austofix group limited

Austofix Group Limited ABN 16 119 490 238

Annual Financial Report 30 June 2009

Corporate directory

Directors Mark Balnaves Chairman

Tony Ingman

Andrew Andreyev

Jurgen Michaelis

Geoff Driscoll

Chief Executive Officer Mark Szolga

Secretary Charlie Latham

Registered office Level 11, 101 Grenfell St, , Adelaide SA 5000

Share register Computershare Limited www.computershare.com

Postal: GPO Box 242, Melbourne VIC 3001

Physical: Level 5, 115 Grenfell Street, Adelaide SA 5001

Phone: 1300 130 979 (outside Australia +61 3 9415 4331)

Fax: 1800 783 447 (outside Australia +61 3 9473 2555)

Website: www.investorcentre.com.au

Auditor Grant Thornton South Australian Partnership, Adelaide

Solicitors Kelly & Co, Adelaide

Bankers National Australia Bank, Adelaide

Securities exchange listings Austofix Group Limited shares are listed on the Australian Securities Exchange

ASX code - AYX.

Website address www.austofix.com.au

Austofix Group Limited

Directors' report

30 June 2009

1

Directors' report Your Directors are pleased to present their second annual report on Austofix Group Limited (Company) and the consolidated entity (Group) consisting of the Company and the entities it controlled at the end of, or during, the year ended 30 June 2009.

Directors

The following persons were Directors of Austofix Group Limited during the whole of the financial year, unless otherwise stated, and up to the date of this report:

M N Balnaves

A M Ingman

A C Andreyev

J Michaelis

G L Driscoll (appointed 6 February 2009)

J Lettin (resigned 6 February 2009)

Company Secretaries

The following persons were secretary of Austofix Group Limited during the financial year, unless otherwise stated, and up to the date of this report:

C J Latham (appointed 15 August 2008)

C Kosti (appointed as temporary secretary from 23 May 2008 to15 August 2008 pending the appointment of a replacement CFO)

Principal activities

During the year the principal continuing activities of the Group consisted of the design, manufacture and sale of orthopaedic trauma devices.

There have been no significant changes in the nature of these activities during the year.

Review of operations

Company overview and strategy

Austofix is an Australian orthopaedic device company that designs, develops and distributes medical devices.

Austofix uses its skills in product design and commercialisation, its active interest in identifying new technologies and a close relationship with surgeons and research teams, to develop new products and refine existing products.

Operating Activities

Sales revenue grew over the previous year, particularly in sales of finished product to Australian hospitals (up 77%) and new overseas distributors, at the expense of contract manufacture for other medical equipment suppliers.

During the year development of the second of the suite of new implant products, the Austofix Tectona Hip Plate, was completed. Production commenced and instrumentation was acquired with the product released in February 2009. This follows on from the first new product, the VRP (Volar Radius Plate), which has made good progress since its launch in July 2008.

After the financial reports for the year ended 30 June 2008 were completed and lodged, the decision was taken to consolidate the member companies of the Austofix Group for income tax purposes with effect from 1 July 2007. This increased the amount of research and development tax concessions available to the group from that date and had a material positive effect ($157,000) on operating results and cash flows for the current financial year.

Distributors have been appointed in Greece, Turkey and Brasil with Austofix’s Greek representatives reporting immediate local sales.

The refund resulting from the research and development income tax offset for the 2007/8 year was received in May 2009. The total refund amounted to $261,000. The tax offset receivable anticipated in respect of the 2008/9 income tax year is $276,000.

An export market development grant of $53,000 in respect of the 2007/8 financial year was received late in the year. This grant was accounted for on a received basis due to previous uncertainties surrounding the funding of the grant scheme.


Directors' report

30 June 2009

2

Investing Activities

$585,000 was invested in research and development in the year, of which $561,000 has been capitalised as product development costs. The amount of research and development expensed as an operating cost related to longer term research projects for which the returns are not yet sufficiently clear to warrant capitalisation.

Instruments for implanting Austofix products are capitalised as non-current inventories upon acquisition, as they are generally retained by Austofix and loaned (in accordance with normal industry practice) to the hospitals carrying out the implant procedures. During the year Austofix’s investment in instruments for new products (VRP, Tectona, Hyperion) increased by $295,000.

During the year Austofix invested $124,000 in capital equipment, including $66,000 on a new screw making machine, used for production of high precision screws for the new generation VRP and Tectona plates.

The net cash impact of investments in capital equipment and capitalized medical instruments in the year was compensated by the receipt of approximately $155,000 from the $1.6 million grant available to Austofix pursuant to the Innovation and Investment Fund for South Australia (“IIFSA”).

Further instalments of the IIFSA grant will continue to be drawn down as Austofix invests in new qualifying infrastructure to develop and produce new implantable products. As at 30 June 2009 $1,208,000 remains available for Austofix to access under the IIFSA program.

Financing Activities

During the year the Company entered into an equipment financing agreement with National Australia Bank, whereby NAB provided funding of $330,000 secured on several existing items of plant and equipment. The facility is repayable over 5 years in equal monthly instalments, with the final payment due in March 2014. $19,000 was repaid in the year and $311,000 remained outstanding at 30 June 2009.

In April 2009 the Company entered into a secured finance facility agreement with NAB to provide working capital funding, with a facility limit of $700,000. As at 30 June 2009 this facility had not yet been drawn upon.

Together with grant funding provided by the IIFSA for capital equipment purchases, these facilities will contribute ongoing funding for Austofix’s growth.

Significant changes in the state of affairs There was no significant change in the state of affairs of the consolidated entity.

Dividends

No dividends have been declared, paid or recommended during or since the end of the financial year.

Matters subsequent to the end of the financial year 15 August 2009 was a key milestone date for the company as from this date Austofix is able to access full private hospital rebates for a number of products. With access to key markets, namely private hospitals in Australia, it is expected that sales will grow significantly.

In August 2009 the company signed a major contract with a large Australian public hospital. Under the contract Austofix has supplied a wide range of its orthopaedic implants to the hospital.

There has not been any other matter or circumstance, other than mentioned in this report, that has arisen since the end of the financial year, that has significantly affected or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

Likely developments and expected results of operations Development of new products will continue. After substantial investment in research and development in the current and prior financial years the Directors are looking forward to an increase in revenue from the Group’s new implant products. Disclosure of further information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly this information has not been disclosed in this report.

Environmental regulation

The Group holds licences to operate the manufacturing processes required to produce its products. It is not subject to significant environmental regulation or reporting requirements. There have been no significant known breaches of the Group’s licence conditions.

Share options

As at the date of this report there were 3,238,830 (2008:3,503,690) unissued ordinary shares under option. Details are set out in note 25(c) and (d) and note 37 to the financial statements.


Directors' report

30 June 2009

3

Information about the Directors and senior management Mark Neilson Balnaves BEc, LLb, MFin (London)

Chairman - non-executive. Age 38.

Experience and expertise

Mr Mark Balnaves has over 15 years of advisory experience in financial and strategy consulting and is a Director of advisory firm Evans & Ayers. Mark chairs the Board of two other high growth private companies and has long-term advisory engagements for five private companies based in Melbourne and Adelaide. Mark has a strong track record of achieving sustained growth and shareholder value for his clients.

Mark has a Masters in Finance from London Business School as well as undergraduate degrees in Economics and Law. Mark has been actively involved in structuring and repositioning Austofix since November 2004. His focus has been on attracting human and financial resources to the Company to ensure the Company can deliver on its Strategic Plan. Mark has been Chairman of Austofix since July 2006.

Special responsibilities

Chair of the Board.

Anthony Mark Ingman MB.BS Univ Syd, FRACS, FAOrthA Non-executive Director. Age 68.


Dr Tony Ingman has 33 years of experience as an orthopaedic surgeon, both in private practice and as a Visiting Orthopaedic Surgeon to a number of hospitals. Products developed by Tony have been the subject of a number of academic papers published in the Journal of Bone and Joint Surgery, International Journal of the Care of the Injured and Australian and New Zealand Journal of Surgery.

As the founder and current non-executive Technical Director of Austofix, Tony provides advice and assistance on the clinical and manufacturing aspects of new product design and development. Tony is a Fellow of the Royal Australasian College of Surgeons and the Australian Orthopaedic Association, and a member of Australian Standards Committee for Medical Devices.


Technical Director.

Andrew Carey Andreyev B.Comm LL.M

Non-executive Director. Age 37. Experience and expertise

Mr Andrew Andreyev has over 15 years of experience across a broad range of corporate, finance and legal disciplines. He has gained this experience in a number of different capacities, including as an accountant in public practice, as an executive with an investment bank (in structured finance and technology investment banking) and as a solicitor in both Australia and the United Kingdom.

Andrew has a Masters in Tax and Investment Law from Melbourne University, as well as undergraduate degrees in Commerce and Law. Andrew has been involved in Austofix since November 2004. His key areas of contribution have been longer-term strategy definition, risk identification and mitigation, and organisational and operational structuring.


None.


Directors' report

30 June 2009

4

Jurgen Michaelis PhD, BSc (Hons), GradDipMktg

Non-executive Director. Age 51.


Dr Jurgen Michaelis has more than 21 years experience as a senior executive in the international life science industry, having worked in Europe, Australia and New Zealand. He has raised more than $100 million in private equity and venture capital for biotechnology companies, as well as participated in the full lifecycle of technology development and commercialisation (including R&D facilitation and technology licensing).

Jurgen is a Director and Chair of the Investment Committee of Terra Rossa Capital Pty Ltd which manages the $35 million South Australian Life Science Advancement Fund. In addition, he is the CEO of Bio Innovation SA, the South Australian Government’s biotechnology industry development organisation.

Jurgen holds a Bachelor of Science (Hon) in Biology, a Doctorate of Philosophy in Biochemistry and a Graduate Diploma Marketing Management.

Jurgen has provided valuable guidance in identifying and focusing strategy around Austofix’s core strengths and competencies, and positioning the Company within the broader bioscience sector.


None.

Geoffrey Laurence Driscoll MB.BS(Syd), FRCSED, FRCOG, FRANZCOG, MAICD Non-executive Director. Age 62.


Professor Geoff Driscoll brings to the Company a wealth of experience in major commercial operations of health businesses and the health sector in general. Based in Sydney, he sits on a number of private company and charitable boards and is a member of the Australian Institute of Company Directors. Professor Driscoll established numerous clinics (public and private) and was the initiator and founding Medical Director of IVF Australia.


None.

Former Director - Jonathan Lettin BSc (Hons) Non-executive Director. Age 47.


Mr Jonathan Lettin has more than 20 years experience as an executive in the global orthopaedics industry. Between 2005 and early 2007 Jonathan was Managing Director of the Australian operations of DePuy, one of the world’s largest medical device businesses. Product categories for which he was responsible included Orthopaedic, Sports Medicine, Spinal and Trauma. Up until 2005 he held senior executive positions with DePuy, including President of DePuy International, Vice President of International Marketing and Vice President of Asia Pacific.


Marketing and research advisor to the Group.

Chief Executive Officer:

Mark Szolga MBA, BBus. Age 43 Experience and expertise

Mr Mark Szolga brings to Austofix an expert background in commercialising and licensing innovation and developing businesses into people and profit driven organisations. He gained this experience as Managing Director of a leading commercialisation organisation with a life-science focus, Adelaide Research and Innovation, for the period prior to joining Austofix. Between 1988 and 2000, Mark worked for a number of international, sales driven organisations in Europe and the United States, including Zimmer, Oracle and Thorn – EMI, focusing on roll-outs of new sales and distribution networks,. Mark has a Masters of Business Administration from the Imperial College of London and a Bachelor of Business. Mark commenced as CEO of Austofix on 1 March 2007.


Directors' report

30 June 2009

5

Company Secretary: Charlie Latham BSc (Hons), CA, ACA, MAICD

Chief Financial Officer. Age 55.

Mr Charlie Latham is a Chartered Accountant with over 30 years professional and commercial experience in finance, accounting and company secretarial roles. Originally from the UK where he graduated with an honours degree in Zoology, Charlie qualified as a Chartered Accountant before working for Deloitte for eight years. Charlie has over 16 years experience as CFO and secretary of ASX listed entities, including RM Williams, Southern Equity Holdings and Coonawarra Premium Vineyards. Charlie has significant experience in buying and selling businesses, merger and capital raising processes as well as introducing new reporting, business management and information systems into companies.

Previous Company Secretary: Constance Kosti BA (Communication Studies), Grad Dip Management

Marketing and Investor Relations Director. Age 38.

Ms Connie Kosti acted as secretary for a short period until Charlie Latham was appointed secretary in August 2008.

Directorships of other listed companies None of the Directors has held a directorship of any other listed company in the 3 years immediately before the end of the financial year.

Interests in shares and options

Interests in shares and options in the Company are set out in the notes to the financial statements.

Directors’ attendance at meetings

Meetings of Directors held during the financial year:

Meetings attended Meetings held

while a Director

Mark Balnaves 13 13

Tony Ingman 12 13

Andrew Andreyev 12 13

Jurgen Michaelis 12 13

Geoff Driscoll (appointed 6 February 2009) 4 5

Jonathan Lettin (resigned 6 February 2009) 8 8

Insurance of officers During the financial year, Austofix Group Limited paid a premium of $3,000 to insure the Directors, officers and secretaries of the Company and its controlled entities, and the senior executives of the Group. The liabilities insured are fidelity, crisis loss, OH&S defence / investigations costs, pecuniary penalties, pollution defence / investigation costs and publicity.

Throughout the financial year the Company paid for a key person insurance policy to cover its Chief Executive Officer Mark Szolga against death and total permanent disability. Premiums are payable monthly at the rate of $323.95 per month.

Loans to Directors and executives

There are no loans to Directors and executives.


Directors' report

30 June 2009

6

Non-audit services

The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Company and/or the Group are important.

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 2001. The nature and scope of non-audit services provided means that auditor independence was not compromised.

During the year there were no non-audit services provided by the current auditor of the parent entity (Grant Thornton South Australian Partnership), its related practices and non-related audit firms and accordingly no fees were paid or payable to the auditor for such services.

Fees for auditing the Parent Entity were borne by wholly-owned controlled entity Austofix Surgical Pty Ltd

Auditor's independence declaration

The Directors received the following declaration from the auditor as required under section 307C of the Corporations Act 2001.

Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001

T 61 8 8372 6666

F 61 8 8372 6677

E [email protected]

W www.grantthornton.com.au

Grant Thornton South Australian Partnership ABN 27 244 906 724

a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389

Grant Thornton Australia Limited is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Grant Thornton Australia Limited, together

with its subsidiaries and related entities, delivers its services independently in Australia.

Liability limited by a scheme approved under Professional Standards Legislation

AUDITOR’S INDEPENDENCE DECLARATION

TO THE DIRECTORS OF AUSTOFIX GROUP LIMITED

In accordance with the requirements of section 307C of the Corporations Act 2001, as lead

auditor for the audit of Austofix Group Limited for the year ended 30 June 2009, I declare

that, to the best of my knowledge and belief, there have been:

a no contraventions of the auditor independence requirements of the Corporations Act

2001 in relation to the audit; and

b no contraventions of any applicable code of professional conduct in relation to the

audit.

