HYTERRA LTD — Annual Report 2009

Jul 30, 2009

BrainZ Instruments Limited Annual Report 2009

CONTENTS

Executive Chairman’s Report	2
Directors’ Report	3
Corporate Governance Statement	5
Auditor’s Report	8
Financial Statements	9
Income Statement	10
Statement of Changes in Equity	11
Balance Sheet	12
Cash Flow Statement	13
Statement of Accounting Policies	15
Notes to the Financial Statements	18
Additional Information	30
Directory	32

Executive Chairman’s Report

Dear Investor,

It has been an eventful 12 months for BrainZ Instruments Limited (BrainZ or the Company). At the start of the year sales growth was poor, with no near-term change anticipated by the board. The Company was under increasing pressure from ongoing cash burn with no clear endpoint despite endeavours to cut costs, as well as longer term liability commitments such as related to product warranties. Given the current global economic environment it was pleasing to have reached an Asset Purchase Agreement with Natus Medical Inc (NASDAQ: BABY).The sale was approved at a Special Meeting of Shareholders on 5 November 2008 and closed on 2 December 2008. Under this Agreement, Natus acquired substantially all the assets of BrainZ and assumed BrainZ’s obligations under the existing customer and supplier contracts.

Although the purchase price NZ$1.3 million received from Natus may have been disappointing for you, the fact that Natus were willing to assume these obligations in addition to acquiring the assets of BrainZ in such a difficult financial climate is recognition of the quality of the BrainZ products and the work of the BrainZ team in achieving a leading position with neonatologists, as well as the long term prospects of the technology. We wish Natus every success with its continued sales development.

Since November 2008 the BrainZ business has been wound down, with only a skeleton part-time staff remaining since February 2009, comprising the directors and CFO. Along with the other directors, I would like to thank all the team at BrainZ for their continued commitment, particularly during the difficult phase of transition to Natus. Special thanks to Richard Smith CEO, who left BrainZ in January 2009, but has continued to assist the Company from time to time since then without remuneration.

As has been announced in previous communications, the Board is considering conducting a return of capital to shareholders towards the end of 2009 once the business has been fully wound down. This may require the Company to be liquidated. Depending on the legal means of effecting any distribution, shareholder approval may also be required. Based on the information currently available to the Board it remains of the opinion that the cash to be returned to shareholders is likely to be approximately NZ$0.03-0.04 per share. At end May 2009, following receipt of outstanding amounts from Natus, the BrainZ cash balance was $2.752 million, with 60 million shares on issue. Monthly cash flow announcements will continue to be made via the ASX.

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Dr D Pethica

Executive Chairman BrainZ Instruments Limited 29 July 2009

2 BRAINZ ANNUAL REPORT 2009

Directors’ Report

The Board of Directors submit the annual report of BrainZ Instruments Limited for the year ended 31 March 2009.

Principal Activities

BrainZ Instruments Limited is a New Zealand based medical technology company specialising in the research, development, manufacture and sale of bedside brain monitoring technology.

Performance Review

The Company was established in 2001 to commercialise pioneering neonatal brain research from the Auckland University’s Liggins Institute. Originally owned by NeuronZ Limited, the business was acquired by Tru-Test Limited in September 2002. Tru-Test Limited is a multinational company specialising in electronic technology solutions. BrainZ publicly listed on the Australian Stock Exchange (ASX) on 14 December 2005, raising AU$13 million. The assets of the company were sold during the year to Natus Medical. The company’s operations for the year are described in the Executive Chairman’s Report on page 2.

The net deficit for the year ended 31 March 2009 was $1,734,000 (2008: $8,343,000). The net deficit per share of $0.03 (2008: $0.14) is based on a weighted average of 60,000,000 shares outstanding (2008: 60,000,000). No ordinary share dividends were paid in the year and the Directors recommend none for this year.

The detailed financial statements are presented on pages 9 to 29.

Directors

Dr Damian Pethica, MA, FFPM (Executive Chairman)

Dr Pethica worked for Ciba-Geigy in Basel, Switzerland, as a group head in the medical department, pharmaceutical division, and then as Medical Director of Ciba-Geigy New Zealand. Following the merger of Ciba-Geigy and Sandoz, he became Medical Director of Novartis New Zealand. He subsequently joined Flemings in London as a biotechnology equities research analyst. After the acquisition of Flemings he became Vice President, Biotechnology Equity Research for Europe for JPMorganChase. Dr Pethica was educated at Oxford University (mathematics) and London University (medicine), and was in general medical practice for about seven years. He is a Fellow of the Faculty of Pharmaceutical Physicians, Royal College of Physicians London, a current authorised representative of JT Campbell & Co where he has previously provided research coverage on the company and is a current member of the Medicines Assessment Advisory Committee, New Zealand

Mr Keith Aitchison, CA (Non-executive Director)

Keith Aitchison joined the Tru-Test Group (the majority shareholder in the company) as an executive in 1978, and was appointed director of finance in 1985. Tru-Test is based in Auckland, New Zealand. Prior to joining Tru-Test, Keith spent 4 years in South Africa and England working for chartered accounting firms and in a finance role for a large shipping company.

Dr James Brown, PhD, C Biol, MI Biol, FIMLS (Non-executive Director)

Dr Jim Brown has over 25 years experience in the biotechnology market and was recently Vice President for Global Alliances for GE Healthcare (formerly Amersham Plc). Jim was previously the President of the International Division from 1995-2003 for Amersham Plc and prior to that was Executive Vice President for BioReliance based in Maryland USA. Jim is also the Chairman of Lux Biotechnology Limited in Scotland.

Interests Register

The company is required to maintain an interests register in which particulars of certain transactions and matters involving Directors must be recorded. During the year Dr Pethica advised the Board that he would receive 30% of the success fee paid to JT Campbell as consideration for his involvement in the restructuring of the business and completing the transactions with Natus. BrainZ entered into an agreement with JT Campbell in April 2007 to assist in the restructuring of its business. As a result of this agreement a fee of NZD$413,000 was payable to JT Campbell on Completion (Success Fee). At the time BrainZ entered into the agreement with JT Campbell, Dr Damian Pethica (Executive Chairman of BrainZ) was a consultant with JT Campbell.

During the year there were no other Directors who declared an interest in transactions with the Company.

The details of each Director’s relevant interests in shares of the company are disclosed in the “Additional Information” section of this annual report.

Use of Company Information

During the year the Board received no notices from the Directors of the company requesting to use company information received in their capacity as Directors which would not otherwise have been available to them.

Indemnification and Insurance of Directors and Officers

The company has arranged Directors and Officers Liability Insurance that provides that generally Directors and Officers will incur no monetary loss as a result of actions undertaken by them as Directors and Officers. The insurance does not cover liabilities arising from criminal activities or deliberate or reckless acts or omissions.

Donations

The company made no donations during the year (2008: nil).

Director attendance at meetings during the year	BOARD	MEETINGS	AUDIT	COMMITTEE	NOMINATION AND REMUNERATION COMMITTEE	NOMINATION AND REMUNERATION COMMITTEE
	HELD	ATTENDED	HELD	ATTENDED	HELD	ATTENDED
Dr D Pethica (appointed 4/1/2008)	10	10	2	2	-	-
K J Aitchison	10	10	2	2	-	-
Dr J Brown	10	10	2	2	-	-

BRAINZ ANNUAL REPORT 2009 3

Remuneration of Directors

Remuneration paid to Directors of BrainZ Instruments Limited during the year by the Company and Group were as follows:

	DIRECTORS	DIRECTORS	OTHER	OTHER
	FEES	FEES	REMUNERATION	REMUNERATION
	MARCH 2009	MARCH 2008	MARCH 2009	MARCH 2008
	NZ$000	NZ$000	NZ$000	NZ$000
Dr D Pethica (appointed 4/1/2008)1	65	17	-	-
K J Aitchison (appointed 7/10/2005)2	-	33	-	-
Dr J Brown (appointed 7/10/2005)	45	46	-	-
Dr R L Congreve (resigned 16/7/2008)	-	46	-	-
R K Sharp (resigned 31/3/2008)3	-	23	-	-
P M Smith (resigned 4/1/2008)	-	64	-	-
Dr J Vaughan (resigned 31/3/2008)4	-	28	-	70

