For personal use only - ASX2007/09/28 · The Board acts on behalf of and is accountable to shareholders. The Board seeks to identify the expectations of shareholders, as well as

Annual Report: CBD Energy Limited - 2007

C B D E N E R G Y L I M I T E D (ACN 010 966 793)

2007 ANNUAL REPORT

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CBD Energy Limited Annual Report 2007

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CBD ENERGY LIMITED CORPORATE DIRECTORY

Directors

Mr Gerry McGowan Executive Director and Chairman

Mr John de Gouveia Non-Executive Director

Dr Michael Warczak Non-Executive Director

Company Secretary

Mr John de Gouveia

Registered Office

Suite 2 Level 2 53 Cross Street Double Bay NSW 2028 Ph: (02) 9363 9920 Fax: (02) 9363 9955

Auditors

Hall Chadwick Chartered Accountants Level 29, St Martins Tower 31 Market Street Sydney NSW 2000

Bankers

Westpac Banking Corporation 275 Kent Street Sydney NSW 2000

Share Registry

Computershare Investor Services Pty Ltd 60 Carrington Street Sydney NSW

Australian Stock Exchange Code

Ordinary Shares: CBD

Website

http://www.cbdenergy.com.au

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TABLE OF CONTENTS

Executive Chairman’s Review 4 Corporate Governance Statement 5 Directors' Report 9 Consolidated Income Statement 16 Consolidated Balance Sheet 17

Consolidated Statement of Changes in Equity 18

Consolidated Cash Flow Statement 19 Notes to the Financial Statements 20 Directors’ Declaration 52 Independent Audit Report 53 Auditor’s Independence Declaration 54

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EXECUTIVE CHAIRMAN’S REVIEW

Dear Shareholder,

During and since the end of the financial year the company has successfully completed a number of important steps in its expansion into the renewable energy market.

The important milestones achieved during the year as outlined in the review of operations include;

• Formation of new subsidiary – Remote Area Power Systems Pty Ltd and the acquisition of renewable energy technology.

• Acquisition of renewable energy assets and interest in joint venture with Hydro Tasmania.

• The building of relationships within the energy sector and with our new joint venture partner – Hydro Tasmania.

• Commencement of the development of the patented graphite energy storage technology, leasing new premises in Silverwater, Sydney and the concurrent commencement of development of systems and controls for the King Island project. The near completion of building the heat block, including the commissioning and completion of engineering design work associated with its construction. Acceptance testing of the block is expected to be completed during October 2007 at which time the criteria for inclusion of this technology within the King Island project will be satisfied.

• Concluding the strong alliance with listed German company, SOLON AG, a significant player in the European solar industry, who are now the largest shareholder in CBD Energy Limited, holding 18.67% of the shares on issue.

• Concluding an agreement with I-Sol Ventures I-Sol Ventures Gmbh to acquire its wholly owned subsidiary, Larkden Pty Ltd (Larkden), subject to due diligence by CBD. Larkden is the owner of patents relating to graphite block energy storage technology and other intellectual property.

On 14 September 2007 the company successfully completed a placement of 70,000,000 shares at 14 cents per share to SOLON AG and other sophisticated and professional investors as approved by shareholders at the EGM held on 15 June 2007, raising a total of $9.8Million.

The proceeds from the placement will be used to fund the company’s obligation under the King Island Joint venture with Hydro Tasmania.

The 2007 financial year operating loss of $389,951 is the result of additional expenses incurred by the parent company in its move to the renewable energy market. The important foundations laid during the year with SOLON AG will see the company playing a significant role in SOLON’s global expansion which is expected to deliver favourable results to all shareholders.

I would like to thank shareholders for their support during the year.

Yours sincerely,

Gerry McGowan Chairman Dated: 28th September 2007

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CORPORATE GOVERNANCE STATEMENT

The Board of Directors of CBD Energy Limited is responsible for the corporate governance of the company and its controlled entities. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable.

This statement outlines the main corporate governance practices during the financial year. Practices that vary from the Corporate Governance Council Recommendations (CGC Recommendations) are identified in this statement.

Board Responsibilities

The Board acts on behalf of and is accountable to shareholders. The Board seeks to identify the expectations of shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board guides and monitors and fulfils its responsibility to protect shareholder interests and enhance shareholder value by:

• Approving and periodically reviewing the business and financial objectives and strategies and plans of the Company;

• Monitoring the financial performance of the Company, including approval of the Company’s financial statements;

• Ensuring that adequate internal control systems and procedures exist and that compliance with these systems and procedures is maintained;

• Identifying areas of significant business or financial risk to the Company and ensuring management takes appropriate action to manage those risks;

• Reviewing the performance and remuneration of Board members and key members of staff;

• Monitoring the operations of the consolidated entity and the performance of management;

• Establishing and maintaining appropriate ethical standards; and

• Reporting to shareholders, the Australian Securities and Investments Commission and the Australian Stock Exchange as required.

It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information.

The Board delegates to the Executive Chairman and the executive team responsibility for the operation and administration of the Company.

Structure of the Board

The Directors in office and the term in office held by each Director at the date of this report are as follows:

Name Position Term in Office

Gerry McGowan Executive Director and Chairman 3 years 5 months (Appointed 5 April 2004)

John de Gouveia Independent Non-Executive Director 1 year 9 months (Appointed 12 December 2005)

Michael Warczak Non-Executive Director 2 years 4 months (Appointed 6 June 2005)

The skills, experience and expertise relevant to the position held by each Director in office at the date of the annual report is included in the Directors’ Report.

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CORPORATE GOVERNANCE STATEMENT (CONTINUED)

Board Composition

The key elements of the Board composition include:

• ensuring, where practicable to do so, that a majority of the Board are independent directors • the Board of the Company currently comprises 1 executive director/Chairman, 1 non executive director and 1

independent non executive director • non-executive directors bring a fresh perspective to the board’s consideration of strategic, risk and performance

matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management

• the Company is to maintain a mix of directors on the Board from different backgrounds with complementary skills and experience

• the Board seeks to ensure that: - at any point in time, its membership represents an appropriate balance between directors with experience

and knowledge of the Company and directors with an external perspective • the size of the Board is conducive to effective discussion and efficient decision making.

The Company does not adhere to the CGC Board recommendations that the majority of directors should be independent non-executive directors. When assessing the independence of directors and the chairman under recommendation 2.1 and 2.2 both Mr McGowan and Dr Warczak, although meeting other criteria and bringing independent judgement to bear on their respective roles, are both not defined as independent directors, primarily due to the fact that both Messrs McGowan and Warczak are officers of entities who are substantial shareholders of the company. The company has not followed recommendation 2.1 and 2.1 as the Board believes that the best interests of the company will be served through its two major shareholders acting as Directors. Also, it is the opinion of the Board that Mr McGowan brings significant compensation through the experience and skills he brings to the Board which is believed to be essential at this point in the company’s growth plan.

Terms of Appointment as a Director

The Company’s constitution provides that a Director other than the Managing Director may not retain office for more than three calendar years or beyond the third annual general meeting following his or her election, whichever is longer, without submitting for re-election. One third of the Directors retire each year and are eligible for re-election. The Directors who retire by rotation at each annual general meeting are those with the longest length of time in office since their appointment or last election. All Directors must be elected by the shareholders. It is not a requirement for a person who is a Director to own shares in the Company.

Access to External and Independent Advice

The company provides the capacity for any Director to obtain separate professional advice on any matter being discussed by the Board and for the Company to pay the cost incurred. Before engagement is made, the Director is required to obtain the Chairman of the Board’s approval. Approval will not be unreasonably denied and the Director will be expected to provide the Board with a copy of that advice.

Board Performance

The performance of the Board and key executives of controlled entities is reviewed regularly by the Board against their contribution to the performance of the consolidated entity.

Remuneration

The Board is responsible for determining and reviewing remuneration arrangements for the Directors themselves and the key executives of controlled entities. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment market conditions and their experience and expertise. To assist in achieving this objective, the Board takes account of the Company’s financial and operating performance in setting the nature and amount of executive Directors’ and executives’ remuneration. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the Board, having regard to the overall performance of the Company and the performance of the individual during this period.

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Remuneration - continued

The expected outcomes of the remuneration structure are:

• Attraction of quality management to the Company.

• Retention and motivation of key executives.

• Performance incentives which allow executives to share the rewards of the success of the Company.

Further details of the Company’s remuneration policy, including details of the amount of remuneration and all monetary and non-monetary components for each of the five highest paid (non-Director) executives during the year and for all Directors, are set out in the Directors’ Report. There is no scheme to provide retirement benefits, other that statutory superannuation, to non-executive Directors. Shareholder approval is required for all equity-based remuneration payable to Board members.

Board Committees

The Company does not adhere to the CGC Board recommendations 2.4, 4.2 and 9.2 that require listed entities to establish nomination, audit and remuneration committees. During the year ended 30 June 2007, the company did not have separately established nomination, audit and remuneration committees. In view of the size of the Company, the Board considers that establishing formally constituted committees for audit, board nominations and remuneration would contribute little to its effective management as matters that may otherwise be dealt with by committees under CGC recommendations, are dealt with by the full Board.

The requirement for nominations, audit and remuneration is evaluated annually or sooner upon a change in the scale of operations.

Code of Conduct

The Board had drawn up a code of conduct to guide Board members, executives and employees in carrying out their duties and responsibilities and to maintain confidence in the Company’s integrity. Executives and employees are encouraged to report to Board members any concerns regarding potentially unethical practices.

Securities Trading

Dealings are not permitted in the Company’s securities at any time when Directors, officers or employees are in the possession of price sensitive information not already available to the market. In addition, the Corporations Act 2001 prohibits the purchase or sale of securities whilst a person is in possession of inside information. The Directors have routine discussions at the Board meetings to determine when trading in the Company’s securities is inappropriate due to being in possession of price sensitive information.