GRANT THORNTON South Australian Partnership Chartered Accountants S J Gray Partner Signed at Wayville on this 17th day of September 2009


Directors' report

30 June 2009

8

Remuneration report (Audited) This Remuneration Report, which forms part of the Directors’ Report, sets out information about the remuneration of Austofix’s Directors and senior executives in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also provides the remuneration disclosures required by paragraphs Aus 25.4 to Aus 25.7.2 of AASB 124 Related Party Disclosures. For the purposes of this report Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the parent company, and includes the five executives in the Parent and the Group receiving the highest remuneration.

For the purposes of this report, the term 'executive' encompasses the Chief Executive Officer, senior executives and secretaries of the Parent and the Group.

Key Management Personnel

The key management personnel of Austofix Group Limited and the Group include the Directors as set out in the Directors’ Report above and the following executive officers who have authority and responsibility for planning, directing and controlling the activities of the entity:

• Mark Szolga – Chief Executive Officer

• Ewen Laird – Research and Development Director

• David Entwistle – Director of Manufacturing

• Charlie Latham – Chief Financial Officer and Company Secretary (from 5 August 2008)

• Byron Schoeman – National Sales Manager (from 7 October 2008)

And former executives:

• Connie Kosti – Marketing and Investor Relations Director (from 17 March 2008 to 30 November 2008)

• Jason Cattonar – Chief Financial Officer and Company Secretary (to 23 May 2008)

Remuneration Policy The Board of Directors of the Company is responsible for determining and reviewing remuneration arrangements for the Directors and executives.

The Board of Directors assesses the appropriateness of the nature and amount of remuneration of executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality, high performing Director and executive team. The Corporate Governance Statement provides further information on the role of the Board.

Remuneration Philosophy

The performance of the Company depends upon the quality of its Directors and executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and executives.

To this end, the Company embodies the following principles in its remuneration framework:

• provide competitive rewards to attract high calibre executives;

• link executive rewards to shareholder value;

• have a significant portion of executive remuneration 'at risk'; and

• establish appropriate, demanding performance hurdles for variable executive remuneration.

Remuneration Structure

In accordance with best practice corporate governance, the structure of non-executive Director and executive remuneration is separate and distinct.


Directors' report

30 June 2009

9

Remuneration report (Audited) (continued) Non-Executive Director Remuneration

Objective

The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive Directors shall be determined from time to time by a general meeting. The maximum aggregate remuneration is $220,000 per annum.

The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually. The Board considers the time commitment required as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process.

On appointment to the Board, all non-executive Directors enter into a service agreement with the Company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation, relevant to the office of Director.

Each non-executive Director receives a base fee of $30,000 for being a Director of the Group. An additional fee of $10,000 is also paid if the Director is the Chair of the Board. These fees commenced from 1 March 2008 following the ASX listing. The payment of additional fees for serving as Chair recognises the additional time commitment required by non-executive Directors who serves in this capacity. The Chair is not present at any discussions relating to determination of his own remuneration.

Non-executive Directors are encouraged by the Board to hold shares or options in the Company. The Company facilitates this through the Austofix Group Share Option Plan. Under the plan, non-executive Directors may be invited to accept an offer of options to acquire shares in the Company.

The non-executive Directors do not receive retirement benefits, nor do they participate in any incentive programs.

The remuneration of non-executive Directors for the years ended 30 June 2009 and 30 June 2008 is detailed in table 1 and 2 respectively of this report.

Executive Remuneration

Objective

The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to:

• reward executives for Group, business unit and individual performance against targets set by reference to appropriate benchmarks;

• align the interests of executives with those of shareholders; and

• ensure total remuneration is competitive by market standards.

Structure

In determining the level and make-up of executive remuneration, the Board of Directors engages external consultants as needed to provide independent advice.

The Board of Directors has entered into a detailed contract of employment with the Chief Executive Officer and all senior executives. Details of these contracts are provided below.

Remuneration consists of the following key elements:

• Fixed remuneration (base salary, superannuation and non-monetary benefits);

• Variable remuneration, being

o short term incentive (STI); and

o long term incentive (LTI).

The proportion of fixed remuneration and variable remuneration (potential short term and long term incentives) for each executive is set out in tables 1 and 2.


Directors' report

30 June 2009

10

Remuneration report (Audited) (continued) Fixed Remuneration

Objective

Fixed remuneration is reviewed annually by the Chair. The process consists of a review of Company, business unit and individual performance, relevant comparative remuneration externally and internally and, where appropriate, external advice on policies and practices. As noted above, the Chair has access to external advice independent of management.

Structure

Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating additional cost for the Group.

The fixed remuneration component of executives is detailed in tables 1 and 2.

Variable Remuneration — Short Term Incentive (STI)

Objective

The objective of the STI program is to link the achievement of the Group's operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.

Structure

Actual STI payments granted to each executive depend on the extent to which specific targets set at the beginning of the financial year are met. The targets consist of a number of Key Performance Indicators (KPIs) covering both financial and non-financial, corporate and individual measures of performance. Typically included are measures such as contribution to sales growth, meeting research and development milestones, staff retention, net profit after tax, customer service, risk management, product management, and leadership/team contribution. These measures were chosen as they represent the key drivers for the short term success of the business and provide a framework for delivering long term value.

The Group has predetermined benchmarks that must be met in order to trigger payments under the STI scheme. On an annual basis, after consideration of performance against KPIs, the Board of Directors, in line with its responsibilities, determines the amount, if any, of the short term incentive to be paid to each executive. This process usually occurs within 3 months after the reporting date.

The aggregate of annual STI payments available for executives across the Group is subject to the approval of the Board of Directors. Payments made are delivered as a cash bonus as soon as possible after the STI is approved by the Board of Directors. The STI payments may be adjusted up or down in line with under or over achievement against the target performance levels. This is at the discretion of the Board.

STI bonus for 2009 and 2008 financial years

For the 2008 financial year, STI cash bonus of $51,101 vested to executives and was paid during the 2008 financial year. There were no forfeitures. No further STI bonuses are payable in respect of the 2008 financial year.

For the 2009 financial year, STI cash bonuses of $7,500 vested to executives and were paid during the 2009 financial year. There were no forfeitures.

The Board of Directors will consider the STI payments for the 2010 financial year in August 2010. The maximum STI cash bonus for the 2010 financial year is yet to be determined. The minimum amount of the STI cash bonus assuming that no executives meet their respective KPIs for the 2010 financial year is nil.

There have been no alterations to the STI bonus plans since their grant date.


Directors' report

30 June 2009

11

Remuneration report (Audited) (continued) Variable Remuneration — Long Term Incentive (LTI)

Objective

The objective of the LTI plan is to reward executives in a manner that aligns remuneration with the creation of shareholder wealth. As such, LTI grants are only made to executives who are able to influence the generation of shareholder wealth and thus have an impact on the Group's performance.

Structure

LTI grants to executives are delivered in the form of share options under the Austofix Group Share Option Plan. Share options may be granted to executives at the discretion of the Board. The share options will vest over a period of 5 years. Executives are able to exercise the share options at any time after vesting before the options lapse. Options expire 10 years after the grant date. These options function as a team incentive: If option holders perform their duties well and that is reflected in the Company’s share price then the benefits flow to the holders of the options.

Where a participant ceases employment prior to the vesting of their share options, the share options are forfeited unless cessation of employment is due to death. In the event of a change of control of the Group, all options granted but not yet exercisable will become exercisable for a period of 90 days after which they shall lapse, unless the Company opts to buy or cancel the Options, in which case a payment will be made to the Option holder that amounts to the difference between the price offered by the acquirer and the exercise price attaching to the particular options.

The Company prohibits executives from entering into arrangements to protect the value of unvested LTI awards. This includes entering into contracts to hedge their exposure to options or shares granted as part of their remuneration package.

Table 3 provides details of LTI options granted and Table 4 shows the value of options granted, exercised and lapsed during the year.

Employment Contracts

Chief Executive Officer

The CEO, Mr Mark Szolga, is employed under a rolling contract. The current employment contract commenced on 1 March 2007. Under the terms of the present contract:

• Mr Szolga receives fixed remuneration of $204,750 per annum, including compulsory superannuation. This was increased from $195,000 effective from 1 July 2008.

• Mr Szolga may resign from his position and thus terminate this contract by giving 6 months written notice. On resignation any unvested options will be forfeited.

• The Company may terminate this employment agreement by providing 6 months written notice or providing payment in lieu of the notice period (based on the fixed component of Mr Szolga's remuneration). On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited.

• The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited.

Other Executives

All executives have rolling contracts. The Company may terminate the executive's employment agreement by providing 2 or 3 months written notice or providing payment in lieu of the notice period (based on the fixed component of the executive's remuneration). On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited.


Directors' report

30 June 2009

12

Remuneration report (Audited) (continued) Key management personnel and other executives of Austofix Group Limited

Table 1: Remuneration for the year ended 30 June 2009

Long- term

benefits

Share- based

payments

Cash salary and

feesCash bonus

Non-monetary benefits

Super- annuation

Retire-ment

benefits$ $ $ $ $ $ $ $ $

Non-executive DirectorsM N Balnaves - Chairman 40,000 - - 3,600 - - 378 43,978 - A M Ingman - - - 32,700 - - 378 33,078 - A C Andreyev 30,000 - - 2,700 - - 378 33,078 - J Michaelis 30,000 - - 2,700 - - - 32,700 - G Driscoll (appointed 6 February 2009) 11,846 - - 1,066 - - - 12,912 - J Lettin (resigned 6 February 2009) # + 91,054 - - 7,924 - - (66,176) 32,801 - Sub-total non-executive directors 202,900 - - 50,690 - - (65,042) 188,547 -

Other key management personnelM Szolga ̂# 189,816 - - 13,591 - - 80,383 283,790 - E Laird ^ 120,138 - - 7,860 - - 412 128,410 - D Entwistle ^ 82,667 - - 9,279 - - 206 92,152 - C Latham (from 5 August 2008) ^ # 47,590 - - 92,639 - - 6,688 146,917 - C Kosti (to 30 November 2008) 41,240 - - 4,119 - - - 45,360 - B Schoeman (from 7 October 2008) ^ # 94,231 7,500 - 8,667 - - 6,688 117,086 6%Total key management personnel compensation 778,581 7,500 - 186,845 - - 29,335 1,002,262 -

Short-term employee benefits Post-employment benefits

Total

% perfor-mance related

^ denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001.

# Options issued to Messrs Lettin, Szolga, Latham and Schoeman were issued in 2007/ 2009 when the reference price for the underlying shares was 84 cents, whereas the other options were issued to KMP in September 2006 when the underlying share price was only 10 cents. This has a significant effect on the share-based payments component of remuneration set out above.

+ Mr Lettin was remunerated for marketing and product consulting services provided to the Group in addition to his role as a non-executive Director. The amount ($54,013) of his share-based remuneration expense that related to options that had vested (118,000) at the time of his resignation remains in the share option reserve. The part of his share-based remuneration expense ($66,176) that related to options that had not vested (472,000) at the time of his resignation has been reversed in the current financial year.


Directors' report

30 June 2009

13

Remuneration report (Audited) (continued) Table 2: Remuneration for the year ended 30 June 2008

Long- term

benefits

Share- based

paymentsCash

salary and fees

Cash bonus

Non-monetary benefits

Super- annuation

Retire-ment

benefits$ $ $ $ $ $ $ $ $

Non-executive DirectorsM N Balnaves - Chairman * 13,333 - - 1,200 - - 1,259 15,792 - A M Ingman * - - - 10,900 - - 1,259 12,159 -

A C Andreyev (appointed 24 July 2007) * 10,000 - - 900 - - 1,259 12,159 -

J Michaelis (appointed 24 July 2007) * 10,000 - - 900 - - - 10,900 - J Lettin (appointed 24 July 2007) # + 77,872 - - 7,008 - - 120,189 205,069 - Sub-total non-executive directors 111,205 - - 20,908 - - 123,966 256,079 -

Other key management personnelM Szolga ̂# 177,787 30,000 - 17,443 - - 130,526 355,756 8%E Laird ^ 112,800 11,009 - 11,143 - - 531 135,483 8%D Entwistle ^ 75,046 10,092 - 7,662 - - 344 93,144 11%C Kosti (from 17 March 2008) ^ 24,135 - - 2,172 - - - 26,308 - J Casttonar (to 23 May 2008) ^ 99,440 - - 8,950 - - - 108,390 - Total key management personnel compensation 600,413 51,101 - 68,278 - - 255,367 975,160 -

Short-term employee benefits Post-employment benefits

Total

% perfor-mance related

* Non-executive Directors fees commenced from 1 March 2008 following completion of the ASX listing on 27 February 2008.

^ denotes one of the 5 highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.

# Options issued to Jonathan Lettin and Mark Szolga were issued in July and March 2007 respectively when the reference price for the underlying shares was 84 cents, whereas other options were issued to KMP in September 2006 when the underlying share price was only 10 cents. This has a significant effect on the share-based payments component of remuneration set out above.

+ Jonathan Lettin was remunerated for marketing and product consulting services provided to the Group in addition to his role as a non-executive Director.

Details of options over ordinary shares in the Company provided as remuneration to each Director of Austofix Group Limited and each of the key management personnel of the parent entity and the Group are set out in Tables 3 and 4 below. When exercisable, each option is convertible into one ordinary share of Austofix Group Limited.

Further information on the options is set out in note 29 to the financial statements.


Directors' report

30 June 2009

14

Remuneration report (Audited) (continued) Table 3: Summary of options granted and vested during the year

2009 2008 2009 2008 2009 2008

M N Balnaves - - 32,514 32,514 - - A M Ingman - - 32,514 32,514 - - A C Andreyev - - 32,514 32,514 - - J Michaelis - - - - - - G L Driscoll - - - - - - J Lettin # (590,000) 590,000 - - (287,562) 287,562 Other key management personnel of the GroupM Szolga - 325,140 65,028 65,028 - 163,461 E Laird - - 65,028 65,028 - - D Entwistle - - 32,514 32,514 - - C Latham 162,570 - - - 46,672 - B Schoeman 162,570 - - - 46,672 - C Kosti - - - - - - J Cattonar ## - (130,056) - 32,514 - (846) Total held by KMP (264,860) 785,084 260,112 292,626 (194,218) 450,177 Held by others ** - 150,000 32,514 32,514 - - Total options on issue (264,860) 935,084 292,626 325,140 (194,218) 450,177

NameNumber of options granted / (lapsed) Number of options vested

Value of options granted / (lapsed)

during the year during the year during the year

Directors of Austofix Group Limited

** Held by other Group staff and advisors.

## Mr Cattonar’s unvested options lapsed when he resigned from the Company in May 2008.

Table 4: Details of options granted during the year 2009

Name

C Latham (from 5 August 2008) 162,570 3/03/2009 28/02/2017 0.50 0.63 1/03/2008 28/02/2017 - B Schoeman (from 7 October 2008) 162,570 3/03/2009 21/09/2016 0.50 0.63 22/09/2007 21/09/2016 -

2008

J Lettin (appointed 24 July 2007) 590,000 24/07/2007 23/07/2017 0.49 0.67 24/07/2008 23/07/2017 -

M Szolga 325,140 24/07/2007 23/07/2017 0.50 0.63 24/07/2008 23/07/2017 -

Number vested in

year


Other key management personnel of the Group


Number granted Grant date Expiry date

Fair value at grant

date

Exercise price

First exercise date

Last exercise date

The assessed fair value at grant date of options granted to the individuals is allocated over the period from grant date to vesting date. The amount is included in the remuneration tables above.

