shergar corporation limited

SHERGAR CORPORATION LIMITED ACN 123 133 166

F I N A N C I A L R E P O R T

F O R T H E Y E A R E N D E D

3 1 D e c e m b e r 2 0 0 9

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Shergar Corporation Limited

CORPORATE DIRECTORY

Directors

Mr Jeremy Shervington - Director

Mr Adam Rankine-Wilson - Director

Mr Stuart Hall – Director

Mr Neil Marston – Director

Company Secretary

Mr Jeremy Shervington

Registered Office and Principal place of business

52 Ord Street

West Perth

Western Australia 6005

Telephone: (08) 9481 8760

Facsimile: (08) 9481 5142

Email: [email protected]

Auditors

Ernst and Young

11 Mounts Bay Road

Perth WA 6000

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CONTENTS

Page No

Directors’ Report 3 Statement of financial position 16 Statement of comprehensive income 17 Statement of changes in equity 18 Statement of cash flows 19 Notes to the Financial Statements 20 Directors’ Declaration 41 Auditor’s Independence Declaration 42 Independent Auditor’s Report 43


Directors’ Report

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The following report is submitted in respect of the results of Shergar Corporation Limited (“Shergar" or the “Company”) for the year ended 31 December 2009. The Directors have continued to seek out and assess opportunities on the basis of which the Company will be able to raise further capital and hopefully seek a listing on ASX.

On 4 January 2010 the Company executed an Implementation Agreement and paid a non-refundable deposit of $250,000 to Murchison Copper Mines Pty Limited (“MCM”). MCM holds a package of tenements covering the closed Horseshoe Lights Copper Mine and the Kumarina copper prospect. The terms of the Implementation Agreement provide that upon the Company completing a successful capital raising and listing on the ASX it will acquire MCM in return for the issue of vendor shares.

The Company also raised $50,000 through the issue of 250,000 20 cent Convertible Notes in December 2009. The Convertible Notes may be converted to fully paid ordinary shares together with a one for two free attaching unlisted option exercisable at 20 cents each on or before 30 June 2013 upon election by the Convertible Note holder. DIRECTORS

The names, qualifications and experience of the Company‟s Directors in office during the financial period and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Mr. Jeremy Shervington B Juris, LLB Appointed on 5/12/2006

Mr Shervington is the proprietor of his own Western Australian based legal firm. He specialises in the laws regulating companies and the securities industry in Australia. Mr Shervington has approximately 30 years experience as a lawyer, gained since his admission as a Barrister and Solicitor of the Supreme Court of Western Australian in 1981. Since 1985 Mr Shervington has also served as a director of various ASX listed companies as well as a number of unlisted public and private companies. Mr Shervington is currently a director of the following ASX listed companies: Australian Zircon NL, Industrial Minerals Corporation Ltd, Prairie Downs Metals Ltd, Emerald Oil & Gas NL, Western Uranium Ltd, Colonial Resources Ltd and Altera Resources Limited. Mr. Adam Rankine-Wilson MAICD Appointed on 6/12/2006 Mr Rankine-Wilson is currently an Executive Director of Azure Capital Pty Ltd. Mr Rankine-Wilson has held directorships in numerous publicly listed companies, most recently Grange Resources Limited and has previously been involved in the restructure of the following companies: BMA Gold Limited (formerly known as Australian Silicon Limited), Clinical Cell Culture Limited (formerly known as ECAT Development Capital Limited), Prairie Downs Metals Limited (formerly known as Investment Company of the West), Unitract Limited (formerly known as Musgrave Block Holdings Limited), Questus Limited (formerly known as Transact Limited), Riversdale Mining Limited (formerly known as Wave Capital Limited), Mt Gibson Iron Limited (formerly known as Whittakers Ltd) and Industrial Minerals Corporation Limited (formerly known as Rubirosa Limited) Over the past 19 years, Mr Rankine-Wilson has also been a director of numerous other private and public companies. He has extensive experience in the mining and investment industries, particularly in Western Australia. Mr. John Corr Appointed on 15/08/2008. Resigned 19/01/2010

Mr Corr is a business consultant with extensive history in the management of Australia public companies, stockbroking and investment banking. Mr Corr was until 2007 the Chairman of Sundance Resources Limited and has extensive experience in identifying and evaluating investment opportunities, particularly in the resources industry, both in Australia and overseas. Mr Corr was a director of Capital Investments Partners until 2007. Mr Corr resigned on 19 January 2010.


Directors’ Report

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Mr. Neil Marston BCom, ACIS Appointed on 18/01/10 Mr Marston is a qualified accountant and Chartered Secretary with over 30 years experience working in the resources and other industry sectors. Mr Marston has served most recently as the Company Secretary and/or CFO of Grange Resources Limited and Gippsland Limited. He has extensive experience in the areas of capital raising, corporate governance and compliance, project management, mining and environmental approvals, contract negotiations and stakeholder engagement. Mr Marston is not presently a director of any other ASX listed company.

Mr. Stuart Hall BSc Hons, FAusIMM, FGS Appointed on 18/01/10 Mr Hall is a qualified geologist with over 40 years experience in exploration and mining projects located in Australia and Africa. He has extensive experience in the areas of exploration strategy, mine geology, open pit and underground mining operations, resources/reserve estimations & reconciliation, feasibility studies, mine project development and mine management. Mr Hall has been involved in the feasibility, construction, commissioning and management of several open pit and underground mining operations. Mr Hall currently operates his own geological consultancy.

Mr Hall is currently a director of the following ASX listed companies: Prairie Downs Metals Ltd, Western Uranium Ltd and Colonial Resources Ltd. Directors’ Interests in the Shares and Options of the Company

At the date of this report the interests of the Directors in the shares and other equity securities of the Company were:

Ordinary Shares Options over Ordinary Shares

Directors

Mr. Jeremy Shervington 1,400,000 800,000

Mr. Adam Rankine-Wilson 916,667 520,833

Mr. John Corr* 750,000 1,500,000

Mr. Neil Marston+ Nil Nil

Mr. Stuart Hall^ Nil Nil * Mr John Corr resigned as a Director on 19 January 2010.

+ Mr Neil Marston was appointed as a Director on 18 January 2010. ^ Mr Stuart Hall was appointed as a Director on 18 January 2010. Joint Company Secretary

Mr. Jeremy Shervington B Juris, LLB Appointed on 5/12/2006 Mr. Alan Coulthard – Appointed on 5/12/2006. Resigned on 15/1/2010.

Mr. Alan Coulthard is an accountant with appropriate financial expertise to fulfil the role of joint company secretary. Details of Mr Jeremy Shervington‟s expertise are provided above. DIVIDENDS

No dividend was paid or declared by the Company during the year and up to the date of this report. The Directors do not recommend that any amount be paid by way of dividend for the financial year ended 31 December 2009.