Certification of Financial Statements

On an annual basis, the Chief Executive Officer and Chief Financial Officer provide a written statement to the Board that in their view the company’s financial reports present a true and fair view of the Company’s financial condition and operational results are in accordance with relevant accounting standards.

Continuous Disclosure

The Company has established procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance. All ASX announcements are handled by the Company Secretary and authorised by the Chairman of the Board of Directors. The Company has procedures to ensure that the ASX’s continuous disclosure requirements are strictly followed and that unauthorised disclosure of price sensitive information is not made other than through the ASX’s Company Announcements Office.

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Communication to Market and Shareholders

The Board recognises it is its duty to ensure that its shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders and the market through:

• The Annual Report which is distributed to all shareholders;

• The Annual General Meeting and other shareholder meetings called to obtain approval for Board action as appropriate and as required which are open for attendance by all shareholders;

• The Half-Yearly Financial report and Quarterly Cash Flow Statements which are placed in the public domain by posting to the ASX website;

• Other announcements made in accordance with ASX Listing Rules, which are placed in public domain by posting to the ASX website

The Company’s reports and ASX announcements may be viewed and downloaded from the ASX website: www.asx.com.au (stock code: CBD).

Due to the size of the company it has not yet allocated resources to developing appropriate Corporate Governance information on its website.

External Auditor

It is Company’s policy that the external auditor attends the Annual General Meeting of the Company and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

Corporate Governance Council (CGC) Best Practice Recommendations

The Company’s corporate governance practices were in place throughout the year ended 30 June 2007. With the exception of the departures from the Corporate Governance Council recommendations detailed above, the corporate governance practices of the Company were compliant with the Council’s best practice recommendations.

Due to the nature, size and scale of the Company’s operations the CGC best practice recommendations are assessed annually or sooner upon a change in the scale of operations as to their practical application and any changes are reported annually in the Company Annual Report.

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DIRECTORS’ REPORT

Your Directors submit their report for the year ended 30 June 2007.

Director names and particulars

The names and particulars of the directors of the Company during or since the end of the financial year are:

• Gerry McGowan – Executive Director and Chairman • Michael Warczak – Non Executive Director • John de Gouveia – Independent Non-Executive Director

Gerry McGowan – Executive Director – Chairman

Mr. McGowan was appointed to the Board and as Chairman on 5 April 2004. Mr McGowan is a former executive of TNT and Mayne Nickless. Gerry started his own company in 1982 and won the distribution of John Fairfax product nationally. He launched Impulse Airlines in 1992, and then sold to Qantas in 2001. Currently Gerry is Executive Chairman of Pacific Aviation Pty Limited and TRW Holdings Pty Limited, an investment company with exposure to the energy and aviation industries. Mr McGowan also recently accepted a ministerial appointment to the Board of Air Services Australia.

During the past three years Mr McGowan has also served as a director of the following other listed companies:

• None

John de Gouveia – Independent Non-Executive Director

Mr. de Gouveia was appointed to the Board on 21 December 2005. Mr de Gouveia is a Chartered Accountant with extensive experience in public practice. John is currently the managing director of Corporate & Administrative Services Pty Ltd, an entity that provides company secretarial and accounting services to ASX listed entities. Mr De Gouveia is also the company secretary of CBD Energy Limited and has held that position since 29 September 2005.

During the past three years Mr de Gouveia has also served as a director of the following other listed companies:

• None

Dr Michael Warczak, OAM – Non Executive Director

Dr. Warczak was appointed to the Board on 6 June 2005. Dr. Warczak is a sophisticated investor with significant share market and property interests. He brings to CBD Energy a wealth of domain knowledge and a strong interest in energy management. His involvement in CBD Energy traces back to before 2000 and at one time, in addition to his substantial holding in the company, performed the functions of a director and Chief Executive. Mike was instrumental in establishing the Ukraine Consulate General in Australia and supports a range of charitable associations. These as well as his general humanitarian activities led to him being recognised in the 2005 Queens Birthday Honours List being awarded a Medal of the Order of Australia.

During the past three years Dr Warczak has also served as a director of the following other listed companies:

• None

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DIRECTORS’REPORT (CONTINUED)

Company Secretary

John de Gouveia, B. Bus, M Com, CA

Mr. de Gouveia was appointed company secretary of CBD Energy Limited on 29 September 2005. The qualifications of Mr de Gouveia are noted above.

Directors’ Meetings

The number of meetings of Directors held during the financial year and the number of meetings attended by each Director (while they were a Director) were as follows:

Board Meetings Director Meetings Attended Meetings Eligible to Attend Gerry McGowan 7 7 John de Gouveia 7 7 Michael Warczak 7 7

Principal activities

The principal activities of the consolidated entity for 2007 are the provision of energy and mechanical services.

Results of Operations

The result of operations for the year after income tax was a loss of $389,951 (2006: $36,779 profit).

Dividends

The company has not paid or recommended to pay a dividend in respect of the financial year ended 30 June 2007.

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Review of Operations

The consolidated entity achieved a net loss after tax of $389,951 for the year ended 30 June 2007. This compares with a net profit of $36,779 for the corresponding year ended 30 June 2006.

The 2007 net loss comprises; $

- Operating profit from Parmac and Captech 1,049,087

- Remote Area Power Systems overhead development costs ( 211,643)

- Parent Company Overhead costs ( 1,227,395)

Total Net Loss ( 389,951)

The 2007 financial year operating loss of $389,951 is the result of additional expenses incurred by the parent company in its move to the renewable energy market.

During the year the company undertook significant steps towards adding shareholder value and broadening its activities in the energy sector by expanding its capability in both energy storage and renewable energy technologies and applications.

A number of important milestones have been achieved during the year;

• Formation of new subsidiary – Remote Area Power Systems Pty Ltd and the acquisition of renewable energy technology.

• Acquisition of renewable energy assets and interest in joint venture with Hydro Tasmania.

• The building of relationships within the energy sector and with our new joint venture partner – Hydro Tasmania.

• Commencement of the development of the patented graphite energy storage technology, leasing new premises in Silverwater, Sydney and the concurrent commencement of development of systems and controls for the king island project. The near completion of building the heat block, including the commissioning and completion of engineering design work associated with its construction. Acceptance testing of the block is expected to be completed during October 2007 at which time the criteria for inclusion of this technology within the King Island project will be satisfied.

• Concluding the strong alliance with listed German company, SOLON AG, a significant player in the European solar industry, who are now the largest shareholder in CBD Energy Limited, holding 18.67% of the shares on issue.

• Concluding an agreement with I-Sol Ventures I-Sol Ventures Gmbh to acquire its wholly owned subsidiary, Larkden Pty Ltd (Larkden), subject to due diligence by CBD. Larkden is the owner of patents relating to graphite block energy storage technology and other intellectual property.

The relationship with Solon AG see the company became Solon’s exclusive agent in Australasia.

The market for renewable energy in Australia is of national interest along with the growing public awareness of the environmental damage and the true cost of traditional coal fired power generation far exceeding the current electricity tariff.

With the support of Solon AG, the company expects to undertake solar farm investment projects in Australia that will meet the demand of industry and work favourably with the carbon emissions trading system expected to be introduced in Australia in 2010.

Details of significant changes in the state of affairs

In the opinion of the directors, there were no significant changes in the state of affairs of the company during the financial period under review not otherwise disclosed in this annual report.

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Subsequent Events

Pursuant to the resolutions passed at the Extraordinary General Meeting held on 15 June 2007, on 14 September 2007 the Company completed the issue of

1) 70,000,000 shares at $0.14 each to raise capital to fund the expansion plans for renewable energy projects utilising wind and solar technologies.

2) 12,000,000 shares at $0.05 each upon a request to convert the outstanding convertible loan and accrued interest into equities.

3) 15,000,000 unlisted options each exercisable at 25 cents on or before 30 June 2011.

4) 400,000 shares at $0.05 each in relation to executive service agreements.

On 30 July 2007, the freehold land and buildings in Cooma NSW, sold by public auction on 16 June 2007 for $409,000 was settled.

Likely Developments and Expected Results

The directors will continue to seek options for the growth of the company and the restoration of shareholder value. Further information as to likely developments in the operations of the economic entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the economic entity.

Share options on issue

At the date of this report there are no ASX Listed options over unissued ordinary shares in CBD Energy Limited on issue. The previously listed options (ASX Code: CBDO) expired in January 2007. Refer to note 15 (c) (Share capital) of the financial statements for details of options, including issue price and expiry date.

During and since the end of the financial year, a total of 22,500,000 unlisted share options, as approved by shareholders were granted to the directors and of the company. Refer to note 15 (c) (Share capital) of the financial statements for details of options, including issue price and expiry date.

No shares have been issued during or since the end of the year as a result of the exercise of options.

Environmental regulations

CBD Energy Limited consolidated entity is in compliance with all its obligations pertaining to environmental regulations.

Directors Shareholdings at 30 June 2007

The following table sets out each director’s relevant interest in shares and options of CBD Energy Limited: Ordinary Shares Unlisted options over Ordinary

Shares Mr. Gerry McGowan – Executive Director and Chairman

17,588,925 2,500,000

Mr. John de Gouveia – Non-Executive Director - 2,500,000 Dr. Michael Warczak – Non-Executive Director 12,530,000 2,500,000

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DIRECTORS’ REPORT (CONTINUED)

Remuneration Report (i) Remuneration Policy

The Board is responsible for determining and reviewing remuneration arrangements for the Directors themselves, the Chief Executive Officer and the executive team. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment market conditions and their experience and expertise.

At the Annual General Meeting on 29 November 2006 it was resolved to increase the maximum remuneration of Directors to $300,000 per annum.

(ii) Key Management Personnel Remuneration

Remuneration packages contain the following key elements:

(a) Primary benefits – salary/fees, bonuses and non-monetary benefits including the provision of a motor vehicle or the payment of a car allowance where necessary.

(b) Post employment benefits including superannuation. (c) Other benefits

(iii) The following table discloses the remuneration of the key management personnel of the Consolidated Entity.

