Algae.Tec Annual Report 2012

Financial Report – 30 June 2012 Page 1 of 65

ALGAE.TEC LIMITEDABN: 16 124 544 190

Financial ReportFor the Financial Year

Ended 30 June 2012


CONTENTS

Company Details 3

Directors’ Report 4

Corporate Governance Statement 16

Consolidated Statement of Comprehensive Income 26

Consolidated Statement of Financial Position 27

Consolidated Statement of Equity 28

Consolidated Statement of Cash Flows 29

Notes on the Financial Statements 30

Directors’ Declaration 59

Auditor’s Independence Declaration 60

Independent Auditor’s Report 61

Shareholder Information 63


Company Details

Directors

Roger Stroud Executive Chairman

Peter Hatfull Managing Director

Earl McConchie Executive Director

Timothy Morrison Non-Executive Director

Company Secretary

Peter Hatfull

Principal Registered Office in Australia

Ground Floor, 516 Hay Street

Subiaco WA 6008

Share Register

Computershare Investor Services Pty Limited

Level 2, 45 St George's Terrace

Perth WA 6000

Auditors

Somes Cooke Jack Milner

1304 Hay Street 1400 Buford Highway, Suite G-4

West Perth WA 6005 Sugar Hill, GA 30518-8727

Bankers

National Australia Bank Commonwealth Bank of Australia

International Operations Business and Private Banking

Level 3, Building B, Level 1, 38 Adelaide Street

Rhodes Corporate Park Fremantle WA 6160

1 Homebush Bay Drive

Rhodes NSW 2138

Securities Exchange

Australian Securities Exchange Frankfurt Stock Exchange New York Stock Exchange

ASX FSE NYSE

Level 5, 20 Bridge Street 60485 Frankfurt am Maim 11 Wall Street

Sydney NSW 2000 Germany New York NY 10005

AEB GZA:GR ALGXY:US


Directors’ Report

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

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

Mr Timothy Morrison Non - Executive Director

Mr Peter Ernest Hatfull Managing Director and Company Secretary

Garnet Earl McConchie Executive Director

Roger Sydney Stroud Executive Chairman

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

Timothy MorrisonNon-Executive Director

Timothy Morrison is currently a partner at Empire Equity, a boutique corporate advisory group basedin Perth with offices in San Francisco and London. In this role, Mr Morrison is responsible forstructuring equity debt financing for mid-tier ASX listed companies. Prior to this role, Mr Morrisonwas CEO and Executive Chairman for a number of listed and private companies.

Mr Morrison has previously served as a member of the investment committee for superannuationfunded private equity investment vehicles. In this role, Mr Morrison engaged in investment andmanagement of early stage technology ventures.

Previously, Mr Morrison was General Manager of Murdoch Link Pty Ltd, the commercial arm ofMurdoch University, which is the dedicated provider of quality research consultancy services to theprofessions, industry and government.

Tim has a BA (1st Hon) from Murdoch University, a Post Grad Diploma (Social Research Methods)from Murdoch, and an MBA (Financial Management) from the University of Western Australia.

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


Peter Ernest HatfullManaging Director and Company Secretary

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

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

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

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

Garnet Earl McConchieExecutive Director

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

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

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

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

Interest in Shares and Options

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


Directors’ Report

Roger Sydney StroudExecutive Chairman

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

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

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

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

Meetings of Directors

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

Directors Meeting

No. of meetings held 7

No. Of meetings attended

Mr Timothy Morrison 7

Mr Peter Ernest Hatfull 7

Garnet Earl McConchie 7

Roger Sydney Stroud 7

Principal Activities

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


Operating Results

The consolidated loss of the Group amounted to $6,771,109 (2011: Loss $2,468,569) after including

a tax refund for R & D activities in the financial year 2011 of $199,727.

Net cash expensed through operating activities for the financial year was $6,181,409, a 239%

increase on the $1,822,900 spent the prior year and which reflects the establishment of a full size

development facility in Nowra, NSW.

Significant Changes in State of Affairs

The following significant changes in the state of affairs of the Group occurred during the financialyear:

Review of Operations

Group overview

The year to 30 June 2012 has been extremely rewarding for Algae. Tec Limited as the

Company continued to develop its showcase demonstration facility at Nowra in New South

Wales, and continues to form strong strategic relationships.

Holcim

On 1 December 2011 the Company announced the signing of a collaboration contract withHolcim Lanka, one of the two largest cement manufacturers in the world. This contractdetailed that Algae.Tec will build a facility of up to 5 modules in Sri Lanka, which onsuccessful completion would be extended to a full commercial facility.

Convertible Note

On 9 December 2011 the Company completed an agreement to enable the raising ofconvertible notes to raise up to $9 million.

Lufthansa

On 22 December 2011 an MOU was signed with Europe’s largest airline, Lufthansa AG. Thisdetailed a working collaboration between the companies to develop algae facilities for thegeneration of fuel for the aviation industry.

Atlanta Facility

During the year Algae.Tec Limited signed a lease for a fourfold increase in area at its Atlantadevelopment facility to enable it to build fabrication and manufacturing facilities for itsphoto bioreactors. This increase also gave space for increases in research and developmentfacilities and for the building of a working demonstration bio reactor.

Chinese Strategic PartnersThe Company has been in discussions with various Chinese groups for a period of time, andthis resulted in the signing of a binding MOU on 18 January 2012 with the Shandong KeruiGroup. This was significant as the agreement details the building of a first commercial plantin the Shandong province.


Directors’ Report

Significant Changes in State of Affairs (continued)

Capital Raising

As a result of the above commercial discussions, on 23 January 2012 the Companyannounced the raising of $5 million through a placement of shares through Paterson’sSecurities to enable it to fast track the commercial arrangements required for its strategicrelationships.

ADR Facility

With the increased interest in the Company’s technology in the USA, the Companyannounced the listing of the Company’s shares in the USA through a listing on the OTCmarket on 24 February 2012.

DividendsNo dividends were paid or recommended by the Directors.

Subsequent Events

On 2 August 2012, Australia’s first advanced engineered algae to biofuels facility was officiallyopened by NSW Minister for Resources and Energy, the Honourable Chris Hartcher. This facility wasdesigned and built by the Company using its proprietary technology.

On 17 September the Company signed a collaboration agreement with Deutsche LufthansaAktiengesellschaft. The agreement states that the parties will jointly develop a large scale algae toaviation biofuels production facility. This agreement builds on and supersedes the MOU signedbetween the two parties in January 2012.

On 6 September 2012, Algae. Tec Limited entered into a facility agreement with Macquarie BankLimited. The facility will provide up to A$2,000,000 in advance funding of the Research andDevelopment Tax Incentive offered by the Australian Government.

Macquarie Bank Limited will advance funds of eligible Research and Development expenditure. On10 September 2012 a drawdown on this facility was made in the amount of A$1,260,301 being 80%of the 2012 claim of $1,575,389 referred to in Note 6.

As at the date of this Director’s report, the Directors are not aware of any other matter orcircumstance that has arisen in the interval between the end of the financial year under review andthe date of this Director’s report that, in the opinion of the Directors has significantly affected, ormay significantly affect, the operations of the consolidated entity, the results of those operations, orthe state of affairs of the consolidated entity in future financial years.

Likely developments, future business strategies and prospects

Information regarding the likely developments in the operations of the consolidated entity in futurefinancial years and the expected results of those operations is included in the Review of Operationson pages 8 to 9, which forms part of the Directors’ report.

Some information regarding likely developments in the operations of the consolidated entity infuture financial years and the expected results of those operations has been omitted from thisDirectors’ report on the grounds that such disclosure is, in the Directors’ opinion, likely to result inunreasonable prejudice to the consolidated entity.


Environmental Regulations and Performance

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

Corporate Governance

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

Remuneration Report – audited

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

Details of Directors

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

Person Position Period in position during the year

Directors: Executive

Roger Stroud Executive Chairman Full year

Peter Hatfull Managing Director Full year

Earl McConchie Executive Director Full year

Directors: Non - Executive

Timothy Morrison Non-executive Director Full year

Principles used to determine the nature and amount of remuneration

The objective of the Company is to ensure that the level and composition of remuneration issufficient and reasonable and that its relationship to corporate and individual performance isdefined.

The Board is responsible for making recommendations on remuneration packages and policiesapplicable to the KMP.

The Board aims to ensure that executive director reward satisfies the following key criteria as part ofits good governance practices:

Competitiveness and reasonableness

Performance linkage/alignment of executive compensation

Deliver a balanced solution addressing all elements of total remuneration.


Directors’ Report

Remuneration Report – audited (continued)

Non-Executive Directors

Fees and payments to Non-Executive Directors reflect the demand which are made to, and theresponsibilities of, the Non-Executive Directors’. Non-Executives Directors’ fees and payments arereviewed annually by the Board.

Non-Executive Directors’ Remuneration

The Group’s Constitution provides that the remuneration of non-executive Directors will be notmore than the aggregate fixed sum determined by a general meeting. The aggregate remunerationfor non-executive Directors has been set an amount not to exceed $150,000 per annum. The actualNon-Executive Director’s fees for the reporting period were $50,000, but payments are no longermade in arrears. This has resulted in five payments being made in the financial year covering theJune 2011 quarter as well as the current financial year. There has been no increase in the feeamounts payable per annum. Non-Executive Directors’ are not eligible for any bonus or incentivepayments and the Non-Executive Directors do not participate in any share-based incentive plans.

Executive Directors Pay

The remuneration of Executive Directors are fixed by the Directors and paid by way of salary orconsultancy fee. The remuneration policy aims to provide fair and equitable remuneration in orderto retain and attract executives of sufficient calibre to facilitate the efficient and effectivemanagement of the Company’s operations. The policy has been consistently applied over past years,and sets remuneration levels that are:

Market competitive; and

Structured for the Managing Director and other Executive Directors to reward theachievement of defined annual goals directly linked to performance and the creation oflonger term shareholder wealth.

