THE MANAGER COMPANY ANNOUNCEMENTS OFFICE ASX LIMITEDDear Sir,re...

THE MANAGER COMPANY ANNOUNCEMENTS OFFICE ASX LIMITEDDear Sir,re : FINANCIAL REPORT AND ANNUAL GENERAL MEETING Hawthorn Resources Limited and its Controlled Entities for year ended 30 June 2008 (A)FINANCIAL REPORT Enclosed for release to the market is the audited Financial Report for the year ended30 June 2008 and incorporating:Directors’ Report inclusive of the Remuneration Report Corporate Governance Statement Consolidated Income Statement Consolidated Balance SheetConsolidated Statement of Cash Flows Consolidated Statement of Changes in EquityNotes to the Financial Statements Directors’ Declaration Auditors’ Report and Independence Declaration (B) ANNUAL GENERAL MEETING (“AGM”) The 2008 AGM of Autron Corporation Limited is to be held on Friday 28 November 2008: Time :10.00 a.m.Place : Level 2, 90 William Street, Melbourne Vic 3000Yours faithfullyHawthorn Resources Limited per Mourice Garbutt Company Secretary haw\asx\financial report 30 06 08 ABN 44 009 157 439 Level 2, 90 William StMelbourne Victoria 3000AustraliaTelephone: +61 3 9605 5950Facsimile: +61 3 9605 5999Email: [email protected]
Page 2
HAWTHORN RESOURCES LIMITED ABN 44 009 157 439 (formerly Great Gold Mines NL) FINANCIAL REPORT 2008
Page 3
Hawthorn Resources Limited Chairman’s Report 1 Dear Shareholder This is the first Report to shareholders following the successful implementation of the Schemes of Arrangementbetween the Company and the security holders of Ellendale Resources NL (“Ellendale”) as completed on 10June 2008 with the issue by the Company of the 654,135,744 ‘Scheme’ shares. Arising from the merger of the Company and Ellendale, Hawthorn Resources Limited (“Hawthorn”) is now anAustralian diversified base metals, including iron ore, and gold explorer with strategic and significant tenement holdings throughout the Eastern Goldfields of Western Australia, South Australia and Queensland. As reportedin the recently distributed Shareholder Update the combined entity now has a strong portfolio of managed andjoint venture projects through Hawthorn itself and its subsidiary companies Ellendale and Northern Resources Australia Pty Ltd. The September Shareholder Update is the forerunner of what will be a periodical report to shareholders andwhich will enable shareholders to receive information, on activities in a more detailed form, more quickly than inthe Annual Report. In future, the Annual Report will concentrate on the circulation of the required statutoryreporting detail whereas the periodic Shareholder Updates will provide regular ‘field’ activity information. Inaddition, the Company has upgraded its website which can be visited at www.hawthornresources.comThe Company has also put in place a facility whereby shareholders can register to receive electronic notification of announcements. Exploration Activities Since the merger with the Ellendale group the Company has accelerated the exploration programme for ironore in the Mt Bevan Project in Western Australia with an RC drilling programme and ground gravity samplingsurvey. Details of this programme and the early assays can be found in the September Shareholder Updatetogether with a summary of the Hawthorn group’s other exploration areas. MARK KERRChairmanMelbourne, 30 September 2008
Page 4
Hawthorn Resources Limited Directors’ Report 2 The Directors of Hawthorn Resources Limited present their report for the year ended 30 June 2008. 1.DirectorsThe Directors of the Company in office since 1 July 2007 and up to the date of this Report are: Mr Mark G Kerr LL.BChairman and Non-Executive Director – Appointed 22 November 2007Mr Mark Kerr is a director of Ellendale Resources Pty Ltd. He specializes in public relations and reputationmanagement consultancy. Mr Kerr has served as a member of a number of public company boards. Mr M E Elliott Non-Executive Director – Appointed 22 November 2007 Mr Mark Elliott is a non-executive director of Spotless group Limited and of Ellendale Resources Pty Ltd. Mr Elliott is a former partner of the international law firm Minter Ellison specializing in corporate and securities law and a former director of E*trade Limited, Oakton Limited and Mineral Deposits Limited and a former director of legal counsel of Computershare Limited.Dr David Tyrwhitt - PhD(Geology) BSc(Hons) FSEG(USA) FAusIMM CPGeo Non-Executive DirectorDr Tyrwhitt has been a Director of the Company since 1996. He has more than 40 years experience in themining industry. He is currently a Director of Astro Diamond Mines N.L. (November 1996 to current), Quantum Resources Limited (November 1999 to current), Golden River Resources Corporation (November 1996 tocurrent) and Legend International Holdings Inc., (March 2005 to current). He worked for over 20 years withNewmont Mining Corporation in Australia, South East Asia and the United States. During this time, he was responsible for the discovery of the Telfer Gold Mine in Western Australia. He was Chief Executive ofNewmont Australia Limited between 1984 and 1988 and Chief Executive Officer of Ashton Mining Limitedbetween 1988 and 1991. He established his own consultancy in 1991 and worked with Normandy MiningLimited on a number of mining projects in South East Asia. Age 70Directors since 1 July 2007 and up to the date of this Report who have resigned are:Mr Joseph Gutnick FAusIMM FAIM MAICD – resigned 22 November 2007Chairman and Managing Director Mr Mordechai Gutnick – resigned 22 November 2007 Non-Executive Director2.Principal Activities and Review and Results of OperationsHawthorn Resources Limited (“Hawthorn”) is now an Australian diversified base metals and gold explorer withstrategic and significant tenement holdings throughout the Eastern Goldfields of Western Australia, SouthAustralia and Queensland. As reported in the recently distributed Shareholder Update the combined entity now has a strong portfolio of managed and joint venture projects through Hawthorn itself and its subsidiarycompanies Ellendale and Northern Resources Australia Pty Ltd. This review includes comments up to the dateof this report.The principal activity of the Company during the financial year was mineral exploration. There has been nosignificant change in the nature of that activity during the financial year. Objectives The Company’s objective is to increase shareholder wealth through successful exploration activities whilst providing a safe workplace and ensuring best practice in relation to its environmental obligations.
Page 5
Hawthorn Resources Limited Directors’ Report 3 Income Statement As an exploration company, the Company does not have an ongoing source of revenue. Its revenue stream isnormally from ad-hoc tenement disposals and interest received on cash in bank. In the current year, revenuehas increased from $89,991 in 2007 to $93,625 in 2008. In both years the revenue has been interest received. Other income in 2008 amounted to $57,023 being an amount received from a joint venture partner on enteringinto the joint venture. There was no comparable amount in 2007. Costs and expenses totalled $1,197,355 in 2008 compared to $2,183,059 in 2007. Exploration expenditurewritten off in 2007 was $1,127,859 compared to $286,189 in 2008. A number of granted exploration licencesand tenements were forfeited and reapplied for as mining leases, and the applications are pending and accordingly the exploration expenditure has been written off. Administration expenses increased from $799,413 in 2007 to $942,591 in 2008, primarily relating to the net of the increase in management fees and salaries charged by AXIS Consultants Pty Ltd and consultants. Other expenses decreased from $252,420 in 2007 to$27,096 in 2008, primarily relating to the decrease in the number of the shares and options issued toconsultants for work undertaken on behalf of the Company in 2006. In 2008, financing costs reduced from$3,367 in 2007 to $nil in 2008 as the Company’s interest bearing debt was repaid during the year. Balance Sheet The Company has cash in bank at 30 June 2008 of $3,749,723, receivables of $75,531 and available for salesecurities of $26,734,350 and current liabilities of $197,309. At 30 June 2008, the Company had working capital of $3,629,492 and net assets of $36,638,526. Cash Flow During the year, the Company used $229,616 in operating activities, paid $959,385 for exploration activities, and raised new equity capital of $4,255,312. As a result, the Company has cash in bank at 30 June 2008 of $3,749,723. 3.Significant Change in State of Affairs The Directors are of the opinion that other than that disclosed in the Principal Activities section of the Directors’Report and the merger of the Company’s exploration tenements with those of the Ellendale group following theSchemes of Arrangement, there has not been any significant change in the state of affairs of the Companyduring the year under review. 4.Dividends The Directors do not recommend the payment of a dividend and no amount has been paid or declared by wayof dividend since the end of the previous financial year and up to the date of this Annual Report. 5.Events After The End Of The Financial Year In the interval between the end of the financial year and the date of this Report the Company has continued andaccelerated its exploration activities, most noticeably in the Mt Bevan Project in Western Australia, save for theencouraging assay reports and the indicative potential of the area there are no items, transactions or events of a material and unusual nature which in the opinion of the Directors of the Company, has significantly affected ormay significantly affect •the operations of the Company•the results of those operations, or •the state of affairs of the Companyin financial years subsequent to this financial year.
Page 6
Hawthorn Resources Limited Directors’ Report 4 6.Future Developments and Results There are no likely developments of which the Directors are aware other than as disclosed in the PrincipalActivities section of the Annual Report which could be expected to significantly affect the results of the Company’s operations in subsequent financial years. 7.Options At the date of this Report the Company had on issue the following listed and unlisted options over fully paidordinary shares.(i) Listed Number Maturity Date Issue Price Exercise Price Exercise Period 13,716,71322 September 2010 No issue price A$1.25Anytime after 1 January 2001. During the year and up to the date of this Report, no options over fully paid ordinary shares have beenexercised and no options over fully paid ordinary shares were issued. Optionholders have no rights toparticipate in an issue of shares unless they exercise their options. The names of all the persons who currentlyhold options are entered on a register maintained for the Company, by Link Market Services Limited. Inaccordance with the Corporations Act 2001, this register may be inspected free of charge. Number Maturity Date Issue Price Exercise Price Exercise Period 13,569,42230 April 2012No issue priceA$0.20Anytime after 1 January 2003. During the year and up to the date of this Report, no options over fully paid ordinary shares have beenexercised and no options over fully paid ordinary shares were issued. Optionholders have no rights to participate in an issue of shares unless they exercise their options. The names of all the persons who currentlyhold options are entered on a register maintained for the Company by Link Market Services Limited. In accordance with the Corporations Act 2001, this register may be inspected free of charge. Number Maturity Date Issue Price Exercise Price Exercise Period 165,084,231 28 February 2013No issue priceA$0.10Anytime after During the year and up to the date of this Report, no options over fully paid ordinary shares have beenexercised and no options over fully paid ordinary shares were issued. Optionholders have no rights to participate in an issue of shares unless they exercise their options. The names of all the persons who currentlyhold options are entered on a register maintained for the Company, by Link Market Services Limited. In accordance with the Corporations Act 2001, this register may be inspected free of charge. (ii) Unlisted Number Maturity Date Issue Price Exercise Price Exercise Period 0 19 October 2011nilA$0.10Under Terms and Conditions ofthe employee share option planDuring the year under review 8,000,000 options over fully paid ordinary shares lapsed upon termination ofemployment.. Accordingly there are no holders of 19 October 2011 options Number Maturity Date Issue Price Exercise Price Exercise Period 10,000,00025 January 2018nilA$0.10Under Terms and Conditions ofthe resolution of shareholder inGeneral Meeting in January2008employee share option planDuring the year and up to the date of this Report, the Company has issued 10,000,000 options over fully paidordinary shares and 8,000,000 options lapsed upon termination of employment.. Options granted to Directors and Officers of the Company during the year and up to the date of this report arenoted above and are set out in the Remuneration Report.