Primary Bonus Superannuation Equity Compensation

Total

Key management personnel $ $ $ $ $

Gerry McGowan – Executive Director and Chairman

55,000 - 4,950 52,339 112,289

John de Gouveia – Non-Executive Director

50,000 - 4,500 - 54,500

Michael Warczak – Non-Executive Director

45,000 - 4,050 - 49,050

Yury Brodsky Managing Director/CEO CapTech

130,008 15,000 10,800 - 155,808

Alan McClaren Managing Director/CEO Parmac

156,613 15,336 22,698 - 194,647

Total 436,621 30,336 46,998 52,339 566,294

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Remuneration Report (Continued)

On 15 June 2007, the Company held an Extraordinary General Meeting which approved the issue of 200,000 ordinary shares at 5 cents each to Alan McClaren and 200,000 ordinary shares at 5 cents each to Yury Brodsky in accordance with their executive contracts of employment. As at balancing date, none of the shares had been issued.

(iv) Contracts of employment

Directors

All the directors of the Company are employed under a letter of appointment that does not contain specified incentive entitlements including options.

Executives

Alan McClaren

Managing Director/CEO Parmac Airconditioning

Contract of Employment

Alan McClaren is employed by Parmac Airconditioning and Mechanical Services Pty Ltd under a contract of employment. The length of the contract was 3 years from 1 January 2004 to 1 January 2007, with a period of notice of 3 months required to terminate the contract. The contract was renewed on 1 January 2007 and will continue to 1 January 2012.

The base contract amount is $ 150,000 pa plus $30,000 superannuation component, plus a car allowance of $10,000 pa (total package $190,000). Alan is also entitled to a once only provision of shares in CBD Energy Limited to the value of $10,000 (being 200,000 ordinary shares issued at 5 cents each)

Performance Conditions

The contract does not provide for the payment of bonus, bonus payment is discretionary and determined annually by the Board upon satisfactory achievement of KPI’s and meeting operating budgets.

Yury Brodsky

Managing Director/CEO CapTech


Yury Brodsky is employed by Capacitor Technologies Pty Ltd under a continuing contract of employment. The length of the initial contract was for 1 year from 1 December 2003 to 1 December 2004, with a period of notice of 1 month required to terminate the contract. A new contract was signed on 1 January 2007 and will continue until 30 June 2012.

The base contract amount is $140,000pa plus the superannuation guarantee levy, plus a car allowance of 10,000pa (total annual package $162,600). Yury is also entitled to a once only provision of shares in CBD Energy Limited to the value of $10,000 (being 200,000 ordinary shares issued at 5 cents each)



In addition the company utilises electrical contracting services offered by Brodpower Pty Ltd , a company in which Yury Brodsky has a ownership interest.

The service contract with Brodpower Pty Ltd operates on a revenue share basis whereby CapTech makes a 25% margin on all electrical installation work outsourced to Brodpower Pty Ltd.

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Non-audit Services

The board of directors is satisfied that the provision of non-audit services during the year by Hall Chadwick Chartered Accountants is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services provided did not compromise the external auditor’s independence for the following reasons:

all non-audit services are reviewed and approved by the board of directors prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and

the nature of the services provided do not compromise the general principles relating to auditor independence

in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.

The Company did not pay any fees for non-audit services to the external auditors during the year ended 30 June 2007.

Indemnification and Insurance of Directors and Officers and Auditors

The Company has agreed to indemnify the current Directors of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.

The Company has not provided any insurance or indemnification for the auditor of the Company or any related body corporate.

Insurance Premiums

At 30 June 2007 the Company had not entered into any insurance policies in respect of Directors and Officers’ liability.

Auditor’s Independence Declaration

The auditor’s independence declaration for the year ended 30 June 2007 has been received and is included on page 54.

Signed in accordance with a resolution of the Directors

Gerry McGowan Chairman Dated: 28th September 2007

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CBD ENERGY LIMITED AND CONTROLLED ENTITIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007

Economic Entity Parent Entity

Note

2007 $

2006

$

2007

$

2006

$ Continuing Operations Revenue 2 13,541,555 10,460,871 59,839 2,477,976 Cost of goods sold 3(a) (8,176,401) (5,987,086) - - Gross profit 5,365,154 4,473,785 59,839 2,477,976 Depreciation and amortisation expense 3(a) (150,090) (90,392) (5,843) ( 6,246)

Finance costs 3(a) (198,286) (243,604) (176,263) ( 243,604) Salaries and employee benefits expense 3(c) (3,614,757) ( 2,924,566) (252,521) (383,306)

Administration and other expenses 3(d) (1,789,188) (1,177,785) (845,442) (512,827)

Loss on disposal of assets (2,784) (4,348) (7,167) (4,348) (Loss) / Profit before income tax expense (389,951) 33,090 (1,227,397) 1,327,645

Income tax expense 4 - - - - Operating (loss) / profit from continuing operations (389,951) 33,090 (1,227,397) 1,327,645

Discontinued Operations Net profit of discontinued operations - 286,656 - -

(Loss) on sale of discontinued operations - (282,967) - -

Profit on discontinued operations - 3,689 - - Net (loss) / profit attributable to members of CBD Energy Limited

(389,951) 36,779 (1,227,397) 1,327,645

Overall operations

Basic earnings per share (cents per share) 21 (0.45 cents) 0.05 cents

Diluted earnings per share (cents per share) 21 (0.39 cents) 0.05 cents

Continuing operations Basic earnings per share (cents per share) 21 (0.45 cents) 0.05 cents

Diluted earnings per share (cents per share) 21 (0.39 cents) 0.05 cents

The above Income Statement is to be read in conjunction with the accompanying notes.

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CBD ENERGY LIMITED AND CONTROLLED ENTITIES CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2007


CURRENT ASSETS Note 2007 $

2006 $

2007 $

2006 $

Cash and cash equivalents 17(b) 3,969,848 562,525 3,470,773 8,248 Trade and other receivables 5 3,042,560 1,959,809 1,911,164 190,724 Inventories 6 942,228 609,802 - - Other assets 7 62,043 80,032 - 8,113 Assets held for sale 8 343,064 - - - TOTAL CURRENT ASSETS 8,359,743 3,212,168 5,381,937 207,085

NON-CURRENT ASSETS

Financial assets 9 15,003 - 2,066,965 2,051,865 Plant and equipment 10 1,170,907 499,676 - 23,919 Intangibles 11 2,038,243 1,507,539 - - TOTAL NON-CURRENT ASSETS 3,224,153 2,007,215 2,066,965 2,075,784 TOTAL ASSETS 11,583,896 5,219,383 7,448,902 2,282,869

CURRENT LIABILITIES

Trade and other payables 12 2,282,630 1,730,402 887,285 454,805 Financial liabilities 13 4,803,511 1,002,883 4,740,504 991,347 Provisions 14 268,246 140,678 - - TOTAL CURRENT LIABILITIES 7,354,387 2,873,963 5,627,789 1,446,152 NON-CURRENT LIABILITIES Financial liabilities 13 839,851 1,189,211 588,393 1,000,000 TOTAL NON-CURRENT LIABILITIES 839,851 1,189,211 588,393 1,000,000

TOTAL LIABILITIES 8,194,238 4,063,174 6,216,182 2,446,152 NET ASSETS 3,389,658 1,156,209 1,232,720 ( 163,283)

EQUITY

Issued capital 15 63,193,266 60,622,205 63,193,266 60,622,205 Reserves 16 52,339 - 52,339 - Retained earnings (59,855,947) (59,465,996) (62,012,885) (60,785,488)

TOTAL EQUITY 3,389,658 1,156,209 1,232,720 ( 163,283)

The above Balance Sheet is to be read in conjunction with the accompanying notes.

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CBD ENERGY LIMITED AND CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR TO 30 JUNE 2007

Economic Entity $ $ $ $

Share Capital

Share Option Reserve

Retained Earnings Total

Balance at 01.07.2005 60,622,205 - (59,502,775) 1,119,430

Profit attributable to members of parent entity - - 36,779 36,779

Sub-total - - 36,779 36,779

Dividends paid or provided for - - - -

Balance at 01.07.2006 60,622,205 - (59,465,996) 1,156,209

Shares issued 2,582,073 - - 2,582,073

Share issue costs (11,012) - - (11,012)

Share options recognised - 52,339 - 52,339

(Loss) attributable to members of parent entity - - (389,951) (389,951)

Sub-total 2,571,061 52,339 (389,951) 2,233,449


Balance at 30.06.2007 63,193,266 52,339 (59,855,947) 3,389,658

Parent Entity

Balance at 01.07.2005 60,622,205 - (62,113,133) (1,490,928)

Profit for the year - - 1,327,645 1,327,645

Sub-total - - 1,327,645 1,327,645


Balance at 01.07.2006 60,622,205 - (60,785,488) (163,283)

Shares issued 2,582,073 - - 2,582,073

Share issue costs (11,012) - - (11,012)

Share options recognised - 52,339 - 52,339

(Loss) for the year - - (1,227,397) (1,227,397)

Sub-total 2,571,061 52,339 (1,227,397) 1,396,003


Balance at 30.06.2007 63,193,266 52,339 (62,012,885) 1,232,720

The above Statement of Changes in Equity is to be read in conjunction with the accompanying notes.