1 Fees paid to Newmarket Consulting Limited

2 Fees paid to Tru-Test Limited. Keith ceased to receive fee’s from Brainz effective February 2008

• 3 Fees paid to Co-Investor Capital Partners Pty Limited

4 Resigned as CEO effective 25 May 2007 but continued as a non-executive Director until 31 March 2008

Remuneration of Employees

The number of employees, other than Directors, whose income during the year was in the specified bands are as follows:

					GROUP				PARENT
$NZ			MARCH	2009	MARCH	2008	MARCH	2009	MARCH	2008
100,001	-	110,000		-		3		-		3
110,001	-	120,000		-		2		-		1
120,001	-	130,000*		1		2		1		2
130,001	-	140,000*		1		-		1		-
140,001	-	150,000*		1		-		1		-
150,001	-	160,000*		1		-		1		-
170,001	-	180,000*		1		-		1		-
260,001	-	270,000		-		1		-		-
480,001	-	490,000*		1		-		-		-

The Group numbers include two off-shore employees, one who is paid in US dollars and one who is paid in UK pounds.

• Categories include payment of notice period to employees made redundant during the 2009 year.

Auditor

Deloitte has been appointed auditor of the company for the year ended 31 March 2009 and was the auditor for the previous year ended 31 March 2008. Audit fees in respect of the annual and interim reports were $43,577 (2008: $31,500).

Corporations Act, Australia - Directors’ declaration

The Directors of BrainZ Instruments Limited (BrainZ) declare that:

1. The accompanying audited financial statements on pages 9 to 29 of BrainZ and its subsidiaries for the year ended 31 March 2009 and the notes to those financial statements:

2. (a) comply with the accounting standards issued by the New Zealand Institute of Chartered Accountants; and

3. (b) give a true and fair view of the financial position as at 31 March 2009 and of the performance for the year ended on that date of BrainZ and its subsidiaries.

4. In the Directors’ opinion there are reasonable grounds to believe that BrainZ will be able to pay its debts as and when they become due and payable.

This report is signed and declaration made in accordance with a resolution of the Board of Directors dated 29 July 2009.

On behalf of the Board

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Dr D Pethica

Executive Chairman BrainZ Instruments Limited 29 July 2009

4 BRAINZ ANNUAL REPORT 2009

Corporate Governance Statement

The Directors have adopted practices and procedures for the good corporate governance of the Company. These practices and procedures establish the framework of how the Directors carry out their duties and discharge their obligations on behalf of shareholders.

The company was admitted to the official list of the Australian Stock Exchange (ASX) on 14 December 2005 and has adopted appropriate policies and practices as provided by the ASX Listing Rules and the “Corporate Governance Principles and Recommendations” 2nd Edition issued by the ASX Corporate Governance Council (Council) which are as follows:

• Principle 1. Lay solid foundations for management and oversight Principle 2. Structure the Board to add value Principle 3. Promote ethical and responsible decision-making Principle 4. Safeguard integrity in financial reporting Principle 5. Make timely and balanced disclosure Principle 6. Respect the rights of shareholders Principle 7. Recognise and manage risk Principle 8. Remunerate fairly and responsibly

BrainZ’s current board of three Directors, comprise an Executive Chairman, Dr D Pethica and two non-executive directors, Dr J Brown (independent) and K J Aitchison who is associated with Tru-Test Limited, BrainZ’s majority shareholder.

CONTINUOUS DISCLOSURE POLICY

The Company has adopted a continuous disclosure policy. This policy sets out the standards, protocols and the detailed requirements expected of all Directors, officers, senior management and employees of the Company for complying with the Listing Rules relating to continuous disclosure.

This policy is designed to ensure that the Company complies with the Listing Rules and provides equal access to information and to promote quality communication between the Company and third parties such as shareholders, the investment community, the media and the ASX.

The Company has a corporate governance process designed to ensure that its ASX company announcements:

• are made in a timely manner;

• are factual and are accurate;

• do not omit material and relevant information; and

• are expressed clearly and objectively to enable investors to assess the impact of the information when making investment decisions.

The Board is responsible for approving and monitoring compliance with this policy. The effectiveness of this policy will also be evaluated on an annual basis.

All relevant information provided to the ASX is also posted on the Company’s corporate website www.brainz.com, in compliance with the continuous disclosure requirements of the Listing Rules.

ROLE OF THE BOARD

The Board is accountable to shareholders for the overall direction, management and corporate governance of the Company.

The Board’s responsibilities include:

• overseeing the Company, including its control and accountability systems;

• ratifying senior executive appointments, organisational changes and senior management remuneration policies and practices;

• approving management’s corporate strategy and performance objectives;

• approving and monitoring the progress of major capital

• expenditure, capital management, acquisitions and divestitures; - reviewing and ratifying systems of risk management, internal compliance and control and legal compliance to ensure appropriate compliance frameworks and controls are in place; and

• monitoring and ensuring compliance with best practice corporate governance requirements.

The Board considers corporate governance to be an important element of its responsibilities. It meets regularly throughout the year.

The Board appoints the Chief Executive Officer and the responsibility for the operation and administration of the Company has been delegated to the Chief Executive Officer and senior management. The Board ensures this team is appropriately qualified to discharge their responsibilities and reviews the performance of the Chief Executive Officer annually. The Chief Executive Officer is responsible for reviewing annually the performance of senior management. As noted in the Executive Chairman’s Report, since November 2008, the BrainZ business has been wound down with only a skeleton part-time staff remaining since February 2009, comprising the directors and Chief Financial Officer. In January 2009, Richard Smith departed as Chief Executive Officer with Dr Damian Pethica assuming the role of Executive Chairman.

BOARD COMPOSITION

The Board currently consists of an Executive Chairman and two Directors. The composition of the Board, its performance, and the independence of Directors are regularly reviewed to ensure the Board has the appropriate mix of independence, expertise and experience. Every year one third of the Directors must retire and are eligible for re-election. The usual term of appointment for non-executive Directors is 3 years.

It is the Board’s policy to determine the terms and conditions relating to the appointment and retirement of non-executive Directors on a case by case basis and in conformity with the requirements of the Listing Rules. The Board may also engage an external consultant where appropriate to identify and assess suitable candidates who meet the Board’s specifications.

The relevant skills, experience and expertise of each Board member are set out in the Director’s Report.

For the purposes of the proper performance of their duties, Directors are entitled to seek independent professional advice at the Company’s expense on prior approval of the Executive Chairman.

BOARD COMMITTEES

The Board has established the following committees to assist it in carrying out its responsibilities, to share detailed work and to consider certain issues and functions in detail:

• Nomination and Remuneration Committee

• Audit Committee

NOMINATION AND REMUNERATION COMMITTEE

The Nomination and Remuneration Committee must comprise at least three Directors, a majority of which are non-executive Directors. Currently the Committee members are Dr Pethica (Executive Chairman), Mr Aitchison and Dr Brown. The Committee operates under terms of reference approved by the Board.

The objective of the Nomination and Remuneration Committee is to help the Board achieve its objective to ensure the Company:

• has a Board of an effective composition, size and commitment

BRAINZ ANNUAL REPORT 2009 5

Corporate Governance Statement

• to adequately discharge its responsibilities and duties;

• has coherent remuneration policies and practices to attract and retain executives and Directors who will create value for the shareholders;

• observes those remuneration policies and practices; and

• fairly and responsibly rewards executives having regard to the performance of the Company, the performance of the executives and general pay environment.

The Nomination and Remuneration Committee is responsible for matters including identifying and recommending to the Board nominees for membership of the Board including the Chief Executive Officer and ensuring succession plans are in place to maintain an appropriate balance of skills on the Board and reviewing those plans.

In relation to remuneration, the Nomination and Remuneration Committee is responsible for matters including reviewing, approving and recommending to the Board for adoption executive remuneration and incentive policies and practices and annually considering, approving and recommending to the Board, both executive and nonexecutive Directors’ remuneration.