Directors’ Report

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CORPORATE STRUCTURE

Shergar is a company limited by shares that is incorporated and domiciled in Australia. NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES

During the financial year, the principal activity of the Company was the evaluation of investment opportunities for the Company. RESULTS OF OPERATIONS

The net loss of the Company for the financial year after income tax was $7,118 (2008: ($45,285)) REVIEW OF OPERATIONS

January – Nov 2009: The Company pursues investment opportunities in Australia and overseas. December 2009: The Company considered a proposal from Azure Capital Pty Limited for the

acquisition of 100% interest in MCM. 24 December 2009: The Company received loan funds of $50,000 from Azure Capital Pty Ltd. The

funds are secured by 12 month Convertible Notes. 4 January 2010: Implementation Agreement for the acquisition of MCM signed by the Company

and a non-refundable deposit of $250,000 paid to MCM. 15 January 2010: Resignation of Allan Coulthard as a company secretary of the Company. 18 January 2010: Appointment of Neil Marston and Stuart Hall as directors of the Company. 19 January 2010: Resignation of John Corr as a director.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

The Company undertook financing during the year, totaling $50,000. The net assets of the Company increased in the year by $12,515. SIGNIFICANT EVENTS AFTER THE BALANCE DATE

On 4 January 2010 the Company executed an Implementation Agreement and paid a non-refundable deposit of $250,000 to MCM. MCM holds a package of tenements covering the closed Horseshoe Lights Copper Mine and the Kumarina copper prospect. The terms of the Implementation Agreement provide that upon the Company completing a successful capital raising and listing on the ASX it will acquire MCM in return for the issue of vendor shares. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS

The Directors have excluded from this report any further information on the likely developments in the operations of the Company and the expected results of those operations in future financial periods, as the Directors believe that it would be speculative and prejudicial to the interests of the Company to include any such information in this report. ENVIRONMENTAL REGULATION AND PERFORMANCE

The Company does not hold operations that are subject to environmental regulations under both Commonwealth and State legislation in relation to its exploration activities.


Directors’ Report

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SHARE OPTIONS

(i) Unissued shares under option As at the date of this report, there were 8,031,250 un-issued ordinary shares under options. 3,000,000 options are exercisable at $0.20 per share at any time on or before 30 June 2013. 4,281,250 options are exercisable at $0.20 per share at any time on or before 30 June 2012. The remaining 750,000 options are exercisable at $0.40 per share at any time on or before 30 June 2011. No option holder has any right under the options to participate in any other share issue of the Company or any other entity. (ii) Shares issued as a result of the exercise of options

There have been no shares issued as a result of the exercise of options during the financial year.


Directors’ Report

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REMUNERATION REPORT (AUDITED)

This report outlines the remuneration arrangements in place for directors and executives of Shergar.

Details of Key Management Personnel Position Appointed

Directors

Mr Jeremy Shervington Executive Director and Company Secretary

5/12/2006

Mr John Corr

Executive Director

15/08/2008 Resigned 19/01/2010

Mr Adam Rankine-Wilson Non-Executive Director

6/12/2006

Mr Neil Marston Managing Director

18/01/2010

Mr Stuart Hall Non-Executive Director

18/01/2010

Executives

Mr Alan Coulthard

Company Secretary

5/12/2006 Resigned 15/01/2010

All Directors except for Mr Alan Coulthard and Mr John Corr who resigned on 15 January 2010 and 19 January 2010 respectively remain in office as at the date of this report. Remuneration Policy

The Board is responsible for determining and reviewing compensation arrangements for the Directors and Executives. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team.

As the company is in a developmental stage there is no link between remuneration and Company performance.

The present remuneration policy of the Company is that Directors will not draw any directors‟ fees but may be paid for services rendered that relate to the Company‟s evaluation of investment opportunities. Once an investment opportunity is realised, key management personnel will be paid a remuneration package that will include a component that is based upon company performance. The nature of this will be determined at the appropriate time. Key management personnel remuneration packages will be determined by the board to align to prevailing industry benchmarks.

Company performance since incorporation is as follows:

Year ended 31 December 2009 2008 2007*

$ $ $

Loss before tax (7,118) (45,285) (338,506)

Basic loss per share (0.08)

(0.60)

(5.60)

Diluted loss per share (0.08)

(0.60)

(5.60)

* represents the period from incorporation on 14 December 2006 to 31 December 2007.

The Company does not currently have a remuneration committee, the functions of which are carried out by the full board.


Directors’ Report

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REMUNERATION REPORT (AUDITED) continued

Details of the nature and amount of each element of the emolument of each Director and Executive of the Company for the financial year are as follows:

Short term

2009 Base Salary

Directors Fees

Consulting Fees Total

Performance Related

$ $ $ $ %

DIRECTORS

Mr. Jeremy Shervington - - 5,500 5,500 -

Mr. Adam Rankine-Wilson - - - - -

Mr. John Corr - - - - -

EXECUTIVES

Mr. Alan Coulthard - - - - -

Total - - 5,500 5,500 -

Short term

2008 Base Salary

Directors Fees

Consulting Fees Total

Performance Related

$ $ $ $ %

DIRECTORS

Mr. Jeremy Shervington - - 2,000 2,000 -

Mr. Adam Rankine-Wilson - - - - -

Mr. John Corr - - 20,000 20,000 -

Mr. Clive Donner - - - - -

EXECUTIVES

Mr. Alan Coulthard - - - - -

Total - - 22,000 22,000 - Compensation Options : Granted and Vested during the year

No compensation options were granted or vested during the year (31 December 2008: nil)

Mr Shervington‟s legal firm provided legal services under standard terms and conditions in respect of the administration of the Company and certain corporate legal work carried out in connection with the proposed acquisition of Murchison Copper Mines Pty Ltd. The cost of such work is included under consulting fees in the table above. [Remuneration Report Ends]


Directors’ Report

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MEETINGS OF DIRECTORS

During the financial year, in addition to regular Board discussions, the number of meetings of Directors held during the year and the number of meetings attended by each Director was as follows:

Name Number of Meetings Eligible to

Attend

Number of Meetings Attended

Number of Circular

Resolutions Eligible to Sign

Number of Circular

Resolutions Signed

Mr. Jeremy Shervington 0 0 7 7

Mr. Adam Rankine-Wilson 0 0 7 7

Mr. John Corr 0 0 7 5 Due to the size and nature of the Company, the Board performs the functions that may otherwise be performed by an audit or remuneration committee. EMPLOYEES

The Company had nil employees at 31 December 2009 (31 December 2008: Nil). INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

The Company under its Constitution has indemnified all the Directors and officers of the Company against all losses or liabilities incurred by each Director or officer in their capacity as Directors or officers of the Company. The indemnification specifically excludes wilful acts of negligence. AUDITOR’S INDEPENDENCE AND NON-AUDIT SERVICES

The Company has obtained an independence declaration from its auditors, Ernst and Young, which forms part of this report. A copy of that declaration is included at page 42 of this report.

AUDITOR’S REMUNERATION

During the financial year the following fees were paid or are payable for services provided by the auditor of the Company.

2009 $

Audit or review of financial reports of the entity 21,885

Total remuneration 21,885

Signed on behalf of the board in accordance with a resolution of the Directors.

_________________________ Mr. Jeremy Shervington Chairman 24 March 2010


Corporate Governance Statement

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ASX CORPORATE GOVERNANCE PRINCIPLES AND RECOMMENDATIONS

The Company is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve, the Company has turned to the ASX Corporate Governance Principles and Recommendations issued in August 2007.

Due to the scale of the Company‟s operations many of the Council's revised recommendations have not yet been adopted. Achieving consistency with the ASX guidelines will be a gradual process leading up to a listing of the Company on the Australian Securities Exchange.

The status of the Company‟s compliance with each of the Council's revised recommendations is set out below.

1. LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Council Principle 1: Companies should establish and disclose the respective roles and responsibilities of board and management.

Council Recommendation 1.1:

Establish the functions reserved to the board and those delegated to senior executives and disclose those functions.

The Company complies with this recommendation.

Any functions not reserved for the Board and not expressly reserved for members by the Corporations Act 2001 are reserved for senior executives.


Disclose the process for evaluating the performance of senior executives.


At present evaluation arrangements put in place by the Board to monitor the performance of the Company's executives are:

an ongoing review by the Board of the Company's financial and operating performance; and

comparison of executive remuneration levels to industry benchmarks.


Companies should provide the information indicated in the Guide to reporting on Principle 1


Due to the scale of operations of the Company no review of senior executive performance in accordance with the above policy was performed as at the reporting date.

