) Loan disclosures

EFTel Limited did not provide any loan facilities to directors or executives during the year.

(d) Key management personnel equity holdings

Number of shares in which Parent Entity Directors and other key management personnel have a direct or indirect interest:

Balance

01/07/2006 Received as

Remuneration

Shares issued as a result of Option

exercised

Change in recognition of director/executive holdings due to appointment, retirement or

resignation

Net Change Other*

Balance 30/06/2007

Directors

Russell Collett 43,000 - - - 43,000

Glenn Darlington1 - - - - -

Daniel Ehrenfeld 13,945,960 - - 1,498,625 15,444,585

Simon Ehrenfeld5 25,514,823 - - 1,978,160 27,492,983

Juliette Reay2 43,000 - - (43,000) - -

Greg Searle3 3,348,478 - - (3,348,478) - -

Jurgen Steinert 4,268,962 - - 1,800,000 6,068,962

Paul Stevenage 70,000 - - 30,000 100,000

Other key management personnel

Matthew Bretherton4 19,147,028 - - (19,147,028) - -

Jeremy Cousins5 19,476,857 - - 1,903,160 21,380,017

John Lane 863,272 - - 125,000 988,272

Luke MacKinnon 7,270,613 - - - 7,270,613

John Raftis 821,103 - - 177,897 999,000

Richard Swancott - - - - -

* Net change other refers to shares purchased or sold during the financial year.

1 Mr Glenn Darlington was appointed as Director on 20 December 2006. 2 Ms Juliette Reay retired as Director on 23 December 2006 3 Mr Greg Searle retired as Director on 19 January 2007. 4 Mr Matthew Bretherton resigned as of 2 June 2006. 5 Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that held 17,441,857 and 1,388,160 shares in EFTel respectively

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25. Related party disclosures (cont’d)

Balance 01/07/2005 Received as

Remuneration Share Consolidation

1 for 10

Change in recognition of

director/executive holdings due to appointment, retirement or resignation

Net Change Other*

Balance 30/06/2006

Directors

Russell Collett 430,000 - (387,000) - 43,000

Daniel Ehrenfeld6 - - - 13,945,960 - 13,945,960

Simon Ehrenfeld5 334,507,875 - (263,044,066) 45,948,986 25,514,823

Juliette Reay 430,000 - (387,000) - 43,000

Greg Searle 32,074,779 - (29,236,301) 510,000 3,348,478

Jurgen Steinert 47,689,616 - (38,420,654) (5,000,000) 4,268,962

Paul Stevenage 1,000,000 - (630,000) (300,000) 70,000

Other key management personnel Matthew Bretherton4 186,249,766 - (162,134,789) (4,967,949) 19,147,028

Jeremy Cousins5 169,900,414 - (163,411,709) 12,988,152 19,476,857

John Lane 10,236,817 - (3,269,445) (6,104,100) 863,272

Luke MacKinnon 75,006,128 - (67,505,515) (230,000) 7,270,613

John Raftis 7,142,278 - (5,580,000) (741,175) 821,103

* Net change other refers to shares purchased or sold during the financial year. 4 Mr Matthew Bretherton resigned as of 2 June 2006. 5 Mr Jeremy Cousins and Mr Simon Ehrenfeld are directors of Paradox Investments Pty Ltd and Northlink Holdings Pty Ltd, companies that held 18,041,857 and 310,000 shares in EFTel respectively 6 Mr Daniel Ehrenfeld was appointed as Director on 24 May 2006

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25. Related party disclosures (cont’d) Number of Options in which Directors and Specified Executives have either a direct or indirect interest:

Balance 01/07/2006 Options Exercised Options Expired* Net Change

Other* Balance

30/06/2007

Directors

Simon Ehrenfeld - - - - -

Russell Collett - - - - -

Daniel Ehrenfeld - - - - -

Juliette Reay - - - - -

Greg Searle - - - - -

Jurgen Steinert - - - - -

Paul Stevenage - - - - -


Matthew Bretherton - - - - -

Jeremy Cousins - - - - -

John Lane - - - - -

Luke MacKinnon - - - - -

John Raftis - - - - -

* Net change other refers to shares purchased or sold during the financial year.