Executive directors and executives are offered performance bonuses based on set monetary figures,rather than proportions of their salary. The set bonuses are to encourage achievement of specificgoals that have been given a high level of importance in relation to the future growth andprofitability of the entity.

The remuneration packages of the Managing Director and Executive Directors are reviewed annually.

Use of Remuneration Consultants

The Group did not employ the services of any remuneration consultants during the financial yearended 30 June 2012.

Details of remuneration

Details of the remuneration of the KMP are set out in the following tables. The KMP of Algae. TecLimited are:

Person Position Employment Period

Directors: Executive

Roger Stroud Executive Chairman Full year

Peter Hatfull Managing Director/Company Secretary Full year

Earl McConchie Executive Director Full year

Directors: Non - Executive

Timothy Morrison Non-executive Director Full year


Remuneration Report – audited (continued)

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

Short term benefits

Post-employment

benefitsShare-based

payments

Salaryand

DirectorsFees

ConsultingFees Other Superannuation Shares/Options Total

$ $Bonus

$ $ $ $ $

Key ManagementPersonnelRoger SydneyStroud - 360,000 33,000 - - - 393,000

Peter Ernest Hatfull 300,000 15,000 - 28,350 - 343,350

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

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

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

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

Short term benefits

Post-employment

benefitsShare-based

payments

Salary andDirectors

FeesConsulting

Fees

NonMonetaryBenefits Superannuation Shares/Options Total

$ $ $ $ $ $

Key ManagementPersonnel

Roger SydneyStroud - 135,000 - - - 135,000

Peter ErnestHatfull 90,000 - - 8,100 - 98,100

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

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

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


Directors’ Report

Securities Received that Are Performance Related

No members of key management personnel are entitled to receive securities which areperformance-based as part of their remuneration package.

Cash Bonuses

Executive directors and executives are offered performance bonuses based on set monetary figures,rather than proportions of their salary. The set bonuses are to encourage achievement of specificgoals that have been given a high level of importance in relation to the future growth andprofitability of the entity.

During the year ended 30 June 2012, Roger Stroud received a cash bonus of $33,000, Peter Hatfullreceived a cash bonus of $15,000, and Earl McConchie received a cash bonus of USD$50,000.

Service Contracts

Managing Director

Set out below are the key terms of the employment contract of the Managing Director, Peter Hatfull:

TermFrom 1 October 2010 until one of the following occurs:

a. The Company gives the Managing Director one month written notice;

b. The Managing Director gives the Company one month written notice; or

c. The Company terminates the contract due to actions of the ManagingDirector such as serious misconduct, dishonesty and bankruptcy.

Payments onTermination

If the contract is terminated under (a) or (b) above, the Company is obligedto pay the Managing Director equivalent amount of Remuneration in lieuof notice.

If the contract is terminated under (c) above, the Company is only obligedto pay the Managing Director any accrued remuneration, includingsuperannuation and leave entitlements.

RemunerationFixed annual remuneration:

$327,000 comprising of base salary, including superannuationcontributions and benefits as allocated by the Managing Director inaccordance with the Company's policies.

Review of remuneration:

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

Annual leave:

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


Service Contracts (continued)

Executive Director

Set out below are the key terms of the employment contract of the Executive Director, Algae Energy,Earl McConchie:

TermFrom 1 October 2010 until one of the following occurs:

a. The Company gives the Managing Director one months' written notice;b. The Managing Director gives the Company one months' written notice;c. The Company terminates the contract due to actions of the Managing

Director such as serious misconduct, dishonesty and bankruptcy.


If the contract is terminated under (a) or (b) above, the Company is obligedto pay the Managing Director equivalent amount of Remuneration in lieu ofnotice.

If the contract is terminated under (c) above, the Company is only obliged topay the Managing Director any accrued remuneration, includingsuperannuation and leave entitlements.

RemunerationFixed annual remuneration:

A$300,000 gross salary per annum not inclusive of superannuation andhealth insurance benefits.

Review of remuneration:

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

Annual leave:

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

Key terms of consultant agreement

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

Term From 1 July 2010 to end on 1 July 2013 unless otherwise negotiated.

a. Either party may cancel this agreement on 30 days written notice

b. The Company can terminate the agreement due to actions of the Consultantsuch as serious misconduct, dishonesty and bankruptcy.


If the contract is terminated under (a) above, the Company is obliged to paythe Consultant equivalent amount in lieu of notice.

Remuneration The Consultant is paid a monthly rate of $30,000 for work performed inaccordance with the agreement.

The Company and Consultant agree that the Consultant will act as anindependent contractor and is responsible for payment of all taxes.

END OF AUDITED REPORT


Directors’ Report

Directors’ Interests

The following table sets out each director’s relevant interest in shares at the date of this Directors’report:

Held at 1 July2011

Granted asCompensation

Received onexercise of

optionsOther

changesHeld at 30June 2012

No. No. No. No.1 No.

Roger Stroud 200,321,5492 - - - 200,321,549

Peter Hatfull 9,497,565 - - 200,300 9,697,865Garnet EarlMcConchie 204,500,0003 - - - 204,500,000

Timothy Morrison 2,000,000 - - - 2,000,000

1. Other changes refers to shares acquired on the market

2. By virtue of Section608 (3) of the Corporations Act, as Mr Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC which inturn holds 200 million Shares.

3. By virtue of Section 608(3) of the Corporations Act, as Mr McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLC whichin turn holds 200 million Shares. Related parties of Mr McConchie together hold 4.5 million Shares.

Options and Rights Granted

No options or rights were granted to key management personnel during the year.

Indemnification and Insurance of Officers and Executives

Indemnification

Under the Company’s constitution and subject to Section 199A of the Corporations Act 2001, theCompany indemnifies in favour of persons who are, or have been, an Officer of the company.

To the extent permitted by law, the Company indemnifies every person who is or has been:

An Officer against any liability to any person (other than the company or related entity)incurred while acting in the capacity and in good faith.

An Officer of the company against cost and expenses incurred by that person in that capacityin successfully defending legal proceedings and ancillary matters.

Insurance of Officers

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

Non-Audit Services

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


Non-Audit Services (continued)

J Milner services have not involved partners or staff in a managerial or decision makingcapacity with the consolidated entity or being involved in the processing or origination oftransactions

J Milner non-audit services have only been provided where the Company is satisfied that therelated function or process will not have a material bearing on the audit procedures

J Milner’s partners and staff involved in the provision of non-audit services have notparticipated in associated approval or authorisation processes

J Milner obtained prior approval from the Audit Committee for the provision of the non-audit services

A description of all non-audit services undertaken by J Milner and the related fees have beenreported to the Board to ensure complete transparency in relation to the services provided.

Auditor’s Independence Declaration

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

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

Peter Hatfull

Managing Director

28 September 2012


Corporate Governance Statement

The Algae. Tec Limited Board is committed to achieving and demonstrating the highest standards ofcorporate governance. The Board guides and monitors the Company’s activities on behalf of theshareholders. In developing policies and standards the Board considers the ASX Group (ASX)Corporate Governance Principles and Recommendations (2nd Edition with 2010 Amendments (CGCRecommendations).

The Corporate Governance Statement set out below describes the Company’s current corporategovernance principles and practices which the Board considers to comply with the CorporateGovernance Council Recommendations.

As a framework of how the Board of Directors at Algae.Tec Limited (“Company”) carries out itsduties and obligations, the Board has considered the eight principles of corporate governance as setout in the ASX Corporate Governance Principles and Recommendations, 2nd Edition (“Principles”).

The eight principles of corporate governance are:

1. Lay solid foundations for management and oversight2. Structure the Board to add value3. Promote ethical and responsible decision-making4. Safeguard integrity in financial reporting5. Make timely and balanced disclosures6. Respect the right of shareholders7. Recognise and manage risk8. Remunerate fairly and responsibly

There are a number of recommendations in the Principles with which the Company does not complydue to the size of the Company and the Board and its practical management requirements.

A summary of the Principles and those recommendations with which the Company does not complyare detailed at the end of this statement.

1. Lay solid foundations for management and oversight

Companies should establish and disclose the respective roles and responsibilities of board andmanagement.

Recommendation 1.1: Companies should establish the functions reserved to the board and thosedelegated to senior executives and disclose those functions.

The Board is responsible for the governance of the Company. The role of the Board is to providestrategic guidance and effective oversight of management. The Board derives its authority to actfrom the Company’s Constitution.

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

Reviewing and approving the Company’s strategic plans and performance objectives andreviewing the underlying assumptions and rationale.

Monitoring financial outcomes and the integrity of reporting, and in particular, approving annualbudgets and longer-term strategic and business plans.


Corporate Governance Statement (continued)

Monitoring the effectiveness of the Company’s audit, risk management and compliance systemsthat are in place to protect the Company’s assets and to minimise the possibility of theCompany’s operating beyond acceptable risk parameters.

Monitoring compliance with legislative and regulatory requirements (including continuousdisclosure) and ethical standards, including reviewing and ratifying codes of conduct andcompliance systems.

Selecting, appointing and monitoring the performance of the Senior Executives, and ifappropriate, terminating the appointment of these Senior Executives.

Reviewing senior management succession planning and development and ensuring appropriateresources are available to senior executives.

Reviewing and recommending to shareholders the appointment or if appropriate thetermination of the appointment of the external auditor.

Monitoring the timelines and effectiveness of reporting to shareholders.

The Board delegates to the Managing Director responsibility for implementing the Company’sstrategic direction and for managing the Company’s day to day operations. Clear lines ofcommunication have been established between the Chairman and the Managing Director to ensurethat the responsibilities and accountabilities of each are clearly understood.

Recommendation 1.2: Company should disclose the process for evaluating the performance of theExecutive Team.

All Executive Team members have formal position descriptions and each year key performancemeasures are established in line with their roles and responsibilities.

The Managing Director has personal objectives related to business units and the Company as awhole.

