Exhibit 13.1
LOYALTY MAGIC PTY LIMITED
SPECIAL PURPOSE FINANCIAL REPORT
FOR THE YEAR ENDED
30TH JUNE 2005
LOYALTY MAGIC PTY LIMITED
A.C.N. 075 350 239
CONTENTS
Declaration by Directors
Balance Sheet
Profit and Loss
Notes to and Forming Part of the Financial Statements
Statement of Cash Flows
Independent Auditor's Report
LOYALTY MAGIC PTY LIMITED
A.C.N. 075 350 239
DECLARATION BY DIRECTORS
The directors have determined that the company is not a reporting entity, but
that this special purpose financial report should be prepared in accordance with
the accounting policies described in Note 1 to the financial statements.
The directors of the company declare that the financial statements and notes as
set out in the attached accounts:
(a) comply with Accounting Standards as described in Note 1 to the
financial statements and the Corporations Regulations 2001; and
(b) give a true and fair view of the company's financial position as at 30
June 2005 and of its performance for the year ended on that date in
accordance with the accounting policies described in Note 1 to the
financial statements.
In the directors' opinion:
(a) the financial statements and notes, as set out in the attached
accounts are in accordance with the Corporations Act 2001; and
(b) there are reasonable grounds to believe that the company will be able
to pay its debts as and when they become due and payable.
Made in accordance with a resolution of the directors.
DIRECTOR _______________________
DIRECTOR _______________________
Date this ______ day of _____________ 2005
LOYALTY MAGIC PTY LIMITED
BALANCE SHEET
AS AT 30TH JUNE 2005
2005 2004
NOTE $ $
---- ---------- ----------
CURRENT ASSETS
Cash 2 43,446 659,991
Receivables 3 855,159 450,248
Investments 4 4 4
Other 5 7,611 30,795
---------- ----------
TOTAL CURRENT ASSETS 906,220 1,141,038
---------- ----------
NON-CURRENT ASSETS
Property, plant and equipment 6 220,886 157,816
Intangibles 7 280,963 54,391
---------- ----------
TOTAL NON-CURRENT ASSETS 501,849 212,207
---------- ----------
TOTAL ASSETS 1,408,069 1,353,245
========== ==========
CURRENT LIABILITIES
Accounts Payable 8 168,638 149,461
Borrowings 9 34,672 34,242
Provisions 10 137,684 243,301
Other 11 117,909 133,470
---------- ----------
TOTAL CURRENT LIABILITIES 458,903 560,474
========== ==========
NON-CURRENT LIABILITIES
Borrowings 9 67,817 --
Provisions 10 10,617 --
---------- ----------
TOTAL NON-CURRENT LIABILITIES 78,434 --
---------- ----------
TOTAL LIABILITIES 537,337 560,474
========== ==========
NET ASSETS (LIABILITIES) 870,732 792,771
========== ==========
EQUITY
Issued capital 12 2,699,429 2,699,029
Accumulated losses (1,828,697) (1,906,258)
---------- ----------
TOTAL EQUITY 870,732 792,771
========== ==========
LOYALTY MAGIC PTY LIMITED
PROFIT & LOSS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
NOTE $ $
---- ---------- ----------
NET PROFIT(LOSS) BEFORE INCOME TAX (163,999) 236,693
Income Tax Expense 241,560 57,728
---------- ----------
NET PROFIT(LOSS) AFTER INCOME TAX 77,561 294,421
Retained Profits (Accumulated Losses) at
the beginning of the Financial Year (1,906,258) (2,200,679)
---------- ----------
TOTAL AVAILABLE FOR APPROPRIATION (1,828,697) (1,906,258)
---------- ----------
RETAINED PROFITS (ACCUMULATED LOSSES)
AT END OF FINANCIAL YEAR (1,828,697) (1,906,258)
========== ==========
LOYALTY MAGIC PTY LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
$ $
--------- ---------
SALES
ASP Sales 2,131,431 1,899,456
Subscription Services 113,031 11,475
License Income 252,137 617,259
Support Services 259,173 180,319
International Sales 90,000 73,600
--------- ---------
2,845,772 2,782,109
LESS: DIRECT COSTS
Purchases 117,292 149,061
Contract Data Entry 217,387 243,106
Terminal Costs 25,500 40,616
--------- ---------
360,179 432,783
--------- ---------
GROSS PROFIT FROM TRADING 2,485,593 2,349,326
EXPENDITURE 2,667,750 2,131,849
--------- ---------
(182,157) 217,477
OTHER INCOME
Interest Received 9,908 14,266
Government Subsidies 8,250 4,950
--------- ---------
18,158 19,216
--------- ---------
NET (PROFIT)LOSS 163,999 (236,693)
========= =========
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
This financial report is a special purpose financial report prepared for
the use by the members and directors of the company. Although the directors
have determined that the company is not a reporting entity, the report has
been prepared in accordance with Accounting Standards, Urgent Issues Group
Consensus Views, other authoritative pronouncements of the Australian
Accounting Standards Board and the Corporations Act 2001.