Under the Company constitution, the Board may not exercise the power conferred by section 161 of the New Zealand Companies Act 1993 to authorise payment of remuneration to non-executive Directors in their capacity as such, without prior approval of the Company shareholders by ordinary resolution. The approved monetary sum may be divided among the non-executive Directors as determined by the Board.

REMUNERATION

Non-executive Director fees are determined by the Board within the aggregate limit for Directors’ fees approved by shareholders. The current remuneration levels for Chairman is NZ$35,000 and for nonexecutive Directors is AU$20,000 per year. Directors and executives receive no retirement allowances. New Zealand Companies Act disclosures with regard to Directors’ fees and executives’ remuneration are set out in the Directors’ Report.

Remuneration of executives comprises base salary and an “at-risk” (bonus) component, the payment of which is dependent on individual, team and Company performance relative to targets. Executive performance and remuneration is reviewed formally each year.

Long-term incentive arrangements have been provided by participation in a share option plan to ensure key employees maintain a long-term interest in the growth and value of the Company.

AUDIT COMMITTEE

The Audit Committee must comprise at least three directors, a majority of which are non-executive Directors. Currently the members are Mr Aitchison (Chairman), Dr Pethica and Dr Brown. The Committee operates under terms of reference approved by the Board.

The principal functions of the Audit Committee include:

• helping the Board to achieve its objectives in relation to:

• financial reporting;

• the application of accounting policies;

• business policies and practices;

• legal and regulatory compliance; and

• internal control and risk management systems;

• promoting a culture of compliance; and

• ensuring effective external audit functions and communication between the Board and the external auditor.

The Audit Committee meets twice during the year in undertaking these tasks and meets separately with management and the external auditor where required. The Committee also seeks assurances from the Chief Financial Officer in respect of the accuracy and compliance of the Company’s annual and half-yearly financial statements.

CODE OF CONDUCT

The Company has adopted a code of conduct for Directors and senior executives. As well as the legal and equitable duties owed by the Directors and senior executives, the purpose of this code is to:

• articulate the high standards of integrity, ethical and law-abiding behaviour expected of Directors and senior executives;

• encourage the observance of those standards to protect and promote the interests of shareholders and other

• stakeholders (including employees, customers, suppliers and creditors); and

• set out the responsibility and accountability of Directors and senior executives to report and investigate any reported violations of this code or unethical or unlawful behaviour.

SECURITIES TRADING POLICY

The Company recognises the need for Directors and employees to observe the highest standards of behaviour and business ethics when engaging in corporate activity or share trading.

The Company’s share trading policy prohibits Directors, executives and employees from acquiring or disposing of securities unless this occurs during the one month period beginning at the close of trading on the day after the date on which the Company announces its half year or full year results to the ASX or the Company holds its annual general meeting and provided that person is not in possession of price sensitive information. Any trading in securities must be cleared and approved in writing by the relevant Company officer.

RIGHTS OF SHAREHOLDERS

The Board strives to communicate regularly and clearly with shareholders, the principal methods being through the Company’s annual and half-year reports and Company announcements posted on the Company’s website. Shareholders are encouraged to attend and participate at general meetings, which the Auditor is also invited to attend.

IDENTIFICATION AND MANAGEMENT OF SIGNIFICANT BUSINESS RISK

The Board has identified the significant areas of potential business and legal risk for the Company.

The identification, monitoring and where appropriate, the reduction of significant risk to the Company are monitored by the Board. The Board reviews and monitors the parameters under which such risks will be managed.

The Nomination and Remuneration and the Audit Committees also assist the Board in its monitoring of financial and operational risk.

NON-COMPLIANCE

The Company entered into and Asset Purchase Agreement with Natus Medical Inc for the sale of substantially all of the assets of BrainZ and the assumption by Natus of BrainZ’s obligations under its existing customer and supplier contracts. This transaction closed on 2 December 2008. Following this sale, the business of BrainZ has been wound down, with only skeleton part-time staff remaining since February 2009, comprising the directors and Chief Financial Officer.

6 BRAINZ ANNUAL REPORT 2009

Corporate Governance Statement

The Board is considering conducting a return of capital to shareholders towards the end of 2009 once the business has been fully wound down which may require the Company to be liquidated.

On the above basis, BrainZ does not comply with the following recommendations contained in the ‘Corporate Governance Principles and Recommendations’ (2nd edition) published by the ASX Corporate Governance Council:

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

The Board of BrainZ currently consists of two non-independent

• directors and one independent director as follows:

Non-Independent:

• Dr D Pethica Executive Chairman

• K J Aitchison Non-executive director

• Independent:

• Dr J Brown Non-executive director

• Recommendation 2.2 The Chairman should be an independent director and Recommendation 2.3 The roles of the Chairman and the Chief Executive Officer should not be exercised by the same individual.

On 13 January 2009, Dr D Pethica assumed the role of Executive Chairman and it is expected that Dr Pethica will manage the process of winding down the business and returning capital to shareholders towards the end of 2009.

• The Audit committee complies with two aspects of the recommendation 4.2, being that it is chaired by K J Aitchison who is not chair of the Board and comprises three directors - Mr Aitchison (Chairman), Dr Pethica and Dr Brown.

However the audit committee does not comply with

recommendation 4.2 as it does not consist of only non-executive

directors nor does it consist of a majority of independent directors. It is also chaired by a non independent Chairman.

BRAINZ ANNUAL REPORT 2009 7

Auditor’s Report

To the shareholders of BrainZ Instruments Limited,

We have audited the financial statements on pages 9 to 29. The financial statements provide information about the past financial performance and financial position of BrainZ Instruments Limited and Group as at 31 March 2009. This information is stated in accordance with the accounting policies set out on pages 15 to 17.

Board of Directors’ Responsibilities

The Board of Directors is responsible for the preparation, in accordance with New Zealand law and generally accepted accounting practice, of financial statements which give a true and fair view of the financial position of BrainZ Instruments Limited and Group as at 31 March 2009 and the results of operations and cash flows for the year ended on that date.

Auditors’ Responsibilities

It is our responsibility to express to you an independent opinion on the financial statements presented by the Board of Directors.

Basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:

• the significant estimates and judgements made by the Board of Directors in the preparation of the financial statements, and

• whether the accounting policies are appropriate to the Company and Group circumstances, consistently applied and adequately disclosed.

We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Realisation Basis

As described in the basis of preparation, as a result of events prior to balance date, it is no longer appropriate to adopt the going concern assumption in these financial statements. Accordingly as disclosed in the basis of preparation, the realisation (settlement) basis has been adopted and the financial statements have been prepared on the basis of expected net realisable and settlement values rather than the going concern basis.

Other than in our capacity as auditor and the provision of taxation advice, we have no relationship with or interests in BrainZ Instruments Limited or any of its subsidiaries.

Unqualified Opinion

We have obtained all the information and explanations we have required.

In our opinion:

• proper accounting records have been kept by BrainZ Instruments Limited as far as appears from our examination of those records; and

• the financial statements on pages 9 to 29:

• comply with generally accepted accounting practice in New Zealand;

• comply with International Financial Reporting Standards; and

• give a true and fair view of the financial position of BrainZ Instruments Limited and Group as at 31 March 2009 and the results of its operations and cash flows for the year ended on that date.

Our audit was completed on 29 July 2009 and our unqualified opinion is expressed as at that date.

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Chartered Accountants Auckland, New Zealand

8 BRAINZ ANNUAL REPORT 2009

Financial Statements

The Directors submit the Financial Statements, set out on pages 10 to 29, of BrainZ Instruments Limited and Group for the year ended 31 March 2009. Comparative figures are from the previous Financial Statements for the year ended 31 March 2008.

The Board of Directors of BrainZ Instruments Limited authorise these Financial Statements.