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CBD ENERGY LIMITED AND CONTROLLED ENTITIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Economic Entity Parent Entity

Note 2007 $

2006 $

2007 $

2006 $

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from customers 12,429,631 33,096,759 5,894 145,698 Payments to suppliers and employees (13,126,792) (33,377,630) (1,018,244) (734,002)

Interest received 29,173 66,888 4,482 12,590

Finance costs (159,893) (274,912) (129,757) (251,716)

NET CASH FLOWS USED IN OPERATING ACTIVITIES 17(a) (827,881) (488,895) (1,137,625) (827,430)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property, plant and equipment 6,000 15,538 - -

Security deposits - 12,133 - 30,000

Investment in controlled entities - - (100) -

Payments for investments (15,003) - (15,000) - Project licence fees (293,616) - - - Development costs (237,088) - - - Net proceeds from sale of controlled entity - (871,233) - 625,000

Purchase of property, plant and equipment (920,957) (128,047) - -

NET CASH FLOWS (USED IN) / PROVIDED BY INVESTING ACTIVITIES

(1,460,664) (971,609) (15,100) 655,000

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issues of ordinary shares 2,507,073 - 2,507,073 -

Share issue costs (11,012) - (11,012) - Share application monies received 4,740,504 - 4,740,504 - Repayment of finance leases (126,211) (202,937) (26,861) (8,872) Proceeds from borrowings – other 550,000 - 550,000 - Repayment of borrowings (1,000,000) (1,350,000) (1,000,000) (1,350,000)

Advances from/( to ) controlled entities - - (1,179,968) 436,664

NET CASH FLOWS PROVIDED BY / (USED IN) FINANCING ACTIVITIES

6,660,354 (1,552,937) 5,579,736 ( 922,208)

NET INCREASE / (DECREASE) IN CASH HELD 4,371,809 (3,013,441) 4,427,011 ( 1,094,638)

Add opening cash brought forward (401,961) 2,611,480 (956,238) 138,400

CLOSING CASH CARRIED FORWARD 17(b) 3,969,848 (401,961) 3,470,773 ( 956,238)

The above Cash Flow Statement is to be read in conjunction with the accompanying notes.

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NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers CBD Energy Limited and controlled entities (the economic entity), and CBD Energy Limited as an individual parent entity. CBD Energy Limited is a listed public company, incorporated and domiciled in Australia. The nature of the operations and principal activities of the group are the provision of energy and mechanical services.

This financial report is prepared in Australian dollars.

Statement of Compliance

The financial report of CBD Energy Limited and controlled entities (the economic entity), and CBD Energy Limited as an individual parent entity comply with all International Financial Reporting Standards (IFRS) in their entirety.

The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of Preparation

Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs.

Accounting Policies

a. Principles of Consolidation

A controlled entity is any entity CBD Energy Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities.

A list of controlled entities is contained in Note 9 to the financial statements. All controlled entities have a June financial year-end. All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Where controlled entities have entered or left the economic entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased. Subsidiaries are fully consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Policies (continued) b. Income Tax

The change for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the balance sheet.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognized to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilized.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with conditions of deductibility imposed by the law.

CBD Energy Limited and it’s wholly- owned Australian subsidiaries have formed an income tax consolidated group under the Tax Consolidation Regime. CBD Energy Limited is responsible for recognizing the current and deferred tax assets and liabilities for the tax consolidated group. The group notified the ATO on 2 January 2003 that it had formed an income tax consolidated group to apply from 1 July 2002. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

c. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs.

d. Construction Contracts and Work in Progress

Construction work in progress is valued at cost, plus profit recognized to date less and provision for anticipated future losses. Cost includes both variable and fixed costs relating to specific contracts, and those costs that are attributable to the contract activity in general and that can be allocated on a reasonable basis.

Construction profits are recognized on the stage of completion basis and measured using the proportion of costs incurred to date as compared to expected actual costs. Where losses are anticipated they are provided for in full.

Construction revenue has been recognized on the basis of the terms of the contract adjusted for any variations or claims allowable under the contract.

e. Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment losses.

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Policies (continued) e. Property, Plant and Equipment - continued

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation

Property, plant and equipment is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate

Leasehold improvements 4-5%

Plant and Equipment 5-33%

Leased plant and equipment 15%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.

f. Leases

Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the asset are transferred to the leasee are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. 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 for operating leases, where substantially all the risks and benefits remain with the lessor, and charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognized as a liability and amortised on a straight-line basis over the life of the lease term.

g. Intangibles

Goodwill

Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting Policies (continued)

g. Intangibles - continued

Licences

Licence fees are recognised at cost of acquisition. Licence fees have a finite life and are amortised on a systematic basis, matched to the future economic benefits over the life of the asset, less any impairment losses.

Development Costs

Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs are amortised on a systematic basis, matched to the future economic benefits over the life of the asset, less any impairment losses.

h. Employee Benefits

Wages and salaries and annual leave

Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

Superannuation

The amount charged to the Income Statement in respect of superannuation represents the contributions made by the economic entity to the employees’ nominated superannuation funds.

i. Provisions

Provisions are recognized when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will results and that outflow can be reliably measured.

j. Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

k. Trade and other receivables

Receivables are recognised as the amounts due. Collectability of receivables is reviewed on an ongoing basis. Debts which are believed to be uncollectible are written off. A provision is raised for amounts for which collection is considered doubtful.

l. Trade and other payables

Liabilities are recognised for amounts to be paid subsequent to the reporting date for goods and services received, whether or not billed, by the consolidated entity prior to the reporting date.

m. Financial liabilities

Financial liabilities, where there is a compound financial instrument, are classified so the liability component and equity component are shown separately on the Statement of Financial Position from the time of their initial recognition. Interest, where applicable, is charged as an expense as it accrues and is included in interest-bearing liabilities.

n. Borrowings

Commercial bills are recognised in the financial statements on the basis of the nominal amounts outstanding at balance date plus accrued interest.

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting Policies (continued)

o. Share capital

Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising from the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

p. Foreign currencies Translation of foreign currency transactions Transactions in foreign currencies of entities within the consolidated entity are converted to local currency at the rate of exchange ruling at the date of the transaction. Amounts payable to and by the entities within the consolidated entity that are outstanding at the reporting date and are denominated in foreign currencies have been converted to local currency using rates of exchange ruling at the end of the financial year. All resulting exchange differences arising on settlement or restatement are brought to account in determining the net profit or loss for the financial year. q. Revenue

Revenue from the sale of goods is recognized upon the delivery of goods to customers.

Interest revenue is recognized on a proportional basis taking into account the interest rates applicable to the financial assets.

Revenue from the rendering of service is recognized upon delivery of the service to the customers.

All revenue is stated net of goods and services tax (GST).

r. Finance Costs Borrowing costs are recognised in income in the period in which they are incurred. s. Goods and Services Tax (GST)

Revenues, expenses and assets are recognized net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognized as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows

t. Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

Critical Accounting Estimates and Judgments

The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

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NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Policies (continued)

Critical Accounting Estimates and Judgments - continued

Key Estimate – Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined.

No impairment has been recognised in respect of intangibles for the year ended 30 June 2007. The controlled entities were contributing profits towards the group. Should any of the controlled entities fail to perform, an impairment loss would be recognised up to the maximum carrying value of intangibles at 30 June 2007 of $2,038,243.

Apart from this, there are no other key assumptions or sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying amount of certain assets and liabilities within the next reporting period.

Australian Accounting Standards not yet effective

The economic entity has not yet applied any Australian Accounting Standards or Australian Accounting interpretations that have been issued as at balance date but are not yet operative for the year ended 30 June 2007 and these are not expected to have any material impact in the future periods.

AASB Amendment Standards Affected Outline of Amendment Application Date of

Standard

Application Date for Group

AASB 2005–10: Amendments to Australian Accounting Standards

AASB 1: First time adoption of AIFRS

AASB 4: Insurance Contracts

AASB 101: Presentation of Financial Statements

AASB 114: Segment Reporting

AASB 117: Leases

AASB 133: Earnings per Share

AASB 1023: General Insurance Contracts

AASB 1038: Life Insurance Contracts

AASB 139: Financial Instruments: Recognition and Measurement

The disclosure requirements of AASB 132: Financial Instruments: Disclosure and Presentation have been replaced due to the issuing of AASB 7: Financial Instruments: Disclosures in August 2005. These amendments will involve changes to financial instrument disclosures within the financial report. However, there will be no direct impact on amounts included in the financial report as it is a disclosure standard.

1 Jan 2007 1 July 2007

AASB 7: Financial Instruments: Disclosures

AASB 132: Financial Instruments: Disclosure and Presentation

As above 1 Jan 2007 1 July 2007 For

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2007 $

2006

$

2007

$

2006

$ NOTE 2 - REVENUE

Revenues from operating activities

Revenue from sales and services 13,511,762 9,824,740 - -

Total revenues from operating activities 13,511,762 9,824,740 - -

Revenues from non-operating activities

Interest – other persons 29,793 36,131 4,482 12,590 Reversal of provisions no longer required - 600,000 - 600,000 Proceeds on sale of controlled entity - - - 1,750,000

Other revenue - - 55,357 115,386

Total revenues from non-operating activities 29,793 636,131 59,839 2,477,976

Total revenues 13,541,555 10,460,871 59,839 2,477,976

NOTE 3 - LOSS FOR THE YEAR

(a) Expenses Depreciation of current assets Building and improvements 1,936 - - - Total depreciation of current assets 1,936 - - -

Depreciation of non-current assets Property, plant and equipment 138,552 88,822 5,843 6,246

Total depreciation of non-current assets 138,552 88,822 5,843 6,246

Amortisation of non-current assets

Goodwill - - - -

Leasehold improvements 9,602 1,570 - -

Total amortisation of non-current assets 9,602 1,570 - - Total depreciation and amortisation expense of non-current assets 148,154 90,392 5,843 6,246

Total depreciation and amortisation expenses 150,090 90,392 5,843 6,246

Cost of inventories recognised as an expense 8,176,401 5,987,086 - -

Finance costs

Other persons 198,286 243,604 176,263 243,604

Total finance costs 198,286 243,604 176,263 243,604

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NOTE 3 - LOSS FOR THE YEAR (continued)

2007 $

2006

$

2007

$

2006

$ (b) Material/significant items

(Loss) / Profit from ordinary activities before income tax expense includes the following material revenues and expenses whose disclosure is relevant in explaining the financial performance of the entity:

Proceeds on sale of controlled entity - - - 1,750,000

Reversal of provisions - 600,000 - 600,000

Amount included in other revenue - 600,000 - 2,350,000

(c) Salaries and employee benefits expense (3,614,757) (2,924,566) (252,521) (383,306)