Page 7
Hawthorn Resources Limited Directors’ Report 5 8.Directors’ Interests in Shares and OptionsThe declared relevant interest of each Director in the number of fully paid ordinary shares and options over fullypaid ordinary shares of the Company disclosed by that Director to the ASX Limited as at the date of this Report is: DirectorRelevant InterestOrdinarySharesOptions 25/01/2018Options Options Options M G Kerr109,300,906 5,000,0009,428,000M E Elliott 93,855,4065,000,000---D S Tyrwhitt- --- -9.Meetings of Directors The number of meetings of Directors held including meetings of Committees of the Board during the financial year including their attendance was as follows: B OARD A UDIT C OMMITTEE R EMUNERATION C OMMITTEE E LIGIBLETO A TTEND A TTENDED E LIGIBLETO A TTEND A TTENDED E LIGIBLE TO A TTEND A TTENDED M G Kerr7 7 D S Tyrwhitt97 11 --M E Elliott 7 7J I Gutnick3 3- - - - M Z Gutnick 3 3- - - - Note: Mr. M.Z. Gutnick was a member of the Audit Committee and Remuneration Committee during the year and up to the date of his resignation in November 2007. 10. Company SecretaryMr M Garbutt, appointed in May 2008, is the Company Secretary of the Company and its subsidiaries. Mr Garbutt is a Member of the Australian Society of Accountants, a Fellow of Chartered Secretaries Australia Ltd.and is a Justice of the Peace in Victoria. He has over 30 years commercial experience and currently conducts a corporate compliance and company secretarial company providing such services to a number of public and listed companies Australia including Hawthorn Resources Limited group. As such, Mr Garbutt is not a directemployee of the Company and does not receive remuneration from the Company11. Directors and Officers’ IndemnityThe Company has entered into an Indemnity Deed with each of the Directors and with certain former Directors which will indemnify them against liability incurred to a third party (not being the Company or any relatedcompany) where the liability does not arise out of conduct including a breach of good faith. The Indemnity Deedwill continue to apply for a period of 10 years after a Director ceases to hold office and a Director’s Access andInsurance Deed with each of the Directors pursuant to which a Director can request access to copies ofdocuments provided to the Director whilst serving the Company for a period of 10 years after the Directorceases to hold office. There will be certain restrictions on the Directors’ entitlement to access under the deed. 12. Environment The exploration activities of the Hawthorn group are conducted in accordance with and controlled principally byAustralian state and territory government legislation. The group has extensive exploration land holdings inAustralia. The Company employs a system for reporting environmental incidents, establishing and communicating accountability, and rating environmental performance. During the year data on environmentalperformance was reported as part of the monthly exploration reporting regime. In addition, as required understate legislation, procedures are in place to ensure that the relevant authorities are notified prior to thecommencement of ground disturbing exploration activities.
Page 8
Hawthorn Resources Limited Directors’ Report 6 The Company is committed to minimising the impact of its activities on the surrounding environment at thesame time aiming to maximise the social, environmental and economic returns for the local community. To this end the environment is a key consideration in our exploration activities and during the rehabilitation of disturbedareas. Generally rehabilitation occurs immediately following the completion of a particular phase of exploration.In addition the Company continues to develop and maintain mutually beneficial relationships with the localcommunities affected by its activities. 13. Non- Audit Services During the year PKF, the Company’s auditor, has not performed other services in addition to their statutory duties. A copy of the auditors independence declaration as required under Section 307C of the Corporations Act is attached to the Directors’ Report. Details of the amounts paid to the auditor of the Company, PKF, and its related practices for audit and non-audit services provided during the year are set out below. 2008$ 2007$Statutory audit Auditors of the Company- audit and review of financial reports (PKF)50,00026,700Other services – PKF - -Auditors of Ellendale Group - -- audit and review of financial reports (KPMG) 37,99817,179Other services1,500 7,359Total fees paid 98,49851,23814. Remuneration Report (i) Overview of Remuneration Policies – audited Up to 31 March 2008 the Company was, as in past years, managed by AXIS Consultants Pty Ltd (“AXIS Consultants”) pursuant to a Service Deed dated 25 November 1988. In accordance with the arrangement withAXIS Consultants, it provides company secretarial, finance, geology, exploration, IT and other services to theCompany. As a result, the Company had no employees. Key management personnel had authority and responsibility for planning, directing and controlling the activitiesof the Company, including Directors of the Company and other Executives. Key management personnelincluded the five most highly remunerated S300A Directors and Executives of the Company.Remuneration levels for Directors of the Company were competitively set to attract and retain appropriatelyqualified and experienced Directors. The Remuneration Committee obtains independent advice on theappropriateness of remuneration packages given trends in comparative companies and the objectives of the Company’s remuneration strategy, when appropriate. The remuneration structures explained below are designed to attract suitably qualified candidates, reward theachievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account:
Page 9
Hawthorn Resources Limited Directors’ Report 7 the capability and experience of the Directors; the Directors ability to control the Company’s performance;the Company’s performance including: − the Company’s earnings − the growth in share price and returns on shareholder wealth For the period July 2007 to March 2008 Axis Consultants Pty Ltd was paid a total of $775,132 before GST. The Company entered in to a service arrangement with Berkeley Consultants Pty Ltd (“Berkeley Consultants”)effective from 1 April 2008 to replace the AXIS Consultants Pty Ltd agreed services described above, onsubstantially the same terms and conditions. Berkeley Consultants Pty Ltd now provides to all group companies the services previously provided by AXIS Consultants Pty Ltd. This arrangement with Berkeley Consultants represented a related party transaction with both Mr Elliott and MrM Kerr having a material personal interest in the transactions through their prescribed interests in Berkeley Consultants Pty Ltd. Given the nature of the related party interest in this matter Mr D Tyrwhitt, as a non-related non-executivedirector reviewed and approved the provision of serviced office facilities and executive functions offered to theHawthorn Resources group of companies by Berkeley Consultants Pty Ltd noting the terms and procedures set out in Section 195 of the Corporations Act.In considering the services to be provided Mr Tyrwhitt noted the following: (i) an initial proposed term from 1 April 2008 to 30 September 2009 and thereafter on a month tomonth basis (ii) the terms proposed are similar to the previous AXIS Consultants arrangement being on arms length commercial terms (iii)the proposal includes provision of serviced offices with reception, boardroom and otherfacilities as required(iv) the arrangement of executive functions but excluding audit and corporate secretarial functions, for a ten (10) per cent management fee (v)fees will be payable quarterly in arrears(vi) the NRA fee arrangement will cease and there will be no further payment of EllendaleResources directors fees beyond 30 June 2008. Pursuant to the above arrangement, fees paid to Berkeley Consultants for the period ended June 2008amounted to $99,956 before GST.
Page 10
Hawthorn Resources Limited Directors’ Report 8 The Company’s performance during the current year and over the past four years has been as follows: 2008 $ 2007$ 2006$ 2005$ 2004$ Revenue 93,62589,99153,259362,235 55,575Net profit (loss) (1,212,932)(1,983,866)(2,289,961) (1,851,289) (2,343,332Basic earnings per share (0.26)(0.53)(0.85) (0.91) (2.06) Diluted earnings per share(0.26)(0.53)(0.85) (0.91) (2.06) Net assets (deficiency)36,638,5267,759,0099,407,2764,665,974 289,890 The Directors do not believe the financial or share price performance of the Company is an accurate measurewhen considering remuneration structures as the Company is in the mineral exploration industry. Companies inthis industry do not have an ongoing source of revenue, as revenue is normally from ad-hoc transactions. The more appropriate measure is the identification of exploration targets, identification and/or increase of mineral resources and reserves and the ultimate conversion of the Company from explorer status to miningstatus. (ii) Service Agreements with AXIS Consultants Pty Ltd - auditedUp to November 2007 Messrs JI Gutnick and MZ Gutnick and Dr DS Tyrwhitt did not have a contract for theirservices as Directors. Their remuneration and fees were paid to them by AXIS Consultants Pty Ltd, based onamounts agreed by the Company.Similarly, Mr. Peter Lee, Company Secretary, did not have a contract of employment with the Company. His services are provided to the Company through the service arrangements with AXIS Consultants Pty Ltd. Thisservice contract with AXIS Consultants Pty Ltd is for an unlimited term and was capable of termination on two months notice. Mr K Washburn Manager Exploration also does not have a contract of employment with the Company. His services were also provided to the Company through the service arrangements with AXIS Consultants Pty Ltd (iii) Management Services – Berkeley Consultants Pty LtdAs described in Note (i) above. (iv)Non-Executive Directors - audited Total remuneration for all Non-Executive Directors, last voted upon by shareholders at the 1999 AGM, is not toexceed $200,000 per annum. The aggregate of current Directors’ base fees is $100,000 per annum. Non-Executive Directors do not receive performance related remuneration. Directors’ fees cover all main boardactivities and membership of board committee. Non-Executive Directors do not receive any benefits onretirement. (v)Performance-Linked Remuneration - auditedPerformance linked remuneration focuses on long-term incentives and was designed to reward keymanagement personnel for meeting or exceeding their objectives.