The Chairman together with the full Board assesses the performance of the Managing Directoragainst those objectives on a regular basis at Board meetings. The Board also monitors theperformance of the Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”), CompanySecretary and other members of the Executive Team. The Company will move to more formalprocesses with the introduction of the Remuneration Committee, which will be established duringthe year to June 2013.

All newly appointed executives receive formal letters of appointment. The contents of theappointment letter contain sufficient information to allow the new Director to gain anunderstanding of.

The Company’s financial position, strategies, operations and risk management policies.

The rights, duties and responsibilities of Directors.

The roles and responsibilities of the Executive Team.

The role of Board Committees.



2. Structure of the board to add value

As at the date of this report, the Board comprises of four directors. Algae. Tec Limited’s constitutionprovides for a minimum of three directors and not more than nine directors. The Board is composedof Directors with diverse skills and experience, relevant to the business of the Company and amixture of executives and independent non-executive director.

The Board met 7 times during the financial year. Directors’ attendances are set out on Page 6 of thisreport.

Recommendation 2.1: A majority of the board should be independent directors.

The Board consists has one independent non-executive Director, Mr Timothy Morrison, who is not amajor shareholder (i.e. neither he nor his associates hold more than 5% of the Group’s paid upcapital and he has no association with any major shareholder). Due to the size of the Company, it isnot considered practical at this time to have a majority of independent directors. It is the Boards’intent to appoint more independent directors and move to a majority of independent directors asthe Company grows.

The Company considers an independent Director to be a Director who does not have any materialrelationship with the Company that a reasonable person would consider may influence theDirector’s ability to:

Objectively make decisions on matters that come before the Board

Carry out their duties as a Director acting in the best interest of the Company

Be free of real or reasonably perceived conflict of interest.

In assessing independence, the Board reviews the relationship that the Director and their immediatefamily have with the Company. In Particular the Board applies the following criteria in determiningindependence.

Non-Executive Director

Is not a shareholder of the Company holding more than five per cent of the voting shares or anofficer of or otherwise associated directly with, a shareholder of the Company holding morethan five per cent.

Within the last three years has not been a principal of a material professional adviser or amaterial consultant to the Company or any other group member, or an employee materiallyassociated with the service provided.

Is a material supplier or customer of the Company or other group member, or an officer of orotherwise associated directly or indirectly with a material supplier or customer.

Has no material contractual relationship with the Company or another Group member otherthan as a Director of the Company.

The Board regularly assesses the independence of the Non-Executive Director and has specificallyconsidered the independence of the Non-Executive Director, in accordance with the above criteria,during the financial year. The Board has determined that the Non-Executive Director remainsindependent.

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

Mr Timothy Morrison Non - Executive Director

Mr Peter Ernest Hatfull Managing Director and Company Secretary

Garnet Earl McConchie Executive Director

Roger Sydney Stroud Executive Chairman



Recommendation 2.2: The Chair should be an independent director.

The Chairman, Mr Roger Stroud is currently not independent nor are the other two directors, MrPeter Hatfull and Mr Earl McConchie. Each of them are shareholders of the Group. As the Groupgrows, it is intended that an independent Chairman will be appointed.

Recommendation 2.3: The roles of the chair and managing director should not be exercised by thesame individual.

The roles of the Chairman and Managing Director are not exercised by the same individual. TheChairman Mr Roger Stroud is responsible for leading the Board in its Duties, facilitating effectivediscussions at Board level and ensuring that general meetings are conducted efficiently, whereas,the Managing Director, Mr Peter Hatfull, is responsible for the efficient operation of the Company.

Recommendation 2.4: The Board should establish a nomination committee.

The Board has not established a nomination committee. The Board, as a whole, deals with areasthat would normally fall within the charge of the Nomination Committee. These include mattersrelating to the renewal of Board Members and Board Performance.

Recommendation 2.5: Companies should disclose the process for evaluating the performance ofthe Board, its committees and individual directors.

The Board undertakes ongoing self-assessment and review of its performance and of theperformance of the Chairman and individual Directors.

3. Promote ethical and responsible decision-making

Companies should actively promote ethical and responsible decision-making

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

summary of the code as to:

The Practices necessary to maintain confidence in the Company’s integrity.

The Practices necessary to take into account their legal obligations and the reasonable

expectations of their stakeholders.

The responsibility and accountability of individuals for reporting and investigating reports of

unethical practices.

The Company is committed to Directors and employees maintaining high standards of integrity and

ensuring that activities are in compliance with the law and Company policies.



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

Directors are acquainted with obligations imposed on them and the Company by the Corporations

Act and are familiar with other documents prepared by the Company to meet Corporate Governance

requirements:

Algae.Tec Limited Corporate Governance Policy

Algae.Tec Limited Trading Policy

Algae.Tec Limited Code of Conduct

The Objective of the Company’s Code of Conduct is to help Directors and Employees make informed

choices about their behaviour.

The Company’s Corporate Governance Practices and Policies summarises the Corporate Governance

practices put in place by the Board, including:

The Role of the Board

Composition of the Board

Independence of the Board

Audit Committee and Risk Management

Board Committees

Ethical Standards

Dealing with Shares

Continuous Disclosures

Recommendation 3.2: Companies should establish policy diversity and disclose the policy or a

summary of that policy. The policy should include requirements for the board to establish

measurable objectives for achieving gender diversity and for the board to assess annually both the

objectives and progress in achieving them.

The Company has established a Diversity Policy, however due to the Company’s size and short

history, there are aspects which do not comply with the CGC Principles and Recommendations 3.2

and Recommendations 3.3 pertaining to disclosure for achieving gender diversity set by the Board.

The Board at this juncture has not set measurable objectives. This policy will be reviewed as part of

the annual compliance review to the Board to ensure that the Diversity Policy is being progressed as

required and to set measurable objectives when appropriate for the Company.

Recommendation 3.3: Companies should disclose in each annual report the measurable objectives

for achieving gender diversity set by the board in accordance with the diversity policy and progress

towards achieving them.

The Board at this juncture has not set measurable objectives. This policy will be reviewed as part of

the annual compliance review to the Board to ensure that the Diversity Policy is being progressed as

required and to set measurable objectives when appropriate for the Company.



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

Recommendation 3.4: Companies should disclose in each annual report the proportion of women

employees in the whole organisation, women in senior executive positions and women on the board.

The table in respect of this follows:

Gender TotalSeniorManagement Board

Female 9 0 0

Male 24 3 4

%Female 27 0 0

Recommendation 3.5: Companies should provide the information indicated in the Guide to

reporting on Principle 3.

The Company in respect of the Diversity Policy has followed the recommendations set by the ASX

Corporate Governance Council for the whole period during the financial year ended 30 June 2012

except for items noted above.

4. Safeguard integrity in financial reporting

Companies should have a structure to independently verify and safeguard the integrity of theirfinancial reporting.

Recommendation 4.1: The Board should establish an audit committee.

The Board has established an Audit Committee.

Recommendation 4.2: The audit committee should be structured so that it:

Consist only of non-executive directors

Consists of majority of independent directors

Is chaired by an independent chair, who is not chair of the board

Has at least three members

Due to the current size of the organisation, the audit committee does not have a majority ofindependent directors. However, the Audit Committee and the Board currently regularly;

Monitor and review the effectiveness of the Group’s control environment, reportingpractices and responsibilities in the areas of accounting, risk management and safeguard ofassets.

Review and approve internal audit plans including identified audit risk areas.

Oversee and appraise the quality of audits conducted and monitor their effectiveness.

Monitor and evaluate compliance processes and adherence.



4. Safeguard integrity in financial reporting(continued)

Recommendation 4.3: The audit committee should have a formal charter.

The committee is responsible for:

Providing assistance to the Board in fulfilling its corporate governance and oversightresponsibilities in relation to the Group’s risk management systems, financial reporting,internal control structure and the internal and external audit functions.

Monitoring compliance with the Corporations Act, ASX Listing Rules and any mattersoutstanding with taxation and other regulatory authorities.

Nomination of external auditors; and

Overseeing the financial reporting process.

Recommendation 4.4: Companies should provide the information indicated in the Guide toreporting on Principle 4.

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

recommendation.

5. Making timely and balanced disclosure

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

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

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

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


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



6. Respect the rights of shareholders

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

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

The Board recognises the important rights of shareholders and strives to communicate withshareholders regularly and clearly, both by electronic means and using more traditionalcommunication methods. Shareholders are encouraged to attend and participate at generalmeetings. The Company’s auditors attend the Annual General meeting of the Company and areavailable to answer shareholders’ questions.

Consistent with this approach, the Company has adopted a Shareholder Communications Policy,which includes the following initiatives and practices.

Communicating effectively with shareholders through releases to the market via the ASX, themedia, the company’s website, information mailed to shareholders and the general meetings ofthe Company.

Ensuring all information disclosed to the ASX is posted on the Company’s website when it isdisclosed to the ASX. This includes presentation material used in public presentations and tobrief analysts, which is also released to the ASX and posted on the Company’s website.

Arranging for the external auditor to attend the Company’s Annual General Meeting and beavailable to answer shareholder questions about the conduct of the auditor and the preparationand content of the Auditor’s Report.

Recommendation 6.2: Companies should provide the information indicated in the Guide to

Reporting on Principle 6.

The Company will make the relevant material available, being its Shareholder Communications

Policy, on its website in accordance with this recommendation.

7. Recognise and manage risk

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

Recommendation 7.1: Companies should establish policies for the oversight and management ofmaterial business risks and disclose a summary of those policies.

The Board, together with management, has sought to identify, assess, monitor and mitigate risk.Internal controls are monitored on a continuous basis and wherever possible, improved. The Boarddetermines the Group’s risk profile and is responsible for overseeing and approving riskmanagement strategy and policies, internal compliance and internal control. The Board’s collectiveexperience will enable accurate identification of the principal risk that may affect the Group’sbusiness. Key operational risk and their management will be recurring items for deliberation atBoard Meetings.



7. Recognise and manage risk (continued)

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

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

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

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

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


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

8. Remunerate fairly and responsibly

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

Recommendation 8.1: The board should establish a remuneration committee.

