2015 June full year report draft.xlsx

GREENEARTH ENERGY LTD

ACN: 120 710 625 AND CONTROLLED ENTITIES

FINANCIAL REPORT FOR THE YEAR ENDED

30 JUNE 2015

GREENEARTH ENERGY LTD AND CONTROLLED ENTITIES FINANCIAL REPORT FOR THE YEAR ENDED

30 JUNE 2015

TABLE OF CONTENTS

Page

Directors' Report 1

Auditor's Independence Declaration 26

Financial Statements for the year ended 30 June 2015

Consolidated Statement of Comprehensive Income 27

Consolidated Statement of Financial Position 28

Consolidated Statement of Changes in Equity 29

Consolidated Statement of Cash Flows 30

Notes to the Financial Statements 31

Directors' Declaration 76

Independent Auditor's Report 77

The Directors present their report, together with the financial report of the consolidated entity consisting of Greenearth Energy Ltd and the entities it controlled, for the financial year ended 30 June 2015 and auditor's report thereon. This financial report has been prepared in accordance with Australian Accounting Standards.

Directors

The names, qualifications, experience and special responsibilities of each person who has been a director of Greenearth Energy Ltd at any time during or since the end of the financial year are provided below, together with details of the company secretary as at the year end. The directors have been in office since the start of the year to the date of this report unless otherwise stated.

Robert J. Annells CPA, F.Fin. (Chairman)

Mr Annells was appointed Chairman on 1 July 2010. He has held a seat on the board as a non executive director since the company's inception on 13 July 2006. He is a former member of the Australian Stock Exchange with over forty years' experience in the securities industry, and is also a qualified accountant. His experience includes provision of corporate and investment advice to the business and resources industries.

Mr Annells is currently the Chairman of Greenearth Energy Limited (ASX:GER) and Lakes Oil N.L.(ASX:LKO) (where he has served on the board since 1984). He was a non-executive director of Rum Jungle Resources Limited (ASX:RUM) from 2006 to 2015, serving as Chairman from 2012 to June 2014. He was also Chairman of Central Australian Phosphate Limited (ASX:CEN) from July 2013 until its delisting in January 2014 following compulsory acquisition by RUM. During the past three years Mr. Annells has not held any other listed company directorships.

Mr Annells is also a member of the Audit Committee.

John T. Kopcheff B.Sc (Hons) (Geology and Geophysics), SPE, AIMM (Non Executive Director)

Mr Kopcheff was appointed to the Board on the 13 July 2006. He is a geologist and geophysicist, and holds a Bachelor of Science (Honours) from the University of Adelaide (1970). He has extensive petroleum experience in Australia, South East Asia, USA, South America and the North Sea, both in field operations and management.

Mr Kopcheff held the position of Managing Director of Victoria Petroleum Ltd from August 1984 until late July 2010 and continued on their board as Executive Director until resigning on 22 September 2010. He was also a non executive director of Great Panther Silver Limited from August 2001 through to 30 June 2012 when he resigned from the position. Mr Kopcheff is the Chairman of the Audit Committee and the Chairman of the Remuneration Committee.

Directors (continued)

Samuel R. Marks CA, B.Bus. (Managing Director)

Mr Marks was appointed as Managing Director on 1 July 2012. Mr Marks has over 17 years global commercial experience across accounting, consulting, corporate finance and corporate roles. He commenced his career with Coopers & Lybrand (PwC) in the Middle Market team, followed by Arthur Anderson (now KordaMentha) in their advisory/insolvency team.

Prior to founding the Toroso Group (subsequently Main Street Capital) in 2009, Mr Marks completed 7 years within General Electric based in Australia and the United States and was responsible for leading and executing projects across the US, UK, Europe, Australia, China and Hong Kong.

Mr Marks is a Chartered Accountant with a Bachelor of Business and is Six Sigma qualified through General Electric. He is also a director of The Melbourne Foundation, a not-for-profit organisation which provides education opportunities for financially disadvantage youths. Mr Marks has not held any other directorships of listed companies during the three year period prior to 30 June 2015.

Philip Zajac B.Comm, F.Fin (Non Executive Director)

Mr Zajac was appointed to the Board on 4 September 2014, and has over 30 years of commercial experience in the finance industry. He is currently the CFO and an executive director of the Erdi Group of companies, a director of Erdi Fuels Pty Ltd, and a non-executive director of NewCO2Fuels Ltd (Israel).

Mr Zajac is involved in the development, ownership and management of eight hotels in Victoria, Sydney and Brisbane, along with the design and construction of affordable student housing and apartments. He also runs an extensive philanthropy programme across Australia and overseas. No other directorships of listed companies were held at any time during the three years prior to 30 June 2015.

Mr Zajac is also a member of the Remuneration Committee.