The report is also prepared on an accruals basis and is based on historic
cost and does not take into account changing money values or, except where
specifically stated, current valuations of non-current assets. The
following material accounting policies, which are consistent with the
previous period unless otherwise stated, have been adopted in the
preparation of this report:-
(a) INCOME TAX
The company adopts the liability method of tax effect accounting whereby
the income tax expense is based on the operating profit adjusted for any
permanent differences.
Future income tax benefits are not brought to account unless realisation of
the asset is assured beyond any reasonable doubt. Future income tax
benefits in relation to tax losses are not brought to account unless there
is virtual certainty of realisation of the benefit.
(b) PROPERTY, PLANT AND EQUIPMENT
Each class of property, plant and equipment is accounted for at cost less
accumulated depreciation, and is depreciated on a diminishing value basis
over the expected useful lives to the company.
(c) INTANGIBLES
Web Site development costs are capitalised until completion of the relevant
platform, then amortised on a straight line basis over the period during
which the site is expected to benefit the company.
(d) EMPLOYEE ENTITLEMENTS
Provision is made for employee entitlements arising from services rendered
by employees to balance date.
(e) GOODS AND SERVICES TAX
Revenues, expenses and assets are recognised net of the amount of goods and
services tax (GST), except where the amount of GST incurred is not
recoverable from the Australian Tax Office (ATO). In these circumstances
the GST is recognised as part of the cost of acquisition of the asset or as
part of the cost of the expense.
The net amount of GST recoverable, or payable to, the ATO is included as a
current asset or liability in the balance sheet.
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
(f) REVENUE RECOGNITION
Main Areas of Income
(i) Application Service Provision Income
Fixed Charge Management fees - Invoiced monthly and brought to account
monthly Variable Fees - Invoiced monthly based on volume of transactions
processed
(ii) Licensed Income
Customisation of Software - Taken up as unearned income and brought to
account as revenue, on completion of agreed milestones.
Support Fees - Invoiced in advance, taken up as unearned income and
transferred to revenue depending on the contract terms.
Upgrade rights - Invoiced annually in advance, taken up as unearned income
and transferred to revenue monthly on a straight line basis.
(g) LEASES
Leases of fixed assets, where substantially all the risks and benefits
incidental to the ownership of the asset, but not legal ownership, are
transferred to the company are classified as finance leases.
Finance leases are capitalised recording an asset and a liability equal to
the present value of the minimum lease payments, including any guaranteed
residual value.
Leased assets are depreciated on a straight line basis over their estimated
useful lives where it is likely that the economic entity will obtain
ownership of the asset or over the term of the lease.
Lease payments are allocated between the reduction of the lease liability
and the lease interest expense for the period.
CONFORMITY WITH UNITED STATES OF AMERICA (US) GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
In order to comply with the provisions of US GAAP, capitalised Web
Development Costs, $70,017 (2004 - $54,391) and Development Costs of New
Platform, $209,173 (2004 - $Nil) (refer to Note 7), should be written off
as expenses in the year in which they are incurred. This adjustment would
reduce the company's net profit for the year by $224,799 (2004 - $54,391)
and reduce net assets at 30th June, 2005 by $279,190 (2004 - $54,391).
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
$ $
--------- ---------
2 CASH
Petty Cash 200 200
Cash at Bank 43,246 659,791
--------- ---------
43,446 659,991
========= =========
3 RECEIVABLES
CURRENT
Trade Debtors 633,599 407,520
Less: Provision for Doubtful Debts (80,000) (30,000)
--------- ---------
553,599 377,520
--------- ---------
Sundry Debtors 286,560 57,728
Rental Bond 15,000 15,000
--------- ---------
855,159 450,248
========= =========
4 INVESTMENTS
CURRENT
Shares in Associated Companies 4 4
========= =========
5 OTHER ASSETS
CURRENT
Prepayments 7,611 30,795
========= =========
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
$ $
--------- ---------
6 PROPERTY, PLANT & EQUIPMENT
Office Furniture & Equipment at Cost 366,722 416,163
Less: Accumulated Depreciation (220,393) (258,347)
--------- ---------
146,329 157,816
--------- ---------
Leased Assets at Cost 92,556 --
Less: Accumulated Amortisation (17,999) --
--------- ---------
74,557 --
--------- ---------
TOTAL PROPERTY, PLANT & EQUIPMENT 220,886 157,816
========= =========
7 INTANGIBLES
Development of New Platform - at cost 209,173 --
Patents & Trademarks 1,773 --
Web Development - at cost 84,020 54,391
Less: Accumulated Amortisation (14,003) --
--------- ---------
70,017 54,391
--------- ---------
280,963 54,391
========= =========
8 ACCOUNTS PAYABLE
CURRENT
Sundry Creditors 44,903 27,198
Trade Creditors 123,735 122,263
--------- ---------
168,638 149,461
========= =========
9 BORROWINGS
CURRENT
GST Payable 34,672 34,242
========= =========
NON-CURRENT
Lease Liability 67,817 --
========= =========
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
$ $
--------- ---------
10 PROVISIONS
CURRENT
Provision for Annual Leave 104,635 81,654
Provision for Bonuses 33,049 161,647
NON CURRENT
Provision for Long Service Leave 10,617 --
--------- ---------
Aggregate employee entitlement liability 148,301 243,301
========= =========
11 OTHER LIABILITIES
CURRENT
Income in Advance 117,909 133,470
========= =========
12 ISSUED CAPITAL
PAID UP CAPITAL:
Issued Capital 2,699,429 2,699,029
========= =========
13 EXPENDITURE
Salaries 1,460,293 1,156,712
General and Administrative 1,207,457 975,137
--------- ---------
Total Expenditure 2,667,750 2,131,849
========= =========
14 INCOME TAX EXPENSE
No income tax is payable on the net profit for the year as the company has
accumulated losses available as an income tax deduction from prior years.