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



8. Remunerate fairly and responsibly (continued)

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

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

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

Refer to recommendation 8.1 above.

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

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


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

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


Consolidated Statement of Comprehensive IncomeFor the year ended 30 June 2012

Notes 2012 2011

$ $

REVENUE

Interest 24,267 21,282

Derivative fair value movement 14 41,085 -

Other 17,390 -

82,742 21,282

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

Research and development expenses (988,642) (173,417)

LOSS BEFORE INCOME TAX 4 (6,970,836) (2,468,567)

Income tax benefit 6 199,727 -

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

Other Comprehensive Income (78,735) 31,080

TOTAL COMPREHENSIVE INCOME (6,849,844) (2,437,487)

TOTAL COMPREHENSIVE INCOME

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

Earnings per share

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

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

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


Consolidated Statement of Financial PositionAs at 30 June 2012

Notes 2012 2011

$ $CURRENT ASSETSCash and cash equivalents 8 1,586,787 2,434,251Trade and other receivables 9 395,537 47,990Other current assets 10 79,277 63,554

TOTAL CURRENT ASSETS 2,061,601 2,545,795

NON CURRENT ASSETSProperty, plant, and equipment 11 1,095,532 127,554Other non-current assets - 18,000

TOTAL NON CURRENT ASSETS 1,095,532 145,554

TOTAL ASSETS 3,157,133 2,691,349

CURRENT LIABILITIESTrade and other payables 12 349,892 81,386Provisions 13 36,220 10,820Borrowings 14 578,556 -

TOTAL CURRENT LIABILITIES 964,668 92,206

NON CURRENT LIABILITIESBorrowings 14 11,305 -

TOTAL NON CURRENT LIABILITIES 11,305 -

TOTAL LIABILITIES 975,973 92,206

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

EQUITYIssued capital 15 11,878,665 5,446,804Reserves 17 (47,655) 31,080Accumulated losses (9,649,850) (2,878,741)

TOTAL EQUITY 2,181,160 2,599,143

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


Consolidated Statement of Changes in EquityFor the year ended 30 June 2012

Issued

Capital

Accumulated

Losses

Foreign

Exchange

Reserves

Total

Equity

$ $ $ $

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

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

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

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

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

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

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

Issued

Capital

Accumulated

Losses

Foreign

Exchange

Reserves

Total

Equity

$ $ $ $

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

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

Other comprehensive income - - 31,080 31,080

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

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

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

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

The above consolidated statement of changes in equity should be readIn conjunction with the accompanying notes


Consolidated Statement of Cash FlowsFor the year ended 30 June 2012

Notes

2012

$

2011

$

CASH FLOWS FROM OPERATING ACTIVITES

Payments to suppliers and employees (inclusive of

goods and services tax) (6,187,889) (1,836,504)

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

Interest received 24,267 15,179

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

CASH FLOWS FROM INVESTING ACTIVITIES

Loans to Directors - (25,000)

Repayment of loans to Directors 25,000 -

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

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

CASH FLOWS FROM FINANCING ACTIVITIES

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

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

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

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

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

Cash and cash equivalents at the beginning of the

financial period 8 2,434,251 9,779

Effect of exchange rate changes of cash held in foreign

currencies 219,435 (274,559)

CASH AND CASH EQUIVALENTS AT THE END OF THE

FINANCIAL PERIOD 8 1,586,787 2,434,251

The above consolidated statement of cash flows should be readIn conjunction with the accompanying notes


Notes to the Financial Statements30 June 2012

The financial report of Algae.Tec Limited and its subsidiary (the Group) for the year to 30 June 2012was authorised for issue in accordance with the directors meeting of Friday 28 September 2012.

Algae.Tec Limited is a company limited by shares, incorporated, and domiciled in Australia. It’sregistered office and principal place of business is 516 Hay Street, Subiaco, WA 6008.

1. Significant accounting policies

Statement of compliance

The financial report is a general purpose financial report which has been prepared in accordancewith the Corporations Act 2001, Australian Accounting Standards and Interpretations, and otherauthoritive pronouncements. The financial report includes the consolidated financial statements ofthe Group.

Compliance with Australian Accounting Standards ensures the financial statements and notes of theGroup comply with International Financial Reporting Standards (“IFRS”)

Basis of preparation

The financial report has been prepared on the accruals basis, and on the basis of historical costexcept for the revaluation of financial instruments. Cost is based on the fair values of theconsideration given in exchange for assets. All amounts are presented in Australian dollars, unlessotherwise noted. Comparative information is reclassified where appropriate to enhancecomparability.

Going Concern

This financial report has been prepared on the going concern basis. The Directors are confident that

the Company is a going concern for the following reasons:

- A number Memorandum of Understandings and joint ventures have been established for the

ongoing development of the technology and construction of commercial sized facilities;

- Commencement of the construction ventures is expected to be towards the end of 2012 and

it is anticipated that this will be funded through a combination of joint venture partners,

capital raisings and specific project funding. The ongoing research and development costs

associated with the business are currently covered through a number of facilities as follows:

- Funding through the Australian Government for Research and Development

expenditure – As outlined at Note 23, subsequent to year end, Macquarie Bank

advanced 80% of the research and development rebate claimed by the company for

expenditure incurred in the year to 30 June 2012.

- A $20 million facility is in place with GEM, subject to the satisfaction of a number of

conditions, the Company can require GEM drawdown on the Equity Line of Credit.

- A convertible note facility is in place with La Jolla Cove Investors. This facility is to the

value of $6 million (as at 30th June 2012, $1.5 million drawn down). This funding is paid

on a monthly basis (minimum $200,000) with the amounts dependent upon the

current share price. This note is expandable to $9 million at our request (further

details at Note 14); and

- If required, further share placements and/or capital raisings will take place to continue

to fund further development of the technology.


Notes to the Financial Statements continued

30 June 2012

1. Significant accounting policies (continued)

Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies, management is required to make judgementsestimates and assumptions about carrying values of assets and liabilities that are not readilyapparent from other sources. The estimates and associated assumptions are based on historicalexperience and other factors that are considered to be relevant. Actual results may differ fromthese estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimate is revised if the revisionaffects only that period or in the period of the revision and future periods if the revision affects bothcurrent and future periods. Refer to note 2 for a discussion of critical judgements in applying theentity’s accounting policies, and key sources of estimation uncertainty.

Adoption of new and revised Accounting StandardsIn the current year, the Group has adopted all of the new and revised Standards and Interpretationsissued by the Australian Accounting Standards Board (AASB) that are relevant to its operations andeffective for the current annual reporting period. Details of the impact of the adoption of these newaccounting standards, if applicable are sets out in the individual accounting policy notes set outbelow.

The following significant accounting policies have been adopted in the preparation and presentationfor the financial report.

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and theentity controlled by the Company (it’s subsidiary) (referred to as ‘the Group’ in these financialstatements). Control is achieved where the Company has the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring theiraccounting policies into line with those used by the Group.

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions with the exception of unrealised foreign exchange gains or losses onintercompany receivables and payables, are eliminated in preparing the consolidated financialstatements.

(b) Business combinations

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



30 June 2012


Business combinations (continued)

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

(c) Foreign currencies

The individual financial statements of each group entity are presented in its functional currencybeing the currency of the primary economic environment in which they operates. For the purposeof the consolidated financial statements, the results and financial position of each entity areexpressed in Australian dollars, which is the functional currency of Algae. Tec Limited and thepresentation currency for the consolidated financial statements.

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

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

(d) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of GST, except where the amountof GST incurred is not recoverable from the Australian Taxation Office (ATO). In these circumstancesthe GST is recognised as part of the cost of acquisition of the asset or as part of an item of theexpense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST.

The net amount of GST recoverable from, or payable to, the ATO is included as a current asset orliability in the Statement of Financial Position.

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

(e) Revenue

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



30 June 2012


Revenue (continued)

Rendering of servicesConsulting services are performed by the parent for the Group’s controlled entity. Revenue isrecognised by reference to the actual labour hours delivered at standard rates and direct expensesincurred.

Rental incomeRental income from the lease of Suite 9, 3 Centro Avenue, Subiaco is recognised in profit or loss on astraight line basis over the term of the lease.

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

(f) Share-based payments

The Group provides benefits to its directors, employees and consultants (including senior executives)of the Group in the form of share-based payments, whereby employees render services in exchangefor shares or rights over shares (equity-settled transactions).

The cost of these equity-settled transactions is measured by reference to the fair value of the equityinstruments at the date at which they are granted.

In valuing equity-settled transactions, no account is taken of any performance conditions, other thanconditions linked to the price of shares of Algae. Tec Limited (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase inequity, over the period in which the performance and/or service conditions are fulfilled, ending onthe date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date untilvesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group’s bestestimate of the number of equity instruments that will ultimately vest. No adjustment is made forthe likelihood of market performance conditions being met as the effect of these conditions isincluded in the determination of fair value at grant date. The statement of comprehensive incomecharge or credit for a period represents the movement in cumulative expense recognised as at thebeginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting isonly conditional upon a market condition. If the terms of an equity-settled award are modified, as aminimum an expense is recognised as if the terms had not been modified.

In addition, an expense is recognised for any modification that increases the total fair value of theshare-based payment arrangement, or is otherwise beneficial to the employee, as measure at thedate of modification.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, andany expense not yet recognised for the award is recognised immediately.

However, if a new award is substituted for the cancelled award and designated as a replacementaward on the date that it is granted, the cancelled and new award are treated as if they were amodification of the original award, as described in the previous paragraph. The dilutive effect, if any,of outstanding options is reflected as additional share dilution in the computation of earnings pershare.