Company Secretary

Robert Smith, B.Bus(Acc), CA (Company Secretary)

Mr. Smith is also the Chief Financial Officer of Greenearth Energy Ltd, and has previously held senior financial roles both within industry and within public practice.

Principal activities

The principal activities of the consolidated entity during the financial year were investment in energy efficiency technologies along with other renewable energy research and development projects, and geothermal exploration. There has been no significant change in the nature of these activities during the financial year.

Operating and financial review

A review of the operations of the consolidated entity during the financial year and the results of those operations are as follows:

Results

The consolidated loss after income tax attributable to the members of Greenearth Energy Ltd was

$5,986,012 (2014: $226,112 loss), which included a provision for impairment of $2,152,288 (2014: nil) in relation to the company's geothermal exploration and evaluation assets.

The 2014 net loss also included a $2,161,151 gain recognised on changes to the group's investment in NewCO2Fuels Ltd, for which there was no equivalent gain in the 2015 financial year.

The group's financial performance for the 2015 financial year, as detailed in the accompanying financial report, was influenced by the following drivers:

• Total revenue and other income decreased by 63% to $1,174,016 (2014: $3,142,812), due primarily to a gain on investment of $2,161,151 that was realised in the previous financial year.

• Within total revenue, revenue from completed sales to Vivid Industrial's energy efficiency customers decreased by 4% to $637,176 (2014: $661,297). Orders received during the financial year also included work in hand at 30 June 2015 (for delivery subsequent to balance date), which is not included in sales revenue above but will be recognised as sales revenue in the 2015/2016 financial year.

• Employee benefits expense increased by 76% to $2,076,479 (2014: $1,182,809), due primarily to the addition of experienced sales and operations personnel at Vivid Industrial, establishing a team for significant growth across those capabilities. Employee numbers increased by 83% during the year.

• The carrying amount of the company's geothermal exploration and evaluation assets was reduced to nil in order to provide for the impairment of its Otway and Gippsland areas of interest. This resulted in a non-cash impairment expense of $2,152,288 during the financial year (2013: nil). The company has assessed that, on balance, the current regulatory and political environment is unlikely to enable progression of its Victorian geothermal interests in the near future.

• Share of net losses of associates increased by 92% to $804,066 (2014: $419,850). This non-cash expense represents the group's proportional share of the financial results of its associates for the year. The increase was driven by an increase in the loss reported by NCF, as that business entered the commercialisation phase for its successfully developed and tested CO2-to-fuel conversion technology.

The company issued a total of 49,395,000 shares and 6,200,000 unlisted options during the period ended 30 June 2015.

Review of operations

The 2014/2015 financial year was a year focused on proof-of-concept sites and development of a platform for growth for Vivid Industrial (the group's industrial energy efficiency business), along with the beginning of commercialisation of NewCO2Fuels (the group's CO2-to-fuels technology investment). Further detail regarding each of these businesses is provided in the following pages.

The company's previous geothermal focus is no longer its primary business. All geothermal activities have been put on hold, and the group is now focussed on growing Vivid Industrial and managing its investment in NewCO2Fuels ('NCF').

Strategy execution

Greenearth Energy Limited is a diversified Australian-based industrial group providing technology solutions to the global industrial efficiency and CO2-to-fuel conversion markets.

The group contains the following business units, as reflected in its reported operating segments:

Industrial Energy Efficiency

Technology Investment

Geothermal Energy

A review of each of these business units for the financial year is set out in turn below, followed by a descriptive overview of each business unit.

BUSINESS UNIT UPDATES

Vivid Industrial (Industrial Energy Efficiency)

During the financial year, our Industrial Energy Efficiency business (formerly Greenearth Energy Efficiency) rebranded to Vivid Industrial to better reflect the company's key competency and pedigree as a trusted leader in customised industrial lighting solutions which deliver quantifiable cost efficiencies, energy savings and reduced CO2 emissions. In conjunction with the rebranding, management also invested in hiring sales and project delivery staff in order to drive business growth.

During the year, Vivid Industrial completed both new build and lighting retrofits including the replacement of existing port tower lighting at the Port of Marlborough (New Zealand), Station Pier (Melbourne) and F Appleton Dock (Port of Melbourne), as well as a paid trial in Port Nelson (New Zealand). These opportunities follow on from the successful implementation for Sydney Ports, providing energy savings of over 65%, whilst also delivering twice as much light.

On the new build implementations, sites included a 3G wireless system with off-site monitoring for a large scale warehouse in Perth, WA. Our team looks forward to developing this sector further with our unique product range for indoor, outdoor and street lighting systems which are exceeding expectations.

A Vivid Industrial lighting installation at the rapidly expanding Perth Freight Terminal, WA

As identified in the above case studies, our focus in the financial year was to target large scale users of energy, on the basis that following successes in initial proof-of-concept site upgrades, repeat business across the wider property portfolio of these target customer groups would provide an efficient method of increasing market share in industrial lighting. The results have begun to show that the strategy is being well received by this customer base and we look forward to seeing more results in future periods.