For and on behalf of the Board:

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Dr D Pethica K J Aitchison Executive Chairman Director 29 July 2009 29 July 2009

BRAINZ ANNUAL REPORT 2009 9

Income Statement

For the year ended 31 March 2009

		GROUP	GROUP	PARENT	PARENT
		MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NOTE	NZ$000	NZ$000	NZ$000		NZ$000
Revenue - sales		1,322	2,265	1,322		2,265
Cost of sales		(473)	(613)	(473)		(613)
Gross proft		849	1,652	849		1,652
Other income	1	198	477	198		477
Sales and marketing expenses		(1,835)	(2,154)	(1,469)		(2,259)
Research and development expenses		(1,080)	(2,580)	(1,080)		(2,580)
Administrative expenses		(906)	(1,105)	(866)		(1,105)
Net gain on sale of assets		419	-	419		-
Other expenses - impairment of intellectual property	14		(4,078)			(4,078)
		(3,204)	(9,440)	(2,798)		(9,545)
Foreign exchange gains/(losses)		614	(540)	614		(540)
Defcit before taxation	1	(1,741)	(8,328)	(1,335)		(8,433)
Income tax beneft/(expense)	2	7	(15)	(1)		(1)
Net defcit for the year		(1,734)	(8,343)	(1,336)		(8,434)
Basic and diluted defcit per share	3	$(0.03)	$(0.14)	$(0.02)		$(0.14)

These financial statements should be read in conjunction with the accompanying notes and statement of accounting policies.

10 BRAINZ ANNUAL REPORT 2009

Statement of Changes in Equity

For the year ended 31 March 2009

			SHARE OPTION	FOREIGN CURRENCY
	PAID-IN	CAPITAL	COMPENSATION	TRANSLATION	ACCUMULATED	TOTAL	INCOME
	CAPITAL	RESERVE	RESERVE	RESERVE	DEFICIT	EQUITY	(EXPENSE)
GROUP	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Shareholder's equity at 1 April 2007	25,623	(1,325)	333	(7)	(11,781)	12,843	-
Defcit for year ended 31 March 2008	-	-	-	-	(8,343)	(8,343)	(8,343)
Net income recognised directly in equity:
Translation of foreign subsidiaries	-	-	-	(12)	-	(12)	(12)
Total income and expense							(8,355)
Share option compensation expense	-	-	(7)	-	-	(7)
Shareholder's equity at 31 March 2008	25,623	(1,325)	326	(19)	(20,124)	4,481
Defcit for year ended 31 March 2009	-	-	-	-	(1,734)	(1,734)	(1,734)
Net income recognised directly in equity:
Translation of foreign subsidiaries	-	-	-	43	-	43	43
Total income and expense							(1,691)
Share option compensation reversed	-	-	28	-	-	28
Transferred to accumulated defcit	-	-	(354)	-	354	-
Shareholder's equity at 31 March 2009	25,623	(1,325)	-	24	(21,504)	2,818
PARENT
Shareholder's equity at 1 April 2007	25,623	(1,325)	333	-	(11,885)	12,746	-
Defcit for year ended 31 March 2008	-	-	-	-	(8,434)	(8,434)	(8,434)
Total income and expense							(8,434)
Share option compensation expense	-	-	(7)	-	-	(7)
Total recognised income and expenses
Shareholder's equity at 31 March 2008	25,623	(1,325)	326	-	(20,319)	4,305
Defcit for year ended 31 March 2009	-	-	-	-	(1,336)	(1,336)	(1,336)
Total income and expense							(1,336)
Share option compensation reversed	-	-	28	-	-	28
Transferred to accumulated defcit	-	-	(354)	-	354	-
Shareholder's equity at 31 March 2009	25,623	(1,325)	-	-	(21,301)	2,997

These financial statements should be read in conjunction with the accompanying notes and statement of accounting policies.

BRAINZ ANNUAL REPORT 2009 11

Balance Sheet

As at 31 March 2009

		GROUP	GROUP	PARENT	PARENT
		MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NOTE	NZ$000	NZ$000	NZ$000		NZ$000
Current assets
Cash and cash equivalents	7	2,631	3,462	2,620		3,405
Trade and other receivables	8	412	877	611		862
Inventories	9	-	221	-		221
Taxation receivable		26	67	-		67
		3,069	4,627	3,231		4,555
Non-current assets
Property, plant and equipment	10	-	267	-		245
Intangible assets	14	-	37	-		37
Investments	11,12	-	-	4		4
		-	304	4		286
Total assets		3,069	4,931	3,235		4,841
Current liabilities
Trade and other payables	15	251	437	238		536
Taxation payable		-	9	-		-
		251	446	238		536
Non-current liabilities
Deferred taxation	13	-	4	-		-
		-	4	-		-
Equity
Share capital	5	25,623	25,623	25,623		25,623
Other reserves	6	(1,301)	(1,018)	(1,325)		(999)
Accumulated defcit		(21,504)	(20,124)	(21,301)		(20,319)
		2,818	4,481	2,997		4,305
Total equity and liabilities		3,069	4,931	3,235		4,841
Net tangible assets		2,818	4,481	2,997		4,305
Net tangible assets per share		$0.05	$0.07	$0.05		$0.07

These financial statements should be read in conjunction with the accompanying notes and statement of accounting policies.

12 BRAINZ ANNUAL REPORT 2009

Cash Flow Statement

For the year ended 31 March 2009

		GROUP	GROUP	PARENT	PARENT
		MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NOTE	NZ$000	NZ$000	NZ$000		NZ$000
Cash fows from operating activities
Cash was provided from:
Receipts from customers		1,809	2,350	1,809		2,350
Receipts from grants		157	361	157		361
Interest received		81	244	81		244
Income tax refunded		35	144	4		144
		2,082	3,099	2,051		3,099
Cash was applied to:
Payments to suppliers and employees		(4,288)	(5,905)	(4,211)		(5,920)
Income tax paid		-	(97)	-		(66)
		(4,288)	(6,002)	(4,211)		(5,986)
Net cash outfow from operating activities		(2,206)	(2,903)	(2,160)		(2,887)
Cash fows from investing activities
Cash was provided from:
Sale of plant and equipment		11	1	11		1
Net proceeds from sale of business	24	887	-	887		-
		898	1	898		1
Cash was applied to:
Purchase of plant and equipment		(15)	(168)	(15)		(166)
Purchase of computer software		(2)	(3)	(2)		(3)
		(17)	(171)	(17)		(169)
Net cash infow/(outfow) from investing activities		881	(170)	881		(168)
Net decrease in cash held		(1,325)	(3,073)	(1,279)		(3,055)
Cash and cash equivalents at beginning of year		3,462	6,970	3,405		6,895
Effect of exchange rate fuctuations on cash held		494	(435)	494		(435)
Cash and cash equivalents at end of year		2,631	3,462	2,620		3,405

These financial statements should be read in conjunction with the accompanying notes and statement of accounting policies.

BRAINZ ANNUAL REPORT 2009 13

Cash Flow Statement

For the year ended 31 March 2009 continued.

Reconciliation of proft after tax to cash fows from operating activities	GROUP	GROUP	PARENT	PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Net defcit for the year	(1,734)	(8,343)	(1,336)		(8,434)
Add non-cash items:
Amortisation of intangible assets	39	693	39		693
Impairment of intellectual property	-	4,078	-		4,078
Depreciation	167	161	144		147
Movement in deferred taxation	(4)	(4)	-		-
Share option compensation expense	28	(7)	28		(7)
Unrealised foreign exchange losses	(455)	435	(499)		435
	(225)	5,356	(288)		5,346
Plus items classifed as investing activities:
Net gain on sale of non current assets	(787)	-	(787)		-
Loss on disposal of plant and equipment	7	4	9		4
Movement in working capital:
Increase/(decrease) in trade and other payables	(186)	(113)	(500)		(14)
Increase/(decrease) in taxation payable	(9)	(24)	-		-
Decrease/(increase) in trade and other receivables	466	108	454		102
Decrease/(increase) in inventories	221	31	221		31
Decrease/(increase) in taxation receivable	41	78	67		78
	533	80	242		197
Net cash outfow from operating activities	(2,206)	(2,903)	(2,160)		(2,887)

These financial statements should be read in conjunction with the accompanying notes and statement of accounting policies.