30 June 2012


(g) Taxation

Current Tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable inrespect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws thathave been enacted or substantively enacted by reporting date. Current tax for current and prioryears 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 oftemporary differences arising from differences between the carrying amount of assets and liabilitiesin the Financial Information and the corresponding tax base of those items.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theyear(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (andtax laws) that have been enacted or substantively enacted by reporting date. The measurement ofdeferred tax liabilities and asset reflects the tax consequences that would follow from the manner inwhich the Group expects at the report date, to recover or settle the carrying amount of its assetsand liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes leviedby the same taxation authority and the Group intends to settle its current tax assets and liabilities onthe net basis.

Current and deferred tax for the year.Current and deferred tax is recognised as an expense or income in the income statement, exceptwhen it relates to items credited or debited directly to equity, in which case the deferred tax is alsorecognised directly in equity, or where it arises from the initial accounting for a businesscombination, in which case it is taken into account in the determination of good or excess.

Research & Development ClaimsA claim of $1575,588 for research and development for the year ended 30 June 2012 has beensubmitted but not yet approved. The Group is also awaiting determination as to the eligibility ofoverseas research and development expenditure which would increase the provisional claim made.

The Groups accounting policy is to account for the research and development claims as an incometax benefit in the year the claims are approved.



30 June 2012


(h) Cash and cash equivalentsCash and cash equivalents comprise cash on hand, cash in banks and short-term deposits with anoriginal maturity of three months or less that are readily convertible to known amounts of cash andwhich are subject to an insignificant risk of changes in value.

(i) Trade and Other PayablesTrade and other payables represent the liability outstanding at the end of the reporting period forgoods and services received by the Group during the reporting period which remains unpaid. Thebalance is recognises as a current liability with the amount being normally paid within 30 days ofrecognition of liability.

(j) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to thechief operating decision maker. The chief operating decision maker, who is responsible forallocating resources and assessing performance of the operating segments, has been identified asthe Board of Directors.

(k) Property, Plant and Equipment

Plant and equipment is stated at cost less accumulated depreciation and any accumulatedimpairment losses.Depreciation is calculated based upon the estimated useful life of the assets as follows:

Computer Equipment 20% to 50% Straight LineComputer Software 25% (4 years) Straight LineOffice Equipment 20% (5 years) Straight LineFurniture & Fittings 14.3%(7 years) Straight LineFacility Improvements 14.3%(7 years) Straight LinePlant and equipment 14.3%(7 years) Straight LineLaboratory Systems 14.3%(7 years) Straight LineMotor Vehicles 22.5% Diminishing Value

The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted ifappropriate, at each financial year end.

Gains and losses on disposal are determined by comparing proceeds with the carrying amount.These gains and losses are included in the statement of comprehensive income. When revaluedassets are sold, amounts included in the revaluation surplus relating to that asset are transferred toretained earnings.

(l) Borrowings

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

subsequently measured at amortised cost. Any difference between the proceeds (net of transaction

costs) and the redemption amount is recognised in the statement of comprehensive income over

the period of the borrowings using the effective interest method. Fees paid on the establishment of

loan facilities, which are not incremental costs relating to the actual draw down of the facility, are

recognised as prepayments and amortised on a straight line basis over the term of the facility.



30 June 2012


(m) Leasing

Lease of assets under which the consolidated entity assumes substantially all the risks and benefitsof ownership are classified as finance leases as distinct from operating leases under which the lessoreffectively retains substantially all such risk and benefits. Property, plant and equipment acquiredby finance leases is capitalised at the present value of the minimum lease payments as a financelease asset and as a corresponding lease liability from date of inception of the lease. Lease assetsare amortised over the period the entity is expected to benefit from the use of the assets or theterm of the lease whichever is shorter. Finance lease liabilities are reduced by the component ofprincipal repaid. Lease payments are allocated between the principal component of the liability andinterest expense.

(n) Employee benefits

Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulatingsick leave expected to be settled within 12 months of the reporting date are recognised in otherpayables in respect of employees’ services up to the reporting date. They are measured at theamounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sickleave are recognised when the leave is taken and are measured at the rates paid or payable.

Long service leave

The liability for long service leave is recognised in the provision for employees’ benefits andmeasured as the present value of expected future payments to be made in respect of servicesprovided by employees up to the reporting date. Consideration is given to expect future wage andsalary levels, experience of employee departures, and period of service. Expected future paymentsare discounted using market yields at the reporting date of national government bonds with termsto maturity and currencies that match, as closely as possible, the estimated future cash outflows.

(o) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a resultof a past event, it is probable that the Group will be required to settle the obligation, and a reliableestimate can be made of the amount of the obligation.

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

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



30 June 2012


(p) Financial instruments

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

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

Classification and subsequent measurement

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

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

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

The effective interest method is used to allocate interest income or interest expense over therelevant period and is equivalent to the rate that discounts estimated future cash payment orreceipts (including fees, transaction costs and other premiums or discounts) through the expectedlife (or when this cannot be reliably predicted, the contractual term) of the financial instrument tothe net carrying amount of the financial asset or financial liability.

Revisions to expected future net cash flows will necessitate an adjustment to the carrying value witha consequential recognition of an income or expense item in profit or loss.

The Group does not designate any interests in subsidiaries, associates or joint venture entities asbeing subject to the requirement of Accounting Standards specifically applicable to financialinstruments.

Financial assets at fair value through profit or loss

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



30 June 2012


Financial instruments (continued)

Loans and receivables

Loans receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market and are subsequently measured at amortised cost.

Held-to-maturity investments

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

Available-for-sale financial assets

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

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

Available-for-sale financial assets are included in non-current assets where they are not expected tobe sold within 12 months after the end of the reporting period. All other financial assets areclassified as current assets.

(q) Research and Development Costs

Research and Development expenditure during the research phase of a project is recognised as anexpense when incurred. Development costs are capitalised only when technical feasibility studiesidentify that the project will deliver future economic benefits and these benefits can be measuredreliably.

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

(r) Impairment of Assets

The Group reviews the carrying amounts of its assets to determine whether there is any indicationthat those assets have suffered an impairment loss. If any such indication exists, the recoverableamount 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 Groupestimates the recoverable amount of the cash-generating unit to which the asset belongs.

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



30 June 2012


Impairment of Assets (continued)

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than itscarrying amount, the carrying amount of the asset (cash-generating unit) is reduced to itsrecoverable amount.An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried atfair value, in which case the impairment loss is treated as a revaluating decrease.Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generatingunit) is increased to the revised estimate of its recoverable amount, but only to the extent that theincreased carrying amount does not exceed the carrying amount that would have been determinedhad no impairment loss been recognised for the asset (cash-generating unit) in prior years. Areversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset iscarried at fair value, in which case the reversal of the impairment loss is treated as a revaluationincrease.

(s) Earnings per Share

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

(t) Issued Capital

Ordinary shares and options are classified as issued capital. Incremental costs directly attributableto the issue of new share or options are shown in equity as a deduction, net of tax, from proceeds.

(u) New accounting standards for application in future periods

The AASB has issued a number of new and amended Accounting Standards and Interpretations thathave mandatory application dates for future reporting periods, some of which are relevant to theGroup. The Group has decided not to early adopt any of the new and amended pronouncements.The Group’s assessment of the new and amended pronouncements that are relevant to the Groupbut applicable in future reporting periods is set out below:

AASB 9: Financial Instruments (December 2010) and AASB 2010–7: Amendments to AustralianAccounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112,118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 &127] (applicable for annual reporting periods commencing on or after 1 January 2013).

These Standards are applicable retrospectively and include revised requirements for theclassification and measurement of financial instruments, as well as recognition and derecognitionrequirements for financial instruments.

The key changes made to accounting requirements include:

- simplifying the classifications of financial assets into those carried at amortised cost andthose carried at fair value;

- simplifying the requirements for embedded derivatives;- removing the tainting rules associated with held-to-maturity assets;



30 June 2012


New accounting standards for application in future periods (continued)

- removing the requirements to separate and fair value embedded derivatives for financialassets carried at amortised cost;

- allowing an irrevocable election on initial recognition to present gains and losses oninvestments in equity instruments that are not held for trading in other comprehensiveincome. Dividends in respect of these investments that are a return on investment can berecognised in profit or loss and there is no impairment or recycling on disposal of theinstrument;

- requiring financial assets to be reclassified where there is a change in an entity’s businessmodel as they are initially classified based on: (a) the objective of the entity’s businessmodel for managing the financial assets; and (b) the characteristics of the contractual cashflows; and

- requiring an entity that chooses to measure a financial liability at fair value to present theportion of the change in its fair value due to changes in the entity’s own credit risk in othercomprehensive income, except when that would create an accounting mismatch. If such amismatch would be created or enlarged, the entity is required to present all changes in fairvalue (including the effects of changes in the credit risk of the liability) in profit or loss.

The Group has not yet been able to reasonably estimate the impact of these pronouncements on itsfinancial statements.

AASB 2010–8: Amendments to Australian Accounting Standards – Deferred Tax: Recovery ofUnderlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012).

This Standard makes amendments to AASB 112: Income Taxes and incorporates Interpretation 121:Income Taxes – Recovery of Revalued Non-Depreciable Assets into AASB 112.

Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assetsdepends on whether an entity expects to recover an asset by using it or by selling it. Theamendments introduce a presumption that an investment property is recovered entirely throughsale. This presumption is rebutted if the investment property is held within a business model whoseobjective is to consume substantially all of the economic benefits embodied in the investmentproperty over time, rather than through sale.

The amendments are not expected to significantly impact the Group.

AASB 10: Consolidated Financial Statements, AASB 11: Joint Arrangements, AASB 12: Disclosure ofInterests in Other Entities, AASB 127: Separate Financial Statements (August 2011), AASB 128:Investments in Associates and Joint Ventures (August 2011) and AASB 2011–7: Amendments toAustralian Accounting Standards arising from the Consolidation and Joint Arrangements Standards[AASB 1, 2, 3, 5, 7, 9, 2009–11, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038and Interpretations 5, 9, 16 & 17] (applicable for annual reporting periods commencing on or after 1January 2013).