2. STRUCTURE THE BOARD TO ADD VALUE

Council Principle 2: Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.


A majority of the Board should be independent directors.

The Company does not comply with this Recommendation.

Currently the Board of has only one independent director, Mr S. Hall and three non-independent directors, Mr J. Shervington, Mr A. Rankine-Wilson and Mr N. Marston.

While the Board strongly endorses the position that boards need to exercise independence of judgment, it also recognises (as does ASX Corporate Governance Council Principle 2) that the need for independence is to be balanced with the need for skills, commitment and a workable board size. The Board believes it has recruited members with the skills, experience and character to discharge its duties and that any greater emphasis on independence would be at the expense of the Board's effectiveness.

Mr J. Shervington and Mr A. Rankine-Wilson are both substantial shareholders of the Company and are therefore not considered independent within the ASX Corporate Governance Council's guidelines.

Mr N. Marston is employed in an executive capacity by the Company and is therefore not considered independent within



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the ASX Corporate Governance Council's guidelines.

Mr S. Hall is a Non-Executive Director of the Company and is considered independent within the ASX Corporate Governance Council's guidelines.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of appointing additional independent Non-Executive Directors.


The chair should be an independent director.

The Company does not comply with this Recommendation.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to necessitate the appointment of an independent Chairman. Mr J. Shervington assumes the role of Chairman as required.


The roles of chair and chief executive officer should not be exercised by the same individual.

The Company does comply with this Recommendation.

The role of chairman has been assumed by Mr J. Shervington as required. The role of chief executive officer was exercised by Mr J. Corr during the period. Mr N. Marston assumed the role of chief executive officer from 18 January 2010.


The Board should establish a nomination committee.

The Company does not comply with this Recommendation. The Board has formally adopted a Nomination Committee Charter but given the present size of the Company, has not formed a separate Committee. Instead the function will be undertaken by the full Board in accordance with the policies and procedures outlined in the Nomination Committee Charter. At such time when the Company is of sufficient size, a separate Nomination Committee will be formed.


Disclose the process for evaluating the performance of the board, its committees and individual directors.

The Company complies with this Recommendation.

The Board conducts its performance review of itself on an ongoing basis throughout the period. The small size of the Company and hands on management style requires an increased level of interaction between directors and executives throughout the period. Board members meet amongst themselves both formally and informally. The Board considers that the current approach that it has adopted with regard to the review of its performance provides the best guidance and value to the Company.


Companies should provide the information indicated in the Guide to reporting on Principle 2.

The Company complies with this recommendation and provides the following disclosures.

The period of office, skills, experience and expertise relevant to the position held by each director are disclosed in the Directors Report.

The Board has determined that individual Directors have the right in connection with their duties and responsibilities as Directors, to seek independent professional advice at the Company's expense. The engagement of an outside adviser is subject to prior approval of the Chairman and this will not be withheld unreasonably. If appropriate, any advice so received will be made available to all Board members.

Due to the scale of operations of the Company no performance evaluation of board members was completed during the reporting period.



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3. PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING

Council Principle 3: Companies should actively promote ethical and responsible decision-making.


Establish a code of conduct and disclose the code or a summary of the code as to:

the practices necessary to maintain confidence in the Company's integrity;

the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders;

the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

The Company does not comply with this recommendation.

A Code of Conduct for Directors and Key Executives and a Company Code of Ethics and Conduct will be established before the company lists on the Australian Securities Exchange and will be disclosed on the Company‟s website.


Companies should establish a policy concerning trading in Company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy.


A trading policy will be established before the company lists on the Australian Securities Exchange and will be disclosed on the Company‟s website.


Provide the information indicated in the Guide to reporting on Principle 3.


4. SAFEGUARD INTEGRITY OF FINANCIAL REPORTING

Council Principle 4: Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.


The Board should establish an audit committee.

The Company does not have an Audit and Risk Management Committee. The role of the Audit and Risk Management Committee has been assumed by the full Board. At such time when the Company is of sufficient size a separate Audit and Risk Management Committee will be formed.


The audit committee should be structured so that it:

consists only of non-executive directors;

consists of a majority of independent directors;

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

has at least three members.

Refer to the comments in respect of Council Recommendation 4.1.

Council Recommendation 4.3

The audit committee should have a formal operating charter.

The Company complies with this recommendation The Board has formally adopted an Audit and Risk Management Committee Charter but given the present size of the Company, has not formed a separate Committee. Instead the function of the Committee is undertaken by the full Board in accordance with the policies and procedures outlined in the Audit and Risk Management Committee Charter.



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The Company complies with this recommendation and provides the following disclosure.

The Company appointed Ernst & Young as auditors in 2008. External auditors are selected on the basis of professional skills, reputation, service levels and fees. The current policy of the external auditor is to rotate the audit engagement partner every 5 years.

A copy of the Company‟s Audit and Risk Management Committee Charter is presently available to shareholders on request.

5. MAKE TIMELY AND BALANCED DISCLOSURE

Council Principle 5: Companies should promote timely and balanced disclosure of all material matters concerning the Company.


Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.


A Continuous Disclosure Policy will be established before the company lists on the Australian Securities Exchange and will be disclosed on the Company‟s website.




6. RESPECT THE RIGHTS OF SHAREHOLDERS

Council Principle 6: Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.


Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose that policy or a summary of that policy.


The Company presently does not have a communications policy. Nonetheless the Company does communicate all significant developments to shareholders via the annual report and other correspondence as required.




A Communications Policy will be established before the company lists on the Australian Securities Exchange and will be disclosed on the Company‟s website.



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7. RECOGNISE AND MANAGE RISK

Council Principle 7: Companies should establish a sound system of risk oversight and management and internal control.


Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.


A Policy on Risk Oversight and Management of Material Business Risks will be established before the company lists on the Australian Securities Exchange and will be disclosed on the Company‟s website.


The board should require management to design and implement the risk management and internal control system to manage the Company's material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the Company's management of its material business risks.

Upon the adoption of a Policy on Risk Oversight and Management of Material Business Risks the Chief Executive Officer and the Chief Financial Officer will be required to establish the risk management and internal control systems and report to the Board in respect of the Company's key business risks and how they are being managed.


The board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.


As the Company is not a listed entity, the Company is not obliged to adhere with section 295A of the Corporations Act.




Upon listing the Company will comply with this recommendation.



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8. REMUNERATE FAIRLY AND RESPONSIBLY

Council Principle 8: Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.


The Board should establish a remuneration committee.


The Board has formally adopted a Remuneration Committee Charter however given the present size of the Company, has not formed a separate Committee. Instead the function will be undertaken by the full Board in accordance with the policies and procedures outlined in the Remuneration Committee Charter. At such time when the Company is of sufficient size a separate Remuneration Committee will be formed.


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


Information on director and executive remuneration is contained within the Directors' Report.



The Company complies with this recommendation and provides the following disclosures;

The Company currently has no schemes for retirement benefits.

The Company does not have any unvested entitlements under any equity-based remuneration schemes.

Shergar Corporation Limited Financial Statements

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Statement of financial position As at 31 December 2009

Notes Company

2009 2008

$ $

ASSETS

Current assets

Cash and cash equivalents 271,594 242,555

Trade and other receivables 5 27,064 3,050

Total current assets 298,658 245,605

Total assets 298,658 245,605

LIABILITIES

Current liabilities

Trade and other payables 6 30,942 20,771

Financial liabilities 7 30,367 -

Total current liabilities 61,309 20,771

Total liabilities 61,309 20,771

Net assets 237,349 224,834

Equity

Contributed Equity 8 608,625 608,625

Reserve 9 19,633 -

Accumulated losses 10 (390,909) (383,791)

Total equity 237,349 224,834

This statement of financial position should be read in conjunction with the accompanying notes.