14 BRAINZ ANNUAL REPORT 2009

Statement of Accounting Policies

For the year ended 31 March 2009

A. REPORTING ENTITY

BrainZ Instruments Limited is a limited liability company incorporated and domiciled in New Zealand, registered under the Companies Act 1993 and listed on the Australian Stock Exchange (ASX code: BZI).

The consolidated financial statements of the BrainZ Instruments Group as at and for the year ended 31 March 2009 comprise the company and its subsidiaries, BrainZ Instruments USA Inc and BrainZ Instruments UK Limited, which are all designated as profit-orientated entities for financial reporting purposes.

BrainZ Instruments Limited was primarily involved in the design and manufacture of medical brain monitoring equipment. However the company sold its operating assets in November 2008 and consequently ceased trading as explained elsewhere in this report.

B. BASIS OF PREPARATION

The financial statements and Group financial statements have been prepared in accordance with the Financial Reporting Act 1993 and generally accepted accounting principles in New Zealand (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as appropriate for profit-oriented entities. The financial statements also comply with International Financial Reporting Standards (IFRS).

These financial statements are presented in New Zealand dollars ($), which is the Group’s functional currency. All financial information has been rounded to the nearest thousand.

Sale of business and going concern

BrainZ Instruments Limited sold its business assets to Natus Medical Incorporated on 27 November 2008 and effectively ceased trading from that date. These accounts have been prepared on the realisation basis rather than on a going concern basis which includes, where appropriate, writing down the Group’s assets to net realisable value. The specific accounting policies are outlined below.

Critical accounting estimates and judgements

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. There are no judgements or estimates made in the preparation of the financial statements.

C. BASIS OF CONSOLIDATION

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Intra-group balances, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Parent Company recognises investment in subsidaries at cost.

D. REVENUE RECOGNITION

Revenue is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership and it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Sale of goods

Sales revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be reliably measured.

Government grants

Government grants received are recognised in the income statement when requirements under the grant have been met. Grants that compensate the Group for expenses incurred are recognised in the income statement on a systematic basis in the same periods in which the costs are incurred.

Interest income

Interest income is recognised on a time-proportional basis using the effective interest method.

E. FOREIGN CURRENCIES

Transactions in foreign currency are translated to New Zealand dollars using the exchange rate at the date of the transactions. Foreign currency monetary assets and liabilities are translated at the rate existing at balance date, and exchange variations arising from these translations are recognised in the income statement.

On consolidation, the assets and liabilities of the overseas entities are translated at the exchange rate prevailing at balance date. The revenue and expense items are translated at the average monthly rate or a rate approximating that rate. Foreign currency differences are recognised in the foreign currency translation reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to the income statement.

F. RESEARCH AND DEVELOPMENT COSTS

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the income statement as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. All other development expenditure is recognised in the income statement as incurred.

G. TRADE AND OTHER RECEIVABLES

Trade and other payables are classified as financial liabilities and are stated at amortised cost.

H. TRADE AND OTHER PAYABLES

Trade and other payables are classified as financial liabilities and are stated at amortised cost.

I. GOODS AND SERVICE TAX

Revenue, expenses and assets are recognised net of the amount of goods and service tax (GST), except for receivables and payables which are recognised inclusive of GST.

J. LEASED ASSETS

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases.

BRAINZ ANNUAL REPORT 2009 15

Statement of Accounting Policies

For the year ended 31 March 2009

Other leases are operating leases and the leased assets are not recognised on the Group’s balance sheet.

Operating lease payments are recognised as an expense on a straight line basis over the lease term.

K. INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost is calculated on a weighted average basis and includes expenditure incurred in acquiring inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

L. TAXATION

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised to the extent it is probable that future taxable profits will be available against which a temporary difference or unused tax losses can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

M. PROPERTY, PLANT AND EQUIPMENT

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

N. DEPRECIATION

Depreciation is recognised in the income statement on a straightline basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are:

- Plant and equipment 3-5 years

Depreciation methods, useful lives and residual values are reassessed at the reporting dates.

O. INTANGIBLE ASSETS

Intellectual property

Intellectual property is recorded at cost less any accumulated impairment losses and amortised from the commencement of commercial production of the product to which it relates. Amortisation is calculated on a straight line basis over the period of expected benefits, which has been estimated at ten years.

Computer software

Computer software is recorded at cost less accumulated impairment losses and amortised over the period of expected benefits which has been estimated to be three years.

P. IMPAIRMENT

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any objective evidence of impairment.

An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses directly reduce the carrying amount of assets and are recognised in the income statement.

Q. SHORT-TERM EMPLOYEE BENEFITS

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid in respect of accrued holiday leave and the expense is recognised in the income statement.

R. SHARE-BASED PAYMENT TRANSACTIONS

The grant date fair value of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, on a straight line basis over the period in which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

S. SEGMENT REPORTING

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group’s primary format for segment reporting is based on geographical segments.

T. DETERMINATION OF FAIR VALUES

The Group’s accounting policies on share-based payments requires the determination of fair value. For all other financial assets and liabilities the carrying amount is a reasonable approximation of fair value.

Share-based payment transactions

The fair value of employee stock options is measured using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and risk-free interest rate (based on government bonds). Any service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

16 BRAINZ ANNUAL REPORT 2009

Statement of Accounting Policies

For the year ended 31 March 2009

U. CHANGES IN ACCOUNTING POLICIES

The accounting policies adopted have been applied consistently for the year ended 31 March 2009 and the comparative period.

V. STANDARDS AND INTERPRETATIONS ISSUED NOT YET ADOPTED

Relevant standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group:

• NZ IAS 1 (Amendment) Presentation of Financial Statements’ (effective for accounting periods beginning on or after 1 January 2009);

• NZ IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009);

• NZ IAS 27 (Revised) and Separate Financial

• Statements (effective for accounting periods beginning on or after 1 July 2009);

• NZ IFRS 3 (Revised) Business Combinations (effective for accounting periods beginning on or after 1 July 2009);

• NZ IFRS 7 Amendments to Financial Instruments: Disclosures (effective for accounting periods beginning on or after 1 January 2009);

• NZ IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009)

• NZ IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’ (effective for accounting periods on or after 1 October 2008);

• Omnibus amendments 2008;

• Improvements to New Zealand equivalent to International Financial Reporting Standards 2008.

The adoption of these standards is not expected to have a material effect in the financial statements of the Group.

BRAINZ ANNUAL REPORT 2009 17

Notes to the Financial Statements

For the year ended 31 March 2009

1. OPERATING EXPENSES AND OTHER INCOME

1. OPERATING EXPENSES AND OTHER INCOME
The defcit for the year is after charging the following expenses:	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Directors fees	110	256	110		256
Auditor's remuneration for auditing fnancial statements:
Deloitte	44	32	44		32
Other auditors	-	12	-		-
	44	44	44		32
Auditor's remuneration for other services:
Deloitte - tax services	24	36	24		36
Other auditors - tax and other services	44	5	-		-
	68	41	24		36
Personnel expenses
Wages and salaries	1,329	2,142	1,416		1,487
Share option compensation expense	28	(7)	28		(7)
	1,357	2,135	1,444		1,480
The net defcit for the year is after receiving the following income:
Other Income:
Grants	64	233	64		233
Consulting Services	53	-	53		-
Interest Received	81	244	81		244
	198	477	198		477

18 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

2. TAXATION

2. TAXATION
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Income tax expense
Defcit before taxation	(1,741)	(8,328)	(1,335)		(8,433)
Prima facie income tax credit on above (30%)	(522)	(2,748)	(401)		(2,782)
Permanent differences:
Tax effect of non-deductible expenditure	37	1	37		(1)
Effect of tax losses not recognised	611	1,552	489		1,552
Tax exempt income	(126)	-	(126)		-
Effect of timing differences not recognised	-	1,231	-		1,231
Difference in overseas tax rates	(7)	(20)	-		-
Overseas tax credits lost	-	(1)	-		(1)
Income tax expense	(7)	15	(1)		(1)
The income tax expense is represented by:
Current taxation payable	3	(11)	(1)		(1)
Deferred taxation payable	4	(4)	-		-
	7	(15)	(1)		(1)

	GROUP AND PARENT	GROUP AND PARENT
	MARCH 2009	MARCH 2008
	NZ$000	NZ$000
Taxation receivable - imputation credits
Opening imputation credits	67	145
Resident withholding tax paid	-	66
Resident withholding tax refunded	(67)	(144)
Closing imputation credits	-	67

Imputation credits are available to shareholders through the parent company.

