MACRO METALS LIMITED — Annual Report 2005

Sep 12, 2005

Brainytoys Limited ABN 28 001 894 033

ASX Appendix 4E - Preliminary Final Report Year Ended 30 June 2005

Lodged with ASX in accordance with Listing Rule 4.3A

Contents

Results for announcement to the market	2
Preliminary consolidated statement of financial performance	3.
Preliminary consolidated statement of financial position	4
Preliminary consolidated statement of cash flows	5.
Notes to Preliminary consolidated financial statements	6
Other Appendix 4E information	19

Brainytoys Limited

Year Ended 30 June 2005

(Previous corresponding period: year ended 30 June 2005)

Results for announcement to the market

Revenue from ordinary activities	Up	1387%	to	127,441
Profit/(loss) for ordinary activities after tax attributable to members	down	1176%	to	(740, 305)
Net profit/(loss) for the period attributable to members	down	1176%	to	(740,305)

Dividends	Amount of security	Franked amount per security
Final dividend	Νil	Nii
l Interim dividend.	Nil	Nii

Record Date for determining entitlements to dividend	N/A

Commentary on results

The Company changed its operations from the previous corresponding period.

In October 2004, the Company acquired 100% of Brainytoys.com Pty Ltd and raised \$1,010,000 in capital to assist with the transaction.

In March 2005, the Company completed a capital raising of \$1,750,000 and was re-quoted on the Australian Stock Exchange.

Revenue from ordinary activities is attributed to interest income of \$40,814 and a forgiveness of debt of \$86.627.

Expenses for the Company for the year are attributed to the development of toy and toy related products.

The Company acquired 3D printing technology in April 2005. This investment has assisted the Company in developing prototypes in a very timely manner.

The Company has cash reserves at 30 June 2005 of \$1,399,477.

Preliminary Statement of Financial Performance
For the year ended 30 June 2005

	Note Economic Entity Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
Revenue from Ordinary Activities	2	127,441	8,570	40,814	8,570
Accounting and Audit Fees		(29, 638)	(22, 386)	(29, 638)	(22, 386)
Borrowing Costs		(796)		(796)
Consultancy Fees		(134, 114)	(15, 962)	(134, 114)	(15, 962)
Share registry and Listing Fees		(38, 547)	(23, 167)	(38, 547)	(23, 167)
Legal Costs		(4, 173)	(2,377)	(4, 173)	(2, 377)
People Costs		(339, 294)		(314, 294)
Computers and Software		(55,067)		(55,067)
Rent		(19, 848)		(19, 848)
Printing and Stationery		(19, 784)		(19, 784)
Depreciation		(16, 875)		(16, 875)
Amortisation		(75, 795)
Travel and Accommodation		(61, 232)		(61, 232)
Other expenses from ordinary activities		(72, 583)	(2,714)	(71, 296)	(2,714)
(Loss)/Profit from ordinary activities before income tax expense	3	(740, 305)	(58,036)	(724, 851)	(58,036)
Income tax expense	4		u.
Net (Loss)/Profit		(740, 305)	(58,036)	(724, 851)	(58,036)
Basic earnings per share (cents per share)	5	(4.5)	(0.44)
Diluted earnings per share (cents per share)	5	(3.6)	(0.44)

The accompanying notes form part of these financial statements.

Preliminary Statement of Financial Position
As at 30 June 2005

	Note	Economic Entity		Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
CURRENT ASSETS
Cash at Bank	6	1,399,477	137,471	1,399,477	137,471
Receivables	7	40,550	1,163	40,550	1,163
Other financial assets	8	40,000	40,000	40,000	40,000
TOTAL CURRENT ASSETS		1,480,027	178,634	1,480,027	178,634
NON-CURRENT ASSETS
Property, plant and equipment	9	220,083		218,512
Patents and Trademarks	10	7,494		7,494
Intellectual Property	11	2,198,066
Investments	12			2,187,821
Receivables	13			25,000
Goodwill on Consolidation	14
TOTAL NON-CURRENT ASSETS		2,425,643	u	2,438,827
TOTAL ASSETS		3,905,670	178,634	3,918,854	178,634
CURRENT LIABILITIES
Payables	15	22,525	7,834	22,525	7,834
Provisions	16	21,997		19,727
TOTAL CURRENT LIABILITIES		44,522	7,834	42,252	7,834
TOTAL LIABILITIES		44,522	7,834	42,252	7,834
NET ASSETS		3,861,148	170,800	3,876,602	170,800
EQUITY
Contributed equity	17	8,101,864	3,671,211	8,101,864	3,671,211
Reserves	18	714,554	714,554	714,554	714,554
Accumulated Losses	19	(4,955,270)	(4,214,965)	(4,939,816)	(4,214,965)
TOTAL EQUITY		3,861,148	170,800	3,876,602	170,800

The accompanying notes form part of these financial statements.