Fair values at grant date were independently determined using an option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.


16

Corporate governance statement The Austofix Group supports the principles of effective corporate governance and is determined to engage the highest standards of performance and accountability commensurate with the size of the Company and its available resources. Accordingly, the Board has adopted corporate governance practices designed to promote responsible management and conduct of the Company’s business. The practices apply equally to the Company’s wholly owned subsidiaries.

The Directors are aware of their duties and responsibilities and have adopted a Code of Conduct to promote ethical and responsible decision making.

A description of the Company's main corporate governance practices is set out below. All these practices, unless otherwise stated, were in place for the whole of the 2009 financial year.

The Board of Directors

The Board operates in accordance with the broad principles set out in its charter, which is available from the investors>corporate governance information section of the Company website at www.austofix.com.au or http://tinyurl.com/austofix-corporate-governance for the direct link. The charter details the Board’s role, composition and responsibilities.

Board composition The charter states that the Board supports the principle of having a majority of non-executive and independent Directors. However, it is mindful that in the early stages of the Company’s development other competing priorities which may impact on the Board’s structure could be of greater importance, in terms of increasing shareholder value, than the independence of Directors.

There are a majority of non-executive Directors on the Board, including the Chair, who is elected by the Board.

The Board’s policy is to review its performance and composition on a regular basis to ensure that there is an appropriate balance of experience and skills to match the size, scope and nature of the Company’s activities. When a vacancy arises, for whatever reason, or where it is considered the Board would benefit from the appointment of a Director with particular skills and experience, the Board’s policy is to select potential candidates, with advice from an external consultant if necessary. The most suitable candidate is then appointed subject to election at the next general meeting of shareholders.

Directors are appointed by rotation for three years after which they retire and may seek re-election by shareholders.

It is the Board’s intention to meet on a monthly basis. In addition, special or strategy meetings will be held at such other times as may be necessary to address specific significant matters that may arise.

Board members Details of the members of the Board, their experience, expertise, qualifications, term of office and independent status are set out in the Directors’ Report under the heading ''Information on Directors''. There are five Directors (all non-executive Directors) at the date of signing the Directors’ Report.

Chair and Chief Executive Officer (CEO) The Chair is responsible for leading the Board, ensuring Directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with the Company’s senior executives.

The CEO is responsible for implementing Group strategies and policies as determined by the Board. The Board charter specifies that these are separate roles to be undertaken by separate people.

Performance assessment The remuneration of executive and non-executive Directors is reviewed by the Board with the exclusion of the Director concerned. The remuneration of management and employees is reviewed by the Board and approved by the Chair.

Remuneration levels are determined by the Board on an individual basis at reasonable but competitive market rates, with the size of the Company dictating that individual assessment is more appropriate than formal remuneration policies. External advice on remuneration matters will be sought whenever it is deemed necessary.

Details concerning the remuneration policy as it applies to Directors and other key management personnel of the Group are set out in the Remuneration Report in the Directors Report which precedes this Corporate Governance Statement.


17

Corporate governance statement (continued) Nomination committee Austofix does not have a separate nomination committee. Being a smaller company, Austofix has included in its Board Charter the policy to review its performance and composition on a regular basis as well as seeking advice from an external consultant if necessary. The Board itself has ensured that it fits the criteria of a nomination committee in ensuring a majority of non-executive Directors, chaired by a non-executive Director, and has more than three members.

Remuneration committee Austofix does not have a remuneration committee as its small size enables the Board to take on the responsibility for the roles that would otherwise rest with the remuneration committee.

All matters which might properly be dealt with by special committees are subject to regular scrutiny at full Board meetings. The Board may, from time to time, constitute a committee to advise the Board.

Audit committee Austofix has not been and is not listed on the S&P All Ordinaries Index and as such is not required to have an Audit Committee. The Board does understand the importance of integrity over the financial statements and independence of the external auditor. To this extent, the Board Charter dictates that the Board instigates internal procedures designed to provide reasonable assurance as to the reliability of financial reporting.

Disclosures

To ensure Austofix complies with the relevant ASX listing rule disclosure requirements, a continuous disclosure policy has been included in the corporate governance statement. This policy outlines the requirement to have a designated ASX communications officer. Duties of this officer include:

• ensuring that the Company complies with the continuous disclosure obligations;

• communicating with ASX in relation to Listing Rule matters;

• overseeing and co-ordinating disclosure of information to ASX, analysts, brokers, shareholders, the media and the public; and

• educating Directors, officers and employees on the Company’s disclosure obligations, policies and procedures and raising awareness of the principles underlying continuous disclosure.

To ensure accountability at a senior level, the policy prescribes the ASX Communications Officers to be the CEO and the Company Secretary. The Secretary will be the primary ASX Communications Officer for the purpose of administering notifications to the ASX. The ASX Communications Officer should be made aware of all proposed disclosures to the ASX in advance.

Shareholder Communications Policy

The role of Communications Officer extends to the Shareholder Communications Policy, included in the Corporate Governance Statement. This policy ensures the Company website will be updated with material released to the market as soon as practicable after confirmation of receipt by the ASX.

The Company acknowledges that communicating with shareholders by electronic means, particularly through its website, is an efficient way of distributing information in a timely and convenient manner.

Furthermore, the Company may write a letter directly or publish a periodical newsletter to shareholders during a financial year to keep shareholders informed on a more frequent basis.

To improve the effectiveness of communication, the policy will be updated as and when appropriate to ensure that technological advances and additional features on the Company’s website are utilized in the Company’s communication with its shareholders and recognised in this policy.


18

Corporate governance statement (continued) Risk assessment and management The Board acknowledges that a sound framework of risk oversight, risk management and internal control is fundamental to good corporate governance. It supports reliable financial reporting, compliance with relevant laws and regulations, and effective and efficient operations.

The Company’s process of risk management, including implementation of appropriate internal controls and compliance, is to:

• Establish the Company’s goals and objectives.

• Design, implement and monitor strategies and policies to achieve the Company’s goals and objectives.

• Continually identify potential material business risks and measure their possible impact upon the achievement of the Company’s goals and objectives.

• Formulate risk management strategies to manage identified risks and monitor/assess the performance of the risk management system.

The Board and the CEO are responsible for establishing the Company’s goals and objectives and overseeing the establishment, implementation and review of the Company’s material business risk management system.

The CEO and the Company’s senior executives are responsible for establishing and implementing the risk management system to identify, control and manage strategic, technical, operational and other material business risks.

The CEO, Secretary and other senior executives meet regularly to discuss the achievement of the Company’s goals and objectives. Any material risks would be tabled at these meetings and procedures are implemented to monitor and deal with these identified material risks. The CEO has undertaken to inform the Board of any new material risks and outline the actions that have been undertaken to manage such material risks.

Code of Conduct The Board recognises that their primary responsibility is to the owners of the Company, its shareholders, while simultaneously having regard for the interests of all stakeholders of the Company and the broader community.

To this extent, Austofix has included a Code of Conduct in its Corporate Governance statement, a summary of which is included below:

All Directors, staff, regular consultants and contractors, when acting on behalf of the Austofix Group, are expected to act with the utmost integrity and objectivity in their dealings with other parties, striving at all times to enhance the reputation and performance of the Company.

The Board accordingly encourages the following principles to be adhered to by all employees at all times. “Employee” in this context includes Directors, staff, and regular consultants and contractors when acting on behalf of the Company:

• Act with and promote the highest standards of ethics and integrity in carrying out duties on behalf of the Company.

• Respect and observe the laws and other regulations of Australia, complying at all times with the spirit as well as the letter of the law, particularly those within the communities in which the Company operates.

• Commit to adherence to health and safety standards, both of products, through compliance with manufacturing and other best practice standards, and in the provision of safe employee work environments.

• Where concerns arise, the Chairman, CEO or any Director should be advised before any decision is taken.

• Respect the rights of employees of the Company.

• Respect the rights of all shareholders, acknowledging that they are the owners of the Company.

• Respect the rights of the Company’s stakeholders, including its customers, suppliers end consumers and the broader community in which they operate.

• Never make improper use of knowledge, information, documents or other Company resources obtained in the course of employment with the Company. Information about the Company that is not publicly available (inside information) should not be used by employees for their private gain, or that of others.

• When any real or perceived conflict of interest arises, when acting on behalf of the Company, advice should be sought from the Chairman, CEO or any Director.


19

Corporate governance statement (continued) Share Trading Policy Directors, executives and other officers and employees cannot make use of information acquired through their position within the Company in order to make a profit for themselves.

This general duty is supplemented by sections 182 and 183 of the Corporations Act 2001 which prohibits Directors, executives and other officers and employees from making improper use of their position to gain an advantage for themselves or for anyone else by dealing in the Company’s shares where that information is not generally available to the public. This prohibition applies to all companies, whether listed on the Australian Securities Exchange (“ASX”) or not.

Section 1043A of the Corporation Act provides a broader prohibition of insider trading. The essence of that provision is that a person who is in the possession of information that is not available to other shareholders or the public which, if other shareholders or the public were aware of such information it may induce them to deal in the Company’s shares, then that person in possession of the information should not deal in the Company’s shares.

By promoting Director and employee ownership of shares, the Board hopes to encourage Directors and employees to become long-term holders of Company shares, aligning their interests with those of the Company.

Directors and officers (including staff, regular consultants and contractors) will not trade (buy or sell) in the Company’s shares for a period of five (5) days prior to a scheduled Company announcement to the ASX or one (1) day after such an announcement and will not trade (buy or sell) in the Company’s shares as soon as they become aware of any matter that must be disclosed under the continuous disclosure obligations of the Listing Rules and the Corporations Act or one (1) day after.

Independent of the above, Directors and other officers (including staff and regular consultants and contractors) should not deal in (buy or sell) the Company’s shares when they are in possession of price-sensitive information that is not generally available to shareholders and the public and which information could induce shareholders or the public to deal in the Company’s shares.

No Director will deal in any of the Company’s shares without first consulting at least one other Director. All shares in which the Directors have an interest are currently subject to escrow agreements whereby they cannot be traded before the escrow period expires.

The Company will release its half-yearly and annual reports to the ASX and the Australian Securities and Investments Commission (ASIC) in February and September of each year.

Other announcements are made at times when the Board deems it appropriate in accordance with the Listing Rules and the Corporations Act.

Any staff, officers, consultants or contractors who have any queries or concerns relating to this share trading policy will, in the first instance, consult the Chair prior to dealing in any shares.


20

Austofix Group LimitedIncome statementfor the year ended 30 June 2009

Notes 2009 2008 2009 2008Continuing operations $ $ $ $RevenueSale of goods and services 5 1,539,922 1,378,498 - - Cost of sales (510,315) (712,749) - -

Gross profit 1,029,607 665,749 - -

Other income 6 214,314 148,915 97,481 126,146

Expenses: 7Market ing, selling and distribution expenses (1,328,399) (1,093,898) - - Research and development expenses (23,931) (113,152) - - Occupancy expenses (206,451) (185,398) - - Share-based payments expenses (29,647) (295,522) - - Corporate expenses (314,797) (295,448) - - Administrat ion expenses (592,787) (632,679) (484) - Other expenses (12,030) (88,774) - (87,630) Finance expenses (20,469) (13,493) - (185)

(Loss) / profit before costs of gaining ASX listing (1,284,590) (1,903,700) 96,997 38,331 Costs of gaining ASX listing of existing shares - (101,274) - (101,274)

(Loss) / profit from continuing operations before tax (1,284,590) (2,004,974) 96,997 (62,943)

Income tax benefit 8 564,851 113,051 - (5,396)

(Loss) / profit after tax from continuing operations (719,739) (1,891,923) 96,997 (68,339)

Net (loss) / profit for the year (719,739) (1,891,923) 96,997 (68,339)

(Loss) / profit attributable to members of the parent entity (719,739) (1,891,923) 96,997 (68,339)

Cents CentsEarnings per share from continuing operat ions attributable to the ordinary equity holders of the company 35 Basic earnings per share (6.3) (19.6) Diluted earnings per share (6.3) (19.6)

Earnings per share for profit / (loss) attributable to the ordinary equity holders of the company 35 Basic earnings per share (6.3) (19.6) Diluted earnings per share (6.3) (19.6)

Consolidated Parent Entity

The above income statement should be read in conjunction with the accompanying notes.


21

Austofix Group LimitedBalance sheetas at 30 June 2009

Notes 2009 2008 2009 2008ASSETS $ $ $ $Current assetsCash and cash equivalents 9 603,670 2,734,625 404,031 2,645,936 Trade and other receivables 10 176,920 429,283 5,100,864 2,787,097 Other financial assets 11 36,863 21,056 - - Inventories 12 1,316,408 623,455 - - Income tax receivable 13 275,867 137,885 1,457 -

Total current assets 2,409,728 3,946,304 5,506,352 5,433,033

Non-current assetsOther financial assets 14 11,771 16,928 526,668 497,021 Medical instruments held in store 15 590,611 185,282 - - Property, plant and equipment 16 1,245,955 1,429,836 - - Deferred tax assets 17 - 90,716 - - Intangible assets 18 892,587 370,014 - -

Total non-current assets 2,740,924 2,092,776 526,668 497,021

TOTAL ASSETS 5,150,652 6,039,080 6,033,020 5,930,054

LIABILITIESCurrent l iabilitiesTrade and other payables 19 373,269 738,894 - - Interest-bearing loans and borrowings 20 179,144 57,846 - - Provis ions 21 90,848 69,268 - - Deferred income 22 58,685 41,831 - -

Total current l iabilities 701,946 907,839 - -

Non-current l iabilitiesInterest-bearing loans and borrowings 20 267,877 132,293 - - Deferred tax liabilit ies 23 - 205,984 - - Provis ions 24 46,447 36,736 - - Deferred income 22 266,278 174,354 - -

Total non-current liabili ties 580,602 549,367 - -

TOTAL LIABILITIES 1,282,548 1,457,206 - -

NET ASSETS 3,868,104 4,581,874 6,033,020 5,930,054

EQUITYIssued capital 25 5,621,977 5,645,655 5,612,977 5,636,655 Reserves 26 638,887 609,240 373,388 343,741 Retained earnings / (accumulated losses) 27 (2,392,760) (1,673,021) 46,655 (50,342)

TOTAL EQUITY 3,868,104 4,581,874 6,033,020 5,930,054

Consolidated Parent Ent ity

The above balance sheet should be read in conjunction with the accompanying notes.