Furthermore, the business concentrated on strengthening its sales opportunity pipeline and growing interest from local and overseas industrial corporations and government organisations, as well as investing more heavily in product development and commercialisation.

Vivid industrial now has a broader range of lighting product and solution offerings, ensuring diversification of its operational reliance across product families. During the year the business also finalised the introduction of its own proprietary industrial lighting product range, and put in place the supply chain capacity to deliver on strong customer demand for the new range next financial year.

Importantly for future scaling up in the next financial year, technology distribution rights held by Vivid Industrial for key lighting technologies were also extended into South East Asia, Africa and North America. Coupled with Vivid Industrial's proprietary technology, this rights expansion is part of the ongoing strategy to develop and establish an end-to-end industrial lighting, internet based technology platform which will be sold and marketed on a global scale. Vivid Industrial is well advanced in evaluating the selection of specific partners to assist with implementing this global strategy. Further detailed operational information can be found in the quarterly reports lodged during the financial year.

A Vivid Industrial installation of warehouse and office lighting in Sydney

NewCO2Fuels (Technology Investment)

In developing ground breaking technologies, there is a well-trodden path of commercialisation. In FY2014, NewCO2Fuels (NCF) proved its world-leading CO2-to-fuels technology at scale. Proving the science was valid not only in a laboratory, but as a viable proto-type. This financial year was focused on establishing external validation of the technology and building global partners to assist in providing a strong base for commercialisation. Part of this process was working with global engineering firms and global conglomerates who are potential partners and/or users of the NCF technology in the coming years. These conglomerates see not only the environmental and technological benefits for their businesses, but also the opportunity for significant financial impact on the bottom line. Based on the external validation achieved during the year, the team is well down the path to successfully commercialising this technology.

Assembling the NCF reactor in NCF Solar Field - Oversight of Excess Heat Reactor

the Weizmann Institute Weizmann Institute Israel

Results - Weizmann Institute

There were many highlights through-out the year, however in the long list mentioned below, special mention should be given to winning the World Technology Network Award for energy, which was presented at a ceremony in New York in November. NCF joined a prestigious list of past winners including 3M, Amazon, Apple, Dow Chemical Company, Facebook, Google, Honda, IBM, Qualcomm, Skype, Tesla Motors, Toyota, The Weizmann Institute of Science and YouTube.

Highlights for the year included:

• Winning the 2014 World Technology Network award for Energy;

• Pre-selected as a candidate for the World Economic Forum Technology Pioneers Programme;

• Enhancing pilot-scale reactor designs for global opportunities;

• Signing a Memorandum of Understanding with one of the world's largest steel manufacturers to explore the opportunity to utilise excess heat from the steel industry to produce fuel and set up a pilot within 24 months at the manufacturer's site;

• Establishment of a collaboration agreement with Alstom Power, a global conglomerate, to partner on product development - subsequently receiving funding from the United States Department of Energy for a project with Alstom, NCF & the Illinois Clean Coal Institute;

• Inclusion in Australian Liquid Fuels Technology Assessment by the Australian Federal Government;

• Winning the B.I.R.D foundation grant in partnership with the US based Acumentrics; and

• Positive independent technology review assessment by Technip.

The next stage of commercialisation, which is well underway, involves taking NCF from a proven science to a commercialised saleable product on a global scale. When combined with the collaboration with Alstom (one of the world's largest companies) to develop a pilot plant, plus the pilot plant already underway with the world's largest steel manufacturer, the signs of developing a commercialised and proven technology are very promising.

NCF CEO David Banitt after Entertaining a delegation at

NCF CEO David Banitt speaking at the

accepting the 2014 World Technology Award for Energy in New York in November

the solar technology 2014 Gasification Technologies demonstration unit in Israel Conference in Washington in October

Further detailed operational information can be found in the quarterly reports lodged during the financial year.

Geothermal Energy

The Victorian government currently has a moratorium on hydraulic fracturing and well activity.

This moratorium was due for review in mid 2015, but is now likely be in place until mid-2016. Lifting the moratorium would assist the geothermal industry to continue its exploration and investment in this sector in Victoria. Due to industry uncertainty Greenearth is not investing additional capital into its geothermal business. The company has assessed that, on balance, the current regulatory and political environment is unlikely to enable progression of its Victorian geothermal interests in the near future. Consequently, the carrying amount of exploration and evaluation assets has been reduced by $2,152,288 to nil in order to provide for the impairment of the company's Otway and Gippsland areas of interest.