APPENDIX 4E - PRELIMINARY FINAL REPORT

Preliminary Statement of Cash Flows
As at 30 June 2005

	Note
			Economic Entity		Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
CASH FLOWS FROM OPERATING ACTIVITIES
Payments to suppliers and employees		(777, 775)	(70, 946)	(778, 758)	(70, 946)
Interest received		40,814	7,569	40,814	7,569
Net cash provided by (used in) operating activities	21a	(736, 961)	(63, 377)	(737, 944)	(63, 377)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(236, 370)		(235, 387)
Purchase of Intellectual Property		(109, 232)
Purchase of other non-current assets		(7, 494)		(7, 494)
Proceeds from Sale of shares			1,001		1,001
Payment for subsidiary (net of cash)			u	(109, 232)
Net cash provided by (used in) investing activities		(353,096)	1.001	(352, 113)	1.001
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares net of cost		2,352,063		2,352,063
Net cash provided by (used in) financing activities		2,352,063		2,352,063
Net increase in cash held		1,262,006	(62, 376)	1,262,006	(62, 376)
Cash at 1 July 2004		137,471	199,847	137,471	199,847
Cash at 30 June 2005	6	1,399,477	137,471	1,399,477	137,471

The accompanying notes form part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers the economic entity of Brainytoys Ltd and controlled entities. Brainytoys Limited is a listed public company, incorporated and domiciled in Australia.

The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Principles of Consolidation $(a)$

A controlled entity is any entity controlled by Brainytoys Limited. Control exists where Brainytoys Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Brainytovs Limited to achieve the objectives of Brainytovs Limited A list of controlled entities is contained in Note 19 to the financial statements.

All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation.

Where controlled entities have entered or left the economic entity during the year, their operating results have been included from the date control was obtained or until the date control ceased.

(b) Income Tax

The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences that arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit.

The amount of benefits brought to account, or which may be realised in the future, is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(c) Property, Plant, and Equipment

Each class of property, plant, and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.

Plant and equipment

Plant and equipment are measured on the cost basis.

The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs, and an appropriate proportion of fixed and variable overheads.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Depreciation

The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Properties held for investment purposes are not subject to depreciation. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset	Depreciation Rate
Plant and equipment	20-33%

(d) Intangibles

i. Patents and Trademarks

Patents and Trademarks are valued in the accounts at cost of acquisition and are amortised over the period in which their benefits are expected to be realised.

(e) Employee Benefits

Provision is made for the Company's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, annual leave, and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related oncosts. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

Contributions are made by the economic entity to employee superannuation funds and are charged as expenses when incurred.

Cash $(f)$

For the purpose of the statement of cash flows, cash includes:

$-$ cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts.

(g) Revenue

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

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

(h) Goods and Services Tax (GST)

Revenues, expenses, and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST.

$(i)$ Comparative Figures

Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

Impact of Adoption of Australian Equivalents to International Financial Reporting Standards $\ddot{\mathbf{u}}$

The Company is preparing and managing the transition to Australian Equivalents to International Financial Reporting Standards (AIFRS) effective for the financial years commencing from 1 January 2005. The adoption of AIFRS will be reflected in the economic entity's and the parent entity's financial statements for the year ending 30 June 2006. On first time adoption of AIFRS, comparatives for the financial year ended 30 June 2005 are required to be restated. The majority of the AIFRS transitional adjustments will be made retrospectively against retained earnings at 1 July 2004.

The economic entity's management, with the assistance of external consultants, has assessed the significance of the expected changes and is preparing for their implementation. The impact of the alternative treatments and elections under AASB 1: First Time Adoption of Australian Equivalents to International Financial Reporting Standards has been considered where applicable.

The Directors are of the opinion that the key material differences in the economic entity's accounting policies on conversion to AIFRS and the financial effect of these differences, where known, are as follows. Users of the financial statements should note, however, that the amounts disclosed could change if there are any amendments by standard-setters to the current AIFRS or interpretation of the AIFRS requirements changes from the continuing work of the economic entity's AIFRS committee.

i. Impairment of Assets

Under AASB 136: Impairment of Assets, the recoverable amount of an asset is determined as the higher of fair value less costs to sell, and value in use. In determining value in use, projected future cash flows are discounted using a risk adjusted pre-tax discount rate and impairment is assessed for the individual asset or at the 'cash generating unit' level. A 'cash generating unit' is determined as the smallest group of assets that generates cash flows that are largely independent of the cash inflows from other assets or groups of assets. The current policy is to determine the recoverable amount of an asset on the basis of undiscounted net cash flows that will be received from the asset's use and subsequent disposal. It is likely that this change in accounting policy will lead to impairments being recognised more often.

