For personal use only Abbotsford Victoria 3067€¦ · · 2010-10-28For personal use only. 1...

Annual Report 2010Harnessing the heat beneath our feet

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Greenearth Energy Ltd.

CorporateINForMatIoN

The company operates a web site which directors encourage you to access for the most recent information on Greenearth Energy Ltd.

DirectorsRobert J. Annells (Chairman) John T. Kopcheff (Non-executive Director) Robert L. King (Executive Director) ManagingDirectorMark Miller BSc (Maj. Geology) CompanySecretary Vicki M. Kahanoff BBus CPA registeredofficeLevel 14500 Collins StreetMelbourne Victoria 3000

telephone:(03) 9620 7299 Facsimile: (03) 9629 1624 SecuritiesexchangeAustralian Securities Exchange Limited Level 45, South Tower, Rialto525 Collins StreetMelbourne Victoria 3000 ASX code: GER auditorsPitcher Partners Level 19 15 William StreetMelbourne Victoria 3000

BankersWestpac Banking Corporation360 Collins StreetMelbourne Victoria 3000

addressforCorrespondence P.O. Box 24Collins Street WestVictoria 8007

email: [email protected] Website: www.greenearthenergy.com.au

Legaladvisors Baker & McKenzie Level 19, CBW181 William StreetMelbourne Victoria 3000

ShareregistryComputershare Investor Services Pty. Ltd. Yarra Falls 452 Johnston StreetAbbotsford Victoria 3067

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CoNteNtS

SeCtIoN/tItLe paGe

Chairman’s Report 3

Directors’ Report 4 Auditor’s Independence Declaration 23

Consolidated Statement of Comprehensive Income 24

Consolidated Statement of Financial Position 25

Consolidated Statement of Changes in Equity 26

Consolidated Statement of Cash Flows 27

Notes to the Financial Statements 28

Directors’ Declaration 52

Independent Auditor’s Report 53

ASX Supplementary Information 56

Corporate Governance 58

Glossary 62

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ChaIrMaN’Sreport

DearShareholder,

The year under report, has been a milestone year for Greenearth Energy’s flagship domestic project, the Geelong Geothermal Power Project (GGPP) becoming the recipient of both Commonwealth and State grants. Applications for both Commonwealth and State funding were submitted at the beginning of the financial year with successful grants being awarded in December 2009. The Australian Government via the Geothermal Drilling Program (GDP) awarded $7 million to Stage 1, Proof of Concept, while the Victorian State Government awarded $25 million via the Energy Technology Innovation Strategy (ETIS), $5 million for Proof of Resource and if successful $20 million towards Demonstration. Funding negotiations have taken place throughout the remainder of the year, with the execution of the GDP occurring in September 2010 while the Victorian funding agreement negotiations remain ongoing.

Concurrently, we have continued to seek cornerstone investors for the project, commenced operational planning including detailed well design and a network connection study as well as undertaking extensive Community Engagement. Community engagement activities have included well attended community information days, correspondence to address individual queries, the creation of a dedicated enquiry email and the GGPP bulletin as well as the formation of a Community Reference Group (CRG). Our past chairman, Mr Simon R Molesworth AM, QC played a pivotal role in our initial community engagement activities and his contribution is greatly appreciated and acknowledged.

In addition to the community engagement role undertaken by Mr Molesworth, the board wishes to express its appreciation to Simon for his outstanding support of the Company overseeing its transition through the IPO process to public listing and then its initial three year period. We thank him and wish him every success in his advocacy for renewable energy in particular the role it can play in combating climate change.

While our exploration permit, GEP 10 is home of the GGPP, Greenearth Energy is well aware of the strategic importance of our Latrobe Valley/Onshore Gippsland permits, GEP 12 and 13 in potentially delivering a significant reduction in emissions by way of our exploration and development of our geothermal resources in that area. We hold the firm belief that these regions have the potential be home to a number of geothermal projects similar to the GGPP which have the potential to provide emission free base-load renewable energy as well as heat for industrial processes such as coal drying.

Internationally, PT Geo Power, our Jakarta based joint venture company which Greenearth Energy has a 40% interest continues to assess several geothermal opportunities and hopes to be able to secure a suitable project in the coming year.

Greenearth Energy has also entered into a partnership with RMIT School of Aerospace, Mechanical and Engineering Department to advance the concept of generating zero emissions electricity and drinking water from shallow geothermal resources. The project is an initial three-year project focusing on the development and performance enhancement of a prototype dual geothermal system. We are delighted with our partnership with the RMIT and relish the prospect of bringing successful research outcomes to commercial fruition within the next three years.

In line with our corporate strategy of being at the cutting edge of research and development, we have undertaken work during the year to identify a number of technologies with an emphasis on renewable energy and energy efficiency.

These technologies have the potential to provide Greenearth Energy with a suite of near and medium term commercial outcomes and include the full acquisition of Pacific Heat and Power Pty Ltd (PHP). Given PHP’s innovative electricity generation products are based on proven world-class technologies which provide its customers with increased energy productivity, energy reliability, operational savings and lower greenhouse gas emissions the board recognised the benefit of it becoming a fully owned subsidiary.

Other technologies of interest include a number developed in Israel which have particular application in Australia. Currently we are undertaking detailed discussions with these potential technology partners and hope to achieve mutually successful partnerships in the coming financial year.

I would also like to thank our great staff for another year. For such a small company, the team at Greenearth Energy has achieved a great deal in a relatively short time. We look forward to moving the company forward and thank shareholders for continuing with us in our endeavour to achieve success.

robertJannellsChairman

13 October 2010For

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The Directors present their report together with the financial report of Greenearth Energy Ltd and the entities it controlled for the financial year ended 30 June 2010 and Auditors Report thereon.

This Financial Report has been prepared in accordance with Australian equivalents of International Financial Reporting Standards.

Directors

The names and details of the Directors in office during the financial year and until the date of this Report are set out below. The directors have been in office for the entire period unless otherwise stated.

Names,qualifications,experienceandspecialresponsibilities

Simonr.MolesworthaMQCBA, LL.B, FEIANZ, FAIM, FAICD, FVPELA, PIA(Hon.F), C.Env.P, M.ICOMOS Queen’s Counsel (Non Executive Chairman) (31 July 2007-30 June 2010)Mr Molesworth was appointed to the Board on 31 July 2007, as non-executive Chairman. He is one of Australia’s most experienced Queens Counsel specialising in environmental and resource law. He is a fellow of five professional institutes and has been a member of numerous government advisory bodies at both State and Federal levels, including having once served as Victoria’s Mining Warden. Mr Molesworth has served on many boards, mainly as chairman, including a number of publicly listed corporations in the resource field. He is currently chairman of Alison Hunter Memorial Foundation Limited, the International National Trust Organisation and ME/CFS Australia Ltd and a director of the Rippon Lea Endowment Fund Ltd. Mr Molesworth is also the Chairman of the ME/Chronic Fatigue Syndrome Society of Victoria Inc. During the past three years Mr Molesworth has sat on the boards of the Australian Council of National Trusts, Environment Institute of Australia and New Zealand, the Earth Foundation Australia Limited and the National Trust of Australia (Victoria). Mr Molesworth resigned from the Greenearth Energy Ltd Board on 30 June 2010, effective 1 July 2010.

MarkMillerB.Sc (Managing Director)Mr Miller was appointed to the Board on 3 September 2008. He has had extensive senior management experience across a number of industries both domestically and internationally including downstream oil marketing, consumer products manufacturing and distribution, banking and finance as well as environmental technology. No other directorships of listed companies were held at any time during the three years prior to 30 June 2010.

robertJ.annellsCPA, F.Fin. (Non Executive Director) Mr Annells was appointed to the Board on 13 July 2006. He is a former member of the ASX with over forty years experience in the securities industry and is a qualified accountant. His experience includes provision of corporate and investment advice to the business and resources industries. During the past three years, Mr Annells held the positions of Chairman of ASX listed mining company Minotaur Exploration Limited until 15 February 2010, Non Executive Director of Gippsland Offshore Petroleum Limited until

30 November 2007, and Non Executive Director of London based company Xtract Energy Plc, resigning on 31 December 2009. Mr Annells currently fulfils the positions of as Executive Chairman of ASX listed oil and gas exploration company Lakes Oil N.L. and Non executive Director of Rum Jungle Uranium. Mr Annells has assumed the role of Chairman effective 1 July 2010.

Johnt.KopcheffB.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 until late July 2010 and continued on their board as Executive Director until resigning on 22 September 2010. He is also a director of Great Panther Silver Limited.

robertL.KingB.Sc. Dip Ed. M Env. Studies (Executive Director)Mr King was appointed to the Board on the 13 July 2006. He has 25 years experience working for the Geological Survey of Victoria. In 1985 he led a team that reviewed the geothermal potential of Victoria and produced a report that formed the basis for the current geothermal legislation and managed the Geological Mapping and Basin Studies Section in the Geological Survey. Mr King was the Director of Minerals and Petroleum Regulation Branch that administered licensing, occupational health and safety and environmental law covering offshore and onshore petroleum operations, oil and gas transmission pipelines, mines and quarries. Mr King was a member of a Federal Government team that formed to establish the National Offshore Petroleum Safety Authority and served on it board from 2005 until March 2010.

CompanySecretary

VickiM.Kahanoff B Bus, CPAMrs Kahanoff is a qualified accountant (CPA) who has spent the majority of her career in the resources sector. Mrs Kahanoff spent eight years in the forestry sector. She assisted in the successful sale of Victorian Plantations to Hancock Plantations, now known as Hancock Victorian Plantations. During the last five years, she has been the corporate accountant and chief financial officer of Lakes Oil N.L. These roles have involved overseeing all of the accounting functions as well as assisting in company secretarial functions.

DIreCtorS’report

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Directors’Meetings

During the year ended 30 June 2010 the Directors of the company met eight times. The names of those individuals who served as Directors of the company during the period, together with the number of meetings which they attended and those for which they were eligible to attend, are detailed below:

Board Meetings Audit Committee Meetings

Attended Eligible to attend Attended Eligible to attend

Simon R. Molesworth 8 8 - -

Mark Miller 8 8 - -

Robert J. Annells 8 8 1 2

John T. Kopcheff 8 8 2 2

Robert L. King 8 8 2 2Directors’InterestsinSharesoroptions

The interests in securities of the company and related entities which are held by each Director as at the date of this Report, either directly or indirectly through entities or parties related to him, are:

Securities held in Greenearth Energy Ltd.

Ordinary shares Options

2010 2009 2010 2009

M Miller D 100,000 - 3,000,000 3,000,000

I - - - -

R.J Annells D - - 1,000,000 1,000,000

I 1,099,999 1,099,999 666,666 666,666

J.T. Kopcheff D - - - -

I 2,350,000 2,350,000 3,083,333 3,083,333

R.L. King D - - - -

I 683,334 683,334 1,583,334 1,583,334

Note: D = direct ownership. I = indirect ownershipSR Molesworth resigned on 30 June 2010, effective 1 July 2010

Directors’InterestsinContracts

Directors’ interests in contracts are disclosed in Note 21 to Financial Statements.

auditor’sIndependenceDeclaration

The directors have received a declaration of independence from our auditors, Pitcher Partners, which is attached to the Directors Report.

DIreCtorS’report(CONTINUED)F

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Non-auditServices

Non audit services are approved by resolution of the Board of Directors. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

The following fees for non-audit services were paid or payable to the external auditors during the year ended 30 June 2010:

2010 2009

$ $

Tax compliance 7,054 5,100

Accounting advice and assistance - 14,735

7,054 19,835

CorporateInformation

Corporate StructureGreenearth Energy Ltd. is a company limited by shares, incorporated and domiciled in Australia. It is the ultimate parent entity and as such has prepared a consolidated financial report incorporating the entities it controlled during the financial year, which are outlined in the following illustration of the group’s corporate structure. The group had two Associates at 30 June 2010.

DIreCtorS’report(CONTINUED)

Greenearth Energy Limited

Incorp’n 17 May 2007

(NZ) CN 194 12 42

Greenearth Energy Efficiency Pty Ltd.

Incorp’n 7 Jul 2010

ACN 145 075 047

Pacific Heat and Power (PHP)

ACN 131 717 247(33.06% Equity)

Greenearth Energy Ltd.Incorp’n 13 July 2006

ACN 120 710 625 ABN 60 120 710 625

TFN 847 896 484

GEP10 GEP12 GEP13 100% 100% 100%

Greenearth Heat Energy Pty Ltd.

Incorp’n 26 Mar 2009

ACN 136173 432

Greenearth GeothermalEnergy Pty Ltd.


ACN 136173 441

Greenearth Power Pty Ltd.

Incorp’n 28 Sept 2007

ACN 127 768 030

PT Geo Power Indonesia

(40% Equity)

Greenearth SolarEnergy Pty Ltd.


ACN 136 173 423

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Principal ActivityThe principal activity of the company during the period ended 30 June 2010 was that of geothermal exploration and investment.

Significant Changes in the State of AffairsThere were no significant changes in the state of affairs of the consolidated entity during the year.

Results and dividendsThe operating loss of the company for the year ended 30 June 2010 was:

2010 2009

Operating loss before income tax 3,461,782 1,759,557

Income tax attributable to operating loss - -

Operating loss after income tax 3,461,782 1,759,557

During the year ended 30 June 2010, no dividends were paid or declared by the company and the directors do not recommend payment of a dividend.

IndemnificationandInsuranceofDirectors’andofficers

The company has during and since the end of the financial year, in respect of any person who has, is or has been an officer of the company or a related body corporate, paid a premium in respect of Directors and Officer liability insurance which indemnifies Directors, Officers and the Company of any claims made against the Directors, Officers of the Company and the Company, subject to conditions contained in the insurance policy. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract.

proceedingsonBehalfoftheCompany

No person has applied for leave of Court to bring proceedings on behalf of the entity.

Shareoptions

Unissued sharesAs at the date of this report 43,833,333 unissued ordinary shares of the company were under option (44,333,333 at 30 June 2009). Refer note 15 of the financial statements for further details of the options outstanding.

Option holders do not have any right, by virtue of the options, to participate in any share issue of the company or any related body corporate.

Shares issued as a result of the exercise of optionsThere have been no shares issued during this financial year as a result of exercising of bonus options: Refer note 15.

environmentalregulationandperformance

The company holds interests in geothermal exploration permits and licences in Victoria. All of these permits and licences impose regulations regarding environmental issues. There have been no known breaches of the environmental regulations during the year.


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reviewofoperations

CORPORATE DEVELOPMENTS

During this past financial year, the company has continued to make substantial progress in terms of its exploration, development and technology initiatives both domestically and internationally.

In July 2009, Greenearth Energy confirmed the strategic appointments of Sinclair Knight Merz (SKM) and KPMG Corporate Finance (Aust) Pty Ltd (KPMG) as technical and corporate/commercial advisors respectively to assist the company successfully develop its prime Victorian geothermal permit areas; the Greater Geelong region, onshore Gippsland and the Latrobe Valley.

Work conducted by Greenearth Energy and SKM focussed on the region south-west of the City of Geelong in GEP 10 which encompasses the Wensleydale and Gherang regions, with the view to further understand a specific area of our Inferred Resource. This work resulted in the development of the company’s Geelong Geothermal Power Project (GGPP) strategy underpinned by an updated inferred resource estimate for the GGPP.

This work enhanced previous information and was incorporated in Greenearth Energy’s application, in early August 2009, to the Federal Government’s second round Geothermal Drilling Program (GDP) for $7 Million for Proof of Concept. This Proof of Concept drilling represents Stage 1 of the GGPP.

In late August 2009 Greenearth Energy announced further details relating to its planned drilling of Stage 1 of the GGPP and an application was made for $20 Million to the Victorian Government’s Energy Technology Innovation Strategy (ETIS) program for a 12MWe geothermal demonstration energy plant utilising the Hot Sedimentary Aquifer (HSA) resource in the area. The demonstration plant development represents Stage 2 of the GGPP.

The cost of achieving Stage 1 and Stage 2 and being capable of producing approximately 12MWe of energy is estimated to be $104 Million. $31.8 Million for the Stage 1, Proof of Concept and an additional $72.3 Million for Stage 2, Demonstration.