(d) Administration and other expenses

Corporate administration costs (823,630) (550,919) (736,491) (479,408) Occupancy costs (490,994) (187,074) (46,828) (5,093) Travel costs (138,283) (56,667) (10,219) (4,950) Communications costs (75,233) (65,242) (6,094) (5,590) Other expenses (261,048) (317,883) (45,810) (17,786) Total administration and other expenses (1,789,188) (1,177,785) (845,442) (512,827)

NOTE 4 - INCOME TAX (a) The components of tax expense comprise: Current tax - - - - Deferred tax - - - - - - - -

The prima facie tax on (loss) / profit before income tax differs from the income tax provided in the financial statements as follows:

Operating (loss)/profit before income tax (389,951) 36,779 (1,227,397) 1,327,645 Prima facie tax on (loss)/profit at statutory income tax rate of 30% (2006: 30%) 116,985 (11,034) 368,219 (398,293)

Tax effect of permanent differences: - Other items (share option expense) (15,702) - (15,702) - Income tax benefit / (expense) 101,283 (11,034) 352,517 (398,293) Future tax benefit recognised / (not recognised) (101,283) 11,034 (352,517) 398,293 Income tax attributable to (loss)/ profit from ordinary activities - - - -

Balance of franking account at balance date 523,709 523,709 523,709 523,709

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NOTES TO THE FINANCIAL STATEMENTS NOTE 4 - INCOME TAX (continued)


2007 $

2006

$

2007

$

2006

$ Income tax losses

The following deferred tax assets have not been brought to account as assets:

Tax losses – revenue 2,476,238 2,374,955

Tax losses – capital 4,684,450 4,684,450

Total tax losses 7,160,688 7,059,405

A deferred tax asset for the consolidated entity has not been brought to account at the reporting date.

The deferred tax asset will only be obtained if:

(a) Future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised;

(b) the conditions for deductibility imposed by tax legislation continue to be complied with; and

(c) No changes in tax legislation adversely affect the consolidated entity in realising the benefit.

Tax consolidation

Effective 1 July 2002, for the purposes of income taxation, CBD Energy Limited and its 100% owned subsidiaries formed a tax consolidation group. The head entity within the tax consolidated group is CBD Energy Limited.

NOTE 5 – TRADE AND OTHER RECEIVABLES Current Trade receivables 3,011,075 1,959,809 51,103 1,640 Other receivables 31,485 - 66,243 - Loans to controlled entities* - - 1,793,818 189,084 Total current receivables 3,042,560 1,959,809 1,911,164 190,724

* Amounts owed by controlled entities are unsecured and on interest free terms.

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2007 $

2006

$

2007

$

2006

$ NOTE 6 - INVENTORIES

Current Raw materials, at cost 581,074 422,718 - - Work in progress, at cost 361,154 187,084 - - Total inventories 942,228 609,802 - -

NOTE 7 – OTHER ASSETS

Current Prepayments 48,950 20,184 - 8,113 Deposits 13,093 42,130 - - Other - 17,718 - -

Total other assets 62,043 80,032 - 8,113

NOTE 8 – ASSETS HELD FOR SALE**

Land

At cost 262,000 - - -

Accumulated depreciation - - - -

Total land 262,000 - - -

Building and improvements

At cost 83,000 - - -

Accumulated depreciation (1,936) - - -

Total building and improvements 81,064 - - -

Total assets held for sale 343,064 - - -

** On 30 July 2007, the freehold land and buildings in Cooma NSW, sold by public auction on 16 June 2007 for $409,000 was settled.

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2007 $

2006

$

2007

$

2006

$ NOTE 9 - FINANCIAL ASSETS

Investment in controlled entities at cost - - 2,051,965 2,051,865 Shares in other corporations at cost 15,003 - 15,000 - Total other financial assets 15,003 - 2,066,965 2,051,865

INTERESTS IN SUBSIDIARIES Controlled entities of CBD Energy Limited

Name Country of Incorporation

Percentage of equity held by the economic entity

Investment

2007%

2006%

2007 $

2006$

A.C.N. 086 311 051 Pty Ltd*** (formerly CBD Online Pty Ltd

Australia 100 100 - -

A.C.N. 087 574 570 Pty Ltd*** (formerly CBD Online Australia Pty Ltd)


A.C.N. 106 309 111 Pty Ltd*** (formerly CBD Energy Management Pty Ltd)


Capacitor Technologies Pty Ltd Australia 100 100 740,000 740,000

Parmac Airconditioning & Mechanical Services Pty Ltd

Australia 100 100 1,311,865 1,311,865

Remote Area Power Systems Pty Ltd

Australia 100 - 100 -

Lloyd Project Holdings Pty Ltd Australia 100 - - -

Lloyd Energy Australia Pty Ltd Australia 100 - - -

Total 2,051,965 2,051,865

All entities operated solely in their place of incorporation. *** On 3rd April 2007 dormant entities, A.C.N. 086 311 051 Pty Ltd, A.C.N. 087 574 570 Pty Ltd and A.C.N. 106 309 111 Pty Ltd were placed into a members voluntary liquidation. INTERESTS IN JOINT VENTURE ENTITIES Remote Area Power Systems Pty Ltd has a 50% interest in RE Storage Pty Ltd and Wind Energy Storage Pty Ltd with Hydro Tasmania, acquired as part of the asset acquisition agreement with Lloyd Energy Systems Limited on 7th December 2006. As at 30 June 2007, the joint venture entities did not directly hold any assets.

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2007 $

2006

$

2007

$

2006

$ NOTE 10 - PLANT AND EQUIPMENT

Computer hardware & software At cost 62,637 48,780 - - Accumulated depreciation (30,513) (15,839) - -

Total computer hardware & software 32,124 32,941 - -

Motor vehicles At cost 73,327 61,553 - - Accumulated depreciation (9,987) (22,637) - -

Total motor vehicles 63,340 38,916 - -

Plant and equipment At cost 336,928 297,068 - - Accumulated depreciation (170,368) (119,416) - -

Total plant and equipment 166,560 177,652 - -

Furniture, fittings & office equipment At cost 27,576 25,617 - - Accumulated depreciation (12,916) (8,165) - -

Total furniture, fittings & office equipment 14,660 17,452 - -

Leased motor vehicles At cost 387,688 253,771 - 33,386 Accumulated amortisation (82,887) (36,864) - (9,467)

Total leased motor vehicles 304,801 216,907 - 23,919

Leasehold improvements At cost 17,378 17,378 - - Accumulated amortisation (11,172) (1,570) - -

Total leasehold improvements 6,206 15,808 - -

Capital work in progress

At cost 583,216 - - -

Accumulated depreciation - - - -

Total capital work in progress 583,216 - - -

Total plant and equipment At cost 1,488,750 704,167 - 33,386 Accumulated amortisation/depreciation (317,843) (204,491) - (9,467)

Total plant and equipment 1,170,907 499,676 - 23,919

Assets pledged as security: at 30 June 2007, none of the consolidated entity’s assets were pledged as security under financial arrangement while at 30 June 2006, fixed and floating charges over the consolidated entity’s assets including plant and equipment were pledged as security to Westpac Banking Corporation. (refer note 27)

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NOTE 10 - PROPERTY, PLANT AND EQUIPMENT (continued)

Reconciliations Economic Entity Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current financial year.

Carrying amount at 1

July 2007 Additions Disposals

Depreciation /

Amortisation expense

Carrying amount at 30 June

2007 Computer Hardware & Software 32,941 13,857 - (14,674) 32,124 Motor Vehicles 38,916 56,449 (25,182) (6,843) 63,340 Plant and Equipment 177,652 39,860 - (50,952) 166,560 Furniture, fittings & office equipment 17,452 1,959 - (4,751) 14,660

Leased motor vehicles 216,907 167,303 (18,077) (61,332) 304,801 Leasehold improvements 15,808 - - (9,602) 6,206 Capital work in progress - 583,216 - - 583,216 499,676 862,644 (43,259) (148,154) 1,170,907 Parent Entity Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current financial year.

Carrying amount at 1

July 2007 Additions Disposals

Depreciation /

Amortisation expense

Carrying amount at 30 June

2007 Leased motor vehicles 23,919 - (18,076) (5,843) - 23,919 - (18,076) (5,843) -

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2007 $

2006

$

2007

$

2006

$

NOTE 11 - INTANGIBLES Goodwill –at cost 1,547,926 1,547,926 - - Accumulated impaired losses (40,387) (40,387) - -

1,507,539 1,507,539 - -

Licence acquisition costs 293,616 - - -

Development costs 237,088 - - -

Total intangibles 2,038,243 1,507,539 - - Reconciliation Goodwill Balance at beginning of the year 1,507,539 1,507,539 - - Additions - - - - Impairment writedown - - - - Balance at end of the year 1,507,539 1,507,539 - - Licence acquisition costs Balance at beginning of the year 293,616 - - - Additions - - - - Impairment writedown - - - - Balance at end of the year 293,616 - - - Development costs Balance at beginning of the year - - - - Additions 237,088 - - - Impairment writedown - - - - Balance at end of the year 237,088 - - -

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NOTES TO THE FINANCIAL STATEMENTS NOTE 11 - INTANGIBLES (continued)

Intangibles are allocated to cash-generating units based on the group’s reporting segments.

2007 $

2006 $

Energy services 871,599 340,895

Mechanical services 1,166,644 1,166,644

Total 2,038,243 1,507,539

During the 30 June 2007 financial year, the Company assessed the recoverable amount of intangibles and determined that intangibles associated with the Company are not impaired. The recoverable amount of the cash-generating unit, being the assets of the Company and intangibles, was assessed by reference to the cash-generating unit’s value-in-use. Value-in-use is calculated based on the present value of cash flow projections over a 4-year period with a terminal value based on year 4 projections. The cash flows are discounted using a rate of 20% and annual growth rates of between 1% to 5%. Management believes that any reasonable possible change in the key assumptions in which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate carrying amount of those cash-generating units.