The economic entity has reassessed its impairment testing policy and tested all assets for impairment as at 1 July 2005. There are no adjustments to Net Profit required.

ii. Income Tax

Currently, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under AASB 112: Income Taxes, the entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit.

The economic entity has determined that there are no adjustments to Net Profit required.

iii Capital Profits Reserve

Currently, the economic entity treats amounts realised from the sale of the company's assets from prior years as a capital profit reserve. From July1 2005, the amounts realised from the sale of the company's assets from prior years will be affect the retained earning/accumulated losses accounts.

iv Share based payments - AASB2

Currently, the economic entity operates a shareholder approved Employee Share Option Plan. The economic entity will be required to recognise an expense, over the vesting period, for options issued in its Statement of Financial Performance. The standard applies to all share based payments after 7 November 2002 which have not vested as at 1 January 2005. This treatment will result in an increase in expenses in the Statement of Financial Performance. No tax deduction will be allowed for the amount expensed. There were no options granted under the Employee Share Option Plan during the financial year, however there were options granted to Directors and Company Secretary as approved by shareholders. The adjustment to be made is a reduction in Net Profit of \$4,400.

	NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
	NOTE 2: REVENUE	Note		Economic Entity	Parent Entity
			2005 \$	2004 \$	2005 \$	2004 \$
	Operating activities
	Forgiveness of debt	2a	86,627
	Interest received	2 b	40,814	8,570	40,814	8,570
	Total Revenue		127,441	8,570	40,814	8,570
(a)	Forgiveness of Debt:
	Loans from related parties of Brainytoys.com Pty Ltd were forgiven as part of the acquisition of Brainytoys.com		86,627
(b)	Interest revenue from:
	Financial Institutions		40,814	8,570	40,814	8,570
	NOTE 3: PROFIT FROM ORDINARY ACTIVITIES
	Profit from ordinary activities before income tax		(740, 305)	(58,036)	(724, 851)	(58,036)
(a)	Expenses
	Depreciation of non-current assets:
	plant and equipment		16,875		16,875
	Total depreciation		16,875		16,875
	Amortisation of non-current assets:
	Intellectual property		75,795
	Total amortisation		75,795
	Rental expense on operating leases		19,848		19,848
(b)	Significant Revenues and Expenses
	The following significant revenue and expense items are relevant in explaining the financial performance:
	People Costs		339,294		314,294
	Consultancy		134,114	15,962	134,114	15,962
	Computers and Software		55,067		55,067
	Share Registry and Listing Fees		38,547	23,167	38,547	23,167

	NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
	NOTE 4: INCOME TAX EXPENSE		Economic Entity		Parent Entity
		2005	2004	2005	2004
		\$	\$	\$	\$
(a)	The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows:
	Prima facie tax payable on profit from ordinary activities before income tax at 30% (2004: 30%)
	economic entity	(222,091)	(17, 411)
	parent entity			(217, 455)	(17, 411)
Add:
	Tax effect of:
	other non-allowable items
	Under provision for income tax in prior year	(222,091)	(17, 411)	(217, 455)	(17, 411)
Less:
	Tax effect of:
	Capital profits not subject to income tax
	Losses not brought to account	(222,091)	(17, 411)	(217, 455)	(17, 411)
(b)	Future income tax benefits in respect of tax losses have not been brought to account. These benefits will only be realised if the conditions for deductibility set out in Note 1 occur.

	NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
	NOTE 5: EARNINGS PER SHARE		Economic Entity
		2005	2004
(a)	Reconciliation of earnings to net profit or loss
	Net profit	(740, 305)	(58,036)
	Earnings used in the calculation of basic EPS	(740, 305)	(58,036)
	Earnings used in the calculation of dilutive EPS	(740, 305)	(58,036)
(b)	Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS	16,600,108	2,614,800
	Weighted average number of options outstanding	3,766,481
	Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS	20,366,590	2,614,800
(c)	Classification of securities
	The following securities have been classified as potential ordinary shares and are included in determination of dilutive EPS:
	antiana autotanadina.