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Statement of comprehensive income For the year ended 31 December 2009

Notes Company

2009 2008

$ $

Revenues from continuing operations

Interest income 6,791 6,564

Other income – GST recoverable 18,028 -

Revenues 24,819 6,564

Expenses 3 (31,937) (51,849)

Loss before income tax

(7,118)

(45,285)

Income tax expense 4 - -

Loss from continuing operations (7,118) (45,285)

Other comprehensive income - -

Total comprehensive loss for the year (7,118) (45,285)

Basic (loss) per share (cents per share) 13

(0.08)

(0.60)

Diluted (loss) per share (cents per share) 13 (0.08) (0.60)

This statement of comprehensive income should be read in conjunction with the accompanying notes.


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Statement of changes in equity For the year ended 31 December 2009

Ordinary Shares Option Reserve Accumulated

Losses Total

$ $ $ $

As at 1 January 2009 608,625 - (383,791) 224,834

Loss for the period - - (7,118) (7,118)

Total comprehensive loss for the year

- - (7,118) (7,118)

Transactions with owners in their capacity as owners:

Equity component of convertible note (conversion option)

- 19,633 19,633

As at 31 December 2009 608,625 19,633 (390,909) 237,349

Ordinary Shares Option Reserve Accumulated

Losses Total

$ $ $ $

As at 1 January 2008 326,625 - (338,506) (11,881)

Loss for the period - - (45,285) (45,285)

Total comprehensive loss for the year

- - (45,285) (45,285)

Transactions with owners in their capacity as owners:

Shares issued 300,000 - 300,000

Transaction costs on share issue (18,000) - (18,000)

As at 31 December 2008 608,625 - (383,791) 224,834

This statement of changes in equity should be read in conjunction with the accompanying notes.


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Statement of cash flows For the year ended 31 December 2009

Notes Company

2009 2008

$ $

Cash flows from operating activities

Payments to suppliers and employees (27,752) (48,381)

Interest received 6,791 6,564

Net cash flows used in operating activities 11(a) (20,961) (41,817)

Cash flows from financing activities

Payment of share issues costs - (18,000)

Proceeds from convertible notes 50,000 -

Proceeds from issue of shares - 300,000

Net cash flows from financing activities 50,000 282,000

Net increase in cash and cash equivalents 29,039 240,183

Cash and cash equivalents at beginning of the period 242,555 2,372

Cash and cash equivalents at end of the period 11(b) 271,594 242,555

This statement of cash flows should be read in conjunction with the accompanying notes.

Shergar Corporation Limited Financial Statements Notes to the Financial Statements for the year ended 31 December 2009

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1. CORPORATE INFORMATION

The financial report of Shergar for the year ended 31 December 2009 with comparatives for the financial period ended 31 December 2008 was authorised for issue in accordance with a resolution of the directors on 24 March 2010. Shergar is a public company limited by shares incorporated in Australia. The company is domiciled in Western Australia. The nature of the operations and principal activities of the Company are described in the Directors‟ report. The address of the registered office is 52 Ord Street, West Perth, WA, 6005. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial report is a general purpose financial report prepared in accordance with the requirement of the Corporations Act 2001, applicable Australian Accounting Standards and other authoritative pronouncements of the Australia Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for the derivative liability portion of the convertible note which is carried at fair value. The functional and presentation currency of the Company is Australian dollars. (b) Going Concern

The Company had a net operating cash outflow of $20,961 during the year ended 31 December 2009 and held cash of $271,594. However, as at the date of this report, the Company has payables of $15,295 which are in excess of its cash on hand of $8,541 following:

(i) the payment of the non-refundable deposit of $250,000 to Murchison Copper Mines (“MCM”) on 4 January 2010 (refer note 12); and

(ii) the Company having met its operating expenses from 31 December 2009 to the date of this report. Notwithstanding the above matters, Management and the Directors are satisfied the Company can continue on a going concern basis after having regard to the following mitigating factors:

(i) The Company has $384,375 of uncalled, unpaid capital at its disposal;

(ii) Mr. Jeremy Shervington, on behalf of the Directors, has pledged in writing ongoing financial assistance to the Company; and

(iii) The Directors are willing and able to inject more equity capital as and when required to enable the Company to continue with its activities.

Should the Company not achieve the matters above, there is uncertainty as to whether the Company will continue as a going concern and therefore, whether the Company will be able to pay its debts as and when they fall due and payable and whether it will be able to realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts, or to the amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

(c) Statement of Compliance

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.


21

(d) New and Amended Accounting Standards and Interpretations

The company has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for annual reporting periods beginning on or after 1 January 2009. The adopted Standards and Interpretations did not result in any changes to the accounting policies adopted by the Company. When the adoption of the Standard or Interpretation is deemed to have an impact on the financial statements of the Company, its impact is described below: AASB 8 Operating Segments AASB 8 replaced AASB 114 Segment Reporting upon its effective date. The Company concluded that the operating segments determined in accordance with AASB 8 are the same as the business segments previously identified under AASB 114. AASB 8 disclosures are shown in note 19 including the related revised comparative information. AASB 101 Presentation of Financial Statements

The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity and included in the new statement of comprehensive income. The statement of comprehensive income presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Company has elected to present one statement. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Company for the annual reporting period ending 31 December 2009. Each new or amended Standard will be applicable for the Company from the first period beginning 1 January following the application date of the Standard. The expected impact of the new or amended Standards and Interpretations on the Company has not yet been determined. The applicable Standards and Interpretations are outlined in the table below.

Reference Title Summary Application

date of

standard

Impact on

Company

financial

report

Application

date for the

Company

AASB 3

(Revised)

Business Combinations The revised Standard introduces a number of changes to the

accounting for business combinations, the most significant of which

includes the requirement to have to expense transaction costs and a

choice (for each business combination entered into) to measure a non-

controlling interest (formerly a minority interest) in the acquiree either

at its fair value or at its proportionate interest in the acquiree’s net

assets. This choice will effectively result in recognising goodwill

relating to 100% of the business (applying the fair value option) or

recognising goodwill relating to the percentage interest acquired. The

changes apply prospectively.

1 July 2009 The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010

AASB 127

(Revised)

Consolidated and

Separate Financial

Statements

There are a number of changes arising from the revision to AASB 127

relating to changes in ownership interest in a subsidiary without loss of

control, allocation of losses of a subsidiary and accounting for the loss

of control of a subsidiary. Specifically in relation to a change in the

ownership interest of a subsidiary (that does not result in loss of

control) – such a transaction will be accounted for as an equity

transaction.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010

AASB 2008-3 Amendments to

Australian Accounting

Standards arising from

AASB 3 and AASB 127

Amending Standard issued as a consequence of revisions to AASB 3

and AASB 127. Refer above.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010


22


date of

standard

Impact on

Company

financial

report

Application

date for the

Company

AASB 2008-6 Further Amendments to



the Annual

Improvements Project

This was the second omnibus of amendments issued by the IASB

arising from the Annual Improvements Project.

Refer to AASB 2008-5 above for more details.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010



Standards – Eligible

Hedged Items

The amendment to AASB 139 clarifies how the principles underlying

hedge accounting should be applied when (i) a one-sided risk in a

hedged item is being hedged and (ii) inflation in a financial hedged

item existed or was likely to exist.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010




the Annual


[AASB 2 and AASB 138

and AASB Interpretations

9 & 16]

This Standard makes amendments to Australian Accounting

Standards AASB 2 Share-based Payment and AASB 138 Intangible

Assets and AASB Interpretations 9 Reassessment of Embedded

Derivatives and 16 Hedges of a Net Investment in a Foreign Operation.

These amendments are as a consequence of the annual improvements

project.