Number of Options in which Directors and Specified Executives have either a direct or indirect interest:

Balance 01/07/2005 Received as Remuneration

Issued as a result of Options Exercised Net Change Balance

30/06/2006 Directors

Simon Ehrenfeld - - - - -

Russell Collett - - - - -

Daniel Ehrenfeld - - - - -

Juliette Reay - - - - -

Greg Searle - - - - -

Jurgen Steinert - - - - -

Paul Stevenage - - - - -


Matthew Bretherton - - - - -

Jeremy Cousins - - - - -

John Lane - - - - -

Luke MacKinnon 8,022,046 - - (8,022,046) -

John Raftis - - - - -

* The options expired are the expiry of options held by Luke MacKinnon on 30 November 2005 that were issued as part of the consideration for the purchase of Planet Netcom Pty Limited by EFTel. The exercise price of the options were 3 cents and expired on 30 November 2005. F

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(e) Other transactions with specified directors

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Consolidated

2007 2006

$ $

The profit from operations includes the following items of revenue and expense that resulted from transactions with specified directors or their personally-related entities:

Internet services sold to Lasar Software & Computers1 43,397 26,697

Internet Services sold to Karumax Pty Ltd2 1,537

Internet services sold to Skyglow Holdings Pty Ltd3 14,200 1,775

Total recognised as revenue 59,134 28,472

Rental paid to Lasar Software & Computers1 5,321

Reseller commission paid to Skyglow Holdings Pty Ltd3 2,775 8,782

Consultancy fees paid to Kourion Investments4 16,875 -

Interest paid to K & N Ehrenfeld5 - 13,500

Total recognised as expenses 19,650 27,603

Total assets arising from transactions with specified directors or their personally-related entities as at reporting date:

Plant & equipment purchased from Lasar Software & Computers1 767 7,743

Accounts receivable due from Skyglow Holdings Pty Ltd3 9,510 1,775

1 Lasar Software & Computers, of which Jurgen Steinert is a director, conducts business from a premise that housed a Point of Presence. EFTel also purchases computer supplies and equipment from, and sells internet and telephony services to Lasar Software & Computers. 2 Karumax Pty Ltd, of which Russell Collett is a director, purchases internet services from EFTel. 3 Skyglow Holdings Pty Ltd, of which Daniel Ehrenfeld is a director, operates a chain of computer retail stores. EFTel sells internet services to Skyglow and Skyglow acts as a reseller of EFTel internet services and receives commission for actual sales. 4 Kourion Investments, of which Greg Searle is a director, provided consultancy services to EFTel. 5 K & N Ehrenfeld, who are the parents of Simon Ehrenfeld, loaned EFTel More Than Broadband Pty Ltd $150,000. The loan was repaid in full during the 2006 financial year.

All transactions entered into above with directors are done at arms length and on fair commercial terms.

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(f) Transactions with other related parties Consolidated

2007 2006

$ $

The profit from operations includes the following items of revenue and expense that resulted from transactions with associated entities:

Fees charged to Fleet Broadband Holdings Pty Ltd and its subsidiaries, including Fleet Global Pty Ltd and Fleet Internet SA Pty Ltd

141,077 292,245

ADSL services charged to Fleet Global 37,819 101,724

Total recognised as revenue 178,896 393,969

Allowance for doubtful debts in respect of receivables from Fleet Broadband Holdings Pty Ltd and its subsidiaries

141,077 292,245

Total recognised as expenses 141,077 292,245

26. Subsequent events Small Shareholding Facilities

EFTel has implemented small shareholding facilities to permit holders of unmarketable parcels to either dispose of their holding, keep their current holding, or increase their holding. The costs of the sales and purchases are to be borne by EFTel as a service to its shareholders. It is envisaged that the company will be able to reduce the number of unmarketable parcels held and in doing so reduce the ongoing costs of shareholder management.