$\longrightarrow$ options outstanding

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
NOTE 6: CASH ASSETS	Note		Economic Entity		Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
Cash at bank		1,399,477	137,471	1,399,477	137,471
		1,399,477	137,471	1,399,477	137,471
Reconciliation of Cash
Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in the statement of financial position as follows:
Cash		1,399,477	137,471	1,399,477	137,471
		1,399,477	137,471	1,399,477	137,471
NOTE 7: RECEIVABLES
CURRENT
GST Receivable		31,916	1,001	31,916	1,001
Deposits and Prepaids		8,634		8,634
		40,550	1,001	40,550	1,001
NOTE 8: OTHER FINANCIAL ASSETS
CURRENT
Investment in Listed Securities at Cost		40,000	40,000	40,000	40,000

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
NOTE 9: PROPERTY, PLANT AND EQUIPMENT	Economic Entity			Parent Entity
	2005 \$	2004 \$	2005 \$	2004 \$
PLANT AND EQUIPMENT
NON-CURRENT
Plant and equipment
At cost	237,973	$\blacksquare$	235,387
Accumulated depreciation	(17, 890)	$\blacksquare$	(16, 875)
Total Property, Plant and Equipment	220,083		218,512

(a) Movements in Carrying Amounts

Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the current financial year

	Plant and Equipment	Total
Economic Entity:
Balance at the beginning of year
Additions	235,387	235,387
Disposals
Additions through acquisition of entity	1,571	1,571
Revaluation increments/ (decrements)
Depreciation expense	(16, 875)	(16, 875)
Carrying amount at the end of year	220,083	220,083
Parent Entity:
Balance at the beginning of year
Additions	235,387	235,387
Disposals
Revaluation increments/ (decrements)
Depreciation expense	(16, 875)	(16, 875)
Carrying amount at the end of year	218,512	218,512

APPENDIX 4E - PRELIMINARY FINAL REPORT

NOTE 10: PATENTS AND TRADEMARKS	Economic Entity		Parent Entity
	2005 \$	2004 \$	2005 \$	2004 \$
NON-CURRENT
Patents and Trademarks in relation to toys	7,494		7,494
NOTE 11: INTELLECTUAL PROPERTY
NON-CURRENT
Intellectual Property	2,273,861
Accumulated Amortisation	(75, 795)
Total Intellectual Property	2,198,066	u,	u.
Intellectual Property acquired as part of the acquisition of Brainytoys, com includes toys, games, and concepts
NOTE 12: INVESTMENTS
NON-CURRENT
Acquisition of Brainytoys.com	$\blacksquare$	ú.	2,187,821
NOTE 13: RECEIVABLES
NON-CURRENT
Loan to Brainytoys.com Pty Ltd		u	25,000
NOTE 14: GOODWILL
NON-CURRENT
Acquisition of Brainytoys.com

The goodwill recorded in the half yearly accounts is \$1,211,729. The Directors have taken the view that the acquisition of Brainytoys.com Pty Ltd is primarily for the intellectual property within Brainytoys.com. The goodwi has therefore been restated in the accounts at 30 June 2005 as intellectual property rather than goodwill on consolidation.

APPENDIX 4E - PRELIMINARY FINAL REPORT

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 NOTE 15: PAYABLES	Notes	Economic Entity		Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
CURRENT
Trade creditors			1,834		1,834
Accrued Expenses		22,525	6,000	22,525	6,000
		22,525	7,834	22,525	7,834
NOTE 16: PROVISIONS
CURRENT
Employee Entitlements		21,997		19,727
NOTE 17: CONTRIBUTED EQUITY
30,289,389 (2004: 13,074,000 pre consolidation $-2,614,800$ post consolidation) fully paid ordinary shares: All shares were consolidated 1 share for every 5 issued on 24 March 2005	19a	8,101,864	3,671,211	8,101,864	3,671,211
		8,101,864	3,671,211	8,101,864	3,671,211
Ordinary shares (a)
At the beginning of the reporting period		3,671,211	3,671,211	3,671,211	3,671,211
Shares issued during the year post consolidation
13,924,599 during October and November 2004		2,088,690		2,088,690
13,750,000 on 24 March 2005		2,750,000		2,750,000
Transaction costs relating to share issues		(408, 037)		(408, 037)
At reporting date		8,101,864	3,671,211	8,101,864	3,671,211
		No.	No.	No.	No.
At the beginning of the reporting period		2,614,800	2,614,800	2,614,800	2,614,800
Shares issued during the year
During October 2004		11,827,266		11,827,266
During November 2004		2,097,333		2,097,333
24 March 2005		13,750,000		13,750,000
At reporting date		30,289,399	2,614,800	30,289,399	2,614,800

(b) Options

At 30 June 2005, there were 10,054,498 (30 June 2004: Nil) un-issued ordinary shares for which options were outstanding.