The GGPP is planned, if Stage 1 and Stage 2 are successful, to be fully commercialised using a phased development approach by means of deployment of modular Organic Rankine Cycle (ORC) plant technology, with successful commercialisation having the potential to produce up to 140MWe and substantial CO2

displacement. This proposed commercialisation phase represents Stage 3 of the GGPP.

In early December 2009, The Victorian Government, under its Energy Technology Innovation Strategy (ETIS) program, awarded Greenearth Energy $25M. This money was granted to assist the first two stages of the company’s Geelong Geothermal Power Project. The Stage 1, Proof of Resource stage was awarded $5 Million to assist to drill a deep geothermal production well. Upon successful completion of Stage 1, an additional $20 Million has been awarded towards the development of the Stage 2, 12MWe geothermal energy demonstration plant. Negotiations concerning the governance and administration the grant in terms of setting Conditions Precedent and Milestone criteria are continuing with Greenearth Energy and the Victorian Government aiming to ensure our flagship project is beneficial to all Victorians in the delivery of a substantial renewable energy resource.

Later in December 2009 the GGPP was awarded $7 Million in Australian Government funding from round two of the Geothermal Drilling Program (GDP) for the project’s Stage 1 Proof of Concept, further enhancing the project’s ability to commence. The company received the draft $7M Geothermal Drilling Program (GDP) funding agreement from the newly formed Australian Centre for Renewable Energy (ACRE) within the Department of Resources, Energy and Tourism (DRET) on 20 May 2010. The initial timeframe indicated a negotiation period of 30 days prior to execution. The company was subsequently, advised by ACRE on two separate occasions that its GDP funding negotiation period had been extended. A mutually suitable funding agreement was executed in early September 2010.

Upon execution the company received an initial amount of the grant funds to assist in planning activities, the remaining grant funds are receivable upon achieving conditions precedent and project milestones. Conditions precedent include the securing of funding commitments for the Stage 1 Proof of Concept as well as undertaking community consultation activities and meeting the first project milestones which include detailed well designs.

Greenearth Energy is placed in the unique position of being a recipient of both Commonwealth and Victorian Government funding for the company’s GGPP Stage 1 Proof of Concept stage, totalling $12 Million.

The development of the Geelong Geothermal Power Project (GGPP) involves addressing a number of key issues and progressing the project through a number of stages including:

1. Regulatory – obtaining the necessary approvals, licences and permits 2. Technical – obtaining the most appropriate technologies, accessing and utilising the geothermal resource and electricity distribution 3. Economic and Financial – achieving economic viability and raising capital 4. Environmental and Social – minimising impacts on the environment and the community

Each stage requires a number of environmental and operational permits to be obtained. The process of obtaining these permits includes ensuring that all relevant stakeholders, including the community, are appropriately engaged and are included in the development process.

The key development stages of the GGPP will include:

A. A preliminary works stage B. Stage 1 - Proof of Concept (Initial Drilling) C. Stage 2 - Demonstration D. Stage 3 - Commercialisation

In parallel with the grant funding agreement negotiations, the commencement of the 2010 calendar year saw an extensive Community and Stakeholder Engagement Program being rolled out, in support of the GGPP.

On February 27th an ‘Open House’ Information Day was held in Modewarre, to provide information to local communities and stakeholders proximate to the GGPP area. With over 160 registered attendees, the event was considered well attended. Information about the GGPP’s current status, proposed development stages of the entire project and general information about geothermal systems was distributed, questions addressed and requests for additional information taken and subsequently provided.


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Community and Stakeholder Engagement activities saw the announcement of Greenearth Energy’s intention to form a Community Reference Group (CRG), with the aim being to establish an accessible representative forum to address issues of community interest related to the project and to capture community feedback and suggestions. The CRG also exists to assist with the decision making for the GGPP, to increase understanding about the project within the community, and ensure a more effective response from the project team to any arising issues and concerns.

The CRG consists of an Independent Chair, ten members representing various stakeholder and community groups and a Greenearth Energy representative, Executive Director, Mr Robert King.

The role of independent chair sits with Ms. Chris Johnston. Ms. Johnston is a strategic planner specialising in heritage and community planning projects. Ms. Johnston has skills in strategic thinking and policy analysis, and is solutions orientated in her approach. Ms. Johnston has extensive experience as an independent chair including: Chair of Mt Egerton Environment Review Group; Chair of Montrose Quarry Stakeholder Reference Group and Chair of Melbourne Water’s Eastern Treatment Plant Community Liaison Committee.

The first meeting of the GGPP Community Reference Group was held in early September 2010 and regular meetings will be held throughout the development of the GGPP.

An enquiry email dedicated to GGPP has been established, as has a dedicated distribution list, where subscribers are forwarded relevant information to assist in maintaining open communications channels. The enquiry email is [email protected] and the board of Greenearth Energy encourages its use to direct any queries about the GGPP.

The company has also produced a newsletter, the GGPP Bulletin, which is distributed via the GGPP distribution list and is also contained on the Greenearth Energy website. This bulletin will be produced and distributed in line with any developments concerning the GGPP.

In conjunction with the various community and stakeholder engagement activities, detailed planning continued specifically in the areas of well design and flow testing, services tendering process, addressing the necessary planning and environmental consents requirements and commencing the identification of existing network connection capacity.

While much activity centred on the development of the GGPP, Greenearth Energy is committed to the development of its geothermal assets in the onshore Gippsland and Latrobe Valley regions of the State. The company is resolute in its belief that these regions have the potential to generate emissions free base-load renewable electricity as well as heat for industrial processes such as coal drying.

On 19 January 2010, Greenearth Energy announced a partnership between the company and the Royal Melbourne Institute of Technology’s (RMIT’s) School of Aerospace, Mechanical and Engineering Department to advance the concept of generating zero emissions electricity and drinking water from shallow geothermal resources. The project was launched at the RMIT University’s Bundoora Campus by the Honourable Peter Bachelor MP Minister for Energy and Resources and Community Development. The three-

year project funded through an Australian Research Council Linkage grant, RMIT University and Greenearth Energy focuses on the further development and performance enhancement of a prototype dual geothermal system with successful research outcomes potentially delivering commercial scale units suitable for fresh water and zero emissions electricity production.

Internationally the company continued to assess a number of potential geothermal project opportunities. This ongoing work resulted in an announcement on 5 July 2010 that PT. Geo Power Indonesia had signed a non binding Memorandum of Understanding (MoU) with the Cengiz Holding A.S. of Turkey to develop a Java based site in Indonesia for the production of geothermal power. Work will continue on advancing this opportunity throughout the 2011 financial year as will the assessment of other geothermal opportunities in both Indonesia and the wider Pacific Rim.

In March 2010, Greenearth Energy advised that it had reached agreement to purchase Pacific Heat and Power (PHP) external shareholder’s interests. PHP’s innovative electricity generation products are based on proven world-class technologies which provide its customers with increased energy productivity, energy reliability, operational savings and lower greenhouse gas emissions. The acquisition was finalised in September 2010, with the PHP external investors’ being purchased with Greenearth Energy shares as consideration.

Further strategic work was undertaken during the year, which led to the identification of a number of technologies with an emphasis on renewable energy and energy efficiency which have the potential to provide Greenearth Energy with a suite of near and medium term commercial outcomes.

These include energy efficiency and solar technologies being developed in Israel which have particular application to Australia. Detailed discussions continue between Greenearth Energy and a number of potential technology partners in an effort to achieve mutually beneficial partnership during the 2011 financial year.

In July 2010 Greenearth Energy had the pleasure of hosting Professor Jacob Karni of the Weizmann Institute of Science in Israel to Melbourne. The Professor has 20 years of research and development experience with keen interest in the development of new methods for concentration, absorption, conversion, transmission and storage of concentrated solar energy, and implementing these methods in genuine solar power-conversion systems. Professor Karni’s main research interests centres around the utilization of concentrated solar energy at high temperatures.

On 1 July, 2010 the company announced the resignation of its founding Chairman Mr Simon Molesworth AM QC after three years in the role as non-executive Chairman. Mr Molesworth, an internationally renowned environmental lawyer and environmental policy formulator, who is a passionate advocate for all renewable energy, particularly geothermal energy. The board and management of Greenearth Energy wish to publicly acknowledge the contribution that Mr Molesworth made to Greenearth Energy in its formative years and the active role he undertook in terms the company’s initial community engagement work in support of the GGPP. In order to maintain the continuity and momentum of the good work of the past Chairman, Mr Robert Annells, assumed the role of Non Executive Chairman. Mr Annells is a founding Non Executive director of Greenearth Energy Limited, Chairman of PT Geo Power Indonesia and Executive Chairman of Lakes Oil N.L.


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Figure1Conceptual Model (including 12MWe geothermal energy plant) for the Geelong Geothermal Power Project (not to scale)

Turbine and Generator/Transformer Unit

200 m (approx)

200 m(approx)

Water Tank

Production Wells

Water Pond

Injection Wells Surface Rocks

Thermal Insulating

Sandstone / Siltstone

Target Reservoir

Crayfish Formation

Basement Rock

Kilometers

Kilometers

Conductive Heat Flow

Bou

ndar

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yers

Inferred Fault

Injection

Prod

uctio

n

Pump House for Water Pond

Heat Exchanger and BinaryCycle Flash Units

Fin-Fan Air Coolers

22 kV Distribution Lines(wooden pole construction)

Workshop/Site Office

Storage Tank for Geothermal Working Fluid

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Greenearth Energy Ltd.DIreCtorS’report(CONTINUED)

RESERVES AND RESOURCES

Greenearth Energy Ltd has Inferred Geothermal Resources for two distinct areas, Geelong/Anglesea Region and the onshore Gippsland 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. While work has been undertaken to continually revise and advance the category of our reserves and resources, they have not materially changed during the 2010 Financial Year.

The following table provides a summary of the Company’s Inferred Resources:

Geelong/angleseaarea

(Gep10)Ger100%

Geelong/angleseaarea

(Gep10)Ger100%

GeelongGeothermalpowerproject

(Gep10)Ger100%

WombatGeothermalplay

(Gep13)Ger100%

Geothermal Resource Estimation Category Achieved Inferred Inferred Inferred Inferred

Geothermal Resource TypeHot Sedimentary

Aquifer (HSA)

Enhanced Geothermal System

(EGS)Hot Sedimentary

Aquifer (HSA)Hot Sedimentary

Aquifer (HSA)

Estimated Thermal Energy 40,000 PJ 220,000 PJ 17,000 PJ 3,600 PJ

Heat Flow 90mW/m2 90mW/m2

Estimated Volume of Target Reservoir 107 km3 549 km3 55 km3 14.8 km3

Average Temperature

1500C -225 0C with uncertainty of

±150C Unknown 188 0C 1570C

Competent Persons

Anglesea (Geelong) and Wombat regionsThe information in this report that related to Geothermal Resources in the Geelong Anglesea (GEP 10) and the Wombat Geothermal Play near Seaspray, Gippsland (GEP 13) has been compiled by Dr Graeme Beardsmore, an employee of Hot Dry Rocks Pty Ltd (HDRPL). The resource estimate for the Geelong Geothermal Power Project, just north of Anglesea draws upon a series of reports for Greenearth Energy by HDRPL.

Dr Beardsmore has over 15 years experience in the determination of crustal temperatures relevant to the style of geothermal play under consideration, is a member of the Australian Society of Exploration Geophysicists and abides by the Code of Ethics of that organization. Dr Beardsmore qualifies as a Competent Person, as defined in the Australian Code for Reporting of Exploration Results, Geothermal Resources and Geothermal Reserves (2008 Edition). Dr Beardsmore consents to the public release of this report in the form and context in which it appears.

Geelong Geothermal Power ProjectThe information in this report that relates to Geothermal Resource estimation for the Geelong Geothermal Power Project (GGPP) is based upon a report compiled by James Vincent Lawless, an employee and Principal of Sinclair Knight Merz Limited (SKM). He is a Fellow of the Australasian Institute of Mining and Metallurgy and holds Chartered Geologist status with that body. SKM has been engaged as Consultant by Greenearth Energy but holds no financial interest in the project or in Greenearth Energy.

Mr Lawless is a Competent Person as defined by the Australian Code for Reporting of Exploration Results, Geothermal Resources and Geothermal Reserves (2008 Edition), and consents to the public release of this report in the form and context in which it appears.

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GEP 10 - GEELONG AREA

The major focus of activities carried out in GEP 10, was the planning and design of the Geelong Geothermal Power Project (GGPP). Work carried out by technical advisors, Sinclair Knight Merz (SKM) focussed on the resource area in which the GGPP is to be developed. A pre-feasibility concept development plan has been created and formed the basis for both the Australian Government’s Geothermal Drilling Program (GDP) and the Victorian’s governments Energy Technology Innovation Strategy (ETIS) grant applications.

The GGPP is planned to be fully commercialised using a phased development approach by means of deployment of modular Organic Rankine Cycle (ORC) plant technology, across the resource. The resource has been assessed by SKM, as having the potential to support the commercialisation of up to an estimated 140MWe and has the potential to provide substantial CO2 displacement if it is brought to full commercialisation.

Geo-scientific Prognosis for Wells G1 and G2

As part of the preparatory work for Stage 1 of the Geelong Geothermal Power Project (GGPP), Greenearth Energy’s consultants, SKM, proposed a program of works required to be undertaken in preparation for the drilling of the inferred geothermal resource. The first step in that work was a geo-scientific prognosis to establish the geological characteristics of the proposed resource.

This report sets out the necessary geo-scientific assessment for developing the detail necessary for the GGPP Stage 1 well planning and drilling.

The objectives of this prognosis were to determine the conditions likely to be experienced in the drilling of a well for the GGPP. This includes information regarding the geology and characteristics of the geothermal resource, including permeability, geochemistry and temperature data.

The specific objectives of the prognosis include:

• obtaining production information • determining a well temperature and pressure profile • gaining a deeper understanding of the subsurface geology, including permeability controls • identification of permeable geological structures and their properties • gauging the prospectivity of the area to the southwest of Geelong for further geothermal development • enabling chemical sampling of geothermal fluids and gases, and • optimising the design of future wells

The prognosis has concluded that whilst only a few deep wells exist within the area of the GGPP an expectant geological picture of what may be expected for the proposed wells can be determined. Whilst quality temperature, pressure and chemical data is lacking, the interpretation of a number of offset wells has enabled a general characterisation of the expected geothermal resource in the target Pretty Hill Formation.

The analysis has indicated that likely temperatures of up to 190°C are expected at well total depth (TD), with reservoir temperatures in the range 170-190°C (figure 2).


Figure3 Core permeability for Pretty Hill Formation for depth > 3,000m

Figure2GGPP estimates of temperature versus depth

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Permeability is expected to be highly variable. Within the Pretty Hill Formation, high permeability’s can locally be expected with porosity in the range 20-25%. Analysis of the available database of core samples of Pretty Hill Formation rocks from depths greater than 3,000 m indicates a mean permeability of 1.7mD (figure 3). However as the sample is small and the high permeability layers within the producing formation produce the bulk of the fluid with little contribution from the low permeability layers, it is more appropriate to use the mean value of permeability is therefore used to better estimate the productive capacity of the productive aquifer. For the 651 cores with porosity of less than 17% this mean permeability is 12mD. On this basis it would be expected that the reservoir unit would need to have a thickness greater than 250m of permeable rock to achieve a permeability thickness function (Dm) required for commercial rates of flow.

Well Design for Production and Injection Wells

SKM have developed detailed well designs for the GGPP Stage 1 production and injection wells. The wells have been designed as exploration wells and they contain inherent uncertainty about the reservoir pressure regime and fluid composition expected to be encountered.

The well design work included a review of offset wells from the Otway Basin. Well completion reports and composite well logs were analysed in order to obtain a better understanding of the sub-surface conditions that may be encountered in the GGPP wells. In particular attention was focussed on understanding: offset casing schematics, potential drilling hazards, pore pressure and formation pressure, offset mud weights used.

The primary objective of the production well is to produce geothermal fluid from a reservoir horizon expected to be encountered between 3,500m and 4,000m. The well will be open over the reservoir interval and completed with an uncemented slotted liner. It is proposed that the production and injection wells will have a well head separation of 20m and a maximum lateral separation of 1,500m at total depth.

The wells have been designed in accordance with NZS 2403:1991 Code of Practice for Deep Geothermal Wells.