AASB 10 replaces parts of AASB 127: Consolidated and Separate Financial Statements (March 2008,as amended) and Interpretation 112: Consolidation – Special Purpose Entities. AASB 10 provides arevised definition of control and additional application guidance so that a single control model willapply to all investees. The Group has not yet been able to reasonably estimate the impact of thisStandard on its financial statements.



30 June 2012



AASB 11 replaces AASB 131: Interests in Joint Ventures (July 2004, as amended). AASB 11 requiresjoint arrangements to be classified as either “joint operations” (where the parties that have jointcontrol of the arrangement have rights to the assets and obligations for the liabilities) or “jointventures” (where the parties that have joint control of the arrangement have rights to the net assetsof the arrangement). Joint ventures are required to adopt the equity method of accounting(proportionate consolidation is no longer allowed).

AASB 12 contains the disclosure requirements applicable to entities that hold an interest in asubsidiary, joint venture, joint operation or associate. AASB 12 also introduces the concept of a“structured entity”, replacing the “special purpose entity” concept currently used in Interpretation112, and requires specific disclosures in respect of any investments in unconsolidated structuredentities. This Standard will affect disclosures only and is not expected to significantly impact theGroup.

To facilitate the application of AASBs 10, 11 and 12, revised versions of AASB 127 and AASB 128 havealso been issued. These Standards are not expected to significantly impact the Group.

AASB 13: Fair Value Measurement and AASB 2011–8: Amendments to Australian AccountingStandards arising from AASB 13 [AASB 1, 2, 3, 4, 5, 7, 9, 2009–11, 2010–7, 101, 102, 108, 110, 116,117, 118, 119, 120, 121, 128, 131, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 andInterpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132] (applicable for annual reporting periodscommencing on or after 1 January 2013).

AASB 13 defines fair value, sets out in a single Standard a framework for measuring fair value, andrequires disclosures about fair value measurement.AASB 13 requires:

- inputs to all fair value measurements to be categorised in accordance with a fair valuehierarchy; and

- enhanced disclosures regarding all assets and liabilities (including, but not limited to,financial assets and financial liabilities) to be measured at fair value.

These Standards are not expected to significantly impact the Group.

AASB 2011–9: Amendments to Australian Accounting Standards – Presentation of Items of OtherComprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 & 1049] (applicable forannual reporting periods commencing on or after 1 July 2012).

The main change arising from this Standard is the requirement for entities to group items presentedin other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable toprofit or loss subsequently.

This Standard affects presentation only and is therefore not expected to significantly impact theGroup.

AASB 119: Employee Benefits (September 2011) and AASB 2011–10: Amendments to AustralianAccounting Standards arising from AASB 119 (September 2011) [AASB 1, AASB 8, AASB 101,AASB 124, AASB 134, AASB 1049 & AASB 2011–8 and Interpretation 14] (applicable for annualreporting periods commencing on or after 1 January 2013).



30 June 2012



These Standards introduce a number of changes to accounting and presentation of defined benefitplans. The Group does not have any defined benefit plans and so is not impacted by the amendment.AASB 119 (September 2011) also includes changes to the accounting for termination benefits thatrequire an entity to recognise an obligation for such benefits at the earlier of:

- for an offer that may be withdrawn – when the employee accepts;for an offer that cannot be withdrawn – when the offer is communicated to affectedemployees; and

- where the termination is associated with a restructuring of activities under AASB 137:Provisions, Contingent Liabilities and Contingent Assets, and if earlier than the first twoconditions – when the related restructuring costs are recognised.

The Group has not yet been able to reasonably estimate the impact of these changes to AASB 119.

2. Critical accounting judgements and key sources of estimation uncertainty

Estimates and judgements are continually evaluated and are based on historical experience and

other factors, including expectations of future events that may have a financial impact on the entity

and that are believed to be reasonable under the circumstances.

Income taxes

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

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

Estimated impairment of noncurrent assets

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

3. Segment reporting

The Group operates in the environmental energy industry. The Group operates in two geographicallocations being Australia and USA. This internal reporting framework is the most relevant to assistthe Board with making decisions regarding the Group and its ongoing activities.



30 June 2012

3. Segment reporting (continued)

2012 2011

$ $

Revenue from external sources 17,390 -

Reportable segment loss USA (1,215,200) (569,554)

Australia (2,468,425) (173,971)

(3,666,235) (742,471)

Reportable segment loss (3,666,235) (742,971)

Interest 24,267 21,282

Unrealised exchange gains/(loss) 219,436 (274,559)

Corporate expenses (3,548,304) (1,512,319)

Loss before tax (6,970,836) (2,508,567)

Reportable segment assets

Australia 1,985,662 2,075,006

USA 1,171,471 616,343

3,157,133 2,691,349

4. Expenses

Loss before income tax includes the following specific expenses:

Share based payments expense (Note 15) 797,700 200,000

Interest Expense 18,087 1,575



30 June 2012

5. Leases and Commitments

Commitments in relation to a property lease contracted for at the reporting date but not recognisedas liabilities payable:

2012 2011$ $

Within 1 year 127,453 5,250Later than 1 year but within 5 years 191,179 -

Lease term was 36 months from 1 January 2012 at rental of $127,453 per annum. 30 months remainon current lease with an option for a further 36 months. Rent review has not yet been conductedbut will be due January 2013.Commitments in relation to the rental of a photocopier/printer/fax machine contracted for at thereporting date but not recognised as liabilities payable:Within 1 year 5,089 5,089Later than 1 year but within 5 years 9,331 14,420

6. Income tax expense/benefit(a) Income tax expense/benefit

The component of income taxexpense/benefit comprises:Current tax - -Deferred tax - -

Income tax benefit – see below 199,727 -

The income tax benefit relates to research and development claim for the year ended 30 June 2011(Note 9).

(b) Reconciliation of Income Taxexpense to prima facie taxpayableLoss for the year (6,771,109) (2,468,567)Income tax benefit 199,727 -Loss before income tax (6,970,836) (2,468,567)

Prima facie income tax at 30% (2,091,251) (740,570)Tax effect of amounts notassessable/deductible incalculating taxable incomeDeductible expenses (141,840) -Non-deductible expenses 48,038 1,063Share based payments 239,400 54,545Tax (benefit) (1,945,657) (684,962)

Current year tax losses for whichno deferred tax asset wasrecognised 1,945,657 684,962Income tax expense/(benefit)recognised - -



30 June 2012

6. Income tax expense/benefit (continued)

Research & Development Claims

A claim for the year ended 30 June 2012 in the amount of $1,575,389 and in respect of research anddevelopment costs within Australia has been submitted but not yet approved. The Group is alsoawaiting a determination as to the eligibility of overseas research and development expenditurewhich would increase the provisional claim made.

As approval for Australian expenditure is still pending no revenue or tax effect has been accountedfor at 30 June 2012.

(c) Deferred Tax Assets

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

2012 2011$ $

Annual Leave provision 10,866 3,246Accrued Superannuation 5,238 1,485Accruals 12,428 -Foreign Exchange Gains/Losses (65,831) 82,368Borrowing costs (Profit/Loss) 59,671 77,671S40-880 8,175 6,244Equity raising costs (Equity) 50,844 105,404Australian Tax Losses 2,426,156 480,485Total 2,507,547 756,903

7. Auditors remuneration

Auditing the Group's financial statementSomes Cooke – Group Auditor 34,500 27,250Jack Milner – Subsidiary Company Auditor 21,162 9,669Other services (i) 34,272 -

89,934 36,919

(i) Other services were performed by Jack Milner, which relate to monthly reviews of theaccounting records and preparation of a tax return.

8. Current Assets – Cash and Cash Equivalents

Cash on hand and at bank 1,505,894 2,380,840

Bank short term deposits 80,893 53,411

1,586,787 2,434,251



30 June 2012

9. Current Assets – Trade and Other Receivables2012 2011

$ $R & D Tax Rebate (i) 199,727 -

GST refund 169,600 47,277

Other receivables 26,210 713395,537 47,990

(i) The rebate relates to the claim made for expenses incurred in the year ended 30 June 2011. Theamount of $199,727 was received from the taxation office subsequent to year end.

10. Current Assets - Other

Prepayments 79,277 63,554

11. Non-Current Assets – Property, Plant and Equipment

Plant and EquipmentPlant and Equipment - at cost 763,258 80,044Less: Accumulated depreciation (46,911) (2,141)

716,347 77,903Computer EquipmentComputer Equipment - at cost 114,091 12,776Less: Accumulated depreciation (13,193) (2,126)

100,898 10,650Office EquipmentOffice Equipment - at cost 59,733 19,020Less: Accumulated depreciation (6,480) (646)

53,253 18,374Facility ImprovementsFacility Improvements - at cost 191,256 4,217Less: Accumulated depreciation (14,010) (160)

177,246 4,057Laboratory SystemsLaboratory Systems - at cost 6,416 6,094Less: Accumulated depreciation (952) (47)

5,464 6,047Motor VehiclesMotor Vehicles - at cost 41,825 11,364Less: Accumulated depreciation (6,157) (841)

35,668 10,523FurnishingsFurnishings - at cost 7,819 -Less: Accumulated depreciation (1,163) -

6,656 -TotalsAsset at cost 1,184,398 133,515Less: Accumulated depreciation (88,866) (5,961)

1,095,532 127,554



30 June 2012

11. Non-Current Assets – Property, Plant and Equipment (continued)

2012

Total P&E C&E O&E F&I L&S MV F

$ $ $ $ $ $ $ $

Carrying amount of 1 July 2011 127,554 77,903 10,650 18,374 4,057 6,047 10,523 -

Additions 1,051,173 683,214 101,605 40,713 187,039 322 30,461 7,819

Disposals - - - - - - - -

Depreciation/amortisationexpense (88,866) (46,911) (13,193) (6,480) (14,010) (952) (6,157) (1,163)

Currency exchange reserve effect 5,671 2,141 1,836 646 160 47 841 -

Carrying amount at 30 June 2012 1,095,532 716,347 100,898 53,253 177,246 5,464 35,668 6,656

2011

Total P&E C&E O&E F&I L&S MV

$ $ $ $ $ $ $

Carrying amount of 1 July 2010 2,436 - 2,436 - - - -

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

Disposals - - - - - - -

Depreciation/amortisation expense (5,834) (2,256) (1,849) (672) (169) (47) (841)

Currency exchange reserve effect 163 115 13 26 9 - -

Carrying amount at 30 June 2011 127,554 77,903 10,650 18,374 4,057 6,047 10,523

12. Current Liabilities – Trade and Other Payables

2012

$

2011

$

Trade creditors 190,325 29,047

Payroll liabilities 116,348 52,339

Accruals 41,426 -

Other liabilities 1,793 -

Total trade and other payables 349,892 81,386

Fair valueDue to the short term nature of these payables, their carrying value is assumed to approximate theirfair value.