Page 11
Hawthorn Resources Limited Directors’ Report 9 Long-Term Incentive2005 Employee Share Option PlanAt the Annual General Meeting of the Company held in November 2005, shareholders of the Companyapproved the introduction of the Hawthorn Resources Limited 2005 Share Option Plan (“the Plan) and the issueof options under the Plan to the Directors at the time. The Plan was introduced to assist in the reward, retention and motivation of eligible persons.The key components of the Plan and conditions imposed by the Board for the initial issue of options were thatthe options will have no issue price; the exercise price of the options will be an amount as determined by theBoard and will be not less than the market price for one share on the date the Board decides to invite aparticipant to apply for options; the Board can determine the exercise conditions (if any) to apply prior to aparticipant being able to exercise the options; if the exercise condition is met, the participant (subject tocontinuing to be an eligible participant) is able to exercise the options at any time for a period of 3 years afterthe vesting period; the number of options that can be on issue under the Plan is 5% of the issued number ofshares in the Company at the date of an invitation or grant of an option (for this purpose, the 5% is calculatedas the number of shares the subject of options the Board proposes to issue an invitation or proposes to grant; the number of shares which would be issued if all offers or options to acquire unissued shares pursuant to this Plan or any other employee share option plan were accepted or exercised; the number of shares issuedpursuant to the Plan in the last 5 years; and the number of shares issued during the last 5 years pursuant toany other employee share scheme of the Company); if the employment of a participant is terminated before theend of the vesting period, the options held by that participant will lapse, except where a participant has ceasedto be employed due to death or mental incapacity (in such circumstances the Board has the ability to allow thelegal personal representative of the participant to exercise the option on the terms set by the Board at the time). In the case of termination after the vesting period, the participant has one month to exercise the optionotherwise it lapses; the Board will also have the discretion to have the options expire if it determines that a participant has acted fraudulently, dishonestly or in a manner which is in breach of his or her obligations to theCompany or a subsidiary of the Company; participants will have their entitlements in respect of options heldadjusted to take account of capital reconstructions and bonus issues as if the option has been exercised beforethe determination of entitlement in respect of these issues. If the Company makes a pro rata rights issue toshareholders, the exercise price of an option will be reduced according to the formula specified in the AustralianSecurities Exchange (“ASX”) Listing Rules; and in the case of a change of control, options are immediately exercisable notwithstanding exercise conditions or the vesting period. For the initial grant of options, the Directors resolved that the exercise price will be the weighted averageclosing price of shares sold on ASX on the 5 trading days immediately preceding the offer of options to a Participant (but if no shares were sold on ASX during that 5 day period the exercise price of an option is to bedetermined by the Board to be equal to the closing price of shares sold on ASX on the last trading day on whichthe shares were traded) multiplied by up to 200 percent; the options cannot be exercised for 2 years from grant. The options were issued without a specific performance hurdle given the current conditions for attracting and retaining staff in the highly competitive resources market. However a share price hurdle has effectively beenbuilt into the options to align shareholders interests with participants’ interests. The options were valued by an external consultant as at grant date using the binomial option pricing model andthe following inputs: Grant date19 October 2006Grant date share price$0.06Vesting date19 October 2008Expected life in years 3.5Risk-free rate 5.91%Volatility75%Exercise price $0.10Fair value of option$0.027
Page 12
Hawthorn Resources Limited Directors’ Report 10 The following table discusses options that have been issued to key management personnel under the Plan. MZ Gutnick – Non-Executive Director Resigned 22 November 2007 2008 2007 Date of issue 19 October 2006 19 October 2006 Number of options 2,000,000 2,000,000 Issue price Nil Nil Exercise price $0.10 $0.10 Value of options$54,000 $54,000 Expiry date 19 October 2011 19 October 2011 Number of options vested during the year Nil Nil % vested in year 0% 0% % forfeited in year 100% 0% Value yet to vest (unaudited) - minimumNil Nil - maximum Nil $126,000 Number of options on issue - at 1 July2,000,000 Nil - at 30 June Nil 2,000,000 PJ Lee – General Manager Corporate & Company Secretary2008 2007 Date of issue 19 October 2006 19 October 2006 Number of options 2,500,000 2,500,000 Issue price Nil Nil Exercise price $0.10 $0.10 Value of options$67,500 $67,500 Expiry date 19 October 2011 19 October 2011 Number of options vested during the year Nil Nil % vested in year 0% 0% % forfeited in year 100% 0% Value yet to vest (unaudited) - minimumNil Nil - maximum Nil $157,500 Number of options on issue - at 1 July2,500,000 Nil - at 30 June nil 2,500,000 K Washburn – Manager Exploration (resigned February 2007) 2008 2007 Date of issueNil 19 October 2006 Number of options Nil 1,500,000 Issue price Nil Nil Exercise price Nil $0.10 Value of optionsNil $40,500 Expiry date Nil 19 October 2011 Number of options vested during the year Nil Nil % vested in year Nil 0% % forfeited in year Nil 100% Value of options at date of forfeiture Nil Nil Value yet to vest (unaudited) Nil - minimumNil N/A - maximum Nil N/A Number of options on issue Nil - at 1 JulyNil Nil - at 30 June Nil Nil
Page 13
Hawthorn Resources Limited Directors’ Report 11 M G Kerr – Chairman Appointed 22 November 2007 2008 2007 Date of issue 25 January 2008 Nil Number of options 5,000,000 Nil Issue price Nil Nil Exercise price $0.10 Nil Value of options$126,000 Nil Expiry date 25 January 2018 Nil Number of options vested during the year Nil Nil % vested in year 0% Nil % forfeited in year 0% Nil Value yet to vest (unaudited) Nil - minimumNil Nil - maximum Nil Nil Number of options on issue Nil - at 1 JulyNil Nil - at 30 June 5,000,000 Nil M E Elliott– Non-Executive Director Appointed 22 November 2007 2008 2007 Date of issue 25 January 2008 Nil Number of options 5,000,000 Nil Issue price Nil Nil Exercise price $0.10 Nil Value of options$126,000 Nil Expiry date 25 January 2018 Nil Number of options vested during the year Nil Nil % vested in year 0% Nil % forfeited in year 0% Nil Value yet to vest (unaudited) Nil - minimumNil Nil - maximum Nil Nil Number of options on issue Nil - at 1 JulyNil Nil - at 30 June 5,000,000 Nil 1.Details concerning the valuation methodology and key assumptions made in the option valuations are set out on the preceding pages. 2.The minimum value of options yet to vest is $nil as the vesting conditions have not been met and consequently the option may not vest. 3.The maximum value of options yet to vest is not determinable as it depends on the market price of shares of the Company at the date the options are exercised, and whether the price hurdles are met during the vesting period. The maximum value shown are based on the assumptions that the share price on the date the option is exercised does not exceed $0.063 for the grants issued on 19 0ctober 2006. These share prices represent a maximum price included in the volatility assumptions within the valuation of the options.4.Unless otherwise disclosed, no options were exercised and no options lapsed in the year. During the year, 2,000,000 and 2,500,000 non-vested options granted to Messrs J I Gutnick and P J Lee respectively on 19 October 2006, under the 2005 Employee Share Option Plan lapsed and were cancelledfollowing their resignations and cessation of their executive positions with the Company.Details of Directors, Executives and Remuneration - audited As noted in section (i), management services are provided to the Company by AXIS Consultants Pty Ltd. AXIS Consultants Pty Ltd pays the Chairman and Managing Director’s remuneration and Non-Executive Directors’fees on behalf of the Company, based on pre-agreed amounts. AXIS Consultants invoices the Company forremuneration paid to the Company’s Executives (not being Directors) based on the time the Executive spends in servicing the requirements of the Company. AXIS Consultants has provided the following information inregard to the amounts invoiced to the Company for the Directors and Executives in respect of all remuneration(as that term is defined in the Corporations Act 2001) received by the Directors and/or Executives in connectionwith the management of the affairs of the Company.
Page 14
Hawthorn Resources Limited Directors’ Report 12 The names of the Directors and Executives in office during the year are as follows:-(a) Directors M G Kerr – Chairman and Non-Executive Directors (appointed 22 November 2007) M E Elliott – Non-Executive Director (appointed 22 November 2007)J I Gutnick – Chairman and Managing Director (resigned 22 November 2007)D S Tyrwhitt – Non Executive DirectorM Z Gutnick – Non Executive Director (resigned 22 November 2007) (b) ExecutivesP J Lee – General Manager Corporate & Company Secretary(resigned 5 May 2008) M Garbutt – Company Secretary (appointed 5 May 2008) Details of the nature and amount of each major element of remuneration of each Director of the Company andof each Executive of the Company are: PrimaryPost-employment Equity compensationTotal$s300A (1)(e)(i) Proportion ofremuneration performance related % s300A (1)(e)(vi) Value ofoptions asproportion of remuneration %Salary& fees$ Non-monetarybenefits $ Super- annuation $ Value ofoptions$ Directors M G Kerr 2008 70,000- 52,500122,500 43.03 43.03 2007 - - - - - - - M E Elliott2008 70,000- 52,500122,500 43.03 43.03 2007 - - - - - - - J I Gutnick2008 2007 95,0832,287 13,915 - 111,285 - - D S Tyrwhitt2008 2007 15,000- 1,350 - 16,530 - - M Z Gutnick2008 2007 15,000113 1,350 18,78935,252 53.353.3 Total all Directors 2008 2007140,000125,083- 2,400- 16,615 105,00018,789245,000 163,067Executives P J Lee 2008 2007 33,7122,700 6,666 23,48666,564 35.335.3 K Washburn 2008 - - - - - - - 2007 45,5752,034 4,183 - 51,792 - - M Garbutt 2008 - - - - - - - 2007 - - - - - - - Total, all Executives 2008 2007- 79,287- 4,734 - 12,849 - 23,486- 118,356 - - Total all Directors 2008 140,000- - 105,000245,000 & Executives2007 204,3707,134 27,464 42,275281,243
Page 15
Hawthorn Resources Limited Directors’ Report 13 There were no short term cash bonuses, post employment prescribed benefits, termination benefits orinsurance premiums paid during 2007 or 2008. Signedinaccordance with a resolutionoftheBoardofDirectors at Melbournethis 30th day of September 2008.Mark Kerr Chairman
Page 16
Page 17
15DIRECTORS' DECLARATION The directors of Hawthorn Resources Limited declare that: (a) in the directors’ opinion the financial statements and notes and the remuneration disclosures that are contained in the Remuneration report in the Directors’ Report are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and the consolidated entity’s financial position as at30 June 2008 and of their performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian AccountingInterpretations) and Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in the notes and(c) the remuneration disclosures that are contained in the Remuneration report in the Directors’ report comply with Australian Accounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001; and(d) there are reasonable grounds to believe that the company will be able to pay its debts as and when theybecome due and payable.The directors have been given the declarations by the chief executive officer and chief financial officer for thefinancial year ended 30 June 2008, required by Section 295A of the Corporations Act 200. Signed in accordance with a resolution of the directors. Dated at Melbourne 30 th September 2008 Mark KerrChairman
Page 18
Page 19
Hawthorn Resources LimitedCorporate Information 18The main corporate governance practices that the Board of Hawthorn Resources Limited had in place duringthe year were: 1. Board of Directors i.Board Responsibilities The Board’s role is to maximize wealth creation and shareholder value in the Company. Itassumes responsibility for overseeing the affairs of the Company by ensuring that they are carried out in a professional and ethical manner and that business risks are effectivelymanaged. The primary responsibilities of the Board include the following: • To oversee the Company, including its control and accountability systems • To appoint and remove the Chief Executive Officer (or equivalent)• To ratifying the appointment and, where appropriate, the removal of the Chief Financial Officer (or equivalent) and the Company Secretary• To have input into and final approval of management’s development of corporate strategyand performance objectives • To review and ratify systems of risk management and internal compliance and control, codes of conduct, legal compliance and any other regulatory compliance • To monitoring senior management’s performance and implementation of strategy, and ensuring appropriate resources are available• To approve and monitor the progress of major capital expenditure, capital management, and acquisitions and divestitures• To approve and monitor financial and other reporting to shareholders and the market • To monitor the Board composition, Director selection, Board processes and performance and ensure Directors have an understanding of the Company’s business • To monitor and influence the key standards of the Company including ethical standards, reputation and culture • To review and approve executive remuneration • To approve annual budgets ii. Board Composition While the Company’s Constitution fixes the maximum number of Directors at twelve, the Board currently comprises three Non-Executive Directors. The Company does not have a majority of independent Directors. The Chairman of the Company has declared a substantial shareholding of the Company’s shares and is not independent in accordance with the ASX Corporate Governance Council definitions and recommendations. In considering the best interests of the Company and its shareholders, the background and experience of the Chairman should not preclude him from the office of Chairman of the Board on the grounds of him being a substantial shareholder. The Board believes the experience in the industry that the Company operates in that Mr M G Kerr brings to the Company is invaluable and is in the best interests of all shareholders. Similarly, Mr M E Elliott is a substantial holder of the Company’s shares and is, accordingly, not considered to be an independent director. To ensure that it has the right mix of management skills and technical expertise to meet the challenges of its business, the Board regularly reviews its composition. The Board believes that at the current stage of the Company’s development, the composition is adequate. However, it continues to assess the need to enhance the membership of the Board and is cognisant of the ASX Corporate Governance Council definitions and recommendations. iii. Appointment/retirement of Directors The Company’s Constitution requires that all Directors other than the Managing Directorsubmit themselves for re-election every three years with not less than one third of the Board retiring by rotation. Directors appointed during the period since the last Annual General Meeting of the Company must submit themselves for election at the next Annual General Meeting.