HSA Systems Worldwide

A comparative study of existing Hydrothermal Geothermal Power Plants which have been developed on Hot Sedimentary Aquifer (HSA) and Basin and Range (B&R) geothermal resources has been carried out. The review of these lower enthalpy systems demonstrates the proven ability of HSA geothermal systems for long term and sustainable power generation.

table1Comparison of HSA and B&R geothermal projects worldwide

Magneto-telluric (MT) Survey

In November 2008, Greenearth Energy conducted a 50km magneto-telluric (MT) survey from Lake Modewarre across the Bellarine Peninsula to St Leonards. An initial interpretation undertaken by Quantec Geoscience Pty Ltd was that the subsurface resistivity varies significantly from 1Ω.m near the surface to greater than 1000Ω.m at depth. Shallow sediments from the surface to a maximum depth of 800m comprise the most conductive feature with the near surface conductive zone thickening towards the coast. It was suggested that this conductive zone may in part be due to salt water penetration into the sediments. A number of isolated higher conductivity anomalies were also observed beneath these shallow conductive sediments and were proposed as potential geothermal targets.


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Greenearth Energy sought a second interpretation of these survey data from SKM in 2009. This interpretation concluded that the resistivity patterns observed at Bellarine are dominated by the conductive lithologies associated with the late Cretaceous and Tertiary Formations. These shallow low resistivity layers are considered to be due to the presence of near surface clay or marl-rich conductive sediments. Fluids contained within these sediments such as the Eastern View aquifer units may contribute to these very low resistivity’s. The resistivity contrasts reflect the layering of the basin. The deeper Jurassic and Cretaceous formations tend to display a more homogeneous resistivity character.

This in conjunction with the low resistivity units above probably limits the ability of the MT survey technique in resolving subtle structural information below the top of the Eumeralla Formation, and would suggest that the depth and extent of the target Pretty Hill formation cannot be reliably mapped in this environment using resistivity methods.

The interpretation does however indicate that it is likely that higher resistivity features seen at deeper levels within the MT sections may be associated with the Palaeozoic basement underlying the Otway Basin that sits uncomformably beneath the target aquifer formations.

GEP 12/13 – GIPPSLAND AND LATROBE VALLEY

Whilst the bulk of the company’s activities have been centred on the flagship Geelong Geothermal Power Project within GEP 10, exploration Activities have steadily progressed in the onshore Gippsland/Latrobe Valley permits, GEP 12 and GEP 13.

During the year a number of activities were undertaken with a view to improving our understanding of the geology within and beneath the Latrobe Valley.

Figure4 Bellarine Magneto-telluric survey - Site Locations


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The very thick brown coal deposits found in the area tend to obscure geophysical signals and makes interpretation of the geology beneath the coals difficult. Greenearth Energy’s exploration program has largely focussed on the application of technologies that may assist in mapping the depth to and nature of the Palaeozoic basement, including the identification of structures that may control the deposition of favourable reservoir lithologies associated with the Early Cretaceous Rintoul’s Creek Sandstone / Tyers Conglomerate units at the base of the Latrobe Valley sedimentary sequence. These applications have included Micro Earthquake Monitoring (MEQ), detailed basement interpretation work, and a magneto-telluric (MT) geophysical survey.

Micro Earthquake (MEQ) Monitoring – Pilot Trial

Greenearth Energy Ltd undertook a trial Micro-Earthquake Monitoring (MEQ) as a technique to indentify prospective geothermal areas. This trial, recording small magnitude earthquakes, was attempting to show indicative patterns in relation to major fracture zones and key sedimentary layers, as well as the use of shear wave splitting to help define potential permeable zones. Whilst MEQ during the creation of artificial fractures in rocks is common place, the application of monitoring natural micro earthquakes as an exploratory tool in this context is believed to be a first within Australia.

The coordination agreement with the concurrent petroleum explorer, Lakes Oil N.L., enabled Greenearth Energy Ltd to gain access to the Loy Yang 2 petroleum well. A geophone (sonde) was placed at 1,350 m in the Loy Yang-2 well in November 2008. Another geophone was placed at the surface.

The sondes continuously monitored the occurrence of natural sub-surface activity which was recorded at the surface and harvested at intervals for analysis and interpretation. The interpretation of these data was undertaken by the Institute of Earth Science and Engineering (IESE), New Zealand.

The analysis of in excess of 6 months of data gathered by the seismic array indicated that a relatively low rate of natural seismicity is present in the Loy Yang area. A group of seismic events are interpreted to have originated in the same area and it is believed that the most likely source may be related to the operations of the Loy Yang coal mine to the north.

The low rate of natural local events suggests that the use of advanced MEQ borehole recording techniques requiring an array of geophones in various bores/wells, over longer periods of time (several years), is the only effective way of mapping sufficient events to enable a meaningful structural interpretation to be made. Given the future cost and period of time required to implement the technique further, Greenearth Energy has decided against further utilisation of MEQ as an exploration tool.


Figure5Loy Yang- 2 MEQ deployment

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Latrobe Valley Magneto-telluric (MT) Geophysical Survey

Greenearth Energy will be undertaking a magneto-telluric (MT) geophysical survey in the Traralgon area of the Latrobe Valley. The MT method measures naturally occurring magnetic and electric fields which propagate through the earth. The MT survey will assist Greenearth Energy in its interpretation of the geology underlying the Latrobe Valley depression within the onshore Gippsland Basin.

The MT data is to be acquired along a NNW line between Glengarry Nth and Willung South. The Latrobe Valley region is home to a number of large industrial facilities including power generation, forest plantations, and oil and gas transmission as well as numerous small to medium pastoral properties. These all have an associated electromagnetic noise which may mask the natural signal and reduce the effectiveness of the technique. Should the method be effective then Greenearth Energy may look to expand the survey coverage across other areas within the valley.

Relevant stakeholders including the Department of Primary industries (DPI), the Department of Sustainability and Environment (DSE), Latrobe City Council, Wellington Shire Council, West Gippsland Catchment Management Authority (WGCMA), Aboriginal Affairs Victoria (AAV) and private and public landholders have been consulted and the necessary Access Agreements obtained. The survey is due to commence at the end of October 2010.

Significanteventsafterbalancedate

On 2 September 2010, the consolidated entity acquired 66.94% of the share capital of Pacific Heat and Power Pty Ltd (PHP) making it a 100% owned subsidiary of Greenearth Energy Ltd. For further information on the acquistion refer to Note 23.

On 8 September 2010, the Geothermal Drilling Program (GDP) funding agreement was executed by the board of Greenearth Energy Ltd and the Commonwealth. The funding agreement stipulates the manner in which the grant is to be administered and details the conditions precedent and prescribed project milestones/payments to be made.

On 23 September 2010, Greenearth Energy Ltd entered into a binding Memorandum of Understanding (MoU) with Israeli based company, Metrolight Limited. The basis of the agreement was to establish a working relationship for Greenearth Energy Ltd’s subsidiary Greenearth Energy Efficiency Pty Ltd to use the Metrolight lighting efficiency products in its project management for the delivery of energy efficiency solutions to the Industrial, Commercial, Manufacturing and Streetlighting sectors throughout Australia, Indonesia, Selected Asian countries as well as the wider Pacific Rim.

The contents of the MoU sets out the parameters and purchase obligations for Greenearth Energy Ltd to move to a Distribution Agreement which will provide Greenearth Energy with exclusivity within the specified region.


Figure6Seismic event detected by both the surface (top 3 traces) and borehole (bottom 3 traces) sensors

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Likelydevelopmentsandexpectedresults

Greenearth Energy Ltd will focus on concluding its current negotiations with the Victorian Government for its the ETIS program grant of $25 million in the coming months. This will allow for further capital raising activities to be undertaken, site negotiations to be concluded, logistical planning and site preparation activities to proceed for Stage 1 of the GGPP.

Within the Latrobe Valley area, it is expected that the selected geophysical contractor shall be available to commence the Latrobe Valley magneto-telluric (MT) survey at the end of October 2010. Upon the completion of survey operations, an interpretation of the collected data shall be undertaken to assess the potential effectiveness of the technique for mapping possible resistivity contrasts associated with the Palaeozoic basement beneath the Latrobe valley sedimentary package.

Indonesia has a large untapped geothermal resource and the Government of Indonesia have implemented a series of initiatives in relation to expanding its renewable energy base. Indonesia is a concentrated high temperature geothermal province with a potential geothermal resource of approximately 26,000 MW. Currently there is a little over 1,000 MW of installed geothermal generating capacity in Indonesia. PT Geopower Indonesia continues its assessment of a number of geothermal opportunities in Indonesia.

Greenearth Energy will continue to partner with RMIT to advance our joint research and development project. Greenearth Energy also hopes to conclude current negotiations with potential partners in the areas of energy efficiency and solar technologies being developed in Israel which have a particular application to Australia.

Greenearth Energy via its subsidiary Greenearth Energy Efficiency will utilise its newly formed partnership with Metrolight Limited to enter the energy efficiency sector by offering a complete solutions approach to implementing energy efficiency solutions including project management, custom installation and a range of lighting efficiency measures. The target sectors which will benefit from the energy efficiency solutions Greenearth Energy Efficiency can provide are the commercial, industrial, manufacturing and street lighting sectors.

remunerationreport

Directors’remuneration

Remuneration policyThe board of directors of Greenearth Energy Ltd is responsible for determining and reviewing compensation arrangements for the directors, and the executive team. 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 overall objective of ensuring maximum stakeholder benefit from the retention of a high quality board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as expenses payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company.

For directors and staff, the company provides a remuneration package that incorporates both cash–based remuneration and share–based remuneration. Bonuses are issued when Key Performance Indicators (KPI’s), which are stipulated within services agreements, are met in part or full, as assessed appropriate by Board. Mr Mark Miller, the Managing Director has KPI’s including Capital raising (including Government Contracts), attracting joint venture partners to major geothermal development projects and demonstrating good business management. If all KPI’s are achieved a performance bonus representing 30% of base salary may be achieved. Ms Vicki Kahanoff, the Chief Financial Officer has KPI’s in relation to meeting all mandatory and regulatory reporting requirements, cash management, budgeting and forecasting objectives and capital raising. If all KPI’s are achieved a performance bonus representing 20% of base salary may be achieved. Bonuses can be taken as cash, shares or a combination of both. The contracts for services between the company and specified directors and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Share-base remuneration is conditional upon continuing employment thereby aligning director and shareholder interests. The remuneration policy is not directly related to company performance. The board considers a remuneration policy based on short-term returns may not be beneficial to the long-term creation of wealth by the company for shareholders.

The company determines the maximum amount for remuneration, including thresholds for share-based remuneration for directors by resolution.


Figure7Professor Aliakbar Akbarzadeh and Master of Engineering student, Fulaqi Bai, next to an experimental combined desalination and power system at RMIT’s School of Aerospace, Mechanical and Manufacturing Engineering

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Nameddirectorsandexecutives

The names and positions of each person who held the position of director at any time during the financial period are provided above. There were two executives in the company who received remuneration for the financial period

Directors position

Simon R Molesworth Non-Executive Chairman (resigned 30 June 2010)

Robert J Annells Non-Executive Director / Chairman (appointed Chairman 1 July 2010)

Mark Miller Managing Director

Robert L King Executive Director

John T Kopcheff Non-Executive Director

executive position

Vicki Kahanoff Company Secretary & Chief Financial Officer

Craig Morgan Business Development Manager (appointed 15 March 2010)

Directors’remuneration

Primary Benefits Post Employment

Salary & Fees#

Cash Bonus

Non Monetary

Super- annuation

Termination Benefits

Equity Options*

Share Based

Payments

Total

S.R. MolesworthD 2010 63,750 - - 5,737 - - - 69,487

2009 85,000 - - 7,650 - - - 92,650

M. Miller 2010 290,000 - 3,513 51,799 - - 15,500 360,812

2009 225,000 20,000 1,895 41,667 - 76,000 - 364,562

R.J. AnnellsA 2010 76,954 - - 3,375 - - - 80,329

2009 74,109 - - 4,500 - - - 78,609

J.T. Kopcheff 2010 37,500 - - 3,375 - - - 40,875

2009 50,000 - 4,500 - - - 54,500

R.L. KingB 2010 173,270 - - 3,375 - - - 176,645

2009 177,280 - - 4,500 - - - 181,780

Total Directors remuneration

2010 641,474 - 3,513 67,661 - - 15,500 728,148

2009 611,389 20,000 1,895 62,817 - 76,000 - 772,101

# The directors decided to defer the final quarter payment of directors’ fees to conserve the company’s cash reserves and will seek approval from shareholders to have their outstanding directors fees paid via the issue of Greenearth Energy ordinary shares at the company’s Annual General Meeting (AGM) in November 2010.* The values shown in the column headed ‘equity options’ represents the non-cash notional value of the options.A The values shown represent payment made as a director and as a consultant (paid to Arc de Triomphe Securities Pty Ltd)B The Values shown represent payment made as a director and as chief geologist (paid to Rob King and associates).D S.R. Molesworth resigned 30 June 2010, effective 1 July 2010.


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executives’remuneration

Primary Benefits Post Employment

Salary & Fees

Non Monetary

Super- annuation

Termination Benefits

Equity Options*

Share Based

Payments

Total

V. Kahanoff 2010 128,440 2,404 11,559 - - - 142,403

2009 119,266 - 10,734 - - - 130,000

C. MorganC 2010 53,517 - 5,262 - - - 58,779

2009 - - - - - - -

Total Executive Remuneration

2010 181,957 2,404 16,821 - - - 201,182

2009 119,266 - 10,734 - - - 130,000

* The values shown in the column headed ‘equity options’ represents the non-cash notional value of the options.C C Morgan commenced employment 15 March 2010. Comparatives not applicable.

remunerationasoptionsandoptionswithnoperformancecriteria

The percentage of each director and executive remuneration which comprises options is shown in the table below:

Directorsandexecutives2010

%ofremunerationfromoptions

2009%ofremuneration

fromoptions

Directors

S.R. MolesworthD - -

M. Miller 20.8%

R.J. Annells - -

J.T. Kopcheff - -

R.L. King - -

executives

V. Kahanoff - -

C Morgan c - n/a

C C Morgan commenced employment 15 March 2010. Comparatives not applicable.D S.R Molesworth resigned 30 June 2010, effective 1 July 2010.


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optionsgrantedasremunerationthathavebeenexercisedorlapsedduringthefinancialperiod

2010 Directorsandexecutives

1July2009

Valuegranted

Valueexercised

Valuelapsed

30June2010

Directors

S.R. MolesworthD 90,000 - - - 90,000

M. Miller 76,000 - - - 76,000

R.J. Annells 60,000 - - - 60,000

J.T. Kopcheff 60,000 - - - 60,000

R.L. King 60,000 - - - 60,000

executives

V. Kahanoff 53,000 - - - 53,000

C. Morgan c - - - - -

total 399,000 - - - 399,000

C C Morgan commenced employment 15 March 2010. Comparatives not applicable.D S.R. Molesworth resigned 30 June 2010, effective 1 July 2010.

2009 Directorsandexecutives

1July2008

Valuegranted

Valueexercised

Valuelapsed

30June2009

Directors

S.R. Molesworth 90,000 - - - 90,000

M. Miller - 76,000 - - 76,000

R.J. Annells 60,000 - - - 60,000

J.T. Kopcheff 60,000 - - - 60,000

R.L. King 60,000 - - - 60,000

executives

V. Kahanoff 53,000 - - - 53,000

C. Morgan c - - - - -

total 323,000 76,000 - - 399,000

C C Morgan commenced employment 15 March 2010. Comparatives not applicable.

Directors’andexecutives’equityholdings

(a) Compensation options: granted and vested during the year

During the financial period no options were granted as equity compensation benefits to directors and executives.

During the financial period ending 30 June 2009, the following options were granted as equity compensation:

2009 termsandConditionsforeachgrant

GrantNumber

GrantDate

Valueperoptionat

GrantDate

exercisepriceper

Share

Firstexercise

Date

Lastexercise

expiryDate

Directors

S.R. Molesworth - - - - - -

M Miller 1,000,000 3 Sep 2008 0.025 0.20 3 Mar 2009 30 Sep 2010

M Miller 2,000,000 3 Sep 2008 0.025 0.20 1 Jul 2009 30 Sep 2012

R.J. Annells - - - - - -

J.T. Kopcheff - - - - - -

R.L. King - - - - - -

executives

V. Kahanoff - - - - - -


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(b) Share issued on exercise of compensation options No shares have been issued on exercise of compensation options by any director or executives.