During the financial year, Greenearth received notification from Melbourne University that the grant application to ARENA (Australian Renewable Energy Agency) for our Latrobe Valley permits had been unsuccessful. The application was to request funding to assist in de-risking the geothermal drilling in an insulated hot sedimentary basin, such as the Latrobe Valley. Unfortunately, ARENA did not believe this was worthy of supporting Melbourne University, Monash University or Greenearth Energy, due to the concern the information was too specific to the Latrobe Valley and not beneficial to the industry as a whole.

ABOUT EACH BUSINESS UNIT

Vivid Industrial is a lighting solutions business which is wholly owned by Greenearth Energy Ltd. This business provides customised, intelligent and energy efficient luminaire and lighting control solutions. We work with industrial and infrastructure businesses to craft a complete lighting solution that reduces costs and energy usage, now and longer term. We are a forerunner in the region for the development of the 'Internet of Lights' model, closely aligned to the ever growing 'Internet of Things'.

The Vivid Industrial team has a wealth of experience across technology design, engineering and project management. We partner with businesses to first understand their needs and operations. Then, we provide the right solutions.

The business delivers industrial lighting and technology solutions that, put simply, make sense and meet an organisation's true needs.

NewCO2Fuels (NCF) is an Israeli company which was formed in 2011 by a group of scientists and entrepreneurs with the support of Greenearth Energy Ltd and the Erdi Group. NCF is developing and commercialising an innovative system to profitably produce fuels from CO2 and water, using renewable high temperature heat from solar or waste heat from industry. The system is based on a technology developed at the Weizmann Institute of Science and exclusively licensed to NCF.

The CO2 to fuel conversion technology concept, successfully developed and proven in laboratory trials in Israel by Professor Jacob Karni and his group at the Weizmann Institute of Science, involves a new method of using concentrated solar energy for the dissociation of Carbon dioxide (CO2) to Carbon monoxide (CO) and Oxygen (O). The same system can also dissociate water (H2O) to Hydrogen (H2) and Oxygen (O), at the same time it dissociates the CO2. CO, or the mixture of CO and H2 (called Syngas) can then be used as a gaseous fuel (e.g. in power plants), or converted to liquid fuel (e.g. methanol or other transportation fuels) which has the potential to be stored, transported and used in motor vehicles. Oxygen produced can be used in the combustion of the clean fuel or elsewhere.

In June 2014, Greenearth Energy Ltd (Greenearth) advised that the Group had further negotiated details of its investment in NewCO2Fuels Israel (NCF) to acquire up to 33.33 percent. Under this agreement, Greenearth commenced payments to NCF, with the first instalment in June 2014 and the remainder of the USD$3m investment now due by 15 October 2015. The investment is subject to partial claw-back by NCF should less than USD$3m be ultimately invested by Greenearth, the maximum possible claw-back would result in the Group retaining an interest of 24% instead of 33.33%.

On completion of the investment, Erdi Fuels Pty Ltd (Erdi Fuels) and Greenearth will be equal shareholders in NCF at 33.33 percent each and the remaining percentage of NCF Shares will continue to be held by founders, current staff and Yeda Research & Development Co. Ltd. (Yeda), based at the Weizmann Institute in Israel.

In 2014, Greenearth Energy received Victorian Government relief from the work permit requirements for the group's three Australian Geothermal leases (identified below). The relief initially extended until May 2015, and Greenearth has since been in discussions with the Victorian Government in relation to extension of the relief and future permit requirements in the context of the current moratorium.

The prolonged discussions with the Victorian Government led to Greenearth submitting three requests for suspension and extension for all our current exploration permits as follows:

• Geothermal Exploration Permit 10 (located in the greater Geelong / Anglesea region)

• Geothermal Exploration Permit 12 (located in the greater Latrobe Valley region)

• Geothermal Exploration Permit 13 (located in the greater Latrobe Valley region)

Greenearth's decision to apply for suspension and extension of its permit conditions was influenced by the lack of geothermal funding by Government (following withdrawal of funding for Greenearth's flagship geothermal project by the Victorian Government in 2013), and by current government policy relating to a moratorium on 'fraccing' (hydraulic stimulation) and well activity. With the moratorium now likely to be in place until mid-2016, the company has assessed that, on balance, the current regulatory and political environment is unlikely to enable progression of its Victorian geothermal interests in the near future.

GEOTHERMAL RESERVES AND RESOURCES

Greenearth Energy Ltd has Inferred Geothermal Resources for two distinct areas, Geelong/Anglesea Region and the onshore Gippsland inclusive of the Latrobe Valley and Wombat Geothermal play situated near Seaspray. Additional work has also been undertaken targeting a specific area of the Geelong/Anglesea Area, which has been defined as the Geelong Geothermal Power Project ('GGPP').

The Inferred Geothermal Resources were announced in the 2009 Financial Year. Although work had since been ongoing to continually revise and advance the category of our reserves and resources, they have not materially changed during the 2014/15 Financial Year.