The amendments to some Standards result in accounting changes for

presentation, recognition or measurement purposes, while some

amendments that relate to terminology and editorial changes are

expected to have no or minimal effect on accounting.

The main amendment of relevance to Australian entities is that made

to Interpretation 16 which allows qualifying hedge instruments to be

held by any entity or entities within the Company, including the foreign

operation itself, as long as the designation, documentation and

effectiveness requirements in AASB 139 that relate to a net

investment hedge are satisfied. More hedging relationships will be

eligible for hedge accounting as a result of the amendment.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010


23


date of

standard

Impact on

Company

financial

report

Application

date for the

Company

AASB 2009-5 Further Amendments to



the Annual


[AASB 5, 8, 101, 107,

117, 118, 136 & 139]

The amendments to some Standards result in accounting changes for

presentation, recognition or measurement purposes, while some

amendments that relate to terminology and editorial changes are

expected to have no or minimal effect on accounting except for the

following:

The amendment to AASB 117 removes the specific guidance on

classifying land as a lease so that only the general guidance remains.

Assessing land leases based on the general criteria may result in more

land leases being classified as finance leases and if so, the type of

asset which is to be recorded (intangible vs. property, plant and

equipment) needs to be determined.

The amendment to AASB 101 stipulates that the terms of a liability

that could result, at anytime, in its settlement by the issuance of equity

instruments at the option of the counterparty do not affect its

classification.

The amendment to AASB 107 explicitly states that only expenditure

that results in a recognised asset can be classified as a cash flow from

investing activities.

The amendment to AASB 118 provides additional guidance to

determine whether an entity is acting as a principal or as an agent.

The features indicating an entity is acting as a principal are whether

the entity:

► has primary responsibility for providing the goods or service;

► has inventory risk;

► has discretion in establishing prices;

► bears the credit risk.

The amendment to AASB 136 clarifies that the largest unit permitted

for allocating goodwill acquired in a business combination is the

operating segment, as defined in IFRS 8 before aggregation for

reporting purposes.

The main change to AASB 139 clarifies that a prepayment option is

considered closely related to the host contract when the exercise price

of a prepayment option reimburses the lender up to the approximate

present value of lost interest for the remaining term of the host

contract.

The other changes clarify the scope exemption for business

combination contracts and provide clarification in relation to

accounting for cash flow hedges.

1 January

2010

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010



Standards

[AASB 5, 7, 107, 112,

136 & 139 and

Interpretation 17]

These comprise editorial amendments and are expected to have no

major impact on the requirements of the amended pronouncements.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010


24


date of

standard

Impact on

Company

financial

report

Application

date for the

Company



Standards – Company

Cash-settled Share-

based Payment

Transactions

[AASB 2]

This Standard makes amendments to Australian Accounting Standard

AASB 2 Share-based Payment and supersedes Interpretation 8 Scope

of AASB 2 and Interpretation 11 AASB 2 – Company and Treasury

Share Transactions.

The amendments clarify the accounting for Company cash-settled

share-based payment transactions in the separate or individual

financial statements of the entity receiving the goods or services when

the entity has no obligation to settle the share-based payment

transaction.

The amendments clarify the scope of AASB 2 by requiring an entity that

receives goods or services in a share-based payment arrangement to

account for those goods or services no matter which entity in the

Company settles the transaction, and no matter whether the

transaction is settled in shares or cash.

1 January

2010

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2010

AASB 2009-

10

Amendments to


Standards –

Classification of Rights

Issues [AASB 132]

The amendment provides relief to entities that issue rights in a

currency other than their functional currency, from treating the rights

as derivatives with fair value changes recorded in profit or loss. Such

rights will now be classified as equity instruments when certain

conditions are met.

1 February

2010

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2011

AASB 9/

AASB 2009-

11

Financial Instruments &

Amendments to



AASB 9

[AASB 1, 3, 4, 5, 7, 101,

102, 108, 112, 118,

121, 127, 128, 131,

132, 136, 139, 1023 &

1038 and Interpretations

10 & 12]

The revised Standard introduces a number of changes to the

accounting for financial assets, the most significant of which includes:

► two categories for financial assets being amortised cost or

fair value

► removal of the requirement to separate embedded

derivatives in financial assets

► strict requirements to determine which financial assets can

be classified as amortised cost or fair value, Financial

assets can only be classified as amortised cost if (a) the

contractual cash flows from the instrument represent

principal and interest and (b) the entity’s purpose for

holding the instrument is to collect the contractual cash

flows

► an option for investments in equity instruments which are

not held for trading to recognise fair value changes through

other comprehensive income with no impairment testing

and no recycling through profit or loss on derecognition

► reclassifications between amortised cost and fair value no

longer permitted unless the entity’s business model for

holding the asset changes

► changes to the accounting and additional disclosures for

equity instruments classified as fair value through other

comprehensive income

1 January

2013

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2013

AASB 2009-

12

Amendments to


Standards

[AASBs 5, 8, 108, 110,

112, 119, 133, 137,

139, 1023 & 1031 and

Interpretations 2, 4, 16,

1039 & 1052]

This amendment makes numerous editorial changes to a range of

Australian Accounting Standards and Interpretations.

The amendment to AASB 124 clarifies and simplifies the definition of

a related party as well as providing some relief for government-related

entities (as defined in the amended standard) to disclose details of all

transactions with other government-related entities (as well as with the

government itself)

1 January

2011

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2011


25


date of

standard

Impact on

Company

financial

report

Application

date for the

Company

AASB 2009-

14

Amendments to

Australian Interpretation

– Prepayments of a

Minimum Funding

Requirement

These amendments arise from the issuance of Prepayments of a

Minimum Funding Requirement (Amendments to IFRIC 14). The

requirements of IFRIC 14 meant that some entities that were subject

to minimum funding requirements could not treat any surplus in a

defined benefit pension plan as an economic benefit.

The amendment requires entities to treat the benefit of such an early

payment as a pension asset. Subsequently, the remaining surplus in

the plan, if any, is subject to the same analysis as if no prepayment

had been made.

1 January

2011

The Company

is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2011

Interpretation

19

Interpretation 19

Extinguishing Financial

Liabilities with Equity

Instruments

This interpretation clarifies that equity instruments issued to a creditor

to extinguish a financial liability are “consideration paid” in

accordance with paragraph 41 of IAS 39. As a result, the financial

liability is derecognised and the equity instruments issued are treated

as consideration paid to extinguish that financial liability.

The interpretation states that equity instruments issued in a debt for

equity swap should be measured at the fair value of the equity

instruments issued, if this can be determined reliably. If the fair value

of the equity instruments issued is not reliably determinable, the

equity instruments should be measured by reference to the fair value

of the financial liability extinguished as of the date of extinguishment.


is yet to

assess the

impact of this

standard on

its financial

report.

1 January

2011

(e) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (f) Trade and other payables

Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Company prior to the end of the financial period that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (g) Revenue recognition

Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue can be recognised: Interest income

Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate. This is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.


26

(h) Share-based payment transactions

The Company provides benefits to employees (including directors) and, in certain circumstances contractors, in the form of share-based payment transactions, whereby individuals render services in exchange for shares or rights over shares („equity-settled transactions‟). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted, or for contractors, the date the service is provided. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the Company‟s („market conditions‟). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award („vesting date‟). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Company, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. (i) Income tax

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences:

except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.


27

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:

except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have 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 the income statement. (j) Other taxes

Revenues, 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 the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the 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 of receivables or payables in the balance sheet. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash 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, or payable to, the taxation authority. (k) Significant accounting judgements, estimates and assumptions

In applying the Company‟s accounting policies management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Company. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgment, estimates and assumptions made in the preparation of these financial statements are outlined below. Share-based payment assumptions The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using the Black-Scholes option pricing model, with the assumptions detailed in the remuneration note. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity. (l) Compound Instruments

The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On issuance of the convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability using the amortised cost basis until extinguished on conversion or redemption.