(c) Number of Options held by Key Management Personnel

2010 Balance1July2009

Grantedasremuneration

optionsexercised

NetChangeother

(purchases/expired)

Balance30June2010

totalvested30June2010

totalexercisable

30June2010

totalunexercisable30June2010

Directors

S.R. MolesworthD 2,323,334 - - - 2,323,334 2,323,334 2,323,334 -

M Miller 3,000,000 - - - 3,000,000 3,000,000 3,000,000 -

R.J. Annells 1,666,666 - - - 1,666,666 1,666,666 1,666,666 -

J.T. Kopcheff 3,083,333 - - - 3,083,333 3,083,333 3,083,333 -

R.L. King 1,583,334 - - - 1,583,334 1,583,334 1,583,334 -

executives

V. Kahanoff 1,083,333 - - - 1,083,333 1,083,333 1,083,333 -

C. MorganC - - - - - - - -

total 12,740,000 - - - 12,740,000 12,740,000 12,740,000 -

2009 Balance1July2008

Grantedasremuneration

optionsexercised

NetChangeother

(purchases/expired)

Balance30June2009

totalvested30June2009

totalexercisable

30June2009

totalunexercisable30June2009

Directors

S.R. MolesworthD 2,667,779 - - (344,445) 2,323,334 2,323,334 2,323,334 -

M Miller - 3,000,000 - - 3,000,000 3,000,000 3,000,000 -

R.J. Annells 2,033,332 - - (366,666) 1,666,666 1,666,666 1,666,666 -

J.T. Kopcheff 3,777,777 - - (694,444) 3,083,333 3,083,333 3,083,333 -

R.L. King 1,811,112 - - (227,778) 1,583,334 1,583,334 1,583,334 -

executives

V. Kahanoff 1,111,110 - - (27,777) 1,083,333 1,083,333 1,083,333 -

C. Morgan c - - - - - - - -

total 11,401,110 3,000,000 - (1,661,110) 12,740,000 12,740,000 12,740,000 -

C C Morgan commenced employment 15 March 2010. Comparatives not applicable.D S.R. Molesworth resigned 30 June 2010, effective 1 July 2010.


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(d) Number of shares held by key management personnel

2010Balance

1July2009Grantedas

remunerationonexercise

ofoptionsNetChangeother

(purchases)Balance

30June2010

ord pref ord pref ord pref ord pref ord pref

Directors

S.R. Molesworth 1,003,334 - - - - - - - 1,003,334 -

M Miller - - 100,000 - - - - - 100,000 -

R. J. Annells 1,099,999 - - - - - - - 1,099,999 -

J.T. Kopcheff 2,350,000 - - - - - - - 2,350,000 -

R.L. King 683,334 - - - - - - - 683,334 -

executives

V. Kahanoff 83,333 - - - - - - - 83,333 -

C. MorganC - - - - - - - - - -

total 5,220,000 - 100,000 - - - - - 5,320,000 -

C C Morgan commenced employment March 2010. Comparatives not applicable

2009Balance

1July2008Grantedas

remunerationonexercise

ofoptionsNetChangeother

(purchases)Balance

30June2009

ord pref ord pref ord pref ord pref ord pref

Directors

S.R. Molesworth 1,003,334 - - - - - - - 1,003,334 -

M Miller - - - - - - - - - -

R. J. Annells 1,099,999 - - - - - - - 1,099,999 -

J.T. Kopcheff 2,083,333 - - - - - 266,667 - 2,350,000 -

R.L. King 683,334 - - - - - - - 683,334 -

executives

V. Kahanoff 83,333 - - - - - - - 83,333 -

C. MorganC - - - - - - - - - -

total 4,953,333 - - - - - 266,667 - 5,220,000 -

C C Morgan commenced employment March 2010. Comparatives not applicable

All equity transactions with directors and executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm’s length.

Signed in accordance with a resolution of the directors

MarkMillerManaging Director

Signed at Melbourne, Victoria30 September 2010


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An independent Victorian Partnership ABN 27 975 255 196

Liability limited by a scheme approved under Professional Standards Legislation Pitcher Partners, including Johnston Rorke, is an association of independent firms Melbourne | Sydney | Perth | Adelaide | Brisbane

An independent member of Baker Tilly International

23

Auditor’s Independence Declaration

To the Directors of Greenearth Energy Ltd

In relation to the independent audit for the year ended 30 June 2010, to the best of my knowledge and belief there have been:

(i) No contraventions of the auditor independence requirements of the Corporations Act 2001; and

(ii) No contraventions of any applicable code of professional conduct.

M W PRINGLE PITCHER PARTNERS Partner Melbourne

30 September 2010

auDItor'SINDepeNDeNCeDeCLaratIoNF

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For the year ended 30 June 2010

Notes CoNSoLIDateD

2010 2009

$ $

Revenue

Other income 4 454,013 520,986

Less: Expenses

Employee benefits expense 5(a) (808,810) (596,815)

Loss on fair value of investments (35,329) (39,252)

Depreciation expenses 5(b) (55,602) (65,606)

Finance costs 5(d) (2,363) (2,393)

Exploration expenditure written off 12 (656) (8,747)

Accounting and audit expenses 20 (56,629) (65,405)

Professional fees (17,222) (7,148)

Marketing and promotion expenses (126,190) (82,733)

Rent and occupancy expenses (123,405) (124,178)

Consulting expenses (843,788) (408,101)

Share of Associate Loss 24 (120,937) (60,951)

Impairment loss on Investments in Associates 24(a) (849) (224,346)

Impairment loss on Investments 10 (757,576) -

Administrative expenses 5(c) (966,439) (594,868)

Total expenses (3,915,795) (2,280,543)

(Loss)beforeincometax (3,461,782) (1,759,557)

Income tax expense 6(a) - -

(Loss)fromcontinuingoperations 5 (3,461,782) (1,759,557)

(Loss) for the year (3,461,782) (1,759,557)

Other comprehensive income - -

totalcomprehensiveincomefortheyear - -

(Loss)attributabletothemembersoftheparent (3,461,782) (1,759,557)

totalComprehensiveincomeattributabletothemembersoftheparent (3,461,782) (1,759,557)

Basic loss per share from continuing operations (cents per share) 18 (5.12) (2.63)

Diluted loss per share from continuing operations (cents per share) 18 (5.12) (2.63)

CoNSoLIDateDStateMeNtoFCoMpreheNSIVeINCoMe

The accompanying notes form part of these financial statements

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As at 30 June 2010

Notes CoNSoLIDateD

2010 2009

$ $

CurreNtaSSetS

Cash and cash equivalents 17(b) 2,036,807 5,468,551

Receivables 7 350,797 68,168

Financial assets at fair value through profit or loss 8 43,181 78,510

Other financial assets 10 51,793 805,622

Other current assets 9 492,966 23,964

TOTAL CURRENT ASSETS 2,975,544 6,444,815

NoN-CurreNtaSSetS

Investment in Associate 24 2,773 71,536

Property, Plant and equipment 11 111,114 163,823

Exploration, evaluation and development 12 2,307,129 1,830,889

TOTAL NON-CURRENT ASSETS 2,421,016 2,066,248

totaLaSSetS 5,396,560 8,511,063

CurreNtLIaBILItIeS

Trade and other payables 13 486,561 226,372

Provisions 14 101,517 34,665

TOTAL CURRENT LIABILITIES 588,078 261,037

NoN-CurreNtLIaBILItIeS

Provisions 14 26,046 22,308

TOTAL NON-CURRENT LIABILITIES 26,046 22,308

totaLLIaBILItIeS 614,124 283,345

NetaSSetS 4,782,436 8,227,718

eQuItY

Share capital 15(a) 11,383,286 11,366,786

Other Reserves 16(b) 519,000 545,500

Accumulated Losses 16(c) (7,119,850) (3,684,568)

totaLeQuItY 4,782,436 8,227,718

CoNSoLIDateDStateMeNtoFFINaNCIaLpoSItIoN


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Year Ended 30 June 2010

Notes Contributed Capital Reserves

Retained Earnings Total

Balance at the beginning of the year 11,366,786 545,500 (3,684,568) 8,227,718

Loss for the year - - (3,461,782) (3,461,782)

Total comprehensive income for the year - - (3,461,782) (3,461,782)

transactionswithequityholdersintheircapacityasequityholders:

Contributions 16,500 - - 16,500

Employee share scheme - (26,500) 26,500 -

Total transactions with owners in their capacity as owners: 16,500 (26,500) 26,500 16,500

Balanceattheendoftheyear 11,383,286 519,000 (7,119,850) 4,782,436

Year Ended 30 June 2009

Balance at the beginning of the year 11,246,111 469,500 (1,925,011) 9,790,600

Loss for the year - - (1,759,557) (1,759,557)

Total comprehensive income for the year - - (1,759,557) (1,759,557)

transactionswithequityholdersintheircapacityasequityholders:

Contributions 120,675 - - 120,675

Employee share scheme - 76,000 - 76,000

Total transactions with owners in their capacity as owners: 120,675 76,000 - 196,675

Balanceattheendoftheyear 11,366,786 545,500 (3,684,568) 8,227,718


CoNSoLIDateDStateMeNtoFChaNGeSINeQuItYF

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For the year ended 30 June 2010

Notes CoNSoLIDateD

2010 2009

$ $

CaShFLoWSFroMoperatINGaCtIVItIeS

Receipts 294,373 228,170

Payments to suppliers and employees (3,462,522) (1,731,978)

Payments for exploration and evaluation costs (339,522) (599,488)

Interest received 95,713 390,816

NetCaShFLoWSuSeDBYoperatINGaCtIVItIeS 17(a) (3,411,888) (1,712,480)

CaShFLoWSFroMINVeStINGaCtIVItIeS

Purchase of unlisted securities - (1,014,409)

Purchase of property, plant and equipment (2,893) (198,622)

Payments for bonds and deposits (51,793) (48,046)

Proceeds from matured bonds and deposits 93,208 45,000

Proceeds from sale of shares In listed company - 65,987

NetCaShFLoWSproVIDeDBY/(uSeDIN)INVeStINGaCtIVItIeS 38,522 (1,150,090)

CaShFLoWSFroMFINaNCINGaCtIVItIeS

Proceeds from issues of ordinary shares - 20,675

Advances to related parties (58,378) -

NetCaShFLoWSproVIDeDBY/(uSeDIN)FINaNCINGaCtIVItIeS (58,378) 20,675

NetDeCreaSeINCaShheLD (3,431,744) (2,841,895)

Add opening cash brought forward 5,468,551 8,310,446

CLoSINGCaShCarrIeDForWarD 17(b) 2,036,807 5,468,551


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Note1:Basisofpreparation

This financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers Greenearth Energy Ltd and controlled entities as a consolidated entity. Greenearth Energy Ltd. is a company limited by shares, incorporated and domiciled in Australia.

The financial report was authorised for issue by the Directors’ as at the date of the Directors’ report.

The following is a summary of material accounting policies adopted by Greenearth Energy Ltd. in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

(a) Basis of preparation of the financial report

Compliance with IFRS Australian Accounting Standards include Australian equivalent to International Financial Reporting Standards. Compliance with

Australian equivalent International Financial Reporting Standards ensures compliance with International Financial Reporting Standards (IFRS).

Historical Cost Convention The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes

of assets as described in the accounting policies.

(b) Going Concern

The Directors have prepared the financial report on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

The consolidated entity incurred an operating loss after income tax expense for the year ended 30 June 2010 of $3,461,782 (2009: $1,759,557) and at the reporting date total assets exceeded total liabilities by $4,782,436 (2009: $8,227,718).

The Directors recognise that additional funding is required over the next 2 to 3 years to further develop current geothermal projects in particular its flagship domestic geothermal project, the Geelong Geothermal Power Project (GGPP). Additional funding will be available through access to Commonwealth and Victorian Government Grants as discussed below. The Directors have also employed consultants to assist in equity fundraising and currently have several potential cornerstone investors (joint venture partners) in detailed due diligence with the aim to secure significant investment into the GGPP. This investment funding will be required to undertake the project, fulfil the terms of the Government Grants and secure access to the Government funds.

The Directors have also determined that there is a cash requirement of $650k over the forthcoming 12 months to maintain the current level and status of operations in the event the equity fund raising is delayed. The directors have begun to broaden the company’s corporate strategy into other complimentary renewable technologies which have a shorter term revenue stream potential to assist in supplementing cash reserves.

In December 2009 the company was awarded Commonwealth and Victorian Government grants of $7 million for Stage 1 Proof of Concept and $5 million for Proof of Resource respectively for the GGPP. Upon a successful proof of resource the company has access to a further $20 million grant from the Victorian government for the Stage 2 demonstration stage. The combined proof of resource and proof of concept stage (Stage 1) is expected to cost up to $30 million. Upon execution of funding agreements an initial amount becomes available to assist in planning, the remaining grant funds are receivable upon achieving conditions precedent and established project milestones.

The company has spent much of 2010 negotiating contract terms and conditions for the Commonwealth Grant and on 8 September 2010, the company signed a contract with the Commonwealth Government to secure $7 million of funding for the GGPP subject to certain conditions.

The conditions of the Federal Grant require: - the company to secure funding commitments for the remaining project cost; including - the negotiation of the terms of the Victorian Government Grant - the proof that the company has access to funds of a matching amount equal to certain milestone payments.

Uncertainty exists regarding the ability of the Company to raise sufficient funds to finance Stage 1 of the project and be successful in negotiating the terms of the State Grant. The company is actively negotiating contract terms and conditions for the State Grant for $5 million and expects to have this finalised by the end of calendar year 2010.

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Note1:Basisofpreparation(cont)

(b) Going Concern (cont)

The consolidated entity does not have any material commitments in relation to the GGPP or other permits it holds as at balance date or the date of signing this financial report.

In the event that access to these funds are delayed, the consolidated entity has contingency plans in place to reduce the level of activity to manage cash reserves in the interim period.

The financial report does not include any adjustment relating to the recoverability or classification of recorded asset amounts nor to the amounts or classification of liabilities that might be necessary should the consolidated entity be unable to raise sufficient funding to continue as a going concern.

If the going concern basis of accounting is found to no longer be appropriate, the recoverable amounts of the assets shown in the Consolidated Statement of Financial Position are likely to be significantly less than the amounts disclosed and the extent of the liabilities may differ significantly from those reflected.

(c) Principles of consolidation

The consolidated financial statements are those of the consolidated entity, comprising Greenearth Energy Ltd., the parent entity and all entities which Greenearth Energy Ltd., controlled from time to time during the year and at balance date.

Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the company has control. Details on the controlled entities are detailed in note 21.

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

All intercompany balance and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.

(d) Cash and cash equivalents

For the purposes of the Statement of Cash Flows, cash includes cash on hand and at banks, short term deposits with an original maturity of three months or less held at call with financial institutions.

(e) Investments

Financial assets at fair value through profit or loss Investments in listed securities are carried at fair value through profit and loss. They are measured at their fair value at each reporting

date and any increment or decrement in fair value from the prior period is recognised in the profit and loss of the current period. Fair values of listed investments are based on current bid prices.

Financial assets at cost Unlisted investments are carried at cost less impairment.

(f) Impairment of assets

Assets with an indefinite useful life are not amortised but are tested annually for impairment in accordance with AASB 136. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever events or circumstances arise that indicates that the carrying amount of the asset may be impaired. Exploration and evaluation assets are tested for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount in accordance with AASB6. An impairment loss is recognised where the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is defined as the higher of its fair value less costs to sell and value in use.

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Note1:Basisofpreparation(continued)

(g) Property, plant and equipment Each class of Property, plant and equipment are stated at cost less depreciation and any accumulated impairment loss.

The carrying amount of property, plant and equipment is reviewed annually for impairment by directors to ensure it is not in excess of the recoverable amount from those assets. Refer to note 1(f).

Depreciation The depreciable amounts of Property, plant and equipment are provided on a diminishing value basis and straight line basis.