22

Austofix Group LimitedStatement of changes in equityfor the year ended 30 June 2009

Consolidated Issued capital ReservesRetained earnings Total

Notes $ $ $ $

Balance at 1 July 2007 2,578,681 48,219 218,902 2,845,802

Revaluat ion of property, plant and equipment 16 - 379,284 - 379,284 Related income tax - (113,785) - (113,785)

Net income recognised directly in equity - 265,499 - 265,499

Loss for the year - - (1,891,923) (1,891,923)

Total recognised income and expense for the year - 265,499 (1,891,923) (1,626,424)

New shares issued during the year 25 3,489,703 - - 3,489,703 Costs of initial public offering 25 (422,729) - - (422,729)Related income tax 126,819 - - 126,819 Related income tax derecognised (126,819) - - (126,819)Employee share options - value of employee services 25,37 - 295,522 - 295,522

Balance at 30 June 2008 5,645,655 609,240 (1,673,021) 4,581,874

Balance at 1 July 2008 5,645,655 609,240 (1,673,021) 4,581,874

Net income recognised direct ly in equity - - - -

Loss for the year - - (719,739) (719,739)

Total recognised income and expense for the year - - (719,739) (719,739)

Further costs relating to initial public offering 25 (23,678) - - (23,678)

Employee share options - value of employee services 25,37 - 147,440 - 147,440

Employee share options lapsed - value of employee services reversed 25,37 - (117,793) - (117,793)

Balance at 30 June 2009 5,621,977 638,887 (2,392,760) 3,868,104

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


23

Austofix Group LimitedStatement of changes in equityfor the year ended 30 June 2009

Parent Entity Issued capital ReservesRetained earnings Total

Notes $ $ $ $

Balance at 1 July 2007 2,569,681 48,219 17,997 2,635,897

Loss for the year - - (68,339) (68,339)

Total recognised income and expense for the year - - (68,339) (68,339)

New shares issued during the year 25 3,489,703 - - 3,489,703 Costs of initial public offering 25 (422,729) - - (422,729)Related income tax 126,819 - - 126,819 Related income tax derecognised (126,819) - - (126,819)Employee share options - value of employee services 25,37 - 295,522 - 295,522

Balance at 30 June 2008 5,636,655 343,741 (50,342) 5,930,054

Balance at 1 July 2008 5,636,655 343,741 (50,342) 5,930,054

Profit for the year - - 96,997 96,997

Total recognised income and expense for the year - - 96,997 96,997

Further costs relating to initial public offering 25 (23,678) - - (23,678)

Employee share options - value of employee services 25,37 - 147,440 - 147,440

Employee share options lapsed - value of employee services reversed 25,37 - (117,793) - (117,793)

Balance at 30 June 2009 5,612,977 373,388 46,655 6,033,020

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


24

Austofix Group LimitedCash flow statementfor the year ended 30 June 2009

Notes 2009 2008 2009 2008$ $ $ $

Cash flows from operating activitiesReceipts from customers 1,838,390 1,482,562 - - Payments to suppliers and employees (3,837,562) (2,747,587) (484) (101,427) Government revenue grants received 53,308 - - - Income tax received 290,593 - 3,148 - Interest and other costs of finance paid (20,469) (13,493) - (185)

Net cash outflow from operating activities 34 (1,675,740) (1,278,518) 2,664 (101,612)

Cash flows from investing activitiesProceeds from sale of property, plant and equipment 10,000 - - Purchase of property, plant and equipment 16 (123,754) (499,376) - - Purchase of capitalised instruments 15 (295,597) - - - Government grants received for acquisition of plant and equipment 22 155,443 236,545 - - Development expenditure capitalised 18 (561,643) (370,014) - - Loans to wholly owned subsidiaries 28 - - (2,349,200) (1,626,876) Interest received 102,108 91,804 101,658 80,534

Net cash outflow from investing activities (713,443) (541,041) (2,247,542) (1,546,342)

Cash flows from financing activitiesProceeds from issues of share capital 25 - 3,489,703 - 3,489,703 Costs incurred on raising share capital 25 - (422,728) - (422,728) Proceeds from borrowings 20 330,000 36,542 - - Repayment of HP borrowings 20 (54,287) (59,928) - - Repayment of borrowings 20 (18,831) - - -

Net cash inflow from financing activities 256,882 3,043,589 - 3,066,975

Net (decrease) / increase in cash and cash equivalents (2,132,301) 1,224,030 (2,244,878) 1,419,021

Cash and cash equivalents at the beginning of the financial year 2,734,625 1,562,618 2,645,936 1,277,456 Net ef fect of exchange rate changes on the balance of cash held in foreign currencies 1,346 (52,023) 2,973 (50,541)

Cash and cash equivalents at end of year 9 603,670 2,734,625 404,031 2,645,936

Parent EntityConsolidated

The above cash flow statement should be read in conjunction with the accompanying notes.


Notes to the financial statements

30 June 2009

25

Notes to the Financial Statements

1 Corporate information Austofix Group Limited (the Company) is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Austofix Group Limited Level 11 101 Grenfell St Adelaide SA 5000.

The shares are publically listed and traded on the Australian Securities Exchange (ASX: AYX).

This financial report covers both Austofix Group Limited as an individual entity and the consolidated entity consisting of Austofix Group Limited and its subsidiaries. The financial report is presented in the Australian currency.

A description of the nature of the consolidated entity's operations and its principal activities is included in the review of operations and activities in the Directors’ Report, which is not part of this financial report.

The financial report for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the Directors on 18 September 2009. The Company has the power to amend and reissue the financial report if required.

Through the use of the internet, the Company has ensured that its corporate reporting is timely, complete, and available globally at minimum cost to the Company. All press releases, financial reports and other information are available at our Shareholders’ Centre on our website: www.austofix.com.au.

2 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Austofix Group Limited as an individual entity and the consolidated entity consisting of Austofix Group Limited and its subsidiaries. When the group restructured in 2006, Austofix Surgical Pty Ltd was deemed to be the acquiring entity under AASB 3: Business Combinations and therefore is treated as having acquired Austofix Group Limited for the purposes of determining the split of share capital and pre-acquisition retained earnings of the Group. The effect of this determination in the Group financial statements is a $9,000 increase in share capital and $9,000 decrease in retained earnings.

(a) Basis of preparation

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

Compliance with IFRS

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

Historical cost convention

These financial statements have been prepared under the historical cost convention, except for manufacturing plant and equipment which is carried at fair value following a revaluation as at 30 June 2008.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

(b) New accounting standards and interpretations

Since 1 July 2008 the Group has adopted the following Standards and Interpretations, mandatory for annual periods beginning on or after 1 January 2008. Adoption of these Standards and Interpretations did not have any effect on the financial position or performance of the Group.

- AASB 7 Financial Instruments: Disclosures

- AASB 2005-10 Amendments to Australian Accounting Standards (AASB132, 101, 114, 117, 133, 139, 1, 4, 1023 and 1038)

- AASB 2007-1 Amendments to Australian Accounting Standards arising from AASB Interpretation 11 (AASB2)

- AASB 2007-4 Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments (AASB 1, 2, 3, 4, 5, 6, 7, 102, 107, 108, 110, 112, 114, 116, 117, 118, 119, 120, 121, 127, 128, 129, 130, 131, 132, 133, 134, 136, 137, 138, 139, 141, 1023 and 1038)

- AASB 2007-7 Amendments to Australian Accounting Standards (AASB1, 2, 4, 5, 107 and 128)

- Interpretation 8 Scope of AASB 2 Share-based Payment

- Interpretation 9 Reassessment if Embedded Derivatives

- Interpretation 10 Interim Financial Reporting and Impairment

The AASB has issued new, reissued and amended standards and interpretations that have mandatory application dates for future reporting periods. The Group has decided against early adoption of these standards. A discussion of these future requirements and their impact on the Group follows below.



30 June 2009

26

2 Summary of significant accounting policies (continued) (b) New accounting standards and interpretations (continued)

Standards issued and not yet effective: Reference Title Summary Applica-

tion date of standard*

Impact on Group financial report Applica-tion date for Group*

AASB 8 and AASB 2007-3

Operating Segments and consequential amendments to other Australian Accounting Standards

New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting.

1 January 2009

AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group's financial statements, although it may indirectly impact the level at which intangible assets are tested for impairment. In addition, the amendments may have an impact on the Group’s segment disclosures.

1 July 2009

AASB 123 (Revised) and AASB 2007-6

Borrowing Costs and consequential amendments to other Australian Accounting Standards

The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised.

1 January 2009

These amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. The Group has no borrowing costs associated with qualifying assets and as such the amendments are not expected to have any impact on the Group's financial report.

1 July 2009

AASB 101 (Revised) and AASB 2007-8

Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards

Introduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements.

1 January 2009

These amendments are only expected to affect the presentation of the Group’s financial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the financial report. The Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements.

1 July 2009

AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations

The amendments clarify the definition of 'vesting conditions', introducing the term 'non-vesting conditions' for conditions other than vesting conditions as specifically defined and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied.

1 January 2009

The Group has share-based payment arrangements that may be affected by these amendments. However, the Group has not yet determined the extent of the impact, if any.

1 July 2009

AASB 127 (Revised)

Consolidated and Separate Financial Statements

Under the revised standard, a change in the ownership interest of a subsidiary (that does not result in loss of control) will be accounted for as an equity transaction.

1 July 2009

If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or a loss in the Group’s income statement.

1 July 2009

AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127

Amending standard issued as a consequence of revisions to AASB 3 and AASB 127.

1 July 2009

Refer to AASB 3 (Revised) and AASB 127 (Revised) above.

1 July 2009



30 June 2009

27

Reference Title Summary Applica-tion date of standard*

Impact on Group financial report Applica-tion date for Group*

AASB 3 (Revised)

Business Combinations

The revised standard introduces a number of changes to the accounting for business combinations, the most significant of which allows entities a choice for each business combination entered into – to measure a non-controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively.

1 July 2009

The Group may enter into some business combinations during the next financial year and may therefore consider early adopting the revised standard. The Group has not yet assessed the impact of early adoption, including which accounting policy to adopt.

1 July 2009

AASB 2008-7 Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

The main amendments of relevance to Australian entities are those made to AASB 127 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profit or loss in an entity's separate financial statements (i.e., parent company accounts). The distinction between pre- and post-acquisition profits is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment.

AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value.

1 January 2009

Recognising all dividends received from subsidiaries, jointly controlled entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these amendments.

In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a ‘carry-over basis’ rather than at fair value.

1 July 2009

AASB 2008-5

&

AASB 2008-6

Amendments to Australian Accounting Standards arising from the Annual Improvements Project

Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project

The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.

1 January 2009

1 July 2009

The Group has not yet determined the extent of the impact of the amendments, if any.

1 July 2009



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28

2 Summary of significant accounting policies (continued) (c) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Austofix Group Limited (''Company'' or ''Parent Entity'') as at 30 June 2009 and the results of all subsidiaries for the year then ended. Austofix Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 2(d)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries are consistent with the policies adopted by the Group.

Investments in subsidiaries are accounted for at cost in the individual financial statements of Austofix Group Limited.

(d) Business combinations

The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the Group's share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(e) Segment reporting

A business segment is identified for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments.

The Group operates in one business segment being manufacture and supply of orthopaedic devices, and mainly in one geographical segment being Australia, from which it exports product around the world.

(f) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). Both the functional and presentation currency of the Company is Australian dollars (A$).

(ii) Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date, with any gain or loss on translation recognised in the income statement for the year.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(g) Cash and cash equivalents

Cash and cash equivalents in the balance sheet and cash flow statement comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.



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2 Summary of significant accounting policies (continued) (h) Trade receivables

A sale is recorded when goods have been despatched to a customer pursuant to a sales order and the associated risks have passed to the carrier or customer. All trade debtors are recognised at the amounts receivable as they are due for settlement between 15 and 60 days. Collectability is continually reviewed and uncollectible debts are written off. A provision for doubtful debts is raised where there is objective evidence that the Group will not be able to collect the debt.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement within ‘other expenses’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.

Subsequent recoveries of amounts previously written off are credited against other expense in the income statement.

(i) Inventories

Inventories including raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

Raw Materials - purchase cost on a first in, first-out basis. The cost of purchase comprises the purchase price of raw materials, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), transport, handling and other costs directly attributable to the acquisition of raw materials. Volume discounts and rebates are included in determining the cost of acquisition.

Finished goods and work-in-progress - Costs are assigned to individual items of finished goods on a standard-cost basis. Cost comprises direct materials and labour and an appropriate portion of variable and fixed overhead expense allocated based on normal operating capacity. Costs are assigned on the basis of weighted average costs.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(k) Non-current inventories

Medical instrument sets not yet in use

Medical instruments used in operating procedures are initially treated as inventories of medical instrument sets not yet in use while they are held in the Company’s stores. As instruments are supplied to hospitals they are transferred to depreciable assets to properly reflect their being brought into use.

(l) Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value except for manufacturing plant and equipment which is carried at fair value following a revaluation as at 30 June 2008. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred.

Depreciation

Depreciation is calculated on either a straight-line basis or a diminishing value basis as appropriate over the estimated useful lives of the assets as follows:

• Plant and equipment – over 3 to 10 years

• Medical instrument sets in use – over 5 years

• Office equipment – over 3 to 10 years

• Furniture and fittings – over 5 to 10 years

Instrument sets are not depreciated until they are put into use.

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.



30 June 2009

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2 Summary of significant accounting policies (continued) (m) Leases

Leases are classified at their inception as either operating or finance leases based on the 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 on a straight-line basis over the lease term.

Finance Leases

Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the Group are capitalised at the fair value of the leased property, or if lower, the present value of the minimum lease payments and disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised.

Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to the income statement.

(n) Recoverable amount of assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(o) Intangible assets

Research and development

Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably.

The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which varies from 5 to 10 years.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired (see note 2(n) for methodology). The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset.

(p) Trade and other payables

Trade and other payables are carried at amortised cost: due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial period that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 45 days of recognition.

(q) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing Costs

Borrowing costs are recognised as expenses in the period in which they are incurred. The Group does not currently hold qualifying assets, but if it did, the borrowing costs directly associated with this asset would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). Borrowing costs include interest on bank overdrafts and short-term and long-term borrowings.



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2 Summary of significant accounting policies (continued) (r) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

(s) Employee benefits

(i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in provisions in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Sick leave does not accumulate.

(ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(t) Share-based payment transactions

Austofix provides benefits to Directors and senior employees (including KMP) in the form of share-based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

The fair value of options granted under the Austofix Group Share Option Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value is determined by an external valuer using a binomial model: further details of which are given in note 37.