28

The increase in the liability due to the passage of time is recognised as a finance cost. Where derivative features exist, this component is initially recognised at fair value at inception and is subsequently remeasured to fair value through the profit and loss. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders‟ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Interest on the liability component of the instruments is recognised as an expense in profit or loss. Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

(m) Contributed Equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown directly in equity as a deduction, net of tax, from proceeds.

3. EXPENSES Company

2009 2008

$ $

(a) Expenses from continuing operations

Loss before income tax includes the following specific expenses:

Legal expenses 5,500 2,000

Audit expenses 21,885 8,950

Bank expenses 10 11

Consultancy expenses - 20,000

Other expenses 4,542 2,860

GST written off (i) - 18,028

Total Expenses 31,937 51,849

(i) The Company was not registered for GST in the previous reporting period and as such all GST paid for the periods ending 31 December 2007 and 31 December 2008 was written off as at 31 December 2008 due to the uncertainty about recovery of GST paid. The company applied for GST registration on 11 February 2010 effective from 1 January 2007. As a consequence of GST registration the Company has written back all GST previously written off in 2008.


29

4. INCOME TAX

Company

2009 2008

$ $

The major components of income tax expense

Income Statement

Current income Tax

Current income tax charge - -

Deferred income tax Relating to origination and reversal of temporary differences - -

Income tax expense reported in the income statement - -

A reconciliation between tax expense and the product of accounting loss before income tax multiplied by the Company's applicable income tax rate is as follows:

Company

2009 2008

$ $

Accounting loss before income tax (7,118) (45,285)

At the Company's statutory income tax rate (30%) 2,135 13,586

Income tax benefit not brought to account (2,135) (13,586)

Income tax reported in the income statement - -

Deferred Tax Company

Deferred income tax at 31 December 2009 relates to the following:

2009 2008

$ $

Deferred tax assets

Capital raising costs - 4,320

Accrued audit fees 6,720 2,550

6,720 6,870

Less: deferred tax assets not brought to account (6,720) (6,870)

Deferred tax reported in the balance sheet - -

Unused revenue losses available to the company total $(118,391) (2008:$ 113,667).


30

Company

2009 2008

5. TRADE AND OTHER RECEIVABLES

$ $

Withholding tax receivable 6,200 3,050

Goods & Services Tax 20,864 -

Total Trade and Other Receivables 27,064 3,050

GST receivable is non – interest bearing and recoverable on 30 day terms. No receivables are past due or impaired.

6. TRADE AND OTHER PAYABLES $ $

Trade payables 30,942 20,771

Total Trade and Other Payables 30,942 20,771

Trade creditors, other creditors and goods and services tax are non-interest bearing and generally payable on 30 day terms. Company

2009 2008

7. FINANCIAL LIABILITIES $ $

Maturity

Convertible Notes – Debt Component at amortised cost 2010 13,363 -

Convertible Notes – Derivative Liability at fair value through profit and loss

2010 17,004 -

Total Financial Liabilities 30,367 -

(a) Risk exposures

On 24 December 2009, the Company issued 250,000 convertible notes. These remain on issue at 31 December 2009 and mature on 24 December 2010. Each convertible note has a face value of $0.20 and may be converted to one fully paid ordinary shares together with a one free attaching unlisted option for every two convertible notes held, exercisable at 20 cents each on or before 30 June 2013 upon election by the note holder. (b) Fair values The fair values and carrying values of the convertible notes are as follows: 2009 2008

Carrying Amount

Fair Value Carrying Amount

Fair Value

Convertible Notes – Debt Component 13,363 13,363 - -

The fair value of the debt component of the convertible notes is estimated using an equivalent interest rate for the issuer for an instrument with similar terms but without the conversion option.


31

(c) Interest rate risk

The Convertible Notes mature in 12 months with an interest rate of 10%. Information regarding interest rate risk exposures is set out in note 16. 8. CONTRIBUTED EQUITY $ $

(a) Issued and paid up capital

Ordinary shares fully paid 583,000 583,000

Partly paid shares 25,625 25,625

Total paid up capital 608,625 608,625

Number of

shares $ (b) Movements in ordinary shares on issue

At 31 December 2007 6,900,000 301,000

Issue of shares at $0.20 on 13 August 2008 1,500,000 300,000

Less: Share issue costs - (18,000)

At 31 December 2008 8,400,000 583,000

At 31 December 2009 8,400,000 583,000

Number of

shares $ (c) Movements in partly paid shares on issue

Issue of partly paid shares 2,562,500 25,625

At 31 December 2008

2,562,500 25,625

At 31 December 2009

2,562,500 25,625

(i) On 28 August 2007, the Company issued 2,562,500 partly paid shares, with 1 cent paid on application, and a further 15 cents payable at call. As at the date of this report, no call has been made for the remaining amount. (d) Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of a winding up of the Company, to participate in the proceeds from sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or proxy, at a meeting of the Company.

Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares.

(e) Partly Paid Shares

On 28 August 2007, the Company issued 2,562,500 partly paid shares, each with 1 cent paid on application, and a further 15 cents payable at call, together with a free one for two attaching Option exercisable at 20 cents expiring on 30 June 2012.


32

2009 2008

9. RESERVES $ $

(a) Option reserve (i) 19,633 -

19,633 -

(i) At 31 December 2009, there were 250,000 convertible notes on issue. The convertible notes mature on 24

December 2010. Each convertible note has a face value of $0.20 and may be converted to one fully paid ordinary share together with a one free attaching unlisted option for every two convertible notes held, exercisable at 20 cents each on or before 30 June 2013 upon election by the note holder. The equity component of the convertible notes proceeds is allocated to the option reserve, net of transaction costs.

Number of

options $ (b) Movements in options on issue

As at 31 December 2007

5,031,250 -

Issued on 13 August 2008 pursuant to the issue of 1,500,000 ordinary shares (i)

3,000,000 -

As at 31 December 2008 8,031,250 -

As at 31 December 2009 8,031,250 -

All free attaching options have been provided to all shareholders on equal terms.

(i) Options exercisable at 20 cents and expiring 30 June 2013 (c) Terms and conditions of options issued

(i) The options held by each holder can be exercised in whole or in part, and if exercised in part multiples of 5,000 must be exercised on each occasion except where the number of options held is less than 5,000 in which case all such options must be exercised at the same time;

(ii) The options can be transferred; (iii) The option holder will be permitted to participate in any new pro-rata issue of securities of the Company on

prior exercise of the options in which case the option holder will be afforded the period of at least 9 business days prior to and inclusive of the record date to determine entitlements to the issue to exercise the options;

(iv) The options do not confer on the holder any right to participate in dividends until shares are allotted pursuant

to the exercise of the options;

(v) In the event of a reorganisation of the issued capital of the Company, the options will be reorganised in accordance with the Listing Rules (if applicable) and in any case in a manner which will not result in any benefits being conferred on option holders which are not conferred on Shareholders;

(vi) The number of Shares to be issued pursuant to the exercise of options will be adjusted for bonus issues

made prior to exercise of the options so that, upon exercise of the options the number of Shares received by the option holder will include the number of bonus Shares that would have been issued if the Options had been exercised prior to the record date for the bonus issues. The exercise price of the options shall not change as a result of any such bonus issues; and

(vii) If the option holder is the holder of Partly Paid Shares in respect of which a Call is made all Options held by

the option holder will be forfeited on the date the Call is payable unless the Call is paid in full on or before the due date for payment.