2007 2006 2007 2006

$’000 $’000 $’000 $’000

27. Notes to the cash flow statement

(a) Reconciliation of cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows:

Cash and cash equivalents 2,451 2,209 2,375 1,438

Bank overdraft - - - -

2,451 2,209 2,375 1,438

(b) Businesses acquired During the financial year businesses were acquired, details of the acquisition are as follows (note 24):

Consideration

Cash and cash equivalents 1,815 1,139 1,815 1,139

Ordinary shares - - - -

Deferred purchase consideration - 100 - 100

1,815 1,239 1,815 1,239

Net cash outflow on acquisition

Cash and cash equivalents consideration 1,815 1,220 1,815 1,220

Less cash and cash equivalent balances acquired

1,815 1,220 1,815 1,220

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2007 2006 2007 2006

$’000 $’000 $’000 $’000

27. Notes to the cash flow statement (cont’d)

(c) Reconciliation of profit for the period to net cash flows from operating activities

Profit for the period (746) 799 (291) 224

(Gain)/loss on sale or disposal of non-current assets 8 (189) - -

Depreciation and amortisation of non-current assets 2,239 1,833 1,251 997

Equity settled share-based payment - - - -

Interest income received and receivable (140) (70) (140) (12)

Increase/(decrease) in current tax liability (712) 515 (712) 515

Increase/(decrease) in deferred tax balances (171) (70) 57 (127)

Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses:

(Increase)/decrease in assets:

Trade and term receivables 318 105 89 1,345

Other operating assets (268) (69) 198 84

Increase/(decrease) in liabilities:

Trade creditors and accruals 1,292 (520) 1,287 (295)

Trade Creditors associated with acquisitions (644) (644) -

Provisions 252 (23) - 10

Deferred revenue 237 (398) 626 (45)

Net cash from operating activities 1,665 1,913 1,721 2,696

(d) Financing facilities

Westpac financing facility for acquisitions with a fixed and floating charge over various group entities:

♦ amount used 1,575 - 1,575 -

♦ amount unused 1,425 3,000 1,425 3,000

3,000 3,000 3,000 3,000

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28. Financial instruments (a) Interest rate risk

The consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, as follows:

2007

Weighted average effective interest

rate

Variable interest

rate Fixed maturity dates

Non interest bearing

Total

Less than

1 year 1-2 years 2-3 years 3-4 years 4-5 years 5+ years

% $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets:

Cash and cash equivalents 5.20% 1,862 589 - - - - - - 2,451

Trade receivables - - - - - - - 2,251 2,251

1,862 589 - - - - - 2,251 4,702

Financial liabilities:

Trade payables - - - - - - - 4,752 4,752

Finance lease liabilities 8.50% - 151 120 17 - - - - 288

Other loans 9.25% - 450 450 450 225 - - - 1,575

- 601 570 467 225 - - 4,752 6,615

2006

Weighted average effective interest

rate

Variable interest

rate Fixed maturity dates

Non interest bearing

Total

Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5+ years

% $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Financial assets:

Cash and cash equivalents 5.20% 2,048 161 - - - - - - 2,209

Trade receivables - - - - - 2,569 2,569

2,048 161 - - - - - 2,569 4,778

Financial liabilities:

Trade payables - - - - - - - 3,466 3,466

Finance lease liabilities 8.50% - 131 79 18 - - - - 228

Other loans - - - - - - - 117 117

- 131 79 18 - - - 3,583 3,811

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(b) Credit risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for doubtful debts of those assets, as disclosed in the balance sheet and notes to the financial statements.

The consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered in to by the consolidated entity.

(c) Foreign currency risk management

Exposures to exchange fluctuations are minimised as the Group does not have any requirements to undertake any material transactions denominated in foreign currencies.

(d) Interest rate risk management

The company and the group is exposed to interest rate risk as it borrows funds at both fixed and variable interest rates. The risk is managed by maintaining an appropriate mix between fixed and variable rate borrowings.

(e) Liquidity risk management

The board of directors have ultimate responsibility for the management of liquidity risk. The group manages the risk by maintaining adequate cash reserves and continuously monitoring cash flows.