In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Austofix Group Limited (market conditions) if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At each subsequent reporting date until vesting, the cumulative charge to the income statement is the product of:

• the grant date fair value of the award;

• the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and

• the expired portion of the vesting period.

The charge to the income statement for the period is the cumulative amount as calculated above less the amounts already charged to previous periods. There is a corresponding entry to equity.

Equity-settled awards granted by Austofix Group Limited to employees of subsidiaries are recognised in the parent's separate financial statements as an additional investment in the subsidiary with a corresponding credit to equity. As a result, the expense recognised by Austofix Group Limited in relation to equity-settled awards only represents the expense associated with grants to employees of the parent. The expense recognised by the Group is the total expense associated with all such awards.



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2 Summary of significant accounting policies (continued) (u) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The following specific criteria must also be met before revenue is recognised for the major business activities as follows:

(i) Sale of goods The Group manufactures and sells a range of orthopaedic trauma devices. Revenue is recognised when the significant risk and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer when goods have been dispatched to a customer pursuant to a sales order.

(ii) Rendering of services Revenue from consulting services provided is recognised by reference to the stage of completion of a contract or the time of completion of the contract and billing of the customer.

(iii) Interest Revenue is recognised as interest accrues using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

(v) Income tax

Current tax assets and liabilities for the current period and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted by the balance date.

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

Deferred income tax liabilities are recognised for all taxable temporary differences except:

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

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

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

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

• when the deductible temporary difference is associated with investments in subsidiaries, associates and interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

(w) Tax consolidation

The company and all its wholly-owned Australian resident entities are part of a tax consolidated group under Australian taxation law. Austofix Group Limited is the head entity in the tax-consolidated group.

Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘‘stand alone taxpayer’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation.

Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group).



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2 Summary of significant accounting policies (continued) (x) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(y) Government grants

Government capital grants are recognised in the balance sheet as a liability when the grant is received.

When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. They are not credited directly to shareholders’ equity.

When the grant relates to an asset (investment grants relating to capital equipment), the fair value is credited to deferred income and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments.

(z) Earnings per share

(i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

(aa) Contributed equity

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

(ab) Significant accounting judgements

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements.

Details regarding those judgements are set out in note 4 below.



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3 Financial risk management objectives and policies The Group's principal financial instruments comprise receivables, payables, finance leases, cash and short-term deposits.

The Group's activities expose it to a low level of a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.

The Board provides strategic direction which focuses on its core activities of the development, manufacture and sale of orthopaedic trauma devices, in its geographical segment of Australia with a small amount of sales into the Asia region.

The Group manages its exposure to key financial risks in accordance with the Group's financial risk management policy. The objective of the policy is to support the delivery of the Group's financial targets whilst protecting future financial security. The Group's overall risk management program focuses on minimising the level of risk across the board, which is in line with the Group’s operational and strategic direction.

The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk. Liquidity risk is monitored through the development of future rolling cash flow forecasts.

Primary responsibility for identification and control of financial risks rests with the Executive Team under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections.

Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes to the Group’s approach to capital management during the period. To provide a sound capital base a significant public raising was completed through an initial public offering and listing on ASX in February 2008.

The Group's and the parent entity's objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

During 2008, the Group successfully raised over $3,400,000 through a new issue of shares concurrent with the listing of the pre-existing shares on ASX. Management has no current plans to issue further shares on the market.

The Group is not subject to any externally imposed capital requirements.

Risk Exposures and Responses

(a) Market risk

Interest rate risk

The Group's exposure to market interest rates relates primarily to the Group's cash on deposit and renewals of fixed term interest-bearing loans and borrowings. The level of cash is disclosed in note 9.

2009 2008 2009 2008$ $ $ $

Financial assetsCash and cash equivalents 603,670 2,734,625 404,031 2,645,936

Financial l iabilitiesInterest-bearing loans and borrowings 447,021 190,139 - -




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3 Financial risk management objectives and policies (continued) (a) Market risk (continued)

(i) Cash flow and fair value interest rate risk

The Group has interest rate risk on its cash deposits, including those denominated in US dollars. If interest rates had been on average 1% higher or lower during the financial year the operating loss of the Parent Entity and the Group would have been $16,690 lower or $16,690 higher respectively (2008: $19,750 lower or $19,750 higher respectively). The Group does not have any other interest rate risk despite having long-term borrowings. This is because the borrowings held by the group are for hire purchase agreements and other equipment loans, where the interest rate is fixed for the life of the agreement.

(ii) Foreign exchange risk

The Group operates primarily within Australia; however it does have some exposures internationally. The Group is exposed to foreign exchange risk arising from various currency exposures, with respect to the US dollar, the Euro and the Swiss Franc.

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. The risk is mitigated as only raw materials and product components purchased are denominated in foreign currency and some cash is held on deposit denominated in US dollars. Purchases in foreign currency during the year totalled $690,000 (2008: $265,000).

The carrying amounts of the Group’s financial assets and liabilities are denominated in Australian dollars except as set out below (expressed in Australian dollars):

2009 2008 2009 2008$ $ $ $

Cash and cash equivalents 8,807 96,010 8,807 96,010

Trade payables - US Dollars (59,336) (82,046) - - Trade payables - Swiss Francs (CHF) - (726) - - Trade payables - Euro (44,788) (18,898) - -

(104,124) (101,670) - -


Group sensitivity Based on the financial instruments held at 30 June 2009 and the purchase transaction made throughout the year, had the Australian dollar weakened/strengthened by 10% against the US dollar, with all other variables held constant, the Group's post-tax loss for the year would have been $16,450 lower/$16,450 higher (2008 – $1,340 higher/$1,340 lower), mainly as a result of foreign exchange gains/losses on translation of US dollar denominated financial instruments. Similarly, had the Australian dollar weakened/strengthened by 10% against the Euro, with all other variables held constant, the Group's post-tax loss for the year would have been $29,540 higher/$29,540 lower (2008 – nil higher/$nil lower), mainly as a result of foreign exchange gains/losses on translation of Euro denominated purchases.

Parent entity sensitivity Based on the financial instruments held at 30 June 2009, had the Australian dollar weakened/strengthened by 10% against the US dollar with all other variables held constant, the Parent Entity’s post-tax profit / (loss) for the year would not have been significantly different because of the reduced amount of US dollar denominated cash on deposit (2008 – $1,340 higher / $1,340 lower as a result of foreign exchange gains/losses on translation of US dollar denominated financial instruments as detailed in the above table). The Parent Entity’s sensitivity to exchange rates between the Australian dollar and other currencies is insignificant.

(b) Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, deposits with banks, as well as credit exposures to wholesale customers, including outstanding receivables and committed transactions. For banks and financial institutions, only large listed Australian banking institutions are used, namely National Australia Bank and Commonwealth Bank of Australia. The sales department assesses the credit quality of the customer, taking into account its financial position, past experience and other factors as well as trialling the customer before taking them on board completely. The compliance with credit limits by wholesale customers is regularly monitored by the accounts receivable staff. There are no concentrations of credit risk as the majority of sales are to Australian hospitals, which manage their own cash flows.



30 June 2009

36

3 Financial risk management objectives and policies (continued) (c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows.

Financing available The Group and the parent entity had access to cash and term deposits at the reporting date as set out in note 9.

(d) Maturity analysis of financial assets and liabilities.

The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments in working capital e.g. inventories and trade receivables. These assets are considered in the Group's overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, the Group has established comprehensive risk reporting covering its business operations that reflects contracted settlement of financial assets and liabilities.

NotesLess than 6

months6 to 12 months

Between 1 and 5 years

More then 5 years Total

Year ended 30 June 2009 $ $ $ $ $ConsolidatedFinancial assetsCash & cash equivalents 9 603,670 - - - 603,670 Trade & other receivables 10 176,920 - - - 176,920 Other financial assets 11 36,863 - - - 36,863 Income tax receivable 13 275,867 - - - 275,867

1,093,320 - - - 1,093,320

Financial liabilitiesTrade & other payables 19 373,269 - - - 373,269 Interest bearing loans & borrowings 20 142,522 36,622 267,877 - 447,021 Deferred income 22 29,343 29,343 266,278 - 324,963

545,134 65,965 534,155 - 1,145,253

Net maturity 548,186 (65,965) (534,155) - (51,933)

Year ended 30 June 2008ConsolidatedFinancial assetsCash & cash equivalents 9 2,734,625 - - - 2,734,625 Trade & other receivables 10 429,283 - - - 429,283 Other financial assets 11 21,056 - - - 21,056

3,184,964 - - - 3,184,964

Financial liabilitiesTrade & other payables 19 738,894 - - - 738,894 Interest bearing loans & borrowings 20 28,923 28,923 132,293 - 190,139 Deferred income 22 20,916 20,915 174,354 - 216,185

788,733 49,838 306,647 - 1,145,218

Net maturity 2,396,231 (49,838) (306,647) - 2,039,746

Fair value

The methods for estimating fair value are outlined in the relevant notes to the financial statements. The Directors consider that the carrying amounts of financial assets and financial liabilities recorded in the financial statements approximate their fair value (2008: fair value).

The fair value and net fair value of financial assets and financial liabilities are determined as follows:

- the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and

- the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analyses.

Transaction costs are included in the determination of net fair value.



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4 Significant accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management has identified the following critical accounting policies for which significant judgements, estimates and assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements.

(a) Significant accounting judgements

Impairment of non-financial assets other than intangibles

The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product and manufacturing performance, technology, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. Management do not consider that the triggers for impairment testing have been significant enough and as such these assets have not been tested for impairment in this financial period.

Capitalised development costs

Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale.

Taxation

The Group's accounting policy for taxation requires management's judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the balance sheet.

Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits.

Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management's estimates of future cash flows. These depend on estimates of future production and sales volumes, operating costs, restoration costs, capital expenditure, dividends and other capital management transactions. Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement.

(b) Significant accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, with the assumptions detailed in note 37. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

The Group measures the cost of cash-settled share-based payments at fair value at the grant date using the Black-Scholes formula taking into account the terms and conditions upon which the instruments were granted. See note 37.

Estimation of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience as well as manufacturers' warranties (for plant and equipment) and lease terms (for leased equipment). In addition, the condition of the assets is assessed at least once per year and considered against the remaining useful life. Adjustments to useful lives are made when considered necessary.



30 June 2009

38

5 Revenue Profit / (loss) before tax includes the following amounts of income:

2009 2008 2009 2008$ $ $ $

Sales RevenueSales of goods to hospitals and distributors 1,136,916 751,664 - - Consulting and other services - 29,254 - - Sales of goods made for other manufacturers 403,006 597,580 - -

1,539,922 1,378,498 - -


6 Other income Profit / (loss) before tax includes the following amounts of other income:

Interest income 94,958 91,804 94,508 89,395 Currency exchange gain 9,383 36,751 2,973 36,751 Government grant income (a) 99,973 20,360 - - Gain on disposal of plant and equipment 10,000 - - -

214,314 148,915 97,481 126,146

(a) Government grants

Austofix received a government grant for the purpose of purchasing numerous items of plant and equipment. The sum of $0.15 million (2008: $0.24million) was received during the year from the $1.6 million grant available to the Company pursuant to the Innovation and Investment Fund for South Australia (“IIFSA Grant”). The money received is credited to the balance sheet as deferred income, from where it is progressively amortised in proportion to the depreciation of the items purchased (see note 22). $46,665 was brought into income in the current financial year (2008: $20,360).

The remaining funds available under the IIFSA Grant will continue to be drawn down as Austofix invests in infrastructure to develop and produce new implantable products and expand its market share.

During the year Austofix also received an Export Market Development Grant of $53,308 (2008: $nil) in respect of the 2007/8 financial year that was brought into income in its entirety.



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39

7 Expenses Profit / (loss) before tax includes the following expenses:

2009 2008 2009 2008$ $ $ $

(a) Depreciation, impairment and amortisaation included in income statementDepreciat ion and amort isation 236,973 204,172 - - Allowance for impairment of doubtful debts (31,961) 31,961 - -

205,012 236,133 - -

(b) Finance costsFinance charges payable under finance leases and hire purchase contrac ts 13,402 13,308 - - Interest expense 7,067 185 - 185

20,469 13,493 - 185

(c) Lease payments and other expenses included in income statementMinimum lease payments - operat ing leases 133,814 118,679 - -

133,814 118,679 - -

(d) Employee benefits expenseWages and salaries 1,854,975 1,538,112 - - Def ined contribution superannuation expense 164,581 126,220 - - Annual and long service leave expense 31,292 1,775 - - Share-based payments expense 29,647 295,522 - - Other employee benef its expense 250,850 142,877 - -

2,331,345 2,104,506 - -

(e) Research and development expense585,574 483,166 - -

Less capitalised into product development (561,643) (370,014) - - 23,931 113,152 - -

(f) Other expensesForeign exchange losses 12,030 88,774 - 87,292

12,030 88,774 - 87,292


Total research and development expenditure incurred



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40

8 Income tax

(a) Income tax expense / (benefit) Notes 2009 2008 2009 2008$ $ $ $

The major components of income tax (benefit) / expense in the income statement are:Current income taxCurrent income tax benefit (276,236) (581,509) 29,099 (18,883)

Adjustments in respect of current income tax of previous years (173,347) (23,909) - 5,396 Deferred income tax

- - (29,099) 18,883 Deferred tax assets (recognised) / not recognised (115,268) 486,971 Adjustments for current tax of prior periods - 5,396 - -

(564,851) (113,051) - 5,396


Income tax (benef it ) / expense reported in the income statement

Relating to origination and reversal of temporary dif ferences

(b) Numerical reconciliation of income tax expense to prima facie tax payable

(1,284,590) (2,004,974) 96,997 (62,943)

Tax at the Australian tax rate of 30% (2008 - 30%) (385,377) (601,492) 29,099 (18,883) Adjustments in respect of permanent dif ferences:

Prior year tax losses not recognised brought forward (268,696) (23,909) - - Share-based payments (equity settled) 8,894 88,657 - - Research and development tax of fsets at 25% (55,247) (68,674) - - Research and development of fset at 25% not booked in prior year (34,669) - - - Tax losses (recognised) / not recognised 170,244 486,971 (29,099) 18,883

Income tax benefit (564,851) (118,447) - - Adjustments for current tax of prior periods - 5,396 - 5,396 Income tax (benef it ) / expense (564,851) (113,051) - 5,396

(Loss) / profit from continuing operat ions before income tax expense

(c) Amounts recognised directly in equity

Deferred income tax related to items charged / (credited) directly to equity

Net gain on revaluation of plant and equipment - 113,785 - - Costs of capital raising - (126,819) - (126,819)

- 126,819 - 126,819 Income tax expense reported in equity - 113,785 - -

Deferred tax asset on costs of capital raising derecognised

(d) Tax losses

Unused tax losses for which no deferred tax asset has been recognised 1,184,074 1,669,363 - 147,489 Potential tax benef it @ 30% 355,222 500,809 - 44,247

All unused tax losses were incurred by Australian entities.