Future income tax benefits not brought to account, the benefits of which will
only be realised if the relevant conditions for deductibility occur:
- timing differences 34,576 24,496
- tax losses 66,643 243,053
--------- ---------
Total 101,219 267,549
========= =========
Further, the company is entitled to receive a grant of $241,560 (2004 - $57,728)
from the Australian Taxation Office in respect of research and development
expenditure for the year ended 30 June 2005.
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
NOTE $ $
---- ---------- ----------
15 STATEMENT OF CASH FLOWS
RECONCILIATION OF OPERATING PROFIT TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
Operating profit/(loss) after income tax 77,561 294,421
Depreciation expense 51,875 41,044
CHANGE IN OPERATING ASSETS AND LIABILITIES
(Increase)/Decrease in trade and other receivables (221,079) 109,438
(Increase)/Decrease in prepayments 23,184 (21,985)
Increase/(Decrease) in trade and other creditors 19,607 42,224
Increase/(Decrease) in borrowings -- (44,948)
Increase/(Decrease) in provisions (95,000) (75,871)
Increase/(Decrease) in unearned income (15,561) 2,887
Increase/(Decrease) in provision for income tax (183,832) 326,402
---------- ----------
Net cash flow from operating activities (343,245) 673,612
========== ==========
During the financial year the company acquired property, plant and equipment
with a cost of $92,556, by means of finance leases, these acquisitions are not
reflected in the Statement of Cash Flows.
16 CAPITAL AND LEASING COMMITMENTS
Finance Lease Commitments Payable
- not later than 1 year 33,588 --
- later than 1 year but not later than 5 yrs 35,241 --
- later than 5 years -- --
---------- ----------
Minimum lease payments 68,829
Less future finance charges (1,011)
---------- ----------
Total Lease Liability 9 67,818 --
========== ==========
Operating Leases Commitments Payable
- no later than 1 year 66,938 63,548
- later than 1 year but not later than 5 years 76,428 143,365
- later than 5 years -- --
---------- ----------
Total Lease Liability 143,365 206,914
========== ==========
LOYALTY MAGIC PTY LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30TH JUNE 2005
2005 2004
$ $
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 2,617,382 2,899,384
Payments to suppliers and employees (3,024,948) (2,621,208)
Interest Received 9,907 14,266
Interest Paid (3,314) (2,960)
Income Tax Refund 57,728 384,130
---------- ----------
NET CASH INFLOW FROM OPERATING ACTIVITIES 15 (343,245) 673,612
CASH FLOWS FROM INVESTING ACTIVIES
Payments for property, plant and equipment (21,700) (61,833)
Proceeds from sale of property, plant and equipment -- --
Payments for Web Development (226,572) (54,391)
---------- ----------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (248,272) (116,224)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of Ordinary Shares 400 538
Repayment of lease liabilities (25,428) --
---------- ----------
Net cash inflow/(outflow) from financing activities (25,028) 538
Net increase/(decrease) in cash held (616,545) 557,926
Cash at the beginning of the financial year 2 659,991 102,065
---------- ----------
CASH AT THE END OF THE FINANCIAL YEAR 2 43,446 43,446
========== ==========
INDEPENDENT AUDITOR'S REPORT
The Directors
Loyalty Magic Pty Ltd
5th Floor, 140 Bourke Street
MELBOURNE VIC 3000
We have audited the accompanying balance sheet of Loyalty Magic Pty Ltd as of
30th June, 2005 and 30 June, 2004, and the related statements of profit and loss
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Loyalty Magic Pty Ltd at 30th
June, 2005 and 2004, and the results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America, except for the following matter which is
referred to at Note 1 to the Financial Statements -
CONFORMITY WITH UNITED STATES OF AMERICA (US) GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)-
In order to comply with the provisions of US GAAP, capitalised Web Development
Costs, $70,017 (2004 - $54,391) and Development Costs of New Platform, $209,173
(2004 - $Nil), (refer to Notes 1 and 7), should be written off as expenses in
the year in which they are incurred. This adjustment would reduce the company's
net profit for the year by $224,799 (2004 - $54,391) and reduce net assets at
30th June, 2005 by $279,190 (2004 - $54,391).
McInnes Graham & Gibbs
/s/ Jeffrey E Graham
- ------------------------------------
Jeffrey E Graham
Partner
16th December 2005