3. NET DEFICIT PER SHARE

Net deficit per share is based upon the weighted average number of outstanding ordinary shares. The company’s potentially dilutive ordinary share options have not been included in determining the weighted average number of ordinary shares.

	GROUP	GROUP	PARENT	PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Net defcit for the year	(1,734)	(8,343)	(1,336)		(8,434)
Basic and diluted net defcit per share	($0.03)	($0.14)	($0.02)		($0.14)
Weighted average number of shares	60,000,000	60,000,000	60,000,000		60,000,000

4. DIVIDENDS

There were no dividends paid by the company during the year (2008: nil).

BRAINZ ANNUAL REPORT 2009 19

Notes to the Financial Statements

For the year ended 31 March 2009

5. SHARE CAPITAL

5. SHARE CAPITAL
	GROUP AND PARENT
	MARCH 2009	MARCH 2008
	NZ$000	NZ$000
Share capital - fully paid ordinary shares	25,623	25,623

The number of issued and paid-up shares as at 31 March 2009 was 60,000,000 (2008: 60,000,000). Subsequent to the decision to sell the company’s assets to Natus Medical Incorporated, one shareholder holding 14,883 shares who voted against that decision exercised their right to require the company to purchase their shares at the directors’ valuation of AUD$0.03 cents per share. These shares are held as Treasury Stock.

All ordinary shares have equal voting rights and share equally in dividends and surplus on winding up. Shares have no par value.

6. RESERVES

6. RESERVES
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Capital reserve	(1,325)	(1,325)	(1,325)		(1,325)
Share option compensation reserve	-	326	-		326
Foreign currency translation reserve	24	(19)	-		-
Total reserves	(1,301)	(1,018)	(1,325)		(999)

The capital reserve represents the cost of the shares issued on the Australian Stock Exchange on 14 December 2005.

7. CASH AND CASH EQUIVALENTS

7. CASH AND CASH EQUIVALENTS
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Cash at bank and in hand (non interest bearing)	15	78	4		21
Deposits at call	2,616	3,384	2,616		3,384
	2,631	3,462	2,620		3,405

The carrying amount for cash and cash equivalents equals their fair value.

The effective interest rate on deposits at call was between 0 - 1.75% (2008: 4.8%). The deposits were held on call (2008: 61 days).

8. TRADE AND OTHER RECEIVABLES

8. TRADE AND OTHER RECEIVABLES
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Trade receivables	-	572	-		572
Other receivables	412	99	408		96
Intercompany receivables	-	-	203		-
	412	671	611		668
Prepayments		206	-		194
	412	877	611		862

There is no provision for bad or doubtful debts.

20 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

8. TRADE AND OTHER RECEIVABLES (CONTINUED)

Impaired receivables

There are no trade receivables considered to be impaired at balance date and no impairment provision has been made. The company previously sold to its global distributor, GE Healthcare, and government institutions or private hospitals in its direct markets. There has been no history of default. The ageing analysis of trade receivables past due is as follows:

		GROUP AND PARENT	GROUP AND PARENT
		MARCH 2009	MARCH 2008
		NZ$000	NZ$000
Up	to 3 months	-	105
3-6	months	-	33
		-	138

The Group has not renegotiated the terms of any trade receivables which would result in the carrying amount no longer being past due or avoid a possible past due status.

Other receivables arise from amounts owing from Natus Medical, government grants and GST receivable. They do not contain impaired assets and are not past due. Based on the credit history of these items, it is expected that these amounts will be received when due. The amount due from Natus Medical has been received in May 2009.

Fair value

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

Credit and foreign exchange risk

A summarised analysis of the sensitivity of trade and other receivables to credit and foreign exchange risk can be found in Note 22.

9. INVENTORIES

9. INVENTORIES
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Raw material and components	-	74	-		74
Work in progress	-	16	-		16
Finished goods	-	131	-		131
	-	221	-		221

The carrying amount of inventories equals their fair value.

10. PROPERTY, PLANT AND EQUIPMENT

10. PROPERTY, PLANT AND EQUIPMENT
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Plant and equipment
Cost
Opening balance	801	656	750		601
Additions	15	168	15		166
Disposals	(816)	(17)	(765)		(17)
Effect of movements in exchange rates	4	(6)	-		-
Closing balance	4	801	-		750
Depreciation
Opening balance	534	387	505		370
Depreciation charge	167	161	23		147
Disposals	(701)	(12)	(528)		(12)
Effect of movements in exchange rates	4	(2)	-		-
Closing balance	4	534	-		505
Net carrying amount	-	267	-		245

BRAINZ ANNUAL REPORT 2009 21

Notes to the Financial Statements

For the year ended 31 March 2009

11. INVESTMENTS

11. INVESTMENTS
		GROUP		PARENT
		MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NOTE	NZ$000	NZ$000	NZ$000		NZ$000
Shares in subsidiaries	12	-	-	4		4

12. INVESTMENTS IN SUBSIDIARIES

12. INVESTMENTS IN SUBSIDIARIES
	PRINCIPAL	PERCENTAGE HELD BY		BALANCE	COUNTRY OF
	ACTIVITY	BRAINZ INSTRUMENTS LTD		DATE	INCORPORATION
		MARCH 2009	MARCH 2008
BrainZ Instruments USA Inc.	Product support	100%	100%	31 March	USA
BrainZ Instruments UK Limited	Product support	100%	100%	31 March	UK

The subsidiary companies will be wound up once all compliance matters have been completed.

13. DEFERRED TAXATION ASSETS AND LIABILITIES

13. DEFERRED TAXATION ASSETS AND LIABILITIES
Unrecognised deferred tax asset	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Deferred taxation has not been recognised in respect of the
following gross amounts:
Deductible temporary differences	364	5,008	364		5,008
Tax losses to date	16,252	9,053	16,252		9,053
	16,616	14,061	16,616		14,061

Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits. The future availability of tax losses is also dependent on the satisfaction of an income tax continuity of ownership test.

Recognised deferred taxation payable	GROUP	GROUP	PARENT	PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Opening deferred taxation payable	4	-	-		-
Recognised in the income statement	(4)	4	-		-
Closing deferred taxation payable	-	4	-		-

Deferred tax payable is attributable to plant and equipment timing difference in the overseas subsidiary, BrainZ Instruments USA, Inc.

22 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

14. INTANGIBLE ASSETS

14. INTANGIBLE ASSETS
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Computer software
Cost
Opening balance	166	163	166		163
Additions	2	3	2		3
Closing net book value	168	166	168		166
Amortisation
Opening balance	129	97	129		97
Amortisation	39	32	39		32
Closing balance	168	129	168		129
Intellectual property
Cost	6,612	6,612	6,612		6,612
Amortisation and impairment losses
Opening balance	1,873	1,873	1,873		1,488
Amortisation	661	661	661		385
Impairment loss	4,078	4,078	4,078		-
Closing balance	6,612	6,612	6,612		1,873
Net carrying amount
Computer software	-	37	-		37
Intellectual property	-		-
	-	37	-		37

Amortisation of computer software is included in the income statement under sales and marketing and research and development expenses.

The value of intellectual property that was held on the company balance sheet was written down at the end of the 2008 financial year. As a result of the more stringent impairment testing requirements under IFRS, for accounting purposes the company was unable to continue to hold these assets on the company balance sheet.

The impairment loss was recognised in the income statement for the year ended 31 March 2008.

BRAINZ ANNUAL REPORT 2009 23

Notes to the Financial Statements

For the year ended 31 March 2009

15. TRADE AND OTHER PAYABLES

15. TRADE AND OTHER PAYABLES
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Current
Trade payables	-	79	-		73
Other payables	251	279	238		231
Related party payables	-	-	-		-
Intercompany payables	-	-	-		153
	251	358	238		457
Provisions - annual leave	-	79	-		79
	251	437	238		536

The carrying value of trade and other payable is equal to their fair value.