(e) Recognised deferred tax assets and liabilities

(i) Analysis of the components of deferred tax liabilities is set out in note 23.

(ii) Deferred tax assets are only recognised to the extent that they are matched by deferred tax liabilities in the same entity. Analysis of the components of deferred tax assets is set out in note 17.

(f) Tax consolidation legislation

Tax consolidation had not been adopted by the Group at the date of the report for the year ended 30 June 2008. Tax consolidation was subsequently adopted by the Group effective from 1 July 2007. Accordingly there are amounts taken up in the current financial year which relate to the effect of tax consolidation of the previous financial year.



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41

9 Current assets – cash and cash equivalents

2009 2008 2009 2008$ $ $ $

Cash at bank and on hand 213,382 2,234,625 13,743 2,145,936 Cash on deposit 390,288 500,000 390,288 500,000

603,670 2,734,625 404,031 2,645,936


Interest rate risk exposure

The Group’s and the parent entity’s exposure to interest rate risk is discussed in note 3.

10 Current assets – trade and other receivables

2009 2008 2009 2008$ $ $ $

Trade receivables 173,635 354,152 - - Allowance for doubtful debts - (31,961) - -

173,635 322,191 - - Related company receivables - - 5,097,579 2,719,656 Interest receivables 3,285 10,435 3,285 10,436 GST receivables - 92,052 - 52,400 Other Receivables (b) - 4,605 - 4,605

176,920 429,283 5,100,864 2,787,097


(a) Foreign exchange and interest rate risk

Information about the Group's and the parent entity's exposure to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in note 3.

(b) Other receivables

These amounts generally arise from transactions outside the usual operating activities of the Group. The prior year amount includes ABN withholding credits.



30 June 2009

42

10 Current assets – trade and other receivables (continued) (c) Allowance for impairment loss

Trade receivables are non-interest bearing and are generally on 30-60 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment loss of $31,961 was recognised by the Group and $nil by the Parent Entity in the previous year these amounts have been reversed in the current year as it has been determined that an allowance is no longer required. These amounts were included in the administration expense item.

Movements in the allowance for impairment loss were as follows:

2009 2008 2009 2008$ $ $ $

At 1 July 31,961 - - - Charge for the year (31,961) 31,961 - - At 30 June - 31,961 - -

At 30 June the ageing analysis of receivables is as follows:0-30 days 86,459 310,996 - -

31-60 days past due not impaired 55,313 11,195 - - 31-60 days considered impaired - 17,622 - -

61-90 days past due not impaired 14,286 - - - 61-90 days considered impaired - 8,808 - -

Over 90 days past due not impaired 20,046 - - - Over 90 days considered impaired - 5,531 - -

Total 176,104 354,152 - -

Total receivables considered past due but not impaired 89,645 11,195 - -


Payment terms on these amounts have not been re-negotiated: however, credit has been stopped until full payment is made. Direct contact has been made with the relevant debtor and management is satisfied that payment will be received in full.

(d) Related party receivables

For terms and conditions of related party receivables refer to notes 28 and 29.

(e) Fair value and credit risk

Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on-sell) receivables to special purpose entities.



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43

11 Current assets – other financial assets

2009 2008 2009 2008$ $ $ $

Prepayments 36,863 21,056 - -


12 Current assets – inventories Raw materials 159,647 168,850 - - Work in progress 117,993 5,331 - - Finished goods 1,038,768 449,274 - -

1,316,408 623,455 - -

(a) Inventory expenseInventories recognised as an expense in cost of sales 449,603 659,388 - -

All inventory is carried at cost with $nil (2008:$nil) at net realisable value.

13 Current assets – current tax receivables Income tax refunds and research and development tax offset 275,867 137,885 1,457 -

14 Non-current assets – other financial assets

Rental bonds 11,771 16,928 - - Investments in subsidiaries - - 526,668 497,021

11,771 16,928 526,668 497,021

Movements in investments in subsidiaries:

At 1 July - - 497,021 201,499 Add share-based payments made to employees of subs idiaries - - 29,647 295,522 At 30 June - - 526,668 497,021

Details of investments in subsidiaries are disclosed in note 28.

15 Non-current assets – medical instruments held in store Medical instruments not yet in use

At 1 July 185,282 249,550 - - Addit ions 295,597 - - - Reclassified from instruments in use 243,694 - - - Transfers to medical instruments in use (133,962) - - - Transfers to current inventories (instruments to be sold) - (64,268) - - At 30 June 590,611 185,282 - -



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44

16 Non-current assets – property, plant and equipment (a) Reconciliation of carrying amounts at the beginning and end of the year

Consolidated Furniture & f ixtures

Office equipment

Plant & equipment

Medical instrument sets in use

Total

$ $ $ $ $At 1 July 2007Cost or fair value 25,945 32,325 1,498,394 350,083 1,906,747 Accumulated depreciation (5,484) (10,060) (1,110,240) (25,615) (1,151,399) Net book value at 30 June 2007 20,461 22,265 388,154 324,468 755,348

Year ended 30 June 2008Opening net book value 20,461 22,265 388,154 324,468 755,348 Addit ions 49,741 36,180 413,455 - 499,376 Revaluat ion - - 379,284 - 379,284 Disposals - - - - - Depreciat ion charge (3,134) (14,327) (125,457) (61,254) (204,172) Closing net book value 67,068 44,118 1,055,436 263,214 1,429,836

At 30 June 2008Cost or fair value 75,686 68,505 1,911,849 350,083 2,406,123 Accumulated depreciation (8,618) (24,387) (856,413) (86,869) (976,287) Net book value at 30 June 2008 67,068 44,118 1,055,436 263,214 1,429,836

Year ended 30 June 2009Opening net book value 67,068 44,118 1,055,436 263,214 1,429,836 Addit ions 13,139 42,446 68,169 - 123,754 Reclassificat ion - - - (243,694) (243,694) Transfer f rom non-current instrument inventories - - - 133,962 133,962 Cost of assets disposed of - - (82,000) - (82,000) Accumulated depreciation on assets disposed of - - 82,000 - 82,000 Correction of prior depreciat ion charge - - - 44,313 44,313 Depreciat ion charge (20,600) (34,339) (154,643) (32,634) (242,216) Closing net book value 59,607 52,225 968,962 165,161 1,245,955

At 30 June 2009Cost or fair value 88,825 110,951 1,898,018 240,351 2,338,145 Accumulated depreciation (29,218) (58,726) (929,056) (75,190) (1,092,190) Net book value at 30 June 2009 59,607 52,225 968,962 165,161 1,245,955

Parent Entity - $nil (2008: $nil)

(b) Revaluation of plant and equipment In June 2008 the Group engaged MGS Valuation Pty Ltd, an accredited independent valuer and member of the Society of Auctioneers and Appraisers (SA) Inc, as a reference to determine the fair value of its plant and equipment. Fair value is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Fair value is determined on the basis of market value for existing use (or continued use). Continued use assumes that the buyer and seller contemplate retention of the facilities at their present location for continuation of the current operations. The effective date of the revaluation was 30 June 2008.

Under the cost model the carrying values would have been:

Consolidated

Furniture & f ixtures

Office equipment

Plant & equipment

Medical instrument sets in use

Total

$ $ $ $ $Cost or fair value 88,825 110,951 1,898,018 240,351 2,338,145 Accumulated depreciation (29,218) (58,726) (1,250,096) (75,190) (1,413,230) Net book value at 30 June 2009 59,607 52,225 647,922 165,161 924,915



30 June 2009

45

16 Non-current assets – property, plant and equipment (continued) (c) Plant and equipment pledged as security for liabilities

Manufacturing plant and office equipment that is subject to hire purchase agreements is pledged as security for the related finance lease liabilities. Refer to note 20.

17 Non-current assets – deferred tax assets. (a) Reconciliation of carrying amounts at the beginning and end of the period

2009 2008 2009 2008$ $ $ $

The balance comprises temporary differences attributable to:Tax losses 717,978 500,755 41,932 44,193 OtherDeferred revenue (note 22) 97,489 64,856 - - Share issue expenses (note 25(b)) - 126,819 - 126,819 Share issue expenses allowable in pas t and current years (26,784) (25,364) (26,784) (25,364) Other - 3,565 - - Research and development offsets on capitalised assets 168,493 111,005 - - Sub-total other 239,198 280,881 (26,784) 101,455 Total deferred tax assets 957,175 781,636 15,148 145,648 Deferred tax assets not recognised due to insufficient probability of recovery (594,420) (690,920) (15,148) (145,648) Deferred tax assets offset against deferred tax liabilit ies (362,756) - - -

Net deferred tax assets - 90,716 - - Deferred tax assets to be recovered within 12 months - - - - Deferred tax assets to be recovered after more than 12 months - 90,716 - -

- 90,716 - -


* The deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of exist ing assessable temporary differences.



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46

18 Non-current assets – intangible assets (a) Reconciliation of carrying amounts at the beginning and end of the period

Consolidated

Product development

costs

Patents and

licencesTotal

$ $ $ $

Year ended 30 June 2008Opening net book amount - - - - Addit ions 359,523 10,491 370,014 - Closing net book value 359,523 10,491 370,014 -

At 30 June 2008Cost or fair value 359,523 10,491 370,014 - Accumulated depreciation - - - - Net book value at 30 June 2008 359,523 10,491 370,014 -

Year ended 30 June 2009Opening net book value 359,523 10,491 370,014 - Addit ions 548,320 13,323 561,643 - Depreciat ion charge (39,070) - (39,070) - Closing net book value 868,773 23,814 892,587 -

At 30 June 2009Cost or fair value 907,843 23,814 931,657 - Accumulated depreciation (39,070) - (39,070) - Net book value at 30 June 2009 868,773 23,814 892,587 -

Consolidated Parent entity

(b) Description of the Group's intangible assets

(i) Development costs

Development costs are carried at cost less accumulated depreciation and accumulated impairment losses. This intangible asset has been assessed as having a finite life and is depreciated using the straight line method over a period of 10 years. The depreciation will be recognised in the income statement in the line item 'administrative expense'. If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is lower than the carrying amount.

(ii) Patents and licences

Patents and licences have been acquired through patent applications relating to the Group’s research and development activities and are carried at cost less accumulated impairment losses. These intangible assets have been determined to have useful lives that mirror the development costs to which they relate. The patents and licences applied for will have grants of use for a minimum of 10 years by the relevant government agency with the option of renewal without significant cost at the end of this period provided that the entity meets certain predetermined targets. Patents and licences are subject to impairment testing on an annual basis or whenever there is an indication of impairment.

No depreciation was applied to these assets in the prior financial year as they were not yet in use as at 30 June 2008.



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47

19 Current liabilities – trade and other payables

2009 2008 2009 2008$ $ $ $

Trade payables 246,756 457,542 - - Other payables 113,383 212,170 - - GST liabilities 1,702 57,822 - - Related party payables (b) 11,428 11,360 - -

373,269 738,894 - -


(a) Fair value

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

(b) Related party payables

For terms and conditions relating to related party payables refer to note 28.

(c) Interest rate, foreign exchange and liquidity risk

Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3.

20 Current liabilities – interest bearing loans and borrowings

2009 2008 2009 2008Secured - at amortised cost $ $ $ $CurrentBank loans 58,997 - - - Hire purchase liabilit ies 120,147 57,846 - -

179,144 57,846 - - Non-currentBank loans 252,172 - - - Hire purchase liabilit ies 15,705 132,293 - -

267,877 132,293 - -

447,021 190,139 - -


(a) Fair value

Unless disclosed below, the carrying amount of the group’s current and non-current borrowings approximates their fair value. The fair values have been calculated by discounting the expected future cash flows at the contracted interest rates.

(b) Interest rate, foreign exchange and liquidity risk Information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3. (c) Renewal of hire purchase agreement A hire purchase agreement expiring on 22 September 2009 included in current liabilities above at $105,900 was renewed for a further 3-year term on 9 September 2009.

(d) Assets pledged as security

A fixed and floating charge over the assets of the Group has been granted to National Australia Bank as security for the bank loan included in secured liabilities above. The loan is for a term of 5 years with monthly repayments of $6,536 and is due to be repaid in full by March 2014.

The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities under hire purchase agreements are:

2009 2008 2009 2008$ $ $ $

Total assets pledged as security 147,392 160,358 - -




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48

21 Current liabilities – provisions

2009 2008 2009 2008$ $ $ $

Employee benefits - annual leave 90,848 69,268 - -


(a) Nature and timing of provisions

Refer to note 2 for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

22 Deferred income – Government capital grants Current liabilitiesDeferred grant income related to assets 58,685 41,831 - -

58,685 41,831 - - Non-current liabilitiesDeferred grant income related to assets 266,278 174,354 - - Total government grants deferred 324,963 216,185 - -

The accounting policies adopted and the description of government capital grants received by the Group, including conditions attached to the grants, have been disclosed in note 2.

(a) Movement in government capital grants At 1 July 216,185 - - - Received during the year 155,443 236,545 - - Released to the income statement during the year (46,665) (20,360) - - At 30 June 324,963 216,185 - -

23 Non-current liabilities – deferred tax liabilities Balance 1 July 205,984 - - - Development costs capitalised (net of amortisat ion) 156,772 111,004 - - Revaluat ion of plant and equipment - 94,980 - - Offset against deferred tax assets (362,756) -

Balance at 30 June - 205,984 - -

Refer to note 8 for calculations of the income tax benefits and deferred income tax balances.

24 Non-current liabilities – provisions Employee benefits - long service leave 46,447 36,736 - -

(a) Nature and timing of provisions Refer to note 2 for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.



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49

25 Issued capital

2009 2008 2009 2008$ $ $ $

Ordinary shares 5,621,977 5,645,655 5,612,977 5,636,655


(a) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(b) Movements in ordinary share capital:

Consolidated Details NotesNumber of

sharesIssue price $

At 1 July 2007 8,787,814 2,578,681

Year ended 30 June 2008Addit ions during the year 27 Feburary 2008 IPO Share Issue (i) 1,548,582 $1.50 2,322,793

27 Feburary 2008 IPO Share Issue (ii) 1,019,096 $1.125 1,146,426 Transaction costs (iii) - (422,729)

28 June 2008 Exercise of options (iv) 32,514 $0.63 20,484 Total movement Balance 2,600,192 3,066,974

At 30 June 2008 Balance 11,388,006 5,645,655 Year ended 30 June 2009Changes during the year Transaction costs (iii) - (23,678)

At 30 June 2009 Balance 11,388,006 5,621,977

Parent EntityAt 1 July 2007 8,787,814 2,569,681 Year ended 30 June 2008Addit ions during the year 27 Feburary 2008 IPO Share Issue (i) 1,548,582 $1.50 2,322,793

27 Feburary 2008 IPO Share Issue (ii) 1,019,096 $1.125 1,146,426 Transaction costs (iii) - (422,729)

28 June 2008 Exercise of options (iv) 32,514 $0.63 20,484

At 30 June 2008 Balance 11,388,006 5,636,655

Year ended 30 June 2009Changes during the year Transaction costs (iii) - (23,678)

At 30 June 2009 Balance 11,388,006 5,612,977

(i) 1,548,582 new shares were issued at $1.50 pursuant to the Prospectus dated 10 December 2007.