33

10. ACCUMULATED LOSSES Company

2009 2008

Movements in accumulated losses were as follows: $ $

Balance at the beginning of the year (383,791) (338,506)

Net loss attributable to members of the Company (7,118) (45,285)

Balance at end of year (390,909) (383,791)

11. CASH FLOW STATEMENT Company

2009 2008

(a) Reconciliation of the net (loss) after tax to the net cash flows used in operating activities

$ $

Net loss after tax (7,118) (45,285)

Adjustments for:

Changes in assets and liabilities

(Increase)/Decrease in receivables (24,014) 10,545

Increase/(Decrease) in trade and other payables 10,171 (7,077)

Net cash flow used in operating activities (20,961) (41,817)

(b) Reconciliation of cash

Cash balance comprises:

Cash at bank 271,594 242,555

Total Cash and Cash Equivalents 271,594 242,555

12. SUBSEQUENT EVENTS

On 4 January 2010 the Company executed an Implementation Agreement and paid a non-refundable deposit of $250,000 to MCM. MCM holds a package of tenements covering the closed Horseshoe Lights Copper Mine and the Kumarina copper prospect. The terms of the Implementation Agreement provide that upon the Company completing a successful capital raising and listing on the ASX it will acquire MCM in return for the issue of vendor shares.

13. LOSS PER SHARE Company Company

2009 2008

Loss used in calculating basic and dilutive EPS (7,118) (45,285)

Number of ordinary shares outstanding during the period used in the calculation of basic EPS 8,400,000 7,525,000

Number of ordinary shares outstanding during the period used in the calculation of diluted EPS 8,400,000 7,525,000

Basic loss per share (cents per share) (0.08) (0.60)

Diluted loss per share (cents per share) (0.08) (0.60)

The number of potential ordinary shares that are not considered dilutive are 8,406,250 (2008: 8,031,250)


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14. AUDITOR’S REMUNERATION

The auditor of the Company is Ernst & Young. $ $

Amounts received or due and receivable by Ernst & Young Australia for:

Audit and reviews of the financial reports of the entity

21,885

8,500

21,885 8,500

There were no other services provided by Ernst & Young other than as disclosed above.

15. RELATED PARTY AND INTER-COMPANY DISCLOSURES

(a) Key Management Personnel

Details relating to KMP, including remuneration paid are disclosed in note 21. (b) Transactions with Key Management Personnel

The following table provides the total amount of transactions that were entered into with related parties for the financial period. There are no outstanding balances on related party receivables and payables as at balance date.

Related Party

Services provided

2009 Loans

2009

Other related party transactions

2009

DIRECTORS $ $ $

Mr. Jeremy Shervington 5,500 - -

Mr. Adam Rankine-Wilson - - -

Mr. John Corr - - -

EXECUTIVES

Mr. Alan Coulthard - - -

Related Party 2008 2008 2008

DIRECTORS $ $ $

Mr. Jeremy Shervington 2,000 - -

Mr. Adam Rankine-Wilson - - -

Mr. Clive Donner - - -

Mr. John Corr 20,000 - -

EXECUTIVES

Mr. Alan Coulthard - - -


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(c) Other Related Parties

Mr. Adam Rankine-Wilson, a non-executive Director of Shergar, was a Director of Azure Capital Pty Ltd (“Azure”) and was a shareholder with less than 20% interest in Azure. Azure capital was paid $18,000 during the year ended 31 December 2008 for their services in relation to the share placement of $300,000. This amount is included as a cost of capital raising, refer note 8(b). For all payments to Directors and executives please refer to the “Remuneration Report” contained in the “Directors Report”. 16. FINANCIAL RISK MANAGEMENT

(a) Financial risk management objectives and policies

The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects and ensure that net cash flows are sufficient to support the delivery of the Company's financial targets whilst protecting future financial security. The Company continually monitors and tests its forecast financial position against these objectives. The Company's existing and potential activities may expose it to a variety of financial risks; market, credit and liquidity. The Company‟s exposure to financial risks is managed by the full Board. The Company‟s principal financial instruments comprise cash, although in the future may include also short term deposits. Other financial instruments include trade receivables and trade payables, which arise directly from the Company‟s activities. It is, and has been throughout the period under review, Company policy that no speculative trading in financial instruments be undertaken.

(b) Market risk

(i) Foreign exchange risk

During previous periods the Company has evaluated assets internationally and has therefore been exposed to foreign exchange risk arising from currency exposures, primarily with respect to the United States Dollars. There is no exposure to foreign exchange risk in the current period.

(ii) Commodity price risk

The Company is currently not exposed to Commodity price risk. (iii) Equity price risk

On 24 December 2009, the Company issued 250,000 convertible notes (refer note 9). Each convertible note has a face value of $0.20 and may be converted to one fully paid ordinary share together with a one free attaching unlisted option for every two convertible notes held, exercisable at 20 cents each on or before 30 June 2013 upon election by the note holder. As a result the Company is exposed to equity price risk. (iv) Interest rate risk

The Company is currently exposed to Interest rate risk as it represents the main form of income of the Company. Interest rate risk on cash and short term deposits is considered to be a material risk due to the effects that changes in interest rate have on the comprehensive income of the Company as show in the sensitivity analysis below.


36

The effective interest rates on financial assets and liabilities as at 31 December 2009 and 31 December 2008 were as follows:

Financial Instruments

Floating interest

rate

Fixed interest

rate

Non-interest bearing

Total Weighted average effective interest

rate

Fixed interest

rate

2009 2009 2009 2009 2009 2009

$ $ $ $ % %

(i) Financial assets

Cash assets 271,594 - - 271,594 3.0 - Trade and other receivables - - 27,064 9,036 - -

Total financial assets 271,594 - 27,064 280,630

(ii) Financial liabilities Trade and other payables - - 30,942 30,942 - - Convertible Note – debt Component - 13,363 - 13,363 - -

Total financial liabilities* - 13,363 30,942 44,305

Financial

Instruments Floating interest

rate

Fixed interest

rate

Non-interest bearing

Total Weighted average effective interest

rate

Fixed interest

rate

2008 2008 2008 2008 2008 2008

$ $ $ $ % %

(i) Financial assets

Cash assets 242,555 - - 242,555 3.0 - Trade and other receivables - - 3,050 3,050 - -

Total financial assets 242,555 - 3,050 245,605

(ii) Financial liabilities Trade and other payables - - 20,771 20,771 - -

Total financial liabilities - - 20,771 20,771

*The derivative liability embedded in the convertible note also gives risk to interest rate risk, through the fair value calculation.


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The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date.

At 31 December 2009, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and other comprehensive income would have been affected as follows:

Post-tax profit

higher / (lower) Total comprehensive income

higher / (lower) 2009 2008 2009 2008

$ $ $ $

+1% (100 basis points) 2,288 1,199 2,288 1,199 -1% (100 basis points) (2,288) (1,199) (2,288) (1,199)

(c) Liquidity Risk

The Company‟s liquidity position is managed to ensure that sufficient funds are available to meet its financial commitments in a timely and cost effective manner. The Company has interest bearing compound instruments in the form of convertible notes (see Note 7) with maturities in excess of 6 months. Trade and other payables are not interest bearing.

2009 < 6 months

6 – 12 months

1 – 5 years Total

$ $ $ $

Financial liabilities

Trade and other payables 30,942 - - 30,942 Convertible Note – debt component - 55,000 - 55,000

Total financial liabilities 30,942 55,000 - 85,942

2008 < 6 months

6 – 12 months

1 – 5 years Total

$ $ $ $

Financial liabilities

Trade and other payables 20,771 - - 20,771

Total financial liabilities 20,771 - - 20,771

(d) Credit Risk

The Company‟s maximum exposure to credit risk at the reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the consolidated balance sheet. Other than cash balances held at bank the Company does not have any significant credit risk exposure to any single counterparty or any Company of counterparties having similar characteristics. The Company only trades with recognised, creditworthy third parties.