APPENDIX 4E - PRELIMINARY FINAL REPORT

NOTE 18: RESERVES	Note Economic Entity			Parent Entity
		2005	2004	2005	2004
Capital profits		714,554	714,554	714,554	714,554
The Capital profits reserve represents amount realised from the sale of the company's assets.
NOTE 19: ACCUMULATED LOSSES
Accumulated losses at the beginning of the financial year		(4,214,965)	(4, 156, 929)	(4,214,965)	(4, 156, 929)
Net loss attributable to the members of the parent entity		(740, 305)	(58,036)	(724, 851)	(58,036)
Accumulated losses at the beginning of the financial year		(4,955,270)	(4,214,965)	(4,939,816)	(4,214,965)

NOTE 20: SEGMENT REPORTING

The Company holds investments and operates solely in Australia and has no business divisions.

	NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
NOTE 21: CASH FLOW INFORMATION		Economic Entity		Parent Entity
		2005 \$	2004 \$	2005 \$	2004 \$
(a)	Reconciliation of Cash Flow from Operations with Profit from Ordinary Activities after Income Tax
	Profit from ordinary activities after income tax	(740, 305)	(58,036)	(724, 851)	(58,036)
	Cash flows excluded from profit from ordinary activities attributable to operating activities
	Non-cash flows in profit from ordinary activities
	Depreciation	16,875		16,875
	Amortisation	75,795
	Gain on debt forgiveness	(86, 627)
	Profit on sale of non-current assets		(1,001)		(1,001)
	Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries
	Increase/(decrease) in receivables	(39, 386)	3,270	(64, 385)	3,270
	Increase)/decrease in payables	14,691	(7,610)	14,691	(7,610)
	Increase/(decrease) in provisions	21,996		19,726
	Cash flow from operations	(736, 961)	(63, 377)	(737, 944)	(63, 377)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005
NOTE 21: CASH FLOW INFORMATION	Economic Entity	Parent Entity
Acquisition of Entities (b)
During the year 100% of the controlled entity Brainytoys.com Pty Ltd was acquired. Details of this transaction are:
Purchase consideration	2,187,822
Cash consideration	109,231
Cash outflow/inflow	109.231
Assets and liabilities held at acquisition date:
Property Plant & Equipment	1.571
Receivables	349
Payables	(87,961)
Intellectual Property	2,273,864
	2,187,822

$(c)$

$\mathbf{L}$ Share issue

During the year the company issued 7,190,600 ordinary shares at were issued at \$0.15 and 5,000,000 ordinary shares at \$0.20 and 2,500,000 options exercisable at \$0.25 on or before 30 June 2009 as part of the consideration for the purchase of Brainytoys.com Pty Ltd.

NOTE 22: EMPLOYEE BENEFITS

Employee Share Option Arrangement - Brainytoys Limited has an Employee Share Option Plan, however, at 30 June 2005 no options have been granted to employees.

NOTE 23: EVENTS SUBSEQUENT TO REPORTING DATE

On 21 July 2005, the Company received an offer to acquire all of the unmarketable securities in the Company and notice was subsequently sent to all shareholders with 9,615 shares or less to acquire all of their shareholding.

On 19 August 2005, Mr Ian Allen and Mr Howard Read resigned from the Board. Mr Robert Towner was appointed to the Board on 19 August 2005 and was appointed Chairman on 26 August 2005.

Other Appendix 4E Information

Additional Dividend Information

Details of dividends declared or paid during or subsequent to the end of the financial year are as follows:

Record Date	Payment Date	Type	Amount per Security	Total Dividend	Franked amount per security	Foreign sourced dividend amount per security
N/A

Dividend reinvestment plans

The Company does not operate dividend reinvestment plans

Net Tangible Asset Backing

Net Tangible Asset backing per ordinary share

	2005	2004
	(cents)	(cents)
Net Tangible Asset backing per ordinary share	5.49	1.31

Details of controlled entities acquired or disposed of

The Company acquired Brainytoys.com Pty Ltd during the financial year. The details can be found in the Notes to the Financial Statements.

Details of associates and joint venture entities

The Company does not hold any interests in associated entities or joint venture entities.

Audit

This report is based on financial statements which are in the process of being audited. The Directors have no reason to believe there will be any dispute or qualification of the accounts when audited.

JAY STEPHENSON COMPANY SECRETARY