Interest rate, foreign exchange and liquidity riskInformation regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 21.



30 June 2012

13. Current Liabilities – Provisions

2012 2011

$ $

Provisions for Annual Leave 36,220 10,820

14. Borrowings

Current

Hire purchase 7,537

La Jolla Convertible Note – Principle outstanding 612,104 -

La Jolla Convertible Note – Derivative fair value (41,085) -

578,556 -

Non-Current

Hire purchase 11,305

11,305 -

Convertible Note

On 13 December 2011 a funding agreement between Algae. Tec Limited and La Jolla Cove InvestorsInc. was entered into by way of Convertible Notes:

La Jolla Cove Investors Inc. (The Investor) purchased 2 Notes with the principal amount ofUS$3,000,000 per Note;

The Initial Note was issued on 13 December 2011;

The subsequent Note is to be issued following the completion of the Initial Note and underthe same terms and conditions;

As part of the funding agreement, on inception of the agreement The Investor purchasedAU$200,000 of Ordinary Shares at a price equal to 92.5% of the average of the 5 VolumeWeighted Average Prices (VWAP);

Interest accrues on the outstanding Principal amount at the rate of 4.75% per annum, suchinterest being payable on 15th of each month in arrears. Such payment may be in either Cashor Ordinary Shares at the election of Algae. Tec Limited valued at the then applicableConversion Price;

The Investor shall transfer an amount of not less than US$200,000 per month until the entirepurchase price for the Initial Note has been paid;

The Monthly Payment shall increase to US$300,000 where Ordinary Shares on the PaymentDate are between AU$0.50 to AU$0.5999, or to US$400,000 where the Ordinary Shares onthe Payment Date are equal to AU$0.60 or higher;

Except where the conversion of the Note or any part thereof would breach ASX Listing Rule7.1, the Investor may convert a Note, either in whole or in part, up to the full PrincipalAmount into Ordinary Shares at any time;

The Conversion Price shall be equal to the lesser of;o AU$0.85 oro 85% of the average of the 5 lowest VWAP during the 21 Trading Days prior to the

Investor’s election to convert;



30 June 2012

14. Borrowings (continued)

Conversions are limited to less than $100,000 per month for the 90 days following theissuance of the Initial Note provided that the VWAP for Ordinary Shares is between AU$0.20and AU$0.50 and the Company may extend this period for a further 90 days but this willresult in the monthly payments from the Investor to be reduced by US$100,000 per monthfor the said extension period;

Further terms and conditions relating to the Notes are outlined on the ASX.

As at 30th June 2012 details of the Initial Note were as follows:

Drawdowns on the Initial Note amounted to US$1,500,000 leaving a further US$1,500,000outstanding;

Conversion Notices amounting to AU$835,000 had been actioned with the issuance of2,610,109 Ordinary Shares;

The Principal Outstanding on the Initial Note at 30th June 2012 was AU$612,104(US$633,647);

Because the Convertible Note converts into a variable number of shares this represents anembedded derivative. The embedded derivative has been separated from the host debt contract.The value of the derivative was determined on entering into the arrangement. All movements in thefair value of the instrument subsequent to initial recognition are recognised in the income statement.

15. Issued capital

2012 2011

$ $

Balance at start of the year 5,446,804 600,000

Ordinary shares 5,200,000 5,325,987

Conversion of notes (Note 14) 835,000 -

Share based payments (i) 798,000 -

Other 47,081 -

Cost of issue of shares (448,220) (479,183)

Balance at end of financial year 11,878,665 5,446,804

(i) Share Based Payments

A share based payment of 1,324,086 shares @ $0.3965 per share was made to Empire Equity Limitedfor services in arranging the GEM Equity Line of Credit as detailed in Algae.Tec Limited’s prospectus.

A share based payment of 535,845 shares @ $0.3695 per share was made to Empire Equity Limitedfor services in arranging the Convertible Note between Algae.Tec Limited and La Jolla CoveSubscribers Inc.

A share based payment of 200,000 shares @ $0.375 per share was made to Vista Partners LLC inconsideration of marketing services provided to Algae.Tec Limited.



30 June 2012

15. Contributed equity (continued)

Reconciliation of Consolidated share movements

No of shares $

Balance at 30 June 2011 248,921,668 5,446,804

Issue of shares via placement 13,025,072 5,200,000

Issue of shares pursuant of conversion notice 2,610,109 835,000

Share based payments 2,059,931 798,000

Other - 47,081

Cost of issue of shares - (448,220)

Balance at 30 June 2012 266,616,782 11,878,665

Share Options

During the financial year 6,250,000 attaching options were issued for capital raising via Placement

(‘Placement Shares’) with Paterson’s Securities on the basis of 1 option for every 2 Placement Shares

subscribed.

Options

Exercise

Price

No of

options at

beginning of

year

Options

granted

Options

exercised

No of

options at

end of year

Unlisted ordinary 0.75 5,000,000 - - 5,000,000

Unlisted ordinary 0.75 49,584,334 - - 49,584,334

Free attaching options 0.75 - 6,250,000 2 6,249,998

Options issued on prospectus 0.75 - 7,500 - 7,500

Total Options 54,584,334 6,257,500 2 60,841,832

Capital Management

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

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

There are no externally imposed capital requirements.

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



30 June 2012

16. Loss per share

2012

$

2011

$

A Loss reconciliation

Net Loss:

Basic loss (6,970,836) (2,468,567)

Diluted loss (6,970,836) (2,468,567)

B Weighted average of number of shares Number Number

Number for basic loss per share:

Ordinary shares 256,208,023 235,703,366

Number for diluted loss per share:

Ordinary shares 256,208,023 235,703,366

Effect of share option on issue - -

Diluted earnings/loss per share are calculated after consideration of all options on issue remaining

unconverted as potential ordinary shares. As at 30 June 2012, the Company had on issue 60,841,832

options over unissued capital. As the Group incurred a loss for the year, the options are anti-dilutive,

thus the dilutive loss per share is the same as the basic earnings per share.

17. Reserves

2012 2011

$ $

Foreign Exchange Reserve (47,655) 31,080

The foreign currency translation reserve records the foreign currency differences arising from thetranslation of foreign operations.

18. Controlled Entities

Country ofIncorporation

Ordinary Share Consolidated Equity Interest

2012 2011% %

Parent EntityAlgae.Tec Limited Australia 100% 100%

Controlled EntityAlgae Energy Inc USA 100% 100%



30 June 2012

19. Key Management Personnel Disclosures

Key Management Personnel

The following persons were directors of the Group during the financial year.


Peter Hatfull Managing Director/Company Secretary



Key management personnel compensation

As at the date of this report the directors have relevant interests in shares and have receivedremuneration by way of salary and consulting fees and this is set out in remuneration report withinthe Directors Report section.

2012 2011$ $

Short term employee benefits 1,153,926 409,945Post-employment benefits 40,765 12,452Share based payments - -

1,194,691 422,397

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

Equity instrument disclosures relating to key management personnel

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

Key Management Personnel and related parties equity holding:

Fully paid ordinary shares issued by Algae.Tec Limited

Held at 1July 2011



optionsOther

change

No. No. No. No.1Held at 30June 2012

Roger Stroud 200,321,5492 - - - 200,321,549

Peter Hatfull 9,497,565 - - 200,300 9,697,865

Garnet Earl McConchie 204,500,0003 - - - 204,500,000

Timothy Morrison 2,000,000 - - - 2,000,000

1. Other changes refer to shares acquired on the market

2. By virtue of Section608 (3) of the Corporations Act, as Mr Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC whichin turn holds 200 million Shares.

3. By virtue of Section 608(3) of the Corporations Act, as Mr McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLCwhich in turn holds 200 million Shares. Related parties of Mr McConchie together hold 4.5 million Shares.



30 June 2012

19. Key Management Personnel Disclosures (continued)

Directors and Executives equity holding:

Fully paid ordinary shares issued by Algae.Tec Limited

Held at 1 July2010



optionsOther

change

No. No. No. No.1Held at 30June 2011

Roger Stroud 200,000,0002 - - 321,549 200,321,549Peter Hatfull 8,000,000 - - 1,497,565 9,497,565Garnet EarlMcConchie 204,500,0003 - - - 204,500,000Timothy Morrison 2,000,000 - - - 2,000,000

1. Other changes refer to shares acquired on the market

2. By virtue of Section608 (3) of the Corporations Act, as Mr Stroud controls Teco Pty Ltd which holds 50% of Teco.Bio LLC whichin turn holds 200 million Shares.

3. By virtue of Section 608(3) of the Corporations Act, as Mr McConchie controls Dot-Bio Inc which holds 50% of Teco.Bio LLCwhich in turn holds 200 million Shares. Related parties of Mr McConchie together hold 4.5 million Shares.

Option Holdings

The Directors did not hold any options in the Group during the financial year or for the prior financialyears.

20. Related Party Transactions

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

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

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

(d) A prepayment of $33,000 was made to Roger Stroud in June 2011 being an advance ofconsulting fees for July and is shown as a prepayment in the accounts.