(e) Financing facilities

The Company issued 250,000 Convertible Notes at an issue price of 20 cents each during the year ended 31 December 2009 (31 December 2008: nil). The Convertible Notes mature in 12 months with an interest rate of 10%. All Convertible Notes may be converted to fully paid ordinary shares together with a one for two free attaching unlisted option exercisable at 20 cents each on or before 30 June 2013 upon election by the Convertible Note holder.


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(f) Fair values

The Directors have performed a review of the financial assets and liabilities as at 31 December 2009 and, except for interest bearing compound instruments, have concluded that the fair value of those assets and liabilities are not materially different to book values. The methods and assumptions used to estimate the fair value of financial instruments were: (i) Cash and cash equivalents

The carrying amount is fair value due to the liquid nature of these assets. (ii) Receivables/payables

Due to the short term nature of these financial rights and obligations, their carrying values are estimated to represent their fair values.

(iii) Convertible Note – debt component

See Note 7(b)

(iv) Convertible Note – derivative liability

The derivative liability is valued at fair value through profit and loss, using the Black-Scholes model and inputs used are not based on observable market data (level 3).

17. SHARE BASED PAYMENT ARRANGEMENTS

The Company has not established any share based payment plan. The expense rendered for employee services received for which equity instruments were issued during the year was nil (31 December 2008: nil). 18. CONTINGENCIES AND COMMITTMENTS

There are no commitments, contingent liabilities or assets that require disclosure. 19. OPERATING SEGMENTS

For management purposes, the Company is organised into one main operating segment, which evaluates and pursues investment opportunities for its investors. All of the Company‟s activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole. 20. DIVIDENDS

No dividend was paid or declared by the Company in the period since the end of the previous financial period, and up to the date of this report. The Directors do not recommend that any amount be paid by way of dividend for the financial period ended 31 December 2009. 21. KEY MANAGEMENT PERSONNEL

(a) Compensation of key management personnel

2009 2008

$ $

Short-term employee benefits 5,500 22,000

Post-employment benefits - -

Other long-term benefits - -

Termination benefits - -

Share based payments - -

Total 5,500 22,000


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(b) Option holdings of key management personnel

The number of options in the Company held during the financial period held by each director and executive of Shergar, including their related parties, is set out below. There were no options granted during the reporting period as compensation.

2009

Balance at end of

2008

Granted during the period as

compensation

On exercise of share options

Other changes

during the period

Balance at the end of the period

DIRECTORS

Mr. Jeremy Shervington (a) 800,000 - - - 800,000

Mr. Adam Rankine-Wilson (b) 520,833 - - - 520,833

Mr John Corr (c) 1,500,000 - 1,500,000

EXECUTIVES

Mr Alan Coulthard 100,000 - - - 100,000

TOTAL 2,920,833 - - - 2,920,833

(a) Indirectly held by Panga Pty Ltd. (b) Indirectly held by Bayonet Investments Pty Ltd. (c) Options held and controlled by Mr Corr as trustee for the Bawnlusk Trust.

2008

Balance at end of

2007

Granted during the period as compensation


Other changes

during the period


DIRECTORS

Mr. Jeremy Shervington (a) 800,000 - - - 800,000

Mr. Adam Rankine-Wilson (b) 500,000 - - 20,833 520,833

Mr John Corr (c) - 1,500,000 1,500,000

Mr. Clive Donner (d) 800,000 - - - 800,000

EXECUTIVES


TOTAL 2,200,000 - - 1,520,833 3,720,833

(a) Indirectly held by Panga Pty Ltd. (b) Indirectly held by Bayonet Investments Pty Ltd. 20,833 options were allocated to Bayonet as a nominee of

CSCIP from the shares obtained by CSCIP in providing assistance with the capital raising pursuant to the Prospectus dated 20 December 2006.

(c) Options held and controlled by Mr Corr as trustee for the Bawnlusk Trust. Mr Corr as trustee for the Bawnlusk trust subscribed to the placement carried out by the Company on 13 August 2008 to raise $300,000.

(d) Indirectly held by Woodcross Holdings Pty Ltd.


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(c) Share holdings of key management personnel

The number of shares in the Company held during the financial period held by each director and executive of Shergar, including their related parties, is set out below. There were no shares granted during the financial year as compensation.

2009

Balance at end of 2008


compensation


Other changes

during the period


DIRECTORS

Mr. Jeremy Shervington (a) 1,400,000 - - - 1,400,000

Mr. Adam Rankine-Wilson (b) 916,667 - - - 916,667

Mr John Corr (c) 750,000 - - - 750,000

EXECUTIVES


TOTAL 3,266,667 - - - 3,266,667

(a) Indirectly held by Panga Pty Ltd. (b) Indirectly held by Bayonet Investments Pty Ltd. (c) Shares held and controlled by Mr Corr as trustee for the Bawnlusk Trust. There were no other key management personnel to disclose for the year ended 31 December 2009.

2008

Balance at end of 2007


compensation


Other changes

during the period


DIRECTORS

Mr. Jeremy Shervington (a) 1,400,000 - - - 1,400,000

Mr. Adam Rankine-Wilson (b) 875,000 - - 41,667 916,667

Mr John Corr (c) - - - 750,000 750,000

Mr. Clive Donner (d) 1,400,000 - - - 1,400,000

EXECUTIVES


TOTAL 3,875,000 - - 791,667 4,666,667

(a) Indirectly held by Panga Pty Ltd. (b) Indirectly held by Bayonet Investments Pty Ltd. (c) Shares held and controlled by Mr Corr as trustee for the Bawnlusk Trust. (d) Indirectly held by Woodcross Holdings Pty Ltd. There were no other key management personnel to disclose for the year ended 31 December 2008.


41

DIRECTORS' DECLARATION

1. In the opinion of the directors (a) the financial statements and notes and the additional disclosures included in the Director‟s Report

designated as audited of the Company are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the financial position of the Company as at 31 December 2009 and of its performance, for the period ended on that date; and

(ii) complying with Accounting Standards and the Corporations Regulations 2001; and

(b) there are reasonable grounds, subject to the matters set out in note 1(b), to believe that the Company will be able to pay its debts as and when they become due and payable.

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

__________________________ Mr Jeremy Shervington Chairman 24 March 2010

JP;HG;SHERGAR;021 Liability limited by a scheme approved under Professional Standards Legislation

Auditor’s Independence Declaration to the Directors of Shergar Corporation Limited In relation to our audit of the financial report of Shergar Corporation Limited for the financial year ended 31 December 2009, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young

J C Palmer Partner Perth 24 March 2010

JP;H;G;SHERGAR;020 Liability limited by a scheme approved under Professional Standards Legislation

Independent auditor’s report to the members of Shergar Corporation Limited Report on the Financial Report We have audited the accompanying financial report of Shergar Corporation Limited, which comprises the statement of financial position as at 31 December 2009, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration.

Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2(b), the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the Directors’ Report.

JP;HG;SHERGARCORP;020

2

Auditor’s Opinion In our opinion: 1. the financial report of Shergar Corporation Limited is in accordance with the Corporations Act 2001,

including: (i) giving a true and fair view of the financial position of Shergar Corporation Limited at 31

December 2009 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting

Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the

International Accounting Standards Board.

Report on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 8 of the directors’ report for the year ended 31 December 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion In our opinion the Remuneration Report of Shergar Corporation Limited for the year ended 31 December 2009, complies with section 300A of the Corporations Act 2001.

Ernst & Young

J C Palmer Partner Perth 24 March 2010

shergar corporation limited

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