(f) Fair values

The carrying amount of cash, cash equivalents and short-term investments approximates fair value because of their short term to maturity. The carrying amount of trade receivables and trade payables approximate fair value.

The fair values of other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings, to their present value. The carrying amount approximates fair value because of their short term to maturity.

For other assets and other liabilities the fair value approximates their carrying value.

29. Segment information

The consolidated entity operates solely in the Telecommunications industry in Australia.

30. Expenditure commitments No capital expenditure or other commitments were contracted for at balance date. Please refer to Note 22 for the lease expenditure commitments. 31. EFTel Limited is a publicly listed company, incorporated and operating in Australia.

The registered office and principal place of business is at Level 8, QV1 Building, 250 St George's Terrace, Perth, WA 6000.

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The directors declare that:

in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and

payable;

in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including

compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and

the directors have been given the declarations required by s.295A of the Corporations Act 2001.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

Simon Ehrenfeld Director

Dated this 28th day of September 2007

a)

b)

c)

Directors’ Declaration


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Additional Stock Exchange Information for Listed Public Companies

Distribution of Holders of Equity Securities as at 31 August 2007

Size of Holding Number of Ordinary Fully Paid Shares Number of Shareholders

1 – 1,000 1,043,059 3,294

1,001 – 5,000 2,625,449 1,078

5,001 – 10,000 2,657,260 340

10,001 – 100,000 19,423,571 566

100,001 and over 132,088,182 114

157,837,521 5,392

Unmarketable Parcels

The number of shares held in shareholdings with less than marketable parcels is 5,433,542.

Substantial Shareholders as at 31 August 2007

Shareholder Number of Ordinary Fully Paid Shares Percentage of Issued Ordinary Capital Held

Paradox Investments Pty Ltd 17,441,857 11.05

Thooruna Pty Ltd 16,930,497 10.73

Mr Daniel Ehrenfeld 14,714,585 9.32

Mr Simon Ehrenfeld 8,662,966 5.49

Voting Rights

The voting rights attached to each class of equity security are as follows:

Ordinary Shares - each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a

show of hands.

Options – options have no voting rights.

Additional Information


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Twenty Largest Holders - Ordinary Shares

Shareholder Number of Ordinary Fully Paid Shares Percentage of Issued Ordinary Capital Held

1. Paradox Investments Pty Ltd 17,441,857 11.05

2. Thooruna Pty Ltd 16,930,497 10.73

3. Mr Daniel Ehrenfeld 14,714,585 9.32

4. Mr Simon Ehrenfeld 8,662,966 5.49

5. Mr Luke MacKinnon 7,270,613 4.61

6. Ospin Pty Ltd 7,227,491 4.58

7. Jenesta Pty Ltd 6,025,962 3.82

8. Signet Enterprises Pty Ltd 4,379,546 2.77

9. Mr Paul Alexander Rolfe 3,755,466 2.38

10. Mr Jeremy Cousins 2,500,000 1.58

11. In the CBD Pty Ltd 2,300,000 1.46

12. Thooruna Pty Ltd (Thooruna Super Fund) 2,202,051 1.40

13. Mountainview Retreat Retirement Village Pty Ltd 1,779,477 1.13

14. Alljen Pty Ltd 1,700,000 1.08

15. Mr Philip Stephen Wilton 1,307,890 0.83

16. Mr Mark Dignam 1,095,000 0.69

17. Mr Gregory Searle 1,076,327 0.68

18. Giovanni Nominees Pty Ltd 1,015,448 0.64

19. Mrs Denise Chiplin 1,007,380 0.64

20. Jasforce Pty Ltd 1,000,000 0.63

103,392,556 65.51

Unquoted Securities

Options over Unissued Shares

A total of 100,000 options with an exercise price of $2.00 are on issue to 1 holder under the EFTel employee option plan.


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8/250 st georges terrace, perth 6000 tel. 1300 550 550 fax. 1300 368 200 web. www.eftel.com.au

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Documents

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