Other payables includes amounts owing to Natus Medical which were settled in May 2009.

16. OPERATING LEASES

16. OPERATING LEASES
	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Future lease commitments under non-cancellable operating leases:
Less than one year	-	76	-		25
Between one and two years	-	-	-		-
	-	76	-		25
Expense recognised in income statement
Operating lease costs	47	120	47		51

17. CAPITAL COMMITMENTS

There Group and parent had no capital commitments outstanding at balance date (2008: nil).

18. CONTINGENT LIABILITIES

There are no other contingent liabilities that have not already been disclosed in the accounts (2008: $42,000).

24 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

19. SEGMENT RESULTS

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

	US	STH AFRICA	AUSTRALASIA	OTHER
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Year ended March 2009
Revenue	906	82	159	175	1,322
Segment result	(287)	65	137	(900)	(985)
Other income					198
Unallocated expenses					(1,568)
Foreign exchange gains					614
Income tax					7
Net defcit for the year					(1,734)
	US	STH AFRICA	AUSTRALASIA	OTHER	UNALLOCATED
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
March 2009
Segment assets	33	-	-	7	3,029
Segment liabilities	(11)	-	-	-	(240)
	US	STH AFRICA	AUSTRALASIA	OTHER
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Year ended March 2008
Revenue	1,507	374	274	110	2,265
Segment result	134	171	185	73	563
Other income					477
Unallocated expenses					(8,828)
Foreign exchange losses					(540)
Income tax					(15)
Net defcit for the year					(8,343)
	US	STH AFRICA	AUSTRALASIA	OTHER	UNALLOCATED
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
March 2008
Segment assets	431	263	86	-	4,152
Segment liabilities	(68)	(14)	-	-	(368)

20. EVENTS AFTER BALANCE DATE

No significant events have occurred after balance date which require disclosure.

BRAINZ ANNUAL REPORT 2009 25

Notes to the Financial Statements

For the year ended 31 March 2009

21. RELATED PARTY TRANSACTIONS

The Company is 56.67% owned by Tru-Test Limited and as such the transactions with Tru-Test Group companies are related party transactions.

Transactions during the year with Tru-Test Limited	GROUP
	MARCH 2009	MARCH 2008
	NZ$000	NZ$000
Expenses paid
Lease costs	47	51
Management services	6	188
Manufacturing and design services	1	62
Director's fees	-	33

The Company was a tenant under an unregistered sublease of premises situated at 25 Carbine Road, Mt Wellington, New Zealand. The lease payments ceased in February 2009. Under an annual management services agreement, Tru-Test Limited provides company secretarial, accounting, administration, information, operations and distribution services. The services are provided to the Company at specified monthly rates. Tru-Test Limited stopped charging for services provided in April 2008.

Director’s fees have been paid to Tru-Test Limited for its representative on the Company Board during the year. Tru-Test Limited stopped charging for Director’s fees in February 2008.

During the year the Company paid JT Campbell $413,000 as a success fee on the sale of the business to Natus Medical. Dr Damian Pethica had previously advised the board that he was an interested party to this transaction and would receive 30% of any success fee paid to JT Campbell. Dr Damian Pethica was a consultant with JT Campbell at the time BrainZ entered into the agreement with them.

Balances at end of year with Tru-Test Limited			GROUP	GROUP
			MARCH 2009		MARCH 2008
			NZ$000		NZ$000
Related party payables			-		20
Key management personnel compensation	GROUP		PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Short-term employee benefts	548	714	65		432
Share-based compensation expense	-	20	-		(12)
	548	734	65		420

Ultimate parent company

The ultimate parent company of BrainZ Instruments Limited is Tru-Test Corporation Limited.

22. FINANCIAL INSTRUMENTS

Exposure to credit, foreign currency, interest rate and liquidity risks arises in the normal course of the Group’s business.

Credit risk

Credit risk is the risk that the counter party to a transaction with the Group will fail to discharge its obligations, causing the Group to incur a financial loss. The Group is primarily exposed to credit risk through its bank balances and trade and other receivables.

Risk control assesses the credit quality of the customer, taking into account three trade references, its financial position, past experience and other factors. The utilisation of credit limits for customers is regularly reviewed by the Chief Financial Officer. Where appropriate, personal guarantees are obtained from customers.

The carrying amount of financial assets represents the Group’s maximum credit exposure.

	GROUP	GROUP	PARENT	PARENT
	MARCH 2009	MARCH 2008	MARCH 2009		MARCH 2008
	NZ$000	NZ$000	NZ$000		NZ$000
Bank balances	2,631	3,462	2,620		3,405
Trade and other receivables	412	671	611		668

The majority of sales are to the Group’s international distributor, GE Healthcare, for which the credit risk is considered to be minimal. The Group performs credit evaluations on other direct customers requiring credit and does not require collateral as those customers are government and private hospitals.

Other receivables at March 2009 included monies due from Natus Medical which were received in May 2009.

26 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

22. FINANCIAL INSTRUMENTS (CONTINUED)

The maximum exposure to credit risk for trade and other receivables by geographical region is as follows:

The maximum exposure to credit risk for trade and other receivables by geographical region is as follows:
GROUP
MARCH 2009	MARCH 2008
NZ$000	NZ$000
New Zealand -	99
Australia -	73
South Africa -	236
Europe -	-
United States 3	263
3	671

Categories of fnancial assets and liabilities	GROUP	GROUP		GROUP	GROUP
	LOANS AND RECEIVABLES			FINANCIAL	LIABILITIES
	MARCH 2009	MARCH	2008	MARCH 2009	MARCH	2008
	NZ$000	NZ$000		NZ$000	NZ$000
Assets
Cash and cash equivalents	2,631	3,462
Trade and other receivables	412		671
Liabilities
Trade and other payables at amortised cost				251		358

Foreign currency risk

The Group is exposed to foreign currency risk on sales, imported purchases and deposits that are denominated in a currency other than the parent’s functional currency, New Zealand dollars (NZD) which is the presentation currency of the Group. The currencies in which transactions are primarily denominated are Australian dollars (AUD), US dollars (USD), Euros (EUR), UK pounds (GBP) and South African rand (ZAR).

In respect of monetary assets and liabilities held in currencies other than New Zealand dollars, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling currencies at spot rates where necessary to address short term imbalances.

The Group’s exposure to foreign currency can be summarised as follows:

			MARCH 2009
	USD	AUD	EUR	GBP	ZAR
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Cash and cash equivalents	459	1,262	-	832	-
Trade and other receivables	3	-	-	-	-
Trade and other payables	(11)	-	-	-	-
Net balance sheet exposure	451	1,262	-	832	-
			MARCH 2008
	USD	AUD	EUR	GBP	ZAR
	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Cash and cash equivalents	2,210	22	75	1,089	-
Trade and other receivables	260	75	-	3	236
Trade and other payables	(55)	(56)	(19)	(19)	(14)
Net balance sheet exposure	2,415	41	56	1,073	222

A weakening of the NZD by 10% would have the effect of increasing net assets and decreasing foreign exchange losses by $254,000 (2008: $423,000). A strengthening of the NZD by 10% would have the effect of decreasing net assets and increasing foreign exchange losses by $254,000 (2007: $346,000).

BRAINZ ANNUAL REPORT 2009 27

Notes to the Financial Statements

For the year ended 31 March 2009

22. FINANCIAL INSTRUMENTS (CONTINUED)

Interest rate risk

Interest rate risk is the risk that the value of the Group’s assets and liabilities will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk through its cash balances. The Group has a policy of investing surplus cash up to a maximum of 90 days.

A increase in the interest rate received by 1% per annum would have the effect of increasing interest income by $26,000 (2008: $51,000). A decrease in the interest rate received by 1% per annum would have the effect of decreasing interest income by $26,000 (2008: $51,000).

Liquidity risk

Liquidity risk represents the Group’s ability to meet its contractual obligations. The Group evaluates its liquidity on an ongoing basis. In general the Group generates sufficient cashflows to meet its obligations arising from its financial liabilities.