The useful lives for each class of assets are: 2010 2009 Computer equipment 3 years 3 years Office equipment 6 years 6 years

Leasehold improvements the lease term the lease term (h) Exploration and evaluation costs

Costs arising from exploration activities are carried forward provided such costs are expected to be recouped through successful development or sale, or exploration activities have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. AASB 6 “Exploration for and Evaluation of Mineral Resources” requires that the company perform impairment tests on those assets when facts and circumstances suggest that the carrying amount may be impaired. However, the directors believe the impairment testing has been aligned with the factors that must currently be satisfied for capitalisation of exploration and evaluation costs.

Exploration expenses are recognised on a net basis.

Costs carried forward in respect of an area of interest that is abandoned are written off in the year in which the decision to abandon is made.

Amortisation Costs on production areas are amortised over the life of the area if interest to which such costs relate on the production output basis.

The entity does not currently have any production areas.

Restoration costs Restoration costs that are expected to be incurred are provided for as part of the cost of the exploration, evaluation, development,

construction or production phases that give rise to the need for restoration. Accordingly, these costs are recognised gradually over the life of the facility as these phases occur. The costs include obligations relating to reclamation, waste site closure, platform removal and other costs associated with the restoration of the site. These estimates of the restoration obligations are based on anticipated technology and legal requirements and future costs that have been discounted to their present value. Any changes in the estimates are adjusted on a retrospective basis. In determining the restoration obligations, the entity has assumed no significant changes will occur in the relevant Federal and State legislation in relation to restoration of such wells in the future.

(i) Leases Leases are classified at their inception as either operating or finance leases based on economic substance of the agreement so as to

reflect the risks and benefits incidental to ownership.

Operating Leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of

ownership of the leased item, are recognised as an expense in the period in which they are incurred. Finance leases The group currently has no finance leases.


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(j) Payables

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the entity.

Payables to related parties are carried at amortised cost.

(k) Contributed equity

Issued and paid up capital is recognised at the fair value of the consideration received by the company.

Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(l) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and that the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

Interest Control of the right to receive the interest payment.

Sale of Investment

In respect of sales of fixed assets or investments, the proceeds arising from their sale are recognised when control of the asset is passed to the buyer.

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

(m) Taxes

Income tax losses Current income tax expense or revenue is the tax payable on the current period’s taxable income based on the applicable income tax

rate adjusted by changes in deferred tax assets and liabilities.

A balance sheet approach is adopted under which deferred tax assets and liabilities are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred tax asset or liability is recognised in relation to temporary differences arising from the initial recognition of an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only when it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

(n) Employee benefits

Liabilities arising in respect of wages and salaries, annual leave, and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date.

Share-based payments There is no formal share option plan. However, from time to time share options are granted to directors, employees and consultants on a discretionary basis. The bonus element over the exercise price for the grant of shares and options is recognised as an expense in the Statement of Comprehensive Income in the period(s) when the benefit is earned.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options at grant date.


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(o) Third Party share-based payments

From time to time share options are granted to third parties on a discretionary basis for services rendered. The bonus element over the exercise price for the grant of shares and options is recognised as an expense in the Income Statement in the period(s) when the services were provided.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options at grant date.

(p) Financial instruments

Classification The group classifies its financial instruments in the following categories: financial assets at fair value through profit or loss, loans

and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates the designation at each reporting date.

Financial assets at fair value through profit or loss Investments in listed securities are carried at fair value through profit and loss. They are measured at their fair value at each reporting

date and any increment or decrement in fair value from the prior period is recognised in the profit and loss of the current period. Fair values of listed investments are based on current bid prices.

Unlisted investments for which fair value cannot be reliably measured are carried at cost and tested for impairment.

Loans and receivables Loans and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate

method.

Financial liabilities Financial liabilities include trade payables, other creditors and loans from third parties including inter-company balances and loans from

or other amounts due to director-related entities.

(q) Comparatives

Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures.

(r) Investments in associates

An associate is an entity in which the consolidated entity has significant influence, but not control, over the financial and operating policies. The financial statements include the entity’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influences ceases.

The entity’s carrying value of the investment is reduced to nil where the entity’s share of losses exceeds its interest in an associate. Recognition of further losses are discontinued except to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of an associate.

Investments in associates are carried at cost less any impairment loss. In determining any impairment loss the fair value of investments in listed shares of associates is their current market value at the balance sheet date.

(s) New accounting standards and interpretations

A number of accounting standards and Interpretations have been issued at the reporting date but are not yet effective. The directors have not yet assessed the impact of these standards or interpretations.


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Note2:CriticalaccountingestimatesandJudgements

Estimates and judgements are based on management’s expectation for the future.

The company makes certain estimates and assumptions concerning the future, which, by definition will seldom represent actual results. The estimates and assumptions that have a significant inherent risk in respect of estimates based on future events, which could have a material impact on the assets and liabilities in the next financial year, are discussed below.

(a) Income taxes

Income tax benefits are based on the assumption that no adverse change will occur in the income tax legislation and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(b) Employee benefits

Calculation of long term employment benefits requires estimation of the retention of staff, future remuneration levels and timing of the settlement of the benefits. The estimates are based on historical trends.

(c) Share based payments

Calculation of share based payments requires estimation of the timing of the exercise of the underlying equity instrument. The estimates are based on historical trends and are calculated using the Black Scholes method.

(d) Deferred exploration expenditure

Exploration expenditure is carried forward when management expect that the expenditure can be recouped through successful development and exploration of the area of interest. In this event management will consider impairment of deferred exploration expenditure in accordance with note 1(e) and 1(g).

Where sufficient data does not exist to indicate successful development and there is an ongoing commitment to significant exploration in the area of interest, the exploration expenditure is carried forward.

(e) Provision for restoration costs

Restoration costs that are expected to be incurred are provided for as part of the cost of the deferred exploration expenditure. The costs include obligations relating to reclamation, waste site closure, platform removal and other costs associated with the restoration of the site. These costs are estimated and are based on the anticipated technology and legal requirements and future costs. These costs are also dependent on there being no significant changes to relevant federal and state legislation.

Note3:FinancialriskManagement

The consolidated entity’s financial instruments consist mainly of deposits with banks, accounts receivable and payable. The company does not have any derivative instruments.

Financial risksThe entity is exposed to a variety of financial risks comprising: Interest rate risk Foreign currency risk Liquidity risk Credit risk Mark or price risk

The board of directors has overall responsibility for identifying and managing operational and financial risks.

The main risks the consolidated entity is exposed to through its financial instruments are interest rate risk, liquidity risk, credit risk and market or price risk. The Company’s investment activity is not significant and given maintained minimal level of investment there is minimal market and price risk.


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Note3:FinancialriskManagement(cont)

Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates.

The company does not currently have any interest bearing debt. Cash deposits attract interest at the prevailing floating interest rate of 6%. The entity’s exposure to interest rate risk at 30 June 2010 was 5.5%.

All other financial assets and liabilities are not exposed to interest rate risk.

Foreign currency riskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The group is not exposed to any material fluctuations in foreign currencies.

Liquidity riskLiquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

The group manages liquidity risk by forecasting and monitoring cash flows on a continuing basis. The group expects to settle its financial liabilities within 90 days.

Credit riskCredit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The maximum exposure to credit risk at balance date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements.

The consolidated entity does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the entity. This risk is managed by ensuring the group only trades with parties that are able to trade on the group’s credit terms. Additionally cash at bank is held with a major Australian bank.

Market or price riskMarket or price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk).

Investments in listed securities at fair value through profit and loss are measured at fair value at reporting date based on current bid prices. If security prices were to increase/decrease by 10% from fair values as at the reporting date, assuming all other variables that might impact on fair value remain constant, then the impact on profit for the year and equity is below. This risk is managed by monitoring security prices on a regular basis.

Investments in non-listed securities are made after an assessment has been made in terms how the investment achieves or enhances the company’s abilities of achieving its corporate objectives. To determine the fair value of these investments and monitor their performance, assessment of similar listed securities are undertaken and comparisons are made. When assessments are carried out a number of other factors are also taken into account such as the investments abilities to achieve its initial stated objectives, the level of progress made towards achieving objectives and similar external transactions which may assist in establishing a base for determining fair value.

CoNSoLIDateD

2010 2009

$ $

+/-10%pricevariation

Impact on Profit after tax 4,318 7,851

Impact on equity 4,318 7,851

Fair valuesThe net fair value of financial assets and financial liabilities approximate their carrying amounts as disclosed in the Statement of Financial Position and Notes to the Financial Statements.

All financial assets at fair value through profit or loss are classified as level 1, being instruments with quoted prices in active markets using fair value hierarchy.


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Note4:revenue

CoNSoLIDateD

2010 2009

$ $

CoNtINuINGoperatIoNS

otherrevenues

Interest - Other persons/corporations 110,491 380,646

Gain on sale of listed securities - 33,752

Rendering of services – Management Fee 34,775 90,800

Rental Income 19,500 15,788

Research and development tax concession rebate 289,247 -

totalrevenuesfromcontinuingoperations 454,013 520,986

Note5:LossFromContinuingoperations

Loss from continuing operations before income tax has been determined after the following specific expenses:

(a)employeebenefitsexpense

Wages and salaries 601,952 382,677

Superannuation costs 102,825 118,163

Expense of share based payments - 76,000

Other employee related costs 104,033 19,975

Total employee benefits expenses 808,810 596,815

(b)Depreciationofnon-currentassets

Office equipment 661 450

Computer equipment 1,819 2,528

Leasehold improvements 53,122 62,628

Total depreciation expenses 55,602 65,606

(c)otherexpensesfromordinaryactivitiesinclude:

Travel and accommodation 301,861 86,354

Share registry costs 44,835 70,530

Legal fees 70,494 23,247

Directors fees 235,000 235,000

Insurance premiums 48,259 53,511

Office expenses 265,990 126,226

966,439 594,868

(d)Financecosts 2,363 2,393

(e)SpecificitemsThere are no additional revenues or expenses whose disclosure is relevant in explaining the financial performance of the entity


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CoNSoLIDateD

2010 2009

$ $

Note6:Incometax

(a)thecomponentsoftaxexpense

Current tax - -

Deferred tax - -

Under (over) provision in prior years - -

Total income tax expenses - -

(b)Incometaxbenefit

The prima facie tax, using tax rates applicable in the country of operation, on profit/ (loss) differs from the income tax provided in the financial statements as follows:

Loss from ordinary activities (3,461,782) (1,759,557)

Prima facie tax benefit on loss from ordinary activities (1,038,535) (527,867)

Tax effect of non-deductible expenses

Non-deductible expenses 106,327 47,686

Income tax benefit arising from current year (932,208) (480,181)

Add: Benefit of tax losses not brought to account 932,208 480,181

Income tax expense attributable to ordinary activities - -

Incometaxlosses

Deferred tax assets arising from tax losses of the economic entity not brought to account at balance date as realisation of the benefit is not probable. 1,982,768 1,050,560

Note7:receivables

CurreNt

Receivables 293,683 4,720

Related party receivables - 43,293

GST receivable 57,114 20,155

350,797 68,168

(a)termsandConditions(i) Terms and conditions relating to the above financial instruments Trade Debtors are non-interest bearing and generally on 30 day terms.

(ii) Sundry Debtors and other receivables are non-interest and have repayment terms of between 30 and 90 days.

(b)relatedpartytransactions Details of the terms and conditions of related party transactions are set out in Note 21.


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CoNSoLIDateD

2010 2009

$ $

Note8:FinancialassetsatFairValuethroughprofitorLoss

(a) Investmentsinlistedsecuritiesatfairvaluethroughprofitorlosscomprise

Greenpower Energy Ltd 43,181 78,510

43,181 78,510

(b)Investmentsincontrolledentitiesunlistedandvaluedatcostcomprise

Name of Controlled Entity Country of IncorporationPercentage of equity

interest held by the consolidated entity

Investment

2010 2009 2010 2009

Greenearth Power Pty Ltd Australia 100% 100% 1 1

Greenearth Solar Energy Pty Ltd Australia 100% 100% 1 1

Greenearth Heat Energy Pty Ltd Australia 100% 100% 1 1

Greenearth Geothermal Energy Pty Ltd Australia 100% 100% 1 1

Greenearth Energy Limited (NZ) New Zealand 100% 100% 1 1

Greenearth Energy Efficiency Pty Ltd Australia 85% - 17 -

22 5

Impairment (22) (5)

Carrying value of Investment - -

CoNSoLIDateD

2010 2009

$ $

Note9:otherCurrentassetsPrepayment for drilling rig 454,224 -

Accrued Interest 38,742 23,964

492,966 23,964

Note10:otherFinancialassets

CurreNt

Security deposits for exploration permits 51,793 48,046

Global Geothermal Inc (unlisted) at cost 757,576 757,576

Less provision for impairment (757,576) -

51,793 805,622

termsandconditionsTerms and conditions relating to the above financial instruments Security deposits for exploration permits are interest bearing, the deposits are refunded upon the exploration permits being relinquished.


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CoNSoLIDateD

2010 2009

$ $

Note11:property,plantandequipment

Office equipment

At cost 3,409 2,956

Accumulated depreciation (1,530) (869)

1,879 2,087

Computer equipment

At cost 11,828 9,388

Accumulated depreciation (8,998) (7,179)

2,830 2,209

Leasehold improvements

At cost 222,155 222,155

Accumulated depreciation (115,750) (62,628)

106,405 159,527

totalplantandequipment 111,114 163,823

reconciliations Reconciliation of the carrying value of plant and equipment at the beginning and end of the current and previous financial year.

Office equipment

Carrying amount at beginning 2,087 1,490

Additions 453 1,047

Depreciation (661) (450)

1,879 2,087

Computer equipment

Carrying amount at beginning 2,209 3,927

Additions 2,440 810

Depreciation (1,819) (2,528)

2,830 2,209

Leasehold improvements

Carrying amount at beginning 159,527 -

Additions - 222,155

Depreciation (53,122) (62,628)

106,405 159,527


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CoNSoLIDateD

2010 2009

$ $

Note12:Deferredexploration,evaluationandDevelopmentCosts

Exploration and evaluation costs carried forward in respect of mining areas of interest:

Pre-production - exploration and evaluation phases

Balance at the beginning of the year brought forward 1,830,889 1,313,599

Add: net expenditure incurred during the year 476,896 526,037

Less: net expenditure written off during the year (656) (8,747)

totalexplorationandevaluationcostscarriedforward 2,307,129 1,830,889

The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective permit areas.

Note13:payables(Current)

Trade creditors 421,822 206,843

Related party creditors 38,218 -

Other creditors 26,521 19,529

486,561 226,372

(a)termsandconditions Terms and conditions relating to the above financial instruments: Trade creditors are non-interest bearing and normally are settled on 30 day terms.

(b)relatedpartypayables Details of the terms and conditions of related party payables are set out in Note 21.

Note14:provisions

Current

Employee benefits 101,517 34,665

Noncurrent

Employee benefits 11,046 7,308

Restoration costs 15,000 15,000

26,046 22,308

totalprovisions 127,563 56,973


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CoNSoLIDateD

2010 2009

$ $

Note15:Contributedequity

(a) Issued and paid up capital

Ordinary shares fully paid, 67,798,062(2009: 67,516,344 ordinary shares fully paid) 11,383,286 11,366,786

(b) Movements in shares on issue

2010 2009

NumberofShares $ Number of Shares $

Beginning of the financial year 67,516,344 11,366,786 66,780,760 11,246,111

Issued during the year

- options exercised - - 68,918 20,675

- share based payments 281,718 16,500 666,666 100,000

- less share issue costs - - - -

End of the financial year 67,798,062 11,383,286 67,516,344 11,366,786

(c) Terms and condition of contributed equity

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

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

(d) Share options

(1) Issued to directors and staff The issue of options provides an effective way for the directors to give employees a chance to share in the success of the companyand enhance the ability of the company to retain staff of the required calibre, at a lower rate of remuneration that might otherwise be required.

As part of the director annual remuneration review, consideration is given to individual employee’s performance, workload and dedication to achieving the company’s objectives when deciding whether or not to award options as an incentive.

i. Options held at beginning of the reporting period

The following options were held at the beginning of the reporting period:

Number of Options Grant Date Vesting Date Expiry Date Exercise Price

4,500,000 1 Oct 2007 1 Oct 2007 30 Sep 2012 45 cents

1,500,000 18 Mar 2008 18 Mar 2008 30 Sep 2012 45 cents

1,000,000 3 Sep 2008 3 Dec 2008 30 Sep 2010 20 cents

2,000,000 3 Sep 2008 1 July 2009 30 Sep 2012 20 cents

9,000,000

ii. Options granted during the period No options were granted by Greenearth Energy Ltd. during the year to directors and staff:

iii. Options exercised No options were exercised during the reporting period.