2007 $

2006

$

2007

$

2006

$ NOTE 12 - TRADE AND OTHER PAYABLES Current Trade creditors 1,801,414 1,622,152 248,832 200,935 Accruals 481,216 108,250 76,498 105,772

Loans from controlled entities* - - 561,955 148,098

Total current payables 2,282,630 1,730,402 887,285 454,805

* Amounts owed to controlled entities are unsecured and on interest free terms.

NOTE 13 – FINANCIAL LIABILITIES

Current

Bank overdraft - 964,486 - 964,486

Share application monies received in advance 4,740,504 - 4,740,504 -

Finance leases 63,007 38,397 - 26,861

Total current financial liabilities 4,803,511 1,002,883 4,740,504 991,347 Non-current

Secured

Finance leases 251,458 189,211 - -

Commercial bills - 1,000,000 - 1,000,000

Loan 588,393 - 588,393 -

Total non-current financial liabilities 839,851 1,189,211 588,393 1,000,000

Total financial liabilities 5,643,362 2,192,094 5,328,897 1,991,347

The above financial liabilities were secured against the assets they financed as disclosed further in note 27.

Details of fair value of the group’s financial liabilities are set out in note 25.

Details of finance lease commitments are disclosed in note 18.

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Notes Economic Entity Parent Entity

2007 $

2006

$

2007

$

2006

$

NOTE 14 - PROVISIONS Employee entitlements 268,246 140,678 - -

Total current provisions 268,246 140,678 - -

Reconciliation: Economic Entity Parent Entity

Balance at 1 July 2006 140,678 -

Additional provisions 143,305 -

Amounts used (15,737) -

Balance at 30 June 2007 268,246 - NOTE 15 - ISSUED CAPITAL Notes Economic Entity Parent Entity

2007 $

2006

$

2007

$

2006

$

(a) Share capital

Ordinary shares fully paid 15(b) 63,193,266 60,622,205 63,193,266 60,622,205

63,193,266 60,622,205 63,193,266 60,622,205

(b) Movements in ordinary shares on issue 2007 2006

No of shares $ No of shares $ Beginning of the financial year 70,551,071 60,622,205 70,551,071 60,622,205 Issue of shares 28,407,660 2,582,073 - - Transaction costs relating to shares issued - (11,012) - - End of the financial year 98,958,731 63,193,266 70,551,071 60,622,205

On 18 July 2006, the Company issued 4,000,000 shares at 5 cents each raising $200,000. The Company also issued 1,500,000 shares at 5 cents each in settlement of fees payable to external consultants.

On 7 December 2006, the Company issued 10,000,000 shares at 5 cents each raising $500,000.

On 26 February 2007, the Company issued 12,907,660 shares at 14 cents each raising $1,807,073.

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.

At the shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

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NOTE 15 - ISSUED CAPITAL (continued)

(c) Share options

Options over ordinary shares:

The following options to purchase fully paid ordinary shares in the Company were outstanding at 30 June 2007:

Number of Options

Date Granted Opening Balance 01/07/06

Granted/ (exercised)

Lapsed Closing Balance 30/06/07

Exercise Price

$

Exercise Period

Listed Options 27 January 2004 4,007,571 - (4,007,571) - $1.00 5 January 2007 Sub-Total 4,007,571 - (4,007,571) -

Unlisted Options 07 December 2006 - 7,500,000 - 7,500,000 $0.10 30 June 2011 Sub-Total - 7,500,000 - 7,500,000

At the Extraordinary General Meeting held on 15 June 2007, it was resolved to issue 15,000,000 unlisted options to a director related entity , each exercisable at 25 cents on or before 30 June 2011. At balance date, those unlisted options were not issued.

(d) Terms and conditions of contributed equity

Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

NOTE 16 – RESERVES


2007 $

2006

$

2007

$

2006

$

Reserves Share option reserve 52,339 - 52,339 -

The share option reserve records items recognised as expense on valuation of employee share options.

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NOTE 17 - CASH FLOW STATEMENT


2007 $

2006 $

2007 $

2006 $

(a) Reconciliation of net (loss) / profit after tax to the net cash flows from operations Net (loss) / profit (389,951) 36,779 (1,227,397) 1,327,645

Non-cash items Depreciation and amortisation of non-current assets 150,090 90,392 5,843 6,246 Share based payment recognised 52,339 - 52,339 - Loss on sale of property plant & equipment 2,784 4,348 7,167 4,348

Profit on sale of controlled entity - (3,689) - (1,750,000)

Reversal of Provisions - (600,000) - (600,000)

Lease liability payments - - - 8,868

Changes in assets and liabilities net of effects of disposal of discontinuing operations:

(Increase) / Decrease in trade and other receivables (1,082,751) (221,690) (115,706) 40,839 (Increase) / Decrease in inventories (332,426) (58,633) - - Decrease / (Increase) in other assets 17,989 94,356 8,113 61,160 (Decrease) / increase in trade and other creditors 588,084 526,847 93,623 112,720 (Decrease) / increase in other financial liabilities 38,393 - 38,393 (6,440) (Decrease) / Increase in provisions 127,568 5,436 - (32,816) Movement in assets associated with OP Industries Pty Ltd - (363,041) - -

Net cash flow from operating activities (827,881) (488,895) (1,137,625) (827,430)

(b) Reconciliation of cash

Cash balance comprises:

- cash assets 3,969,848 562,525 3,470,773 8,248

- bank overdraft (note 13) - (964,486) - (964,486)

Closing cash balance 3,969,848 (401,961) 3,470,773 (956,238)

(c) Financing facilities available

At balance date, the following financing facilities had been negotiated and were available:

Total facilities – third parties - 2,000,000 - 2,000,000

Facilities used at balance date – third parties - 1,964,486 - 1,964,486

Facilities unused at balance date – third parties - 35,514 - 35,514

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NOTE 17 - CASH FLOW STATEMENT (continued)

(d) Acquisition of entities

On 9th August 2006 the company incorporated a new wholly owned subsidiary, Remote Area Power Systems Pty Ltd ACN: 121 147 546 for consideration of $100.

Remote Area Power Systems Pty Ltd (‘RAPS”) was formed as a new division of CBD Energy Limited to initially explore and further develop alternative renewable electrical energy solutions in remote locations that are traditionally powered by diesel generators.

Following the incorporation of RAPS on 9th August 2006, the company entered in discussions with Lloyd Energy Systems (“LES”) to acquire certain assets and intellectual property associated with energy storage.

On 7th November 2006 CBD Energy Limited announced to ASX that it had entered into an Asset Acquisition Agreement with Lloyd Energy Systems Limited to acquire certain assets of LES for $500,000, including:

• leasehold and freehold land;

• certain plant and equipment relating to renewable energy technology; and

• the shares in a joint venture between LES and a major Australian renewable energy business.

The Asset Acquisition Agreement with LES was successfully completed on 7th December 2006 after having obtained the receipt of the consent of LES’s joint venture partner, Hydro Tasmania, to the novation of its joint venture arrangements in favour of CBD. Following completion of the Asset Acquisition Agreement, Remote Area Power Systems Pty Ltd has the following corporate structure;

100% 100% 50%

50% Joint venture with Hydro Tasmania

h Hydro Tasmania 50%

The entities acquired by Remote Area Power Systems Pty Ltd under the Asset Acquisition Agreement, namely Lloyd Energy Australia Pty Ltd, Lloyd Project Holdings Pty Ltd, RE Storage Pty Ltd and Wind Energy Storage Pty Ltd form part of the overall structure previously established for the Hydro Tasmania joint venture.

The Hydro Tasmania Joint Venture was established to primarily develop a renewable energy storage solution for king Island Tasmania.

The renewable energy storage technology acquired by CBD and RAPS involves the storage of electrical energy in graphite. The technology also has a number of other applications for energy management and efficiency in both mainstream power generation installations and renewable energy systems.

Wind Energy Storage Pty

Ltd

RE Storage

Pty Ltd

Lloyd Project Holdings Pty Ltd

Lloyd Energy Australia Pty Ltd

Remote Area Power

Systems Pty Ltd

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NOTE 18 – LEASING COMMITMENTS


Lease expenditure commitments Finance leases (non-cancellable)

2007

$

2006

$

2007

$

2006

$ Minimum lease payments

- not later than one year 86,019 55,489 - -

- later than one year but not later than five years 298,522 219,920 - -

Total minimum lease payments 384,541 275,409 - -

Future finance charges



Total future finance charges 70,076 47,801 - -

314,465 227,608 - -

- Current liability 63,007 38,397 - -

- Non current liability 251,458 189,211 - -

314,465 227,608 - -

The economic entity has acquired motor vehicles by means of finance leases. Leases do not exceed 4 years in duration

Operating leases

Non-cancellable operating lease contracted for but not capitalised in this financial statements:

Minimum lease payments



649,484 132,218 - -

Operating leases relate to the lease of offices and warehouses for periods not greater than 3 years under non-cancellable leases.

NOTE 19 – CONTINGENT LIABILITIES Controlled entities

The parent entity has provided a commitment to its subsidiary entities to support those companies’ ongoing operations for at least the next 12 months. Provision has been made in the accounts for the non-recovery of any associated loans.

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NOTES TO THE FINANCIAL STATEMENTS NOTE 20 - SUBSEQUENT EVENTS

Pursuant to the resolutions passed at the Extraordinary General Meeting held on 15 June 2007, on 14 September 2007, the Company completed the issue of

1) 70,000,000 shares at $0.14 each to raise capital to fund the expansion plans for renewable energy projects utilising wind and solar technologies.

2) 12,000,000 shares at $0.05 each upon a request to convert the outstanding convertible loan and accrued interest into equities.

3) 15,000,000 unlisted options each exercisable at 25 cents on or before 30 June 2011

4) 400,000 shares at $0.05 each in relation to executive service agreements.