Page 20
Hawthorn Resources LimitedCorporate Information 19iv.Board Meetings The full Board meets formally to conduct appropriate business. The Board uses resolutions in writing signed by all Directors to deal with matters requiring decisions between meetings. Such resolutions are then ratified at the next Board meeting. v.Directors’ Remuneration Where applicable, total remuneration for the Executive Director includes an annual salary andother entitlements. Attendance at and participation in Board and Committee meetings are considered among the duties of the Executive Director. Non-Executive Directors receive fees for attending Board and Committee meetings. Pro-rata fees are paid to Non-Executive Directors who serve for less than a full year. None of the Directors or the Company Secretary have letters of appointment. However, the Company is in the process of preparing appropriate letters of appointment.vi. External Advice to Directors The Company recognises that in the exercise of their responsibilities there may be occasions when Directors may wish to seek independent professional advice. With the prior consent of the Chairman, advice can be obtained at the Company’s expense and is to be madeavailable to the whole Board.2.Board CommitteesThe Board has Committees to address the areas of remuneration and audit. i.Remuneration Committee The Company has a Remuneration Committee and has an independent Chairperson, who is not Chairperson of the Board. It does not have at least three members all of whom areindependent for the reasons set out above. The Company currently only has oneindependent Director and he is a Chairman of the Remuneration Committee. The Company’s does not use short-term incentives as part of an executive’s remuneration package however; it does use long-term incentives as part of an executive’s remuneration package. The Remuneration Committee meets to review remuneration policies and practices of the Company, to ensure that they meet current market conditions. The Committee draws on the experience of Senior Management and where appropriate, seeks the advice of external consultants. The Remuneration Committee has a formal charter.ii. Audit CommitteeThe Audit Committee comprises only non-executive Directors and has an independent Chairperson, who is not Chairperson of the Board. It does not have at least three members all of whom are independent, for the reasons set out above. The Company currently only has one independent Director and he is a Chairman of the Audit Committee. The Audit Committee meets to plan and review annual and half-yearly financial statements and reports prior to their release to the Australian Securities Exchange. The Committee also monitors the performance of the Company’s Auditors and for evaluation of the adequacy and effectiveness of internal controls. The external Auditor is invited to attend and speak at these meetings. The Audit Committee has a formal charter.iii. Nomination Committee The Company does not have a Nomination Committee. The Board believes that with onlythree Directors on the Board, the Board itself is the appropriate forum to deal with this function.
Page 21
Hawthorn Resources LimitedCorporate Information 203. Role of Management Day to day management of the Company’s activities and the implementation of Board strategy, policyand decisions is delegated to management. This includes the following:• To develop and recommend internal control and accountability systems for the Companyand if approved, ensure compliance with such systems. • To prepare mission systems, corporate strategy and performance objectives for approval by the Board of Directors. • To prepare systems of risk management and internal compliance and controls, codes of conduct, legal compliance and any other regulatory compliance and if approved, ensurecompliance with such systems. • To monitor employees’ performance, recommend appropriate resources and review andapprove remuneration. • To prepare all required financial reports, tax returns, budgets and any other appropriate financial reports, meet all statutory deadlines, monitor performance against budgets. • Prepare recommendations on acquisitions and divestments of assets. • To implement decisions of the Board of Directors on key standards of the Companycovering such areas as ethical standards, reputation and culture of the Company andinfluence and provide guidance for employees on these areas. • To protect the assets of the Company.4. Risk ManagementThe Company continues to monitor its operations to identify the greatest areas of potential risk to minimise any adverse effects on the Company’s strategic, operational and financial activities. i. Environment Details of the environmental policy and other related matters are provided in the Environment section of the Directors’ Report. ii. Occupational Health and SafetyThe Company is committed to providing a safe and healthy working environment for all staff. It considers that safety is a collective responsibility and ensures that regular training in safe working methods is undertaken and encourages participation and involvement in the development of workplace safety programs. Individual employees and employees of contractors are required to practice safe working habits, to take all reasonable care to prevent injury to themselves and their colleagues and to report all hazards and accidents. New staff and contractors (where appropriate) are required to undergo an induction program to familiarise themselves with policies, procedures and work practices prior to commencing work. All staff are covered against injury under the various Workers’ Compensation Acts. iii.Financial Reporting The Chairman and Company Secretary sign off to the Board of Directors in respect to theannual financial statements and risk management policies as required by law and the ASX Corporate Governance Council “Principles of Good Corporate Governance and Best Practice Recommendations”. 5. Code of Conduct i. Ethical Standards The Company operates under a code of conduct that sets out the ethical standards under which the Company operates when dealing with internal and external parties. This coderequires parties to act with integrity, fairness and honesty in all dealings and to treat other parties with dignity at all times. They are required to:
Page 22
Hawthorn Resources LimitedCorporate Information 21• not discriminate against any staff member or potential employee; • carry out their duties in respect to the law at all times; • to use the Company’s assets responsibly;• to respect the confidentiality of the Company’s business dealings; and• take responsibility for their own actions and for the consequences surrounding their own actions. ii. Share Trading It is the Company’s policy to encourage Directors, employees and related parties to own Shares in the Company. The trading in shares policy strongly reinforces the obligations of Directors and employees, both of the Company and AXIS Consultants Pty Ltd, under the Corporations Act 2001 and the Australian Securities Exchange Listing Rules in relation to trading in Company shares. The acquisition and sale of Company shares by Directors and employees is restricted to periods of fourteen (14) days immediately following announcements of the Company’s periodically, half yearly and full year reports to the Australian Securities Exchange. Directors, employees and related parties can seekpermission from the Chairman to purchase or sell shares outside this 14-day period.Directors and employees are required to report share trading to the Company Secretary.6. Continuous Disclosure Compliance The Company’s continuous disclosure compliance procedure enables it to meet its obligations and toensure that all matters, which may require announcement to the Australian Securities Exchange, are brought to the attention of Directors immediately.7. Communicating with Shareholders The Board ensures that shareholders are kept informed of all major developments that affect their shareholding or the Company's state of affairs through periodical, half-yearly, annual and ad hoc reports. All shareholders are encouraged to attend the Annual General Meeting to meet the Chairman and Directors and to receive the most updated report on Company activities. The auditors of the Company attend the annual general meeting for the purpose of answering any questions onthe annual financial statements and audit thereof, properly brought before the meeting.The Company maintains a website at www.hawthornresources.com provide shareholders with up to date information on the Company’s activities. Shareholders may also communicate with the Company through its e-mail address [email protected] Company does not web-cast shareholder meetings and does not believe that at this stage the cost-benefit of web casting is worthwhile to a Company of its size.
Page 23
Hawthorn Resources Limited Income StatementFor the Year Ended 30 June 2008 1Consolidated Company2008200720082007Note $ $$ $RevenueFinance revenue2104,55832,24893,62589,991Gain on Consolidation Gain on Disposal of Assets 3 404,131-- -- 1,498 - -Other income 2 66567,78057,023-509,354100,028152,146 89,991Exploration expenditure written off -(6,803)(286,189) (1,127,859)Administration expenses (894,776)(452,092)(942,591) (799,413)Other expenses3(555)(38,681)(27,096) (252,420)Finance costs 2(60)-- (3,367)Loss before income tax (386,037)(397,548)(1,103,730) (2,093,068)Income tax benefit 4 --(109,202) 109,202Loss for the period after tax from continuing operations (386,037)(397,548)(1,212,932) (1,983,866)Loss attributable to members(386,037)(397,548)(1,212,932) (1,983,866)Earnings per share CentsCentsBasic loss per share for the year attributable to ordinary equityholders (0.057)(0.061)Diluted loss per share for the yearattributable to ordinary equityholders (0.057)(0.061)The income statements are to be read in conjunction with the accompanying notes to the attached financial statements.