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Note15:Contributedequity (continued)

iv. Options lapsed The following options lapsed during the reporting period:


500,000 18 Mar 2008 18 Mar 2008 30 Sep 2012 45 cents

500,000

v. Options as at the end of the reporting period The following options held by directors and staff up to and including 30 June 2010:


4,500,000 1 Oct 2007 1 Oct 2007 30 Sep 2012 45 cents

1,000,000 18 Mar 2008 18 Mar 2008 30 Sep 2012 45 cents

1,000,000 3 Sep 2008 3 Dec 2008 30 Sep 2010 20 cents

2,000,000 3 Sep 2008 1 July 2009 30 Sep 2012 20 cents

8,500,000

vi. Valuation of options

Options are valued using the Black – Scholes pricing model using the following inputs:

2010 2009

Weighted average fair value of options granted during the year (at grant date) - 2.30 cents

Weighted average exercise price - $0.20

Volume weighted average share price during the year - 9 cents

Weighted average expected share volatility - 67%

Weighted average risk free interest rate - 5.47%

Expected dividends - -

Average option life - 2.96 years

(2) Issued to third parties

(a) Tolhurst Limited

Each option entitles the holder to acquire one fully paid ordinary share in the company at a price of 45 cents per share at any time up to and including 30 September 2013 subject to standard terms and conditions attached to Greenearth Energy Ltd. options.

Balance at start of year 2,000,000

Balance at end of year 2,000,000

(b) Seed capital investors

Each option entitles the holder to acquire one fully paid ordinary share in the company at a price of 45 cents per share at anytime up to and including 30 September 2011 subject to standard terms and conditions attached to Greenearth Energy Ltd. options. Upon exercise of options, option holder will also be entitled to a further option to acquire one fully paid ordinary share in the company at a price of 60 cents per share at anytime up to and including 30 September 2012.

Balance at start of year 33,333,333

Balance at end of year 33,333,333

(c) Capital management

When managing capital, managements objective is to ensure the entity continues as a going concern as well as ensuring there are sufficient funds to meet exploration commitments, which is performed via monitoring of historical and forecast performance.


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CoNSoLIDateD

2010 2009

$ $

Note16:reservesandaccumulatedLosses

Third party options reserve 16(a) 120,000 120,000

Employee equity benefits reserve 16(b) 399,000 425,500

Accumulated losses 16(c) 7,119,850 3,684,568

(a)thirdpartyoptionsreserve

(i) Nature and purpose of reserveThis reserve represents the fair value of options granted to third parties as detailed in Note 15.

(ii) Movement in reserve

Balance at beginning of year 120,000 120,000

Share based payments - -

Balance at end of year 120,000 120,000

(b)employeeequitybenefitsreserve

(i) Nature and purpose of reserveThis reserve represents the fair value of options that is attributable up to 30 June 2010 granted to staff and directors as detailed in Note 15.

(ii) Movement in reserves

Opening balance 425,500 349,500

Share based payments - 76,000

Expiration of options to staff (26,500) -

Closing balance 399,000 425,500

totalreserves 519,000 545,500

(c)accumulatedlosses

Balance at the beginning of the year 3,684,568 1,925,011

Net loss attributable to members of Greenearth Energy Ltd. 3,461,782 1,759,557

Transfer from Option Reserve (26,500) -

Balance at the end of the year 7,119,850 3,684,568


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CoNSoLIDateD

2010 2009

$ $

Note17:StatementofCashFlows

(a)reconciliationoftheoperatinglossaftertaxtothenetcashflowsfromoperations

Net loss (3,461,782) (1,759,557)

Non-cashitems

Depreciation of property, plant and equipment 55,602 65,606

Exploration expenditure written off 656 8,747

Profit on sale of listed securities - (33,752)

Loss on fair value of investments held 35,330 263,598

Employee equity share based payments - 76,000

Share of associates loss 120,937 60,951

Accrued interest (38,742) (23,964)

Impairment loss 758,425 -

ChangesinassetsandLiabilities

Increase in exploration and

evaluation costs carried forward (476,240) (517,290)

Decrease / (Increase) in receivables (282,629) 12,951

Decrease / (Increase) in other assets (454,224) 65,700

Increase / (Decrease) in payables 260,189 59,057

Increase in employee benefits 70,590 24,473

(Decrease) / Increase in restoration costs provision - (15,000)

Netcashflowsusedinoperatingactivities (3,411,888) (1,712,480)

(b)reconciliationofCash

Cash at bank 941,938 1,132,793

Cash on deposit 1,094,369 4,335,758

Cash on hand 500 -

Total cash 2,036,807 5,468,551


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CoNSoLIDateD

2010 2009

$ $

Note18:Losspershare

Net loss (3,461,782) (1,759,557)

adjustments - nil - -

Loss used in calculating basic / diluted earnings per share (3,461,782) (1,759,557)

Weighted average number of ordinary shares on issue used in calculating basic earnings per share 67,580,601 66,827,365

effectofDilutiveSecurities - Share options

Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 67,580,601 66,827,365

Basic loss per share (cents per share) (5.12) (2.63)

Diluted loss per share (cents per share) (5.12) (2.63)

Due to losses incurred all potential ordinary shares could potentially dilute basic loss per share in the future were considered to be anti-dilutive and therefore not included in the calculations of diluted loss per share. Accordingly basic and diluted loss per share equates.

Conversion,calls,subscriptionsorissuesafter30June2010Since the end of the financial year, no ordinary shares have been issued, from the exercise of bonus options.

Note19:expenditureCommitments&Contingencies

(a) Lease Expenditure Commitments

Operating property leases (non-cancellable)

Minimum lease payments

- not later than one year 121,291 116,625

- later than one year and not later than five years 393,766 515,056

Aggregate lease expenditure contracted for at balance date 515,057 631,681

(b) Bank Guarantees in relation to permits

Maximum amount bank may call 45,000 45,000

(c) Exploration and Corporate Activities Commitments

- not later than one year 100,000 308,000

- later than one year and not later than five years - -

Aggregate lease expenditure contracted for at balance date 100,000 308,000


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Note19:expenditureCommitments&Contingencies (continued)

The company retains interests in exploration tenements via direct ownership. To continue these interests a work program is maintained in each tenement for various periods up to five years. The work programs have minimum expenditure requirements and carry no formal commitments or legal obligations but are an indication of the tasks required to be completed to retain the permit. The company estimates that the minimum funding required to be expended to fulfil its specified program over all interests is in the vicinity of $1,650,000 over the next two years. In addition to meeting these minimum requirements, other voluntary payments may be paid by the company to advance its various projects.

Grant FundingOn 8 September 2010, the Geothermal Drilling Program (GDP) funding agreement was executed by the board of Greenearth Energy Ltd and the Commonwealth. The funding agreement requires the company to meet certain conditions precedent, prior to receiving any grant payment over the initial payment of $350,000 including securing funding commitments for the total proof of concept project ($29.8 million). The grant is administered by progressive payments upon meeting specified technical and community consultation milestones including having funds to match the progressive payments totalling $7 million.

(d) Contingent Liabilities

As at balance date, the company had no contingent liabilities.

CoNSoLIDateD

2010 2009

$ $

Note20:auditor’sremuneration

Amounts paid or due and payable by Pitcher Partners.

An audit and review of the financial report of the entity 49,575 45,570

Other services in relation to the entity

· Tax compliance 7,054 5,100

· Accounting advice and assistance - 14,735

56,629 65,405

Note21:relatedpartyDisclosures

(i) Ultimate parent Greenearth Energy Ltd is the ultimate Australian Parent entity.

(ii) Controlled entities The consolidated financial statements include the financial statements of Greenearth Energy and its controlled entities listed below:

Name of Controlled Entity Country of IncorporationPercentage of equity interest

held by the consolidated entity

2010 2009

Greenearth Power Pty Ltd Australia 100% 100%

Greenearth Solar Energy Pty Ltd Australia 100% 100%

Greenearth Heat Energy Pty Ltd Australia 100% 100%

Greenearth Geothermal Energy Pty Ltd Australia 100% 100%

Greenearth Energy Limited (NZ) New Zealand 100% 100%

Greenearth Energy Efficiency Pty Ltd Australia 85% -


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Note21:relatedpartyDisclosures (continued)

(iii) Director transactions During the year the following transactions occurred with key personnel:

• An amount of $39,455 excluding GST (2009: $24,109) was paid by Greenearth Energy Ltd. to Arc de Triomphe Securities Pty Ltd; a company associated with Mr R.J. Annells, a Director of the company, in respect of consulting services provided by him to the company.

• An amount of $135,770 excluding GST (2009: $127,280) was paid by Greenearth Energy Ltd. to Rob King and Associates; a company associated with Mr R.L. King, a director of the company in respect of consulting services provided by him to the company.

All amounts paid to Director-related entities were charged on commercial and arms –length terms and conditions.

(iv) Wholly-owned group transactions As at 30 June 2010, an amount of $115,211 (2009: 56,833) was receivable by Greenearth Energy Ltd., from its various controlled entities. The loans are unsecured and interest free.

(v) Loans to key management personnel There are no loans made by Greenearth Energy Ltd to key management personnel.

(vi) Other related party transactions Receivables During this financial period, Lakes Oil N.L., settled accounts with consultants and contractors on behalf of Greenearth Energy Ltd. totalling $83,065. As at 30 June 2010 an amount of $38,218 (2009: $43,293 receivable) was payable by Greenearth Energy Ltd.

Note22:SegmentInformation

(a) Description of Segments The group has four reportable segments. The Greenearth Energy Group holds, or is interested in geothermal acreage or projects which operate in different geographical settings. These settings can be clearly identified by the country they are situated in, or if they exist within Australia, the geological basin they are contained in. A brief description of each identified segment is detailed below. Corporate head office and administration costs are not allocated to segments.

Segment 1: Otway Basin The Otway Basin extends along the Southern Margin across Victoria and South Australia. The Basin covers an area of approximately 150,000km2 of which 35% is onshore. Greenearth Energy’s GEP10 is contained within the Otway Basin.

Segment 2: Gippsland Basin The Gippsland Basin covers approximately 56,000 km2 of South Eastern Victoria, of which approximately 16,000km2 lies onshore. Greenearth Energy’s GEP 12 and 13 permits are located within the Basin.

Segment 3: Indonesia Greenearth Energy Group is exploring the possibility of geothermal development projects within the country of Indonesia. Indonesia is a widely recognised geothermal province.

Segment 4: Other Projects This segment includes other non-geothermal investments or projects, which Greenearth Energy has either invested in, or is considering.


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Note22:SegmentInformation (continued)

b) Segment Information

2010 otwayBasinGippsland

Basin Indonesiaother

projects total

$ $ $ $ $

Segmentrevenue

Total segment revenue 289,247 - - - 289,247

Intersegment revenue - - - - -

revenuefromexternalsource 289,247 - - - 289,247

Segmentresult

Total segment result 289,247 - (126,375) (271,794) (108,922)

Intersegment eliminations - - - - -

Segmentresultfromexternalsource 289,247 - (126,375) (271,794) (108,922)

totalsegmentassets 862,957 1,444,172 2,773 - 2,309,902

Total segment assets include:

Investment in equity accounted associates & JV - - 2,773 - 2,773

Additions to non-current assets other than financial instruments and deferred tax assets 442,342 34,551 - (656) 476,237

totalSegmentLiabilities (202,346) (15,000) - - (217,346)

2009 otwayBasinGippsland

Basin Indonesiaother

projects total

$ $ $ $ $

Segmentrevenue

Total segment revenue - - - - -

Intersegment revenue - - - - -

revenuefromexternalsource - - - - -

Segmentresult

Total segment result - - (57,629) (55,268) (112,897)

Intersegment eliminations - - - - -

Segmentresultfromexternalsource - - (57,629) (55,268) (112,897)

totalsegmentassets 420,615 1,409,620 22,479 49,713 1,902,427

Total segment assets include:

Investment in equity accounted associates & JV - - 22,479 49,057 63,436

Additions to non-current assets other than financial instruments and deferred tax assets 306,643 210,650 - - 517,293

totalSegmentLiabilities (73,395) (26,110) - - (99,505)


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CoNSoLIDateD

2010 2009

$ $

Note22:SegmentInformation(continued)

(i) Reconciliation of segment revenue from external source to the consolidated statement of comprehensive income.

Segment Revenue from External Source 289,247 -

Other revenue 54,275 140,340

Interest revenue 110,491 380,646

totalrevenue 454,013 520,986

(ii) Reconciliation of segment result from the external source to the consolidated statement of comprehensive income.

Segment Result from External Source (108,922) (112,897)

Interest revenue 110,491 380,646

Interest expense - -

Depreciation and amortisation (55,602) (65,606)

Income tax expense - -

Unallocated Results (3,407,749) (1,961,700)

totallossbeforeincometax (3,461,782) (1,759,557)

(iii) Reconciliation of segment assets to the consolidated statement of financial position

Segment Assets 2,309,902 1,902,427

Inter-segment eliminations - -

Unallocated assets 3,059,658 6,606,636

totalassets 5,369,560 8,511,063

(iv) Reconciliation of segment liabilities to the consolidated statement of financial position.

Segment Liabilities 217,346 99,505

Inter-segment eliminations - -

Unallocated liabilities 369,778 183,840

totalLiabilities 614,123 283,345


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Note23:Subsequentevents

On 2 September 2010, the consolidated entity acquired 66.94% of the share capital of Pacific Heat and Power Pty Ltd (PHP) making it a 100% owned subsidiary.

1,484,757 Greenearth Energy Ltd shares were issued as part of the consideration. The fair value of Greenearth Energy Ltd shares at transaction date was 9 cents. The directors have not yet determined the fair value of the previously held interest or the fair value of assets and liabilities acquired as part of this transaction.

On 8 September 2010, the Geothermal Drilling Program (GDP) funding agreement was executed by the board of Greenearth Energy Ltd and the Commonwealth. The funding agreement stipulates the manner in which the grant is to be administered and details the conditions precedent and prescribed project milestones/payments to be made.

On 23 September 2010, Greenearth Energy Ltd entered into a binding Memorandum of Understanding (MoU) with Israeli based company, Metrolight Limited. The basis of the agreement was to establish a working relationship for Greenearth Energy Ltd’s subsidiary Greenearth Energy Efficiency Pty Ltd to use the Metrolight lighting efficiency products in its project management for the delivery of energy efficiency solutions to the Industrial, Commercial, Manufacturing and Streetlighting sectors throughout Australia, Indonesia, Selected Asian countries as well as the wider Pacific Rim.

The contents of the MoU sets out the parameters and purchase obligations for Greenearth Energy Ltd to move to a Distribution Agreement which will provide Greenearth Energy with exclusivity within the specified region.

Note24:Investmentsinassociates

During the financial year, Greenearth Energy Ltd., continued its investment in two associates, Pacific Heat and Power Pty Ltd and an Indonesian geothermal company, PT Geopower Indonesia.

CoNSoLIDateD

2010 2009

$ $

Investment in associates 2,773 71,536

(a) Interest in associate Country of Incorporation Balance DateOwnership Interest

held by Consolidated Entity

2010 2009

% %

Pacific Heat and Power Pty Ltd Australia 30 June 2010 33.06% 33.06%

PT Geopower Indonesia Indonesia 30 June 2010 40.00% 40.00%


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CoNSoLIDateD

2010 2009

$ $

Note24:Investmentsinassociates (continued)

(a)pacificheatandpowerptyLtd

(i) Principal activity

Pacific Heat and Power Pty Ltd principal activity is a clean technology distribution company.

(ii) Share of associate’s balance sheet

Current assets 22,454 64,124

Non-current assets - -

22,454 64,124

Current liabilities (16,625) (15,067)

Non-current liabilities - -

Netassets 5,829 49,057

(iii) Share of associate’s loss

Loss before income tax 48,208 26,597


Loss after income tax 48,208 26,597

(iv) Carrying amount of Investment in associates

Balance at the beginning of the year 49,057 -

New investment during the financial year - 300,000

Share of associates’ net (loss)/write back for the financial year (48,208) (26,597)

Impairment to fair value (849) (224,346)

Balance at the end of year - 49,057

(b)ptGeopowerIndonesia

(i) Principal activity

PT Geopower Indonesia’s principal activity is a clean technology distribution company.