On 30 July 2007, the freehold land and buildings in Cooma NSW, sold by public auction on 16 June 2007 for $409,000 was settled.

NOTE 21 - EARNINGS PER SHARE Economic Entity

2007 2006

$ $

The following reflects the income and share data used in the calculations of basic earnings per share:

Net (loss) / profit from continuing operations (389,951) 33,090 Net (loss) / profit from discontinuing operations - 3,689 Earnings used in calculating basic earnings per share (389,951) 36,779 The following reflects the income and share data used in the calculations of diluted earnings per share:

Net (loss) / profit from continuing operations (389,951) 33,090 Net (loss) / profit from discontinuing operations - 3,689 Loan interest 38,393 - Earnings used in calculating diluted earnings per share (351,558) 36,779

Number of Number of Shares

2007 Shares

2006 Weighted average number of ordinary shares outstanding during the year used in calculating basic EPS 85,859,173 70,551,071 Weighted average number of options outstanding 5,043,145 - Weighted average number of ordinary shares outstanding during the year used in calculating dilutive EPS 90,902,318 70,551,071 Overall operations: Basic earnings per share (loss) - cents (0.45)¢ 0.05¢ Diluted earnings per share (loss) - cents (0.39) ¢ 0.05¢

Continuing operations Basic earnings per share (loss) - cents (0.45)¢ 0.05¢ Diluted earnings per share (loss) - cents (0.39) ¢ 0.05¢

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NOTE 21 - EARNINGS PER SHARE (continued)

Conversions, calls, subscription or issues after 30 June 2007

Since the end of the financial year, there have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report, other than for those listed at note 20. NOTE 22 - AUDITORS’ REMUNERATION Economic Entity Parent Entity

2007 $

2006

$

2007

$

2006

$

Amounts received or due and receivable by the auditors for:

Auditing or reviewing the financial reports of the entity and any other entity in the consolidated entity 33,846 130,320 33,846 182,272

Other compliance taxation services in relation to the entity and any other entity in the consolidated entity - 66,802 - 2,350

Total remuneration of auditors 33,846 197,122 33,846 184,622

NOTE 23 - RELATED PARTY DISCLOSURES (a) Wholly-owned group transactions

CBD Energy Limited is the ultimate parent entity in the wholly owned group comprising the Company and its wholly owned controlled entities. The Company was incorporated in Australia.

During the current and previous financial year, the Company advanced and was repaid loans and provided management and administrative assistance to other entities in the wholly owned group. Any loans within the consolidated entity were provided interest free. Management and administrative assistance have been provided without charge.

Transactions with related parties were made on normal commercial terms and conditions unless otherwise stated.

(i) At balance date the parent entity owed Capacitor Technologies Pty Ltd $61,619 (2006: receivable $189,083). The movement in the loan amount relates to working capital advances by the subsidiary to its parent entity.

(ii) At balance date the parent entity owed Parmac Airconditioning & Mechanical Services Pty Ltd $500,336 (2006: $148,101). The movement in the loan amount relates to working capital advances by the subsidiary to its parent entity,

(iii) At balance date, Remote Area Power Systems Pty Ltd owed the parent entity $1,793,818 (2006: nil). The movement in the loan amount related to working capital advances by the parent entity to its subsidiary.

(b) Ultimate parent

CBD Energy Limited is the ultimate parent company.

(c) Director related transactions

(i) During the financial year ending 30 June 2007, TRW Holdings Pty Ltd, an entity in which a Director, Gerry McGowan has a direct interest, received payments for executive services provided by Mr Gerry McGowan and for the reimbursement of travel expenses and other operating disbursements incurred on behalf of the company. The total amount paid or payable to TRW holdings Pty Ltd was $341,895. (2006:$ 24,988)

(ii) During the financial year ended 30 June 2007, Corporate and Administrative Services Pty Ltd, an entity in which a Director, John de Gouveia has a direct interest, provided accounting and secretarial services to the Company at market rates. Fees, reimbursement of travel expenses and other disbursements paid or payable to Corporate and Administrative Services Pty Ltd was $140,594 (2006: $77,664)

(d) Key management personnel’s remuneration

Details of key management personnel’s remuneration and their share and option holdings in the company are disclosed in note 26 – Directors and Executive Remuneration.

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NOTES TO THE FINANCIAL STATEMENTS NOTE 23 - RELATED PARTY DISCLOSURES (continued)

(e) Key management related transactions

During the financial year ended 30 June 2007, the economic entity paid $46,500 (2006: $42,083) to CAMRAP Superannuation Fund, an entity related to Alan McClaren, Managing Director/CEO of Parmac, for rental lease of office building on normal commercial terms.

NOTE 24 - SEGMENT INFORMATION Segment products and locations

The consolidated entity’s operating companies are organised and managed separately according to the nature of the products and services they provide, with each segment offering different products and serving different markets. The principal activities of entities within the consolidated entity were: Energy Efficiency Solutions

• CapTech manufacture energy saving products (power factor correction equipment) and energy quality products (reactors and filters), and also supply components (capacitors) and energy consulting services. In general, their power correction equipment can reduce energy consumption by 25% and their other products provide for improvement in quality and thereby efficiency of power use.

• RAPS is an energy solutions company providing wind, solar and energy storage in an integrated solutions package. The company is focused on diesel reduction and the overall reduction of greenhouse gas emissions by providing renewable power technology to both on-grid and remote area power systems.

Mechanical Services Solutions

• Parmac provides a full range of mechanical services and air-conditioning services in support of developers, builders and commercial tenants at the mid tier level. Their speciality is working within existing mechanical services infrastructure and tight deadlines to deliver high-quality commercial grade air-conditioning solutions.

Segment accounting policies

There have been no inter-segment sales or transfers. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.

Segment accounting policies are the same as the consolidated entity’s policies described in Note 1. During the financial year, there were no changes in segment accounting policies that had a material effect on the segment information.

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NOTE 24 - SEGMENT INFORMATION (continued)

Primary Reporting – Business Segments

2007

Energy Services

$

Mechanical Services

$

Corporate

$

Eliminations

$

Economic Entity

(continuing operations)

$

Discontinued Operations

Revenue outside the

economic entity

5,265,107

8,223,319

53,129

-

13,541,555

- Inter-segment revenue - - 6,709 (6,709) - -

Total revenue 5,265,107 8,223,319 59,838 (6,709) 13,541,555 -

Segment operating profit 337,528 499,916 (1,227,395) - (389,951) - Income tax expense - - - - - -

Operating profit / (loss) after tax

337,528

499,916

(1,227,395)

-

(389,951)

-

Depreciation and

Amortisation

61,240

83,008

5,842

-

150,090

Segment Assets 4,171,513 2,961,175 7,409,923 (4,466,254) 10,076,357

Unallocated Assets - - - - 1,507,539 Total Assets 11,583,896

Segment Liabilities 2,789,269 1,642,039 6,177,203 (2,414,273) 8,194,238

Unallocated Liabilities - - - - - Total Liabilities 8,194,238

Acquisition of non-current

assets 668,288 194,356 - - 862,644

2006

Energy Services

$

Mechanical Services

$

Corporate

$

Eliminations

$

Economic Entity

(continuing operations)

$

Discontinued Operations

Revenue outside the economic entity

3,921,123 5,922,151 2,367,597 (1,750,000) 10,460,871 22,607,512

Inter-segment revenue - - 99,854 (99,854) - - Total revenue 3,921,123 5,922,151 2,467,451 (1,849,854) 10,460,871 22,607,512 Segment operating profit 207,257 379,444 1,327,643 (1,877,565) 36,779 3,689 Income tax expense - - Operating profit after tax 36,779 3,689 Depreciation and Amortisation

55,409 28,737 6,246 - 90,392 -

Segment Assets 1,937,013 1,881,009 2,282,869 (2,389,047) 3,11,844 - Unallocated Assets - - - - 1,507,539 - Total Assets 5,219,383 - Segment Liabilities 892,397 1,061,808 2,446,151 (337,182) 4,063,174 - Unallocated Liabilities - - - - - - Total Liabilities 4,063,174 - Acquisition of non-current assets

2,461 191,340 - - 193,801 -

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NOTES TO THE FINANCIAL STATEMENTS NOTE 24 - SEGMENT INFORMATION (continued)

Secondary Reporting – Geographic Segments

The consolidated group’s business segments operate predominately in one geographic segment located within the Sates and Territories of Australia.

NOTE 25 - FINANCIAL INSTRUMENTS Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. Net fair value of financial assets and liabilities The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximates their carrying value. The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by the expected future cash. The consolidated entity has potential financial liabilities, which may arise from certain contingencies disclosed in Note 19. As explained in that note, no material losses are anticipated in respect of any of those contingencies. Credit risk

The credit risk on financial assets of the consolidated entity which have been recognised in the Balance Sheet is generally the carrying amount, net of any provisions. Credit risk refers to the risk that a counter party will default on the contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with credit worthy counterparts as a means of mitigating the risk of financial loss from defaults. The consolidated entity measures credit risk on a fair value basis. The maximum credit risk exposure for each class of financial assets is represented by the carrying amount of those assets as disclosed in the balance sheet and notes to the financial statements.