Page 24
Hawthorn Resources LimitedBalance Sheet as at 30 June 2008 2ConsolidatedCompany200820072008 2007Note$ $ $ $ASSETS Current Assets Cash and cash equivalents 63,761,9072,082,3013,749,723 551,841Receivables 7 100,235164,35975,531310,179Other current assets 8 9,3181,9071,547 2,022Total Current Assets3,871,4602,248,5673,826,801 864,042Non-Current AssetsOther Financial Assets 9 601,27870,61926,734,3501,031,048Exploration expenditure 1023,103,91615,549,7066,916,943 5,957,558Plant and equipment 1149,30169148,79031,133Total Non-Current Assets23,754,49515,621,01633,700,0837,019,739TOTAL ASSETS 27,625,95517,869,58337,526,8847,883,781LIABILITIESCurrent Liabilities Trade and other payables 12300,224308,983197,309 124,772Provision for employee benefits -12,698- -Total Current Liabilities 300,224321,681197,309 124,772Non-Current Liabilities Interest bearing borrowings13--691,049 -Total Non-Current Liabilities --691,049 -TOTAL LIABILITIES300,224321,681888,358 124,772NET ASSETS 27,325,73117,547,90236,638,5267,759,009EQUITY Share capital1434,057,76423,855,63785,792,05455,371,312Reserves151,420,5871,458,8491,393,858 1,772,151Retained losses (8,152,620)(7,766,584)(50,547,386)(49,334,454)TOTAL EQUITY27,325,73117,547,90236,638,5267,759,009The balance sheet is to be read in conjunction with the accompanying notes to the attached financial statements
Page 25
Hawthorn Resources LimitedCash Flow Statement for the Year Ended 30 June 2008 3ConsolidatedCompany200820072008 2007Note$ $ $ $Cash flows from operating activities Payments in the course of operations (982,101)(286,455)(1,064,291)(944,723)Interest received104,55832,24892,62589,106Borrowing costs paid --- (3,367)Net cash (used in) operating activities 18(877,543)(254,207)(920666))(858,984)Cash flows from investing activities Payments for explorationexpenditure(705,210)(130,355)(959,385)(1,695,175)Recovery from joint venture partner/refunds -862- 17,816Acquisition of plant andequipment(9,284)-(26,863)(3,011)Loans to other entity-341,635- (210,822)Proceeds from sale of investments -158,434 -Acquisition of HawthornResources – net of cash required 183,271,163-- -Net cash (used in) investing activities 2,556,669212,142(827,814)(1,891,192)Cash flows from financing activities Proceeds from issue of shares 4801,460,9554,255,312 -Payment of share issue costs(136,099)-(16,458)Proceeds from borrowings --691,049 400,000Repayment of borrowings--- (1,080,395)Net cash provided by financing activities 4801,324,8564,065,347 (696,853)Net increase in cash and cash equivalents 1,679,6061,282,7913,197,882 (3,447,029)Cash and cash equivalents at beginning of period2,082,301799,510551,841 3,998,870Cash and cash equivalents atend of period 6 3,761,9072,082,3013,749,723 551,841The cash flow statement is to be read in conjunction with the accompanying notes to the attachedfinancial statements.
Page 26
Hawthorn Resources LimitedStatement of Changes in Equity for the Year Ended 30 June 2008 4Issued Capital $Accumulated Losses $ Reserves $ TotalEquity$ CONSOLIDATED At 30 June 20068,655,637 (7,369,036) - 1,286,601Loss for the period- (397,548) - (397,548)Net gain on available-for-sale investments - - (500) (500)Shares Issued through NRA acquisition 15,200,000--15,200,000Options Granted1,595,448 1,595,448Capital raising costs - options - - (136,099) (136,099)At 30 June 200723,855,637(7,766,584) 1,458,849 17,547,902Loss for the period- (386,037) - (386,037)Issue of share capital481 - - 481Net gain on available-for-sale investments - - (38,262) (38,262)Shares deemed to be issued as aresult of scheme of arrangement 10,201,646--10,201,646At 30 June 200834,057,764(8,152,621) 1,420,587 27,325.730COMPANY At 30 June 200655,371,312(47,350,588)1,386,5529,407,276Loss for the period- (1,983,866) -(1,983,866)Net gain on available-for-saleinvestments --364,008 364,008Share-based payments charge- - 80,79380,793Income tax - - (109,202)(109,202)At 30 June 200755,371,312(49,334,454)1,722,151 7,759,009 Loss for the period- (1,212,932) -(1,212,932)Issue of share capital 30,665,429- -30,665,429Share issue costs (244,687) (244,687)Net gain on available-for-saleinvestments - - (461,702)(461,702)Share-based payments charge- - 24,20724,207Income tax --109,202 109,202At 30 June 200885,792,054(50,547,386)1,393,858 36,638,526 The statement of changes in equity is to be read in conjunction with the accompanying notes to the attachedfinancial statements.
Page 27
51.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (a)Reporting EntityHawthorn Resources Limited (the “Company”) is a company domiciled in Australia. The financial report includes separate financial statements for Hawthorn Resources Limited as anindividual entity and the consolidated entity of consisting of Hawthorn Resources Limited and its controlled entities. The financial report was authorised for issue by the Directors on 30 September 2008. (b) Basis of preparation The financial report is presented in Australian dollars. The financial report has been prepared on a historical cost basis, except for the revaluation of available-for-sale financial assets that have been measured at fair value in accordance with Australian Accounting Standards. The preparation of a financial report in conformity with Australian Accounting Standards requiresmanagement to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements aboutcarrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only thatperiod, or in the period of the revision and future periods if the revision affects both current and futureperiods. Judgements made by management in the application of Australian Accounting Standards that have a significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in note 1(d)(xviii). The accounting policies set out below have been applied consistently to all periods presented in the financial report. (c)Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance withAustralian Accounting Standards (‘AASBs’) (including Australian Interpretations) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRSs). Compliance with AIFRSs ensures that the consolidated and parent financialstatements and notes comply with International Financial Reporting Standards (IFRSs). (d) Summary of significant accounting policies (i) Foreign currency translation Transactions in foreign currencies are initially recorded in the functional currency at the exchangerates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences in the financial report are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.
Page 28
61.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (ii) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to theCompany and the revenue can be reliably measured. Finance InterestInterest revenue is recognised as the interest accrues. (iii) Finance costs Financing costs comprise interest payable on other payables and borrowings. Interest is recognised as an expense when incurred. (iv) LeasesOperating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. (v) Cash and cash equivalentsCash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. (vi)Other receivablesOther receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount isno longer probable. Bad debts are written off when identified. Receivables from other entities are recognised and carried at nominal amount due. Interest istaken up as revenue on an accrual basis. (vii) Impairment of assetsThe Company assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required,the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined for anindividual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets and the asset’s value in use cannot be estimated to beclose to its fair value. In such cases the asset is tested for impairment as part of the cash-generating unit to which it belongs. When the carrying amount of an asset of a cash-generating unit exceeds its recoverable amount, the asset or cash generating unit is impaired and is written down to its recoverable amount.In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of moneyand the risks specific to the asset. Impairment losses relating to continuing operations are recognised in those expense categories consistent with the function of the impaired asset unless the asset is carried at revalued amount (in which case the impairment loss is treated as a revaluation decrease). An assessment is also made at each reporting date as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss isreversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceedthe carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in income statement unless the asset is carried at revalued amount, in which case the reversal is
Page 29
71.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (vii) Impairment of assets (Cont’d) treated as a revaluation increase. After such a reversal the depreciation charge is adjusted infuture periods to allocate the asset’s revised carrying amount, less any residual value, on asystematic basis over its remaining useful life. (viii) Income tax Current tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current tax is the expected tax payable on the taxable income for the period. The Company has not derived taxable income in either the current or previous periods. Deferred income tax is determined using the balance sheet method which calculates temporarydifferences on the carrying amounts of assets and liabilities for financial reporting purposes and theamounts used for taxation purposes. Unrecognised deferred income tax assets are reassessed at each balance date and arerecognised to the extent that it has become probable that future taxable profit will allow thedeferred asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to applyto the year when the asset is realised or the liability is settled, based on tax rates (and laws) thathave been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised in equity and not in theincome statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists toset off current tax assets against current tax liabilities and the deferred tax assets and liabilities to the same taxable entity and the same taxation authority. (ix)Other taxesRevenues, expenses and assets are recognised net of the amount of GST except: •where the GST incurred on a purchase of goods and services is not recoverable from thetaxation authority, in which case the GST is recognised as part of the cost of acquisition ofthe asset or as part of the expense item as applicable; and•receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part ofreceivables or payables in the balance sheet.Cash flows are included in the cash flow statement on a gross basis and the GST component ofcash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, orpayable to the taxation authority.(x) InvestmentsAll investments are initially recognised at cost, being the fair value of the consideration given andincluding acquisition charges associated with the investment.
Page 30
81.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (x) Investments (Cont’d) After initial recognition, investments, which are classified as held for trading and available-for-sale, are measured at fair value. Gains or losses on investments held for trading are recognised in theincome statement. Gains or losses on available-for-sale investments are recognised as a separate component ofequity until the investment is sold, collected or otherwise disposed of, or until the investment isdetermined to be impaired, at which time the cumulative gain or loss previously reported in equity isincluded in the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to thecurrent market value of another instrument which is substantially the same or is calculated basedon the expected cash flows of the underlying net asset base of the investment. Purchases and sales of financial assets that require delivery of assets within the time framegenerally established by regulation or convention in the market place are recognised on the tradedate i.e. the date that the Company commits to purchase the asset. (xi)Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulatedimpairment losses (see accounting policy (vii)). Depreciation is charged to the income statement on a straight line basis over the estimated usefullife of the assets. The estimated useful life of motor vehicles is between 3 and 5 years. The asset’s residual values, useful lives and amortisation methods are reviewed and adjusted if appropriate, at each financial year end.When an asset’s carrying value is increased as a result of a revaluation, the increase is, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, credited directly to revaluation reserve. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is, except to the extent of any credit balance existing in the revaluation reserve in respect of that asset, recognised in the income statement.The revaluation surplus is transferred directly to retained earnings when the asset is derecognised. (xii) Exploration Exploration expenditure is capitalised for each separate area of interest where rights to tenure are current and:(a) such costs are expected to be recovered through successful development and exploitation orby sale; or (b) where activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in relation to the area are continuing. Ultimate recoupment of exploration expenditure carried forward is dependent on successfuldevelopment and commercial exploitation, or alternatively, sale of the respective areas.