(ii) 1,019,096 were issued at $1.125 pursuant to the Prospectus dated 10 December 2007.

(iii) Transaction costs of the init ial public offering2009 2008 2009 2008

$ $ $ $

Transact ion costs of equity raising (23,678) (422,729) (23,678) (422,729) Less related tax benefit - 126,819 - 126,819 Add back tax benefit derecognised - (126,819) - (126,819)

(23,678) (422,729) (23,678) (422,729)


(iv) 32,514 new shares were issued at $0.63 upon exercise of employee share options.



30 June 2009

50

25 Contributed equity (continued) (c) Options

Information relating to the Austofix Group Share Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out below.

2009 2008 2009 2008

M N Balnaves - - 32,514 32,514 A M Ingman - - 32,514 32,514 A C Andreyev - - 32,514 32,514 J Michaelis - - - - G L Driscoll - - - - J Lettin # (590,000) 590,000 - - Other key management personnel of the GroupM Szolga - 325,140 65,028 65,028 E Laird - - 65,028 65,028 D Entwistle - - 32,514 32,514 C Latham 162,570 - - - B Schoeman 162,570 - - - C Kosti - - - - J Cattonar ## - (130,056) - 32,514 Total held by KMP (264,860) 785,084 260,112 292,626 Held by others ** - 150,000 32,514 32,514 Total options on issue (264,860) 935,084 292,626 325,140

NameNumber of options granted / (lapsed) Number of options vested during the year during the year


# Mr Lettin’s unvested options lapsed when he resigned from the Company in February 2009 and his vested options lapsed when they were not exercised within 30 days of his resignation.

## Mr Cattonar’s unvested options lapsed when he resigned from the Company in May 2008.

** Options held by other staff and advisors.

(d) Reconciliation of total options issued and vested

2009 2008 2009 2008number number number number

Options on issue at 1 July 3,503,690 2,601,120 1,268,046 975,420 Options granted in year 325,140 1,065,140 - - Options vested in year - - 292,626 325,140 Options exercised in year - (32,514) - (32,514) Options lapsed inyear (590,000) (130,056) - - Options on issue at 30 June 3,238,830 3,503,690 1,560,672 1,268,046

Issued Vested

(e) Capital risk management The Group's and the parent entity's objectives when managing capital are set out in note 3. During 2008, the Group successfully raised over $3,400,000 through a new issue of shares concurrent with the listing of the pre-existing shares on ASX. Management has no current plans to issue further shares on the market. The Group is not subject to any externally imposed capital requirements.



30 June 2009

51

26 Reserves

2009 2008 2009 2008$ $ $ $

Revaluat ion reserve 265,499 265,499 - - Employee equity benefits reserve 373,388 343,741 373,388 343,741

638,887 609,240 373,388 343,741


(a) Movements in reserves Asset revaluation reserveBalance 1 July 265,499 - - - Revaluat ion of plant and equipment - 379,284 - - Related income tax - (113,785) - - Balance at 30 June 265,499 265,499 - -

Employee equity benefits reserveBalance 1 July 343,741 48,219 343,741 48,219 Value of optons issued during the year 29,647 295,522 29,647 295,522 Balance at 30 June 373,388 343,741 373,388 343,741

(b) Nature and purpose of reserves

(i) Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements in the fair value of plant and equipment to the extent that they offset each other. The reserve can only be used to pay dividends in limited circumstances.

(ii) Employee equity benefits reserve

The employee equity benefits reserve is used to recognise the fair value of share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 29 for further details regarding options issued to employees. In the Group accounts these recognise the fair value of options issued to employees of the Group. In the parent entity these recognise the fair value of shares and options issued to employees of subsidiaries.

27 Retained earnings / (accumulated losses) Movements in retained earnings / (accumulated losses) were as follows:

Balance 1 July (1,673,021) 218,902 (50,342) 17,997 Net prof it / (loss) for the year (719,739) (1,891,923) 96,997 (68,339) Balance at 30 June (2,392,760) (1,673,021) 46,655 (50,342)



30 June 2009

52

28 Related party transactions (a) Parent entities

Austofix Group Limited is the ultimate Australian parent entity and the ultimate parent of the Group.

(b) Subsidiaries

The consolidated financial statements incorporate the financial statements of Austofix Group Limited and the subsidiaries listed in the following table

Name of entity Country of

incorporation Class of shares Equity holding

2009 2008 % % Austofix Surgical Pty Ltd Australia Ordinary 100 100 Australian Orthopaedic Fixations Pty Ltd Australia Ordinary 100 100 The following subsidiaries were deregistered on 11 September 2008

Austofix Surgical Pty Ltd VIC Australia Ordinary 100 100 Austofix Surgical Pty Ltd NSW Australia Ordinary 100 100 Austofix Surgical Pty Ltd WA Australia Ordinary 100 100

(c) Key management personnel

Disclosures relating to key management personnel, including remuneration paid, are set out in note 29.

(d) Transactions with related parties

Transactions that were entered into with related parties for the relevant financial year are disclosed in note 29. For information regarding outstanding balances on related party trade receivables and payables at year-end, refer to note 29.

No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties.

(e) Loans to/from related parties

None.

(f) Guarantees

The parent entity has not provided any guarantees in respect of its subsidiaries or any other entity:

(g) Terms and conditions

Transactions in 2008 relating to calls on partly paid ordinary shares and subscriptions for new ordinary shares were on the same terms and conditions that applied to other non-related party shareholders who subscribed at the same time, except for issues pursuant to the IPO Prospectus whereby, consistent with the rights of qualifying shareholders who were existing shareholders of Austofix prior to the IPO, Austofix issued 1,019,096 fully paid ordinary shares at $1.125 per share to the qualifying shareholders. There were no such transactions in the current financial year.

All other transactions were made on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of loans between the parties and interest is not charged on loans between members of the wholly-owned group. The average interest rate on loans during the year was nil % (2008 - nil %).

Outstanding balances are unsecured and are repayable in cash.



30 June 2009

53

29 Key management personnel disclosures (a) Directors

The following persons were Directors of Austofix Group Limited during the financial year:

(i) Chair - non-executive

Mark Balnaves

(ii) Non-executive-Directors

Dr Tony Ingman

Dr Jurgen Michaelis

Andrew Andreyev

Prof Geoff Driscoll (appointed 6 February 2009)

Jonathan Lettin (resigned 6 February 2009)

(b) Other key management personnel

The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year:

Name Position Employer Mark Szolga Chief Executive Officer Austofix Surgical Pty Ltd Ewen Laird Research Director Australian Orthopaedic Fixations Pty Ltd David Entwistle Production Director Australian Orthopaedic Fixations Pty Ltd Charlie Latham Chief Financial Officer and Company Secretary

(from 5 August 2008) Austofix Surgical Pty Ltd

Byron Schoeman National Sales Manager (from 7 October 2008) Austofix Surgical Pty Ltd Connie Kosti Marketing and Investor Relations Director (to 30

November 2008) Austofix Surgical Pty Ltd

All of the above persons were also key management persons during the year ended 30 June 2008, except for Charlie Latham who commenced employment with the Group on 5 August 2008 and Byron Schoeman who commenced employment with the Group on 7 October 2008. Connie Kosti was also Company Secretary from 25 May to 20 August 2008.

(c) Key management personnel compensation

2009 2008 2009 2008$ $ $ $

Short-term employee benefits 786,081 651,514 - - Post-employment benefits 186,845 68,278 - - Long-term benefits - - - - Termination benefits - - - - Share-based payments 29,335 255,367 - -

1,002,262 975,159 - -

Consolidated Parent entity



30 June 2009

54

29 Key management personnel disclosures (continued) (d) Share and option holdings of key management personnel

(i) Options provided as remuneration and shares issued on exercise of such options

Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in the remuneration report section of the Directors’ Report.

(ii) Option holdings

The numbers of options over ordinary shares in the Company held during the financial year by each Director of Austofix Group Limited and other key management personnel of the Group, including their personally related parties, are set out below.

2009

Name

M N Balnaves 487,710 - - - 487,710 390,168 97,542 0.27 A C Andreyev 487,710 - - - 487,710 390,168 97,542 0.27 A M Ingman 487,710 - - - 487,710 390,168 97,542 0.27 J Michaelis - - - - - - - - G Driscoll (appointed 6 February 2009) - - - - - - - - J Lettin (resigned 6 February 2009) # 590,000 - - (590,000) - - - 0.67

M Szolga 650,280 - - - 650,280 195,084 455,196 0.63 E Laird 325,140 - - - 325,140 130,056 195,084 0.63 D Entwistle 162,570 - - - 162,570 65,028 97,542 0.63 C Latham (from 5 August 2008) - 162,570 - - 162,570 - 162,570 0.84 B Schoeman (from 7 October 2008) - 162,570 - - 162,570 - 162,570 0.84 C Kosti (to 30 November 2008) - - - - - - - -

3,191,120 325,140 - (590,000) 2,926,260 1,560,672 1,365,588


Weighted average exercise

price

Balance at start of the

year

Granted as compen-

sationExercised

Other changes

Balance at end of the

year

Vested and exercisable Unvested


# Unvested options lapsed upon ceasing employment. All options are exercisable as soon as vested.

2008

Name

M N Balnaves 487,710 - - - 487,710 357,654 130,056 0.27 A C Andreyev (appointed 24 July 2007)* - - - 487,710 487,710 357,654 130,056 0.27 A M Ingman 487,710 - - - 487,710 357,654 130,056 0.27 J Michaelis (appointed 24 July 2007) - - - - - - - - J Lettin (appointed 24 July 2007) - 590,000 - - 590,000 - 590,000 0.67

M Szolga 325,140 325,140 - - 650,280 65,028 585,252 0.63 E Laird 325,140 - - - 325,140 65,028 260,112 0.63 D Entwistle 162,570 - - - 162,570 32,514 130,056 0.63 C Kosti (from 17 March 2008) - - - - - - - - J Cattonar (to 23 May 2008) 162,570 - (32,514) (130,056) - - - 0.63

1,950,840 915,140 (32,514) 357,654 3,191,120 1,235,532 1,955,588



Vested and exercisable Unvested

Weighted average exercise

price


year

Granted as compen-

sationExercised Other

changes

Balance at end of the

year

* Options already held prior to being appointed a Director. All vested options at the end of the year are exercisable.



30 June 2009

55

29 Key management personnel disclosures (continued) d) Share and option holdings of key management personnel (continued)

(iii) Share holdings

The numbers of shares in the Company held during the financial year by each Director of Austofix Group Limited and other key management personnel of the Group, including their personally related parties, are set out below.

2009

Name

Directors of Austofix Group LimitedOrdinary sharesM N Balnaves 2,167,606 - - - - 2,167,606 A C Andreyev 2,167,606 - - - - 2,167,606 A M Ingman 2,167,607 - - - - 2,167,607 J Michaelis 2,190,476 - - - - 2,190,476 G Driscoll (appointed 6 February 2009) + - - - - 20,000 20,000 J Lettin (resigned 6 February 2009) - - - - - -

Ordinary sharesM Szolga - - - - - - E Laird 1,350 - - - - 1,350 D Entwistle 1,350 - - - - 1,350 C Latham (from 5 August 2008) - - - - - - B Schoeman (from 7 October 2008) - - - - - - C Kosti (to 30 November 2008) - - - - - -

8,695,995 - - - 20,000 8,715,995


year

Granted as compen-

sation

Received during the year on the exercise of

options

Sub-scribed during the

year

Other changes during the

year

Balance at the end of the year


+ Interests in shares were already held by the Director at the time of his appointment.

2008

Name

Directors of Austofix Group LimitedOrdinary sharesM N Balnaves 2,167,606 - - - - 2,167,606 A C Andreyev (appointed 24 July 2007)*^ - - - - 2,167,606 2,167,606 A M Ingman 2,167,607 - - - - 2,167,607 J Michaelis (appopionted 24 July 2007) *# - - - 999,999 1,190,477 2,190,476 J Lettin (appointed 24 July 2007) - - - - - -

Ordinary sharesM Szolga - - - - - - E Laird - 1,350 - - - 1,350 D Entwistle - 1,350 - - - 1,350 C Kosti (from 17 March 2008) - - - - - - J Cattonar (to 23 May 2008) - 1,350 32,514 - (33,864) -

4,335,213 4,050 32,514 999,999 3,324,219 8,695,995

Sub-scribed during the

year

Balance at the end of the year


Granted as compen-

sation

Other changes during the

year


year

Received during the year on the exercise of

options

* Interests in shares were already held by the Director at the time of his appointment

^ Interest in these shares was transferred from another shareholder.

# Interest in shares held by Terra Rossa Capital Pty Ltd



30 June 2009

56

29 Key management personnel disclosures (continued) (e) Loans to key management personnel

There were no loans made to Directors of Austofix Group Limited and other key management personnel of the Group, including their personally related parties, during the current or prior financial years.

(f) Other transactions with key management personnel

A Director, Mr Mark Balnaves, has a 50% interest in the firm Evans & Ayers Chartered Accountants. The Company entered into a contract with Evans & Ayers Chartered Accountants during the previous financial year for the rental of office space. The contract is based on normal commercial terms and conditions. Evans & Ayers Chartered Accountants also provided tax accountancy and lodgement services to the Company based on normal commercial terms and conditions.

A Director, Dr Tony Ingman, holds a beneficial interest in Ampli Superannuation Fund. The Company has rented its factory and office building at North Plympton from Ampli Superannuation Fund for several years. The rental agreement is based on normal commercial terms and conditions.

Equity raising

A Director, Dr Jurgen Michaelis, is the CEO of Bio Innovation SA and a Director of Terra Rossa Capital Pty Ltd which manages the $35 million South Australian Life Science Advancement Fund (SALSA). SALSA is the largest shareholder in Austofix Group Limited. A management fee of $45,000 was paid to Terra Rossa Capital Pty Ltd in relation to the Prospectus and capital raising by the Company in 2008. The fee was based on normal commercial terms and conditions.