Interest rate risk

The consolidated entity’s exposure to interest rate risks and the effective weighted average interest rates of financial assets and financial liabilities, are as follows:

30 June 2007 Financial assets and liabilities

Note

WeightedAverage Interest

Rate %

Floating Interest

Rate $

Due within

1 year $

Due

between 1 to 5 years

$

Non-interest bearing

$

Total $

Financial assets Cash – current 17(b) 2.83 3,969,848 - - - 3,969,848 Trade and other receivables 5 - - - 3,042,560 3,042,560

Total financial assets 3,969,848 - - 3,042,560 7,012,408

Financial liabilities

Payables 12 - - - 2,282,630 2,282,630 Financial liabilities 13 10.4% 588,393 63,007 251,458 4,740,504 5,643,362 Provisions 14 - - - 268,246 268,246

Total financial liabilities 588,393 63,007 251,458 7,291,380 8,194,238

Net financial assets/(liabilities) 3,381,455 (63,007) (251,458) (4,248,820) (1,181,830)

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NOTES TO THE FINANCIAL STATEMENTS NOTE 25 - FINANCIAL INSTRUMENTS (continued)

30 June 2006 Financial assets and liabilities

Note

WeightedAverage Interest

Rate %

Floating Interest

Rate $

Due within

1 year $

Due

between 1 to 5 years

$

Non-interest bearing

$

Total $

Financial assets Cash – current 17(b) 5.00% 562,525 - - - 562,525 Trade and other receivables 5 - - - - 1,959,809 1,959,809

Total financial assets 562,525 - - 1,959,809 2,522,334

Financial liabilities

Payables 12 - - - - 1,730,402 1,730,402 Financial liabilities 13 11.2% 1,964,486 38,397 189,211 - 2,192,094 Provisions 14 - - - - 140,678 140,678

Total financial liabilities 1,964,486 38,397 189,211 1,871,080 4,063,174

Net financial assets/(liabilities) (1,401,961) (38,397) (189,211) 88,729 (1,540,840)

NOTE 26 – KEY MANAGEMENT PERSONNEL COMPENSATION

(a) Details of key management personnel

Name of individual Position held Period of responsibility

Gerry McGowan Executive director: Chairman 1 Jul 06 – 30 Jun 07 (i)

Michael Warczak Non–executive director 1 Jul 06 – 30 Jun 07 (i)

John de Gouveia Non-executive director 1 Jul 06 – 30 Jun 07 (i)

Alan McClaren Managing Director/CEO: Parmac 1 Jul 06 – 30 Jun 07 (i)

Yury Brodsky Managing Director/CEO: CapTech 1 Jul 06 – 30 Jun 07 (i)

Note (i) these individuals continue to hold office at the date of this report

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NOTE 26 – KEY MANAGEMENT PERSONNEL COMPENSATION (continued)

(b) Remuneration of key management personnel

(i) Remuneration Policy

The Board is responsible for determining and reviewing remuneration arrangements for the Directors themselves, the Chief Executive Officer and the executive management team. It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and executive management team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment market conditions and their experience and expertise.

(ii) Remuneration of key management personnel

Year Primary Primary Bonus

Superannuation Equity Total

$ $ $ $ $Gerry McGowan 2007 55,000 - 4,950 52,339 112,289 2006 - - - - -

John de Gouveia 2007 50,000 - 4,500 - 54,500 2006 - - - - -

Michael Warczak 2007 45,000 - 4,050 - 49,050 2006 - - - - -

Yury Brodsky 2007 130,008 15,000 10,800 - 155,808 2006 110,008 - 9,000 - 119,008

Alan McClaren 2007 156,613 15,336 22,698 - 194,647 2006 142,200 - 11,371 - 153,571

Wayne Rudland 2007 - - - - - 2006 120,000 - 5,400 - 125,400

Total Remuneration 2007 436,621 30,336 46,998 52,339 566,294 2006 372,208 - 25,771 - 397,979

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(b) Remuneration of key management personnel (continued)

(iii) Shareholdings of key management personnel

2007

Opening balance 1 July 2006

Granted as remuneration

On exercise of options

Net change other*

Closing balance 30 June 2007

Gerry McGowan 12,588,925 - - 5,000,000 17,588,925 John de Gouveia - - - - -

Michael Warczak 7,530,000 - - 5,000,000 12,530,000 Alan McClaren - - - - -

Yury Brodsky - - - - -

Total 20,118,925 - - 10,000,000 30,118,925

2006



On exercise of options

Net change other*


Gerry McGowan 11,807,015 - - 781,910 12,588,925 John de Gouveia - - - - -

Michael Warczak 7,530,000 - - - 7,530,000 Alan McClaren - - - - -

Yury Brodsky - - - - -

Total 19,337,015 - - 781,910 20,118,925 On 15 June 2007, the Company held an EGM which approved the issue of 200,000 ordinary shares at 5 cents each to Alan McClaren and 200,000 ordinary shares at 5 cents each to Yury Brodsky in accordance with their executive contracts of employment. As at balance date, none of the shares had been issued.

* The column heading “Net change other” during the 2007 year relates to an acquisition of shares by way of a share placement, approved by members at the Annual General Meeting held on 29th November 2006

* The column heading “Net change other” during the 2006 year relates to shares acquired via an on-market transaction.

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(b) Remuneration of key management personnel (continued) (iv) Option holdings of key management personnel (ASX Listed “CBDO”)

2007



Net change other*


Gerry McGowan - - - - John de Gouveia - - - - Michael Warczak 500,000 - (500,000) - Alan McClaren - - - - Yury Brodsky - - - - Total 500,000 - (500,000) -

2006



Net change other*


Gerry McGowan - - - - John de Gouveia - - - - Michael Warczak 500,000 - - 500,000 Alan McClaren - - - - Yury Brodsky - - - - Total 500,000 - - 500,000

For period of responsibility, refer to note 26(a). Net change other refers to options purchased, sold or lapsed during the financial year.

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Page 49



(b) Remuneration of key management personnel (continued) (v) Unlisted option holdings of key management personnel (expiring 30 June 2011 exercisable at 10 cents) 2007



Net change other*


Gerry McGowan - 2,500,000 - 2,500,000 John de Gouveia - 2,500,000 - 2,500,000 Michael Warczak - 2,500,000 - 2,500,000 Alan McClaren - - - - Yury Brodsky - - - - Total - 7,500,000 - 7,500,000

2006



Net change other*


Gerry McGowan - - - - John de Gouveia - - - - Michael Warczak - - - - Alan McClaren - - - - Yury Brodsky - - - - Total - - - -

On 15 June 2007, the Company held an EGM which approved the issue of 15,000,000 incentive options to Gerry McGowan. The incentive options are exercisable at 25 cents on or before 30 June 2011. As at balancing date, none of the incentive options had been issued. The incentive options were subsequently issued by the Company to Mr McGowan on 24th August 2007. For period of responsibility, refer to note 26(a). Net change other refers to options purchased, sold or lapsed during the financial year.

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Page 50



(v) Contracts of employment

Specified Executives Details

Alan McClaren

Managing Director/CEO Parmac Airconditioning


Alan McClaren is employed by Parmac Airconditioning and Mechanical Services Pty Ltd under a contract of employment. The length of the contract was 3 years from 1 January 2004 to 1 January 2007, with a period of notice of 3 months required to terminate the contract. The contract was renewed on 1 January 2007 and will continue to 1 January 2012.

The base contract amount is $ 150,000 pa plus $30,000 superannuation component, plus a car allowance of $10,000 pa (total package $190,000). Alan is also entitled to a once only provision of shares in CBD Energy Limited to the value of $10,000 (being 200,000 ordinary shares issued at 5 cents each)



Yury Brodsky

Managing Director/CEO CapTech


Yury Brodsky is employed by Capacitor Technologies Pty Ltd under a continuing contract of employment. The length of the initial contract was for 1 year from 1 December 2003 to 1 December 2004, with a period of notice of 1 month required to terminate the contract. A new contract was signed on 1 January 2007 and will continue until 30 June 2012.

The base contract amount is $140,000pa plus the superannuation guarantee levy, plus a car allowance of 10,000pa (total annual package $162,600). Yury is also entitled to a once only provision of shares in CBD Energy Limited to the value of $10,000 (being 200,000 ordinary shares issued at 5 cents each)



In addition the company utilises electrical contracting services offered by Brodpower Pty Ltd , a company in which Yury Brodsky has a ownership interest.

The service contract with Brodpower Pty Ltd operates on a revenue share basis whereby CapTech makes a 25% margin on all electrical installation work outsourced to Brodpower Pty Ltd.

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Page 51


NOTE 27 - ASSETS PLEDGED AS SECURITY

The consolidated entity does not hold title to the equipment under finance lease pledged as security. Apart from this, the consolidated entity did not have any other assets pledged as security in relation to financial liabilities at balancing date.

However, prior to balance date, Westpac Banking Corporation Ltd held a fixed and floating charge over all the assets of the consolidated group. Following the repayment of all loan to Westpac Banking Corporation during the year, all fixed and floating charges held by Westpac Banking Corporation over the consolidated group were subsequently discharged on 17 April 2007.

NOTE 28 – AUTHORISATION

The financial report was authorised for issue on 28 September 2007 by the Board of Directors.

NOTE 29 – COMPANY DETAILS The registered office of the company is: Suite 2 Level 2 53 Cross Street Double Bay NSW 2028 The principal places of business are: CBD Energy Limited Suite 2 Level 2 53 Cross Street Double Bay NSW 2028 Capacitor Technologies Pty Limited Unit 13 40 Edina Road Ferntree Gully VIC 3156 Parmac Air Conditioning & Mechanical Services Pty Ltd 160-162 Pakington Street Kew VIC 3156 Remote Area Power Systems Pty Ltd 54 Skarratt Street Silverwater NSW 2265

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Page 52

DIRECTORS’ DECLARATION

In accordance with a resolution of the Directors of the Company, the Directors declare that:

1. the financial statements and notes, as set out on pages 16 to 51, are in accordance with the Corporations Act 2001 and:

A. comply with Accounting Standards and the Corporations Regulations 2001; and

B. give a true and fair view of the financial position as at 30 June 2007 and of the performance for the year ended on that date of the company and consolidated group;

2. the Chief Executive Officer and Chief Financial Officer have each declared that:

A. the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

B. the financial statements and notes for the financial year comply with the Accounting Standards; and

C. the financial statements and notes for the financial year give a true and fair view.

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

This declaration is made in accordance with a resolution of the Board of Directors.

Gerry McGowan Chairman Sydney 28 September 2007

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Documents

For personal use only - ASX2007/09/28 · The Board acts on behalf of and is accountable to shareholders. The Board seeks to identify the expectations of shareholders, as well as