(ii) Share of associate’s balance sheet

Current assets 5,301 19,350

Non-current assets - -

5,301 19,350

Current liabilities (615) (25)

Non-current liabilities - -

Netassets 4,686 19,325


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CoNSoLIDateD

2010 2009

$ $

Note24:Investmentsinassociates (continued)

(iii) Share of associate’s loss

Loss before income tax (72,729) (34,354)


Loss after income tax (72,729) (34,354)

(iv) Carrying amount of Investment in associates

Balance at the beginning of the year 22,479 -

New investment during the financial year 53,023 56,833

Share of associates’ net (loss)/write back for the financial year (72,729) (34,354)

Balance at the end of year 2,773 22,479

Note25:parententityDisclosures

As at, and throughout the financial year 30 June 2010, the parent company of the economic entity was Greenearth Energy Limited.

(a) Parent Entity abridged financial statements

2010 2009

$ $

SummarisedStatementofcomprehensiveincome

Loss for the year after tax (3,498,909) (1,725,203)

Other comprehensive income - -

Total comprehensive income (3,498,909) (1,725,203)

SummarisedStatementoffinancialpositionoftheparententityatyearend

Current assets 2,760,038 6,501,648

Non-current assets 2,576,635 2,043,769

totalassets 5,336,673 8,545,417

Current liabilities 530,964 261,037

Non-current liabilities 26,046 22,308

totalLiabilities 557,010 283,345

Netassets 4,779,663 8,262,072

Total equity of the parent entity comprising:

Share capital 11,383,286 11,366,786

Reserves 519,000 545,500

Accumulated Losses (7,122,623) (3,650,214)

totalequity 4,779,663 8,262,072


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The directors declare that the financial statements and notes set out on pages 24 to 52 are in accordance with the Corporations Act 2001:

(a) Complying with Accounting Standards and Corporations Regulations 2001: and

(b) As stated in note 1, the consolidated financial statements also comply with International Reporting standards; and

(c) Give a true and fair view of the financial position of the consolidated entity as at 30 June 2010 and of its performance for the year ended on that date.

In the directors’ opinion there are reasonable grounds to believe that the Greenearth Earth Energy Ltd will be able to pay its debts as and when they become due and payable.

This declaration has been made after receiving the declarations required to be made by the chief executive officer and chief financial officer to the directors in accordance with sections 295A of the Corporations Act 2001 for the financial year ending 30 June 2010.

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

MarkMillerManaging Director

Signed at Melbourne, Victoria30 September 2010

DIreCtorS’DeCLaratIoNF

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52

GREENEARTH ENERGY LTD ABN 62 120 710 625

AND CONTROLLED ENTITIES

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF

GREENEARTH ENERGY LTD

We have audited the accompanying financial report of Greenearth Energy Ltd and controlled entities. The financial report comprises the consolidated statement of financial position as at 30 June 2010, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

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 Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control 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 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

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 the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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 control. 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 opinions.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

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Auditor's Opinion

In our opinion:

(a) the financial report of Greenearth Energy Ltd is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2010 and of their 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; and

(b) the consolidated financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Material Uncertainty regarding continuation as a Going Concern

Without qualification to the conclusion expressed above, attention is drawn to the matters set in Note 1(b) -Going Concern.

The Directors have prepared the financial report on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

The consolidated entity incurred an operating loss after income tax expense for the year ended 30 June 2010 of $3,461,782 (2009: $1,759,557) and at the reporting date total assets exceeded total liabilities by $4,782,436 (2009: $8,227,718).

The Directors recognise that additional funding is required over the next 2 to 3 years to further develop current geothermal projects in particular its flagship domestic geothermal project, the Geelong Geothermal Power Project (GGPP). Additional funding will be available through access to Commonwealth and Victorian Government Grants as discussed below. The Directors have also employed consultants to assist in equity fundraising and currently have several potential cornerstone investors (joint venture partners) in detailed due diligence with the aim to secure significant investment into the GGPP. This investment funding will be required to undertake the project, fulfil the terms of the Government Grants and secure access to the Government funds.

The Directors have also determined that there is a cash requirement of $650k over the forthcoming 12 months to maintain the current level and status of operations in the event the equity fund raising is delayed. The directors have begun to broaden the company’s corporate strategy into other complimentary renewable technologies which have a shorter term revenue stream potential to assist in supplementing cash reserves.

In December 2009 the company was awarded Commonwealth and Victorian Government grants of $7 million for Stage 1 Proof of Concept and $5 million for Proof of Resource respectively for the GGPP. Upon a successful proof of resource the company has access to a further $20 million grant from the Victorian government for the Stage 2 demonstration stage. The combined proof of resource and proof of concept stage (Stage 1) is expected to cost up to $30 million. Upon execution of funding agreements an initial amount becomes available to assist in planning, the remaining grant funds are receivable upon achieving conditions precedent and established project milestones.

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Material Uncertainty regarding continuation as a Going Concern – (continued)

The company has spent much of 2010 negotiating contract terms and conditions for the Commonwealth Grant and on 8 September 2010, the company signed a contract with the Commonwealth Government to secure $7 million of funding for the GGPP subject to certain conditions.

The conditions of the Federal Grant require: - the company to secure funding commitments for the remaining project cost; including - the negotiation of the terms of the Victorian Government Grant - the proof that the company has access to funds of a matching amount equal to certain milestone payments

Uncertainty exists regarding the ability of the Company to raise sufficient funds to finance Stage 1 of the project and be successful in negotiating the terms of the State Grant. The company is actively negotiating contract terms and conditions for the State Grant for $5 million and expects to have this finalised by the end of calendar year 2010.

In the event that access to these funds are delayed, the consolidated entity has contingency plans in place to reduce the level of activity to manage cash reserves in the interim period.

The financial report does not include any adjustment relating to the recoverability or classification of recorded asset amounts nor to the amounts or classification of liabilities that might be necessary should the consolidated entity be unable to raise sufficient funding to continue as a going concern.

If the going concern basis of accounting is found to no longer be appropriate, the recoverable amounts of the assets shown in the Consolidated Statement of Financial Position are likely to be significantly less than the amounts disclosed and the extent of the liabilities may differ significantly from those reflected.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 18 to 22 of the directors' report for the year ended 30 June 2010. 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 Greenearth Energy Ltd and controlled entities for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001.

M W PRINGLE PITCHER PARTNERS Partner Melbourne 30 September 2010

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ShareholderandotherInformationCompiled as at 21 September 2010

The following information is provided pursuant to Australian Stock Exchange Limited (“ASX”) Listing Rule 4.10.

SubstantialShareholders

As disclosed in notices given to the Company.

NameofSubstaintialShareholder

InterestinNumberofSharesBeneficialandNon-beneficial

percentageofShares

Lakes Oil N.L 11,666,667 16.84

Wasabi Energy Limited 7,853,334 11.34

Victoria Petroleum NL 4,166,667 6.01

ShareholderDistribution

The issued capital of the company comprised:

(a) 69,282,819 fully paid ordinary shares

(b) 33,333,333 unlisted options which entitle the holder to acquire one fully paid ordinary share at 45 cents per share at any time up to and including 30 September 2010, subject to terms and conditions

(c) 2,000,000 unlisted options which entitle the holder to acquire one fully paid ordinary share at 45 cents per share at any time up to and including 30 September 2012, subject to certain terms and conditions

(d) 6,000,000 unlisted options to Directors and Staff which entitle the holder to acquire one fully paid ordinary share at 20 cents per share from 3 March 2009 and up to and including 30 September 2010, subject to certain terms and conditions

(e) 1,000,000 unlisted options which entitle the holder to acquire one fully paid share at 20 cents per share from 3 March 2009 and up to and including 30 September 2010, subject to certain terms and conditions

(f) 2,000,000 unlisted options which will vest upon the Managing Director renewing his employment contract. The options entitle the holder to acquire one fully paid ordinary share at 20 cents per share up to and including 30 September 2012 once vested, subject to certain terms and conditions.

DistributionofordinaryShares

Number of shareholders by size of holding and total number of shares on issue:

Categoryofshareholders Numberofshareholders Numberofsharesheld percentageoftotal

1 - 1,000 34 5,389 0.01

1,001 - 5,000 109 415,181 0.60

5,001 - 10,000 521 4,358,779 6.29

10,001 - 100,000 426 13,527,178 19.52

100,001 - and over 68 50,976,292 73.58

totalonissue 1,158 69,282,819 100.00

No Shareholders hold an unmarketable parcel of ordinary shares.

Votingrights

Subject to the rights or restrictions attached to any shares, on a show of hands every Member present at a general meeting in person or by proxy or attorney or by his or her duly appointed representative shall have one vote.

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QuotationofSecurities

The company’s fully paid ordinary shares are included on the Official List of the Australian Stock Exchange Limited (code: GER).

taxStatus

The company is taxed as a public company.

twentyLargestShareholders

rank Shareholder Sharesheld percentageofcapital

1 Lakes Oil N.L 11,666,667 16.84

2 Wasabi Energy Ltd 7,853,334 11.34

3 Victoria Petroleum N.L 4,166,667 6.01

4 Berenes Nominees Pty Ltd<Berenes Nominees Pty Ltd Super Fund A/C> 2,083,333 3.01

5 National Nominees Limited 2,014,000 2.91

6 Somnus Pty Ltd <Somnus Superannuation A/C> 1,900,000 2.74

7 Mr Craig Morgan <The Morgan Family Trust> 1,568,090 2.26

8 Mr Ronald Prefontaine & Mrs Annabel Frances Prefontaine <Prefontaine Super Fund A/C> 1,250,000 1.80

9 PBL Investments Pty Ltd <Peter Begg Lawrence Super Fund A/C> 1,000,000 1.44

10 Penleigh Glen Pty Ltd <The Chas Jacobsen Super Fund A/C> 1,000,000 1.44

11 Advance Publicity Pty Ltd <ATF Izmar Family A/C> 765,051 1.10

12 Cassif Pty Ltd <King Decorte Super Fund A/C> 683,334 0.99

13 GCC Asset Holding Pty Ltd 666,667 0.96

14 Mr Peter Charles Dunn 666,666 0.96

15 Encounter Bay Pty Ltd 666,666 0.96

16 Mr Timothy Lee Hoops 649,664 0.94

17 Mr Philip Arthur Rogerson & Mrs Kathryn Gae Rogerson 624,243 0.90

18 Mr Simon Richard Molesworth & Mrs Rosalind Marie Cochrane Moles-worth <Panitya Super Fund A/C> 466,667 0.67

19 Robert John Annells <RJ Annells Super Fund A/C> 433,333 0.63

20 Mr Alan Edward Mactavish & Mrs Diana Munro Mactavish <AAM Superan-nuation Fund A/C> 433,197 0.63

40,557,579 58.54

permitInformation

The permits in which the Greenearth Energy Ltd. had an interest are as follows:

Permit Name Location (Basin Name) Registered Holder Group Interest

2010 2009

GEP 10 Otway Greenearth Energy Ltd 100% 100%

GEP 12 Gippsland Greenearth Energy Ltd 100% 100%

GEP 13 Gippsland Greenearth Energy Ltd 100% 100%

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GreenearthenergyCorporateGovernance2010

ASX Listing Rule 4.10.3 requires Greenearth Energy Ltd. to disclose the extent to which it has followed the recommendations of the ASX Corporate Governance Council (‘Council’) during the financial year. There are 8 principles reported on below. Each principle includes one or more recommendations as well as a guide to reporting.

Greenearth Energy Ltd. corporate governance principles and policies are structured with reference to the Corporate Governance Council’s best practice recommendations as outlined in the revised ASX Corporate Governance Principles and Recommendation issued in August 2007.

principle1LaysolidfoundationsforManagementandoversight.

Recommendation 1.1 Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions

The Greenearth Energy Ltd. board retains responsibility for the following items:

• Setting and monitoring objectives, goals and strategic direction for management with a view to maximising shareholder wealth• Approving an annual budget and the monitoring of financial performance• Ensuring adequate internal controls exist and are appropriately monitored for compliance• Ensuring significant business risks are identified and appropriately managed• Approving acquisitions Ensuring compliance with statutory requirements• Selecting and appointing new Directors• Maintaining the highest business standards and ethical behaviour.

The board has delegated authority within the following areas to the Executive team:

• Monitoring performance of the business • Ensuring that the business processes in relation to risk management and assurance are met • Approving capital expenditure (except acquisitions) within delegated authority levels.

Recommendation 1.2 Companies should disclose the process for evaluating the performance of senior executives

Executives, who have distinct responsibilities have within their employment contract, provision for the establishment of Key Performer Indicators (KPIs). Evaluation will occur against these KPIs and is performed annually.

principle2Structureoftheboardtoaddvalue

Recommendation 2.1 The majority of the board should be independent directors.

During the financial year the Board of Greenearth Energy Ltd. comprises of three non-executive directors and two executive directors. The skills, experience and expertise relevant to the position each director hold is detailed in the Directors Report of the Annual Report. Mr Simon Molesworth was an independent non-executive chairman during the financial year and tendered his resignation effective 1 July 2010. The other non-executive directors were not considered to be independent during the financial year, however Mr John Kopcheff has since become independent upon resignation from the Victorian Petroleum N.L board. Given the majority of the board are not considered independent under the definitions provided in the Council’s recommendations, this recommendation has not been satisfied.

The Board believes even though it does not satisfy this recommendation, it does possess the appropriate level of industry experience and business skills. Directors acknowledge the need to act in good faith and in the interests of all shareholders.

Recommendation 2.2 The chair should be an independent director.

The chairman of the Board of Directors for the financial year ended 30 June 2010 was Mr Simon Molesworth, who was an independent chairman. Mr Molesworth resigned on 30 June 2010, effective 1 July 2010. Mr Annells was appointed as Chairman upon the resignation of Mr Simon Molesworth. Mr Annells is the representative of the largest shareholder in Greenearth Energy Ltd and is not considered to be independent under the Council’s definition.

Recommendation 2.3 The roles of the chairperson and chief executive officer should not be exercised by the same individual.

Mr Robert Annells performs the role of chairperson, while Mr Mark Miller carried out the role of Managing Director or Chief Executive Officer (CEO) during the financial year. This recommendation is satisfied.

Recommendation 2.4 The board should establish a nomination committee.

Due to the limited size of the board, Greenearth Energy has not complied with this recommendation. This role is retained by the full board. New Directors are recruited according to the company’s needs from time to time. The company has no formal policy in regard to nomination of new Directors.

Re-election of Directors is done in accordance with the Listing Rules and the company’s Constitution.

Recommendation 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors.

The Board of Greenearth Energy Ltd currently does not have a process for evaluation the performance of the board, its committees and individual directors.

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principle3promoteethicalandresponsibledecisionmaking

Recommendation 3.1 Companies should 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 practice.

Directors, management and staff are expected to act ethically and responsibly and in accordance with the company’s Code of Conduct. All Board members are qualified professionals within their respective industries and accordingly conduct themselves in a professional and ethical manner in both their normal commercial activities and the discharge of their responsibilities as directors.

Whenever necessary, individual members of the Board may seek independent professional advice at the expense of the Company in relation to fulfilling their duties as directors.

Additionally, terms and conditions of employment provide detailed instructions as to the acceptable standards of behaviour.

A copy of the code of conduct policy can be viewed at the companies’ website.

Recommendation 3.2 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

The Company has a policy concerning trading in the Company’s securities by Directors, management and staff. Trading in the Company’s shares by Directors, Executives and Staff of the Company should only occur in circumstances where the market is considered to be fully informed of the Company’s activities. This policy requires that Directors, Executives and Staff discuss their intention to trade in the Company’s shares with the Executive Chairman of the Company prior to trading. The Board recognises that it is the individual responsibility of each Director and employee to carry this policy through.

Pursuant to the ASX Listing Rule 3.19B agreements that the company has in place with each director, if there is a change in the direct or indirect share holding of a director, they are required to notify the Company Secretary so that the appropriate disclosures can be made to the ASX.

A copy of the securities trading policy can be viewed at the companies’ website.

principle4Safeguardintegrityoffinancialreporting

Recommendation 4.1 The board should establish an audit committee.