The Group has cash balances of $2.6 million (2008: $3.5 million). There are no external borrowings (2008: nil).

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to realise the maximim return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy is consistent with 2008 although the entity is no longer operating due to the sale of the business.

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Parent Company, comprising issued capital, reserves and accumulated deficit as disclosed in Notes 5, 6 and 7.

23. SHARE-BASED PAYMENTS

Share option plan

Following the decision to dispose of the substantially all of the assets of the Company to Natus Medical all employment contracts were terminated. Ongoing employment was a precondition of the vesting of options and therefore all options have lapsed.

GROUP AND PARENT	GROUP AND PARENT
MARCH 2009	MARCH 2008
000’s	000’s
Outstanding options at beginning of year 4,403	6,144
Granted during the year -	-
Forfeited during the year (4,403)	(1,281)
Outstanding options at end of year -	4,863
Options exercisable at end of year -	4,403

The net share option expense for the year is recognised in the income statement under:	GROUP AND PARENT	GROUP AND PARENT
	MARCH 2009	MARCH 2008
	NZ$000	NZ$000
Sales and marketing expenses	1	4
Research and development expenses	25	32
Administrative expenses	2	(43)
	28	(7)

28 BRAINZ ANNUAL REPORT 2009

Notes to the Financial Statements

For the year ended 31 March 2009

24. PROCEEDS ON SALE OF BUSINESS

In October 2008 BrainZ entered into an Asset Purchase Agreement with Natus Medical to sell substantially all of its assets to Natus for NZ$1.3 million. A special meeting of BrainZ shareholders was held on 5 November 2008, approving the transaction. Under this agreement Natus took ownership of the assets and assumed BrainZ’s obligations under its then existing customer and supplier contacts. The Asset Purchase Agreement closed on 2 December 2008 with some transitional services being provided to Natus and the majority of BrainZ employees completing their notice periods around the end of January 2009. The final monies outstanding from Natus under the Asset Purchase Agreement were collected by BrainZ in May 2009.

Assets and liabilities at the date of sale	AMOUNT
	NZ$000
Current assets
Trade receivables	119
Inventories	281
	400
Non-current assets
Property, plant and equipment	100
Goodwill	782
Intellectual property	50
	932
Current liabilities
Payables	32
Net assets disposed of	1,300
Less transaction fee	(413)
Net proceeds received	887

BRAINZ ANNUAL REPORT 2009 29

Additional Information

Equity Securities Held by Directors as at 30 June 2009

Equity Securities Held by Directors as at 30 June 2009
	INTERESTS IN ORDINARY SHARES
DIRECTOR	DIRECT	INDIRECT*
K J Aitchison	-	3,548,672
Dr J Brown	-	-
Dr J Pethica	-	-

*The shares are held either directly or indirectly through an interest in Tru-Test Corporation Limited shares.

SHAREHOLDING

Each ordinary share is entitled to one vote when a poll is called, otherwise on a show of hands at a general meeting every member present in person or by proxy has one vote.

The number of ordinary shareholdings held in less than marketable parcels at 30 June 2009 was 289, holding 3,198,063 ordinary shares.

The following information is presented based on share registry information processed up to 30 June 2009.

Distribution of Shareholders		NUMBER OF
	NUMBER OF	ORDINARY
ANALYSIS OF NUMBERS OF ORDINARY SHARES BY SIZE OF HOLDING:	SHAREHOLDERS	SHARES
1 - 1,000	14	12,510
1,001 - 5,000	78	279,069
5,001 - 10,000	100	907,924
10,001 - 100,000	169	6,029,251
100,001 and over	41	52,771,246
	402	60,000,000

Distribution of Optionholders

Distribution of Optionholders
	NUMBER OF	NUMBER OF
ANALYSIS OF NUMBERS OF OPTIONS BY SIZE OF HOLDING:	OPTIONHOLDERS	OPTIONS
1 - 1,000	-		-
1,001 - 5,000	-		-
5,001 - 10,000	-		-
10,001 - 100,000	-		-
100,001 and over	-		-
	-		-

Substantial Security Holders who have notified the Company as at 30 June 2009

Substantial Security Holders who have notifed the Company as at 30	June 2009
	NUMBER OF
	ORDINARY SHARES
Tru-Test Limited	34,000,000

Securities Subject to Escrow as at 30 June 2009
	NUMBER OF	NUMBER OF
	ORDINARY SHARES	OPTIONS
There are no shares or options subject to escrow.	-	-

30 BRAINZ ANNUAL REPORT 2009

Additional Information

Twenty Largest Holders of fully paid ordinary shares as at 30 June 2009

Twenty Largest Holders of fully paid ordinary shares as at 30 June 2009
	NUMBER OF	%
	ORDINARY SHARES	HOLDING
Tru-Test Limited	34,000,000	56.67
First Charnock Pty Limited	2,150,000	3.58
JT Campbell & Co Private Equity Pty Limited	1,451,643	2.42
Octavium Asset Management Pty Ltd	1,281,428	2.14
SHR Pty Limited	1,258,338	2.10
Bell Potter Nominees Limited	1,182,488	1.97
Electric Eel Pty Limited	1,023,188	1.71
Snowdon Peak Investments Limited	900,000	1.50
De Simone Nominees Pty Limited	800,000	1.33
Mr Andrew Kroger	718,366	1.20
First Charnock Nominees Pty Limited	658,500	1.10
Bushy Lane Projects Pty Limited	603,708	1.01
Mr James Vincent Chester Guest	580,000	0.97
Mr Andrew Simon Opat & Ms Fiona Maria Symons	494,500	0.82
Peter Francis Menzies, Peter James Mahoney & Mary Anne Mahoney	400,000	0.67
Mr Robert Boyd Thomas & Mrs Judy Barbara Thomas	350,000	0.58
ASB Nominees Limited <206976 ML A/C>	330,000	0.55
Mr Simon John Spinks	290,000	0.48
Titan Capital Limited	290,000	0.48
TBT Nominees Pty Limited	286,000	0.48
	49,048,159	81.76

Australian Stock Exchange Disclosures

BrainZ Instruments Limited is incorporated in New Zealand under the Companies Act 1993.

The Company is not subject to chapters 6, 6A, 6B and 6C of the Corporations Act 2001, Australia, dealing with the acquisition of shares (such as substantial holdings and takeovers).

Limitations on the acquisition of shares are imposed by the following New Zealand legislation: Companies Act 1993, Securities Act 1978, Securities Amendment Act 1988, Takeovers Act 1993, Overseas Investment Act 1973, Commerce Act 1986 and various regulations and codes promulgated under such Acts.

BRAINZ ANNUAL REPORT 2009 31

Directory

DIRECTORS

Dr D Pethica (Executive Chairman) K J Aitchison Dr J Brown

COMPANY SECRETARY

I R Hadwin

AUDITORS

Deloitte

8 Nelson Street Auckland New Zealand

REGISTERED OFFICE

25 Carbine Road Mt Wellington Auckland 1060 New Zealand PO Box 51078 Pakuranga Manukau 2140 New Zealand Telephone: +64 9 574 8896 Facsimile: +64 9 574 8889 Internet: www.brainzinstrumentsltd.com

SHARE REGISTRY

SOLICITORS

Minter Ellison Rudd Watts

125 Queen Street Auckland New Zealand

Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford, Victoria 3067 Australia

Minter Ellison

525 Collins Street Melbourne Australia

Russell McVeagh 48 Shortland Street Auckland New Zealand

BANKER

ASB Bank Limited 135 Albert Street Auckland New Zealand

PRINCIPAL OFFICE IN AUSTRALIA

2/2b Birmingham Avenue Villawood, New South Wales 2163 Australia

LOCAL AGENT OF THE COMPANY IN AUSTRALIA

Oakhill Hamilton Pty Limited 35 Hamilton Street Riverview, New South Wales 2066 Australia

STOCK EXCHANGE LISTING

Australian Stock Exchange Limited ASX Code: BZI

COMPANY

BrainZ Instruments Limited ARBN 116 829 675