Aggregate amounts of each of the above types of other transactions with key management personnel:

2009 2008 2009 2008$ $ $ $

Amounts recognised as revenue - - - -

Amounts recognised as expensesRent of factory and office building 50,662 49,201 - - Rent of office accommodation 17,345 6,016 - - Accountancy services 2,069 5,713 - -

70,076 60,930 - -

Management fee for capital raising - 45,000 - - - 45,000 - -


Aggregate amounts payable to key management personnel of the Group at balance date relating to the above types of other transactions:

Current receivables (loans to subsidiaries) Owed to parent company - - 5,119,232 2,719,656

Current payables (purchases of services) Other related part ies 11,430 11,360 - -



30 June 2009

57

30 Remuneration of auditors During the year the following fees were paid or payable for services provided by the current and prior auditors and of the parent entity, their related practices and non-related audit firms:

2009 2008 2009 2008$ $ $ $

Amounts received or receivable by Grant Thornton South Australia Partnership for:

30,000 - - - Total remuneration 30,000 - - -

Amounts received or receivable by Ernst & Young (Australia) for:

- 113,104 - - Independent expert report for Prospectus - 20,000 - - Account ing services - 27,413 - -

Due diligence services related to Prospectus - 21,201 - - Total remuneration - 181,718 - -

Parent ent ityConsolidated

Audit and review of financial reports of the ent ity and any other entity in the consolidated group

Audit and review of financial reports of the ent ity and any other entity in the consolidated group

Fees for auditing the Parent Entity were borne by wholly-owned controlled entity Austofix Surgical Pty Ltd

31 Contingencies (a) Contingent liabilities

The parent entity and Group had no contingent liabilities at 30 June 2009.

(b) Contingent assets

The parent entity and Group had no contingent assets at 30 June 2009.



30 June 2009

58

32 Commitments (a) Lease commitments: Group as lessee

(i) Non-cancellable operating leases

The Group leases various offices and a production facility under non-cancellable operating leases expiring within one to four years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

2009 2008 2009 2008$ $ $ $

Within one year 68,698 119,625 - - 8,421 51,180 - -

Later than five years - - - - 77,119 170,805 - -

Consolidated Parent ent ity

Later than one year but not later than five years

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

(ii) Finance leases and hire purchase commitments

The Group leases plant and equipment and office equipment with a carrying amount of $147,392 (2008 - $160,358) under finance leases expiring within two to four years. Under the terms of the leases, the Group will own the items at a residual amount below the market rate, $1 for the office equipment and $105,900 for the plant and equipment on expiry of the leases.

Commitments in relat ion to finance leases are payable as follows:

Within one year 123,645 72,129 - - 17,289 136,756 - -

Later than five years - - - - Minimum lease payments 140,934 208,885 - -

Less amounts representing future finance charges (5,082) (18,746) - - Recognised as a liability 135,852 190,139 - -

Representing lease liabilities:Current (note 20) 120,147 57,846 - - Non-current (note 20) 15,705 132,293 - -

Present value of minimum lease payments 135,852 190,139 - -

Later than one year but not later than five years

33 Events occurring after the balance sheet date 15 August 2009 was a key milestone date for the Group as from this date Austofix is able to access full private hospital rebates for a number of products. With access to key markets, namely private hospitals in Australia, it is expected that sales will grow significantly.

In August 2009 the company signed a major contract with a large Australian public hospital. Under the contract Austofix has supplied a wide range of its orthopaedic implants to the hospital.



30 June 2009

59

34 Cash flow reconciliation statement (a) Reconciliation of profit / (loss) after income tax to net cash in / (out) flow from operating activities

2009 2008 2009 2008$ $ $ $

Operating profit / (loss) after income tax (719,739) (1,891,923) 96,997 (68,339)

Depreciat ion and amort isation 236,973 204,182 - - Allowance for doubtful debts (31,961) 31,961 - - Share based payments 29,647 295,522 - - Grants received prior now taken to income (46,665) (20,360) - - Interest income (94,958) (91,804) (94,508) (89,395) Changes in net assets and liabilities:Trade and other receivables 252,363 (38,358) - - Other financial assets (15,807) (21,056) - - Inventories (692,953) 322,972 - - Current tax assets (137,982) (114,806) 3,148 - Deferred tax balances (115,268) 115,268 - - Trade and other payables (365,625) (76,735) - - Provis ions 31,291 30,084 - - Other current liabilities (5,056) (23,465) (2,973) 56,122

Net cash (used in)/provided by operating activities (1,675,740) (1,278,518) 2,664 (101,612)


(b) Non-cash financing and investing activities

Acquisit ions of assets by means of finance leases (note 20) 338,977 - - - Share-based payments 29,647 295,522 - -



30 June 2009

60

35 Earnings per share The following reflects the income used in the basic and diluted earnings

(a) Earnings used in calculating earnings per share2009 2008

$ $(i) For basic earnings per share

Net loss from continuing operat ions attributable to the ordinary equity holders of the parent (719,739) (1,891,923)

(ii) For diluted earnings per shareNet loss from continuing operat ions attributable to the ordinary equity holders of the parent (from basic EPS) (719,739) (1,891,923)

(b) Weighted average number of shares 2009 2008Number Number

Weighted average number of ordinary shares used in calculat ing basic earnings per share 11,388,006 9,657,916

Adjustments for calculation of diluted earnings per share:Share options * - -

Weighted average number of ordinary shares adjusted for the effect of dilut ion 11,388,006 9,657,916

Consolidated

* As the Group made a loss in 2008 and 2009 the options are not dilutive for both the 2008 and 2009 financial years.

(c) Information concerning the classification of securities

(i) Options

Options granted to employees under the Austofix Group Limited Employee Option Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 37.

(ii) Effect of options in 2008 calculations

There is no dilutive effect of the options in the current period as the loss cannot be spread to the option holders in the same way as a profit can.

36 Segment information The Group operates within a single primary industry segment, being health care equipment and services.

Secondary segment information is reported geographically. The Group’s geographical segments are determined based on the locations of customers. The following table presents revenue by and other information:

2009 2008Sales revenue per region: $ $Australia 1,086,682 843,929 Europe 294,719 380,721 South America 25,011 13,827 Asia 118,319 140,021 Middle East 15,192 - Total sales 1,539,922 1,378,498

Consolidated

All assets are held in Australia.



30 June 2009

61

37 Share-based payments (a) Option Plan

The establishment of the Austofix Group Share Option Plan was approved by shareholders in 2006. The Option Plan is designed to provide long-term incentives for Directors and senior managers to deliver long-term shareholder returns. Under the plan, participants are granted options which vest over a five year period. Participation in the plan is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits.

All options expire 10 years after grant date. Once vested, the options remain exercisable at any time up to the expiry date. Options are granted under the plan for no consideration.

Options granted under the plan carry no dividend or voting rights.

When exercisable, each option is convertible into one ordinary share.

The exercise price of options is set at the time the options are granted.

Set out below is a summary of options granted under the plan:

Number of options Grant Date Exercise Price

Options at 1 July 2006 -

Options issued during 2007 975,420 22 September 2006 $0.20

487,710 22 September 2006 $0.42

812,850 22 September 2006 $0.63

325,140 1 March 2007 $0.63

Total options granted during 2007 2,601,120 $0.416

Options at 30 June 2007 and 1 July 2007 2,601,120 $0.416

Options issued during 2008: 325,140 24 July 2007 $0.63

590,000 24 July 2007 $0.67

150,000 1 March 2008 $1.50

Total options granted during 2008 1,065,140 $0.756

Options lapsed during 2008 (130,056) $0.63

Options exercised during 2008 (32,514) $0.63

Total options at 30 June 2008 3,503,690 $0.53

Options lapsed during 2009 (590,000) $0.67

Options issued during 2009 325,140 3 March 2009 $0.84

Total options at 30 June 2009 3,238,830 $0.61

No options expired during the periods covered by the above table.

No options were exercised during the year ended 30 June 2009. The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2008 was $0.90.

The weighted average exercise price of options issued during the 2009 financial year was $0.84 (2008: $0.756).

During the 2009 financial year nil options were exercised (2008: 32,514 exercised for a weighted average exercise price of $0.63).

During the 2009 financial year 590,000 options were forfeited (2008: 130,056). Their weighted average exercise price was $0.67 (2008:$0.63).

The weighted average remaining contractual life of share options outstanding at the end of the period was 7.67 years (2008 – 8.50 years).



30 June 2009

62

37 Share-based payments (continued) Fair value of options granted The assessed fair value at of all the options has been calculated to be $492,409 (2008: $687,582), or at 30 June 2009 was 15.2 cents per option (2008 – 20.5 cents). The fair value is independently determined using Leadenhall independent valuation research group using the Black-Scholes option pricing model.

In addition to the information set out above, the model inputs for options granted included:

(a) Options are granted for no consideration and vest over a pre-determined period ranging from immediately to five years.

(b) Expected price volatility of the Company’s shares: 40% (2008 – 40%)

(c)

Austofix expects to be raising capital over the life of the options, which is 10 years from date of issue.

(d) There is no expectation that dividends will be paid during the life of the options.

(e) The following risk-free interest rates and underlying share prices were used:

Grant date Rate Underlying share price

September 2006 5.71% $0.10

March 2007 5.85% $0.84

July 2007 6.23% $0.84

February 2008 6.50% $1.50

March 2009 4.31% $0.55

The expected price volatility is based in part on the historic volatilities of comparable companies, as at the time of the original report, Austofix was yet to list on ASX and share trading has been limited since the listing on ASX on 27 February 2008.

b) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:

2009 2008 2009 2008$ $ $ $

Options issued under employee share scheme:Expense on options on issue 147,440 295,522 - - Expense reversed on options that lapsed during the year (117,793) - - -

Net expense 29,647 295,522 - -


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INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF AUSTOFIX GROUP LIMITED

Report on the Financial Report

We have audited the accompanying financial report of Austofix Group Limited, (the

company) which comprises the balance sheet as at 30 June 2009, and the income statement,

statement of changes in equity and cash flow statement 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 controls relevant to the preparation and fair

presentation of the financial report that is free from material misstatement, whether due to

fraud or error; selecting and applying appropriate accounting policies; and making

accounting estimates that are reasonable in the circumstances. In Note 2, 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.


TO THE MEMBERS OF AUSTOFIX GROUP LIMITED Cont

Auditor’s responsibility Cont

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 complied with applicable independence requirements of the

Corporations Act 2001.

Auditor’s opinion

In our opinion:

a the financial report of Austofix Group Limited 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 2009and 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 financial report also complies with International Financial Reporting Standards as

disclosed in Note 2.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 8 to 15 of the directors’ report

for the year ended 30 June 2009. The directors of the company are responsible for the

preparation and presentation of the Remuneration Report in accordance with section 300A

of the Corporations Act 2001. Our responsibility is to express an opinion on the

Remuneration Report, based on our audit conducted in accordance with Australian Auditing

Standards.


TO THE MEMBERS OF AUSTOFIX GROUP LIMITED Cont

Auditor’s opinion

In our opinion the Remuneration Report of Austofix Group Limited for the year ended

30 June 2009, complies with section 300A of the Corporations Act 2001.

GRANT THORNTON South Australian Partnership Chartered Accountants S J Gray Partner Signed at Wayville on this 17th day of September 2009

67

Additional ASX Information at 19 October 2009 Shares All issued shares are in a single class, being ordinary shares. As at 19 October 2009, there were 11,388,006 fully paid ordinary shares held by 467 shareholders. All shares carry full voting rights. Of these ordinary shares the twenty largest holders held 10,059,801 shares equal to 88.34% of all issued shares.

Distribution of Holders of Equity Securities

Range Total holders

Shares % issued capital

1 - 1,000 5 3,850 0.03%1,001 - 5,000 395 625,707 5.49%5,001 - 10,000 28 210,808 1.85%

10,001 - 100,000 27 1,062,685 9.33%Over 100,000 12 9,484,956 83.29%

Total 467 11,388,006 100.00% Top Twenty Shareholders

Rank Name Shares % held1 SOUTH AUSTRALIAN LIFE SCIENCE ADVANCEM ENT PARTNERSHIP LP 2,357,143 20.70%2 GFR SUPER PTY LTD <GOOD RETIREM ENT FUND A/C> 1,940,439 17.04%3 M R NEVILLE IAN CONRAD + M S CHRISTINE JOAN CONRAD <CONRAD SUPER FUND A/C> 1,818,136 15.97%4 M R ANTHONY M ARK INGM AN + M S LEE INGM AN <TONYLEE A/C> 1,746,200 15.33%5 COSSICH NOM INEES PTY LTD 349,468 3.07%6 M S RENEE ELIZABETH BITTAR 234,000 2.05%7 M R ANTHONY M ARK INGM AN 210,703 1.85%8 LEE INGM AN 210,702 1.85%9 GJB INVESTM ENTS 180,000 1.58%

10 M S TRUDI ANNE NEWSON <FEATHERTOP INVESTM ENT A/C> 177,000 1.55%11 M R JOHN COSREVE GOOD 161,165 1.42%12 M RS KATALIN M ARIANNE TOTH + M R ANTONI BOGUM IL KALISZEWSKI <KT SUPERANNUATION FUND A/C> 100,000 0.88%13 M RS ROSALINE BITTAR 90,000 0.79%14 KPM P INVESTORS PTY LTD 90,000 0.79%15 M R BARRY M ICHELS + M RS VICKY M ICHELS <B & V M ICHELS S/F A/C> 81,845 0.72%16 SEVANLAB NOM INEES PTY LTD <BALNAVES FAM ILY 3 A/C> 67,000 0.59%17 M S HANNAH WAI-LIN ANDREYEV <EAN A/C> 66,000 0.58%18 CAWSEY SUPERANNUATION FUND PTY LTD <CAWSEY SUPER FUND A/C> 60,000 0.53%19 M R THOM AS ALASTAIR DOM AN 60,000 0.53%20 NOUHAD INVESTM ENTS PTY LTD <BITTAR FAM ILY SUPER A/C> 60,000 0.53%

Total of top 20 shareholders 10,059,801 88.34%

Substantial Shareholdings The substantial shareholders listed in the Company’s register of substantial holdings as at 19 October 2009 were:

Name Shares % held SOUTH AUSTRALIAN LIFE SCIENCE ADVANCEM ENT PARTNERSHIP LP 2,357,143 20.70% DR ANTHONY M ARK INGM AN + M S LEE INGM AN AND OTHER PARTIES RELATED TO A M INGM AN 2,167,607 19.03% GFR SUPER PTY LTD, M R JOHN COSREVE GOOD AND OTHER PARTIES RELATED TO A C ANDREYEV 2,167,606 19.03% M R NEVILLE IAN CONRAD + M S CHRISTINE JOAN CONRAD AND OTHER PARTIES RELATED TO M N BALNAVES

2,167,606 19.03%

68

Additional ASX Information at 19 October 2009 (continued)

Restricted Securities 6,061,577 ordinary shares held prior to the listing on ASX are subject to escrow. The escrow period expires on 27 February 2010. 5,326,429 shares are unrestricted and presently quoted on ASX.

Options over unissued ordinary shares A total of 3,238,830 options over unissued ordinary shares in the Company are held by a total of 11 option holders. These options are not listed or quoted on ASX.

Use of Cash For the period from the time of admission to the ASX Official Lists to the reporting date the cash and assets in a form readily convertible into cash that the Company had at the time of admission to the ASX has been used in a way consistent with its business objectives as set out in the Prospectus issued prior to that admission.

Distributions No distributions or dividends have been made in the current or prior financial years and none is anticipated in the year ending 30 June 2010.

austofix group limited

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