The Audit Committee was established in September 2007. The company listed in February 2008. The primary objective of the Audit Committee is to assist the Board in fulfilling the Board’s responsibilities relating to accounting and reporting practices of the Company and its controlled entities.

The main functions of the Audit Committee are:

• To act as a committee of the Board of Directors in discharging the Board’s responsibilities as they relate to financial reporting policies and practices, accounting policies and management and internal controls• To provide through meetings a forum for communication between the Board, senior financial management and external auditors

The responsibilities of the Audit Committee include monitoring compliance with requirements of the Corporations Act 2001, Stock Exchange Listing Rules, Australian Securities Commission, taxation legislation and other laws as they apply to the subject matter of the Audit Committee’s functions

Recommendation 4.2 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 the chair of the board• Has at least three members. • The Audit Committee comprises of Mr John Kopcheff (Chairman), Mr Robert Annells and Mr Robert King. All three directors are not considered to be independent under the Council’s definition.

The Company secretary acts as the Committee secretary assisting members. The Company’s external auditors are invited to attend the Committee’s meetings. In addition, the Committee is able to seek and obtain input from external consultants as required.

Recommendation 4.3 The audit Committee should have a formal operating charter.

The Audit Committee Charter was adopted in September 2007. A copy of the Charter is publicly available on request.

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principle5Maketimelyandbalanceddisclosure

Recommendation 5.1 Companies should establish written policies and procedures designed to ensure compliance with ASX listing rule disclosure requirements and to ensure accountability at senior management level for that compliance and disclose those policies or a summary of those policies.

The Board adopted a Disclosure policy in September 2007. Greenearth Energy Ltd., recognises that it has a legal and moral obligation to immediately disclose to the market any information that a reasonable person would expect to have a material effect on the price or value of the Company’s securities.

The directors and senior management personnel of Greenearth Energy acknowledge that they each have an obligation to identify and immediately disclose information that may be regarded as material to the price or value of the Company’s securities.

The Chairman and Chief Executive Officer is authorised to make statements and representations on Greenearth Energy Ltd’s behalf. The Company Secretary is responsible for overseeing and coordinating the disclosure of information to the ASX, analysts, stockbrokers, shareholders, the media and the public. The Directors and senior management personnel must ensure that the Company Secretary is aware of all information to be presented at briefings with analysts, stockbrokers, the media and the public.

Prior to being presented, information that has not already been the subject of disclosure to the market and is not generally available to the market must be the subject of disclosure to the ASX. Only when confirmation of receipt of the disclosure and release to the market by the ASX is received may the information be presented. Such subject material will also be placed on the company’s website.

If information that would otherwise be disclosed comprises matters of supposition or is insufficiently definite to warrant disclosure, or if the effect of a disclosure on the value or price of the Company’s securities is unknown, Greenearth Energy Ltd may request that the ASX grant a trading halt or suspend it’s securities from quotation. Management of Greenearth Energy Ltd. may consult the Company’s external professional advisers and the ASX in relation to whether a trading halt or suspension is required.

principle6respecttherightsofshareholders

Recommendation 6.1 Companies should design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings and disclose their policy or a summary of that policy.

Planned communications to shareholders are:

• The annual report is printed and distributed to shareholders free of charge to all shareholders. An electronic company is also placed on the company’s website. The board ensures that the annual report includes relevant information about the operation of the company during the year, changes in the state of affairs of the Company and details of future development, in addition to the other disclosures required by the Corporations Act• The half-year report contains summarised financial information and a review of operations of the Company during the period. The half-year financial report is prepared in accordance with the requirements of Accounting standards and the Corporations Act and is lodged with the ASX• The Company’s internet website (www.greenearthenergy.com.au) is regularly updated and provides details of all announcements by the Company to the ASX, annual reports and general information on the company and its business.

The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategy and goals. The company invites its external auditors to attend the meeting for the purpose of answering shareholders questions.


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principle7recogniseandmanagerisk

Recommendation 7.1 Companies should establish policies for the oversight and management of material business risk and disclose a summary of those policies.

The Board has responsibility for managing risk and internal control and acknowledges that risk management is a core principle of sound Corporate Governance. The financial viability, reputation and future of the company are materially dependent on the manner in which risk is managed.

The Board’s strategy covers the areas of Financial Risk, Operational Risk, Insurance and Internal Control. The company has not appointed a Risk Management Committee due to the importance the Board places on risk mitigation. In addition, the small size of the Board makes it appropriate for the full board to manage this area.

Financial riskThe Board receives regular financial reports which measure performance and trends against budget. The reports are discussed at Board Meetings and the Chief Financial Officer answers questions posed by the Directors. Any variations from budget are highlighted, explained and evaluated. This scrutiny is appropriate to a company of the size of Greenearth Energy Ltd. In addition to monthly financial reporting, the company has in place policies to manage credit, foreign exchange and other business risks. Non-executive Directors meets at appropriate times with the external auditor in order to fulfil its Charter.

Operational reportingProjects are approved only after extensive review by a highly qualified technical staff and consultants and by submissions to the Board through the Chief Executive Officer. The operations of the company consist of a search for geothermal resources and projects are only considered after a review and evaluation of all technical data on record. Outside consultants are engaged as required to enhance the chances of success. Environmental considerations are factors in the consideration of every new project and are fully evaluated and reported before approval by the Board.

InsuranceThe Board recognises the value of insurance as a risk mitigation strategy and works with a leading insurance broker to ensure that appropriate insurance cover is in place at all times. Contacts with contractors are drawn up or reviewed by solicitors prior to the company entering into any commitment.

Internal controlIn a small company, an extensive internal control system is not possible; however there is a natural control as a consequence of being small. The Board works very closely with the staff and, because the transactional volume is small, the Directors have a detailed knowledge of the working of the company. The Directors believe the system of internal control is appropriate to the size of the company and to its level of potential risk.

Recommendation 7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s 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 it material business risks.

The Board works very closely with the staff and, because the company and its transactional volume is small, the Directors have a detailed knowledge of the workings of the company. It is through the informal and formal (via scheduled board meetings) communications of all areas of the business, that the board is reported to the risks of the business and how effectively they are being managed.

Recommedation 7.3 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 aspects in relation to financial reporting risks.

This recommendation was compiled with for this financial year.

principle8remuneratefairlyandresponsibly

Recommendation 8.1 The board should establish a remuneration committee.

Due to the limited size of the board, Greenearth Energy Ltd. has not complied with this recommendation. This role is conducted by the full board.

Recommendation 8.2 Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.

Non-executive directors are remunerated for their services from the maximum aggregated amount approved by shareholders for that purpose. Their compensation is reviewed by the Board. There are no termination benefits for non-executive directors appointed since listing.

The executive director and senior executives are employed under a contract detailing their remuneration, service period and non-competition clauses. They may be entitled to termination benefits as stipulated in their employment contracts and in accordance with relevant state laws governing long service leave and superannuation. Generally, executives have an element of their remuneration at risk. The key performance Indicators (KPIs) which will entitle them to access the at risk portion of their remuneration are set at commencement of employment and will be reviewed through the annual business planning and review process.


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abatement An activity that leads to a reduction in greenhouse gas emissions

alternativeenergy Energy from non-traditional sources such as fossil fuels and nuclear fuels (e.g. solar, wind, geothermal, hydro, biomass)

aquifer A large permeable body of underground rock capable of yielding quantities of water to springs or wells. Underground aquifers of hot water and steam are called geothermal reservoirs

Baseloadcapacity The power output that generating equipment can continuously produce under normal operation

BinaryCycleGeothermalplant

A type of geothermal power plant that utilises a closed-loop heat exchange system in which hot geothermal fluid is used to heat a secondary fluid that, typically, has a lower boiling point than the geothermal fluid. The secondary fluid is vaporised and used to run a turbine and generate electricity

Biodegradable Capable of decomposing rapidly under natural conditions

Brine A geothermal fluid with dissolved sodium chloride and other salts

CarbonDioxide(Co2) A colourless, odourless, non-poisonous gas that occurs naturally. Carbon dioxide is a by-product of burning fossil fuels such as oil, gas and coal. It is the principal greenhouse gas produced by man (although there are also natural sources) that affects the Earth’s radiative balance. It is the reference gas against which other greenhouse gases are measured and therefore has a global warming potential of 1

CarbonFootprint Total set of greenhouse gas emissions caused directly and indirectly by an individual, business, event or product, usually expressed in equivalent tonnes of carbon dioxide emitted (CO2e). Establishing the carbon footprint of an organisation can be the first step in a program to reduce the emissions it causes

ClimateChange Climate change refers to the change in the state of the climate that can be identified (e.g. by using statistical tests) by changes in the mean and/or variability in typical precipitation, temperature and humidity. The United Nations Framework Convention of Climate Change (UNFCC) defines climate change as ‘a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability over comparable time periods’

Cogeneration The sequential production of electricity and useful thermal energy from a common fuel source. Rejected heat from industrial processes can be used to power an electric generator (bottoming cycle). Conversely, surplus heat from an electric generating plant can be used for industrial processes, or space and water heating purposes (topping cycle)

CombinedCycle Two or more generation processes in series or in parallel, configured to optimise the energy output of the system, typically applied to a gas turbine/steam turbine combination where the heat output of the gas turbine is used to raise steam to drive a steam turbine

Competentperson A person who completes or supervises the work undertaken to establish a geothermal resource or reserve which is contained in public reports by companies obliged to report in accordance with the Australian Geothermal Resource Reporting Code. A competent person must have a minimum of five years experience relevant to the type of geothermal play under consideration and to the activity that the person is undertaking

Coolingtower A structure that cools hot fluids or condenses gas to liquids

Crust The Earth’s outermost layer of rock

Demonstrationplant Plant to demonstrate the commercial feasibility and production of electricity power generation capability of the geothermal resource

Deviated(Directional)Well A well that is not vertical. The term usually indicates a well is intentionally drilled away from vertical

electricity Electric current used as a power source

emissions Gaseous and or aqueous emissions from a human activity

energy The ability to do work, such as making things move, create light and heat things up. Energy can take many forms, including electrical, chemical, radiant, mechanical, and heat

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energyefficiency The measure of the amount of energy which any technology can convert to useful work compared to the total amount employed by the system; technology with a higher energy efficiency will require less energy to do the same amount of work

enhancedGeothermalSystems(eGS)

A process that uses rock fracturing, water injection, and water circulation technologies to produce heat and electricity from otherwise unproductive areas of existing geothermal fields or insufficient production areas

Flowrate The amount of water that moves through an area (usually pipe) in a given period of time often expressed as L/s

FossilFuel Any of several types of combustible fuels formed from the decomposition of organic matter. Examples are natural gas, propane, fuel oil, oil and coal

GeelongGeothermalpowerproject(GGpp)

Greenearth Energy’s flagship domestic geothermal exploration and development project. It is also referred to as the GGPP and has been awarded funding grants of $7 million from the Australian Government and $25 million from the Victorian Government

Geothermalenergy The Earth is constantly generating naturally occurring heat. This heat is known as geothermal energy, and can be used to produce electricity. Electricity produced from geothermal energy is environmentally friendly and renewable. Geothermal energy is the only renewable energy source that can provide long-term base load (continuous) power

Geothermalenergyplant A facility which uses geothermal steam or heat to drive turbine-generators to produce electricity. Three different types make use of the various temperature ranges of geothermal resources: dry steam, flash and binary

Geothermalexplorationpermit

A specified area allocated to the permit holder which authorises the permit holder to carry out geothermal energy exploration in the permit area subject to and in accordance with the conditions of the permit

Geothermalplay The term used as an informal qualitative descriptor for an accumulation of heat energy within the Earth’s crust. It can apply to heat contained in rock and/or in fluid. It has no connotations as to permeability or the recoverability of energy. A Geothermal Play does not necessarily imply the existence of an exploitable Geothermal Resource or Reserve

Geothermalreserve The portion of an Indicated or Measured Geothermal Resource which is deemed to be economically recoverable after the consideration of both the geothermal resources parameters and modifying factors. Geothermal Reserves are sub-categorised into Probable and Proven

Geothermalreservoir In respect of a geothermal project, a particular subsurface body of rock at elevated temperatures having sufficient porosity and permeability to store and transmit fluids

Geothermalresource A geothermal play which exists in such a form, quality and quantity that there are reasonable prospects for eventual economic extraction. Geothermal Resources are sub-divided , in order of increasing geological confidence, into Inferred, Indicated and Measured categories

Greenhouseeffect A warming of the Earth and its atmosphere caused by greenhouse gases and water vapour trapping heat from the sun

GreenhouseGasemissions Greenhouse gas emissions, specifically anthropogenic greenhouse gas emissions are the release of greenhouse gases into the atmosphere, covering direct releases of greenhouse gases and indirect releases of greenhouse gases from human activity

Grid An electric utility’s system for distributing power

GridConnection Connection from a plant that generates electric power to a utility electricity transmission or distribution system so that electricity can flow in either direction between the utility system and the plant

heatexchanger A device in which heat is transferred by conduction through a metal barrier from a hotter liquid or gas, to warm a cooler liquid or gas on the other side of the metal barrier. Types of heat exchangers include “shell and tube,” and “plate”

InferredGeothermalresource

Part of a geothermal resource for which Thermal energy in place can be estimated only with a low level of confidence. This category of geothermal resource is inferred from geological, geochemical and geophysical evidence and is assumed but not verified as to its extent or capacity to deliver geothermal energy

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InjectionWell A well through which geothermal fluid is returned to an underground reservoir after use. Geothermal production and injection wells are constructed of pipes layered inside one another and cemented into the earth and to each other. This protects any shallow drinking water aquifers from mixing with deeper geothermal water

Kilowatt(kW) A measure of electrical power equal to 1,000 Watts. 1 kW = 3,413 Btu/hr = 1.341 horsepower

MeasuredGeothermalresource

Part of a geothermal resource for which Thermal energy in place can be estimated with a high level of confidence. It is based on direct measurements and assessments of drilled and tested volumes of rock and/or fluid within which well deliverability has been demonstrated, and which have sufficient indicators to characterise the temperature and chemistry

Megawatt(MW) A unit of power, equal to a thousand kilowatts (kW) or one million watts (W). The watt is a unit of power (energy/time), the rate energy is converted from one form to another eg. electricity to motions

orC(organicrankineCycle)

A cycle that uses organic, high molecular mass fluid with a liquid vapour phase change or boiling point, occurring at a lower temperature than the water – steam phase change. The fluid allows Rankine Cycle heat recovery from lower temperature sources such as industrial waste heat, geothermal heat, solar thermal panels etc. Working fluid is pumped to a boiler where it is evaporated, passes through ha turbine and is finally re-condensed

permeable A measure of a substances ability to transmit water or other liquids; for example, rock with tiny passageways between holes

porosity The space within a rock that contains a fluid such as water, oil or gas

porous Indicating a material has a high level of porosity, eg. full of small holes (pores); able to be filled (permeated) by water, air, or other materials

proofofConcept Realisation of a certain method or idea to demonstrate it feasibility. For the Geelong Geothermal Power Project, Proof of Concept represents a production well, an injection well and an extended flow test

proofofresource A program of exploration drilling and testing that proves the existence of a resource. For the Geelong Geothermal Power Project, Proof of Resource represents a production well and a short term flow test

renewableenergy Energy obtained from sources that are essentially inexhaustible, unlike the fossil fuels, of which there is a finite supply. Renewable sources of energy include geothermal, wind, biomass, hydro and solar energy

Sustainable Material or energy sources which, if managed carefully, will provide the needs of a community or society indefinitely, without depriving future generations of their needs

thermalGradient The rate of increase or decrease in the Earth’s temperature relative to depth

transmissionLines Wires that transport electricity over long distances

turbine A machine for converting the heat energy in steam or high temperature gas into mechanical energy. In a turbine, a high velocity flow of steam or gas passes through successive rows of radial blades fastened to a central shaft

Watt(W) A unit of power (Energy/Time) (ie. the rate of conversion (use of production) of energy)

WellLogging A recording of the detailed record of the assessment of the geologic, engineering, and physical properties and characteristics of geothermal reservoirs with instruments placed in the wellbore

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Greenearth Energy Ltd. Level 14 500 Collins StreetMelbourne Victoria 3000Telephone: (03) 9620 7299 Facsimile: (03) 9629 1624

www.greenearthenergy.com.au

This report is printed on 100% recycled paper.

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