Page 31
91.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (xii) Exploration (Cont’d) The carrying values of expenditures carried forward are reviewed for impairment at each reportingdate when the facts, events or changes in circumstances indicate that the carrying value may beimpaired. Accumulated expenditures are written off to the income statement to the extent to whichthey are considered to be impaired.The key points that are considered in this review include: •planned drilling programs and data evaluation•environmental issues that may impact the underlying tenements •the estimated market value of assets at the review date.Information used in the review process is rigorously tested to externally available information asappropriate.(xiii) Joint venture operations The interest of the Company in unincorporated joint ventures are brought to account by recognising in its financial statements the assets it controls, the liabilities it incurs and the expenses it incurs inrelation to the joint venture. (xiv) Trade and other payables Trade and other payables are stated at cost. Payables due to Other Entity are recognised at cost. Interest incurred is taken up as a finance cost. (xv) Interest-bearing borrowings Interest-bearing borrowings are recognised at cost. After initial recognition interest-bearingborrowings are stated at amortised cost with any difference between cost and redemption value, if any, being recognised in the income statement over the period of the borrowings on an effectiveinterest basis. (xvi) Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects the risks specific to the liability. (xvii) Share-based paymentsShare-based compensation benefits are provided to employees, Directors, officers or consultants of the Company or an associated body corporate and such other persons nominated by theDirectors under the Hawthorn Resources Limited 2005 Share Option Plan which allows participants to acquire shares of the Company.The fair value of options granted is recognised as an expense with a corresponding increase inequity. The fair value is measured at grant date and spread over the period during which theparticipants become unconditionally entitled to the options. The fair value of the options granted ismeasured using the binomial option pricing model, taking into account the terms and conditionsupon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that are expected to vest at each balance sheet date. (xviii) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of newshares and options are shown in equity as a deduction, net of tax, from the proceeds.
Page 32
101.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (xix) Accounting estimates and judgements Management discussed with the Audit Committee the development, selection and disclosure of theCompany’s critical accounting policies and estimates. The estimates and judgements that have asignificant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below Key sources of estimation uncertaintyNote 1(d)(xii) contains information about the assumptions and their risk factors relating toexploration expenditure impairment. (xx) Principles of Consolidation SubsidiariesThe consolidated financial statements comprise those of the Company, and the entities it controlledat the end of, or during, the financial year. The company and its controlled entities together arereferred to in this financial report as the consolidated entity.The balances and effects of transactions between entities in the consolidated entity included in the financial statements have been eliminated. Where an entity either began or ceased to be controlledduring the year, the results are included only from the date control commenced or up to the datecontrol ceased. The accounting policies adopted in preparing the financial statements have beenconsistently applied by entities in the consolidated entity. The acquisition of Ellendale Resources NL (“Ellendale”) on 10 June 2008 was treated as a reverseacquisition in accordance with AASB 3 “Business Combinations” whereby Ellendale is consideredthe accounting acquirer on the basis that Ellendale is the controlling entity in the transaction. As a result, Ellendale is the continuing entity for consolidated accounting purposes and the legal parentHawthorn Resources Limited is the accounting subsidiary. Investments in subsidiaries are accounted for at cost in the individual financial statements ofHawthorn Resources Limited. (xxi) New and Revised Accounting Standards and Interpretations Adoption of new accounting standard The Group has adopted AASB 7 Financial Instruments; Disclosures and all consequentialamendments which became applicable on 1 January 2007. The adoption of this standard has onlyaffected the disclosure in these financial statements. There has been no affect on profit and loss or the financial position of the entity. The following standards, amendments to standards and interpretations have been identified asthose which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2008, but have not been applied in preparing this financial report: •Revised AASB 101 Presentation of Financial Statements introduces as a financial statement (formerly “primary” statement) the “statement of comprehensive income”. The revised standard does not change the recognition, measurement or disclosure of transactions and events that are required by other AASBs. The revised AASB 101 will become mandatory forthe Company’s 30 June 2010 financial statements. These amendments are only expected to affect the presentation of the Company’s financial report. •Revised AASB 123 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised AASB will become mandatory for the Company’s 30 June 2010 financial statements. TheCompany has no borrowing costs associated with qualifying assets and as such the amendments are not expected to have any impact on the Company’s financial report.
Page 33
111.BASIS OF PREPARATION OF FINANCIAL STATEMENTS (Cont’d) (d) Summary of significant accounting policies (Cont’d) (xxi) New and Revised Accounting Standards and Interpretations (Cont’d) •AASB 2208-1 Amendments to Australian Accounting Standards – Share-based Payment: Vesting Conditions and Cancellations changes the measurement of share-based payments that contain non-vesting conditions. AASB 2008-1 becomes mandatory for the Company’s 30 June 2010 financial statements. The Company has not yet determined the potential effect of the amending standard on the Company’s financial report. (e) Financial risk management The Company’s principal financial instruments comprise receivables, payables and cash. Theseactivities expose the Company to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Although the Company does not have documented policies and procedures, Managementmanages the different types of risks to which it is exposed by considering risk and monitoring levels of exposure to interest rate and foreign exchange risk and by being aware of market forecasts forinterest rate, foreign exchange and commodity prices. Ageing analyses and monitoring of specificcredit allowances are undertaken to manage credit risk, liquidity risk is monitored through generalbusiness budgets and forecasts. (f) Capital Management The Company’s policy in relation to capital management is for management to regularly and consistently monitor future cash flows against expected expenditures. The Board determines the Company’s need for additional funding by way of either share placements or loan funds dependingon market conditions at the time. Management defines working capital in such circumstances as its excess liquid funds over liabilities, and defines capital as being the ordinary share capital of theCompany.There were no changes in the Company’s approach to capital management during the year. 2.SEGMENT INFORMATION The principal business and geographical segment of the Company is mineral exploration within Australia. 3.REVENUE AND EXPENSES Loss before income tax expense includes the following revenues and expenses whose disclosure is relevant in explaining the performance of the Company: Consolidated Company2008 200720082007Note$ $$ $(i) Finance revenue Interest 104,558 32,248- -Other Entity 20 - -3,143 28,992Other - -90,48260,999Total finance revenue 104,558 32,24893,62589,991(ii) Other income Sale of Securities Rates refunds Foreign Currency GainShares issued pursuant to farm-in arrangement - - - - - 861 3,440 63,479 57,440- - - - - - - Sundry income 665 -(417) -
Page 34
12Consolidated Company2008 200720082007Note$ $$ $3.REVENUE AND EXPENSES (Cont’d) Total other income665 67,78057,023-(iii)Finance Costs Related parties 20- --865 Other 60- -2,502 Total other income60- -3,367 (iv)Gain on Disposal of Assets Profit on sale of office eqt. - - 1,498 - Total gain on Disposal ofAssets - - 1,498 - (v) Gain on Acquisition via Scheme of Arrangement 404,131 - - - (vi) Other expensesListing expenses in Canada – Toronto Venture Exchange775 - 2,465 19,647Reversal of sale of available-for-sale assets - - - 151,200Employee share optionplan amortisation- - 24,20780,793Impairment of available-for-sale assets (220) - 424 780Total expenses555 - 27,096252,420(vii) Auditor’s remuneration PKF38,000-50,00026,700Other services 1,500-- -KPMG 37,99843,879- -Other services-7,359- -Total auditor’s remuneration77,49851,23850,00026,7004.TAXATION (a) Income tax expense Prima facie income tax benefit calculated at 30% on the loss 237,050119,264 331,119 627,920(Decrease) increase inincome tax benefit due to: Deferred tax asset not recognised (219,189)(119,264) -(283,364)Consultants overseas fees& expenses (227)- -(5,894)Exploration expenditure --(85,857)(158,120)Interest expense ---(751)Capital – consultants (15,131)- -(48,000)Legal expenses (2,503)--(228)Employee benefits ---(24,238)Capital Diminution--(127)-Reversal of prior year tax benefit -- (354,337) -Other sundry items --1,877 Income tax benefit/(expense)- -(109,202) 109,202
Page 35
13Consolidated Company2008 200720082007Note$ $$ $4.TAXATION (Cont’d) (b) Amounts charged or credited directly to equityDeferred income tax related to itemsAvailable-for-sale investments (109,202)109,202Income tax expense reported in equity-109,202(c) Recognised deferred tax assets and liabilities Deferred tax liabilities Available-for-sale investments -109,202 Set-off of deferred tax losses -109,202 (d) Deferred tax asset not recognisedThe deferred tax asset in respect of tax losses of the Company for the year has not been recognised as anasset in the financial statements as the realisation of the benefit is not probable.Deferred tax asset has been calculated at 30%. The potential deferred tax asset not recognised is as follows: Revenue losses 7,978,5667,128,79816,909,905 15,519,563Capital losses 2,3992,3991,089,0951,089,0955.EARNINGS PER SHARE Basic earnings per share The calculations of basic earnings per share is calculated as follows: Profit/(Loss) for the year (386,037)(397,458)Consolidated 2008 2007Number of sharesNumber of sharesWeighted average number of ordinary shares at the end of the financial period681,748,406654,135,744Earnings Per Share (cents)(0.057)(0.061)Diluted earnings per share 202,370,366 (year ended 30 June 2007: 200,970,366) options at reporting date were not dilutive as theconversion would result in a reduced loss per share.