(e) Six members of Mr Earl McConchie’s immediate family were employed by Algae Energy Incduring the year. The Group paid the family members a total of A$442,405 (US$470,365) as salariesand wages.(f) An amount of A$19,752 (US$21,000) was paid to Dot-Bio in respect of the leasing of officefurniture and equipment. Dot-Bio is a Corporation wholly owned by Mr G, Earl McConchie and familymembers.



30 June 2012

21. Financial Risk Management

The Group’s operations expose it to various financial risks including market, credit, liquidity and cashflow risks. Risk management programmes and policies are employed to mitigate the potentialadverse effects of these exposures on the results of the Group.

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

The Group holds the following financial instruments:

2012 2011

$ $

Financial assets

Cash and cash equivalents 1,586,787 2,434,251

Trade and other receivables 395,537 65,990

1,982,324 2,500,241

Financial LiabilitiesTrade and other payables 349,892 81,386

349,892 81,386

(a) Market risk

(i) Foreign exchange risk

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

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

The movements in the AUD/USD cross rates has given rise to a substantial unrealised exchange gainin the USD cash holdings for the year.

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

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



30 June 2012

21. Financial Risk Management (continued)

2012 2011USD$ USD$

Financial AssetsCash and cash equivalents 1,411,561 1,820,624Trade and other receivables 16,599 9,470

1,428,160 1,830,094

Financial liabilitiesTrade and other payables and borrowings 719,652 17,167

Net exposure 708,508 1,812,927

(ii) Consolidated Entity - sensitivityBased on financial instruments held at 30 June 2012, had the Australian dollarweakened/strengthened by 20% against the US dollar with all other variables held constant, theConsolidated Entity’s post-tax profit/loss for the year and equity would have been $136,833lower/higher, mainly as a result of foreign exchange gains/losses on translation of US dollardenominated financial instruments as detailed in the above table.

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

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

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

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

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

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

- Obtaining funding from a variety of sources;- Maintaining a reputable credit profile;- Managing credit risk related to financial assets;



30 June 2012

21. Financial Risk Management (continued)

- Only investing surplus cash with major financial institutions; and- Comparing the maturity profile of financial liabilities with the realisation profile of financial

assets.

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

(d) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition andmeasurement or for disclosure purposes.

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

22. Reconciliation of loss after tax to net cash flows from operations.

2012 2011Net Loss (6,771,109) (2,468,567)

Adjustments for non cash items:

Depreciation of non-current assets 80,500 5,835

Foreign exchange translation (219,436) 274,559

Share based payments 798,000 200,000

Change in assets and liabilities

(Increase) in trade and other receivables (347,547) (28,156)

(Increase)/decrease in other current assets (15,723) 157,894

Increase in trade and other payables 268,506 35,535

Increase in provisions 25,400 -

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

Non-cash financing activities

During the year to 30 June 2012:

Conversion Notices converting amounting to AU$835,000 were actioned with the issuance of2,610,109 Ordinary Shares (Note 14);

A share based payment of 1,324,086 shares @ $0.3965 per share was made to Empire EquityLimited for services in arranging the GEM Equity Line of Credit as detailed in Algae.Tec Limited’sprospectus;

A share based payment of 535,845 shares @ $0.3695 per share was made to Empire EquityLimited for services in arranging the Convertible Note between Algae.Tec Limited and La JollaCove Subscribers Inc; and

A share based payment of 200,000 shares @ $0.375 per share was made to Vista Partners LLC inconsideration of marketing services provided to Algae.Tec Limited.



30 June 2012

23. Events Subsequent to end of reporting period

On 2 August 2012, Australia’s first advanced engineered algae to biofuels facility was officiallyopened by NSW Minister for Resources and Energy, the Honourable Chris Hartcher. This facility wasdesigned and built by the Company using its proprietary technology.

On 17 September the Company signed a collaboration agreement with Deutsche LufthansaAktiengesellschaft. The agreement states that the parties will jointly develop a large scale algae toaviation biofuels production facility. This agreement builds on and supersedes the MOU signedbetween the two parties in January 2012.

Subsequent to the Year End, further drawdowns amounting to US$600,000 have been made againstthe Initial Note (outlined at Note 14) and Conversion Notes of AU$750,000 resulting in the issuanceof 2,816,493 Ordinary Shares have been actioned.

On 6 September 2012, Algae. Tec Limited entered into a facility agreement with Macquarie BankLimited. The facility will provide up to A$2,000,000 in advance funding of the Research andDevelopment Tax Incentive in relation to the year to 30 June 2012, which is expected to be receivedfrom the Australian Government (Note 6). On 10 September 2012 a drawdown on this facility wasmade in the amount of A$1,260,301 being 80% of the 2012 claim of $1,575,389 referred to in Note 6.

24. Parent Entity DisclosuresThe following information has been extracted from the books and records of the parent and hasbeen prepared in accordance with the accounting standards.

a. Financial Information

2012 2011$ $

Loss from ordinary activities after tax 5,555,909 1,859 ,013Other Comprehensive Income - -Total Comprehensive Income 5,555,909 1,859,013

Current Assets 1,882,334 2,086,101Non Current Assets 3,002,553 1,118,802Total Assets 4,884,887 3,204,903

Current Liabilities 820,013 45,286Non Current Liabilities 11,305 (18,000)Total Liabilities 831,317 27,286

Net Assets 4,053,570 3,177,617

Share Holder EquityIssue Capital 11,878,665 5,446,804Accumulated Losses (7,865,095) (2,269,187)Total Equity 4,053,570 3,177,617



30 June 2012

24. Parent Entity Disclosures (continued)

b. Guarantees

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

c. Other Commitments

Algae.Tec Limited has no commitments to acquire property, plant and equipment, and has nocontingent liabilities.

25. Contingent Liabilities

Algae.Tec Limited has no contingent liabilities.


Director’s Declaration

The directors declare that:

a. In the directors’ opinion, there are reasonable grounds to believe that the Company will be ableto pay its debts as and when they become due and payable;

b. In the directors’ opinion, the attached financial statements are in compliance with InternationalFinancial Reporting Standards, as stated in note 1 to the financial statements; and

c. In the directors’ opinion, the attached financial statements and notes thereto are in accordancewith the Corporations Act 2011, including compliance with Australian accounting standards andgiving a true and fair view of the financial position and performance of the consolidated entityand.

This declaration has been made after receiving the declarations required to be made to the directorsin accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June2012.

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

On behalf of the Board

Roger StroudExecutive Chairman

28 September 2012Perth, Western Australia





ASX Additional InformationAs at 30 June 2012

Additional information required by the Australian Securities Exchange Limited Listing Rules and notdisclosed elsewhere in this report is set out below.

The following details of shareholders of Algae. Tec Limited has been taken from the Share Registeron 26 September 2012.

Number of Holders of Equity Securities

Ordinary Share Capital269,397,273 fully paid ordinary shares are held by 1,208 individual shareholders

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

Ordinary shares

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

Unquoted Securities

There are 6,257,498 options held by 47 holders

Distribution of Holders of Quoted Equity Securities

Size of holdings No. of fully paid ordinary shares

1-1000 15,396

1.001 - 5,000 804,810

5,001 - 10,000 3,608,873

10,001 - 100,000 14,920,730

100,001 and over 249,080,346

268,430,155


Twenty largest shareholders as at 26 September 2012

Name

Number ofordinary

shares held

Percentageof capital

held

Teco Bio LLC 200,000,001 74.24

Mr Peter Ernest Hatfull 8,095,000 3.00

FMR Investments Pty LTd 5,000,000 1.86

Mrs Jeanette McConchie 2,400,000 0.89

Mr Timothy Morrison 2,000,000 0.74

La Jolla Cove Investors Inc 1,856,922 0.69

Hover Holdings Pty Ltd 1,750,000 0.65

Tinkler Investments Pty Ltd <Tinkler Family A/C> 1,610,000 0.60

Chimaera Capital Limited 1,324,086 0.49

The Lawsons Company Pty Ltd 1,250,000 0.46

JP Morgan Nominees Australia Limited <Cash Income A/C> 1,211,407 0.45

Mr Joseph Chung <TH & TH Chung Super Fund A/C 1,150,000 0.43

Moltoni Super Pty Ltd <Moltoni Super Fund A/C> 1,000,000 0.37

Mr Duncan Neil Preston 1,000,000 0.37

Mr Peter Ernest Hatfull + Mrs Julie Ellen Hatfull <Hatfull S/Fund A/C> 922,286 0.34

Bordeaux Holdings Pty Ltd 750,000 0.28

Mr Graham John Woolford 745,714 0.28

Mr Tralan McConchie 700,000 0.26

Mr Stephen Crotty 625,000 0.23

Smart Australian Investments Pty Ltd <Susan Self Managed S/F A/C> 600,000 0.22

233,990,416 86.86

Substantial Shareholders

As at 26 September 2012, the register of substantial shareholders disclosed the followinginformation:

Number ofordinary

shares heldPercentage

%

Teco.Bio LLC 200,000,001 74.24


Corporate Directory

Directors


Peter Hatfull Managing Director



Company Secretary

Peter Hatfull

Principal Registered Office in Australia

Ground Floor, 516 Hay Street

Subiaco WA 6008

Share Register

Computershare Investor Services Pty Limited

Level 2, 45 St George's Terrace

Perth WA 6000

Auditors

Somes and Cooke Jack Milner

1304 Hay Street 1400 Buford Highway, Suite G-4

West Perth WA 6005 Sugar Hill, GA 30518-8727

Bankers

National Australia Bank Commonwealth Bank of Australia

International Operations Business and Private Banking

Level 3, Building B, Level 1, 38 Adelaide Street

Rhodes Corporate Park Fremantle WA 6160

1 Homebush Bay Drive

Rhodes NSW 2138

Securities Exchange

Australian Securities Exchange Frankfurt Stock Exchange New York Stock Exchange

ASX FSE NYSE

Level 5, 20 Bridge Street 60485 Frankfurt am Maim 11 Wall Street

Sydney NSW 2000 Germany New York NY 10005

AEB GZA:GR ALGXY:US