Page 36
14Consolidated Company2008 200720082007Note$ $$ $6.CASH AND CASH EQUIVALENTS Cash at bank 3,761,9072,082,3013,749,723 551,4817.RECEIVABLES CURRENTNon-trade receivables Other Entity---211,501Other 100,235164,35975,53198,678100,235164,35975,531310,1798.OTHER CURRENT ASSETS CURRENTPrepayments 9,3181,9071,548 2,0229.OTHER FINANCIAL ASSETS Listed shares at fair value Available for saleinvestments At fair value 20600,44070,619568,083 1,029,785Investments at fair value through the Income Statement 201,773,137-1,773,137 1,773,562Less impairment write-down 20(1,772,299)-(1,772,299) (1,772,299) Unlisted shares Other t cost 1-1 1 less Impairment Write-Down(1)-(1) (1) Investment in subsidiary--26,165,429-601,27870,61926,734,3501,031,04810.EXPLORATION EXPENDITURE Areas in the exploration phase At cost23,103,91615,549,7066,916,943 5,957,55811. PLANT AND EQUIPMENT Plant and equipment Cost Balance at 1 July917 91740,91238,252Other Acquisitions 67,775 - 26,8632,660Balance at 30 June 68,692 91767,77540,912
Page 37
15Consolidated Company2008 200720082007Note$ $$ $11. PLANT AND EQUIPMENT (Cont’d)DepreciationBalance at 1 July406 439,779 1,068 Depreciation/adjustment charge for the year18,985 1839,206 8,711 Balance at 30 June 19,39122618,9859,779Carrying Amounts At 1 July511 87431,13337,184At 30 June 49,301 69148,79031,13312. TRADE AND OTHER PAYABLES Other trade payables and accrued expenses 20300,224 308,983197,309 124,772300,224 308,983197,309 124,77213. INTEREST BEARING BORROWINGS NON-CURRENT Unsecured borrowingRelated Party20-691,049 - 14. SHARE CAPITAL Opening Balance23,855,6378,655,637 55,371,31255,371,312Issued via exercise of options July 2007 481 - - - Issued via acquisition of Northern Resources Australia at fair value - 15,200,000- - Issued December 2007for cash pursuant to share placement (3.5c per share)- - 1,960,000 - Issued January 2008 for cash pursuant to share placement (3.5c per share)- - 2,540,000 - Issued June 2008 per the scheme of Arrangement - - 26,165,429-Reverse Acquisition adjustment 10,201,646 - - - Transaction costs on share issue - - (244,687) - Balance at Year End 34,057,764 23,855,63785,792,05455,371,312
Page 38
16Consolidated Company2008 200720082007No. of SharesNo. of SharesNo. of Shares No. of Shares 14. SHARE CAPITAL (Cont’d)Opening Balance159,544,683 79,544,683375,359,658 375,359,658Issued via exercise of options July 2007 3,288 - - - Issued via acquisition of Northern Resources Australia at fair value - 80,000,000- - Issued December 2007for cash pursuant to share placement (3.5c per share)- - 56,000,000-Issued January 2008 for cash pursuant to share placement (3.5c per share)- - 72,571,428-Issued June 2008 per the scheme of Arrangement - - 654,135,744 - Reverse Acquisition adjustment 998,518,859 - - - Balance at Year End 1,158,066,830 159,544,6831,158,066,830 375,359,658Terms and Conditions of Issued Capital Ordinary Shares: Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitledto one vote per share at shareholders meetings. In the event of winding up of the Company ordinaryshareholders rank after all other shareholders and creditors and are fully entitled to any proceeds ofliquidation. Options: 13,716,713 options are on issue at an exercise price of $1.25 which, if exercised, will entitle the option holders to 1 fully paid share in the Company for each option. Options not exercised by 22 September 2010 will lapse. 13,569,422 options are on issue at an exercise price of $0.20 per option which, if exercised, will entitle the option holders to 1 fully paid share in the Company for each option. Options not exercised by 30 April2012 will lapse. 165,084,231 options are on issue at an exercise price of $0.10 per option which if exercised, will entitle the option holders to 1 fully paid share in the Company for each option. Options not exercised by 28February 2013 will lapse.Movement in options expiring 28 February 2013No. of Options At 1 July 2006165,084,231 At 30 June 2007165,084,231 At 30 June 2008165,084,231 8,600,000 non-vested employee options on issue at 30 June 2008 at an exercise price of $0.10 peroption have lapsed. Refer Note 16 for details. In January 2008, pursuant to a resolution of shareholders, 10,000,000 options were issued at an exerciseprice of $0.10 per option to directors M. Kerr and M. Elliott.
Page 39
17Consolidated Company2008 200720082007Note$ $$ $15.RESERVES Option premium reserve1,459,3491,459,349 720,775 720,775Fair value reserve (38,762) (500) 568,083 920,583Share option based payment reserve - - 105,000 80,7931,420,5871,458,849 1,393,858 1,722,151Movement in reserves Share option reserveat 1 July 2007 - - 80,793-Fair value share options lapsed - - (80,793) - Amortisation of fair value ofemployee share options - - 105,000 80,793At 30 June 2008- - 105,000 80,793Fair Value reserveat 1 July 2007 (500) - 920,583 665,777Net gain on available-for-salefinancial assets (38,262) (500) (461,702) 364,008Income tax- - 109,202 (109,202) At 30 June 2008(38,762) (500) 568,083 920,583Option premium reserve The option premium reserve represents the amounts contributed for the future right to acquire shares at apre-determined price. The options have an exercise price of 10 cents and a latest expiry date of 28February 2013. Fair value reserve The fair value reserve represents the cumulative net change in the fair value of available-for-saleinvestments until the investment is derecognised. Share based payment reserve The share option reserve represents the accumulated amortisation of the fair value of services provided with respect to employee share options issued. Details of the share option plan are outlined in Note 16. 16. EMPLOYEE BENEFITS Share based payments At the 2005 annual general meeting, the Company established the Hawthorn Resources Limited 2005Share Option Plan which allows employees, Directors, officers or consultants of the Company or anassociated body corporate and such other persons nominated by the Directors to participate in the plan. Grants of options made under this plan are as follows: On 19 October 2006, 10,100,000 options were issued at an exercise price of $0.10. Option holders must remain eligible (which would usually mean remaining eligible person although the Board has some discretion to allow continued participation in the event of an eligible person’s death, mental incapacity, ill health, accident or redundancy) to participate in the plan throughout the two (2) year vesting period and
Page 40
1816. EMPLOYEE BENEFITS (Cont’d) can be exercised at any time following vesting up to 19 October 2011. All options, if exercised, will besettled by physical delivery of the shares.The number and weighted average exercise price of share options is as follows: 20082007Weightedaverage exercise priceNumber of optionsWeightedaverage exercise price Number of optionsOutstanding at the beginning of the period$0.1008,600,000N/A N/AGranted during the period$0.10010,000,000$0.10010,100,000Forfeited during the period$0.1008,600,000$0.1001,500,000Outstanding at the end of the period$0.10010,000,000$0.1008,600,000Exercisable at the end of the period----The options outstanding at 30 June 2008 have an exercise price of $0.10 and a remaining contractual lifeof 9.5 years to January 2018. The value of services received in return for employee share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received ismeasured based on a binomial option pricing model. The contractual life of the option is used as an input into this model. Expectations of early exercise are incorporated into the binomial option pricing model. Consolidated Company2008 200720082007Fair value of shares, options and assumptions Fair value at grant date- - 2.5 cents 2.7 cents Share price at grant date- - 3.7 cents 6.0 cents Exercise price - - 10.0 cents 10.0 cents Expected volatility (estimated average volatility used in the modelling under binomial option pricing model) - - 146% 75% Option life (expressed as weighted average life used in the modelling under binomialoption pricing model) - - 10 years 3.5 years Expected dividends - - Nil Nil Risk-free interest rate (based on Australian Governmentfive-year bond rate at grant date)- - 6.19%5.91%The expected volatility is based on the recent historic volatility of comparable listed companies (calculated based on the mid point remaining life of the share options) adjusted for any expected changes to future volatility due to publicly available information.Employee share options are granted under service conditions. No market or non-market performanceconditions are taken into account in the grant date fair value measurement of the services received.
Page 41
1916. EMPLOYEE BENEFITS (Cont’d) 20082007$ $ Employee expensesShare options grantedTotal expense recognised as employee cost 105,00080,793In the reporting period 8,600,000 options issued under the 1999 employee share option plan at anexercise price of $0.100 per option were cancelled with the consent of the holders. 17. INTEREST IN JOINT VENTURESThe Company has an interest in the following joint ventures:Edjudina – Pinjin (Avoca Resources Limited) 80% 80% Trouser Legs (Gel Resources Pty Limited)70% 70% The principal activity of the joint ventures is mineral exploration.Avoca Resources Limited has a 20% interest that is free carried to decision to mine. Included in the assets and liabilities of the Company are the following assets and liabilities employed in the joint ventures: Consolidated Company2008 200720082007Note$ $$ $Non-Current Assets Exploration expenditure - - 1,210,363 976,716Total Non-Current Assets - - 1,210,363 976,716Total Assets- - 1,210,363 976,716Current Liabilities Trade and other payables - - - 459Total Non-Current Assets - - - 459Total Liabilities - - - 459Included in the Company commitments (note 20) are the following commitments in relation to the jointventures: ExplorationNot later than 1 year - - 312,010 351,130Later than one year but not later than five years - - 696,240 1,069,860Later than five years but not later than twenty one years - - 63,95078,820
Page 42
20Consolidated Company2008 200720082007Note$ $$ $18. CASH FLOW STATEMENTS(a) Reconciliation of loss after tax to net cash used in operating activities Loss for the period after tax (386,037) (397,548) (1,212,932) (1,983,866) Adjustment for:Foreign exchange gain - (3,440) - - (Profit) on disposal of non-current assets - - -(57,440) 151,200Impairment of available-for-sale assets - - - 780Depreciation2,928 1839,2064,046 Share and option based payments -(63,479)- - Employee share optionplan amortisation- - (24,600)80,793Exploration expenditure previously capitalised - 6,803-1,127,859Gain on Consolidation (404,131) - - - Net cash used in operatingactivities before change inassets and liabilities (787,240) (457,481) (1,285,766) (619,188) Change in assets and liabilities: Decrease/(increase) in exploration - (137,035) - - Decrease/(increase) in receivables 100,419 (683) 235,122(124,064) (Decrease)/increase intrade and other payables(190,722)211,499129,978(115,732) Net cash used in operatingactivities (877,543) (383,700) (920,666) (858,984)
Page 43
21Consolidated Company2008 200720082007Note$ $$ $18. CASH FLOW STATEMENTS (Cont’d) (b) Acquisition of EntitiesDuring the year a reverse acquisition was deemed to have occurred. Details of this transaction are: Deemed Purchase consideration 10,201,646 - - - - - - - - - - - - - - Assets and liabilities held atacquisition date:Cash3,271,163 - - - Receivables 49,608 - - - Investments 550,972 - - - Other 12,046 - - - Property, plant and equipment 42,253 - - - Capitalised tenement expenditure 6,849,000 - - - Payables (169,265) - - - Total purchase consideration 10,605,777 - - - Less cash(3,271,163) - - - Net assets acquired 7,334,614 - - - Gain on Acquisition (404,131) - - - Cash flow on acquisition net of cashacquired 3,271,163 - - - Deemed consideration 10,201,646 - - - (c) Non-cash financing and investing activitiesProceeds from borrowings does not include interest of $865 (2007: $115,560) that was capitalisedinto borrowings for the year. (d)Reconciliation of cash For the purpose of the cash flow statement, cash includes cash on hand and in banks. 19. COMMITMENTS (a)Exploration The Company has to perform minimum exploration work and expend minimum amounts of moneyon its tenements. The overall expenditure requirement tends to be limited in the normal course ofthe Company's tenement portfolio management through expenditure exemption approvals andexpenditure reductions through relinquishment of parts or the whole of tenements deemed non prospective. Should the Company wish to preserve interests in its current tenements the amount which may be required to be expended is as follows:
Page 44
22Consolidated Company2008 200720082007Note$ $$ $19. COMMITMENTS (Cont’d) Not later than one year 2,105070 262,2601,571,370 1,850,130Later than one year but not later than five years 4,855,480 72,7883,686,680 7,065,240Later than five years but not later than twenty one years 2,396,410 - 63,91093,7309,356,960 335,0485,321,960 9,009,100The terms and conditions under which the Company has title to its various mining tenements obligeit to meet tenement rentals and minimum levels of exploration expenditure as gazetted by theDepartment of Industry and Resources of Western Australia, as well as Local Government rates and taxes. The "Later than five years but not later than twenty one years" component represents commitments of up to sixteen years in respect of mining licences which are granted for a period of twenty one years, but in common with prospecting licences and exploration licences may be relinquished orsold by the Company before the expiry of the full term of the licence. 20. RELATED PARTIES(a)Key Management Personnel DisclosuresThe key management personnel for the Company during the year are set out as follows:- Directors M Kerr – Chairman and Non Executive DirectorD S Tyrwhitt – Non Executive Director M Elliott – Non Executive DirectorJ Gutnick (retired 22 November 2007)M Gutnick (retired 22 November 2007) Executives P J Lee – General Manager Corporate & Company Secretary (Agreement expired April 2008)Pursuant to the Corporations Act Regulation 2M.3.03 and 2M.6.04, Directors and Executivesremuneration is disclosed in the Remuneration Report in the Directors’ Report of the Annual Report. The key management personnel compensation are as follows:Consolidated Company2008 200720082007Note$ $$ $Short-term employee benefits 211,667 137,87671,667211,504Other long-term benefits 5,062 12,056- - Post-employment benefits - 10,741- 27,464Termination benefits - - - - Share-based benefits 105,000 - 105,000 42,275321,729 160,673176,667 281,243
Page 45
2320. RELATED PARTIES (Cont’d) (b) Equity Holdings and Transactions The number of options over ordinary shares in the company held during the financial year by each director of Hawthorn Resources Limited and other key management personnel of the Group, including their personally related parties, are set out below:2008 Balance atstart of yearGranted as compensation ExercisedOther changes Balance at end of the yearVested andexercisable Unvested Mark Kerr -5,000,000-9,428,00014,428,000 9,428,000 5,000,000Mark Elliott -5,000,000--5,000,000 - 5,000,000D S Tyrwhitt - ------J I Gutnick 72,847,106(72,847,106)- M Z Gutnick 2,102,069 (2,102,069)-P J Lee 2,516,000 (2,516,000)-K Washburn 16,000(16,000)2007 Balance atstart of yearGranted as compensation ExercisedOther changes Balance at end of the yearVested andexercisable Unvested D S Tyrwhitt - ------J I Gutnick 71,047,106 2,000,000(200,000)72,847,10670,847,106 2,000,000M Z Gutnick 102,069 2,000,000-2,102,069-102,069 2,000,000P J Lee 78,0002,500,000(62,000)2,516,00016,000 2,500,000K Washburn* 16,0001,500,000(1,500,000)16,00016,000Fully paid ordinary shares issued by Hawthorn Resources Limited 2008 Held at 1 July2007No. Granted ascompensationNo. Received on exercise of optionsNo. Other changeNo. Held at 30 June 2008 Mark Kerr - - -109,300,906 109,300,906Mark Elliott - - - 93,855,406 93,855,406 D S Tyrwhitt - - -- - J I Gutnick 65,893,110- -(65,893,110) - M Z Gutnick 5,247,026 -- (5,247,026)-P J Lee - - -- - K Washburn* - - -- - 2007 Held at 1 July2006 No. Granted as compensationNo. Received on exercise of optionsNo. Other changeNo. Held at 30 June 2007 D S Tyrwhitt - --- - J I Gutnick 105,404,554--(39,511,444) 65,893,110M Z Gutnick 5,247,026--- 5,247,026 P J Lee - --- - K Washburn- -
Page 46
2420. RELATED PARTIES (Cont’d) (c) Other Key Management Personnel Transactions (i) Certain of the Directors of the Company are also Directors of the following entitiesAXIS Consultants Pty Ltd (“AXIS”) Quantum Resources Limited (“QUR”) Golden River Resources Corporation (“GRR”) Berkeley Consultants Pty Ltd. (“BERKELEY”)Details of transactions with AXIS are as follows: Consolidated Company2008 200720082007Note$ $$ $At year end Receivable (current)- - - 211,501Payable (current)- - - - During the year Fees for managementservices- - 432,039 560,106Fees for geological services - - 343,093 484,385Borrowing costs (receivable)- - (3,143)(28,992)Payments to AXIS- - (771,989) (1,263,625) (ii) Details of transactions with Berkeley are as follows: At year end Receivable (current)- - - - Payable (current)- - - - During the year Fees for managementservices124,957 50,00099,956-21. CONSOLIDATED ENTITIES NameCountry of IncorporationOrdinary Share Consolidated Equity Interest2008 2007 % % Parent entityHawthorn Resources Limited AustraliaControlled entities Ellendale Resources Pty Limited Australia100% - Sunderland Pty Limited Australia100% - Northern Resources Australia Pty LimitedAustralia100% -
Page 47
2522. FINANCIAL RISK MANAGEMENT The Group’s operations expose it to various financial risks including market, credit, liquidity and cash flow risks. Risk management programmes and policies are employed to mitigate the potential adverse effects of these exposures on the results of the Group.Financial risk management is carried out by the Board on a regular basis by reviewing current and potential sources of funding, cashflow and operating/capital expenditure forecasts, to manage credit, liquidity and cash flow risk. (a) Market riskForeign exchange risk The Group’s operations are currently solely within Australia, and therefore are not exposed to any foreignexchange risk. Cash flow and fair value interest rate risk The Group currently has minimal exposure to interest rate risk. As at the reporting date, the Group had no variable rate borrowings, as such the 2008 and 2007 reports would not be impacted by changes in interest rates.Fluctuations in interest rates will not have any material risk exposure to the cash held in bank deposits at variable rates. (b) Credit riskCredit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as exposures to customers, including outstanding receivables. For banks and financial institutions, on major Australian banking institutions are used. For customers, individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on Note 9, page 15. The company does not have any material credit risk exposure to anysingle debtor or group of debtors under financial instruments entered into by the company.(c) Liquidity riskPrudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to closeout market positions. The Group manages liquidity risk by continuously monitoring forecast and actualcash flows and matching the maturity profiles of financial assets and liabilities. The Group aims atmaintaining flexibility in funding by keeping committed credit lines available to meet the Groups needs. 23. MATURITIES OF FINANCIAL LIABILITIES The tables below analyse the Group’s and the parent entity’s financial liabilities into relevant maturitygroupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Group – 30 June 2008 Less than 3 months 3 monthsto 1 year 1 - 5 years5 + Years Total $$ $ $ $Non-Interest Bearing(300,224) (300,224)
Page 48
2623. MATURITIES OF FINANCIAL LIABILITIES (Cont’d) Group 30 June 2007 Less than 3 months 3 months to 1 year 1 - 5 years 5 + YearsTotal $ $ $ $$Non-Interest Bearing(308,983) (308,983)Parent – 30 June 2008 Less than 3 months3 monthsto 1 year 1 - 5 years5 + Years Total $$ $ $ $Non-Interest Bearing(197,309) (197,309)Interest bearing loan(691,049)(691,049)Parent – 30 June 2007 Less than3 months3 months to 1 year 1 - 5 years 5 + YearsTotal $ $$$ $ Non-Interest Bearing(124,772) (124,772)24. FAIR VALUE ESTIMATION The fair value of financial assets and financial liabilities must be estimated for recognition andmeasurement or for disclosure purposes. The carrying value less impairment provision of trade receivables and payables are assumed toapproximate their fair values due to their short term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current marketinterest rate that is available to the Group for similar financial instruments. 25. FINANCIAL INSTRUMENTS (a) Financial Risk Management objective and policiesThe group’s financial instruments consist mainly of fair valuation of net assets and interest rate risks. (b) Sensitivity analysis(i) Interest rate sensitivity risk The group’s Interest rate risk is deemed not to have a material effect on operations. (ii) Liquidity risk sensitivity risk The Group has no significant exposure to liquidity risk. The Group manages liquidity risk by monitoring immediate and forecast cash requirements and ensuring adequate cash reserves are maintained.(iii) Credit risk sensitivity riskThe maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions forimpairment of those assets, as disclosed in the balance sheet and notes to the financialstatements. The consolidated entity does not have any material credit risk exposure to any single receivableor group of receivables under financial instruments entered into by the consolidated entity.
Page 49
2725. FINANCIAL INSTRUMENTS (Cont’d) (b) Sensitivity analysis (Cont’d)(iv) Foreign currency sensitivity risk Foreign currency risk is the risk of exposure to transactions that are denominated in a currency other than the Australian dollar. At 30 June 2008, the group had only a very small exposure toforeign currencies, and therefore no sensitivity analysis has been performed. (v) Interest Rate RiskThe consolidated entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market (vi) Net Fair Values The net fair values of: The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements. (vii)Price Risk Sensitivity Analysis As the company does not derive revenue from sale of products, the effect on profit and equityas a result of changes in the price risk is not considered material. The fair value of the miningprojects will be impacted by commodity price changes (predominantly iron ore, nickel anduranium) and could impact future revenues once operational. However, management monitors current and projected commodity prices. 26. AASB 3 – BUSINESS COMBINATIONS AND CONSOLIDATED FINANCIAL REPORTS In June 2008, Hawthorn Resources Limited and Ellendale Resources Limited entered into a scheme ofarrangement. The result of the scheme was a reverse takeover by Ellendale Resources of HawthornResources Limited. The whole reporting profit/(loss) of the consolidated entity was ($1,998,448), but as a result of the merger, a gain on acquisition of the fair value assets was $1,103,057. The group therefore reported aconsolidated group loss before taxes of ($386,037).